Annual Report 2018 CEO Letter Casper von Koskull, President and Group CEO, and Torsten Hagen Jrgensen, Group COO and Deputy CEO. Page 4 4 Best and most accessible advisory, with an 21 easy daily banking experience, delivered at scale. Page 13 Wholesale Banking No.1 relationship Asset & Wealth bank in the Nordics Management with operational Personal Banking 13 excellence. Page 21 Commercial & Business Banking Our vision is to become the lead- ing Asset & Wealth Manager in the 25 Nordic market by 2020. Page 25 Best-in-class advisory and digital experience, 17 ef ciency and scale with future capabilities in a disruptive market. Page 17 Annual Report 2018 Contents 4 CEO letter 6 Leading platform 10 Nordea investment case – strategic priorities 12 Business Areas 35 Our people Board of Directors’ report 37 The Nordea share and ratings 40 Financial Review 2018 46 Business area results 49 Risk, liquidity and capital management 67 Corporate Governance Statement 2018 76 Non-Financial Statement 78 Conflict of interest policy 79 Remuneration 83 Proposed distribution of earnings Financial statements 84 Financial Statements, Nordea Group 96 Notes to Group fi nancial statements 184 Financial statements Parent company 193 Notes to Parent company fi nancial statements 255 Signing of the Annual Report 256 Auditor’s report Capital adequacy 262 Capital adequacy for the Nordea Group 274 Capital adequacy for the Nordea Parent company Organisation 286 Board of Directors 288 Group Executive Management 290 Main legal structure & Group organisation 292 Annual General Meeting & Financial calendar This Annual Report contains forward-looking statements macro economic 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 fi nancial performance. government actions and (iv) change in interest rate level and Although Nordea believes that the expectations reflected in foreign exchange rate levels. This report does not imply that such forward-looking statements are reasonable, no assur- Nordea has undertaken to revise these forward-looking state- ance can be given that such expectations will prove to have ments, beyond what is required by applicable law or appli- been correct. Accordingly, results could difer materially from cable stock exchange regulations if and when circumstances those set out in the forward-looking statements as a result of arise that will lead to changes compared to the date when various factors. Important factors that may cause such a these statements were provided. dif erence for Nordea include, but are not limited to: (i) the Annual Report 2018 CEO letter 4 Our priorities for 2019 are very clear – It is now all about execution exposure and non-Nordic Shipping, Oil than 115,000 advisory meetings. To ful- and Ofshore lending during 2013–2017. fi ll our customer vision, we are seeking Last year, we performed several trans- new partners and collaborations. Last actions that continued to reduce risks year we launched the blockchain-based and increase our operational focus on platform we.trade in collaboration with the Nordics. The divestment of parts of eight European banks, that will allow our Luxembourg-based private banking companies to trade in a fast, easy and business was completed in October and transparent way. Furthermore, we in September, we announced the divest- expanded our digital payment of ering ment of our Baltic operations with the by adding Google Pay, a mobile pay- sale of Luminor. The acquisition of Gjen- ment solution for Android phones. sidige Bank including a partnership Cost and capital efciency is the with Gjensidige Forsikring was made fourth key element in our strategy. Our public in July and is expected to be transformation and heavy investments closed in the fi rst quarter of 2019. Final- in digital development and compliance ly, as of 1 October 2018, Nordea is domi- has undoubtedly led to cost increases in Dear shareholder, ciled in Finland creating a streamlined 2016–2017, however Nordea has now a Last year was a historical year for legal structure with a Finnish parent foundation for a long-term improve- Nordea when we finalized our re-domi- company, with fully owned product ment in cost ef ciency. We are well on ciliation into the Banking Union and companies and significant branches in track to reach our 2021 target to reduce Finland. This move is part of Nordea´s the other Nordic countries. costs by 3 percent compared to 2018 overall strategic direction, enabling us Another part of the simplifi cation proj- (excluding EUR 141m in goodwill to operate in an environment that of ers ect is a significant investment in building impairment in 2018 related to Russia). stability, predictability and a leveled modern platforms that will enable end- There is also potential to reduce costs playing fi eld. to-end digital solutions for customers beyond 2021 when the new Core Bank- I am happy to say that Nordea is now and future development. This involves ing Platform is implemented, and we repositioned to be a truly Nordic focused the replacement of our legacy banking can start decommissioning the legacy bank in the heart of the banking union, systems, where over 400 systems are systems. with a very clear and simple structure, a being converged into a new core banking With the transformation of the bank record strong balance sheet and a much platform, a payment platform, a custom- we are finding new ways of working. more improved risk and compliance er and counterparty master solution and We are creating a flatter organisation, platform, enabling us to be an even bet- a common data warehouse. We have which will result in increased empower- ter bank for our customers, while at the made signifi cant progress towards our ment for employees. This will also same time structurally bring down costs ambitions. Since early 2018, household ensure a quicker decision making and and increase ef ciency. customers in Finland have been able to more agile ways of working. Since 2016 Nordea has conducted a open new savings accounts and fi xed 2018 was a year characterized by significant transformation of the bank, term deposits on the new Core Banking challenges in terms of revenues; driven in line with the strategic priorities com- Platform. In spring, close to 750,000 by margin pressure in household lend- municated during the second half of Finnish customers savings accounts ing, muted volume growth and pressure 2015. The transformation consists of were successfully moved onto the plat- on savings and market making reve- four key elements. form. In autumn, a stepwise implemen- nues. On the other hand, I am pleased The fi rst key element – the risk and tation of loans commenced. Today, to see that we were delivering on our compliance setup – has gone through a applying for a loan via Nordea Mobile cost ef ciency plans, our credit quality radical transformation in recent years. involves just a few easy steps, with remains strong and the balance sheet is During the last three years we have instant access to funds for eligible cus- robust. Thus, we are prepared to man- invested more than EUR 730m within risk tomers in Finland. Furthermore, all Sin- age the bank successfully through the and compliance and resilience and gle Euro Payments area (SEPA) pay- cycle. We delivered the following results recruited approximately 1,300 compli- ments are now running on the new Pay- for full-year 2018 (excluding items ance professionals. These investments ment Platform and Nordea has a af ecting comparability): Income, EUR have significantly strengthened the risk completely new Group Common Data 8,435m, Costs, EUR 4,738m, Loan loss and compliance platform and provide Platform. ratio, 7 bps, Return on equity, 8,5%. vital support to our fi nancial crime pre- Our digital strategy – the third key I am proud of all the awards and top vention ef orts with more rigorous stan- element – has resulted in a signifi cant rankings that we have received during dards, KYC quality assurance processes number of new digital of erings to our the year, in many ways proving that we and sanctions screening capability, mak- customers. In 2016–2018 Nordea has are on the right track on our transforma- ing Nordea a safer and more trusted invested above EUR 200m in digital tion journey. At this year’s Paytech bank. solutions. Our customers are expecting Awards ceremony in London, Nordea The second key element of the trans- smart tools and easy digital ways of Wallet was awarded “Best Mobile Pay- formation – simplifi cation – has been handling their everyday banking. One of ments Initiative”, whilst there was fur- conducted through a large range of our latest solutions is a digital savings ther success for Open Banking, winning actions during the last five years. In robot that we have called Nora which “IT Team of the Year”. And for the third 2013 we divested our Polish operations, has been introduced in all Nordic coun- year running, Nordea was awarded the followed by a reduction of our Russian tries in 2018 and has conducted more prestigious title of “Best Bank in the Nor- Annual Report 2018 CEO letter 5 dics” in The Banker’s annual Transaction Nordea has been positioned as the num- of ered to customers undertaking initia- Banking Awards. ber 1 M&A and ECM house across the tives that have a clear environmental Nordics, and a major achievement. The impact. Additionally, in September we Personal Banking strong M&A performance was under- launched a green mortgage for our per- During 2018, we have launched an array pinned by Nordea´s key roles in various sonal customers in Sweden – a discount- of new services and solutions for our deals e.g.