In the third quarter, higher business volumes drove increases in both net interest and net commission income. Net fair value decreased following significant interest rate movements during the summer. Total revenues are down 2% in local currencies.
Third quarter compared to the previous quarter in local currencies
Net interest income increased 2% to EUR 1,083m. Volumes had a positive effect in the quarter following increased activities, while blended margins were neutral. Although the margin trend improved in the third quarter, market conditions remain challenging. Average business lending volumes increased by approximately 1%.
Net fee and commission income increased by 2%, despite seasonally lower activities in corporate advisory services. Asset management fees were largely unchanged, while lending, payment and card fees improved.
Net results from items at fair value decreased 27%, driven by challenging market conditions following the interest rate movement during the summer and seasonally low customer activity.
Costs* decreased 1% excluding one-offs and increased 84% including one-offs. Excluding one-offs, staff costs decreased 1%, while other costs decreased 4%.
We are reporting an expense related to sale of Luminor shares of EUR 75m. An impairment charge of EUR 735m is reported, largely due to the new business plan, which also leads to a restructuring provision of EUR 204m.
The cost to income* ratio was unchanged at 58% excluding one-offs and increased to 107% including one-offs.
The return on equity** was 8.4% in the quarter.
Nordea’s historical track record of low loan losses continues in Q3 2019. However, after dialogue with the ECB, reflecting a more subdued outlook in certain sectors in the third quarter, Nordea has decided to increase provisions by a total of EUR 229m. Credit quality outside these sectors remains solid. In addition, Nordea has reviewed its collective provisioning models. The model update in the third quarter 2019 generates a EUR 53m increase in collective provisions.
Capital position expressed as Common Equity Tier 1 ratio was 15.4% up from 14.8%.
Personal Banking lending grew 1% compared to the previous quarter, and 6% compared to a year ago in local currencies. Revenues increased by 5% and costs* increased by 6% compared to the previous quarter. The cost to income* ratio was largely unchanged at 62%. We are increasing our market share of new mortgage sales in all Nordic countries and operating profit was at the highest level since the first quarter of 2018.
In Commercial & Business Banking, lending was largely unchanged compared to the previous quarter and increased 2% compared to a year ago in local currencies. Both revenues and costs* decreased by 4%, keeping the cost to income* ratio unchanged at 54%. Underlying business momentum continues to improve, driven in particular by Norway and Sweden.
Wholesale Banking lending was largely unchanged compared to the previous quarter and increased 3% compared to a year ago. Revenues increased 2%, while costs* decreased by 11%, leading to an improved cost to income* ratio by 7% to 55%.
Asset & Wealth Management had net inflows of EUR 3.7bn corresponding to an annualised level of 5% of assets under management (AuM). This was the third consecutive quarter of positive flows. Assets under management increased to EUR 314bn at the end of Q3, up from EUR 307bn in Q2. Revenues increased by 2% compared to the previous quarter and costs* increased by 5%. The cost to income* ratio increased from 46% to 47%.
New financial targets
In my new role as CEO, I have led a strategic review of the Bank and we have developed a new business plan to ensure stronger financial results meeting new financial targets. Our new plan will significantly improve Nordea’s operating performance through strengthened customer focus and improved operational efficiency as well as cost reductions and income growth initiatives. For 2020, we expect to reach a cost base of below EUR 4.7bn with planned continued net cost reductions beyond 2020.
Nordea’s new financial targets for 2022 are
• a return on equity above 10%
• a cost to income ratio of 50%.
Our new capital policy stipulates a management buffer of 150- 200 bps above the regulatory CET1 requirement and a dividend pay-out ratio of 60-70%, both starting from 2020. We will continuously assess the opportunity to use share buybacks as a tool to distribute excess capital. For 2019, Nordea targets a dividend of EUR 0.4 per share.
While I have been at Nordea since 2017, in my short time as CEO I have had the opportunity to meet many more colleagues from different parts of the bank. I am impressed by our employees’ expertise, passion to serve our customers and shared determination to improve our business results. I am convinced that strong customer focus combined with enhanced operational efficiency will enable us to deliver on our targets and new strategy, and to significantly improve Nordea’s financial performance.
President and Group CEO
* Resolution fees are periodised over 2019
** Excluding one-offs and with periodised resolution fees
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