Nordea Bank Abp

Good morning and welcome to Nordea's first quarter 2025 results presentation. I'm Ilkka Ottola, head of investor relations. As usual, we'll start with the presentation by CEO Frank Vangjensen, followed by a Q&A session with Frank and CFO Ian Smith. Please remember to dial in to the teleconference to ask questions. With that, Frank, the stage is yours.

Good morning. Today we have published our results for the first quarter of 2025. Despite the significant uncertainty that impacted the first quarter and has further escalated in the recent weeks, Nordea performed well, delivering growth in business volumes and continued high profitability. Return on equity was 15.7%, consistent with our financial target set three years ago. Our results for the quarter reinforce the fact that Nordea is strong, resilient and predictable. And that feels all the more important in the present environment. The uncertainty and volatility are affecting all parts of the world, including the Nordic countries. However, I wanted to remind you that there are few countries better equipped than our home markets to navigate the shifts we are seeing today. Our region has long stood out for its fiscal strength, highly competitive business environment, globally successful businesses and strong entrepreneurship, shaped by centuries of trade and commerce. Public finances are in good shape and we also benefit from significant social safety nets and structurally lower unemployment rates. Nordic households have healthy financial positions and our region's large enterprises are generally well positioned, prudently funded and adequately capitalized. The strengths of Nordic businesses lie in their agility and focus on superb product and service quality, innovation and a no-nonsense execution. This approach, deeply rooted in the Nordic DNA, has not only helped them outperform global peers over the past two decades, but also enabled them to establish successful partnerships and scale their growth internationally. While trade barriers are of course unhelpful, our view is that the Nordic economies face lower risks from US tariffs than many other regions. Total goods exports as a percentage of GDP is much lower for the Nordics compared with the European average. Furthermore, the proportion of these goods exported to the US is limited. We also sense that European and Nordic governments are responding to the tariffs in a balanced and appropriate way. In the present environment, many of our customers have understandable chosen to retain financial flexibility with households focusing on savings and corporate strengthening their balance sheets. Still, we continue to see lower inflation and interest rates, which should support higher lending and investment activity when confidence returns. Nordea itself is very well placed to support our customers through this uncertain and volatile cycle. In a very practical sense, we do that by listening to their needs, providing advice and our wide range of products, services and solutions. At the same time, we do that by using our significant strengths as a region's leading financial institution. We have a very well diversified business model that serves the group well in both favorable and challenging economic conditions. Our income is meanwhile spread across our four Nordic markets, reducing our exposure to any single economy. We are the only truly pan-Nordic bank and we manage our loan portfolio prudently, balancing it across various sectors and maintain sound credit policies. With Nordea, you don't only get exposure to the Nordic countries, but you get exposure to the best parts of the Nordics. As such, we are entering this new and evolving environment in a position of strength, with a sound approach to risk management, a strong franchise and an excellent financial shape. Our first quarter results demonstrate our continued good performance. Looking at some of the highlights for Q1. Total income was down 4% year-on-year, driven by lower interest rates. Compared with Q4, income grew by 1%. Net interest income continued to show resilience, decreasing by 6% year-on-year and by 1% quarter-on-quarter. with the impact of policy rates reductions mitigated by our deposit hedge and supported by deposit and lending growth and disciplined pricing. Net fee and commission income grew by 4% year-on-year. This was driven by higher net income from savings, payments and cards and brokerage and advisory, while net insurance results and net fair value results were both solid. Operating profit was down 9% from a year ago, though up 10% quarter on quarter at 1.6 billion euros. Return on equity was 15.7%, reflecting resilience and continuous high performance. Mortgage lending volumes increased by 6%, while retail deposits were up 7%, supported by a recent acquisition of Danske Bank's Norwegian personal customer and private banking business. Corporate lending was stable year-on-year, and corporate deposits grew by 11%. Asset management grew by 9% year-on-year to 425 billion euros. Costs increased by 5%, of which 4 percentage points were driven by our strategic investments. Costs are stabilizing in line with our expectations. Our cost-to-income ratio with amortized resolution fees was 44.6%, well within our target range of 44 to 46%. Our credit and asset quality remain strong. After a €20 million lease from the management adjustment buffer, net loan losses and similar net result amounted to €13 million or one basis points. This is well below Nordea's long-term expectation. We continued to generate capital at a good rate. We ended the period with our CT1 ratio at 15.7%, which is two percentage points above the current regulatory requirement. Our guidance for 2025 is unchanged. We remain on track to deliver a return on equity of above 15% for the full year. With that summary, let's now take a closer look at the results starting with the income lines. Our net interest income showed continued resilience amounting to 1.8 billion euros for the quarter. This represented a year-on-year decrease which, as expected, was a result of lower deposit margins in the current rate environment. Still, Our largest income line held up well. The higher business volumes and disciplined pricing supported this. We also recorded a positive deposit hedge contribution of 50 million euros and 121 million euros compared to the Q4 2024 and Q1 2024 respectively. This is the aim of our deposit hedging strategy to provide support to our NII as rates decline. And it is having the intended effect, making us significantly more resilient and less volatile than our Nordic peers. Our net interest margin for the quarter was 1.70% compared with 1.83% a year ago. Mortgage lending and deposit volumes were up, although they remained muted. With further signs of a gradual recovery, mortgage lending grew by 6%, mainly due to the Norwegian acquisition. Excluding the acquisition, mortgage lending was stable year on year. Corporate lending was also stable. Many customers are in a wait-and-see mode and looking to maintain financial flexibility, which consequently meant that deposit growth was strong. Retail deposits were up 7% and corporate deposits were up 11%. Net fee and commission income grew by 4% year-on-year. The increase was driven by higher savings income as customers continued to sign up for our savings and investment products. Card and payments activity was also higher during the quarter, as was brokerage and advisory fee income, which increased due to higher debt, capital markets activity, particularly in business banking. Growth was, however, limited by overall slow markets activity during the quarter. Savings-fee income was supported by higher assets under management up 9% year-on-year to 425 billion euros. Net flows were strongly positive at 6.6 billion euros. In Nordic Channels, net flows were 2.7 billion euros following the continued good performance in private banking and our life and pension business. After successive quarters with negative flows in our international channels, momentum shifted at the end of the last year. And in Q1, we had positive net flows of 3.9 billion euros driven by several large new mandates. Importantly, within our international channels, we also saw wholesale distribution, net flow showing signs of stabilization, particularly towards the end of the quarter. Net fair value result was down 1% on year, but up 44% quarter on quarter. Cost of demand for our risk management products remained high, particularly in foreign exchange and interest rate products. Market making was strong, driven by high activity across desks and positive revaluations of position from spread tightening. Threshold was stable, while otter was negative, impacted by valuation adjustments, which were driven by market volatility. Costs are stabilizing in line with our plan, and we're up 5% year-on-year. The increase was driven by our strategic investments, 4 percentage points to be exact, including running costs for the recent Norwegian acquisition. Salary increases and higher business activity accounted for a small part of the increase. We are continuing to make investments in areas such as technology, data and AI, digital services and cybersecurity. And they are also running costs for the recent Norwegian acquisition. These investments will support income and profit growth and help us to build a stronger and even more resilient financial services group. They are also key to unlocking the benefit of our unique Nordic scale, enabling us to further improve customer experience, drive business growth and increase efficiency. As guided, our investment levels have leveled off after peaking during the second half of last year. For the full year 2025, we continue to anticipate modest cost growth of about 2 to 2.5%, assuming constant FX rates. In the first quarter, our cost-to-income ratio with amortized resolution fees was 44.6%, within our target range of 44 to 46%. Nordic households and businesses are maintaining stable financial positions, and that is apparent in our strong credit quality and low credit losses. Individual provisions were low, and we released a further €20 million from our management judgment buffer. It's good to have additional reserves in the current environment, but we have been very clear that provisions will be used or released and we do not expect them to be here in a couple of years. Q1 net loan losses and similar net results remained well below the long-term average at 13 million euros or one basis points. Our management judgment buffer now stands at 397 million euros in local currencies compared with 414 million in Q4. Our capital position continues to be strong, among the strongest in Europe. During Q1, our strong capital generation offset the impact of the share-by-bank reduction and regulatory updates, including Basel IV. The CET1 ratio stood at 15.7%. At the end of the quarter, two percentage points above our capital requirement. Turning to our business areas, in personal banking, we generated solid business volumes supported by higher customer activity. In Q1, customers increased their savings activity, especially in investment funds, pensions and recurring savings. Deposit volumes were up 6% year on year in local currencies. Mortgage lending grew by 6%, including our acquisition of Danske Bank's personal banking business in Norway. Excluding the acquisition, mortgage lending was stable. Our new customers in Norway are settling in well, and we are actively developing these new relations through our digital channels and advisors. In recent quarters, the Nordic housing market has been slowly starting to recover after a few subdued years. That continued in Q1, with demand for loan promises again increasing year on year. With household budget pressures easing, supported by lower inflation and salary increases and house prices up, the financial conditions for increasing transactions are in place. What's still missing from this equation is confidence. And when that returns, we believe solid growth will be back on the agenda. Customers' use of our digital channels remained high, with mobile users and logins both growing by 7% and 8% respectively, year on year. Total income remained resilient, decreasing by only 2% due to lower policy rates. The decrease was partly offset by higher income from savings, payments and cards. Return on allocated equity was 17%, down slightly from a year earlier. The cost to income ratio was 51%. In business banking, we performed well, delivering growth in both deposits and lending volumes, even if the overall environment remained slow. Deposits increased by 6% year-on-year in local currencies, driven by all countries. Lending volumes were up 1%, with the increase driven by Sweden and Finland. During the quarter, we continued to facilitate bond financing for an increasing number of customers. In Sweden, we have been seeing the fruits of our strategic initiative we launched five years ago to strengthen customer experience, grow our business and gain market share. The success of our efforts is also reflected in the latest annual survey by Prospero that recognized industry benchmark for customer satisfaction. We ranked first in Sweden for both small and mid-sized corporates, receiving the highest scores in all 10 categories in both segments. Total income for Q1 was down 4% year-on-year, driven by lower net interest income. This was partly offset by higher net fee and commission income and higher net result from items at fair value. Return on allocated equity with amortized resolution fees was 16%, while the cost-to-income ratio was 43%. In large corporate institutions, customer activity was high in some areas, though weaker in others, such as equity capital markets. The lower rates also negatively impacted our net interest income. Given the high uncertainty and volatility, we experienced high customer demand for our risk management and hedging solutions. Customers also prioritized building strong liquidity positions in the quarter, partly due to upcoming dividend payments. This was visible in a 17% year-on-year increase in deposit volumes. However, demand for bank lending remained slow in the muted overall market and our lending volumes decreased by 1% year on year. Instead, customers continued to favor bond markets for raising money in the lower interest rate environment. Debt capital markets activity was high among both our corporate and institutional customers. The strong start to the year was supported by our leading positions for Nordic corporate bonds and Nordic bonds overall in the year to date. Conditions were more challenging in the equity capital markets and mergers and acquisitions where the high uncertainty affected deal making. Nordic activity in this segment was about half what it was a year ago, leading to lower fees. Total income was also down 3% due to lower rates, while return on allocated equity was 18% compared with 19% a year ago. The cost-to-income ratio was 38%. In asset and wealth management, we increased income supported by continued good momentum in our private banking business, where we welcomed new customers and grew in all our home markets. We secured Nordic net flows of 2.7 billion euros despite seasonal tax and dividend payments in the quarter. Sweden and Norway were the main contributors. The increase reflected effective business execution and a higher level of confidence among clients in the early part of the year. In our international challenge, we had strong positive flows for the second quarter in row. Total net flows amounted to 3.9 billion euros and were driven by the institutional segment. Here, we have built some good momentum and onboarded several large mandates supported by our strong track record in sustainable investment strategies. Towards the end of the quarter, we were encouraged to see improved flows in the higher margin wholesale distribution channel. Asset under management increased by 9% year-on-year to 425 billion euros. Our life insurance and pension business started the year well with net flows of 1.1 billion euros. Gross written premiums amounted to 3.7 billion euros compared with 3.1 billion a year ago. Total income was up 1% driven by higher net fee and commission income. Return on allocated equity was 37% compared with 38% a year ago. The cost-to-income ratio was 42% compared with 40%. In summary, this was a solid quarter for Nordea. We remain on track to deliver a return on equity of above 15% for the full year. However, we should acknowledge the very high uncertainty when it comes to the global economic outlook and interest rates. In the short term, there is no doubt this will bring increased volatility and dampen growth. Our focus is in this environment will be the same as always, staying close to our customers. And we will do so with the confidence of a financial service group that is both in strong shape and operating in a region uniquely positioned to adapt to global changes. As this is the final year of our current strategy period, we look forward to presenting our strategy for 2026 and beyond at our Capital Markets Day in London on 5th November. There, we will share the concrete steps we are taking to build on our successful recipe with continued focus on our four home markets. This will enable us to outgrow the market, continue delivering market-leading return on equity, and achieve superior earnings per share growth. Thank you.

Operator, we're now ready for questions.