Nordea Bank Abp · OMXHEX:NDA_FI
Nordea Bank Abp — Nordea — Investor Day (November 2004)
121 slides from Nordea Bank Abp's investor day presentation, Nov 30, 2004
Slide 1: Capital Markets Day 30 November 2004
Capital Markets Day 30 November 2004
Slide 2: Next steps for Nordea and new financial targets
Group Chief Executive Next steps for Nordea and new financial targets Lars G Nordström President and Group CEO London, 30 November 2004
Slide 3: Introduction and agenda for the day
Introduction and agenda for the day Time Content 12.30 Next steps for Nordea and new financial targets, by Lars G Nordström, President and Group CEO 13.10 New ambition level in Corporate and Institutional Banking, by Tom Ruud, Head of Corporate and Institutional Banking 13.25 New ambition level in R
Slide 4: Introduction of Group Executive Management
Introduction of Group Executive Management Lars G Nordström Christian Clausen Lena Eriksson Carl-Johan Granvik Arne Liljedahl President and Group CEO Head of Asset Head of Group Head of Group Credit Group CFO and Head of Management & Life Legal and Compliance and Risk Control Group Corporate Centre
Slide 5: Developing Nordea
Developing Nordea Benefiting from the Nordic vision Increased focus on capturing growth Adjusting to 2004 opportunities changed market Continuous Nordic conditions integration 2003 Focus, speed and performance Reduction of complexity Shaping the Divestment of non-core assets new reality 2002 Changes
Slide 6: Key messages for today
Key messages for today Delivery Delivery z We have delivered on our 2002 priorities and targets z The market environment is challenging, but we are well Market Market positioned to capture growth opportunities z We are now raising our ambition level and targets Ambition Ambition z Our strategic dire
Slide 7: Nordea has delivered on short-term top priorities
Delivery Ambition Market Strategy Nordea has delivered on short-term top priorities 2002 priorities Delivery Volatility z Changed business models for Life & Pensions and Investment Banking z “Specific actions to z Divestment of general insurance business improve quality and reduce volatility of earn
Slide 8: Nordea has delivered on 2002 financial targets
Delivery Ambition Market Strategy Nordea has delivered on 2002 financial targets Jan-Sep Key performance indicator 2002 2003 2004 Target Total shareholder return, % # 15 #3 # 4** In the top quartile of European peer group RoE, excluding goodwill, % 11.3 15.0* 17.2* > 15% Costs, EURm 3,745 3,673 2,55
Slide 9: Nordea's new ambition level
Delivery Ambition Market Strategy Nordea’s new ambition level 2000-2003 2004-2007 z Nordic vision z Leading positions in all Nordic markets z Pan-Nordic distribution platform z European platform in selected markets and segments z One brand z Revenue growth z One culture z Flat costs z Continuous Nor
Slide 10: Nordea's new financial targets
Delivery Ambition Market Strategy Nordea’s new financial targets Jan-Sep Key performance indicator 2003 2004 Target Total shareholder return, % #3 # 4** In the top quartile of European peer group RoE, % 12.2* 14.3* > 15% in 2005 and > 17% or in line with level of top Nordic peers from 2007 Costs, EU
Slide 11: Increased RoE target on IFRS basis
Delivery Ambition Market Strategy Increased RoE target on IFRS basis % Target will be achieved through 18 z Sustainable revenue growth 16 New target = 15.0% 14.3 14 z Costs unchanged through 2007 12.2 12 compared to 2004 10 8.9 z Recurring share buyback 8 6 4 z 15% RoE according to IFRS 2 correspond
Slide 12: Nordea's capital structure policy
Delivery Ambition Market Strategy Nordea’s capital structure policy Actual Jan-Sep Capital structure 2003 2004 Policy Dividend payout 48% na > 40% of net profit ratio Tier 1 capital ratio 7.3% 7.6% > 6.5% Capital flexibility with excess capital returned to shareholders 11
Slide 13: Financial markets: Changing picture
Delivery Ambition Market Strategy Financial markets: Changing picture % 1 week Euro interbank rate (% ) (lhs) z Significant drop in short-term 5.5 ECB 5-year bond yield (% ) (lhs) 120 interest rates since Q3 2002 Pan-Nordic equity market development 5.0 (rebased Nov-2001 = 100) (rhs) – impact on dep
Slide 14: Nordic banking challenges and opportunities
Delivery Ambition Market Strategy Nordic banking challenges and opportunities Challenges Opportunities z Margin pressure in mature markets – competitive pressure – interest rates low z Stable GDP outlook for Nordic region z Dependency on business cycle – housing markets z Interest rate issues – cons
Slide 15: Nordea strengths and opportunities
Delivery Ambition Market Strategy Nordea strengths and opportunities Strengths of Nordea Opportunities for Nordea z Large customer base z Increase share of customers’ wallet – 11m customers z Attract and expand high-value z Strong distribution power customer base – 1,200 branches – e-bank z Grow sal
Slide 16: Strategic direction
Delivery Ambition Market Strategy Strategic direction z New road map for organic growth Sustainable growth of economic profit z Clear value proposition to customers Ensure Ensure z Further integration and structural operational capital cost reduction – utilising Ensure excellence, efficiency growth
Slide 17: Ensure growth of income
Delivery Ambition Market Strategy “Ensure growth of income” z Growth strategy based around existing Nordea strengths – 11 million customers, of whom 4 million are also e-banking customers – 1,200 branches – leading retail and corporate brand z Clear opportunity to increase business volume per custom
Slide 18: Gearing up for growth
Delivery Ambition Market Strategy Gearing up for growth Business area Examples of initiatives z Complete implementation of loyalty programme and harmonise pricing Retail Banking z Accelerate consumer credits, cards and POS financing z Introduce housing concept, including comprehensive product range
Slide 19: Clear value proposition to customers
Delivery Ambition Market Strategy Clear value proposition to customers z Wide range of financial products and customer solutions Product Product delivering added value through innovation range range z Customer-driven excellence in relationship management; Service Service ‘making it possible’ z Conve
Slide 20: Ensure operational excellence, strict cost management and reduced complexity
Delivery Ambition Market Strategy “Ensure operational excellence, strict cost management and reduced complexity” Cost reduction in European banking universe (% reduction 2004E vs 2003A)* AIB 8.3 Lloyds TSB 6.7 Nordea 6.5 z Strong performance in cost DnB NOR 6.4 reduction BBVA 4.9 – 3rd best performa
Slide 21: Flat costs target requires ongoing real cost reduction
Delivery Ambition Market Strategy Flat costs target requires ongoing real cost reduction 2003 cost base z Flat cost target implies real reduction by 10% over next three EURm years 4,000 z Group-wide continuous improvement 3,500 491 3,673 298 z Four point structural cost plan will 3,000 324 ensure co
Slide 22: Four point structural cost improvement
Delivery Ambition Market Strategy Four point structural cost improvement Initiatives 1. Process improvement z Step-wise migration towards harmonised products, processing and IT platforms z Straight-through processing, e.g. mortgages z Streamlining of process, e.g. credit 2. External spend and z Proc
Slide 23: Ensure capital efficiency and high credit portfolio quality
Delivery Ambition Market Strategy “Ensure capital efficiency and high credit portfolio quality” Q3 2004 economic capital allocation Recent actions taken Treasury z Divestment of real estate assets Other 5% 6% z Roll-out of EC framework AM&L z Behavioural credit scoring 11% z Growth of off-balance sh
Slide 24: Conservative risk profile
Delivery Ambition Market Strategy Conservative risk profile z Nordea aims to have an overall balanced risk approach in order to enhance shareholder value z Improved credit portfolio – net impaired loans reduced by 50% since Q4 2002 – approximately 92% of the loan portfolio is to Nordic debtors – wel
Slide 25: Buybacks re-activated
Delivery Ambition Market Strategy Buybacks re-activated Tier 1 ratio % z Board decision to re-activate 9 repurchase programme up to a 8 maximum of 5% of outstanding 7 7.6 shares 7.1 7.3 6 z Tier 1 capital increased 5 – EUR 500m Tier 1 bond launched 4 3 z Hybrid capital corresponds to only 2 approx.
Slide 26: Adjustment of organisational structure supporting growth strategy
Delivery Ambition Market Strategy Adjustment of organisational structure supporting growth strategy and new ambition level President and Group CEO L ars G N ord ström Group Management Interna l Audit Secretariat A ctivities Corporate and Asset Management Group Processing Group Corporate Group Credit
Slide 27: Conclusion/summary
Conclusion/summary z We have delivered on our strategy and targets from 2002 z We have raised our ambition level and financial targets z We are well-positioned to capture growth z We have the platform in place to deliver 26
Slide 28: New ambition level in CIB
Corporate and Institutional Banking (CIB) New ambition level in CIB Tom Ruud Member of Group Executive Management and Head of Corporate and Institutional Banking London, 30 November 2004
Slide 29: CIB has delivered on strategy
Delivery Market Ambition Strategy CIB has delivered on strategy 2002 priorities Delivery Ensure growth and stability of income z Position in Sweden clearly improved, as z Enhance position in Sweden evidenced by independent surveys z Financial Institutions Division created z Focus on financial instit
Slide 30: Key deliveries
Delivery Market Ambition Strategy Key deliveries Shipping Sweden Debt capital markets z Key focus area from 2002 z Key focus area from 2002 z Key focus area from 2002 z Achieved market leadership z Achieved revenue growth in z Achieved market leadership position excess of market position z Best Bank
Slide 31: Improved profitability
Delivery Market Ambition Strategy Improved profitability Economic Capital (lhs) RoE, % (rhs) z Active balance sheet and credit EURbn % management 3.0 24 – economic capital approach in full use – price according to risk 2.5 2.6 20 – active credit portfolio management operation 19% in place in Corpora
Slide 32: Market outlook
Delivery Market Ambition Strategy Market outlook z Corporate customers remain cautious with strong balance sheets z Competition putting pressure on margins z Increasing activity in IPO and M&A markets, albeit from low levels z Shipping market is very strong, due to market fundamentals z CIB well pos
Slide 33: Looking forward to 2005 – focus on top-line growth
Delivery Market Ambition Strategy Looking forward to 2005 – focus on top-line growth Key focus areas Cost focus remains 1. Leverage structuring z The tight cost management in CIB capabilities of Nordea Markets will continue 2005-2007 2. Increase business with financial institutions 3. Further levera
Slide 34: Leverage structuring capabilities of Nordea Markets
Delivery Market Ambition Strategy Leverage structuring capabilities of Nordea Markets z Nordea Markets well positioned in Leveraging SME customer base the market z The SME customer base in Nordea – FX products not fully exploited – fixed income products – capital market products z Initiatives with R
Slide 35: Increase business with financial institutions
Delivery Market Ambition Strategy Increase business with financial institutions z Large potential for increased Selected recent transactions/awards revenues with limited use of z Finnish State Pension Fund capital – global custody and Cash management z Increased delivery of structured products inclu
Slide 36: Further leverage on large corporate client base
Delivery Market Ambition Strategy Further leverage on large corporate client base z Strong balance sheet gives largest Denmark 88 underwriting capabilities of all Number of Finland 113 Nordic banks large corporate Norway 89 z Focus on capturing big one-off clients Sweden 120 deals, including corpora
Slide 37: Expanding scope outside Nordic region in selected industries
Delivery Market Ambition Strategy Expanding scope outside Nordic region in selected industries Lending split (Q3/04) z New target customers in selected Lending to international corporate industries identified outside the customers (without Nordic relation) 2% Nordic region z Industries where Nordea
Slide 38: Potential in emerging home markets - Poland and the Baltics
Delivery Market Ambition Strategy Potential in emerging home markets - Poland and the Baltics GDP growth z Poland EURbn – largest bank on Nordic corporate-related 180 Poland business 160 Baltics – doing business with 27 out of top 100 Polish companies 140 – lending by end-September 2004, EUR 1bn 120
Slide 39: Strategic investment in Russia
Delivery Market Ambition Strategy Strategic investment in Russia z Strategic investment in International Moscow Bank z Strategy to service Nordic companies in Russian market z Largest bank on Nordic corporate-related business z Limited risk with good returns 12
Slide 40: Conclusion/summary
Conclusion/summary z CIB a leading player in the corporate segment in the Nordic countries z CIB has delivered on strategy z Top-line focus in 2005 – well-defined strategy for growth areas in place z Continue the successful cost and risk management efforts z The Baltics and Poland offer growth poten
Slide 41: New ambition level in Retail Banking
Retail Banking New ambition level in Retail Banking Peter Schütze Member of Group Executive Management and Head of Retail Banking London, 30 November 2004
Slide 42: Retail Banking continues to deliver on strategy
Delivery Market Ambition Strategy Retail Banking continues to deliver on strategy 2002 priorities Delivery z Nordea personal customer loyalty programme Ensure growth and stability of income implemented z Increase share of wallet for personal customers z Strong growth in mortgage penetration both for
Slide 43: Strong delivery in profitability
Delivery Market Ambition Strategy Strong delivery in profitability Cost/income ratio and RoE by market Denmark Finland Norway Sweden z Transfer of best practices has led 38% 34% 32% to improved cost/income ratio 27% 21% 23% 22% z Significantly lifted performance 12% across Nordic markets z Negative
Slide 44: Market conditions: Uncertainty with opportunity
Delivery Market Ambition Strategy Market conditions: Uncertainty with opportunity z Solid volume growth 1-week interbank rate – strong market growth for mortgages % 8.0 – mid-single digit lending growth in SME – strong transaction growth 7.0 – strong market growth within savings 6.0 z Some margin de
Slide 45: Key market growth dynamics: Personal financial balance sheet
Delivery Market Ambition Strategy Key market growth dynamics: Personal financial balance sheet 2004 –2008E Expected European growth (CAGR) Current accounts,% 4.5 Securities,% 2.5 Personal Personal financial financial Deposits,% 1.7 assets assets Life & Pensions,% 7.1 Mutual funds,% 5.1 Mortgages,% 5
Slide 46: Opportunities for Nordea Retail Banking
Delivery Market Ambition Strategy Opportunities for Nordea Retail Banking z Increase penetration of 10 million personal customers by optimising the interaction between distribution channels z Increase business volume per customer using efficient CRM tools z Expand mortgage sales z Improve position w
Slide 47: New Retail Banking organisation: Customer centric, product focus
Delivery Market Ambition Strategy New Retail Banking organisation: Customer centric, product focus Products and concepts – Customers Household and Corporate segmentation Housing Savings AM&L Branches e-bank Payments & e-products Contact CIB Products centres Consumer finance 7
Slide 48: Retail Banking strategy
Delivery Market Ambition Strategy Retail Banking strategy z Increase focus on customers – deliver clear value proposition to customers – new pan-Nordic organisation in Retail Banking – to make a better balance between customer centric approach and product focus – ensure true best practice delivery –
Slide 49: Harnessing the potential of 10 million personal customers
Delivery Market Ambition Strategy Harnessing the potential of 10 million personal customers – loyalty rewards customer & Nordea Strong growth in Gold segment Q3/03 to Q3/04 z Key focus on increasing: 14.7% – customer loyalty 6.2% – business volume per customer 8.1% 115 – higher margin product sales
Slide 50: SME banking provides opportunity
Delivery Market Ambition Strategy SME banking provides opportunity z Selected network of branches with Corporate customer segmentation dedicated relationship and senior Volumes Marketing relationship managers Segment Customers (EURbn) tools – serve large and medium sized customers Large 15,300 52 Se
Slide 51: Product focus: Housing
Delivery Market Ambition Strategy Product focus: Housing Nordea mortgage lending market shares z Nordea has been taking market % 2002 2003 Q3/04 share steadily since mid 90’s Denmark 12.1 13.1 14.3 z Margin pressure remains Finland* 33.0 32.7 32.3 z Still attractive product given Norway 10.0 10.5 11
Slide 52: Product focus: Savings & wealth management
Delivery Market Ambition Strategy Product focus: Savings & wealth management Savings assets* z Integrated approach with AM&L AuM Den Fin Nor Swe z Financial planning tool rolled out EURbn 32 30 12 38 – cutting-edge advisory concept – trained advisers within branches EURbn 120 z Further penetration p
Slide 53: Product focus: Consumer loans & credit cards
Delivery Market Ambition Strategy Product focus: Consumer loans & credit cards Nordea consumer loans and credit cards z Currently only one-third of Nordea’s customers have a EURbn Mill. consumer loan or credit card 18 5 z Significant potential exists to 4.0 grow consumer loan volumes 3.7 4 16 and cr
Slide 54: Product focus: Payments & e-products
Delivery Market Ambition Strategy Product focus: Payments & e-products Number of online payments z Number of transactions online significantly increased Mill. – on average a customer makes 3.5 200 transactions per month online 180 z Focus is to move more customer transactions online 160 168 – manual
Slide 55: Continued focus on costs
Delivery Market Ambition Strategy Continued focus on costs Cost and FTEs reduced z More efficient sales processes – fixed price strategy to households EURm – more efficient 25,000 660 – less price leakages 646 – CRM 20,000 640 20,168 z New processing initiatives 619 17,557 15,000 620 – behavioural s
Slide 56: Conclusions/summary
Conclusions/summary z Improve service and focus on customers in order to capture growth z New pan-Nordic strategy in place to grow top-line z Reduce cost of servicing clients z Consumer credits, cards, private banking and long-term savings products offer growth prospects z Mortgage lending continues
Slide 57: New ambition level in Asset Management & Life
Asset Management & Life New ambition level in Asset Management & Life Christian Clausen Member of Group Executive Management and Head of Asset Management & Life London, 30 November 2004
Slide 58: AM&L has delivered on strategy
Delivery Market Ambition Strategy Financials AM&L has delivered on strategy 2002 priorities Delivery Ensure growth and stability of income z Leverage on the “Triangle of competencies”, z The strength of the strategy evident through investment, packaging and customer relations the high net inflows 20
Slide 59: Nordea - the regional leader in savings
Delivery Market Ambition Strategy Financials Nordea - the regional leader in savings AuM of major Nordic asset managers Net inflows of major Nordic asset managers EURbn, Q3/04 EURbn, accumulated inflow from Q1/03 to Q3/04 140 25 120 20 100 15 80 60 10 40 5 20 0 0 Nordea SEB DnB NOR Danske SHB FSB No
Slide 60: A major European fund group
Delivery Market Ambition Strategy Financials A major European fund group Estimated net inflows by Master Group EURm, 12 month sum All Equity Rank Master group Funds Master group only 1 Fidelity Investments 8,733 Fidelity Investments 6,993 2 Nordea AB 8,042 Nordea AB 5,438 3 JP Morgan Fleming 6,754 F
Slide 61: Strategy has delivered a leading market position and strong profit contribution
Delivery Market Ambition Strategy Financials Strategy has delivered a leading market position and strong profit contribution z Distribution capacity – best in the Nordic region z Superior net inflow and breadth of operation Nordea is z Nordic market leader in mutual funds and institutional well- man
Slide 62: Strong growth in Nordic market for managed assets
Delivery Market Ambition Strategy Financials Strong growth in Nordic market for managed assets z Growth in managed assets Nordic savings and investment market size by assets estimated at 9% per annum for EURbn Managed assets Managed assets 1,200 CAGR = 0% CAGR = 9% CAGR 2003-2008 (2% growth incl. (8
Slide 63: New ambition level in AM&L
Delivery Market Ambition Strategy Financials New ambition level in AM&L z Maintain net inflows at current high levels z Retain market leading position z Strengthen product pipeline z Develop strong positions across all four life markets z Continue to expand throughout Europe 7
Slide 64: AM&L: Core strategy
Delivery Market Ambition Strategy Financials AM&L: Core strategy z Leverage integrated model for all aspects of long-term savings – maintain high net inflows fuelling superior profitable growth – harvest synergies and avoid double functions z Capture full wallet of Nordic retail clients – financial
Slide 65: One integrated business model, increasingly fee-based
Delivery Market Ambition Strategy Financials One integrated business model, increasingly fee-based z Common competencies… – mass administration – mass distribution Engineering/ – risk management Investment packaging – product development expertise expertise – portfolio management – mass advisory con
Slide 66: The savings area is managed as one operation
Delivery Market Ambition Strategy Financials The savings area is managed as one operation Nordea result from savings activities Q1-Q3 2004 Asset Management, Life, Retail Banking, operating result oper. result earnings that accrue to RB’s oper. result EURm t 180 duc Savings & Wealth 160 p ro Manageme
Slide 67: AuM across markets: Strengths and opportunities
Delivery Market Ambition Strategy Financials AuM across markets: Strengths and opportunities Retail Fund sales funds* through Private Institutional Life & AuM, Q3/04, (sold through EURbn third-parties banking clients Pensions own distribution) Denmark 12.3 - 11.0 10.2 14.9** 48.3 Finland 6.2 - 11.3
Slide 68: Savings & Wealth Management: Advisory concept key element in retail strategy
Delivery Market Ambition Strategy Financials Savings & Wealth Management: Advisory concept key element in retail strategy Financial planning tool sessions since Sep 2003 z Cutting edge advisory concept Acc. number of client sessions since launch z Integrated with Retail Banking 25,000 Roll-out conti
Slide 69: Retail funds: Nordic market leader
Delivery Market Ambition Strategy Financials Retail funds: Nordic market leader z Unrivalled Nordic franchise – market leader with 19% share of Nordic AuM EURbn EURbn 3.0 37 z No 2 in Europe on equity fund sales 34 (including third-party sales) 2.5 31 z International managers not a threat in 2.0 the
Slide 70: Private Banking: Nordic private bank with European reach
Delivery Market Ambition Strategy Financials Private Banking: Nordic private bank with European reach z Leading in Finland and Denmark EURbn EURbn 3.0 34 – building in Sweden and Norway ts sse 2.5 al P B a 30 z Separate concepts for affluent and 2.0 Tot high-net-worth individual clients ts 26 asse 1
Slide 71: Third-party fund sales: Europe a growth driver for Nordea
Delivery Market Ambition Strategy Financials Third-party fund sales: Europe a growth driver for Nordea z Business run by IWM&F in Luxembourg EURbn EURbn 1.2 7 z Third-party distribution with 1,000+ 1.0 6 distributors – direct sales to end-customers through IFAs, brokers, 0.8 5 open architecture in r
Slide 72: Institutional: The leading Nordic asset manager
Delivery Market Ambition Strategy Financials Institutional: The leading Nordic asset manager z Recognised as the leading Nordic asset manager z The Nordic manager winning international institutional mandates through the consultancy channel z Strong new business pipeline – Private Equity Fund – Fixed
Slide 73: Institutional: Committed to Nordic and international clients
Delivery Market Ambition Strategy Financials Institutional: Committed to Nordic and international clients Estimated 20+% market share in Nordic z EURbn EURbn institutional market 3.0 26 z Leading position in the Nordic area – growth picture differentiated 2.5 24 – mandate changes following merger ac
Slide 74: Life & Pensions: Sales focus building on changed business model
Delivery Market Ambition Strategy Financials Life & Pensions: Sales focus building on changed business model Life product result and economic capital EURm EURm z Leading Nordic life insurer 70 1,400 z Changed business model in place 60 57 52 53 47 1,200 – fee-based 50 43 43 44 40 – reduced guarantee
Slide 75: AM&L making a strong contribution to Nordea's bottom line
Delivery Market Ambition Strategy Financials AM&L making a strong contribution to Nordea’s bottom line Total Nordea Group result (Q1-Q3 2004) Asset Management (EURm) Asset Management product 175 result (EUR 175m) Retail funds 84 Life product result 11% International (EUR 157m) 7 Wealth Mgmt & Funds
Slide 76: AM result: Robust inflows and diligent cost control driving profits
Delivery Market Ambition Strategy Financials AM result: Robust inflows and diligent cost control driving profits Revenues andactivities Asset Management cost Fee revenues EURm Bp. EURm EURbn 140 34 140 100 120 32 120 90 100 Declining 30 80 100 unit cost 70 80 28 80 60 60 58 60 57 57 60 60 50 26 48 5
Slide 77: BCG's Global Asset Manager survey: Profitability of benchmark participants
Delivery Market Ambition Strategy Financials BCG’s Global Asset Manager survey: Profitability of benchmark participants - 2003 Pre-tax margin (in % of 2003 net revenues) 80% European 70% participants 60% 50% 40% Benchmark average: 31% 30% 20% 10% 0% A B C D E F G H I J K L M N O P Q R S T U V W X Y
Slide 78: Conclusions/summary
Conclusions/summary z Strong market potential across savings sector in the Nordic region z Nordea has market leadership position, with consistently high net inflows z Growth opportunities remain for Nordea – Life and Pensions – expansion in Europe – Private Banking z Profit contribution significant
Slide 79: Life & Pensions: Business model & strategy
Life & Pensions Business model & strategy Allan Polack Head of Life & Pensions London, 30 November 2004
Slide 80: Large and fast-growing savings segment
Large and fast-growing savings segment GWP Nordic life and pensions market z Life and pensions is the largest EURbn Nordic savings market segment 60 z Strong growth in corporate 50 pensions expected CAGR 53.5 10.4% z Defined Contribution becoming 40 CAGR market standard across Nordic 6.8% 30 33.0 ma
Slide 81: Market composed of several sub-segments
Competitive market Market composed of several Semi-competitive market sub-segments Non-competitive market Denmark Finland Norway Sweden Endowments Individual life savings Endowments 3rd pillar (EUR 1.5-2bn) products (EUR 1.7-2bn) Individual voluntary (EUR 0.7-1bn) • Individual pension IPS pensions •
Slide 82: Leading position with room for improvement on country level
Leading position with room for improvement on country level Denmark Finland Market shares of top 4 Nordic life and pension providers 36.0% 31.9% Market share of GWP, 2004 H1 29.4% 21.0% 14.4% 16.1% 10.2% 9.4% 8.2% 7.7% Danica PFA Nordea Nordea Sampo (incl. OP Life Ass. Kaleva) Norway Sweden 43.2% 18
Slide 83: Gross written premiums and new business
Gross written premiums and new business 2003 2004 Country breakdown, 2004 Q4/02-Q3/03 Q4/03-Q3/04 Last 12 months Gross written premiums (EURm) Total Total Denmark Norway Finland Sweden Other Traditional Private 1,070 975 221 123 542 70 18 Corporate 777 786 443 271 29 40 2 Sub-total 1,847 1,760 664 3
Slide 84: Multi-channel distribution
Multi-channel distribution Denmark and Norway Life & Pensions distribution, GWP, 2003 z Historically independent life companies with own distribution and distribution Denmark through sales force of strategic partner (Tryg Vesta) z Bank channel built up in recent years Norway as part of bancassurance
Slide 85: Strategic change: Shift from internal to external focus
Strategic change: Shift from internal to external focus 2002 - 2004 2005 and beyond Changed business model Focus on expansion z Roll out of fee-based business z Expand new business across all model to stabilise profitability markets z Reduced risk and volatility – targeted increase in Nordic Life gr
Slide 86: Product strategy
Product strategy “Old” traditional “New” traditional Unit-linked Niche Bread and butter Active z Guaranteed return z Customised to age z Focus on clients wanting products with collective profile of customer to influence investments investments and collective buffers z Offers market return z Interact
Slide 87: Distribution strategy
Distribution strategy Private Corporate Further opportunity in bancassurance Multi-channel approach required z Responsibility for all retirement z Leverage bank corporate relationships products in Nordea, including bank – co-located with retail branches pension products – structured sales process se
Slide 88: Well-positioned to build on core savings competencies
Well-positioned to build on core savings competencies z The transition towards Defined Contribution creates a demandPension scheme sales Pension scheme sales for individualised pension PPe emiiu savings and 3rd age financial pr prem enns um planning sio onn s into into produc Pen Pen ms z Providers
Slide 89: Financial strategy
Financial strategy Risk Profitsand value Profits z Guarantees of “old” traditional z Complete change to new business reduced model – DK: 1.5% max for new policies – Norway transformed to fee-based in 2005/06 – SE I: 3.5% – demutualise Swedish life company – NO: new policies at 3% z Low volatility in
Slide 90: Improved results as changed business model rolled out
Improved results as changed business model rolled out Life product result and Economic Capital EURm EURm EURm z Product result turnaround 70 1,400 in Q4 2002 - two quarters 60 53 57 ahead of financial markets 52 47 1,200 50 43 43 44 z Stable results for a 40 1,000 number of quarters 30 22 800 20 10
Slide 91: Economic capital
Economic capital z Market risk measured using Break down of economic capital stochastic model EURm, end-Q3 2004 Market risk 694 z Life risk – EU minimum solvency rules with own stricter rules on Life risk 91 life annuities Operational risk 102 z Operational risk measured pro- Business risk 137 rata
Slide 92: Overview of business reengineering
Overview of business reengineering z Implementation of fee-based profit model in Denmark z Danish shareholders’ equity separated from policyholders’ reserves and invested in low-risk assets 2002 z Nordic centralisation of investment and risk management, financial and control, IT and product developm
Slide 93: Fee-based business model for old traditional business in detail
Fee-based business model for “old” tradional business in detail z Cash flow to shareholders determined as a fee of life provisions z Fees are not charged to individual policies, but are extracted at company level z Shareholders’ equity in DK has been separated on the asset side of the balance sheet
Slide 94: 80% of AuM delivers fee-based profit
80% of AuM delivers fee-based profit AuM of Nordea Life & Pensions, breakdown on z Within the fee-based business model fee-based and other revenue model EURbn, Q3/04 AuM becomes the key profit driver 25 – AuM driven by new sales and long-term investment returns 93% 3.0 NO traditional 20 80% z DK, FI
Slide 95: Financial reporting
Financial reporting z Current disclosure displays life company flows - not profit drivers z IAS phase I set to change statutory reporting for life companies – phase II introduces market-based valuation (“fair value”) z Economic value - the preferred tool of Nordea – deterministic embedded value has
Slide 96: Alternative financial reporting: Breaking out profit drivers
Alternative financial reporting: Breaking out profit drivers z Fee based on size of life provisions in “with profit” companies – DK, FI, SE II Fee contribution z Profit-sharing from the Norwegian business (existing model, change pending) Contribution from z 25% of surplus/deficit from cost result in
Slide 97: Alternative financial reporting: Breaking out profit drivers
Alternative financial reporting: Breaking out profit drivers 2003 Q1-Q3 2004 EURm Total Denmark Norway Finland Sweden Other* Total Traditional insurance: Fee contribution/profit sharing 102 38 30 33 1 -3 99 Contribution from cost result 10 1 -1 5 -1 0 4 Contribution from risk result 10 1 1 6 2 0 10
Slide 98: Active Asset and Liability Management
Active Asset and Liability Management P/L EV & EC z Weekly sensitivity z Quarterly reporting of EC reporting towards P/L figures and financial buffers ALM Market return Solvency z Weekly sensitivity reporting 20
Slide 99: Low sensitivity to market fluctuations
Low sensitivity to market fluctuations Change in equity prices Change in interest rates (bp) 0% -10% -20% -30% -40% -150 -100 -50 0 50 100 150 0 -3 10 10 0 6 Change in Life P/L -20 5 4 5 (EURm) -40 0 0 0 -60 -5 -5 -5 -80 -78 -10 -10 -10 -100 -15 -15 0 150 0 Change in financial 107 buffers (EURm) -20
Slide 100: Market initiatives for 2005
Market initiatives for 2005 Denmark Finland z New market yield capital guarantee z Maintain strong endowment product position Products z Complementary pension plans z Development of new corporate sales tool for Nordic use z Support Tryg in pension sales z Refocus sales force on medium and large corp
Slide 101: Market initiatives for 2005 (cont'd)
Market initiatives for 2005 (cont’d) Sweden Norway z Corporate product-set revamp z Focus on standardised products for bank channel Products z Rollout new product targeting high- z New traditional product launch end segment z Increase in size of sales force in z Focus on bank co-operation and both r
Slide 102: Summary/conclusion
Summary/conclusion z Market growth expected to remain strong z Nordea is well-positioned, with specific, clearly identified opportunities for growth z New business model delivering results z Shifting focus to expansion – detailed plans in place by market – increase in market share targeted – right p
Slide 103: Financial targets and new accounting principles
Financial targets and new accounting principles Arne Liljedahl Member of Group Executive Management, Group CFO and Head of Group Corporate Centre London, 30 November 2004
Slide 104: New targets
New targets Key performance indicator Old target New target Total shareholder return, % In the top quartile of European peer In the top quartile of European peer group group RoE, % > 15% - excluding goodwill >15% in 2005 and > 17% or level of top Nordic peers from 2007 Costs, EURm Same cost level as
Slide 105: RoE calculations
RoE calculations* % 18 17.2 18% z Nordea RoE calculations to year-end 2004 15.0 14.3 15% 15 – RoE as if goodwill written off against equity (EUR 10.5bn end Q3/04) 12.2 12 11.3 – no goodwill amortisation in P&L 8.9 z From 1 January 2005 IFRS 3 9 will apply – include goodwill in equity (EUR 12.4bn 6 e
Slide 106: Total capital ratio
Total capital ratio % 12 11 z Optimise level of capital 9.9 9.8 9.8 10.1 10.1 10 in order to maximise 9.1 9.3 9.3 9.3 9 2.2 2.5 return 2.8 2.6 2.3 8 2.1 2.0 2.5 2.3 7 7.5 7.9 7.6 z Potential to double 7.0 7.1 7.2 7.3 7.0 6 6.8 hybrid capital in Tier 1 5 4 3 2 1 0 Q3/02Q4/02Q1/03Q2/03Q3/03Q4/03Q1/04Q
Slide 107: Hybrid capital as a % of Tier 1 capital
Limited hybrid capital in Nordea compared to peers 35 Abbey Hybrid capital as a % of Tier 1 capital 30 ABN Amro RBS 25 HVB 20 HBOS Barclays Lloyds TSB 15 KBC* DnB NOR AIB BNP Paribas SEB Soc Gen 10 Danske Bank Nordea 5 Swedbank Commerzbank SHB BOI 0 5 6 7 8 9 10 11 12 Tier 1 ratio (% ) * Bank operat
Slide 108: Benefits for Nordea in Basel II
Benefits for Nordea in Basel II z Business case for Basel II can be drawn from the reduction in risk- weighted assets and hence capital requirements z Equally important are the indirect benefits – improved risk management standards – improved efficiency in the credit process – improved management in
Slide 109: Implementation plan with regards to Basel II
Implementation plan with regards to Basel II z Nordea has the ambition with regards to credit risk to move towards an Internal Rating Based (IRB) approach starting with foundation approach 2007 and moving gradually towards advanced approach z With regards to operational risk, Nordea intends to imple
Slide 110: Expected effects on capital requirements
Expected effects on capital requirements z For Nordea, as for most Nordic banks, the new Basel Accord is expected to have a positive effect on minimum required capital z The main reason is the Group’s lending portfolio mix: – household lending portfolio, representing 45% of the Group’s total lending
Slide 111: Status of Nordea alignment to IFRS
Status of Nordea alignment to IFRS z Nordea reports according to Swedish GAAP z Swedish accounting standards have been gradually aligned to IFRS since 2000 z Nordea has changed the accounting policies accordingly – 29 IFRS standards implemented to date – the most recent implementation was made in th
Slide 112: Main changes to current accounting policies to be implemented in 2005
Main changes to current accounting policies to be implemented in 2005 z IFRS 3 Intangible assets (amortisation of goodwill) z IFRS 3 Business combinations (life consolidation) z IFRS 4 Insurance contracts (fair value) z IAS 39 Financial instruments 10
Slide 113: Goodwill amortisation
Goodwill amortisation z IFRS 3 states that no amortisation of goodwill should be made z Impairment tests will be regularly performed, as previously z Net effect on P/L would have been approx. EUR 160m if the standard had been implemented in 2004 Effect: Positive effect in P/L going forward 11
Slide 114: Life business
Life business z IFRS 3: All subsidiaries have to be consolidated line-by-line – previously the Life business has been consolidated on one line in the P/L – Life assets and liabilities have been separately disclosed in the balance sheet – in 2005 the Life business will be disclosed line-by-line in th
Slide 115: Dissolvement of general credit loss provisions
Dissolvement of general credit loss provisions z IAS 39 does not allow general credit loss provisions – Nordea currently holds such provisions mainly in Denmark and Norway. These provisions amount to EUR 346m, the full amount will not be reclassified – certain provisions expected to be reclassified
Slide 116: Amortised cost calculations on impaired loans
Amortised cost calculations on impaired loans z IAS 39: The interest income from impaired loans will be calculated at original effective interest rate – leads to increased net interest income z IAS 39: At the time of impairment the net present value of future cash- flow gives the residual value of t
Slide 117: Financial instruments (IAS 39)
Financial instruments (IAS 39) z Nordea will use hedge accounting for financial assets/liabilities – derivatives will be valued at fair value z Increased income volatility due to valuation and elimination of certain financial instruments – may affect asset and liability management z Pending issues –
Slide 118: The Nordea share: Nordea's capital markets value proposition
The Nordea share: Nordea’s capital markets value proposition z Increase return on equity - in stages - to level of top peers z Commit to create sustainable revenue growth and continued cost efficiency z Ensure real economic value creation through continued improvement in economic profit z Exploit ec
Slide 119: Final remarks
Final remarks Lars G Nordström President and Group CEO London, 30 November 2004
Slide 120: New targets
New targets Key performance indicator Old target New target Total shareholder return, % In the top quartile of European peer In the top quartile of European peer group group RoE, % > 15% - excluding goodwill >15% in 2005 and > 17% or level of top Nordic peers from 2007 Costs, EURm Same cost level as
Slide 121: Conclusion/summary
Conclusion/summary z We have delivered on our strategy and targets from 2002 z We have raised our ambition level and financial targets z We are well-positioned to capture growth z We have the platform in place to deliver 3