Earnings Call: Q4 2013

Feb 5, 2014

Ladies and gentlemen, thank you all for standing by. Welcome to the Annual Account 2013 Conference Call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. I'd now like to hand the conference over to your speaker today, Ulf Grenfell. Please go ahead, sir, and thank you. Good afternoon, and welcome to the full year 2013 conference call S and B's results. With me in the room is Annika Falkingren, CEO and President of the company Jan Erik Back, CFO and I'm Ulf Grunok, Head of Investor Relations. Annika will start by giving a presentation, after which we will conduct the Q and A session. Please Annika. So welcome to the presentation of our financial results for 2013. The global economy and in particular Europe is still facing challenges, but we have gradually seen a cautious recovery over the past year. After the summer, the sentiment improved somewhat and we saw an increased level of activity in the bank and also in the last quarter 2013. On page 2, our full year profit for 2013 is DKK 18,100,000,000 which is up 27% compared to 2012 and 18% if we exclude the nonrecurring items we had in the last quarter 2012. I would like to highlight 3 areas from this year to focus on. Firstly, of course, customer satisfaction is higher and we have also the benefit of welcoming more customers on board. 2nd, we continue to deliver on our communicated business plan. With a growing customer base, SVB's income is broader and more diversified than before. And it grows in Sweden as well as in the other Nordic countries and Germany. And third, we are resilient. We have lower costs and we are more capital efficient. We continue to strengthen our already strong balance sheet and we build more capital. Page 3, a larger and more active customer base contributed to a further improvement of the bank's operating profit, which in the Q4 was €5,000,000,000 The picture shows the changes in reported results. On a comparable basis, without nonrecurring items in 2012, quarterly income increased by 10% and cost decreased by 2%. Annual income was 6% higher and cost 3% lower. Asset quality continues to be strong and credit loss level remains low at 9 basis points for the year. Non performing loans continue to decrease this quarter and are down by 32% versus the same quarter last year. However, we have written down some non performing loans against reserves in Latvia and Lithuania in the last quarter last year. Page 4. If we then look at net interest income, it increased by 7% during the year. In the last quarter, net interest income was almost DKK 5,000,000,000 which was up 11% versus the last quarter in the previous year and 4% up versus the Q3 of 2013. This is mainly driven by higher business volumes and to some extent improved lending margins. In the current low interest rate environment, deposit margins remain under pressure, but we are able to offset these effects and increase the group's net interest margin. And during the year, lending to corporate increased by $34,000,000,000 and lending to households increased by 26. Net interest income in funding and other has in the past year amounted to between €400,000,000 to €500,000,000 and this time slightly lower versus the Q3. We continue to decrease our funding cost, while the low interest rate environment decreases the yield on our liquidity portfolio. If we then look at net fee and commission income on Page 5, increased by 8% during the year and was also up 4% in the last quarter, both versus the same quarter in the previous year and versus the 3rd quarter. And this reflects increased activity. In the 4th quarter, lending commissions were lower versus the previous two quarters, but this was mitigated by an increased activity in, for example, corporate bond loan and syndication markets. As usual, performance fees in Wealth Management increased in the 4th quarter. On Page 6, we see the net financial income that was 12% lower during the year. And this was due to gains on the liquidity portfolio, which we had in 2012. NFI in the 4th quarter increased by 44% versus the 3rd quarter when both customer activity and volatility were low. For the whole year, customer activity has generated stable income and was up 1% versus 2012. The next slide is a bit of a favorite on Page 7, as it sums up the development this bank will do well I think at the moment. New customers and broader relationships with existing customers lead to higher average quarterly income. And at the same time, we made clear improvements when it comes to efficiency and productivity. There is obviously a lot of hard work behind this, where all employees across the bank contribute. The bank's cost income ratio in the Q4 was 0.51 and 0.54 for the whole year. On page 8, we have the divisional performance. Merchant Banking had a strong 4th quarter and operating profit increased by 34% versus the same quarter in 2012 and was up 15% for the whole year. Activity among large corporate and institutional customers was slightly higher in several areas. Retail Banking in Sweden continued to develop well with increasing number of both SME and private customers. Operating profit increased by 38% versus the same quarter in the previous year and was up 32% for the whole year. Corporate lending continued to increase. Mortgage lending increased by €25,000,000,000 and the total mortgage lending portfolio increased by 7%. And the rate of the increase was twice as high a year ago, so it has slowed down. Wealth Management operating profit decreased by 3% versus the same quarter in 2012 due to some margin pressure. However, the annual operating profit in 2013 increased by 25%. Total assets under management increased to DKK 1475,000,000,000 which is higher than before the financial crisis. Private Banking continued to attract new customers and new volumes with DKK 24 1,000,000,000 in new assets under management last year. Life's operating profit increased by 13% in the 4th quarter compared to the same quarter in the previous year, but decreased by 4% for the full year due to lower income from risk insurance and traditional life insurance. In the Baltics, operating profit increased by 39% in 2013. Corporate lending and local currency increased by 1% during the year. Private customers remained cautious and mortgage volumes decreased by 1%. We have reduced non performing loans at a quicker pace and the quarterly operating profit was therefore 19% lower versus the Q4 in 2012. Non performing loans were 44% lower than a year ago. On page 9, as I said earlier that the new customers were very important for our revenue growth. On this slide, you can see the contribution to Merchant Banking's income. We have over the past few years been very clear on our objective to grow our business with the corporate and institutions outside Sweden in the rest of the Nordic region and also in Germany. Since the start in 2010, we have attracted more customers every year. During 2013, there were another one 108 new customers. Gradually, they deepened their business with SEB. And during the past 4 years, new customers have contributed with 10% income growth. On page 10, resilience and flexibility has been and will continue to be our motto. We have built a strong balance sheet in terms of quality of capital, liquidity, funding and asset quality. Our capital ratio according to Basel III is 15% and asset quality remains very high. We have worked with the cost cap for several years now. The cost cap for 20 13 2014 of coming in below DKK 22,500,000,000 will now also be extended to 20 15 like the rest of the business plan. On page 11, you see our financial ratios. We report profitability of 13.1% on a bosal free capital ratio of 15%. During the year, capital has been strengthened by an additional DKK 13,000,000,000 And if we had maintained an unchanged dividend level, the Basel III ratio would have been DKK 15.5. But also earnings per share increased to DKK 6.74 and the Board proposes a dividend increase to DKK 4 compared to 2.7 5 last year. So on page 12, you have a recap of our financial targets. And in essence, we are well on track. And as I said, we have extended the cost gap to also include 2015. The capital target is yet to be decided since the Swedish implementation of the CRD 4 is not finalized. We will need to come back on this issue. However, the long term target for return on equity stays the same. We need to be competitive within our peer group, so the 15% target long term ambition stays. On page 13, you can see then our progress towards you can see then our progress towards the financial targets and what we did communicate last year. We then said that we would reach an operating profit of at least DKK 20,000,000,000 by 2015. With stable costs, the focus was on increasing the group's income by 15% or approximately DKK 5,000,000,000 over 3 years. And we did that by trying to explain it by making a small description on the back of an envelope. And on this slide, you can see how we have broken it down by division since business conditions differ between them. 1 year into the plan, we note that all divisions with exception of the Baltic countries have performed in line or even above the set target, when simply dividing the 3 year target by 3. And the bank as a whole has grown by 7%. So we do what we say that we should do and that brings me to my final slide. We attract customers who want to do more business with us. We are very clear on where we want to grow and our long term ambition to reach the profitability of 15% base. And with that, I think we can open up for questions. Thank And your first question comes from Ronit Ghosh. Please ask your question. Hi, thank you. It's Ronit Ghosh from Citigroup. Just want to follow-up on a couple of questions. Obviously, the overall results were very good. But just to dig into the Merchant Banking division and specifically within corporates, Anik, you alluded to lower loan fee income. Could you just give us some more color in terms of what was going on there in terms of these syndicated loan transactions? More color on that please. And then on geography, you've seen a sharp it looks like quite a sharp pickup quarter on quarter in Q4 in some of the other Nordic markets, specifically in Norway and Denmark. If you could add some more color on that and what's driving that, that'd be great. Thank you. No. I think it's not in particular, Ron. It's actually that they had very high activity in merchant banking in Q3. So you can't hold it up everywhere, but the activity was high. And I think when it comes to growth on the syndicated market and the loan origination that is something that we are also investing and believing a lot in. So that will actually continue. And I think also we said this morning on the press conference where Magnus Carlsson was present that actually we are still a bit optimistic regarding this area. We see activity and we are therefore a little bit optimistic about that also will continue. And I think also at the beginning of the year that we have an impression that activity is fairly high. So in terms of pipeline and outlook, you still feel reasonably confident about? Yes, as reasonably confident as you can be. I mean, everything goes up and down. And it's a bit lumpy. It's very difficult sometimes if everything comes within 1 quarter or if it doesn't come in that quarter. But I think overall, what we could hear from Magnus this morning that we feel confident that for SEB being maybe a smaller bank, I mean, 108 new large corporates in the Nordic area in Germany. That means more business to us. So each one of them, if we get to do one more deal, it's a lot more than we had before. So for us, it means a difference. So I think from that part, we have more clients on the platform. And if they get to a little bit more business from us, you will see a bottom line effect on that. And Ronen, I think that's also the question to your second or the answer to your second question on the Nordic geography is that we made a little bit of a spiel that we have actually over time increased the number of clients in the Nordic geographies as such. And when they do a little bit more, of course, that benefits the income line and therefore all of the Nordic countries had relatively decent growth and you can see that in the Q4. And once again the trend is quite clear that we are getting more and more Nordic business. It may not be every quarter and that's what we're kind of afraid of saying that everything will get better every quarter sequentially. But the trend is very much there. Think what we could see that Finland grew with 30% last year and Denmark with 15%. So I mean for us that means a lot. Sure. Thank you. Thank you very much. Your next question comes from the line of Mark Keenan. Please ask your question. Good afternoon. Thank you very much for taking the questions. I just had a question on net interest income and then secondly on revenues generally. Just firstly on NII. Your group reported NIM has gone up by 4 basis points in the quarter. And you've seen in particular good sequential margin development in both Retail and Merchant Banking. So just firstly on the Merchant Bank. I think a few of your peers have mentioned corporate margins coming under a little bit of pressure, but you seem to be reporting trends that are moving in the opposite direction. What do you think is the explanatory factor for this? Is it the result of cheaper funding costs and that really kind of showing itself in the divisions via the FTP? And could you potentially comment on what kind of momentum there could be from cheaper wholesale funding in 2014? And what the vintage of the roll off funding is in that year? And then just secondly on the retail banking side, Is the 1 basis point a month guidance on back book repricing of mortgages still valid before any system level repricing on the back 25% risk weights? Thank you. I think when it comes to margin pressure, it's difficult to say. I think the expectation will be what we can see kind of spot wise. I mean there are islands where there is heavy competition on margins. But it's a broader spectrum from that. So I think it's hard to say. I think competition is there. We see more international banks, of course, coming back to the Nordic arena. On the other hand, we really work with the relationship banking on a broad perspective. So of course, you see it here and there, but it's hard to say that we see that the pressure is all down. I don't think one could really see it that clearly. So I can't be more clear than that. It's quite difficult to tell at the moment. But I would say partly here and there we see very, very fast competition, but not everywhere. So it's broader than that. We also have some large mid corporates, etcetera, where maybe international banks are not that interested. It depends on what kind of solutions you can come up with. Then I would like to, Nir, go on to the wholesale funding question, where I jump to the mortgage portfolio. And I think there, of course, everyone is now competing fiercely when it comes to mortgages, and we're not growing as rapidly anymore. I think what we see on the book that you could say probably 2 basis points in a quarter rather than 3 basis points a quarter in improvement. Alain, on the cheaper funding and the effects of that, I think what we'll say on that is that we've obviously been fairly conservative in the funding strategy and you see that from one of the slides in the fact book. We've been bringing in some $120,000,000,000 during 2013, whereas we had about $60,000,000,000 maturing And in the coming this year and 2015, we have about SEK 80,000,000 maturing. So I think we've been quite cautious all along. And I said in the meeting in Stockholm this morning that the new revised NSFR definition, which in its last leg of all round of taking in views on that measure. It has now improved our position quite a bit on that. So we don't we haven't given away a number on that. But we feel much more comfortable with being able to move to compliance without any major obstacles to that. So I think the fact that we're continuing to enjoy a fairly positive funding market is going to help us going forward, but it's difficult to quantify obviously. Okay. Thanks. That's very clear. And just lastly, were you tempted to upgrade your revenue targets? No. We will see where that goes. I think again we have one known and that is kind of the costs. And then we are not really sure really exactly where the capital will end up with the communication. We hope to know more about that. And then of course, we can also hope that revenues can improve. So I mean, we need to work on both of those to get to 15, because the 15 is the most important. Understood. Thank you. Thank you very much. Your next question comes from the line of Jin Jiayoshi. Please ask your question. Hi, good afternoon. I've got a few questions on the corporate area and then one on mortgages. If I listen to Nordea, they're quite cautious about their revenue outlook, whereas you are, I would say, optimistic even though it's cautiously optimistic about revenue potential from the corporate area. Can you think of reasons why they are seeing things differently from you? That's the first one on corporate. The second one on corporate is we've seen recent volatility in emerging markets. Do you think that will dampen corporate activity in Sweden? Sweden does have a decent exposure towards emerging markets either directly or indirectly. And thirdly, if you could just comment on how you see margins developing in the corporate area? Thank you. I think you could start saying that, okay, nobody has a crystal ball of course. And I don't want to sound overly optimistic. But I think we must realize that what we have been talking about for a long time is that we have a bigger engine and we can take on more clients without increasing the cost. That's what we've been talking about since 2010. And I think what we start to see now is that we have good efficiency kind of in the factory, where we're taking on new clients without touching the cost. So in 2013, I mean 10% of the revenue in Merchant Banking was from new clients. 2012, it was 7%. So I think this makes a difference. Every year we work with these clients and we get more and more products with these clients. It makes a difference for us. Then of course, if all these trades will lead that we are leads that we are working on now, would de facto lead to execution and trade. Nobody really knows. But I think we dare say that the volume is bigger. We have more clients and let's see how far that can take. So that's why I think we're there to be a little bit optimistic. Thank you. And E and volatility and corporate margins? I think on the emerging markets and the way that would dampen the Nordic corporates and their exports and so on, of course, it's too soon to say. We have seen a lot of positive indicators in which the corporates are turning more and more positive in their business sentiment. On the other hand, the reports from the corporates haven't been overly strong in this particular quarter. So it's a little bit the jury is still out on whether that will happen or not. So far we haven't heard anything about that anyway. Understood. And corporate margins, if you can give us some color? I think corporate margin and Annika said that already in a way that the corporate margins just comes down to the mix effect in between different segments. There are absolutely some segments where there is fierce competition. Then there are others where we can see that we can roll over some of the funding or the lending rather to the corporates and do that at higher margins and so on. So we don't feel that we are that exposed to it. But of course in certain pockets it's relatively troublesome in particular since we can see some banks coming in from Continental Europe and which is using cheap liquidity from ECB and so on. Okay. Okay. So mixed picture. Okay. And then just one more on mortgages. If I think about I mean, I know you use your fund transfer pricing for the margin purposes. But if I think about where mortgage rates currently are, where covered bond funding costs currently are and also swapping the duration of the covered bonds to match to have ALM matching. I can get margins that are 20, 25, 30 basis points more than what your back book is currently indicating. And I don't want to be overly optimistic, but could you give us some sense of how much is there in the pipeline? I'm quite happy with 2 basis points a quarter, but seems like there's potential for a lot more. I think the 2 basis points every quarter is relatively decent. The question is how long that will continue for. So I don't we have a very competitive mortgage market. There are certainly still some opportunities for us to increase margins a little bit and we will do that on the back book. And in particular, we are coming off a situation where the back book margins are lower than what we are prolonging and so on. So I think we just have to be a little cautious and we don't want to make any drastic moves on the pricing. I think this and the fact also that we will see regulation probably making lending a little bit more expensive should translate into higher margins. But it's a process and one shouldn't take 2 quick steps in doing that. Fair enough. Thank you. Thank you very much. And your next question comes from the line of Nick Davy. Please ask your question. Bloody hell. Yes. A couple of questions then from my side. First one please on net interest income. There's some disclosure on Page 11 of your fact book. Just trying to isolate what's going on with the interest income you make on your interest earning securities. It seems to be up a couple of €100,000,000 on the quarter. I just wanted to see if I could dig in a little bit to what's going on there in a declining interest rate environment if you are putting your liquidity portfolio to work in any more of a way, is this a conscious decision or if there's nothing to be read into that number? The second just a couple of follow ups then please. The first one would be on Swedish retail, if I can just pick up on the comments you just made. Do I understand correctly then that you're more or less happy with the market share that you've got to currently and at the moment clearly your income growth in Swedish Retail has been far above what you're budgeting. I mean, do you see any do you think the momentum has been put back into that business sufficiently? Final question, a quick follow-up on the NSFR point. I know you're not going to disclose the benefit from the changing proposed regulations. Just wanted to see if how confident you were, let's say, that that might come into play in Sweden? Because clearly there was some changes to LCR, which I think is still haven't seen in the Swedish definition of LCR. So firstly, if you think the NSFR changes will come in, in Sweden. And secondly, whether that in any way changes your actual funding plan over the next few years, whether you're still working to sort of set internal plan agreed with the regulator? Thanks. Hi, Nick. I think on the first question you had there on the interest in securities, I don't think there's anything really special going on there. It's just a little bit of volatility between the quarters where Q3 was a little bit on the low side I suppose. But I can't come up with any particular reasoning behind that just normal volatility I think. In terms of the NSFR, if I skip over the retail question, which Annika will take, the NSFR definition as we read it in the papers that came out in the beginning of January was more positive, in particular for the retail parts. We were hoping we would get more credit for our corporate deposits and the run off factors used on that. That didn't materialize, but we'll keep pushing on that. But I think in terms of how we will behave, we've obviously built in a requirement to move to full compliance on that over the business planning horizon. And that's made marginally a bit easier now. So we won't change our behavior in any major way on that. We're on a good track on that and we feel comfortable with that. I suppose one has to still frame the caveat that this isn't the final verdict on what that formula would look like. It may still change a bit. But I spent a year coming up with this one. So it should have starting to be the final thing now. When it comes to retail, we now have market share the retail market of 16%. And I think we are kind of growing our market share approximately at the same pace as we have. So I think that's probably quite fair where we are. 80% of the clients that we have taken on board are full service clients, which is exactly what we want. We don't only want mortgage clients. So I think that's how we try to do it. So I would fairly say that we are fairly optimistic this will continue. The competition from the other banks is now very fierce. But I think also that we have a good offer to our clients. I think so therefore, it still looks pretty promising the way we move forward. But again, I think the market share that we have achieved now is fairly affecting our size in the market. So from that perspective, it's good. On the other hand, we are growing more in the cities. We are more of a Citibank from that perspective. So of course, we do attract more affluent individuals, people that move into the cities to get a job. So of course, they're quite an interesting client base. Absolutely. Thanks very much. Thank you very much. Your next question comes from Jan Wolter. Please ask your question. Yes. Good afternoon, Jan Wolter, Credit Suisse. Just a follow-up question from the presentation in Stockholm. You talk about revising your quarter 1 target up, but you want obviously to wait for final regulations. So if you suggest a higher quarter 1 capital base for the bank, Will the 15% return on equity target remain the same? Is that how we should read you on account on that one? And number 2, when is it likely that you will set the new Corteva 1 target? Is that contingent on final Swedish CRE4 proposal? Or are you waiting for anything outside Sweden and Nordics coming from the Europe, for example? Thank you. I think thank you. No, I think it's really we need to get the legislation of the CRD4 in place, so we know exactly. And I think that's I think we're all in Sweden all banks are rather frustrated and struggling with this. We definitely need to know what and if and how the catastrophe buffer will look like and also Pillar 1 or Pillar 2 regarding the risk weights. So I think what we try to be prudent here was to say that we have a target of Core Tier 1 at the moment of 13%. But it is prudent to say that we probably it looks like the January is that it's on the upside. But then whether the upside will be 14% or 15% or even higher, it's too early to say. But we actually have an ambition of having a long term return of 15% despite that. I think that's what we have to. The leading banks will have a return of 15% and we are one of the leading banks. So that's what we should aim for. But we have a long term target and we will do it in our way, growing with our clients, growing with the right clients and growing with the right products and also in the right countries. So I think that's where we are now. But I think we are a little bit more confident with at least we can see from our clients that we're growing with that 10% of Much Banking's revenues are coming from new clients. So we are actually seeing that the client base is growing and revenues are growing. So we're a little bit optimistic regarding that. Okay. Very clear, Meta. Thanks. Thank you very much. Your next question comes from the line of Chris Voskowitz. Please ask your question. Barclays. Two questions on the mortgage market and the one on your trading income. The first on the mortgages. If the Swedish regulator would go for the 25% mortgage risk weighted floors, just could you explain which scenarios or course of action that you would consider? Looking at the events in November, it seems like a price increase can only happen if it's a concerted move between the various between the lenders in Sweden. So would you participate in such a concerted price increase to enjoy higher margins? Or would you enjoy the fact that you're relatively less sensitive to a higher floor and aim for more market share? And secondly, just for the question on the increased uptake of SEB's product range from those new mortgage customers. Are those all the customers that the new customers, the 80% that you mentioned that have come on over the last couple of years? Or I'm just trying to understand when we will see the revenue growth from those additional products that you've sold. And finally, just on your trading income, I see that income from debt instruments still looks relatively weak. So I don't know if you could just provide some color on what are the challenges for this product area and what the outlook is? Thank you. Okay. I think we would all chip in to try to answer your question. When it comes to mortgages, yes, you can say that we track every client that we bring on board to make sure that they want to become an SEB client. But of course, you have to do that by understanding your clients and good performance. So we don't force anyone in really into the bank. And what we can see is that 80% of the clients that we have on board, but you could say that there's another 20% to work on because you have to of course call them and meet them and show them what we can offer. Last year, we gained 17,400 new mortgage clients or new full service clients, many of those starting with the mortgage. So I think from that perspective, yes, we focus a lot on that. But when it comes to pricing, I think when you have a long term relationship with your clients, you can't just from one day to the other just change the pricing. I think, of course, if the risk rating is higher, the whole purpose is that banks should put more capital aside. And that means, of course, that the move which itself will become more expensive. I guess that's the purpose of the whole exercise. And then the second thing is, how do you kind of introduce that to your clients? And I guess it has to be kind of an evolution. Over time, you need to explain when they have a rollover in 2 years' time. In the next rollover you might start to explain to your clients etcetera, etcetera. You can't just tell everybody tomorrow it's going to be more expensive. So I think it's a way that maybe banks will do it differently. It is a highly competitive market. We cannot decide together what we want to do. So I think all of us will look back and see of course that but I think we all understand that mortgages will be slightly more expensive in the future. And then we will have to make our clients pay in a way of course that they also feel it's kind of treated in a good way. Yes. No, just all I'd add, as Danica says, the whole purpose of the exercise is to increase the risk for that sort of transaction. So it's a targeted medicine for something that a lot of people worry about. And we think that's probably a fairly good thing that you target the measures against what is the concern. In our case, if the new risk weight of 25% would materialize and if we were to migrate into Pillar 1 and later on into common equity Tier 1 ratios, it will knock off some 150 basis points, which is something that we are obviously factoring in, in our plans. And we allocate capital to the retail division accordingly already. Okay. And then, Christopher, on your third question regarding trading and debt instruments and so on, it's my favorite one. If you read in the report on page 20 on net financial income, I understand why you think the debt instruments hasn't really done too well in the year. But it is a comment underneath that table, which says that positive effects on structured products. So approximately SEK 1,070,000,000 in equity related instruments and the corresponding negative effects in debt related instruments. Basically when you have an equity bond, you the way it's accounted for right now, you split it into a gain on one line and sort of loss or valuation loss on the other line and it should be seen as a package. So debt instruments is not at all as bad as it looks in that type of table on that financial income. And I would refer you rather to page 34 in the textbook. And page 34 in the textbook shows the markets income by their main product cluster. And when you look at that, you can see that fixed income had around 32% of the income in trading capital markets and total income was around DKK 1,500,000,000. So basically they made somewhere around DKK 500,000,000 in the quarter and a little bit more of course for the full year. So I wouldn't look too much into the split on net financial income. And then unfortunately that's the way they say we have to account for it. It doesn't reflect the underlying business and I would rather look in the fact book on page 34. Okay. Fantastic. Three very good answers. Thanks very much. Thank you very much. Your next question comes from the line of Sophie Pampersan. Please ask your question. Here is Sophie Pappasan from JPMorgan. I had a few questions as well. First of all, I was just wondering about your strategy in the Property Management segment. I know that property management in Sweden was up 12% year on year and property management is over 20% of your zone book. What is your strategy for property management for 2014 2015? Then you're right that you have are now asking all your clients or mortgage clients with a loan value over 70% to amortize. Do you think Sweden could also introduce any forced amortization rules? Or is it just that SCV wants to be prudent that you have enforced the 70% level? And lastly, could you just you mentioned that you expect 150 basis points capital requirements from the new rules, higher mortgage risk rates. But does Pillar 2 also include any other buffer requirements that we should take into consideration? Thank you. Hi, Sophie. I think on your first questions regarding property management, we have for a very long time had a very selective strategy regarding property management as such. And we are we have increased it as you say from €96,000,000,000 to €111,000,000,000 during the year. But one shouldn't read that into our interest being a lot stronger into that field. But sometimes there are good deals to be done at good healthy margins and we will do those. But we still are very selective on the development of our property management book as commercial real estate over time has proven to have great volatility for banks. I think what I can add then is the way we control it is that we try to watch how our corporate portfolio grows. And we don't really want the commercial real estate portfolio to grow quicker. When it comes to forced amortization, I think, yes, we want to be prudent. We have grown very much the last couple of years. So we felt it actually was quite important for us because our clients are more affluent. And there also some of them even in the cities have higher loans to values. So for us it was very important actually. We think it's a good thing to have this debate and also to say to yourself and to get the loans down. So I think from that perspective, we've been very prudent. And actually, it has been very well received by our clients. As a bank, you could say that, of course, we lose a little bit of revenue because we often to amortize rather than buy a fund instead or a locked account. But we think this is the right way. So again, the long term loyal and committed and very satisfied clients will support SMB long term becoming the most profitable bank of the Nordics. But so we have a long term on this. But of course, short term, we could have done it differently to earn more. But this is the way we think we'll create more Nordics customers. Okay. Then on the 150 basis points, I think I wasn't saying that I expected to. I think it's one way that they might do it. I think we're all in anticipation mode as Anik said on what they're going to come up with. But I think it's quite clear that the regulator and the Finance Ministry in Sweden is in their interpretation of CL34 trying to find ways to bump up capital requirements. One way is risk force on mortgages, which may be 25%. It may move into common equity Tier 1. And if so, the impact is 150 basis points. I'm not sure that that would happen, but that's one alternative. Another alternative that has been discussed is of course the countercyclical buffer and the size of that. And in the morning in Stockholm, we said that our interpretation is that they are using these 2 and they're thinking of them in concert so to speak. And if they are now moving for 25% mortgage risk rates, then our interpretation is that the kind of cyclical buffer is going to be somewhat lower than otherwise would have been the case. So I think we're speculating a little bit when we discuss this, but we'll have to wait until March, April before we know. Okay. Thanks very much. Thank you very much. Your next question comes from the line of Omar Kinam. Please ask your question. Hi. Just a sorry, just another follow-up question on payouts and what you're thinking around payout policy is. You've flagged that payouts to basically close to 60% for 2013. If we think that the kind of core Tier 1 hurdle rate probably ends up being around 15%, Then how are you going to think about what the rights payout level is going to be for 2014, 2015, 2016? Okay. Thanks. I think that the Board has been very clear to say that we want to have a long term kind of dividend growth. That's been very important. And we also have been very clear our policy, which we changed very rarely, was changed last year saying that obviously sorry? Foreign exchange. Yes. But because of the bottom line, we should give back at least 40% to the shareholders. That was kind of the communication. And we want to grow it every year. And this year, it grew to 58%, 59%. And of course, we want to continuously if we do well and things work the way we hope that of course we hope to have a dividend higher than SEK 4 next year. That's in the plan. That exactly what percentages will be, we don't really know. But we want to have a growth if we can. Okay. That's great. Thanks. Thank you very much. There are no further questions at this time. Please continue. Thank you. And then we will thank you for your questions. And some of you we may see here soon at Cannon Street. Otherwise, have a good day. Ladies and gentlemen, that does conclude our conference call for today. Thank you all for your participation. You may now