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Executives

Rodney Alfven – Head, IR

Christian Clausen – President and Group CEO

Ari Kaperi – Group Chief Risk Officer

Fredrik Rystedt – EVP and Group CFO

Analysts

Peter Grabe – Handelsbanken

Magnus Andersson – ABG Sundial Collier

Jan Wolter – Deutsche Bank

Hampus Brodén – SEB Enskilda

Thomas Johansson – Carnegie

Frida Willmansson – Danske Equities

Christian Hall – Swedbank Markets

Nordea Bank AB (OTC:NDBAY) Q3 2010 Earnings Conference Call October 27, 2010 3:30 PM ET

Rodney Alfven

Ladies and gentlemen, with profound pleasure I welcome you to this Press and Analyst Conference where we will present Nordea’s Third Quarter results. The procedures today will be very much as normal. We will start off with a presentation by the CEO and Group President, Christian Clausen, after that we will have some 10 minutes for questions and after that analysts and investors are kindly requested to move down to Nordea’s hall (ph) to follow with deeper questions and more detailed questions whereas media representatives are welcome to move over to the corner and ask Christian Clausen one-on-one, one sort to say.

As always this press conference is broadcasted also in the other Nordic countries and webcasted. So I would be very happy and grateful if you would state your name and who you represent when you ask questions. The news this time is that also the Analyst Conference will be webcasted so that colleagues to you that are not here can follow that as well. So with that little instruction, I am very happy to leave the floor to Christian Clausen, Group President and CEO of Nordea.

Christian Clausen

Yes, good morning and welcome. I’m proud today to present strong Q3 from Nordea. It’s based on very high customer activity. We have a strong inflow of new customers and we have a successful execution of our growth initiatives all reflected in our numbers.

As usual the short highlights as you can see, easy to understand. Net interest income up, total income up, operating profit up, number of gold customers up significantly, lending volumes are up and net loan losses are down. And the numbers clearly show this trend. We actually have a new record level on income, 9% up on the quarter with a lower loan losses we also get a very strong operating profit, one of the strongest we ever had and very much also due of course to the lower loan losses which we see down significantly over last year.

Net interest income is up 5%. We still see a very strong trend in our customer business. Lending and deposit volumes are up. We see some increase in deposit margins, but in general it is a rather good result especially thinking about the higher funding cost we are getting like all other banks when we gradually increase the maturity of our wholesale funding. So net interest income holding up well.

Net fee and commission is down a little in the quarter but we have to remember Q3 is normally seasonally a weaker quarter of the summer month. So the income in this area is actually continuing its strong momentum and it’s very much due to the savings area which continues upwards. With assets under management now at EUR180 billion, very strong inflow, 8% of assets in inflow in the quarter, strong performance on institutional business as we can see from the slide but also European fund distribution where we distribute our funds throughout Europe is performing extremely well.

The fair value result is back on the high level. The customer, the blue one, the customer side is continuously delivering even here in Q3 where we have typically lower activity but we see that the income from treasury and other areas are coming back. So this is also back on the high level. And the costs are more or less flat. We have a small increase, but if we adjust for the currency effects and our growth initiatives we actually have the underlying expenses of running the bank down slightly in the quarter and because the income ratio is now 51%.

Credit quality is clearly improving. We have for the first time this quarter a clearly positive rating migration in our loan book. This is reflected in the lower loan losses and if we exclude the payments to the Danish guarantee scheme, we are now down to 22 basis points, down from 27 – 26 last quarter. This is also reflected in our risk-rated assets. You can actually see that the risk rated assets is slightly down mainly due to the rating migration which is having this positive effect. And combined means that the one capital is going up slightly and this is very encouraging. It means that our profitability actually is strong enough to cope with a very strong lending growth which increased risk-rated assets by 8% paying out dividends and so on and still increasing the quarter on rate.

We still strong have a strong position on funding and liquidity. It’s interesting to see here that we have only slightly increased our short-term funding over the last three years but clearly increased our liquidity power, so our short-term funding in the group is today lower than our combined liquidity buffer which is of course also short. And the long funding has been increased significantly so we now have 3.7 years maturity of our long wholesale funding. And this means that we’re very close to our balance between assets and liabilities on behavioral maturities, which is a strong balance sheet, which supports our AA rating and gives a strong position going forward.

And we have raised long-term funding this year. Actually in the first three quarters, nearly as much as the whole of last year, and the maturities is quite as long as you can see 5.6 years. We are opening new funding channels all the time and now we have launched the platforms both in Norway and Finland for covered bonds which we have not been utilizing previously but which is of course an important funding source.

So the outlook is in essence unchanged. We still see a gradual economy – gradual recovery of the economy. It is fragile, we see that every day in the papers, but the Nordic markets have improved their outlook during the year and therefore our outlook is completely unchanged. We expect cost growth at the same level as last year somewhat lower risk-adjusted profit and that we see that the loan loss situation continues to stabilize in line with the macroeconomic recovery.

Let me give some comments to the business development. As I said the macroeconomic recovery is particularly strong in the Nordic area where we see these solid growth areas, growth rates right now. We have modest inflation, we had relatively strong public finances and we have improvements starting to be seen in the labor markets. Sweden is of course a country first up with the highest growth rate, closely followed by Finland and Denmark is lagging a little but now showing growth. Also on the public finances, we have a very strong position compared to the rest of Europe. Denmark is the only country which is closer to the European average, but still compared to most of Europe, the Nordic area is actually performing well right now.

And we have a very strong and diversified customer base. If we look at the income split per customer segment, we see that we have a 60-40 corporate household relationship. But we also see that the core customer segments are the ones that deliver the income, the large and CMB customers here on the corporate side and the gold, private banking here on the household side.

So non-relationship segments are actually very small, the others and we also see a strong growth in income and these key relationship segments. And this is very much due to our focus on actually working building this strategy of moving the customers up the segments. We are focused on our 360-degree meetings on our household segment where we cover all customer needs and this means that we have a strong value proposition which attract new customers. So we see a very strong increase in customers on average during the last three years, we have attracted 6% new customers per year and the run rate we had in Q3 was actually 7%.

So 150,000 new gold and private banking customers in the top segment is of course a very strong performance and the underlying driver for income growth. It’s also worth noting that the customers are more satisfied and more loyal than ever in these segments which of course is a good for enter into future. Our growth strategy is the same. We are working on the household segment and the top segments as I said moving customers up the segment, attracting new customers. On the corporate, we’re working to the last segments and very much expanding our offering to these on all products including risk management and other ancillary products. In European markets, we are growing successfully especially in Poland. And then we have our core efficiency initiatives where we work on making the whole value chain delivery in Nordea more efficient, so the customer get this experience that we can and will deliver.

We’re upgrading our IT infrastructure and the back office processes. And as I specifically mentioned, last time we are replacing some of the old product platforms with new ones especially within costs and payments. A few comments to each of the segments, the household strategy. It is a very interesting strategy both from the customer’s point of view and for the banks point of view. It is a strong business proposition. It is a segment with a highest income and the highest growth potential. Customers are more loyal, they’re very efficient to serve with these 360-degree meetings and there is very low risk. We have virtually no loan losses in this segment.

And here we have launched the initiatives future distribution as the most important one. We are now redesigning our whole distribution setup with advice branches, service branches, internet, services to do the transactions and call centers telephone bank to help the customers. This setup is now running. Its developing well and we can see the first results are very positive. We actually have now as it says here, 39 branches operating in the Nordic countries like this. We are still piloting. We are still learning. We are still improving, but the first signs are very encouraging. Customers are simply more happy with this new setup. We are more efficient. We can manage more customer meetings per employee and the volumes go up quickly in these areas.

And we see the clear development executing on this strategy over the recent year, lending is up 14%, deposits are up 9% and the retail funds is up 22%. So we are executing on this growth strategy. And other important point is of course new customer acquisition. The new customer acquisition is program where we make it easier and convenient to the cover customer in Nordea. Of course it should be like that but it seems to work with a 150,000 new customers.

And on the corporate side, its more or less the same story. It is the top segments which have the high income, the high potential. We talk about all product. So this is also very efficient to serve and here is very much about the relationship. This partnering up with the big corporates is extremely important. We commit our balance sheet. We stand by the customer but of course then also we take care of the customer business. And here we talk about prudent risk taking, I will show the slide in a moment showing that we are improving our credit risk profile in our growth in the corporate segments.

Here the main initiatives is Growth plan CMB which is in all four countries specifically in Sweden where we expand the services to the top segments very much on the customer-driven business from markets which is in essence the risk management, the balance sheet management services and transaction management for customers which is key these days with all the volatility in rates, and both currency rates and interest rates.

And we see effect here, income is up 23% year-on-year and we see that the project develops as planned and we have strong momentum and several mandates won. And it is working also, now we work with this in a focused way in nearly four years and we see the income growth in this period year-on-year is very high. So we are gaining clearly momentum in this area and keeping a very strong momentum also on the corporate side.

And this thing about the risk profile is clear. We are attracting strong corporates to the bank. So during the recent year, we have improved the rating distribution, these are rating scales. The weaker ones and the stronger ones and you can see we have proved the proportion of customers we have in the strong rating classes and decreased the proportion of customers in the weak. So while we grow, we attract customers with a higher, better risk profile average which is of course a strong equation.

So the upper other segment is a fantastic equation for us. High growth rates, high potential, loyalty, low risk and for the customers, it’s also fantastic proposition because they get the full service of Nordea, they get advices and therefore they’re also more satisfied and more loyal. European markets, also continues mainly in Poland. Again the same storyline. We have a huge potential 40 million people in Poland. We have a proven track record now for several years attracting new customers. It is Nordic model and is very low risk. We had virtually no loan losses during the crisis in Poland and we are delivering here also activities since 2007. We had an income development of 38% even accounting during the crisis. And we see the income growth very solid also in the recent year, of course the income is now down to 39%, so it’s obviously a very profitable proposition.

We have opened four branches in Q3. And now in Q4 we will have a lot of branches coming on stream, close to 40 branches probably will be opened. They are ready and people have been employed and trained. And that will give us the next important step in the growth rate here.

So the strategic initiatives are delivering according to our plans maybe even a bit ahead and they are key in actually delivering our long-term ambition as you know doubling in seven years was the proposition we put forward to shareholders in 2006. We are more or less on the curve right now, maybe slightly below the curve. We had a financial crisis and interest rates are very low, so that is not too surprising. But these initiatives were made us deliver on these ambitions.

So the key messages today, a strong quarter. We have record income and one of the highest operating profits we ever had. High customer activity, we get more customers and the activity level within our customer base is very high. We have a very strong trend in assets under management. We are proud that we actually now managed EUR180 billion for our customers which is of course an amazing number. Strong inflow of new customers as I said and a successful execution of our growth initiatives.

This concludes my presentation and I think we will now move to questions and I will be joined by Fredrik and Ari.

Question-and-Answer Session

Rodney Alfven

Yes, you all know Fredrik Rystedt, Chief Financial Officer and Ari Kaperi, Chief Risk Officer. We have one over there and then one here.

Peter Grabe – Handelsbanken

Peter Grabe at Handelsbanken. And two questions. Firstly, regarding impaired loans. They're increasing in the quarter, and we've seen in other banks that they're actually starting to come down, and it's in particular the performing impaired loans are increasing. If you can elaborate a bit, about what we should expect going forward, in terms of impaired loans and what you see as the key drivers. The second question, relates to the Baltics, where you've growing the corporate lending market share in the quarter, and growing the volumes. Should we expect volumes to continue to grow in corporate lending in the Baltics?

Ari Kaperi

If I take this, all the questions. Impaired loans, yes they were little bit up in the third quarter. As you saw that all-in-all our credit quality was improving, our rating migration was positive, meaning that the overall quality of our bank was improving. Still we have let's say customers who are in problems in their other end of the scale these weak customers. And what happened now in Q3 actually in Denmark and in Finland there were a handful of risk and medium sized corporate customers where we impair their loans, made a small loan loss provision. And that makes the whole lending book impaired for that customer. So actually it was few specific customers in Denmark and in Finland. Still performing loans, but we saw that there is a need for small loan loss provision. So that then this is very natural. This happens every now and then, we will see also during the quarters that there will be fluctuations in the impaired loans.

But then of course the long-term, stable trend is that they will come down. Then in Baltics, actually no, we don’t have that type of aggressive strategy even now, to go and start to grow our lending booking in Baltics. Because also in Baltics we did the same as we do all in Nordic countries and our home markets so that we select good strong customers and we make business with them, but this hasn’t changed our strategy in Baltics. We are still kind of cautious there.

Magnus Andersson – ABG Sundial Collier

Hi, Magnus Andersson at ABG. First of all I would like to ask a question about the corporate lending market, it seems like you have a slowdown here in Q3. If I exclude currency effects, it seems like you are fairly flat quarter-on-quarter pretty much in all countries while you had a very strong growth sequentially in Q2. If you could comment on that how much of that is seasonal, and what you expect to see going forward. Also if there are any major differences between the countries? In relation to that also if you could comment on the corporate lending margins, now we have a banking sector that is very well capitalized while at the same time corporate lending demand seems very low. Is there – could you potentially see some margin pressure there? And finally just a follow-up on, Peter's question on impaired loans, how much of the 6% quarter-on-quarter increase is due to FX effects?

Christian Clausen

Maybe I could say a little bit about the corporate loans. Its correct that its slowed down in Q3, there are number of arguments for that but the need – the growth we’ve seen so far this year has mainly been for working capital and our customers are making a lot of money. So they are becoming rich on cash and therefore they don’t need as much working capital funding as they did. So it has slowed down the demand.

We also see some seasonality in Q3, which is typically a slower quarter. The underlying customer activity is fairly high. So I think we will see some growth going forward. Customers are active and taking initiatives on back of the good results. Maybe Fredrik, you will continue.

Fredrik Rystedt

On the margin?

Christian Clausen

Yes.

Fredrik Rystedt

Yes, I think you’ve seen the margin, the pickup very slightly from last quarter’s level and that has been very, very long trend. And of course generally we see stabilization of margins at this point of time which could be expected. We have communicated many times that the longer term, we’re in the longer term there should be still positive on the margin for regulatory reasons and I don’t think it’s obviously that those regulatory impacts have started to play major role yet, but clearly I think at least our expectation is that margins should hold up well also going forward.

Ari Kaperi

Then about this currency impact on impaired loans, actually its very small because now we are talking about the increase in Denmark and in Finland. So other than of course, reporting currency is Euro so that doesn’t have so much so big impact.

Magnus Andersson – ABG Sundial Collier

Thank you.

Ari Kaperi

2% to be exact.

Christian Clausen

Yes.

Jan Wolter – Deutsche Bank

Hi, Jan Wolter, Deutsche Bank. A couple of questions, first, on the treasury and trading result and interest rate risk. So if we look at the interest rate risk, value-added risk this quarter, it seems to have come up a bit 90% or so Q-on-Q. And if we look at the balance sheet you can see that the rating book is also up quite a lot. Just the reason for that we understand but what should we expect going forward, are you looking more to have a higher level of – taking a higher level of interest rate risk going forward or is it just this is more a seasonality or one-time event? So, that's the first question.

Fredrik Rystedt

We had a weak result in treasury of course in Q2 and a good result in Q3 and towards the later part of Q2, we reduced the risk quite significantly. So I think this is the increase that you’re referring to and the VaR risk is mainly within treasury. And it’s really a normalization, normal variation in the business. So it’s no particular direction of view so to speak. Its more normalized. The change or the increase in the balance sheet is different issue, it has really not much to do with the VaR risk, it has simply to do with the movements we have seen in interest rates and FX.

So of course significant movements in interest rate risk will either increase or reduce our balance sheet on the derivative side and the same goes for FX. So, normal fluctuations again. So what is important for us is of course the net exposure. What is the net exposure including collaterals etcetera and that has really increased very little. So the gross balance sheet is more function of market movements.

Jan Wolter – Deutsche Bank

And then my second question is on costs. How does Nordea think about costs here going forward in next year? Do you still see that there is reason to push costs up because you see there is very positive development in Nordea in terms of organic growth but on the other hand maybe we see some slowdown in the, or less expectations on overall growth in the market, so what is your view there?

Christian Clausen

Yes let me give overall comment and you can comment to that actual cost level Fredrik. But it is important to state that we are not pushing up the cost level. Our underlying costs is actually as you saw in the quarter, slightly down and it is not growing a lot more or less flat even though we have some wage inflations there in the books and the reason is we take out a lot of efficiency by our projects. So the underlying costs are actually not increasing, what we are doing we are investing in the nine growth initiatives which we launched. Its significant investments. They are delivering very significant results at the same time and we will continue in the coming three years on those investments.

Now we may take them up and down depending on what happens with the economic cycle but we are pretty determined to execute on these because these are taking out efficiency, they are improving the foundation of Nordea and they are generating this growth I have demonstrated with the new customers and more business and so on. So the underlying cost base is actually coming down or unchanged and we will I think stick to view that it should not grow that we would take out the efficiency. But of course we have to invest in the growth initiatives so as to make growth happen.

And then move a bit further ahead than this huge number of new customers of course eventually put some pressure on the costs. So you can say it’s a function of the customer activity on the numbers of customers more than anything else. And the actual initiatives, Fredrik.

Fredrik Rystedt

Yes, I know I think you said most of it. So you have seen of course the impact from the initiatives in the first three quarters had EUR50 million. So it is really delivering those efficiency gains. And it will in the coming years, that’s what we expect it will continue to deliver. So again the underlying cost is going down.

Jan Wolter – Deutsche Bank

Okay, but is it reasonable to see the same sort of cost growth next year as we have seen so far this year would you say?

Fredrik Rystedt

No, I think it’s too early. We’ll come back of course with the forecast for next year but this is the general direction that Christian outlined.

Jan Wolter – Deutsche Bank

Okay, thank you.

Hampus Brodén – SEB Enskilda

Hampus Brodén, Enskilda. I was just wondering I read somewhere in the material, that the growth initiatives have contributed with around EUR200 million on the income side, so far this year. I was just wondering, if you could perhaps tell us a little bit about how you get to that number? That's the first question. Then a second one technical question, on the non-client related result and items at fair value, it bounced back quite a lot during the quarter. If you could give us a bit of flavor on that and also maybe what you believe the level could be going forward.

Fredrik Rystedt

Yes, I can maybe start with the way we track it. We are – for every one of these initiatives we have defined a set of parameters and what we actually expect to happen in terms of income generation. And that’s also what we have used as input for calculation of the business case. So we track every actually every month exactly what the income contribution is from all the initiatives. So of course it’s not an exact science, you can always make subjective judgments as to what is really underlying and what’s depending on the initiatives.

But we think we’re pretty good at tracking these initiatives. So the number that you see approximately 200, just over 200 is a fairly good assumption what they are generating. I think that also goes for the cost structure. So, so far it’s really delivering all of these initiatives. Items of fair value, your question was, why is has picked up.

Hampus Brodén – SEB Enskilda

They bounced back quite a lot and if you could give us a bit of background on that?

Fredrik Rystedt

Yes, I think.

Hampus Brodén – SEB Enskilda

And then also potentially if you can give us some forward-looking statements?

Fredrik Rystedt

Right, the short of course bridge there is simply treasury of course, you can see that the difference and you find that in the report. The difference in the treasury figures is largely exactly the amount that you see in that line changing. So all of it is pretty much treasury markets. The markets activity is largely unchanged so is life. So it’s a treasury issue.

Hampus Brodén – SEB Enskilda

And the absolute level is it like normal level or?

Fredrik Rystedt

It’s extremely difficult to comment, I know you have been asking that question many times before but it’s a good – it is a good quarter I think and we’re quite pleased with the underlying activity among the customers etcetera. Now normally third quarter is a little weak with customer activity. It’s been holding up really well and particularly so for the third month of the quarter. So we’re pleased with the result.

Rodney Alfven

There we have one.

Thomas Johansson – Carnegie

Thomas Johansson at Carnegie. A few details here, you said average funding cost is up, I mean how much further will average funding costs rise in the next – in the next couple of years or so, and also if you can just give us detail, you say that risk-weighted assets under Basel III increased by 10%. What's the impact on the capital base, and exactly what items are affected?

Fredrik Rystedt

Yes, I can – the Basel III the capital base, I’m not sure your question is still too early of course to say exactly on the capital base because simply the estimate we have at this point in time is that the capital core tier one ratio is going to be approximately effected by 100 basis points or in that order of magnitude which is merely a risk rated assets impact and the capital base impact is pretty small. Of course we don’t know all the details on all the Basel III three different levels but on core tier one, approximately 100 basis points is what we estimate.

Christian Clausen

On funding, the reason for the funding costs going up is simply that we have as I demonstrated increased the maturity on the funding side. The new regulation will mean that we need more – banks in general need more loan funding. We don’t know the final decisions there, which is one of the important outstanding issues in the depository environment. But the new level of liquidity and loan funding is gradually increasing the funding cost when we renew the old funding and increase liquidity buffer which we have already done, and that would have some full year effects. And from that level it depends on exactly where the parameters would be set for the new regulation. But that is a fairly significant increase in funding cost. We have probably taken a lot of it already in the numbers you saw. But there are some uncertainty on this area going forward, that will not be concluded until spring next year because the parameters are certainly not been set yet.

Fredrik Rystedt

And to add maybe a little bit to that as you’ve seen the issuance volumes both for 2009 and for 2010 had been very, very high. So of course we have gradually replaced a lot of the old funding. So most of the funding we actually have now in the long end is pretty much new at the higher level. So that redemption impact is going to be of course much less going forward. And then it’s a matter of as Christian alluded to the regulatory impact on the absolute long-term funding. But we have a very, very significant level of long-term funding at this point as you can see and very long maturity.

Thomas Johansson – Carnegie

Yes I understand, I mean even there's a lot of uncertainty on the net stable funding ratio. I assume you have some kind of plan, on what to reach and what kind of buffer you want against the requirements. So how do you read the buffer on that?

Christian Clausen

We don’t know the requirements yet, if you knew the requirements it would be somewhat easier, but they have not been set and they are under discussions, actually only next week in G20 it will be discussed. So we don’t know the new rules and they will not be said until spring. It’s a very difficult equation on the funding and liquidity. We have moved in to appreciation with a liquidity buffer and as I mentioned close to behavior match funded on the balance sheet, which we find is prudent and we are fine there.

Now regulation may require somewhat more, we don’t know that for sure, but the cost in establishing the level we have or more or less taken in this quarter there is a bit more to come in renewal old funding but there is not a lot. So in essence you can say we have moved into a position where we wanted to be. And find it prudent banking and with the low risk level, but we don’t know the new regulation. That is one of the big outstanding issues in banking. How much extra liquidity and funding does the banking sector need for the whole sector that is pretty uncertain.

Rodney Alfven

Then we have time for one last question before we split the party. No more questions, that’s a good Swedish tradition. Always leave the last piece on the plate. Then I will invite all the analyst down to Nordea’s hall and the journalists over to the media corner. Thank you very much.

Jan Wolter – Deutsche Bank

Thank you, two questions, if I may. First, on you said EUR8 million to EUR10 million from higher interest rate. Just if you could elaborate on regarding high this week and especially the Central Bank revised the interest path. What you are looking at, when you estimate or look at net interest income going forward, have you been looking or are you using the Central Bank’s path, or have you been using sort of the market’s interest rate path which has been significantly lower. And the second is, I don’t know if you could answer that and the second is on the liquidity portfolio. You increased that this quarter, what could we expect going forward? Will you continue to increase it and also if you can get some sort of how costly it is to increase this?

Fredrik Rystedt

I would typically I would start with the interest rate development. We typically use around so to speak and that’s not the Central Bank, its more our own judgment that we make group treasury. So that can from time to time deviate, but I think the aggressiveness of the Central Bank is not something that we have maybe used or we have been little bit more (inaudible). So I don’t think this last development really changes very much in our own forecast. Generally, of course the assumption that we have is that interest rates will start picking up and continue to do so in Sweden, but we have also said in Q2 at the last occasion we said that of course the Euro crisis will most likely prevent the Euro rates from going up any time sooner to major degree probably will be likely that we’ll see an adaptation of the actual market rates to the official 1% rate but it will take really long time until we see interest rates going up at any (inaudible) great extent. So no major change on our forecast.

Your second question was related to treasury, I guess.

Jan Wolter – Deutsche Bank

Yes, the liquidity portfolio increase, first of all if you can mention how much of that is FX effect, if you have below the liquidity in Swedish krona but also how costly it is to increase the liquidity portfolio and what we could expect after the size going forward?

Fredrik Rystedt

Yes, it’s really very good question Jan, that we actually discussed in the Board yesterday because I think all banks now are really trying to figure out what are you actually going to do with future in coming regulation relating to the liquidity buffer, right. What’s the revival period etcetera and how do you actually measure liquidity risk and all of that start really goes into the size of the liquidity buffer, not only the size but also the composition of the liquidity buffer. So I think it’s a little too early to give you all the details of what we will actually do.

Our assumption at this point in time is that there is going to be LCR of course to some extent maybe not exactly what has been communicated now. It’s a little harsh still on some of the parameters, but we will adapt. So there is no fundamental direction at this point of time to increase the liquidity buffer to any more than you have seen at this (inaudible). Yes, so this is more normal fluctuations that you see at this point and of course its costly and depending on what kind of size – what kind of composition you. The more government bonds, the more costly it is of course needless to say. LCR is in that perspective fairly costly because it takes a lot of government bonds 60% as you know. But there is no direction really.

Ari Kaperi

Because, actually in this quarter the return from the liquidity buffer actually went up a little bit, so we saw an improvement there.

Jan Wolter – Deutsche Bank

Okay, thank you.

Fredrik Rystedt

Largely, actually took out the impact from higher interest rate to funding costs. So it was a good quarter.

Rodney Alfven

So Frida please.

Frida Willmansson – Danske Equities

Yes, so two questions. Firstly, on household mortgage lending margins in Sweden. They appear to be up 8 basis points, compared to last quarter. Is that the underlying development or is there some other factors playing in there, and then secondly, if you can say something about the potential to make Finnish and Norwegian covered bonds?

Fredrik Rystedt

Yes, the household margin picked up in Sweden is been consecutive over three months in the quarter. So this is not just one uptick, it is something that we deliberately are driving towards and then of course you can is it really a margin pickup because what you obviously must take into consideration is the underlying funding cost and since we see here we have consecutively or for several quarters, we’ve increased the maturity profile on the long-term funding and therefore our average funding costs, the underlying net margins so to speak is not really that much, we’ve had a similar increase in the (inaudible) just measured in terms of STIBOR it has increased by 8 basis points. (Inaudible) so I think that’s we’re basically pleased with our development.

You can argue mortgage lending in general is not the most profitable area of lending in more general terms, they’re much more well other areas are more profitable, and you typically have very long maturities and of course long maturity requirements also (inaudible) so it’s not in that sense a very profitable area but of course it’s very key for us in our gold customer focus. That’s a core product for the entire customer relationship. Then your second question on the covered bonds. We have just started of course, so the issuance in the Norwegian market is so far very small. The Finnish market we have not yet started. We are commencing our road show. So we will start in the Finnish market very soon.

So we have good hopes, but of course one needs to remember that the Danish and the Swedish covered bond markets have been active for very, very long period of time, probably the two most functional – best functioning markets covered bonds markets in Europe maybe together with Pfandbriefe (ph) in Germany. So it will take time to develop but we have high hopes to create additional capacity in the (inaudible) Norwegian.

Frida Willmansson – Danske Equities

Can you say something more about, what kind of funding you're replacing and the potential impact on funding costs?

Fredrik Rystedt

Yes, you can say it’s a combination of -- it’s the normal funding structure of the bank. So we – if you take mortgage lending in both Norway and Finland its typically done with the average mix of funding, that the bank is actually doing. So a combination of senior short and medium funding. And that of course we’re replacing with (inaudible) clear price advantage funding.

Rodney Alfven

So any further question, yes Thomas Johansson.

Thomas Johansson – Carnegie

When you talk about corporate lending, I mean that's been beginning of this year, seems like most banks were very positive about corporate lending growth. It seems to have come off the past few months, and is rather coming down again, if anything. Also on the corporate margins, most banks have been very hopeful for a number of years now several years, that margins will rise, now it seems like the across the Board seem to be falling slightly. Can you just communicate what's going on here in both in terms of volumes and margins?

Ari Kaperi

If I would start, so that I can also say something here and then you can continue. Yes, you are right that now in Q3 actually we also saw that their corporate lending demand was not so high actually, and then what we had seen even earlier is that this kind of real investment type of financing needs for the corporate customers that has not been very high there. So what has driven that growth now in the beginning of the year has been quite – activity has picked up in the private equity site for example that they have been active of course that has driven somewhat the lending up. That is now little bit it’s still there but it’s not so much picking up any more.

Then actually what happened also in the beginning of the year, that the corporates, that they’re filling their working capital needs because their volumes were up. That was little bit also halted in the Q3. So that now probably this is a signal of some kind of perceived uncertainty in the global economy as well. So that corporate seems to be little bit now cautious, but still actually we believe that this type of healthy growth, not fast but some growth will come again in the corporate side.

On the margins, yes we all understand and we try to take the margins up in the corporate side, but now actually there seems to be high competition for this, let's say good credits and good deals and actually this competition once again is keeping margins a lot down. So that we would like to see increased margins, but that seems not to be so while achieved in any of the current market circumstances. And the other reason for margins not to pick up so high in the corporate side is that actually now we are dealing more and more with high quality corporate customers, good names and of course then the prices are a little bit lower than in the other type of segments that you can, of course contemplate.

Fredrik Rystedt

No, I think you’ve said it all but maybe one additional thing and that’s maybe six months ago, the belief relating to regulation was a little stronger maybe on the liquidity side. So the need for a lot of long-term funding for the banking system as a whole was perceived as pretty much evident and of course the confidence among the regulators relating to NSFR and some other metrics have been little less. So a lot of confidence on the capital side, a little less on the NSFR side. So most of the banks around tend to believe that NSFR is not going to be there. It may be some shape in form, it may look different, but it’s not going to be there in regardless of – if it’s going to be there, it’s going to come in many years from now.

So the adaptation to a longer term funding portfolio has a little maybe stopped. A lot of people are – lot of banks are still deleveraging for capital reasons, but the urge for long-term funding is a little stopped temporarily. So of course the regulatory development we will simply see but as we communicate that also outside our belief is that margins should – would need to go up in the longer perspective because of a need for the banking system to pick up more long-term funding. So we’ll see, we’ll see.

Rodney Alfven

Okay Christian.

Christian Hall – Swedbank Markets

Yes, I had a question regarding capitalization targets, you're now at 10.4 and with new rules you will be at roughly 9.5, quarter one. So could you give us a feeling for when you would revisit your financial targets, in terms of capitalization? Is it already now in the first quarter, or is it further down, and how do you view your dividend policy given your key numbers on capitalization today?

Fredrik Rystedt

Yes, it’s a very good question and of course one that we get quite a lot given the strength of the balance sheet, I think my short answer is it’s too early at this point because there are couple of things we just don’t know, right? I think the treatment of the countercyclical buffer is one possible surcharges or other things relating to systemically important institutions through the cycle provisioning in IFRS. There are number of different things that we’re still little uncertain of what the impact will be. Generally, we feel very strong. We think we have a good paddle sweep that has a really supported us extremely well in the last year and a half throughout this crisis.

So it’s too early at this point. We can only say that we got a strong balance sheet and we’re eager to have an efficient balance sheet and of course we will address that as soon as we’re able to do that.

Rodney Alfven

Okay, Peter.

Peter Grabe – Handelsbanken

Two questions. Firstly, regarding the corporate lending margins. Can you say anything about or quantify, somehow the development relative to your own funding costs instead of to sort of a reference rate? How that has developed in the past few quarters and then give some forward-looking statements on that? The second question relates to your internal funding cost transfer model. How the work is developing and if you can explain a bit how that potentially could affect operations, if there something that with the margins, for the branches automatically will go down on the back of that? Will that have any impacts on profitability and so on?

Fredrik Rystedt

Yes, I can do that. First of all the – yes, its little difficult because I think if you look at the margin development it was really strong at the early part of the crisis. That was an immediate pickup and of course starting with very large customers and smaller customers following thereafter. So we had a fairly rapid pickup, but not an extensive loss of or increasing funding cost at the early part. So from a lending perspective, we have picked up in terms of funding costs at a later stage while its margin have been relatively stable. So the direct question or answer to your question is that in recent quarters that equation has been slightly negative. Our funding cost has picked up a little more than the margin cost, not much but a little bit more. And we’ve compensated of course to some extent by volumes.

As I alluded to before, we have done a lot of funding. So therefore the transition process is to a large extent is over. So that’s the answer to your first question. The second one is a good one, it’s a very interesting because we will start implementing a different funds transfer pricing already at the start of 2011. So it will -- we’ll describe it more when it’s been finally settled so to speak, but largely it takes into account the cost of money for maturity purposes, and of course if its collateral over covered bond or non-covered bond based lending.

So we are pricing internally basically deposit time which we believe is a right thing to do. And we have assumed that our counter approach for deposits. So what’s stable and varies maturities we will price also differently. So again a model that we hope is going to be good in creating and understanding internally for the cost structure of our products and of course driving the behavior I think.

Rodney Alfven

Hampus.

Hampus Brodén – SEB Enskilda

Yes. When it comes to the growth initiatives, if we come back to those, a lot of the investments that have been done to get revenue from growth initiatives, those investments were done relatively recently. Is it therefore reasonable to assume that the effect from growth initiatives on the top line will increase going forward, the EUR200 million that we've seen so far this year. Is that likely to increase going – in the coming couple of years let's say?

Ari Kaperi

I can just start and say that of course these are long-term initiatives and then we are expecting the long-term impacts of those initiative, so that until they are ramped up so that your assumption is correct. So that naturally we expect let's say higher revenue impacts in the coming years, because these are exactly the initiatives we have launched in order to get this long-term target, let's say fulfill this doubling the risk just the profit and with this income close which generated now from these initiatives. We are not there yet so that definitely. But you can of course be more specific.

Fredrik Rystedt

No, no I don’t think there is much out of course three year program. So all of these initiatives are going to increase the revenue generation year-by-year. So far its producing what we have asked basically and according to plans and of course we have high hopes for it to continue throughout the years to come.

Rodney Alfven

Okay, do we have any further questions? Yes please Magnus.

Magnus Andersson – ABG Sundial Collier

I can take one detail question then on loan losses in Finland. If I remember correctly you said in connection with the Q2 report that roughly half of the EUR55 million was due to one large provision. And now you're at the same level in Q3. Is it the same reason or is it more broad based?

Ari Kaperi

Its more or less the main explanation is to say that this EUR50 million probably EUR50 million in Finland is because of let's say five or six customers. So it’s still in Finland our credit book – that the loan losses are coming from few a very few medium sized companies. Now actually we don’t have such a big one as in Q2, so that now, this 50 comprised let's say between five and 10 smaller ones, but nevertheless they are quite big ones compared to Danish loan losses where the explanation and the reasons they are totally different. So then in Denmark, we don’t have this type of medium sized individual loan losses, that’s a steam of very small corporate, mainly corporate customers SME type of customers.

So that the level of loan losses on a quarterly basis in terms of basis points, they are in most in Denmark and Finland but the reasons are totally different.

Magnus Andersson – ABG Sundial Collier

Thank you.

Rodney Alfven

Okay, Thomas, please, follow-up.

Thomas Johansson – Carnegie

Yes, coming back to your regulatory issues, I mean it's an early stage I realize that but how do you reason around hybrids and CoCo’s on items like that, I mean, the existing hybrids you have outstanding, will you just call them back at the first call date and then not issue anything else, I mean how do you looked into CoCo’s and perhaps issuing those into those future instead, because, I guess the old type of hybrids, they're pretty worthless in the new regulatory environment.

Fredrik Rystedt

Yes, they are not worthless in the sense of grandfathering principals. So of course they’re going to be used for something issuing old type hybrids at this point of time could actually in fact – you could argue with there is merits of doing that because you get some sort of assistance from it for several years to come maybe seven or eight years to come, decreasing degree though but still you can get some benefit from doing issues of old hybrids and of course the cost of doing that in comparison to new hybrids significantly less. So exactly what we will do and not do is something we’ll come back to.

As it related CoCo, I think it’s really tricky instrument. There is very few that there is actually been done as you know and the experienced both on the investor base and the actual issuers is also difficult to interpret. I think generally if I listen to the investor base and maybe you’re more educated, than I am but I think the investor base is reluctant to CoCo’s for the obvious reasons its either its neither or nor so to speak. It’s not an equity instrument and it’s not a bond. So you can question whether capital like CoCo’s is really efficient from a funding standpoint. Now of course there is likely to be some role for CoCo’s to be played relating to stress to capital both maybe both going and gone concerned within the regulatory framework.

We just cannot oversee this at this point of time, of course the Swiss are extremely optimistic to the use of CoCo’s when we talk to the issuers of it not very optimistic and generally the investor aren’t very happy either. So it’s not a home run, I think and it’s not obvious that we will do something like that but we are waiting just as everyone else for the regulatory framework to become a little bit more. So still very much an open ground so to speak for us in what we (inaudible) average in CoCo general comment though to your first question, do we go on the first call date. We have never stated that we always go on the first call date, however we’ve always done it. I think that’s the short answer.

Magnus Andersson – ABG Sundial Collier

So unless you’ve past the first call date, when will you have call back all your outstanding hybrids?

Fredrik Rystedt

When we will…

Magnus Andersson – ABG Sundial Collier

Yes. Are these within five years, they will be gone of course, yes.

Fredrik Rystedt

The maturity profile of all hybrids.

Ari Kaperi

Yes, its spread. There are many. Some are actually truly perpetual so it varies.

Fredrik Rystedt

I think the last one we issued in dollars is 2015.

Ari Kaperi

Yes, but we have several, we have several outcomes.

Rodney Alfven

Okay, it doesn’t seems to be any further questions. So now you have – thank you very much for showing your interest here. You have now two alternatives. If you want to pursue a carrier as a TV star, you can just walk right outside and try to grab Christian’s microphone. If you like to be more discrete you can up to the left. Thank you very much.

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