Nordic Banks – Nordbi http://www.nordbi.org/ Tue, 17 May 2022 06:38:27 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 http://www.nordbi.org/wp-content/uploads/2021/04/nordbi-icon-150x150.png Nordic Banks – Nordbi http://www.nordbi.org/ 32 32 Live news: India’s LIC shares drop more than 8% on IPO debut http://www.nordbi.org/live-news-indias-lic-shares-drop-more-than-8-on-ipo-debut/ Tue, 17 May 2022 05:11:05 +0000 http://www.nordbi.org/live-news-indias-lic-shares-drop-more-than-8-on-ipo-debut/
Relatives of Ukrainian fighters sheltering in the Azovstal mill appealed for help to Turkish president Recep Tayyip Erdoğan © Alexander Ermochenko/Reuters

Moscow said an agreement had been reached to evacuate wounded Ukrainian fighters from the Azovstal steel mill in Mariupol, the besieged Ukrainian port town.

“On May 16, as a result of talks with representatives of the Ukrainian military blocked on the territory of the Azovstal metallurgical plant in Mariupol, an agreement was reached on the removal of the wounded,” Interfax news agency on Monday quoted Russia’s defence ministry as saying.

Ukrainian officials did not immediately confirm or deny such an agreement with Russian forces, but they signalled an evacuation operation was under way.

Speaking on Ukrainian television, deputy defence minister Hanna Maliar declined to reveal details on the grounds “any information” could “harm processes” that are under way.

“In order to save lives, the entire Mariupol garrison is implementing the approved decision of the supreme military command and hopes for the support of the Ukrainian people,” Denys Prokopenko, commander of Ukraine’s Azov battalion, said in a video address shared via Telegram.

“The defenders of Mariupol carried out the order, despite all the difficulties, repelling the overwhelming forces of the enemy for 82 days and allowed the Ukrainian army to regroup, train more personnel and receive a large number of weapons from partner countries,” Prokopenko continued.

Scores of civilians were this month evacuated in a UN and Red Cross operation from Mariupol, which had a prewar population of more than 400,000.

Earlier on Monday, relatives of Ukrainian fighters sheltering in underground catacombs of the Azovstal mill appealed for help to Turkish president Recep Tayyip Erdoğan during a meeting in Istanbul. Turkey has repeatedly offered to broker an evacuation from Mariupol and a peace agreement to end Russia’s war against Ukraine.

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Ukraine Latest: NATO Says Turkey Doesn’t Plan to Block Nordics http://www.nordbi.org/ukraine-latest-nato-says-turkey-doesnt-plan-to-block-nordics/ Sun, 15 May 2022 13:50:39 +0000 http://www.nordbi.org/ukraine-latest-nato-says-turkey-doesnt-plan-to-block-nordics/

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Bloomberg News

(Bloomberg) —

Finland announced it will apply to join NATO, and Sweden is likely to follow. Turkey doesn’t plan to block the Nordic countries’ membership bids, NATO chief Jens Stoltenberg said after meetings in Berlin. The military alliance in June is expected to highlight Russian behavior as a direct threat in an updated strategic document. 

The UK defense ministry estimated that Russia has likely lost a third of the forces it sent to Ukraine in February, and its offensive in the Donbas region has stalled. Ukraine on Saturday won the Eurovision Song Contest. 

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Key Developments

Russia’s Backyard Weighs Opportunities, Threats From Putin’s WarNATO Lauds Historic Moment as Finland Applies to Join AllianceEU Drafts Plan for Buying Russian Gas Without Breaking Sanctions’Straw Owner’ Hides $1 Billion Worth of Russian Yachts, US SaysEU Draft Cuts Euro-Area GDP Forecast, Sees 6.1% Inflation World’s Food Problems Piling Up as India Restricts Wheat Exports

All times CET:

NATO Chief Says Turkey Doesn’t Plan To Block Accession (3:22 p.m.)

“Turkey has made it clear that its intention is not to block membership” of NATO for Finland and Sweden, said Jens Stoltenberg, secretary general of the military alliance, speaking after a two-day meeting of NATO foreign ministers in Berlin. 

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Stoltenberg said he was confident Turkey’s concerns , which came to the forefront on Friday, would be addressed without delaying the membership procedure. “A quick and swift process,” is still expected, he said.  

Addressing concerns about possible moves by Russia before the Nordic nations are fully ratified, Stoltenberg said “we will look into ways to provide security assurances, including by increasing NATO presence in the Baltic region, in and around Finland and Sweden.”

Some German Industry May Move to US in Gas Fallout (3:20 p.m.)

The shift from Russian gas to costlier LNG could prompt some German manufacturers to relocate to the US, Michael Huether, director of the research institute IW Cologne, said in an interview with Stuttgarter Zeitung and the Stuttgarter Nachrichten. 

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As Germany prepares to shift permanently away from cheaper Russian supplies, the US’s energy independence could make it an attractive option, Huether said. 

He added that Russia’s economy will be permanently damaged by its standoff with the West. “Putin is committing economic suicide,” Huether said.  

War Will Impact World for Decades, Germany Says (3 p.m.)

German Foreign Minister Annalena Baerbock predicted the war in Ukraine “will not be over so quickly” and said Germany and its international allies will face fallout from Russia’s invasion for decades. 

“Russia’s break with all the norms of peaceful coexistence, especially the European peace order, the deliberate destruction of humanitarian law: all this is a radical turning point in the international order,” Baerbock said after hosting talks with NATO counterparts in Berlin.  

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“All this has drastically changed the security situation in the European and Transatlantic sphere, and it requires far-reaching strategic answers,” she added.

Finnish President to Meet with US Senators (2:40 p.m.)

Sauli Niinisto will meet with Senate Minority Leader Mitch McConnell and Republican senators John Barrasso, Susan Collins and John Cornyn in Helsinki on Monday, his office said. 

The meeting comes after Finland on Sunday said it would apply to join the NATO military alliance, and will focus on the Nordic country’s security policies and Russia’s war on Ukraine. McConnell and the senators met in Kyiv on Saturday with President Volodymyr Zelenskiy. 

NATO Expected to Brand Russian Behavior a Direct Threat (12:19 p.m.)

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NATO allies are expected to highlight Russia’s behavior as a direct threat in an upcoming strategic document, where they’ll also address how to better support neighboring countries that are vulnerable to coercion and aggression, according to a NATO official. 

Allies will likely keep open the possibility of reviving relations if Moscow’s behavior changes, the official said, adding that the document will also address China and its relationship with Russia.

The so-called Strategic Concept document outlines the alliance’s priorities for the coming years, and is due to be finalized at NATO’s summit in Madrid in late June. The previous version, published in 2010, referred to Russia as a partner, wording that is set to be scrapped this time.

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Finland Applies to Join NATO to Deter Russian Aggression (12:03 a.m.)

Finland is applying to join the NATO defense alliance to deter potential aggression from Russia as its neighbor wages a full-scale war in Ukraine.

The formal decision was taken on Sunday, President Sauli Niinisto said at a press conference in Helsinki. The move comes days after Niinisto and Prime Minister Sanna Marin said the Nordic country “must apply for NATO membership without delay.”

Kuleba, Blinken Meet in Berlin (10:25 a.m.)

Ukraine’s foreign minister met with Antony Blinken in Berlin, where the US Secretary of State is attending the NATO meeting. Blinken relayed details of the latest round of U.S. security assistance for Ukraine. 

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Freeing up grain exports was among the topics of discussion as Russia’s blockade of Ukraine’s Black Sea ports prevents the breadbasket nation from shipping. 

The pair “committed to seeking a solution to export Ukraine’s grain to international markets,” according to a readout from the State Department.  

Russia Fires Cruise Missiles at Lviv Region, Governor Says (10:22 a.m.)

Russia’s navy fired cruise missiles at Lviv region in Ukraine’s far west, potentially from submarines in the Black Sea, regional governor, Maksym Kozytskyi said on Telegram. Four missiles hit a military target, with no casualties reported. Two were intercepted. 

Separately, an adviser to Mariupol Mayor Pitro Andryushchenko said Russian forces dropped incendiary bombs on the Azovstal steel plant in Mariupol as part of ongoing assaults. 

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Ukraine’s defense of Azovstal is still tying down Russian combat troops and inflicting casualties, according to the Institute for the Study of War, which said ground, air and heavy artillery assaults continued on Saturday. Ukrainian officials are attempting a negotiated evacuation of medics and injured servicemen. 

Rheinmetall Adviser Criticizes Scholz Over Tank Delay (8:50 a.m.)

Dirk Niebel, an adviser to the German defense firm Rheinmetall AG, said Chancellor Olaf Scholz was dragging his feet over obtaining export approval for up to 100 of the company’s Marder tanks to Ukraine. 

“Do you want to lose more time? That costs even more lives,” Niebel, a former development minister, told the Tagesspiegel newspaper. “You need to give Ukraine the support it needs for its survival fight now.” 

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The company has started to prepare the fighting vehicles and could start delivery in two to three weeks with sufficient ammunition, he said. Germany’s transfer of Gepard anti-aircraft vehicles has also been held up over a lack of ammunition.

Baerbock Says Sweden, Finland Could Join NATO Quickly (9:05 a.m.)

German Foreign Minister Annalena Baerbock told reporters in Berlin that Sweden and Finland would be able to join NATO “very quickly” if they decide to go ahead with applications, as is expected, and that there wouldn’t be a “grey zone” in the accession process. 

Her Canadian counterpart, Melanie Joly, underscored the need to move quickly, noting “disinformation campaigns that are going on in Finland and Sweden” as well.

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Russia’s Donbas Offensive Has Lost Momentum, UK Says (8:15 a.m.)

Russia has failed to achieve substantial territorial gains in the Donbas region over the past month and during that time has sustained “consistently high levels of attrition,” the UK defence ministry said in an intelligence update.

“Russia has now likely suffered losses of one third of the ground combat force it committed in February,” the UK said. “Under the current conditions, Russia is unlikely to dramatically accelerate its rate of advance over the next 30 days.”

The assessment comes days after Ukrainian repelled Russian attempts to cross the Siverskyi Donets river in the Luhansk region, 

Russia’s Backyard Weighs Opportunities, Threats From Putin’s War (7 a.m.)

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With Putin’s invasion of Ukraine stalling, other former Soviet states are weighing prospects for pulling away from Moscow’s orbit even as they fear risks of potential border conflict. 

The war is sending tremors along an arc of instability stretching from Ukraine’s neighbor Moldova through the Caucasus and into Kazakhstan in central Asia. Putin’s intentions have become an urgent national security question in countries with so-called “frozen conflicts” or that have large pro-Russian minorities. 

UniCredit, Citigroup Explore Asset Swaps to Exit Russia: FT (6 a.m.)

UniCredit SpA and Citigroup Inc. are considering swapping assets with Russian financial institutions as they try to exit the country while avoiding large writedowns on their operations there, the Financial Times reported. 

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The banks have explored deals to swap their Russian businesses for the local buyer’s foreign units, people with knowledge of the plans told the newspaper. UniCredit is also working on deals with non-sanctioned banks to swap its Russian loan books for their foreign credit portfolios, according to the report.

Ukrainian Band Kalush Orchestra Wins Eurovision (1:20 a.m.)

The Ukrainian band Kalush Orchestra won the Eurovision Song Contest in a show of support for the war-torn nation, the Associated Press reported. The public vote from home was decisive in securing the band’s victory, according to the report.

Front man Oleh Psiuk made a plea to the live crowd and television audience of millions for the remaining Ukrainian fighters trapped in the Azovstal steel plant to be freed, AP said. 

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Ukrainian President Volodymyr Zelenskiy celebrated the victory in a Telegram post, saying “Our courage impresses the world, our music conquers Europe!” He said Ukraine will host the contest next year — as the winning country typically does — and hopes to “one day” host participants and guests in Mariupol.

‘Straw Owner’ Hides $1 Billion Worth of Russian Yachts, US Says (11:15 p.m)

US authorities are alleging that a Russian tycoon acted as the “straw owner” of two yachts worth more than $1 billion, including the $700 million Scheherazade, a superyacht linked to Putin.

Court filings in the South Pacific island of Fiji, where the US is trying to seize the $325 million yacht Amadea, reveal what US officials allege is a nest of offshore shell companies that were set up with the help of a yacht broker to conceal the true owners of both vessels — an allegation that lawyers for the listed owner and the broker dispute. A hearing is scheduled for Wednesday in Fiji on the fate of the Amadea.

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The layers of companies and trusts, stretching from the Marshall Islands to Switzerland, indicate the beneficial owner of both yachts is the former president of state-controlled Rosneft OJSC, Eduard Khudainatov, according to the documents. Khudainatov doesn’t appear on any sanctions lists.

EU Drafts Sanctions-Compliant Russia Gas Buying Plan (9:30 p.m.)

The European Union is set to offer gas importers a solution to avoid a breach of sanctions when buying fuel from Russia and still effectively satisfy President Vladimir Putin’s demands for payment in rubles.

In new guidance on gas payments, the European Commission plans to say that companies should make a clear statement that they consider their obligations fulfilled once they pay in euros or dollars, in line with existing contracts, according to people familiar with the matter. The EU’s executive arm told the governments that the guidance will allow them to purchase gas without breaching EU sanctions.

The clock is ticking because many firms have payment deadlines this month. If they don’t pay, gas flows could be cut off. 

©2022 Bloomberg L.P.

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AP News in Brief at 6:04 p.m. EDT | National http://www.nordbi.org/ap-news-in-brief-at-604-p-m-edt-national/ Fri, 13 May 2022 22:04:01 +0000 http://www.nordbi.org/ap-news-in-brief-at-604-p-m-edt-national/

Russia takes losses in failed river crossing, officials say

KYIV, Ukraine (AP) — Russian forces suffered heavy losses in a Ukrainian attack that destroyed a pontoon bridge they were using to try to cross a river in the east, Ukrainian and British officials said in another sign of Moscow’s struggle to salvage a war gone awry.

Ukrainian authorities, meanwhile, opened the first war crimes trial of the conflict Friday. The defendant, a captured Russian soldier, stands accused of shooting to death a 62-year-old civilian in the early days of the war.

The trial got underway as Russia’s offensive in the Donbas, Ukraine’s eastern industrial heartland, seemed to turn increasingly into a grinding war of attrition.

Ukraine’s airborne command released photos and video of what it said was a damaged Russian pontoon bridge over the Siversky Donets River and several destroyed or damaged Russian military vehicles nearby. The command said its troops “drowned the Russian occupiers.”

Britain’s Defense Ministry said Russia lost “significant armored maneuver elements” of at least one battalion tactical group in the attack earlier this week. A Russian battalion tactical group consists of about 1,000 troops.


Turkey’s leader opposes letting Finland, Sweden join NATO

HELSINKI (AP) — Turkish President Recep Tayyip Erdogan said Friday that his country is “not favorable” toward Finland and Sweden joining NATO, indicating Turkey could use its membership in the Western military alliance to veto moves to admit the two countries.

“We are following developments concerning Sweden and Finland, but we are not of a favorable opinion,” Erdogan told reporters.

The Turkish leader explained his opposition by citing Sweden and other Scandinavian countries’ alleged support for Kurdish militants and others whom Turkey considers to be terrorists.

He said he also did not want to repeat Turkey’s past “mistake” from when it agreed to readmit Greece into NATO’s military wing in 1980. He claimed the action had allowed Greece “to take an attitude against Turkey” with NATO’s backing.

Erdogan did not say outright that he would block any accession attempts by the two Nordic nations. However, NATO makes all its decisions by consensus, meaning that each of the 30 member countries has a potential veto over who can join.


Musk puts Twitter buy ‘on hold,’ casting doubt on $44B deal

DETROIT (AP) — Tesla billionaire Elon Musk has put his plan to buy Twitter on what he called a temporary “hold,” raising fresh doubts about whether he’ll proceed with the $44 billion acquisition.

Musk tweeted early Friday that he wanted to pinpoint the number of spam and fake accounts on the social media platform. He has been vocal about his desire to clean up Twitter’s problem with “spam bots” that mimic real people, and he appeared to question whether Twitter was underreporting them.

But the company has disclosed in regulatory filings that its bot estimates might be low for at least two years, leading some analysts to believe that Musk could be raising the issue as a reason to back out of the purchase.

“Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users,” Musk tweeted Friday morning, indicating he’s skeptical that the number of inauthentic accounts is that low.

On Friday, Musk subsequently tweeted that he’s “still committed to acquisition.” Neither Twitter nor Musk responded Friday to requests for comment. Musk has conducted a long flirtation with Twitter that culminated in an April deal to acquire the social platform.


Israeli police beat pallbearers at journalist’s funeral

JERUSALEM (AP) — Israeli riot police on Friday pushed and beat pallbearers at the funeral for slain Al Jazeera journalist Shireen Abu Akleh, causing them to briefly drop the casket in a shocking start to a procession that turned into perhaps the largest display of Palestinian nationalism in Jerusalem in a generation.

The scenes of violence were likely to add to the sense of grief and outrage across the Arab world that has followed the death of Abu Akleh, who witnesses say was killed by Israeli troops Wednesday during a raid in the occupied West Bank. They also illustrated the deep sensitivities over east Jerusalem — which is claimed by both Israel and the Palestinians and has sparked repeated rounds of violence.

Abu Akleh, 51, was a household name across the Arab world, synonymous with Al Jazeera’s coverage of life under Israeli rule, which is well into its sixth decade with no end in sight. A 25-year veteran of the satellite channel, she was revered by Palestinians as a local hero.

Thousands of people, many waving Palestinian flags and chanting “Palestine! Palestine!” attended the funeral. It was believed to be the largest Palestinian funeral in Jerusalem since Faisal Husseini, a Palestinian leader and scion of a prominent family, died in 2001.

Ahead of the burial, a large crowd gathered to escort her casket from an east Jerusalem hospital to a Catholic church in the nearby Old City. Many of the mourners held Palestinian flags, and the crowd began shouting, “We sacrifice our soul and blood for you, Shireen.”


Fatal boat trip highlights Haitians fleeing violence

SAN JUAN, Puerto Rico (AP) — Haitians are fleeing in greater numbers to the neighboring Dominican Republic, where they board rickety wooden boats painted sky blue to blend with the ocean to try to reach Puerto Rico — a trip in which 11 Haitian women drowned this week, with dozens of other migrants believed missing.

It was the latest fatal trip as U.S. authorities said they have detained twice the number of migrants in and around U.S. jurisdictions in the Caribbean in the past year compared with a year earlier.

“We’ve seen our Haitian numbers explode,” Scott Garrett, acting chief patrol agent for U.S. Customs and Border Protection in Puerto Rico, told The Associated Press.

Garrett and others say Haiti’s political instability, coupled with brutal gang violence and a crumbling economy, have prompted people to flee, with more doing so via the Dominican Republic. Both countries share the island of Hispaniola, which lies west of Puerto Rico, with a treacherous area known as the Mona Passage separating the two.

In the most recent capsizing, spotted on Thursday, 11 bodies of Haitian women were found and 38 people rescued — 36 of them Haitians and two from the Dominican Republic. Authorities say one of those rescued was charged with human smuggling. The boat capsized about 11 miles (18 kilometers) north of the uninhabited island of Desecheo, west of Puerto Rico. Dozens are believed missing.


House subpoenas its own, grave new norm after Jan. 6 attack

WASHINGTON (AP) — The Jan. 6 committee’s remarkable decision to subpoena House Minority Leader Kevin McCarthy and other congressional Republicans over the deadly insurrection at the Capitol is as rare as the deadly riot itself, deepening the acrimony and distrust among lawmakers and raising questions about what comes next.

The outcome is certain to reverberate beyond the immediate investigation of Donald Trump’s unfounded efforts to overturn Joe Biden’s presidential election victory. Fuming Republicans vow to use the same tools, weaponizing congressional subpoena powers if they wrest control of the House in November’s midterm elections to go after Democrats, even at the highest levels in Congress.

“It’s setting a very jarring and dangerous precedent,” said Rep. Peter Meijer of Michigan, who was among the handful of Republicans who voted to impeach Trump over the insurrection.

On Friday, the subpoenas for McCarthy and the five Republican lawmakers were served as the committee investigating the Jan. 6, 2021, attack on the Capitol is wrapping up its initial phase. Public hearings are expected to begin in June, and the panel is still determining whether to call Republican senators to testify.

While the summons for McCarthy and the other Republican lawmakers was not wholly unexpected, it amplified concerns over the new norm-setting in Congress.


Baby formula shortage fueling spike in milk bank interest

The U.S. baby formula shortage has sparked a surge of interest at milk banks around the U.S. with some mothers offering to donate breast milk and desperate parents calling to see if it’s a solution to keep their babies fed.

It’s a pathway that won’t work for every formula-fed baby, especially those with special dietary needs, and it comes with challenges because the country’s dozens of nonprofit milk banks prioritize feeding medically fragile infants. The organizations collect milk from mothers and process it, including through pasteurization, then work with hospitals to distribute it.

The shortage stemmed from a safety recall and supply disruptions and has captured national attention with panicked parents looking to swap and buy formula online and President Joe Biden urging manufacturers to increase production and discussing with retailers how they could restock shelves to meet regional disparities. Biden’s administration also said Friday that formula maker Abbott Laboratories committed to give rebates through August for a food stamp-like program that helps women, infants and children called WIC.

At the Mothers’ Milk Bank Northeast, based in Newton, Massachusetts, interest in donating and receiving milk because of the shortage has spiked. Typically, the milk bank gets about 30-50 calls a month from people looking to donate. On Thursday alone, 35 calls came in from potential donors, said Deborah Youngblood, the bank’s executive director.

“It’s interesting the first sort of response that we got was from potential donors — so people responding to the formula shortage with sort of an amazing, compassionate response of how can I be part of the solution?” she said.


‘From crisis to death’: Probing teen’s last, desperate hours

MISSION, Kan. (AP) — “Y’all here to protect me,” the youth asked the officers, beseechingly. “Right?”

The 17-year-old’s foster father, unable to deal with a teen who seemed to be in the throes of schizophrenia, had called Wichita police. When they arrived, Cedric “C.J.” Lofton refused to leave the porch and go with them; he was obstinate but afraid, meek but frantic.

After an hourlong stalemate, the police lost patience. It was time to take him away — by force, if necessary.

And so began the last two days of a life plagued by family dysfunction, brushes with the law, years in foster care and, finally, mental illness. The events leading to C.J.’s death, just a day short of his 18th birthday, would be captured on video; the result would be litigation, pleas for reform, cries that the system had failed yet another Black youth.

Authorities would decide against any prosecutions in connection with his death. But there were crucial errors, and vital holes in the safety net that had fatal consequences.


New York AG lawyer: Evidence could support action vs. Trump

NEW YORK (AP) — As a federal judge weighs Donald Trump’s lawsuit seeking to halt a civil investigation into his business practices, a lawyer for the New York attorney general’s office said Friday that evidence found throughout the three-year probe could support legal action against the former president, his company, or both.

The lawyer, Andrew Amer, said at a hearing in Trump’s lawsuit against Attorney General Letitia James that “there’s clearly been a substantial amount of evidence amassed that could support the filing of an enforcement proceeding,” although a final determination on filing such an action has not been made.

Amer, a special litigation counsel in James’ office, said the office is “nearing the end” of the civil investigation, which James has said uncovered evidence Trump’s company misstated the value of assets like skyscrapers and golf courses on financial statements for more than a decade.

James could decide to bring a lawsuit and seek financial penalties against Trump or his company, or even a ban on them being involved in certain types of businesses, as happened in January when a judge barred ex-drug company CEO Martin Shkreli from the pharmaceutical industry for life.

Manhattan District Attorney Alvin Bragg has said that a parallel criminal investigation into Trump is continuing, although the term of a grand jury hearing evidence in that matter expired last month.


Mickelson decides not to defend title at PGA Championship

Phil Mickelson withdrew Friday from the PGA Championship, electing to extend his hiatus from golf following his incendiary comments about a Saudi-funded rival league he supports and the PGA Tour he accused of greed.

Mickelson made history in the PGA last year when he won at Kiawah Island at age 50, making him the oldest champion in 161 years of the majors.

He has not played since Feb. 6 at the Saudi International and has been out of public view.

Mickelson met the deadline to sign up for the PGA Championship on April 25, though his manager said Lefty was unsure about playing but wanted to keep his options open.

The PGA of America announced his decision on social media.

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FREYR Battery (FREY) CEO Tom Einar Jensen on Q1 2022 Results – Earnings Call Transcript http://www.nordbi.org/freyr-battery-frey-ceo-tom-einar-jensen-on-q1-2022-results-earnings-call-transcript/ Thu, 12 May 2022 05:59:00 +0000 http://www.nordbi.org/freyr-battery-frey-ceo-tom-einar-jensen-on-q1-2022-results-earnings-call-transcript/

FREYR Battery (NYSE:FREY) Q1 2022 Earnings Conference Call May 11, 2022 7:30 AM ET

Company Participants

Jeff Spittel – Investor Relations

Tom Einar Jensen – Chief Executive Officer

Jan Arve Haugan – Chief Operating Officer

Oscar Brown – Chief Financial Officer

Conference Call Participants

Jose Asumendi – JP Morgan

Maheep Mandloi – Credit Suisse

Evan Silverberg – Morgan Stanley

Operator

Welcome and thank you for standing by. Welcome to the FREYR Battery Q1 2022 Earnings Call. [Operator Instructions] I will now turn the conference over to you speaker. Please go ahead.

Jeff Spittel

Good morning, good afternoon and good evening. Welcome to FREYR Battery’s first quarter 2022 earnings conference call. With me today on the call are Tom Einar Jensen, our Chief Executive Officer, Jan Arve Haugan, our Chief Operating Officer; and Oscar Brown, our Chief Financial Officer.

During today’s call, management may make forward-looking statements about our business. These forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expectations. Most of these factors are outside FREYR’s control and are difficult to predict. Additional information about risk factors that could materially affect our business are available in FREYR’s S-1 and annual report on Form 10-K filed with the Securities and Exchange Commission, which are available on the Investor Relations section of our website.

With that, I will turn the call over to Tom.

Tom Einar Jensen

Thank you, Jeff and again, good morning, good afternoon, good evening, everyone dialing in to this first quarterly result of 2022 FREYR’s fourth quarterly results report, since we are in public on the New York Stock Exchange back on July 8, 2021. Just repeating what Jeff has just been through and then moving to Slide 3 today’s agenda. What I am really proud of and find very compelling is that we are here showing you a picture of the dry room in the customer qualification class. Our Chief Operating Officer will come back to the status of our operational progress later today.

But today, we will go through some of the commercial developments which continue at accelerating pace, general market backdrop, our augmented value proposition to deliver into an unprecedented decade, the decade of the battery. We will talk about our operations and supply chain. Our new Chief Financial Officer will take you through the financial status of the company. We will focus on the strategic priorities moving forward while we open up for Q&A.

We find ourselves in quite challenging environments in difficult times. We obviously reach out to all the people in Ukraine that have a very tough time these days and that is obviously impacting markets all around us. But from a battery producers’ point of view, what this is underlining is the need for an accelerated energy transition. The energy transition requirement is now clearer than ever and batteries form as I have been underlining many times a critically important part of that, not only to decarbonize transportation, but also to decarbonize energy systems globally. And to basically eliminate the need for Russian gas into the European markets, we will need an unprecedented development in renewable energy in Europe, which again will be capitalized to a large extent by more storage and lithium ion battery supply.

FREYR has very strong momentum across all market verticals. And we announced yesterday an additional off-take agreement with Powin and today, we are very pleased to announce an additional 25 gigawatt hours of offtake agreements that we have entered into over the recent weeks. This means that we have more than doubled our offtake agreements since our previous earnings call, equating more than 100 gigawatt hours worth of offtake from our initial Gigafactories. This principally means that we are sold out on capacity from our Gigafactory 1 and 2 in Norway, up until and including 2013.

FREYR is committed to deliver on speed, scale and sustainability. And this is ever more important than it ever has been. And our team is delivering on our commitments. We are finding ourselves as mentioned in highly volatile and challenging markets, but our financial position remains very strong. And the financing options that we are progressing, is progressing according to plan. Capital is available for the right projects and we are finding ourselves in a very interesting sweet spot to accelerate the even more urgently required energy transition.

Talking about commercial traction, commercial traction continues on all fronts for FREYR. If I am moving on this slide from the right to the left, let me now start by saying that we have now signed more than 100 gigawatt hours of initial offtake agreements, 50 of those with Honeywell and a leading global ESS player now is in closing stages of negotiation. So, 50 gigawatt hours is now close to becoming definitive sales agreements. These are critically important aspects of unlocking project finance to our Gigafactory 1 and 2, which our CFO will come back to in a second.

As announced yesterday and augmented today, we have an additional 50 gigawatt hours on top of that safety on track to definitive sales agreements and additional conditional offtake agreements bringing again the total signed agreements now for more than 100 gigawatt hours. We have an additional 100 gigawatt hours under negotiation. And we have those across commercial mobility and EV segments in addition to our very strong penetration in the ESS markets. But on top of that, we are starting to see very strong traction in particular in the EV markets. And we have now in discussion more than 200 gigawatt hours worth of annualized supply leading up to 2030. This could turn FREYR from a triple-digit gigawatt hour player to a terawatt player over time. This is supporting our ambition to diversify the technology offering as well as diversifying our geographical footprint. To have an integrated supply chain approach with localized and decarbonized raw material supply is a critical component in this to ensure that we have a very cost competitive solution to offer to our customers.

We alluded to yesterday we announced our agreement with Powin, one of the leading ESS players and longest standing ESS players in the U.S. A 28.5 gigawatt hour offtake agreement is a milestone for FREYR, adding to our already announced agreement with Honeywell and the leading ESS player. But on top of this, we have also signed an additional 25 gigawatt hours from two of the leading ESS players in U.S. and Europe. We will as we progress towards definitive sales agreements for not yet disclosed names, announcing who these players are, but I can assure our investors that these are absolutely leading players in the ESS space, fundamentally supporting the fact that we have a leading technology solution to offer to our customers.

The 24M technology with thick and larger electrodes is generating a lot of traction in particular in the ESS space. But as you also are aware of with Volkswagen coming into the 24M family towards the end of last year and starting to develop together with 24M EV solutions based on the semisolid technology, the 24M technology suite is applicable across the space, but ESS players in general and this is, in particular, for us exciting are to now to a large extent being marginalized by the EV demand. And recent price increases from Tier 1 producers in Asia are fundamentally supporting our accelerated development in the ESS space supported to a large extent by our ambition to have localized and decarbonized value chains to develop security of supply of critical energy infrastructure.

Larger and thicker electrodes, when produced at gigawatt hour scale locally with decarbonized supply chain, is gaining very strong market share, driven by as mentioned the security of supply considerations, but ultimately, it’s a function of cost and decarbonization advantages. And we believe that when we produced these solutions at scale that we will have a fundamental cost advantage relative to conventional production. While there are multiple initiatives for cell production globally, in particular, in the European market crowded with startups, we believe many of these will struggle to deliver technology, commercial wins and ramp up capability.

When we move into the next decade, we believe a select few major players will remain and FREYR is on track to become a global champion in the battery – clean battery solution space. As we presented in the pipe presentation when we went public on the New York Stock Exchange, FREYR is a technology agnostic or technology flexible organization. And we are increasingly recognized by a broader and broader suite of partners across the value chain as an industrialization partner of choice. This caused us mention both for battery cell technology providers as well as for up and downstream players seeing from the vantage point of a battery cell producer. Localized and decarbonized supply chains, coupled with world leading project execution and operational excellence skills, which FREYR has been very focused on developing over the last 18 months is attracting significant partnership potential for us upstream, downstream and horizontally. We are now taking significant steps to expand our total addressable market potential by also diversifying technology to conventional technology solutions as well as into solid state solutions.

Product differentiation and diversification is going to be key to become a leading provider of clean battery solutions over time. All of this is happening, while we are progressing and accelerating our plan to develop the 24M technology suites. We are seeing increasing and accelerating interest of the 24M technology, as mentioned and articulated with our traction on the ESS side, but also in commercial viability and EV solutions. So, all market verticals are seeing the dramatic cost potential in the 24M technology and we are as previously mentioned going to be the first one to take this technology to gigawatt hour scale in the most favored locations globally. What you should expect moving forward from FREYR is a lot of momentum on numerous fronts, including diversification up and downstream as well as technology diversification to essentially increase our total addressable markets.

With this, I will turn over to Jan Arve who has in an excellent way been leading our efforts in delivering on our commitments and basically committing to deliver moving forward. So with that, Jan Arve, I will turn it over to you.

Jan Arve Haugan

Thanks, Tom and hello to everyone listening to us today on our call. I will start with an update on our operations. And the key message that I have to share with you today is that our teams are making remarkable progress on both the CPP construction and the preconstruction activity on the combined Gigafactory 1 and 2 in Mo i Rana, Norway. As a lot of other industries, we too experienced disadvantages due to COVID-19 situation and of course supply chain disruptions.

However, I am pleased to report that the construction of the customer qualification plant or the CQP as we abbreviate it is progressing very close to the schedule. As previously reported, we are expecting to complete the site acceptance test now for the first sample test in the facility in Mo i Rana near year end 2022. Hopefully, many of you have seen the materials we have posted on social media detailing the work that’s been done by our skilled project execution team. Thanks to their effort and the outstanding support they are receiving from our technical staff in Oslo. We are advancing steadily towards factory acceptance testing during the summer and into the fall. Our Gigafactory 1 and 2 team is also making excellent progress in advance of the start of the construction.

Groundwork preparations on the site, detailed engineering is largely complete. Indicative roles from the different suppliers of production line equipment are now being analyzed and the structure of frame agreement contracts are being formalized. We intend to present the project plan for final investment decision to the FREYR board during next month. In the interim, the Board has approved additional capital spending to facilitate the long lead time orders on building and infrastructure materials. This is mainly to support and optimize the installation of the production line equipment in the factories. Recruitment for the workforce is progressing well and we are currently updating the standard operating procedure for all key operations.

I am also very pleased with the efforts and achievements we have made in recent months to secure key raw materials for the combined Gigafactory 1 and 2. Amidst an increasingly challenging environment for upstream raw materials, our team has completed qualification program on technical capability, capacity and quality control for most of the raw materials that we need for the factories. We are now working to finalize the volumes, delivery and pricing terms with our suppliers. At FREYR, we believe that developing the localized and decarbonized supply chain at giga-scale is an essential competitive differentiator. And we are already implementing our strategy by moving closer to final investment decision on our collaboration with Elise to construct an LFP cathode plant in the Nordic region.

By localizing upstream elements of the value chain, we can reduce our emission profile over the lifecycle of our battery production and we can simply simplify the process of delivering decarbonized cells to our customers in Europe and the U.S. Our teams are focusing on arriving rapidly at final investment decision on the proposed LFP cathode plan in conjunction with the combined Gigafactory 1 and 2. This is not a small undertaking and there have been and will be continued to be challenges along the way. We are in progress of doing something, but that never has been done before in the Nordic region. A startup of a company, FREYR is developing now, that will be a complex multibillion dollar manufacturing facilities in a somewhat remote yet industrialized region of Norway, but with unrelenting commitments to decarbonization, operational excellence and strong financial returns on the capital that we are deploying.

My reassurance to you today on this call is that this task is in reliable and experienced hands. Our projects, supply chain and technical people are the best that they can do. And they are collectively focused on our goal to deliver clean next generation batteries to our customers. On behalf of the entire operations team in FREYR, thank you for your confidence in us. Our mantra is to commit to deliver and deliver on our commitments.

And with that, I turn the call over to Oscar.

Oscar Brown

Thanks, Jan Arve and hello, everyone, listening today. Since this is the first time I’ve had the privilege of speaking to you at FREYR as the CFO, I thought I’d start by sharing some of my observation as a new joiner to the company. I am very excited to be here at FREYR because of the people, the opportunity and our unique competitive position in the sector was strong secular, not just cyclical tailwinds.

After just 5 weeks with the company, I am incredibly impressed with the quality of the people we have in our organization. FREYR has attracted seasoned dynamic leaders and vibrant creative teams around them, driving our execution, our strategy and our business development. I personally believe FREYR is the best position new battery industry player in the market. Less than a year ago, the company brought together the best of Norway in the United States. From Norway, incredible people with both the strong entrepreneurial spirit and deep execution and operational experience and excellence from major projects around the world. The country has a very supportive government, vast natural resources, including abundant cost competitive renewable energy, and a global credibility that’s unmatchable around sustainability in the energy transition. From the U.S., the company enjoys a New York Stock Exchange listing, a substantial U.S. investor base, access to the U.S. capital markets, U.S. technology through MIT spin-off 24M, and its investment by and U.S. joint venture with affiliates of Koch Strategic Partners.

When you couple our brilliant people with our growth trajectory and the growth trajectory of the battery market overall and FREYR’s opportunity to develop sustainable competitive advantages from our decarbonization commitment and our technological differentiation, you have a powerful story. FREYR is part of the solution for energy inflation, energy security, and climate change. As excited as I am to be here, I also recognize the importance of capital formation to enable us to deliver on our strategic objectives. We are moving swiftly toward initial giga-scale development and we are being presented with several promising business development opportunities, all of which require additional capital over time.

Turning to Slide 11, I will note that we are already in discussions with several key stakeholders to explore options to finance our growth as efficiently as possible. The potential sources of capital for FREYR can be grouped into three buckets. The first is support from government entities in Norway, the EU and the United States. FREYR’s mission to decarbonize battery production at giga-scale is resonating with all of these – within all of these spheres and in the wake of the deeply troubling events in the Ukraine is becoming increasingly clear that developing localized supply chains of batteries is a matter of national security. The forms of potential financial support that could originate from government organizations include grants, direct lending and guarantees, all of which could enable us to accelerate our growth ambitions.

The second major source of potential funding is of course project financing. As we convert our initial conditional offtake agreements to bankable definitive sales agreements, FREYR will accelerate the project financing process with our banking partners and government agencies. Although project financing is a time intensive and lengthy process, the quantum and low cost of capital that should be available to us as construction begins to ramp up will be exceptionally helpful. And this market remains quite strong today.

The final potential funding bucket is from private and public capital raising activity. We are quite aware that the capital markets have been volatile and challenging thus far in 2022, but we believe that FREYR’s unique story and the opportunity in the battery market will continue to attract interest from global capital providers and other stakeholders. Our team is evaluating several potential financing structures and we look forward to sharing additional details with you when appropriate.

Turning to Slide 12 now, I will walk you through a brief financial overview. The key point is our balance sheet remains incredibly strong. We concluded the first quarter of 2022 with $525 million of cash and equivalents and no debt, which provides us with great financial flexibility. As we look ahead to the second quarter of 2022, our total net cash uses including operations and capital expenditures should be expected to increase from what we saw in the first quarter. This is due to both organizational development and preparatory work on the Gigafactory in addition to high activity on the construction of the customer qualification plant and the testing center nearby.

Our priorities for the year 2022 are to deploy growth capital responsibly, evaluate and select the best strategic investment options by FREYR and to progress our capital formation efforts. Our finance and leadership teams are working around the clock and in many time zones to advance these objectives. We are excited and we look forward to exploring opportunities to partner together with our investors, our industrial partners and other stakeholders as FREYR grows.

And with that, I will turn the call back over to Tom for some closing remarks.

Tom Einar Jensen

Thank you, Oscar, and thank you Jan Arve. It’s of course easier to be the CEO of FREYR when I have such capable people helping and supporting the development of the company.

So to summarize, FREYR’s strategy is built up around three core tenants. These tenants are speed, scale and sustainability. We are committed to deliver and we are delivering on our commitments. Our near-term priorities, is to fund the expansion of our growth trajectory. The capital formation plan is accelerating on multiple paths. Our intention is to prioritize speed and to optimize the cost of capital. Capital is available and it’s deeply supported by Norwegian EU and U.S. governmental support across the capital structure.

We are continuing to expand and establish our operations and supply chain. We are starting to look like a battery company. We are raising – we are releasing additional CapEx for the preconstruction of Gigafactory 1 and 2. And we are reaching FID on Gigafactory 1 and 2 in parallel with the proposed LFP capital plans. All of which is going to happen later this year as previously announced.

On the commercial side, we have very strong momentum which is continuing to grow on a daily basis. We are focusing on converting our initial conditional offtake agreements to definitive sales agreements and we expect them to exceed 100 gigawatt hours by 2030 and to have them converted later this year. We will secure additional conditional offtake agreements in the ESS and now also in the mobility space with an additional 100 gigawatt hours by 2030, supporting an accelerated development of additional capacity beyond Gigafactory 1 and 2.

Finally, we are now seeing very strong traction based on an industrialization partner of choice approach vertically integrated up and downstream in a partnership based way, but also with diversification on technology that we are seeing very strong traction across all market segments, including mobility and EV commitments. We are in dialogue and commercial negotiations where we exceed 200 gigawatt hours spike in yearly offtake potential by 2030 and our ambition is to secure at least 100 gigawatt hours per year of that well before 2030 on an annualized basis, allowing us to unlock further capacity expansion in the geographical regions that we are currently located in and potential others.

So with that, I am going to turn it over to Q&A. I thank everyone for your attention. Thank you for your trust and patience. With FREYR, we will continue to look over the horizon, commit to deliver and deliver on our commitments. Back to you, Jeff.

Jeff Spittel

Thanks, operator. I think we can open up the line for questions now.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Your first question comes from the line of Jose Asumendi of JPMorgan. Please go ahead.

Jose Asumendi

Hi, Tom. Jose of JPMorgan. Few questions, please. The first one I’d love to hear when we think about your ESS contracts, can you maybe lay out a little bit one of the unique selling points or the reasons why you are winning these contracts? What makes FREYR different to the competitors out there? And then second, second and third, maybe just put the questions together as we try to map a little bit revenues and CapEx on a 5-year perspective and thinking about Slide #5, how do we put together where the revenue projection 4, 5 years out, when do you start getting the revenues into the business? And the second, can you maybe give us a bit of a – notifies your CapEx projection but at 12 o 16 months CapEx projection, so we can model the company a bit better? Thank you.

Tom Einar Jensen

Thank you, Jose. So, on the first question, why we are progressing and winning contracts? Ultimately, I think that question should be posed to the ones we are winning them with. But I think the way in which we are positioning this clean battery solutions, with localized production and over time decarbonize the localized supply chains is obviously something that is resonating and ultimately a critical component of ensuring decarbonization of the energy systems, 4-hour storage solutions, 2-hour storage solutions, maybe even 8-hour storage solutions are today’s solutions that can be delivered with lithium-ion battery solutions and the 24M technology, where we can produce larger and thicker electrodes, basically reducing the need for additional, let’s call it modules and packs and racks around them. Because we are just building larger energy carrying solutions, obviously allows us to drive down system level cost on the ultimate ESS solution as well. So, this means that it’s a cost competitive, localized solution, which is really driving the interest. In addition, as also mentioned, there is to a certain extent, the EV market is in a way vacuum cleaning the current supply chains of batteries from predominantly the Asian providers, and therefore they are being in a way pushed out a little bit and they want to try to secure additional supply sources.

So, those are some of the key points around why we are winning these contracts. We do believe that we will continue to generate a lot of traction in the ESS space. We also do believe that the ESS space is much larger than most people have anticipated so far, for the exact purpose of decarbonizing energy systems. The sun shines when it shines and the wind blows when it blows, but we need to store that energy to basically have electricity at night and when the wind isn’t blowing. So, 80% of the world’s electricity generation today give-or-take is non-renewable. And it needs to move to 20% non-renewable in less than 20 years and that is impossible without large amounts of storage. And this is now gradually starting to – I think the – or come to realization with more and more stakeholders around the world basically require an accelerated deployment of ESS solution. So, that’s kind of point number one.

On point number two, during our investor presentation, when we went public back last year, we said that we were going to target 43 gigawatt hours of installed capacity by 2025, 83 gigawatt hours of installed capacity by 2028, and more than 100 gigawatt hours of capacity in the 2030 horizon. We have no reason to sort of change that assumption. Today, we are looking into to what extent we can potentially accelerate it. We are as also mentioned by our Chief Operating Officer, of course, exposed to inflationary pressure. We are putting together an updated project finance package with our project finance banks and advisors and looking into it.

What I can generally say is that, of course, currently, we are seeing price inflation also impacting the battery cells. Some of our Asian competitors have been increasing prices on LFP based cells, 2x of 20% each. We still think that over time, those prices will start to gradually come back again as more and more raw material supply comes on stream. Our general sales agreement will have pass-through mechanisms in them to cater for those price hikes on certain raw materials. So, that price increase really is something that is shared to a large extent with our customers.

On the CapEx front, we are also of course experiencing inflationary pressure everyone with a Reuters screen can obviously sort of see that, but the relative CapEx advantage of the 24M technology remains the same. And we have previously argued that we believe in a 50% lower CapEx spend for our technology, if you compare it to conventional as long as we build at large scale. That is why also having this commercial traction and having an ability to have visibility on larger installed capacity will allow us to negotiate even better terms for the CapEx figures. So, that’s kind of as long as I think I can go at this point, we will, of course, come back to the market when we are presenting the final investment decision on the first facility and that would obviously be done in a value accretive manner generating robust returns for our investors. So I think I will leave it at that and jump to the next question.

Jose Asumendi

Thank you.

Operator

Thank you. Your next question will come from the line of Maheep Mandloi of Credit Suisse. Please go ahead.

Maheep Mandloi

Hey, hi, everyone. Thanks for taking my questions. Just moving quickly, on the technology side, could hear a lot of emphasis on LFP on this call, could you just clarify on that and like on your mix of LFP and nickel manganese batteries like how should we think about that going forward? And in terms of your contracts, also with ESS and potentially that new auto OEM, what those technologies could be for those as well? Thanks.

Tom Einar Jensen

Yes. Good morning, Maheep. Thank you for the question. So Gigafactory 1 and 2 will predominantly be if not entirely be an LFP-based solution. That is obviously supported by the off-take agreements, where all the ESS players are predominantly focusing on LFP solutions due to the lower cost of that – of that technology and also the inherent characteristics of LFP with lower energy density potentially than NMC, but obviously, with a very long cycle life, but typically you want these ESS solutions to last 20 years plus and therefore having lower energy density and longer cycle life is really, again, very suiting the 24M technology very well. I would like to sort of hurry to mention that our production platform is chemistry agnostic, which means that if we were to get traction, which we are already seeing that we have on NMC and higher nickel content batteries or other sort of capital solutions for that matter, we could rejig one of our production lines too, they basically produce a different capital material. But right now, we have more demand than what we can produce in Gigafactory 1 and 2. So, we will now be accelerating the efforts that we already have ongoing for Gigafactory 3 and 4, the Gigafactory development plants in Finland as well as our joint venture development in the U.S. with Koch Strategic Platforms, which by the way, is also progressing very well. There is very strong interest across the United States for establishing additional Gigafactories through the partnership with FREYR and Koch. And we got an initial 130 parties who were interested in attracting us as a producer. We are now going through a funneling and hydrating, let’s say process around that. And we will come up obviously back to our investors with updates on this when we have a little bit more free to offer. But the long story short, LFP is behind most of, if not all of the offtake agreements that we have announced so far.

Maheep Mandloi

Got it. That’s really helpful color. And just in terms of the value for the new 50 gigawatt hours supply agreement, does that click the dollar amount you could kind of talk about or should we expected something similar to the ones we saw with Honeywell in the previous years of this company?

Tom Einar Jensen

So Maheep, I think, right now the price pressure on batteries is reasonably high and many of the Asian providers have increased their prices quite significantly driven in large part by the increase in lithium prices. Now, our commercial agreements with these players will have pass-through mechanisms in them. So depending on where you are and what sort of underlying prices you are getting for the raw materials that will ultimately impact the price on an ongoing basis of the products that we produce. Generally speaking, we are committing to reduced prices of these products over time as we are continuously increasing and improving the energy density and the general technical characteristics of the batteries we produce. We are also constantly focusing on increasing the overall equipment efficiency, which is a function of yield and uptime in the machinery. And again here, that conversion cost part of the picture is an area where FREYR’s operators and FREYR’s experienced personnel led by Jan Arve will be world leading in terms of reaching as high yield and uptime in our machinery as possible. We come from an industry, many of us in the aluminum industry, where very high OEE is always kind of targeted and the organizational structure and how we are sort of implementing this will basically support getting very high uptime and we believe higher uptime than what is common in the conventional lithium-ion battery space today and the 24M technology being a much simplified production process should also allow us over time to get better and better in producing this. So over time, you should expect the prices to come back to longer term trends of reduction, albeit at a slower reduction pace than what we have seen in the last 10 years. So this is a long way of sort of not answering your question so to speak. But I think you would have to think about long-term trends in pricing. And we are implementing a technology that has a significant cost advantage relative to marginal cost and marginal producer. And as these markets get larger and larger, you would start to see more normal, let’s say, behavior also on the pricing side for more and more standardized products across the different chemistries.

Jan Arve Haugan

I really appreciate the answer. And I guess, yes, the cost structure just makes it somewhat difficult at this stage. But just like one last question for me, just on the conversion of these conditional agreements, could you just like walk us through like what is kind of required here or what should we look for over here in terms of the agreements with the customers like what could move the needle towards finalizing those agreements?

Tom Einar Jensen

Well, I mean it’s a normal process, nothing sort of sinister or very complicated about it. It is basically ironing out the specific technical and commercial details and negotiating that in, let’s call it the environment we find ourselves in. These are advancing and getting into closing mode for Honeywell and the global ESS player as mentioned. We will be announcing the conversion of those imminently. And we will start the similar process with the three additional ones immediately. We are already in that process. So, you should expect us to continuously announce additional, let’s call it initial agreements, and then over time, converting them to firm agreements, and then we convert them to firm agreements, of course, more commercial details around the agreements will be communicated. And this is also as mentioned, important, from a project finance point of view. So, of course, our lenders will require this ability on the commercial terms of the agreements that will underpin the development of capacity. And clearly, that is going to be required for that to be unlocked. And we have no reason to believe that we are not going to get there in time for the FID that we have previously communicated.

Maheep Mandloi

Really appreciate taking our questions and congratulations on the strong pipeline. Thank you.

Operator

Your next question comes from the line of [indiscernible] of Clarkson Securities. Please go ahead.

Unidentified Analyst

Good afternoon, guys and first of all, congratulations with the wrapping up the quarter, and, of course, the latest conditional off-take agreements. It was nice to see that you also started touching up on supplies from future Gigafactories. And yes, and I know you have touched upon this on the last question, but could you provide any color on your progress there and what we could expect in the near future and any timeline details that will be great? And my second question is regarding your cash flow guidance from Slide 12 you mentioned that there will be some slight increase in the coming quarter related to ramp up and construction activity. And is there any possibility to get a range there and if not, or if so, with others could be fixed at least in the coming quarters as well. I mean you have it all ramped up in your pipeline, if everything goes as planned. Thanks.

Tom Einar Jensen

Thanks for that question. And let me take the first one, and then I will have Oscar, take the second one. So, as previously mentioned, 43 gigawatt-hours installed by 2025, 83 gigawatt-hours by 2028 and more than 100 gigawatt-hours by 2030, is what we have previously communicated. We are looking into whether we have an opportunity to accelerate some of that. And once we have sort of done all the math on that, we will obviously update the market accordingly. When it comes to Gigafactory 1 and 2, that’s an 18 gigawatt-hour LFP capacity 8 production lines up at what we labeled the Central [indiscernible], the central sort of area of more industrial parks. As our Chief Operating Officer indicated, we are getting very close to having the technical basis to make the final investment decision. And we will be recommending that to the Board of Directors later this summer. These eight production lines and the all sort of setup, we have also created what we label an idealized eight production lines system, which then forms as a blueprint for additional Gigafactories to be developed. We have also now come quite far in doing the detailed investigation of what we label Gigafactory 3 and 4, which we are targeting to locate right next to the customer qualification plant. So, the idealized footprint can then be localized there. Constantly over time, we will obviously also be improving the production process and implementing new generations of the 24M technology, which basically means increasing the speed of production. So, going from 20 meters to 30 meters to 40 meters per minute, and sort of how we are pushing the raw materials through the system. That of course increases the capacity that we can produce with a given system. If we were on top of that to sort of move from LFP to NMC, the energy density and NMC of course, means that you are getting more watt-hours per kilogram and therefore more kilowatt-hours per production line. So, to actually sort of give very precise guidance on where this is going to be, is a moving target, let’s say. It is not difficult for me to imagine much higher numbers much faster than what we have previously indicated. But that needs to be supported by commercial traction. And it also needs to be supported by of course, getting bankable agreements in place so that we can project finance a large part of that CapEx spend. So, on that note, I am going to hand it over to Oscar to talk about the other question.

Oscar Brown

Yes. So, I will just point you on the longer out quarters, of course, similarly. But a lot of this has to do with what Tom just mentioned in terms of the timing of some of these decisions and so forth for the out quarters, but for next quarter – for this quarter we are in now. So, in the first quarter, we spent from the balance sheet, $41 million net. And so this quarter, as I mentioned, it will be a bit higher so directionally, again, very hard to target because what changes in working capital, we have some small grants that we expect to come in, and things like that, but focus just on our change in cash, to actually more towards $50 million and $40 million last quarter, I think is the way to think about it. But some of that could move around a bit dramatically. And the breakdown is also going to be moving right. Whereas last quarter, we had OpEx, many OpEx items that will be in the future, become CapEx as we get closer to taking FID and complete some of the engineering and so forth. So, hopefully it’s directionally helpful. But that’s kind of where we were getting to.

Unidentified Analyst

Yes. That’s great. And can I just follow-up with one more question, actually related to my first question. So, my question is now that you are targeting potential, I know everything is moving target. But if I could expand for prior to any factories in U.S. and or Finland, is that the case, or have I misunderstood?

Tom Einar Jensen

So, I don’t – that might be the case, or we might move faster in Finland or in the United States. So, I think we are contemplating making additional investment decisions in all three of these locations quite rapidly after making the FID of Gigafactory 1 and 2. But we need to sort of get all the ducks in a row so to speak, and I am sure that, raw materials supplies secured, of course, the off-take agreements are there and that they are bankable and then that we have funding in place for it, etcetera. And then we need to marry that up with whether we are going to produce all of the cathode material ourselves. So, whether we sort of in the interim, source it from an additional qualified supplier, etcetera, etcetera. So, this is a fairly complicated puzzle. But the good news is that’s also alluded to by Jan Arve. We have a very capable team who have done this many times in other industries, built multiple projects in parallel, secured supply chains, etcetera, etcetera. And this is now what we are doing albeit for the first time in Norway, but we are doing it at lightning speed, in my opinion, and moving quite forcefully forward. So, we will come back to the market and our investors with updates on all of this as we have a little bit more definition around it.

Unidentified Analyst

Alright. Thank you, guys. Thank you for clarification.

Operator

So, our next question comes from the line of Evan Silverberg of Morgan Stanley. Please go ahead.

Evan Silverberg

Good morning guys, Evan Silverberg on for Adam Jonas. As you guys are having your early discussions with government entities, what exactly do they need to see from FREYR prior to providing funding? Thanks.

Tom Einar Jensen

Good morning, Evan. Great to hear from you. So, let me talk about Norway first and then maybe Oscar you can talk a little bit about DoE as two examples. We are obviously also in dialogue with EU based institutions and the European Investment Bank and other institutions. But from the Norwegian government standpoint, in June the Norwegian government will launch a national battery strategy. And it’s quite rare that they actually established battery strategies for or strategies for a particular industry. But they are increasingly recognizing that the battery value chain is a very suitable, let’s call it energy transition industry for Norway to be a leading part of. That has been a rapidly working, I would say, five-month to six-month process where we have obviously been quite integral into it, since we are the leading and largest initiative on battery production in Norway. So, we have had multiple iterations with them, where we have provided them with our inputs, not only on what such a strategy should include, but also of course, what commercial stakeholders like us would require. What we have submitted to them is that there needs to be level playing fields, basically meaning that grants, such as other battery initiatives in Europe are receiving under EU competition law needs to be similar in Norway. We have said that guarantees leveraging basically the Norwegian government’s balance sheet, which as we all know, is fairly significant needs to be leveraged to ensure that we can get as high fraction of a project finance based structure guaranteed through internationalization guarantees to basically promote and accelerate the development of green solutions in Norway. And different sorts of bridge mechanisms until the project finance solution is in place, etcetera. So, all of this is resonating very well. And we will know a lot more about this when the national battery strategy is launched in the not too distant future. So, it’s weeks out really. So, stay tuned, Evan, and then you will get more visibility on this. This is obviously key for us to basically provide risk mitigation for building gigawatt-hour scale facilities of a new industry that is inherently of course, risky, but they are increasingly understanding it and supporting it greatly. So, Oscar, maybe some thoughts on DoE.

Oscar Brown

Sure. Before I get there too, I mean for example, on the EU, we have already made progress. We have applications in for significant grants, as well as guarantees and the support, as Tom mentioned. So, in some cases, we have matured to that level to have those applications. And you guys probably follow in detail, the DoE in the U.S. has a whole bunch of programs, particularly on the loans side, that are very attractive for building facilities like what we are building in Norway in the U.S. And so one of the things you kind of need is progress and development, and a detailed plan on what you plan to build and where you are sourcing and raw materials are coming from and so forth and the likes. So, we have been in good dialogue with them on a number of programs as well as on the grant side. And so it’s just a matter of progressing those. Some of these are brand new. Some of these have been around a little bit. But as the programs that the administrations are rolling out, you will get more clarity. We are right in there trying to understand them. We have got a call on Friday, in fact, and I was just there in Washington a couple of weeks ago. So, we are active on this. And it’s kind of progress on both sides that needs to be shown. But right now we don’t – I mean we don’t have a specific plant lined out for the U.S. We are looking at site selection and the like with our partner. But that’s the kind of thing you need to fix. I think the requirements are similar, as in Europe, but just sort of different what the U.S. will spend on it.

Evan Silverberg

Thanks. And just one follow-up, obviously, FREYR has a goal of creating local supply chain. So, specifically for battery grade lithium carbonate and hydroxide how and where are you guys thinking of potential sourcing? Thanks.

Jan Arve Haugan

And as we have indicated, we have – we are looking at this, together with the pre-approved supplier Aleees for Taiwan. And we are looking at different locations predominantly now, first of all, in the Nordic Region. And as we also commented during the presentation earlier today that this – we would try to do in parallel with the final investment decision for the Gigafactory 1 and 2. So, obviously, it’s mainly in the Nordic Region, which is the first step.

Tom Einar Jensen

And in terms of raw material supply into that as per the sort of deeper part of the question Evan, so lithium hydroxide and lithium carbonate, we are already in discussions with various suppliers of that into that put through, essentially, the capital producer, and whether that becomes, a joint venture or licensing arrangement is something that we will get back to. But obviously, securing the raw material and lithium hydroxide and carbonate and both of them actually was needed is progressing well. We don’t have any sort of real concerns around it even though of course, we are monitoring also the challenges and volatility in the market. But longer term there is and tied to when we are starting up commercial production. We are – we have a plan that sort of matches up with that and the initial ongoing, deep discussions really support having this online in time for ramping up the commercial facility.

Evan Silverberg

Great. Thank you very much guys.

Operator

There are no further questions at this time. I will turn the call back to Mr. Jeff Spittel.

Jeff Spittel

Great. Thank you, operator. Thank you everybody for your interest this quarter. We will talk to you soon on the road and look forward to catching up in person or virtually. Thanks again. That will conclude the call.

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Stocks, commodities pare losses but growth worries cloud outlook http://www.nordbi.org/stocks-commodities-pare-losses-but-growth-worries-cloud-outlook/ Tue, 10 May 2022 06:33:45 +0000 http://www.nordbi.org/stocks-commodities-pare-losses-but-growth-worries-cloud-outlook/

By Anshuman Daga

SINGAPORE (Reuters) – Asian equities slipped to the lowest in nearly two years on Tuesday, before trimming losses, as investors fretted about the toxic cocktail of rising interest rates and weaker economic growth.

Sentiment was supported by gains in U.S. stock futures, which turned positive after declining earlier. S&P 500 stock futures and Dow Jones futures both rose 0.6%, while Nasdaq futures gained 1.3%.

Growing fears of recession and a slowdown in China dragged on commodity-linked currencies and oil prices, though safety flows kept the dollar near 20-year highs.

MSCI’s broadest index of Asia-Pacific shares ex-Japan traded down 0.8% in early afternoon but pared sharp losses struck earlier.

The benchmark had fallen as much as 2.3% to 515.7, sliding for a seventh straight session and extending losses to 18% so far this year.

“Chinese growth is facing significant headwinds, whether you look at official or private sector Purchasing Managers’ Index,” said Song Seng Wun, an economist at CIMB Private Banking.

“Softening global growth is the persistent wall of worry for markets as investors look beyond the next 3-6 months. The view on growth momentum seems to be that revenge spending after the pandemic may be affected by higher borrowing costs,” he said.

Across Asia, share indexes recovered from the day’s losses. The Nikkei lost 0.4%, Australian shares shed 1.1%, Korean stocks lost 0.5% and Taiwan equities edged up 0.1%.

MSCI’s Asian benchmark fell to the lowest since early July 2020. Chinese equities are the worst performers among major markets so far this year, recording losses of between 21 and 25%. Singapore and Indonesian stock indexes have, however, remained steady.

Growth worries resurfaced after central banks in the United States, Britain and Australia raised interest rates last week and investors girded for more tightening as policymakers fight soaring inflation.

Hong Kong’s benchmark share index returned from a one-day holiday sharply lower on Tuesday and slumped more than 4% before halving losses.

On Monday, Shanghai and Beijing tightened COVID-19 curbs which have already taken a heavy toll on the world’s second-largest economy.

China’s export growth slowed to its weakest in almost two years, data showed, as the central bank pledged to step up support for the slowing economy

Overnight, U.S. stocks extended Friday’s bruising sell-off as investors rushed to protect themselves against the prospect of a weakening economy. [.N]

“The idea of a benign and gentle tightening cycle has evaporated,” ANZ analysts said in a report.

“The reality is that the Fed cannot control the supply side of the economy in the short-run, so as long as key indicators like the labour force participation rate stay low and Chinese exports slow, the risk to inflation, and therefore interest rates, lies to the upside,” ANZ said.

Oil prices retreated again on demand worries as coronavirus lockdowns in China, the top oil importer, continued.

Brent crude fell 0.9% to $105 a barrel and U.S. West Texas Intermediate crude declined 1% to $102 a barrel, adding to a 6% slump in the previous session. Both contracts are still up about 35% so far this year.

Commodity-linked currencies including the Australian and Canadian currencies took a beating as oil prices fell.

The Australian dollar dropped as low as $0.6920, its weakest since July 2020, having fallen 1.7% overnight. Lower oil prices also hit the Canadian dollar, which eased to C$1.3037 per dollar, its weakest since November 2020.

The dollar index eased 0.2% to 103.5, having risen as high as 104.19 overnight, a fresh 20-year peak.

U.S. Treasury yields, which have climbed sharply on expectations of aggressive tightening by the Federal Reserve, took a breather after Atlanta Fed President Raphael Bostic pushed back on suggestions of a massive 75 basis point rate hike at the Fed’s next meeting.

(Additional reporting by Alun John; Editing by Sam Holmes and Jacqueline Wong)

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Intesa Sanpaolo S.p.A. (ISNPY) CEO Carlo Messina on Q1 2022 Results – Earnings Call Transcript http://www.nordbi.org/intesa-sanpaolo-s-p-a-isnpy-ceo-carlo-messina-on-q1-2022-results-earnings-call-transcript/ Sun, 08 May 2022 11:55:00 +0000 http://www.nordbi.org/intesa-sanpaolo-s-p-a-isnpy-ceo-carlo-messina-on-q1-2022-results-earnings-call-transcript/

Intesa Sanpaolo S.p.A. (OTCPK:ISNPY) Q1 2022 Earnings Conference Call May 6, 2022 9:00 AM ET

Company Participants

Carlo Messina – Managing Director and Chief Executive Officer

Conference Call Participants

Antonio Reale – Morgan Stanley

Andrea Filtri – Mediobanca

Britta Schmidt – Autonomous Research

Delphine Lee – JPMorgan

Andrea Vercellone – BNP Exane Paribas

Alberto Cordara – Bank of America Merrill Lynch

Giovanni Razzoli – Deutsche Bank

Benjie Creelan-Sandford – Jefferies

Andrea Lisi – Equita

Operator

Good afternoon, ladies and gentlemen, and welcome to the Conference Call of Intesa Sanpaolo for the presentation of the 2022 First Quarter Results. Hosted today by Mr. Carlo Messina, Chief Executive Officer.

My name is Mary, and I will be your coordinator for today’s conference. At the end of the presentation there will be a Q&A session. [Operator Instructions]. Today’s conference is being recorded.

At this time, I would like to hand the call over to Mr. Carlo Messina. Sir, you may begin.

Carlo Messina

Good morning, ladies and gentlemen, and welcome to today’s conference call on our first quarter results. This is Carlo Messina, Chief Executive Officer; and I’m here with Stefano Del Punta, CFO; and Marco Delfrate and Andrea Tamagnini, Investor Relations Officers.

I want to start by thanking our shareholders, especially the foundations and our international investors for supporting my reappointment as CEO for another term. I guarantee that I will work non-stop to lead ISP through the current challenging environment and that we will emerge stronger than before, just as we did in all the previous crisis.

This is the first quarterly call since the launch of our new business plan. And I’m proud to say that the plan is proceeding at full speed with our people working hard to deploy the key industrial initiatives which are well underway. The new plan moves us into the future and creates a bank for the next 10 years.

Before diving into our Q1 results, I want to express my personal sadness for the devastation caused by the invasion of Ukraine, and I hope that we will soon see an end to the war. As a group, we immediately activated the crisis unit to oversee activities in Russia and decided to end all new financing and investments in Russia.

These actions are in addition to the group’s Street compliance with sanction regimes. We are very close to our colleagues at Pravex Bank in Ukraine. Most of them are still there, even if ISP has helped many of them move to other countries, including Italy. In a few minutes, I will give you more details about our actions to help our colleagues, the families and other people affected by the war.

I would have been very happy to avoid another demonstration of ISP ability to overcome difficult global challenges. But here, we are and ISP is demonstrating once again that is solid, resilient, and well equipped for future challenges. You can see the proof in our Q1 results. We delivered a €1 billion net income, while provisioning €800 million for the Russia-Ukraine exposure. Excluding these provisions, we would have delivered our best quarterly net income since 2008.

In light of the Russia-Ukraine conflict, we revised the outlook for 2022 on a prudent and conservative basis, that’s how we always manage ISP. This year, we will deliver more than €4 billion net income, assuming no critical changes to commodity supplies, even in a very conservative scenario of posting a 40% coverage or Russia, Ukraine exposure, we will deliver well above €3 billion net income.

We remain committed to our €6.5 billion net income target in 2025, and the same goes with — for the buyback and for our 70% payout ratio for each year of the plan. Strong value creation and value distribution will continue to be our priority. Intesa Sanpaolo and its long-standing and crazy management have always delivered on their commitments and they will do so this year and in the coming years.

Slide number 1. In Q1, we delivered solid operating performance in a challenging environment, thanks to a well-diversified business model. We delivered net income of €1.7 billion, the best quarter, since 2008 when excluding provision for the Russia-Ukraine exposure.

Operating income and operating margin strongly accelerated versus Q4. Net interest income grew over 1% on a quarterly basis when adjusting for the different number of days. Second best ever Q1 for commission and insurance income. We delivered significant growth in revenues from financial market activities, which once again represented a natural hedge to the impact of market volatility on our fee-based business.

We confirm our high strategic flexibility in reducing costs, down 3.2%, massive deleveraging has allowed us to reach one of the lowest NPL stock ratios in Europe. And overall, the excellent performance in Q1 was fully in line with our €5 billion 2022 net income target when excluding the provisioning on the Russia-Ukraine exposure. More than ever, I want to thank all Intesa Sanpaolo people for their hard work in helping achieve these excellent results in this very difficult moment.

Let’s now move to Slide 3. In February, we presented our 2022-2025 business plan based on four pillars. One, massive upfront de-risking slashing cost of risk. Two, structural cost reduction enabled by technology. Three, growth in commissions, driven by Wealth Management Protection and Advisory. Four, significant ESG commitment with a world-class position in social impact and a strong focus on climate.

The plan is proceeding at full speed with all our people working at across all key industrial initiatives, which are well underway as you can see in the next three slides that give you an overview of what we have done in only two months. For the sake of time, I’ll give you some color on some of the most significant industrial initiatives underway, moving directly to Slide 7.

Looking at the first pillar of the plan, massive upfront de-risking, we achieved almost €5 billion gross NPL stock reduction in the first four months of the year. So this is equivalent to the impact of dimension of volumes of Russia-Ukraine exposure.

So we reduced nonperforming loans in four months for an amount equivalent to our exposure to Russia and Ukraine. We have delivered these results, and we have deleveraged for 26 quarter in a row for a total NPL reduction of almost €55 billion since the peak of September 2015, and we reduced €10 billion in one year time in the last year.

The NPL stock is now lower than €6 billion, and the NPL ratio is at just 1%. So due to the fact that we have a very limited level 2 and level 3 asset, we can be considered really one of the best bank of Europe.

Slide number 8. As a result of this impressive deleveraging NPL stocking ratio are now among the best in Europe, and our underlying cost of risk is already in line with being at zero NPL bank. Practically speaking, we are similar to a Nordic Bank.

Slide number 9. Moving to the second pillar of our business plan, structural cost reduction accelerated in this quarter with operating costs down 3.2% on a yearly basis, while investing for growth. Cost-income ratio improved further at 46.3%.

Slide number 10. The setup of Isybank, our new digital bank and the digitalization of the group are well underway. We created Isy Tech, the new delivery unit for Isybank development with 190 dedicated specialists. We hired the new head of Isybank and the new head of sales and marketing digital retailer who are both already fully operational. And we are quickly developing the new Isybank cloud-native technology platform in partnership with a leading Fintech company.

Slide number 11. The new tech infrastructure will be progressively extended to the entire group, including our international network, and we are all working on that. So technology is becoming one of the strongest part of Intesa Sanpaolo.

Slide number 12. Looking at the third pillar, growth in commissions driven by Wealth Management, Protection and Advisory, we can count on more than €1.2 trillion in customer financial assets, growing almost €50 billion on a yearly basis.

Short-term direct deposits saw a €28 billion increase on a yearly basis, which will fuel our Wealth Management engine in the coming years. In Q1, we reduced an increase of €5 billion in retail short-term deposits. The decrease in assets under management and assets under administration in Q1 was entirely due to market performance.

In fact, even in a challenging environment, we continue to have positive inflows. In Q1, we recorded €3.8 billion positive net inflows to asset — into assets under management and net inflows were positive by €16 billion on a yearly basis.

Slide number 13 Several key initiatives to fuel our Wealth Management engine in the coming years are well underway. We fully implemented a new dedicated service model for exclusive clients with over 4,000 relationship managers deployed in almost 500 advisory centers.

We strengthened our service model for ultra-high network clients, introducing new features for their advisory tools. We leveraged our own asset management and insurance product factories to enhance our commercial proposition with the development of multiple new products and continuous enhancement of the ESG offering.

Slide number 14. Looking at ESG, our social commitment remains strong, and we are accelerating our support to address urgent needs, including mitigating the potential impact of the Russia-Ukraine crisis. In particular, we are signing new partnership to double our intervention to support people in need and we increased its support for youth education and the setup of our social housing projects for youth and seniors is underway.

Slide 15, as a demonstration of our capacity to quickly respond to urgent social needs, we immediately implemented multiple projects to support Ukrainian population and our Pravex bank colleagues. We donated €10 million to support humanitarian initiatives in favor of the Ukrainian population and almost 300 colleagues have been welcomed by the international subsidiary banks division outside Ukraine, and we arranged to host in apartments in Italy, more than 200 colleagues and their family members.

Slide number 16. Last, but not least, our people are our most important asset. We have planned significant investments in our people and many initiatives are already well underway. In particular, we are proceeding at full speed with the renewal of our workforce with 700 people hired since the beginning of 2021 and almost 400 people were skilled in this quarter alone.

Slide number 17. In this slide, you can see a reminder of the four pillars driving our strategy to take the unique ISP model to the next level. Our commitment to shareholders distinguish ISP and we remain committed to our €6.5 billion net income target in 2025. We can do this even in the current challenging environment for multiple reasons, our target was not factoring in any potential upside from an interest rate increase, which is now much more likely to happen. We have a very high flexibility in reducing costs as we continuously demonstrated in the past, and we have already achieved zero NPL bank status with a very low underlying cost of risk.

Slide number 19. On this slide, you can see the highlights of our strong performance. Let me give you some color on the following pages.

Slide number 20. In Q1, we delivered the highest quarterly net income since 2008, a net income of €1.7 billion when excluding provisions and write-downs for the Russia-Ukraine exposure.

Slide number 21. Once again, despite the challenging environment, we delivered solid performance driven by high-quality earnings. Net interest income grew by 1.3% on a quarterly basis when adjusting for the different number of days in the two quarters. Commissions grew by 1% on a yearly basis when excluding performance fees and growth in insurance was solid, driven by the P&C business.

Profits on trading was very solid and fully realized. Revenues grew by 8% and operating margin by almost 50% versus Q4. Let me highlight that in Q1, as usual, we managed revenues in an integrated manner. Operating costs continue to decrease, more than compensating the slight decline in revenues on a yearly basis.

We have been very conservative in provisioning and booked more than €800 million for the Russia-Ukraine exposure. Net income was more than €1.9 billion when excluding costs concerning the banking industry and the provision for the Russia-Ukraine exposure.

Slide number 22. In this slide, you can see that the net interest income was up over 1% on a quarterly basis when adjusting for the different number of days, also due to positive dynamics on spread. After many quarters, net interest income is also up on a yearly basis, thanks to the commercial component and hedging.

And despite the impact from the NPL stock reduction and from the strong increase in retail, direct customer deposits, which impacts net interest income in the short-term, but boosts our Wealth Management engine in the coming quarters and years. Short-term retail deposits increased by almost €15 billion on a yearly basis, of which €5 billion in Q1.

Let me remind you that an interest rate increase is a strong upside for us because for every 50 basis points rate rise, net interest income can increase by more than €900 million.

Slide 23. We have continued to be very effective at managing costs with the best in class reduction in administrative expenses down 6%. Depreciation is up as we keep investing for growth.

Slide 24, we are proud to have one of the best cost income ratios and this slide illustrates our leading position in Europe.

Slide number 25. NPL inflows were very low, down more than 40% compared to the fourth quarter with nearly all moratoria already expired and only €600 million still outstanding. Our underlying cost of risk stood at 18 basis points, in line with our zero NPL bank status. Loan loss provisions were down in Q1 compared to last year when excluding the additional €800 million in provision for the Russia-Ukraine exposure. In Q1, we released €300 million in generic provisions, a portion of the residual €700 million conservatively booked in 2020 for COVID, which leaves us with €400 million still available for the future.

Russia. On this page, you can see an update on our exposure to Russia and Ukraine. As you can see, the exposure is limited. It represents just 1% of group customer loans. Furthermore, exposure is decreasing and is already down by €200 million since the beginning of the conflict by €1 billion when considering the provisions booked in Q1.

Slide number 27. Apart from being limited and decreasing, let me recall some highlights on our Russia-Ukraine exposure. Only €400 million in loans are [indiscernible] under sanctions. Over two-thirds of loans to Russian customers refer to top-notch industrial groups, featuring long-established commercial relationship with customers that are part of major international value chains with a significant portion of their proceeds coming from commodity exports.

Our footprint in Russia is small with just 25 branches that our lending to Russian clients is very limited, below 0.2% of our group customer loans. Nevertheless, we have been very conservative in provisioning. And in Q1, we allocated over €800 million for the Russia-Ukraine exposure with almost €650 million on the cross-border exposure, which is entirely performing a classified in Stage 2.

And I repeat, we have stopped any new investments and financing in Russia since the very beginning of the conflict.

Slide number 28. ISP fully phasing common equity Tier 1 ratio is 13.6%, not including 110 basis points of additional benefit from DTA that we will recover in any case. So these are something like a capital increase that will have for sure in the next years and do not considering the impact from the buyback to be approved by the ECB.

And then I will elaborate on this point, I think during the question-and-answer session. In Q1, the common equity Tier 1 ratio was impacted by 10 basis points of regulatory headwinds out of a total of around 60 basis points expected in the business plan horizon and by 20 basis points from Russia-Ukraine risk-weighted assets inflation. The impact from Russia, Ukraine risk-weighted asset inflation will be recovered if the crisis is positive resolved or if we move the exposure to Stage 3.

Slide number 29, contributing to society has always been a key part of our DNA. You can see this in our robust support to the real economy and our strong ESG focus.

Slide number 30, we are accelerating our strong ESG commitment with a world-class position in social impact, a strong focus on climate and the leading position in the main sustainability indexes and rankings. You can go through the details in the next three slides, but for the sake of time, let’s move to the final remarks.

Slide 34. Before looking at the future, it is worth recalling that we are far better equipped than our peers to take the challenges ahead and to capture growth opportunities. We have a best-in-class risk profile also including our exposure, Russia and Ukraine. We have one of the highest capital buffers and we are one of the cost income leaders in Europe.

Slide number 35. The Italian economy remains resilient and is expected to continue growing at a sustained pace. Thanks to positive fundamentals, baked by strong government intervention and significant EU financial support. In particular, the wealth of Italian households stands at €10 trillion and the amount of debt held by Italian families remains very low. Both households and companies hold a high level of savings since the start of the pandemic.

Italian SMEs quickly recovered after the COVID emergency with historically low default rates maintained even after the end of moratoria. And the banking system is far stronger than in the past and played an important role in mitigating the impact — the economic impact of the COVID emergency.

Slide 36. Let me now recap the key points that demonstrate the sustainable strength of Intesa Sanpaolo. Our resilient and profitable business model over delivered even in Q1 with the best ever quarterly net income when excluding the provisions for the Russia-Ukraine exposure.

Operating income and operating margin accelerated strongly versus the previous quarter. Costs were down sharply, and cost income is best-in-class. Massive deleveraging continued, reaching around €5 billion in the first four months in the new — of the new plan.

NPL stocking ratio are at record lows, and ISP is now a zero NPL bank with very low underlying cost of risk. We maintain a very solid capital position with low leverage. We already allocated over €800 million for the Russia-Ukraine exposure and we still hold €400 million in generic provision related to COVID.

Slide number 37. In conclusion, in February, I outlined a strategy to take the unique ISP model to the next level and create the bank for the next 10 years. At the core of this strategy is value creation and distribution, guided by a strong sense of purpose to benefit all our stakeholders and society more broadly. So taking into account the impact from the Russia-Ukraine conflict for 2022, we will continue to deliver best-in-class profitability.

With more than €4 billion net income, assuming that there will be no critical changes to commodities and energy supplies and well above €3 billion net income, even with a very conservative assumption of posting 40% coverage on all Russia-Ukraine exposure. We remain committed to our €6.5 billion net income target in 2025 and to a 70% dividend payout in each year of the plan and an additional €3.4 billion capital return through buyback with additional distribution to be evaluated year-by-year starting for 2023.

As proven in the past, Intesa Sanpaolo is an unstoppable delivery machine, and we will over deliver once again on our promises even in a challenging environment. This, thanks to all our people and to a strong long-standing and cohesive management team.

Thank you for your time and attention. And now I’m happy to answer your questions.

Question-and-Answer Session

Operator

[Operator Instructions]. We will now take our first question from Antonio Reale of Morgan Stanley. Please go ahead.

Antonio Reale

Hi, good afternoon everyone. It’s Antonio from Morgan Stanley. Three questions, please. My first one is on the share buyback approval. If I’m not mistaken, the ECB process should be up to 90 days, and I assume you must have submitted your request immediately after the presentation of your business plan on February 4, which means we should be really a few days away from the deadline. So I’m wondering what’s going on. Last time we spoke, I think it was mid-March. You were confident buybacks will go ahead. And so my question is, has anything changed? Do you foresee any issues with the buyback approval? So that’s my first question.

My second question is on costs and IT investments for which you seem to retain some flexibility as we’ve seen in this quarter. I realized that some of the investments, and you’ve talked about it, are to position the business for the medium run. But I wonder to what extent does the visibility of returns on such investments change enough for a bank like yours to reconsider, resize or delay some of these investments I think you had something like €5 billion of IT investments over the plan horizon. Can you remind us the phasing of these investments and how much flexibility would you have eventually?

My last question is on your Slide 37 on the outlook. Could you please talk a bit more about the assumptions and the delta between the different levels of profitability for 2022 particularly the driving assumptions in each of the scenario? And what do we need to see for you to pitch the gap between the well above €3 billion and above €4 billion net profit? Thank you.

Carlo Messina

So thank you very much. So after my answer to your question, I think that we can stop the question-and-answer session, because I think that these are really the most important part of what I can elaborate. So starting from share buyback.

We submitted to the ECB, the proposal for the approval in the April 1 of this year. So it was not the day after the presentation of the business plan, but was the 1st of April. So we need to have 90 days to receive the ECB approval, so within 90 days. And so we are waiting for an approval that we should receive in — within June. So that’s are the timing for the share buyback.

I have to tell you that considering the very low risk profile of the group, I think that we are in a very good position to be considered in any case, who had one of the best player in Europe because after the completion of the disposal of the €4 billion nonperforming loans.

And as I told in my previous point on the presentation, we reduced by €5 billion in four months, the stock of nonperforming loans. And today, we have a stock of nonperforming loans that is comparable to the real best-in-class in Europe. And due to the fact that we have zero level 2, zero level 3. We are really risk adverse company. So we can confirm that a 12% fully within capital ratio is well exceeding our need of capital considering the risk profile of the group.

So my expectation is that in the next months, we should receive the — an approval. And as soon as we receive the approval, we will start with share buyback. But in any case, we have to wait until the ECB approval. But that’s the real position on share buyback.

Looking on cost and IT, it is true we have a significant number of investments to be realized during the next business plan. The run rate of this capital budget could be in the range of €1 billion, €1.5 billion relating to the IT investments. We do not need for the time being to make any kind of postponement of delay or investments. We have a number of other significant contingency plan on the cost base, so we can continue to reduce the cost base without touching in any case what we consider strategy for the future of the group. Because as I told during the presentation the technological improvement on Intesa Sanpaolo in this set up all the Isybank and believe me we are really creating something special in this world with top machine is fundamental also to upgrade the technology of the IT system of Intesa Sanpaolo, and this will happen in 2023.

So I don’t want to stop this area because this is fundamental to realize any industrial upgrading of Intesa Sanpaolo moving into a Fintech company and transforming Inter Sanpaolo from an incumbent into a challenger. So that’s — and that remains my industrial focus. So just to complete and moving into the outlook, I want to tell you that the Russia-Ukraine situation is really dramatic.

It is an humanitarian tragedy is something unbelievable — but my job as CEO is to move into the industrial action to find solutions and to deliver a business plan and it is what we are doing in the bank, only 200 persons are working on our Russia-Ukraine situation in my organization. The other 90,000 people are working hard in order to deliver the business plan, and that’s what I consider really fundamental for the bank.

We have an exposure of gross pre-provision lower than €5 billion. This is a credit exposure for me. That’s my job as CEO. I’m dealing with credit exposure, we reduced €50 billion of nonperforming loans in the last year. We reduced €5 billion of nonperforming loans in four months. We are now moving into managing €4 billion with some reputational implications. So that’s something that we have to consider, some compliance. So we have to move according to sanction, but my job is to recover money. And that’s what I’m doing.

So coming back on the outlook, the outlook is that starting from an outlook confirmed of €5 billion, more than €5 billion because we exceeded our expectation in terms of net income in comparison with the original budget, delivering €1.7 billion of net income. So — the run rate of the group is well above €5 billion in terms of net income pre Russia situation. Now we have a clear provisioning that we made in the first quarter.

So you have to move €5 billion minus the amount of net income that is related to the implication of Russia. We can consider some minor provisions if the trend could be more or less stable, continuing what’s happened in this months. And due to the fact that we decided not to have in our forecast, any benefits from Euribor increase that can, for sure happen in the second part of 2022, we can have some minor slowdown in terms of commissions performance fee.

So that’s what we have elaborated to create €4 billion, above €4 billion outlook. Then could be €4.2 billion, €4.4 billion, €4.5 billion, we will see that’s implication. The cost of risk embedded in this outlook is for the run rate, excluding Russia and Ukraine, and considering that now we have zero nonperforming loans and those the nonperforming loans has been provisioned in 2020 and 2022 in a significant way, we will have very limited cost of risk rated on the stock.

We will remain with the cost of risk embedded with the new inflows, but not exceeding 25 basis points. So that’s the reality for Intesa Sanpaolo. The real economy in the country is not so bad because there will be impact on poverty, on inequality, and that’s for sure, but the majority of the Italian companies are with a strong liquidity cash flow position, and I’m not worried at all for a possible significant deterioration of real economy environment in my country.

Moving to the second part of the outlook, so the more conservative one. I want just to tell you that our exposure to cross-border in Russia, that on local presence, we have negligible figures, and we are considering in a different way to other peers, the total amount of loans in the country and not only the amount of equity that for us, again, is absolutely negligible when considering the exposure to the country. And the total amount of loans in Russia, local presence is €600 million.

On the other side, we have a cross-border exposure, cross-border exposure that is €3.8 million. This cross-border exposure, if you consider the amount of provision already done, it is €650 million, it is net €3.2 billion, €3.2 billion and out of this exposure, more than 80% of this exposure is related to the number one company in gas. The number one company in palladium and nickel.

So all the strategic needs that Europe continue to have and will continue to have. So our expectation is that moving into a 40% coverage on all these cross-border exposures needs to be in a real worst-case scenario, because it is unbelievable that Europe can avoid to receive gas, palladium and nickel from the most important player in Russia. And that’s the evidence that they will continue to give us, and they will receive cash flow.

And in any case, these companies will have a lot of intrinsic value because we remain the provider of gas, palladium, and nickel for all the world. Not Europe, will be India, will be China. So expiring in 2027, our loans, so believe me, we have been really conservative in all our figures, because we do not want to sell marketing to our investors, to our shareholders. We want to remain on the conservative side in all our analysis, and I think that the position of Intesa Sanpaolo is that we will be ready to make the share buyback as soon as we receive the authorization of ECB. We will pay 70% dividends on a significant net income.

And as I told you, our exposure in Russia, it is not an exposure that can be considered a significant risk exposure apart from the decision not to receive more gas, palladium and nickel in the next two years from Russia. And that’s the fundamental of the group is moving in terms of cost of risk at the run rate of 25 basis points, because we have between €5 billion and €6 billion net nonperforming loan. So theoretically and practically zero this impact.

So what I can tell you, these are the outlook that I consider really conservative, and we can do much better than our outlook in the next months.

Antonio Reale

Very clear. Thank you very much.

Operator

And we can now take our next question from Andrea Filtri of Mediobanca. Please go ahead.

Andrea Filtri

Thank you. One question on fees and one on capital and further remuneration. On fees, why [indiscernible] the light fees in the quarter? What drives the growth in the other net fee and commission income in line in the quarter and year-on-year.

And then on capital, do you think that the current uncertainty is commanding a CET1 above the 12% target of the plan in a temporary basis. And are you considering to potentially postpone the share buyback until we have more macro and geopolitical visibility. And will you pay dividends or reported profits or excluding the impact on Russia and Ukraine? Thank you.

Carlo Messina

So Andrea, we will pay dividend on the net income of the group. So the stated net income. Looking at capital, I do not see any kind of reason to change our perspective. So all the — as I told in my previous answer — I consider the exposure to Russia as an amount of performing loans that can become Stage 3 loans and believe me only for a marginal part, because the majority of this exposure is much better than a significant part of loans being placed in most of the European banks. So having in mind is, this is an amount of loans.

Our nonperforming loans is at the level, if we used to be at 13% fully loaded, so 12% fully phased in an environment in which we add €60 billion of nonperforming loans. Believe me, I can say 12% with €6 billion of net nonperforming loans. So I do not see any kind of reason from a managerial point of view to maintain extra buffers in excess of this 12%.

Then the excess capital is also to be considered as the elements that you can use in situations like this. So we used to have 14%, now we have 13.6% and remaining with — do not forget with more than 100 basis points in DTAs, and we have a unique case of DTAs due to the different merging process that we made in integration of Italian banks, we remain with a significant buffer in terms of capital position.

So no need to change the position of the capital target from a managerial point of view. Then from a regulatory point of view, there will be something that will be applied on all the banking system. We will respect the indication of the supervisor. In terms of fees, sorry, Andrea, but if you can repeat your question because the line was not so good, and I didn’t understood — and I didn’t understand very well your point.

Andrea Filtri

Yes, thank you. Just if you’re seeing any specific slowdown given the tailwinds from last year, I was expecting even stronger fees. And I wanted to ask you the detail of what is driving the material growth in other net fees and commissions income, the line that you give in terms of breakdown on a quarter-on-quarter and year-on-year basis, because that is the part that is growing the most within the fee income line.

Carlo Messina

At this point, are you meaning from €58 million to €73 million. This is the line that you are considering?

Andrea Filtri

I’m looking at…

Carlo Messina

Between €239 million?

Andrea Filtri

And I’m talking about the line €263 million in the quarter from Slide 77.

Carlo Messina

Well from 2014. Okay. Let me — on this point, I have not with me the specific figures, but Marco Delfrate and Andrea Tamagnini will give you all the details on this point. But let me give you some point on this element of fees and commissions, because the — it is clear that we are a Wealth Management company.

So in a Wealth Management company, you have no performance fee and you compare the situation of the fees with the quarters in which you had the performance fee, you can see a slowdown or a reduction of fee and commission production.

But if you look at the same quarter, so the first quarter of last year in terms of generation of fee and income from Wealth Management, we are increasing the dimension of the fee and commissions. But there is also another point that I want to stress for you and for all the analysts that are with me in this call is that we decided to place during the first quarter, products that are more related to liquidity and protection, because we started the beginning of the year with some uncertainty on the appointment of Mattarella, Draghi, you remember the first months of 2000 and 2002.

And so we decided to maintain for our client an approach that could have been conservative in order to allow them to move in something more positive having a clear view on what could have been the structural condition of the country with Draghi remaining the head of government. I have to tell you that at the end, also, we decided to continue also during the period of the war starting from the end of February.

So also during March, we continue the placement of product with very low commissions in order to maintain protected our clients. At the same time, in our budget, I thought to rely also on performance fees. So that was the original forecast in the budget. But during this quarter, we decided to maintain an approach conservative in order to allow our clients to make decision not under uncertainty.

In April, we continued to have positive net inflows. We continue to have an approach that is conservative towards our clients. And I have to tell you that what I consider important is to maintain the pool of wealth of our clients with us — this wealth continue to increase. And so we are ready in case of a stabilization of condition and the change of uncertainty to move into something that can be more positive for the clients and also for the bank.

Not forgetting that maintaining retail deposits in an environment in which there will be, for sure, an increase in interest rate will not prove to be negative for the bank, and you will see in the next months and probably in the last six months of 2022. Then for the other point, Marco and Andrea will give you all the details.

Andrea Filtri

Thank you very much.

Operator

And we can now take our next question from Britta Schmidt of Autonomous Research. Please go ahead.

Britta Schmidt

Hi, thanks for making my question. Could you perhaps provide us with a little bit more color on the — how you arrived at the amount of provisions that you booked for the Russia and Ukraine exposures. And also whether you are looking at any exit strategies from this book, how difficult is it to deliver it. And does the level of provisioning or exposure has anything to do with any ECB approval of a buyback?

And the second question will be on the provisions ex Russia, which are running at 18 basis points, which is far below your initial guidance. What IFRS 9 scenario macro scenario update impact, do you expect for the rest of the year? And is there any sort of leeway to end the year a little bit better than the initial 40 basis points guidance? Thank you.

Carlo Messina

Sorry, I lost the second part of your question. Could you repeat, please? Because the line is not good.

Britta Schmidt

Sure. It was around the provisions ex Russia, which are currently running at only 18 basis points. What do you expect here for the full-year? And also specifically, what do you expect for the IFRS 9 macro scenario update throughout the year?

Carlo Messina

Yes. Okay. Thank you. So looking at the Russia, Ukraine and the provisioning, there’s nothing related to the share buyback. We decided to do this because we consider this as country risk. So that was the analysis that we decided to do, because if we go line by line and especially on the cross-border client by clients, the quality of this client, the generation of cash flow and the fact that they are performing and the expiring date is in some years’ time, we probably could also have considered not to make provisions.

We decided to move into a country risk approach. So moving into loss default, probability of defaults. And so related to the situation. And so we decided to make a theoretical analysis. Now we have — we are in a position to understand what will happen in the sensory framework because this will be very important to understand the next steps. And we will enter into a case-by-case approach. But the fact that, as I told you, the majority of our exposures in cross-border is mainly related to gas, palladium, and nickel can leave us in a position of considering a very limited need to increase provision or in case of significant disruption of acceleration of the sanction framework to move into a 40% coverage ratio moving a portion of these clients into Stage 3.

Looking at the local presence, I don’t know if I have to move into an approach like other peers, I have only to consider the equity that for us is really limited and with significant devaluation that we made in this quarter. If you move — looking at loan to customer, we have €600 million and €150 million in Ukraine, and we decided to post €150 million of provision related to country risk exposure. Then we will see what can happen.

The real target is, as I told you, to manage these loans as all the loans that we have in our portfolio in — especially in Stage 2, when we put credit in Stage 2, we try to accelerate for recovery of smart solution in order to reduce. There is a clear limitation in terms of counterparties with whom it is possible to work, because the majority of this counterparties could be under suction. So we are working and the expectation is that this amount can be reduced in the next quarters. But maintaining this approach of significant looking — not in a negative way to this exposure because I think that at the end, we are used to manage significant exposure. And this is, in my view, not so significant, especially for the quality of the names that we have and especially related to the fact that Europe needs to have gas, palladium and nickel. That’s my point on this exposure.

Coming back on the cost of risk, excluding the Russia exposure, the underlying cost of risk maintaining this trend of real economy dynamics and also moving until a possible reduction in terms of the speed of GDP in the country, but remaining with a positive GDP in the range of 1.5%, 2% GDP positive. I can tell you that our expectation is that we can have a cost of risk that could be only related to the inflows and this can be part of 20, 25 basis points. That’s our expectation on the basis of our information as of today. That’s the reason why I’m really confident on the possibility in case of need to make provisions in case of reclassification to Stage 3 of a portion of our cross-border exposure to have significant room to maintain significant profitability.

The expectation of the group is looking at the quantity of corporate deposits that we have, the dynamic of the corporate deposit, the money that is a significant part of the owner of SMEs companies as with our banks that the situation in the country apart from, as I told, the need to be ready to work for poverty in a quality from a portion of Italian families like in all the country in Europe and the USA, because the working pools are affected by inflation. But the majority of the corporates can reduce cash flow, can reduce profit, but they will remain with positive cash flow and with a significant amount of deposit placed with the banking sector.

So my expectation is that we can remain in a safe position, looking also the embedded cost of risk that we have in our country.

Operator

And we can now take our next question from Delphine Lee of JPMorgan. Please go ahead.

Delphine Lee

Good afternoon. Thank you for taking my questions. So I just have three quick ones. Just first one on — to come back on the share buyback. Just wondering if you could explain why you waited until April to ask for the approval? Is that just because of the uncertainty of what’s going on with Ukraine and Russia? And can you just confirm that you don’t need to see a decline in the Russian exposures or clarity on the Russia losses to get the approval for the buyback?

And secondly, on — could you just to come back on the interest rate sensitivity, just provide a bit more color on what happens once the ECB deposit rate goes above 50 basis points. Does the sensitivity materially declined? And also if you could provide also the sensitivity for your capital, what happens on the OCI side with rates? And then just lastly, do you have any kind of sensitivity on provisions, on cost of risk to different GDP assumptions that you could just provide? Thank you very much.

Carlo Messina

So sensitivity on GDP, I have to tell you that the only moment in which we can be affected by a spike in the cost of risk would be a recession. So if we enter into something that is unbelievable for the time being. We can have a spike in terms of cost of risk. And so the cost of risk apart from Russia can have a spike and can move above 40, 50 basis points. This can happen only in case of recession in the country.

Coming back on the share buyback, we decided to submit on April, the share buyback request because we made a number of analysis for the Board of Directors of the bank related to the impact of the Russia and Ukraine exposure and so demonstrating that the situation of the bank was absolutely in line with the expectation that the only point for us would have been a reduction in terms of net income generation only in the case of a significant reduction in net income generation. So moving from above €5 billion to above €3 billion, only if there could have been a stop to the gas, palladium and nickel to Europe that is something that I consider absolutely not likely. Then we decided to present the approval. We do not need to make any kind of reduction to receive the approval reduction of exposure to receive the approval from the ECB. And if you consider also the reclassification that will not happen, but of €5 billion in Stage 3, we will move to the situation of the end of 2021 for Intesa Sanpaolo. So before reducing by €5 billion, the nonperforming loans in the last four months. So this is a reality for Intesa Sanpaolo.

And now — and if you consider this, we will have the same nonperforming loans ratio as the best player in Europe, but without having the level 2 and level 3 exposure. So we remain, in any case, one of the best bank and very low risk profile in Europe.

Looking at the — your second question, we have — we will not have any kind of impact to our reserve when ECB will increase the interest rate because there is a hedging on this portion. And so we will not have any kind of impact on the capital position. And we can confirm that the sensitivity is €900 million for an increase of 50 basis points and the reality is that the position of — sorry, sorry, and the position of the group is that for an increase of 100 basis points, we will have an increase in terms of net interest income between €1.7 billion and €1.8 billion. So it’s an amount that looking at the acceleration in terms of increased in Euribor that we are seeing from forward expectation, I think that will happen sooner than our expectation.

Delphine Lee

And when rates — ECB deposit rates goes above 50, 100 basis points. Does that sensitivity start to decline materially?

Carlo Messina

So are you meaning a happy problem. So do you think that this could be a happy problem. I don’t know if — we will have to check, because we will have to make the calculation in the new situation, looking at the reaction of the different clients.

If you look at the past, so looking at the situation of some years ago in which we used to have interest rate well above 1% in terms of ECB interest rate, the sensitivity more or less was at the same level. But on this point, I cannot be so sure so we need to wait until the first spike in terms of interest rate, and then we will be more precise on this point.

Delphine Lee

Thank you so much. Thanks a lot.

Operator

And we can now take our next question from Andrea Vercellone from BNP Exane. Please go ahead.

Andrea Vercellone

Good afternoon. I just have one question left. It’s on Russia. Can you make any comment on your off-balance sheet exposure. Do you see any risk associated to that exposure? Or you have MAC closes that would prevent those credit lines to be drawn anyway. Just to give us a bit of visibility on that point as well? Thank you.

Carlo Messina

Zero risk.

Andrea Vercellone

Okay, thank you.

Carlo Messina

Thank you to you.

Operator

And we can now take our next question from Alberto Cordara of Bank of America. Please go ahead.

Alberto Cordara

Hi, good afternoon. Just a clarification. When in the outlook you are talking about €4 billion of earnings or €3 billion in the extreme case, you write off 40%. Do you include any assumption on rates or not? So just to be absolutely clear. Also another couple of questions on capital. I don’t know if you answered to this question, but if you can provide us the sensitivity of capital to a change in the BTP to bond spread. And also, what capital benefit should we expect from the long-term incentive plan? Thank you.

Carlo Messina

Yes, Alberto. So the sensitivity on capital is for each 100 basis points increase, 25 basis points sensitivity. That’s a sensitivity on the BTP bond spread.

The second question on capital was — LECOIP should be between 25 and 30 basis points. Those should be the increase that we can have due to LECOIP. And looking at the outlook, that is above €4 billion and well above €3 billion, so it is not €4 billion or €3 billion, it’s above €4 billion and well above €3 billion. There is no contribution from rates. So zero contribution from rates.

Alberto Cordara

Okay, very clear. Thank you very much.

Carlo Messina

Thanks Alberto.

Operator

And we can now take our next question from Giovanni Razzoli of Deutsche Bank. Please go ahead.

Giovanni Razzoli

Good afternoon. Two quick questions on my side. I was wondering whether you may consider an additional utilization of the receivable amount of provisions overlays in the next few quarters? And the second question relates to the interim dividend. Can we assume that if the situation does not deteriorate in the next few months, so there is no ban to the energy supply, the core revenue generation of the bank remains stronger than the first quarter. Would you be in favor of as a CEO to propose to the board the payment of an interim out of the 2022 earnings? Thank you.

Carlo Messina

Yes, I will propose an interim dividend. And looking at the overlays in the figures that we have considered to the market, there is no usage of the overlays. So in the outlook at zero usage of overlays in the next few quarters, right.

Operator

We can now take our next question from Benjie Creelan-Sandford of Jefferies. Please go ahead.

Benjie Creelan-Sandford

Yes, good afternoon. Thank you for taking the question. Just a quick follow-up on the net interest income outlook. So in terms of the guidance for this year, you’re not embedding anything for higher rates. So I was just wondering whether that’s a conservative approach in terms of the guidance or whether you think just because of the lag effect in terms of how the rate increase feeds through that there will be no material benefit to net interest income this year. So maybe just give a bit more color about in terms of that sensitivity, the €900 million, the timing of how that feeds through?

And also, just around that €900 million sensitivity on the 50 bps move. I mean that looks to have come down versus last quarter, which was lower than the guidance in terms of sensitivity at 3Q as well. So I was just wondering whether there’s anything particularly behind that is, are you changing something in your positioning of the balance sheet, which is reducing that sensitivity? Or is it just sort of refining the models, the outlook? Any color there would be useful. Thank you.

Carlo Messina

So it used to be €1 billion now is more than €900 million. There could be a limited component of the medium-term sensitivity related on the fact that we had positive on — we can have a positive on the hedging side. So you can see a portion of improvements on the hedging side, and we will have also positive forecast on the hedging side that will be added on the sensitivity that you are considering of €900 million. Because if you look at the hedging, you see a positive on €33 million. And on an annual basis, our expectation is that figures can be increased quarter-by-quarter. And if you add this with €900 million, you can come back at €1 billion sensitivity. The hedging facility is more related to the medium-term interest rate than on the short-term interest rates.

Looking at the outlook, not considering the positive coming from the Euribor on the short term our expectation is that we can remain on a flattish net interest rate, probably with some probability to have an increase of net interest rate due to different dynamics because we will remain with a negative coming from TLTRO, a positive coming from volume, a positive coming from medium-term spread on liability sides, a positive on the hedging facility, a positive coming from the financial portfolio and the negative coming from the reduction of nonperforming loans. This is all not considering the Euribor increase.

If Euribor will increase in the second part of the year, we can have a clear increase in interest rate that could be the starting part of what we can have in a significant way starting from 2023.

Benjie Creelan-Sandford

Great. Thank you very much.

Carlo Messina

Thank you.

Operator

[Operator Instructions]. We can now take our next question from Andrea Lisi of Equita. Please go ahead.

Andrea Lisi

Hi, good afternoon. Just two quick questions. The first one is on the COVID portfolio, given the movement in interest rates and in the spread, are you considering to increase the size of your portfolio?

And the second one is, if you can provide some color on the trading revenues in the quarter, which were really robust. And if you can provide some more indication of a sustainable level for them? Thank you.

Carlo Messina

So thank you very much. This is a good question because trading has been considered as a very low quality income for this quarter. I can confirm you that all is realized, but also we are continuing to deliver very good performance because there is an industrial machine that is set in Banca IMI that is devoted to realize this trading income, especially when during the commission side, we are not working for and we cannot receive a performance fee on the commission side. So trading is — will remain a significant contributor to our figures and not at the same level of the first quarter, but we expect also a good second quarter and a good contribution for the full year coming from these figures.

In terms of dimension, the expectation is that difficult to increase the amount of Italian government bonds. We have the possibility, as you know, to move into 50% of the total portfolio being of the Italian government bond today, we are below 40%. But our expectation is to remain more or less at this level in terms of percentage.

Then in Banca IMI, they will move according to the need to realize revenues considering the combination of net interest income and trading. So — but marginal movements in our expectation for the time being.

Andrea Lisi

Thank you.

Operator

This does conclude the Q&A session. I would now like to hand the call back to Mr. Messina for additional or closing remarks.

Carlo Messina

Yes. Sorry, just a clarification of Andrea Filtri question was the amount of commission was due to corporate loans. So there are classified in the other commissions, the commission related to corporate loans.

Now just in conclusion, I want to reaffirm my position that I’m managing this organization for the next 10 years’ time. Transforming the bank into a leader in technology, and I’m devoted to realize the industrial plan and the 90,000 people of Intesa Sanpaolo are devoted to realize this.

We are very sad for the tragedy of the war. But from a managerial point of view, the impact of this crisis is something related to loans — exposure to loans, and we reduced in the last year’s €50 billion of loans and just in the last four months, €4 billion of loans. So believe me, we will be able to manage this situation and we will exit as usual, stronger and stronger from this situation. Generating net income and a lot of dividends and share buybacks for our shareholders. Thank you.

Operator

This concludes today’s call. Thank you for your participation. You may now disconnect.

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This Week in European Tech: mucho funding for Alan, Kevin, Polarium and Jobandtalent; ProGlove acquired, SoundCloud buys; EU slaps Apple and more http://www.nordbi.org/this-week-in-european-tech-mucho-funding-for-alan-kevin-polarium-and-jobandtalent-proglove-acquired-soundcloud-buys-eu-slaps-apple-and-more/ Fri, 06 May 2022 13:49:20 +0000 http://www.nordbi.org/this-week-in-european-tech-mucho-funding-for-alan-kevin-polarium-and-jobandtalent-proglove-acquired-soundcloud-buys-eu-slaps-apple-and-more/

This week, the Tech.eu research team tracked more than 65 tech funding deals worth over €1.1 billion, and over 10 exits, M&A transactions, and rumours, and related news stories across Europe.

As always, we are putting all of them together for you in a list sent in our round-up newsletter next Monday (note: the full list is for paying customers only, and also comes in the form of a handy downloadable spreadsheet).

Important: get your tickets to our upcoming Tech.eu Summit on 17 May in Brussels pronto. We’ve got a fabulous speaker line-up and the agenda has been published – so don’t hesitate any longer and get your tickets now!

From the likes of European Commissioner Mariya Gabriel to world-record breaking pilot Zara Rutherford, Belgian Prime Minister Alexander De Croo, (Transfer)Wise co-founder and CEO Kristo Käärmann, there will be a ton of people you’re gonna want to learn from and meet in person at our first edition of the Tech.eu Summit.

There are a million reasons you do not want to miss out on our first ever major tech conference, but here’s a list of 10 big ones as we start counting down 10 days before we see so many of you in (hopefully sunny) Brussels.

Below, please find an overview of the biggest European tech news items for the past couple of days (subscribe to our free newsletter to get this round-up in your inbox every Monday morning). 

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>> Notable and big funding rounds

Madrid-based temporary job platform Jobandtalent has secured $250 million in debt financing from US investment banks Citi, Goldman Sachs and European investor AnaCap Financial Partners to connect people with a steady stream of work.

Parisian healthcare startup, that just happens to offer insurance products as well, Alan has raised €183 million in a Series E round. The company is now valued at €2.7 billion, a figure that’s almost doubled since April of last year.

Stockholm-based Polarium, a company dedicated to providing safe and sustainable energy storage solutions built on lithium-ion technology, raised approximately €92 million in a fresh round of funding. With this funding, the company is now valued at $1 billion, making it the latest Swedish unicorn.

Lithuanian fintech startup that provides advanced account-to-account (A2A) payment infrastructure to replace costly card transactions, Kevin. has raised $65 million in funding. The Series A round was led by Accel, with participation from Eurazeo and existing investors.

DoDo Group, a Prague, Czech Republic-based provider of a B2B logistics technology platform, secured €60 million in Series B funding.

The next generation of therapeutics designed to prevent, treat and help people manage a wide range of medical disorders, digital therapeutics is the way forward. Betting big on the segment, Icelandic digital therapeutics platform Sidekick Health has raised $55 million in Series B funding.

Bavarian startup HiveMQ has raised €40 million in a Series A funding round. The HiveMQ solution helps facilitate communications between connected IoT devices; a lot of connected devices.

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>> Noteworthy acquisitions, mergers, IPOs and SPAC deals

Munich-based maker of industrial IoT devices, ProGlove, has been acquired by private equity investor Nordic Capital. While Nordic Capital partner Rainer Lenhard declined to comment on the financials of the deal, market experts are citing a €500 million valuation for ProGlove.

After Dublin-based revenue-based financing platform Wayflyer raised $150 million in an all-equity Series B funding round to join the unicorn club at a $1.6 billion valuation in February, the startup is inching up to expand its presence in the influencer marketing space. It has now acquired creator funding provider Peblo.

A smart bus scale-up headquartered in London has been snapped up in an £80 million deal. NASDAQ-listed Swvl Holdings Corp, a global provider of tech-enabled mass transit solutions, has acquired Zeelo, which has 160 staff across the world including 29 software engineers based in its Barcelona R&D hub.

Intel Graphics has acquired Finnish company Siru Innovations. The company has a background in graphics and software development.

Neobank Bunq, by acquiring Belgian FinTech TriCount, will add 5.4 million new users, and become Europe’s second-largest neobank, behind Revolut.

Barcelona-based Qustodio has been acquired by Family Zone in a full buyout at $52 million.

Seeking to further bolster its music intelligence capabilities, SoundCloud has acquired Singapore-based Musiio.

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>> Interesting moves from investors

Swiss Nym’s Innovation Fund to invest $300 million in creating a privacy-enhanced Internet.

Munich-headquartered growth stage technology firm Cipio Partners has wrapped up its latest fund with €202 million.

Madrid-based venture capital firm Seaya Ventures has rolled out a new sustainability-focused fund with a target size of €300 million. The fund will invest in technology-driven companies focusing on green tech, circular economy, agritech and sustainable food value chain.

200 German entrepreneurs have pooled their cash into a new €160 million fund to splash on pre-seed to Series A startups in Europe.

Luxembourg domiciled, Swiss-headquartered VC fund Una Terra has high hopes: to raise €1 billion by 2025, and become the de facto platform of choice for ESG investing in venture capital across all relevant sectors and EU geographies.

The European Investment Bank (EIB) has invested up to €20 million in a co-investment facility with Sabadell Venture Capital to support early-stage Spanish start-ups affected by COVID-19. Sabadell Venture Capital will match the EIB co-investment with its own contribution of €20 million, resulting in a total of €40 million for venture debt operations in start-ups.

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>> In other (important) news

EU regulators have charged Apple with breaking competition law by limiting rivals’ access to technology that is key to making contactless payments, unfairly benefiting its own Apple Pay service.

Big changes and drama continue to buffet Just Eat Takeaway, one of its big players in the global food delivery business. The company said its chairman, Adriaan Nühn, is leaving the company effective immediately as the company pushes to refocus itself; and its COO, Jörg Gerbig, has also stepped away from his role on the management board because he is being investigated for inappropriate behavior.

Google’s app store rules are being investigated by the Netherlands’ Authority for Consumers and Markets (ACM) after dating app Match complained about terms and conditions for the in-app payment service Google Play Billing, regulators said.

Meanwhile, Google urged Europe’s second-highest court to dismiss a 1.49-billion-euro fine imposed by EU antitrust regulators three years ago for hindering rivals in online search advertising.

Large tech companies such as Google and Facebook will have to abide by new competition rules in the UK or risk facing huge fines, the government said.

Binance, the world’s largest crypto exchange by volume, has gained regulatory approval to provide digital asset services in France, the first European country where it has acquired such permission.

With Latin America quickly gaining ground as a serious player in the startup world, Web Summit has announced a three-year deal with the city of Rio de Janeiro to play host to Web Summit Rio.

The Vatican has announced its plans to enter the metaverse.

—–

>> Recommended reads and listens

Funding to startups in the European Union got off to a brisk start in 2022. But in the past couple months, investment has slowed sharply.

That said: the European tech ecosystem rebounded in April with a total of €10.4 billion raised — nearly €2 billion more than the much milder March.

Data protection, citizens’ rights, and digitalisation are at the forefront of the revolutionary European Health Data Space (EHDS) presented by the EU executive on Tuesday.

On Tech.eu, Kry CEO Johannes Schildt weighed in on why the proposed European Health Data Space has the potential to radically transform the delivery of healthcare across Europe.

Europe’s antitrust chief Margrethe Vestager, the architect of landmark rules to curb the power of US tech giants, called on Thursday for a global approach towards Big Tech to prevent companies taking advantage of enforcement gaps.

How Ireland lost its chance to become Big Tech’s ‘super regulator’.

Launched this week and curated by 13-year tech journalist veteran Martin SFP Bryant, the PreSeed Now publication is designed to spotlight some of Britain’s most promising deep tech and B2B startups.

The European fintech entrepreneurs on Forbes 30 Under 30 list 2022.

Once upon a Plugg…

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Modi’s Euro Tour Reaffirms Success of India’s Meticulous Manoeuvring Between Russia and the West http://www.nordbi.org/modis-euro-tour-reaffirms-success-of-indias-meticulous-manoeuvring-between-russia-and-the-west/ Wed, 04 May 2022 18:33:52 +0000 http://www.nordbi.org/modis-euro-tour-reaffirms-success-of-indias-meticulous-manoeuvring-between-russia-and-the-west/

Prime Minister Narendra Modi’s Europe tour started with a raging success as apart from the love and support he received from the enthusiastic Indian diaspora in Berlin, his first-ever meeting with German Chancellor Olaf Scholz cleared all doubts about the possibility that relations would have soured after India refused to outrightly condemn Russia’s invasion of Ukraine, stepped up oil imports from Russia and when questioned on “morality”, it cited the West’s hypocrisy on Europe’s unswerving indulgence in Russian gas versus that of India’s comparatively minuscule imports.

Germany extended the G7 Summit invite to India, pledged $10.5 billion to its green growth plan to meet its 2030 climate action targets and while being alone in its condemnation of Russia in the joint statement, it joined India in raising the importance of the UNCLOS in all marine domains including the South China Sea and the Indian Ocean. The two sides are committed to FTA negotiations, and also upheld their call for reforms in the United Nations Security Council as members of the G4 and called for countries to work towards eliminating terror financing and safe havens for terrorist organisations. PM Modi also sent a message to Russia with a mention of inflation in his speech. “Due to the turmoil caused by the Ukraine war, oil prices are skyrocketing. There’s a shortage of food & fertiliser in the world, this has caused a burden for every family in the world. However it’ll have the most serious impact on developing & poor countries,” he said.

Apart from the German visit, the Indian Prime Minister’s subsequent meetings with the Danish Queen and Prime Minister, followed by the propitious India-Nordic Summit and then a tour to France to meet President Emmanuel Macron, who is currently basking in the glory of his re-election— are all indicative of solidifying India-EU relations capable of steering ahead despite episodes of discord.

Europe humbled by India

During the Raisina Dialogue in New Delhi, India’s Minister of External Affairs Subrahmanyam Jaishankar continued highlighting the West’s hypocrisy. “When rules-based order was under challenge in Asia, the advice we got from Europe is- do more trade. At least we are not giving you that advice. We should find a way of returning to diplomacy and dialogue,” he said. Before this, amid the 2+2 dialogue in Washington DC, he told the press to look at Europe if they wish to talk about energy purchases from Russia. “Looking at the figures, probably our total purchases for the month would be less than what Europe does in an afternoon,” he remarked.

Also Read: As India Buys Russian Oil, Can The US Really Lecture India on its Place in History?

India’s argument holds water backed by Europe’s gas imports from Russia which actually increased after the invasion, contrary to the sentiment projected in its condemnation of Russia and its promise to hold Russia to account. It’s not every day that Europe would see itself being called out and left humbled by India which has not only refused to toe the Western line but also has no qualms about shattering the moral high ground that the West has been riding on. Every Western sermon aimed at India on ‘morality’ has so far boomeranged— something that the US and Europe are finally accepting as the new, more assertive India they are dealing with. Despite this discordant exchange of the last three months, the West has not acted on its resentment at being called out by India. Instead, as is being seen in Modi’s Euro tour and Boris Johnson’s visit to India before this, countries are moving on, allowing the Russia issue to remain a thorn on the sidelines that would not come in the way of growing trade and strategic ties.

Also Read: Bold and No-nonsense Jaishankar is Modi’s Best Choice against West’s Bullying and Hypocrisy

The Pragmatic approach

Germany remains the highlight of PM Modi’s Euro tour. Reeling under the pressure of giving up Russian energy imports, the largest European buyer of Russian energy is torn between paying a heavy inflationary price and irking its Nato allies. To add insult to injury, Russia is demanding payments in rubles in order to circumvent European Union’s sanctions and threatening to immediately close the taps otherwise— depriving European nations of the comfort of “phasing out” Russian energy imports on their own terms. Bulgaria and Poland have already been shut out, and German companies are ready to make their payments on Putin’s terms. Uniper, one of Germany’s top Russian gas buyers, is ready to meet Gazprom’s new terms for payments. Gazprombank, where several European companies are opening second accounts to meet the euro/dollar to ruble payment requirement, is not on the list of Russian banks sanctioned by the EU. However, any attempt to circumvent these sanctions is still a risk.

The European Commission has warned that paying for Russian gas in rubles would amount to a breach of EU sanctions on Russia. Germany’s economy ministry, however, does not think that special accounts in the Gazprombank would breach sanctions if payments are made in euros or dollars. Long story short, Europe is divided over what constitutes a breach of sanctions ever since Putin threw a curveball over the nature of payments and Germany is receiving most of the bad press over this European inability to jettison Russian energy imports. Thus, to see that as a Nato ally and EU behemoth, the onus lies on Berlin to lead with example, topped with the realisation that this new rule does not apply universally, it is obvious that Germany would likely be a little sour that India would not board this torture train with it. However, the geopolitical realities run counter to black and white assessments of the matter. Where was Germany, or the EU for that matter, when the armies of China and India clashed in the Galwan valley in the summer of 2020? It was busy finalising the EU-China Investment Treaty. The West also failed India when Afghanistan was left defenceless for the Taliban and its Pakistani brokers to take over and alter the security dynamics of its neighbourhood.

Therefore, the pragmatic thing to do would be to let bygones be bygones, and work on areas of shared interest. And that is what India and Germany plan to do. This is a significant breakthrough for India-EU relations and may pave the way for fruitful outcomes in the years to come.

Read all the Latest News , Breaking News and IPL 2022 Live Updates here.

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US stocks higher on tech-rally, bond yields spike, gold tumbles, oil gains http://www.nordbi.org/us-stocks-higher-on-tech-rally-bond-yields-spike-gold-tumbles-oil-gains/ Mon, 02 May 2022 23:24:25 +0000 http://www.nordbi.org/us-stocks-higher-on-tech-rally-bond-yields-spike-gold-tumbles-oil-gains/

Asian equity markets are set to open lower despite a positive close in US stocks overnight. Wall Street swung off session lows and finished higher as tech shares rebounded despite further spikes in US bond yields. The 10-year US treasury yield briefly topped 3%, the highest since 2018. The rebound was fuelled by merging dip-buys as broader markets reached fresh year lows ahead of the FOMC meeting later this week when the Fed is expected to raise the interest rate by 50-basis points and commence its balance sheet unwinding. Investors may also seek high-quality growth assets to offset 40-year high inflation.

Australia and New Zealand day ahead

SPI futures fell 0.34%, pointing to a lower open on the ASX. On Monday, the ASX 200 fell as mining and energy companies sank ahead of the RBA meeting today. The Reserve Bank is expected to raise the interest rate for the first time in 12 years, while bank stocks rose as the local bond markets sold off amid fears of rising rates. The major banks, including NAB, ANZ, Macquarie Group, and Westpac are to report the half-year results this week and next week.

The NZX 50 rose 0.37% at the open. Local markets may take a ride on the US markets’ rebounding overnight. However, surging bond yields in both Australia and New Zealand could continue to apply pressure on local property stocks, with the Kiwi Property Group Ltd down 13%, Fletcher building falling 20%, and Goodman Property Trust sliding 22% from their January highs respectively.

US and EU stocks

The Dow Jones Industrial Average was up 0.26%, the S&P 500 climbed 0.57%, and the Nasdaq advanced 1.63%.

Growth sectors led broader markets gains, with Meta Platform up 5.3%, Microsoft rising 2.46%, and Alphabet climbing 2.11%. The chipmakers’ shares jumped ahead of the earnings reports, both Nvidia and Advanced Micro Devices up more than 5%. 

Energy stocks also outperformed as oil prices rose amid supply concerns. Occidental jumped near 6%, Chevron was up 2% and Exon Mobil advanced 1.5%.

All major banks’ shares also finished higher. Most of the other sectors, however, closed lower amid global economic headwinds.

European major indices finished lower on thin liquidity due to a public holiday. The selloff was triggered by a single trade of Citigroup targeting the Nordic markets, according to CNBC. The Stoxx 50 was down 1.85%, CAC 40 slid 1.66%, DAX fell 1.13% and the FTSE 100 was closed. 

Commodities

Crude oil prices gained on ongoing supply concerns as EU is close to reaching an agreement to ban Russia’s oil. Traders are also keeping one eye on the upcoming OPEC meeting on Thursday. WTI crude futures were up 0.43%, to US$105.12 per barrel, and Brent futures were up 0.44%, to US$107.50 per barrel.

The natural gas price jumped 4.18%, to US$7.48 per MMBtu on accelerating geopolitical tensions as Russia halts supply to Poland, while EU members refused to make payment in Rouble.

Precious metals tumbled on spiking bond yields which further strengthened the USD. NYMEX gold futures plunged $48.60, to US$1,863.10 per ounce, approaching the next support level at $1,840. Silver was down 1.74% to US$22.68 per ounce but bounced off the day-low at $22. 11.

Currencies

The USD index hovered around a two-year high above 103, while all other major currencies weakened against the greenback. USD/JPY consolidated above the 130-mark, a 20-year high. EUR/USD moved into a very tight range between 1.0504 and 1.0562 in the last three trading days. USD/CHF spiked to a fresh high two-year high at 0.9786.

All commodity currencies were also lower against the US dollar. AUD/USD fell slightly to 0.7055. It is widely anticipated that the RBA will raise the cash rate by 15 basis points later today, which could reverse the course of an oversold Australian dollar.

Treasuries

The broader bond markets sold off sharply ahead of the FOMC meeting as it is almost certain that the Fed will raise the Fed funds rate by 50-basis points and let its securities to run off. Inversely with the price, US bond yields spiked. The 10-year US Treasury yield rose to 2.99% after briefly topping 3%, the highest since December 2018. The 2-year Treasury yield surged to 2.73%. Both US 5-year and 30-year bond yields topped 3%, traded at 3.03% and 3.00% respectively.

The Australia 10-year bond yield rose to 3.30%, the highest since November 2014, as the local bond markets were hit by a highly expected hawkish move by the RBA later today. The New Zealand 10-year bond yield spiked to 3.76%, the highest since June 2015.

Cryptocurrencies

Leading cryptocurrencies were slightly up in the last 24 hours. Bitcoin rose 0.99% to $US38,676 and Ethereum was up 2.21%, to US$2,860. Both Bitcoin and Ethereum fell more than 20% from their year highs at the start of April.  The whole markets cap for Cryptocurrencies slid to US$1.73 trillion from above $1.8 trillion last week.  

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

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Danske Bank A/S (DNSKF) CEO Carsten Egeriis on Q1 2022 Results – Earnings Call Transcript http://www.nordbi.org/danske-bank-a-s-dnskf-ceo-carsten-egeriis-on-q1-2022-results-earnings-call-transcript/ Fri, 29 Apr 2022 19:11:00 +0000 http://www.nordbi.org/danske-bank-a-s-dnskf-ceo-carsten-egeriis-on-q1-2022-results-earnings-call-transcript/

Danske Bank A/S (OTCPK:DNSKF) Q1 2022 Earnings Conference Call April 29, 2022 2:30 AM ET

Company Participants

Claus Ingar Jensen – Head of Investor Relations

Carsten Egeriis – Chief Executive Officer

Stephan Engels – Chief Financial Officer

Conference Call Participants

Jakob Brink – Nordea

Mats Torstendahl – SEB

Maria Semikhatova – Citibank

Sofie Peterzens – JPMorgan

Jan Erik Gjerland – ABG

Martin Gregers Birk – Carnegie

Johannes Thormann – HSBC

Jacob Kruse – Autonomous

Robin Rane – Kepler Cheuvreux

Claus Ingar Jensen

Good morning, everyone. Welcome to the conference call for Danske Bank’s Financial Results for the First Quarter of 2022. Thank you all for taking the time to listen in on this call today. My name is Claus Ingar Jensen and I am Head of Danske Bank’s Investor Relations. And with me today I have our CEO, Carsten Egeriis; and our CFO, Stephan Engels.

Slide one please. In today’s call we will present Danske Bank’s financial results for the first quarter of 2022. We will aim to keep this presentation to around 30 minutes. And after the presentation we will open up for a Q&A session as usual. And afterwards, feel free to contact the Investor Relations department if you have any more questions.

I will now hand over to Carsten. Slide two please.

Carsten Egeriis

Thanks, Claus. Let me start by making a comment to the company announcement we published yesterday, about our decision not to distribute dividends in connection with the announcement of our interim report for the first quarter of 2022. This is done in order to ensure prudent capital management, as we have now entered into initial discussions with US and Danish authorities in relation to the Estonia matter.

Our decision yesterday is consistent with our announcement in February 2022 and I’m not able to share any more details about the discussions with US and Danish authorities, which are confidential. However, we are not yet able to reliably estimate the timing, the form of resolution or the amount of a potential settlement of finance, which is likely to be material.

That said, I will now, together with Stephan, comment on our financial results for the first quarter, which was published this morning. Despite the tragic events in Ukraine following the Russian invasion in February and the accompanying effects on the outlook for the global economy, we at Danske Bank have had a satisfying start to the year.

As I mentioned during our conference call in February, we ended 2021 in a positive way, as we started to benefit from several green shoots, all supporting increased business momentum in many areas of Danske Bank.

I’m pleased that also in the first quarter, we’ve continued on this positive trajectory, with improved commercial progress in our core banking activities. I’ll provide more detailed comments for each of the business units later in this call.

The first quarter also marked the period in which the remaining restrictions caused by the pandemic were lifted and economic activity remained at a high level. However, we also saw potential capacity constraints in the labor market and also rising inflation from the levels we saw already in the fourth quarter.

Russia’s invasion of Ukraine fueled an acceleration of the supply chain and energy supply issues. The situation is unlike anything we’ve seen for decades and the uncertainty about how this will affect the economies and our customers remains high.

The significant investments that we’ve made to enhance our financial crime prevention and our compliance resilience over the past years have enabled us to respond swiftly to quickly changing environment.

The sanctions implemented in response to Russia’s invasion of Ukraine are complex and expensive and have impacted a number of businesses in operators in various ways across the Nordic countries. And as a trusted financial partner, we’ve diligently focused on managing sanction risks, while helping our customers navigate through this changing landscape.

In this turbulent environment, we saw good commercial progress, driven by strong customer activity and our initiatives in many segments of our business. Despite a slowdown in our capital markets related business from a very high level last year, overall transactional activity, including remortgaging, was high.

Adjusted for the fair value effect of loans at Realkredit Danmark, lending was up 2% from the same period last year, due primarily to demand from our corporate customers. And the good progress we’ve seen within our sustainability offerings continued in the first quarter. We’ve improved our green offering to personal customers and we’ve maintained our position as a top ranked arranger of sustainability linked finance.

Financially, we saw progress in our net interest income due to positive effects from higher volumes and pricing initiatives, whereas fee income maintained the strong level from last year benefiting from a diversified business mix.

Turbulent and difficult financial markets had an adverse impact on net trading income, due mostly to value adjustments, whereas customer activity and trading income from our business units held up well, relative to the same period in 2021.

However, income from insurance business came in significantly lower, despite a positive development in the underlying business. In terms of operating expenses, we continue to make structural progress by reducing underlying costs despite continually high cost for remediation and AML. The cost-to-income ratio came in at around the same level as in the preceding quarter and higher than the level for the same period last year, mainly because of lower income.

Credit quality remained strong with loan impairment charges at a low level as our customers’ financial position remained healthy and we saw limited impact from adjusted macro models in the first quarter and continue to have a prudent post-model adjustments in place. And Stephan will comment on the financial results in more details later on this call.

Despite the somewhat higher degree of uncertainty for the economies, we maintain our outlook for a net profit of between DKK13 billion to DKK15 billion for the full year subject to uncertainty and does not include any effect from a potential settlement of the Estonia matter in 2022. Stephan will as usual comment a little bit more on the outlook later on the call.

Let’s have a look at our business units in the first quarter. Slide 3 please. At Personal and Business Customers, we started the year strongly with good activity and improving income across all lines. NII benefited from a growing credit demand and the additional impact of the deposit repricing initiatives that we’ve taken. In general, we saw a strong development for fees across segments particularly within business customers, which also benefited from price initiatives to further encourage the use of digital channels. And in personal customers Denmark, we saw seasonally high refinancing activities combined with good contribution from remortgaging and also general high activity from healthy consumer spending.

With the necessity of the green transition becoming increasingly more important for our society, we continue to implement products and solutions for all our customers for example, through new loans that give personal customers an incentive to change their heating source and further also investing in our advisers’ ESG abilities. We continue our challenger strategy in our personal customer Nordics business, with a positive trend in home financing meetings and also approval of mortgage applications in Sweden, which has supported the trend in lending.

For business customers, we have strong relations with our customers. And although strong credit demand came primarily from our large corporate clients, we continue to increase ancillary business with SMEs across our other offerings where especially cash management and also FX product categories showed a strong development from the same period last year. And as part of our tiered service model, we continue to enhance our allocation of resources through the investments that we make in our digital solutions. So in the first quarter this resulted in a further improvement of relationship managers’ ability to fully approve credit applications for small businesses digitally, which now accounts for 60% of our approvals.

So coupled with good traction and further innovative digital offerings, we’re really excited about the opportunities that lie ahead. And we now also welcome Christian Bornfeld and Johanna Norberg to the executive leadership team as the new heads of our new personal customers and business customers unit, with the aim of really fine-tuning our focus with a dedicated split of P&BC and this takes effect on Monday.

Slide 4 please. If I turn to LC&I, we continue to build on our strong relationships with our customers as a leading wholesale bank and have been able to support customers through a wide range of product offerings and advisory services, which resulted in our financial performance holding up well despite the volatility that characterized the quarter. And in particular, we saw a strong development for lending volumes, which increased 4% from the same period last year. And this was driven both by our activities in Denmark and in line with our strategic priority in Sweden as well.

Together with our leading everyday banking solutions this volume growth mitigated the lower activity seen in capital markets where primary markets slowed significantly during the quarter. Asset under management saw a decline in the quarter, due to financial markets correction. However, AuM was supported by continued constructive net sales and our efforts to strengthen investment products including also award-winning sustainability offerings. So even without adjusting for a landmark ECM transaction last year, our diversified business model resulted in NII and net fee income combined being stable in the quarter despite the volatility and the negative effects of the decline in AuM. As volatility hit the financial markets, we supported our customers with risk management expertise, which underpin trading income, despite the challenging market conditions. And so when excluding negative value adjustments, trading income at LC&I declined 14% from the same period last year. However, net trading income rose 29% compared to Q4.

Next slide please. Let’s briefly take a look at our insurance activities in Northern Ireland. At Danica, the result of the first quarter came in significantly lower than both the year earlier level and the level in the preceding quarter and the turbulent financial markets had a negative impact on the investment results on life insurance products, where Danica holds the investment risk as well as on the investment result in health and accident business. And in addition the result from the health and accident business, included a negative valuation effect from an adverse development in hedges relating to inflation risk.

The underlying business saw a positive development in the first quarter, due to a continued growth in premiums from the same period last year as well as the health and accident business where our preventive efforts have contributed to a decline in new cases. And in Northern Ireland, the core banking operations performed well with NII and fee income combined up 16% from the same period last year, supported by sound underlying activity, higher U.K. rates and also diligent pricing adjustments.

This positive development was, however, offset by trading income being affected by mark-to-market adjustment of interest rate hedges. And given the nature of this hold-to-maturity hedging, this adjustment is however expected to reverse in the future.

So before I hand over to Stephan, let me round up by saying that, all-in-all, I’m confident with the increased progress we’ve made in the first quarter across all our business segments. And despite the fact that in many ways the first quarter was a turbulent one, we have as we saw during the pandemic benefited from our diverse and our resilient business model and have been able to focus on continued execution of our 2023 plan.

Next slide please, and then I’ll hand over to Stephan.

Stephan Engels

Yes. Thank you, Carsten. As Carsten just mentioned, we had a satisfying start of the year on the back of good progress from the end of 2021. Our income from core banking activities performed well and was in line with expectations. NII was up 3% from the same period last year, as deposit repricing initiatives and higher volumes more than mitigated the margin pressure we saw from primarily higher funding rates in Norway.

NII was up 1% from the preceding quarter, despite the negative day effect as a result of yet another quarter with an increase in lending and a positive impact on deposits from recent repricing actions and higher short-term rates. Net fee income was in line with the level in the same period last year, when fee income benefited from strong customer activity and one significant ECM transaction in particular. The slowdown we have seen in primarily income from our capital markets business was almost fully mitigated by higher activity-related income, including an increase coming from remortgaging activity in Denmark.

When comparing Q1 with the preceding quarter, fee income came in lower, primarily because of the annual booking of performance fees in Asset Management in Q4. Trading income came in lower compared to the same period last year, due mainly to valuation effects, whereas underlying income from customers held up well, despite the turbulent financial markets.

Relative to Q4, income was lower as the fourth quarter last year benefited from a one-off gain of DKK 0.2 billion. However, underlying trading income from the business units was up because of good customer activity at P&BC and LC&I.

Net income from insurance business came in lower due to a lower investment result and an adverse effect from an inflation hedge, as Carsten mentioned earlier. Other income amounted to DKK 0.7 billion for the quarter, including the previously announced gain related to the sale of our business activities in Luxembourg.

Operating expenses came in 2% above the level in the same period last year, driven by an increase in regulatory cost and elevated remediation costs. Good progress with the reducing underlying costs as well as lower transformation costs mitigated part of the increase. I will comment on the cost development in more detail later on this call.

Loan impairment charges amounted to DKK 0.2 billion in Q1 down from DKK 0.5 billion in the same period last year. The level continues to be well below a normalized level, confirming over strong credit quality and our very limited direct exposure to Russia and Ukraine. We continue to have sufficient buffers in place, which I will also comment on later. Net profit for the period thus amounted to DKK 2.8 billion, down from DKK 3.1 billion for the same period last year.

Next slide please. Now let us take a closer look at the underlying development in the net interest income for the group. For NII, we saw a good improvement compared to last year with an increase of 3%. Deposits are clearly benefiting from two factors. Firstly, the repricing initiatives for deposits we launched during 2021, and secondly, the higher short-term rates.

On the lending side, we are pleased to see the positive impact from an increase in volume whereas the negative impact of lending margins is due primarily to higher NIBOR rates as the associated pricing adjustments for customers in Norway announced this quarter awaits implementation due to the notice period.

Relative to the preceding quarter, NII was up 1% despite fewer interest days in the quarter. This development can mostly be attributed to the same factors I just explained for the year-over-year development, namely, higher volumes and margins. In addition we saw two opposite effects in Q4 related to the TLTRO and a negative one-off related to the NII impact of taxation of business travelers.

In respect to wholesale funding activities, we have as usual been active during the first quarter in order to meet our funding need, primarily by issuing covered bonds and non-preferred senior bonds. The uncertainty caused by the Russian invasion of Ukraine kept the market at low activity for a period. However, in early April, we issued a sizable non-preferred senior debt issue in US dollar confirming that we have full access to the market and we are in a comfortable position for now.

Let’s have a look — next slide please. Let’s have a look at fee income. As we have discussed on some of the previous slides, fee income maintained a strong level and came in at an almost unchanged level from the same period last year when fee income benefited from high activity driven by more benign financial market conditions.

In the first quarter of this year, we saw a more turbulent market due to rising interest rates early in the quarter and significantly higher uncertainty as a result of the Russian invasion of Ukraine. Hence, we have seen a decline in income from activities subject to financial markets’ conditions. However, this has been mitigated by strong commercial momentum in our business units.

Fees generated by investment activities were impacted by lower investment appetite among our customers. However, fees were relatively stable from the same period last year as we continue to benefit from the increased momentum on investment sales we have seen building throughout last year. When comparing with the preceding quarter, please note that, Q4 included the annual booking of performance fees of DKK 0.3 billion in Asset Management.

Both year-over-year and relative to the preceding quarter, activity-related fees were up reflecting the strong underlying economic activity and now exceed the level before the pandemic. In combination with our own customer initiatives, this translated into higher customer activity, for example, through corporate daily banking services and was further supported by adjustments to our fee structure for corporate customers.

For lending and guarantee-related income, we also noted higher activity driven by remortgaging activity and the semiannual refinancing of FlexLån. The higher long-term rates resulted in strong interest for remortgaging among our personal customers in Denmark. And the good traction we have seen recently for our FlexLån mortgage product further added to remortgaging activity.

Next slide please. Trading income came in at DKK 0.6 billion for the quarter, significantly impacted by market value adjustments of group treasury’s mortgage bond portfolio, mark-to-market movements on an interest rate hedge in Northern Ireland and XVA adjustments in total amounting to DKK 0.5 billion.

Despite the turbulent financial markets’ customer activity held up well at both P&BC and LC&I. The combined income of the two units exceeded the level from the preceding quarter by 28% and was down 7% from a high level in the same period the year before.

When comparing trading income for the period, please note that the first quarter of last year as well as the preceding quarter included one-off gains from the sale of VISA shares and Aiia.

Next slide, please. Now let’s take a look at our operating expenses. The headline number came in higher than the same period last year, due mainly to the planned ramp-up of AML compliance, we implemented last year and continually elevated cost for remediation of legacy cases.

In addition the new Swedish Bank tax and in-sourcing of IT explains the increase. We continue to see an improvement in underlying costs in the form of lower staff costs as a result of decline in the total numbers of FTE of 3%, driven by a decrease in non-financial crime FTEs of 6% since the peak in 2020.

Lower costs for our transformation which is progressing according to plan also contributed to the decline in costs from the same period last year. If we look at the quarterly development the continued progress on structural cost reductions more than absorbed the introduction of the Swedish Bank tax and continue elevated remediation costs. The seasonal decline in performance-based compensation we normally see in Q1 was partly offset by a reversal of severance pay in the preceding quarter.

Next slide please. Turning to credit quality and impairments. Our direct exposure to Russia and Ukraine is very limited and we therefore continue to see an improving trend in credit quality and impairment charges below normalized level. Actual single-name credit deterioration and individual impairment charges remain very modest. And despite added macro model charges and additional post-model adjustments to account for the current uncertainty, we ended the quarter with an annualized loan level of five basis points for the group.

While some sectors will undoubtedly be impacted by the rapidly rising inflation and the economic implication from the war in Ukraine, we remain comfortable with the quality of our loan book. We have done a diligent bottom-up review of exposures that might be impacted by second order effects and will continue to prudently assess our portfolios. With the current uncertainty we have made prudent adjustments to our macro scenarios which drove the additional DKK 0.4 billion impairments this quarter which is in line with the level we saw in Q4 that was ascribed to the uncertainty at the time related to COVID-19 restrictions and the Omicron lockdown risk.

This uncertainty has clearly been reduced since. And as such parts of the post-model adjustment that was put in place to cover COVID-19 related tail risks have been repurposed towards segments particularly affected by the global tension with an additional add-on of DKK 0.2 billion. With that we ended the quarter with provisions of around DKK 1 billion for any Russia and Ukraine impact not yet measurable on single name level or captured in our macro models. In addition we have kept around DKK 1 billion for any COVID-19-related tail risks that could emerge.

So overall, we remain comfortable with our well-provisioned position and the additional PMAs we have put in place to account for the current uncertainties. While we expect impairment levels to normalize going forward, we are reassured by the robust household finances and the lower LTV ratios, which we see across the Nordic countries coupled with our specialized risk officers in place to cover the more complex parts of our portfolio and the significant derisking of our balance sheet in recent years for example in relation to oil and gas support our view of a normalized loan level loss loan level of around eight basis points.

Next slide please. Now let’s take a look at our capital position. Our total capital ratio decreased due to the recent call of AT1 capital. Our reported CET1 capital ratio decreased slightly to 17.6% as the increase from retained earnings and lower REA were offset by an increase in deductions related to Danica and a small increase in intangible assets.

REA came down slightly in the first quarter as the increase in market risk following higher volatility in the financial markets in Q1 was more than mitigated by lower credit risk. In our capital planning, we remain mindful of the regulatory landscape including the announcement to raise the Danish countercyclical buffer to 2.5% by the end of Q1 2023.

Danske Bank’s leverage ratio was 4.7% according to transitional rules and 4.6% under fully phased-in rules. Next slide please. Finally a comment on the outlook for 2022, as Carsten mentioned, at the beginning of this call we confirm our outlook for net profit between DKK13 billion and DKK15 billion. As it appears from the financial report we have presented today, we see a good traction on our income from core banking activities, a stable cost development and the continuation of loan impairment charges below a normalized level.

As the observed decline in income from insurance business and net trading income was predominantly caused by value adjustments, we remain confident in our ability to meet the outlook for the full year. However, it remains clear that the ongoing geopolitical tension and the potential risk from the pandemic are both factors that could further affect economies.

Consequently the outlook is of course subject to a high-degree of uncertainty and limited visibility, and does not include any effect from a potential settlement of the Estonia matter in 2022. Next slide please, and over to Claus.

Claus Ingar Jensen

Thank you, Stephan. Those were our initial comments and messages. We are now ready for your questions. And please limit yourself to two questions. If you are listening to the conference call from our website, you are welcome to ask questions by e-mail.

And finally, a transcript of this conference call will be added to our website in the — within the next few days. Operator, we are ready for the Q&A session.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Jakob Brink from Nordea. Please go ahead.

Jakob Brink

Thank you and good morning also from my side. I have two questions. The first one is on costs please and your guidance of around DKK25 billion. Our costs were a little above consensus and my expectations in the first quarter.

Also looking at the sort of the cost split over the past two years, it’s been somewhat lower share in the first quarter than this year. Why is it that you think DKK25 billion is still the level? Is there any sort of big sort of, AML-related costs in the first quarter that would fall away in the next three quarters or anything else you can help us with here?

And my second question is on, loan losses. I see that your Stage 3 loans are coming down in the quarter. We’ve seen the same in other banks, obviously still strong credit quality. What should we expect do you think for the remainder of the year, regarding P&L provisions? Will you keep reducing the COVID buffer to offset potential provisions or move more to the Ukrainian buffer, or what should we expect? Thank you.

Carsten Egeriis

Yeah. Hi Jakob thanks for your questions. Let me just briefly touch on the asset quality questions. And then, I’ll hand over to Stephan on the cost question. We still see in our asset quality and in our customers both across personal and business quite benign asset quality trends.

There’s no question of course that there is uncertainty but we’re not seeing any concerning trends in our books, as we look today. And I think from a corona perspective, we’re right in the middle now of seeing how the — particularly in Denmark how the corona loans phase out. The first loans were due here in April. Again, we don’t see any material concerns at this stage.

So I would expect that during the second half of the year you would slowly see a further phasing out of the corona buffer if you will. I think in terms of the global tensions post-model adjustment that we put forth of about, DKK1 billion that is still highly uncertain.

So we’ll have to wait and see how things play out. But again, I’d reiterate that we have very limited exposure as such of course to the war in Ukraine and to Russia — Ukraine more generally. And that’s also why we call it a global tensions post-model adjustment, because it is — it is there for more general concerns which we don’t really see anything come through in our book at this stage and then, on costs?

Stephan Engels

Hi. Jacob, I would make to call it pretty simple comments. One is there is obviously further plans for to take cost takeout throughout the year, as much as I do agree with your seasonal argument in a way. And also keep in mind that, in Q1 we have seen costs up partly to in-sourcing of IT that has had some call it one-off start investment that we don’t think is recurring. So that’s why we still believe that our cost trajectory is fully in place.

Jakob Brink

How much has that — those one-off costs been please?

Stephan Engels

It’s roughly DKK80 billion — million, sorry.

Jakob Brink

Sorry?

Stephan Engels

Roughly DKK80 million, sorry.

Jakob Brink

Okay. Yeah, DKK80 million. Okay. Thank you. And just on the losses Carsten. Is the — you said that you would potentially phase out the COVID buffer in the second half of the year. Given the uncertainty, do you think you’ll continue to be adding them to the Ukraine buffer, or do you think the likelihood of reversals as last year?

Carsten Egeriis

Yeah, I think that’s a very difficult question to answer Jakob. So I’m going to remain cautious and say I’d like to wait and see how the current macro tensions and uncertainties play out in Q2.

Jakob Brink

Okay. Fair enough. Thanks a lot.

Operator

And the next question comes from the line of Mats Torstendahl from SEB. Please go ahead.

Mats Torstendahl

Yes. Good morning and thank you. Looking a little bit into NII sensitivity since that’s a major topic among the Nordic banks. How do you see — first of all, we got the rate hike in Sweden yesterday? Do you have any estimates for your interest rate sensitivity related to the rate in Sweden? And also how is the path in Denmark considering that the ECB would move a little bit later during this year regarding repricing of deposits et cetera. I know the modest product, but on the deposits with the pricing charges there if you could allude on that? Thank you.

Carsten Egeriis

Yeah. Hi, good morning Mats. Just on NII more generally, we look at a 25 bp increase and this is mostly really driven by ECB and DK rates a 25 bps increase in rates would probably give around DKK500 million to DKK600 million all else equal of NII. Just to state that first of all and that’s for the next 25 bps. Then we would expect subsequent increases to be around DKK800 million of NII sensitivity. Just so you all have that as sort of a high-level view.

Then your question on Denmark and then I’ll come to Sweden at the end. Your question on to what extent rate expectations and rate moves would change pricing on deposits as I understood your question. And clearly I can’t say anything about future pricing. But, obviously, current rates in Denmark are still negative and short rates are still negative. And we haven’t charged negative rates to our customers for a long time and roughly two-thirds of our deposits are still not covered by negative interest rates in Denmark.

Clearly as rates potentially increase and there is of course a likelihood that euro and DK rates will increase towards the end of the year and into next year then we would look at how we reflect that both in deposits as well as in lending rates. But too early to say anything about that. And then on your Sweden question, we don’t disclose NII sensitivities for Sweden.

Mats Torstendahl

Okay. Thank you. Regarding these investigations in, yeah, especially the US you say it likely could be material whatever that means. And we can do the calculation backwards, yes, in terms of capital requirements and where you are et cetera. But how much do you — have you stated anything, how much could you withstand in terms of a potential size, if we really paint a bearish picture here. Have you estimated that or said anything?

Carsten Egeriis

No. I mean first of all and I know this is not what you’re asking directly, but I might as well say it. So it’s out that I can’t say anything about the timing, the outcome or the amount of any potential settlement or fine. And then to your second question, we haven’t done — to your direct question we haven’t done any direct calculations of the nature that you mentioned there. But obviously, we disclosed our capital and our minimum requirements and so forth.

Mats Torstendahl

Okay. We take it from there. Okay, thank you.

Carsten Egeriis

Thanks.

Operator

The next question comes from the line of Maria Semikhatova from Citibank. Please go ahead.

Maria Semikhatova

Yes. Thank you. A couple of questions. From my side, first on costs. You recently noted that the resolution of legacy issues is likely to be delayed beyond 2023 and that you are now looking into alternative approaches. Just wanted to check with you what it means for the outlook of remediation costs. If I’m not mistaken you previously guided that remediation costs should amount to DKK 400 million this year and then dropped to zero in 2023. That’s the first question.

And second just was wondering on outlook for Danica earnings. I think previously you said that normalized is around DKK 1.5 billion to DKK 1.7 billion. So just given the results of the first quarter what you think would be the appropriate level for this year? Thank you.

Carsten Egeriis

Yes. Thanks, Maria. Yes, on the remediation costs around the debt collections case which I believe was your question a little difficult hearing it just at the start. But we guided to higher remediation costs. They’re probably a little bit higher in Q1 than expected also because of the increased magnitude of the case.

But we are looking as you also alluded to at alternative solutions to basically address and get the case resolved towards our customers. And therefore, we don’t believe there is an impact to our 2023 cost guidance which I think was your question. And then Stephan, I pass over to you on Danica.

Stephan Engels

Yes. Let me maybe shed some light on what impacted the quarter. Simply speaking with — in total like call it DKK 600 million. There was probably one-third related to inflation hedges that we have put in place to meet future liabilities mainly for the loss of ability to work insurance in our health and accident segment. These inflation hedges are not completely available in DKK. So they are also taken out in euro since inflation expectations at the end of Q3 between several countries in Europe have been quite widely apart that has led to this valuation effect.

We would expect that to come back or at least normalize to a certain level over the coming quarters, one-third was basically related to widener of credit spreads on our interest rate hedges. As these hedges approach maturity they also would by definition start to come back over time. And around one-third is from financial market correction which is — in our asset allocation. This is where Danica has the investment risk and where we need to see how the market develops throughout the rest of the year. So to sum it up our underlying performance assumption for Danica still is around DKK 1.5 billion. It now remains to be seen how much of the mentioned effects will come back through the year and how much possible further deterioration might come from our asset allocation risk.

Maria Semikhatova

Thank you. Just to quickly follow-up on the remediation costs. I understand your outlook for 2023 — but is it fair to assume that this year these costs are likely to increase above your expectations given your efforts to speed up the cases?

Carsten Egeriis

As I said the costs were slightly higher in Q1. I think it’s too early to say what the impact is. As I said we’re looking at alternative approaches and we’ll come back as soon as possible on that.

Maria Semikhatova

Okay. Thank you.

Operator

Next question comes from the line of Sofie Peterzens from JPMorgan. Please go ahead.

Sofie Peterzens

Yes. Hi. Here is Sofie from JPMorgan. So just a quick follow-up. In terms of the NII that you make on the negative deposits I understand one-third of your deposits are — only have negative rates. But could you remind us how much of your annual net interest income comes from the negative deposit base that you currently have? And then my second question would be, around your dividend outlook. Yesterday, you said you’re not good to say that, at the first quarter dividend – interim dividend, how should we think about the further interim dividends? Should we expect them to be canceled as well, or is first quarter got a one-off? And how should we kind of think about the interim dividends? That would be for me.

Carsten Egeriis

Hi, Sofie, thanks. On the further interim dividends, again, can’t say anything about the timing the outcome or the amount of the potential settlement fines and any potential dividends are at – subject to a decision by the Board on a quarterly basis. So I can’t say anything other than that. Then I think your question on NII, was specifically whether we disclose, or can say anything about the income that we receive on the roughly a-third of DK deposits that are impacted by negative rates. And I’m not sure, we disclose that, but can I just – Stephan, do you want to comment?

Stephan Engels

I think at some total of our deposit re-pricing initiatives across P&BC and LC&I, we have also quite done something. We have disclosed DKK 400 million to DKK 500 million last year on several equations. But you need to keep in mind that that has been factored in and only covers for P&BC a-third as Carsten just mentioned.

On a more general note, I think you need to keep in mind that, the rate hikes will obviously have different effects on different currencies. As Carsten said, our main sensitivity is probably around the euro and the DKK part. And you need to keep in mind that you will see different levels of impact on segments. LC&I probably who still kind of benefits from the flawed loan agreements will see a lesser to neutral effect, whereas P&BC from deposit re-pricing might or might not see a positive effect also obviously being a reflection of how the market will react to any changes in pricing.

Sofie Peterzens

Sorry, just a quick follow-up on the negative deposit rates, because I think last year you at least guided for two times DKK 500 million more in NII from the negative deposit rates. So, I’m just wondering, where the DKK 500 million then disappeared from one of those kind of – initiative?

Stephan Engels

The DKK 500 million will not disappear. You will see that in a year-over-year effect, but it will also affect Sofie, the sensitivity going forward, because last year we were looking at a DKK 800 million sensitivity for a 25-bps shift, this year we will as Carsten mentioned earlier we will more go to DKK 500 million to DKK 600 million, because some of that has obviously been captured by quite some measures and also some smaller rate hikes in Norway and Sweden as per yesterday.

Sofie Peterzens

But, didn’t you introduce that negative rates first time in January 2021 and the NII of DKK 500 million. And then you had a further negative rate introduction in mid-2021 which was another DKK 500 million. So I mean, just kind of struggling a little bit to get at that DKK 1 billion versus your DKK 500 million to DKK 600 million NII improvement from a 25-basis point hike?

Stephan Engels

No. I think the confusion might be that, when we gave the effects of these re-pricing measures, we clearly said, there is a full year impact which we will only see in 2022 and that is what we are also seeing in Q1, and there was obviously a smaller effect than last year, because measures only kicked in throughout the year and only come to full effect this year.

On top of that, we are seeing rate hikes for example in Norway, and as of yesterday also in Sweden. And part of the measures that we have taken throughout the 2021 decisions plus the rate hikes that you have seen over the last couple of weeks, including for example UK, obviously, eat a bit into the sensitivity for the 25 basis parallel shift concept where we expect DKK 500 million to DKK 600 million rather than DKK800 million. So there’s quite some upside still from rate hikes. And as Carsten mentioned, there is a different call it sensitivity between the first 25 basis points amongst other things reflecting flaw for example that we have a loan agreement then with the next 25 basis points which will then go up again to DKK800 million.

Sofie Peterzens

Okay. And could you maybe — sorry just a quick follow-up. In your annual report, I think you have the rate sensitivity is negative DKK1.5 billion for 100 basis points increase in rates. So how does that then [Technical Difficulty] the guidance DKK500 million to DKK600 million for the first 25 basis points and then DKK800 million for the subsequent rate hikes?

Claus Ingar Jensen

Yeah. I think — this is Claus, Sophie. I think you should be careful because the rate sensitivity you are referring to is under the risk management part and where we apply completely different assumptions — so the DKK1.5 billion negative is essentially based on a gone-concern view. So that is — as I said this is from a risk management point of view whereas the DKK500 million to DKK600 million replacing the previously DKK800 million guidance is in a…

Stephan Engels

Constant balance sheet most basically.

Claus Ingar Jensen

Exactly. Yes.

Sofie Peterzens

But I mean what assumptions do you then have for the DKK500 million to DKK600 million that you repriced all the loans and nothing on the deposit side?

Stephan Engels

No. I think let’s reflect back, Sofie. These 25 basis point rate shift sensitivities were originally kind of driven by regulatory prudency questionnaires. And that assumes simply no change in customer behavior, constant balance sheet and a number of other things and obviously some pass-through assumptions that you make. And in that sense I think it is a bit of a theoretical concept to begin with. And I think if you look across the market, there is very different views on what this will do and these very different views in many cases reflect also the different business models which obviously have different sensitivities. And again, if you look at Danske Bank, there is obviously a higher sensitivity in call it our Danish business because we are structurally over funded by deposits given the way the Danish market is set up and that makes for quite some sensitivity in this market. Part of that is kind of covered by our thresholds and the negative pricing. But as Carsten said two-thirds of the deposits are in that sense unpriced.

Claus Ingar Jensen

You are welcome Sofie to give us a call afterwards.

Sofie Peterzens

Okay. Thank you.

Claus Ingar Jensen

Yeah.

Sofie Peterzens

Yeah, sounds good. Thank you.

Operator

Your next question comes from the line of Jan Erik Gjerland from ABG. Please go ahead.

Jan Erik Gjerland

Thank you. It’s regarding Northern Ireland and the hedges you have in trading. Should we think about those to anywhere towards the net interest income and see that that is in a comparison versus the trading? So the NII could sort of overstate it versus your trading loss? That’s my first question. And just to clarify on the NII sensitivity. I see two-thirds in the personal customer and SME division rather than in the large corporate division that is sensitive to your Danish interest rate changes? Thank you.

Carsten Egeriis

Hi, Jan Erik. No on Northern Ireland I mean you should simply these are interest rate hedges that normally would be hedge accounted, but are not due to the systems that we have in Northern Ireland, so they’re mark-to-market and you should look at it in the sense that this income will come back over 2022 and into I guess early 2023. And then on your NI sensitivity question, the two-third is really focused on the personal customer book in Denmark. So it doesn’t impact the business banking book and it doesn’t impact the large corporate and institutions book.

Jan Erik Gjerland

Okay. Very clear. Thank you.

Claus Ingar Jensen

So to put it in another way all deposits in Denmark except for the two-thirds of the retail deposits are priced negative.

Carsten Egeriis

Yes. And again those are the ones where customers have under our DKK100,000 of deposits with the bank.

Jan Erik Gjerland

Thank you.

Operator

The next question comes from the line of Martin Gregers Birk from Carnegie. Please go ahead.

Martin Gregers Birk

Thank you. Just following the lines of the announcement yesterday. So, assuming this is a — assuming you guys reach a settlement this year, what would that mean for costs going forward?

Carsten Egeriis

I mean the way I would look at it Martin is that clearly there are costs associated with this case not least lawyers, et cetera. So, I mean in terms of operating expenses there will be some cost benefit, but you should not see that as a material cost benefit.

Martin Gregers Birk

Okay. Now, you only write Danish and US authorities in the company announcement yesterday. So, should we still interpret that as other authorities that are involved in this there is still — you guys are still waiting for them?

Carsten Egeriis

Yes, I mean again I can’t comment on discussions with authorities. They are confidential by nature. So, I can’t say anything more on that Martin.

Claus Ingar Jensen

But if you go into the contingent liability section Martin, you will find what kind of authorities we have a dialogue with. That’s disclosed in that section.

Martin Gregers Birk

All right. Appreciate it. Then maybe just very final question. On — after a potential settlement, it’s also fair to assume that the DKK10 billion Pillar II relief is going to be removed and then potentially also the CET1 ratio short-term above 16% should also be maybe a percentage point lower?

Stephan Engels

I wouldn’t — that is a very — that is a question I think we can only really answer once we know what the world looks like at the end of the day. And again it’s not for us to decide on any Pillar II buffer requirements. I don’t want to give any guidance what are my expectations are. But I think that in this part, there is many moving parts and I wouldn’t start speculating on that right now to be honest.

Martin Gregers Birk

All right. Perfect. Thank you.

Operator

The next question comes from the line of Johannes Thormann from HSBC. Please go ahead.

Johannes Thormann

Yes, good morning. Johannes Thormann, HSBC. Two questions from me. First of all, on Danica. You basically put all the negative performance towards the valuation and market effects. Can you comment a bit more on the underlying or the technical result of the unit and try to put this in a quarterly and year-on-year context?

And secondly, as you canceled your dividend due to the talks with — regarding the potential fines? Will you do any acquisition before this is settled or you will only do acquisitions after the talks are finished? Thank you.

Carsten Egeriis

I think on your last question again I would see it as — if you’re talking about sort of larger acquisitions or larger activity on that front I would see it as unlikely that we would enter into that until we have more clarity on the current process. And then Stephan do you want to comment on the underlying technical results and run rate which I think you alluded to before, but maybe give a bit more detail?

Stephan Engels

Yes. The underlying performance of Danica is doing fine. We are seeing increase in premiums and asking — and your question about, whether we’re seeing risk trends we have seen far better risk trends in our health and accident part. And — so, the underlying part is really strong. It is indeed the DKK 600 million of valuations which drive the result which I alluded to earlier.

Johannes Thormann

Okay. Understood. Thank you.

Operator

Next question comes from the line of Jacob Kruse from Autonomous. Please go ahead.

Jacob Kruse

Hi. Thank you. So just two questions from me. Firstly, just on your capital you have 17.6% CET1 versus the 16% target which I think you say is, inflated a bit due to the uncertainties. But that’s about DKK 13 billion of excess capital. And then you have I guess some of the Pillar II buffer of DKK 10 billion. So just given those capital resources the decision to cut the dividend to save I guess about DKK 1.5 billion. Can we at all think about this as the sort of scope of outcome that you see in these regulatory discussions, or is there anything you can just say about, how you think about that — the capital resources that you have?

And then my second question was just on cost. I think for 2023 you’re targeting DKK 23.5 billion. Does that mean that the compliance ramp-up that you’ve done needs to be reversed? You noted that the impact on cost of a settlement may not be that material in an earlier question. Or how do we — especially given inflation that we see now how do we go from the DKK 6.3 billion quarterly run rate this quarter down to a full year DKK 23.5 billion. Thank you.

Carsten Egeriis

On the — on your capital question, again given that we can’t say anything about the timing outcome or size of a potential fine. I don’t want to comment more on the question other than the fact that, we also clearly say in the company announcement that, we do this to ensure prudent capital management given the fact that we’ve entered into these initial discussions. And that we mentioned clearly that, we cannot reliably look at any timing, the form of resolution or the amount, but also that the fine is likely to be material.

On the cost piece, I’m not sure the DKK 23.5 billion I mean the outlook on the cost this year is around DKK 25 billion, right? Were you asking on the DKK 23 billion number?

Jacob Kruse

Yes. Sorry, DKK 23 billion, so the next step from here?

Carsten Egeriis

Okay. But I guess there are several moving parts in terms of the cost out. As you said there are some reductions in compliance as part of that cost reduction. There are reductions planned from a remediation perspective. And then there are underlying costs so a continuation of the reductions in salary costs, driven also by the automation and digitization efforts that we continue to see quarter-on-quarter for example, now that we can open up automated account opening in the mobile bank here in Q1 is a good example of how we’re freeing up frontline resources. And then there are also cost savings on non-salary cost of premises and other costs. So, that would sort of be the main components driving the cost from the around DKK 25 billion to the DKK 23.5 billion.

Jacob Kruse

Okay. And just, back to just, I understand you can’t comment on the size of the fine. But would you agree that your — at least that the available capital resources are starting DKK 0.13 billion and then some potential uplift from the Pillar II buffer becoming smaller once the settlement is done?

Carsten Egeriis

I’m not sure, I understand. Again, given that I can’t comment on the outcome, the likelihood, the size of the fine, I don’t want to comment on the question. I mean, I can say more generally, when we look at our capital position as we’ve said previously, we have a strong capital position. So if that was your question, then yes.

Jacob Kruse

Okay.

Claus Ingar Jensen

I think Jacob, I think we have to refer you to the interim report, where we have put a number of what we see as being the excess capital and limited by that for now.

Jacob Kruse

Okay. Thank you.

Claus Ingar Jensen

Can we have the last question please?

Operator

The last question comes from the line of Robin Rane from Kepler Cheuvreux. Please go ahead.

Robin Rane

Yes. Good morning. Thank you for taking my questions. So two questions on NII I guess. So we saw some Nordic peers reporting benefits from the rate hikes in Norway and UK already. Is there anything of those visible in your numbers this quarter, or if not, when do you expect there to be some visible benefit from this? And then secondly, you mentioned that you called the AT1 capital. Should we expect the AT1 payments that are currently deducted from the net profit should go to zero in the course ahead? Thank you.

Carsten Egeriis

Yes. I mean, on the NII question, on Norway, there will be a lagged effect. So we will expect NII to increase in Norway as we reprice there. And the impacts in the Northern Ireland business we are already seeing and you’ll see an annualized benefit of that. And overall, we remain very comfortable with our NII trajectory. We’ve seen increases five quarters in a row now. We also note — which we also show you in the bridge that there’s less days in Q1 versus Q4. So we see good trajectory and we will see that further flowing through in subsequent quarters. And then, Stephan do you want to take the AT1 question?

Stephan Engels

And the answer to your AT1 question is, yes.

Robin Rane

Okay. Great. Thank you, very much.

Carsten Egeriis

Unfortunately, we’re just out of time, but thanks, again all for your interest in Danske Bank. And as always, you can contact Claus and our IR department, if you have any questions and look forward to speaking with some of you over the coming day and into next week. Thanks very much.

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