Keefe, Bruyette & Woods 2012 European Financials Conference 19 September 2012 Niklas Ekvall Head of Group Treasury
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, (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. 2
Nordea s focused business model Risk focus solid credit quality and capital position Nordea s funding operations Key messages
Nordea s focused and prudent business model Relationship banking is key Resources efficiently used on core business Well diversified and balanced model Fully integrated model across countries and business units Very risk focused The Nordics and its structure as the home market 4
The relationship strategy has been instrumental to Nordea Profitable organic growth Execution of the relationship strategy 2007/2008 2008/2009 2010/2011 2011/2012 Middle of the road Prudent growth New Normal Generating resources to invest in customer experience Balancing cost, risk and capital Help the customer through the crisis Supporting customers to accelerate out of the crises Focus on restoring ROE secure customers can finance their plans ~20% ROE CT1 at 7% ~11% ROE CT1 at 11% 5
and continues to drive performance Relationship strategy Performance in New Normal Close and lifelong relationships with our customers = High loyalty deep knowledge Full wallet Low cost to serve Capital efficiency Low risk High ROE Capital efficiency Funding efficiency Liquidity efficiency Cost efficiency RWA optimisation Roll-out of new rating models and model for counterparty credit risk Review of collateral agreements Diversified funding base with short and long term issuance Covered bond platforms Increase deposit volumes Improved liquidity management Liquidity premia framework Limit awareness Fine-tuning of models and data Best in class branch network FTE reduction IT development cost control Large number of other cost reducing initiatives 6
Strengthened household customer relationships Total relationship customers 3 300 3 100 2 900 2 700 2 500 2 300 2 100 Household relationship customers up 42% since 2007 Generates more income More satisfied customers Better risk control 1 900 Number of Gold and Private Banking customer, millions 7
Successful - customer relationship strategy - Leading Nordic Wholesale Banking platform 100% 90% Nordea Important relationships* 80% 70% 60% 50% 40% 30% 20% 10% Peer 1 Peer 2 Peer 3 Peer 4 0% -20 0 20 40 60 80 100 120 Greenwich Quality Index** * ** Important relationships are banks that are considered important to all domestic and international services. The Greenwich Quality Index reflects a normalised composition of all quantitative scores shown on a scale from 0 to1,000. Deviations from the mean value. 8
Successful customer relationship strategy - Swedish corporate customers as an example Lead Relationships (%) Product Cross-sell Effectiveness (%) Share Strategic Thinking (%) 33 33 43 47 56 64 62 68 38 44 47 59 2008 2009 2010 2011 2008 2009 2010 2011 2008 2009 2010 2011 The 1 or 2 most important bank or house bank used for domestic and/or international services The average number of products bought from the bank divided by the average number of products used by its customers With which bank customers share their strategic thinking Source: Greenwich Associates Large Corporate Banking surveys 9
Nordea s focused business model Risk focus solid credit quality and capital position Nordea s funding operations Key messages
Risk focus and diversification An integrated and centralised risk and capital management function as well as diversified credit portfolio composition Integrated and centralised risk management framework Nordeas credit portfolio is well diversified both in terms of industry sector and geography Industry Geography Products Risk awareness is incorporated in the business strategies Clear risk, liquidity and capital management frameworks, including policies and instructions for different risk types, capital adequacy, capital structure and renumeration 11
With its inherent diversification strength 56% corporate lending and 44% household lending 85% of the portfolio in the Nordic countries Q2 2012 Credit portfolio by country, EUR 350bn Credit portfolio by sector, EUR 350bn Other 9% Latin America 1% USA 1% Asien 1% Other OECD 0% Other non OECD 2% Nordic countries and Poland, Baltics and Russia 91% EU countries 4% Nordic countries, Poland, Baltic countries and Russia. EUR 320bn Denmark 96.9 Sweden 88.3 Finland 55.6 Norway 57.6 Poland 6.8 Baltics 8.6 Russia 5.9 Retail trade 4% Shipping 4% Consumer staples 4% Industrial commercial services 4% Other financial institutions 4% Other, public and org 9% Other 13% Public Sector 1% Real estate 13% Household 44% 12
Nordea generates low credit losses over the business cycle Loan loss ratios, Q1/02 Q2/12 20 10 Bps 0-10 -20-30 Credit risk appetite 25bps -40-50 -60 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 12 13
and shows overall solid credit quality Total net loan losses, EURm 245 207 166 242 263 218 217 Continued low loan losses in Norway, Sweden and Finland Elevated levels in Denmark and Shipping 118 112 Q2/10 Q3/10 Q4/10 Q1/11 Q2/11 Q3/11 Q4/11 Q1/12 Q2/12 14
Nordea s business model has proven highly effective Total operating income, EURm 10 000 9 000 8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 Total operating income 2001-2011 (EURm) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Net interest income Net commission income Trading income Other income Low volatility in earnings due to diversification in terms of geography, industry sectors and products Main focus on traditional banking Universal and diversified banking model Customer-driven capital markets operations The model has proven resilient on income and profitability 15
and with expenses under solid control Total expenses, EURm 1 275 171 1 242 1 266 1 276 1 290 Largely unchanged costs YTD in local currencies Adjusted also for variable salaries costs are down 0.4% Nordea will deliver flat costs for a prolonged period of time Q2/11 Q3/11 Q4/11 Q1/12 Q2/12 One-off restructuring charge 16
profit is one of the most stable among European banks Profit before tax development through the financial crisis (Indexed) Index = 100 120 100 80 60 40 20 Nordea Nordic peers* European peers** 0-20 -40 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012-60 -80 * Nordic peers: Danske Bank, DNB, SEB, SHB, Swedbank ** Aggregate of a selected number of banks in the European peer group: BBVA, BNP Paribas, Commerzbank, Erste, Intesa, KBC, Santander, SocGen, UniCredit
This gives strong capital generation Core tier 1 capital, EURm Continued strong profit generation Generated capital of EUR 6.9bn since 2006* In addition distributed EUR 6.3bn to shareholders Strong capital generation gives good flexibility *Adjusted for rights issue 18
which together with strict RWA control Risk-weighted assets (RWA), EURbn* RWA decreases due to: 182 180 183 185 182 181 Improved credit quality Decrease in market risk FX increases RWA Q1/11 Q2/11 Q3/11 Q4/11 Q1/12 Q2/12 * Basel II excluding transition rules 19
generates a clear increase in Core tier 1 ratio Core tier 1 capital ratio, % (excl. hybrids)* Increase despite continued business growth Lending growth of 16% RWA reduction of 2% Focus on capital efficiency gives result Improved ratio by 180 bps since Q2/10 * Basel II excluding transition rules 20
CRD IV and IAS 19 impact offset by RWA efficiency and roll-outs Core tier 1 ratio impact 1.0% 1.1% CRD IV impact on RWA by EUR 14bn CVA 11.8% 0.2% 11.7% Asset value correlation IAS19 calculated at end 2011 Roll-outs and efficiency effects RWA by EUR 19bn 21
Nordea s focused business model Risk focus solid credit quality and capital position Nordea s funding operations Key messages
Securing cheap funding while maintaining a prudent risk level Key principles Balance sheet Appropriate maturity matching Appropriate currency matching Appropriate interest rate matching Appropriate capital level Prudent liquidity risk management Access to funding Diversify funding sources Instruments and programs Investor base Ensure trust of: Investors & capital markets Rating agencies Support domestic markets Nurture and develop strong home markets Utilise covered bond platform in all countries General Avoid concentration risk Be proactive stay in charge Never let the markets or regulators decide for us 23
Global issuance platform provides well-diversified funding sources Nordea ranks highly in terms of its ability to manage different markets Raised approx. EUR 17bn equiv. of long-term funding in H1 2012 Norway Sweden Denmark Covered Bond Senior Unsecured 32% Private Placement Senior Unsecured Capital 100% 68% 100% CD>18 months NOK 11bn ( 1.4bn) SEK 23bn ( 2.6bn) Balance Principle Japan (Sam urai) USA Sw itzerland Euro (incl. Finland) 100% 20% 1% 22% 8% 46% JPY 120.2bn ( 1.2bn) 79% 100% 24% US$ 3.5bn ( 2.7bn) CHF 450m ( 375m) 9.5bn Source: Nordea 24
Strong access to funding Long-term funding, EURbn 27 33 32 Total issuance of EUR 17bn (net) YTD in long-term funding Exceeds full year redemptions 17 First issuance of Samurai bonds further broadening of the funding platform Maintained AA rating 2009 2010 2011 H1/12 25
Long-term issuance by June 2012 EUR 17bn EURm 4 500 4 000 3 500 3 000 2 500 2 000 1 500 1 000 500 0 Long term issuance 1H12 excl. N Kredit bneur 45 Maturity profile excl. Nordea Kredit Q2 Lengthening of average maturity of bonds 30 15 2.3Y 3.4Y - 0-1M 1-3M 3-12M 1-2Y 2-3Y 3-4Y 4-5Y 5-10Y > 10Y Covered bonds Other bonds CDs / CPs Subordinated 2007 Q2 2012 26
Nordic Covered bond market three domestic markets for Nordea The Nordic domestic covered bond markets represent over half of Nordea s long term funding Three distinct local investor bases in three local currencies Markets have remained open throughout financial crisis Tap issuance format via contracted market-makers reduce execution risk The international covered bond markets complement Nordea s domestic funding Regular benchmark issuance in EUR and USD Credit curves in Nordea name Nordic domestic covered bond market sizes* Norway EUR 47bn Nordea Eiendomskreditt, EUR 6bn Nordea Kredit EUR 45bn Denmark EUR 294bn Nordea Hypotek EUR 30bn Sweden EUR 145bn In addition, Nordea can rely on Nordea Bank Finland for its fourth covered bond platform June 2012 Nordea Bank Finland Nordea Eiendomskreditt Nordea Hypotek Nordea Kredit Legislation Finnish Norwegian Swedish Danish/SDRO Cover pool size EUR 13.9bn EUR 12.7bn eq EUR 46.2bn Balance principle Cover pool assets Covered bonds outstanding Finnish residential mortgages primarily EUR 11.7bn (international) Norwegian residential mortgages EUR 8.0bn (domestic) EUR 2.4bn (international) Swedish residential mortgages primarily EUR 27.5bn (domestic) EUR 5.4bn (international) Danish residential and commercial mortgages EUR 47.8bn (domestic) Over collateralization 18.0% 21.7% 38.1% CC1: 9.0% and CC2 : 17.3% Main market for issuance EUR market Norwegian domestic market US market Swedish domestic market Danish domestic market Rating (Moody s/s&p) Aaa Aaa Aaa/AAA Aaa/AAA *Source: ECBC Statistics 2010, http://ecbc.hypo.org/content/default.asp?pageid=519 27
Material strengthening in Liquidity risk metrics since 2007 Funding gap risk contractual EURbn Net balance of stable funding EURbn Short-term liquidity risk appetite prevailed unchanged despite balance sheet growth. Risk metrics change from 14days into 30d in the beginning of 2011 Liquidity buffer EURbn Significant improvement in long-term liquidity risk exposure. Risk metrics change from 6m into 12m in the beginning of 2012 Survival horizon EURbn Central bank eligible LB has grown from EUR 20bn into 65bn (Nordea definition) New metrics introduced in April 2011, reflecting mainly recent changes in FGR and LB 28
Nordea Group is LCR-compliant Liquidity buffer, EURbn 49 56 61 56 58 62 64 60 68 Nordea is LCR compliant at a Group level LCR of 144% LCR compliant in all currencies Q2/10 Q3/10 Q4/10 Q1/11 Q2/11 Q3/11 Q4/11 Q1/12 Q2/12 Nordea has increased cash and balances with central banks by EUR 13bn to be well prepared for turbulent markets 29
Nordea s focused business model Risk focus solid credit quality and capital position Nordea s funding operations Key messages
Key messages Nordea s customer driven business model delivers Significantly improved customer relationships and stregthened market positions Stable revenue growth and expenses under solid control Profit development one of the most stable among European banks Risk focus and diversification Inherent diversification strength overall solid credit quality Strong capital generation and strict RWA control Clear increase in Core tier 1 capital ratio Strong funding and liquidity position Solid and well-diversified issuance platform Strong access to funding EUR 17bn issued in H1 2012 Prudent liquidity risk management LCR-compliant at the Group level 31
Keefe, Bruyette & Woods 2012 European Financials Conference 19 September 2012 Niklas Ekvall Head of Group Treasury