Earnings Call: Q1 2015

Apr 23, 2015

Okay. Welcome everyone to the telephone conference that we're hosting. We will start just as we usually do. Annika will then go through the slides and then we will open up for questions. So Annika, please. Thank you. Welcome to the presentation of the results of the Q1 2015. Turning to page 2. In this environment, with exceptional negative interest rate environment, a stock market boom growing geopolitical turmoil around the world and the sharp decline in oil prices. Our diversified business mix has once again shown resilient and we can therefore present a good start of this year. I would like to highlight 3 things that have characterized this quarter. The volatility within fixed income and currency trading has led to increased activity among both large corporate and private institutions that have hedged their currency and interest rate exposures. We've also had good inflows of our Wealth Management business. Customers continue to review the long term savings and also seek yield and asset classes other than fixed income products. And also strong performance of the stock market has contributed of course to the results this quarter. We do maintain our focus on a strong balance sheet and show very good credit quality with a credit loss level of 5 basis points. On Page 3, the results amounted to 5,800,000,000 dollars up 19% compared with the same quarter last year. Income increased by 11% from the same quarter of last year and costs rose 4%, but that is as a result of increased pension costs that we have previously announced and from exchange rate effects. Operating profit increased by 18% compared with the previous quarter, excluding positive one off effects. Our common equity Tier 1 ratio was 16.6% and return on equity was 13.8%. Net interest income on page 4 increased by 3% from the same quarter last year, but decreased 1% from the previous quarter. Low interest rates followed by 0 interest rates and now even negative interest rates have put great pressure on deposit margins and that trend looks set to continue. Customer driven net interest income decreased by 2% compared to same quarter last year and by 3% from the previous quarter, primarily due to the decrease in deposit margins. Lending margins were stable during the quarter. They are however under pressure, driven by market competition and large flow of liquidity in markets as a result of Central Bank action. Both deposit and lending volumes are increasing, but this is mostly due to currency effects from a weaker Swedish krona exchange rate against the U. S. Dollar. Other net interest income increased slightly due to recovery in fixed income trading. Net fee and commission income remained strong and amounted to $4,300,000,000 for the quarter, an increase of 15% from the same quarter last year, but down 6% from the strong Q4 of 2014. Turning to the next page, where we can see that on a seasonal basis fee and commissions institutions, good performance on the fund side and clearly higher so called performance based commission within asset management. Moreover, we have seen an increase in value for assets under management, which benefits wealth, life and also our custody businesses. There has been continued good activity among large corporates even though the Q1 is always slightly lower seasonally. NFI on Page 7 is perhaps the quarter's most positive contribution this time, ending up at CLP 1,300,000,000 compared with only CLP 343,000,000 last quarter and CLP 1,100,000,000 if we compare to a year ago. In 2014, the results declined for this line quarter after quarter, primarily due to interest rates, low volatility and low volume hitting the fixed income side. In the Q1, the market has seen higher volatility and this has led to customers being more active in securing their position in both fixed income and currency trading. The equity side has done well, but is as usually the case in the Q1, there have been fewer initial public offerings and large scale transactions. We have shown a clear long term trend and stability in the customer business we are building. Average income continues to slowly but steadily increase, costs are stable and operating profit is thereby increasing. Our cost cap is coming in under $22,500,000,000 It still remains for this year and also for next year. And as we did explain last quarter, we made allowances for costs increasing by more than $500,000,000 this year due to already known pension and also exchange rate effects. On page 9, we are proud of the stability of our business operations, which reflects the well diversified corporate bank that we are. If we look at Merchant Banking, the result is 8% better than the year before. The underlying business was strong and credit losses were low. The difference from the previous quarter is that Investment Banking has lower activity when there were fewer transactions in the market, which led to lower volumes in areas such as corporate bonds and bridge financing, while markets, as I described earlier, has seen increased customer activity. Retail in Sweden continues to perform well, both in the private and corporate segments. However, operating profit decreases from both last year and last quarter by 3%. This is mainly due to the interest rate level, which puts pressure on deposit margin. Life and Wealth report good progress in this market, that both the Life and the Wealth business increased earnings from the same quarter compared to last year. And one could probably simply say that about 40% comes from new sales and actually as much as 60% this quarter comes from the market upturn. Wealth attracted SEK 25,000,000,000 in net new assets under management during the quarter, mainly from institutions. The Board has delivered stable operating results for the Q1. Resistance to developments in Russia and Ukraine and the Russian import sanctions remained strong and we see good profitability and write back in the quarter. Performance however varies a little between countries and Latvia has a more challenging situation. Altogether, this means that we as a bank have been able to generate annual profit growth of 15% since 2010. And turning to Page 10, we care a lot about our strong balance sheet. The credit loss level in the quarter was 5 basis points. NPLs increased slightly, but this is the consequence of some individual activities and not a sign of changes in any credit quality. Effects on the crisis in Russia, including the impact on Finland and the Baltic, along with development in oil prices, do not change our view of credit quality and we still have a quarter of our balance sheet in liquidity reserves. Our common equity Tier 1 capital ratio was 16.6% and return on equity was 13.8%. So to conclude on Page 11, even in this environment with global growth not really picking up and the exceptional developments on the interest rates and equity markets, we stick to our long term business plan with focus on our customers. Market conditions for banks continue to be in flux with heavy pressure from the regulatory side. We have strong financial position and we are well equipped to grow together with our customers and we do invest in our long term customer relationships. And with this, I'd be happy to answer questions. Okay. Thank you, Annika. Let's then open up the questions. Thank you, sir. Your first question comes from the line of Roni Ruiz from Citi. Please go ahead. Hi, good afternoon. It's Ronit Ghos from Citigroup. I just had two questions, just to follow-up on your presentation. Clearly, you've had a very strong set of results in Life and Asset Management in the quarter. And I just wondered if you could flesh out a bit more, Annika, in Yara Erik, the balance between AUM or annuity like revenues in those two divisions and transaction based or new sales. In the presentation or in your comments, I think you mentioned the forty-sixty split. But when I look at the fee income that you attribute on say page 17, like €335,000,000 of fee income from performance and transaction fees and wealth, which is about 20% of the wealth revenues. So just wondering how you got to the fortysixty split? And also if you could comment on a similar split in life, please? The secondary question has to do with the Merchant Banking division where markets clearly had a great quarter on trading. But as you alluded to CIBs had a softer quarter and the fee income run rate in CIB that we saw in Q1 is one of the weakest quarters we've seen for a while. And I'm just wondering if this is is a particularly unusually slow Q1, because I'm looking at Q1 last year, which was quite a bit strong and obviously Q4 was much better. So if there's anything any more color you could give us around what is it just that we had a slow quarter in IPOs and M and A completions? Or is there anything else going on in that line item? Thank you. I would assume that Leonid commented on the forty-sixty. But I think all in all, I think the most important thing that we have done is that we have worked the last kind of 6, 7 years on some performance. And it's taken a long time. It's everything kind of morning star rankings to everything to really make sure that we have quality and that all our funds are really performing. And you would only read Swedish newspapers, but there was actually a comparison in the newspaper on Sunday where S and B last year 9 out of our largest 10 funds, 9 out of 10 outperformed their indices. So I think all in all, our quality and the way we perform is much better. So from that perspective, of course, I do think that this will continue in a way. When it comes to performance fees on some special funds, you could say more institutional like, of course, that's more on ad hoc basis. And if you remember, every time we say that this will continue, it never continues. But I do think that all in all that of course it was a very good quarter. But again, we have also kind of done a good job all in all. So I think inflows when it comes also in assets under management, we had an inflow of SEK 25,000,000,000 in the 1st quarter net on sales into our farms. That's also a record high for SAB. So I think all in all we are doing much better. So that is the focus that hopefully that will continue. Then I think where you can comment maybe on the split a bit. We haven't done that. That's scientifically, but we cannot do it. It's not very scientific. But I think Annika you said it. I mean it's obviously we've been helped by the market. But I think one shouldn't always sort of discount things as one off. There are underlying improvements to the offering in the quality of the asset management and also as Seneca said in the sales. So I think it's all from a better base. Yes. If I then comment on markets versus CIB, I think we say, yes, CIB is always weak in the Q1. So seasonality is very clear on that one. And I think I commented on the press conference this morning that I think it was 0 IPOs actually in M and A transaction, but it doesn't necessarily mean that that will continue. That seasonality maybe was unusually weak, I don't know, but it was pretty weak, but it doesn't mean at all that we don't think it will come. So I think I rest assured that that business will pick up. Markets have been a little bit up and down because of course it's been challenging also with the Swiss franc, which is also for us. But activity all in all the market is back. And of course we love volatility in SEB since we are so flow driven. So I think for us that has been a really healthy quarter. And hopefully that will continue. And if it won't continue, hopefully some other parts of the bank will perform better. So I think all in all, the business mix of the bank is kind of creating all in all this kind of stable operating profit in total. Absolutely. Yes. And then hence I was asking about the split of annuity versus, if you like, new sales because I'm just trying to reconcile your I know it's not scientific, but the sixty-forty comment because on page 17 you break out the fees quite in quite a lot of detail. And it only looks like if I just did it from reconciling page 17 of the deck and say the fact book, it would be more like 20%, 25% that would be transaction based and 75% annuity base. I was wondering if I'm missing something. And you obviously know much more about the numbers of the bank than I do. So there must be I was wondering why you got to 40,000,000, 60. I think Ronen, we were just trying to say that it's maybe one split in wells and another one in life and we're just saying that it's 40, 60 broadly if you look at those 2 in combination. It was just a broad statement. Okay. Thanks. Your next question comes from the line of Omar Khin from Deutsche Bank. Please go ahead. Good afternoon. Thanks very much for taking the questions. I just had a follow-up call from the press conference, where it sounded like you were quite happy with the measures that you've taken to offset the impact of the negative rate environment so far. Just so I understand, you seem to be saying that there's more work that you could do on the asset side and more measures that you could do to protect margins in the case of another rate cut, which is your house view in the second quarter. So could you just help us understand the moving parts from here? Do you have an updated rate sensitivity? What do you think the value of offsetting measures could be? And is it more in the merchant bank than the retail? Thank you. Hi, Omar. Hi. I think the rate sensitivity is before about €3,000,000,000 or 1 percentage point. And I think the things you can keep in mind for Q2 is, as I commented on this morning that it sounds like a small thing, but there's an extra day of interest accrual in Q2, that's Q1, that's about $50,000,000 worth. There is, of course, the ongoing battle of keeping margins up. And I think we certainly worked with the assumption that we will continue to push mortgage margins upwards. We are the back book is today at 80, 90 basis points. And as you know, the new sales are above that today and we haven't commented on that specifically. And we continue to roll over or prolong mortgage loans at higher levels and that still. So mortgage margins and mortgage volumes, should help. On the MB side, there is hopefully going to be help from volume as well even though that demand is not very strong. And we commented earlier on that the margin pressure is there in the merchant banks. I don't think that we should expect too much in terms of a margin pickup from that segment. On top of that, the treasury business has been doing well in terms of looking after its risk mandates. So that's gone fairly well in Q1 and that can continue. And a final component is that you remember how we took up AT1 not too long ago and some of that the old ones matured in March. So we will get some tailwinds from that. So all in combination, we will try to mitigate what's going on, on the liability side by different actions as I just outlined on the asset side. Having said that, the further we're going to negative territory on the rates, it will become increasingly more difficult. Did you want to add something you asked? Yes. You can also add, Omer, that we haven't seen any broad based demand on the SME or large cost side for CapEx or CapEx financing, which obviously would be a positive contributor to this if demand will pick up going forward. So that will then bring up volumes and help us keep NIM stable since the margins there are really attractive. Great. Thanks very much. And just to clarify, you said that the front book on SEB's mortgage margin had expanded. How much above the 89 bps back book is it? It's a bit higher up, Mark. Okay. All right. Thank you. Okay. Next question. Your next question comes from the line of Anton Kreychok from UBS. Please go ahead. Thank you. Good afternoon and thanks for taking my questions. I just have a couple of questions on net interest income in the quarter, which has hold up better than consensus expected despite the challenging interest rate environment? And on page 11 of the fact book, you provide a very helpful breakdown. And the line that I'm interested in is the interest rate that you're receiving on the interest earning securities. It seems that it has come down by around 50 basis points over the last two quarters. I was just wondering whether we should expect further compression of this yield on your securities book in the coming quarters given what happened to the rate? And also which part of your P and L will this pressure be evident in? And the second question please again slightly technical on NII. I've also noticed that the interest income that you receive on derivatives and other assets has gradually increased over the quarters as interest rates were falling. So I was wondering whether this is an indication of some sort of a hedge that you have taken at the group level or whether I'm just reading too much into the recent numbers? Thank you. Hi. No, I think you're reading a bit too much into that. There are no hedges put on in the company that's generating that. It's just varies a little bit between the quarters. In terms of the interest bearing securities, I think, yes, I think it's reasonable to expect that to come down when we see the developments that we've seen on the interest rates. So that could well be put under more pressure. But then again, keep in mind that there's a limit to I suppose how much things can move down from here, but there's still some way to go. But we will continue and I won't repeat all the arguments that I've put forward to Omar just now, but there are ways in which we will try to compensate also for that. Thank you. That's very helpful. And which division will this pressure be most evident in? I think on the liability side, it's primarily in the retail division that we see pressure on the deposit side, whereas on the asset side, I think the margins are under more pressure in the merchant package as I said than in retail where I think we will continue to try to push them up. Excellent. That's very helpful. Thank you. Your next question comes from the line of Johan Elblom from Bank of America. Please go ahead. Thank you. If I can just follow-up maybe on both net interest income and fee income. I think we've covered a lot of basis, but we saw a rather dramatic fall in the Baltics. And can you sort of give us some indication on what part of that is related to FX? And what part is related to underlying changes in interest rates versus margins? And then just sort of get to the bottom on the fee income. Is it fair to say that going forward you expect continued good inflows, but maybe less performance fees unless we see another similar sharp rise in the market? And whether this do you expect to fully compensate that in the merchant bank as the pipeline comes to fruition? Yes. If I start on that last question on the commission. I think, yes, we've been clearly supported by the performance fees in this quarter. But again, as Annika outlined earlier, it's a result of good work and the asset management capabilities and the offering there is better than it was before. So there has been improvements made and I'd like to think that will support that line also going forward. In when we move forward, you should remember also that the seasonally weak performance on commission income that we see typically in Q1 is attributable to things like payments and cards who typically have a very strong Q4 with Christmas sales and all the things that are going on there. So normally that would bounce back in Q2 and going forward. And I think as Jonas was touching on earlier in the merchant bank when you've got a lot of volatility that normally filters through into the trading line by customers asking for more hedging products. And if we have a more stable environment then performance fees kick in, in terms of more M and A driven things taking place. So it's I think it's difficult to predict what's going to happen and what the climate will be in the coming quarters. But I think the takeaway is that the bank is well diversified and there's always 1 or 2 lines that are working if another one is weak. And I think we've seen that time and again on the sort of swings and roundabouts work as complements to each other. And on the Baltic NII? Sorry, on the Baltic NII, I think a large part of that is actually attributable to FX. I don't have the exact number here on the vortex, but it would be I don't think that we've seen much in terms of rate compression there. And you also now you won't have every country is now a euro country, which will then affect that also further. And we will also have lower volumes in the lending books are not growing in the Baltics. And just finally, did you say how much the savings on the Tier 1 maturities will be Q2 versus Q1? We haven't specified. Okay. Thank you. The next question comes from the line of Daniel Poitoli from JPMorgan. Please go ahead. Hi, good afternoon. I just have three questions. The first one is on trading income, the last 2 on the performance fees. Just on trading income, you singled out in your report that Central Bank intervention and sort of volatility around the FX peg in Switzerland and Denmark were sort of key drivers for the pickup in FICC revenues this quarter. Could you perhaps just give us a sense of how much of a tailwind you received from the latter, I. E. The FX peg, which presumably tailed off towards the end of the quarter? And then second question and third question on performance fees. I understand that these are now more evenly distributed across the year. Could you just give us an idea of what proportion of performances are now booked on a quarterly rather than a year end basis? And then third question, if I'm not mistaken in the past when you've booked performance fees, you've also typically taken higher or seen an increase in costs, which, however, doesn't seem to have occurred this quarter or at least not to the same extent. And I was wondering whether this was passed due to changes in product or where these performances were booked in? Or perhaps am I reading into this too much? Thank you. I can comment on the trading income. I think what it's difficult how much you read into everything. I think as I said that a good thing was kind of the volatility that kind of was created around all this. Of course, starting off the year with the Swiss francs, if you look at our trading days that was not one of our best days, because that was quite challenging. But then on the back of that, a lot of corporates and institutions have now decided to start to hedge a lot of the cash flows. And I think that's also due to the corona probably will stay weak for a while. And that was the message that came out the 10th February. So that created a lot of hedging strategies that the company came to place that before hasn't been executed on. So I think again saying that it's hard to say exactly what this was, but of course it did create volatility in the market and it has continued, but mainly because that corporate started to hedge flows much more systematically after that. And since we are in the middle of all that, that's more beneficial for us. And then on your questions on the performance fees, would you repeat your second question, please? Yes. The second question was around costs, which if I look at some of your previous quarters has typically risen in quarters where you've also booked performance fees presumably because you're paying some of that out to your fund managers. That's something that I didn't see happen this quarter. And I was just wondering whether that was due to any changes in product mix or where these performances are being booked or whether I was just reading into this too much? No. It works exactly as you say. And whatever performance related pay is linked to the fund performance is included just as normal. But maybe there has been some other compensating factors taking place at the same time, but it's all there. Sorry and the other question you had on performance fees was? The other question on performances was regarding the booking of these on a quarterly or year end basis. If I understand correctly, compared to several years ago, more of these are now being booked on a quarterly basis rather than on a year end basis. I was just trying to get an idea of what that mix was like or what that mix is like now between quarterly and year end booking? Thank you. I think you could say like this that on the performance fee generating funds, there is individual agreements with the different investors. So it can be everything from monthly bookings to quarterly to semiannual and annual bookings. So and in the funds that has been kind of contributing to the high performance fees in this quarter, we have had a higher proportion of monthly bookings in those on the revenue side. Okay. Thank you very much. Your next question comes from the line of Jan Wolter from Credit Suisse. Please go ahead. Yes. Hi, Jan Molte here, Credit Suisse. So two follow-up questions. First, so far the growth in SBS Corporate Business has been driven by acquisition related activity. And when we look out 1 year or 6 months, not the Q1 specifically, has the bank then started to see any signs of improving corporate credit demand on the back of better economic sentiment although Q1 has been muted? And secondly, around the cost target, in what areas could investors see costs coming down nominally to this year to offset the salary increases and higher pension costs that SBA is guiding for as well? Thank you. When it comes to corporate demand, I think that's the big challenge for Sweden and also in the all in all in the Nordisk that we see little demand there. We see more outside Sweden than in Sweden. And I think the challenge is that if you talk to kind of SMEs and mid corporate, they're actually quite worried why negative interest rates, what should I think of what's going on. We also have the election in Sweden with a lot of messages that have been changed right there to employees, it's cheap to employ young people or it's going to be more expensive to employ young people, etcetera. So it's a mixture of political decisions as well as I think a worry about where is the economy going that is led to that corporate demand has been almost 0 with the exception of Commercial Property segment. And we also mentioned there that SMB has a policy. We are more cautious into that segment. We think that segment is usually where you can go wrong. It's very easy to grow, low risk weightings, good return, but maybe long term return into a kind of a property company rather than a bank. So we've been consciously cautious there for the last year and a half and continues to be there, but that market has grown and we have not been part of that. When it comes to cost, I think what Ken is saying is that we have the cost target and everyone has signed off to the cost target and everybody knows how that will pay off. So I don't think you will see any big differences between the divisions how it looked before. It's kind of it's all in all what we'll reach. I don't know, Janesh, do you want to comment further on that one? No, I think it's difficult John to point out any particular cost lines in advance. The setup here is that we set the targets from the center and then everyone as close to point of sale as possible makes the priority. So they may come up with different priorities. But I think everyone needs to look after the cost. There aren't the large cost lines obviously in the bank are things like staff, it's things like IT, it's consultants and it's premises. And we're those are it probably captures 80% of the postpaid. So you have to address all those 4. Okay. That's fair enough. Many thanks for the help. Thanks. The next question comes from the line of Matthew Clark from Nomura. Please go ahead. Good afternoon. A couple of questions again on net interest income, I'm afraid. First question is on the funding and other line. And I'm just a bit curious every quarter average STIBOR has trended downwards and yet that Funding and Other line bounces around quarter to quarter. So maybe if you could just give us a bit more color on what's driving that funding and other line? And in particular, is this a fairly static positioning that gets affected by external conditions? Or is the fact that you made 400 in the Q3, 300 in the Q4, etcetera, determined by decisions that are taken by the treasury team during that quarter on their positioning? That's the first question. Then the second question is on the timing of the impacts or the negative impact of lower rates on the deposit business and the positive impact of mortgage repricing. Am I right to be thinking that you get hit upfront by the deposit spread compression, whereas the relief from somewhat related mortgage repricing is coming in over time. So should we actually be relatively constructive that despite the fact Stival's still falling, you've also got an accumulated benefit from mortgage repricing that's going to be flowing through materially in coming quarters. So should we be thinking positively or negatively in terms of the net of those two impacts going forward? Thank you. Well, if I start on the second question on the mortgage repricing and the sort of the effect from or the delayed effect, as you say. I agree with your reasoning. If we have hits on the deposit margins they take place more or less overnight, whereas mortgage repurchasing has a built in delay. Now you will see some of that take place and it will roll in as we go along. But I don't think that we will want to quantify the net effect because that all depends on what happens on the deposit side. I think what I would say though is that there's not much of additional margin to be lost on the liability side from where we are now. In terms of your first question on NII on funding and other, I think the way that line is affected is primarily I suppose from 2 in 2 ways. 1 is from the incentive funds transfer pricing mechanism between treasury and the divisions where changes to the IFPs take place immediately IFPs take place immediately in the treasury line. And then maybe a delay effect from how quickly the divisions can change their pricing to the external world from the guidance they get from the ISTP. But the whole purpose with that is of course to reflect the crack price of the raw materials of funding into the divisions. Another component is the risk mandate that treasury holds in its own right. And this quarter we've seen them doing quite well. So and that's another one that's quite hard to predict. So there will be a little bit of volatility. But I think that line has been in this quarter was 380 something. And it's I think the 10 quarter average is around 375. So we are pretty much on average. And so on the risk mandate, is the fact that it was better Q1 versus Q4 due to active due to repositioning of the balance sheet? Or is it just you had the same long term positioning of the balance sheet and external conditions meant it was more profitable this quarter than last quarter? It might be a combination. Okay. Thanks very much. Thank you. The next question comes from the line of Jacob Kruse from Autonomous. Please go ahead. Hi, thank you. Just two quick questions. Firstly, on the Asset Management business. Swedbank cut a lot of rates at the end of last year and the beginning of this year. So are you seeing any pressure on some of these fee margins? And on a related topic, you say you're quite cautious on the commercial real estate market. Are you seeing other players becoming more aggressive? And are you seeing, I guess, margins and covenants on corporates being eroded as a result of either domestic or foreign competition? Thank you. If we start on last question, I think the answer is yes, clearly. So of course, all banks here are very well capitalized and we are all looking of course for ways to support clients. Of course, that also leads to that you have you see weaker covenants and you see weaker structures all in all. So I think yes, that's clearly at your question. Yes, no, I know. But I wanted to mention that I think that we're not that active in that sector right now. When it comes to funds, I think the thing is that the subsidy has a couple of years back, we did cut fees in some of our funds. We also were one of the first banks to offer a complete freeze in the plan with no charges whatsoever. So I think we have it all. We have some expensive funds where it's very connected to performance, while some others are good. So I think all in all, there's kind of pressure on fees going down that is clearly there. But I think actually even more important for the clients is to get the value added and making sure that the funds that they have that they are really performing. So I think transparency when it comes to and I think actually the market is much more transparent than we get credit for, because if you look at all the different funds and you want to find out how they look and how they are registered, you can find a lot of information. So I think in Sweden, we talk a lot about this, but it's already done part of it. So I think what we are benefiting on is a lot that our funds are now since last couple of years really performing and really showing that it's worthwhile to invest in them. But all in all, yes, there is a cost pressure on funds for retail in particular. Okay. Thank you very much. The next question comes from the Riccardo Rovere for Mediobanca. Please go ahead. Good afternoon to everybody. A couple of questions from my side. First of all, I wanted to I'm not sure I understood correctly what's going on in the NII in, let's say, in the corporate center. I've noticed that the size of your bond portfolio has grown significantly, I suppose, on the back of the growth on the deposit side. And I see that the NII in that specific, let's say, division has been more or less stable, which was against my personal personal opinion. Now what's going on there? Is it just the amount of bonds that you have bought over the quarter that is supporting the NII there rather than the while you are seeing an underlying pressure on the liquidity portfolio? Or is there any hedging strategy? Sorry, I bet I didn't get before. The second question I have is on risk weighted assets and leverage ratio. I see that the leverage ratio drops quarter on quarter significantly. The exposure on which you calculate the leverage ratio goes up significantly, also on the back of the fact that the balance sheet has grown quite a lot. But on the other hand, the risk weighted assets are, well, I don't want to say stable, but kind of stable. So just wondering why the exposure on which you calculated the leverage ratio has gone up so much and the risk assets do not actually move. And I see that risk weights are not much change. So just going on what's going on in the risk weighted assets and the leverage ratio? Thanks. Hi, Ricardo. I think on the leverage ratio, you're right. It's come down a bit since year end. I think year end was 4.8% and we're now at 4.1% at the end of March. And the primary reason for that is, as we said, the growing balance sheet is almost the entire explanation. Now risk weighted assets have been fairly stable as a result of very slow credit demand. And there's a bit of FX a bit of an FX component in there, but that's pretty much the whole thing in risk weighted assets. Do you want to comment on the first question? Yes. On the liquidity portfolio, I think it's in a stress scenario, you're allowed to calculate the fixed income part of the portfolio at the bonds that they are holding for our customer driven fixed income business. So that's been a driver of the other currency line where you can see our Danish krona and Norwegian krona fixed income business there in that. So it's not something else than customer driven inventory to be able to cater for that business. It's not a position or a hedge in the liquidity portfolio. So that is the reason behind that one. Okay. Okay. Thanks, Anders. If I may, a views of 30 seconds of your time. If I'm not mistaken, during the call, the presentation, Alika mentioned the some regulatory uncertainty. What are you actually referring to? What is still a matter of uncertainty for you? Is risk weighted assets amortization? Is leverage ratio what's it? [SPEAKER JEAN FRANCOIS VAN BOXMEER:] Well, Riccardo, I think this long list potentially depending on what sort of probabilities and time line you put into that. But I think the comments that were specifically made this morning were around the standardization of risk weights and the potential realization of that in I don't know 2, 3 years out. And we were saying that today we are in a phase where the Basel Committee is trying to get its arms around or its head around how that should look. And I think it's fair to assume that the Basel Committee will come up with centralized risk weights in one shape or form. But that isn't the end of that story. Then of course that needs to be implemented in all the EU member states. And I think it's fair to say that that body is much less unified in its views on the merits of that. And there may be a lot of things happening before we see the end result of that. So that was the comment this morning. I think then we said that the Swedish government and the Swedish regulator has a clear view that they want to have risk based view of the balance sheet and they don't want to stand by risk based. It works well in this country. We have a long history of it. It's working well. And I think we see the results of that in 4 strong banks in this country. So that is a firm view here. Okay. Okay. Thanks. On this topic, if Brussels or Strasbourg, let's say, goes on with kind of standardized risk weight, correct me if I'm wrong, Stockholm will have to incorporate it in its legislation. No? I think that's a fair assumption. Then again, I think one should keep in mind that Sweden went ahead in its Swedish Finnish with raising the capital bars for all banks and it did it under a regime which was Swiss based. If the world around us changes completely and we move into something like standardized risk weighted, then the height of the capital bar will be revisited by the regulator. And they've made comments in the past in that direction. So I think we shouldn't get too excited about that development either that can be worked out of the coming years. Thank you very much. Very clear. Thanks. Okay. I think it's time for the last question. Thank you. So the final question comes from the line of Christophe Roskris from Barclays. Please go ahead. Hi, this is Christophe. Thanks for taking the question. I'm just coming back to statement that you made last quarter in London regarding your strategy to convert your new retail customers to universal customers. And I'm trying to reconcile that statement with the growth that we see in fee income quarter to quarter is 2%. I was just wondering if you could give some color, is that explained by the seasonality that you've spoken about regarding corporate fee income and seasonality at the group level for fee income? Or is there a slowdown? Or is this actually the kind of quarter on quarter growth rate that is consistent with a successful implementation of this strategy to convert the new retail customers? So that's the first question. The other question I had was just on a follow-up on the pension cost. So thank you for the clarification so far. But could you just explain or confirm what interest rate assumption lie behind the EUR 500,000,000 that you have mentioned or planned for? And if there is a scenario where that would go up as well? And then finally, regarding the insurance that you mentioned this morning, could you just the sort of the health insurance that you're now beginning to offer, is that the beginning or is it the first or the beginning of a product expansion or enter into new products for the insurance division? Or could you just try to help us understand a little bit on has this already been contributing to growth? Or do you expect growth within insurance to accelerate as you begin to offer new products? Thank you. Okay. I think I'll start with the last one on the Life business, because it's yes and no. It's as I said on the press conference, it's not material. But I think what they have thought us to do in Life is we kind of finding a statement in Sweden of SMEs that are not interesting enough to go and have kind of individual visits for any life company because it's quite expensive to go out there and meet with them. But at the same time, they lack, for example, health insurance. And they are small, kind of small corporates and it's quite dependent on themselves to actually work with them. So I think that what we have found out is that we can offer by having what we call shared screen is that we can talk to the clients and show them on the same screen as the advisor is looking at and making sure going through the whole economy, what is happening with your city, etcetera. And you can make kind of 10 visits a day instead of maybe maximum 1 a day because Kennalis distance the client. And so and of those 10, the hit ratio is really, really high compared to maybe comparison to one visit and didn't turn out. So I think that hopefully this will turn out. This can be built into something. It's not material yet, but this is one way, of course, exploring your message and penetrate. I think that is why we are thinking this is a fun thing to show. And also I think the uniqueness in S and B that we can offer really bank assurance, we're one of the few banks that can do that and it really works well between the Life company and retail that now have combined kind of sales offerings and advisory offerings and that we also opened our traditional life company. So we can also offer life, which we couldn't do before. So do you should I understand that this is a quite unique opportunity? Or is it do you see sort of more that it will as I mentioned that it will become material or that product expansion it's that there is further opportunities for product expansion, but that's something that you're looking at? Yes. We certainly hope that this will become material, but it's early stages yet. But I think we thought it would be just about the Christmas and I've been up in Sundsvall visiting the big telephone bank that we have in Sundsvall as well as starting with this kind of screen sharing, of course, that could if this stays out as good as we hoped, of course, it will become different. But we're starting from an extremely low base. We're starting from 0. But so far, I think we've been quite excited over how this has paid off. Okay. Thank you. Christoph, on your the conversion of retail customers to full service clients, that's been very much part of the business standing in retail for many years. And I think we've done very well on that. How does it affect the fee line? Well, I think in this quarter, the middle drop you've seen there isn't from a change in that pattern. It's from I think we touched on it earlier, it's primarily from the lower payment fees and what comes out of the card business as normal seasonality. So that shows up in retail. And so if you go 1 year back, there was a 9% drop quarter on quarter on that line. So 2% growth is actually an improvement compared to that period even if it's a slowdown versus the year on year growth rate of course. So I suppose 2% in if I put it that way, is that due to success with the cross selling? Or it's Yes. I'll put some of that towards success in cross selling. I think we've done well. And I think there's been I think sometimes a misunderstanding that we've been pushing a mortgage product whereas in fact it's been all about client acquisition and the ability to build a broad and deep relationship with the clients. And that success has been there from the very start, I think, and it's growing even stronger. So I agree on that. You had another question on pension costs and when we quoted the €500,000,000 effect on the cost line coming into 2015 that was a combination of the lowering of the discount rate on the pension liabilities and of effects. And I think 300 or so we attributed to the pension effect. And that was based on the assumption that we would move to a discount rate which shows 1.6% and that's exactly where we've gone. So I think that's very much in line with that prediction. But is there a risk that that well done this cost will grow if the discount rate moves further down? Yes, but not during the year. We changed that discount rate normally on a yearly basis. During this year, we will be staying at 1.6, if nothing very, very dramatic just the CapEx. If we have changes during the year in the rate, we may see some changes to the other comprehensive income line, but not in the P and L itself. Okay. Very clear. Thank you so much for that. Thanks. Okay. Thank you, everybody. And with that, we will close the telephone conference, and we hope to see you then in London tomorrow morning at 8 o'clock local time. Thanks a lot. Thank you. See you tomorrow. Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.