Nordea Bank AB (NRDEF) CEO Casper von Koskull on Q3 2018 Results - Earnings Call Transcript

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About: Nordea Bank AB (NRDEF)
by: SA Transcripts

Nordea Bank AB (OTCPK:NRDEF) Q3 2018 Results Earnings Conference Call October 24, 2018 3:00 AM ET

Executives

Rod Alfvén - Investor Relations

Casper von Koskull - Chief Executive Officer and President

Christopher Rees - Group CFO, Head of Group Finance & Treasury

Analysts

Matti Ahokas - Danske Bank

Antti Saari - OP Equities

Magnus Andersson - ABG

Andreas Hakansson - Exane

Sofie Peterzéns - JPMorgan

Bruce Hamilton - Morgan Stanley

Riccardo Rovere - Mediobanca

Paulina Sokolova - Barclays

Rod Alfvén

Okay, so welcome to this historic event. This is the first time where Nordea will present its quarter result here in Finland. [Foreign Language].

My name is Rod Alfvén, I am Head of the Investor Relations. And we will start with a presentation by the President and Group CEO, Mr. Casper von Koskull. And then there will be a short Q&A with him as well. And then that will be followed by individual interviews for you who like to have that with Casper and the rest are welcome to stay in the room where there would be a Q&A session with me and our Croup CFO, Mr. Christopher Rees.

Casper, welcome.

Casper von Koskull

Yeah, welcome to Helsinki and good to see you all here. I can see some old familiar faces and some new faces as well, but it's good to be here.

Rod's said something about historical, historical effect that we making the Q announcement in Helsinki. This is also a historical quarter because it's a quarter that culminated with the Bank moving into the Banking Union and moving its head office to Finland, a very historic moment.

By moving to the Banking Union, the Bank gets a stable, predictable environment to develop its business going forward and level playing field with our biggest European peers, which is very important. This move to the Banking Union is in the interest of our customers, our employees and also our shareholders. And I am very pleased that we have now concluded that successfully without any major hiccups.

I emphasize of course that the move does not change our operating model being a Nordic bank, a leading Nordic bank in each of our whole markets, Norway, Sweden, Denmark and Finland. We are a leader in each of those markets in all of our businesses and that will not change. What is changing is the fact that we are now in the Banking Union and supervised by the European regulators.

We should also remember the heritage of Nordea, our uniqueness actually comes and our strength comes from more than 300 banks that ultimately form Nordea. Understanding our history that we have a history going back 180 years for example in Denmark. H.C Andersen was actually one of our first clients and no I'm not telling any stories.

We have a legacy history that goes way back in all of our home countries. And this actually explains our unique operating model, our unique structure and our strength and getting this Bank now into the middle of the Banking Union is I think a major achievement.

Another thing we have done very successfully over the last five what I would actually say particularly over the last three years is actually becoming even more focused on our four whole markets, the Nordic markets, really making sure that we serve our customers in the best possible way and address the big structural changes that are taking place in the banking sector by focusing and that has also meant that we have actually withdrawn from for example five years away from Poland. We have in Russia, reduced our exposures meaningfully actually dramatically. We actually sold also our Russian retail business back in time. We have recently announced the divestment and concluded our divestment of our Luxembourg Private Bank. We have announced the divestment of our Baltic operations. And on the more offensive side, we have actually announced an acquisition on Gjensidige Bank in Norway, strengthening our position really as the number two leading bank in Norway.

We have become more focused. Why have we done it? We have done it to reduce operational risk and/or financial risk and we've done it to become more focused because with focus, you deliver better value to your customers. So now we are truly Nordic focused and our heart in the heart of the Banking Union. This structure simplified structure which actually is also result of a major shift that we did in 2016 to branch our bank makes us a simple focus bank. It also makes us and gives us a position to structurally take down cost, become more efficient and really drive through the digital transformation that we have been talking about. So focused simple bank in terms of structure and we've done a lot over the last three years to actually get here. That's why I'm super pleased with all the achievements we've done.

Before I will actually go to the results, I'd like to address a topic that has been discussed particularly in the media in the last yeah weeks or months, also a topic that I took as my main number one priority three years ago when I was appointed to this job. I said risk and compliance and particularly financial crime prevention is our number one objective and we have worked heavily and hard over the last three years on that. Financial crime prevention is something that is part of our daily operation, it's not something that you do on the side. We monitor customer activities every day millions of transactions. When we see something suspicious, we report it, that's the way you should do it. We have very close, very good cooperation with all the authorities related to this. But of course, we do not and we're not allowed to talk on individual cases that come out however much somebody would like to. We do not accept and that's why we have put this as our number one priority already some time ago that our platform is used for money laundering. And that's why we actually have this very close collaboration.

Over the last several years, the last three years, we have invested heavily into this area. We have more than 1,500 people dedicated only to work on this. We have 12,000 frontline employees that are in direct contact with our customers and have been trained really to deal with these issues. Just to give some numbers, as a said we deal with millions, not millions we actually on an annual basis, we deal with almost two billion transactions. Of those we can see maybe in really in the hundreds of thousands of transactions that we dig deeper and we make actually in the thousands of reports to the authorities when we see suspicious activity. That's the way we combine and combat this. I've always said that this is complex and I think the industry underestimated the complexity in the past and that's why we need to be humble from the past as an industry underestimated its complexity. But I'm very determined to do our part but I've also urged that this is a societal issue, is not a bank issue, it's banks, authorities, police need to work close together to combat financial crime, because crime and criminals they will always try to stay ahead of whatever we do. This is something that we are very dedicated to do and have been doing and I'm very comfortable where we stand on this.

On Baltics, because I get the Baltic question, yes we have an ownership in Luminor, it was our Baltic business that we merged with that of DNB, there Baltic business creating Luminor one of the leading banks in the Baltics. And when we've done it and when did it, I just want to emphasize when we did it, we did a very thorough due diligence using external experts on naturally all financial aspects but also financial crime. When we now sold it to Blackstone, we have done it again. So this bank has really gone through a very thorough assessment on where it stands on these issues.

When we look at nonresident deposit volumes in the bank, they are at a very low level. That's not the nature of this bank. The bank has not been subject to any fines, investigations in the past. There has been no whistle blowing that we have done. There are no mirror trades. And as far as I'm aware, there is nothing going on now as well. So I just want to put that kind of out there and behind us.

Going then to the results. My own view, third quarter typically for a bank like Nordea with a lot of fee commission and fair value. Income is a seasonally low quarter. Seasonal low quarter because it actually is a quarter where we have the summer months where particularly customer transaction activity is low. And that has actually been the case this time. So I'm not happy with the income development, it is a soft quarter as far as I'm concerned and I know there is nothing structural there, I know that we can improve that, because this is really.

When I look at the net interest income, I look at look at you know lending volumes stable. This is mostly fee commission and I would say fair value that comes from a tougher trading environment and maybe less seasonally less transactions. Pleasingly, we are delivering on cost. I said, we would deliver on cost, we have deliver of cost and we will continue deliver on cost. Our costs are down.

As we said, when we look at also coming in the fourth quarter, fourth quarter season, the cost usually are higher, so you should expect that but our cost trend overall is down. And we will continue go down also in '19 and we have a very clear target in '21 as well.

Our credit quality is stronger than in many, many years, we have a credit loan loss provisioning at area very low level meaningfully below our long term average. And I see no change in this. I see no change really in the credit quality nor the loan loss levels in certainly the coming quarters. And again and I think I've done it every time I've stood here, I can report that we have never had capital levels of the level we have today. We are now more than 20% core Tier 1 ratio, but I will say already now, you will not see this at this level in the future and that has nothing to do with that we will have less capital is just because we will start calculating or mathematically this calculation will be done differently. But anyway we have higher capital levels than we've ever had before.

Maybe looking at specifically numbers. As I mentioned NII flat, so stable net interest income. Volumes are actually growing but there are some pressure on margins particularly on the household side. And then I said already, fee commission, fair value really affected by the environment not structural in my mind. Total expensive year-on-year down 3% and even on the quarter down as well. Net profit, yes down 7% from last quarter. I've already mentioned the loan loss levels and the capital levels. So overall weaker than I had wanted but not alarming for me.

NII, I have mentioned flat. You can see that we have stabilized that given that we have in the past de-risk the bank, actually we've taken out almost 10% of areas which we don't do anymore, which have had higher margins but actually we have taken down those volumes in a very orderly and very planned way. We have now stabilized that line and we as I said see lending growth. Yes, we do see pressure on margin particularly on the household side. But overall no drama.

Fee commission, really as I say seasonally lower corporate advisory fees. We had an extraordinary high level in the Q2. And when you look at particularly this line, you need to look at it somewhat longer time line. We had Q1 was somewhat softer, Q2 was very strong, now Q3 is somewhat softer and of course I would hope then that we can reverse that going forward. There's also some other fees seasonality issues like custody fees, we don't actually report in Q, are not accrued in Q3. But pleasingly asset under management which we have now stabilized actually grew in the quarter by EUR 4.5 billion Euros, mostly driven by performance but it's actually grew, because we've had historically very strong asset management growth and in the latest quarters, we had a kind of a leveling off before we actually expect to see further growth coming in again.

I want to emphasize this when we talk fee commission, I get the question, is that something structural, particularly when you say corporate transactions. We have never had a stronger position in our corporate investment bank before. When I look at your position, you look at really four segments, advisory, equities, bonds and loans. And Nordea is actually the leader in all four key segments, actually which how you actually measure the position of your corporate investment bank. And this is as you see is not vis-à-vis our Nordic peers, it's vis-à-vis all of our peers be international or domestic. So the franchise is in place and I've always said this is very important that you are a leader in order for you over time, also to continue generating revenue in those income lines that I have just mentioned.

Fair value again seasonally lower volume, but most importantly, it is actually the environment. In the last month of course, we've seen volatility go up, uncertainty go up, we will see what impact that will have on the business, but this business of course is driven by more volatility, more uncertainty, because we are there to help our customers manage risk and I would expect and hope to see that come through on the line, but that's probably too early to make any major promises yet. So fair value.

Cost, we are taking down cost across the board. The three year period really from the end '15, '16, '17 and '18 was about building a much more solid foundation for the bank as it comes to risk compliance, IT, et cetera. We've done that and we now can structurally start taking down cost and we have delivered and will continue to deliver also going forward.

Staff numbers are down 3%, we of course taking predominantly first out consultants but also our own staff levels are down. And this is also cost down, despite the fact that depreciation and amortization is actually going up. So the underlying like-for-like cost of course is coming down.

Again I emphasize when we - you then do, start drawing a kind of linear line, you shouldn't do it particularly on the fourth quarter and that seasonally have somewhat higher cost, but trend wise, our costs will continue going down.

It's not only about reporting cost I think, for bank it is actually a real cash spend. Cash cost is the thing that actually matters when you think about a bank, because the cash cost is the one that actually builds capital, cash cost is the one that you can use for dividends, but cash cost is the capital build. So and we continue on the cash side, cash cost side actually, delivering also on our target with cash cost actually coming down by 9%. Shows what we have done in the past, shows that we are heading where we are heading.

And credit quality mentioned already, loan loss levels of 8 basis points. Even the 8 basis points is actually driven by a collective provision related to potential impact of this dry summer particularly in Danish agriculture. So it's a collective provision. And loan losses as I mentioned also in the coming quarters, I don't see a trend change if anything I see, I see these levels at least in the coming quarter, you cannot look too far out.

And the gross impairments are also down and this is mainly related to a decrease in oil and offshore related exposures. Something that again was part of as I said earlier that de-risking that we have done over the last three years. So that all actually is playing through showing that we actually delivering those in our numbers.

Common Tier 1 equity, show it just to see you see that number last time, because you're not going to see that in the future, mostly driven by lower REA also because of credit quality i.e. again emphasizing the quality of the credit book improving and being and on a very solid basis. Here is now when I have already mentioned twice, you're not going to see 20% core Tier 1 anymore, is the fact that we will now or we are now migrating from a Swedish framework into the harmonized ECB framework in terms of calculating capital. This migration or this journey is not going to - is not ended here, it's actually will end, if it never ends but when it will be, it really be end of next year when we see the first script i.e. the determination of our capital requirement by the ECB or the supervisor which is SSM. So this migration we will see kind of the end result of it end of next year.

In this transition period, we have committed to maintain our capital levels unchanged. So when you then make that translation from Swedish to European in the transition period remembering that we will get the final one then end of next year, we will have a requirement of 13.7 and our forecasted ratio is 15.4. So that's kind of - those are the new numbers but those are with the same capital, so there is no, this is mathematics if anything and now we need to just start using, to starting to get used to new numbers but otherwise it's the same.

To me, the important thing to our employees but mostly to our customers is customer satisfaction. I've talked about customer satisfaction in putting the customer in the center everything we do and we have now seen and continue to see improving customer satisfaction, particularly in the segment which has been hot and mostly hit in terms of at least image and satisfaction has been the Swedish mass market household sector. I take that as an example because it is the one that has been publicized the most. We have now in the last three quarters meaningfully improve that both in our internal measurements but also external, which shows that we are doing the right things. We're doing the right things to be in front of our customers.

The same trend i.e. improvement trend is in all our markets in all our segments and I of course expect that to continue. And the same time humble because we're not where we want to be, where I want to us to be. So we will continue that hard work. And everything we actually doing now in terms of transforming bank make it easier to use more available to our customers. We'll approach and tackle this issue of customer satisfaction. This is our number one measurement of our success and I think it's going in the right direction. Being again humble that we need to more and we will do more.

Another area which is close to me personally, but it is also close to all of the employees at Nordea and I think this is something that will be increasingly important for all of us for our society and that's sustainable. Sustainability, everything entails but particular climate change. We have taken, we aim to continue, we have already taking a leadership position in sustainability, sustainable finance and actually having and helping our customers create a more sustainable future society.

We are very committed to this. We are convey recommitted to have that with our customers but also making sure that these products, these services, these solutions are available in the market, you need to want to be a pioneer on this side. In this quarter alone, we have again a number of milestones that we've done on sustainability. Only in this quarter, we have in all our life and pension, cut our carbon footprint by changing the portfolio composition to more sustainable underlying companies by 70%. This is something that we has been recognized also internationally and received accolades because this is a way where we can show and lead the way on what can be done on this front.

We have been also selected most sustainable assurance company here in Finland. We have launched our first green mortgage. Mortgages this quarter early in the year, we were one of the first banks in Europe that actually launched Green Loans, certainly we were the first in Europe, a Nordic bank that launched the European loans. And the pipeline for these loans I think we've given out about EUR 150 million of Green Loans and the pipeline is actually growing. So we actually have in every segment in our businesses, we have green products. And maybe on a personal loan, I think I am very proud, I will be later this year and actually in this month even in Paris when we launch the new Principles for Responsible banking. This is actually a new principles that we would like to see kind of adapted in the whole banking industry. We're one of 28 leading international banks, the only Nordic bank been invited by the UN to really create these principles and we will launch these later in November in Paris. This is something that we all need to take seriously. We take it seriously and we will do our share and more on sustainability. It's part of our DNA and part of our, who we want to be.

So I have maybe the ones that are for the first time in these sessions, we want to finish with something interesting, actually shows what's happening on our daily banking lives. We talk a lot about digitalization, what does that mean? What we want to do with digital solutions, smart, simply use digital solutions make everyday banking simple to our customers. So they can do things in a way they want, wherever they want in a way with a few pushes of buttons digitally either online or on their mobile.

And one of the things that we have launched, which I think is exciting is a digital investment robot or actually a digital savings robot. And it's or her name is Nora. We've launched Nora in Denmark, Sweden and Finland, will be launched in Norway as well. And it is where you can in a very simple way start saving. Just when we look at the numbers and this is early days, 10% of people who actually use and test Nora actually start saving immediately. Of those that actually do it, 90% decide to do it on a regular basis. So we actually encourage people to save, think about their wealth creation and think about their future. 10%, 90%, this is something that really and 60% which I think is the remarkable number. 60% of these people that are now using Nora have never saved before. So it is actually something. And I have to admit that was not what we expected. We expected this would to be to the ones that had been saving before. These are people who have never saved before and actually now decided that this is easy simple way to save and realize that hey, maybe I need to do this.

And then you may say okay, but this is digital, of the people who have used Nora, they are from 18 years old to 98 years old, so we have the whole kind of range of people. And I don't know if my - our technical people here, there will be a video of intro on Nora, I think but will get started when I press this that I have not. Does anybody know, please help?

[Advertisement]

So that was a little bit of a clip of, not the future that was a clip of today and just an example of many new ideas, many new things that we want to bring to make everyday life easier, a bank easier to deal with where you can deal with it anywhere, anytime and more available, but probably yeah.

Question-and-Answer Session

A - Rod Alfvén

Thank you, Casper, and thank you, Nora. We have time for a few high level questions to Casper before he moves to individual interview. So please Matti, please. We have a microphone here as well, yes.

Matti Ahokas

Matti Ahokas, Danske Bank. You mentioned Casper that you think the revenue weakness is mainly seasonal and not structural. Could you elaborate a bit more on that and is the reason why I believe so that Q4 has actually started on a more normal level compared to the previous quarter?

Casper von Koskull

Good, good, trick question at the end. Maybe some signs of it, but when you look at just the items that we had to go looking, fee commission line and particularly the decline actually comes from transactions that we do particularly in the corporate investment bank, the large part of is that. And then of course when you look at the fair value line, it is all about really both customer activity, trading and then the trading environment in general. And there I mean I don't see that that has changed structurally. Our market position, a position vis-à-vis customer hasn't changed, so that's why I'm actually quite confident that this is, so there's nothing. I would be more concerned if the other lines would or the composition of that change in there even the fee commission would have been different but no even though that composition, I'm pretty comfortable.

Matti Ahokas

If I may have a quick follow-up also. Kind of looking at the cyclical development recently, clearly being signs that the cycle is weakening globally. Is this a concern to you and how do you see the development going forward?

Casper von Koskull

As a bank, no. Of course I'd like to, we all like an up cycle rather than down cycle, but as a bank, we are - when you look at what we've done particularly in the last three years in terms of repositioning the bank, de-risking the bank, putting it in on the platform that we have done, I feel very comfortable. Of course I'm not sure we're there yet, but of course there is I think of course signs that kind of we've had one of the longest up cycles in history and maybe not in Finland but certainly kind of in the U.S. and at some point that will turn. But I - will that then depends on where that leads. I don't see kind the recessionary elements any anytime soon, but I think having to say that peak cycle might be behind us, I think is a fair comment. But the bank hasn't been in a better position to actually to be there, it's in an environment like that and we are in a very good shape to actually support our customers when or if that would happen.

Rod Alfvén

Anymore? We have room for one more question here from the audience. Anymore? Please.

Unidentified Analyst

Yes, hello. Anna Gorna [ph] for Reuters News. We met in the past few months a few times and on those occasions, we've asked about this Danske Bank's money laundering. On those two occasions, you told us that you didn't see any or you didn't see the money laundering probe Affecting Nordea in any way, so now this is changed. Just a second. What kind of action is Nordea now planning on taking within the company to very fine to inspect the claims that have been made by the report and this really come in a complete surprise to you.

Casper von Koskull

I don't think there's anything new here. I would stick to my, what I've said before. I have seen nothing new. I see accusations being put to authorities. I've always said I'd like to see. We react to information internally. I said we do deal with this every single day. When we see it internally, we reacted. If we get it from external sources, we react to it. We work with authorities and I wish I could do it again. And on this particular case, this is an allegation, the authorities haven't taken a stand, there's nothing new.

Rod Alfvén

Antti, please. Take the final question here.

Antti Saari

Antti Saari from OP Group. Yes, I would like to ask how you see the margin pressures developing going forward, especially in mortgage side.

Casper von Koskull

If you put it kind of in - now it's a very technical question. I think it's you look at the four markets, there is margin pressure particularly in Sweden, where I think there the margins are structurally higher than in the other Nordic markets. There's been particular pressure in Finland. I think in Norway if anything I think is healthier, we've seen margin relatively stable in Denmark as well. Finland, too early to say where that we lead will it continue, I don't know, I can't say. But I think the market probably where you see it mostly is in Sweden. But this is now in the mortgage side. When we look at corporate margins, I think there are relative, of course there's always pressure but there is a relatively stable actually on the corporate side.

Rod Alfvén

Okay, this ends this session.

Casper von Koskull

But, thank you. I think as I said, it's been a historical quarter, it's been a first here in Helsinki and I look forward seeing you all here also in the future. Have a have a great day and a great continuation of the fall. Thank you.

Rod Alfvén

Thank you. So those of you who like to have individually interviews with Casper, please follow Kathy and her team and move out there. And then the rest of you are very welcome to stay. We also have people from the telephone conference here. We have heard it's a bad sound at a telephone conference, but the technicians are working intensively with that. So hopefully that will be solved. Otherwise, you are more than welcome to join us here in Finland next time.

So I would like to welcome Chris, our CFO on stage.

Christopher Rees

Thank you. Glad to be here. Now the microphone works. And I guess before we start, I just would like to say [Foreign Language]. Anyway, welcome to Finland that means, if I pronounced that in any form. Good to be here and let's kick off.

Rod Alfvén

Yes, let's kick off with questions. And those of you in the audience, please start and then we will invite the telephone conference within short. Do we have any more questions from the audience here?

Christopher Rees

And then we take the sound of the - on the conference.

Rod Alfvén

Yes. So then we welcome the telephone conference. Operator, please?

Operator

Thank you, ladies and gentlemen. [Operator Instructions] We'll now take our first question from Magnus Andersson from ABG. Please go ahead, your line is open.

Magnus Andersson

Yes, hello. I hope that you hear me, because I hardly hear anything. There is lot of sounds in the background. But, do you hear me okay?

Christopher Rees

We hear you loud and clear.

Magnus Andersson

Okay, good. Just getting back to net fee commission income, the message here that nothing is wrong, it's normal seasonality Q3 is always weak, et cetera. The way I see it is the weakest numbers is [Technical Difficulty].

Christopher Rees

Thank you, Magnus. I hope you can hear us. I have to say the line cracked up a little bit towards the end, but I think we got the main questions. So first to go to net fee and commission income. And yes, we always know that there's a seasonal effect in Q3, but this is a as you point out a lower than normal seasonal effect, so this is a weak revenue quarter. Let's be blunt about that. But why is that? So let's take the components themselves separately. So let's comment a bit on the seasonality. Clearly as Casper pointed out, there's custody fees, there were some cost seasonality, and there are some accounting effects as well. So there are some specific key points that I do expect to come back in Q4 because the seasonality will, they will be booked more in the second half or the Q4 compared to the first - compared to Q3.

So yes, however if you then look at what the underlying businesses. So you got the, let's call it the corporate and brokerage fees, Q2 was a record quarter for them. There were very few transactions booked in January, August and September compared to history. And therefore that comparison is quite significant. It was a low quarter for that fee in commissions. And I have challenge the business quite hard to see what the outlook is and given the position that Casper showed in terms of the league tables, especially that we're the first, we're number one in the M&A league tables for the first time in the Nordics for a very long time if ever. So the positioning is really strong going into Q4. And when I challenge the business, the pipeline is looking solid as well. So, franchise wise, this is strong, it was a weak activity in some of those transactions, it was of course a very strong Q2.

Then you look at the other elements of it which I think is worthwhile pointing to, it's our wealth business. We have over 2017 and 2018 you know the story there, we had enormous growth, so quite frankly we've been somewhat a victim of our own success. And the first half of this year, we have seen some outflows. Hence, we starting the Q3 at a slightly lower level. But as Casper said, due to performance, we actually have an increasing AuM. We have also seen an improvement in our flows. We see inflows in private banking, we see inflows in retail, in every single country bar Sweden at the moment. We have inflows in life and we have an institutional sales in one of the core products where we have had challenges in wholesale distribution, we have now seen net inflows. However, we do have had - we have had some institutional who are in source of mandates. So there is net outflows in the quarter but it is significantly lower than before.

As we go forward, therefore if you look at asset management business, there is fewer fund this quarter which is one of the seasonal effects and that's really the driver of that performance. The other real revenue here is broadly flat. And hence as you look into Q4, I would say probably the average of three quarters is a good estimate of where we end up.

Then the second part of questions was net fair value. We have guided as you said between 275 and 325 which I think is under normal circumstances. I think this market has been in a structural change this year. We have a lot of introduction of regulation and we have proactively reposition this business to really leverage the Nordea and the Nordic platform across all of the Nordics. And given where volatility has been, we've had a flat yield curve. There has been less customer activity this quarter than in the previous quarter.

However, volatility is picking up. And activity has been picked up. We'll see where that leads to. But it is a challenging one to predict. Market environment is challenging. So I would say as we go forward, we probably lower end of that range if not even slightly below at least in the short term until market comes slightly more to normality and activity picks up and then I think will come back more towards the range that you mentioned Magnus. Is that helpful?

Magnus Andersson

Yeah. Sure. And just to be clear, your last comment on that commissioning income, was that will allude into the average of the first three quarters that it should be a good pre-act for Q4 i.e. around 760 now?

Christopher Rees

That's a fair way to look at this. But again it depends, our market conditions and of course on activity. And what I think Casper wanted to say is that the business that has the net fee in commission, the biggest chunk of it that is what is a volatile number, it is going to go up and down based on activity and we have to be looking at this over a period of time, so.

Magnus Andersson

Thank you. And then just on the cost, on this transformation costs, you booked 40 million in the first three quarters of the year, and you talked about reaching 150 in connection with Q4 '17 report and you project for the full-year there?

Christopher Rees

We will continue our cost plan or reduce costs and on a local currency 2019. That means we are getting those plans in motion now. We all saw what happened in Q4, 2017 we took a greater provision because we would likely do that in Q4 as well, hence our restructuring charges will likely go up in Q4. Over the course of the year, I think it would be slightly lower the 150, I think it would be around 120.

Rod Alfvén

And just to be clear Magnus, the first three quarters, we took 50 million, we took 8 million in Q3 isolated.

Magnus Andersson

[Technical Difficulty]

Christopher Rees

I can say that those that data is for those years is actually slightly erroneous. This is actually a payments between Nordea Bank Estland land and Nordea Bank Finland that has been booked as offshore transactions. This has been communicated and this will be corrected. When you correct for that, there you will see a very much more stable payments line and market share for those periods in line with the rest.

Magnus Andersson

Okay. Thank you very much.

Rod Alfvén

Okay. Thank you. Any more questions from the telephone conference?

Operator

Yes sir. We'll now take our next question from Andreas Hakansson from Exane. Please go ahead, your line is open.

Andreas Hakansson

Hi, good morning, everyone. Well Magnus covered most of the P&L questions, so let's go back to that. But just on the AML issues again, Casper said that there was nothing new. Does that mean that whatever has been reported by been broader, you recognize it and this is stuff that the regulator has been disgusting with you before or have you not seen what he is saying and therefore haven't seen anything new?

Christopher Rees

We have not actually seen the report. There is obviously a lot of speculation and what's in it. We want to - we will always cooperate and work with our authorities and we will work with authorities and have the authority on the topic and not speculate on some reports that we have not seen. And in that respect, there's nothing new.

Andreas Hakansson

Okay. [Technical Difficulty]

Christopher Rees

Given that the list is not public, we have not been able to compare notes, no.

Andreas Hakansson

Okay. Thanks.

Operator

Thank you. We'll now take our next question from Sofie Peterzéns from JPMorgan. Please go ahead.

Sofie Peterzéns

[Technical Difficulty]

Casper von Koskull

I didn't hear the question.

Sofie Peterzéns

[Technical Difficulty]

Christopher Rees

We've actually be done two sets of due diligence. We firstly, when we set up the JV, we did due diligence and we had external parties look doing case file reviews. As part of the sale of Luminor, there has also been due diligence by an external accounts party they are doing sales, doing case file reviews. As a moment they are part of these transactions and hence for now we are not willing to share them publicly.

Rod Alfvén

No. We'll not publish that, no.

Sofie Peterzéns

Okay. Did you find any suspicious activity or customers needed these reports?

Christopher Rees

Obviously, the deal went through, I think that's the best answer I can give.

Sofie Peterzéns

[Technical Difficulty]

Christopher Rees

So the Luminor, I don't know if you saw the presentation in terms of the journey that Nordea has taken. We are - we have been focusing our business on our core markets, which is the Nordic regions. And that the transaction with Luminor started on the joint venture with DNB was several years before any of these AML issues in the Baltics came up and this is always being a strategic choice, a business choice for us to focus on our core Nordic markets and hence this is just a part of that journey. This has nothing to do with AML. That's - this is a business decision. That was done before the…

Sofie Peterzéns

[Technical Difficulty]

Christopher Rees

Sorry, it's a very bad sound quality. Could you please repeat?

Sofie Peterzéns

[Technical Difficulty]

Christopher Rees

The key reason - when we did the joint venture with DNB, one of the key reason was to create scale and be a significant player in the Baltics, to create those efficiencies and scale to drive the profitability even better that actually Nordic could do on its own. So this was an opportunity to create a core Baltic Bank. That is why we did that by participating in that joint venture. And consequently has not developed, we have now the opportunity to actually divested and really have a standalone entity that is independent overtime and so on. So it was to create a more significant bank in the Baltics.

Rod Alfvén

And unfortunately, Sofie, this is not a profitable business which is the key reason why it was not core. I mean the normalized ROE is still around mid-single-digits, around 5%, 6% the normalized. Now, they having much better profitability because they do right backs. That if you take a normalized loan loss level, they are at around 5%, 5.5%, so that's very important reason why we sell it.

Sofie Peterzéns

Okay. And just a final question. How should we think about future M&A, and - yeah future M&A?

Christopher Rees

So as - we don't have any big transformational M&A on the pipeline at all. We are here to focus on our business and drive it both organically, but clearly we want to invest in the Nordics. And if something tactical like we saw early this year with it comes up, where we can expand in our core markets with our core products with the businesses that are complimentary and then we have an opportunity and we will evaluate each opportunity individually as they come.

But on top of that, it is worth saying that in terms of our digital development and in terms of certain development in our asset management business, we are looking at small partnerships, ventures and/or small bolt-on to drive some of the product development, but those are not necessarily what you would classify as M&A. But it is very, very important in this environment that we're in that we do drive some of the new businesses with partnerships given the changes in the digital world.

Sofie Peterzéns

Thank you.

Christopher Rees

Thank you, Sofie. Next question, please.

Operator

Next question is from Bruce Hamilton from Morgan Stanley. Please go ahead.

Bruce Hamilton

Hi, Good morning. My questions actually answered, so I'll pass on to the next. Thank you.

Christopher Rees

Good to hear you Bruce. Next question please. We'll see you tomorrow.

Operator

Next question is from Riccardo Rovere from Mediobanca. Please go ahead, your line is open.

Riccardo Rovere

Good morning to everybody. I hope you can hear me. A couple of questions if I may. The first one if you can elaborate a little bit on the on what we can expect on from treasury [Technical Difficulty].

Christopher Rees

Sorry, the line was very bad, so didn't catch your first question. And the second question I guess was respect to RWAs. And just to be clear this is quarter, we have seen some migration particularly in the corporate book both in terms of the fact that we have de-risk has low REA and it has actually continued this quarter. So you could expect some element of migration although I think is flattening out. And then of course at the same time, we are investing our business. So we have a view of wanting to utilize our capital for our core clients. So there is an element of growth in there as well. The first question though, I didn't quite catch.

Riccardo Rovere

[Technical Difficulty]

Christopher Rees

You're right that we show an improvement in group functions and other and that was mainly driven by treasure, that's correct. We think this level now 27 million, it's the level we do expect in the coming quarters as well where you can say between 20 and 25 is a realistic number.

And then just to be clear, will be a little bit volatile within that range overtime because it is related to some hedging component as well, the rate FX and so on. So - but that's what Rodney said is a fair estimate as on the forward.

Riccardo Rovere

All right, thank you.

Rod Alfvén

Thank you, Riccardo. Next question, please.

Operator

Thank you. The next question comes from Paulina Sokolova from Barclays. Please go ahead, your line is open.

Paulina Sokolova

Hi. Thank you for taking my questions. I have few, one is you previously communicated in your report that you would see funding regulatory investigation results in 2018. Did you expect this to be the case? And then the second question is on capital. Do you have an idea of management of [Technical Difficulty]

Christopher Rees

Well, I didn't quite catch your first question again, but I will answer the second and maybe we can go back to the first one if you can repeat then. Yeah, we have - as I said we have committed to the nominal capital level from the SREP that we received from the Swedish FSA the joint supervisory. And we - that we obviously commit until the 2019 SREP. Within that there is the commitment on the requirement which basically becomes that commitment and it's also commitment on our Pillar 2. We have not changed our capital policy and our capital policy indeed has a management buffer based on the old regime of 50 to 250 basis points and we will continue to maintain that same nominal amount. We also therefore do not - have this changing our dividend policy either throughout this period.

So hence to the first question, would you mind repeating?

Paulina Sokolova

All right. Yeah, sure. [Technical Difficulty]

Christopher Rees

Yes, that is still the case. That's correct.

Paulina Sokolova

Okay. Thank you.

Rod Alfvén

Thank you. Operator, before next question we have a question from the audience. So please take a pause. And Matti, you are invited please.

Matti Ahokas

When you refer to margin pressure in the general comment and especially Sweden, is it because do you see pressure in the market or actually that you cut your own prices. I'm kind of trying to kind of reconcile this development. Is it more the market or the fact that you have got your own mortgage rate in Sweden?

Christopher Rees

I mean you know the journey back in there, I think it was Q4, 2016 early 2017, we did not cut our margins in certain areas compared to others. And part of this was we do not want to, we thought the market that time was very frothy and there was some systemic risk in it. Obviously towards the back end of 2017, the market corrected. And we did not necessarily, we did not therefore in 2017 grow with the market as a matter of fact, the volumes are flat in 2017.

And as such, given that the market had corrected, we then also made an adjustment in January and in April on our list prices and to grow that. Most of that margin is actually into the NII now for Sweden. And we are and have seen in this quarter a trend shift, we are now growing in Sweden. We are not growing with the overall market growth, but we're growing the front book somewhere between around 4% for the moment. So that trend shift has happened.

In terms of market and I think it's a bit of both. We have new entrance, they are taking market share. If you look at the last three years, there are smaller players taking more market shares and they might be doing that with some price, but we are more concerned about the margins that we have and we have been positioning ourselves competitively and we are growing. And just to come back a little bit then and talk about the other countries just say have a good sense of the outlook, Norway we are growing with the market. Norway has been under margin pressure, was has to do with the NIBOR rates. We have recently increased our margins in Norway, so we are coming into Q4 with a little bit of tailwind in Norway.

Finland is a more challenging market. There has been significant in certain segments, very low margins, which we have chosen not to participate and hence we are losing some Market share in Finland. And Denmark mortgages, and this is not mortgages, we growing pretty much with the market and margins are broadly good. So that sort of where we are at, where we're going into it. So Sweden margin pressure, but we hope to grow more. Norway, margins are changing and the rest a little bit stay as cool as we go into Q4 on the household.

And then if you look at the corporate side, just like Casper said, volumes in the corporates have seen a trend shift. And also back end of the Q1, it has start increase and is accelerating. In the SME space, we're also seeing a trend shift. And if you look at the 1% sort of volume growth in the overall corporate space and this includes some areas where we are actually decreasing like Russia and Norway, you could see, if you analyze that we're growing up about 3% to 4% going forward. Margin pressure is more mixed but it's more stable. So hence I would say there's a more balanced view of NII going into Q4 and next year.

Matti Ahokas

I may have a quick follow-up on that as well. Now we saw already the Norges Bank hike rates in last month actually and we saw the kind of pressure on from the NIBOR to mortgage rates, we're actually seeing slightly than in Sweden as well at the moment assuming that the Norges Bank hikes rates in December, do you believe the banks will be able to pass this on to customers or is the competition so tough that will kind of take care of it?

Christopher Rees

I'm not going to speculate what other banks do nor am I actually going to speculate what we do. We will make a business decision at that point in time when and if rates do indeed move.

Rod Alfvén

Thank you. It seems like there are no further questions from the telephone conference. Is that confirmed?

Operator

That is correct. There are no questions on the phone.

Rod Alfvén

Thank you. So are there any more questions here from the audience? Okay, so thank you very much for participating in this historic event. Very sorry for the sound quality. I hope it improved over time. Now we are assume going to London, you're more than welcome to call us anytime, but we will sit in the plane between three and six and then we are in London and you're most welcome for lunch on Friday. And I said, you're most welcome to call anytime. With that I say [Foreign Language]