Nordea Bank Abp

Good morning and welcome to Nordea's second quarter 2025 results presentation. I'm Ilkka Auttala, head of investor relations. Here in Helsinki, I'm joined by our president and CEO, Frank Van Jensen, and our group CFO, Ian Smith. As usual, we'll start with a presentation by Frank, followed by a Q&A session. Please remember to dial into teleconference in order to ask your questions. With that, let's get going. Over to you, Frank.

Good morning. Today we have published our results for the second quarter of 2025. It was a quarter marked by high uncertainty and the most volatile market conditions for some time. Concerns over higher US trade tariffs and increase in geopolitical tensions resulted in significant financial market turmoil. Despite the external pressures, overall sentiment among Nordic households and businesses remained calm, with customer activity increasing in most areas as the quarter progressed. Global trade volatility clearly presents risks. However, we believe the Nordic economies are better positioned than many to manage through periods of turmoil. That advantage is rooted in our region's strong economies and fiscal positions and our globally innovative and competitive businesses. Looking ahead, we expect that lower inflation and interest rates will further support increasing activity levels as confidence returns. In this extraordinary environment, Nordea delivered another strong performance. We grew lending and deposit volumes and increased assets under management. We delivered strong profitability with a return on equity of 16.2%. The result underlines our structural improved profitability and our position as a strong, resilient, market-leading financial services group. It also keeps us firmly on track to meet our full-year guidance. Looking at some of the highlights for Q2. Our return on equity was strong at 16.2% with earnings per share at 35 euro cents. Mortgage lending increased by 6% and retail deposits were up 8%, supported by Norway and Sweden. Corporate lending and deposits also grew significantly, both increasing by 5% year-on-year, as we helped corporates strengthen their liquidity and financial flexibility. Asset management grew by 9% to €437 billion. Total income was resilient in the turbulent markets. As expected, net interest income was lower in the declining interest rate environment, decreasing by 6% year-on-year and by 2% quarter-on-quarter. Net VN commission income was stable year-on-year after being significantly impacted by the financial market turmoil. Net insurance results and net fair value results were also both resilient and broadly stable year-on-year. Operating profit was 1.6 billion euros compared with 1.7 billion a year ago and was stable quarter on quarter. Cost increased by 3%, excluding foreign exchange effects, in line with our plan, with more than half of that increase driven by our strategic investments, including the Norwegian acquisition. The cost-to-income ratio with amortized resolution fees was 46.1%. Our credit and asset quality remain exceptionally strong, with net loan losses again well below long-term expectations. Net loan losses and similar net result amounted to a net reversal of 21 million euros. This quarter, we released a 30-60 million euros from our management judgment buffer, given the lower provisioning requirements and continued strength of our credit portfolio. Our strong capital generation continued At the end of June, our CET1 ratio was 15.6%, which is 1.9 percentage points above the current regulatory requirement. Our 2025 outlook is unchanged, and we are firmly on track to meet our guidance for the full year of a return on equity above 15%. With that summary, let's now take a closer look at the results, starting with the income lines. Our net interest income developed as we expected in line with the lower policy rate environment holding up well with a decrease of 6% from a year ago. This quarter, NII was supported by a higher lending and deposit volumes as well as the contribution from our deposit hedge. The deposit hedge contributed 127 million euros to our income compared with Q2 last year. Compared with Q1 this year, the contribution was 19 million, in line with our guidance. Our net interest margin for the quarter was 1.63%, compared with 1.83% a year ago, with reductions from rate cuts as expected impacting deposit and equity margins. Mortgage lending grew by 6%, driven by strong growth in Sweden, as well as the positive contribution from the recent Norwegian acquisition. We increased corporate lending by 5%. Retail deposit were up 8%, while corporate deposit were up 5%. Net fee and commission income was stable year on year, with growth slowing as a result of the significant financial market turmoil early in the quarter. Brokerage and advisory fee income was lower in the quarter, reflecting lower corporate finance and debt capital markets activity. Card and payments activity was higher, with increased customer transaction volumes during the quarter. Savings fee income was stable year on year, While end-of-period AUM was up, the average AUM was lower due to the market volatility caused by the tariffs. Also, the mix of business with strong performance in lower-margin institutional clients dampened growth. In our Nordic channels, we had net flows of €4.5 billion with continued strong performance in private banking and our life and pension business. Inflows from international institutions were lower following two strong quarters with inflows from larger mandates and our wholesale distribution flows continued to stabilize. Net fair value result was up 3% year-on-year driven by higher customer activity. In a volatile environment, customer demand for our risk management products remained high, especially in foreign exchange and interest rate products. As we guided, we usually peak in Q1, where we saw a real strong result. Q2 was lower and in line with our expectations, with solid customer activity while market making and treasury was impacted by the tariff-related volatility. Costs develop in line with our plan and we're up 4% year-on-year or 3% excluding foreign exchange effects. with more than half of that growth driven by our strategic investments, including the acquisition in Norway. We continued our significant investments in key areas of the business, including technology, our digital capabilities, data and AI, and cybersecurity, which will support our income growth, profitability, and overall resilience. We do not plan to increase investment levels this year and will continue with our usual cost discipline. We therefore expect year-on-year cost growth to slow significantly in the second half of the year. Full-year costs are expected to be no more than 2% to 2.5% higher than last year, assuming end Q4 2024 FX rates. Our cost-to-income ratio was 46.1 for the second quarter. Nordic households and businesses continue to have stable financial positions. That shows in our exceptionally strong credit quality and low credit losses, which remain well below our long-term expectation. For Q2, net loan losses and similar net result amounted to a reversal of €21 million. This quarter, due to lower provisioning requirements, we released a further €60 million from our management judgment buffer. The buffer now stands at €341 million compared with €397 million in Q1. We maintained a strong capital position reinforced by continued robust capital generation. The CET1 ratio stood at 15.6% at the end of the quarter. 1.9% is points above our capital requirement. We have been consistent in our ability to generate capital from profits, supporting lending growth and absorbing or offsetting the impact from our Norwegian acquisition, regulatory changes such as Basel IV and our share buyback programs. Our latest buyback program launched on the 16th of June. We expect this 250 million year program to complete by the end of September 2025 at the latest. Let us then take a look at our business areas. In personal banking, we performed well, delivering solid growth in lending and deposit volumes. Mortgage lending was up 6% year-on-year, driven by both Norway and Sweden. With an exceptionally good performance in June, we further strengthened our position in Sweden, where we also took more share of the mortgage market. The Nordic housing markets are... continuing their gradual recovery after three slow years, though activity overall is still muted. In Q2, demand for loan promises grew once again, which shows there is appetite among our customers for investing in their homes. As confidence returns, we expect the market to pick up further. Retail deposits for the quarter grew by 8% year-on-year in local currencies. Cost of use of our digital channels in Q2 remained high. Mobile users and logins grew by 7% and 6% respectively year on year. Total income decreased by 2%, driven by lower policy rates. The decrease was partly offset by the higher volumes and higher payment, card and savings fee income. In the volatile quarter, personal customers continued to have a high level of investment activity, leading to positive net flows of €0.7 billion in our Nordic retail funds. Return on allocated equity with amortized resolution fees was 18%. The cost-to-income ratio was 51%. In business banking, we also performed well, driving strong growth in deposit and lending volumes. Our lending volume growth of 4% was mainly driven by Sweden and Norway, with indication of higher activity levels among small and medium-sized enterprises. Deposits were up 10% year-on-year in local currencies, with all of our Nordic markets contributing to that growth. Equity markets activity was subdued, however, because of the macroeconomic uncertainty. During the quarter, we continued to improve customer experience in support of our ambition to become the leading digital bank for small and medium-sized enterprises. We made improvements to Nordea Business, our dedicated digital services for our businesses, including by adding a new tool, making it easier for customers to select the right product for their needs. In June, we also began piloting our new business insight service. Once fully available, the service will help Nordic small business customers manage their liquidity and cash flows. Total income for Q2 was down 6% year-on-year, driven by lower net interest income. Net fee and commission income were stable, while net fair and value income was down 1%. Return on allocated equity with amortized resolution fees was 16%, while the cost-to-income ratio was 46%. In large corporates and institutions, we grew lending volumes by 4% year-on-year or 6% when adjusting for foreign exchange effects, supported by a pickup in June. Despite the uncertainty, Nordic businesses are cautiously optimistic, supported by their strong competitive positions in global markets. During the quarter, we were active in helping our customers raise financing. Debt capital markets activity was high and well diversified among both corporate and institutional customers, supported by our leading positions for Nordic corporate bonds and Nordic bonds overall yet to date. The overall market sentiment for equity capital markets and mergers and acquisitions remained challenging, with volatility and uncertainty postponing transactions. At the same time, we led the way in the IPO market, taking part in multiple Nordic IPOs. Total income was down 8%, driven by lower rates. Net fee and commission income was down 2%, driven by continued slow markets in event-driven business. Return on allocated equity was 15%. The cost-to-income ratio was 42%. In asset and wealth management, business momentum remained strong with solid investment performance and continued growth in our private banking business. The development of our private banking business is a key focus in our savings strategy. In Q2, customer activity continued to be strong and we attracted net flows of 2 billion euros in private banking driven by Finland and Sweden. These contributed to solid overall performance in our Nordic channels. Net flows in our international channels were lower after two exceptionally strong quarters, amounting to outflows of €0.4 billion in Q2. Flows in the higher margin wholesale distribution channel continued to stabilize and amounted to €0.2 billion for the quarter. For the year to date, we have had net inflows in our international channels of 3.8 billion euros, which together with the good performance in our Nordic channels meant we had total first half net inflows of 8.1 billion euros. Asset management increased by 9% year-on-year to 437 billion euros, while asset management fees were impacted by the volatility early in the quarter and customers' preference for lower risk and lower margin products. The strong year-to-date performance in international institutions added to the margin pressure as this part of the international channels is lower margin compared to wholesale distribution. Our life insurance and pension business continued to perform well with Q2 net flows of 1.2 billion euros. Gross written premiums amounted to 3 billion euros compared with 2.9 billion a year ago. In Denmark, we were named commercial pension company of the year by EY and Finanswatch. Total income development reflected the lower policy rate environment and lower net fee and commission income, and was down 6% in the quarter. Return on allocated equity was 33%. The cost to income ratio was 43%. In summary, this was not a solid quarter for Noderre, and we remain on track to deliver a return on equity of above 15%, consistent with the target we set three years ago. Our performance so far this year clearly highlights the strength of our well-diversified business model and structurally improved profitability. It also reflects the advantages of operating in the strong and stable Nordic markets, home to globally competitive businesses and a bold entrepreneurial spirit. Few countries are better equipped than our home markets to navigate the current global shifts. We look forward to presenting our strategy for 2026 and beyond at our Capital Markets Day in London on 5th November. We will share the concrete steps we are taking to build on our successful foundation 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 to take questions. And just as a reminder and as a courtesy to others, could you please limit yourselves to one max two questions? Thank you.