Earnings Call: Q2 2012

Jul 16, 2012

Good afternoon, ladies and gentlemen, and welcome to the SEB Second Quarter 2012 Results Conference Call. At this time, all participants are in listen only mode until we conduct a question and answer session I would now like to hand over to the Chairperson, Annika Falkenbrand. Please begin your meeting and I'll be standing by. Okay. Thank you and welcome. Annika Fakkingen here. Almost exactly 5 years ago, the subprime bubble burst in the U. S. And since then, we've seen a global financial crisis. This has been a challenging environment in many ways and markets have continued to be challenging this quarter, not the least in Europe. But against this backdrop and in a quarter with wide swings in the markets, we do report a stable result today of SEK 4,200,000,000 before provisions for credit losses. Turning to Page 2. Just let's say 3 things that we believe characterized this quarter. Number 1, I mean, of course, that we are growing top line income. We do have improved our position as the leading corporate bank in the Nordics further and are also growing across the board in Sweden. Secondly, we are top of the cost line today and we continue to seek efficiencies going further. And 3, we are increasing our resilience by strengthening our balance sheet further. And we're also holding 25% of liquid assets compared to the balance sheet. Turning to Slide 3, we see that this quarterly result is one of our stronger ones in a long time. Compared to the Q2 last year, we have improved loan operating profit before credit provisions by 16% and compared to the previous quarter by 8%. Operating profit was €4,000,000,000 a decrease of 6% compared to the same quarter last year, but that quarter benefited from the release of credit provisions of €558,000,000 all is in SEK. Compared to the Q1, operating profit is up 7%. Turning to page 4, we see net interest income. And we see that increased lending and deposit volumes helped NII to grow to $4,500,000,000 this quarter. Lending volumes were on average 6% higher than the same quarter last year and also increased from the Q1. Deposit volumes are up 13% compared to last year and 11% compared to the Q1. NII from funding and other. Our liquidity management and funding operations is up $292,000,000 compared to the Q1. This is primarily a result of the fact that our average funding cost has fallen further than the yield on our liquidity portfolio. We have actually increased our liquidity reserves by some $20,000,000,000 in the quarter and raised another $20,000,000,000 in long term financing. And the lower funding cost reflects also our strengthened credit profile. On Slide 5, we see the net fee and commission income, EUR 3,400,000,000 this quarter. Commission income from payments, car business and lending is increasing as our fees from asset management and custody. Equity commissions fell in the quarter given the difficult market environment. We do not see any headline corporate transactions at all in this quarter. On slide 6, you can see the decrease of NFI is primarily driven by the lack of positive valuation effects in the liquidity portfolio that we saw last quarter as well as credit spreads widening again. Customer driven trading income continues to show a high level of stability. Our trading is flow driven and this customer business generated another $1,300,000,000 of income this quarter as you can see in the chart at the bottom left, very stable. In a very volatile market environment, the stability on this line is really reassuring. Looking at Slide 7, you can see that SEB has a stable level of earnings that is based on long term relationship with our customers and the fact that we always meet their needs. This lead to results. During the last 4 years, SBB's earnings volatility has decreased steadily and is now lower than our main Swedish competitors. This is the result of a number of strategic choices that we have made over the last few years. We have sold our retail operations in both Germany and Ukraine. We have lowered our risk levels and focused our investment portfolios. We have good access to funding markets and have large liquidity reserves. The asset quality of our lending portfolios is high, We are growing where we said we should grow in the Nordic countries and also in Germany. If we turn to Page 8 and take a step back and look at a 3 year perspective, we can see clear trends in our levels of average income and costs. We have increased income quarter by quarter at the same time as we have brought down costs. We have done this through larger actions of offshoring our finance, HR and some IT functions to the Baltics, but also by finding efficiency improvements in the way we work. One example that was mentioned this morning at the press conference was within private banking, where a new way of working has reduced the number of hours worked, while we have attracted at the same time $30,000,000,000 of new assets under management and more than doubled customer satisfaction. This of course gives results and this is the way we will continue to work. Talking about volumes on Slide 9, we know that relationships drive business volumes. And since the year 2000, we have increased lending and deposit volumes by an average of 6% per year. We can also clearly see that times of greater worry and turbulence in the market like after the Lehman crash during the sovereign debt crisis and also I think as you could see in Q2 this year that we do see greater customer demand as they seek a safe harbor. For us, it's all about being there for our customers to make sure that we offer quality and also the securities they seek when markets are turbulent. On page slide, you can see our asset quality that continues to be high. Provisions for credit losses increased somewhat in the quarter, but from very low levels. Non performing loans continue to decrease and in the Baltics NPL fell by 5% as a result of write offs against reserves. Provisioning increased somewhat in Latvia and Lithuania, but that should be seen against a number of quarters of provision releases. What we are seeing now is more of a normalization. The economic sentiment is stable in the Baltics, but these are small economies that of course also are impacted by the developments in Europe. We are however do seeing a slightly higher demand for corporate credit and in Estonia mortgages are increasing slowly again. Turning then over to divisional performance on slide 11. The majority reported a better result this quarter. Merchant Banking turned in one of the best second quarters ever with a notable stability in the customer business. And all this despite the market turbulence and a much more hesitant environment. Within GTS Global Transaction Services, customer activity was very high in the quarter. Trading capital markets also saw continued high activity in the credit markets, while equity sales had a harder time given the state of the markets. As I mentioned earlier, there were no M and A deals in this quarter. Retail Banking increased its quarter on quarter results by 13% and on a 6 month basis as much as 56%. Within Wealth Management, operating result is down 6% as compared to the same period last year and this is mainly due to lower performance fees. Private Banking is doing well with an inflow of more than 600 new customers and €13,000,000,000 in new assets under management. Our Life business continues to be leading insurance in Sweden with a market share of nearly 20%. Income is up 4% for the first half of the year compared to the same period last year. In the quarter, however, the operating result is down somewhat as a result of lower valuations. And finally, the Baltic division where the operating profit before credit provisions is up 6% compared to last year. Moving to Page 12. 2.5 years ago, I spoke about a Nordic and German expansion. On the slide here, you can see that this investment has paid off. In Norway, Denmark and Finland, we have increased operating profit by an average of 24%. The corporate business in Germany is doing well, but the overall result is negatively impacted by falling valuations within asset management. During the 1st 6 months of the year, we have signed 52 new large corporate customers and loans and commitments have increased by $18,000,000,000 Since 2010, they have increased by a total of $126,000,000,000 This investment in our Nordic and German large corporate business means that we now have the scalable platform that we need in place. Going forward, this expansion will be about doing more about taking care of our core customers and doing more business with them. On slide 13, we see the Retail Banking. On Slide 13, we see that Retail Banking has more than doubled its operating profit in 2 year August. Our investment in the SME business is paying real dividends. In Sweden, SME truly is the corporate bank now for all companies. The number of SME clients have increased by 20% in 2 years' time and we're continuously working to widen the scope of our service by adapting advisory services through merchant banking directly to our SME customers. For example, we have now transferred all mid corporates to retail banking and we continue to increase also mobile services to our clients. Our private customers request more advisory services and also are increasingly choosing to conduct their business in our online meeting places. The number of mobile bank visits was 2,500,000 in June alone. Let's also briefly comment on the mortgage development. Mortgage volumes increased by €9,000,000,000 this quarter at a slower pace than previously, but at the same pace as Q1. Mortgages are kept a key part of our relationship with our private customers and new mortgage customers typically become Home Bank customers of SEB. In 2 years, the number of Homebank customers have increased by almost 30,000. And turning to the development of the core Tier 1 ratio on Slide 14. We report today a core Tier 1 capital ratio of 15.3%, up from 13.7% at year end. This improvement is partly new lending volumes have cost us around 0.5 percentage points, but this is then offset by a number of positive changes this quarter. We continually develop our methods of measuring risk. This quarter, the Swedish FSA has approved our improved model for real estate lending, which has led to risk weighted assets impacting core Tier 1 by around 1 whole percentage point down. We have also generated some EUR 3,000,000,000 in equity this quarter, which improved Core Tier 1 by another 0.5 percentage points. In addition, average credit quality has improved somewhat, which also affected capital ratios positively. On Slide 15 then, we see that our balance sheet remains robust. During the spring, Moody's placed 114 European banks on watchlist for possible downgrades. So far, there are only 3 banks that have not had their credit rating lowered and SEB is one of those 3 banks that had its rating affirmed. Today, we have liquidity resources of €537,000,000,000 In other words, as I mentioned initially, 25% of the balance sheet is held in liquid assets today. The loan deposit ratio is 131%. And during the first half of the year, we have been opportunistic in tapping the markets where possible and have already replaced almost 90% of all maturing bonds in 2012. NPLs have decreased by 20% since year end and the group wide reserve level remains at 64%. So to conclude before taking your questions on Slide 16, global economic recovery is continuing at slow pace. We see that our customers are seeking safe harbors and that means a strong bank like SEB becomes even stronger. Given that we always put the customer's perspective the customer's perspective front and center, resilience and flexibility continue to be key for us. We expect the shock waves of the financial crisis to reverberate for a long time still. We continue to become more efficiency at the same time as a scalable platform we have built in the Nordics and Germany can increase income further by deepening our relationship with our customers. Thank you. And with that, I'd like to open up for questions. So operator, could we have the first question, please? Thank you, Our first question comes from the line of Nick Davy. Please begin your question announcing your company name. Sure. Good afternoon, everyone. Nick Davey from UBS. Thanks for taking the time for the call. Two questions please from my side. The first on funding and the impact to net interest income. Just looking at your balance sheet, it looks like there's been a reduction of around €33,000,000,000 in the quarter of long term debt. And I just wonder whether you could please expand a little bit about the shape of the balance sheet and the shape of the long term funding part of your liabilities. Maybe you could also touch on the Riksbank's strong liquidity ratio, which they measure the peer group on, whether this is something that you actively look at when you measure and manage the duration side of your liabilities? And then the second question please on risk weighted assets. You referenced the AIRB approval in one portfolio this quarter. Could you please just update us on any other portfolios that you're actively reviewing or in dialogue with the SFSA over? And whether you would expect any other material decreases in risk weighted assets going forward? Thank you. Hi, Nick. Jan Erik here. On the first question on the funding, yes, you're right in that the it's We've had some previous debt maturing this quarter and we haven't replaced it with any senior unsecured. We've done a bit of covered bonds. But I think we've really over the past years and quarters we've done enough of buffer building. So we don't need to go and chase anything in addition to that. And that's really what's behind the improvement in the funding and other that you see. The fact that interest rates have been coming down and they've been coming down more so to speak on the or we've had more of a relief on the liability side than on the asset side. When you refer to the Riksbank NSFR like measure, it's something that you've seen in the latest stability report improve for us. That's fine. But again that's not a measure that we need to sort of run to full compliance on. It's NSFR like and as you know NSFR is not to be implemented until 20 eighteen-twenty 19 somewhere and it's likely to change quite a bit until then. And with the LCR now at $108,000,000 and being fully compliant on both dollars and euro, we think we're fine, which means that the sort of funding costs that we sit with now should be, we think possible to maintain for a while given the low interest rates. When it comes to the risk weighted assets and the approval we've had on real estate, It has as you've seen had a fairly material impact. I won't comment specifically. We got the same question in Stockholm earlier. And Johan Andersson, our CEO, responded as I will do now that we will of course work to mitigate going forward as well, but we won't comment specifically on the applications that we've got with the regulator. Okay. Thank you. Can I just ask maybe a couple of follow-up questions? Firstly, if I interpret your language correctly, you feel you can keep the same low cost of liabilities for some time. Can I interpret that to mean that you can I feel you can maintain the same funding and other contribution to NII for some quarters to come? Well, I think you should see that us saying that we don't need to build additional buffers than where the interest rates will go. We'll to see. But I don't think that we need to take one more. Okay. Thank you. And secondly, you have an investor presentation out today, which talks about the progression of capital going forward, which you look at consensus earnings and quite how much capital you're going to be building over the next few years. That seems to work on the assumption of flat underlying risk weighted assets. Is that your base case? Or am I over interpreting the chart? It's an illustration where we're trying to primarily show the effects of the Basel III implementation and the IAS 19 rule changes. Okay. It's meant to illustrate those two effects rather than anything else. Okay. Thank you. Our next question comes from the line of Masih Yassdi. Please begin your question and answer your company name. Name. Hi, this is Marc Stefan from Credit Suisse. I have two questions for you. The first one is on full time employees in the retail banking division. I see that increased about 100 people Q on Q. Is this a new trend here that we can expect due to higher volumes in this division Or have you now adjusted for these higher volumes based on the increase we saw in this quarter? The second one is also about risk weighted assets. Just putting it a bit differently, can you say how large share of the corporate book that you now are using Advanced IRB for? Thanks. Hello. Actually the first one on retail banking, it's actually partly some summer attempts that is coming in and also that we did reorganize in the bank the marketing department where some people were But the total number for the bank is already intact, but we did let retail take responsibility for part of the marketing department. Okay. Hi, Asi. And for the second question regarding the risk weighted assets and the portfolio size we're using it for today. We're using it for the corporate the general corporate lending purposes and we're also now using it for the commercial real estate portfolio and multifamily portfolio. But then we have other parts where collateral is important like shipping, structure finance, etcetera, where we're not using it today. Furthermore, it's more used today for the Nordic group rather than for Germany and the Baltics as such. So there is a it's a chunky size of the portfolio where it's not applied today, but the majority of the corporate portfolio is still being applied with the IRB advanced models today. Okay. That's clear. Thanks. Our next question comes from the line of Jeff Dorst. Please begin your question announcing your company name. Hi, there. Good afternoon. Jeff Dawes here from SocGen. Two questions for myself. The first one is on net interest income. I believe on the Swedish call this morning, you discussed the sustainability of the SEK 4,500,000,000 run rate going forward to the rest of the year. Could you just give us a few comments around that now? And what pressures or further benefits you might see to the current run rate? 2nd question is on the lending margin. In your fact book, you very helpfully give us the benefit of lending margins, smartly between margins and volumes over the course of the last 2 years. And it seems there's been very little overall impact on the margin, so very little positive NII derived from the margin impacts. Can you just give us some color on why that is given that mortgage margins have gone up so much? Is that an indication of higher funding costs which were not included in the mortgage margin? Or is it that other products are experiencing decrease in margins? Those are the two questions. Thank you. Ladies and gentlemen, please stay on the line. We need to spend the conference for technical issue. We will need to contact the speaker. Thank you. Give a short brief comment on the NII development in the retail bank. It's approximately half is driven by volume and half is driven by margin if you compare it to the same period as last year. And it's quite it's of course lending volume is driving NII more in lending volume is driving NII more than in deposits. Their margins are driving NII more. So it's quite even a split between deposits and lending. So the net effect, if you compare them same period as last year, is at approximately EUR 6 $100,000,000 on the NII. So I will say that we get a good contribution both from repricing the back book and also adding on new volumes, new business with customers on the books. And that's 6 months, yes. That's the first 6 this year compared to the first 6 last year. Great. Thanks. Well, my line actually cut out for a while. I think everyone's did. So I didn't get any of the comments on sustainability around the 4.5% run rate. So if it's possible to briefly go over those again that would be great. Okay. So sorry about that. I was saying that I think the volume components in the merchant bank have been holding up, but moving I suppose a little bit sideways with the lack of demand in the economy. Margins are holding up well, in fact increasing a couple of basis points. Deposits continue to flow in as we're perceived by the community as a safe choice. So I believe in the merchant bank, we should be able to hold up quite well. Mats commented now on the retail bank. And in terms of the liability side on the in treasury, I think we've built the buffers we need to build. And provided that the interest rates stay as low as they are now, I think we can continue to benefit from that. You shouldn't expect, of course, the same sort of delta as you saw in this quarter. But I think there's reasonable it's reasonable to expect this sort of level to hold. Over there Jack. Our next question comes from the line of Claire Cain. Please begin your question and your company name. Hi, there. It's Claire Kane from RBC. A couple of questions from me, please. First of all, can you talk us through the trends you're seeing in deposits? So the inflows in corporate deposits, you had the same over Q4 and they went out again in Q1. And are you actively attracting these deposits? And are you still able to maintain a positive spread on those? That's my first question. Then can you briefly comment on the outflows you're seeing in the Wealth Management business particularly the mutual funds and if that's something you're actively managing? Thank you. Okay. I can answer that. I think what you see on the positive is what I tried to show on one of the pages. Let me see. On slide this is slide 12 I think. Slide 9, on page 9, I think that's what I tried to show that every time there is the volatility in the market and turbulence, we do gain a lot. And I think in Q1, it was actually quite a positive starting of the year and everything started off relatively well. And then immediately, we see that deposit goes back to where they come from and turbulence in Q2. Then we do increase the deposits again. So I think this is the upper part of the deposit that is a little bit more volatile, but the rest is sticking. I think I will focus on the LC on it works pretty well. So we feel comfortable that there will be volatility and we always benefit when the markets are slightly more volatile and that will probably continue. Regarding outflow in mutual funds, it's 2 fold I think. We have actually recommended our clients, I think in the bank that we try to be very, very firm on doing what's best for the client, because we think long term that will be best for the bank. And we have recommended our clients to leave kind of interest rate funds because that's been very expensive for them and it's been much better to have to use the fixed deposits rates. So that is part of what you see. I think overall when we look at kind of overall deposits with the bank or what we call savings wherever you save in the bank, we see no net outflow of SEB. But we did see a little bit of partly flows from the funds, but more from I think from clients that have been recommended to do Gogo and get better interest rate if they're based on the deposit account instead. Okay. Thank you. Next question comes from the line of Sophie Petterson. Please begin your question in announcing your company name. Yeah. Hi. Here is Sophie Petterson from JPMorgan. I had a couple of questions. First one is about your maturity profile. Just comparing your maturity profile now at June compared to March, it looks like your long term funding is slightly down. Is the what benefit has this had on your NII? And then my second question is that if following Claire's question earlier, if there is less market volatility, how should we view deposits? And how will that deposit or if deposits are disappearing, how will it be replaced? Thank you. Hi, Safae, it's Ulz. I think if one looks at the maturity profile we had in the year, we said that we basically had SEK 70,000,000,000 maturing throughout the whole year. SEK 10,000,000,000 of that came in the Q1. Then we had SEK 49,000,000,000 in the Q2. And then we have, if you add it up, around $11,000,000,000 to go for the next two quarters. So it's not evenly distributed in the among the quarters for the full year, which means that now when we have refinanced SEK 61,000,000,000 we have done close to 90% of the total year, but we are relatively matched compared to what has matured so far in this year. And that's why you can see the long term funding coming down in the quarter since we did EUR 40,000,000,000 already in the Q1 and now EUR 21,000,000,000 in the second quarter. That gives you the explanation for why it's falling when you look into the balance sheet as such. Sorry to interrupt. This was actually on Page 14 in the fact book when you have like byproduct split when you have under 1 year 1 to 2 years. So I guess that graph when you compare it to the first quarter graph shouldn't really change? No. And then it is a little bit when you look into that, you can see that we have covered bonds maturing, which creates this sort of lumpiness between the different years. So below 1 year, we have EUR 63,000,000,000 then coming in the 12 month period, we will have close to EUR 100,000,000,000 and then you go down to EUR 63,000,000,000 again. I think when we showed this at the beginning of the year, the profile looked relatively kind of a EUR 70,000,000,000 level every year going forward for the 1st 4, 5 years. That's the type of profile we are running with where we need to do around the EUR 70,000,000,000 EUR 80,000,000,000 to stay flat on where we are in terms of our different metrics and so on. So I think it's more a question of which quarter you're rolling into this period and which one you're rolling out of it as such really without any drama. We tend to have a relatively large rollover in June every year, for example, which is related to the Carabond issuance in Sweden. And that's what happened also in this year. Then in terms of the deposits, of course, we are benefiting, as Annika said, from 2 things. 1 is that we are more we are perceived to be relatively safe when it comes to gathering deposits. And we're not only gathering deposits from corporate clients, but also from financial institutions, from insurance companies, from asset managers, from mutual funds in the U. S. And so on. And we can see that when everything gets a little bit more worrying, we get a little bit more of that. And then when markets come down, some of that money would leave us. So it tends to be a little bit going up and then it tends to be a little bit going down. So you could say that not everything is kind of opportunistic. We're not paying up to get these funds. We're actually getting them because we are safe. Then of course, we're getting more clients. If you look at the deposit flow over time, you can see that retail is getting maybe €5,000,000,000 to €7,000,000,000 every quarter, whereas merchant tends to be more volatile in terms of how they gather. But as Annika also showed, the trend going back 11 years is around 6% annual growth every year for the last 11 years. So I think you shouldn't mistake the long term growth rate with the short term volatility fluctuations that we have in those numbers. Okay. Thank you very much. Next question comes from the line of Ricardo Rovere. Please begin your question and asking your company name. Good afternoon to everybody. Most of my questions have already been asked and answered. Just one final curiosity. Is there any chances that the discussion and debate surrounding the kind of harmonized risk weights could on mortgages could eventually one day involve also the corporate exposure? Thank you. I think the answer to that is yes, but much more long sided. I think that would be much more tricky and difficult the way that's also partly how the banks look different because we do have different risk profiles and probably value risk differently. So I know that the files inspection have been looking at kind of when we do see the volume kind of buy debt, what does that look like? When we do syndicated debt, for example, why is it that we have different valuations on that, but then depending on the loan. So I think in the long term, yes, but it will take time. Sorry, if you have maybe just a little follow-up. Do you know if in debating the risk weight on mortgages, the Swedish regulators and Norwegian, the Danish, are they also discussing with the EBA on this topic or they're just discussing among themselves? I think they're all discussing with themselves and also with the EBA. Okay. Which makes things even longer probably. Okay. Thank you. Thank you. Our next question comes from the line of Jane Walter. Please begin your question announcing your company name. Yes. Hi. Jan Wolter, Deutsche Bank. Just a couple of follow-up questions from the press conference here this morning. First, if you're able to put any color on why trading is strong this quarter. It seems to be on the fixed income side. And the delta is almost €1,000,000,000 Q on Q if you adjust for the mark to market effects in the bond portfolios. So that's my first question. The second is, are there any remaining applications with the FSA on new models? And if you could say if yes, if there are if you could give us then the rough volume on that? And then on that point as well, when was the approved the now approved application handed in? Thank you. Hi, Jan. I think in terms of the split on the net financial income, it's the mapping of the different instruments make it much more volatile than actually we would like to really, I would say, report it in terms of different products and how they get split because one has to, for example, take an equity linked bond and put that one part into equity and a different one into the debt side as such. And there are other combinations of products which create the same type of effect, which makes this net financial income breakdown relatively complex to follow and to read. What we normally do is to look at it from a more trading total point of view, which is on Page 32 in the fact book, where one can see that the total income for TCM in this quarter was fairly in line with what we saw also in the previous quarter. And when we look at the breakdown, there was a little bit more of FX in this quarter. There was a little bit, well, less of capital markets and that equities basically did the same on a low level as they did the previous quarter and so on. And we've been seeing that trend. And when one looks at Page 32 in the fact that one can also see that the total income from foreign exchange as well as from the capital markets side has been relatively robust through the last 2 years and so on. So I think the looking at the net financial breakdown net financial income breakdown makes life very complicated compared to the way we at least run our business and so on. So I wouldn't take too much and such I wouldn't pay that too much attention unfortunately since we were still reporting it. The second question relating to approvals of models and so on. Yes, of course, we have other applications in and we won't go through as Johan said today at the press conference, which ones those are. But there are others that could have an impact on the total numbers. Probably not anyone in particular that would have the same amount in terms of the risk weight that we saw this time, but there would be other applications. And the one we now file has been in with the FSA for some time without giving you a specific date. And then, normally, you would send in something and there would be a dialogue with the regulator in terms of approvals and clarifications and what did you mean by this. And then after a while it will be concluded. So it's difficult to also have a view exactly on what time a typical application will be in before it gets approved. Okay. Thank you. And when was the now approved application handed in? Do you know that to Paul? Yes. I won't give you a specific date some time ago. Okay. Thank you. Our next question comes from the line of Omar Keenan. Please begin your question and answer your company name. Hi. It's Omar Keene from Nomura. Thanks very much for taking the question. Just going back again to net interest income and the EUR 290,000,000 improvement in funding and other. Can you just give us just a bit of discussion on when on if there's any sensitivity on the asset side? Should we expect the IFRS rate to stay flat quarter on quarter then there might be some sort of catch up and some negative impact next quarter? So that was just the first question. And then secondly, in terms of fee income, I think the trends in lending fees were quite good and a couple of other fees as well. Can you discuss some of the trends in terms of corporate activity generally, Well, in terms of the NII and the €209,000,000 to close to €300,000,000 Well, in terms of the NII and the NOK 209,000,000 or close to NOK 300,000,000 on the funding and other line, again, it's really a combination of the fact that the asset side has of course the return on the or the yield on the asset side has come down with the falling interest rates. So it's about 18 basis points, whereas the liability side has been coming down with 26 basis points. So you've got 8 basis points 8 to 10 basis points in the middle there and that's really what does the trick. In terms of the fees, you're right in saying that it's the sort of bread and butter fees that have been producing this quarter. The corporate liquidity levels, as Annika said earlier, have been low. And I think as long as we see the problems in Continental Europe continue the way we see now and the macro outlook being fairly bleak then so will core productivity be. And I think we'll just have to rely on the very stable machine that produces fees and net financial income and NII the way we talked about through this call. So I guess just to follow-up on the net interest income. Can we expect the 8 to 10 bps that you said does the trick? I mean, is that going to reprice and come down in the next quarter if rates don't fall in Q3? I mean, how should we think about that? Or is that something more structural? Well, I suppose I've been suggesting earlier that as long as the rates stay pretty much where they are now then one could expect continuation. But then again the world will I suppose tend to move on and we'll have to see what can start in Q3. But provided it stays the way it is and asset side should I don't expect margins to change dramatically. I think the retail mortgage book will the back book will continue to reprice slowly in a positive direction. New sales probably won't change much in the merchant bank. Margins are stable. So it's really on the liability side that it's difficult to predict. But what we do know is that we don't need to run out and do much more of funding. And what happens to the interest rates, we'll just have to wait and see. Okay. Thank you very much. Thanks. Our next question comes from the line of Andreas Atkinson. Please begin your question and answer your company name. Yes. Hi. It's Andreas from Exane. Just also a follow-up from the press conference in Stockholm this morning. Just back just to the risk weighted assets. I mean, we're talking about the EUR 42,000,000,000 improvement in risk ratings from EUR 150,000,000,000 book. So it's a very big improvement. I guess it takes risk ratings from some 50% to 20%. Could you talk a little bit around what type of valuation changes did you see on this property? What was the main drivers there? Thanks. I think Andreas, I will go back to what Johan Andersson said. He's not present here. But again saying that if you use for a large portfolio as we've been holding a very general model before and then we have worked much more specifically on each individual deal, we could see that what's clearly improvement to be made. I think we can't be more specific than that that the precision has increased a lot from just using a very general model where actually credit losses was higher. I think again it's worthwhile to say that we don't anticipate that we have anything in line in size what this one has been in size. This one was big. And of course, we find all the time and we work and we try to refine the modeling. And of course, this is difficult and loss between the banks. We all have to work full car making sure that we have capital as efficient as possible. So I think that's the only way we can comment it. Can you just give us what I'm trying to understand is that if we now basically using market value of the properties rather than some sort of standardized values previously. So you're now being more sensitive to potential swings in property prices in your risk weighted assets? Or is that impossible to say really? No. I don't think that that's really it. If you look at the impact and why does it actually have such a meaningful impact on our numbers, What Johan said was that we're talking about the commercial and multifamily lending in the Nordic countries. And the majority of that is of residential mortgage borrowers and the support of housing in Sweden rather than commercial real estate built for commercial purposes. And that therefore, the general loss given the fault put on such in the Basel rules differ a lot from the history 1990s. So it comes back a little bit to the same reasons we have low loan losses on residential mortgage lending all the way back in the 1990s. This is multifamily housing. The And the default values put in the standardized and foundation models are just way too high compared to what we have experienced in the past and where we think we would have even on a conservative point of view. That's why it's a meaningful impact. Okay. That's it. So it's a booster set for the ending in Swiss, Christian? Yes. Excellent. Thank you. Our next question comes from the line of Jacob Kruse. Please begin your question and answer your company name. Hi. It's Jacob from Autonomous. I just wanted to ask firstly on cost. I think you're analyzing about 22.7% in the first half. Are you now comfortable that you will come in a bit below the EUR 23,000,000,000 target? Or do you see any risk or any reasons really why the cost would increase in the second half? And then I guess just secondly, can you talk a bit about what you're seeing in the corporate market in terms of margins and repricing? I think you said previously that you had started repricing the SMEs. Is that something that is still ongoing And is it accelerating? Or is it something that gets harder to do? Thank you. I can comment on the cost and say that we will stick to I think what we promised to market the province ourselves that we will come that we will deliver a cost of below 23. Far below 23 we will come, I still think it's a bit too early to say. But hopefully, we have more in Q3 to say on that. But of course, so far, I mean, we're seeing the signs. We have a lot of work that we're doing in the banks. We should come in below 23. That is false. I had to commit myself at the moment. But of course, we have a high ambition. I'll pass over to Head of Retail here, Markus Gorstelof. Yes. And just to give you a flavor of that, there's a bit of a mixed picture there. You can say that on the corporate lending for the corporate lending in general, you can see that back book is going down a bit, but that this shouldn't be interpreted as we are not repricing. It should be interpreted that we are adding on the higher end of the SME segment on the books and they are priced lower than, shall we say, the lower end of the SME segment. And therefore, we can you can see then that the back is going down. In general, prices are going sideways or slightly up. If you look at the mortgage or the commercial real estate lending in the retail part of the bank, that has been going up in the same way as the mortgage lending in general. So that we can see substantial repricing on the back book and that will continue, I would say, during the rest of the year. Okay. Thank you. Our next question comes from the line of Pawel Wyszczynski. Please begin your question and answer your company name. Yes. Hello. This is Pawel Wyszczynski from Nordea. Two questions. I guess one final question on the extra deposits. I think the question is for me also. So how large positive income do you get from these deposits I. E. What kind of spreads do you get not that they come up and come down in bad times? And also another question is on payment commission. It looks to be your strongest quarter ever. And I'm just wondering if you could give us some color on it. Hi, Pawel. I think on the deposit side, it's difficult to say exactly what those margins are really. Most of the corporate deposits we are getting tend to be linked to some sort of variable rate and so on and relatively short term, but the volume of that creates stability over time. So I wouldn't do any type of margin analysis and say that is a main contributor in terms of the sharp increase. But then as I said earlier, we all have a low and stable flow of new deposits coming in. And therefore, that's kind of creating a little bit of a margin. For example, Then one way to look at it, which creates an alternative cost is of course that if you get a lot of deposits, we don't need to go out and create wholesale funding. And normally deposits will be cheaper than creating wholesale funding. And therefore, that's a positive contribution. But that's something you won't see, but that's more of a alternative cost we would have if we hadn't had the corporate deposit volume increases we had in this quarter. So that's on the deposit side. And then on the payment side, yes, you're right. Are actually having a good flow on the payment side. But remember that we all the time but talk that the account or customer to SVB on the corporate side is a customer that has its cash management business with us. That is what we are tracking on the SME side, on the retail side and what we're also tracking on the merchant side. And when asked, we normally say that the most important product we can have with the customer is actually to get the cash management business because then we will be able to get many more products and we have a glue product that creates a lot of stability. Now we have added quite a few new such customers over the last years. So it's quite obvious and quite naturally that it has meant that the payment commissions are increasing. And then whether they are increasing by €10,000,000 €20,000,000 or €30,000,000 in a quarter, if the trend is still there that more customers make more payments and more payments create more income and that's what we're getting. All right. Perfect. Thank you. We appear to have no further questions. We have missed the time on the conference back to you, sir. No, no, thanks. Thank you. And thank you all for participating in our conference call. And we wish you all a nice summer. Thank you, Marc. Thank you. Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may now disconnect your lines. Thank you.