Aktia Pankki Oyj (AKTIA) Earnings Call Transcript & Summary

Very good morning, everyone, and welcome to Aktia's Q2 results briefing. My name is Oscar Taimitarha. I'm the Head of Aktia's Investor Relations, and I will be the moderator for this event. Earlier this morning, we published our Q2 report showing stable results in line with expectations and strong focus on our Momentum program. Aktia's Interim CEO, Anssi Huhta, and our CFO, Sakari Jarvela, will soon go through the results. I'm also very happy to announce that we will be joined by Carl Haglund, Aktia's incoming CEO today. And as always, after the presentations, we are happy to answer your questions. If you're following us online, please feel free to write your questions in the comments field. So let's move on. Anssi, welcome on stage.

Thank you, Oscar, and welcome on my behalf as well. My name is Anssi Huhta, Aktia's acting CEO. It's my pleasure to present our Q2 results. I will start with an overview of the quarter's highlights. After that, I will hand over to our incoming CEO, Carl Haglund, who has actually joined Aktia today. Carl will give an update on our acceleration program, Momentum. A little bit later, our CFO, Sakari Jarvela, will go through the Q2 figures in more detail. So let us have a look at the Q2. Our Q2 results are in line with the expectations. Aktia's comparable operating profit announced amounted to EUR 26.2 million. The top line was in the big picture at the same level as previous quarter. Compared to last year, net commission income remained fairly stable. The net interest income is, of course, lower than last year. We are in totally different interest environment. We are concentrating on our acceleration program, Momentum and especially on our strategically important customer segments, for example, private and premium banking customers. The acquisition of new customers is progressing according to our targets. Of course, I'm happy that our assets under management increased to EUR 15.9 billion during the quarter. We had both positive net subscriptions and support from the market developments. However, this is just 1 quarter, but it's definitely a step in the right direction. We are clearly not satisfied with the current AUM level, and we are taking actions to reach growth targets in our long-term plan. We also conducted a broad employee survey during the second quarter, and our employee Net Promoter Score remained at good level of 29. I'm super pleased about that. Let's have a look on the quarter in comparison with the previous ones. When we compare this quarter to earlier quarters, our comparable operating profit was about the same as in the last 2 quarters. However, it was 15% lower than Q2 2024. This was mostly because interest rate has changed. In this slide, we have now started the Momentum program to help us grow faster and create more value. So now let me introduce Carl Haglund. He was earlier member of Aktia's Board and is now our new CEO. He will soon share his thoughts and views on the program. But first, Carl, could you please tell us more about yourself and the stage is yours.

So good morning, everyone. Pleased to be here, and thank you, Anssi, for the introduction. So I have the pleasure of briefly introducing myself and then a bit over to our very exciting and important Momentum program, which was referred to before. So my name is Carl Haglund. And as mentioned, was appointed the incoming CEO this spring and taking over that task later on this fall, presumably, and have my first day at the bank today and of course, pleased to have the opportunity to directly be here on stage to share with you some thoughts around Aktia and especially the Momentum program. Just 2, 3 words about myself. Coming from Veritas, 1 of the 4 pension companies in Finland, having been a CEO there for the past years, and also actually started my task there by driving through a very successful change program, a program that actually is very much like the program that Aktia is working with right now. Also have a background with Accenture Financial Services, served there as Managing Director, working also with banking transformations across the Nordics and Europe. So with that background, I feel that we have interesting things also in my past that we can now, together with colleagues, hopefully leverage to ensure success for Aktia in the coming years. I'm a Master of Science of Economics from the business school Hanken here in Helsinki, and I'm currently living here in Helsinki as well. So that's a bit about me and then more about Aktia right now on the program today. So Momentum is the name of our acceleration program. Some of you might be familiar with Momentum already from the early spring. The company launched this program late February. And in the picture now on the screen, you can see the fairly ambitious targets that we have set for the coming years, first of all, targeting growth in a segment when we are already very strong, meaning premium and private banking. This is a segment, where Aktia has a foothold. It's strong, and it's always, of course, easier to grow in the segments, where you have happy clients, happy clients that are our ambassadors and of course, a good track record of taking well care of these clients. And this is set as a strategic target. And I'm also happy to tell you that we're already very well on track with that work. A few more words about that later on. Then we have also very ambitious AUM target. Anssi already shared with you briefly. and colleague, Sakari will come back to that already later as well. Some numbers on our AUM development. Big picture is that we've had just in recent times, positive development here, and that is, of course, a very good thing in relation now to our ambitious targets that you can see there with a EUR 20 billion asset under management target for the coming years. With the growing AUM, we will naturally also have growing net commission income, and that is also a target that we have set with a growth of 5%. And then last but not least, from an owner perspective, shareholder perspective, an improved run rate will improve our ability to also remember our shareholders with good earnings every year, and we have set an ambitious run rate target, and I will share a bit around how that work is going. Here, you can see this is just a sneak peek in what we're actually doing with the program, just to give you a bit of an understanding of what are the concrete measures we're taking to achieve all these ambitious goals that I just briefly went through with you. These work streams you can see here are supported with around 100 initiatives on top of these where we are doing smaller and larger things to ensure that we are more efficient, that we're improving our run rate and that we're growing in the segments, where we have set a target to grow. You can see naturally here work streams around the core segments, premium and private. There are work streams around SMEs and corporate. And natural also work streams around important things like IT. As we all know, banking and financial services overall are more or less an IT business today and have taken some really important quantum leaps also this year in improving our IT environment and further, of course, investing in this space. Having said that, of course, also being keen on keeping the IT costs on a good level to ensure an ROE level that is in line with our targets. And then I want to, at this point, foremost, maybe even underscore the importance of the culture work that we're doing because banking, asset management and life insurance is a people business, people-to-people business. And we have a really awesome group of colleagues together with the management team, ensuring that Aktia is developing in the right direction and a core question when looking at what is the success of different change programs, having seen them both as a CEO, but also as a management consultant over the years is the fact that you have your people with you. The fact that the whole organization, everyone is working in the same direction with a high motivation. So this is core in succeeding also with Momentum, and I believe we're very well on track with that as well. And then finally, on this, just -- and this is probably what you're most interested in where we stand with the work so far. And I want just to give you a perspective. So we launched this end of February and the work, practically speaking, started during Q2. So we have only 1 quarter of rolled up sleeves behind us. But already now, we can see really tangible results on the right-hand side, I'll comment them soon. On the left-hand side, you can see some highlights. I've spent a big part of my own vacation this summer getting familiarized with colleagues and work streams that we just looked at in the previous slide, and that was a very inspiring possibility to get acquainted with those on a more operative level, of course, having served on the Board of Aktia before, familiar with the -- with the goals set, but now having seen it more on the floor, knowing that we're really well on track with many of the things taking into account that we just started. And then finally, we can already -- I'm happy to share with you today that with this quite ambitious -- or let's even say, very ambitious run rate improvement target of EUR 20 million for the end of next year, now already, we can share with you that we have with the measures taken so far this year with a very cautious approach, actually can calculate a run rate improvement of EUR 4 million, which is really good. And that leaves for this year's target around EUR 3 million, EUR 4 million to achieve during H2, which is naturally realistic and shows that we're well on track with this revenue program, and we will naturally work hard during the rest of the year to ensure that we are on track. So this was a brief sneak peek on where we're going with Momentum and also to say that we have previously communicated that we will every 6 months report to the market how we're going -- how we're doing with the program. So next time, we'll tell you more will be when we report our full year results next winter and then we'll know more about where we are then, but looking very good and extremely excited to get on with this from today onwards. So thank you very much for having the possibility to present this to you today.

Thank you, Carl. And let's go through our business areas. So let's start from the Wealth Management. Asset under management increased in Q2, thanks to positive net subscriptions and good market performance. As I already mentioned, this is a good sign. But to be honest, we are not fully yet fully happy with the overall situation. There is still a lot to improve before we reach the growth we are aiming for. The good news is that the net subscriptions were positive in all of our key customer segments, so premium, private and institutions. We are also seeing new customers coming in from these segments. In the banking, the pickup in the new lending continued and new lending increased more than 40% compared to Q2 last year. Loan book increased by approximately EUR 80 million, driven by the corporate side. In the corporate customer business, the strong growth continued in higher purchase and leasing and also in factoring financing. The demand for investment solutions remained very strong among banking customers, especially in premium banking. We also launched a new premium service model in accordance with our strategy and the Momentum program Life insurance net income from life insurance increased mainly due to strong performance in investment activities and investment contracts. Sales in investment-linked insurances products were solid during the quarter, and the insurance portfolio continued to grow steadily. Life insurance is a key part of our strategy and the Momentum program. It supports both long-term profitability and customer relationships. We still see significant potential in selling life insurances to both new and existing customers. Overall, we are pleased with the development of our life insurance business. We strongly believe it will help us grow in the future. As we have gone through before, most of our 2025 ESG targets are already met. During the quarter, we conducted, as I mentioned, an extensive employee survey, which once again gave positive signals with an employee Net Promoter Score of 29. Our new culture index was 4.3 in scale of 1 to 5, and I'm very pleased about these results. Our outlook for this year is unchanged. Our comparable operating profit for 2025 is expected to be lower than the comparable operating profit for 2024. However, in our assumptions concerning net commission income, we are slightly more cautious. And our assumption is now that the net commission is expected to be approximately on the same level as in 2024. So let me summarize my part of the presentation. We delivered a stable result. We see some positive signals. We have a good concrete plan, and we have motivated professional employees. And we all know that we have a lot of work ahead of us. So now I will hand over to Sakari for the financial overview. Sakari, welcome.

Very good morning to everyone. As Anssi already mentioned, we are very happy to report a broadly expected set of financial results for the first half of the year. Before diving deeper into the individual line items, I just wish to go through a few key highlights. First, the operating income decreased 5% compared to previous year, primarily due to the lower net interest income. As expected, Aktia's NII decreased 10% compared to previous year, directly following the decline in interest rates. Our net commission income was flat compared to the first half of 2024. Our comparable operating profit declined by 15% in both the second quarter and the first half, which is in line with what we have expected and also in line with our guidance. So overall, although operating profit level is lower than last year, we're broadly pleased with the financial performance during the first half. The bank group's common equity Tier 1 ratio was 12.8%, which is 4.2% points above the minimum requirement and 1.3% higher than a year ago. It is good to remember, however, that the CET1 ratio remains slightly elevated due to a partly temporary reduction in risk-weighted assets, as we explained in detail in our Q1 results presentation. And finally, our comparable return on equity landed at 12.1% at the end of the second quarter. Moving to the main income line items. The net commission income in the second quarter was slightly weaker compared to the first. This was driven by weaker performance from mutual funds and also lower income from cards and payment services, which are the 2 largest components of our net commission income. There are certain distinct reasons for the lower NCI such as the market turbulence we experienced in April affecting the asset values. Also, there were some positive developments in the latter part of the quarter, which are not yet fully reflected in the income. However, given the strategic importance of the NCI has for us, we obviously cannot be very pleased with the development in the second quarter. This is something we are actively working on to improve on a continuous basis. And also, it's a central component of our Momentum program. So we're looking forward to improving on this important metric in the coming quarters. And as I mentioned earlier, the net interest income declined compared to last year by 11% in the quarter and 10% in the first half. This is a natural result of the lower short-term interest rates over the last 12 months, and it's broadly in line with what we have expected. And it's also what can be observed from other players operating in the same market. So overall, when it comes to the NII, we are relatively pleased with the development over the first half of the year. In terms of volumes, we witnessed a turn to positive in the net loan growth, which was nice to see, although the Finnish housing market activity level and hence, the new mortgage volumes still remains somewhat subdued and below longer-term averages. We have retained a strict focus on our operating costs, which on a comparable basis declined slightly in the second quarter compared to last year. Personnel costs were practically flat in Q2, which is an indication of a very prudent cost management, taking into account the normal annual salary inflation. As discussed also in the previous quarters, we have increased our spending on IT as we have continued to update our core IT system. So IT costs will be tracking above 2024 levels throughout the year. This enables us to meet the increasing need for speeding up our front-end digitalization efforts and being able to further develop our data and AI capabilities. Depreciations decreased by EUR 2 million, mainly due to the impairments made in the fourth quarter of the year of last year. Impairment of credits and other commitments increased compared to last year with a EUR 3.9 million total increase in impairments in the first half. Referring back to what we have said in the previous quarterly releases and as Anssi also reaffirmed in his presentation, in our ECL bookings, we are recognizing the continuing uncertainty in the Finnish real estate sector and in particular, a smaller number of larger individual cases in Stage 3 that require further loss provisioning being made. This is based on what we think is a very prudent approach on making provisions, while we're expecting the overall actual credit losses to remain at a moderate level, as some of the loans that have already been written off are finally being paid back. It is very important to stress also that our loan book consists mostly of loans to households and private persons with residential or real estate collateral with solid loan-to-value levels. And we currently do not see a broader worsening of credit quality in this part of the portfolio outside of what is normal at this stage of the credit cycle. The overall level of net credit losses have remained at a very moderate level of 15 basis points of the total loan book, which is only 2 basis points higher than a year ago. Common equity Tier 1 ratio decreased slightly during the second quarter, as stated before, from 13% to 12.8%, which is 4.2 percentage points above the minimum regulatory requirement. As a reminder, it is important to note that the CET1 remains temporarily elevated due to the reduced risk-weighted assets following from capital requirement regulation CRR 3 being implemented from 1st of January this year. As explained in more detail in the Q1 presentation, during Q3, we will change the risk-weight calculation method of our corporate lending book from the foundation IRB model to the standardized model. And this, we expect to increase the risk-weighted assets and reduce the CET1 ratio somewhat. Overall, though, our capitalization level remains solid, and our underlying CET1 ratio is broadly at the level, where we want it to be. Looking at our key liquidity indicators, our liquidity coverage ratio, LCR, jumped to a high level at the end of the quarter, following from some larger deposits and timing effects of maturity funding. Over the medium term, though, we expect to run our liquidity at a lower level, and our LCR is expected to be -- to decline somewhat over the next quarters. Our net stable funding ratio stood at 121%, which is close to our target level. In the funding front, we executed some smaller refinancings in the Swedish krona private placement market during the quarter. We have roughly [ EUR 300 million of CDO ] financing maturing in the second half of the year, which we are now paying attention to. And we're also slowly turning our sights towards the larger maturities next year. We updated our EMTN program just after the quarter end and at the same time, also increased the size of the program by [ EUR 1 billion from EUR 5 billion to EUR 6 billion ]. This was to give ourselves a bit more room to maneuver, especially in managing our activities in the covered bond market, something we are currently monitoring. And this ends our results -- Q2 results presentation. I'm handing over to -- back to Oscar and for the Q&A. Thank you.

Thank you, Anssi, Carl and Sakari. Welcome back on stage. So now we're ready and happy to answer your questions. And I think we'll kick off with an old favorite, so to say, [indiscernible]. Our NII decreased -- can you tell us something a little bit more about the hedging?

Yes, sure. Sure. Very happy to, and thank you for the question. It is a crowd favorite every quarter. Let me just try to break it down a little bit. I think the NII decreased, as I said, by 11% in the quarter, 10% in the first half. And this is basically what we expected to happen. It's very much according to our own forecast, and it's also exactly almost in line where our -- what our peers have reported so far for the Q2. When it comes to the hedging, we obviously hedge. I mean, we have a mismatch in all our lending being almost close floating, and then we have some deposits that have 0 rates. So there's an obvious mismatch, which we, as a normal course of business, always hedge somewhat. Maybe it's still good to say at this point that we do not really want to and have never done open in detail our hedging policy. But there is no oversized out of the ordinary hedge sitting in our books right now, and maybe I'll leave it at that.

Thank you. And as we have stated before, we do comment on our sensitivity in our Pillar 3 report and in the annual report.

Exactly.

Carl, can you share some of your top priorities and perhaps must-win battles when you now officially has joined Aktia.

Well, first of all, good to be here once more and pleased to be here with Anssi and Sakari presenting a really stable result in this fairly challenging market environment. I took you through Momentum before. It's clear that this is the main agenda. It's in a sense, ordinary course of business, we're improving things that we have done before. And I think that's also maybe a really important point to take with you that Momentum is not like anything groundbreaking, where we're doing something totally different or totally new. We're just doing things better than before. That's why there are so many initiatives going on because there's no one big silver bullet in Momentum that's going to change the world or the company. But it's an agenda. It's clear. We have a program. We're working with it, and it has, as mentioned in my brief presentation before, quite ambitious targets. So it's clear that, that is, in a sense, a big part of my focus right now. Another part is also something I mentioned before that being successful here, it means being successful with our clients, customers. And in that interface, we have our own people, our colleagues. And this is a people's business. So I will be spending a lot of time meeting clients, customers, and naturally our own colleagues. And in that interface, I'm sure that we're going to find all the means and ways to be successful with Momentum. And I could maybe add just one thing. We announced also already today that we're looking for a new colleague to the management team, taking the responsibility for our Asset Management and Wealth Management business as Kati Eriksson is leaving Aktia. And that is, of course, one of the main focuses now for the fall also with the ambitious targets we have for the AUM growth, where, as Anssi told us before, have had some very positive development in Q2, but we need to keep up that track and make that a trend. And now this key recruitment, strengthening our team is a very important [ question for us ] as well to identify the right person to lead this business as it's in the core of what we're doing.

Thank you and thank you for bringing up that as well because I mean that we sent a stock exchange release about that also this morning. Then a couple of questions from SEB, Jacob Hesslevik. Again, this is Anssi for you. Could you provide some more flavor on the strong corporate lending growth in the quarter? Are there any one-offs in the reported numbers or any specific industries driving the demand? Second, where do you expect the demand to be in the second half of 2025? More in corporates? Or could mortgage growth pick up? Third, if not mortgages, what is required for the demand in this segment to pick up as interest rates has come down substantially from peak levels?

Yes. If I start from the third one. So the Finnish mortgage market is -- it has been slow. We all know that in at least more than a year. And obviously, we all expected that the current interest rate would somehow boost it up, but it doesn't really have happened like that. So it's really difficult to say when the mortgage market will start in Finland really heavily. So at the moment, we are not expecting a big boom to mortgages in the second half of this year. So that seems like that. And in the corporate lending, there was a couple of big tickets [ in our ] scale. And as I mentioned, we are especially happy about the higher purchase leasing and factoring financing, which is almost booming up in our case at the moment. So the growth comes from there and a couple of like bigger tickets in corporate lending.

Thank you. And then actually, coming back to the question about Kati Eriksson leaving Aktia, we have a question concerning that. Kati Eriksson decided to leave her position as the Head of Aktia Asset Management. There's been a lot of changes over the past years at the department. Why are the lead role positions at Aktia Asset Management so turbulent? What exactly is the new CEO planning to reduce turnover in key roles to enhance longevity? So perhaps, Anssi, if you start -- do you have any general question -- comments on turnaround?

Just a general comment, obviously, that Kati made her own decisions and left the company, and that's normal in listed companies. We have had quite of bit changes in the past, but this change was Kati's decision, and that's it. We need to move forward. And that's what we are doing at the moment with Carl and the team.

Yes. And moving forward, the second part of the question was -- Sakari for you.

No. I mean I think it's definitely an obvious point. We've had many changes in particularly this position, and it's obvious also to say that -- I mean, this is not a good trend, where we have numerous changes over, say, past 5 years. So now with a clear change program for the coming years, I think it will be also easier to recruit to this position now as we have such a clear agenda for this. And we will be, of course, during the fall, also heading the recruitment now, clearly setting the agenda for the Asset and Wealth Management. And as we do that, we can also ensure that the person taking over the role will be aligned with that agenda. And that is the best way to ensure that we get the right person and the person, who's then committed to stay longer term and work with Momentum, especially with the focus on the targets set for this part of the business. So I'm confident that we're going to find a very good person for the role, and also confident that we're going to find a person who's going to be long term with us in this position.

Thank you. And then we have some questions about the Momentum project -- program. So if we start with a question from Antti Saari at OP. it is mentioned that the Momentum program have already improved EBIT EUR 4 million year-to-date. Could you tell us on which lines this is visible in the income statement? Mostly lower expenses or higher income lines?

Maybe I can start and gentlemen, feel free to add. It's very important first conceptually to understand the run rate. So the run rate, if we say EUR 4 million, it means -- what it means is that we have undertaken actions that in the next 12 months is expected to lead operating profit improvement of roughly EUR 4 million. So as of today, it is not really visible, I would say, in almost anywhere as we have just started and these actions have just been made. The types of things that we have already undertaken and will create these results. There are certain business-related pricing and volume decisions. And there are some cost side effects from reorganizations that will lead to the lasting cost savings. So I would say that overall, what one can expect is impact really on all lines. So at the end of the day, there will be NII impact. There will be commission income. There will be little life insurance income effects and then on costs in all lines.

Thank you. Carl, would you like to add something?

No, just in general to sort of the concept, which Sakari explained that when we report 2026 numbers in the winter of '27, we will definitely see these results. But as I also mentioned, the silver bullet before, it's not going to be like something popping out of the report as one big bullet that will explain the improvement. It's across the board work, where we're improving smaller and a bit larger items in many parts of our quite wide business with the life insurance business and asset management and wealth business and the banking business. So it's across the board. Then if we, in the years to come, also take larger initiatives to further improve our results, that's a different story. But this is a broad set of work, where colleagues together with those running the program ensures that we are doing just a little better everywhere. And that will be then especially we see it on the bottom line in the future.

Thank you. And we also got some questions about the costs, of course. And actually, both Andreas Hakansson from SEB, Jaakko Tyrvainen from SEB has -- they have asked about this. So I will read both the questions. Andreas Hakansson, there were some costs related to the acceleration program. You showed the impact on operating profit for 2025 and 2026. But can you tell us how the split between revenues and costs look like, i.e., how much more restructuring charges are expected going forward? And then on the same topic, Jaakko Tyrvainen from SEB. Your first 6 months one-off costs are some EUR 5 million. Could you remind us how these are expected to develop going forward, i.e., are the largest one-off charges behind? Or should we expect similar magnitude also for the second half?