Nordea Bank Abp · OMXHEX:NDA_FI
Nordea Bank Abp — Q3 2008 Earnings Presentation
52 slides from Nordea Bank Abp's earnings presentation, Oct 23, 2008
Slide 1: Interim Report January - September 2008
Interim Report January - September 2008 International telephone conference 23 October 2008
Slide 2: Disclaimer
Disclaimer This presentation contains forward-looking statements that reflect management’s current views with respect to certain future events and potential financial performance. Although Nordea believes that the expectations reflected in such forward looking statements are reasonable, no assurance
Slide 3: CEO Presentation
Nordea ” a 43 —— CEO Presentation
Slide 4: Despite extreme market conditions…
Despite extreme market conditions… 4
Slide 5: …Nordea delivers a strong result
…Nordea delivers a strong result Customer areas delivers according to plan, revenues up 10% in Nordic Banking and Institutional & International Banking Risk-adjusted profit up 5% in Customer areas – unchanged for the Group No reclassification made of interest-bearing securities out of the trad
Slide 6: Income statement summary
Income statement summary EURm Jan-Sep 08 Jan-Sep 07 Chg % Net interest income 3,707 3,139 18 Net fee and commission income 1,493 1,614 -7 Net gains/losses on items at fair value 703 893 -21 Equity method -21 29 Other income 67 69 -3 Total operating income 5,949 5,744 4 Staff costs -1,913 -1,773 8 Ot
Slide 7: Ambitious targets
Ambitious targets Long term financial targets Target 2007 Jan-Sep 08 TSR (%) In the top quartile of # 3 of 20 # 3 of 20 European peer group Risk adjusted profit (EUR m)¹ Double in 7 years² 15% 14.6%³ RoE (%) In line with top Nordic peers 19.7% 15.7% Capital structure policy Policy Dividend payout-ra
Slide 8: Risk-adjusted profit
Risk-adjusted profit Accumulated risk-adjusted profit Accumulated risk-adjusted profit 14.6% since target was introduced January 1 14,7% 15,1% 14,6% 2007 12,3% 14,1% Up 1.5% in Q3 8,3% 2,8% Q107 Q207 Q307 Q407 Q108 Q208 Q308 Rolling four quarter compared with FY 2006 EUR 2,107m Long-term target
Slide 9: Outlook for 2008
Outlook for 2008 Macroeconomic outlook is deteriorating and uncertainty increasing A gradual slowdown of lending growth for the remaining part of the year – lending margins are expected to improve Uncertainty for financial markets and consequently also for Nordea’s savings- related fees as wel
Slide 10: CFO Presentation
Nordea ” a 43 —— CFO Presentation
Slide 11: Income statement summary
Income statement summary EURm Q3/08 Q2/08 Chg % Net interest income 1,296 1,230 5 Net fee and commission income 480 518 -7 Net gains/losses on items at fair value 221 198 12 Equity method -25 22 Other income 24 24 0 Total operating income 1,996 1,992 0 Staff costs -635 -634 0 Other expenses -395 -40
Slide 12: Robust volume growth continues in most segments
Robust volume growth continues in most segments % YoY Q3oQ2 Total Lending, excl. repurchase agreements 14% 1%(2%)* – Nordic household mortgages 6% 0% – Nordic consumer lending 9% 1% – Nordic corporates 14% 0% – New European Markets 85% 17% Total Deposits, excl. repurchase agreements 13% 4%(5%) – Nor
Slide 13: Net interest income
Net interest income YoY Up 18% EURm 1 296 Strong growth in lending and deposit 1 181 1 230 volumes 1 143 1 092 Lending up 14% - continued support of customer demand Deposits up 13% Improved lending margins Third quarter with improved corporate margins reflecting normalised pricing of ris
Slide 14: Change in net interest income
Change in net interest income EURm YoY Q3oQ2 Volume driven 305 27 -Lending volumes 253 22 -Deposit volumes 52 5 Margin driven 102 43 -Lending margins 10 31 -Deposit margins 92 12 Orgresbank 60 9 Other, net 101 -12 Total 568 66 14
Slide 15: Structural Interest Income Risk (SIIR)
Structural Interest Income Risk (SIIR) EURm, annualised effect on NII* Q3/08 Q2/08 Q1/08 Q4/07 Q3/07 Increasing market rates, 204 244 238 235 246 100bp Decreasing market rates, 232 275 268 267 277 100bp SIIR slightly lower - positioning for volatile market rates Underlying position has been affe
Slide 16: Net fee and commission income
Net fee and commission income YoY Down 7% EURm Savings-related commissions down 17% 531 526 518 AuM down 15% 495 Shift from equity to fixed income funds – negative 480 mix effect Lower brokerage activities Continued increase in lending-related commissions - up 9% Strong increase in Cor
Slide 17: Net inflow in Asset Management in Q3
Net inflow in Asset Management in Q3 Net flows AuM, EURbn Net inflow in AuM of EUR 0.6bn Continued inflow in Nordic Private 0.5 Banking EUR 0.8bn in -1.7 -1.0 0.6 Net outflow from Retail funds EUR - -2.0 0.7bn AuM EUR 139bn - 15% lower than Q3 07 Q3/07 Q4/07 Q1/08 Q2/08 Q3/08 Nordic Retail f
Slide 18: Net gains/losses – focus on handling customer risk
Net gains/losses – focus on handling customer risk EURm YoY 893 Net gain/losses down 21% Customer areas only down 5% with strong 703 increases in Nordic Banking and Institutional & International Banking but negative valuation effects of EUR 100m Other areas affected by lower revenues from list
Slide 19: Net gains/losses – strong Q3 considering financial crises
Net gains/losses – strong Q3 considering financial crises Q3oQ3 EURm Unchanged revenues in customer areas 300 280 268 High demand for risk management products compensated for the negative 186 181 valuation effects of approx. EUR 50m Widening of credit spreads EUR 30m 78 Negative impact from
Slide 20: Income growth in Nordea (EURm)
Income growth in Nordea (EURm) 1.2% 0.5% -2.5% 69 -143 2.7% 26 -2.4% 6.8%* 154 1.6% -140 -0.2% -0.6% 3.4% 90 3.6% -9 -35 193 5949 5 744 Income Lending Deposits New Capital Other Asset Listed/Non Interest Eksport- Income Ytd/07 European Market Mgmt and listed rates finans Ytd/08 Markets products Fund
Slide 21: Expenses
Expenses YoY EURm 1,073 1,055 1,073 1,060 Up 7% - driven by investments in growth 993 29 33 areas 27 30 25 Staff costs up 8% reflecting increased 372 429 384 406 395 number of employees, investments in growth areas and wage inflation 644 634 635 FTEs up 8% of which NEM accounts for 4% - 596 61
Slide 22: Expense growth in Nordea (EURm)
Expense growth in Nordea (EURm) 2.0% -1.4% -41 6.5% 60 3.2% 88 2.7% 0.2% 7 3188 81 2 993 Expenses Ytd Wage increases Variable salaries Investments in Volume driven Efficiency gains Expenses Ytd 2007 grow th areas production costs 2008 22
Slide 23: Number of FTEs
Number of FTEs YoY 4 297 4 051 Up 8% or 2,400 FTEs 3 813 3 506 New European Markets +1,100 3 180 Nordic Markets +1,300 Approx. 3,800 recruited FTEs Approx 1,600 FTEs have left 29 464 28 944 Q3oQ2 28 595 28 148 28 215 Up 750 FTEs New European Markets +250 Nordic Markets +500 Q3/07 Q4/
Slide 24: Net profit
Net profit EURm YoY 761 764 Net profit down 11% 687 693 655 Shift in net loan losses approx. 9%-points Higher tax rate approx. 2%-points YoY – approx 4% QnQ Q3/07 Q4/07* Q1/08 Q2/08 Q3/08 * For comparison reasons the refund from the Finnish deposit guarantee system in Q4 2007 of EUR 120m repor
Slide 25: High profitability
High profitability Jan-Sep 08 23,6 % 22,7 20,6 21,4 20,8 Return on equity of 15.7% (19.5%) 18,0 19,1 Net loan losses of EUR 146m compared to recoveries of EUR 54m the same period last 15,7 year Higher tax rate RaRoCar 20.8% (23.8%) - high level despite market turmoil Nordic Banking 25% I
Slide 26: Despite extreme markets, Nordea funding operations has functioned well in Q3
Despite extreme markets, Nordea funding operations has functioned well in Q3 Total long-term funding issued (EURbn) In September approx. EUR 2bn long-term funding has been issued 24 Among the transactions Lower Tier II 20 issue (EUR 500m) Strong performance in covered bond markets in Denmark a
Slide 27: Well diversified funding platform
Well diversified funding platform Total external funding EUR 276bn Well-diversified and strong funding base Competitive edge from leading Nordic Europe CD/CP Fin. Inst. Net market position and strong and broad 7% 3% deposit base US CD/CP 7% 40% of wholesale funding from covered bonds (20% of t
Slide 28: Strong balance sheet – reflecting the business profile
Strong balance sheet – reflecting the business profile Loans to the public financed by deposits from the public and EUR 132 bn in wholesale funding, including covered bonds Equity EUR 17.8bn end September Total assets EUR 440bn Total liabilitiesEUR 440bn Loans to Deposits; the public; 155 185 To
Slide 29: Loans to the public mainly financed by deposits
Loans to the public mainly financed by deposits Total lending to public, EUR 272bn Mortgage lending 33% Lending to public 67% Funding of lending to public, EUR 185bn Funding of mortgage portfolio, EUR 86bn Wholesale funding Wholesale 16% funding 39% Covered bonds 61% Deposits 84% 29
Slide 30: Wholesale funding mainly long-term
Wholesale funding mainly long-term Total long and short-term funding, EURbn 150 000 Total wholesale funding approx. EUR 125 000 100 000 132bn – 64% long-term financed 75 000 Insignificant long-term funding 50 000 matures the next 12 months 25 000 0 Liquidity buffers in Group Treasury 2004 2005
Slide 31: Increases in RWA due to volume growth
Increases in RWA due to volume growth EURbn 214 218 205 201 194 190 194 RWA incl. transition rules EUR 177 171 176 218bn, up 1.9% since Q2 Decelerating growth rate Approval of IRB Retail will reduce RWA with approx. 12% Q3/07 Q4/07 Q1/08 Q2/08 Q3/08 RWA incl transition rules RWA excl transitio
Slide 32: Strong capital position
Strong capital position Tier I ratio Reported Tier I ratio 7.0% 8,3 Tier I ratio excl. transition rules 7,9 7,9 7.9% 7,0 7,0 7,0 Full IRB implementation approx. 9% End of year 2007 Q2/08 Q3/08 Tier I incl transition rules Tier I excl transition rules 32
Slide 33: New capital policy
New capital policy Ongoing approval process for internal-rating-based (IRB) models for Retail credit portfolio, expected to result in reduced RWA by approx. 12% In light of the current financial crisis, new potential regulation and an expected new benchmark for capital levels, a new capital poli
Slide 34: Customer areas
34 Nordea ™ Customer areas
Slide 35: Operating profit by markets
Operating profit by markets Banking Banking Banking Banking New European Denmark Finland Norway Sweden Markets EURm Q308 Chg Q308 Chg Q308 Chg Q308 Chg Q308 Chg Total income 464 8% 435 3% 252 25% 456 7% 120 76% Total expenses -212 7% -193 7% -118 6% -242 9% -57 46% Profit before loan losses 252 10%
Slide 36: New European Markets
New European Markets Poland Latvia Estonia Lithuania Russia EURm Q3/08 Chg % Q3/08 Chg % Q3/08 Chg % Q3/08 Chg % Q3/08 Chg% Total income 42 83 18 29 11 19 10 72 43 153 Total expenses -24 71 -6 22 4 6 4 28 -19 58 Profit before loan losses 18 100 12 33 7 29 7 113 24 380 Operating profit 18 100 10 14 6
Slide 37: Financial Institutions and Shipping Oil services & International
Financial Institutions and Shipping Oil services & International Financial Institutions Shipping, Oil services & International EURm Q308 Chg Q308 Chg Total income 89 5% 82 39% Total expenses -45 5% -13 8% Profit before loan losses 44 5% 69 47% Operating profit 44 5% 70 48% Q308 Q307 Q308 Q307 RaRoCa
Slide 38: CRO Presentation
Nordea ” : - ENE = ee CRO Presentation
Slide 39: Strong starting point when credit cycle turns
Strong starting point when credit cycle turns Share of total lending, EUR 272bn Strong diversification in loan portfolio Other NEM 8% Total lending spread over four largely equally 5% DK 24% sized markets SE Low risk mortgage portfolio accounts for 26% FI approx 1/3 of total lending 19% NO *
Slide 40: Well diversified corporate portfolio
Well diversified corporate portfolio Total corporate lending per industry, EURbn Well-diversified lending mix Volume Q3 Share of lending% measured by customer Real estate 38.6 24.8 segments and industry Financial institutions 17.8 11.4 Industrial commercial services 16.9 10.9 Corporate portfolio
Slide 41: Well diversified Shipping portfolio
Well diversified Shipping portfolio Total exposure, EURbn 12.9 Well diversified exposure to the 10.3 10.7 10.5 10.8 10.0 9.8 Other Liners shipping industry Gas tankers Chemical tankers Underweight towards the container sector Crude tankers Cruise & Ferries Volume growth affected by the Product
Slide 42: Small changes seen in the up- and downgrading of corporate customer exposure
Small changes seen in the up- and downgrading of corporate customer exposure EURm 35 000 30 000 25 000 20 000 15 000 10 000 5 000 0 6+ 6 6- 5+ 5 5- 4+ 4 4- 3+ 3 3- 2+ 2 2- 1+ 1 1- Exposure end Q3 2008 Exposure end 2007 42
Slide 43: Increased loan losses following the economic downturn
Increased loan losses following the economic downturn Loan losses, EURm Net loan losses EUR 146m 151 152 140 121 Loan loss ratio of 8 basis points 98 89 New collective provisions in the Baltic 36 21 countries of EUR 16m in Q3 -13 -6 Collective provisions already made -63 -85 also in the Nord
Slide 44: Impaired loans increase from a low level
Impaired loans increase from a low level Impaired loans and recivables, EURm The overall credit quality remains strong Modest increase in impaired loans 670 524 542 515 576 Half of the increase in impaired loans explained by increases in in the Baltic countries Majority of impaired loans are
Slide 45: Continued reduction in impaired loans gross in most industries
Continued reduction in impaired loans gross in most industries Impaired loans gross 2,5% 2,0% 1,5% 1,0% 0,5% 0,0% Q107 Q207 Q307 Q407 Q108 Q208 Q308 Real estate Construction Transp & communication Shipping Manufacturing Financial operations Corporate customers Personal customers 45
Slide 46: Impaired loans and total allowances
Impaired loans and total allowances EURm Q3/08 Q2 2008 Q1 2008 Q4 2007 Q3 2007 Q2 2007 Impaired loans, gross, individually 1,677 1,478 1,443 1,432 1,459 1,468 assessed Allowances for individually assessed 583 547 562 603 632 659 loans Impaired loans, net, individually assessed 1094 931 882 830 827 8
Slide 47: Impaired loans
Impaired loans Impaired Allowances Impaired EURm loans Individually loans gross net Retail trade 158 62 97 Real estate management and investment 153 35 117 Industrial commercial services etc 142 77 65 Other materials (chemical, building materials etc) 129 37 91 Consumer staples (food, agriculture et
Slide 48: Total market risk (VaR) increased since year end
Total market risk (VaR) increased since year end EURm 30 Sep 30 Jun 31 Mar 31 Dec Value at Risk (VaR) level in 2008 2008 2008 2007 Nordea’s trading and Total risk, VaR 110.1 82.1 60.1 58.9 investment activities increased Interest rate risk, VaR 110.1 95.6 63.4 57.2 The VaR model was modified in
Slide 49: Strong starting point also in the Baltic countries
Strong starting point also in the Baltic countries Well diverisified Baltic lending portfolio Well managed risks - selective growth strategy in the Baltic countries – 2.7 % of total loan portfolio Public and other corp. Household Growth 2007-2008 to customers with high 27% 35% credit rating Medi
Slide 50: Loan losses remained at low levels
Loan losses remained at low levels Loan losses in basis points of total Baltic lending Insignificant individual loan losses Ytd September (annualised) 30 Impaired loans of EUR 123m or 1.45% of total lending Collective allowances for the Baltic countries amounting to EUR 107m Total lending in
Slide 51: Third quarter in summary
Third quarter in summary High business momentum in Customer areas Credit quality remains strong Strong capital position Stable and well-diversified funding base Maintained ambitious long-term financial targets All growth initiatives are developing according to plan 51
Slide 52: Interim Report January - September 2008
Interim Report January - September 2008 International telephone conference 23 October