Earnings Call: Q2 2015

Jul 14, 2015

Thank you for standing by, ladies and gentlemen, and welcome to the Q2 2015 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. I would now like to hand the conference over to your speaker today, Annika Falken. Please go ahead, ma'am. Thank you very much, and welcome to the presentation of our results for the Q2 2015. Today, we present a report of operating profit of SEK 5,300,000,000. We continue to demonstrate a good breadth in our earnings, which is proof that our focus on growing together with our customers produces results. Turning to page 2. During the first quarter, we did see increase in stock market valuations, a trend that was reversed during the Q2 of this year. Moving forward to page 3, our diversified business mix has once again shown resilience. A weekend therefore presents a strong result. I would like to highlight 3 items that characterize this quarter for us. First of all, there was a high overall customer activity, which we benefited from. There were also strength and resilience. Our capital and leverage ratios have continued to improve. And thirdly, we continue to have high credit quality and also improve our own efficiency. We then move on to the P and L on slide 4. As you all remember and what we announced in May, there is a one off effect in this quarter related to the decision by Switzerland Supreme Court on withholding tax for the years between 2,006 to 2,008. The total amount to SEK 902,000,000 benefits the net interest income by SEK 82,000,000 and the NFI by DKK820,000,000. I will now continue to present the quarterly underlying operational results, I. E. I will exclude the one off item, so you can understand the underlying momentum in the bank without distorting the figures. This means that for the first half of the year, operating profit rose by 18% to DKK 11,900,000,000. Total operating income increased by 10% and total operating expenses increased by 3%, mainly due to the previously mentioned higher pension costs and also currency effects and all the time excluding the one off Swiss income. On slide 5, net interest income decreased by 1% compared with the first half of last year and decreased by 5% against the Q1. The customer driven NII decreased by 3% compared with the same period last year, primarily due to the lower and lower deposit margins were in existence as a result of the interest rate environment. At the same time, deposit volumes increased. Lending margins were relatively stable and lending volumes also increased compared to last year rather volumes. Then Page 6, net fee commission income remained strong and amounted to DKK 9,100,000,000 for the 1st 6 months of the year, and that's an increase of 14% compared to last year. On a seasonal basis, fee and commissions are typically higher for us in the Q2 and that is due to higher payments and card fees as well as securities lending during the dividend season. And this year, they increased by 13% compared with the first quarter and by 14% against the Q2 last year. And foremost, the cost of U. S. Lending was strong in the 2nd quarter. Wealth Management is still showing good inflows, but given the lower stock market value during the 2nd quarter and lower so called performance related fees, fees dropped in this area in the quarter. NFI on slide 7 is perhaps this quarter's most positive contribution and amounted to DKK 2 point 8,000,000,000 during the 1st 6 months, of which DKK 1,600,000,000 was in the 2nd quarter and again excluding Switzerland. During the Q2, large corporate clients remained active by reallocating their assets and managing risks due to higher volatility in the market. In this quarter though, the so called CVA, DVA and OCA, the market values, we have them with us in this quarter and we also all know that they can vary from quarter to quarter. We continue to exhibit a clear long term trend of stability in our business as you can see on page 8. I say now what I said I think for many quarters that the average income continues to increase, costs are stable and our operating profit is increasing and this is also fully in line with our anticipated delivery of our business plan. Our cost cap of coming in below DKK 22,500,000,000 this year remains also for next year, 2016. A short comment on the divisions on slide 9. They all show a return on equity of at least 14% this quarter, But I have slightly different developments during the first six months. But again, for the first half year, they're all above 14%. Negative interest rates is the most pressure in the retail banking in Autobartic Banking, while Merchant Banking Wealth and Life benefited from higher customer activity and the trend of increasing long term savings. In common for all divisions is that customers in each of our segments continue to give more of their business to our bank. We are proud of the stability the business exhibits, which reflects I think the well diversified actually corporate bank that we are. On page 10, the activity for large corporate and institutions. At the end of last year, we did see an increase in the activity in the form of major acquisitions, IPOs and home issues. The market for these actions was especially reduced when volatility and interest rates were low. The first half of this year looks very little different. Or rather sorry, it did look different. Volatility increased in both interest rate and currency markets and this has contributed to uncertainty and caution regarding more loan related activities. It also explains why loan growth is low and why demand for risk management products increased in line with customers balancing their holdings and risk. This also shows how important the digital offer customers a complete offering no matter the external environment. In the Q2, for example, there's been high activity in IPOs. We've taken the largest share of this market with our 11 Ds, who once again proved that our customer driven business model is appreciated by our customers. And last on page 11, we do manage and care a lot about our balance sheet. It has continuously strengthened further also this quarter. The loan loss ratio is 6 basis points in the quarter as well as in the 1st 6 months of the year. That means the quarter's asset quality remains very good. And we still have around 1 quarter of our balance sheet in liquidity reserves. Our core Tier one capital ratio was 17.2% and return on equity was 14.2%, excluding the one off item. So last, we stick to our long term business plan with focus on our customers, all parts of the bank are delivering and we're growing together with our customers. We do operate a rather unique global economic environment with negative interest rates and where underlying global growth has not really taken off. With today's reach out, we show that our customers appreciate that we can offer full service solutions and advice even in these difficult environments. We have a very strong financial position and we are well positioned to continue to grow along with our customers. And with this, I'd like to hand over to you so we can open up for questions. Thank you very much indeed, ma'am. Now your first question from Exane comes from the line of Andreas Hakansson. Your line is now open. Yes. Hi, it's Andreas from Exane. Just a follow-up from the local meeting this morning. On RWAs, we talked about it quite a bit and you talked about that you expect RWAs could be flat from here. Could you tell us a little bit about your assumptions there? What type of loan growth would you expect? And also, was that with or without the EUR 20,000,000,000 of further efficiencies you expect from RWAs? Is that could that potentially come on top if and when that materializes? Thanks. Hi Andreas. Yes, I think I was saying this morning that in response to your question on whether it would be kept flat that we managed to do so for quite some time or flattish at least. And I think this time around you need to remember that we've been helped by the FX development. So that's holding the risk weighted assets development down. When I say that as an outlook for the future, I think I'm not extending that too far in time. I'm just saying that we will continue to factor in the efficiencies in terms of modeling changes. So I add those in when I say that. And I'm also just reflecting the fact that the loan demand is slow and it's moving sideways. But if that starts to pick up then at some point then maybe that statement can't hold anymore. Okay. Thank you. Thank you very much indeed, sir. Now your next question from Goldman Sachs comes from the line of Heine Rudz. Your line is now open. Hello, Mike. I got 2 rather brief questions. The first one is on it's in one of the other slides you basically show basically how your average Morningstar rating went on funds. I was just generally sort of wondering if you can rather give us sort of the percentage of funds that are sort of in the top 10 because that tends to be the funds that drive inflows because like having an average rating also might just means that sort of you have a lot of sort of average funds. So that's one thing that would be interesting here. And the second thing is in terms of capital, Malek, you had very strong formation in this quarter and rather weak one in last quarter. So the volatility quarterly signs to be quite high. So generally, do you continue to feel positive with the amount of buffer you looked at? Or you would say the quarterly volatility is a bit above what you expect given your buffer? Thanks a lot. Sorry, can I ask you to repeat that last question please? I think you have quite large quarterly volatility in capital, like in this quarter to the positive side last quarter less so. And I just wondered if you look at the volatility of your capital, do you feel your capital buffer is still adequate? Or you would feel the capital volatility is a bit more than you would generally sort of expect? So 60 basis points, like on a positive side, it's a very strong move. But at the same time, it just sort of raises the question to what extent you expect sort of further volatility on that side going forward. Okay. Yes, I think we're happy with our buffer and the size of that. And if you look back to the communication when we set that buffer, the 100 and 50 basis points around year end, we factored in quite a bit of volatility in that. So the answer is yes, we're happy. Now keep in mind that as I said earlier, FX has pushed equated assets down and which has helped the ratio And also the and more so the rise in the long term interest rates have made the discount rate go up on the pension liabilities which have added quite a bit to the ratio as well. So I suppose in a way you're asking about the volatility of those two factors. I think we're pleased the ratio went up, but I did caution this morning that one should keep those things in mind. Long term interest rates may well come down a bit again. We didn't bring discount rate up all the way to perhaps where it could have been. Think we could have pulled up a little bit more, but so there's some conservatism already built into that. So I feel fine about that. And then regarding the Morningstar Heine, I think they are using all the funds that are distributed and marketed on the Swedish market and the development on that one is depending on Morningstar's own research. I think also we've had a lot of work the last, I would say, 6, 7 years making sure how to ensure the long term performance and how we work with the funds. And then we offer of course more kind of strategic funds where some of the inflows are higher than others, but the weighted average from the morningstar is their own model. But we were consistently with that one for a long time and we are now sharing the 1st place. Okay. Very helpful. Thank you very much. Thank you very much indeed, sir. Now from Barclays, your next question comes from the line of Christopher Roskruist. Your line is now open. Thank you. So I have so one question is on your Investment Banking coverage fee income sorry M and A and DCM, ECM. I wonder if you could just give us a little bit color on your expectation on the volumes, perhaps not necessarily the volumes that you or the deals that you take part of because I appreciate that could depend on the other banks and how they behave, but more sort of customer interest pipeline. Do you see is this very cyclical? Cheap funding? Or is or do you see a more cheap funding? Or is or do you see a more stable environment? That's one question. And then secondly, if I can follow-up on the comment from this morning regarding interest rate Is that you actually cannot for relationship reasons say no to those inflows? And or is there any way that you can manage the sensitivity perhaps migrating those customers to other savings products? And then finally, I just wanted to confirm, I thought I heard in the morning as well that you actually had more corporate sort of CapEx driven credit demand, but I just wanted to confirm if that was correct. Thank you. Okay. When it comes to Investment Banking, I think what we see at the moment is that the pipeline looks really good. But then again, you never really know what will materialize or not because of course we said this for quite a few quarters and now we've seen a lot, but if it's going to continue not, I don't know, it was stalled a bit regarding Greece. But it looks like the activity will continue. I think what I tried to allude to at the press conference regarding the cheap funding, I think the challenge is kind of on a higher level when you start to see that a lot of financial institutions issue bonds from small corporate. They probably shouldn't even be in the bond market. And of course, you could worry some of these when they need a real bank limit again, we might not even have a limit on that client. So of course, the challenge is that more from a liquidity perspective, if we come into trouble again, what will the market look like? Because of course, shadow banks are not as regulated as we are and we will not carry limits on all these corporates in the future. But that's kind of a different question, but that was what we were discussing a bit at the earlier press conference. But I think all in all, we see a lot of activity and a lot of a good pipeline. Where we are in the cycle, it's difficult to say, I think, because we don't really know what the cycle is at the moment with all staying in this kind of negative interest rates and all the others we have here. So I'm fairly optimistic that the investment banker will have a continuously good quarter. But Q3, again, as I warned before, is always a weaker quarter for us anyway because of activities going down. When it comes to interest rate volatility in retail, I mean, yes, you could transfer some of the deposits to other products. But again, interest rate products per se are not very profitable for the client. So for the client's best and the interest of the client is better to stay on a 0 basis kind of account than enter a fund and offer fee you might even have negative. So I think from that perspective, we have been and we can also see that our clients some of them have even sold the funds and are now keeping the deposits. It's not huge. And we will of course find ways, but I don't think you will be able to charge in retail. We might be slightly more if this is going to stay negative, I don't know if we have to be more creative, but this is kind of the way it is. But hopefully, we can compensate by higher activity in other areas. But to compensate the net interest income or retail will be challenging. And then I think on the corporate lending, I think we haven't said, Christophe, the peak that is there has been a big pickup in the CapEx related loan demand. What we said was that we saw in the retail division that they gained market share in the SME segment and that was the driver behind the growth in their lending volumes in the quarter. So it's not growing margins, but they did acquire some new clients and contributed with volume. So the statement that we still lack a big pickup in CapEx related loan demand that still holds. Okay. Understand. Well, thank you very much for your answers. It's very clear. Thank you very much indeed. Now your next question from Citi comes from the line of Ronit Ghosh. Your line is now open. Great. Thank you. I had a couple of questions just around drilling further into the fees and commissions line. The first one is on the line that you have called secondary markets and derivatives. I know these are gross numbers, but the number in the second quarter is DKK 1,700,000,000 and second quarter last year was DKK 1,000,000,000 and the Q2 in 2013 was DKK 647,000,000. I don't know if you could give us some more color around how much of this is securities financing driven? How much of it is driven through the big wave of IPO and equity capital market activity participation you alluded to and referred to? Or if there's any numbers you can give us on a net number, kind of as a gross number because that seems to have done very well. And on the contrast, on the negative side, or I guess the comparisons are very tough. On the Wealth Management side, you've seen a couple of DKK100 1,000,000 decline quarter on quarter. Is the majority of that performance fee related? Or is actually quite a large part also to AUM related? I just wanted to give us some color around the mix of wealth management revenues. And finally, the traditional the life insurance results is mainly traditional life driven by Denmark. So if you could clarify that for me. Thanks. Yes. I can clarify it was the Danish traditional portfolios that were hit by higher interest rates in Denmark. So that hit negatively. On the other hand, what I mentioned, which is not in the P and L, but actually embedded value is growing. That is the same for Life Sweden, particularly in selling Life Insurance to entrepreneurs and SMEs is really growing and really doing well. But that is not the transport into P and L yet, but embedded value is growing on that one. Then Runeet on the mid question there on Wealth, yes, that's primarily performance fees. And I think, yes, it's a little bit weaker in Q2 than in Q1, which was particularly strong, I think. We said this morning, we think we have moved up to a sort of a higher level on that. So that keeps coming in better than in the past. But Q2, as I say, point out is a little bit weaker than Q1. On your first question on the commission line, the securities finance business and the IPOs certainly contribute and we haven't specified or broken a part of what the numbers are behind that. But I think that business is growing as Joakim Alteno heads up or co heads the merchant bank today commented this morning, this is the result of long and hard work on building a broad customer base. And I think the IPOs is certainly something that is starting to pay off and the securities finance is as well even though it's there only in Q2. Right. But it wouldn't be so the securities finance, but it wouldn't be a majority or an important it wouldn't be the key delta, would it, either year on year or Q on Q? Well, it's a good contributor. I won't break it down further than that. We haven't done that in other places. Okay. Thank you. It's helpful. Thanks. Thank you very much indeed, sir. Now your next question from Nomura comes from the line of Matthew Clark. Your line is open, sir. Good afternoon. Just wanted to ask a question on your differentiated mortgage model. It looks like your margins aren't benefiting as much as maybe your peers are from repricing. So I just wanted to check, are you still committed to that mortgage pricing model? And you don't seem to be taking mortgage market share. So I guess is there room for you to be a bit less generous on pricing? Or do you feel you have to be more generous than competitors in order to maintain your market share? Maybe just some thoughts around those general issues. Thank you. We have a different model for pricing mortgages where we started with to be more transparent ourselves, which was of course in hindsight quite a difficult decision we made at that time. But that was the bank's cost and adding a margin on that. But of course, we come out very competitively when we now see where things come out. On the other hand, we have our customer base is higher affluent individuals in the cities. Of course, have mortgages, but also very good income. And of course, from that perspective, their whole business is quite attractive to the bank to get hold of. We did increase from 89 basis points to 103 basis points, which was 4 basis points sorry, 93, this quarter. And I think this continues with approximately 1 basis point a month. I think what we have seen now of course is that we seem to be quite competitive. And that means I guess that the only thing that can happen is hopefully that we can slowly but steadily increase the margins while our peers of course is getting more challenging. So I can look at it from a positive side saying hopefully we will be able to reprice it in a good way and have a better opportunity to do that than being on the other side. So we take this step by step forward. But and I think also that we have very satisfied clients. So I think it goes hand in hand and also having a share of wallet on our more affluent individuals that have worked quite well. So let's see how well we can reprice this slowly but steadily during the autumn. Do you intend to do that re pricing relative to your published blended funding costs rather than as a discount to an advertised rate. So you're sticking with the existing model, I guess, is the question. But we will of course try to stay competitive, but we of course also please keep a close eye to our peers. There's one more thing though and that is for customers domestically, when we negotiate the margin that margin cannot stay, while for some competitors the margin has to be renegotiated every time you renegotiate your loan. So I think again depends on of course how the market will look at, but I think we have a good potential renegotiating and of course increasing the margin a bit further. That's what we have an ambition to do. Okay. Thank you. Thank you very much indeed, sir. Your next question from UBS comes from the line of Anton Kajuchak. Just a couple of follow ups please on the divisional trends. Firstly, in the markets business of your merchant bank, the Q on Q change in net interest income and net fee and commission income is interesting, because have seen quite a steep reduction in NAI and a significant pickup in fees and commissions. I was wondering whether there is some flow between the 2 P and L lines. And given that this NII line used to be stable historically, do you expect it to recover from the current levels or whether this is a new run rate that we should look at? And the second question please on the corporate sense NAI. We have talked in the past about the pressure from lower reinvestment yields in the current interest rate environment. Given that the long end of the yield curve in Sweden has steepened recently, Can you comment on trends that you see for this divisional NII line in the corporate center? Thank you. Anton, the movement you're seeing on the markets is just as you say some flow between the lines there. And I think one way of thinking about that is that the positive developments on commission is as we discussed earlier partly generating from securities finance and the stock lending business. This means that the markets business is holding some inventory of securities during the quarter and that's funded through the NII line. So there's 2 things one should look at together. But just as commissions will not be there to the same extent next quarter neither will the funding cost for the securities. So that should come up a bit. Okay. That's very clear. In terms of the corporate center, the investment yield on the liquidity portfolio has been further hit of course by the rates. And I can only hope that the rates will not move further south. But as you know the Swedish reexbank charges the banks straight through for the negative rates. And that's different to as some of you will know from places like Denmark or Switzerland where central banks offer better rates to the banks than is done here. And Anton, you should also remember that the one off item on the NII, the EUR 82,000,000 is booked under market NII. Okay. That's very helpful. Thank you very much. Thank you very much indeed, sir. And your next question from Deutsche Bank comes from the line of Omar Keenan. Your line is now open, sir. Good afternoon. Thank you very much for taking the questions. I just had one on net interest income and then one on capital. Has the rate sensitivity changed much from EUR 3,000,000,000 in the sense that, I guess, kind of was there any unexpected items that perhaps explained the higher rate sensitivity than the €3,000,000,000 figure in the second quarter? And just thinking about the movement in funding and other, could you perhaps just give us a bit of color as to what proportion of the decline was due to the 3rd quarter as well? And then my second question just on capital. The SEK 23,000,000,000 increase in RWA from market risk and underlying op risk, Just on the increase in market RWAs, which I think was about €13,000,000,000 Could you tell us was that because of more risk being taken on? Or were there model changes in the quarter or sort of anything related to the regulator? And what was the other increase for? And finally, now we've reached the 17% core Tier 1 hurdle, is there any kind of more communication around payout and distribution? Thank you. I can start with your last one saying that, Omar, it's a bit prematurely I think. So we just had 1 quarter now reaching the target. And I think another challenging thing is finance inspection in Sweden who regulate that has also come out quite recently talking about harmonized risk weightings and the Swedish banks still keep a high capital level. So as frustrating as it is, we need to get this clarified because before we've heard that if it's the case that we would get more harmonized risk weightings, we would have relief on the capital side, depending on the different pillars. But I think so we need to see that. Yes, but yes, of course. Sorry, Jan Erik, it seems to me that this of course goes for all bags and that is naturally so. But I think also here it's important what we learned what happened with the capital banks the other year is not to actually domestically provoke and be too early in things. We have to try to pay things by the year and stay here. So I think we will try to stay put and see what comes out during the autumn. And anyway, this is a Board decision. We need to come back towards year end and see whether this is enough or not. And I think the Board was very clear that the 17% is what we want to have. We just have to make sure that it's not something that is now going on with harmonized this way to other changes. But again, that goes forward back. And I think also that we should try not to provoke. Sweden seems to be very sensitive towards that also, very politically sensitive. Omar on the rate sensitivity, we said this morning that the negative interest rate is putting pressure on the deposit earnings. And it's costing us today some SEK 300,000,000 per quarter is what we said this morning. In terms of the SEK3 billion number you quoted is probably more SEK3.5 $1,000,000,000 today for 100 basis points move. And that relates to the fact that even though negative rates have gone sort of deeper into negative, we attract more deposits on the back of the discussion we had earlier. On the market risk development, that is more an optical effect this time than true underlying increase of market risk going to have to do with some of the hedging activities taking place in the corporate center and in treasury where we can't use hedge accounting to the extent that we would like to quite yet. We are working on that and developing that. So I think going forward you will see that 1 or 2 quarters from now. I think you'll see that number come down a bit. Perfect. Thank you very much. I was just a little bit surprised to hear the regulator, was it last Friday or the Friday before saying that they thought there was space for kind of model approvals kind of to or sorry, not model approvals, but limitation to the risk weights and more harmonization because the kind of the thinking was that the regulator was very much a fan of the models. Do you get a sense that the regulator might have capitulated on this in the face of kind of what's clear pressure from the Basel Committee and the Riksbank in terms of the way they want to go? Or I think there is a pressure on Sweden that of course we have very low risk rate. We have very low risk rate for a reason that the credit losses have been low and also that the very sophisticated modeling has paid off, of course. But the challenge is, of course, that the risk rates are very low compared to peers in Europe. And I guess that is has been challenging. And I think the discussions with that we want some kind of floors also on the corporate side. We think that's very wrong. But and we have the finance practice support, but I think they are the odd one out here. So I think they have a difficult time in the Basel Committee and also in the European discussion. But on the other hand, I think the harmonization could be in that case that we get some relief on the capital. And that was the finance inspection initially said, but they didn't say it on Friday. And that, of course, surprised us also very much. I think also that we've come to an end almost in Sweden with relief on capital that most banks' models are now working and all the capital reliefs are almost done. And I think that would probably support results that we start to see maybe risk ratings kind of starting to go up slowly, but steadily again when we are growing the volumes with new customers. That hasn't really happened yet, but I think that would probably help the Swedish discussion. Of course, otherwise we just see every quarter that we are growing, but nobody is growing risk weighted assets. I think so it's from a political point of view, it's been also quite sensitive, I think. Okay, great. Very clear. Thank you. Thank you very much indeed, sir. Now from Macquarie, you have a question from the line of Edward Firth. Your line is open sir. Yes, good afternoon. I just had a quick question about Swedish house prices, which I guess continued to go up almost like a rocket. And I suppose my questions are firstly, are you concerned about current levels of house prices in Sweden? And secondly, I saw the Finance Minister was talking about taking powerful action, I think she said in the autumn to try and get them under control and whether you had some sort of idea of what those might be and how they might impact, I guess, the market and the bank? Thanks very much. I think all in all that we have a lot of respect that there are no trees growing to heaven. And of course that the house price market has kind of Is there a bubble or not? It's a constant discussion in Sweden. I think we try to monitor it by of course every loan is individually going through that people can afford to stay in their houses and homes and making sure that in SEB nobody is in debt. You can't borrow more than 5 times your revenue income of the household. And that's been one thing that has supported, I think, because anyone can almost, at the moment, afford almost anything to make sure this is probably affordable long term. And we also stressed that everything at 7%. And we have amortization 2% every year. We try to get it all the way down, but at least down to the 50% loan to value. So I think we're working with that. I think again it is a political discussion saying that first of all you should take away the interest rate kind of deduction on taxes. And I guess it can't be cheaper than now to do that. And that is a reform that you will not be reelected when you implement it. But I think they start to discuss it now, because you don't get the same deduction on savings, which is a bit weird actually. But that is one thing to do. The other thing is, of course, to start to build, making sure that it would be cheaper to build in Sweden. And if you build a few skyscrapes, I guess, we won't have the same problem in Stockholm actually if you do that. So there is a long discussion why it is so expensive in Sweden to also build them. And I think also close to the cities, you have the municipalities around us saying, you can't take a park or some kind of pot of wood because people get crazy saying that they want the park to remain a park, but the challenge is where should people live. So there's a lot of kind of political discussions also on how to make this more sustainable. But from the bank's perspective, I think we had a loan loss of SEK 4,000,000, 4,000,000, I mean SEK 4.0 million, which is nothing, I mean, on mortgage loans of a portfolio of SEK 400 €1,000,000,000 Yes. It still shows of course that it's But I guess if interest rates return to a more normalized level, you would expect those impairments to go up quite rapidly. What is the normalized level? I think again that's a unique model we have in Sweden where you pay, we follow you really to the grade. You can sell your house with a loss, but you still owe the bank. And that's a very different model than what people have abroad where you just need the keys to the bank as they take care of the security. But we follow you. You have to make sure that you pay back. And I think that's a very different model. I don't pay that well. But David, sorry just one supplement. I mean is your impression that perhaps the finance ministry is looking now more towards the sort of building side of addressing the problem? And because it seems to me that all the sort of caps on loan to value, all the increased risk weighted assets, all this none of those had any impact at all? No. I think at the interest rate deduction on your tax that will have an effect. And I think they need to kind of hopefully I think they all parties need to agree to that because otherwise it's going to be kind of an election. But I think they are discussing that. I guess it wouldn't be cheaper than now to kind of slowly, but certainly take that one away. So that is one thing that we do think will have an effect. And then I think the challenge is, of course, that it's so different living in a city or living outside the city, where housing is very different and where people don't earn the wages that you earn in the cities of course. So that is also something that's quite challenging. But I think that's probably the first one. I think the building will take time. I think it is a discussion now, but it takes a very long time. Yes. Okay. Thanks so much. Thank you very much indeed, sir. Now from RBC, your next question comes from the line of Adrian Cighi. Adrian, I hope I've pronounced your name correctly and your line is now open. Yes, you have. Thank you. Good afternoon. One question on loan losses, please. We have had another quarter with very low loan losses. Do you see this benign outlook continuing in the near term? Or do you have any red flags in oil or other related exposures? Thank you. I think we've been through the credit portfolio with a lot of stress testing and don't really have any red flags. We went through the Baltic exposure thoroughly in Q1. We were worried about the Russian sanctions. But I must say that the it's surprisingly how that has hold up really and how they found new export market for dairy products etcetera. We were a bit worried about that. And I must say that the portfolio looks really healthy and very well performed. So the answer is no, we don't really see any red flags at the moment. Thank you. Thank you very much indeed, sir. Now from Mediobanca, you now have a question from the line of Riccardo Rovere. Your line is now open, sir. Thank you. Thanks and good afternoon to everybody. Just one question from my side. With the regulator have started they've increased the risk weights to 15% and then 25%. They keep increasing the countercyclical buffer, but it has to it seems to have no impact at the end of the day on real estate prices and on the level of debt of the population. Aside the amortization of the debt of the population sooner or later, what else do you think the regulators could do to try to cool down all these issues in Sweden? So this is another way to say what else could we expect? Let's call it ambushes from a regulatory perspective. What else should we expect? I think it is as I answered the previous question regarding maybe taking away the tax deduction for interest rates on loans, for example, that will be something that will be hurtful for the market. And then I guess it is kind of starting to build, so there will be more alternatives instead of the same apartment being resold many times at a higher price that needs to be changed as well. And I guess more expensive to borrow, which is of course extremely challenging in Sweden, while interest rates are negative and we're talking about it's usually more expensive tomorrow. And at the same time, it's very hostile regarding the bank's loans. Every time we try to increase the margin, we are on the front page and front news. So it's very politically sensitive rather than looking at from a very kind of risk perspective saying what should this be. So I guess that we will come to the conclusion, it's difficult. It's a mixture of building more in the cities. Maybe also infrastructure, maybe you could live a little bit outside Stockholm, but you could commute and then you need high speed trains for example, etcetera, etcetera, maybe more building infrastructure. But this, of course, takes time. I think it has closed off a little bit, but quite marginally. Of course, with these interest rates, it's still very challenging. It doesn't really matter what kind of margin you put on. But amortization has changed a little bit. But is it fair to assume that one day the Swedish population will be asked to pay back the debt, the whole of it, not 20%, 30% or whatever? And what would be the trigger for that? Well, this is the only way maybe the only way to stop the level of debt to population because obviously it makes sense to get to pile up debt when debt when the level of rates are at 0. And you never pay back the capital. But I think they but they started now. I agree to that, that we before it was just paying like instead of like you rent for a part because you only paid interest rates. Now you don't. Now you also thought to kind of amortize, really amortize, which is a different way. I think on the other hand, Sweden as a country, we have very low government debt, but we have high household debt. Most other countries are opposite, They have low household debt and high government debt. So it's a little bit if you look at the whole country as such, savings are improving in Sweden and net debt, it's not as bad. If you look at the total, It depends on do you have it on the private individual or do you have it on kind of on the government of the state? And in Sweden, it is on the process itself rather than the state. That's how it looks. And I don't think you need to pay back the whole thing, but of course you need to amortize, you need to make sure that you go down the debt. So I think it will take time. But I think we're trying the sentiment is changing to Sweden and everybody's talk much more that debt on a loan should be paid back slowly but steadily and not on the interest rates. And that's kind of a mental shift that has happened. Okay. Thank you. Thanks. Thank you very much indeed, sir. And ma'am, your last question is a follow-up question from Barclays from Christopher Roskruist. Your line is now open, sir. Thank you. Just following up on really on your answer or discussion before on the models. I don't know if you would be willing to share any color on how the discussion goes and what your answer might be during the consultation to the floors that are being discussed by the Basel Committee. I almost interpreted your what you said before that risk or credit losses are low because of the models and that the models help you to actually drive down losses because you know which customers to avoid? Or is it the other way around that it's worthwhile investing in the models because Swedish credit quality is better for completely different reasons? I think I can also say that no, of course, I think the sophisticated model that we have invested 100 of 1,000,000. I mean, so it's attractive on our own. I think also historically, we know our clients very well. Of course, we know where they operate and we know them very well in this region. So I think that is of course a big support to all like I'd say Nordic banks and Swedish banks that's one of the reasons of course. But I think the only challenge with the model is that they are only looking backwards. I think that has been the discussion of course. If you only look backwards, are you really being everything intuitive? But I think our models have proven quite right. And we can see quarterly the risk ratings on quite a few clients, it goes up and down, but rather slow, like kind of the rating agencies, a little bit, are you ahead of the curve or behind the curve, but moving along those lines kind of through the cycle. And I think it served us well during the crisis and I think it's we have also proven that we take the losses as they can. So I think the model in Sweden has proven to be correctly and well monitored. So I think from that perspective rather than saying that I think my worry is that if you say that all car industries is a risk class 10, You don't really look at kind of the different kind of core factories and you don't look at what kind of loan either. And I think there's a challenge that you suddenly have things on your balance sheet that you go for kind of higher risk weights really to make sure that you get your return rather than making sure that you do it kind of more cautiously. So I worry about that you can't on mortgages, I think it's quite fair, because if you live on the same street neighbor to neighbor, it's really difficult to say what's a bit different, because location is probably one very important thing when you lend the mortgages, as well as the households payback. But the corporate is very different, I think. And I think you miss the whole sophistication and the whole profession of being a banker trying to kind of make your judgment correct. Are you presenting any sort of golden middle road between models and floors as a counteroffer to the Basel Committee or? I think we are only discussing with the finance inspection and our impression is that they support the Swedish banking model systems very well. But I guess there could be probably some kind of lower flooring, which might not be wrong from the perspective that nothing can have a risk rating of 0. We all know that. You have to take something. But it depends on where that goes. And in that case, as we discussed before, would that mean that we would have any relief maybe in Pillar 1 or Pillar 2 to compensate for that because I think the correspondent has been here that we have lower risk ratings. We believe in the model. But on the other hand, Swedish banks are more well capitalized on Core Tier 1 than our peers. You can't have both, because then I think we're not really reflecting that the Swedish banks are doing fairly well and we have done fairly well for a very long time. And that must say something about how we know our clients and how we stick to our models. Okay. Thank you very much. Okay. Thanks a lot for participating. And then just we would just like to remind you that we are having the breakfast tomorrow at our own premises on 1 Carter Lane in London at 8 am local time. So see you there and thanks a lot. Thank you. Bye. Thank you very much indeed. And with many thanks to all our speakers today, that does conclude our conference. Thank you for participating. You may now disconnect. Thank you, Ms. Falcon Flynn. Thank you very much for your help. Thank you. We're very helpful. Thank you. Bye bye, ma'am.