Nordea Annual Nordea Report 2019 Annual Report 2019 This Annual Report contains forward-looking statements macroeconomic development, (ii) change in the competitive that reflect management’s current views with respect to climate, (iii) change in the regulatory environment and other certain future events and potential fnancial performance. government actions and (iv) change in interest rate levels Although Nordea believes that the expectations reflected in and foreign exchange rate levels. This report does not imply such forward-looking statements are reasonable, no assur- that Nordea has undertaken to revise these forward-looking ance can be given that such expectations will prove to have statements, beyond what is required by applicable law been correct. Accordingly, results could difer materially from or applicable stock exchange regulations if and when those set out in the forward-looking statements as a result of circumstances arise that will lead to changes compared various factors. Important factors that may cause such a to the date when these statements were provided. diference for Nordea include, but are not limited to: (i) the Annual Report 2019 Nordea 3 Contents 4 CEO Letter 6 Who we are 8 Operating model 9 Nordea 2019 in brief 10 Nordea as an investment 15 Business areas 24 Group functions 25 Our people Board of Directors’ report 27 The Nordea share and ratings 30 Financial Review 2019 35 Capital Management 39 5 year overview 40 Ratios and key fgures 41 Business area results 42 New Regulations 43 Corporate Governance Statement 2019 53 Non-Financial Statement 55 Conflict of interest policy 56 Remuneration 60 Proposed distribution of earnings 61 Glossary Financial statements 62 Financial statements, Group 73 Notes to Group fnancial statements 182 Financial statements Parent company 189 Notes to Parent company fnancial statements 281 Signing of the Annual Report 282 Auditor’s report Organisation 288 Board of Directors 290 Group Leadership Team 292 Main legal structure 293 Group organisation 294 Annual General Meeting and Financial calendar Nordea Annual Report 2019 CEO letter 4 “I am convinced that we will unlock Nordea’s full potential and create more value for our customers and shareholders.” Dear shareholder, Recent years have been challenging for Nordea, and our will not hurt our business. Today we have better solutions and fnancial performance has been below expectations. I fully tools to face this new business environment. At the same recognise that the absolute and relative share price perfor- time, we will do our utmost to support our people and assist mance has been disappointing for our shareholders. There- those impacted by change. fore, it is clear that our fnancial performance must be Since we are the biggest bank in the Nordics, we have pos- improved. sibilities to leverage our Nordic scale compared to our local In the autumn of 2019, we entered a new phase with clear peers, while having the advantage of being more local than priorities and targets. As CEO of Nordea, I am humble, proud our global peers. We need to be better at this, and I am com- and determined to lead the bank through the challenges. I mitted to getting that balance right to the beneft of both cus- am convinced that we will unlock Nordea’s full potential and tomers and shareholders. create more value for our customers and shareholders by sig- nifcantly improving both services and fnancial performance. The second priority is to drive income growth initiatives. This At our Capital Markets Day in October 2019, we presented we do by putting the customers in focus for everything we do, the new direction of Nordea, with an updated business plan and by freeing up time for our customer facing people to and new fnancial targets. Nordea has a strong foundation to spend more time with our customers. build on, with highly skilled staf, a solid balance sheet and a I am pleased to see that during 2019 we saw encouraging great customer base. The strategy and business plans are in signs of improved business activity. For example, within the place. Now it is all about execution to close the performance important mortgage business we have increased the activity gaps. level and improved market shares of new lending in all four Our updated business plan is about retaking lost ground Nordic markets. Within Asset Management we have started and making us truly competitive again. It is about greater to see an improved development in inflows. empowerment and accountability to the business areas to Our focus is on organic growth, and we will invest to take the necessary actions to deliver on the three group strengthen the core of our business. However, should oppor- priorities: tunities arise, we will also evaluate bolt-on acquisitions that • To optimise operational efciency complement our strategy and core Nordic business, such the • To drive income growth initiatives recently announced acquisition of SG Finance’s Nordic busi- • To create great customer experiences ness and Gjensidige Bank in Norway. When we fnd possibili- ties to strengthen our business, we will seize the The frst priority focuses on simplifying and streamlining our opportunities. organisation, reducing the number of products and IT sys- tems and lowering our cost base. We need to create a stron- The third priority is to create great customer experiences for ger cost culture at Nordea where all leaders and employees all our customers. At the end of the day, this is the only way to strive to work in a more efcient way and take pride in achieve sustainable success. improving the balance between cost and revenues. I meet customers every day, because I want to truly learn We also need to consider the rapidly changing business how they want us to serve them, how they experience us and environment with low-cost services, digital transformation what we can do to improve our services. Even though we and new ways of working. It leads to a need for fewer have very satisfed customers in several segments like large employees, diferent skill sets and a change in the composi- corporates and private banking, the learning is clear: we have tion of employees. This is a general trend in the banking to step up, our customer satisfaction is not on a good level. industry and Nordea is not an exception. We will be fewer But we are making progress and taking steps forward. We people going forward, but we will ensure that the changes have managed to shorten waiting times to our 24/7 contact Annual Report 2019 Nordea CEO letter 5 centres signifcantly, the number of customer complaints has decreased, and we have better stability in our systems. “A topic close to my heart With our signifcant investments in IT and technology, we are continuously expanding our digital oferings to our customers. is sustainable banking. During 2019, following successful launches in Sweden and Fin- land, we expanded the new mobile bank platform to Denmark. The new mobile app has been very well received by customers, In our business, we put and we are approaching 1bn touchpoints on our digital plat- form. More recently, we now ofer our customers an easy digital sustainability into practice, solution to track their carbon footprint on their mobile. Our target is to meet and exceed our customers’ needs proactively. We are expected to be available anywhere and making it concrete and real anytime, in all channels. Therefore, we continue to invest in our omnichannel set-up, where our customers decide when, to our customers.” where and how they want to meet with us. We continue to deliver relevant services with a personal approach – no mat- ter what the channel is. Our clear vision is to become a strong personal fnancial partner for all of our customers. business, we put sustainability into practice, making it con- crete and real to our customers. We have during the autumn decided on new fnancial targets In 2019, we expanded green corporate loans, which are for 2022: now available to customers in all our four Nordic home mar- • A cost to income ratio of 50 percent kets. We also have green mortgages available in Finland and • A return on equity above 10 percent Norway to our household customers owning their homes, fol- lowing good experiences from Sweden. We launched 11 new Furthermore, our new capital and dividend policy stipulates sustainability funds included in the Sustainability Selection, that we should hold Common Equity Tier 1 (CET1) capital and I was also pleased to see an almost 87% increase in equivalent to a management bufer of 150–200 bps above the Assets under Management (AuM) in Sustainable Selection regulatory CET1 requirement and a dividend pay-out ratio of during the year. In 2020, I expect this green trend to continue 60–70 per cent of net proft, both starting from 2020. We will and accelerate further. continuously assess the opportunity to use share buy backs Sustainable banking is not only about new products and as a tool to distribute excess capital to our shareholders. The services, it is also an integrated part of our governance and 2019 fourth quarter results show that we are continuing to our way of working. The sustainability risks are implemented strengthen our capital position and for 2019 the Board pro- into our risk management frameworks. We identify, assess poses a dividend per share of EUR 0.40. and mitigate sustainability risks by integrating sustainability For several years Nordea has invested signifcantly to into key processes like the credit and relevant product strengthen our risk and compliance functions and processes. approval processes. We and many other fnancial institutions, but also authori- I am proud of that Nordea, as the only Nordic bank, was ties, have historically underestimated the complexity related amongst the 30 founding banks of the Principles for Respon- to fnancial crime matters.