Greetings, Inderes viewers. Nordea published its third quarter result today, and we are joined by the Group CFO Ian Smith. Hi Ian, and thanks for having me. Hi Kasper, very welcome. Let's go through the latest quarter. How would you describe Nordea's performance in the last quarter?

I think another good quarter, another set of solid results, a little bit slower because of the summer season, and I think everybody came out of a busy first half of the year a little bit slowly, but across all of our businesses. We saw continued growth, so lending growth was up 2% on the household side and 8% on the corporate side. Good to see that, and assets under management were 13% year on year, so good growth activity. Fees picked up towards the end of the quarter, but I think a solid set of results, ROE 15.1% and cost-to-income. Ratio for life.

So very much development in line with the previous quarters.

A little bit slower than Q2, which was exceptionally strong, so I think in good shape for the first three quarters of the year.

I will look at the loan demand. Have you seen the demand for loans developing across your Nordic markets, given that the geopolitical turmoil is continuing and the rate environment is higher? So are there still differences between customer groups and geopolitical areas, for example?

There are some small differences, sure. On the household side, I would say the key mortgage markets, Finland. Markets, Finland. Still a little bit quieter. Part of that is because there is quite a lot of supply of homes available, stripping demand. We see demand increase a little bit in Sweden and Norway. Denmark is still reasonably steady, so.

A similar pattern in our view on the mortgage side. On corporate lending, the key feature of the first half of the year was the growth in Sweden, which was extraordinary, and we see year-on-year growth in corporate lending in Sweden in our large corporates business up 10% year on year. Those growth statistics are also picking up in the other countries, and particularly in Norway and in Finland. So that's really encouraging. So I'd say that all markets were performing well in terms of corporate lending growth, and across a broad base, whether it be energy, infrastructure, some real estate, broader industrials, so quite broad-based growth. So this is very much a year of corporate growth, which I think we can understand as being motivated by those key industries where Europe has shown determination to. Invest, so defence, infrastructure, energy transition, technology, those kinds of things.

Higher interest rates are obviously a good thing for the banks, but how would you say, what is the sweet spot? Because at some point, when they reach higher and higher, it starts to strangle economic activity, consumer confidence, et cetera. So what is the sweet spot for you?

That's the key question. In the rate hiking cycle after the invasion of Ukraine, it was that. The strain on household budgets, for example, that comes from higher interest rates certainly kicked in at levels above 3%. So it's hard to pinpoint a particular sweet spot, but I'd say that somewhere between 2% to 3% is a sensible cost of money, if you like, and our customers can manage with that, particularly if they get stability. I think it's often what holds people back is, as you say, volatility in rates, so stable rates somewhere between 2% and 3%, I think makes sense, and certainly. It is the right thing to do to have left behind this really old situation when money didn't cost anything.

But overall, you're still confident on what comes to the level of interest rates this year.

I would say so. What we did say today in our report, we're mindful the future rate rises put some pressure, particularly on consumers, but I think today's levels, provided they don't go much further, are okay.

Right. Then about the competition. Several banks have implied that the competition in the lending market has intensified previously in the Nordics, and at the same time, when you look at your profitability level across the whole banking sector, return on equity is quite high, much above the cost of capital, which usually means that there's an imbalance between supply and demand, or the other option is there are structural competitive advantages. So my question is, what explains this contradiction, and do you see these levels of profitability sustainable in the long run as well?

My challenge on that a little bit, Kasper, is because if you saw banks cover their cost of capital. I think that would concern us, so we should not be surprised or disappointed. That an industry can make returns above its cost of capital. We're in the risk-taking business. We should be rewarded for that risk. We invest heavily, and again, in order to sustain that level of investment, we need to make suitable returns. So I think I am not impressed by the banking industry making returns above cost of capital. I think it would be dangerous if it were the other way around. Of course, the question is, okay, but how much higher should it be? And I think that is where competition plays its part.

This is a very competitive market with a number of well-established, and I'm looking at the Nordic region here, a number of well-established, well-run banks that compete very, very fiercely for business, and you can see that in the mortgage market, where particularly in Sweden and Norway there's been huge pressure on lending margins as banks compete for lower volumes than normal. So I think competition is alive and well, and that should present a natural brake on. Return levels, but we should expect to see, and we should welcome, returns above cost of capital. That's essential for investment and rewarding risk-taking through.

If we look at the fierce competition. What do you see as the biggest factors behind this tightening competitive situation in the mortgage market and in corporate lending?

I think in the mortgage market. We still see low transaction volumes, and so this is about banks competing for those small loan volumes. That has certainly made it very difficult to increase prices and has led to price reductions. On the corporate side, I think it's a feature of two or three things in the Nordic markets. We see. Nordea and a couple of other Nordic banks that are very strong players in the market, and you would always expect to be there on deals. We also see foreign banks. See the Nordics as an attractive market, and I think there's been an increasing amount of that in the Nordic region over the last two years, where we've seen other European banks and indeed, on the biggest deals, US banks getting involved because these are great companies and banks want to be involved in them. So I think those are some of the features that are playing out, where you see competition. Keep so sharp, and I think that we can win and that we can grow, so. No, there is thank you up.

You previously stated that you are scanning for inorganic growth opportunities specifically. There's speculation about the asset management and pension companies in Denmark, and you won't comment on those specifically, but are you seeing realistic targets with reasonable prices at the moment in the market?

So I think you're right, there is plenty of speculation, and some names get mentioned, and we think about those as you'd expect us to. I think that the key is in your question. It is about realistic targets at reasonable prices, and I would say that at the moment, while there are a number of attractive-looking businesses out there. Are for sale, certainly not obviously for sale, so in terms of realistic targets, that does restrict the field of view. If you like, there are certainly not reasonable prices out there if you look at some of the prices which these businesses are trading at at the moment, but that can all change. Both those things can change over time. So the way we think about it is to be scanning the market. As you say, we do the work and we know that the opportunities will come along either because some owners decide it's the right time to sell or we find prices getting to a more sensible level. So we're patient, and I think in M&A patience is key.

That obvious fact that a bad deal can reduce your return on equity quite significantly.

We're very conscious.

Today you told that the ECB has indicated the need for additional conservatism with your new capital models, and because of that you're holding your share buybacks for the time being. Could you walk us through what that implies, and how does it fit to your current plans of capital distribution?

So it's important to focus on what we said today, and we've been very specific, which is exactly as you outlined, but importantly we're affirming our guidance for this year and indeed reaffirmed our 2030 target. So no change is there, and no changes to our capital policy. We think that pausing buybacks because of the uncertainty related to this model situation is a sensible thing to do. Buybacks we tend to think about as a way of distributing excess capital. So it's the capital that's left over after we generate capital in the quarter, we fund our growth, and then it's what's left over, and for the moment. We will hold on to that pending. Clarification of the real impact of this model situation. So I think we tried to be as clear as we can today, but that. And we don't expect any decisions before 2027, so all right.

Then last question. Let's take a look at the future. The year is almost over, so maybe we should have a bit of a longer perspective. What do you think are the most critical swing factors that could either push your return on equity significantly above the 15% which is your target currently, or the greatest threats to achieving this current level of profitability?

You made me smile a little bit there, saying the year is almost over. Me and my family are now turning their attention to Christmas and thinking, hang on, we're not ready for that yet. But you're right, 2026 is a must in the bank. We've got an ambitious strategy, and as one of my finance colleagues is liable to say, we're now 15% of the way through the strategy period because we're nine months into five years, and we're making good progress. We're investing heavily. I think the thing, the results of that, for example, one of our key initiatives is to increase the number of small business customers year on year. New customers in small business areas are up 50%. We're seeing good growth in private banking, which is a key strategic area also. Those different elements of strategy are, I think, progressing. The things we worry about, I mean, we worry about everything because we're paranoid about. The future. Things, but the things to come through as obvious.

We should talk about the political tension and the different things that are happening, and of course we see higher energy prices. And other things that are likely to drive inflation, and the response to inflation is to increase interest rates, and of course that can choke demand. So I think the economic situation is still quite finely balanced, and of course. If we don't see growth, then it. Hard to grow earnings off the back of.

There's a lot of execution in our plan, so in particular delivering on our structural cost reductions as part of our Nordea programme. There's a big technology element in that. We execute very well, I'm confident we'll be able to do so, but there is still a lot to be done in this remaining 85% of the strategy period left to go. So I think we're very focused on both the prospects for growth and the amount of execution. We have to do in the plan, and I think the other thing is, as we're all focused on and I think we maybe, as the day went on, people had other things on the mind, is what can be the impact of AI on society as a whole. We're very focused on where we think it can make it better for customers, that can improve things in our business, but it's a big change that's coming. Nobody really knows how things might look in five years' time.

Good thing about AI. It requires capital, and that's good. Thank you, Ian, for the interview. I'm not going to wish you a merry Christmas yet, so see you next time.

Great, thank you Kasper.