• July 19, 2017
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Nordea releases Q2 2017 financial results

CEO Casper von Koskull’s comments on the results:

“In the second quarter, we have seen evenly distributed growth in our four Nordic home markets. The overall economic situation remains very solid although the geopolitical environment is increasingly unstable.

After a period of improved margins, we recently saw a stabilising margin trend, which we expect to continue. We are also seeing continued high activity in corporate advisory services and improved inflow in asset management operations. Customer activities in the capital markets have been lower this quarter due to low volatility. We have had very high activity in the quarter in our simplification and transformation projects, which has impacted the cost development. Credit quality is solid and we expect loan losses below the long-term average in coming quarters. We continue to build up and strengthen our capital position and the Common Equity Tier 1 ratio reached an all-time-high level of 19.2%.

As new initiatives have surfaced in Scandinavia about exploring to join the banking union, we would like to process this information before making a final decision in September about our domicile. The transformation programme is progressing according to plan, a key milestone has been reached in the Core Banking Programme, and approximately 28,000 Nordea employees have been engaged in the implementation of the new business culture.”

Second quarter 2017 vs. Second quarter 2016 (Second quarter 2017 vs. First quarter 2017)

• Total operating income 0%, in local currencies 1% (-2%, in local currencies -1%)
• Total expenses 7%, in local currencies 8% (4%, in local currencies 5%)
• Operating profit1 -6%, in local currencies -6% (-8%, in local currencies -8%)
• Common equity tier 1 capital ratio 19.2%, up from 16.8% (up 40 bps from 18.8%)
• Cost/income ratio 54% up from 50% (up 3%-points from 51%)
• Loan loss ratio of 13 bps, down from 15 bps (down 1 bps from 14 bps)
• Return on equity 9.5%, down from 11.4% (down 0.8%-points from 10.3%)
• Diluted EPS EUR 0.18 vs. EUR 0.25 (EUR 0.18 vs. EUR 0.21)

CEO comment

In the second quarter of the year, we have seen evenly distributed growth throughout our four Nordic home markets. The overall economic situation remains very solid although the geopolitical environment is increasingly unstable. However, we are closely monitoring the trends specifically in the Swedish, Norwegian and Danish real estate markets, where we in some areas see price levels that could be unsustainable.

Financial outcome

The operating environment is stable in our home markets. We have in recent quarters managed to improve margins from very low levels, and we currently see a stabilising trend which we expect to continue. Although demand for corporate loans is low, we see a continued high activity level in our corporate advisory services, and Assets under Management is again reaching an all-time-high level of EUR 332bn. Customer activities in the capital markets have been lower this quarter due to low volatility.

There has been a very high activity level in the quarter in our simplification and transformation projects, which has impacted the costs as previously expected. Our decision to front load some investments in compliance activities and group projects, together with expenses related to the domicile review, leads us to now expect costs 3-5% higher in 2017 compared to 2016. We are confident that costs in 2018 will drop to the 2016 level.

Credit quality is solid and loan loss ratio decreased somewhat to 13 bps. Around one third of the total net loan losses in Q2 are related to the oil and offshore portfolio. Our expectation is that loan losses will be below the longterm average of 16 bps in the second half of the year. We continue to build up and strengthen our capital position and the Common Equity Tier 1 ratio increased to 19.2%, compared to 18.8% at the end of the first quarter.

Adding Customer Value

Nordea mobile bank has approximately 40 million log-ins per month. A new mobile bank will be launched in Finland during the second half of 2017 and in the other Nordic countries in 2018. The focus is on more customer friendly solutions allowing easy access and enhanced availability to products and services.

We have recently partnered with the Stockholm FinTech Hub. This follows our recent partnership with Copenhagen FinTech Hub and with The Factory in Oslo, a start-up accelerator.

Through partnering with Estonian start-up Feelingstream, Nordea will be able to respond more quickly to customers and by using Artificial Intelligence (AI) to analyse texts, new opportunities for improving customers services will emerge.

Nordea issued its first-ever Green Bond on June 26. In addition to providing cost-efficient funding, the Green bond issuance is a natural step to manifest Nordea’s heightened ambition level in the sustainability area

Nordea has, as a joint book runner, facilitated the largest convertible bonds issuance in Denmark ever and thus has been an incremental part in opening up this alternative for our customers to finance growth.

Nordea Simplification work received the IT Innovation Award 2017 by Retail Banker International. The award recognised the extent of transformation that we have undertaken.

Risk and compliance

It has been a continued development in processes and capabilities to prevent financial crime. We are determined to handle financial crime risks in a reliable, responsible and effective way, thus making us an even safer choice for customers. The Financial Crime Change Programme (FCCP) Transition Plan, approved by the Board of Directors, aims to lead Nordea to a 2020 target state with fully implemented end-to-end solutions for sustainable antifinancial crime activity in the entire group.

Nordea business transformation

Our transformation programme which aims to free-up resources is progressing according to plan.

A key milestone has been reached in the Core Banking Programme (CBP) with the completion of a successful customer data upload (approx. 3.8 million Finnish household customer records) to the new Nordic core banking platform and a key software release to the production environment which will enable Nordea to launch the new deposits and savings product portfolio in Finland.

We recently launched a Nordea-wide competitiveness improvement effort which aims to support the overall strategic transformation of the bank with a coherent, transparent and sustainable common approach to efficiency and productivity gains. To get where we need to be, we are working towards becoming an efficient end-to-end digital organisation, operating with common processes, products, systems and with a shared culture and passion for customers and our long-term relationships. This will address the cost situation in the bank and we plan to communicate further information in the Q3 2017 report.

The implementation of a new business culture is developing well. We have for instance had 820
engagement sessions including approximately 28,000 employees discussing our culture from cross-functional perspectives and a leadership forum focused on the synergies between business and human transformation.

Nordea domicile

Nordea has during the spring reviewed where the headquarters should be domiciled to best secure a fair, stable and predictable regulatory environment on par with our European peers. As a multinational bank, operating in open economies, we view the banking union to be the single most important factor. As new initiatives have surfaced in Scandinavia about exploring to join the banking union, we would like to process this information before making a final decision in September.

Casper von Koskull
President and Group CEO

Re-disseminated by The Asian Banker