The operating environment for Nordea remains stable with continued lending growth, pressurised margins and challenging conditions for our market making activities. Our actions from the past 12 months have, however, led to some encouraging signs of regaining market shares and future cost reductions. It is important to acknowledge, however, that it will take time before these increased activity levels are fully reflected in the results.
Revenues increased 1% this quarter compared to the first quarter and underlying revenues (1) increased 5% compared to the fourth quarter of 2018.
Net interest income is impacted positively from higher lending volumes, however, that is more than offset by continued lending margin pressure, mainly towards our household customers. Deposit margins were largely unchanged. Gjensidige contributed with EUR 18m in the quarter.
Net fee and commission income increased 1% in the quarter and has grown steadily since the third quarter of 2018. Asset management commissions and corporate advisory fees had a positive development, while cards and payments declined.
Net results from items at fair value increased 7% in the quarter with customer activity remaining at a good level with treasury improving due to performance in fixed income and positive movements in FX positions, while the operating environment for market making activities continued to be challenging.
Costs (2) were up 3% in local currencies, due to seasonality and higher depreciations.
Cost to income (3) ratio increased by 1% to 58% compared to the previous quarter and RoE2 increased 40 bps to 8.5%.
Loan loss ratio increased 3 bps to 10 bps, as we did not have the same level of reversals in this quarter. We reiterate the guidance that credit quality will be largely unchanged in the coming quarters.
Capital position, expressed as Common equity Tier 1 ratio increased by 20 bps in the quarter, to 14.8%. The ratio is 120 bps above the nominal capital commitment of 13.6% and is well in line with Nordea’s capital policy. On 18 July 2019, the ECB will publish Nordea’s result of the Comprehensive Assessment (CA) exercise including the Asset Quality Review (AQR) and the ECB stress test. Overall results of the exercise confirm the resilient capital position of Nordea, exceeding all the thresholds defined by the ECB.
Personal Banking reports a lending growth of 1% compared to previous quarter in local currencies, and 5% compared to a year ago in local currencies. Revenues declined by 3% compared to previous quarter, where Gjensidige was a key contributor to growth but offset by lower fair value results. Costs (3) decreased by 1%. Cost to income ratio (3) increased 2 %-points to 62%. We see increasing market share of new mortgage sales in all countries especially in Sweden where we increased our market share of new lending in May to above 15%. Hence, our total market share also increased for the first time in three years. Furthermore, online customer meetings share continued to increase in all markets except Sweden.
In Commercial and Business Banking, lending grew 1% in the quarter and 3% compared to a year ago in local currencies. Revenues increased by 8% in local currencies. Costs (3) increased by 3% and cost to income ratio (3) decreased 2 %-points to 54%. Business momentum continues to improve, mainly illustrated by lending growth, strong markets income and continued focus on improving customer intensity.
Wholesale Banking reports a 3% increase in the lending towards Nordic customers, compared to previous year, while we continue to reduce exposure in Russia as planned.
Revenues decreased 1% while costs (3), increased by 1%. Cost to income ratio (3) increased 1 %-point to 63%.
Asset & Wealth Management attracted new assets for the second quarter in a row. AuM increased to EUR 306.5bn by the end of Q2, up from EUR 300.2bn in Q1, of which EUR 3.8bn was net inflows, corresponding to 5% of assets under management annualised. AuM level is the highest ever adjusted for all divestments. Revenues decreased by 3% compared to previous quarter and costs (3) decreased by 1%. Cost to income ratio (3) was unchanged at 46%. The strong development in Private Banking that we had in Q1 continued into Q2 with Nordic flows of EUR 1.4bn and in addition, the net inflow in the Wholesale distribution recovered strongly with a net inflow of EUR 1.2bn. Nordea has recently won a large mandate in the US with John Hancock, one of the most well-known brands in the US retail markets for savings which supports our distribution strategy in Asset Management.
As our performance is not satisfactory, further actions are needed to strengthen the financial results. I am confident that the investments we have made in regulatory and systems platforms, together with our committed and skilful employees, will ensure a powerful future development for the bank.
Nordea has in recent years de-risked the bank, invested in our digital and compliance platforms, concentrated our operations to the Nordic markets and has entered a new phase of customer focus. Financial environments have also changed with expected lower rates for longer, and we will soon have more clarity on our capital requirements within the banking union. For these reasons Nordea will review its financial targets, including the capital and dividend policy with an expectation to present these after the release of the third quarter 2019 results.
As communicated on 30th June 2019, I have decided to retire from Nordea by the end of 2020 and the process to find a successor has been initiated. Further information on timing will be disclosed when available.
Casper von Koskull
President and Group CEO
1 Adjusted for items affecting comparability
2 Adjusted for resolution fees of EUR 207m in first quarter of 2019
3 Resolution fees are periodised over 2019
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