Nordea Bank Abp (NDAFI) Earnings Call Transcript & Summary

Dear shareholders and other participants, welcome to this webcast following the Annual General Meeting held earlier today. [Foreign Language] My name is Ulrika Romantschuk, and I'm Head of Group Brand, Communication and Marketing here at Nordea, and I will be the moderator of this event. I have the pleasure of introducing representatives from our top management who are looking very much forward to having a dialogue with you. Let me start with Torbjörn Magnusson, Nordea's Chair, Frank Vang-Jensen, Group President and CEO; Sara Mella, Head of Personal Banking; and Nina Arkilahti, Head of Business Bank. Let me go through the agenda for this webcast. I'll start by presenting the decisions taken by the Annual General Meeting. This will be followed by video speeches from Nordea's Chair, Torbjorn Magnusson and CEO, Frank Vang-Jensen, where they'll recap the year 2021 and provide insight into Nordea's future. Then we will move to the live Q&A session. Finally, you have a chat, chance to hear thoughts from Stephen Hester, a new member of Nordea's Board of Directors and the future Chair of Nordea. Let me give you some guidance how to ask questions via the live chat. [Operator Instructions] We look very much forward to your questions. So let's have a look at the decisions taken by AGM. As said, Nordea's Annual General Meeting, 2022 was held today. We applied extraordinary meeting procedures due to the COVID-19 pandemic and it was unfortunately not possible to attend in person. All proposals made by the Board of Directors and the Shareholders' Nomination Board were approved. All decisions made in the AGM will be available on the AGM web page at nordea.com. Let me highlight the key decisions made. The Board was authorized to decide on dividend payment and decided today on a dividend of EUR 0.69 per share, which will be paid on 4th of April or as soon as possible after that day. Then members were elected to the Board of Directors, including 4 new members. Torbjörn Magnusson was reelected as Chair of the Board until the 30th of September. As of October, the role of Chair will be taken over by Stephen Hester. The Board received an authorization to repurchase up to EUR 350 million in own shares. Nordea has a EUR 1,200 million share buyback program ongoing, and it's in dialogue with the ECB concerning a potential further buyback program. These were the decisions. And now let's move to watch more video to get more insight into the development of Nordea's past year. We start with your video Torbjörn.

Dear shareholders, I warmly welcome you to Nordea's 2022 AGM day. We continue to have an extraordinary AGM setup and consequently, yet again, I'm looking forward to our Q&A session in the afternoon. For a large bank in Europe at the moment, the geopolitical environment must be part of any commentary. The war in Ukraine will impact global security and also the economy. The Russian invasion is a clear violation of international law and the world should continue to act together to relent and end this human suffering. We have also witnessed other global tensions lately, not forgetting COVID-19, which has been very persistent. All this requires determined, stable and predictable action and Nordea as a responsible corporate citizen will do its part. Getting back to Nordea and the development of the bank. I am very satisfied that Nordea has delivered such a strong performance and has surpassed its financial targets for 2022, one year ahead of schedule. Since Nordea launched its strategic direction in 2019, it has been able to drive very high customer activity, leading to growing business volumes, higher market shares and improved customer satisfaction. In addition, the bank has substantially lowered risks and less volatility in terms of income generation. As a result, Nordea is distinctly more profitable than before, indeed, one of the most profitable banks in Europe. From a shareholder perspective, all this has led to market-leading shareholder returns. Today, the AGM is asked to authorize the Board to decide on a dividend payment of EUR 0.69 per share. This is, of course, in line with Nordea's dividend policy and the 60% to 70% payout ratio. And on top of this, the share buyback program continues. Nordea has been one of the first movers among the European banks on buybacks. This is a sign of both quality and capital strength. Going forward, the plan is to continue share buybacks to distribute excess capital. This significant shareholder returns have been the result of Nordea's strong financial performance. I would like to thank Frank and his leadership team as well as all the great employees of Nordea for their strong contributions towards making this happen. Nordea's remuneration policy is now closely aligned with the overall strategy, both in terms of financial and nonfinancial goals. Going forward, sustainability target will also be integrated into the remuneration scheme. This demonstrates that Nordea is ready to deliver consistently on sustainability targets and to capture the business opportunities this team provides. Nordea has come a long way, transforming into a very well-performing company and in only 2.5 years with the new leadership team. This means that there is no need for the bank to change its core significantly in the coming periods. Nordea's strategy update for 2022 to '25 is a natural continuation of the strategic direction initiated in 2019. There are still many areas which can be further developed and accelerated. The new strategy was approved by the Board in February and is built on customer centricity, profitable and focused growth, further improved operational efficiency and capital excellence. Enriching its financial target, a return on equity above 13%, Nordea will be an even stronger leader in the Nordic and European banking markets. The Board is strongly committed to supporting the bank in taking the next steps in and reaching the next level. I would like to thank Claudia Dill, Nigel Hinshelwood, Kari Jordan, and Sarah Russell for their contributions as members of the Board. I would also like to welcome Lene Skole, Arja Talma and Kjersti Wiklund as new Board members. I would further like to welcome Stephen Hester, who will take over the duties of the chair later this year. With all the progress made and with Stephen's experience and expertise, Nordea will be in very good hands. I very much look forward to continuing the work with Stephen, the new Board and the leadership team. It is difficult to get to the top, but even harder to stay there they say and to improve even further. It requires discipline, determination and professionalism something I see every day at Nordea nowadays. I'm confident that Nordea will keep the momentum and deliver also on the new set of targets based on a constant drive to meet and surpass our clients' expectations.

Thank you Torbjörn for sharing your thoughts with us. We've been living in exceptional times for some years already now due to the prolonged pandemic and now more recently due to the invasion -- Russia's invasion of Ukraine. These events have impacted and will continue to impact our societies. From your perspective as to share, how have we managed at Nordea?

I think we managed really well. And I think that we've taken great strides in 2021 towards becoming a much more customer-focused organization, thanks to big effort from all employees at Nordea. And that way we've supported our societies in these rather unstable times. So great performance, I think.

That sounds good. And now we are reaching for the next level with an updated strategy and new target. But looking back at the previous period, '19 to '21, how would you summarize Nordea's performance?

Well, today, you will have seen that we reached our targets 12 months ahead of schedule. So a very, very promising start looking forward to the next planning period of 3 years. Thank you.

Thank you, Torbjorn. Let's move onwards and watch Frank's speech, please?

Dear shareholders, the Annual General Meeting often looks back to early achievements and results. Today, our main focus is on the future but we also need to recognize the developments in the external environment. The world around us is fragile. It is an unfortunate fact. The war in Ukraine or the global tensions and even the continued pandemic are impacting all of us. The war and the violence orchestrated by the Russian administration is a clear violation of international law, and it causes horrible human suffering. We condemn Russia's invasion of Ukraine. Our thoughts are with all who are suffering, fearing for their lives and worried for their loved ones. We will carry our role in society and be there for our people and customers, help the people of Ukraine and ensure the continuity of our business. Nordea is a strong bank and continues to be a safe, trusted and stable partner for its customers, employees, shareholders and broader society. In these turbulent times, it is more important than ever. Despite the pandemic and the external environment, we have improved our ability to serve our customers in their preferred way. We have improved customer satisfaction and customer complaints have decreased significantly. For Nordea, 2021 was a milestone year. We maintained our strong performance and surpassed our 2022 financial targets 1 year ahead of schedule. All of our business areas met their respective targets. Since we started the repositioning of the bank in 2019, our total shareholder return has been 107% by the end of 2021, and we are clearly outperforming our peers. This demonstrates both our strong financial performance and our ability to deliver value for our shareholders. Our performance improvements have also led to a significant payout to our shareholders. We have paid out EUR 6 billion in dividends over the past 3 years. And we're one of the first banks in Europe to start implementing share buybacks in 2021. We could not have achieved these results without our skilled, passionate and very dedicated employees. I would like to thank all of them for their great efforts. I would also like to thank you, our shareholders and customers for your very good cooperation over the past few years. We are proud of what we have achieved within the last 2.5 years. But now it is time to turn the page and take the next steps. We have entered the new strategy period '22 to '25 from a position of strength. Our strategy for the coming period is about delivering the best-in-class omnichannel customer experiences, raising the bar on our financial performance, and in this way, driving further value creation. We will deliver all this in a sustainable way and develop the bank for the future. Our new financial target for 2025 a return on equity above 13%, and I mean, better than 13% is a firm target, and we are committed to delivering. This means that we will be the best bank among the best banks in the Nordic and European markets. In order to reach our target, we have reshaped our key priorities, which are to create the best omnichannel customer experience, to drive focused and profitable growth and to increase operational and capital efficiency. We will also activate 2 key levers cutting across the entire bank, being a digital leader among our peers and integrating sustainability into the core of our business. Our updated vision is to be the preferred partner for Nordic customers in a need of a broad range of financial services. Plans and priorities are worth very little without the determination to deliver. That is why we have a relentless focus on execution. This is what we are doing raising the bar on our financial performance, driving the best-in-class omnichannel customer experiences, ensure that the bank is well equipped for the future and most importantly, we will create further value. When we create further value for our shareholders, for our customers and employees, we create value for the broader society. That is our way forward. Thank you.

Frank. As we just discussed with Torbjorn, we are living exceptional and sad times. In your video speech, you said that we are going to raise the bar and you also highlighted the target for 2025. This one was announced earlier in this year. But due to the new circumstances, do we need to review the target?

First of all, what happens in Ukraine. The war is filling me with deep sadness. It's very concerning. And there, we strongly condemn Russia's invasion of Ukraine. When it comes to our financial targets, it is a long-term target, '25 targets, and we are committed to that target. So there's no reason for at least as of now there's no reason changing anything. When it comes to our direct exposures in Nordea to Russia and Ukraine, these are very, very limited. And we have no banking operations in Russia anymore. So all in all, the risk -- the direct risks of Nordea are very, very limited.

Great to hear that we stick to our commitment. Thank you, Frank. Let's now hear some thoughts of our Head of Personal Banking, Sara Mella and Head of Business Banking, Nina Arkilahti. Sara I will start with you. You're leading the biggest business at Nordea in terms of numbers of customers, how would you describe last year from the customer's perspective? And what can they wait from the years to come?

Well, last year was a very active year. Our customers continue to invest in their homes and holiday homes. And we then saw quite high demand for mortgages and the mortgage volumes actually grew greatly. Then also last year, with a very strong investment market that activated our customers to think of their savings and investments and also seek for advice. So savings advisory was very, very clear in our activities with customers. Also, our customers experienced good returns from our funds and overall from the equity market. Then maybe one more thing to mention last year was that we saw our customers using our digital services more and more and actually high levels of new mobile banking app users and also the intensity in the usage increased. So for example, the loggings in the mobile banking app reached an all-time high level, more than 1 billion loggings, which is actually quite amazing number and also visits to our product store in the mobile bank app also increased significantly. And then with regard to your question in terms of what to expect, what can our customers expect going forward. Short term, the uncertainty around us now due to the situation in Europe and world overall will create volatility in the investment market, and that might impact some of our customers to be quite confused. But I want to highlight that we are here to support, to give advice and help our customers to navigate in this time. Then longer term, I think our customers can expect that there will be growth in the housing market, probably not as high growth as we've seen last year. But the underlying needs, very natural needs of needing a new home, they are there. Different live events you need to think of where to live and you might need more room and so forth. So the natural growth is there. Probably short term, there might be some postponement of decisions because of the uncertainty, but the longer term, there is growth. And then maybe last thing to mention, what to expect is that I can say that our customers can expect more good digital services that we will provide. For example, we will bring new digital onboarding for our customers. It will be easier to become a customer and bank with us. Also new services in the savings area. So I would say that let's navigate through this challenging time now, and then I think there's many good things to expect.

Isn't it so that our mobile app has quite good ranking. So by having even more services, we can accept expect that to continue.

That is exactly our plan that we will continue to bring good services and stay on top of the ranking with our mobile banking app.

Thank you, Sara. Nina, let's talk a little bit about sustainability. Sustainability is an integral part of Nordea's strategy and is also high on the agenda for our corporate customers. At Nordea, we are committed to reducing carbon emissions across our lending and investment portfolio by 40% to 50% by 2030. How are we working with our customers to meet these targets in practice really?

Our customers want to transition to a more sustainable operating model. They need our advice for that. And that is why we are engaging in dialogue with the customers of how and what the transition plans are that are ambitious, credible and come with the time line. And for this, we have trained our frontline people, colleagues to take these dialogues so that we in the best possible way can support, advice and finance the investments needed in the transition.

So we have a common interest here with our customers.

Absolutely.

A more sustainable future.

Absolutely.

Thank you, Nina. So now we will start with the Q&A session. And I have my iPad here, and I'll get the questions here. So remember, we are happy to take as many as possible, and you are free to post them. Let's start with Frank. Ukraine is on people's minds and heart. And the question goes, has the war in Ukraine and the related sanctions had any impact on Nordea's business. What are the main direct and indirect impact to Nordea and its customers? What would you say to that, Frank?

I would say that it has, of course, implications for our customers and that's where we start. And then the implication of ours is to execute on the sanctions that are imposed. And we are, of course, very committed to get everything right and ensure that we follow all the sanctions from different countries, different types. And I think that we are managing that very well. For our customers, of course, there are implications because it's by nature, comes very fast, and we try to help them to navigate through this.

Thank you. Let's move to a totally different topic, and this question is for you to Torbjorn. How come that the group leadership team members own so few Nordea shares? Shouldn't they have their skin in the game and be incentivized to deliver shareholder value and increase in the share price.

Well, Ulrika, I think defining little and few shares that's much definition. But anyway, of course, their interest should be aligned with the shareholders and already now, we have the principle that some of the short-term incentives need to be invested in new shares and also part of the payment with the long-term incentive programs, if there are any, will be allocated to acquiring shares.

So there's a strong commitment.

Yes.

Thank you, Torbjorn. To Frank, we have all read a lot of news around cyber attacks recently, including one against Nordea. What are you and Nordea doing to safeguard against these issues? And what is the magnitude of costs connected to cybersecurity.

Cybersecurity is financial risk that is on top of, I should say, all companies or at least most companies have at the moment. In Nordea, we have to worked it the topic for long and are continuously strengthening our set up basically to be as strong as possible to hinder any attacks. And I think that we just have to continue to stay very alert and continuously improve our skills within these areas. And it doesn't go for Nordea as I said only, it goes for basically most organizations in the world.

Yes. The whole society is impacted. Yes. I will continue with you, Frank. The new target, 13% ROE. Does that mean that there will be higher fees for our customers?

The target, first of all, is a target with -- it's a return on equity target above 13%. And by that, I mean better than 13%. And our plan is built on a number of levers. It is about creating the best omnichannel customer experiences. It is about creating income growth by being very active doing more business. And then it is about capital and cost efficiency. And that is basically a lifestyle continues to try to be in good shape. And now we have added the capital excellence on top of it as we have the levers nowadays, which we didn't have 2 years ago or 1 year ago. And if you combine that, then it becomes a plan that is built on a healthy, strong cost culture and then continuously growing Nordea, And that will lead to a return above 13%.

So many things at the same time?

Yes.

Thank you, Frank. I will move over to Sara and omnichannel experiences. What practical steps will you take to really reach that goal so that we can create the best experience in the market.

With omnichannel, we aim that we will be the best one in the market to combining digital services and our advisory, bringing in the human advisory in addition to easy services done digitally. And with that, we do need data, and we will invest in data and use data to create insights to our customers.

I mean with data, you mean behavior of the customers.

Exactly. What is it that customers could actually benefit from our ideas and suggestions to them and therefore, they make good and wise decisions on their finances. And it's also very much about easiness for our customers to switch to start a loan application in the mobile banking app and then continue easily the discussion with an adviser online or even physical or continue in net bank, all channels available. And of course, the data needs to flow easily between channels so that it's easy for the customers, no need to start again. So we will invest in data to do that. We will also invest in digital services and sales to be more active towards our customers to bring them these insights and ideas for them to do good decisions.

That sounds smooth. Thank you. Nina, let's continue with sustainability and ESG. We have published corporate level targets but what about sector-specific targets? And are there any hurdles to do that?

We are working with the sector-specific targets, and we do that in a risk-based way. We start with the most polluting most emission-heavy sectors. And of course, there are hurdles. We don't know everything yet, but we learn as we go, and it's very important that this is so integrated to our normal way of operating to our credit processes because we really want to have the customers in our portfolios that are willing and able to make a transition. So very good plans and very, very clear, but not every detail yet there. We work on it.

So more to come in other words.

More to come.

Thank you, Nina. Over to you, Torbjorn. You also talked about sustainability and targets in your video greeting. And there will be remuneration schemes in the management's targets. What does this really mean in practice?