Ladies and gentlemen, thank you for standing by. Welcome to SEB Q1 2018 Results Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. At which time, if you wish to ask a question, you will need to press star 1 on your telephone. I would now like to hand the conference over to your speaker today, Johan Torgeby. Thank you. Please go ahead.
Thank you. Welcome everyone to this conference call that relates to SEB's first quarter result. This is Johan Torgeby speaking. In the room, I have Jan-Erik Back, our CFO, and Christoffer Geijer, our Head of IR. We thought we'll start with just spending maybe five or 10 minutes on the top themes for the quarter. Then open up for Q&A. On the first page that we call Navigating a Fast-Changing Environment, we have tried to summarize what was going on in the first quarter in SEB. It was actually quite challenging as many moving parts had opposite effects in our financial results. We ended up saying that we see the normal seasonal slowdown in the Q1 result versus Q4. However, it was accentuated by weaker equity markets ending up 4% down year-on-year. We see unchanged corporate activity.
All that being said, we have some areas that did a little bit better and some did a little bit worse, and we still see decent business sentiment and a broadly supportive macroeconomic environment, and exceptionally strong capital, low credit risks, and good cost control. We also said that this first quarter, we did get volatility to be reintroduced in particular into the equity market, not so much in fixed income or in the currency markets. We also had a slight negative tendency on stocks that did not help us in the quarter. We saw an elevated discussion about trade barriers and even trade wars. We also followed the geopolitical situation carefully, which seemed in the quarter to have some heightened tension to it.
We've also used an indicator here for the Swedish, call it PMI, to say that we've gone from super positive growth to positive growth. A little bit of nudging down from these record levels. However, still very supportive. This is also the first quarter we have MiFID II, IFRS 9, and the Single Resolution Fund fee that has changed to 12.5 basis points. We just wanted to point out that MiFID had a couple of effects. One is, of course, it's not for free to drive a project like that. We also had a divisional split of income that has been affected of the post MiFID II way of handling the divisional splits. IFRS 9 was really no news other than we now record extremely low credit losses of two basis points, and that the Single Resolution Fund fee has hurt our P&L in the first quarter.
Clicking to the next page, which is really a summary of our financials. We can just conclude that the operating income fell by 4% on a yearly basis. Net interest income came up by 6% year-on-year. Net fees and commission went down 1%. The theme was really around the investment bank not performing as well as in the fourth quarter or in the similar quarter in 2017. We had SEK 200 million-SEK 300 million less of income from M&A, ECM, DCM. The other lines performed okay, custody, mutual funds, payments, and life insurance. We had a 29% drop in NFI. Here we've come down to SEK 1.5 billion in the quarter. We had two themes we'd like to just point out. One was that we had an exceptional Treasury income in Q1 2017 of SEK 400 million. That was not replicated in Q1 2018.
We say it's about SEK 300 million of difference between Q1 on Q1 just because of that effect. We also used in the past the VIX volatility index as a proxy for when one would expect the NFI to go better in our trading and in our business with our clients. Despite having the spike in equities, we didn't really see the line pick up from being around its historical average. Under that line, we could see a decent performance where one would expect, namely in equities, secondary equities, which was up 21% year-on-year. Rates and currencies did not really have a meaningful impact in a positive sense. One can also see that the actual vol We use the European swaption and the EUR/SEK currency did not really move, so they've been continued parked at a quite low level.
I also think we should mention on the NII, the Resolution Fund fee effects. We say that we are now in the first quarter recording SEK 235 million more of an overall cost of regulatory fees. We're paying SEK 625 million for the first quarter in total which is, of course, now the peak year for the Resolution Fund fee at SEK 1.5 billion, and we expect that according to plan to start falling off beginning of next year. We can start with LC&FI. That was then recorded a return on equity of 8.8%, which is a very disappointing number, where the operating profit fell from SEK 2.1 billion to SEK 900 million compared to last year. Again, the underlying weaknesses here were in the markets areas, not relating to equities and the disappointing quarter for the investment bank when it comes to booking of fees.
The loan book grew by close to 8%. Remember, more than half of that came actually from a depreciation of the Swedish krona and wasn't really loan growth. We'll come back to that in a bit. That's really the operational weaknesses that we saw. Other bits and pieces are actually performing okay. However, one should point out that the Resolution Fund fee, the internal transfer pricing mechanism that we use between LC&FI and Treasury, and that we moved out some of the discontinued business in Germany. Those three effects, Resolution Fund fee, internal pricing transfers, and that we have a discontinued business, affected this quarter negatively by SEK 300 million. Going on to Corporate & Private Customers. The same thing with our one equity of 13.7%.
Here, the internal transfer mechanism, the resolution fund fee and MiFID, because we've taken some of the income away from here and up in life and IM, affected this quarter SEK 200 million. These things do not matter for the group result, they do matter for specific financials. We also continued to marginally increase our market share on SMEs. We came up to 160,000 SME and mid-corp clients in our micro space, we continue to develop different digital innovations. Next page, we just look through Baltic, which continues its very good and strong performance, which both offering good growth and improved credit quality. A flattish performance, we improved return on equity to 33.8%. However, here we've had roughly SEK 100 million reallocated from a life and, sorry, CP&C in its benefits. Asset under management grew by SEK 24 billion in the year to SEK 1,854 billion.
Again, the currency had a meaningful effect, SEK 8 billion was really the net number currency adjusted of new sales. Great slide, that is just saying that we have stable development in the long run of our income. Q1 2017 was a good quarter. We just went through that. We're down from that, we're up 6% the first quarter this year compared to 2016. We still have a little bit of medium term growth, even though we do not reach the level we had in Q1 2017. Costs are under control and operating profits as an effect of operational leverage is expected to. Now we have a slide where we talk a little bit more about the growth on the balance sheet in our lending books.
If you might remember, we did see a little bit of an embryo to a pickup after several quarters of just being stable, despite very accommodative macroeconomic environment. Also this quarter, we're up 7%-8% when it comes to corporates. However, more than half of that is related to currency. Think about 2%-3% for large corporates and around 4% for SMEs. Household was really the mortgage book grew by 4%. The market is growing and a bit, this is a similar picture as we've had over the last four or five or six quarters where we're growing, a little bit less than the average in the market. We can see that real estate had a little bit of a flattish performance year-on-year, even though it came up 2% compared to the fourth quarter.
House prices seem to have peaked in September 2017, we've come down approximately 10% from the peak. The last couple of months, it looks like it has stabilized, we also look at the SEB Housing Price Indicator, the same pattern can be seen there, which is really about expectations for the future where being everyone expecting higher real estate prices. The fourth quarter last year, it dropped off down to actually being marginally negative, it's stabilized around the zero. SEB's macro economists view this to go down another 4%, which would mean a 10% reduction on average prices 2018 versus 2017. The final slide is just to show the balance sheet and the asset quality. Again, we have this exceptional low credit loss level of two basis points.
But SEK 100 billion in of more deposits, which did affect our NII negatively as went into negative territory for the contribution from deposits. Core Equity Tier 1 dropped from 19.4% to 19.0%. However, one should note that the weakening of the Swedish Krona contributed to a 50-basis point deterioration of this measure, and that is likely more than we actually show. And the approval of the corporate risk weight models lowered the minimum capital requirements from 17.2% to 16.7%. The subsequent effect that our buffer is intact to a bit higher at 2.3%. I'll stop there and open up for Q&A. Operator, please.
Thank you, sir. Ladies and gentlemen, if you wish to ask a question, please press star and one from the telephone and wait for your name to be announced. If you wish to cancel your request, you can press C#. Once again, star one to ask a question. Once again, ladies and gentlemen, if you wish to ask a question, please press star and one from the telephone and wait for your name to be announced. And our first question comes from the line of Willis Palermo. Your line is open.
Hi. Good morning. Thanks for the presentation and taking my questions. The first one I have is on corporate loan growth. I heard a comment this morning, but just in terms of forwarding and your thinking around the business sentiment that you see. In Q4, you were mentioning a very optimistic climate for corporate, and now we point to more negative sentiment while the macro indicators are very strong. So what has changed and what do you think is needed for growth to materialize?
Thank you for the question. Our aim in Q4 was to say that we saw from a very long period of time, no growth at all, that we actually experienced some growth, and that's the same message we will send here. There is some. It's very fragile, and we're not calling the market to a different, really meaningful level, but there is some encouraging sign. I think that the mystery has not been that we actually now grow with some type of 3%-4% when you have a GDP growing 3% and the global economy very supportive where foreign trade and export-oriented companies do well. It's rather been widening the growth before. And here we are speculating that capacity utilization is starting to come up to a level for the Nordic corporates to actually merit a little bit more of build-up of capacity.
That typically has a strong correlation with asking us for some capital to build out. It is very weak, and we continue to be a little bit perplexed why the loan book has not grown more on the corporate side. It looks promising, but it's really too early to say that we will have any meaningful contribution. Again, FX did a huge difference this quarter. All the estimates that we do on what's underlying are always, as I said, estimates. We'll see where this goes.
All right. Thank you very much. The second question is on the management change that you mentioned this morning and in the report whereby Christoffer Malmer, which is executive board member, is heading a new project with an interesting name, SEBx. Just in term of to understand, could you give a bit more color on the magnitude and the aim of that project? It seems substantial to have a, as I was saying, executive board member to take the lead on this.
Yeah. I don't think you should read in too much that we are actually putting an executive board member into a project like this. It's not relevant when you think about the magnitude. This is a very tiny project when it comes to the staff and the cost or budget right now. It's Christoffer Malmer. He is a very progressive, very innovative thinker about how we as a bank can transform ourselves, our bank, and our relationship with our clients. He is excellent in this field. He's done a lot of good work for the CP&C division, and he really burns for this. We've asked him to do it full time, and we'll get back to you once we have something more concrete to say what it will entail.
It is really an interesting big decision from a strategy point of view, but not a meaningful, call it, when we do the financials, you won't see it for a while.
All right. Thank you very much.
Thank you. Our next question comes from the line of George Dos. Your line is open.
Yeah. Hi. It's George Dos here, from Stockton. Couple of questions from my side. First of all, on the trading income, I think this might apply to the fee income as well, you made the comment in the report that the second half of the quarter was better than the first. Can you just give us a little bit of background behind that? What kind of run rate change did you see? How does that feed through into the second quarter? A slightly related question. If you look at the main divisions, the revenue run rate is now quite substantially below the 2017 level. What needs to change for you to actually report revenue growth in the main operating divisions versus 2017 once we get more into the year? Those are the two questions. Thank you.
Thank you. I would like to play down the change during the quarter that was at the end versus the beginning. There was a few things in the beginning with particularly MiFID II on the trading side and also, I mean, the whole relationship with our institutional client base on markets. That was a bit tentative. People redirected their flows. There was cost and charges and fees and commissions and research, et cetera. We had a little bit of that. Also, the volatility was strong there in the middle, and it actually feels like towards the end of the quarter, it stabilized a bit, and that has more to do on the fee and commission side, that you did see a little bit of a more cautious approach to launching transactions in DCM, ECM, and M&A, and that could explain it.
It One quarter, and you know it's SEK 200 million. That's not many transactions that needs to happen to compensate for it. We're not calling a change in pattern versus the past. Still optimistic. For, let's say the weak-ish Q1 to be recovered, we really need to get client activity up for the rest of the year. The obvious areas that we could think of is that the investment bank continues to perform. They were one of the stronger contributor last year to show a little bit marginal income on the top that made the difference. We definitely have hopes that the loan book continues to grow in conjunction or in tandem with our clients who do very well right now. That there is no more regulatory fees being introduced, because this is really a heavy year for us.
We paid SEK 625 in this quarter. We would love those things to come back. Many of them are hurting income as a negative income. Sorry.
That's okay. Thank you very much.
Thank you. Our next question comes from the line of Kim Bergoh. Your line is open.
Hi, it's Kim Bergoh from Deutsche Bank. I think Jeff just asked one question about the sort of intra-Q change. My second question would be, in the life insurance, you mentioned that SEB Life has now become provider to the Swedish general pension fund scheme. What is the opportunity there? Is that something that we should Where there is a larger opportunity or is it a smaller thing? Yeah, I think that was it. Also, given that the revenue outlook is still looking a bit more challenging, is there a reason to revisit the SEK 22 billion cost target now where income is a bit softer and is there potential for that? Thank you.
Okay. On the successful landing of being part of the ITP in Sweden, I wouldn't put it as meaningful to change the outlook for life. It would rather be the opposite. If we didn't get one of these, it would have hampered the outlook. We're very glad that we at least got this part for our classic. That's just it on that point. On the SEK 22 billion cost cap, as far as we like to communicate, we would stick to that for 2018 and not communicate any change. If we close Denmark in what is planned to be a closed deal in the summer of this year, of course we will reduce some cost.
We also have an FX effect that will come in and be hurting us on the cost line as many of our staff and costs are incurred in other, and you've only had one quarter of follow-through. We will say something around a revised view on the 22 without indicating what it's going to be once we close Denmark.
Thank you.
Thank you. Our next question comes from the line of Jan Walter. Your line is open.
Thank you. Hi, Jan Walter here, Credit Suisse. Just a follow-up from the press conference in Stockholm this morning here. Regarding the commission cost, if you had any more details around those. If we look at the level there, roughly SEK 1.5 billion in fee expense in the quarter, which looks to be a little bit on the high side compared to previous quarters. If there's anything extra booked there in the quarter. Secondly, do you expect any further cost or funding cost benefit for 2018? Lower funding cost for the bank overall. Then related to that, if you have any details on the impact from the AT1, which matured in December, EUR 500 million, how much that impacted the NII in the quarter. Thank you.
Okay. Thanks. If I do this, I'll start with your second, then I'll ask Jan-Erik to go through the commission cost. On the funding cost, generally, I don't think we will have a meaningful tailwind coming from lower funding costs. There is, of course, the deals that we did in 2007. Those bond deals were all setting very nice levels for the bank. It was a green bond. We did a U.S. dollar and a euro. The whole benefit, we're riding this credit spread curve down. It's tailing off and most of it is there. There will be a divisional little subsequent flow between treasury and the others. Of course, it was very nice to see that we got upgraded to Aa2 by Moody's about a week ago. As spreads are fairly compressed right now, differentiation is low.
Of course, for the long run, we are hoping that will give us some future benefit on credit cost. It's Jan-Erik who's got all the points here on commission costs.
Well, I've got some.
Sorry.
Jan, for those of you on the line, I think, Jan, you are now on page 12 in the fact book, and I think you're looking at the table on net fee and commission income. Is that right?
Correct. The roughly SEK 1.5 billion just fee and commission expense there in the fact book. Any detail around that? It looks a little bit high compared to the previous quarters here when we look at the proportion vis-a-vis your total fees. Thank you.
Yeah, that's right. For those of you who've got it in hand, if you look at Q1 2018, I think Johan's comment is on the fee and commission expense line SEK 1,496, which seems perhaps a little bit high. I think that line, if you move over to the left and look back towards Q1 2016, you can see it has moved a bit. I'm not sure it's all that high, Johan, but I admit it's a little bit higher. A related question before I get to the answer here. It came this morning, I think, from Magnus Andersson, who said, well, what if I do take the payments, cards, lending, deposits, guarantees, and others, which is SEK 2,628, a little bit above it, and deduct whereof payments and card fees and whereof lending?
I get to a number which is sort of 200-ish higher than in the previous quarters. The question is sort of twofold. Why is it a little bit higher on the income line payments, card lending, or rather on the other, and why is it higher on expenses? The answer is that it's a grossing up effect. It's an accounting effect partly, and it's relating to derivatives clearing, which we used to do in London that has now been moved back to Sweden. That's part of the explanation, and it's gone from net accounting to gross. It's also, and importantly, that it includes the accounting for emission rights and E certificates, which are both gross. That's why both those numbers are a little bit higher. With that answer, I'm hoping to address both Johan, your question, and Magnus's question earlier from this morning.
Okay, that's very clear. Many thanks. Any details on how much the AT1, which matured in December, impacted the Q1 NII? Since it could be fairly meaningful on a quarterly basis at least. Thank you.
Johan, I don't think that's a huge effect. We don't have the exact number here, but it's not a material effect.
Okay. No, many thanks for that.
Thank you. Our next question comes from the line of Jacob Kruse. Your line is open.
Hi, Jacob from Autonomous. I just wanted to ask on the trading side. I think in the last quarter you talked about the $1.3 billion-$1.5 billion as a sort of normalized level of trading income per quarter. Now you're pretty much delivering on that. I get the impression you feel this was a poor trading environment. I just wanted to try to square this. Is this the kind of run rate we should expect, or is that earlier guidance not really valid? Thank you.
Yeah. I see your question. Let me try to explain why the tonality that you correctly have heard is there. That's not so much about the $1.3, $1.5. That stands. That is assuming we know what our business do on the client side. There is volatility in this number, as you will have to assess all the different type of market movements because it gets hurt here. It's the credit book on the cross-currency derivatives book that we have. It's CVA. Even for us, it's very difficult to assess because you need to assess every currency, every rate, and every share price. However, our slightly more defensive tone is that with this volatility that we so often have been pointing to as a reason it's not higher in the client side, it's a little bit disappointing that we actually got a real spike, and it didn't spike up.
We actually came down a bit. That's really why the comments are there. Looking into LC&FI's contribution to NFI, the wholesale division that could have, in theory, benefited more, you will see a flat development from Q1 last year. There were better on the face of it trading circumstances for Q1 2018, and it didn't materialize. That's why we also showed a couple of more volatilities than say it was in equities. We saw it in equities, we actually had lower contribution from other areas, we couldn't compensate for it.
Okay. Thank you.
Thank you. Our next question comes from the line of Paulina Sokolova. Your line is open.
Hi. I have just one question left. You mentioned that the results in LC&FI are down to the higher resolution fund fee, lower investment banking activity, but also the German business activities being discontinued. Could you please give us an idea of how big the effect from closing the German business was, and if this is now done or will continue to be a headwind for the rest of the year? Thank you.
That effect will not be recurring. That was a one-off, and it's really that Germany that is part of our continuous operation is remaining under the business area LC&FI. As some of the things will be shut down, it will be a positive contribution for the group as we will take out these costs and the legacies thanks to making it a branch. It's not going to be recurring. We don't quantify that in itself, but I'll just repeat the number that resolution fund fee, this shutdown of the discontinued business of Germany in the LC&FI division, we put it out now on a central level, and we'll wind it out together with a lagging effect on the transfer pricing. That together is SEK 300 million. Those three.
Okay. Thank you.
Thank you once again, ladies and gentlemen. If you wish to ask a question, please press star and one from the telephone. Our next question comes from the line of Riccardo Rovere. The line is open.
A good morning to everybody, thanks for taking my questions. Two, if I may. The first one is, with the old merchant bank, let's call it this way, accounting for 40% to 45% of the revenue of the group, are you happy about that? Are you happy with the current breakdown of the different business divisions? Or would you prefer to see some other areas being, let's say, more important than today? This is my first question. The second question I have is, during the press conference a couple of hours ago, you mentioned that Q1 was affected by some cyclical factors. I didn't get exactly what you were referring to. If you may clarify, that was not clear to me. Thank you.
Okay. If we talk about the business mix I'll simplify our old merchant banking representing, I think it was up to 50% at some time. From a strategy and management point of view, we don't manage the size of, let's call it retail banking versus wholesale banking with this percentage in mind. What I would like to say is we don't limit anyone to do the right thing by their clients or to grow because that ratio is something. Our heritage is relatively large wholesale, and we are happy with that. It's not that we need to take it down for the sake of it. However, we have had the fortunate trend for many years, and that is really because of the market, that retail banking has grown better. It's been better profitability, and it's particularly the mortgage market in Sweden has really helped.
We have for several years now had a mass market banking or retail banking outgrowing the wholesale and corporate banking. No problem as such that these things. That being said, we would love to see wholesale banking coming back in force as we still believe in that part of our business. I don't know exactly what you refer to when it comes to comments around cyclical behaviors in the first quarter, but I'll say what I think. There's a seasonal effect, but it's more than a seasonal because I look at the year-over-year number of minus four, and we would love to have had a little bit of growth here. That would have meant that you needed to compensate for increased Resolution Fund fee immediately which is very, very difficult to do when they just hike the price on the regulatory fees that we pay.
We'll still try.
Okay. Thank you very much. Thanks. Bye.
Hello? Anyone there? Operator? Operator, anyone on the line?
Sorry, this is the operator. As a reminder, if you do wish to ask a question today, please press star and one on your telephone keypad. Just bear with me one second. Okay. Our next question comes from the line of Kim Bergoh. Please go ahead.
Oh, hi. It's Kim Bergoh. Actually, I think my question has been answered. Nothing new for me. Thanks.
Thanks, Kim. Operator?
Thank you. As another reminder, if you do wish to ask a question today, please press star and one on your telephone keypad. If you wish to cancel your request, please press the hash key. Our next question comes from the line of Riccardo Rovere. Please go ahead.
Actually, my questions have already been I've already asked what I wanted and already been answered. Thanks.
Thanks, Riccardo.
Thank you very much. Our next question in that case comes from the line of Adrian Ciki. Please go ahead.
Hi there. Thank you very much for taking my question. One follow-up question on net interest income, please. The Swedish mortgage margin remained flat this quarter, but you mentioned some slight positive dynamics in the overall margins implying some expansion on the corporate loan side. One of the discussions last year when the FSA increased the capital requirements for corporate exposures was that the expectation that some of these loans might reprice higher. Do you see this coming through, and should we expect this as a tailwind to margins, or is this maybe less of a benefit than you had expected at the time? Thank you.
Thank you. It's correct. We say margins on the mortgage book is flat, We also say margins are flat for the corporate in general. If you look at the price that we actually charge, I would say there's not been any meaningful difference from the past, and it's in line with our expectation. Everyone needs to consider that the funding cost of the bank also moves the margin a couple of basis points up and down as the actual funding price get accounted for. In general, we'll just indicate this quarter we have no different outlook for the future. It looks stable on both accounts, and we had a little bit of a volume increase, both on the mortgage side and on the corporate side that benefited NII.
I see. You would say that it's more difficult to pass on the increased capital requirements to the corporates than it was to, let's say, household customer?
Not more. It is difficult, it takes time, so far we haven't had really the market reprice to increase margin because of this. As we will have Basel to consider for the long term in the future, also benefit from the resolution funding, which really has been a negative disadvantage being up in this part of the world on the corporate side, which is much more international competition around. There has been a limited ability to go away from what is generally deemed to be a world market price for debt, given a company's credit rating and international outstanding bonds, et cetera. It is difficult, it will take time, but it's no change in our perception of the ability to do so.
Thank you very much.
Thank you very much. As a final reminder, if you do wish to ask a question today, please press star and one on your telephone keypad. If you wish to cancel your request, you can press the hash key. Our next question comes from the line of Nicolas Davey. Please go ahead.
Yes. Good morning, everyone. 2 questions, please. First one, if I could just ask for a few more comments around the fixed income result in the quarter. I take your point about tough operating conditions, and then you've mentioned MiFID and a few other sort of broader markets trends. It does seem that the FIC business had a really tough quarter. Seemingly revenue's down around 50% year-on-year if I get my ruler out in your fact book. Can you just talk specifically to that trend and if there were any sort of non-recurrings in Q1 last year, which meant you were over-earning, but just trying to understand that headline decline, which is obviously worse than what we've seen from most Europeans.
Yeah.
The second question, please. Just understanding, you mentioned, I think this is the first quarter where your deposit contribution to net interest income is negative. I guess is a sort of gap between your deposit rate and STIBOR, but STIBOR was up on the quarter. I'm just trying to get my head around.
Fixed income. Sorry, could you just repeat the second half of the question? The first one I got with fixed income dynamic.
The second part is the deposit contribution to net interest income, which I think you said in your opening remarks was now negative.
Yes.
I think you have a split in your fact book on page 12 on the same point. I'm just trying to understand that way of thinking about the deposit margin. Is this sort of deposit rates versus STIBOR? If it is, I thought STIBOR was up on the quarter. I'm just trying to understand, I guess, how you think about that deposit-
Sure
impact to NIM. If there's anything that can be engaged by putting liquidity further down the curve. Thanks.
Sure. I'll ask my colleagues to help me on the deposit. On the fixed income market, I think it's a very valid comment. It surprised us, we did spend quite a lot of time in the last week to understand it. We are speculating why this is the case, I'll give you a few reasons here. Firstly, we are more exposed to the Swedish krona govie market than European peers, because we also saw that the fixed income didn't really follow the European trend. Consider the following fact, 50% of government bonds are owned by the Swedish Central Bank.
Even if you would have had a similar tendency to trade when things move around and the loan yield in the U.S. hits 3%, you would still have only half of the free float compared to years back when it all sat with institutional investors of ours, clients of ours. That's one very strong indicator that there's just less volume out there. Fixed income investors and many institutional investors, they've given up on these negative rates and increased, if you look at the proportion where they invest, quite a lot in alternative asset management and infrastructure, which is much more illiquid take and hold stuff. We've seen this transition for years now, that credit has increased compared to govies and illiquids have increased to govies.
It is a little bit of a structural change in when things move and rates move, that it's a little bit more sitting on your hands and having more as a proportion of your fund parked. The other bit is really that in the hunt for yield, full stop, it's more of a sense that they have parked it on these low yielding assets, including investment-grade bonds. Even if you would have had the same inclination to trade, we actually think we had less. The asset class as such has been very much more stable, and that could be a portion at least that explains why our fixed income result was a little bit lackluster. On the deposits, I'll just start off on the top of my head to try to describe it. It's not really STIBOR, LIBOR, IBOR, as simply just taking.
We use internal transfer prices. Treasury puts a price on deposits in our bank, and depending on what strategic value can it be had, is it sticky or not, and can it be redeployed in what shape or form, in what currency for lending purposes? There is a very different dynamic. For households, that's where the most of the leakage come from. The negative contribution to the P&L is very skewed towards the domestic deposit base for retail. Because we offer them all zero, and the reference rate is -0.5, and that's at least 50 basis points one can refer to as a negative theoretical margin. Then we can pay internally for that deposit to come, which is better than -50, as we have means to redeploy it. You have corporate, and corporate is a very mixed bag.
Small corporate, tiny volumes, we don't really need to charge for. Large institutional corporate clients, them we charge for. We think they have the same institutional end market at their disposal as we do. And financial institutions, we treat as if they were like us, professional, all of them, and there is a bilateral negotiation on all potential deposits in those instances. These three things move around, and as deposit comes in, none of them is really more than the cost cover. When they increase, it is also important to understand the dynamics between the three buckets, but they're all neutral to negative.
That's very clear. Thank you. Just on the retail deposit side, if you treat them like they have a negative 50 basis point margin, I guess you are then comparing them to STIBOR. I guess some other European banks think retail deposits are very sticky, and all their models tell them they'll be with them for 10 years, so tend to use those deposits and buy something longer dated than the overnight rate at the central bank. Could you just make any comments about, I guess, how you treat those deposits and how you are treating them as very short liquidity? If the yield curve steepened, would you be tempted to lengthen the duration of any liquidity holdings?
Yeah. We don't really reference the deposit basis point with the -50 to STIBOR. We reference them to the central bank rate, the repo rate. I think your question is about how we book it as well. That is a different thing. I'll see maybe Jan- Erik Back is here as well, our new finance director.
Well, our view on retail deposits is that they are sticky, so we treat them as long-term. Typically 5-7 years, I think they are due on the duration of deposit from the retail client.
That's a positive effect for everyone. Any business person who brings in a deposit that is deemed to be sticky, we actually don't have the -50 for our internal governing structures. We have something more beneficial. If it's not, you don't get that benefit.
Okay. That's very clear. Thank you.
Thank you very much. We have no further questions at this time. One final reminder, if you do wish to ask a question today, please press star and one on your telephone keypad. We have another question. It comes from the line of Riccardo Rovere. Please go ahead.
Yes. Thanks again for taking the time. In your opinion, is there anything in this set of numbers that you would consider, let's say one-off? Maybe not by its nature, but maybe by magnitude, something that came despite conditions, that came softer than expected or better than expected. Anything that you did classify as one-off?
No. Riccardo Rovere, I wouldn't say so. Not over and beyond what we've mentioned. One could argue that a Swedish domestic resolution fund fee way above everyone else who is acting in this market. If you're a U.K., American, or Italian bank, you might not have those. Those are, to me at least, they are one-off nature. They are not symbolic of what business we conduct or how relevant we are in the long run for our client base. Otherwise, I wouldn't point to any particular big item in positive or negative for this quarter.
Okay. Very clear. Thanks.
Thank you very much. We have no further questions at this time. Please continue.
We would like to round up and say thank you, everyone. Despite the little coffee break in the middle, we're very happy that you stayed on, and wish you a good start of May.
Thank you very much. That does conclude our conference for today. Thank you all for participating. You may now disconnect.