Thank you for standing by, and welcome to the annual accounts 2015 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 one on your telephone keypad. I would now like to hand the conference over to your speaker today, Annika Falkengren. Please go ahead.
Welcome to the presentation of our results for 2015. Today, I'd like to also summarize the business plan that we worked with the past three years and also present some pieces of the new business plan that was presented today earlier. Page two. Just to complete, it's been an exceptional year in many ways, where each quarter had its own character. I think I leave it at that. To page three. We reported an operating profit of SEK 20.9 billion. As we stated in previous quarters, there are one-off effects in both 2014 and 2015. We had the Swiss tax court ruling in the second quarter, which was adversely impacted by earnings by a total of SEK 900 million. This Swiss tax court ruling is actually an event far back in time.
It is a withholding tax refund between the years 2006 and 2008, that in all courts, until the very last one, was actually approved. I'd also like you to remind you that the last year we had a total positive impact of SEK 3 billion from the sale of our card acquiring business, Euroline and our shares in Mastercard. We did not calculate here with those capital gains in the 2014 annual result either. We always try to strip away these effects regardless, of course, if they are positive or negative, to give you a feeling for the underlying operational results. You really get a feeling for how the bank is running. Having said that, income increased by 2% in 2015. Costs were unchanged and operating profit increased by 7% to SEK 21.8 billion.
Return on equity was 12.9%, and our Common Equity Tier 1 capital ratio increased to 18.8%. The board of directors proposes to the annual general meeting a dividend of 5.25 SEK, which means continued dividend growth. Page four. If we go over to the fourth quarter, it was just as in previous years, seasonally stronger than the third quarter. Income increased by 2% compared to the same quarter 2014, and costs fell by four. An operating profit of SEK 5.5 billion was 12% better than the same quarter in 2014. If I then comment briefly on a few of those lines, net interest income fell by 5% compared to the full year 2014, and was largely unchanged from the third quarter. If we compare the average repo rate in 2015 to 2014, it corresponds to a negative effect on net interest income of around SEK 2.5 billion.
Lending volumes have been stable on the corporate side, even if in the second half of the year saw increased demand for credit from small and medium-sized enterprises. Net fee and commission income remained strong and amounted to SEK 16.9 billion during the year. That was an increase of 4% compared with the previous year. Customer activity was higher at the end of the year, and commissions from IPOs, loan transactions, and mutual fund operations also increased in the last quarter. Wealth management continued to attract good inflows, and markets had a very good end of the year. Net financial income is clearly better than last year, up by 69%. During the year, customers chose to hedge their flows at the same time as fixed income markets came back after a weak ending of 2014.
We have had market valuations, the so-called CVA, DVA, et cetera, on our side this year, which we all know can, of course, vary a lot between the quarters. If I then move over to page five, my last page before I turn to the new business plan, I can state that we will continue the trend of slowly but steadily increasing income and also make sure that we keep the costs stable. We have now for years been working with a cost ceiling. Our day-to-day cost focus produces long-term results. Also this year, at SEK 22.2 billion, we came in under our cost cap of SEK 22 and a half billion. On page six, you see the divisions, and they all show a profitability of at least 13%, but they've all had some differing developments during the year.
If we look at Merchant Banking, the result for the year is up 14%, and again, excluding Switzerland. Given the uncertainty in the markets, client demand for risk management and hedging across all asset classes has been high during the year. The number of IPOs was a record high, and we took part in the bulk of these in the Nordics. Major business deals have been lacking, and credit demand has been generally low. The result for the fourth quarter increased to SEK 2.6 billion. Retail in Sweden has headwinds from the negative interest rates, and both net interest income and operating income fell by 5% for the full year. Operating profit in the fourth quarter was 6% lower compared to both the previous quarter and the same quarter last year.
Negative interest rates hit deposit margins, we, of course, want to avoid having negative interest rates affect private savings. Since last summer, we have grown more slowly when it comes to mortgages, basically half of the pace in the market. We have long stood for households reducing their vulnerability by amortizing their mortgages down to 50% loan to value. Today, basically all customers, more than 98%, with new loans and loan to value over 70%, and actually 93% between LTV between 50%-70%, amortize. You could say that everyone actually amortizes down to 50% today. Furthermore, we are big in the cities, and here we now notice that our ceiling of not lending more than 5x gross income means that one in 10 borrowers actually falls outside our own limit because of house prices have come up to such high levels here.
Move to Life and Wealth. They both report significantly better results for the year, up 6% and 8%. New sales within both Wealth and Life remain strong. Performance fees in Wealth amounted to SEK 175 million during the fourth quarter. For the full year, there were a total of SEK 679 million for the group, and that was an increase of SEK 220 million. In the Baltics, where the profitability was almost 19% in the banking operations, including the real estate companies, the operating profit was 11% lower than the full year. For the full year, mainly due to lower net interest income given interest rates and impairment in the real estate companies. In local currency, lending increased by 2% year-on-year. Both consumer and corporate lending is actually increasing in Estonia and Lithuania. However, volumes declined in Latvia, while asset quality all in all was strong.
On page seven, I'd like to move over to closing the plan that we also did during the end of 2015. That was the end of the business plan that we presented almost exactly three years ago. At that time, many, of course, felt it was pretty ambitious. We would not only keep costs under control but also increase revenue by 15% over three years. This is an environment where many countries still had big challenges in the real economy, and many banks in Europe were not seeing any growth whatsoever. During the past three years, we've been able to further refine the platform we have invested in for the other Nordic countries with a clear focus on selected large corporate institutions. Today, we are regarded as the leading Nordic corporate bank. We have continued to invest in deepening relationships with all of our customer segments.
It's all about having relevant and accessible offerings with good advisory and, of course, good staff. We have delivered on the targets. We have increased revenue by 15%. Return on equity would actually have been 15% if we would have had the Common Equity Tier 1 capital ratio of 13%, which was the requirement three years ago. During the same time period, we have increased our capital by SEK 33 billion or 30% and increased the annual result by nearly SEK 7 billion, i.e., by almost 50%. The total shareholder return has at the same time been 23% per year. All this is in an environment with continued substantial challenges in the world economy and where negative interest rates did not even enter into the imagination for any of us, I think, three years ago.
If we move forward to page eight, I'd like to comment on that last year we did a very thorough job almost during the entire year of working with a Vision 2025, taking in impressions from the world around us and trying to visualize what we think could happen over the next 10 years. Of course, ask ourselves what should we change in order to become the best bank in the eyes of the customers in a longer term perspective. Our Vision 2025 is about how we see the changes in customer behavior, the rapid technological advancement, but also the continued strong influence of regulation and a changed competitive landscape. We created a new vision to deliver world-class service, and that reflects a future where customer focus and digitization is increasing in importance, and actually the customer experience will be crucial.
What we feel is so special with this one is that we don't comment anything about financial or other banks or anything. We just want to be compared to any other world-class company that is in the service sector. On page 10, together with the employees who also worked through how we see the customer expectation for a bank in a digitized world, 2025. We have established very clearly internally that everything we do is based on the biggest advantages, and that is trust. Customers want to share our knowledge and thereby feel that they are making a good choice to choose us. That is why we need a deep understanding of the customer's business and needs increasingly important. Customers must feel that we understand them.
Proactivity and staying one step ahead makes customers feel secure, and that we make it convenient and easy to manage all their financial matters. These are things that we will focus on, put KPIs in, and clearly work with in the bank. When we then, on page 11, have converted our long-term vision to a business plan for the next three years, we have done so both from a growth perspective as well as from how we will transform the bank. In the growth area, you will recognize what we said before, but we will even further consolidate and strengthen our position in Sweden. We will also continue the growth with large corporate institutions in the Nordic countries as well as Germany, and now also the first step into the U.K. We would further advance positions throughout the savings area. Changing demographics poses challenges to pension systems.
We see that with our complete savings offering, including traditional insurance and basic financial security solutions for business owners, we can meet the needs of long-term savings for our customers ahead of retirement. The three focus areas for transformation are we put effort into investing even more distribution service and on digitization, which means that we automate our own business processes with a perspective to do so on the basis of the entire chain, so-called end-to-end processes. We have already identified the biggest and most important processes on the basis of efficiency and customer perspective. Digitization also implies we must invest using all the customer data we have in order to be able to give our customers even more individualized advice. We will invest even more in skill development among both our own employees as well as in service design.
We are recruiting roles that previously did not even exist in a bank, a CDO, head of design, UX specialist, et cetera. On page 12, we then put the new business plan into the numbers. You can, of course, see that this is another pretty ambitious plan. The goal is to continuously increase operating profits by around SEK 6 billion in the coming next three years. I have the same rate of increase as previous business plans. This means an annual increase of nearly 10% or SEK 2 billion. Currently, the FSA capital requirement is a CET1 equity ratio of 16% by year-end 2015. We said that on top of that requirement, we need to have a buffer of around one and a half percentage points for currency fluctuation in the balance sheet. That means that we start from a core Tier 1 of around 17.5%.
We know also that FSA intends to introduce some kind of higher countercyclical buffers, we assume that this will be around 50 basis points higher. That means that over these next few years, we come up to a core Tier 1 of approximately 18%. With the business plan we have laid out, we expect thereby to yield around 14% at the end of 2018, and at that time, assuming a capital ratio of 18%. We of course know that there may be more changes ahead such as the potential bank tax, standardized risk weightings, and other regulatory changes, and the circumstances around the world, of course, can change. This is the base case. Before I conclude, our financial ambitions are in that perspective pretty unchanged.
A dividend policy which means that we want to distribute at least 40% of our profits and where we strive for continuous dividend growth. A Q1 capital ratio, which is 1.5 percentage point higher than the capital requirement from the Swedish FSA. Of course, to maintain the cost cap for another two years, that means 2016 and also 2017. To ensure a competitive return on equity, which means that over time, we aim to achieve a return of 15%, is our aspiration. Customer expectations will be key in our effort to fulfill our goals. We do not want to do anything in this bank where we haven't asked the final and very thorough control question. Does this mean that the customers become more satisfied with us? Making sure that in everything we do, it is a world-class service that we also will deliver.
With that, I'd like to open up for questions.
Thank you. As a reminder, if you'd like to ask a question, please press star one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Your first question comes from the line of Johan Ekblom of The Bank of America. Please ask your question.
Thank you very much. Just two areas, I guess. First of all, looking at your plan out to 2018, but maybe more near term as well, how do you think about the revenue environment? It seems that net interest income growth is clearly lacking at the moment, and maybe we'll have some tailwind by 2018 from rates. What have you assumed there? On the non-interest income, is it fair to assume a sort of 5% CAGR pretty evenly through the period or whatever thoughts you might have there? Secondly, just even more short term, it's been a
spectacular in some way start to the year with this immense volatility, et cetera. Any indication you can give us in terms of how you've navigated this environment?
Hi, everyone. It's Annika here. I think, the base case for the environment around us, we use the Nordic Outlook. I know that there will come out a new Nordic Outlook now just in a couple of days, but we use the one we had during autumn. We always do that, of course, we need to adapt all the time, and we always do. The base case is the Nordic Outlook, where we perceive to have negative interest rates all through 2016, but end of 2017 it will start to pick up. Of course, we have to have a positive yield going forward. Again, of course we need activity all in all. I think, last year, I think we were the only bank so far that did lend to SMEs and mid-corporate. That is a pretty healthy business as well.
I think, again, we need to dig where we stand. We can always find business. The large corporates have not been very active, of course, we hope that that will happen. We don't know. The year has started, I said at the press conference, pretty challenging. Stock exchanges are down. Of course, we don't have a pipeline of IPOs. In that case, it's been pretty quiet. Again, it's an early start, it's a bit too early to say that we think this year is going to be tougher than last year.
Perfect. Thank you.
You're welcome.
Your next question comes from the line of Heiner Luz of Goldman Sachs. Please ask your question.
Hello. I've got two questions also, around your targets and on capital. Generally, on these targets, you have the rate outlook going up towards the end. Should we generally expect this to be more backloaded? The second thing that I have a question on is, when I look at the distribution, where you see the growth coming from, you have the biggest one coming from Corporate & Private Customers. More like maybe include Retail, which seems already a bit stretched while you have Life on investment management +5%, which is a segment, I think people usually naturally put a decent growth rate on. Can you maybe talk a bit where you come to the split and how much you think things will be backloaded? The second question would be basically, you had very strong capital formation in the quarter.
Looking at the ROE part of your targets, would that imply we should see any further dividend hikes to not have the capital buildup weighing on the ROE ambitions?
I can just start with the savings part and the different parts. I think, again, we try to show it, to make it more exact of the back of the envelope gist. You could see if you look back three years, we were wrong on the Baltics. We did not expand as much in the Baltics as we had hoped, but on the other hand, Retail went better, for example. It's quite difficult. It's sum of the parts. We need to do SEK 2 billion more every year. I know what we think in the forecast where we are now, we do think that the SMEs and mid-corporate sector, that will probably grow a bit better than some other parts because the large corporate, it still depends on what they do.
I think also that when you look in SEB, when we see the savings model on the bank insurers model, how that will work, we strongly believe in that also. That is part on corporates and private part because depending on where you put the P&L on the customer or on that part. I think all in all, we also strongly believe in the savings. It's not so, to put it so exact, I don't think we are able to do that. For these coming three years, we actually, in the plan, we don't think that merchants with all the regulatory that is sort of hanging on them and everything else they're doing, that they will be the bigger part. We might be wrong. We don't really know, but that's how the plan is, what we think at the moment.
Jonas, you have some details also.
Let's see if I got your questions correctly. I think the first one related to whether the plan was backloaded or not. I think on that maybe I'll take the opportunity to comment a little bit on the reforecasted assumptions that we've gotten a couple of questions on this morning as well. The reforecasted assumption from the Nordic Outlook in the autumn says we're going to dip down to negative 0.45% during this year and then start to head back into positive territory beginning in 2017. Nordic Outlook goes out to December 2017, where it's positive 0.75%. I think so in that sense, I suppose there's an impact from that interest rate curve coming into the positive. Maybe I'll say something around interest rate sensitivity while we're on that topic.
I think some of you are trying to solve for how much of the operating profit pick up from SEK 21 billio to SEK 27 billion is attributable to the interest rate hike. I think simplistically, I think we can say that the interest rate sensitivity today, where we are in negative, is around SEK 3.5 billion per 100 basis points. Why is it so high? Primarily, of course, because that we are in negative territory, and we've got larger volumes when we are here that are non-interest bearing. As we approach positive territory, that sensitivity comes down. If you think about maybe a year or two back, our interest rate sensitivity used to be around, say, SEK 1.3 billion, SEK 1.4 billion. Then it started gradually to come up to SEK 2 billion and then SEK 3.5 billion, which we've got today.
I think coming up to zero in interest rate or in repo rate is probably around SEK 1 billion. Then the next step up to 0.75% positive at the end of 2017 is a little bit less than another SEK 1 billion. That could give you a little bit of an indication on what that looks like. That was a long answer to that one. Third question, I think, was around capital formation, and I think what we're saying is that we're factoring in what we know here and now, and that is that, as Annika said, capital requirement from the regulator at year-end was 16.0%. That's our best estimate.
We add the management buffer of around 150 basis points, takes us to 17.5%. We add 50 basis points, which is our assumption of the one or two steps of an increase in the countercyclical buffer, which brings us to 18%. Then, whether we can distribute the capital or act on that in one way or another, again, remains to be seen, and what's hanging out there is the uncertainty around the corporate risk weights and possibly the Basel Committee's view on standardization of risk weights. We'll just have to come back to that later on.
Okay, thank you very much. Thank you.
As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Your next question comes from the line of Omar Keenan of DB. Please ask your question.
Good afternoon. Thank you very much for taking the questions. My first question is on capital. If I understand correctly, there's a 280 basis point buffer now above the regulatory minimum. I know it'll get a little bit smaller when the countercyclical buffer comes through. I understand you took a SEK nine billion provision for corporate risk weights, which on the total group is about a 1% risk weight, which is the same assumption that one of your peers made. Just wondering, what are the calculations behind that? Given it's such a small risk weight increase, has this all been a bit of a storm in a teacup? Leaving aside here the questions from Basel. I just have a second question on revenues. Could you offer perhaps a near-term outlook on NII?
Can we expect sequential growth to resume, or is it flat, or is it lower from here? Thank you.
Hi, Omar. I think on the capital and the SEK 9 billion provision that we took on that, there's not that much science behind it, Omar, as you're, I think, trying to suggest. What we're saying is that we've been referring to for a number of quarters the fact that we've got a SEK 20 billion risk-weighted assets effect that we've been waiting for. Now, 16 of that has come through at year-end. From that 16, we've added back nine as a provision for what may come. The 16 was basically divided into two parts, and one of the parts was nine. We put that aside, and it's not to be seen as our scientific calculation of what will come in the year. It's just a part of the effect that we put aside.
I think you should see it in the context of the debate that's been prevalent during the year in that I think everyone in this country, from regulators to banks, is trying to defend the risk-weighted view of the balance sheet. I think it might be a short-lived victory, so to speak, to bring in the full effect and then just have to add it back. It's quite pragmatic, really. In terms of the revenue outlook on NII, I think I'm going to have to pass on that. I think where we stand here now, I think we all know that loan demand is fairly slow, and margin build-up is also fairly slow, even though I expect we will continue to see some in the mortgage book.
I think we have been perhaps lagging a little bit on that, and we'll continue to do that in a good way. I think we added about 17 basis points of mortgage margin during the past year, and we'll continue to try to push that.
Okay, great. Thank you very much.
Your next question comes from the line of Jan Wolter from Credit Suisse. Please ask your question.
Hi there. Jan Wolter here. Thanks for taking the questions. First on the corporate credit demand. I think you just highlighted that it's slow. Could you just give some color on what we could expect and what you see among front office people in SEB in terms of corporate credit demand? Is there any sector where you could actually see that coming up in the next 12 months or so? Then the mortgage repricing, is that now the efforts that the bank did in the second half last year, is that now fully reflected in the P&L? I wonder whether or not the interchange cap. How much impact could that have in 2016? Have we seen the majority of that already in Q4, or will that come in the year ahead? Thank you.
Okay. I think to start with the first one regarding corporate credit demand. It's really difficult. A large corporate, it's been almost nil. Now, of course, you could say that commercial paper markets have been rather quiet, and all in all, liquidity in the market is rather poor. I don't know. Maybe they might do something, but we can't really see it coming from there. I think what we could see with credit demand, it's really much more from SMEs than mid-corporates. As I said earlier, we lent SEK 12 billion into that segment this very last year. It's not a lot, but it's, of course, the only bank that grew there. Of course, I can understand it. I still think that is the market that we will hope to gain more from rather than large corporates. It's really difficult regarding the demand.
I think it's very much up to how China will evolve and how Europe will evolve and other macro factors to really start to see the wheels turning. They are cash rich, they are doing well, and there might be that's coming up a bit more, but it's too early in the year to really tell, I dare say. Would you like to take the mortgage question, Jonas?
Yeah, sure. On the mortgage repricing, Jan, I think all of that hasn't been coming through yet. As we spoke to Omar just now, I think we'll try to continue to push that up. I think in the last quarter now we've got another five basis points or something on the back book. I think that's been a quite positive development. We're aiming for additional effects to come out. In terms of the interchange fees, they started to kick in December, as you know, and I think we will certainly work hard to compensate for all of that. As we stand here now, I think that's going to hit us by some SEK 35 million a month. That needs to be worked on hard, and that's being done as we speak.
I'm hoping that number will come down, but we'll update you further on that as we go.
Okay, many thanks for that. Just to follow up there, if we assume now that interest rates stay at current level, does the bank foresee any incremental NII pressure from the Q4 level if we disregard, again, interest rates and perhaps the mortgage repricing? Can you see now that you have a bond portfolio positions that mature that will by default mean pressure on the NII line? Thank you.
John, there will be a bit of that. I would say about neutral bottom line. There will be positives and negatives, so I can't see any huge change from here really.
Okay, many thanks for the help.
Your next question comes from the line of Adrian Cighi of RBC. Please ask your question.
Good afternoon. Thank you for taking my questions. I have two questions. One follow-up on capital and one on asset quality, please. On slide 12, the envelope slide, it shows an illustrative figure, but it shows an 18% CET1 by 2018, which is lower than the Q4 level. Two questions here. Do you expect further clarity and regulation to allow you to actually reduce the CET1 in the future? In addition to the discussion on corporate risk weights, what does the 18% target assume in terms of other impacts from Fundamental Review of the Trading Book, countercyclical buffer development and other? On asset quality, you provided a very reassuring outlook for future impairments. Can you give us a timeline for this guidance? Is this 2016, or do you see this potentially extending to 2017 as well? Thank you.
Hi, Adrian. On capital, again, what we've done there is to start with the 16% regulatory requirements at the end of December 2015. We've added the 150 basis points management buffer and our estimate of what the regulators may do this year and next in terms of increasing the countercyclical buffer, and that's 50 basis points. That takes you to the 18%. We have not included any estimate of what Fundamental Review of the Trading Book or IFRS 9 or standardized risk weights or anything like that will mean. We're just trying to deal with what we know thus far. I think that uncertainty, you'll have to make your own estimate on that or judgment call on that. In terms of asset quality, I think what we're saying there is that we're pleased that we're at six basis points now.
At the same time, we are very much aware that is probably unnatural in terms of a long-term run rate. Again, we are not speculating on timing or what the level might be, and we normally refer folks to the regulatory or the central bank's main scenarios, which still deal with something like 11, 12 basis points, and you will just have to put in the number you feel is adequate there.
Many thanks. Very clear.
Your next question comes from the line of Jacob Kruse of Autonomous. Please ask your question.
Hi, thank you. Just two questions. Firstly, on commission income. You are annualizing at around SEK 16 billion for the second half or for the fourth quarter, and then you have this close to 400 million interchange fee effect coming into next year. The first half of last year was extremely strong, so how do you feel about the comparison there and your ability to grow commission income relative to 2015 and 2016 and 2017? My other question was just on this whole market and operational risk-weighted asset review. Have you done any sensitivities there, and is there anything you can share about your potential risk of additional risk-weighted assets coming in? Thank you.
Well, Jacob, I think on this, I can't be very clear on either of those two questions. I think what I would say, though, is that yes, certainly we are running all sorts of sensitivities on the standardized risk weights and not least ahead of the capital and dividend discussion into this decision that was just made. There's been a lot of that sort of exercise going on. At the same time, I think one has to be realistic with this, that we just don't know what the regulator is going to come up with. I think the Swedish regulator is just trying to navigate in fairly difficult waters here with the Basel Committee trying to build something two, three years down the line before that hits the Swedish law.
They're trying to build a bridge between what we've got now and what will come later, and I think that's what we're trying to simulate as well. I think there's nothing in terms of sensitivities that we would want to share today. It just becomes very speculative.
We're going to refrain from that. In terms of the commission income, I think for the outlook there, again, I don't want to be very specific, but I think the recipe for creation of commission is the same as before. A broad client base with a deep product penetration into that client base is the recipe for commission, and I think that's going to stay. Sorry for not being very specific, but we'll have to stay there, I think.
Can I just ask also, on your oil and gas and mining exposures, did you take any collective provisions against that book in this quarter?
No.
No. Okay. Thank you.
Once again, if you'd like to ask a question, please press *1 on your telephone keypad. Your next question comes from the line of Alice Timperley of Morgan Stanley. Please ask your question.
Hi. Thanks very much for taking my question. I just have a quick follow-up from the previous question. Just on your oil and gas book, could you just remind us the proportion of investment grade versus non, please?
Alice, we're just looking that up now.
Thank you.
Give us just a second here. Yeah, you could say that half of the portfolio is investment grade. The latter is just under the, I would say, sub-investment grade. The rest of the bulk, there is no client as of today in the watchlist territory. As we mentioned earlier today in the morning, we have roughly done SEK 29 billion worth of on-balance exposure to this. I think it would be fair to consider the exposure, then if you divide it into different segments, we perceive the risk to be different in different segments of the whole portfolio, and you can divide the value chain in many ways. We're looking in it, and we see high risks at the moment in oil field services and in offshore.
I also think that it's worth to mention that SEB as a bank, most of this exposure is to the North Sea.
Since we are not active in the SME and mid-corp segment in the Norwegian market, I think that might be a difference from competition. We have also then, we have had a franchise and an oil and gas operations for many years, so this has not been sort of an opportunistic late cycle move for us. We are doing business with strong owners and with prudent structures. I think that would be the conclusions from. This exposure to SEK 29 billion includes things from the whole loan portfolio across segments that we consider to be oil and gas exposure related.
Just remind me, of the SEK 29 billion, how much of this is the oil services segment that you just mentioned?
I would say we haven't disclosed the different parts of that. We have a value chain of roughly four different segments that we are looking into, and there is no part of the value chain that has a majority part. It's quite evenly distributed out of those categories.
Very clear. Thanks very much.
Your next question comes from the line of Christoffer Rosquist of Barclays. Please ask your question.
Yeah. Thanks so much for taking the questions. I have two. If I could start off with M&A fees and the outlook there. At the moment, we see receding corporate credit growth in Sweden, if I interpret the statistics correctly after, I suppose, a period where M&A activity and acquisition finance has sort of boosted the credit growth in the Nordics and in Sweden. I suppose that receding growth to me signals poor or declining corporate confidence and no greater need to grow. I suppose this is what Annika spoke about China and global growth. It also sort of lowers my expectations of the M&A activity that we saw, I suppose from the second quarter 2013 through to the middle of 2015 will be repeated. If there is a relationship normally between corporate confidence, corporate credit growth, and also M&A activity.
What I'm trying to get to is there any reason to believe or expect that the high M&A activity that we saw during a large portion of your previous three-year plan will be repeated going forward, even though at least credit growth, if you use that as an indicator, is not suggesting that corporates would be particularly active going forward?
Hi. I wish I had a crystal ball so I could answer it clearly. M&A, it can change, the sentiment can change quickly. I think on the other hand, of course, the corporate has found a different way to finance themselves. That will not change, of course. They can finance themselves outside the banking system. I don't think you need to count. It depends on how much you need a balance sheet or not. Regarding the M&A, I think what we did see in the fourth quarter, and what I think I at least rest assured is that when activity comes-
Yeah
SEB we get a fair share of that business, even probably more than a fair share because I think, again, we don't miss out on anything. When it starts to move, we can surely make sure that we will do good. Of course, will it come or not? I think, again, the sentiment can change rapidly. There will be, of course, some M&A. Will it come one quarter, less another? It's really hard to say now. Some corporates have delivered rather stable and good results as we've seen coming out now also. Not everyone has had a tough time. I think, yeah, we remain fairly positive. Of course, there will come some M&A business and of course there will be some large corporate activity, albeit now it's pretty quiet. That's what we are trying to admit.
It's a three-year plan, so if one month is rather quiet, doesn't mean that it will stay quiet for the whole period.
Fair enough. Okay. I suppose, I think the first quarter of 2013 was a little bit of a surprise in the lack of activity there, and then everything opened up in the second. Not really for growth reasons. Do you have a similar pipeline today with companies that are looking more to change the structure of their assets rather than position themselves for growth?
No, I think also I actually have not looked back at 2013. For me, we turn the page all the time, so I try not to look so much back, but we try to bring everything into reality. I think at the moment, we hope to get more from SMEs and mid corporate sector. That's actually where we think we can do a lot more. The large corporates, we stay close to them, and we will get the portion. Of course, what they are thinking about and what they might do, it's a bit early, but that's why we put the bets likely more across Sweden now and across asset classes, and also on the savings part. There might be a mixture of where we see it. I think the important thing is to make sure that we get all the ancillary business that we can get.
That needs to be a close eye on that. Of course, if there comes an IPO and who is the owner? Where does the owners go? Are the cash flow to private banking? Will it be foreign exchange involved? Will it be corporate finance involved? Will it be research involved? That's how close it is to make sure that we get every revenue stream from every deal we do. I think that's where we become really customer-focused, and that's why we also reorganize now to make sure that on every deal we do, make sure that we cover up everything. While before it was more product-oriented. I think from that we will also be able to hopefully get more spin-off deals from one existing deal.
Okay, thank you. I just also wanted to ask since instead of looking back then and really looking forward, speaking about your Vision 2025. Could you say anything about whether you see the scope of SEB changing? I'm thinking about financial technology companies, so non-bank companies that might cannibalize on the bank's traditional business models, whether you would see SEB partnering with those kind of companies, whether you would see SEB organically growing into new fields. If there is any color that you can add beyond what's in the presentation?
I have mentioned that before. I think a little bit how we work with our innovation lab, that have already created quite a few things. We had our new glasses were out last week where you can go and look at apartments for sale with your mobile in a special format. Then you can sit at home and go through every room and also being offered a loan. You can just blink your eye and then you have a loan in the kitchen or whatever you like to see. It's quite fun. They do a lot of fun stuff there that is coming out from innovation lab, They have a lot of things coming.
I think also that we have tweaked our venture capital unit that Have invested a lot in biotech historically more from a venture perspective, but that is more in run-off today and where we want to make new investments that will be more focused into fintech. For many reasons, not because we think we can do nice exits, but actually because we think we can learn to stay close to a few of these by having a shareholding between maybe, I don't know, 10%-30%, doesn't have to be a majority at all, but to learn and to stay close. Then of course, in the future, how close we would work with some of them, it depends.
I still think it's important for us to keep the brand close to our customers, not to white label too much, because I think that is more challenging long term. I picked up when I went to Silicon Valley the first time some years ago, I picked up a phrase that we use internally, That is that everybody needs banking services, but not necessarily banks. I think that's what we use a lot internally to challenge ourselves and make sure how we think about things Also that the competitors might not necessarily be the one around us. It could be other competitors. We're, of course, trying to make sure that we stay relevant to what our customers need and what they might need in the future. At the same time, we don't need to be scared about everything.
A lot of things about the future is quite exciting. I think we can do pretty well. We need to see how this evolves. We have now one person on the Group Executive Committee, Klas Morstedt, who has been an adjunct member to only focus on all these digital things. He's working closely now with the mobile bank, the internet bank, and what's going on in history. He's running these end-to-end processes where we digitize fully processes. The consultants that work, the internal consultants, SEB Way, that we have in the bank, they are now into these processes. I think we're doing a lot of things and hopefully keeping the Group Executive Committee really close to it by having a CDO also in GEC.
Okay, thank you. Can I just follow up on that? Do you have any number for any revenue streams where you see that the barriers of entry are particularly low or where banks, as we know them today, don't necessarily have economies of scale that would protect you?
Of course we've gone through many areas, but also it depends on how you do it. If you look here, for example, the Swish solution we have in Sweden for payments, all of the elephant banks went together and found a fantastic solution, made the barriers to entry for anyone else into this country into payments. It's going to be interesting to see now what Facebook is doing in that, if that has worked or not, because we already offer it for free and it works really well. We have 4 million users. Of course, are there other examples of that? There are many things where we probably could work better together. At the same time, we have the competition laws, and we're sometimes very careful on where we can work together.
Of course, this is also challenging in this industry to find good solutions, but sometimes you have to do it on your own because you cannot invite others to work together. Swish is one good example, I think. We need to see now, of course. We have, of course, the regulatory. I think on the other hand, the regulatory sometimes can play us well because we are complying. We can afford all these regulatory hurdles. It's quite expensive for some other new entrants as well. There are some plus and minuses. I don't have any really specific areas that I worry about.
Thank you very much for those answers.
Your next question comes from the line of Daniel Pinto from JPMorgan. Please ask your question.
Hi, good afternoon, so sorry if this has already been asked, but just two questions. The first one was in terms of your business plan. If the revenue environment sort of proves tougher than you're expecting, i.e., if rates don't rise as quickly, would you then simply have to revisit the SEK 27 billion? Perhaps lower the ambition? Do you have other tools in the toolbox, a plan B, so to speak, where you maybe revisit the cost base? That's the first question. Then the second question was on more just a follow-up in terms of the 5% CAGR that you're guiding to in the Life and Wealth Management. Just wondering why that is so low. Is that just because you're being very conservative on market growth assumptions, or is there any other reason behind that? Thank you.
I think maybe we're trying to do this a bit too much scientific because, of course, it's a couple of years until we reach SEK 27 billion. This is something that we felt that we worked with. We think that we can do SEK 2 billion a year, and we need to start to see that without tweaking three years ahead. A lot of things will change in this plan until the end of 2018, and we are very much aware of that. We feel that this bank and all our employees, we like to have a target, and we like to focus from that. This is how we have together worked to say, what do we think is viable and what do we think we can do?
If we are able to do all this, we don't know, but it's definitely not one or two or three quarters 2016 that will make us change the target. 2018. I think that's too early to say. Let's see how this evolves. We did in the last plan, we said SEK 2 billion from Merchant, SEK 2 billion from Retail, SEK 1 billion from the Baltic and the rest. It's a little bit of the same in this plan that we think that albeit that we think that Corporate and Private will contribute a little bit more, but they also have all the distributions. Since we now focus on customers and customers of stability, the Life and Wealth are only the product and the revenues of the distribution will be booked in Corporate and Private.
That's probably why Corporate and Private is a bit higher, because that's where you see the growth in bank assurance, for example.
Thank you very much.
There don't appear to be any further questions.
Thank you.
Okay, thanks a lot for the interest. For the people based in London or traveling to London tonight or tomorrow morning, we will then host not the breakfast tomorrow, just to make sure that you can go to DNB and ourselves. We will host you for the lunch meeting at 12:15 local time at our premises in London. Welcome there, and have a great day.
Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.