Earnings Call: Q2 2018

Jul 17, 2018

Good morning, everyone, and welcome to your conference call. Please go ahead, sir. Hi, this is Johan Torgueby, SEB. Welcome everyone to this Q2 conference call. We didn't think we'll go through the material page by page, but I'll just spend 5 to 7 minutes or so summarizing the quarterly results and then we'll open up for Q and A. Just to begin with, we still find a macroeconomic tailwind to be surrounding our results for the second quarter. One interesting note is that in Sweden, we've seen consumer confidence softening a little bit, but industrial confidence remaining higher. All in all, still good indications for continued growth. Flattish equity markets and somewhat higher volatility, it has come down from the serious spike we saw during Q1, but it's still a little bit higher than we were used to prior to the spike. And one interesting theme is that since the catalyst of the election in Italy, we saw credit spread both in the high yield segment and investment grade widen, and it has not really recovered whilst the spreads of our own CDS in the SEB name has remained flattish. We characterized this quarter as a meaningful pickup in customer activity, particularly on the corporate side, and we've also seen good demand for our products and services, a strong continuation of our capital position, robust asset quality and good cost control. Starting with just looking at the first half, as you probably remember, we had a little bit of a weakish Q1 and Q2 is definitely somewhat of a recovery from the start of the year. Looking at the 2 first quarters together compared to last year, we're 1% higher on income, flat on cost and 2% higher in operating profit before items affecting comparability. In the Q2, we had 2 rather meaningful items affecting comparability, and that was the sale of UC, the credit information service that we partly owned in Sweden. We continue to own it, but have sold it to Denmark. Together, they recorded a profit of SEK 4,500,000,000. So we will exclude them for the rest of this call. 1st 6 months, still historically very low credit losses recorded. Unchanged cost income of 0.48 percent and a 30 basis point improvement in core equity Tier 1 compared to the end of Q1. And return on equity for the first 6 months came in at 13.9%. Looking at the 2nd quarter isolated, we had a 10% increase in operating profit, 2% increase in costs, but still roughly in line with our cost target of having a cap of SEK 22,000,000,000 and operating profit up 17%. The return on equity of 16.5% in the quarter alone should be commented that there was an additional item which has a nonrecurring effect, and that was a SEK 6 100,000,000 improvement on the tax line that will which is a one off. So one needs to keep that in mind before thinking about the future for return on equity given the strong second quarter results. We can then also look at the net interest income, which grew 9% year on year year to date. Three main drivers. 1 is the corporate lending was affecting this positively. We had an 11% non FX adjusted increase year to date in our corporate lending book. FX adjusted, it grew by 6%. And of course, the whole result has been meaningfully helped by a depreciation of the Swedish krona one needs to keep in mind. We had a stabilization or a marginal improvement, one could say, on the deposit margins, which we've recorded a lower deposit income quarter in and quarter out for a long time. That's now stabilized around 0. It actually came up a bit and it's predominantly because we've adjusted the fees that we charge on deposit for professional clients. Slightly lower funding cost also helped in the yearly comparisons on the NII. Fees and commission grew quite strongly true over 2 in most areas was a broad based recovery. Lending fees were standing out as particularly strong. The contribution from the wholesale division, LC and FI, was 30% improvement from Q1. And CPC, our mid and SME corporate business coupled with private individuals grew with 9%. However, following the weaker Q1, it's kind of back on track. So the first half this year, we ended up being roughly in line with last year. Finally, on NFI, I'll just say that we have a rather meaningful decline as of the first half of 13%. That is predominantly explained by a better than normal Q1 in 2017, where we had a strong effect positive effect from our treasury. Looking at the last five quarters, we've been around the €1,500,000,000 to €1,600,000,000 to €1,600,000,000 per annum. I'll just say a few words on the corporate activity. So we have seen an uptick in several of the categories that we follow. But it is relatively broad based, which is a difference from the past. 2 quarters ago, 6 months ago, we talked about the lackluster growth we had seen up until that point for corporate activity, particularly given good macroeconomic growth both internationally and domestically in Sweden. 2 quarters ago, we saw something were happening, not really materializing in Q1, but we now see a little bit longer trend that we've come up, about 8% currency adjusted year on year change on the large corporate side. The CPC division is growing 7% and the Baltics 12%. So it's a geographically broad based increased activity amongst clients when it comes to demanding more credit for expanding production capacity to meet their demand. We also see an interesting shift beginning where ECM and the equity capital market coming back to a more normal level from having exceptional high activity over the last 2, 3 years and M and A coming back a bit. And we also are happy to see that this beginning of what we hope will be continued M and A strength that we remain relevant to our client base. A few things I'd like to mention. So we all have agreed on what we are saying for the future. The first one is, as we have now concluded the sale of SEB Pension in Denmark, we will still reiterate the cost cap of $22,000,000,000 for the full year of 2018. Mainly, this is due to the FX effect that we have year to date have a $150,000,000 increase in cost just due to the $1,000,000 increase in cost just due to the weakening of the Swedish krona. And we remain the target to come in below SEK 22,000,000,000 of cost for this year. We've also talked about the over normal increase in NII in 1 quarter, namely going from $5,000,000,000 to $5,500,000,000 And in our best estimate, about half of that increase, dollars 250,000,000 is of a more temporary nature that we don't assume for our own benefit to be naturally reoccurring. There's a little bit of FX, there's a little bit of things in the markets division and there are some events that may happen again, but one cannot take it for granted. And also, we've had an NFI guidance over the last couple of years for 1 point 3 to 1.5. And with that, we've always pointed to that's the client driven point estimate of where we should be if nothing exceptional happens, of course, with a high degree of variation around it as it is volatile income row. However, given that we've sold SEB Pension in Denmark, we now revised that to SEB 1 point $2,000,000,000 to SEB 1,400,000,000 so SEB 100,000,000 lower. And the 4th update that we have done is, as we are coming into a what is expected to be an end of this interest rate cycle, We've updated our kind of set here as paribus, everything else being equal effect of 100 basis point increase in interest rates in Sweden. Previously, we said that would be SEK 2,000,000,000 of a positive impact for a 100 basis point increase. And as deposits have grown, this has been a negative rate for it's been lower and longer than we expected at the time. We've updated that to a SEK 3,000,000,000 of an expected everything else being equal effect just by increasing the Swedish krona interest rates by 1 percentage point. I think I'll stop there and take some questions if there are any. Thank you. And your first question comes from the line of Powell from Goldman Sachs. Your line is now open. Please ask your question. Hi, and thank you for the presentation. Just two short questions. So the first one is on your corporate loan growth. Obviously, you mentioned that there is a change in level of activity and that demand is broad. Yet if we look at the growth rate for this quarter, even FX adjusted, they seem to be very strong. So could you give us a sense if there is any catch up in the quarter that perhaps overstated the rates? Or you actually think that going forward, the corporate activity can be can remain strong and supportive? And the second question is just on the NII. You mentioned that half of the increase this quarter, so around SEK 250 1,000,000 comes from non recurring items. Can you help us understand how much of NII growth is related to FX alone? Thank you. Sure. If I first start with the sustainability of our corporate loan growth, we, of course, don't know if there is a catch up effect. I think it's reasonable to assume that the Q1 result was slightly more depressed than the market activity actually indicated, as we actually also said in conjunction with it. On the other hand, it's not a 1 quarter phenomenon. It's a couple 3 or 4 now. So you'd actually seen a different level. Anecdotally, we do a lot of the analysis looking at the breadth or the width of where do the loan growth come from, geographically and customer segment, SME, midcorp, largecorp, different Nordic countries, UK, Germany and the Baltics. And it looks pretty much like there is a theme of being something of a more sustainable increase. One could also word it that if you look at the SEK 600 billion we have in large corporate lending or the few SEK 100,000,000,000 in the other, there's nothing indicating to us that those levels are not the new levels. However, the growth rates we've seen over the last 12 months, I don't think is sustainable in the medium to long term. They are unusually high even adjusted for FX. This is Matti Alter here. And your second question on NII, what we're saying today on the SEK 250,000,000 is that those are short term effects that we don't think automatically will you see in the numbers going forward. We don't include FX in those numbers. If you look at in the factory, you can see that Q2 versus Q1 FX improved revenues by SEK 231 1,000,000. That's the total impact of all revenues. There's no split there on NII. I think you can possibly do those calculations yourself by looking at how much of our exposure is in different currencies. But on the SEK 250,000,000, EBITDA is not included in that. That's very helpful. Thank you. And can I just come back to the level of activity? Can you and the catch up effect. You mentioned that there is none or it seems much more genuine than but have you seen the level of activity of continuing throughout the quarter? I know the monthly data perhaps is volatile, but has it continued into July as well? Can you give us latest thoughts on how it develops after a whole week? No comment on July, but I will say this, the pipeline that we've seen since mid last year continues to be robust and we have no indication or not signaling any negative change. So the activity levels we've seen over the last few quarters, there's no indication for us that, that is not a sustainable level in this current market. Thank you very much. Thank you for your question. And the next question comes from the line of Jeff Dawes. Your line is now open. Please ask your question. Yes. Good morning, everyone. Jeff Dawes here from SocGen. I wanted to talk about the mortgage margin comments that you made. I think the comment was that the front book is running about 10 basis points lower than the back book right now. Can you just give us an indication of whether the front book is likely to deteriorate further from that level? And also what you're doing as a business to kind of close that gap or keep the margin pressure manageable on those levels? I'll stick with just that one question for now. Thank you. Sure. I mean, so I'll restate what we said. The margin for the whole mortgage book is down 2 basis points in this quarter, but we have the leading indicator of where this is going as we are now closer to 10 basis points lower in the new business that is being written as compared to the past. There is a 2, 2.5 year like timeframe before the front book becomes the overall book. And of course, the mix between these are all on floating rates. The mix between fixed and floating dictates if it's going to take a little bit longer. The more fixed people choose, the longer it takes for the margins to actually come through. We have no indication that this is going up or down from this level, so to speak. We're pretty satisfied with this new level. There is definitely a strategy for ourselves to try to protect the margins as well as we can. But that's really by service, convenience, meeting our client base where they want to meet us because the real game on is right now to make it very simple for anyone to extract a mortgage. And we're doing quite well. We have had a digital mortgage promise now for a year, and we're now going into the new phase in actually getting the actual mortgage provided completely digitally. And you see a big uptick in demand. The reason why we are a little bit cautious is also that we think we've had an effect of falling house prices since August last year, currently stabilizing together with an increased amortization requirement if you borrow more than 4.5 times your annual gross salary. Those two effects definitely means lower demand for mortgages. Lower demand is, of course, correlated with the price. Higher demand increases, price lower reduces it. And we think we've had a disproportionate effect of this as we are the smallest mortgage bank amongst the large Nordic banks, and we are predominantly in the larger cities, Stockholm not the least. So we think that could be an explanation that this could be reversed once we get a new base to be compared with in the future. Okay. And just separation of components, the list price on the mortgages is obviously unchanged. So what is changing? Is it the funding cost? Or is it the discount on the list price? It's the discount on the list price that explains why the output price, the price that our clients meet now is recorded by the 3rd party, I think it's FI at 10 basis points lower. But one should also be reminded that this is very difficult number to always explain. Because if you have a lot of success in your private banking, where you have relatively valuable large mortgages, they have a different price point than the average of the economy. We are relatively large among the affluent. So when we do well in private banking and other areas, that might affect the mix, which affects the average out price. It does not necessarily tell you anything about the profitability for the group. It tells you about one product on the margin compared to last quarter. I'm not saying that is the case, but it is definitely something to keep in mind when you look at different banks. If you are nationwide reach, you have a very different dynamic to how the output price grows depending on where the demand is. The next question comes from the line of Nick Davy. Your line is now open. Please ask your question. Yes, good morning and good afternoon, everyone. Three questions, please. First one, maybe just quickly to follow-up on that mortgage margin comment. To what extent is rising Stibor squeezing that front book margin in the way that you think about it? And maybe another way to phrase it is because you're now starting to talk about deposit margins going up, and I would thought that's sort of flip side of the same coin. So on a static balance sheet, which is a mortgage funded by a deposit and a covered bond, Is the spread on that combined business going up, down or sideways? That's the first question. The second question on your EUR 3,000,000,000 sensitivity to 100 bps interest rate move. Could you just try to split that out for us in terms of how sense do you think you are automatically to rising rates? So just kind of bond portfolio and your funding position. And how much of that EUR 3,000,000,000 is making some assumptions about passing all of that 100 bps on to a mortgage rate? So if any sense of automatic versus behavioral? And then the third question, going into the fee line and particularly the market related fees. I I took the comment that in ECM, you're saying you've had a really strong period and you're down to more normal levels. I just wondered if you could comment more broadly on, if I look at primary and secondary fees. I think you only give us the gross number. They are down quite sharply year on year both in Q1 and Q2. So do you think those ECM comments go more broadly also to the secondary trading business that you've had a good run? Or do you think actually that we just had a slow start to the year, there might be a bit of catch up in the second half like we saw in 2016? Thank you. Yes. All very good and deep questions to answer. I'll start with the Stibor effect or the funding cost effect on the margin for the mortgage book. I would say no effect. The gross effect comes from a lower list price taken from the clients. This will, of course, on the margin, will be helped if the spreads for the bank go tighter. And as you might remember, we got upgraded a few months back. But right now, there's very little differences in how banks are financing themselves in this part of the world. When it comes to the 100 bps, it's very difficult to do like this over the phone. But is one effect which is immediate, and that is everything that is in our deposit base coming from retail clients in Sweden. That's really just offering them 0 interest rate when the market reference point is minus 0.5. So as that goes up by 10 or 25 or whatever the first hike will be, it's just immediately a lack of leakage, a 100% effect. But then there is the other side of our deposit, and that's the corporate and institutions. And institutions, there's very little delta because we are actually charging professional clients of ours what the market rate is. We have not subsidized them. We kind of have a pass through. But of course, needless to say, there's not a lot of margins in it, so to speak. You don't make a lot of money on it, but you have less of a leakage. Hence, when rates go up, there will not be the same immediate effect. There will come a new place above the 0 where you actually start offering a deposit margin, which is lower than the reference rate in the economy, but that might not happen day 1, so to speak. And then the last one was fees. I mean it is a bit of a Jacques, as you observe, it's down from in the year on year comparison, but it's very strongly up in many areas from the Q1. I think Elsinify had a 40 percent increase and then 30% or something of fees and commission, 30%. There is a it's not the sum of the money being made booked in ECM, in IPOs, etcetera, it's not a very large number. It's a very helpful number on the margin and we need it because that's what drive return on equity for this bank over and beyond what others do. M and A is a much more forceful portion, so to speak, of the investment banking market in the Nordics. Secondary has actually had a pretty decent in equities, I think you mentioned, a decent Q1. So I would say this is a little bit of a recovery for the whole segment and the mix will change. Secondary as we are hopeful on, ECM will continue, but it won't be the only leg for the investment bankers, so to speak. They will also now have to have a more normal environment where you have a mix between equity capital markets and M and A. Nick, can I just add on, this is Matt here, on the NII sensitivity? The number SEK 3,000,000,000 is based on what happens on our liability side of our balance sheet. So we take into account how much equity we have, which is obviously interest rate free, what happens to deposits when rates go up. And the only thing on the asset side we take into account is how many how much loans we have with LIBOR or LIBOR floors. We don't make any assumptions on what happens to asset margins on mortgages or corporate loans in general. I think that's up to you to do in that scenario with rising rates. So only liabilities and these type of flows. That's really fair. And I suppose the follow-up question would be, it's still very high sensitivity. And if, let's say, the group of listeners here today expects rates to be 100 bps higher a couple of years from now in Sweden, do you really want us to put into our models sort of 15% NII growth in the period from margins? You're totally comfortable with that happening. There's no No, don't do that. I think Why not then? Yes. No, because when you I mean, in a way, you can't do these things. And I wish in a way we wouldn't have gone out and said these numbers because there are 150 assumptions if you want to model this up appropriately. First, I think you should make an assessment where would the normal margins be on the mortgage book on consumer lending and on corporate lending given a higher interest rate. One could argue that the super cycle has really meant very low interest rate despite very good GDP and the banking system has made up for it by having a loss making business in deposits, but it's worked on the lending. That dynamic is reasonable to assume one needs to reconsider should rates go up. So this is really an attempt, everything else being equal, so you have a base and then make your own assumptions on where do you think mortgage margins, lending margins to corporates and pricing power will go both on deposit and on loans when you normalize interest rates. Clear. Thank you. Your next question comes from the line of Kim Virgo from Deutsche Bank. Your line is now open. Please ask your Just one sort of follow-up, one question on the economy. You're mentioning that this probably sort of the end of the cycle and also talk a little bit about some of the shifts in the Swedish economy. Could you elaborate a little bit on that? What's how do you see the outlook for the Swedish economy? How do you see it changing sort of between corporate and particularly between corporate and retail lending growth, for instance? And what's your outlook for the Swedish economy also given what we're seeing sort of macroeconomically and geopolitically? Yes. I mean, I'll start with saying we're pretty constructive on the macroeconomic outlook in Sweden. The Swedish macroeconomic outlook is mostly relevant for SME, mid corporate retail. It has quite little correlation to do with the large cap, which represents about 40% of the P and L. That's more the global outlook because 95% or so goes on export. Sweden's domestic market is not very relevant for those. So we're pretty constructive. Looking at the discussions we have here is that growth will continue. We have a reduction of GDP growth for Sweden planned in, coming from the 2.5% area in 2017, 3.2% in 2016. We'll probably think about low 2%. So still healthy, but a little bit less bullish than we had a year or 2 ago. The difference in the Swedish economy that we are now pointing to a little bit just led by the leading indicator that we saw here and now is that the housing price increases and the asset wealth it has created, we believe has had some effect on a positive outlook on life for retail, for households in general. We've seen household indebtedness both in the form of increased mortgages and increased consumer loans, which historically was not a big portion of the Swedish economy, it's outgrown nominal GDP for several years in a row. And to me, this is a personal reflection. To me, that's when you have a parallel shift into demand for credit, thanks to very much lower interest rates. So during this cycle where we go from positive 3% down to minus 0.5%, you get several of years of a new equilibrium establishing. And I think we've seen that now as house prices are no longer increasing, the need to borrow more is therefore less. And if interest rate goes up here later in the year and we kind of rate this cycle once and for all in this cycle, you will, of course, once in the near future start having to pay for the leverage you have put on and that's going to be a test. Your question sorry, your next question comes from the line of Sophie Peter Zients from JPMorgan. Your line is now open. Yes, hi. Here is Sophie Peter Zanes from JPMorgan. I just wanted to ask about RWA growth going forward and how do you think about that. Your risk credit assets grew 3.5% quarter on quarter. Your loan growth was also good, but it was slightly below 3%. How should I think about risk credit asset growth going forward? And what will drive that? And my second question would be around excess capital. How do you value CARFA buybacks or increasing the dividend payout versus growing faster and investing basically excess capital in growth? And thirdly, could you just remind me on the fee guidance and how do you think about fees on an annualized basis going forward given that we have quite a lot of quarterly volatility. When I look at the past 6 quarters, it has been up and down, double digit almost every quarter, so kind of more on an annualized basis going into 2019 2020 as well? Thank you. Hi, Sophie, it's Matti here. On the Ria growth, what we've seen so far this year is that we've had some lending growth, which obviously increases Ria, but then offsetting that, we've seen a slight improvement in asset quality, which lowers the average risk weight. So, so far this year, we've seen that effect. I think going forward, for convenience, it's easier to sort of assume that RIA growth, at least the part that's related to credit, grows pretty much in line with your estimates of lending growth. As you can see, this quarter, we had a pickup in markets rea, but it's pretty much come back to a more normal level. So that seems fair for that to sort of stay where it is. On capital, as you can see, we have a 2 60 basis points buffer in this quarter. We saw last week that the FSA is considering to raise the countercyclical buffer by 50 basis points for Swedish exposure. That could have an impact of 30 basis points or so for us if that happens. And then by year end, you're going to see a change of the mortgage risk rate for Pillar 2 to Pillar 1. That doesn't have an impact on the nominal capital buffer you have, but it does have an impact on the ratio for us. It could be around 40 basis points. So if you take those 2 into account, the buffer is lower than it at this point. And then in Q2, we built about 90 basis points of capital due to the items affecting comparability as well as the underlying profit, but we only built 30 basis points of the ratio, which means that the growth we had in the quarter actually consumes more capital than the underlying profit of the bank. So obviously, we want to be relevant when growth picks up. And if growth sort of stays the level it is currently, it would be better for us to invest the excess capital we have into that kind of growth with that kind of profitability rather than to distribute it to shareholders. So I think we're hopeful on that and hopefully see that happening before addressing this issue by year end. And then the final question on fees. We don't give any guidance on fees. We've only sort of given any guidance or indication on the net financial income. I think we're going to stick to that. Okay, that's very clear. Thank you. Your question. The next question comes from the line of Polina Sokolova from Barclays. Your line is now open. Hi. Thank you for taking my question. I have 2 actually. The first one is on cost. So just looking back since 2014, you've had very little upward cost drift. So from about $21,700,000,000 up to your current cost ceiling of $22,000,000 dollars So cost control is very impressive, but just going forward, will you continue to manage cost to an ambitious cost cap? And if so, is there a risk that you will be under investing? Or put another way, is maintaining strict cost control a priority over making investments that are maybe nice to have but not critical? So that's the first question. And then the second question is just, I noticed there's been an increase in provisions in corporate and private customers. So it's kind of the highest level quarterly level since I have to go all the way back to 2015 to see that level. Could you maybe comment on what you're seeing in terms of underlying asset quality in this division and whether there are some one off client files that have driven the increase? Thank you. Thanks, Paulina. I'll start with the cost cap. We don't talk about any number beyond this year. So we maintain cost control through the notion of a cap of SEK 22,000,000,000 and we'll do our utmost to continue the very successful recent history of being able to keep that. On your more if we're recent a bit, I would say that we have up until now been very satisfied with the amount of investment we have done under that cost cap. And very simplistically talking, we've had at least SEK 2,000,000,000 every year assigned under that cap for forward leaning true capabilities enhancing investments. Then there is a gray zone and there's several billions that we've invested not at least to implement the regulatory regimes that we now need to do. And they also have in the long run some benefits for clients and for ourselves. For example, transaction reporting, documentation of customer advice, etcetera. And then more normal course of business, we invest in people. Even though we have over the time period, you are talking about reduced the number of FTEs, we still have a pretty large gross number of close to 10% of FTEs that we bring in every year. So there is this kind of under the hood transformation of competences as well as investing in some people in the investment bank over the recent times. I mean going forward, it's actually the $1,000,000 question. It is where do you invest right? We will not ever come up with a plan where we would say that we are under investing. We do need to invest to make a better bank for the long term future. But we have no guidance right now. But safe to say, the cost control that has been part of the DNA of people in this bank over the last 5 years, I would say, it's kind of been adopted. It's something we cherish and we will continue to have it. Then exactly in what form shape or form, we will get back to you on. And it's Matt here. On your second questions on the provisions and CNPC, you're right, it's a small uptick Q1 versus Q2. You should remember that we're under a IFRS regime, R9 regime now, which means that these are expected loan losses. And to some extent, these are driven by macro assumptions. So if you have a downward revision of Swedish GDP growth, that has an impact, which is pretty much what's happened now. Nothing has been materialized at all in that division when it comes to loan losses. So these are expected loan losses driven by macro assumptions. I think if anything, if you look at the bank in total, asset quality is slightly better than Q2 versus Q1. And I think the best way of tracking that for you is to look at the average risk weights of different exposure types, and you can see that they are pretty much unchanged in this quarter, but slightly down to some exposure types. So no real change really. Thank you. Thank you for your question. The next question comes from the line of Jacob Kruse from Autonomous. Your line is now open. Hi, thank you. I guess two quick questions. Firstly, just the discussions around agriculture and farming. I know you don't have a very big book, but are you seeing any sign of the poor crops affecting farmers in Sweden from a more economical stability standpoint? And then just secondly, on the other income line, the loss there, you talked about there being a number of gains, etcetera. Is how much of the weakness here was temporary as you talk about temporary NII benefits and perhaps commission? Is there a temporary other income offset here that we should expect to revert back in Q3? Thank you. Thank you, Jakob. On the agriculture, I would phrase it like this. I would not tell anyone to worry from a, call it, national perspective when it comes to affecting anyone in business and the financial performance. However, it is a disaster for the farming industry. And of course, if a bank would have most of its lending to it, you would be in a tricky position. We don't. So as you know, it will be a rounding error and we'll actually continue with our history of supporting our clients when they go tough, but it's not going to be meaningful. The more meaningful debate here and now is actually if we need to import a lot of grain, etcetera, to make the kind of household products normally made in this part of the world. And we have another day of 30 degrees plus here today, so it looks pretty dim. But I would not call any kind of red flags for the economy as such for us. And to your second question there, on the other income line, you have a few different things included in that line. You have possible sales of any sort of smaller nature. You have valuation effect. You have dividends. I would say the negative number you have outlined this quarter is not the sort of new normal. You should expect that number to be positive. And I think Q1, the 153,000,000 is a more sort of likely long term level. It's very difficult to assess, but negative, it's not the sustainable level. That line should be positive in the future. Okay. Thank you very much. The next question comes from the line of Riccardo from Mediobanca. Your line is now open. Good afternoon to everybody. A couple of questions, if I may. The first one, this morning during the press conference, you mentioned you would like to redeploy your excess capital in the business. I think those are the words that you used. Is there any particular area where you think it is worth to invest rather than trying to pay out as much as you can in the coming quarters and years? This is the first question. The second question I have is more of a I just wanted to understand what is the underlying level of NII in Large Corporate and Financial Institutions because the jump we're seeing, which which is basically enormous, is a bit is really, really difficult to understand what is driving that and if you would be in the position to say what you think it could be a kind of recurrent level of NII in that division, which keeps going up and down? And maybe there is also some trouble in between NII and fair value items, if that is the case. Thanks. Thanks, Riccardo. Well, on the excess capital point, it's pretty simple actually. We're here to support our client base. And the best thing we know is, of course, if they grew if they grew more than they've done historically and they require capital to do so. I mean, from a strategy point of view, it is very challenging in certain geographies and in high investment grade state in area. So the really good credit quality names, you don't get the return. So we are, of course, always trying to calibrate these lending opportunities to be driven towards the areas where the capital actually has a good return. And those are in 3 forms. 1 is any transformational type of transaction. That's the event driven and a little bit encouraging to see that M and A is coming back. M and A is a much more common driver of complete rehaul of the capital structure and acquisition finance, regardless if it's a PE firm or a big industrial who do it. And those we definitely need to protect that we have, call it, the powder dry to support. Anything else would be really bad for us. The other is that when the investment banking area increases, that's bonds, that's also the primary side of equities, but also M and A bridges and the velocity on those type of capital commitment goes up. And that's a different type of capital deployment, but it's really normally very worthwhile when it comes to the return. They are less permanent in nature. Hence, the length is shortened and the fees are greater in comparison to the term commitment you do. Hence, we actually get those to work a little bit better. And then the other is the normal growth of the average client that we have. And that could be anything from revolving credit facilities and just backups and whatever you have. They need to increase as your business a client of our businesses increase. So those are really the ways we would like to do it. And only if we cannot do that, we would actually call it excess capital. Otherwise, it's not excess. It's actually there to be used. Right. And then, sorry to interrupt you. Is asset management an area, given the trades will probably remain low, even maybe a bit higher than today, but in any case low for a reasonable period of time, is Asset Management among, let's say, maybe the last among as part of the last bullet, the last that you mentioned, let's say, the normal part of your business. Is that the case? I'm not sure I understood the question looking at it. Well, I understand that your capital is going to be redeployed in credit. That is the first thing you mentioned. 2nd one is IB, okay, in general. Okay. And the third one, if I understand it correctly, you mentioned under the ordinary course of business for the rest of the year for the rest of the group. Now I'm just trying to understand whether asset management can be included in the last of maybe the bullet points that you mentioned before? I would say not so much, no. So when I say general, of course, it's actually your first point about credit over and beyond or so away from the events, the transformational things, someone coming to the capital market or buying something, selling something or spinning something off. So that's what I meant. It's actually the normal, financeability of corporate Europe, if you will, will want. I mean, 70% of the capital provided in the debt format in Europe is bank loans. So when our client base in Northern Europe grows, that's the kind of the normal business, which is very broad based. And I wouldn't say asset management is a particularly capital consuming part and actually the opposite. The asset management is about a savings bet and it's around us taking our fair share and being sure that we're doing the right things and it's very accretive. All right. Okay. Very clear. Thanks. Just going to come back to your question on NII and LC and SI. As we said this quarter, we have about SEK 250,000,000 of the NII in general increased Q on Q, which we believe is not sort of is of temporary nature. I would say that most of that is within Nelson FI. Just want to to understand the underlying NII in that division this quarter, you should deduct that number. And you're right, there is some traffic between NII and net financial income within that division. So you should see those 2 to some degree together going forward. Right. What exactly do you mean when you say temporary? Temporary, does it mean is the magnitude of the increase or is the nature of the increase meaning that this will disappear? It's more sort of the fact that some of this effect you saw this quarter is driven by our markets business, and it has to do with how you value different bonds, different effects there on coupons and all that. And that could sort of depending what happens can't be registered on net financial income or NII. When we follow this historically, we can see that the level we had this quarter is a very high level and that's what we sort of base the assessment that is a temporary. It usually goes up and down, and at a very high level, we assume it's going to come down to a more normal level going forward. Right. So this is to say that next they will not disappear. They might eventually be booked in another line of the P and L. Did I get it right? That's correct. All right. Thanks. Thank you for your question. The next question comes from the line of Ian Silley from Citibank. Your line is now open. Thank you. Good afternoon. It's Ian Silvi from Citigroup. Two questions on the Baltics first. Firstly, can you give us sort of comment on where the Baltic impairments should be going from it? Because obviously, we've seen write backs and cost of risk being quite low for quite a while. So I'm just wondering when that should start to normalize. And the second question on the Baltics. If I look at Page 38 of your fact book and look at the market shares, we've obviously seen them trending up across all three markets. So I was wondering if you could sort of give us a bit more color on that in any areas you're seeing opportunities in. And then the second question is on cards. When I look at the bottom of Page 35 of your fact book, we see turnover seems to have increased substantially, while number of cards that you're issuing seems to have fallen slightly. I'm just wondering why that is? Thank you. Okay. Thank you. If I start with the Baltics and the asset quality, we have had what, it's a 7, 8, 9 year improvement now since you might remember in 2,009, it was the biggest problem of the bank. It's now one of the most best performing areas of the bank. I don't think there's much left. So I think it's we're getting very close when it comes to the credit quality of getting to the fair level. One thing that has been concluded and been part of this kind of recovery story is the real estate exposure. That is more or less done this quarter. So I think we are getting very close to a normalized level. Sorry, I don't have exact details, but you understand my general theme on that. When it comes to the market shares, Page 38, we are doing very well when it comes to market share gains. I'll give you 2 explanations to what's happening in the Baltics. There are 3 cohorts of banks that enters into the competition analysis when we look at the Baltic. 1 is our Shells and Swedbank. 2, Swedish banks with a fairly large market share together in all three countries. Then you have Luminor and Danske Bank, more or less clearly in the middle where Danske has explicitly said they're exiting. That's a fair share of the marketplace, probably 10% some years back that is then up for grabs for everyone else. So it's a little bit of an of just a zero sum game that if you have someone exiting, it's for the remaining ones to go for. Hence, you increase your market share if you're successful relative to the others. And Luminor, I guess, you should see from a competition, it's a retake where you've taken DNB and Nordea, you combine them. And during that kind of process, we do find the competition to go down a bit. And of course, one should probably assume that they will come back and become a new third large player in the region. And then finally on your card comment, I mean, it is correct that turnover is coming up. I think that's pretty much in line with the fact that consumption is growing and that even though you've had very sort of high card usage in the Swedish economy, it is sort of penetration is still increasing. So the combined effect of increased consumption and penetration leads to that sort of increased turnover for the average card or sort of the turnover relative to the number of cards. So we should just be clear, so on the card increase, we should see that as a positive for the economy, not as a sort of more people using their cards more because they can't pay up their debts in other ways? I think it's a combination of those two factors. I can split it in 2, but consumption is still growing by 3% or so as we acknowledge that impact that figure. Got it. Very clear. Thank you very much. Your next question comes from the line of Johan Akblad. You. Can I just very quickly come back to your comments around the changes on the mortgage risk rates from Pillar 2 to Pillar 1? You said that you'd expect it to have a net 40 basis point negative impact, if I'm not mistaken. Could you just explain how we square that with your earlier comment that it shouldn't be any meaningful negative net impact? Well, there are 2 ways of looking at it. One way is to look at the nominal amount of excess capital you'll have. That's not going to change because of this move. But given that you're going to move a lot of sort of risk weighted assets or you're going to take a lot of capital from Pillar 2 and recalculate it and make risk weighted assets of it, it means that the nominal amount of risk weighted assets goes up, which obviously means as in ratio terms, the buffer sort of goes down. And so that's sort of the impact. It's just a sort of a mathematical fact in the sense that risk factors go up quite significantly, which means that the nominal number of capital leads to a lower percentage point. So that's the impact. You're going to see the same impact for all banks depending on how much mortgages they have. Obviously, we have less mortgages than most of our peers, so the impact on us is less when it comes to the impact on ratio. But in Swedish krona terms, it's the same amount. And are you thereby indirectly stating that the 150 basis points will be unchanged irrespective of RWA regime? We're not saying that. I'm just saying that the fact that, that shift is going to happen. It will have an impact of about 40 basis points. We haven't seen the final sort of technical way the FSA is going to do that. I think that's going to be announced in August. When we see that, we can sort of guide you even better on it. But based on what they have sort of sent out so far, the estimate is that's going to be 40 basis points. Perfect. Thank you for your question. The next question comes from the line of Adrian from RBC. Your line is now open. Hi there. Thank you for taking my question. Just one follow-up on the NII sensitivity, please. You mentioned earlier that the mortgage portfolio has seen a compression in the actual yield during the quarter. But looking at the fact table, we see that we see at the group level an 11% quarter on quarter increase in the actual loan yield. Are you able to reprice or increase the yield on some of the corporate or SME exposures or is this all a mix effect? Any more color on this would be really helpful. Thank you. Yes. I would say that it's more a mix effect and a volume increase that drives NII than a margin repricing. When we look at the average margin pie by client segment that is shipping, real estate, large corp, SME, mid corp for the same risk quality is roughly very it's very stable. So there has not been a repricing of corporate debt in any meaningful form. The mix, however, does change quite dramatically. If you have, like we have in the past, very little event related financings and you have more of them, it's a very positive has a very positive effects on the average margin you charge for your balance sheet. Coupled with a broad based recovery in the corporate space, of course, you get that benefit too of just the quantum going up, not margin, volume and mix. Just one quick follow-up. You mentioned all things being equal, there was not much margin. But is there any move up the risk curve at all that you may be suggesting? No, not really. I would think that to if you look at RWA or RIA, look at the probabilities of default on the average that we look at, it's marginally improved. So but not meaningfully, it's the same. Super. Thank you very much. Thank you for your question. And no further question at this time, sir. Please continue. Okay. If there's no further question My apologies, sir. One last question for Mr. Davy. Sure. Thanks. Just a quick question on the dividend. I know it's a Board decision, but given that you've got this GBP 4,500,000,000 of items not affecting comparability, you've talked about the Q2 nonrecurring and NII, a low tax rate. What would you suggest we do in terms of thinking about your dividend for this year? But you rightly pointed out, it's not we use that the dividend and the response will be a little bit formalist. You say we had $575,000,000 in dividend per share last year. We are committed to have a progression increase of that dividend per share. And that goes actually also through a cycle type of ambition and that's where we keep it. Okay. Thanks. Thank you. No further questions, sir. Please go ahead. Okay. Then I'll just thank everyone so much for participating on this almost 1 hour call. If I don't see you, I wish you all a very good summer break. Goodbye. You. And that does conclude our conference for today. Thank you all for participating. You may all disconnect. Have a good day everyone.