Earnings Call: Q1 2014

Apr 25, 2014

Thank you for standing by and welcome to the Q1 2014 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, Urs Groeneher. Please go ahead. Thank you, and welcome to this presentation to the Q1 results of 2014. My name is Ulf Groenek, and I'm Head of Investor Relations at SEB. Also on the line are SEB's CEO, Annika Falkingren and CFO, Jan Erik Beck. Annika will start by giving a short introduction to the results, after which we will move to the Q and A session. Welcome to the presentation of our financial results for the Q1 2014. Today, we report an operating profit of SEK 4,900,000,000 This quarter, just as last year, continues to be characterized by the cautious recovery of the world's economy. Moving to Slide 2, the key takeaways from the quarter are the improved corporate sentiment and that the small and large companies in Sweden have reported higher levels of activity in recent service. Public data also shows that merger and acquisition volumes in the region have more than doubled versus a year ago, up 160%. Initial public offerings have almost doubled, up 90% and also debt issuance is higher by around 30 As the corporate bank in this region, we have seen this increase in activity. Our customers continue to do more business with us, while at the same time we continue to increase our customer footprint and we do increase our cost and capital efficiency further. This more positive development in the capital markets, however, does not mirror the real economy development, especially in Europe. Increased geopolitical risks due to the recent uneasy Ukraine can have a negative effect on trade and lead to a more careful business environment in the short term and mainly so in the Baltics. Page 3. Our operating income was $10,400,000,000 and operating expenses decreased to $5,300,000,000 for the Q1. Credit quality continues to be high and credit losses of 7 basis points remain at the same average level as those of our Nordic businesses during last year. We continue to build capital and with a Basel III capital ratio of 15.7 percent, we reached a return on equity of 12.6. Percent. On slide 4, our net interest income increased by 8% versus Q1 last year. Customer driven NII increased by SEK 4.59 or 11% versus Q1 last year. Higher volumes offset the effect of lower short term interest rates and NII from other activities decreased to DKK100 in the same period last year. We have raised $40,000,000,000 of long term debt in the quarter and only $15,000,000,000 matured. Maturity will take place in the second and third quarters of this year and liquidity reserves have also increased by approximately $100,000,000,000 In comparison to Q4 last year, NII decreased by 2%, while margins remained stable. On slide 5, where the net commission income was $3,700,000,000 The increase of 15% compared to the first quarter last year is driven mainly by higher levels of acquisition finance and higher corporate advisory activity. Also income from assets under management and assets under cap studies increased due to higher activity and higher valuations. Assets under management reached the $1500,000,000,000 level for the first time. ECB is the leading custodian in the Nordics and our assets under custody have surpassed the SEK 6,000,000,000 mark in kroner. Compared to the previous quarter, net commission income decreased 4% due to the usual seasonal effects in cards and other payment fees. Slide 6 shows that NFI increased by 13% versus the same period last year. Both activity and volatility in the financial markets were drivers for this increase. Stock market volumes were up during the quarter. And the income level of CX 1,200,000,000 continues to show stability as it is driven by customer flow. The summary slide on operating leverage on Page 7 displays a stable progress of our business plan. We see a continuation of last year's trends. Income is at the same level as the average level last year. We are increasing efficiency at the bank and we continue working hard. Cost income ratio in Q1 was 0.51, the same level as in the previous quarter. I would like to take you through some of the trends in the division on page 8 before Q and A. And merchant banking increased operating profit by 40%, but from a low level in Q1 2013 given the concerns about Cyprus and Europe at that time. Capital markets have developed positively during Q1. KCB has been very active in the issuance of corporate loans during this Q1 and is the largest player in the Nordic region. We also have a larger and broader customer franchise given the good development of our corporate expansion in the Nordics and Germany. Norway and Denmark were up 20% and Germany was twice that number since last year. Retail Banking continues to develop positively and growth in both the Private and Corporate Customer segments. Operating results increased by 32% versus the same quarter last year. Wealth Management increased operating profit 13% versus Q1 last year due to higher assets under management and continued inflow on new customers at Private Banking. And Life operating profit increased 5% versus the same period last year, also driven by higher levels of asset under management. Unit linked insurance volumes have increased 13% on a yearly basis. The operating profit from traditional and risk insurance decreased somewhat. In the Baltics, operating profit increased 43% versus Q1 2013, driven by the recovery we have seen since the summer of last year. We're seeing a slight decrease in export volumes due to the recent concerns around Russia and Ukraine. On slide 9, you can see that we've built a strong balance sheet regardless if it is capital, liquidity, funding or asset quality that we look at. Our capital ratio according to bottom 3 is 15.7% and asset quality continues to be very high. So to summarize on page 10, we will not surprise you with new financial targets or a revised business plan. We will continue to execute on our long term business plan that we presented more than a year ago. It is all about strengthening our customer relations and growing in our areas of strength. It is about being where our customer wants us to be, being available when they want to reach us and having the financial resources that can support a growing customer franchise. We are now waiting to get the clarity on the final Swedish regulatory framework on capital. It has taken a long time to finalize the international, European and then Swedish regulatory framework. And we do hope that the framework will be well balanced and that the rules will not hamper too much the needed economic recovery. And with that, I think we can open up for questions. Thank Your first question comes from the line of Omar Kinan. Please ask your question. Good afternoon. Thanks very much for taking the questions. I just have two questions, please. Firstly, you referred to the remaining €20,000,000,000 in model approvals on the press conference. If I calculate that as a pro form a core Tier 1 ratio that gets me to about 16.3% from the 15.7% that you reported at Q1. I was hoping you could give us a bit more color as to how the €20,000,000,000 is split between various portfolios and also timing around applications and approvals. I mean, could you say, for example, that the EUR 20,000,000,000 will come through by the end of the year? And then I just have one more cashier question. Hi, Omar. No, I agree with that SEK 20,000,000,000 equates to about the numbers you quoted, I. E. 16.3%. Now I don't want to have breakdown give a breakdown of that in by line items or in time because it's really with the regulator until it's approved. And to sort of preempt that, I don't want to do at this point. So we'll see if and when they approve. I suspect them to do so. And hopefully, we'll have it by the end of the year, but I won't be able to go further. Okay. Thanks. That's helpful. And just my second question was around funding. You raised €40,000,000,000 of funding in the first quarter, which is quite a lot. I was hoping, could you give us a sense of firstly, what the cost of that sort of new funding was? What's your remaining plan for the full year is? And then lastly, what you think the back book cost of funding that's rolling off in the remaining of the year is? Thanks. Well, again, I won't be too precise, but we've taken the opportunity that the market has provided over the past quarter to do a little bit more and to be a little bit front loaded on the funding. And as I said, we've taken up SEK 40,000,000,000 and SEK 15,000,000 has matured. And I also said at the press conference here this morning that we have some things coming off the books now in Q2 and Q3. Now some of that was fairly old, so there will be a tailwind in NII to an extent from that. But we'll give more color on that when we get to Q2 when we see exactly what the effects are. But yes, I think I'll cover that. Okay. Thanks very much. Your next question comes from the line of Johan Ekblom. Please ask your question. Thank you. Just two questions. Following up on NII, Annika, you said that the customer driven NII was up something like €450,000,000 year on year. Is that excluding the impact of the change in fund transfer pricing? Or is that sort of boosting that effect? And how should we think about the customer NII development going forward? And then secondly, just you've kindly provided some disclosure on your exposure to Russia and Ukraine. It's a net number though. Would you be able to give us the gross exposures to get a sense for what the sort of worst case scenario could be if this sanction war truly escalates? Okay. I think regarding the first one, it is inclusive on that one, and it's approximately somewhere around $100,000,000 or something. Yes, just over $100,000,000 is the effect of the change to IFFT. On your second question regarding Russia, I think one should be a bit careful on the assumption how this crisis will develop. And I think our exposure to Russia is very much trade finance related towards the 2 largest state owned banks and non guaranteed exposure to Nordic blue chip companies really. So exposures are also in convertible currencies with contracts that are in force but outside Russia. So today, we cannot really see that there is any risk of any loss making that would materialize whatever happens. So we are only there actually to support the Nordic, German large corporates that we cater for. So I think our worry why we bring it up is rather than secondary effects that could have on markets and exports overall. And in that case, it will close to saying that the Baltic countries the GDP growth going forward, of course, if they suddenly cannot export to Russia and Ukraine, that would probably halt Yes, the recovery of the water is those are more the water board that I've tried to put forward today rather than any of these kind of exposures really. And just to follow-up on that, I mean, have you in any way changed your willingness to take credit exposure in Russia even if it's to the large two banks? I think we say that it's not business as usual. But of course, we support our corporate all the time. And then we have to find smart ways to do that to make sure that they can continue to doing their business. That's the whole purpose of being a bank close to your clients. You have to be there in good terms and bad terms. We just have to find ways in doing it and it's not really business as usual. But we are open for business, yes. Thank you. Your next question comes from the line of Alvaro Serna. Please ask your question. Thanks for taking my question. A couple of questions and I apologize if you've touched on this already this morning, but I had some technical troubles. In terms of the cost base, you're obviously making very good progress in Q1 and the run rate seems to be well below the cap that you've established. Is there anything we should anticipate in the rest of the year that will put you closer to the cap? Or is this a sustainable run rate of costs? And the second question is around Merchant Banking. The fees were very strong in Q1. Previous year's seasonality has been quarter to quarter down. It's actually up this time. And I just wondered if you can have if you can give us any color on how sustainable that is. You mentioned that there could be some confidence being dented because of the Ukraine situation. I think you were referring more to the Baltics. But if you can give us some color into what your thoughts are into the rest of the year medium term of that? Is it particularly good? Or there's been large deals? Or some color on that. Thank you. First of all, I think we're aware that we are, at the moment, well below the cap. On the other hand, Q1 is always seasonality, so far, to start with. So we are not expected to change the target. Of course, we hope to come in below 22.5%. But on the other hand, in case of room to maneuver, we have some investments to do. We're still investing in IT, etcetera. So we would just manage that, and we have no new forecast on that one. When it comes to fees, I think we were quite explicit also in Q4 saying that we do see much higher activity from corporate. Sentiment is better in large corporate, it's mid corporate, but of course activity in capital markets, M and A, corporate finance, even equities have had a higher turnover. That, of course, supports. Q2 is usually quite a good quarter also for merchant banking, while Q3 is always a weak one. So we can just hope that the sentiment in Q1 will continue. I think Magnus said today at the press conference that he feels confident that activity continues behind. So we hope that will continue. I think you're right. We are rather seeing that the Baltic recovery might slow down if we have more problems in Russia and Ukraine. And then of course, on a larger scale, that might also affect Europe and Nordic as a worry, I think, but that might be to come to too much conclusions at the moment. Okay. Thank you very much. Your next question comes from the line of Hakon Fjord. Please ask your question. Yeah. Hi. It's Hakon Fjord at DNB. Two quick questions for me. Firstly, on the back of the cost developments, is there any part of the group that you would like to particularly highlight in terms of further potential to improve operational leverage? Or is it more steady state going forward? And secondly, on the competitive environment, several of your peers have been in recent months alluding to an intensified competitive pressure, especially among large corporate lending in Sweden. Are you seeing this as well? Thanks. I think you just commented on the cost actually saying that it's always low in the beginning of the year, and we will manage that we are sticking to coming in below 22.5%. And that's what we have communicated. We will not change that. And again, it gives us room for maneuver, which we have wanted all the time. I think also when the dynamics in the bank is when we start to do the focusing dynamics that the bank today works differently and maybe slightly better than we hoped for. When it comes to the competitive landscape, I mean, it's been there for a while. It depends on what you look at. I think, again, merchant banking, Rick, as I said, you could see that's kind of spot of very serious competition here and there. And it's been the same for quite a while. Of course, it's a very competitive environment. We see a few weak banks that are back on the arena. On the other hand, you have to have a broad spectrum of really good products now to penetrate the clients because the products are much more bundled today. So you have to make sure that you can really offer the whole spectrum of really, really good products. And I think we can. So I think margins are fairly stable. And you could see that the competitive landscape is more kind of less pockets or spots of more fears. But actually, the margins are stable. Excellent. Thank you. Your next question comes from the line of Nick Davy. Please ask your question. Yes. Good afternoon, everyone. Nick Davy from UBS. Three questions if I can please. The first one on your ROE target and the comments you made Annika on no revolutionary business plans here and sticking to the plan that you laid out at the beginning of last year. At the time when you aspired to 15% ROE was on, I guess, the expectation of a 15% target core Tier 1. What kind of regulatory scenario would you need to have to rethink the business plan, have to redouble efforts on costs to reach a 15% quarter one? Have you thought about how you would respond if the target were to move up to 16% or 17% or anything worse than that? Just give us an idea please of what kind of preparations you're making for the regulatory announcements to come in the next few months? The second question and third would be on net interest income. Firstly, thanks for clarifying some of the trends on the customer net interest margin. But if you could maybe just make a few comments on the non customer customer margins. There's been a bit of a tick down in the yields you get on your interest bearing securities. Just wanted to get a sense of whether or not you felt that was a in coming quarters with long rates in Sweden on the decline. Just wanted to get a sense if there's any more reinvestment risk on the liquidity portfolio side. And secondarily on the net stable funding ratio, just trying to get a sense of whether or not you feel there's any intensifying pressure there after some comments from your head of the Central Bank around NSFR and potentially the threshold in Sweden coming in higher than 100%. Just noticing some of the work you've done on the fund transfer pricing model, I guess, incentivizes deposit gathering and you have been obviously active in the long term issuance. Just if you could give us a flavor as to whether or not you're any more intensely focused on that metric than you were in the past? Thanks. Okay, Nick. I can start with the first one and I'll leave over to Jan Erik to comment a bit more on the capital issues. Return on equity, yes, I know. And a year ago, everybody felt that 15% was very high and now we've moved a little bit ahead of plan actually. So I think it's too early to revise the plan. We will see now what the final inspection comes out with. But I think at the moment, we will stick to the plan and say that we still have an ambition to reach 15 percent despite that we probably will need to tie more capital than 13%. It might take a little bit longer time, but the ambitions are high here and we will have to wait until late summer I think to see if we need to revise it or not. But we still want to keep the total to 15%. Then Nick, on the non customer NII margins, I think we talked about the what we've done on the funding side. And the fact that we have bought up the funding a bit in Q1 will have some falling off in Q2 and Q3 which will help. And in this quarter, you saw also how we adjusted some of the IFTPs between Treasury and the divisions. And we did that to harmonize the behavioral maturities rather than contractual maturities to incentivize the divisions to be steered more directly into the new NSFR and LCR definitions that have been forthcoming. We don't expect the NSFR measure to be we don't expect the Swedish finish of the measure itself and we don't expect a different definition than the Basel definition either. As you know there was a consultation paper sent out on the NSFR definition in January and that's what is still out there. And I expect full compliance on to full compliance on the Sverdrup. We still have a gap to fill. But we believe that during the course of the business plan over the next 2, 3 years we will be able to do so and without material effects to or pressure on the ability to fulfill the financial targets. Very clear. Thank you. Your next question comes from the line of Jeff Dorris. Please ask your question. Yeah. Hi. It's Jeff Dorris here from SocGen. I've got areas of focus actually similar questions on both, but 2 areas which are probably quite important for fulfilling your overall business plan. First of all is SMEs and second of all is the German corporate banking relationships. I think in both of those areas, it's probably fair to say that's where a lot of the incremental business and incremental new customers have come on board. And I wanted to ask about both of those. First of all, how you're getting those incremental customers to come on? I think in particular you highlight some of the new German corporate banking relationships. And second of all, what is the kind of incremental profitability or new business return on equity that you're profitability or new business return on equity that you're getting from those relationships? And third of all, really what kind of revenue growth can you expect in those two areas going forward in order to get your business plan? So a few questions on those two areas, please. Thank you. Okay. I can answer that. But also saying Thomas Tucheta, we have also increased this 400 large corporates, of which half of them in the Nordics Aurelius. It's not only kind of mid corporates in Sweden and Mittelstand, it's actually a lot of large corporates also in the Nordic arena that has come in the last couple of years. And I think I mean, the starting point is usually a loan or maybe a payment on cash management or something that you win and then you'll have to start to cross sell. I think what we have seen definitely in Germany what has been a really good thing to do is to work also with the whole So we can see that quite a few of these and they are more traditionally organized, the Swedish large corporates were maybe 25 years ago with separate treasury centers needing a lot of support out in the network. So it's been quite successful and quite easy to cross sell on quite a few of these Mittelstand companies. But while we still can see it on average, we have too few product clusters on these ones. We are working really hard in making sure that we can say more. On a Swedish large corporate that we've had for 100 years in this bank, we have kind of on average close to 8 product clusters. On many of these funds, we only have less than 2. So the starting point is to get it to 3 and then to 4 or 5, etcetera. Then you have a really long term profitable client of the bank. And when it comes to kind of the mid corporate segments and the kind of traditional large corporates, it's really about offering the whole of the Nordic and also more the ancillary business. So I think for SSEB being so strong on capital markets and I highlighted today at the press conference, we've been working actually in the door for quite a few years now, for example, establishing green bonds where we've had an international really good perception, but it hasn't really worked very well in the Nordics. The first one out last year was actually was municipality and now we had SCA and Skanska coming out. So that's also a new product that we can see a lot of interest, for example, also in Germany on Capital Markets side. And we have recruited a new team also on Capital Markets in Germany. So I hope we will see more of that. So those are a few things that we do. Okay. And then in terms of profitability or maybe to phrase it another way, is it fair to say that the initial starting relationship ROE is quite low for these and that you need to cross sell to bring the ROE gradually to the kind of double digit and upper double digit levels or upper teens levels? Yes. That's probably an easy way to describe it. Of course, if you enter with a relationship loan, it's definitely under hurdle. But it depends on what kind of starting product you have. But on the other hand, we have at least 15% return on ambition on the German part as well. So and the clients should of course accordingly be up on that more than double digit level as well. Great. That's clear. Thank you very much. Thank you. Your next question comes from the line of Ricardo Rovereo. Please ask your Good afternoon to everybody. I have a couple of questions. First of all, on the regulatory side, aside the countercyclical buffer, what is still not clear from a regulatory standpoint regarding just the capital? Is it corporate risk weights? What else? And the second question I have is on corporate risk rates, I see that over the past 15 months, so since December 2012, corporate risk rates are down by 3 percentage points. So now it's well below 40%. In the meantime, we saw the risk bank cut in rates. We're talking about deflation in Sweden. So what is driving down the corporate risk rates? And if I assume that the German operations and the Baltics operations have a corporate risk rate that is above the consolidated one of less than 38%. Is it possible to have an idea of the corporate risk weight of just the Swedish operations? Thanks. Okay. So what has been clear on the regulatory front? Well, quite a lot. I think if we if I generalize a bit and don't go into too much detail, I think the first thing is to get the Swedish regulator to hopefully now in May come out with their consultative paper on the Swedish implementation of C34. And the main components there are just as you say the countercyclical buffer the size of that how is it going to work When is it going to be turned on? And the other question I think that's out there is, are they or are they not going to use a similar model to what has been used in the U. K? Will they use a Pillar 2 add on, which is perhaps going to be made part of Pillar 1 and to hit the common equity Tier 1 ratios in a similar fashion as in the U. K. And if so what part of Tier 2? We have said earlier, we think things like mortgage risk weights probably should be included. They are a targeted medicine to deal with some of the issues that Sweden is facing around household indebtedness and that sort of thing. But there may be other component parts of Pillar 2 that they may want to include as well. So those I think are the main components in the near future. Behind that I think you can see a development on in Continental Europe where risk weight and the individually rating based risk weighting models are questioned. And a move just as you say towards standardized risk weights overall is happening simultaneously as COD4 is being implemented. So I think that's the first stage in the near future about Pillar 2 and kinocyclic buffers. And there's potentially a later stage, which is risk weight harmonization. That's going to be later. It's going to be much more difficult and it's going to take time. So I think those are the main two blocks really of what's going on. On the corporate risk weights and why they are coming down, I think it's a fact of quality. It reflects that we bring new clients on with excellent asset quality. And that's the Marco the answer to that. And when and Ricardo when you compare to 9 quarters ago, we had a risk weight on corporate of about 50%. That was before we had the model approval to go to advanced IRB on the corporate side. So it's the development which took us from 51 to around 40, mid-40s was due to model approval after which we have been working very diligently on things like securing risk mitigation, collateral and of course as Jan Erik said doing business with the most stable investment banking or rated sort of investment grade counterparties in our market. So the growth has been on the highest quality assets in a way and that therefore has reduced the average risk weight. Okay. If I can get back one second to the previous answer. If I understand correctly, you stated that you're taking on board better clients or clients of better quality. So my understanding is that the flow is strong enough to move the risk weight of the overall stock. So my question is, what is the risk weight of these better clients? If they can move the risk weight the overall stock, reducing it by more than by kind of 10% in 12 months? [SPEAKER STEPHEN ROBERT BINNIE:] Well, I think as we say, I mean, it's several effects. I do think that the large component is quality names coming into the book with obviously low risk classes. But it's also as such as the fact that the organization is learning to be more capital efficient and to bring in securities into and collateral into the bank. Okay. So Several facts at the same time. It isn't one effect. Okay. So credit risk mitigation and better quality in general? Yes. Okay. Your next question comes from the line of Sophie Pettersen. Please ask your question. Yeah, hi. Here is Sophie Pettersen from JPMorgan. I just had a couple of great up 40% quarter on quarter. Should we expect this to be the new run rate? Or this more or does it include any one off? And similarly, on the other and eliminations, I realize that you have changed the transfer pricing, but NII was in the Q1 €34,000,000 compared to Carrefour run rate around €250,000,000 €300,000,000 over the past 8 quarters before. I was wondering with the transfer pricing, is this EUR 34,000,000 kind of a new run rate? Or will it kind of bounce back to the $250,000,000 $300,000,000 mark? And lastly, could you just talk about the Pillar 2 requirements that you expect? You mentioned that potentially the country's cyclical buffer and higher mortgage risk, right? But what other potential requirements might there be in the Pillar 2 requirement? And how big do you think the Pillar 2 buffer that you need to hold will be? Thank you. Hi, Sophie. If I start on the Pillar 2 and take the other question on ICP and the volume effect. Now on Pillar 2, I think all we know is that there well, we don't know. We suspect it's probably the word the Swedish regulator is being influenced by the thinking of the U. K. Regulator. And we suspect that one scenario is that they add a charge for what is now in Pillar 2. One of those things is mortgage risk weights. What else they might be considering in Pillar 2, we'll just have to see. We haven't given disclosure on what is in our Pillar 2 numbers or how what component parts that make it up. And we start with their communication and then we will relate to that. Start with our communication and then we will relate to that. And what about does it include any stress buffers, the Pillar 2 requirement? Or is it purely just mortgage risk rates and then the country's cyclical buffer? Or are there any other kind of buffers that we should take into consideration? Well, I would say once the regulator has said what they want to see and what they want to do, we will relate to that. So we'll have to we will have to deal with it in that order. But this is soon forthcoming. First we know they will say what they will want to do in May. But really up to this point, they have said very little. So we have nothing to relate to. Okay. Thanks. Okay. And then regarding your NII question. It is true that transaction banking has benefited from the internal funds transfer pricing change that we did because the behavior in maturities are different than the contractual ones on the short term money that we are seeing in that business. And part of the or a large part of the explanation to why they are increasing them has to do with the change of IFTPs. But they also have had higher volumes. For example, Leneke said that the assets under custody for the first time exceeded DKK 6,000,000,000,000 and of course that has an impact in the way we are doing more business throughput through the GTS area transaction banking now than we did before. And then on the other eliminations, you have of course the negative part of that. When the Treasury central function pays more then of course they will have less NII left to deal with. But it's not only driven by the IFTPs in other and eliminations. There's also 3 other factors and Jon Erik mentioned a few. One is that we have pre funded maturities in Q2 and Q3 that has a cost. We have increased the liquidity reserves by €100,000,000,000 that has a cost. And then short term rates came down and likely to continue to come down if the Central Bank lowers the rate. So I would say that the prefunding should disappear because we will have maturities that will correct that situation. The short term rates are likely to be lower than they were in the Q1. And then the liquidity reserve is we'll see when we get to that to the end of the next quarter where we are on that one. So some of the effects are more permanent and some others are less permanent. Great. And some others are less permanent. Great. That was very helpful. Thank you. Your next question comes from the line of Ronen Goss. Please ask your question. Hi, good afternoon. It's Ronen from Citi. I had two questions. One is a question about productivity and costs and one is a question about a factual question on the balance sheet. First question is, when I look at the staff numbers, if I look at just continuing operations, you had a further reduction, albeit a small one. And year on year, you're down about 300, 320 odd people. And if I look at previous years, you seem to have had a faster rate of decline. And just wondering if we're looking at continuing operations, whether it's the business lines or the business support, are you seeing a sort of shallowing out of further product headcount reduction gains as you can foresee in the next year or 2? Is it now really more about trying to get non staff costs down? Or is there more you can still do on the staff headcount numbers? And if so, are there any particular business areas that stand out in that front? And the second question, just a factual one looking at the balance sheet numbers. There's a big jump in the financial assets at fair value. And I know that can be volatile. But just wondering is this all derivatives? Or is there anything else going on? It goes from 776,000,000 to 824, 825,000,000,000? And similarly, the sort of the jump in deposits from corporate clients up about €50,000,000,000 or 10% Q on Q. Is that just seasonality like previously you've seen in Q1 last year? Was there anything else going on there please? Hi. I can take the first one and say that we have no targets on FTEs. We only have the cost ceiling. So I think it will probably continue a bit, but it's not a target in itself. I mean, we have no plans for reduction on FTEs. It's more like we outsource them when people leave or quit or retire, we might not replace them, etcetera. But at the same time, I mean, we have trainee programs, we have junior programs, we're bringing a lot of people at bank at the same time, IT has been recruiting a bit. So there's some ups and downs. But nevertheless, I will probably foresee that we will slowly but steadily, of course, be fewer in total because we manage it carefully, but there is no target on FTEs. It kind of becomes what it becomes. The most important thing is the cost target. Then regarding your second question on the development of the fair value assets, there's a split in the tax book on page 14 that shows that the derivatives play a part in that, but the major part to do with the increase has to do with our increased holdings of bonds and so on, which is one way where we place our liquidity of course. So it has more to do with the fact that we are holding higher liquidity resources now than we did before and that we have seen a little bit more of the trading activity or activity in the trading floor as well. And the corporate deposits? The corporate deposits. And the corporate deposits are increasing because you may remember that we actively took measures to try to reduce it due to the fact that we paid the that we sort of wanted to limit the exposure at year end and so on. And what we see now is the return of the interest from in particular U. S. Investors that are placing that with us short term money and so on. So it's more to see as part of almost like a CDCP way of funding ourselves and so on. So asset managers in the U. S. Okay. Thanks. Your next question comes from the line of Matthew Clark. Please ask your question. Hi, good afternoon. I just wanted to check what your dividend accrual practice was within the 15.7% Basel III Tier 1 ratio. Are you occurring at the prior year rates divided by 4 or on an assumed payout ratio? Or what assumptions have you made? No, that has actually changed. We have to get approval from excuse me. We have to get an approval from the switch regulator today to include profits into the quarterly reports and the auditors need to certify it as well. And another change is that from now on we deduct the same payout ratio whereas in the past we deduct the same dividend per share. So that's no indication of future practices, but it's just looking you the 15.7% that does include the 1st quarter profits retained earnings or doesn't it? Yes. It does. And it also deducts a payout ratio, which is 59% based on what it was last year. Great. That's very clear. Thanks very much. Your next question comes from the line of Jacob Huse. Please ask your question. Hi, it's Jacob from Autonomous. Just two questions. Firstly, I was wondering if you could comment at all on the AQR or the stress test. Did you see any potential changes to your NPLs that you will have to have under the asset quality review? And secondly, if I look at your rankings in the investment banking space, indicated lending, M and A, etcetera, you're typically number 2 or 3 in the Nordic region. Is that the position you are comfortable with? Or do you think that you're lacking scale in some of the non Swedish Nordic countries? Thank you. I think if I perhaps start on the AQR, I think it's much too early to say anything about where what we will see as an outcome of that. Other than that, generally, we feel comfortable with our asset quality, and I think that will be reflected in the AQR outcome as well. But once that whole exercise is finalized, we'll be happy to share the findings with that. But that's too early today. And I think I'd comment on I think the clarity is on what service you look at because of course we follow essentially the Prospera that we found very valid on being the most kind of liked bank to do business with and the most recommended bank. And there we are number 1 a clear number 1 when it comes to kind of being the relationship bank as a corporate bank. Then when it comes to individual like foreign exchange, we're a clear number 1. When it comes to capital markets, when it comes to issuance of bonds in kroner, we're number 1. When it comes to euro, we might be number 2. When it comes to corporate bonds, it depends on if you include municipalities or not municipalities, etcetera. So I think I would dare to say that we are top notch on most of these. And of course, we have clear vision of stay number 1. When it comes to size wise, we could never compete on that because there is an audit bank who is already size wise, but much more a universal bank than a corporate bank. So of course, we try hard to make sure that we should be pinpointed or number 1 on all these measures. But sometimes it can be hard by not being the largest one. But I don't think that is a problem not being biggest. It's really being on the top notch where you offer. And then we have a clear ambition being number 1 in the offerings that we have. I'm just looking at your own the data you gave on in the fact book on Investment Banking ranks. But I guess I'm wondering if it can depend on exactly if there is a specific large deals that have come through, if there is something else that has just recently been done and things like that. So it's not always that we could be kind of top league on everything, but I think it's also about the perceived position and when it comes to kind of soft issues of who do you perceive as being kind of the corporate bank and who do business with. But of course, from quarter to quarter, of course, there can be international banks and maybe huge deals in Sweden between a U. S. Corporate that has bought something domestically that we might not have been involved in and things like that. And you don't I don't find the size a problem. I would rather say that we have a very clear focus on attaining an M01 position when it comes to investment banking, corporate banking, foreign exchange, you name it, in this region. And you think that that footprint is solid enough also in Norway, Denmark and Finland? Yes. And I think we've seen that in Norway. But I think here, size is an issue in the way that we only focus on the largest corporates. And of course, it depends on how many you ask for the foreign exchange, for example, we only trade with the largest corporates. You can still have a I think we're number 2 in Norway. And that's probably difficult to achieve a number one position because the breadth is not big enough. But I think going deeper in Norway, for example, or Denmark, whatever, then you start to need a branch network and then you start to go into mid corporate and that is not where we are. We want to continuously working with much more on the large corporate merchant discussions. But as far as it is now and for the coming years, we have a lot to do. And from that perspective, we might end as number 2, then might be a reason of being number 2 in the league table in Norway, for example. Okay. Thank you. Thank you. Your next question comes from the line of Jin Pan Yoshi. Please ask your question. Hi, good afternoon. I've got 3 quick ones. First one on Funding and Others in the NII line. Obviously, the weakness was because of that. It tends to pick up in Q2 again. How should we think about this line for the coming quarters? That's the first one. Second one is on mortgage margins at Q4, you said we should expect a couple of basis points a quarter kind of improvement to 2014. Is that still the case? And the third question is, if I look at your Tier 1 ratio and the common equity Tier 1 ratio, there's a difference of about 1.9%. Should we think about this going forward? Do you think given that Sweden wants a lot of high quality capital that it may not actually ask for the 1.5% minimum? Or does this go down to 1.5% over time? Thank you. I can comment on adding the balance sheet questions to Janelle. But your comment on the mortgages, it used to be 1 basis points a month. And I think we're saying now it's between 1 and 2 a quarter. So of course, we're starting to see slowing down, but still continuously. And I think my post and Ronald Ransriti was quite confident today that he thinks that, that will continue. Then I think after the summer, when we know that the risk ratings will change on the mortgages, of course, the whole pricing will change. That would render a possibility to take even more margins. I don't know. But at the moment, you can calculate 1 to 2 basis points a quarter rather than 1 a month. And perhaps if I take the capital question. I think you're right, Shinta, that the Swedish authorities certainly are keen on high quality capital. But again, I'll refrain from speculating on what they will say. Now when they come out in May, it's now literally 2 to 3 weeks before they will say something I think. So let's wait for that. Do you expect them to say anything on AT1 at all in this? Because the U. K. Has been reasonably silent on the topic. So just wondering if Sweden will say something in the paper or just leave it hanging? I wish I knew, Cintan. I'm hoping they will say something. And finally, the Funding and Others line and the NII line item? I mean, it's Cintan. I think I'll leave the modeling to you. What we can see is that so far we've been able to offset lower short term rates by increased margins on customer lending and that the NIM has been stable over the last 9, 10, 11 quarters more or less. And we think therefore that if we continue to have more customers and therefore increased lending from that, we can continue to grow the overall NII. Whether that comes through in customer or non customer driven income is something you will have to think about. But we believe that we can continue to show good development on the NII overall. And we think on the lending on the lending side. Rates cannot really go much, much lower from where they are today because they are certainly close to 0 everywhere we look. So we'll see from there. Okay. Thank you. And your last question comes from the line of Adrian Cighi. Please ask your Good afternoon. This is Adrian Cighi from RBC. Thank you for taking my question. One quick follow-up question on capital. In the quarter, dollars 3,000,000 of the $10,000,000,000 in the risk exposure decrease came from process changes. Can you provide any additional color on what these are? And do you expect any further changes or further declines in risk weighted assets from such process changes? Thank you. That Adrian has to do with the fact that we are. Once you get an approval and assume that give you a sort of SEK 10,000,000,000 relief, you're not going to get SEK 10,000,000,000 immediately because you need to roll it out into the organization as well. And that takes time. So it has to do with the fact that we are using our in our existing approvals, so we're continuing to roll them out into different parts of the organization, which creates some efficiencies. Then you can see part of that on that line. Thank you. There are no further questions registered. Please continue. Thank you and thank you for all your good questions. We therefore hope that the result came through as we are very transparent and it shows the stability of SEB as such. We'll be in London next week and hope to see many of you there. And with that, please have a very nice weekend. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating.