Goldman Sachs Financials Conference. Sustaining profitability despite challenging funding conditions. Frans Lindelöw

Transcription

1 Goldman Sachs Financials Conference Sustaining profitability despite challenging funding conditions Frans Lindelöw Group Executive Management Berlin, 13 June 2008

2 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 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 and (iii) change in interest rate level. This presentation does not imply that Nordea has undertaken to revise these forwardlooking 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. 2

3 Key effects from the credit crunch The price on capital has increased in all markets Increased focus on stable and diversified funding sources Improved risk-adjusted lending margins More risk avert investors and customers More on-balance sheet lending less off-balance sheet exposure A gradual shift in credit cycle 3

4 Price on capital has increased Spreads between interbank rates and treasuries continues to be significantly higher level than pre-crises-level Corporate credit spreads coming down from extreme levels will not reach spring 2007-level Increased risk recognition in pricing of credits Significant higher risk awareness among investors Spread between Euro Libor 3m and Euro T-bill 3m Risk premium on European corporate bonds* 1,4 1,2 1 0,8 0,6 0,4 0,2 0 Jan Feb Mar Apr May Jun Jul Sep Oct Nov Dec Jan Feb Mar May Jan Feb Mar Mar Maj Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr * itraxx Europe index comprises 125 European entities 4

5 More on balance sheet lending less off-balance sheet exposure Traditional banking back in fashion more on balance sheet lending Segments of off-balance sheet banking have disappeared e.g. SIV-financing Originate-to-distribute-model under heavy fire capital requirements to increase on all type of securitization Increased capital requirements strong balance sheets Well diversified portfolios a strength Increased focus on credit quality Originate-to-distribute-model did not encourage firm credit standards 5

6 Increased focus on stable and diversified funding sources Nordea benefiting from well recognized name Loans to the public financed by deposits from the public and mainly covered bonds Satisfactory loans to deposit ratio end March adjusting for mortgage portfolio Equity EUR 17.8bn end March Total assets, EURbn Total liabilities and equity, EURbn Loans and receivables to the public 141 Deposits and borrow ings from the public Debt securities in issue * Loans and receivables to credit institutions 254 Matched funding Deposits by credit institutions Shares and Derivatives 101 Derivatives Liabilities to policyholders 6 Interest-bearing securities Other Subordinated liabilities Equity Other *Mainly covered bonds

7 Multiple funding sources in Nordea Danish covered bonds 13% Swedish covered bonds 9% EMTN 2% MTN 2% CD 11% *Including covered bonds CP 5% Subordinated 3% Deposits by credit inst. (net) 2% Deposits from the public 53% Strong and well diversified funding base including a stable household deposit base Loans to deposit 129%* Largely normal funding operations Nordea benefiting from a well recognised name and high rating (Aa1/AA-/AA-/AA) Short-term funding and covered bond markets in the Nordic countries continues to be fully operational Issuance of a new Euro covered bond in beginning of April at mid swap +11bps, only somewhat higher than previous issue in November Mid May Nordea issued a 2 year EUR 2.5bn bond at Libor +43bps No maturing subordinated debt during

8 Improved lending margins in Q1 reflecting shift in risk EURbn 110 Corporate lending % 1, ,4 83,5 84,1 88,0 92,1 94,7 97,5 101,9 106,3 1,3 1,2 1,1 60 1,0 50 0, ,8 0,7 10 0,6 0 Q1/06 Q2/06 Q3/06 Q4/06 Q1/07 Q2/07 Q3/07 Q4/07 Q1/08 0,5 8 Volume Margins

9 More risk avert customers Nordea Household savings net sales, by product group 4 quarters rolling, EURbn 9,0 8,0 7,0 6,0 5,0 4,0 3,0 2,0 1,0 0,0-1,0-2,0-3,0-4,0 Q1/05 Q2/05 Q3/05 Q4/05 Q1/06 Q2/06 Q3/06 Q4/06 Funds Equities and Bonds Savings Accounts Structured Products Life & Pensions All Products Q1/07 Q2/07 Q3/07 Q4/07 Q1/08 Strong increase in net sales of savings product since 2005 In 2007 and 2008 sales was mainly seen on savings accounts - driven by increased yields, risk awareness and successful savings campaigns Market turmoil has lead to outflows from equity funds within Asset management Best offer on saving accounts SE DK FI NO Q1/ % 2.00% 2.80% 2.35% Jun % 5.00% 6,35% 9

10 but outflow in managed assets the last year Net inflow EUR m Strong sales in institutional client activities in Q Retail funds affected by financial market volatility since summer 2007 together with substitution to account products with attractive terms European Fund Distribution outflow concentrated to two large value funds Historic strong net inflow development in Private Banking but the equity market downturn affected in Q Q2/06 Q3/06 Q4/06 Q1/07 Q2/07 Q3/07 Q4/07 Q1/08 European Fund Dist. Private Banking Retail funds Institutional clients Life & Pensions Total net inflow 10

11 Higher interest rates also supporting flows from current account to savings accounts EURbn Total deposits Nordic Banking Q206 Q306 Q406 Q107 Q207 Q307 Q407 Q108 Corporate deposits Transaction accounts Savings accounts 11

12 leads to slightly lower average margins on household deposits EURbn ,8 61,2 62,1 57,9 53,3 54,2 54,7 55,2 51,4 Q1/06 Q2/06 Q3/06 Q4/06 Q1/07 Q2/07 Q3/07 Q4/07 Q1/08 % 2,5 2,3 2,1 1,9 1,7 1,5 1,3 1,1 0,9 0,7 0,5 12

13 A gradual shift in the credit cycle Loan losses, EURm Q1/07 Q2/07 Q3/07 Q4/07 Q1/08 Gross loan losses Reversals Net loan losses Net loan losses of EUR 21m was recorded in the first quarter, following 15 consecutive positive quarters New provisions remained at an unchanged level while the amount of recoveries has decreased Credit quality in the well diversified lending portfolio remain strong no specific areas of concern 13

14 Well diversified lending portfolio Share of total lending, EUR 254bn Corporate 55% Public sector 2% Household 43% Lending to corporates, EUR 139bn Well-diversified lending mix measured by customer segments and industry Stable industry split over time Stronger growth in corporate lending than household lending the last six months Real estate Contstruction 10% 11% 8% 28% Agriculture & Fishing Transport & Communication Shipping Trade & Service 15% 10% 4% 5% 4% 5% Manufacturing Financial operations Renting, Consulting and other services Other 14

15 15 Robust business model and outstanding platform to leverage from

16 Nordea with an outstanding position to leverage from Global, European, Other*) 19% Denmark 22% # 2 Norway 11% # 2 Sweden 22% # 2-3 Finland 21% # 1 5% New European Markets A unique customer base Approx. 10 million personal customers 700,000 corporate customers Strong distribution power More than 1,300 branches Economies of scale Cost base/rwa 2.0% (average among Nordic peers 2.3%) Financial strength EUR 14.5bn in Tier 1 capital Corp. lending % # Market rank HH lending % % Share of Group income (size of bubbles) Strong funding position 16 *) Includes mainly International Private Banking and Funds, Shipping and Oil Services, Financial Institutions Divisions and other operations and Group Functions

17 Strong capital position % Tier 1 ratio excl. transition rules 8.2% Tier 1 ratio 7.2% incl. transition rules (7.0% in Q4) Changed transition rules leads to an increased Tier I ratio Approval of IRB approach for Retail portfolio is expected late Q1/07 Q2/07 Q3/07 Q4/07 Q1/08 Tier 1 Basel I Tier 1 Basel II excl. transition rules Tier 1 Basel II 17

18 18 Clear growth strategy towards Great Nordea

19 A profitable organic growth strategy with clear initiatives Existing Nordic customers and new customers Selected global and European business lines New European Markets Household strategy Migration to premium segments Attract new customers to premium segments Focus on Sweden Private banking Added advisory capacity Capture internal pool of potential customers Corporate strategy New Corporate Merchant Banking concept Cash equity and corporate finance Growth in sale of value-added capital markets products Based on strong competencies Reinforced #1 position in shipping Reinforced strong international position in Private Banking and Fund Distribution Selective growth strategy Expanded distribution capacity in Poland Russia broaden focus to include all segments Selective growth in the Baltic countries Next level of efficiency to support sustainable growth Free up time for sales Unify product delivery processes Unify customer processes Next phase of improvements cross units Employer branding and recruitment, talent management and leadership competencies 19

20 Significant potential in migrating household customers to higher segments Income (Index) Customers * (millions) , ,5 3, x 2, , , x ,0 2.5x ,5-100 Private Banking Gold** Silver Bronze 0,0 Income per customer Q (Silver customer = 100)*** Number of customers Gold and Private banking customers are engines for revenue growth A Gold customer generates 7 times higher income than a Bronze customer and a Private banking customer 4 times a Gold Approx. 1 million potential Gold customers in the customer base strong source for further growth 20 * Nordea services approx 2 million customers outside customer programmes ** Excl children under 18 years *** Changed customer definitions from Q108 mainly affecting Private Banking segment

21 Strengthening the corporate offering Total income corporate customers, EURm % 897 Service model combining Nordea s strong product capabilities with local presence The customer team concept Corporate Merchant Banking and Large Corporate Individual solutions involving relationship managers and specialists from all relevant Nordea units The relationship manager medium and small corporate segments One single point of contact for customers Key initiatives: Q1/07 Q1/08 Corporate Merchant Banking Corporate Finance and Cash Equity Structured market products Launching new concept to segment small 21

22 22 Strong business development in all segments within New European Markets 40 New European Markets total income, EURm Q1/07 Q2/07* Q3/07 Q4/07 Q1/08 * Orgresbank consolidated from Q An increasingly important component in the long-term growth strategy Selective growth strategy on track 11 new branches opened in Poland in Q Continued prudent credit policies in New European Markets enable Nordea to grow with stable credit quality Income up 135% - 40% in Poland and the Baltic countries Close to 5% of Group income Total lending up 71% in Poland and the Baltic countries Total number of customers increased with 30% Number of gold customers up 66% Cost/Income ratio continues to improve (from 60% to 53%) despite investments in branch network C/I in line with Nordic Banking

23 A clear strategy for growth Target CAGR 7 years horizon Revenue growth Cost growth Risk-adjusted profit 7-10% 4-8% >10% Existing business Nordic grow th initiatives New European Markets Global and European niche businesses Volume and salary increases + inflation Investments in New European Markets Investments in Nordic grow th initiatives Improved efficiency Prof it grow th Bringing Nordea from Good to Great 23

24 Key messages Limited impact from market turmoil Well diversified funding sources Increased funding costs leads to a re-pricing of the lending book and is not hurting lending margins Changed customer behavior effecting the revenue structure but Nordea is maintaining a strong overall position on the savings market Growth strategy on track selective organic growth in focus 24

25 Goldman Sachs Financials Conference Sustaining profitability despite challenging funding conditions Frans Lindelöw Group Executive Management Berlin, 13 June 2008