Earnings Call: Q4 2018

Feb 12, 2019

Hi, and welcome, everyone. Very welcome here to Gruttirogatan in Stockholm, and also very welcome to you on the web. My name is Julia, and I will present the results together with Klaus Anders and Kriste. The result will be presented, and then we will open up for a Q and A session. For those that joined us on the web, please put your questions on the web or directly to me in the e mail. So I hand over to Klaus Anders that will open up the presentation. So good morning, and thank you, Julia, and thanks for coming in this morning. So good to see you all, and thank you also for those following this on the web. We have a slightly more comprehensive presentation today on the back of the regulatory changes that I believe most of you now, at least to some degree, are familiar with. So I will, as usual, take us through the highlights. Krista will then take us through the financials and talk through operational efficiency initiatives, of course, capital funding and also liquidity. I will then come back and talk you through thoroughly what's happening with regulations and of course our mitigating actions. We will also present to you our revised financial targets. And then we'll wrap things up with a summary and open up for questions and answers. But let me use the opportunity first then to say that 2018 has been a very good year for Hoist Finance. And I'm very pleased with the progress that we are making basically across the board, whether it's investments, our client relationships, implementation of the new strategy. So I'm really pleased with the progress that we are making. And I'm happy to be able to present on behalf of the whole Hoist organization. And we have implemented a lot of changes, and there has been a significant heavy lifting during the year. Growth is one common theme across all our quarters. We have expanded into new asset classes. We have done, for instance, some performing loan portfolios, one in The UK, as you can see in March. We also did a portfolio transactions in Poland. We're happy with that. Several secured portfolios were acquired. We were able to acquire a company called Moran in Italy, in Spoleto. We've got new colleagues there now. And Moran is a reputable firm with really strong client relationships working with servicing. So we take an important step into servicing. We also more recently announced that we are in the final stages of closing a significant transaction in Poland. So it's a bit of in market consolidation in one of our prioritized market. And we hope to close the GetBack transaction, which is about onethree of the company, in the early Q2. I'm also very happy that we have been able to introduce one operating model. That's important for many reasons. Of course in terms of operational efficiency, their ability to develop once and then deploy all across our markets. But I also am very proud to say that Hoist has a very good approach to amicable collection. And I'm very happy to see that our people, our colleagues are taking those difficult calls with our customers every day, helping people keep their commitments. The financial performance in Hoist is strong, and I'm not going to steal Christa's thunder, who comes on stage in a little bit. But I would like to say that we are very happy with the growth in portfolio investment. It's a 40% growth, four-zero, which is, of course, a significant number in terms of portfolio investments. I'm also very happy that we have a 30% increase in profit before tax. $755,000,000 in profit before tax is the best result ever for Hoist Finance. I'm also very happy to see that our focus on operational excellence is coming through in the numbers, especially, I would say, in collection performance. So for the year, we came in at 105% collection performance, and this is the best year in five years and is very close to the best year ever. So paying attention to collection is the most important job that we do. Our ambition, as it's laid out in the strategy, is of course higher. Our ambition is to be the most effective and the most efficient operator in the industry. Regulation is obviously an important topic for all regulated institutions. That's also why we make that as one of our highlights for the quarter. I will come back and talk through those regulatory changes in a little bit. But before that, I will hand over to Christoph. And I'm sorry, it's one more slide actually before I hand over to Christoph. And this is this one, the growth. This is the 40% growth that you can see in 2018. And as it comes through on the graph, 2018 in terms of portfolio investments were actually more than 2016 and 2017 combined. We're happy to see also the geographical split here in our prioritized markets. Really great to see the significant growth in Italy, our largest business unit, a growth of close to 50%. I think it's equally fun to see the significant step up in France and in Spain during 2018. And now over to you, Kristor. Thank you. So good morning, everyone, and good morning to those of you following us through the web. So 2018 is history, and it's a year when we delivered 16% return on equity, and we did so while growing the portfolio with some 40%. It's a very good year. Two of our most important indicators are collection performance and cost income. Collection performance, as Cosanje said, came in at 105%, which is a very solid level. Cost income came in for the full year at 74%, which is a level which reflects a number of investments for the future. The effective tax rate, which we've had some questions on in previous quarters, came in at 22% for the full year, which is very much in line with previous years. When it comes to profits, this is actually not a fair comparison. A better comparison is arrived at on Slide nine, where we are adjusting for a number of items affecting comparability. And for Q4 twenty eighteen specifically, these adjustments include adjustments for due diligence cost in Italy in connection with the corporate acquisition of Maran, which Clausandes mentioned. It also includes adjusting for restructuring charges, and those restructuring charges are primarily related to rightsizing of support functions, mostly in Germany. So after adjusting for those things in Q4 and similar things in the previous quarters, income grew with some 19%, while cost grew with 17%. In terms of profit growth, Q4 picked up to 24%, which should be compared to 9% for the full year, so quite a significant pickup. And this pickup is with support from improved margins. And to illustrate this, we brought something which we have not shared with you in this much detail before. So let me just tell you what we have here. So on this slide, we illustrate the so called effective interest rate. This, you could also refer to as the gross IRR, so it's metric. And the magenta line here is the blended average of the existing book, while the orange line is the margins on the front book, so the newly acquired portfolios. And as you can see here, there's quite a significant pickup towards the end of the year, a clear sign of improved market conditions. Turning to Page 12 and operational efficiency. I said earlier that we had a cost income of 74% for the full year. If you look at Q4 specifically, it's 73% after adjusting for items affecting comparability. This is up from 71% in the previous quarter. And in this context, I would like to point out that by including and consolidating the business of Maran, which is a servicing business, this alone increased the costincome ratio for the group by some 1.5%. So out of the increase from 71% to 73%, 1.5% is due to consolidating Maran. The residual increase is due to a high level of change, and that change is coming through mostly on the administrative expenses. Now a high level of change should not come as a surprise to anyone. In the Capital Markets Day, we laid out the improvement potential that we see on the right hand side and the investments that we need to do to get there. And key components of these investments were they were adding up to SEK 200,000,000, SEK $250,000,000, with key components being investments into digital and optimizing sites and staff. So these two topics have, of course, been on top of our agenda in Q4 And specifically, starting with the investment into digital, we are accelerating the rate, and we are investing almost twice as much in Q4 as we did in 2017 on average. So the incremental investment into IT is around SEK 15,000,000 in Q4. Turning to restructuring. We have, in Q4, been completing the closure of the Milton Keynes sites in The UK. And we have, as I mentioned earlier, also been provisioning for rightsizing of support functions, mostly in Germany. So those are the two highlighted parts of the bars there that you can see. We will certainly revert and report back on the run rate financial impact of this as we go further into 2019. But for now, I would like to highlight a few of our achievements in the digital area. In some aspects, this is actually about catching up. So it's about putting the basic stuff in place, things like the ability to receive online payments. On this front, which you can see on the left hand side here, we've been making good progress in Q4, and we do so by building on standard components, which we can deploy rapidly across markets. Now in The UK, where the basics is already in place, we can push ahead. And with a reasonably well established self-service platform, we are able to direct traffic in a more diligent way already from the start of the customer journey. And in fact, for some of the newly acquired portfolios, as much as 40% of new installment plans are being set up through the self-service portal. Of course, I think there's no reason to settle for 40%. There should be plenty of room to increase this. But even if we were to settle for 40%, this represents a very substantial potential as we roll that into the other markets where we're basically at zero today. So it's not all self serve. Some customers will want to talk to us. And for that segment, the contact strategy is key. And in this area, our focus in Q4 has been on two way communication channels. And this is, for example, in the form of web chat and SMS communication, which we use to engage with our customers. So all in all, good progress in the digital area, and we look forward to coming back to this topic throughout the year and give you more detail on how this progresses. Turning to Page fifteen sixteen, actually. So this is a standard slide, and you may have seen it before. I just want to pick out a few things here. To start with, as you probably know by now, there has been a change in risk weight. And as a result of this, we have also revised our CET1 target range. The new target range is 1.75% to 3.75 above the regulatory requirement. As per end of Q4, this translates into a range of 9.6% to 11.6 for CET1 ratio. And the actual CET1 ratio as per end of Q4 is 9.66%, so just within that range. And maybe I should point out that, of course, this is not a number that we can micromanage down to the very last digit. It will always be influenced by transactions, which can be lumpy and there is also a bit of influence from FX rates since the equity base is in SEK and assets are held in other currencies. Nevertheless, of course, the decline from 11.7% to 9.7% might look as a sharp decline, but this is in fact then completely driven by the regulatory changes. And to illustrate that on the next page, you can have a look at pro form a Q4 CET1 ratio as if the risk rates had not changed. So with risk weights at 100, what would the CET1 ratio had been? That number is 13, which compares then with previous quarter of 13.1, which is actually well above the level seen a year earlier. The same thing can also be seen if you compare tangible equity to book value. And this is perhaps not a standard KPI, but if you were to run the numbers, you would see that in comparison with our industry peers, hoist comes out very strong on this front. Now taking a step back, it's, of course, also worth to remember that the business mix that we have, our underlying business has not changed as a result of the regulatory changes. So in that sense, there has been no change in risk. And in fact, Lars Anders will come back to the future business mix. So I won't say much more about that right now. Turning to the funding side. We have continued to attract euro deposits. And as of today, they make up almost onethree of our total deposits. And partly as a result of that, we have had a strong liquidity position all throughout Q4. And with that, there has been no reason for us to utilize the RCF that we have in place. Obviously, it comes with a cost to have it in place. And also with that cost included, the interest expense in relation to the book value has stayed at around 2%, as you can see on the bottom there. This clearly underscores the resilient funding model that we have, And this is of particular interest when you compare it to industry bond yields because, in fact, on page on the next page, you will see that they have picked up quite a bit. So the average yield to worst has increased from around 3% to around 6% over the last twelve months, so an increase of 300 basis points. And in that same period, our funding cost went from 2.1% to 2.1 So quite a big difference. And with that, I'd like to wrap up the piece on financials, and I will hand back over to Klaus Anders, who will cover the regulatory side. Thank you, Kristor. So here we go. Hoist has been regulated as a bank since 1996, and the banking model has served Hoist Finance really well. We have, first of all, been able to tap into a source of really competitive funding. And being a regulated institution also helps in many commercial discussions and situations. As to point number three, being regulated as a bank also allows us to invest into other asset classes that many of our competitors cannot invest into. I also think that having the banking license gives us an opportunity to develop even new products based on having this regulated status. But in banking, as many of you here present know, there is at all times discussions around regulations. And right now there is one change that we have adopted to, as Kristo just told you, on the risk weights. And there is one potential change that might impact us in the future that I want to share with you today. I will come into the details a bit later on. But I think it's also important to point out the purpose of the new regulations. So the regulators way see the industry is that on the banks' balance sheets in Europe, the level of NPLs is still two times the level it was pre crisis. And the banks have not really sold off their nonperforming exposures. So the regulator really wants the banks now to divest more of their nonperforming loans. And the regulator also wants to see and make sure that the secondary market for NPLs is well functioning. We, as Horace Finance, agree with both of those purposes from a regulator's standpoint. This is good news for the industry, because there will be more non performing loans coming to market. The regulator wants the banks to sell more and faster. That means more NPLs will come to market. However, even though we support the purpose of the new regulation, and despite the fact that the regulator really wants to see a better functioning secondary market, the new regulation comes with some unintended and counterintuitive consequences. However, and this is really, really important for us to say very clearly, there are mitigating actions, we have identified those mitigating actions and we are implementing those mitigating actions now. Despite these challenges and referring back to what Kristo just talked about in terms of where the high yield bond market is going, we think it's clear, crystal clear. We see the banking model as the best option for us going forward. And I have stated many times that in our industry, the winners will be those companies that have the lowest cost of funding and the best operations. And on this picture, on this slide, we have listed some of the key drivers for value in the industry. Maybe you can just make it a bit simple and say okay, there are two models, it's the banking model and it's the non banking model. And we obviously are in the category of having a banking model business. And for companies with the banking license, the key advantage would be to have access to funding and, of course, access to low cost funding. And in many ways, being insulated from the high yield markets and the volatility that we have seen in the high yield market. But for us, for the companies working in the banking regulated model, regulation is there, it's always going to be there and we are working every day dealing with those regulations. On the December 18, we implemented the new risk weights, the 150% risk weights, for our unsecured non performing loans. Following a decision from the Swedish FSA to support the new interpretation of the European banking authorities as to how risk weights should apply for non performing loans. Pre mitigating actions before we implement mitigating actions, this of course influences the capital requirements for the unsecured NPLs. It is important to say that the new risk weights are for the unsecured segment only, and does not apply for secured NPLs nor for performing loans. It does however impact both the back book and the front book. We have, over the last few quarters, talked about the discussions in the EU regarding the so called NPL Prudential backstop. We discussed this in our third quarter report and we also touched the topic on our Capital Markets Day. And with The Compromise just recently being published, we have reasons to believe that if this is approved by the European Parliament, we need to treat the capital requirements for NPLs differently in the future. But let me make it crystal clear: this is not an immediate issue, it does not affect the back book and there are mitigating actions to deal with this. I will explain more in a second. But let me first take you through the risk weight issues. On this graph you will see our book values outperform our portfolios to the left, the total book value towards the end of twenty eighteen. And of course, pro form a before new risk weights were to be applied, based on the fact that we predominantly have unsecured NPLs, the risk weight was around 100%. With the new risk weight regulation, the new average risk weights on our portfolios is at around 150. But if we apply the new risk weights on the purchased volumes in 2018, where we actually acquired a lot of portfolios that were not unsecured, 40% of what we acquired was already outside unsecured space, the blended risk weights on the purchased volume would have been or is 125%. I mentioned that we now have to assume that the new NPL prudential backstop will be approved by the European Parliament and implemented in the second quarter. Again, this is not approved yet, but we have to be prudent and assume that so will happen. On this slide we have tried to outline how this backstop actually will be implemented and how it works. Let me again reiterate the key points. This does not affect the back book. It's a future issue and there are ways of mitigating the negative consequences. Going back to the timeline then. If this is approved and implemented, and the implementation date, let's say, is April 1, the backstop would only apply for new originated debts. That's why it only applies for us in terms of the front book and not the back book. It's also so that with this potential backstop, when one of those newly originated debts goes into default, the bank needs to write down the value to zero after three years. And of course our collection curves are much longer than three years. Hence, without mitigating actions, this might have an impact on how we need to treat capital for unsecured consumer loans. Again, I've said it a couple of times already that this is a future issue. And what we are showing on this slide is exactly that. What you have here is really the curves, if you like, or the book value on our different vintages, portfolios acquired from pre-twenty eighteen, 2018 to 2021, which is the gray area on top, and the light area is the secured and performing portfolios acquired 2021, And then this magenta collar area, which is in the future, is then the unsecured portion that might be subject to potential backstop. Have in mind that typically, the portfolios within the unsecured segment that we acquire typically have an average age of four to five years. That's why we see this as a problem in the future and not now, and this is also a challenge where there are mitigating actions. Let's then take a look at these mitigating actions what are they and how will they work? We have mentioned before that we are assessing utilizing so called fund structures. We are also now in the process of executing on securitization. I will talk you through IRB, but also changes in our business mix. Let's start then with the two first ones, fund structures and securitization. They are kind of related, so it makes sense to talk to them in one go. Fund structures how does that work? Well, in a fund structure we would hold the NPLs in a fund, managed by an external fund manager, where Hoist operates as the servicer. I have to say that it remains to be verified that this actually addresses the risk weight issue, but it does address the backstop. It's also important to say that the fund structure is more relevant for the front book than the back book. Securitization, which is the second mitigating action here, is a well proven concept, commonly used by banks. There is an established practice. There are clearly defined processes and pathways as to how to do it, how to get there. NPLs will then be hauled in a special purpose vehicle and will be applied, which is important, both for the back book and for the front book. And given that we can transfer risk, which is the whole point, this is a very relevant mitigating action for hoist, both for the front book and the back book, and addresses both the risk weight challenge and the backstop challenge. It deals with both problems in one solution. Let's take a closer look at the two structures. This is a schematic of how a fund structure would work. Hoist Finance operates as a servicer and has ownership in the fund, a fund managed by an external fund manager. And conceptually, in a fund structure, the key issue is transfer of control, hence the need for an external fund manager. These structures do exist in the market, and we are definitely looking into how this can be applied also in hoist finance. The second structure looks like this. This is the securitization structure. And conceptually, in securitization, the key issue is transfer of risk. By holding the NPLs in a special purpose vehicle, Hoist will retain ownership in the senior tranche and the NPLs will have a rating, and hence, the backstop does not apply. We will divest the majority of the junior tranche. By this, we can keep our low cost deposit funding, which is funding then the portion of the senior that we own, of course, and also the portion And let me make it also clear that we are in the process of securitizing NPLs right now. We have had the first conversations with investors, rating agencies, auditors, investors and also the first initial conversation with the regulator. And we have mandated investment banks to carry out securitization. We strongly believe that this is going to work. It's common practice for banks, of course predominantly for performing loans, in Italy also for non performing loans. I mentioned that we had four mitigating actions, and I've talked you through two of them. Let's then finish off this discussion with the last two. One is IRB and the other is change in business mix. I think regarding those more sophisticated risk modelling or models that can make risk rates come down, we are still positive about IRB. We have carried out a pre study, that's done. Let's also just make it clear then that the IRB addresses the risk weight issue and doesn't really imply or help regarding the backstop. And to be realistic and also to be prudent, we need to be prepared for a two to three year implementation period to get IRB approved by the regulator, despite the fact that we have plenty of data to assess the risk in our portfolios. As you have seen today, and as we talked about before, hoist is changing our business mix. When we did the work on strategy, we saw the benefits of broadening the scope, moving into the adjacent asset classes, not only addressing the classic core for hoist the unsecured consumer. And this was, of course, done because of the data because of the graph you see to the left. Because to the left, you see the total NPL, the NPLs sitting on banks' balance sheets in Europe. And what comes out is that the B2C unsecured, unsecured portion of the NPL market is only, let's say, 10% to 11% of the total addressable volume, I guess. And what you can see here clearly is that the B2C secured is more than twice the size of the unsecured market. So this is a large market potential to address. And that's also we decided to move into these asset classes. Why should we only stay in the 10% portion of the market, where we have competencies, knowledge, operational leverage? So what you see to the right then are a lot of boxes. The gray boxes represent a presence, coverage if you'd like, in 2017. And then you have the purple or whatever it is, magenta colored, which is the recent expansions into secured, particularly but even performing, and the green represents the future potential for approaching more asset classes. To be more of a one stop restructuring partner for European banks. That was the piece on mitigating actions. The last section today will then be our revised financial targets. And what we have done here, to be prudent, to be conservative, is that we have based our financial targets on our base case. And the base case assumes no positive impact from mitigating actions. That's a very conservative view. That is not our best judgment, but at this point in time we think it's prudent to come forward its financial guidance where none of the positive effects of the mitigating actions are included. In this base case, the assumption is that the annual investment volume for portfolios will be around SEK5 billion a year. This is obviously lower than 2018, but still higher than what we saw in 2017 and 2016, so around SEK 5,000,000,000. So this is the run rate investment capacity we have given the new risk weights and not allowing for any positive effects from the mitigating actions. Again, we strongly believe in our mitigating actions and that they will improve investment capacity, help our growth and boost our earnings. Let's now take a look at the revised base case financial targets. In terms of return on equity, we have revised the targets down from 20% to 15%. We have revised the EPS growth down from 15 to 10%. We have kept the costincome ratio at 65%. As you already have seen from our December disclosure, we have changed the internal limit somewhat on the CET1 core capital calculations, so the buffer above regulatory requirements is now 1.75 to 3.75 percentage points. The dividend policy remains the same as before, but with the caveat that dividend would not be paid out for fiscal year twenty eighteen and 2019. These are the base case assumptions and the base case financial targets. We strongly believe we will be able to improve CET1 through mitigating actions. We believe strongly that we can free up investment capacity through our mitigating actions, which will increase investment capacity and give us more operational leverage. At our Capital Markets Day, our ambition was to increase earnings per share by 50% over three years. That was the ambition level. The key buckets for that value creation are listed on the graph to the left. It's a gray shadow behind it. You can see it. That's the exact same presentation that we had at our Capital Markets Day. So increase earnings per share from 2018 to 2021 by 50% through creating value through growth and selective M and A, new asset classes, operational efficiency for sure. We believe in that strategy. Nothing has really changed to make us rethink that strategy. It still holds water. However, the new regulations comes with a cost. To implement the mitigating actions comes with some costs. That's why we now are talking you through the consequences of these regulatory changes. The base case scenario, the best case financial targets reflects a 10% EPS growth per year. We are committed to implementing mitigating actions that can deliver more. That's what you see to the far right, with a value creation above the 10% EPS accretion per year. Let me just summarize with today's key takeaways. We are in a very attractive market, and the market fundamentals are right. For the first time in years, IRRs on the front book are higher than IRRs on the back book. We haven't seen that for a long time. New regulations will increase volume, increase supply of non performing loans. We can do more. We have identified mitigating actions to deal with regulatory changes. And they will work. Horst Finance has a diversified funding model based on the banking license. There is a lot of room between our cost of funding, which Christa talked about, which is 2.1%, and the industry average. There is a lot of room. And even if you then add back the cost of the mitigating actions to our current blended cost of financing, we will still have the industry's lowest cost of funding. So the banking license remains a key strategic advantage for Horst Finance. We have shown that we can do more, we can collect more, we can bring down costs. We are committed to deliver on our cost savings and our operational excellence program. We are prudent. That's also why we present to you a base case financial target scenario. We do see upside from implementing our mitigating actions. So that concludes our presentation today and we are of course happy to take your questions. And it's possible to ask questions, I think, on the web or directly via email. So maybe I can invite Krista and Juliart to the stage then. So there's a question here. Start with Ramil. Thank you. Ramil Kouria, SBI Equity Research. Thank you very much for the presentation. A few questions, if I may, specifically one for each mitigating action. So starting off at the fund structure, given that price pressure seems to be abating and to some extent driven by, as indicated by one of your Italian peers yesterday, by PE funds to some extent leaving the market and looking elsewhere, how do you view the availability of coinvestorship co investors to partake in your investments, but also bear in mind that I mean, party servicing hasn't been core business for VOYCE, at least not in recent years? It's a good question. I think to start with your last sort of premise of the question, our sort of core business has not been third party servicing. That's fair. We are doing some third party servicing in The UK. Moran is giving us new capacity, new knowledge in Italy. But But there is a big difference between classic third party servicing and co investments, I would say, because when you do a third party servicing in a classic sort of interim way, it's almost like business process outsourcing. When you do a co investment, it's different. You keep your own systems, you run your own processes, your own procedures, etcetera. You have to sort of use the client systems or the client's procedures, the client's collection practices, etcetera. It's much, much simpler. So that kind of addresses that point of the question. Regarding appetite, I think it's fair to say that the people we are meeting these days are quite positive. And I feel confident that there will be investors with an appetite to co invest with us, either through classic co investments, through fund structures or definitely through securitization. Thank you. And then looking onwards to the securitization mitigating action, have you looked into the potential effect on your returns if conducting this? Yes, we have. So we looked at many scenarios. But if we do have securitization of the back book, let's say, 500,000,000 to €600,000,000 we believe that this will be EPS accretive. We believe it will be ROE accretive because what will free up is, of course, significant capital to reinvest in a very profitable market. Thank you. And then thirdly, on the you mentioned that you have a positive outlook on the implementation or the potential implementation of IRB models. I mean, speaking from sort of history, we know for a fact that the Swedish FSA is rather, call it, shorthanded with information before actually coming with a statement. So I mean, is actually the positive outlook here? What kind of indications have you received? For the Swedish FSA, we have had initial discussions, so it's way too early to say. We carried out a pre study. We think that what we see is positive. It's not going be a walk in the park. This is a long process. But there are good commercial reasons also to introduce IRB. And in a securitization structure, we can potentially use our IRB modeling rather than the rating. So it makes sense. It makes business sense to carry out this project. But I'm not going to sort of state or say that this is going to be a quick fix. It takes typically two to three years. Thank you. And then finally, the fourth potential mitigating action was increasing servicing revenues. And also referring back to the first question to some extent, I mean, given that you're unable to add too much goodwill as well, how will you go about to increase servicing revenue? Yes. So thanks for asking that last question. That was very important. I probably didn't make myself clear enough then because with business mix, I really talk about our portfolio investments moving from as we've done in 2018, from unsecured only more into secured asset classes with low risk weights, even performing loan with much lower risk weights. So we can continue that trend. So servicing comes on top, I would almost say, right? So I think classic third party collection, the typical sort of decision making time for any 3PC contract could be twelve to eighteen months. So I have those sort of big hopes for 3PC to become a very significant portion of our earnings in the near term. That's a longer term ambition. Thank you. So the operator, do we have any questions on the phone? We have one question from Ermin Kerrick, Nordea. Please go ahead. Thank you. So just starting with the regulation, have you had any comments from rating agencies both in terms of your reduced capital buffer, but also on the mitigating actions and your investment grade rating? I think as I outlined earlier, our balance sheet is even stronger now than it used to be a year So in that sense, I think there's no negative change here. As with regards to the future outlook, we should probably not comment upon their view. I don't think this should be a concern. Okay. And then just a follow-up question also. On the initial proposals for the Prudential backstop, I believe there was actually a carve out made for sort of debt collectors with a banking license, and that appears to be taken out now. Do you have any view on why this has occurred? Yes. Of course, I think the NPL backstop I mean, going back to the purpose, right, the purpose is to push or motivate banks to divest more of the nonperforming loans. The one thing that the regulator doesn't want is that the banks sell NPL loans to each others. So if you have a situation where two Italian banks were to sort of swap bad assets, that doesn't really help. So I guess that is the only explanation I can find. We think it's, it's, it would have been very easy, extremely easy, to have a carve out or an exempt from those rules so that they wouldn't apply for the secondary market operators for NPLs like ourselves. So we are we see this as an unintended, unnecessary, counterintuitive effect. And we are, of course, very disappointed. But it is what it is. We have to expect that this will be implemented. The good thing is that there are mitigating actions to deal with this when and if it occurs a few years out. Thank you. Just also on the prudential back steps, mean, previously the plan has been to introduce this also on secured assets. Do you see a risk of needing to take actions there as well? Because I mean, the securitization would of course work there as well, but the changed business mix would not be so effective if we see similar regulation introduced there as well. So that's a fair question, Ermin. And so let us be clear then. So the backstop applies to secured assets as well, but it does so with a different time frame. And that difference in time frame is quite big. So for the secured asset, our assessment is that this has actually no real impact on how we would need to treat it in our capital calculations, whereas on the unsecured part where the time frame is shorter, the three years, there, it makes a bigger difference. Okay. Thank you. And sorry for a lot of questions now, but it's sort of a special situation. Also on the investments, you mentioned in the call that we should expect around $5,000,000,000 going forward if we see no sort of mitigating actions coming into effect. While in the reports, it's stated that it's $5,000,000,000 for 2019 and then we expect the investments to recover, which one should we expect going forward? So without mitigating actions, our capacity is in the range of 5,000,000,000. And as we grow the business, there should be the ability to grow this number. Now that said, of course, the number in 2018, the SEK8 billion is a bit of an outlier here. Thank you very much for taking up my questions. Sure. Thank you. Okay. And I believe we have one more question on the phone. Yes. Our next question is from Viktor Lindenberg. Please go ahead. Victor. Thank you. A couple of questions from my side. Starting on Getback, and you now quantify it being a 400,000,000 portfolio or company. Can you give us any flavor on how we should model this and go about this in terms of P and L and balance sheet contribution, given that it's likely to hit your P and L already starting in Q2 this year? Yes. I wouldn't say that it's likely to hit the P and would say it's going to contribute to the P and L. And this is so it's not it's actually not the company as such we're buying. We're buying onethree of the portfolio. So in this sense, you should model it as you would with any other portfolio. And we've been quite helpful then since we've given you the size of the investment. And from a margin perspective, we find this to be a very attractive deal. So that's how you should think about it. Okay. That's clear. Maybe then thinking of this regulatory change, it seems that the regulator are highly determined to remove these toxic assets from the banking system overall and you're now potentially pursuing IRB models. Can you quantify costs associated with this in the coming two, three years? And even if you incur these costs, how certain are you that this is actually something that will be approved at the end of the day? So in terms of cost, our assessment is that it would cost roughly SEK 10,000,000 per year and sort of in a running mode and probably some SEK 15,000,000 to set it up. So in context of things, that's very manageable. How confident are we that it's going to work? I think we have the data to do the work, but it's not going to be a quick fix, as we said. Yes. And on your financial targets then, you have an unchanged costincome ratio. So thinking about, call it, incremental margins coming from new portfolios adding to the utilization or so in the organization. But you will not, given the new landscape, be able to acquire as much and get that incremental uptick. So have you found other new cost saving potential? Or why is this ratio kept on track? Yes. It's always a good question, right? Can we do more? And of course, we can do more. We can always do more. We can always run faster or jump higher. It's definitely possible. So we are committed to delivering our cost savings targets, that's also why we kept it at the same level. Okay. And then from a timing perspective, thinking about this 10% growth rate, is it something we should start to pencil in already starting 2019? Or you think this growth is coming very, very back end loaded in your business plans when it comes to realizing this? So obviously, we come into 2019 with a portfolio which has grown quite a lot during 2018. So with regards to 2019, that will, of course, be quite helpful. But the target is for a three year period then. So that's how you should think about it. Final two from my side then. One, on Q4 specifically. You have a €16,000,000 one-six portfolio revaluation, but it's a bit confusing reading the text. Is this a negative 16,000,000 or a positive €16,000,000 revaluation that you have? Yes. Sorry for the text not being clear enough then. So it's a negative revaluation, but it's actually not that negative because it relates to delays in collection on primarily French portfolios, where the secured part is behind us. So those are objects which were planned to be sold in Q4 and which are now planned to be sold in the coming quarters. Okay. Got it. And my final one was on your comment on securitization being EPS and return on equity accretive. I do understand the part on the return on equity, but just on EPS, as you're now sharing the earnings from our portfolio with a co investor. How is it EPS accretive? Just if you could clarify that for me being a newbie on that area. Yes. So the purpose of the securitization is to free up capital. And the assumption that we have here is, of course, that that capital is going to be used to reinvest into new portfolios. And as we've shown here, we think that we're going to be able to reinvest this at very attractive margins. So that's how it's going to be EPS accretive. The assumption is basically just from Yes. So it's just freeing up okay, freeing up capital, reinvesting, but not assuming I mean, the assumption is not that the new higher margins is the key driver. It's just that buying at At this margins. At this margins. Yes. Yes. You're basically able to add more volume. Correct. That's what I was looking for. Perfect. Correct. That's all from my side for now. Thank you. Thank you. Thank you. Do we have any more questions in the room? I have one question on the web, but it's actually three questions coming from Owen of Barclays. Does the NPL backstop do anything to change your collection approach? No. That was easy. That was quick. So have you spoken to any of your debt investors with regards to the potential SPV approach? What has the feedback been? The securitization? Yes. I think we have met with almost 10 investors that are active in the space. Very positive feedback is what I would like to say. It's already there, right? So initially, people would tend to be positive. But we have a high degree of confidence that this is possible. And you've been in contact with investors? We have spoken to almost 10. Under the revised financial targets, where do you see leverage going over the coming years? So leverage for us is something we guide on in relation to the capitalization targets, and we've given that target range. So that is where you should expect us. That's where we're coming into the year, and that's where we expect to leave the year, so to speak, in that range. Before mitigating actions. But should improve it then. We should improve it, yes. You. Any more questions in the room or the operator? Okay. Thank you all for coming, and thank you for joining us today. Thank you, and have a very good day. Thank you.