Earnings Call: Q4 2013

Feb 5, 2014

Ladies and gentlemen, thank you all for standing by. Welcome to the annual accounts 2013 conference call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session, at which time, if you would like to ask a question, you will need to press star one. I would now like to hand the conference over to your speaker today, Ulf Grunnesjö. Please go ahead, sir, and thank you. Good afternoon and welcome to the full year 2013 conference call SEB's results. With me in the room is Annika Falkengren, CEO and President of the company, Jan Erik Back, CFO, and I am Ulf Grunnesjö, Head of Investor Relations. Annika will start by giving a presentation, after which we will conduct a Q&A session. Please, Annika. Welcome to the presentation for 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 in 2013. On page two, our full year profit for 2013 is SEK 18.1 billion, which is up 27% compared to 2012, and 18% if we exclude the non-recurring items we had in the last quarter 2012. I would like to highlight three areas from this year to focus on. Firstly, of course, that customer satisfaction is higher, and we have also the benefit of welcoming more customers on board. Second, we continue to deliver on our communicated business plan. With a growing customer base, SEB's income is broader and more diversified than before, and it grows in Sweden as well as in the other Nordic countries and Germany. 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 three. A larger and more active customer base contributed to a further improvement of the bank's operating profit, which in the fourth quarter was SEK 5 billion. The picture shows the changes in reported results. On a comparable basis, without non-recurring items in 2012, quarterly income increased by 10% and costs decreased by 2%. Annual income was 6% higher and costs 3% lower. That is very disturbing. Asset quality continues to be strong and credit loss levels remains low at nine 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 of last year. Page four. We then look at net interest income, it increased by 7% during the year. In the last quarter, net interest income was almost SEK 5 billion, which was up 11% versus the last quarter in the previous year and 4% up versus the third quarter 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. During the year, lending to corporates increased by SEK 34 billion and lending to households increased by SEK 26 billion. Net interest income in funding and other has in the past year amounted to between SEK 400 million-SEK 500 million, and this time slightly lower versus the third quarter. We continue to decrease our funding cost while the low interest rate environment decreases the yield on our liquidity portfolio. We then look at net fee and commission income on page five. It 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 third quarter. This reflects increased activity. In the fourth 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 fourth quarter. On page six, we see the net financial income. That was 12% lower during the year. This was due to gains on the liquidity portfolio which we had in 2012. NFI in the fourth quarter increased by 44% versus the third 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 seven as it sums up the development this bank really do well I think at the moment. New customers and broader relationships with existing customers lead to higher average quarterly income. 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 fourth quarter was 0.51 and 0.54 for the whole year. On page eight, we have the divisional performance. Merchant Banking had a strong fourth quarter. 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 SEK 25 billion, and the total mortgage lending portfolio increased by 7%. The rate of 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. The annual operating profit in 2013 increased by 25%. Total assets under management increased to SEK 1,475 billion, which is higher than before the financial crisis. Private banking continued to attract new customers and new volumes with SEK 24 billion in new assets under management last year. Life operating profit increased by 13% in the fourth 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 in 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 fourth quarter in 2012. Non-performing loans were 44% lower than a year ago. On page nine, 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 income. We have over the past few years been very clear on our objective to grow our business with the corporates 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 108 new customers. Gradually, they deepen their business with SEB. During the past four years, new customers have contributed with 10% income growth. On page 10, resilience and flexibility have 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 a cost cap for several years now. The cost cap for 2013 and 2014 of coming in below SEK 22.5 billion will now also be extended to 2015 like the rest of the business plans. On page 11, you see our financial ratios. We report a profitability of 13.1% on a Basel III capital ratio of 15%. During the year, capital has been strengthened by an additional SEK 13 billion. If we had maintained an unchanged dividend level, the Basel III ratio would have been 15.5%. Earnings per share increased to SEK 6.74, and the board proposes a dividend increase to SEK 4 compared to SEK 2.75 last year. On page 12, we have a recap of our financial targets. In essence, we are well on track, and as I said, we have extended the cost cap to also include 2015. The capital target is yet to be decided since the Swedish implementation of the CRD IV is not finalized. We will need to come back on this issue. 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 the financial targets and what we did communicate last year. We said that we would reach an operating profit of at least SEK 20 billion by 2015. With stable costs, the focus was on increasing the group's income by 15% or approximately SEK 5 billion over three years. We did that by trying to explain it by making a small description on the back of an envelope. On this slide, you can see how we have broken it down by divisions since business conditions differ between them. One year into the plan, we know that all divisions, with the exception of the Baltic countries, have performed in line or even above the set target when simply dividing the three-year target by three. The bank as a whole has grown by 7%. 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're very clear on where we want to grow and our long-term ambition to reach the profitability of 15% phase. With that, I think we can open up for questions. Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel this request, please press the hash key. Once again, that's star one if you'd like to ask a question today. As a reminder, that's star followed by one if you'd like to ask a question today. Your first question comes from Ronit Ghosh. Please ask your question. Hi, thank you. It's Ronit Ghosh from Citigroup. Just wanted 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 corporate. Annika, 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. 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'd be great. Thank you. No, I think it's nothing particular, Ronit. It's actually that they had very high activity in Merchant Banking in Q3, so you can't hold it up everywhere. 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 in and believing in often. That will actually continue. I think also we said this morning on the press conference where Magnus Carlsson was present, that actually we are still a bit optimistic to go in this area. We see activity, and we are therefore a little bit optimistic about the fact that also will continue. I think also the beginning of the year that we have an impression that the activity is fairly high. In terms of pipeline and outlook, you still feel reasonably confident about Yeah, as reasonably confident as you can be. Everything goes up and down, and it's a bit lumpy. It's very difficult sometimes if everything comes within one quarter or if it doesn't come in that quarter. I think overall, and what we could hear from Magnus this morning, that we feel confident that for SEB being maybe a smaller bank, 108 new large corporates in the Nordic area in general, that means more business to us. Each one of them, if they get to do one more deal, it's a lot more than we had before. For us, it means a difference. I think from that point, we have more clients on the platform, and if they get to do a little bit more business from us, you will see a bottom line effect from that. Ronit, I think that's also the answer to your second question on the Nordic geographies, 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. 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. You can see that in the fourth quarter. 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 afraid of saying that everything will get better every quarter sequentially. The trend is very much there. I think also we could see that Finland grew with 30% last year and Denmark with 15%. For us, that means a lot. Sure. Thank you. Thank you very much. Your next question comes from the line of Romak Lehman. 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 four basis points in the quarter. You've seen, in particular, good sequential margin development in both retail and Merchant Banking. 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 showing itself in the divisions via the FTP? Could you potentially comment on what kind of momentum there could be from cheaper wholesale funding in 2014 and on what the vintage of the roll-off funding is in that year? Secondly on the retail banking side. Is the one basis point a month guidance on back book repricing of mortgages still valid before any system-level repricing on the back of 25% risk weights? Thank you. I think when it comes to margin pressure it's difficult to say. I think the expression will be that what we can see spot-wise. There are islands where there is heavy competition on margins, but it's a broader spectrum than that. I think it's hard to say. I think the competition is there. We see more international banks, of course, coming back to the Nordic arena. On the other hand, we really work with relationship banking on a broad perspective. 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. 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 tough competition, but not everywhere. It's broader than that. We also have some large mid-corporates, et cetera, where maybe international banks are not that interested. It depends on what kind of solutions you can come up with. I would let Jan Erik answer the wholesale funding question where I jump to the mortgage portfolio. 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 there, you could say probably two basis points in a quarter rather than three basis points a quarter in improvement. I'll add 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 on one of the slides in the fact book, how we've been bringing in some SEK 120 billion during 2013, whereas we had about SEK 60 billion maturing. In the coming this year and 2015, we have about SEK 80 maturing. 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 or round of taking in views on that measure, it has now improved our position quite a bit on that. We haven't given away a number on that. We feel much more comfortable with being able to move to compliance without any major obstacles on that. I think the fact that we're continuing to enjoy fairly positive funding markets is going to help us going forward. It's difficult to quantify, obviously. Okay, thanks. That's very clear. Just lastly, were you tempted to upgrade your revenue targets? No. No. We will see where that goes. I think again, we have one known, and that is the cost, and then we are not really sure exactly where the capital will end up with the communication. We hope to know more about that. Then of course, we can also hope that revenues can improve. We need to work on both of those to get the 15 because the 15 is the most important. Understood. Thank you. Thank you very much. The next question comes from the line of Chintan Joshi. Please ask your question. Hi, good afternoon. I've got a few questions on the corporate area, 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. 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. Thirdly, if you could just comment on how you see margins developing in the corporate area. Thank you. I think you can start to say that nobody has a crystal ball, of course, I don't want to sound overly optimistic, I think we must realize that what we have been talking about for a long time is that we have a bigger engine, We can take on more clients without increasing the cost. That's what we've been talking about since 2010. I think what we start to see now is that we have good efficiency in the factory, We're taking on new clients without touching the cost. In 2013, 10% of the revenue in Merchant Banking was from new clients. In 2012, it was 7%. I think this makes a difference. Every year we work with these clients, We get more and more products with these clients. It makes a difference for us. Of course, if all these trades would leave, that were leads that we are working on now would de facto lead to execution and trade. Nobody really knows. I think we dare say that the volume is bigger. We have more clients, Let's see how far that can take us. That's why I think we dare to be a little bit optimistic. Thank you. Jan, 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. It's a little bit the jury's still out on whether that will happen or not. So far we haven't heard anything about that anyway. Understood. Corporate margins, if you can give us some color? I think corporate margin, Annika said that already in a way, that the corporate margins, this comes down to the mix effect in between different segments. There are absolutely some segments where there's fierce competition. 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. We don't feel that we are that exposed to it. Of course, in certain pockets it's relatively troublesome, in particular since we can see some banks coming in from continental Europe which is using cheap liquidity from ECB and so on. Okay. Mixed picture. Okay. Then just one more on mortgages. 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 have ALM matching, I can get margins that are 20, 25, 30 basis points more than what your back book is currently indicating. 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 two basis points a quarter, but seems like there's potential for a lot more. I think the two basis points every quarter is relatively decent. The question is how long that will continue for. 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. In particular, we are coming off a situation where the back book margins are lower than what we are prolonging, and so on. I think we just have to be a little bit 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 regulations probably making lending a little bit more expensive should translate into higher margins. It's a process, and one shouldn't take two quick steps in doing that. Fair enough. Thank you. Thank you very much. If you'd like to ask a question, please press star one. Your next question comes from the line of Nick Davey. Please ask your question. Oh, bloody hell. Yes, a couple of questions from my side. First one, please, on net interest income. There is some disclosure on page 11 of your fact book. Trying to isolate what is going on with the interest income you make on your interest earning security. Seems to be up SEK a couple of hundred million on the quarter. Wanted to see if I could dig in a little bit to what is going on there in a declining interest rate environment. If you are putting your liquidity portfolio to work in any more of a way, if this is a sort of conscious decision or if there is nothing to be read into that number. The second, a couple of follow-ups, please. The first one would be on Swedish retail, if I can pick up on the comments you made. Do I understand correctly that you are more or less happy with the market share that you have got to currently? At the moment, clearly your income growth in Swedish retail has been far above what you were budgeting. Do you think the momentum has been put back into that business sufficiently? If we were in a rising margin environment, do you see it as an opportunity to take more share? The third final question, a quick follow-up on the NSFR point. I know you are not going to disclose the benefit from the changing proposed regulations. Wanted to see 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 we haven't seen in the Swedish definition of LCR. 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, or whether you are still working to a sort of set internal plan agreed with the regulator. Thanks. Hi, Nick. I think on the first question you had there on the interest earning securities, I do not think there is anything really special going on there. It is a little bit of volatility between the quarters where Q3 was a little bit on the lower side, I suppose. I can't come up with any particular reasoning behind that. 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, we will keep pushing on that. 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 margin a little bit easier now. 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 throw in the caveat that this isn't the final verdict on what that formula will look like. It may still change a bit. They spent a year coming up with this one, so it should be starting to be the final thing now. When it comes to retail, we now have a market share of the retail market of 16%. I think we are kind of growing our market share approximately the same pace as we have. 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. I think that's how we try to do it. I would fairly say that we are fairly optimistic this will continue. The competition from the other banks is now very fierce. I think also that we have a good offer to our clients. Therefore, it still looks pretty promising the way we move forward. Again, I think the market share that we have achieved now is fairly reflecting our size in the market. From that perspective, it's good. On the other hand, we are growing more in the cities. We are more of a cities bank from that perspective. Of course, we do attract more affluent individuals People that move into the cities to get a job. Of course, they're quite an interesting client base. Absolutely. Thanks very much. Thank you very much. Your next question comes from Jan Walter. Please ask your question. Yes, good afternoon. Jan Walter, Credit Suisse. Just a follow-up question from the presentation in Stockholm. If you suggest a higher quarter one 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? Number two, when is it likely that you will set the new quarter one target? Is that contingent on final Swedish CRD4 proposal, or are you waiting for anything outside Sweden and Nordics coming from Europe, for example? Thank you. Thank you. I think it is really we need to get the legislation of the CRD4 in place so we know exactly. I think we are all in Sweden, all banks are now rather frustrated and struggling with this because we need to know what and if and how the countercyclical buffer will look like, and also Pillar 1 or Pillar 2 regarding the risk weights. I think what we tried to be prudent here was to say that we have a target of quarter one at the moment of 13%, but it feels prudent to say that probably it looks like the danger is that that is on the upside. Whether the upside will be 14% or 15% or even higher, it is too early to say. 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. 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 are growing with, that 10% of Merchant 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, Annika. Thanks. Thank you very much. Your next question comes from the line of Christopher Ruskvist. Please ask your question. Barclays. Two questions on the mortgage market and one on your trading income. So first on the mortgages. If the Swedish regulator would go for the 25% mortgage risk weight floors, could you explain which scenarios or courses 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 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? Secondly, just a question on the increased uptake of SEB's product range from those new mortgage customers. Are those all the customers that are the new customers, the 80% that you mentioned that have come on over the last couple of years? I'm just trying to understand when we will see the revenue growth from those additional products that you've sold. Finally, just on your trading income. I see that income from debt instruments still looks relatively weak. 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 will all chip in to try to answer your question. When it comes to mortgages, yes, you could say that we track every client that we bring on board to make sure that they want to become an SEB client. Of course, you have to do that by understanding your clients and good performance. We don't force anyone in really into the bank. 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 a mortgage. I think from that perspective, yes, we focus a lot on that. 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 weighting is higher, the whole purpose is that banks should put more capital aside, and that means, of course, that the mortgage itself will become more expensive. I guess that's the purpose of the whole exercise. Then the second thing is how do you kind of introduce that to your clients? I guess it has to be a kind of an evolution. Over time you need to explain when they have a rollover in two years' time. In the next rollover, you might start to explain to your clients, et cetera. You can't just tell everybody tomorrow it's going to be more expensive. I think it's a way that Banks will do it differently. It is a highly competitive market. We cannot decide together what we want to do. I think all of us will look back and see, of course. I think we all understand that mortgages will be slightly more expensive in the future. We will have to make our clients pay in a way, of course, that they also feel it's treated in a good way. Just to add, as Annika says, the whole purpose of the exercise is to increase the risk for that sort of transaction. 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 it were to migrate into Pillar 1 and later on into common equity of Pillar 1 ratios, it'll knock off some 150 basis points. Which is something that we are obviously factoring in our plans, and we allocate capital to the retail division accordingly already. Okay. 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. There's a comment underneath that table, which says that the positive effect from structured products was approximately SEK 1,070,000,000 in equity-related instruments and a corresponding negative effect in debt-related instruments. Basically, when you have an equity linked bond, the way it's accounted for right now, you split it into a gain on one line and a loss or valuation loss on the other line, and it should be seen as a package. Debt instruments is not at all as bad as it looks in that type of table on net financial income. I would refer you rather to page 34 in the fact book. Page 34 in the fact book shows the markets income by their main product cluster. When you look at that, you can see that fixed income had around 32% of the income in trading capital markets, and the total income was around SEK 1.5 billion. Basically, they made somewhere around SEK 500 million in the quarter and a little bit more, of course, for the full year. I wouldn't look too much into the split on net financial income. 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 Sofie Peterzens. Please ask your question. Here is Sofie Peterzens from JP Morgan. I had a few questions as well. First of all, I was just wondering about your strategy in the property management segment. I note that property management in Sweden was up 12% year-over-year, and property management is over 20% of your loan book. What is your strategy for property management for 2014 and 2015? You wrote that you are now asking all your clients or mortgage clients with a loan-to-value over 70% to amortize. Do you think Sweden could also introduce any forced amortization rules, or is it just that SEB wants to be prudent that you have enforced a 70% level? Lastly, you mentioned that you expect 150 basis points capital requirements from the new rules, higher mortgage risk rates. Does Pillar 2 also include any other buffer requirements that we should take into consideration? Thank you. Hi, Sofie. 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. We have increased it, as you say, from SEK 96 billion to SEK 111 billion during the year. One shouldn't read that into our interest being a lot stronger into that field. Sometimes there are good deals to be done at good, healthy margins, and we will do those. We still are very selective on the development of our property management book, as commercial real estate over time has proven to create volatility for banks. I think what can add there and say, 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 one said, yes, we want to be prudent. We have grown very much the last couple of years. We felt it actually was quite important for us because our clients are more affluent. Also some of them, even in the cities, have higher loans to values. For us, it was very important actually, and we think it's a good thing to have this debate and also to say to yourself and to get the loans down. I think from that perspective, we've been very prudent. 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 ask them to amortize rather than buy a fund instead or a locked account. We think this is the right way. Again, the long-term loyal and committed and very satisfied client will support SEB long term becoming the most profitable bank of the Nordics. We have a long term on this, but of course short term, we could have done it differently to earn more. This is the way we think we create more loyal customers. Okay, on the 150 basis points, I think I wasn't saying that I expect it to. I think it's one way that they might do it. I think we're all in anticipation mode as Annika said on what they're going to come up with. I think it's quite clear that the regulator and the finance ministry in Sweden is in their interpretation of CRD4, trying to find ways to bump up capital requirements. One way is risk floors 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 will happen, but that's one alternative. Another alternative that has been discussed is, of course, the countercyclical buffer and the size of that. In the morning in Stockholm, we said that our interpretation is that they are using these two, and they're thinking of them in concert setting, so to speak. If they are now moving for 25% mortgage risk weights, then our interpretation is that the countercyclical buffer is going to be somewhat lower than otherwise would have been the case. 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. Thank you very much. Thank you very much. Your next question comes from the line of Omar Kinaan. Please ask your question. Hi, just another follow-up question on payouts and what you're thinking around payout policy is. You've hiked that payouts to basically close to 60% for 2013. If we think that the core tier 1 hurdle rate probably ends up being around 15%, how are you going to think about what the right payout level is going to be for 2014, 2015, 2016? Okay, thanks. I think that the board has been very clear of saying that we want to have a long-term dividend growth. That's been very important. We've also been very clear our policy, which we change very rarely, was changed last year saying that of the Sorry? Yeah. Because of the bottom line, we should give back at least 40% to the shareholders. That was the clear communication, and we want to grow it every year. This year, it grew to 58%, 59%. 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 4 SEK next year. That's in the plan. Exactly what the 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. We will thank you for your questions, 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 disconnect.