In the third quarter, an increase in business volumes led to an increase in both net interest and net fee and commission income. Net fair value declined after significant changes in interest rates during the summer. Total revenues decreased by 2% in local currency.
Third quarter compared to the previous quarter in local currency
Net interest income grew by 2% to 1,083 million euros. Volumes had a positive effect on the quarter after an increase in activity, while mixed margins were neutral. Although margin trend improved in the third quarter, market conditions remain difficult. Average business lending increased by about 1%.
Net fee and commission income increased by 2%, despite a seasonal decline in corporate advisory services. Asset management fees have not changed much, and credit, payment and card fees have improved.
Net results for items carried at fair value decreased by 27% due to difficult market conditions caused by the movement of interest rates during the summer and seasonal low customer activity.
Costs * decreased by 1%, excluding one-time expenses and increased by 84%, including one-time expenses. Excluding non-recurring expenses, personnel costs decreased by 1%, and other expenses decreased by 4%.
We report a sale of Luminor shares in the amount of EUR 75 million. An impairment of € 735 million is reported, mainly due to a new business plan, which also leads to a restructuring reserve of € 204 million.
The ratio of costs to income * did not change and amounted to 58%, excluding one-time ones, and increased to 107%, including one-time ones.
Return on equity ** was 8.4% per quarter.
Nordea’s historical track record of low loan losses continues in Q3 2019. However, after a dialogue with the ECB reflecting a more dull forecast in some sectors in the third quarter, Nordea decided to increase its reserves by 229 million euros. Credit quality outside these sectors remains stable. In addition, Nordea has revised its collective collateral models. Updating the model in the third quarter of 2019 will lead to an increase in collective reserves by 53 million euros.
The capital position, expressed as a first-level total capital ratio, was 15.4% compared to 14.8%.
Lending to individuals increased by 1% compared to the previous quarter and by 6% compared to last year in local currency. Revenues increased by 5%, while expenses * increased by 6% compared with the previous quarter. The ratio of costs and revenues * remained virtually unchanged at 62%. We are increasing our market share for new mortgage sales in all Scandinavian countries, and operating profit has been at the highest level since the first quarter of 2018.
In the commercial and business banks, lending remained virtually unchanged from the previous quarter and increased by 2% compared to the previous year in local currency. Both revenue and expenses * decreased by 4%, while the ratio of costs and revenues * did not change and amounted to 54%. The underlying momentum of the business continues to improve, thanks in particular to Norway and Sweden.
Lending in the field of wholesale banking services remained virtually unchanged from the previous quarter and increased by 3% compared to last year. Revenues increased by 2%, and expenses * decreased by 11%, which led to an improvement in the cost-income ratio * by 7–55%.
The net inflow of assets and asset management amounted to EUR 3.7 billion, which corresponds to the annual level of 5% of assets under management (AuM). This was the third consecutive quarter of positive flows. Assets under management increased to 314 billion euros at the end of the third quarter, compared with 307 billion euros in the second quarter. Revenues increased by 2% compared to the previous quarter, while expenses * increased by 5%. Cost-to-income ratio * increased from 46% to 47%.
New financial goals
In my new position as CEO, I led the strategic review of the Bank, and we developed a new business plan to ensure higher financial results that meet new financial goals. Our new plan will significantly improve Nordea’s operational performance by increasing customer focus and operational efficiency, as well as reducing costs and revenue-generating initiatives. In 2020, we expect the base value to be less than 4.7 billion euros with the planned continuation of the reduction in net costs after 2020.
New Nordea financial goals for 2022
- return on equity above 10%
- cost-revenue ratio of 50%
Our new capital policy provides for a management buffer of 150-200 bp above the regulatory requirement CET1 and a dividend payout ratio of 60–70%, starting in 2020. We will constantly evaluate the possibility of using stock repurchases as a tool to distribute excess capital. In 2019, Nordea plans a dividend of € 0.4 per share.
Although I have been working at Nordea since 2017, in the short time I worked as CEO, I had the opportunity to meet with many colleagues from different parts of the bank. I am impressed by the experience of our employees, the passion to serve our customers and the general determination to improve the results of our business. I am convinced that a strong customer orientation combined with increased operational efficiency will allow us to achieve our goals and a new strategy, as well as significantly improve Nordea’s financial performance.
Frank Wang Jensen
Group President and CEO