Hello, and welcome to the operational update and impairment of Spanish loan portfolios. Throughout the call, all participants will be in a listen-only mode, and afterwards there will be a question- and- answer session. Today, I am pleased to present Klaus-Anders Nysteen, Christer Johansson, and Andreas Lindblom. Please begin your meeting.
Hello, everyone. This is Klaus-Anders speaking. I'm speaking from my home office, as I guess many of you are also present in your various homes. Thanks for taking the time today to see us on this call. Together with me today, I got two colleagues, Christer and Andreas, and I think they're in Stockholm. Christer, are you there?
Good afternoon. I'm in Stockholm. That's right.
Exactly. Andreas, how are you? Any relations?
Good afternoon.
There you go. That's the team today. What I thought we could do today is just, first of all, briefly update you on how things are going with Hoist Finance in these rather demanding times for the world, I guess. Then we can go into the more specifics and talk about the recent disclosure that went out this morning, and we can comment on a few of the important topics afterwards. Let me first say that obviously in these very demanding and challenging times, our most important priority in Hoist Finance is, of course, to protect our people and their loved ones and make sure that we support the various measures taken by the governments in the markets where we are present. That's of course number one.
I guess secondly to this, which is very closely connected to our core business, is that since we are the experts of dealing with financial crisis for people, we are prioritizing to a very high regard, staying in close contact with our 6.5 million customers in our 10 markets on a day-to-day basis. In other words, to ensure business continuity. I have to say that I'm extremely proud of the work that we have been able to do over the last couple of days and weeks.
It's been amazing the effort that's been observed in all our markets where we have been able to acquire a few hundred laptops, tank them with the right software, and make sure that we can work from home remotely in a secure and safe way, and a compliant way, I have to say, so that we can still interact on a daily basis with all our customers. Presently, on this Friday afternoon, I think more than 1,600 people of a total staff of 1,700 are working from home remotely, still in contact with the dialers, still in contact with the core collection platforms, still able to do good conversations with our customers. That's a really important thing for us, of course, a very high priority.
We did, of course, execute on our business continuity plans, and I'm very happy and very pleased and very proud that the Hoist organization has been able to deliver on this in a very short time. In terms of production, operations is ongoing, as it should in all markets. We have very little downtime. We have very little technical issues. It's working the way it should. We are able to conduct our business in an ordinary and orderly fashion. That feels, of course, very good for us. The consequences of the corona crisis is felt differently in different markets, of course. For those of you who follow in the news, I can confirm that that perception is quite relevant also for our work.
In South Europe where the crisis is biggest, like in Spain or Italy, it's more felt than further north where the crisis is perhaps a few weeks, what we have seen in other markets. There is a difference from market to market. The crisis is more felt south than north. Having said that, I think you should expect production to be reasonably in line with expectations for the first quarter. Of course, we have seen towards the end of the quarter that there is more an impact on our operations and production as the courts are closing and people are having more difficulties than before. Our priorities, apart from business continuity, have been to protect capital and liquidity, and I guess Christer can talk more to that in a second, to protect our cash flow, to deliver the best we can in terms of collection performance.
We are, of course, needless to say, almost, going through the cost base to make sure that we are as efficient and effective as we can be in these challenging times. Last but not least, we are also preparing for what happens after the crisis, so that we are as ready as we can be and as progressive as we possibly can be, so that when things turn, we are ready to capture the tide as the crisis pass. I guess that's enough from me as an introduction, and then I'll leave it to Christer to just briefly talk through some of the effects that we have disclosed today in our release. Christer, if you can talk us through the key effects.
Yes. Thanks, and good afternoon. I wish to briefly cover two topics, starting with Spain and then moving on to a few treasury items. Starting with Spain, it's fair to say that performance has been below our expectation for some time, for a year. We've taken a number of measures to address this. Fair to say also that those efforts have come with various degrees of success. In light of the recent development in the Spanish market, we do no longer expect these efforts to close the performance gap. For this reason, we have revised our outlook, and in practice this comes with two components. To start with, we've seen a collection shortfall in Spain in Q1, and this is a realized shortfall. We have also then changed the outlook, and this translates into an impairment of the book value in Spain.
We expect these items combined to impact Q1 earnings by around SEK 120 million with a bit more than two-thirds being related to the future projections. Moving on to the treasury side, we've seen rather volatile financial markets. Looking at the quarter as a whole, we've seen interest rates come down. This has had a negative impact on the accounting value of our interest rate swap because we are protecting ourselves from sudden increases in interest rates. In this case, that has not paid off then. We have also seen spreads widen, and this has been in March specifically. This is normally not something we would pay a lot of attention to because our liquidity portfolio is invested exclusively into government bonds and triple-A rated covered bonds.
I guess these are not normal times, and we have in fact seen a negative impact on the market value of these assets. They are held at fair value. For that reason, this translates also into an accounting loss. I should add that this loss is unrealized, and we don't plan to realize it. As such, this should unwind over time. I just want to reiterate that our balance sheet is robust. Our liquidity is very strong. Cash collections in Q1, I expect those to be an all-time high. As such, our financial position remains strong despite the disclosures that we've made today. With that, I've covered the key items and hand back to Klaus-Anders for questions.
Yeah. Thanks for that, Christer. We are then open to take your questions.
Thank you. If you would like to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. That is zero one if you would like to ask a question. There will be a brief pause while questions are being registered. And our first question is from Ermin Keric from Carnegie. Please go ahead, your line is open.
Thank you. Thanks for taking my questions. The first one would be on the Spanish business and your view on it more long term. You say you've struggled there for a while, and your exposure to the market is quite small. It doesn't really go with the strategic market reasoning you've had overall for the group. Could you actually withdraw from the market, and how many employees do you have? Could you say anything on the prospects for that?
Yeah, of course. I can understand and appreciate your question and your comment. I think you're right about that our operations in Spain is subscale, and it doesn't have the size, the critical mass that we would like it to have. We had plans to grow the Spanish business through, I guess M&A for some time. That hasn't been easy to do. In 2019, as you're painfully aware of, we worked really hard to deal with regulatory issues and couldn't really prioritize doing a lot of M&A in that year. Right now, I'm quite disappointed about our performance in Spain. It is not what it should be. We have carried out a number of initiatives to bring it back to the lows that we expect, but hasn't been happening with the speed that we were hoping for.
Now, of course, with the COVID crisis in Spain, we just simply feel that it's prudent to make a revaluation and to make sure that we don't carry a problem forward. Of course, we will take a close look at a way forward for our Spanish business. I think the Spanish market has developed quite, I would say, almost in a negative direction. For some time it's been quite competitive and kind of crowded. I think others have been struggling also in the Spanish market, over the last couple of years. I think longer term, Spain would be an interesting market to be in. It's a large market. It's professional market. We have banks being regular sellers and the business structure there in terms of how the value chain works in financial services is a good one. I think it's a good market to be in.
We have to have the size, and obviously if we don't have the size and the relevance, maybe it's better to withdraw. I haven't said anything about that now. I'm just saying that we are going to look for ways to improve our operations. We will also, of course, as always, we do take a strategic view, and then we just have to decide.
Okay. Thank you very much for that insight. If we just move on to Italy and Greece, you mentioned that you've seen a slowdown now towards the end of the quarter, and I appreciate it's very hard to sort of quantify, but I think what the market is most concerned about is sort of where's the run rate currently, if we extrapolate that to Q2, so what could we expect then?
Yeah, you're right. It's difficult to be very precise. It's that time of the year in that period where we can't disclose too much, right? You just have to bear with me. What we're trying to say in our disclosure is that, okay, maybe the collection isn't perfect at this point in time. What we have seen also in previous times is that even in a downturn, the collections typically holds up pretty well, right? Even when things are rough and difficult and challenging, the collections has held up reasonably well, but with a time lag. We saw that very clearly in the financial crisis. We have actually seen it in crisis before that in 2001. Even if you go back to the 1990s with the mortgage crisis in the Nordics.
We even saw that in the numbers then that there will be a delay, but collections will then eventually pick up again. Currently I cannot really give you a precise number on this call. What we see is a bit of a slowdown. I think in Italy we are fortunate in the way that our business work there is that it's primarily unsecured consumer, right? It's not like it's a big secured book there. It is primarily unsecured consumer. 50% of all our collections in Italy is cambiali. Cambiali is the safest of everything. It's the most reliable, the most predictable. That's where you will see the slowdown the least. In that sense, I feel that we are in a reasonably good spot given the circumstances in Italy. That feels to me pretty robust and pretty resilient.
Of course, the crisis in Italy and definitely in Spain is of course of a different magnitude and with a different impact than what we have seen previously. It's like a shutdown, a lockdown. Anyway, thousands and thousands, and thousands of our customers, I mean, we have 6.5 million customers. We have 200,000 interactions all the time with our customers. All our channels are open, in terms of contact center, digital. Thank God for the work that we've done on digital, that we are able to keep the shop open 24/7, 365. That of course helps us a lot, even in these times. The fact that other banks, other companies are now working so hard to shift the customers onto digital platforms, it's kind of helping us too. We are kind of piggybacking a little bit of the developments that we see.
Yeah. Sorry for not being even more precise, but I'm just trying to say that, given the situation in Italy, we feel reasonably in a good spot.
Okay, that's very helpful. Actually, if you could just maybe elaborate even more on that. In terms of your day-to-day work and communication with debtors, has that changed to any extent? I suppose you always need to have a balance act between trying to protect your cash flows and understand the situation of the debtor. Now in these circumstances, does that become even harder? Are you still working actively on setting up new payment plans, or is it mainly making sure the ones already up keep on running?
Good question. I think collections principally is decided by two factors. One is the willingness to pay, and the other is affordability then, or ability to pay, right? Those two factors are very decisive. Right now, I think we haven't seen, at least We do check in every day, right? Honestly, at this point in time, we haven't seen a reduction in willingness to pay, right? That's great. People still want to have a good relationship with Hoist Finance. They're trying and haven't given up on their payment plan. That's good news. The other factor is affordability, right? Obviously, we do have customers who do feel an impact in their affordability. For us then, it's important to have a dialogue to find out what is your new situation. Do you need to postpone something? Do we need to reduce your monthly installment somewhat?
If so, we will find an amicable solution for that. Have in mind that the average payment for us on a monthly basis is around EUR 50. Also have in mind that our customers typically are the ones who experience financial difficulties throughout their lives, more than the average person, right? It's not like many of our customers are unused or not been used to having some kind of a financial challenge. Somehow a lot of them know how to cope, know how to get by. In reality spending alternatives for a lot of people have actually come down. Pubs are closed, restaurants are closed, amusement parks are closed, cinemas are closed. From that point of view, they cannot spend that much money on a lot of alternatives currently.
Hopefully what we will see is that people can stay on their plans and that their monthly installments won't be too much affected. I think there will be a delay. How much, I'm not ready to give any guidance on.
Great. Thank you. I'll get back in line.
Our next question is from Mattias Thärn from Lansdowne Partners. Please go ahead. Your line is open.
Hi, guys. Thank you for that. Just a question. Considering the recent Spanish Supreme Court ruling on revolving credit cards, I wonder if after write-down today, does the company have any residual exposure to WiZink or other revolving card issuers? Both in terms of carrying book value and also potential contingent liabilities pertaining to these declared onerous terms on such cards. Thank you very much.
We have, of course, seen the recent verdict from the court about the WiZink portfolios and similar portfolios. I guess it's reasonably public knowledge. At least if you go to the Spanish market, you could probably find out that we have been buying some of these portfolios. It's not something which is, I think, a secret in the industry. We and others have been buying some portfolios from those companies, from that bank, and similar banks. There is an exposure there. What I can say today is that we have done a revaluation of the Spanish book of the magnitude that we have disclosed. I think I will stop there. I'd rather not comment on specific portfolios.
Okay. Thank you very much.
Thank you.
Just as a reminder, if you do wish to ask a question, please press zero one on your telephone keypad. Our next question is from Martin Bungemeyer who's a private investor. Please go ahead. Your line is open.
Thank you. Thank you for taking my question. I was just wondering, you're saying you have a very strong cash position and the cash collections are still strong. Would you say that you are over-capitalized? If there's some measures you are considering in terms of you have the stock down in SEK 20 by buyback or other programs that you see that some of your competitors are doing as well. I was just wondering if you're thinking about that and if you consider yourself over-capitalized at this point.
Thank you for that question. Christer here. I think in terms of stability in a situation of a crisis like this one, both having a strong balance sheet and having ample liquidity will serve Hoist Finance well. Coming into this crisis with a strong starting point is beneficial to us, and I don't see us taking actions that would jeopardize that strong starting point.
Thank you. Have you seen any changes in kind of HoistSpar behavior? Are people taking out money or still putting in money, or what are you seeing there?
We've actually not seen any particular flows in recent weeks here, positive or negative. The liquidity position is holding steady, and we haven't seen anything, actually.
All right. Thank you.
I used to be CEO for a bank in the financial crisis, and I learned the hard way how difficult it was when liquidity dried up. At the moment, I think we have a very comfortable situation in terms of liquidity, and that feels good at this point in time. Yeah, we don't see an issue from that point of view. We have a very strong balance sheet, and a very favorable liquidity position at this point in time. We are best from that point of view.
Sounds good. Thanks.
Our next question is from Ermin Keric, from Carnegie.
Yeah. Thank you. Just to follow up. On the cost side, could you talk anything about that? What should we think about as being more flexible and possible to adapt to lower activity? Is it mainly the part you classify as collection costs? Second, also, with regards to your long-term cost program, does anything change with the execution of that one, timing-wise?
Thank you. In terms of costs, of course, if courts close down, this will reduce the short-term spending on litigation, so legal fees. Although that is, of course, spend that we would rather have. In that sense, it's not what we seek. Other than that, as Klaus-Anders elaborated on, we have our full workforce still working and still being in contact with our debtors. One should not expect any big changes on the cost side as a direct result of the current situation. Taking a longer perspective, we can certainly see profitability coming under pressure. In that context, I think it will make a lot of sense for us to look even harder on the cost base and potentially increase our ambition, which is to save SEK 300 million in run rate savings by 2021.
I think that ambition level is something that we need to consider.
Okay. Thank you. The second question was sort of on the investment side. Has that market completely sort of dried up now? How do you see on the opportunities going out of the crisis? I've heard some talks about Italy possibly looking to give banks some tax advantage to investing in NPLs and so on. Could you give us any details on that?
In terms of current trading and current transactions, it dried up, I think it's fair to say. Just practically speaking, it's very difficult to do any business these days. You cannot go to meetings. You cannot really go and see the banks, the sellers. It's hard to do due diligence. Just from that point of view, it's tougher to do business. Also, I think the banks who are sellers of non-performing loans, they have other things to do at this point in time. Of course, uncertainty is very high. I think you should expect, and I think that goes for the whole industry, a slow Q1, typically a slow quarter anyway. I think Q2 is going to be slow also, which is in many ways fine. Then I think hopefully that things will pick up again after summer.
That's at least my best judgment at this point in time. Also, right, in this industry, and for every crisis we've had, we see that yields are coming up, and the volume is coming up after the crisis. I actually expect us to see more volume coming to market, and hopefully also with better returns. At least that's what we've seen in the past, and that's what we are ready to take our lion's share of that growth. I certainly hope that's going to happen, and I think it will based on what we have seen in the past. Just also to reiterate what Christer said, there's an old quote that says, Never waste a good crisis. Of course, we're not wasting our time on the cost side.
We're using this opportunity to go through everything again and to see if we can speed things up or ramp things up and be focusing on executing on our cost program and potentially even expanding it going forward. That's a very high priority for us. Also, I just think that longer term, this crisis is going to learn the world new ways of working. From that point of view, there could be new learnings for us also in this that can have a good impact long term. We are of course, thinking about the short term, so business continuity, customer interactions, making sure that we work with them in a sustainable way, that we take the corona crisis very seriously. We're also thinking about our business longer term, right? How can we ramp up digital? How can we work differently, et cetera?
Perfect. Thank you.
Thank you.
Just as a final reminder, if you wish to ask a question, please press zero one on your telephone keypad now. Our next question is from Borja Ramirez from Citi. Please go ahead. Your line is open.
Hello. Good afternoon. This is Borja Ramirez from Citi. Thank you very much for making your time available for a call and also for the press release. It's greatly appreciated. I have a very quick question. There has been some news from European Bank regulators on forbearance regarding capital requirements, and potentially decreasing capital buffers. Is there any details you could provide on the potential forbearance? Thank you.
Sure. The regulators, they've been quite active, as you've seen, and they've done a few things. For example, they have reduced the so-called counter-cyclical buffers, and this reduces the capital requirement for Hoist by 0.3%. As you might remember, our capital targets are related to the capital requirements. This also means then that the capital targets have come down 30 basis points. Other than that, they have also issued a bit of clarification on how to deal with forbearance. This is then primarily relevant for the performing loans which we have. Now, in reality, the performing loan book that we have is rather small. It's below SEK 1 billion . I don't see that as having a significant impact on us.
Understood. Very clear. Thank you very much.
Thank you.
Thank you.
After no further questions, I will hand it back to the speakers for any final comments.
All right, well, thanks everybody for being on this call. Appreciate that. I can assure you that we are doing everything we can to stay in close contact with our customers, to find amicable solutions with them, and to protect both cash flows and profitability and capital. Thank you. Wash your hands, stay calm, and stay healthy, and have a great afternoon and a good weekend. Bye-bye.