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Executives

Rodney Alfvén - Head, IR

Christian Clausen - President & CEO

Torsten Hagen Jørgensen - CFO

Ari Kaperi - CRO

Analysts

Omer Keenan - Deutsche Bank

Håkon Fure - DNB

Chintan Joshi - Nomura

Alvaro Serrano - Morgan Stanley

Nick Davey - UBS

Sofie Peterzéns - JPMorgan

Per Gronborg - Danske Markets

Riccardo Rovere - Mediobanca

Jan Wolter - Credit Suisse

Jacob Kruse -Autonomous Research

Christoffer Rosquist - Barclays

Magnus Andersson - ABG

Nordea Bank AB ADR (OTCPK:NRBAY) Q4 2013 Earnings Call January 29, 2014 8:30 AM ET

Operator

Good day and welcome to the Fourth Quarter Report 2013 International Telephone Conference. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Rodney Alfvén, Head of IR. Please go ahead, sir.

Rodney Alfvén

Thank you very much. Yes, welcome to this telephone conference. We will start with a short introduction by President and Group CEO Christian Clausen and then we are prepared to take questions. And with me here in the room we also have CFO Torsten Hagen Jørgensen and Chief Risk Officer Ari Kaperi. So please, Christian.

Christian Clausen

Yes, hello, everyone, I will not go through any slides, just give a short introductory remark. We have given out a report which shows a very stable result with a small uptake in our operating profit and we reiterate that we are following our plan, which we launched last year to develop the future relationship bank. And let me just give a few comments on that.

As you read, what we are doing, we are changing the bank in three dimensions, we are changing the balance sheet with more capital, liquidity and funding. We are changing the machine room of the bank to make it more efficient and to accommodate all the many 48 big regulations which are hitting us. And we are also changing the machine room to become more efficient. We still have the big part of the bank which is handling manual papers and transactions. And then we are changing our distribution mainly because our customers are changing behavior. They are using the bank more in much more digital way than a physical way. And therefore, we are changing the distribution towards the digital channels and away from the manual channels.

Now, all of this is moving ahead according to plan, it's actually going on for some years, and we have specific plans to do all these things. We often discuss capital, liquidity and funding, so I will not say more about this now. We have developed our per capita ratio and doing well there.

We also developed our machine room in very good way, but in general we have also executed very well on our cost program we launched last year, which was designed exactly to make the bank more efficient. Even I now call it a cost program, but it was actually launched as an efficiency program, because what we are really doing is making the bank more efficient by ensuring that we have less manual processes, we get more automated, we get more efficient, we outsource more. We do all sorts of things.

And that journey we will continue and in this environment we have set the target even higher because in this environment we have low loan demand and lower customer activities and we also have low interest rates. So it is actually a very good environment to take the next steps. We had less activity in the bank so we need less manual resources. On the other hand we need more digital resources.

So that's the reason for the announcement today that we will increase the efficiency program in the coming years to deliver even bigger cost savings but in reality it will also deliver a more efficient bank.

So we're still on track in developing the future relationship bank which has a very strong balance sheet, which is more efficient in the machine room, which is more efficient in the customer interactions over the digital channels and will rely less on manual work and paper. That's really the change we are doing.

Now the announcement today is of course one where we also maybe lower the expectations a little bit on our future growth at least for this year. It is clear as economic growth we see in Europe and in our market area is fragile. It's not dominated by big open investments creating jobs, creating demand and consumption, creating more demand and more investments and more jobs. It is another type of expansion of the economy which is very slow. It's not very big and it's characterized by consumers consuming a little more of funds they already have. So they don't borrow that much more and companies holding back on investments and if then they actually no -- typically do it in not in the Nordic area, but is Asia or wherever.

So all in all we have a low activity environment and of course efficiency program will also help us delivering on our plan when revenues grow at a somewhat smaller pace than we have seen.

Now the plan combines maybe even looks better than the one we launched last year because now we have a different mix. Now have lower cost and a low income growth. Last year, we had slower cost growth and some top-line growth.

Now I got the question from journalist today, what happens if you see more growth and more lending growth and more demand. I say we will all clap our hands because our machine is of course fully ready to cope with more transactions, more lending demand and lower and lower -- and high interest rates. So obviously this would be positive for us and we would be happy to see that happen. It would be good for our customers and good for us.

Unfortunately that's not our main scenario. We think the situation as that is one unfortunately can prevail for some time. For long period of time we use that word. That's the word central bankers use when they don't know how long things will last. So we use the same wording. But at least for this year, next year, that's all (inaudible).

So that was my introductory remarks. And now we will open up for questions and answers. So operator, if you please could lead us through this.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And we will take our first question from Omer Keenan in Deutsche Bank. Please go ahead.

Omer Keenan - Deutsche Bank

Good afternoon. Thanks very much for taking the questions. I've just got two questions please. Just one on revenues and then just one ROE question. The first revenue question, it sounds like the low interest rate environment and sluggish loan volumes is making you a little more downbeat from where revenue progression can go from here. I was wondering if could just give us a bit more clarity on what your assumptions are for total revenue growth. It sounds like volume growth you are expecting just 2% year-on-year. But I guess in the past you have been more bullish on the prospect for savings related fees and those might show better development. So could you just sort of give us kind of picture of how you see revenues -- total revenues? I think just have an ROE question. Thank you.

Christian Clausen

Yes. It’s true that we on the outlook you can say we have the firm view on the drivers. Formerly, we had quite a strong revenue driver related to the expected volume that we're picking of somewhat and we expect that repricing to be able to continue at some speed and we had certain assumptions around rates flattening out and potentially increasing somewhat during the period.

So now here you can say we have fully taking away any rate expectations. We have even lowered slightly our -- the repricing potential that we have based it on volume of around 2% and we have based it on ancillary income potentially increasing somewhat more.

So the most I think specific guidance we can give is that total income or total revenues would be in the -- we are planning with a magnitude of around 2% annually which is somewhat down compared to the revenue guidance we gave as might be last year. But we also have to say that this is of course what we are planning for so that is part of the plan as a question how to describe that. We are now relying more on cost as a driver of the profit in the period that's before and of course we are tailoring the efficiency program show that if growth or rates or whatever should pickup more than expected or planned for then of course we will be able to take advantage of the outcome. So I see now a potentially higher level of robustness in the plan of getting to 13% ROE in 2015 that we presented last year.

Omer Keenan - Deutsche Bank

My second question just on ROE, if I extrapolate the revenue growth and your message around cost, it seems to be kind of indicating a level of net profit in 2015 of around €3.8 billion. In terms of the ROE target of 13% it feels right your absolute shareholders equity can't increase it's all from here if you're going to meet the 13% ROE target. How should I square I guess the kind of the circle? Is 13% ROE still the 2015 target or is medium term further up in 2015? Thank you.

Christian Clausen

Well I think the ROE target is still around 13% in 2015 and I think the last element you're missing in the equation is of course the payout ratio, which we're still working and that would have always that it is said to increase in two years.

Operator

Thank you. And we will take our next question from Matti Ahokas in Danske Bank. Please go ahead.

Unidentified Analyst

Yes, good afternoon, its (inaudible) here from Danske Bank. Two questions if I may. First regarding the Norwegian business. You guys have had quite a significant volume decline even with the adjusting for the currencies 16% risk weighted asset reduction year-on-year. I like to hear some of your thoughts about volume growth in Norway going forward and is this more of a structural thing or a partial kind of cyclical factor and/or have you chosen not to participate in business?

This next question is on the shipping side. I see that you released some of the provisions in Q4, but were these mainly individuals or collective provisions, and if you could give me a breakdown on that? Thanks a lot.

Christian Clausen

I should start on the Norwegian side I mean. I think that not looking ahead to start with but looking on the Q4 I think we had a relatively good momentum in Norway. Actually that was one of their aspect, we had relatively good volume development compared to all the markets. We are not, as we've said before, we're not that occupied with market shares and I still think that we have also indicated that Norway and Finland is -- are some of the countries where we do expect to see some potential going forward.

Torsten Hagen Jørgensen

I can take shipping question. We didn't release any collective provisions in shipping in Q4. We didn't -- we discontinued to build those up however so that then the collective provision in shipping were unchanged. We have done with around €10 million of individual provisions in the shipping and maybe those by some reversals of the earlier made provisions well individual provisions. And then that is now quite characteristics how we see also the shipping loss outlook before this year so that there are still some individual needs for booking limited amount on new provisions but they seem to be offset by recoveries reversals from the earlier made provisions and there tends to be more and more liquidity and appetite for shipping assets in the marketplace. And our experience is that when we sell off these credits or exit them then that will trigger some recoveries from our provisions showing that our provisioning level has been satisfactory in the previous years.

Unidentified Analyst

How much of the €246 million allowances is collective allowances in the shipping portfolio?

Torsten Hagen Jørgensen

Currently we have around €70 million collective provisions in shipping.

Operator

Thank you. And we will take our next question from Håkon Fure in DNB. Please go ahead.

Håkon Fure - DNB

Yes, hi, good afternoon, two questions from me on the cost side. Firstly, you mentioned IT restructuring costs in Q4. Could you detail how much this was? And then secondly on the cost program I'm trying to understand why -- why the cost program is €900 million and not €800 million or €1 billion. Is this a result of a detail plan or is it rather a result of your new and more subdued revenue outlook? Thanks.

Christian Clausen

Yes that's two we're mentioning restructuring cost in Q4 in the level of €30 million. And with regard to the cost program, yes, of course we could have arrived at another number. But this is actually quite a bottom up and detailed exercise and it's very much done you can say in extension of the program that have been running now quite a while. So we have earned a number of experiences around the program.

We know what's very well and what's less we've discussed during the last year how to improve the program and we had some good progress. So it's based on prolonging the more or less the existing initiatives expanding some, accelerating some, and based on this exercise we've of course evaluated any potential risk return measures for each of the initiatives and balance that way around.

So you can argue if it would have been a different number but this is the number we've arrived at with a number of reservations and developing you can say during 2013. And that's also why we from an execution point of view relatively comfortable with being able to execute on this program and having a good understanding of the risk and the mitigating actions needed for certain of these initiatives.

Christian Clausen

I think it's important to note that this is not something new. We've been working on this for quite some and it's specifically very structured way since one, one-and-a-half year ago. So we are building on key experience and we know what works and what doesn't work and where the big levers are and how to certainly make it more efficient. So I think we have a really good grip of this. I was asked today by a competitor with regard to the 900. I said it was a business secret, so don't tell anybody.

Håkon Fure - DNB

Yes. And then just finally you state that you'll get more details later in 2014, any indication as to when?

Christian Clausen

I think it will be as part of our Q2 reporting.

Operator

Thank you. Our next question comes from Chintan Joshi in Nomura. Please go ahead.

Chintan Joshi - Nomura

Hi. I've got one question on cost, one on NII, and one on revenue. On cost, this morning you said you needed time to decide on the restructuring charge you need to take for this cost program. But just now we were discussing cost, you mentioned you've already done quite a detailed exercise. So just wanted to get a sense of like when will we know the restructuring charge which this additional program needs in 2014 and what kind of magnitude are we talking about? May be you can put a cap on it if you don't want to guide us at this stage and I've got two more.

Torsten Hagen Jørgensen

I think we will also be ready to communicate more about the restructuring charge in connection with the Q2 reporting and we are not ready to guide through on the number. But I said we're working heavily on the huge IT insourcing projects. We are working with quite significant off-shoring which has certain transition cost related to it and we are on the (inaudible) side that making quite big transformation. So there will be a restructuring charge of a certain size, but we are not ready to guide further at this moment.

Chintan Joshi - Nomura

Okay. And the decision to expand the cost program was taken recently or when did this happen, just to understand the timeline?

Torsten Hagen Jørgensen

But I don't think we can say that it has happened at one particular date. It has --

Chintan Joshi - Nomura

Evolved over time, okay.

Torsten Hagen Jørgensen

We did (inaudible) especially in the last two quarters of 2013.

Chintan Joshi - Nomura

Okay. Moving on to net interest income, if I look at retail banking quarter on quarter development then Finland seems to be the only place where you seem to have momentum. So just wanted to check kind of how we should expect margins to develop, and in particular if you could touch up on Sweden there is it just the confirmation of the 25% risk rates that you are waiting for to expand margins in Sweden or is there anything as that might decide when you choose to expand margins?

Torsten Hagen Jørgensen

I think that in general, I think we have modest volume improvement and margin improvements normally from the -- on the corporate side being basically goes to Norway, Finland and Sweden, but in that order and Denmark struggling somewhat more. I think also looking ahead, as we have indicated before, we do see Finland, Holland, Norway, Sweden, and then Denmark still being a little a question mark on the momentum being the order also of the, from a country dimension where we do expect some future momentum. And with regard to Sweden, I think that if we will see an increase of the market risk rate 25%, I think (inaudible) we will look for an opportunity to reprice one way or another, and so that is of course a opportunity.

Chintan Joshi - Nomura

But is it that you feel that the government won't do it, is that why you are waiting? The proposal has been put forward with a intention to bring the change about. So I'm just wondering why is there this uncertainty that it won't happen, which is what makes me wonder if it something else that you are waiting for.

Torsten Hagen Jørgensen

No, I think that, I mean, they have clearly stated that mortgage risk weight increased is equal to 25% should be seen in context of a macro potential move as they were also relating these to need then for a lower (inaudible). So I do think that that from a regulatory view point then, then increased mortgage risk weight we have to be followed potentially by higher margins however, we have also seen that a increased margin on increased mortgages can be done into some ways one more explicit than others and I think we have seen that one needs to be a little careful on doing it too (inaudible) but that will be an opportunistic situation anyway I believe.

Chintan Joshi - Nomura

A final question on revenue growth. If I -- I mean, we were discussing the 2% growth that you expect over the next couple of years. That leaves you materially lighter than very consensus right now. Just looking at Bloomberg feels like that will be a $450 million difference between a 2% growth rate and what consensus has and that doesn’t get offset by cost. So I'm just wondering whether like how have you kind of thought about this 2% number and where is that we are expecting more revenue growth which doesn't seem to be coming?

Torsten Hagen Jørgensen

No, but I think first of all I mean we are guiding on round numbers of course but, as I said, where we do see some potential on the revenue side is that we have had very strong growth in on commission income now for quite a long period and we have no reason for why that should not continue. The competition might change somewhat. We do also regard the current levels of the last quarters of levels of trading related income to be somewhat below normal. Now exactly when it normalizes of course is an uncertainty factor. And then as I said, we do have, we do have acceptable levels of lending already now in the household business and we do expect on the corporate side that there will be a pickup at some point in time. So I think that there different levers in place and there are more as the same we have described before. But we are reducing them somewhat compared to the level of this (inaudible) compared to it.

Chintan Joshi - Nomura

Okay, I mean, still seems a little bit inconsistent with 2% is there are these many levers but I guess we'll see other things turn up.

Christian Clausen

But come on, we are not guiding you for 2%. You have to calculate what you think the revenue will be. Torsten said we are planning internally for sort of 2%. We think we can lower that we said one year ago. That is up to you to make your own judgment here. What we are guiding for is 5% lower costs. We are giving guideline on capital. We are not precise in dividend. We're saying its going to increase. It's up to you to make the income. We think volumes will grow lower by 2%. What markets will do, that we all have the same problem. When interest rates go lower, margin will go lower, interest stay, margin might go up somewhat as we repriced and then we have ancillary income. To make these judgments right now is super difficult. There are so many dynamics going on. So the only precise guidance we give is on cost which is in writing that we guide you 5% down on cost.

Operator

Thank you. Our next question comes from Alvaro Serrano in Morgan Stanley. Please go ahead.

Alvaro Serrano - Morgan Stanley

Hi. Thank you for taking my question. You touched on it already but I just wanted to -- clarification, when you said earlier that one of my colleagues didn’t take into account the dividend payout for to get to that 13% ROE target. It seems like the payout this morning you mentioned that it would steadily go up. But it seems if you are going to get to 13% with the figures we discussed on revenues and costs and if you get to that 16 basis points that it could be a mid-cycle or at least a level to achieve. It seems like payout -- you should get materially increased maybe north of 75 or even closer to 100. And it doesn’t seem like the regulator is something that they would feel comfortable with. Are you assuming at some point maybe after the elections or when 15 maybe that you're able to be more aggressive in managing your capital to stay around that 14%, 14.5%?

Torsten Hagen Jørgensen

I think in continuation of what Christian said before I think we should be careful not become too speculative. The reason why we are guiding the way we are on capital is that there are still -- that are on the regulatory side we do still see some uncertainty and we don’t want to be too fishy before we can close that uncertainty before we can guide any more specifically.

And on the outlook, as we have disclosed, we are planning for somewhat lower but we don’t know. And that of course also means that the level of capital needed going forward the next four years will of course be very dependent on the -- our volume expectations and our volume assumptions. And we might be positively surprised in the way the volume increases more then the equation would look slightly different then we would have higher income growth and we are talking about now more slightly and then we will have somewhat higher need for capital and we are talking about now.

So this is of course, we are in a situation where we are -- when we are giving down to this low-single digit number then of course its quite sensitive for higher number. What we -- as we open the meeting with we think we have created in our plan that having higher upside potential than or higher robustness than we did before the planning.

Christian Clausen

If I just may add also technical detail, I mean as you know we report a total equity around €29 billion end of 2013 and then you also as the same time that we will end up with €29 billion or the same at the end of '15. But please remember that the €29 billion, you need to deduct the €1.5 billion of proposed dividend, so the starting point is not €29 billion, is €27.5 billion, just to make it clear.

Alvaro Serrano - Morgan Stanley

And just a general question related to the results more to the concerns from the FSA on household debts and the increasing risk rates. Have you heard or do you think the FSA is contemplating or the government is contemplating other measures to sort of cool down the housing market and reduce household leverage i.e., trying to implement some sort of forced amortization? It doesn't seem like it's this is the route they're going but it could mean, you could explain why you're more conservative on repricing, could that be it or you haven't heard anything?

Christian Clausen

I think there is a wide debate in Sweden now about the household indebtedness and so forth and I think what the discussion I was getting more and more biased towards is that there is a -- the problem in Sweden is the shortage of houses, and I think more and more regulators realize that you will not sort that problem with no, no, I mean regardless with that level of the risk weighted assets or anything like that.

So the discussion now is much more how to solve the actual -- the fundamental problem, which is not the risk weighted assets or risk wise or anything like that, it's actually there is a huge shortage of houses especially in the larger cities in Sweden and that's what they need to sort out. So I think that more and more realize that it's not the bank that really can help them in this problem, they need to change the regulations about the construction and property development in Sweden, and that's where the discussion is more and more directed towards.

Operator

Thank you. And our next question comes from Nick Davey in UBS. Please go ahead.

Nick Davey - UBS

Yes, good afternoon everyone. Three questions please from my side. First one please on capital and discussions with the Swedish regulator. Since now you're talking about at least in the near term running with a sort of 14 to 14.5 (inaudible) core tier-1 range. I just wanted to pick your brains over here thoughts please on the latest color from the regulator not necessarily on risk rates but on other potential capital busters if there has been discussion of Pillar 2A, Pillar 2B star busters coming into force in Sweden, and how that played into your thinking as far as where you set capital in the near term? And also thinking two years forward, as you talk about progressive dividend payout, I guess any color you can give us or any comfort you can give us on how much visibility you have on this target capital level and the intentions of Swedish regulator that would be great.

Second one please when we talk now on marginal capital that you think you can generate from risk related asset efficiencies please just a check am I right if I've seen that all of that is now in your control following the advanced RBA approval. Is there anything there which is reliant on external forces and also any and most lately you can give us on the timing of this capital efficiency measures that would be great?

And thirdly and finally please corporate center net interest income, which is nicely up on this quarter. Can you talk a little bit about why in the release just please a check on how you would expect that corporate center NII to trend all LLC course if we just keep short rates where they are on a three years view if you could just help us think about if that's an interest rate hedge only liquidity carry where you think a normal quarter in corporate center NII what that would look like? Thank you.

Christian Clausen

Yes, maybe I would start with the discussion on the capital requirement levels and I think that you're right that the Pillar 2 requirement is the outstanding issue. What we have included in when we guide towards 14% to 14.5% is the current level of two requirement plus the Swedish mortgage risk rate up to 25% within around the 14%. And then we are including a ballpark as you are right that I think Swedish regulators has been inspired by the (inaudible) in the UK and how to think about the two hard and soft requirements related to stress although potentially meeting it by tier-1 category set around that. And we have had first round of discussions with the regulator but this is still not (inaudible).

So I think the main uncertainties around this but it can go different ways. They might increase requirements but then accepting meeting some other requirements they want to I think its worded to conclude on this but we don't see a way to significant increase the -- let me say the hard Pillar 2 requirements. So we are at this point in time confident with the interval of 14% to 14.5%.

And then on the other efficiency program we still have a long list of initiatives left. You're right that on rollout we have not done the major one, we still have enough of smaller rollout of course they're pending for approval. But of course much less complicated there is a process for our approval of our Russian application at this time was far, far quicker than the advanced. We also have a number of model changes that requires approval. So we are applying an uncertainty related to you can say approvals. So that has been filled in and we don't know of course it's just the program now have built in some contingencies with the experience we now have on regulatory approvals and the issues around that.

And I think on timing that it's more or less evenly spread over the period. And so, finally, I think that on the Q4 performance on our corporate spend I think you've look both on Q3 and Q4. There have been a number of transactions impacting both Q3 and Q4 and have some spill over between the quarters. And I think that given much more specific I don't know NII specifically for corporate spend is not really meaningful, so we don't have any specific guidance on that.

Nick Davey - UBS

If I can just follow-up briefly just to clarify really make sure I understood all the points correctly. So the 14% to 14.5% that I guess assumes that a management buffer, as a safety buffer above 12% minimum plus the implications of a 25% Swedish risk rate, at a 1 point kind of cyclical buffer something along those lines, so if there was a material shift that in Pillar 2 requirements in Sweden that would alter things. But for the time being you're confident that's not the case, is that right?

Christian Clausen

Yes.

Operator

Thank you. Our next question comes from Sofie Peterzéns from JPMorgan. Please go ahead.

Sofie Peterzéns - JPMorgan

Yes, hi here is Sofie from JPMorgan. A couple of quick questions. My first question is on your additional tier-1 and tier-2 issuance. In your presentation you're saying that quite longer the revenue target that are around 4% that you've like it 4% of that minimum requirement if I elude what you've today it's around 2%. So I was wondering when we should expect materially going to go to the market and issue additional tier-1 and tier-2 and will it be more your tier-2 issuance space than tier-1 issuances?

And my second question is around your funding, if I look at Bloomberg it is quite you've around €22 billion of long-term funding maturing in 2014, which are primarily raised in 2009 and 2011 when your CDS was north of a 100 and today it's around 50 basis points. So I was just wondering if you could may be talk about the funding benefit that we should expect for Nordea in the first half of 2014. Thank you.

Christian Clausen

Yes, NOI I think that on tier-1 and tier-2 we will issue, no doubt about that. We have not been clear on exactly when. I think that as we are from a Nordea perspective we don't see acute need to rush to the market. We have seen a number of transactions now and we have deliberated waited for one, the full cooperating of the Swedish regulators; and two, the acceptance among investors maturing for as long we see other issuing this information. And now we have a opportunity and so you can say we are moving closer to the time where it will be more the market timing issue. So we should expect to do some additional tier-1 issuances here and tier-2 of course type of issuances when there are good opportunities.

Now we are of course making some clarification on regulation also with regard to this one, we talked about Pillar 2 before. We had other type of regulations coming in relating to bailing, et cetera. So we have no reason to rush we think as of now.

And on the funding I cannot fully, just should be careful using Bloomberg on this one. I know that numbers are not coming out and the redemption level is not up to this size for 2014. It is somewhat lower and we do actually expect to have a sliding door need for long-term issuance '14 compared to '13. And as we guided earlier, we still expect our total funding cost to peak yearly during first half 2014 and then start decreasing.

Operator

Thank you. Our next question comes from Per Gronborg, Danske Markets. Please go ahead.

Per Gronborg - Danske Markets

Yes, good afternoon, Per Gronborg from Danske Markets. Couple of questions from me as well. The first one an update on the promise you gave at the Capital Markets Day last year on the risk rates. Now you've delivered on the approval of the IRB models. How much is still to be delivered of the €35 billion that you promised at that stage?

Second question is a little bit nitty-gritty. Last year the refinance fees on the Danish mortgage book did not book that before the first quarter. Looks like you've a nice pickup in your Danish segment on financial items and you've booked some of it already in the fourth quarter this year, so should we still expect everything to come in the first quarter of next year? That was my two questions.

Christian Clausen

I should try to answer on the risk rated asset efficiency program you're right. We as on Capital Markets Day thought about €35 billion and we have delivered around €14 billion to €15 billion of this. And we have, as I said before, we have seen that we saw the advance coming in a little lower than we had looked for and we have applied a type of regulatory record in our program. We are of course working on a contingency plan on this. But I think a fair range is in the level of €15 billion to €20 billion of additional efficiency more than in a couple of years.

Per Gronborg - Danske Markets

Okay. By the way any update--

Christian Clausen

Sorry.

Per Gronborg - Danske Markets

By the way any updates on the dispute with (inaudible) to say on your risk rates from last year?

Rodney Alfvén

No, it's still pending so.

Per Gronborg - Danske Markets

Still pending. Okay, you're waiting.

Christian Clausen

And if I may on the refinancing fees as you know they're booked under fair value in our retail banking Denmark, and you're absolutely right, they were up in the fourth quarter versus the third quarter, but the way it works is that there are four auctions in Denmark every year. The smallest one gets in June and the fees from that auction is then booked in the third quarter. The biggest one is in December and that we booked it in the first quarter and I can already now say that this was a quite big auction so there would be as you saw in the first quarter of last year, was a big jump in the fees. So first quarter would be the peak in that revenue base. Then the second biggest auction is in September and that we booked in the fourth quarter, so the increase between the third and the fourth quarter is that the September auction was bigger than the June auction. But in the first quarter you will see even higher fees.

Operator

Thank you. And our next question comes from (inaudible) from HSBC. Please go ahead.

Unidentified Analyst

Hi. This is Jason from HSBC. Just a very quick question from my side if you can give us a bit of color on where you now expect to see volume growth being weaker and what did it previously both on a regional basis and on a product basis? Thank you.

Christian Clausen

You can say that household growth in general being relatively stable in most of the countries. On the household side the only country you can say we still have a little of a question mark is Denmark where basically most indicators are positive but it seems to be the case that it has yet to fully materialize in real growth. And on the corporate side it's a bit more mixed picture but we could see quite good growth opportunities in as we said before in Norway and Finland. Sweden is somewhat more challenged and Denmark is a little like the same story as I just said because on the household side too. Mortgages on the products I mentioned, mortgages should expect to grow somewhat and then we have yet to see the full uptick on the corporate lending side but it is expected to happen during the next couple of years.

Operator

Thank you. Our next question comes from Riccardo Rovere in Mediobanca. Please go ahead.

Riccardo Rovere - Mediobanca

Good afternoon to everybody. I have a just one quick question. How should I read your ambition to increase the payout ratio of the next few years with the fact that Swedish regulators are basically aiming at kind of capping, as far as I understand the banks return in the 10%, 12% region? This is the statement from a Mr. Borg in Davos over the past few days. Is it possible to get to a point where there will also cap the dividend distribution to avoid any equity depletion in the banks? And this is the first question. The second question just a follow up on shipping losses. The release you got in this quarter is something that is going to continue into 2014 too?

Christian Clausen

If I start with the question, Mr. Borg was actually not capping an ROE, he was just doing an analytical exercise where he said that in Europe we have talked to many banks who are satisfied with an ROE of 10% to 12%. So that was not any kind of directive regulation. It was just an analytical point of view. And as long as we have compliance with the regulations, we of course free to distribute capital.

Riccardo Rovere - Mediobanca

Okay.

Torsten Hagen Jørgensen

The shipping loss outlook for this year, it's more normalized situation right now, so that we will see limited amount of new losses, some amount of releases from earlier made losses. But I think that the level of collective provision we have build up, we will keep so that at least for the time being so that we won't really make any kind of bigger release at least now in the coming quarters. We have to see that the market is really stabilizing and that's sustainable before we start to touch on these bigger collective provisions.

Operator

Thank you our next question comes from Jan Wolter in Credit Suisse. Please go ahead.

Jan Wolter - Credit Suisse

Yes, good afternoon. Jan Wolter, Credit Suisse. Two questions from my side. First one is has management penciled in any volume contraction and/or falling lending margins in your own internal revenue growth targets? I understand that you're guiding or indicating 2% per year volume growth but the revenue growths that release a culmination of several products and 2% top line, does that include any contraction falling lending margins that you see?

Second question is if the board asked for a buyback mandate, if I miss that you have one outstanding today, and if not will you do that take it to the AGM? Thank you.

Christian Clausen

I don't think we can guide much more specifically on the income side. As I've said before we have went through these drivers of income looking ahead and as we have also stated we do see in certain segments an increased competition (inaudible) and last is their most effective corporate customers and so on. So we do not expect, in the plan again in our planning assumptions we do know we expect that much from margin going forward, but we can be positive with the fund. And we are reinstating the buyback mandate we already have, that we have already announced.

Torsten Hagen Jørgensen

You can see that in page 10 in the report.

Jan Wolter - Credit Suisse

Okay. Thanks and I just missed that.

Torsten Hagen Jørgensen

And to repurchase, convey owned shares and mandate to easier convertible instruments.

Operator

(Operator Instructions) Now our next question comes from Jacob Kruse in Autonomous Research. Please go ahead.

Jacob Kruse -Autonomous Research

Hi thank you. Just two quick ones. Firstly, on the conference call with Swedbank yesterday, they floated the idea or worry that regulators may look at capping also corporate risk rates. I just wanted to know if you had any comments or hear anything on that topic. And secondly, when it comes to your cost reductions, could you talking all about the level of staff cuts or any impact on staff levels that you see from achieving that reduction? Thank you.

Torsten Hagen Jørgensen

On you first question, no, we have not heard anything, we have heard the rumor now to have been raised by you, but we have not heard anything like that. But and on the question of reductions, I mean, the plan is consisting of a number of elements. When we talk about IT and certain type of processes we are talking about quite significant amount of insourcing we will do and we're also talking about quite a lot of off shoring we will do to our (inaudible) and, therefore, the issue of staff reductions is somewhat of a mixed picture and we are not at this point in time ready to guide anymore specifically on any myth in staff reduction numbers.

Operator

Thank you. Our next question comes from Christoffer Rosquist from Barclays. Please go ahead.

Christoffer Rosquist - Barclays

Hello, good afternoon, this is Chris from Barclays. Just one question regarding potential Swedish, potentially higher Swedish mortgage risk floor and one question regarding the advanced IRB implementation. On Sweden, we heard from your competitor yesterday and at your call earlier today that the response to 25% floor in Sweden very much depends on what the competition does. But could you please perhaps at least roughly outline which possible courses of action you would consider? So would just be a matter of increasing prices or would you use a combination of that you can actually maintain ROE on these parts of the business by or through a non-NII revenue from these customers even if they require a capital for the business would increase. And secondly on the advanced IRB implementation, would it be possible for you to just let us know what is the volume of corporate assets that it applies to and how much of that volume is in Norway? And finally, what is the current risk rate and what does it go to after implementation? Thank you.

Christian Clausen

On the first question I think that I mean basically three levers on adjusting this. If the risk price is negotiated by it's the funding and the funding cost of course or the split funding cost, and I think that we saw an example of asking where we executed on the risk price and that is of course a very difficult way of doing it. So I think those are the measures that can be taken to adjust the margin on Swedish mortgage product.

And on the advanced it is basically the total non-recovery closure which is, I think it's around €90 billion as of now -- as of Q4. And it will of course have the fully implemented but then you can say it will have an effect on the risk rates, the corporate risk rates that including some of the elements in the -- we have in the (inaudible) efficiency program also we will have corporate risk rates in the Nordic approaching the level of slightly less than 45%.

Christoffer Rosquist - Barclays

But just to follow-up on the first area regarding response to higher risk rates in Sweden. We saw earlier in this year in Sweden that you reduced your list prices and my understanding of that was to facilitate increasing the number of relationships with Swedish mortgage customers in gaining volume. So I was just wondering if you would, you would consider a scenario where you would be where you would be reluctant to where take advantage to increasing prices amongst competitors to reinforce that strategy and then compensate them as you just mentioned with funding cost rather levers?

Christian Clausen

If you just go back to May last year, what we did was that we lowered the list price by approximately 20 bits. And then you can say the purpose of that was that to improve a rather slow momentum that we had with the Swedish retail banking. And what we're very pleased to see now is that we have actually a much better momentum. We see now that we actually can depend on somewhat increase the market share on mortgages. But then as you know that's not the purpose. The purpose is to gain on new relationship customers. And also there we have seen a quite dramatic increase in the number of all the gold customers primarily. And we also see that we are gaining a lot of market shares in the savings area in Sweden. So the momentum is much better.

Then as you know the list price is one thing and just to mention that it's actually yesterday I realized that Handelsbanken has low list price than us, now in the public list price. But that simply doesn't really tell you the whole picture because it's a more a national sport in Sweden to negotiate the mortgage. So what we did was that we narrowed the spread between the list price and the final negotiated price. So the impact on our margin was much less than 20, it was approximately a half. Now we have done on the repricing. During the fourth quarter now we have seen a stabilizing margin. At the end of the quarter we actually saw an improving margin. So as I said, the most important thing is that the momentum of the Swedish retail banking business is actually better than it's been in many years.

Christoffer Rosquist - Barclays

So you don't look at potentially higher risk rate as an opportunity to reinforce debts?

Christian Clausen

I mean as we said, we actually manage to raise the margin somewhat at the end of last quarter or fourth quarter when we saw the Riksbank raise cap in December and then whether how much we will be able to raise, of course also competitive situation. And as you know it's been a little over, and where we have perhaps one competitor who works a little bit trigger happy. So now we are in a stage where I think we are looking at the situation and how this would proceed if two others say that ambition is clear to raise the margin.

Operator

Thank you. Our next question comes from Magnus Andersson from ABG. Please go ahead.

Magnus Andersson - ABG

Yes, good afternoon. Just a short follow-up on the RWA efficiency, announcing measurers. Considering your pro forma guidance of 15.5% to 16% including the mitigating actions in 2014 and 2015, you said you have another €15 billion to €20 billion to deliver which we take it to €30 billion or €35 billion. If I start with the €33 billion in quarter among capital under €40.6 billion, you give us as of Q4 and now there is €14 billion would take you to €16 billion, the operation if I include the full €20 billion, it would take you to €16.7 billion. So shouldn’t your €15.5 billion to €16 billion guidance rather be €16 billion to €16.5 billion or am I missing something?

Torsten Hagen Jørgensen

No. I don’t if you are missing something but when we are saying €15 billion to €20 billion then we don’t necessarily dare using in €20 billion in the way we guide. As I said, we have seen that by getting regulatory approval is going to be cumbersome and difficult process. So why that’s the regional 20 is now 15 to 20 and then we will see of course how well it goes. So that is a – we have just – as if we have (inaudible) increase uncertainty on the part of the program that is still and it is still a big part of the program that is one way or another line on getting approvals.

Unidentified Analyst

Okay. But 15.5 to 16 then rather you being cautious in your guidance than anything else?

Torsten Hagen Jørgensen

That time will show.

Rodney Alfvén

Sorry. We have room for one more question.

Operator

Okay. And one last question from (inaudible) in Arctic Securities. Please go ahead.

Unidentified Analyst

Is it possible to get little more precise on how you see the spectrum RBA, when it comes to corporate risk ways in Norway, Denmark, Sweden and Finland? And if you look at specifically Norway were reported around 57% and 2012 and 47% respectively in Denmark. How much do you see this decline?

Torsten Hagen Jørgensen

I don’t think we comment on that level. I mean the only thing we say is that the effects of the advance by the approval is of course – is not having an – its not impacting the different countries equally. So there will be differences but I don’t think we have – we communicated on this detailed level.

Unidentified Analyst

Do we have to then await for the Pillar 3 reports in 2013 or will you comment more in after Q1 2014?

Christian Clausen

You will see it in the Pillar 3 report in 2014.

Unidentified Analyst

We will wait one year then. Thank you.

Christian Clausen

Okay. Many thanks for you participating in the telephone conference and we're happy to see some of you in London tomorrow at the lunch presentation and then next Friday we will have the shipping presentation also in London which would be webcast. So you're most welcome to attend those. Thank you very much.

Torsten Hagen Jørgensen

Thank you.

Operator

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen, you may now disconnect.

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