Dnb ASA

OTC:DNBBY

Earnings Call Transcript 2019-Q2

[Operator]

Good afternoon, and welcome to the DNB ASA Quarter 2 Presentation. My name is Ana, and I will be your coordinator for today's conference. [Operator Instructions]

I will now hand you over to Head of Investor Relations, Rune Helland, your host for this call. Thank you.

[Rune Helland, executive]

Thank you, and hello, everyone, and welcome to DNB's second quarter conference call. And around the table here in Oslo we have the CEO, Rune Bjerke; CFO and incoming CEO, Kjerstin Braathen; Benedicte Fasmer, who's the Head of the SME; and we have Ottar Ertzeid, Head of Markets, incoming CFO; and also Head of [ Life ], [indiscernible]. As usual, we will start -- Kjerstin will start today to give you some of the highlights for the quarter, and then we will start the Q and A. Thank you.

[Kjerstin Braathen, executive]

Thank you for that introduction, Rune, and a very good afternoon to all of you. Thank you for spending this time with us. To kick off my sort of key comments on the quarter, I believe it's important to address the continued very strong macroeconomic situation in Norway that we've seen continuing in strength during the second quarter as well as the outlook.

GDP estimates have been revised upwards, still very strongly driven by high investments in the corporate sector, both in the oil-related sectors as well as mainland business activities. Unemployment is continuing with its downward trend, and so I'll now talk about the opportunity of reaching 3.5% unemployment. And there was also a very positive trend related to interest rates that was revised upward for the third time in June, in the past 12-month period. It is important also to then point out that we do see some inflation pressure related to such a strong macroeconomic situation over time, and that does have an impact also on the cost situation overall.

Coming on to the quarter. Such a macroeconomic environment should and leads to a very strong performance across all of the business areas in DNB, and we see growth in accordance with plan both in the personal customers, SME and large corporate business. NII is up by close to NOK 300 million compared to the previous quarter and almost NOK 530 million compared to the same quarter last year. This is related to growth, but it's also been more than able to compensate the additional costs this year such as the increased cost in the resolution fund C that also impacts the NII, as you may recall. So a strong NII development.

Commission and fees, 3.4% up from the same quarter last year and a trailing 12-month growth that is at 5%, and we believe for the quarter a strong performance given how we see the market development and signals sent by our peers in terms of development in these various areas. We have over time worked hard to build a broader both geographic and product-wise strength related to capitalized income, and we're pleased now to see that one of the key contributors this quarter is nonlife insurance where we took steps to merge our business with a group of saving banks and have a new distribution model that is showing very promising results.

We have talked about costs through the day, and I talked about some inflation pressure. It's also important to point out that we are investing in several new business opportunities. Again, Bassadone is expanding to Finland. We have staffed up on the SME side and some on the personal customer side to sell nonlife insurance and also see a very high activity level, for example, in the SME sector over time. So it's important for us to make wise decisions in order to continue to build return on equity.

Some strengthening has also been necessary when it comes to risk and compliance. And we have seen that our activities within automation haven't fully neutralized the sum of these cost inflations in the past quarter nor in the past year. However, going forward, we expect a higher effect from the activities of automating the business and expect to be able to neutralize further cost inflation.

Losses, still very limited, slightly up compared to previous quarter but NOK 450 million for the quarter is a low level. Some of you may have seen that losses are somewhat up in the SME sector. It's important to say, though, that we're very comfortable with the quality of the portfolio here and for the rest of the group and there are no signs -- we always try to read into the numbers to see if you can detect negative trends in any of the underlying businesses, and there's nothing that we have seen that is of concern to us when it comes to that situation.

Capital is strong. We continue to build capital and are at 16.5%. I'm sure we're going to discuss capital because I'm sure you're well aware that there is a proposal on the table from the Ministry of Finance when it comes to implementing the CRR/CRD IV. If approved, as it stands now, this would lead to a net increase of 30 basis points for DNB. However, the verbal communication from the Ministry of Finance is very much in line with what they said previously, that they're looking for the bank through this transition to maintain our current level of solidity and not increase as they see the bank being solid and at acceptable level.

We have received approval for the buyback application, and our dividend policy remains the same. And we have a strong capital situation that will enable us to deliver on both cash and nominal dividend and use buybacks as a tool to pay out excess capital.

So I think with that, I will open up for questions.

[Operator]

[Operator Instructions] And we have many questions today, and the first one comes from Matti Ahokas from the Danske Bank.

[Matti Ahokas, analyst]

A clarification on the comments, Kjerstin, you made on -- in the press conference earlier today. I seem to recall that you mentioned that the repricing impact so far had been NOK 1 billion. Does this mean the full impact of the 3 rate hikes on an annualized basis? Or does it refer to the impact so far what we see in the NII?

[Kjerstin Braathen, executive]

Thank you for that question. And you're right to ask for a clarification because I didn't address this in my initial comments. And what I referred to, talking about the NOK 1 billion estimated impact, is the estimated impacts of the most recent price increase that we did in June. The effect of this price increase, both across personal customers and SMEs, is not yet visible nor in the margin, nor in the NII. It will start to take effect from August 8, so you will start to see the effect of this in the third quarter and then fully in the fourth quarter. What you see in the current numbers in the NII figures is the first effects of the rate hike prior to the one we did now, and we estimated the total aggregate effect of that to be somewhat less than the first one that we talked about, NOK 1.2 billion. And you read that across the NII number by looking at the aggregate effects of increased interest on equity, increased interest on deposits and loan as well as funding costs. And you will see that there's an effect of more than NOK 200 million. That is both pricing and volume for this quarter. But there are still more effects to come from the second -- last repricing as well as the full effect from the most recent repricing in our numbers ahead.

[Matti Ahokas, analyst]

All right. Great. That's very clear. And Rune, thanks for all these years. Enjoy your time off.

[Rune Bjerke, executive]

Thank you very much. It has been a pleasure.

[Operator]

The next question comes from Adrian Cighi from RBC.

[Adrian Cighi, analyst]

This is Adrian Cighi from RBC. Just 1 follow-up on NII and then 1 question on capital, please. On the NII, the mortgage market share, did the repricing have any impact on your amount of the fund book market share? Are you still growing the front book at the same level or higher than the back book? And then on capital. Can you maybe help us visualize the bridge to the year-end? Obviously, we have the organic capital generation, the 2 deals waiting to be closed, dividends and potential buybacks. Can you get any other upstreaming from life? Or is that a once-a-year impact? Or is there anything else that you would expect to impact capital to year-end? And then maybe just following to that, do you expect CRD II, CRD V to be implemented in Norway? And do you see any impact from the sort of capitalized IT expenses to your capital ratio?

[Rune Bjerke, executive]

Let's start with the mortgage margins and the competition in the market. It is definitely so that the gap between the front book and the back book has narrowed through the rate hikes we have seen and the price adjustments we have implemented. So it's actually a more stable situation on average when it comes to margins right now than we have before the rate hikes started in November last year. And we expect the fact that we have 3 rate hikes, potentially 2 more, to be kind of flexible inputs to our pricing policy in general, and it's much easier to target specific groups in a profitable way than it was when we had the stable flat rates.

[Kjerstin Braathen, executive]

I can try to give you some more clarity on capital to the extent I can given the fact that there is a proposal that is on the table with a hearing period until the end of September. So obviously, it will take time before we have clarity on what this picture is going to look like. But the net effect of it is if it is approved the way it's been proposed, a net increase of 30 basis points, again with different signals being sent in the verbal communication. A reminder for capital situation is roughly that we build 40 basis points of capital per quarter on earnings. And then you can review growth, which we have said we're targeting 3% to 4% growth with a higher mix of personal customer and SME than large corporates. In addition to that, we are also envisaging to close Luminor in the second half, which will give a positive effect of 30 basis points, as well as the second phase of the nonlife merger that will reduce the capital base by an additional 10 basis points. I think roughly, that is the elements that you need to pluck in and evaluate, but I think we won't have full clarity until the process has been approved. But you should tie importance to also the statements regarding the overall development that the Department of Finance is looking to achieve.

[Operator]

The next question comes from Sofie Peterzens from JPMorgan.

[Sofie Peterzens, analyst]

Sofie from JPMorgan. So I wanted to ask on Luminor. On the press conference earlier on, you mentioned that you need approvals from 6 different countries plus the ECB. Could you just give us an update on how many of the regulatory approvals you have already got? My second question would be on LCI. It's a very, very strong number that you posted in the large corporate division. On NII and fees, are there any amounts that we should view more as one-offs that are due to bridge financing or very large corporate deals that might roll off in the coming quarters? And if so, could you quantify that, please? And then my last question would be on the basis swap. Given that you had a very big positive on the basis swap, could you just remind us how much in the money you are now on the total amount of the positions that you have on the basis swap?

[Rune Bjerke, executive]

Just to start with the Luminor question, we are not giving any details regarding the concession process from our side or the owners' side. This is a question handled by the company itself, and I only mentioned the fact that we here have to deal with the 3 Baltic countries, the EU and Norway and Sweden and Finland as well, hosting the 2 banks involved and being part of the application process from the beginning. It's obviously a complicated process due to the fact that so many parties are involved, and it's also a pretty sophisticated holding structure that needs to be understood by all the implicated parties. So that's why it has taken a little bit longer than we anticipated. But we still believe the deal will be closed in second half, and we have no indications from any of the countries that this is a deal they do not want to see pass through.

[Kjerstin Braathen, executive]

I can try to comment some more on large corporates, which delivered a very strong quarter definitely, and I would say there is a very strong underlying trend also in that business. NII is at the highest level we've seen in 3 years. It's important to see that there are 2 key drivers to this: Obviously, both new businesses and growth in large corporate but also the fact they also had positive effects from the increasing interest rate environment where they get more -- better return on the capital that they are using, so to say. They have very good revenue across the corporation with DNB Markets, both on hedging activity, currency and interest as well as commodities. And also, strong results in the DCM area where there's been a record volume of issues both for investment-grade and high-yield companies.

Is there a one-off? Of course, in a business like large corporate, there are always single deals that impact the results positively. The growth can vary from quarter to quarter in large corporate, and we have seen a very strong growth in the first 2 quarters of the year. And we're saying flat to 1% growth for the year. So this can vary from quarter to quarter.

When it comes to fee generation, obviously there is a strong cooperation with markets, but that activity does depend on market conditions. But we've seen a long-attended pickup in risk management through hedging activities, and we have hopes that, that will hold up as well as the capital markets if the markets stay open.

So more than one-offs, I would point to the long-term trend and the fact that this business area again delivers a return on their allocated capital that is now above 12%.

Basis swaps. Yes, there is a positive in the quarter. We don't -- I'm sure it's in our balance sheet what the current aggregate is. But to be fair, I'm not sure how much you should look to it because we constantly renew our funding through these products. And what you can know, that over time, this is 0., but it's not easy to read through and decide the likelihood of this going one way or the other for the next quarter. But do we have the...

[Rune Bjerke, executive]

It’s Page 21 in the Factbook. It's about NOK 1 billion in -- all in all in total.

[Rune Helland, executive]

Since 2014.

[Rune Bjerke, executive]

Since 2014.

[Sofie Peterzens, analyst]

Okay. That's very clear. And Rune, we're going to miss you.

[Rune Bjerke, executive]

Thank you. I will miss you as well.

[Operator]

The next question is coming from Marco Di Matteo from Goldman Sachs.

[Marco Di Matteo, analyst]

So I wanted to ask just one. You mentioned that you had moved to certain deposit rates as well. So I just wanted to ask what the scope was and when does this become effective. So should we expect some headwind on the deposit side in the next quarters? And then on the IT side, would you at this point, given the incremental expenses, not expect the budget to be flat versus last year [ any longer ]?

[Rune Bjerke, executive]

We do not expect any headwind regarding the deposits going forward. We have actually a positive development both in volumes and margins regarding deposits, and we have a very strong competitive situation due to the fact that we have an upgrade from Moody's and also revised outlook from S&P. So it opens up for positioning ourselves in a better way towards the big institutions internationally. And domestically, we have the strongest distribution platform among all banks. So I cannot see any headwinds regarding deposits.

[Kjerstin Braathen, executive]

When it comes to the question on IT, we are not in any way planning a material lift-up in our investments overall. But we're very mindful that we want to make sure that we invest at the right level, meaning investing in our platforms and license to operate as well as investing into new strategic initiatives in the business areas. We are working to even out the activity levels throughout the year and target to increase productivity, that is also important, and do see that we are investing some more on the IT security side. But for the year as such, no big material lift-ups in the -- in our IT cost. One element that I would just like to add to it is that we have capitalized somewhat less of our IT cost in the recent quarters, and that is related to the nature of investments where we're investing more in the cloud-based customer solution systems. And that leads to a lower activation, but the spend as a consequence isn't affected. I think for cost, it's really our main and overall message that is important where we are saying that we have seen some inflation in the past quarter and the previous 12 months. But we do expect now increasing effects from the automation activity and that we will be able to neutralize most of the inflation coming in the next quarters throughout till the end of the year.

[Operator]

The next questions come from Geoff Davis (sic) [ Geoff Dawes ] from CG [ SG ].

[Geoff Dawes, analyst]

It's Geoff Dawes here from SocGen. Two questions from myself. First is around the management buffer of 100 basis points. How firm is that? And specifically, depends on the timing of the Luminor transaction, how would you seek to go slight -- below that if you needed to? And also longer term, depends on what the Ministry of Finance does, would you consider revising that downwards if the capital requirements keep edging upwards? Second question is a bit of a follow-up really on mortgage competition. Can you just give us an indication of where you sit in the market in terms of pricing? So whether you're towards the middle or towards the lower end of current front book mortgage pricing? And also an indication of regional trends. So where margin pressure is tightest across the country.

[Rune Bjerke, executive]

Let me start with the last part of your question regarding mortgage competition. It's obviously so that there still is a pretty tough competition in the market, but you have decent kinds of cooperation these days compared with 18 months ago. At that point in time, it was toughest competition related towards the first home buyers and the youngest generation among the clients. Today, you see more tough competition related to specific target groups as the academics or other members of organizations, leaving kind of the purchasing power where the banks really wanted to dig in into the customer bases they have as members. I would say that DNB is in a position where we compete for the clients in most of the pockets in the market, but we are not as aggressive towards the academics as one of the other Nordic banks because we want to try to treat our customers in a more decent average way. But again, as you can see, we are able to grow by more than 3.4% on an annual basis after having been the price leader 3 times after rate hikes, and I think that tells a strong story.

[Kjerstin Braathen, executive]

With regards to your question on the management buffer, that is not a hard requirement as it stands today. So we are saying that we intend to keep a management buffer of approximately 100 basis points. I don't think we foresee any reduction in that if the underlying capital requirement should change. I mean the management buffer is pegged towards our exposure in currency and other areas as one example and the volatility in the basis swaps as another. So it's important that it's not a hard requirement. And if there are larger movements in some of these underlying elements than expected, we should be able to use the management buffer as exactly that, a buffer. Luminor, we're expecting to close in the second half. We currently have a very solid position with 16.5%, so we don't foresee in any way to necessarily have to use that during the second half in relation to the Luminor transaction.

[Operator]

[Operator Instructions] Next questions come from Riccardo Rovere from Mediobanca.

[Riccardo Rovere, analyst]

The first one I had is just a brief -- I just wanted to have your opinion on the comment you made this morning with regard to prefunding. From your Factbook, I noticed that the amount of senior bonds you issued in the first half of '19 is enormously higher than the overall amount you issued in '17 and '18 for the full year, the NOK 30 billion versus something like NOK 16 billion or NOK 11 billion. So I was wondering why is that. Because you think that the current conditions in funding are particularly favorable? And if that is the case, should we assume that the stock of securities issued by DNB should remain more or less flat at these levels for the rest part of the year? This is the first question. The second question I have is on capital again for one second. Let's assume for one second that your capital target is 17.8%, including a 100 basis point management buffer. That would compare to 17.3% reported by DNB in the first half, which includes 50% of the profits generated. Then I should add 30 basis points from Luminor, eliminate 10 basis points from Fremtind. Then this morning, you mentioned the possibility of upstreaming some dividends from DNB Liv for an amount, if I understood it correctly, equal to 10% of your -- of the assurance company solvency under transition rules from -- bringing it down to 140% from 150%. So then you mentioned you have -- you might have the SME supporting factor, another 20 basis points. So net-net, it looks like you're already at 17.8%. So the question is, is there anything wrong in this way you're thinking? And if there is nothing particularly wrong, is 17.8% a number that we should consider as your target? Or you might eventually consider to be above that level, 18%, 18-point-something percent? Because if that is a firm number, in a theoretical world, you should pay out all the rest of the profits of the -- at least of the second half.

[Rune Bjerke, executive]

I think, Riccardo, that you have many details in your questions and some advices and guiding activities as well. But since we are so lucky to have the Head of Funding present around the table here, he can give a little more flavor about the funding question you directed. But let me just start by saying that we do not expect any further increases in funding costs for the next couple of quarters as it looks now.

[Unknown Executive]

Yes. Look, it seems for us, issuing much more senior this year than the previous year actually has to do with MREL. We didn't issue much senior the previous year because we expected MREL requirement to be -- already be implemented in Norway. They have been postponed. But why they are postponed? We still are -- have to have a certain amount of senior, which will actually, in principle, count as MREL until the end of at least 2022. So this saves us money actually by doing the senior instead of during MREL, which we probably will not start with until next year. So that's the explanation behind that.

[Kjerstin Braathen, executive]

And as Rune pointed out, you have a lot of the elements that are on the table in your evaluation. But again, we point out that this forms part of a proposal that is now under hearing till the end of September. And this is slightly different to what the Minister of Finance has communicated, both verbally and in writing, with regards to their attention -- intention to uphold capital levels. In addition to that, we always -- we have to say what we always say with other elements that potentially may vary, which is now the countercyclical buffer that has been raised to 2.5% and then if the Pillar 2 requirement, that can go both up and down. But I don't think we're ready to revise any targets at the moment, but we're awaiting to get clarity on what the results will be. What we can say is that we feel very confident with our capital situation and our dividend policy stands firm, also when it comes to paying out excess capital. Lastly, DNB Liv profits is a once-a-year exercise where, post approval at the general assembly in the life insurance business, given a sufficient Solvency II ratio, they will be in a position to upstream dividend to the parent, and their current solvency ratio indicates more than a comfortable margin in order to be able to upstream all of their results.

[Riccardo Rovere, analyst]

Just to be -- that I'm sure I am understanding correctly, this morning you mentioned 140%. Did I get the number, right?

[Kjerstin Braathen, executive]

Yes. The dividend policy in the life insurance business, we've been clear about that. That's a long-term ambition of having a long-term solvency ratio of 140% without transitional rules. And if above, they will consider to upstream up to 100% of their results as dividend. If below, they will consider to upstream up to 50% dividend. Currently, after second quarter, their position is that they're at 150%.

[Operator]

The next questions come from Paulina Sokolova from Barclays.

[Paulina Sokolova, analyst]

My first question is on NII. So your guidance for the benefit of the latest price increases is approximately NOK 1 billion annualized. It's a little bit below the NOK 1.2 billion benefit you received from the previous 2 rate hikes. My question is why is it lower. Is it due to competition on the lending side or it's more being passed on, on the deposit side? And then my second question is on costs. So you mentioned that you think efficiency measures should largely offset cost inflation from here. So just to clarify, do you mean efficiency measures will offset cost inflation related to additional AML risk spending and investment into new businesses only? Or will it also affect kind of underlying natural cost inflation as well?

[Rune Bjerke, executive]

The reason why we anticipate somewhat lower positive effects related to the third price increase has to do with the fact that it's a little bit tougher and tougher each time to keep deposit rates at the same low level when money market rates get higher. So we probably need to pass a little bit more on to the depositors than we did the first time and the second time. But again, this is more an indication that it's not as easy to keep all the flexibility after you have passed on 2 rate hikes. But again, we will definitely do our utmost to keep as much as possible all the potential profits internally due to the fact that we have low mortgage margins in Norway compared with, for example, Sweden. So we will do our utmost, but it's a little bit more difficult. That's why the numbers are a little bit low.

[Kjerstin Braathen, executive]

And to develop a little bit on costs, Paulina, first of all, I would say that we maintain our sort of commitment to not giving a nominal cost guidance. That is important. And overall, our target for the end of the year is still the 40% cost level -- cost income level that we say is ambitious, but we also think it is within reach if everything develops in a continued positive direction. When it comes to the comments on efficiency activity, the way we see it now with the plan development across all areas, my comment was related to the full inflation pressure overall, both wage and other related activities.

[Operator]

The next questions come from Jacob Kruse from Autonomous.

[Jacob Kruse, analyst]

Can I ask first, when you look at the changes in your top management, since you're both there, what do you see as the big difference between your, or if any, between your approach to the strategy of DNB? And then my second question was just going a bit on the savings. Would you be able to say what kind of gross savings you're looking for from these efficiency improvements that you are planning?

[Rune Bjerke, executive]

Jacob, the only thing I want to say about the new leadership in DNB is that we have had a fantastic team appointed. The sum of the parts, if you look at Kjerstin and -- that is definitely a sign of 1 plus 1 is more -- significantly more than 2. So I'm really confident with the new leadership. I think it's a fantastic team with a potentially -- or with no doubt the broadest banking experience among any Nordic banks. So I'm pretty, pretty positive to the change. It's really up to them to continue to build on the competence we have in DNB, which is great.

[Kjerstin Braathen, executive]

And we would be happy to talk about our thoughts for the future. I'm not sure this conference call is the best time to develop on it other than saying that we all have a strong ownership for the strategic direction that DNB has set and is following with stability in terms of our targets towards the investor markets and our commitment in terms of the current financial and dividend-related strategies. We live in a very exciting market with a lot of opportunity, the strong home economy and also a market with a fast pace of the change where we will continue to strive to be a leading bank when it comes to innovation and developing new products and services for our customers.

[Rune Bjerke, executive]

And Jacob, I'm really happy to hear that Kjerstin is not saying that she is happy to get the opportunity to clean up his mess.

[Kjerstin Braathen, executive]

I'll say that next time. No, I'm kidding. I'm kidding. I don't -- well, I don't -- we don't have a nominal number for you, sorry, on that. I mean -- and it's not -- I think overall, the important statement related to our cost/income targets and also why pointing out that return on equity is more important to us than the cost/income target is to make sure that we maneuver the business in a sensible way. And two, a narrow focus on cost or cost/income could lead us to not making right decision when it comes to, for example, increasing the sales force in real estate brokerage, which is attractive capitalized income but not necessarily driving cost/income in the right way. The same goes for sales of nonlife insurance. So I think we've been, if you look at our history over time, fairly good at neutralizing inflation cost overall through the cost. We've had some more investments now historically to both lift initiatives as well as compliance and risk but continue to work on automation. And there is still a lot of potential when it comes to digitizing and automating the business, so I see no reason why we should not carry on just doing that full speed also ahead.

[Operator]

The next questions come from Jan Erik Gjerland from ABG.

[Jan Gjerland, analyst]

I had 3 questions. The first one is regarding Luminor. Under what circumstances could Blackstone walk away from the transaction or the deal? Is it because it takes too long? Or is it any potential risk there for them actually pulling out?

[Rune Bjerke, executive]

We have answered that question many times, Jan Erik, and I can only say that we have no indications from Luminor that they are not as eager to continue with executing on the deal today as they were when the first time they entered the data room. And that's the only answer we are giving related to that question.

[Jan Gjerland, analyst]

Okay. On the cost side, how large are your investments into this DNB Finance in Finland and SME insurance sales? Is it possible to split the investment portion? And sort of what is the recurring part of your so-called customer this time around?

[Kjerstin Braathen, executive]

I think I just recently addressed the overall scope of the investments and costs, Jan Erik. And unfortunately, we're not giving you those specifics but clearing towards our overall target and working very hard on both efficiency measures but also making sure that we make the right investments.

[Jan Gjerland, analyst]

Okay. Finally then, on the DCM and the Investment Banking Division outlook. The DCM was very good in the second quarter, while the negative portion was sort of really good in the first quarter. What kind of outlook do you have for the second half of this year then?

[Ottar Ertzeid, executive]

I think the outlook looks pretty much like we're seeing currently. However, there is a clear seasonal effect during the third quarter with lower activity in the Nordics in July and also the Nordics in August. So I think that's probably what we can say on that topic.

[Operator]

[Operator Instructions] The next one is from Richard Smith from KBW.

[Richard Smith, analyst]

Most of mine have actually been asked. So I really got a couple left. First one, just on the cost side of things. I think a key one we were talking about, pension costs having been part of the driver of the uptick that was in the quarter. I guess if I look at Slide 11, it looks like they weren't a key driver this quarter. I think that's backed up by the fact that -- if you could just clarify that there's maybe a change there?

[Kjerstin Braathen, executive]

That's correct. The pension cost is not the driver for the increase this month.

[Richard Smith, analyst]

Okay. Great. And then second was just on the legal case and just in terms of timing, where we are with that, when we should get clarity in terms of if there is any settlement to be made. And also, the NOK 200 million that you had provisioned to date, just to understand, is that purely related to costs that have already been incurred? Or is that the best you have in terms of aggregate costs and settlement? And...

[Rune Bjerke, executive]

The number is the best estimate according to accounting rules that we can give, and it has nothing to do with accumulated costs. It's a pure estimate as such. We will not get the final result before we have our case pass the Supreme Court, and that might take some time. But we think this is a legal case where we have really strong arguments. We won in the first round. We didn't win in the second round, and we really hope that we will win in the third round. But the estimate is an estimate related to accounting -- proper accounting rules.

[Operator]

The next questions come from Truls Roysland from SEB.

[Truls Roysland, analyst]

Three quick ones from me. Profit from associated companies has been very volatile. Can you give us some flavor on what impacted the result in this quarter and what to expect going forward? Of course, we know the Luminor and the Fremtind ownership changes.

[Kjerstin Braathen, executive]

The change from the Luminor has mostly taken place already when it comes to the contribution on the associated lines. And since we've agreed upon the sales price, so that shouldn't drop much further upon the closing of the sale. I would say the other elements are related to the other companies. And when it comes to Fremtind, I think we need more than 2 quarters before you will see a consistent and be able to see a trend line when it comes to the profits that they contribute. I guess what I can say is that we definitely expect and believe in a larger contribution in the quarters to come than we -- compared to what we've seen in the first half of the year. Beyond that, really the Vipps contribution and Export Finance are more sort of stable net-net contributors, and the change mainly have to do with Fremtind and what we expect to see going forward.

[Truls Roysland, analyst]

And on that topic, the sale of insurance product, that is really strong now even though you had a small one-off. Is that related to kind of more sale as you go into the SME product? Or is it a change of the distribution agreement with Fremtind versus what you had before? Like what's the drivers?

[Rune Bjerke, executive]

It's a combination actually. We both have a new type of incentive structure to the 2 segments selling the products of Fremtind. So it's not only commission fees related to sales, it's also 2 elements related to profitability and size of portfolio. And thirdly, we are seeing an increase due to the fact that we have increased our exposure to nonlife insurance as such. So there will both be impacts related to commission and fees but also under associated companies related to the increased investments in nonlife insurance.

[Truls Roysland, analyst]

Perfect. And last one from me. I mean we talked a lot of our -- previously about kind of customer revenue under net fair value. Now you expected that to pick up, but it never really did until now. Is it kind of a new regime? And should we expect this level going forward with the new rate hike probably in September?

[Ottar Ertzeid, executive]

I think the lower long-term yields and the flattening of the yield curves are increased, the interest among corporates or interest hedging, which have been at a very low level for last couple of years. So what you saw this quarter was what I will call more normal activity level. And the same goes with commodity hedging, which is mainly oil products and natural gas. And again, it reflects some volatility in those prices during the quarter. So of course, it depends on volatility. Volatility and movements are positive. And also, the flattening yield curve is positive with regard to interest rate hedging.

[Operator]

[Operator Instructions] We do have another question from Riccardo Rovere from Mediobanca.

[Riccardo Rovere, analyst]

Just regard asset quality. Do you see the level of provisions that you reported in this quarter as a kind of a reasonable level for the foreseeable future?

[Rune Bjerke, executive]

We're not giving any guidance on provisions any longer because we think that is not the proper way of giving guidance over time due to the fact that you'll have so much uncertainty related to the developments, both macro development and also company-specific incidents and also trends. So we are more focused on giving you a picture related to the outlook as such. And we tried through the macroeconomic presentation this morning and also the introductory remarks from Kjerstin to say that we have a very positive outlook in the economy, the Norwegian economy, adding a positive element when it comes to the credit quality as such.

[Operator]

Ladies and gentlemen, there's nobody in the queue at the moment. We'll do one quick one. [Operator Instructions]

[Rune Bjerke, executive]

All right, if there are no more questions, thank you so much for participating. And we would like to wish you all a very good summer and keep -- probably see you at [indiscernible] tomorrow in London. Thank you.

[Kjerstin Braathen, executive]

Thank you.

[Rune Helland, executive]

Thank you.

[Kjerstin Braathen, executive]

Okay. Bye.

[Operator]

Thank you for joining today's conference. You may now replace your handsets to end this call. Thank you.