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Update on 2014 and strategic priorities Morgan Stanley 11 th Annual European Financials Conference Torsten Hagen Jørgensen, Group CFO
Update on 2014 and strategic priorities
Morgan Stanley 11th Annual European Financials Conference
Torsten Hagen Jørgensen, Group CFO
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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 can be given that such expectations will prove to have been
correct. Accordingly, results could differ materially from those set out in the forward-looking
statements as a result of various factors.
Important factors that may cause such a difference for Nordea include, but are not limited
to: (i) the macroeconomic development, (ii) change in the competitive climate, (iii) change
in the regulatory environment and other government actions and (iv) change in interest rate
and foreign exchange rate levels.
This presentation does not imply that Nordea has undertaken to revise these forward-
looking statements, beyond what is required by applicable law or applicable stock
exchange regulations if and when circumstances arise that will lead to changes compared
to the date when these statements were provided.
Disclaimer
2 •
The relationship bank business
model has delivered
14
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Very little volatility in earnings from
continuing operations since 2008
Lowest net profit of EUR 2.3bn and
highest EUR 3.6bn since 2008,
profitable every single quarter
Nordea business model strength
Strong profit generating capacity
Nordea
key
characteristics
4 •
Low volatility Strong capital generation
Strong capital generation – CAGR of
13% since 2005
Average annual operating profit /
annual net loan losses 2008-2014 =>
6.3 times
Average operating income of EUR 9.5bn since 2008
Annual pre-dividend net profit to REA improved to 2.5% in 2014
Annual RoE above 10.5% every year since 2008
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EURm 2014 2013 Chg %
Net interest income 5 482 5 525 -1 2
Net fee & commission income 2 842 2 642 8 10
Net fair value result 1 425 1 539 -7 -6
Total income* 10 224 9 891 3 6
Total income** 9 847 9 891 0 2
Total expenses -5 366 -5 040 6 9
Total expenses** -4 832 -5 040 -4 -1
Net loan losses -534 -735 -27 -26
Operating profit 4 324 4 116 5 8
Operating profit** 4 481 4 116 9 12
Return on equity (%)** 11.6 11.0 +60 bps -
CET1 capital ratio (%) 15.7 13.9*** +180 bps -
Cost/income ratio (%)** 49.1 51.0 -190 bps -
• Positive underlying
income and cost
development but
significant FX impact
• Operating profit up
+12% and ROE
improving despite higher
capital and negative FX
impact
• Continued increase in
CET1
*Includes other income
**Excluding non-recurring items: restructuring costs of EUR 190m, non-recurring capital gain of EUR 378m, and
charge for impairment of intangible assets of EUR 344m
***Previously estimated Basell III CET 1 ratio
2014 Financial results
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Lower costs
RoE – strong underlying business performance
Excluding restructuring charge in Q2/14 and IT impairment in Q3/14
and gain from divestment of Nets in Q3/14
Business
performance
External
factors 2014 2013
11.0%
12.9%
11.6%
+1.9% -1.3%
Lending
margins
Ancillary
income
Lower
loan losses
Capital
increase
Other
Volumes
Interest
rates
FX
6 •
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Nordea confirmed as one of the safest banks globally
7 •
A second AT1 issuance - record low spreads
A 10 year EUR 1bn senior unsecured at MS+43 bps
Tightest priced covered bond issuer at MS-10/-2 bps*
*A dual tranche, 5.25 years and 12 years, outside of Germany
EXAMPLES OF ISSUANCES DURING Q1/15
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-2%
0%
2%
4%
2012 2013 2014 2015E*
0,7
0,9
1,1
1,3
1,5
1,7
Pro-longed period of low growth and interest rates continued
• EU economy lacks
drivers,
expansionary
monetary policy
• Pressure on deposit
margins, lower
funding costs
• Only slow recovery
and increasing
geopolitical risk
• Only limited volume
growth and
increasing focus on
asset quality
• Significant FX
impact in 2014 on
income and costs
• Current FX-rates
indicate similar
negative impact
also in 2015
GDP Interest rates FX**
Q3 14 Q1 14 Q2 14 Q4 14
EUR/SEK
(+5%)
EUR/NOK
(+5%)
0
0,2
0,4
0,6
0,8
1
Euribor 3m
Stibor 3m
Sweden
Norway
Denmark
Finland
*Nordea estimate
**Indexed, 1.1.2014=1
EUR/USD (-22%)
EUR/RUB
(+43%)
Q1 15 Q3 14 Q1 14 Q2 14 Q4 14 Q1 15
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*Portfolio of total loans to the public, excluding reverse repurchase agreements
Finland Russia
Oil Danish agriculture
• Slight improvement in household and
corporate PD’s
• Loan losses at moderate level of 17
bps, down from 20 bps
• Slow growth but underlying macro
conditions are stable
• Credit exposure mainly towards large
int’l Russian, and Nordic, corporates
• 86% of credit portfolio in USD or EUR
- financing large Russian corporates’
international operations
• Loan losses are at low levels – limited
risk on increased loan losses
• Limited risk of increased loan losses,
stress tests performed on customer
level
• Likely negative effect on Norwegian
economy, mitigated by lower interest
rates, weaker NOK and sovereign oil
fund spending
• Agriculture sector affected by world
market price pressure; negative effect
on crop, milk and pork prices
• Polarisation between strong and weak
farmers; collective provision of EUR
23m in the quarter
22% of portfolio* 2% of portfolio
2% of portfolio 2% of portfolio
Special attention areas
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5 040m
~0,10 ~0,10
~0,10
~0,10
4 832m
~0,20 ~0,10
~0,20
~0,10
~0,10
2013 Re-investments& cost inflation
Distribution &internal service
Streamlining andIT insourcing
FX 2014 Re-investments& cost inflation
Distribution Internal service Streamlining andIT insourcing
FX 2015E
EURbn
10 •
Cost development is driven by initiatives across the board
2013 Re-investments
&
cost inflation
Distribution
& Internal
services
Streamlining
& IT-
insourcing
FX 2014 Distribution
Streamlining
& IT-
insourcing
Internal
services
FX 2015E
~6% reduction
Re-investments
&
cost inflation
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Continued disciplined capital management
REA development, EURbn
Q4 13 Q1 14 Q2 14 Q3 14 Q4 14
155.3 158.9
152.2 152.5
145.5
REA efficiency key priorities for 2014
• Continued REA improvement in
line with existing REA program
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14.8%
4.5%
3.0%
2.5%
2.0% 0.8%
1.8%* 0.9% 15.7%
MinimumCET1
required
Systemicrisk
buffer
Capitalconservation
buffer
Countercycl.buffer
(0-2.5%)
Systemicrisk in P2
SwedishmortgageRW floor
Other risks inP2 incl
NorwegianRW floor
SFSAassessment
Currentmanagement
buffer
Nordea 2014
Pillar 1 combined buffer
requirement
Pillar 1 minimum
requirement Pillar 2
requirement
Current
Management
buffer
~0.2%
Current
assumption
Estimated Common Equity Tier 1 Capital Requirement in 2015 (%)
Total SFSA
assessment
Nordea capital considerations
*Based on the Swedish FSA Memorandum on Capital Requirements for Swedish Banks (May 8, 2014)
Strategic priorities 14
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14 •
SIMPLIFICATION
Three transforming drivers for the banking industry
Balance sheet
regulations
Operational
regulations Digitalisation
Not over yet More to come Behaviour changing
Fewer, more flexible core products
Simplification of customer data
Simplification will be the lever in our transformation
15 •
Investment in new IT platforms
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Nordea strategic priorities
Improved income mix and growth
Continued cost efficiency
Disciplined capital management
Stringent risk management
Strategic priorities
Build on global product
capabilities and superior Nordic
distribution power
Sustain actively managed
portfolio with low volatility
1
2
3
Leverage on Pan-Nordic
platforms and scale
opportunities
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Retail Banking – Household
Branch optimisation and cash removal
695
238
992
718
Cash locations
Branch locations
-30%
-67%
17 •
Improved income mix and growth
Continued cost efficiency
• Increase share of wallet
• Mortgage growth with stable margins
• Strengthen online service, sales and
advice
• Branch optimisation and
cash removal
• Product and service clean-up and
simplification
• Process automation/consolidation
• IT simplification/develop future
platforms for full economies of scale
0
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* Year-end 2011 compared to year-end 2014
Retail Banking – Corporate
Volume development 2012-2014*
Lending REA
-10%
-23%
18 •
Improved income mix and growth
• Increase share of wallet
• Active customer selection to shift
business mix
• Mitigation of negative interest rates
through actions towards “Professional
depositors”
Disciplined capital management
• Improved quality of existing customers
(financial strength, collateralisation)
• Continued improvements of capital
management
• Strengthened risk management models
• Cross-sales of capital light products
0
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SOO = Shipping, Oil and Offshore * Share of important relationships (%, y-axis) vs. Quality index score (x-axis)
Wholesale Banking – CIB and SOO
0
25
50
75
100
(40) 0 40 80
Gre
en
wic
h S
urv
ey*
Nordea
Peer 2
Peer 1
Peer 3
Peer 4
Peer 5
Strong large corporate franchise
2012 2014
Fe
e &
co
mm
iss
ion
inc
om
e +15%
19 •
Improved income mix and growth
• Increase share of wallet, customer
selection to shift business mix
• Accelerated shift from lending to
capital market financing/syndications
• Strengthening of advisory
value propositions
Disciplined capital management
• Active business selection with
focus on profitability
• Management of low yielding
relationships
• Agency/intermediation role,
optimised rating models/AIRB
0
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Improved income mix and growth
• Selective strengthening of international
distribution
• New York equities distribution
• Improve competence pool in select
markets and products
Continued cost efficiency
• Highly cost-efficient operation
• Acceleration to e-markets
• New simplified payment platform
• Further long term efficiencies expected in
line with Group Simplification deliveries
C/I ratio of Capital Markets, FY2014*
36
48
67 68 68 68 72 72 75
79 80 83
88
Nordea Nordic and
International peers
*Best proxy to Nordea CMP used as benchmark. All ratios calculated in local currencies.
WB – Capital Markets & Transaction Services
20 •
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*External principles
Wealth Management
62 60 56
50
2011 2012 2013 2014
39 38 36 32
2011 2012 2013 2014
% C
os
t / In
co
me
in P
B
Bp
Co
st
/ A
uM
-19%
-18%
Pursuit of scale and profitable growth
RO
E*
in L
&P
2013 2014
12.5% 16.7%
+4.2
21 •
Improved income mix and growth
• Strengthen sales, advisory and
service excellence
• Grow internationally through
Distribution Partners
• Develop digital offerings
• Leading retirement offering
Continued cost efficiency
• Benchmarking with global best
practices
• Scalable and reliable IT platforms
• Performance culture
Update on 2014 and strategic priorities
Morgan Stanley 11th Annual European Financials Conference
Torsten Hagen Jørgensen, Group CFO
