Earnings Call: Q1 2013

Apr 23, 2013

Thank you for standing by and welcome to the First Quarter 2013 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 first speaker today. Please go ahead, Alf. Thank you, Lisa. And I would just like to extend a warm welcome from Anneke, Jan Erik back and myself on the first conference call for the year in terms of the results of 2013. Annika will give the presentation, we will go with the Q and A. It seems like everything is very quite clear out there and we have had relatively few questions so far. So maybe this will be a relatively swift conference call as well. Annika, please go ahead. Thank you very much. Start being a couple of minutes late. Today, we are reporting an operating profit of SEK 3,700,000,000. We are reporting a stable result in a quarter that is characterized by continued caution among large corporates and customers, given against the subdued macro environment. So clearly so, recovery is taking time. On Slide 2, there are 3 important highlights that we continue to attract new customers, both large corporate and SMEs as well as private customers. We are increasing efficiency. The engine is becoming more fuel efficient and we do maintain a strong balance sheet. On Page 3, you see the operating profit of $3,700,000,000 up 2% from the same quarter last year. On the other hand, operating profit is down 7% from Q4 excluding the one off effects, but then again Q4 for us is seasonally always a strong quarter. Total income is stable from Q1 last year and costs are 3% lower and below our cost cap of SEK 2,500,000,000 for this year. Page 4, starting with the NII. This line increased by 7% from last year and the improvement comes from increased volumes, lending rose by $39,000,000,000 and deposits by 138,000,000 dollars Our financing cost has fallen. We do have raised expensive funding with cheaper funding during the year, which has also had a positive effect on NII. We have a strong name on the international credit markets. And during the Q1, we have issued $30,000,000,000 of new funding, more than replacing the actually only $3,000,000,000 that matured. That is nearly half of all maturities for the whole year. On page slide on slide 5, you see the lending margins. They are increasing, while deposit margins are under pressure from falling short term rates. We also had 2 less trading days or working days in this quarter, which is worth approximately $100,000,000 on the NII. Adjusting for the days, the net interest margin is stable at 100 basis points, which means that increased lending margins compensate the short term rates falling. On the net fee and commission on slide 6, it is down by 1% compared to last year, driven by the strong krona. On an FX adjusted basis, net fee and commission income is up 2%. And as expected, however, net fee and commission income is down compared to previous quarter. But again, Q4 is seasonally always a strong quarter. For example, we earned the majority of the year's so called performance fees in the 4th quarter and that was $177,000,000 compared to the $72,000,000 that we gained this quarter. On page 7, you see this year we've had unusually low demand for investment related advisory services within large corporates. And last quarter, we saw a number of large debt and M and A transactions that we didn't have this quarter. And income is therefore down by $350,000,000 from the 4th quarter. And that is of course the main reason for Logic Backings delivering the lower results this quarter. On NFI, slide 8, within the divisions demonstrate the same stability that we've seen over the past few years actually. And our customer business is flow driven and resulted in $1,100,000,000 of income this quarter, in line with previous quarters. And within treasury, we have a liquidity portfolio that is mark to market every day and that gives rise to certain situations in the results. And this quarter valuations decreased by some 100,000,000 dollars while in the same quarter last year, they were actually positive 182,000,000 On slide 9, you see more customers, deeper customer relationships and a focus on cost control has led to improve operating leverage. And we continue to develop and broaden our franchise with new customers and are increasing cross selling. We're also continuing to attract new customers. Merchant Banking have acquired 30 new large corporate institutional customers in the Q1 of the year, of which 13 in Germany. And here in Sweden, we have strengthened our position as a broad corporate bank. In this quarter alone, we have attracted 3,400 new corporate customers. And similarly, we are increasing the number of full service private customers in Sweden by some 4,100 during the last 3 months. So the Q1 started slower and income is down somewhat, but I am convinced that our growing customer franchise will create stable growth over time and feel comfortable with that. Turning to the divisions on page 10. Performance is mixed this quarter given the macro environment. And as mentioned earlier, Merchant Banking was affected by the low activity levels among their clients and the fact that many corporates are defensive. So the start of the year has characterized by subdued activity levels and operating profit fell 11 percent from the same quarter last year. It is mainly commission income that has fallen, especially when compared to the strong 4th quarter. However, we continue to attract customers in the Nordic countries. Retail Banking report increased customer business and a better result, up 24%. The number of corporate and private customers continue to rise and lending volume growth is strong. Corporate lending increased by 9% on an annual basis. Wealth Management increased its result by 41% as average assets under management was higher than previous year and performance fees were good for it being a 1st quarter $72,000,000 compared to $10,000,000 last year and costs were also down. The Life division results were down somewhat compared to 2012, but up from the previous quarter and premium income was up 14%. In the Baltics, lending volumes were up slightly in local currency, but the results fell largely because of continued pressure on deposit margin. Credit losses were $98,000,000 corresponding to a credit loss level of 39 basis points. So today on page 11, SEB is a stronger bank. We have increased our resilience and flexibility during the last 3 years. We have built capital during this moving from a quarter one ratio of 11.7% to 15.3 percent. And if we add the life dividend due now in Q2, the common equity Tier 1 bought through 3 was 13.8%. Our liquidity reserves have increased from 10% to 25% of the balance sheet and more customers have deposited $170,000,000,000 more with us, which is important in the new grocery tree world. NPLs have more than half down to $12,500,000,000 for the balance sheet is very strong and resilient. A closer look at the asset quality on page 12. You can see that credit quality continues to be strong with credit losses of 2.50 $6,000,000 in the quarter or 7 basis points. Non performing loans continue to decrease, down 10% this quarter and 29% compared to last year. This is the 13th quarter in a row that NPLs declined. Generally, our corporate customers have strong balance sheet and equally on the private side, we don't see any signs of risk in credit either. To the left in this slide, you can see how the credit portfolio has developed. From this, it is clear that we continue to be a corporate bank, 2 thirds of the portfolio carrying for corporate loans. You can also see how even the growth has been how even the growth has been, sorry. Excluding exchange rate effects, lending in the bank has grown by 6% on average the last 10 years. And our funding strategy is conservative as is displayed on slide 13. During the last years, we have clearly issued more than the matured funding in order to extend duration of securities and leverage the fact that we are an improving credit with funding excess at competitive spreads. And just like last year, we started the year with issuing some benchmark long term debt. We have raised SEK 30,000,000,000 in long term funding, of which 60% through Kevin Bourne. SEK30 1,000,000,000 is half of all the maturing debt for the whole year, $60,000,000,000 and only $3,000,000,000 mature in the Q1. So of course, short term negative for NII just like last year. In Q2, over $50,000,000,000 will mature and then barely nothing for the rest of the year. So the last slide, Page 14. As we communicated our last quarter results, we have raised our long term ambition. With more than 2 thirds income coming from the corporate business, we are and will be the leading corporate bank in the Nordics. Going forward, we will continue to develop our retail business in Sweden and the Baltics to be the very best bank. We will maintain our resilience through a strong balance sheet. The Q1, the first of 12 in our new business plan was very stable in a subdued macroeconomic environment. I feel confident that ECB has a strategy that works also in its current climate. And now I would like to open up for questions and ask the operator to give us the first question. Thank you. Thank you. Your first question comes from Omar Keenan from Nomura. Please go ahead. Just my first question is, firstly, thinking about how you see the divisions developing over the rest of the year. And clearly, retailers have sort of continued to do very well. But could you just give us an outlook how you see corporate activity panning out over the next couple of quarters? So I guess kind of the sort of more subdued activity levels that we've seen in the corporates, do you think that's something that's likely to carry on towards the end of the year? And I guess if that continues, do you think sort of you could pull sort of other levers divisionally such as thinking perhaps again you said about costs you said that you've already sort of running below the sort of €22,500,000,000 cost cap run rate? So that was just the first question then. Secondly, so already increasing to 13.8%, so already at this stage establishing above a buffer above the 13% sort of target really. So at what point do you think sort of you can perhaps offer sort of a little bit more discussion as to what can be sort of paid out above the 13% target? And what do you think is your checklist of things to happen for the rest of the year before you can do that? Okay, thanks. You'll keep it on, yes. Okay. I can answer and I think also Magnus Carlsen, Head of Merchant Banking, also got that question conference earlier this morning. And I think I dare say that the pipeline of business looks fairly good. And I think also that we did feel that the Q1 was slower than we anticipated. So I would say unusually weak start of the year. So we do think that the activity will pick up a bit. But of course, it's very hard to say how much and what it takes, but the pipeline looks pretty good. When it comes also to corporates issuing their own bonds, that they also had a very slow start of the year, I would say. We were the leading of 54% of all the issuance. Of course, that was quite a lot, but it was quite a list of issuance. We also believe that that will pick up. So there will be another part of also, of course, gaining more commission going forward. So I dare say, of course, it depends a little bit more on the macro, and I think quite a few of the large corporates have been really taken aback by the very weak macro climate that came out. But I still think that those risks is to be made. So I'm fairly optimistic on that, that will come. I'm not sure that Q2 could probably remedy all of Q1 start. But for the whole year, I think we still have a positive view. Costs below $22,500,000 That is what we want to communicate at the moment, and we work hard with that. And that we will continue to work with that. And we also have a lot of new clients in SMB, both on the SME side and on the large corporate side. And we have not seen yet so much success on building more business. So share of wallet on getting more business on already existing clients is something also we look positively on for the rest of the year. Wealth counts as a target of Core Tier 1 ratio of 13%, we think that your question is a bit too early. We will revert that question. We need to see quite a few things. In Sweden, there is discussion about risk rates on mortgages. There are also discussions regarding risk weights on corporate, which I think probably is more farfetched, but there is also maybe relief on the NCR. With Basel Committee has come up with relief for European banks, but not in Sweden yet. So there are a few things that are outstanding that we would like to have clarification about and also, of course, having a good market sentiment before we address that one. We will have to revert regarding that question. Okay. Thank you very much. You're welcome. Your next question comes from Nick Davy from UBS. Please go ahead. Nick Davy from UBS. Two questions please. The first is around loan to deposit ratios. You're now 126% if we exclude repos. And I think you remember about a year ago you used to talk about 140% or so being more or less where you were comfortable. Now clearly you haven't got the loan demand to get there. So I suppose my question is at what point do you make a strategic decision on how you price your deposits? Clearly you made a strategic decision on how you price your mortgages for the last 2 years and you've had some decent success there. At what point do you say we're going to drive the way the market prices deposits because clearly you're in the most advantageous position of your peer group as far as not necessarily needing the deposit funding. So in this rate environment, what point would you reconsider how you price savings? Then the second question please, I see from this quarter now as you guided at Q4, you've pushed out more equity to your various business divisions. If you could perhaps just talk us through a little bit how the heads of those divisions are now incentivized on to what extent they're incentivized on ROE on this new business equity and whether we could see or if there's any discussion internally about any kind of repricing or improved revenue efforts to try and price against this new business equity? Thank you. Hi, Nick. Jan Erik here. I thought I'd address your first topic there on loan to debt ratio, which is, as you say, 126 this time. We have, for many quarters, been around 140, sometimes a little bit below, sometimes a little bit above. And the pricing of deposits certainly is one of the issues that one may want to reflect on. Another one is, of course, the loan demand, which in our view is going to pick up. It's more a question of when. I think the other aspect of it, of course, is the LCR definitions that Annika touched on just on an earlier question. We still expect the Swedish same treatment as is there under the current or new large extent. And on your second question regarding business equity, of course, this is challenging for the divisions because the regulator says 10% in Sweden. On the other hand, we kept 1% because we're keeping 13%, we kept 1% centrally. So of course, initially, this of course looks like, of course, return on equity in the divisions is going down. I think this will lead to an enhanced focus on profitability and I think it's good. I think of course, merchant banking is the division that is badly hit by this. But the reason is, of course, that is exactly what the regulator wants and that's why they are hit by this. I think you will see that Deutsche Bank will work hard now in getting the return up. So I think this is kind of temporarily start from that. But I think that will hopefully support the bank as such. We don't have specific targets, but of course we have internal targets for where we want the division, but not officially. So but we think this will be challenging enough for Lotte Bank to see that they are having a low return at the moment. So we are quite comfortable. They will work hard to get that one up. And if I may add, remember, we last year talked about how we were pushing out not only the more capital allocation to align with the Basel III framework, but also work on the funding side and the cost for carrying liquidity as part of the liquidity reserve and so on and how we have changed the internal transfer pricing system to align for that and to make sure that the full cost of the new regulatory landscape is carried by divisions rather than centrally, so that we don't get the situation where the divisions are having a good return on equity and then on the total, it will disappear because of central costs and so on. This is, of course, part of it. But and the whole idea behind that is that it would change the behavior and the pricing on the business side, so that the cost of doing a transaction is fully understood by the people making the decision on the pricing side. That's why we're doing this. That's very clear. If I could ask one quick follow-up question. Some of your peers with more or less similar business models have commented that the loosening of the LCR at a European level might add about 20 percentage points to their liquidity coverage ratio. Can you comment if that's a similar kind of magnitude for you? And if that does happen, I guess more importantly, how does that in practice change your behavior as far as what you then do with your corporate deposits, how much value you associate to them internally? Well, as I said, Nick, I think it has already changed our behavior in a way that we fly a little bit low on the Swedish definition. As you've seen, we published 111 percent on LCR this quarter. Once we do get relief on corporate deposits, which we can show for a long time going back has consistently increased in our bank. And in times of crisis, money flows into the bank rather than flowing out. So that deposit base is very sticky based on the very strong relationships we've got with that customer segment. So I think we've already adapted our behavior to attributing more value than we get credit for in the current definition and we're waiting for it to change. Okay, clear. Thank you. Your next question comes from Jeff Dorr from SG London. Please go ahead. Yeah. Hi, good afternoon, everyone. Jeff Dawes here from SocGen. Two questions for myself. First of all, on Merchant Banking, You've obviously spoken quite a bit about the new customers that have come on board. If I look at the revenue run rate, it's quite exceptionally low though. It's the lowest we've seen for quite a few years, even in more difficult economic circumstances. So why aren't those new customers turning up with any revenues on board? Second question is on mortgage margins. You've previously guided that you get a benefit of about a basis point a month on mortgage margin uplift. Is that still the case going forward? Some of your competitors have been more aggressive in their market share targets for 2013, so potentially more pricing pressure there? Those are the 2 questions. Thank you. I can answer your last question first. Yes, that is the case. I think we've also moved from 73 to 76 basis points. As you can see, it's still 1 basis points a month on the mortgages. So we haven't really seen anything changing there. And we can also see that we did grow the 9% on mortgages. So we still have a good offer. And we're quite sticking with the clients to take on board. We are the only bank that have forced amortization and also we cannot borrow more than 5 times your income in your household. So we're quite strict. So what the Central Bank is out with now, we have applied in the bank for Amuse Bank actually. When it comes to your first question regarding revenues and corporate, yes, I think it's fair to say, yes, we are a little bit frustrated. Of course, we cannot really see it. That's the truth. Frustrated. Of course, we cannot really see it. That's the truth. On the other hand, we only want to work with the clients that we have picked because we feel very comfortable with them and they have been surprisingly quiet in the Q1. So I think again, we don't want to move up to the risk curve. We don't want to do business that we decided not to do. So we just have to stay focused and hope that when these clients start to move, they will move with us. And we worked really hard being close to them. So I still think that the proof is in the eating and we will continue to work hard. There have been a few very few deals in the Q1 where we happened not to participate. And that's a bit unfortunate, but that happens sometimes for different reasons. So we would just have to follow this carefully. But I agree with you. It's a little bit disappointing that we haven't seen more. Yes. And I guess when you talk about catching up in the rest of the year, the number that we tend to look for is a €4,000,000,000 run rate every quarter in Merchant Banking. Do you think you can make up that lost ground in 2013? It's challenging, I think, with a weak start. But on the other hand, we've been through it. We worked very hard with merchant banking management. And I think it depends lot about the macro climate. If we see some more signals about slight volatility, I think it's doable. But of course, it's about we can't do so much about if the macro will continue to be extremely subdued. But I think the view is still out. Then to add, Joss, there is also, of course, some headwinds because 2 thirds of all lending and merchant banking and even more than that is in foreign currencies. And the strongest thing is krona means that the value of that in terms of net interest is of course much less now than when the corona was much weaker. That is of course good on the other side because that's the quality remains very firm in that business. But there are some rounds and swingabouts here in terms of how we see the progression. But krona has been strong. It's not good for the lending development as such. And it of course has reduced the volatility on the FX. But nevertheless having 3.50 or so more customers now than we had 3 years ago, we have to believe we have picked the right customers and that they will become more productive when the markets come back. But the macro hasn't been our friend for some time. That's very clear. Thank you. Very detailed answer. Your next question comes from Riccardo Rovere from Mediobanca. Please go ahead. Good afternoon to everybody. I have two questions from my side. The first one is on capital. When I look at your Basel II core capital, it's in the region of €90,000,000,000 more or less out of a 15 roughly 15 percent of risk weighted assets. Now if I take this number, this €90,000,000,000 and divide by the amount of the total assets of the group, almost €2,600,000,000,000 And add to that the off balance sheet contingent liabilities and commitments, and then I would add an additional, let's say, €4,000,000,000, €530,000,000,000 basically I end up with admittedly, brutally, I admitted, leverage ratio below 3%. Now my point is, I know that these are rough calculations, but are the regulators looking at the leverage ratio first? Is the leverage ratio having a role in guiding and driving your capital return strategy? And my last question is, you stated that the start of the year in corporate has been weak. Is there any reason why this should suddenly change? Thank you. Yes. On the capital question or rather the leverage question, I think the Swedish regulators and Rigsbank never put leverage high up their list of issues they have focused on. But it's I think it's looming on the horizon. It's there are things in the European regulatory package, which will put leverage more in focus over the next few years. So yes, we do look at it. And I think the when we use the U. S. Rules, we come out above 4 in Okay. Okay. Regarding the activity level, I think I mean things have changed rapidly before. So it's very hard I think sometimes to be extremely bearish just because the Q1 out of 12 quarters in the business started off slightly slower than we hoped. So I think again, things have changed before. So of course, I don't know more than anybody else. But I think on the other hand, Swedish corporates, they still have a rather strong currency. They are well funded. They are well capitalized. They have maybe about confidence also. So let us see. Okay. Thank you. Thanks. Your next question comes from Jacob Kruse from Autonomous Research. Please go ahead. Hi, Jacob from Autonomous. Just two questions. Firstly, on the risk way, Swedbank had today some benefits from this mortgage sorry, SME rebate that was prescribed by CRD4. I was just wondering if you could comment either on the size of your SME portfolio or any potential benefit you might get there and also on the CVAs? And secondly on your Merchant Banking business, could you say something about how many of your clients that you the new clients where you've been able to now get the cash management business or make these clients into more full service clients? Jacob, on the risk weight, yes, we saw the relief on SMEs as well. I think the somewhat larger number you saw in our competitor bank means that it's just reflective of their anatomy. I think they have more of that sort of small SME clients where the lending volume has to be below SEK 1,500,000,000 sorry SEK 1,500,000. So it's anatomy rather than anything else. On the CVAs, yes, we've seen those changes as well, but I don't think you should expect anything huge to come after that. We took the effect of the CVAs against our equity at last year end And we don't see very large variations at all over the P and L during this year. But we'll post effects through the P and L towards the end of the year, especially if we're financing material. But it is also so that we are waiting for the finance inspection now to put a floor or ceiling, whether how you look upon it, on mortgages. So that one will go in the other direction. That would decrease capital. There might be some relief on the SME side, which of course is beneficial also for us, but maybe not the same size. So I think it's good probably to see all of the changes at one time and make a net of it. So I guess we need to see that before we do something. And there are a lot of talks in Sweden now whether when and how they will raise the ceiling or the floor for risk rating for mortgages depending on how we look at it. When it comes to clients, I think we just got a price the other week as the best cash management bank of the Nordics. Again, I think that's the 5th year in a row. So I think we have a very good product regarding cash management to sell to our clients, but it takes a long time. All the clients that we have, the 300 that we've bought in so far and the 30 that we've taken in so far this year, we won't, of course, to have the cash management managed with. It takes some time sometimes to change bank. It takes some time to time if you go to the European cash flow or the Nordic or the Swedish, etcetera. So we're working on that, but everyone is targeted. And I guess on most of these clients that we are approaching and work hard, we get the cash management sooner or later, but this is the time. And I don't have the exact figure in front of me. Okay. Thank you. Your next question comes from Sophie Petterzian from JPMorgan. Please go ahead. Yeah, hi. Here is Sophie Petter from JPMorgan. I had a couple of questions. My first question is a bit technical. In your presentation slide 11, the Basel III Equity Tier 1 is 13.8%. But in your report on page 5, it's 13 point 4%. So I was just wondering if you could confirm which bottle 3 Equity Tier 1 we should look at. And then my second question is around buybacks. Given that your Basel III Equity Tier 1 is over 13%, Do you have an update on when you might buy back some of your shares? And thirdly, I just wanted to ask about the LCR ratio. I guess it was 111% end of this quarter compared to 154,000,000 6 months ago. How much has the reduction in LCR helped your NII during the past 6 months? Thanks very much. Hi, Sophie. Basel III number is 13.4 in the report and that's the audited official report, so to speak. What we're saying with the 13.8 is that in Q2, we will upstream dividends from our Life business, which will mean everything else equal that number comes up to 13.8%. So I think you should focus on the 13.8% because that money is coming. I'll take the last question which is the LCR and then hand the buyback question over to Annika. LCR at 111%, I think we commented earlier, it's really reflective of the fact that we do think that we should be given more credit than we are at the moment. The Swedish definition is treating corporate deposits quite harshly with high runoff factors. In fact, we can show long history that it's very sticky money and it should really be treated better. We anticipate such changes as has also come through in the bold definition, the new definition for 2013 and we're waiting for the Swedish regulator to adapt. Of course, to an extent that might have helped NII, but really if anything else you are is hurting NII with the big funding programs you've got to have and the large liquidity portfolios we have to hold at the low yields. So I don't really see that as a big benefit. No. But my question was more because 2 years ago when you built up your liquidity portfolio, you were saying that given that you had quite weak NII growth in the second half of twenty eleven, one of the key drivers was that you had to build up your liquidity portfolio. But now given that your LCR was very strong in the Q3 of last year, but then now it's still strong, but it has come down quite significantly. I was just wondering how much of the NII improvement that we have seen in the past 6 months has actually come from releasing your LCR. Yes. No, I don't think there's much money in that, Sophie, because it's LCR is a very short term measure and it's a 30 day liquidity measure. So it's more sensitive to short term fluctuations. So structurally, we don't £125,000,000 or 130,000,000. And just to add to that, EUR 100 and EUR 100 and EUR 100 and EUR 100 and EUR 100 and EUR 100 and EUR 100 and EUR 100 and EUR 100 and EUR 100 and EUR 100 and EUR 100 and EUR 100 and EUR 100 and EUR 100 and EUR 100 and EUR 100 and EUR 100 and EUR 100 and EUR 100 and EUR 100 and of course, assume that most of that run out within a month. So that reduces LCRs. So the more corporate deposits we receive, the more sort of the LCR is negatively affected unless we use all of that money to run the Central Bank and deposit that. So of course that's negative for us in terms of the LCR. So it doesn't necessarily need to be let's say, LCR management as such. It can be also just the fact that we are receiving a different structure on the deposit side. Okay. Thank you very much. Regarding the buyback, we said earlier today that we will revert regarding that. That's a bit premature to wake that question yet. But we are foreseeing that we are overshooting the target at the moment. Great. Thank you very much. Your next question comes from Ronny Raines from KBW. Please go ahead. Good afternoon. Thanks for the call. Three questions I have. First on the prefunding impact on your treasury NII. Maybe you have mentioned a number earlier. Just want to get a feeling how much was the headwind you had in the Q1 and how much you kind of expect this to rebound in the second quarter? The second question is on the risk weight debate. Can you just quickly give us an update from your perspective where we stand on where the mortgage ceilings might go and what might be changed exactly in the corporate risk weight space? And lastly, a bit more big picture question. There was a lot of noise obviously around the Cyprus situation that people pulling money out of this tax haven and they're looking for alternatives and Latvia came up as one of the targets. We've seen non resident deposits growing strongly. What's your perspective there? Do you see a lot of money coming in? And what are the impacts like, I don't know, property prices, what people do with the money in the country? Thank you. Well, on the prefunding impact, we haven't quantified the P and L effect of that. But what we did say earlier today is that if we've got some SEK 60,000,000,000 shoring this year, we've seen half of that being refinanced in the Q1, and we'll do a bit more in the other half in Q2. And then it will be fairly slow during the rest of the year. So not too huge impact. Risk rates mortgages, 15% is being discussed. As you know, in Sweden, it's been around of hearing the market out and the different market participants. And I think it's clear that there are stakeholders who want to see higher risk weights than 15% to 10%. I haven't heard it firsthand, but I think it's quite clear that the Riksbank might have wanted higher levels than that. And higher, I mean, is higher like 5% higher or is higher double from your point of view? Well, higher. They haven't quantified. Okay. As far as I know. But again, to reiterate what we said earlier, we are a relatively smaller player in that market. So we'll be relatively less hit by a higher Maybe corporate risk weights that may or may not come. I think again it's not something that's very high off the list and it will be much more difficult to do. It's taken a long time. It's been very tricky to get to something on mortgages, and we're not going to say yes, corporates will be harder still. So that's further away. But maybe last question on Cyprus and that sort of money Yes. And on Cyprus, I think we can see that our banks have not received anything of this. I guess that's probably more to Russian banks. Okay. Thank you. Your next question comes from Lars Holm from Danske Bank. Please go ahead. Yeah. Hi. Also two questions from my side. Kind of into the same chapter that we have discussed already on the risk rates for Swedish mortgages. I can see you have made some comments on Page 31 in your report. But my question is more, could this requirement in Pillar 2, could this potentially be add on to the 12 percent core equity Tier 1 requirement that you're going to meet in 2015? That's my first question. Yes. Hi, Lars. I think the risk rates for mortgages, yes, it's certainly today being discussed as a Pillar 2 requirement. We don't rule out the possibility that it might be at the end of the day a Pillar one requirement. That's not where we are today in the discussion, but one shouldn't rule it out. And again, it's important in that context to remember that we are the smaller stakeholder in that or the smaller retail bank in that context. And our expected effect with 15% risk weighted is about 40 basis points. Yes. So but if that was going to be the case, then I assume you would have to increase your own target of 13%, right? Not necessarily. I think the this is many component parts of this number. So as Sannik has said earlier, let's now have a look at what the whole regulatory package will mean and what the Swedish adaptation on that will finally be. But I think when we put the 13% capital target out there, we obviously knew about this debate. So that is nothing new. So that's been baked in. Okay. Okay. Then my final question. Could you remind me how much do you expect in risk weighted asset relief during 2013 from further portfolios being moved to IRB? Well, we haven't given any exact numbers, but we've indicated something like SEK 20,000,000,000. SEK 20,000,000,000, okay. That may not be this year. That could be spread out over a bit of a longer time. Okay. Okay. Okay. Thank you. Your next question comes from Przybyls Beren from Arctic Securities. Please go ahead. Thank you. Just moving back to a little bit of the big picture on capital. When you see proposals on regulatory changes for how, for instance, you measure risk weights on SMEs and so on, Do you take a reality check versus how we view this in your ICAT modeling? Or can we see potentially an increasing between the level of risk weights you are presenting in for regulatory purposes and how risk is reflected in different segments in the ICAP? Hi, Priscilla. I think the as you're correctly stating, the question about capital is so much bigger than just a certain more specific number. We had the discussion about the crude leverage. You have the U. S. Leverage ratio, the bars of 1, 2, 3 and whatever that you can calculate. And then we have our ICAT model. And it's there are different measures on the same thing, which is really the sort of the loss absorbing capacity of the bank and what is required. ICAP has taken a very different approach to that looking not so much about the risk weight, but rather looking at what losses could be produced in a stress situation and how that would eat up capital and earnings potentially. So the ICAP process is very different from the ratio discussions we have under Pillar 1. And therefore, it's difficult to say that one substitutes the other. I think we will have to run with both of And knowing that the Pillar 1 tends to be more of a normal operations measurement and the ICAP is on the stress level and the worst case scenario what could happen from that point of view. So therefore, I don't think there is a direct translation. We monitor all of that of course from the bank's point of view to have a holistic view on capital. Therefore, we don't bet on any particular number as such. But if we had to choose, we would use the common equity Tier 1 according to Basel III because that's the future way of looking at CapEx and we were trying to project the future from that point of view. Remember, we have our own economic capital model that we've been running since 'ninety eight as well. We're learning and developing our way of looking at capital. I see. Okay. Thank you.