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.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Magnus Andersson from ABGSC. Please go ahead.

Yes, hi. Good morning. I have a question. I mean, you keep your guidance of more than 15% ROE for the year, and you also keep your cost guidance. And I think that for most of us, it looks like a close call, especially if rates continue down in NII, where we could end up lower in the second half than in the first half. So I was just wondering if you could get us a feeling for the outlook for the various P&L items for the reminder of the year, as obviously you have you have a plan in place. And secondly, just on a more detailed note, I note that you keep your deposit hedge guidance unchanged for 2025 and 2026 despite the fact that your rate scenario probably has changed. When will we get an updated scenario or is it not as sensitive as we perhaps think it is?

Morning, Magnus. It's Ian here. Thank you for your questions. So I think we finished the first half strongly. We're doing well in markets that are a bit quieter than normal, given some of the market volatility. Activity levels, particularly on the equity and corporate finance side, are lower than normal. and we've seen some volatility. But we finished the quarter and the half here with the business firing on all cylinders. So I think that's a strong start into the second half. Our general sense, though, is that given usual seasonality in Q3 and the market quietness we've seen, we're not expecting to see a pickup in activity in Q3. Customers are generally a bit more cautious, a little more risk off given what they've experienced in the first half of the year. But I think we see momentum building, particularly into Q4. And so if we don't see further shocks or disturbances, I would expect us to finish the year quite strongly. Now, what does that mean in terms of the key line items? On net interest income and the rate environment, I mean, first of all, if we have a look back in Q2, we did get a small benefit from a lower deposit guarantee scheme fee. I think we'll see a similar average policy rate change impact as we saw in Q2. There was about 100 million or so of margin impact there. And we have seen some pressure on lending margins driven by competition, particularly in the corporate space. There is pretty strong, some might even say aggressive competition out there. But we win. We win on the accounts that are important to us. And I think thinner volumes on the household side in the mortgage market mean that the opportunity to expand margins is still, I think, a little bit further in the future. So I think that picture says we will see lower NII. but still resilient, particularly in comparison to our peers. On the fee side, again, despite lower activity levels, I think we posted a good outcome in Q2. We did see there on the saving side, which is particularly important to us, the benefits of semi-annual custody fees, around 10 million that came in Q2. That happens every half year, but it's not a Q3 item. And the seasonality in Q3, I think, will slow things down a little bit. Net fair value, another key line item. We generally have a stronger first half than second half, particularly in Q1. We always think about that one as being worth about a billion a year with the key contribution being fairly stable on the customer side. But then you get the more volatile trading and treasury elements, which is around about... It can be anything from zero to 50 million in a quarter. Certainly don't expect more than that. But, you know, I think a second half... just a little bit smaller than first half. That's the sort of broad shape. And so expectations for the whole year for net fair value, probably around a billion, something like that, give or take. I think what I'm trying to leave you with here is we expect things to strengthen towards the end of the year on the sort of growth and income side. But perhaps... you know, still a slightly quieter quarter in Q3. On the cost side, everything proceeding according to plan. We reiterate our guidance of 2% to 2.5%. We'll always look very closely at costs. And then the other elements that contribute to ROE, really, really good loan loss performance. Credit is exceptionally strong. And we're well provided in that space. And we have a buyback program ongoing. We will stick to our promise of distributing excess capital that we can't deploy in the business. I think all of those moving parts contribute to our confidence that we'll deliver on our above 15%. So a long answer, Magnus, but I hope it captures the key moving parts. And I can certainly Go back to any one of those if you need it. And then on the deposit hedge, we think it's too soon to revise guidance. And so we might come back to that in Q3, depending on how the rate environment evolves and rate expectations. We probably saw slightly higher average rates than expected in Q2, which means that the deposit hedge contribution was slightly smaller. Clearly, when rates move downwards, we'll see the hedge kick in. So no need to revise guidance at the moment. And just in case I wasn't clear, on costs, as I say, reiterating guidance of 2% to 2.5% full year, You know, the Q3 run rate is probably a little bit higher than Q2, say 20, 25 million. But overall, full year, I think consensus is in the right place.

Okay, just two quick follow-ups that impacts RE, obviously. First of all, you reduced your management judgment buffer by 60 million, and you sound very bullish on the underlying asset quality. So, I think it's probably not unreasonable to expect further reductions of that buffer in H2. And secondly, just on capital, how close to your 1.5% management buffer target can you be realistically?

Yeah. So yes, Magnus, we've consistently said that we would expect to either use or release the management judgment buffer. I'm pleased to say we haven't seen any opportunities to use it. So what you've seen so far is releases because of the strength of credit quality. And you're right. We are very confident about the strength of the credit portfolio. So I I reiterate our normal position, which is we use or release. And we see underlying credit conditions as pretty strong. And then on the capital side, I think it's always difficult to be precisely on the line. But we do carry a substantial excess, both to our overall capital requirements but also to the 150 management buffer. So I think we've got a fair bit of flexibility there on buybacks. And we'll judge according to market conditions. At the moment, one of the things I think was a positive feature of the Q2 capital development was we saw some absorption from lending growth. That's a good thing. And it's good that we generate the capital to support that as well as our buybacks. So I think we've got a bit of play in that ratio, even if we don't go all the way down to our management buffer line. So we feel good about, you know, continuing to deliver on our commitments on returning excess capital to shareholders when conditions allow.

Okay. Thank you very much for an extensive answer.

The next question comes from Andreas Hakkensen from SEB. Please go ahead.

Thank you, and hi, everyone. Coming back a little bit to the NII, and I'm looking at your page 18 in the presentation pack where you show the sensitivity to rising or falling interest rates. And I would assume that that is at the current interest rate level. If we assume that rates are going to fall further in basically all four countries in the region, do you see that the sensitivity increases as you go further down? I would think in Denmark you are not paying very much on your deposits at the moment, and we're not actually sure in Finland, but how big would this sensitivity be if we cut another 25-50 basis points? And then also, could you tell us, In Norway, retail and AI started to go down already before interest rates were cut, really. And could you tell us what's driving that? And also in business banking, Denmark, that seems to be quite tough in the quarter.

Thanks. Good morning, Andreas. Yeah, I think the first thing to understand is our sensitivity prescribes a range. And it's exactly for the reason that the rate path is never certain and I think there are sort of equally balanced expectations for cuts or no cuts going forward. Outside Norway, I think there's a pretty strong expectation that there'll be a cut there. So broadly speaking, I don't think we see much reason to change our sensitivity at the moment, but we might be towards the upper end of the range that we talk about there. And then your specific questions on Norway, the NII compression there is... around some of internal items rather than rate cut related. So they've absorbed a slightly higher treasury cost in our business in Norway this year. So nothing related to market out there. And in business banking Denmark, it's a very, very competitive environment. And so, you know, I think there's a bit of margin pressure that we see there, but nothing more than that.

Perfect. And then very quickly, so after you get the change with the Norwegian adjustments in Finland, is the new capital target really 15.5? Is that what we should see in the end of the year?

So first of all, we've seen the decision. We don't agree with the decision. And we're thinking about how we might respond to that. we see clear overlaps between the many macro buffers that we are required to carry and this additional requirement. If it sticks, it, of course, will increase our overall requirement. But then, you know, when we think about the capital trajectory, we sort of factored possibility of that into our thinking um it doesn't change the overall long-term picture in terms of our capacity to to continue generating and distributing capital okay fair enough thank you the next question comes from gulnara site kilova from morgan stanley please go ahead

Hi, good morning, and thank you for taking my questions. My questions are on outlook on capital. So you have mentioned a potentially higher capital requirement on the region's systemic risk buffer coming Q4, how should we think about the remaining capital tailwinds and headwinds for the coming years? How do you expect the organic risk-weighted assets to evolve given that you expect the pickup in activity starting in Q4? And more broadly, when it comes to the longer-dated headwinds and the impact from the output floors, it looks like the potential risk-weighted assets increase could amount to 20%. What levers can Nordea pull in order to mitigate this headwind? And do you think there will be any changes in the regulatory capital requirements or regulatory framework that could potentially help to partly affect the impact? And how should these headwinds, would there be any impact on your capital distribution considering this headwind? Thank you.

Good morning, Gulnara, and thanks for the questions. So I think in terms of the near-term moving parts on capital, we're certainly not aware of anything waiting out there in the wings in terms of new regulatory requirements, anything of that nature. As we've all seen, the the FRTB elements of Basel IV have been pushed out a little further. And, you know, bring back to your attention that we're working very hard on remediating some of the issues that we know we can fix in relation to our retail models. So, you know, we flagged four to six billion of REIA benefits coming through in the next couple of years from that. So, Certainly in terms of outlook on capital requirements in the near term, no particular issues there. And capital is in a really good place. We're in a very strong position. So I think the outlook is relatively stable. Of course, things can change, but for now, relatively stable. On the sort of recent interest in impact of the Basel IV output flora, I think from where we sit, so technically, if you move from IRB risk weights to Basel IV output flora risk weights, that does drive on a pro forma basis on Q1 2025 RIA, as you say, around 30 billion of RIA increases. We don't think of that as a headwind. Two things to think about. First is around a third of that falls away next year because we have in schedule... an enhancement, a technology enhancement that will allow us to pick up the full value of collateral, which currently, because we don't use standardized models, we haven't prioritized, will make that technology change, pick up the value of collateral, feed it into the standardized models. And that theoretical rear inflation is reduced by one third already the remainder of that relates to the risk rate increases of unrated corporates and uh i first of all we have um many uh of our corporate customers out there that have ratings that we currently don't use or pick up so you know we'll um We will ensure that we capture all of the data that is needed to start to deal with that requirement. And then we have time. Over the next few years, I expect that the market will come up with a solution to deal with unrated corporates and will be part of driving that solution. So where we sit today, thinking about the impact of these rules by 2033, We don't think of it as a headwind, and as I've outlined, I think there are a number of things that will happen to reduce that.

And could I just add, it's Frank here, hi. In regards to the Novigin syrup and the reciprocation, it's absolutely no problem to us. It's just annoying. It's 20 basis points around that number, so it doesn't really matter, but it's wrong, as we, in our belief, are clearly double-counting, which should not be the case. And that's why we also that clear says that this we disagree about and, of course, are considering how to tackle it. So it's more a basically a structural question to us or a political question. We need to get this right. But ultimately, absolutely no problem.

And do you think this double counting may be eliminated at some point in the future by the regulator? Or do you think it will be unlikely?

I think that the European system is increasingly aware of that the micro and the macro capital requirement system is not working as effective as it should in Europe. And it's about trust in the system. And there should definitely be a better coordination. And there should be no overlaps, which is not the case at the moment. And I think this is a good example where it's not managed in the way it should. And that we, of course, intend to address, which we have and will continue to do.

Thank you.

The next question comes from Tariq Al-Majjad from BOFA. Please go ahead.

Hi. Good morning, everyone. Thanks for taking my questions. Two quick ones. I will come back on the hedge slide 18. And by the way, very helpful. Thank you very much for this. So on the bottom left chart, we show the quarterly impact from deposit hedge. The incremental or the lower headwind, I would say, from the hedge so far is still very low. I think that we are now well advanced in the rate cut cycle. And my question is, why actually is it taking so long for the hedge to turn positive? And if you can remind us, what was the guidance for 2025 for the hedge contribution as a delta, I guess, year on year? And then the second question, you have your CMD in early November, and I would like to know in which mindset you are and what kind of big thematics or areas you would cover, obviously in at a high level just to understand what mindset you are going into the investor day.

Thank you. Yeah. Good morning, Tarek. If I go with the hedge question, and then I think Frank will handle your question on CMD. I suppose I'm going to be helpful and unhelpful. We've never guided on a sort of precise NII number for obvious reasons, because we see fluctuations in the market. But what I can say is that the hedge contribution is pretty much proceeding as planned. We give, you know, general guidance as to what we expect from the hedge on our slide there. And, you know, we've said before it's probably, you know, net 20 million quarter on quarter in terms of incremental support. I'm not sure what I can add to that. It's performing as planned. And I think we've been pretty clear in our guidance. So, Frank.

I mean, I think for this is more the mechanism of actually, you know, you already had, you know, the rate cuts. I mean, yes, it goes in line with your budget expectations. But in the mechanics, why? I mean, we are having to finish the rate cycle to start to see it turning positive. I mean... And I think I remember last year you were talking about breakeven in the hedge actually earlier than that, if I remember well.

I don't think we ever did. We've been very clear and very consistent on our guidance, Tarek. I think the pace of it is determined by the repricing over time, so the shape of the hedged item. I'm a bit perplexed at the question because we're performing pretty much in line with how we guided. So I guess, look, let's take it offline if there's something I'm not seeing here, but we're on track.

In regards to your question on themes for the coming period, I think we have been sort of like talking about it to some extent up until now in previous calls. So I don't think there will be anything wrong to give a little bit out here on sort of like the themes. It is about building on the very, very strong foundation we have. It is being even stronger in the Nordics. It is about growing our income above markets and evidence where we will do that. It is about making the unique Nordic scale of ours to play a very crucial role. And we do know how to do that. And we'll show you how to do it and what it will do to make it really play a big advantage to us. And then, of course, eventually it is about keeping a market-leading return and delivering a superior EPS growth. And we know what to do. We know how to do it. And look just forward to being able to present it at the Capital Markets Day.

Thank you.

The next question comes from Martin Ekstedt from Handelsbanken. Please go ahead.

Thank you. So could we have an update on the Norwegian business after the integration of the acquisition from Danske? So I looked in your hackbook and I see fee and commission income. in the personal banking segment up 26% year-on-year and 10% quarter-on-quarter, which is quite good. Is this cross-selling dividend revenue synergies kicking in, or am I just over-interpreting Q2 figures there?

Hi, Martin. It's Frank speaking. No, I think you are on the details, right? I would leave it to Ian to just quality check, whether I say something that is not justified. But the sentiment is very positive. So the plan was to take over the portfolio, to dress up the customers with all our services and products instead of just, not just only, but to some part only, do mortgages. And that is happening while we speak. And it's actually developing quite well. We have, at the same time, initiated a sort of like a bit the same exercise on the, the old Nordea mortgage book in Norway, where it's basically about growing the relationship with our clients. And that part is going very well as well. When we look at the, you can say, the business case of the acquisition, we are fully aligned with plan, probably also slightly better. We expect a little bit churn. the customers that only have been choosing the previous owner for price would probably, to some extent, look for alternatives if you go for a price only. But at the end of the day, it is a total relationship and a total income. And that's actually looking very, very nicely. So a better than plan. And if you look at our ancillary and cross-sale, you can say, metrics in Norway, compared to, for example, Sweden, we are much less developed in Norway. So here we clearly have an area in which we believe we can continue to outperform for quite some long time. Did that answer your question?

Yes. Thank you very much for that. Martin, just a couple of follow-up data points there, because I think it's important. I mean, it The sense you get from our people on the ground in Norway is that the new customers are really engaged. And as Frank says, the cross-sales performance is going extremely well. On the year-on-year, up 26%. But that's somewhat masked because the new customers were not there a year ago. But quarter-on-quarter, we're up 10%. And that is two full quarters with these customers. and the fee and commission income up 10%, and I think that shows we're doing a good job.

Agreed. Thank you for that additional clarity. And then secondly, my second question, if I may change tack to Denmark, I just wanted to quickly check, given it's been about a year since this just resurfaced, is there an update on this Danish AML court case that failed to settle about a year ago now? Are you still retaining, I believe it was Euro 98 million or something like that, provisioning for it? Thank you.

Yes. So, first of all, Martin, no change to the provisioning levels. And, you know, there's no requirement to change. We continue to both believe in the strength of our case ourselves. And we have three independent legal opinions that support that position. The court case started in May, and it's going to be a long process. But certainly from the initial discovery and things like that, nothing to change our view on both, first of all, our responsibility in the case, and secondly, as I said, no change in provision requirements.

Understood. And just to clarify, when you say long process, are we talking years or quarters or months?

I think the initial phase is scheduled to take almost a year. So this will continue for a while. Okay. Understood.

Thank you very much.

The next question comes from Namita Santani from Barclays. Please go ahead

and thanks for taking my questions. My first question, just in your 2024 annual report, it says Nordea has 6,628 non-employees, which include consultants. I just wondered what so many consultants were doing at Nordea and what the plans were for these consultants in the future. I appreciate maybe that number's changed since the end of 24. And secondly, What part of your franchise do you see most momentum in right now, and where do you see the most opportunity? Thanks.

Morning, Namita. Yes, on the external employees, as we term them, there's a mixture there. Certainly don't get the impression that there's 6,000 people from the big consultancies. We don't work that way. The vast majority of that relates to outsourced technology functions. So we have partners elsewhere in Europe and the world that undertake technology development and other things for us. So they are classed as these external consultants, if you like, and that's the vast majority of that figure. So now... always a focus on cost and managing that down. But it's certainly not consultants as we tend to think of them.

And the other thing in regards to momentum, we can split it in business areas first, and then we can look at countries. Our asset and wealth management business is having a very good momentum. The key there is private wealth, so private banking. And we are in a very good position, I would say. We are speeding up even faster, even more than we have done before, and are across the countries showing very good progress. When it comes to the inflow within our management, it looks good. Of course, it has been risk-off. There has been quite much turmoil. But when looking at the inflow, it's really strong. I think the inflow for the first half was 8.1 billion euro. So fine in the first difficult year. Our life and pension business doing very, very well. Very solid, very consistent. And we gain market shares. Looking at the business banking, I would say that's a business. Small and mid-sized corporates are quite sort of like muted now in their investment activities. But we're doing very well in Sweden, for example. We did very well in Q2 in Norway. Finland is gaining market shares, but in a very slow market. Denmark is probably losing a little bit market share. But all in all, good growth, 4% up year-on-year in the quarter. And retail. So first, retail. Retail is doing well. And in line with our plans, the mortgage markets are muted. But it's building. And we clearly see consistent increases in the activity level each quarter. Strongest in Sweden, we took after the first five months, as we have not June numbers for the market yet, We were 20-plus percent on the front book market share. Our now back book market share is around 14, so clearly much better than our peers. And Norway and Finland are doing well, a little bit slower in Denmark. Large corporates, I would say, picked up well on the lending side, which was nice to see. We were very active and did well in the debt capital, while the equity side was very slow. So, IPOs, ECM, M&A activity in the Nordics in the quarter was slow. at a very low level, and that was very visible in our figures. So all in all, I would say momentum is building, and I'm very pleased to see that actually lending on the copper side is starting to come in now, which is nice to see. Country-wise, we are very strong in Sweden, and winning market shares are winning for the, what, five, six consecutive years. within mortgages and SMEs, and private banking now is really taking off. So it's a good position. Norway, a good position here in Q2. We are building, and it looks good. Finland, I would say we come from a sort of maintain to a winning culture now, and that's visible, but the market is very slow. But we are actually above our our back book in a number of areas. And Denmark, I would say, doing very well in wealth, doing very well in large corporates, a bit slower on the retail and the SME business, which is items that we work with, and we will bounce back, I think, late the year or early next year. So all in all, I think we are in a good position and firing also lenders. And activity is just very low. And as Ian said in the beginning, Q3, you shouldn't expect any big pickup. It's a vacation. It's slowly building up. There is a risk of focus from customers. But we do see signs that makes us believe that in Q4, it will pass through. And then we will start to see an increased momentum. And we are, on our own side, in a very good shape. Sorry for the long answer.

Thanks very much.

The next question comes from Shrey Srivastava from Citi. Please go ahead.

Hi, and thank you very much for taking my questions. One shorter term and one a bit longer term for me. The first one is just, On the large corporate deposits, particularly in Denmark and Sweden, is this a function of pricing changes, just normal seasonality or something else you see? Just a little bit more color on that would be appreciated. And the second one, we've talked at length previously about utilizing the benefits of sort of pan-Nordic scale. Could you, I mean, if not size of the benefit, could you give a bit more detail on where you see the biggest cost is in such initiatives and where you are in that journey? Thank you.

Morning, Shrey. Yes, on the LC&I deposits, there's an element of seasonality there. We've just come through dividend season. So there's always a bit of. depletion of corporate bank accounts from that. And then we've seen one or two situations where customers have completed acquisitions, and that meant that the money raised that was with us has now been deployed in completing those acquisitions. So those are the two main reasons.

On the Nordic scale benefit, I would say, so first of all, I would say that I would like, but I would prefer waiting to the capital markets day where we can elaborate on the theme. I would say that probably now we have eliminated the complexity and the flip side by being big in four countries. And I think that's visible if you calculate the cost income in their way and don't do what some auto banks do, for example, in Sweden, where they remove the the bank fees or the regulatory fees and put them under basically the profit line and then exclude them from cost income. Then I would say that, of course, there are differences in business mix and so, but we have neutralized the complexity. And now it's about material. So basically showing the benefit by being big and having the scale. And it's very obvious that banking or financial service is a scale business. It has been difficult for us to get out the complexity. We have done that now. We have made the plans. We do know what to do. And we have a number of streams that we're working on, exactly seven streams that we're working on right now, which will bring a significant increased efficiency. And that is among lots of things what we will talk about on the capital market state. But there is a need to say there's absolutely no reasons for all is equal that we will not be the most or at least in top of the efficiency game within the Nordics going forward.

Great. Looking forward to the CMD then.

Fantastic.

Operator, I think we have time for one last question, please.

The next question comes from Nicholas McBean from DNV Carnegie. Please go ahead.

Okay, thanks for getting the last question. So, I just had a follow-up on the helpful elaborations you made, Ian, on the various P&L drivers for the second half. 15% ROE, I guess, seems reasonable, in particular, given that you might get some aid from further release of the management buffer in the second half. But I'm struggling more with the 44% to 46% cost-to-income outlook, given that you were at 46% in the first half, and normally, in the second half, at higher costs, the revenue is unlikely to grow materially, given the rate trends. So just wondering, how confident are you that the cost of income will come in below 46%? And what can you say to help us build confidence in that outlook, please?

So we're always confident that we hit our targets. And clearly things can happen. But certainly our crystal ball for the second half now says that we'll make it. I think that, first of all, were within 46 for the first half of the year, so 45.4. And one thing I think that we need to continue to clarify is we guided at the start of the year that we would expect our costs to accrue a little more evenly. You know, the phasing will be a little bit different. So you won't see... the same pickup towards the end of the year that you've seen in previous years. And part of that is a function of at the end of last year, the second half of 2024, we increased our investment spending substantially. We're maintaining levels this year. So you're not going to see that same pickup, much more evenly accrued costs over the year. And we are within the 46% half year to date.

All right. Thank you. All right. I think we have reached the end of the meeting. So thank you so much for great questions. And as usual, if you have anything that you want to discuss, please reach out to us. Thank you so much and have a nice summer. Thank you.