Nordea Bank's (NRDEF) CEO Casper von Koskull on Q1 2016 Results - Earnings Call Transcript

| About: Nordea Bank (NRDEF)

Nordea Bank AB (OTC:NRDEF) Q1 2016 Earnings Conference Call April 27, 2016 3:00 AM ET

Executives

Rodney Alfven - Head of IR

Casper von Koskull - President & Group CEO

Torsten Hagen Jorgensen - Deputy CEO & Group COO

Ari Kaperi - CRO & Head of Group Risk Management

Analysts

Matti Ahokas - Danske Bank

Christopher Roscliff - Barclays Capital

Heiner Luz - Goldman Sachs

Anton Kryachok - UBS Investment Bank

Jacob Kruse - Autonomous Research

Jan Wolter - Credit Suisse

Chris Manners - Morgan Stanley

Ronit Ghose - Citigroup

Omar Keenan - Deutsche Bank

Riccardo Rovere - Mediobanca

Daniel Do-Thoi - JPMorgan

Rodney Alfven

Thank you. And thank you all for calling in to this conference call where we will discuss the First Quarter Results for Nordea Bank. We will start with a short introduction by the Group CEO and President, Mr. Casper von Koskull. And then also we have Deputy CEO and Group COO, Torsten Hagen Jorgensen, and Chief Risk Officer, Ari Kaperi, who is happy to take all kind of questions. But Casper, please go ahead.

Casper von Koskull

Good afternoon, everybody, and good to have you on the call. I'll just make a few remarks. You've seen the numbers you've maybe heard us speak already. But when we look at the first quarter, I would actually say from a business environment point of view it's been relatively stable so nothing surprising. However, the volatility in the financial markets particularly in January, February were very difficult and then when we add the pressure from further low rates and particularly negative rates in the region where we operate, there has been pressure on revenues maybe more than we expected particularly given the volatile financial markets. However cost, I'm very pleased to see that cost and our cost management is under control despite the fact that we are now as you know in 2016 investing very heavily in our core transformation programs.

And also the credit quality is very solid and stable despite the environment that we're in. So net-net when I look at the quarter, it's an okay acceptable quarter particularly given the challenging environment. I think very important for me is of course that we are now in a phase of really executing on the transformation of this bank. We are running now a very focused program on improving both the operational and compliance risk, doing the right progress there, really a Number 1 priority for us and me. And also the simplification program, which of course at the core is also where we replace our core bank systems, is going according to plan. So, the big change agenda that we are driving making this bank the bank that both we as employers and our customers expect is actually going the way it should.

Also when I look at our core Tier 1 ratio, we're now growing from 16.5% to 16.7% I think just reflects what I think the bank has always stood for effectively. Capital generation at low volatility and we continue doing that and we have actually more visibility now also to the capital target operating at 16.5%. I mean with the announcements from the Swedish FSA on potential changing in corporate risk weights, I think we today feel even more confident that our target of operating at 16.5% is correct and feel confident. And overall I don't see any change in our ambition on the dividend side, actually a subsequent increase in dividend in 2016 and also coming years. So, I think all that is intact despite the fact that we have had this environment. So, I would almost leave there and open up for questions, I'm sure you have many of them.

Question-and-Answer Session

Operator

Thank you. The question-and-answer session will be conducted electronically. [Operator Instructions] We will take our first question from Matti Ahokas from Danske Bank. Please go ahead.

Matti Ahokas

It's Matti Ahokas from Danske. Firstly, on the NII in Norway and Finland, the Finnish NII was extremely weak I guess obviously mainly due to the deposit margin squeeze. But were there any other factors that influenced the Q1 NII? And in Norway, was there any change in the booking of the deposit guarantee scheme costs in the first quarter compared to the previous ones?

Casper von Koskull

Yes, I think on Finland you're right. We had a combination of very big pressure on deposit margin, we had somewhat lower volume growth than we have seen in the quarters before, and finally we had somewhat of an impact from this internal liquidity premium or funding cost allocation relating to 2015. So, the only sign of more underlying is of course the deposit margin pressure and then slightly lower volume mainly driven by large corporate institutional business not the retail business. And in Norway, I cannot fully recognize that we should have any, I don't think there's any specific bookings on stability fees that is impacting Norway. We have pressure on margins that you can say is still not fully in there also. It's still in the process of having full impact in Q1 for Norway. So, that is I think more or less expected from the development we saw in the last year.

Matti Ahokas

The second question is regarding in the Finnish press actually today there's quite a lot of stuff especially one of your competitors, the OP Group, is saying they got 4,000 customers from Nordea during the last week. Is there any comment on these figures? Do they ring a bell or what is the format?

Ari Kaperi

I can perhaps take this one. At least we don't recognize those figures from our end, so there has been very, very few individual customers who have exposed this but they are more pick of them. Some are political parties and one or two smaller labor unions, those type of customers. But then the normal household corporate customers, we have not recognized any significant customer outflow. We are following up this on a daily basis and the information we have is not indicating that at least if our competitor is getting more customers, they will come from us.

Operator

We will take our next question from Christopher Roscliff from Barclays. Please go ahead.

Christopher Roscliff

I have a couple questions on cost. So, the first one is you mentioned in the last interim report that you would save 200 million in 2016 from efficiency measures beyond those relating to your simplification and technology project and then I find certain wording in the report that those measures would have even greater effect in 2017, you explained that this relates mainly to your property portfolio. I wonder if you can just give us an update on how you're progressing with the first 200 million and if you have any number you can give us relating to the impact in 2017 and where that's coming from because I guess if it's from the property portfolio and consolidation, we should almost be able to see that happening? Then second question around also non-technology investments you're making, I understand that most adapted around know your customer, AML, and another compliance processes. So just trying to understand are those specific to this time period 2016 to 2018 and will then drop off completely or is part of these investments running costs for Nordea? If you can mention anything about the magnitude, that would be very helpful. I guess it's something around 200 million per year now in the coming three years just calculating backwards from the numbers you've given us. And then finally, you provided a slide this morning around the savings from the technology investments, but not any numbers on that slide. I don't know if you would be willing to give us any quantification of the saving that you're hoping to achieve in 2019 and onwards. Thank you.

Casper von Koskull

If we start with the growth savings that we have referred to for 2016, a big part of that still stems from you can say the old cost program and relates very much to reduced cost on premises, actually on certain type of IT production cost as we are running these big IT in-sourcing programs and they are still running generating big benefits on the running costs for IT and some of them will translate into 2017 also. During 2016 we will ramp up this second wave of restructuring of the branch network you can say so a majority of the restructuring provision will be spent also in 2016 on relocating many branches to fewer and bigger meaning making a lot of people sitting in local branches redundant and hire new ones in central units.

And then all the technology investments we're doing in remote meetings, mobile bank, et cetera will allow us to you can say operate with lower cost and that will start impacting in 2017 and 2018. So, that's a mix in 2016 or you can say 2015 program effects and then beginning of the new programs. And then of course we have an ongoing process of outsourcing process to our new offshore center in Poland and to our development centers in India. So, that's kind of the key drivers behind the €200 million. And as an approximation for 2017 and 2018 is more or less the same number, but the composition changes somewhat from 2016 to 2017 to 2018. And on the other investments as you can say yes, there is a lot of technology investment happening in ’16 and ’17 and ’18.

And then there is a quite significant amount of investments in the people within the compliance, AML, KYC area just to give some few examples. I think by November 1 we were 400 people in the global AML, KYC unit, we are 600 as of now and we'd be 1,000 at the end of this year. We are also ramping up quite a lot on people in both the risk management organization and in the compliance organization and of course this will in isolation lead to higher running cost in the magnitude of around €100 million, but which will then be mitigated by these cost savings of around 200 million or more than mitigated. Then if you look on the drop-off effect, you can say in '16 we have quite a number of programs running that are quite '16 specific. There is a specific compliance product, there is a specific IT compliance project, and there is a legal structure project and they are all very '16 heavy and they will kind of run-off you can say already relatively early into '17. And then your question on savings, then the big investments we're doing in technology, they will start to show their results during '17 and '18 with some kind of accelerated pace you can say and then as we have also indicated that after '18, these investments would have started having bigger and bigger benefits. But they are somewhat -- of course the technology investments to some degree will come over time the full benefits.

Christopher Roscliff

Just a follow-up then, you mentioned today that you actually already migrated parts of your current organization from the legacy data warehouse to the future go to data warehouse infrastructure as well as similarly within payments. Can you mention anything if you've already been able to shut down the legacy infrastructure and how much that saves? And then also in terms of the timing you've been speaking about today, I think you mentioned that the pilot for Finnish deposits will only be completed after the summer. So should I understand that when it comes to the core banking platform itself, you will not be providing any updates until the pilot is completed in terms of whether that then validated your overall project plan and the financials around that plan?

Casper von Koskull

But if we look on the core banking platform part of the simplification program, then '16 is very much about putting the pilot in place and remembering this is still in the protected environment. So, it's not before '17 before we will use -- hit real customers and real products. So, therefore the banking platform program is somewhat back loaded before the full rollout will accelerate. That acceleration will happen after successful real product being integrated and implemented in '17 then you will start accelerating the rollout product-by-product country-by-country. It's true that on payment we have the new solution in place and we are following the same approach there. We already have one module up and running in Latvia and we will rollout quite a lot of modules during '16. So already by end of '16, we will have delivered on interbank solution that will deliver for all countries and then we will accelerate into other type of modules in '17. So, '16 is still very much a ramp-up year for the core banking platform part and it's already fully in implementation mode for the payment platform part. And yes as we speak, we are closing applications, decommissioning applications, but again there also decommissioning is somewhat back loaded and the full benefit comes mainly when you can close, you can say decommissioning whole, you can say systems of applications, and thereby also take the full benefit on the associated processes and people working with these applications and closing so license cost, et cetera, et cetera.

Operator

From UBS we will now take our next question Anton Kryachok. Please go ahead.

Anton Kryachok

Just two questions please. Firstly, on the dividend outlook. The capital generation this quarter has been quite strong. But if I saw the P&L headwinds this year which leads to stated net profits being lower year-on-year, would you be happy to see an increase in payout ratio in order to be able to deliver growing DPS numbers if the capital generation remained strong? That's the first question, please. And the second question on the asset management fees, I saw that you've enjoyed quite substantial inflows and growth in AUM and yet the fees in the asset management division were a little bit weak. Is it just the reflection of the fact that most AUM inflows came towards the end of the quarter and therefore you would expect revenues to rebound or is there some sort of structural margin contraction? Thank you.

Casper von Koskull

On dividend, we have chosen a relatively simple approach to the accrual this year. So, the way it will work is that we will accrue 70.8% of the reported profit during this year and remembering that that profit will include any reported gains on the P&L. And one gain that we already have mentioned in our report is the gain from the sale of Visa shares. So when you do that and we have a dividend policy that is only focusing on growing the DPS and whether or not that will result in an increase in payout ratio that I think is too early to speculate. We are mainly guided by securing that the DPS will grow year-by-year. And then on your AUM inflow question if anything in Q1, we had the issue that the average AUM was somewhat lower than in Q4 and that's the main reason for the majority of fees is the ongoing AUM fee and that was the main explanation for it somewhat bigger. And actually the structural effects are still positive i.e. the mix effects are still positive. So mix effect positive, very strong inflow, and then of course AUM will vary somewhat with the market development, but underlying very strong development in Q1.

Operator

Heiner Luz, Goldman Sachs, please go ahead.

Heiner Luz

On the brief follow question on the asset management side, you continuously have even in what I would call a very challenging quarter strong inflows. So do you have something like we're hearing a lot some people talking about the fact that you're very strong in the occupational pensions, that you have decent amount of savings planned. So if you look at it, what's your quarterly inflow rate if you don't win any institutional business or some that just from the occupational pensions and the plans just to get an idea like how much is already in signed up growth there? And the second question would be sort of on capital, you basically talked at the beginning that you now feel like your buffer is there even with the capital requirements. Is there any point where let's say everyone guides impacts on capital from this new rules that seem to be somewhat lower than the regulator would probably have expected or hoped for. Are you already feeling like you want to build buffers for the next step as the regulator refines, or do you feel like now with this buffer you're more than comfortable?

Torsten Hagen Jorgensen


I think if I understood you correctly on the first question on the inflow and so on. I think one of our key strengths is in the fact that we have very strong individual distribution channels so we have very strong retail distribution in the Nordic. As you say we have a very strong position in life and pension including occupational pension in the Nordic, it's a very strong distribution channel. We have the strongest private banking franchise, also very strong. We also have I think in the Nordics the strongest institutional client channel. And then we have the fastest growing one, which I think is pretty unique from a Nordic bank perspective and that's what we call the Global Fund distribution platform, which is actually a pretty well developed platform for servicing a lot of major banks in Europe basically serving their private banking clients.

And that is we have been lucky and skillful of having very well performing products and this is very efficient distribution channel. And I think that the reason why we are relatively comfortable about the net inflow levels being in the level of between 4% and 6% as we see now is due to this very well diversified distribution setup and it looks pretty solid and we have no reason to believe as of now that this should not continue you can say. And of course from quarter-to-quarter there will be some of the channels will be stronger than others, but over time it seems to be very solid. On your capital buffer question, I think that as Casper laid out on the press conference this morning, I mean we assessed already in connection with Q4 the implications of Swedish corporate risk weights considerations and the fact that countercyclical buffers would be increased and even the pending discussions in Finland about instituting a mortgage risk weight there also.

All of these effects are incorporated either as a capital requirement or you can say in our year forecast. And as we stated, we can confirm that we believe that the capital requirement will be around 16.5%. We will operate on that kind of capital requirement level. And if we look on our capital forecast and including these effects, then we also can reconfirm the dividend forecast we have been given on growing dividend. So we think that from that point of view as well of what we know today, we are comfortable is probably nowadays a big word, but we think this is consistent and we stick to our guidance.

Operator

We will now take our next question from Ricardo Roverick from Mediobanca, please go ahead. If you're using a mute button please depress the mute button, your line is open. We seem to have lost Ricardo, we'll now move to Jacob Kruse from Autonomous. Please go ahead.

Jacob Kruse

Firstly, with your compliance ramp-up, do you see any chance of reducing your other SREP requirement this year or next year and roughly what is the scope to do that? Secondly, I think in the beginning of taking over as CEO, there was some discussion about improving the efficiency of large corporate retail risk weighted assets or retail corporate risk weighted assets on the upper end. Could you just update us a bit on what your thinking is there? And then just lastly on this Panama situation, have you had discussions with regulators and where do you stand in terms of the way forward here or the timing of any kind of impact? Thank you.

Casper von Koskull

On the first question, you are right. We still have this governance related add-on of close to 80 basis points of core Tier 1 and I can tell you that we have not included in our capital planning or guidance for 2016 that we will get any release. The way we think about it is that we don't expect to have any release at earliest before part of the SREP process for 2017.

Torsten Hagen Jorgensen

Maybe I'll take the other question on retail corporate. It's not that much about risk weights. I think what we have done and have started in corporate retail is very much the same as we have done in wholesale and it is really a business selection to be much more vigorous and disciplined in terms of business selection and looking really at individual returns for clients. And that really means that I think and as we have said across the four countries, we can actually expect to be able to increase margins and pricing on corporate, but we're not going for volume. So it is about driving really profitability and return customer by customer, but of course in volume that will also then show that not volume growth, but rather return and I think that way we can generate shareholder value.

So, that's really what lies behind it and of course I think we see already there signs of it but over time you see more. On Panama, this has raised a lot of questions. At the moment it is more questions because we really need to know the facts. But I think what I've said first of all is that we have had very clear policy, procedures, et cetera and we do not allow the Bank to be used as a platform for tax evasion. That we have had in place and actually it is very clear. What we of course now will do to really answer the questions and I have the same questions is that we will do and we are doing a independent internal investigation. We have of course discussed this and aligned this with our key regulator and we have also taken external advisors both on tax and the whole methodology and procedures here.

So, I think we have a very rigorous internal investigation going on. We will know kind of the first stage of that investigation by I would say June and so we would probably come out no later than I think Q2 to talk about it. And then saying where that leads is more speculation because at the moment we just want to know the facts. But I emphasize that we have and have had a very clear policy on tax and processes in place. So, now it's about getting fact and it's very close coordination and cooperation with the regulator. So, I think that's going as it should.

Jacob Kruse

Can I just on the retail corporate side, when you say increased margins and increased profitability, would you be able to give any kind of scale of that margin or that ROE and the volumes you're talking about?

Casper von Koskull

We are discussing here as we have not planned for giving any specific guidance on that, but I can say that this as part of all the re-pricing. So if you combine the totality of our re-pricing efforts, we are talking about efforts that is in the area of €100 million plus efforts in combination. And then I think that's the closest we can get to…

Torsten Hagen Jorgensen

And maybe another one which is longer, of course when you look at what we have done in wholesale over the last three or four years in terms of driving the profitability year-on-year and done that without actually really driving volumes. So, that really shows the discipline on how to create shareholder value. But we will come back to that over the next quarter.

Operator

From Credit Suisse we have Jan Wolter. Please go ahead.

Jan Wolter

Hi, Jan Wolter with Credit Suisse. A couple of follow-ups from presentation, first on the RWA add-on of 1 billion this quarter a clarification there, is that a governance buffer and what is the add-on in total now for governance issues would you say? I think you alluded to 80 bps earlier. So, that's my first question.

Torsten Hagen Jorgensen

To start with your last. I mean the governance add-on is 1.5 billion, of which close to 1.2 billion is core Tier 1 capital requirement and that equals around 80 basis points and that that has been the same since Q2 we reported this last year. So that's kind of there and as we have said, we expect that to stay there for probably at least until 2017. Then as you also recall that the reason for this was that we needed to strengthen our second line and that we have done and second line have conducted a review of the whole RV system setup and that is pending and we expect the decision by second line during Q2. So for prudency reason as we know that there most likely will be some kind of an addition or you can say rear effect from this review. We have you can say provisioned €1 billion this quarter in advance of the final outcome, which we will know in Q2. So you can say it's governance related, but it has as such nothing to do with the governance. And you can turn it around and say that the fact that we have now established this and we have conducted a review, everything else equal should support us in you can say ultimately being allowed to release the governance add-on.

Jan Wolter

So all-in-all related in one way or another to the governance area, there will be post this quarter around 2.5 billion in add-on. And if that's correct, then would you say there's a possibility you could get real benefits after improving your processes?

Casper von Koskull

This shows that the ordinary annual validation process of course can go up and down depending on the development and you can say the actual default frequencies. And as you know mainly due to the development in Denmark, we have had a number of years where this annual validation process has led to you can say requirement for higher REA. Now the situation starts improving in Denmark and I mean no one knows, but of course we in this model used I think a continuous type of averages so it goes relatively slowly. But at some point in time this effect might be less, it might be more right now. It could indicate that over time this will be less. But that's one thing. This other thing is you can say ultimately we of course hope that we will get the governance add-on of the 80 bps away. That's the main focus of course for now. And then the credit quality will develop as it does and we will set it up against the model petitions.

Jan Wolter

Another question, do you believe that there is now risk for Danish deposit rate cap? Again we've seen the Danish kroner strengthen again against the euro. And if so, do you see any natural mitigation actions that the Bank could take if that happens? Thank you.

Casper von Koskull

I have stopped speculating what rates will do, but I can assure you that if rates continue further down in Denmark and we are hit by that, it depends a little on how the Danish Central Bank decides to do it exactly, then of course we have. The country where we have trained the most is Denmark so we have pre-developed plans for mitigating the effects of the already quite negative rates in Denmark and they might even be accelerated of course if rates continue further down. But as you also know, the whole rate situation in Denmark is a little tense as of now. So, I saw there also of course timing considerations involved in the Danish market.

Operator

We will now move to Chris Manners from Morgan Stanley. Please go ahead.

Chris Manners

Two questions from me, if I may. The first one was on capital and obviously the 20 basis points you're able to take from Nordea Life, that's quite encouraging. How should we think about potential for more capital upstreaming potentially over the next coming years for that, looks like it's a bit of a tailwind? And second question is on credit quality, I guess your Italian base cost risk is pretty good in the quarter and you did sort of highlight oil and gas going with many banks as a potential risk area and I see that Norway in oil and gas basis points cost of risk has gone up in the quarter. How should we think about the second half, is there any particular exposures that you're nervous about there? Thanks.

Casper von Koskull

If I just start with the Nordea Life question, yes, I think we have a very good development in Nordea Life. We paid a dividend of €220 million for 2014 and we have now paid a dividend of €300 million for 2015. And despite having done that, we still look very comfortable. There's obviously two requirements. So, the legal requirement is 100%. We are applying quite a conservative buffer that we should try to stay within 125 basis points to 150 basis points and actually the outcome seems to be in the level of 160% to 170%. So even after these dividend payouts, it still looked very comfortable and I think we are of course as we are doing on the Group level, we are also in Nordea Life Group taking all measures to be able to continue paying out dividend from life.

Torsten Hagen Jorgensen


And in credit quality and offshore oil and gas segment, our view is relatively unchanged compared to what we discussed one quarter ago so that we really see that there are individual customers who are having problems. In this quarter there were two new impaired customers from these segments, they were not big ones. That is the explanation of some increases in some of the portfolios in terms of impaired loans and also loan losses in Norway. However, we don't expect that especially in this 2016 we would see this kind of material increases. It's very difficult to give any kind of a specific guidance.

But at least the way it seems to go is that we expect that some individual customers will be coming in problems, but the magnitude of those impacts will be still reasonable in our case, so that thereby we have also repeated this overall credit loss guidance so that we expect roughly the stable levels or levels which are within this long-term 16 basis points average. But we wanted simply to highlight that it is likely that there will be some individual cases from these portfolios because even if the oil price has a bit recovered from the lowest levels, still this level is still low for many customers to have a sustainable profitable business without doing any major restructurings or divestments and issues like that and not all the customers have opportunities for that.

Operator

We will take our next question from Ronit Ghose from Citi.

Ronit Ghose

Hi. It's Ronit from Citi. I just want to pick up on two questions. The first one is on costs so I'm looking at slide 21 of your presentation deck. You've given us the cost increase in 2015 and 2016 where compliance and IT remediation projects are a decent part of the jump in costs and you talked about the headcount increase in AML. I was wondering if you could backfill some of my knowledge here. Why has there been such a big jump in AML staff this year compared to other banks in your peer group? And when you think about regulation or compliance aside from AML if you're going to do AML hiring this year, are other areas that we could get caught out by collectively going forward? And I was just curious in your waterfall from 2016 to 2018 in costs, where would I find the budgeting for other additional non-AML compliance people, please? The second one is much shorter on NII in Finland, obviously a big step down in the quarter. Looking ahead I'm just wondering further how much more negative impact on NII should be baking into our expectations of Finland or we're basically done now if rates stay where they are of course? Thank you.

Torsten Hagen Jorgensen


I'm not 100% sure I follow fully your question on costs. What I can tell you is that the AML KYC ramp-up started some time ago and has accelerated during '15 and will continue into '16 and I think that we have very high ambitions on this level and there are two phases. The first phase is where you ramp up a significant amount of people because you have a catch up you can say, so you want to go to your full portfolio and you want to establish good procedures and of course what we ultimately want to do is to run this in a very efficient way meaning automated processes, digitized process also on AML and KYC. And these investments are going on at the same time so the efficiency of running these type of processes will of course improve over the years.

So I think we have been through a number of phases as all big banks, I think maybe in this respect we are closer to some of the European banks. And yes, you're right, U.S. and UK banks probably were the first ones to move on this. And now we are fully moving and I think in a few years' time we will have a very advanced setup on handling this from a process and operations type of view. And therefore what we are trying to indicate is that we will into '16 and '17 we will see increased running costs from this before we can start seeing them coming down. And then of course we think it will be kind of permanent that you will have higher second line organizations. There will be a running cost effect from that, which is all banks will experience. But I hope I have captured and being able to answer your question on that. I don't think I have that much more to add to Finland.

We had an NII question on Finland and we don't guide as such on country level. But what I can say is that re-pricing efforts will continue in Finland on retail corporate segment, probably even accelerate. It will continue, but the speed is as it is when it comes to mortgage re-pricing in Finland where we still have a spread book of 15 basis points. And then growth of course is always an issue. The underlying growth i.e. on the household side is relatively stable, but then in Q1 as I said mainly on the CIP portfolio we had somewhat of a drop in growth. So of course the volume factor is difficult to fully estimate, but there's no reason to believe that we will not as such see improved margins and then volume of course we will have to see for Finland.

Ronit Ghose

Just going back to the costs, I hear your answer about the investments you're putting in and your greater scale compared to some of the other smaller banks in the region. So I was thinking looking ahead given that you've baked in between 2015 and 2016 some specific costs to it, compliance and IT remediation, if I missed something in 2017 and 2018. Are you saying basically there are no further incremental new compliance related IT investments in ’17-’18 or is that part of the general cost drift or is that you're going to make some investments and then you're going to offset those investments with savings such as REVTEC and so on?

Casper von Koskull

Yes I think that the compliance and IT remediation projects we allude to, there are two big projects. One is very American with CIP or compliant related processes including systems are ramped up and the majority of that work is happening in 2016 and then you can say the project cost of this will go down in 2017 while running cost will go slightly up. On the IT remediation projects, the majority of costs will happen in 2016 and there will also be some in 2017, but they will go significantly down you can say these project cost. And it's a project so somewhat into 2017, this project will be closed and so will be compliance AML project and then of course there will be line responsibility. And then there is the legal structure project, which is also a very specific 2016 project, there will be more or less very limited costs related to that in 2017 if anything.

So net of this what I'm trying to say before is that there will be increased running costs from all of this at least in 2017 in the magnitude of around 100 million and then you have the all-in cost inflation of around 100 million and then we have the gross cost savings as mentioned up to 200 million and there you are around flat. So, that's the way we coming to flat for 2017 and 2018. But we also determine that there is of course a number of moving parts here and looking further ahead, I think we can make many of this process even more efficient probably not already from 2017. And that's what I'm trying to say also that many of these technology investments, they have a somewhat longer or you can say it takes a little bit longer to take out the full benefits and it takes a bit longer to implement it 100%. So, I hope this gives a bit more light on the dynamics.

Operator

We will take your next question from Omar Keenan from Deutsche Bank. Please go ahead.

Omar Keenan

Sorry for going back to the payout discussion. But one of your peers this week gave us some very helpful sensitive thoughts around what particular parts of the Basel proposals would be more or less meaningful. And specifically what they said was that there would be no impact from the op risk proposal as it stands, secondly, no impact from the kind of the PD flows and so on, but the key sensitivity was the outputs or capital flows. Could you give us your view on that? And then I just have a follow-up question. Thank you.

Casper von Koskull

Of course this is a very interesting topic and of course we have our views on this. I think still it's very premature to open too much for that discussion and of course there might be different approaches to this. If we take them one-by-one, then you're correct that on op risk there are basically two approaches in which one of them you will have one outcome, which will not be so significant if any negative impact and all and then there will be another scenario where there might be a certain impact. The parameter flows depend very much on exactly how it's implemented of course.

Everything else equal I will be surprised if most Nordic banks will not have some impact. But I think it's also clear from the proposals that the main issue is of course the capital flows and how they're calibrated and the sensitivity there is obvious so depending of course on the level, but of course more interestingly on what does the home regulator then do on the requirement side. So net of all of this, I think there's obviously interesting calculations to be done. But some of these Basel proposals I think in all honesty, it's somewhat premature to discuss specific numbers or implications. But we might review that as we move along and get a bit more insight and certainty around the numbers.

Omar Keenan

Okay. I guess the second part of my question was what level of capital flow, do you think -- if we all kind of agree that the key sensitivity kind of threatens the $0.64 dividend. I guess if you can't forecast one, you can forecast the other.

Torsten Hagen Jorgensen

No. And first of all, let's see when this exactly is fully implemented. And as I said also especially on the capital flows, it doesn't take a lot of calculations to see that if Swedish FSA is not adjusting the capital requirements you can say somewhat accordingly, then of course it can have quite significant implications. Again saying that this is an analysis where we only own some part of the outcome so it will be very dependent on of course how effective the capital flows and how it was…

Omar Keenan

I mean if we just play with a scenario that a capital flow did come in and say it was at the very low end of 60% to 70% and then there was no gift from the Swedish regulator. Is that a problem or isn't it? Does it create a capital deficit?

Ari Kaperi

Omar, I think the best answer we can give you is based on what we know today in terms of future regulation, in terms of profit, in terms of all kinds of potential threat, we still keep the ambition to raise the detail for '16 versus '15.

Operator

From Mediobanca we have Riccardo Rovere. Please go ahead.

Riccardo Rovere

I don’t know what's happened before. Just one question from me, Sweden keeps raising the band in terms of capital ratios, which is not exactly the same in Denmark where the regulation seems to be much more lenient. Is this creating you some kind of regulatory arbitrage, some distortion to competition in what you see in your Danish operations?

Torsten Hagen Jorgensen

No. I think you have a point around level playing field issues. So yes, we obviously have one of our Nordic peers that are at least currently exposed to somewhat more lenient rules I should say and then there is of course a transformation period and then that will get closer to where the rest of the Swedish banks are. And I think that there's a potential of course of concern and it can create competition issues not only in Denmark but also in the other Nordic markets and we have of course raised that concern.

Riccardo Rovere

And if I may follow-up just one second, with the transformation of your organization from subsidiaries to branches, if I'm not mistaken, if I remember correctly, I have seen the comments from Swedish authorities saying that if something went really wrong, the burden of let's say fixing Nordea would be mostly on Sweden's shoulders. Do you think that on the back of your transformation, any kind of systemic risk that of Citibank or whatever could be imposed to you again?

Casper von Koskull

I don't know. To be honest, I think it's too early to speculate in that. No, I don't think I can comment on that. I don't know.

Torsten Hagen Jorgensen

It's only speculation.

Operator

[Operator Instructions] We will take our next question from Daniel Do-Thoi from JPMorgan.

Casper von Koskull

Operator, this has to be the last question because then we need to catch a flight. Thank you.

Daniel Do-Thoi

The first one was I think Casper you mentioned this morning the positive repricing potential in Swedish and Finnish mortgages, but I noticed you didn't mention Denmark in that context. So should we not expect benefit to follow the new credit repricing? And secondly, in addition to the gains on Visa Europe, are there any other potential gains for example from property sales that could help your capital generation this year? Thank you.

Casper von Koskull

On your first question, yes, but obviously so Denmark is not exempted from repricing, but as you also point to new credit has been out there with some potential price adjustments and I think they will carry that out. And there's been a very intense discussion in Denmark about this so I think you should regard more our approach to Denmark or Danish mortgage repricing as a timing issue. So, obviously this is a window that we will try to exploit as quickly as possible. Then I don't think we can comment as such. We are always you can say investigating possibilities to divest assets that we are not the optimal owner of so that we actually are always pursuing. But aside from that, I don't think we can disclose that.

Daniel Do-Thoi

And just to clarify when you say window of opportunity, you mean the opportunity to potentially reprice down the line or an opportunity to perhaps -- sorry?

Casper von Koskull

An opportunity to reprice.

Rodney Alfven

So, this concludes this telephone conference. Thank you very much for attending and for all your questions and interest in us. If you have any further questions, please don't hesitate to call me, Andreas, or Emma. We will be open late tonight and Andreas will meet you in London tomorrow as well on the lunch presentation. Thank you and good bye.

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