Earnings Call: Q3 2021

Oct 20, 2021

That we are happy to present today. As always, we will refer to the PowerPoint slide numbers on this call, and you can find them on our website. If we start on a page that describes the financial markets, we can just conclude that we have had a continuation of a strong type of recovery theme from the very weak situation we saw in 2020 following COVID. Overall, it's been a very benign financial markets environment to do banking. And we can see a slight shift towards the end of the quarter where we had some weakness coming in both in the equity markets, a bit higher credit spreads and interest rates also increased. But overall, this was a very supportive quarter from the financial markets perspective. Just a note on the dialogue and the focus in our dialogue as we see them. It feels like we are slightly at an inflection point. We are no longer predominantly talking about the recovery from 2020, but we are looking forward in the medium to long term. And I think the debate right now is around inflation, energy prices, the current narrative around the projection for monetary policy and as a consequence, the asset price situation going forward. So in a way, it's a good thing. We are looking forward. On the other hand, in FNF field slide, right now, there is an inflection point in what path should the markets take going forward. Next slide, please. We'll just summarize the Q3 by noting that we recorded a 14 0.1% return on equity and had a core equity Tier 1 ratio of 20.2%. This is now post the adjustment made for the proposed further ordinary dividend and the EUR 2,500,000,000 share buyback program we also have announced this morning. The prime drivers behind the result continues to be high customer activity within Investment Banking, where we've seen advisory and issuance fees increased by more than 100% this Q3 compared to the same quarter last year and also very strong support from the asset based side of our business. So asset under management and asset under custody, both have benefited from this strong market we have continued to see. We've also received several of the, call it, mass market customer survey. These are for small and medium sized companies and for private individuals, and it's encouraging to see that we're making progress in this very important factor for us, namely customer satisfaction that we believe is a key long term driver of stability and profitable growth. And lastly, we have a strong capital position allowing for some capital repatriation to be announced now before the ordinary one that will come in January, proposed to be SEK 4.1 per share as a further ordinary dividend coupled with an initiation program with immediate effect or tomorrow of a share buyback program that will be active until the day before the next AGM on 21st of March. Next page, we look at the credit portfolio that had continued a sideline movements for corporates. We noted a 1% FX adjusted growth in the 3rd quarter, which is technically a weaker quarter due to seasonality. But we see the same still organic demand theme as we've been discussing that there is a little bit of less growth compared to 2020, not at least because of the elevated levels of recorded financings that we took on particularly in the Q2 of 2020. The good side is that we are maintaining this high elevated demand situation, but it's a sideline movements when it comes to the total exposure. Another observation is, of course, that anything with a real estate based type of development has been more positive. So both mortgages, housing cooperations and residential has continued to grow on a year on year basis. Next page, we have been talking a lot about savings and investments. And as many of you know, it's not been an area that we feel that we have performed as well as we would have liked. We have over the last year or 2 talked a lot about new initiatives, trying to mobilize ourselves in order to become better, and this is very operational in order to do what we do in a more effective manner. Here are 4 data points that we now see that there is some light at the end of the tunnel. We can note a little bit of an improved momentum, but I still want to be very humble and cautious that it's too early to say that we have sorted this out. But the first data point is in the positive trend that we recently have recorded for the net sales of the funds that we have in our own investment management unit in Sweden. This is official data where we can track the AUM, but the blue bars are the monthly net sales. And here we have gone from 2018 to actually have more outflows than inflows. Then we recovered a bit, So we had a stable situation with 1% growth. This is where net inflows is surpassing outflows. And in the last 12 months, we now have a 7% market share of all the net flows coming into the Swedish fund market, which is a clear improvement. However, our market share is estimated to be around 10%. So we are still below in the last 12 months where we would like to be. The second graph to your upper right is an indexed number for how many how much volume we get in ordinary monthly savings. And we've seen a 40% increase from 2,008 with the vast of the increase coming in the last 12 months, where we've gone up roughly 33% in volume of monthly savings. This is a very stable annuity type of business of ours, and we're happy to see that. The 3rd graph is the lower left hand side is and indication again of how many clients are trading in equities and funds in SEB. This has, again, since COVID, really increased, and we are now roughly 120% up on the number of clients that trade funds or equities in SEB. The proportion of these 2 in the mobile channel is of an most important as this is the way we believe we future proof our relevance. And this is an area we previously talked about. We've been a laggard. And since 2020, we've had mobile channels developed for buying and selling of funds. And since April this year, we've also the online trading ability in the mobile channel for direct access for our customers on the stock exchange to buy and sell equities. And we can just conclude that over the last year, we've now 54% of all the trades being done, customers trading in funds is now 54% is now done through the mobile channel. And they're early days, but we have also very rapidly come up to a 31% of all the transactions done in equities are now done through the mobile channels. And lastly, we have an indication here on our market share development of new sales in the pension area. And here, we've gone from 8% market share, and we're now hitting almost 13%. So this is also a positive momentum, and we are currently taking the number 2 position amongst the peers in Sweden that are active in the pension and insurance business. Next theme is just to try to share with you a simplistic picture with an overall objective for our customer satisfaction. Customer satisfaction is always part of SED's planning and one of the core ways in how we would like to achieve the strategic targets that we have put out. And we must say that we have a pretty supportive development overall when it comes to the external surveys that are being conducted on behalf of banking customers and what they think of their different financial services providers. And here are 8 of them, with particular focus on the Swedish quality index that came out a few weeks ago, where we, for the first time, I think in 30 years, became number 1 when it came to customer satisfaction amongst the larger Swedish banks. There are more banks than large Swedish banks, and we're number 3 if you include all Swedish banks in this survey. On the Swedish quality index for private individuals, we've had a very solid place on in second. We've done a significant improvement in Prospera Private Banking, which was one of the areas we felt particularly strong about last year where we noted a 7th place. We've now improved 4th, and we still have some way to go with a high ambition here to come up in a very strong way. And the others are around fixed income large corporate and financial institutions that are from 2020. They will be updated in the near future. But it is very important to stress that we believe that customer satisfaction and making sure that we have a relevant offer is the key of what we do. This is really the way we need to perform in order to to meet the financial aspirations of the bank. I will now hand over to our CFO, Marc Jastep, to talk about the financials. Thank you, Jan. So if we move on to Slide 8 and look at the Q3 numbers isolated, you can see that the profit this quarter is largely in line with the previous quarter. However, typically, we have seasonally weaker quarter in Q3, but this time, it's largely in line. So we believe that this is a good set of results. And obviously, compared to Q3 last year, you can see that we have a good income growth of about 9%, a profit growth of 15% and net of expected credit losses, the profit is up 35%. As Johan mentioned before, return equity of 14 point 1% in the quarter and a costincome ratio of 0.41 as well as an ECL level of 1 basis points. Move to the next slide, Slide 9 and look at the year to date developments. Here, we can see that income is up 11% so far this year compared to the same period last year. Costs are up 1%, leading to a pre provision in profit growth of 19%. And given that expected credit losses are about SEK 5,000,000,000 Lower than last year, we see a profit growth in total of 62% for operating profit. I should mention here that we have some FX effects. On income side, we have a negative effect of about EUR 0.5 SEK 1,000,000,000 for the 1st 3 quarters compared to last year. At the same time, we have a positive effect on the expense side of about SEK 200,000,000. However, given the strong performance of the share price so far this year, this positive effect due to FX on the cost side is offset by higher costs related to variable compensation due to the higher share price. To move over to the next slide, Slide 10, and look at net interest income, we've seen this line grow by about SEK 1,000,000,000 or 5% year to date compared to last year. This 5% is mainly due to lower funding costs and, as Johan mentioned before, volume growth related to real estate, lending, mainly mortgages. Q on q, net interest income is stable. It's up slightly. That is mostly due to one extra day in the quarter and some volume growth made in mortgages. We've seen that the net interest income we have in our Markets business, as we've Told you before, it's been elevated for a few quarters. It continues to be elevated by about approximately at the sort of half the level we've seen in previous quarters. If you look at corporate margins, they are slightly up this quarter. That's mainly a mix effect. We see less demand for regular CapEx lending, but we've seen more demand for structural finance, leverage finance. And typically, that type of lending has a higher margin. On the mortgage side, we still see hence competition in the market. We have lower margins in the front book than on in the back book, but the impact on the margin for overall mortgage portfolio is fairly small. I should also mention that we have some effects when it comes to the net interest income in the divisions and in treasury, and that's due to internal funds transfer pricing and with lower credit spreads. And now we the Treasury compensates divisions less for deposits, which means that there's a negative effect on the divisions NII and there's a positive effect in Treasury. If we move on to the next slide, net fee and commission income. Here we see a SEK 2,000,000,000 increase year to date compared to last year or 15%. More than half of this improvement is coming from the Asset Management business. About EUR 650,000,000 is within Investment Banking, so our advisory business, within Equity Capital Markets, Debt Capital Markets and M and A, and the remaining improvement is coming from our cards business and the Life business. Quarter on quarter, we see a small decrease on net fee and commission income. That's good given that seasonality leads to this line typically coming down more in Q3 versus Q2. There's a lower fee related to Investment Banking and Markets this quarter, but this is offset by Asset Management, lending and card fees. And on the card side, I should say that when it comes to private card turnover, we see that now that is higher than the pre corona levels. On the Corporate Card side, we are still way below the pre corona levels, but we have seen encouraging signs during the quarter and especially in September, and we are recovering from the low levels we have shown in the last few quarters. When it comes to the pipeline, we think that it continues to be very healthy on Investment Banking, both on ECM as well as DCM and M and A. Moving on to the next slide and looking at net financial income. Here, we see a 28% increase year to date. We have some positive valuation effects, ex VA. As you know, Q1 last year was a very negative quarter. But if you add the last quarter the few quarters after Q1 last year, we have made up for that negative effect and then some. And in the last two quarters, we have had 2 revaluations. In Q2, there was the Tink revaluation of about EUR 500,000,000 And now in Q3, we have the holding in Europe Clear that has been revalued by about €500,000,000 The underlying business has been weaker here in the last couple of quarters, mainly due to the flattening yield curves. But we could see that in September, when the yield curve start to steepen again, the underlying business in fixed income started to improve again. We have earlier guided for this line being at SEK 1,300,000,000 to SEK 1.5 €1,000,000,000 in the divisions, excluding XVA and excluding Treasury, and we keep that guidance going forward. Next slide, operating leverage, looks good. So far this year, we have seen a EUR 1,200,000,000 increase of the average quarterly income, which is the highest level we have recorded last 10 years, both in nominal terms and in percentage points, so a 10% increase. So if we summarize the last 10 years, we have had 8 out of 10 years with income going up. And given that we have kept expenses fairly flat, 8 out of 10 years, we've seen the profit go up. And the income CAGR for the last 10 years is now 4% and the profit CAGR is about 8.5%. To move over to next slide, on the capital development, obviously, we've seen some movements during the quarter. But if we start with where we ended Q2, we had a capital buffer of 8 60 basis points. During Q3, we have generated 44 basis points of capital, net of the 50% we reserve for dividends. The further order in dividend and the share buybacks we have announced has cost us 150 basis points. And then we've had some regulatory changes in the quarter. The Pillar 2 guidance has been introduced, which leads to 150 basis points higher requirement for us, but that's been partly offset by what's called the M factor, the Pillar 2 requirement, which has been removed, which leads to a 25 basis points lower requirements. So in the end, we end up at 6.40 basis points when it comes to our buffer in the quarter. Pro form a, as we do expect that the countercyclical buffer eventually will be increased back to the level it was pre prona, we are around 500 basis points in terms of buffer. On the next slide, some key ratios. Worth pointing out here is obviously the improved asset quality, seeing the net expected losses this year being at 1 basis points. We have seen a large inflow of deposits across the board, both when it comes to financial corporates, non financial corpus and households. And year to date, we've seen almost a SEK 400,000,000,000 increase of deposits. This means that all liquidity ratios and funding ratios look very stable and good. And as we've discussed before, so does the capital position of demand. Now I'll hand it back over to Johan for a save the date announcement after you've taken Yes, just the financial targets. Yes, I missed that one. Sorry. So we're keeping, obviously, the financial targets, 50% payout ratio, this buffer when it comes to our capital, 100 to 300 basis points. And we've said also in the report that we will gradually work our way down to that interval going forward. And obviously, we have a return on equity target that is to be competitive with peers and with the long term aspiration to be at 15 Now I can hand over back to you. Thank you, Matti. We'll just end by sending out a save the date. As we have many times during these conference Kohl's had themes around sustainability. We've decided to invite all of you in a broad way to come and listen to SEB's work that we've been doing over the last couple of years, including targets and ambitions for the future. We'll also have external speakers, and this will happen on the 17th November, and it will be something like 2, 3 hour type of session you will all be invited to and welcome to attend to further details to come. And with that, we say thank you for your attention, and we hand over to the operator, please. Thank you. Ladies and gentlemen, we will now begin the question and answer session. The first question comes from the line of Andreas Hakansson from Danske Bank. Please ask your question. Yes. Good morning, everyone. Thank you. First one, on the NII and the sustainability of NII, volumes seem to be picking up on the On the corporate side, see if you can comment a bit on that. But also, when I look at your funding structure, you have a continued increase in deposits And debt issued debt is continuing to go down. So do you think you're going to continue to see a tailwind when it comes to funding Driving the NII. That's my first question. Thank you, Andreas. On the loan book, yes, there is a I mean, 1% FX adjusted quarterly growth on corporate is a 4% annualized, which is a very normal type of level. I don't want to say that we have seen this kind of lack of broad based organic demand hasn't changed during this quarter. But there is a proactive pipeline around M and A transactions, which are more, call it, financing driven than ECM. So that we talked about last quarter. That is still the case. And as Marcin mentioned, there is a little bit of an uptick. What has gone up here is on the leveraged finance, structured finance, infrastructure and real estate. So those are the ones that on the margin has gone up. Then on top of that, we still have the positive expectation on the green super cycle. It's still not something I could guide will materialize in a quarter or 2, but there definitely is enough discussion to go around to conclude a lot of things are happening. And these are massive infrastructure light transformational projects that many companies need to go through. But it's constructive and stable with some potential upside from these areas that are not yet being seen in the numbers. On funding, Martin? Yes. I would say, in general, we haven't going forward, it will be difficult to take the wholesale funding down further. That's mainly related to Regulatory reasons, we have to have a certain share of outstanding senior unsecured and nonpreferred senior because of the MREL requirements. So I would say that most of the funding tailwind we've seen in the last 12 months or so is behind us, and you shouldn't expect much more to come. Okay. Thanks. And next question. I heard some people complain about the size of your buyback program this morning. I didn't expect any until next year. But you say that you want to have 100 to 300 And you say that pro form a, you had SEK 500,000,000. That should give you substantial room to do more buybacks. Is it just that you want to wait until next here? Or what's holding you back? Well, you're correct, and we just wait. We think this is a well balanced approach to do some call it midterm. The next date in the calendar will be when we call to the AGM in late January. So this is what we have done for now between 20th October until Jan. And the Timing for the buyback program should, of course, be also thought about in that shorter time period. This is not an announcement for a yearly program. It's just here and now. Okay. That's it. Thank you. Thank you. The next question comes from the line of Magnus Andersson from ABG. Please ask your question. Yes. Good morning. Just to follow-up on Andreas' question there on capital and a bit about how we should Think about you continuing to reduce your excess cash position from here. Just when we go into To the next year, should we from here now rule out additional dividend payments in addition to your 50% payout ratio target, I. A continued combination of dividends and share buybacks to take the FX Cash position down? Or should we be at 50% payout and just share buybacks in addition to that? That's the first one. And secondly, Mas, you have still talked about that you expect to be done within your management buffer target range of 100 to 300 basis within 1 to 2 years from now. Is that still valid? Thank you, Magnus. If I start with the first one. I think when the board looks at the excess capital position we are in and the toolbox to adjust that, they're looking at all the tools available, which means you have the ordinary dividends, you have a potential for further ordinary dividends or extraordinary dividends as well as share buybacks and exactly how they will combine the different tools to get there. It's going to be up to them. We have a capital plan in the bank. We present to them, and there are many ways to do this. So I don't think anything should be ruled out. We're going to have a dividend and then share buybacks over time. But in this sort of more extraordinary position, I think all the tools are available to the Board. On the timing, I mean, we say gradually, we will get down there. 1 to 2 years sounds fair. Exactly how long it's going to take, it's Difficult to say. It depends on many external factors. We have new regulation with Basel IV probably announced next week, but to see how that's going to impact us and the timing of the introduction of that. You have what we really believe in is the sustainability Supercycle, we're really hoping for that to kick in. It has started to some extent, but not the magnitude that we're hoping to see. And we want to be very potent if that happens, having a lot of capital to be able to take a large share of that demand coming from customers. So there are many things that could happen, and therefore, we think it's very good to have a gradual approach to adjusting the capital position. Okay. Thank you. And just, if I may, I'm one of those who thought that the buyback program was a bit smaller, at least smaller, what I had anticipated. So my question is, when I look at the SEK 2,500,000,000, if I annualize this To 5, is that what you think you can do in a year? Or is that the wrong way of looking at it that it could be I mean, it could be upsized when you are done with this program if you are Satisfied with the outcome, etcetera. Yes. I don't think you should do that. I mean, you should remember that this is the first time we are buying back shares in the at least in modern history. And even though it sounds sort of simplified from an external perspective, there are a lot of technical aspects of how you set up a program, how do you actually do it. And we see that as a test. So we have set up a program now, and this is the way we conduct it. And it's good to start with a smaller amount, also given that we have a more limited time period we can do it. And then exactly how we then do it the next time, we will see and also when it comes to the volumes. So I don't think that you should sort of look at the 2.5 and take it times 2, and then you have an estimate of the sort of future buyback programs. We'll see. Okay. Thank you very much. Thank you. The next question comes from the line of Johan Ek Volum from UBS. Please ask your question. Thank you very much. I think we've exhausted the buyback questions, but maybe 2 unrelated questions. You talk again in the report about the need to make further investments. And I think Last quarter, you talked about the cost income reduction being largely a thing over the past. Can you talk a little bit about where you See investment needs and if there's anything you can tell us already now about broad picture what the quantum is relative to the current Pace of investment. And then I guess secondly, the market is starting to price in rate hikes much earlier Then the lack of rate hikes being signaled by the Riksbank. Can you just update us on what's your rate sensitivity given the Large growth in deposits, etcetera, that we've seen over the last 18 months or so? Sure, Johan. Thank you for that question. On the investments, We will come back to you in greater detail at the latest in conjunction with the Q4 report. But I can give the things that we have decided on and we're working on here and now, which is really investments in the area of advisory, predominantly in the areas of expanding our Corporate and Investment Bank. So we are in the process of hiring people and setting up a client strategy to how to approach Austria, Switzerland and Netherlands. These are not very significant in numbers, but still an important strategic change to become Northern European rather than just a Nordic bank with a headquarter in Stockholm. Secondly, we have the area King or Private Wealth Management, which is an investments, of course, in banking, as you all know, is around people and technology. So it is, of course, associated with costs and having more people on the ground and meeting more clients in pursuit of opportunity. And here, we are predominantly focused on 2 areas. 1 is to just expand geographically our Private Banking and Wealth Management business. Also, there's a technology content in order to improve continue to improve our online capabilities for trading, savings and investments in the mobile channels. Next area is around custody. We have a very long standing partnership for global custody when it comes to BBH. We are continuing to add staff and investments. These are technical investments, technological investments that we've done in the past. They need to be maintained. But right now, we have a very good momentum in our custody business. On top of that, we also have sub custody, the Nordic securities, which we are investing in as this is now, of course, a quite large change in the competitive dynamic in this area. And that is in favor of SEB, who is very committed to this business line. And then we have the mobile channel revolution for retail banking. So this is another area where we will focus our resources. These are not dramatic from the past, but this is about an acceleration in order to be quicker creating more real time solutions in a robust manner and making sure that the best in class often fintechs or niche banks or monolineers is a true, call it, reference point for what we need to achieve. And then there are other things in the core technology platform, SCBX, cloudification, something around the data journey, which are all part of the future thinking of future proofing the bank. On rates, yes, we just note what you just said. There is, of course, a huge shift in this inflection point, very important to the banking industry. And that is if this change in narrative or at least expectations in some areas where the rate pass from central banks in the short end will change, which in a technical sense would be very, very positive as we continue to have this very unique situation we've been in for many, many years where deposit is a non, call it, a functioning business line, whilst lending is a very well functioning business line because there is no profitability to be had, and we have, in Sweden, decided not to charge on any savings account for private individuals. So that would be welcomed, and it would be a normalization from this very large economics experiment that happened in the global world of huge quantitative easing and permanently or long term establishment of negative interest rates. On the other hand, an increase, I think, in interest rates could also be factored in as a major risk. We do talk a lot about asset prices being supported by monetary stimulus and low yields. And we have increased indebtedness in the whole system quite significantly over the last decade. So right now, it's a very potent tool for central bankers to increase rates. It's likely to assume in my mind that it has a meaningful impact. So there is always a risk that the rate hikes come too early and they're too large that they actually create instability and introduce volatility and uncertainty. But I think the central bankers are very clear in their point that, that's something they really want to avoid. So I have nothing more to say about the rates. Matt, do you want to add something? I can add something to both of your questions, Johan. So on the first one, I'm sure you're interested to understand what does this mean, the higher level investments for the cost base of the bank next year and going forward. We'll come back with that. But just a note on next year. So recall that we do have quite large corona related savings last year and this year, mainly related to travel and entertainment. So if you look back into 2019, We spent about EUR 400,000,000 on that so far this year, which is north of EUR 50,000,000. We do expect that to recover, not maybe fully to the levels it was back in 2019, but to some extent, and that's likely to happen next year. So next year, you will have investments we will do in the business as well as some recoveries of corona related savings. So just have that in mind for next year. On the rate sensitivity, just to be slightly more concrete. The sensitivity is about SEK 1,000,000,000 for a 25 basis points rate hike in Sweden. That's the gross effect just on the deposit side, and we have to wait and see what happens to the lending margins of the bank. You could argue it's slightly higher now with the higher deposit base, but that depends on to what extent these deposits are sticky and to what extent they will change when rates go up. So again, we have to wait and see. Thank you. Thank you. The next Next question comes from the line of Adrian Cighi from Credit Suisse. Please ask your question. Hi there. Adrian Cighi from Credit Suisse. Thank you for taking my questions. I have a follow-up Question on NII and one on your view on the Investment Banking activity outlook. So on NII, you've mentioned And some brief comments on margins in the quarter. How do you see them developing going forward? Do you see an acceleration in the Swedish mortgage margin pressure? And then secondly, on the activity, investment banking activity, you've mentioned up 100% year on year. Is this driven by a few sectors? Or is it broader base? Do you expect this to sort of remain elevated in the near term? And maybe any comments you can give us on your pipeline in the near term? Thank you. Sure. Thank you, Adrian. On mortgage margins, the cautious comment Marci made, I would not say that it's accelerating. We have lived under this type of change in business dynamic, market dynamic and pricing for a long time, and it's not accelerating. If anything, I actually think we are getting to a very normalized level where these new competition and the tough competition rewards. It's the new normal, so not an acceleration. On the 100% fee, of course, that's a Q3 I'm always be a little bit cautious because it's a low activity quarter when it comes to booking and activity. But we see no reason, regardless of the seasonal effect to caution on the activity in Investment Banking. It looks still very constructive. When it comes to sector, well, it's broad based, but it's not broad based by type. So it has been Decapital of Markets it has been Equity Capital Markets. So the primary secondary Capital Markets businesses, it's not been driven by large M and A fees. We also have some recovery on payment cards, which should be factored into the fees and commission type of analysis. However, that's from a low base, even though it's up 10% in payment fees this quarter compared to the same quarter of last year. And in that sense, there is still some upside. So in our world, we're not doing all we could do for NII when it comes to the event driven financings and when we have the bigger picture of sustainability green super cycle. And I'll just take 1 minute on velocity of the balance sheet, which you need to just appreciate. The best thing for us is when we have an event driven, call it balance sheet commitment that is required by clients in a confidential manner before they do transformational things. The velocity of that type of engagements are much, much higher. That means that it's not the same thing as a 3 year or 5 year or 7 year permanent debt that we put on. You actually put on the same amount of volume or more, but it's only there for 3 to 24 months. So there's a very different type of profitability where loan fees and but at a very, call it, asset light or cost efficient capital way because the velocity is higher. And that is what we are relatively largely supposed to compared to many of our peers around here. And this is, of course, the one that we see a very constructive medium term outlook on right now. Things can change, but it looks good. That is very helpful color. Thank you. Thank you. The next question comes from the line of Sophie Petresen from JPMorgan. Please ask your question. Here is Satif from JPMorgan. I was just wondering if you could give an update on the outstanding litigation cases. Yes, they will be short. There as far as we know, there is no litigation against the bank. We have our regulatory normal processes, and we continue if you are referring to particularly information gathering for the U. S. And I'm working with them. So no update to report. What about the German tax Okay. Because there is quarterly comment in the quarter that you report around that. Should we expect any outcome from here? There's no significant update that we have received in new information or changed our view around the securities lending business that is being debated in Germany, how it should have been taxed in history. However, there's been a new circular that we thought it would be prudent just to disclose, which is giving a reference case, which we don't think is that relevant, but it's giving new information around what can be expected in the future dialogue. But then when it comes to SEB and getting any information for us, there's no news right now. And then this will be a long process. This I think this you need to at least allow for 3 to 5 years before we can conclude in this matter. But new information can, of course, come any day. Okay. Thank you. That's very clear. And just going back You missed interest income. So you mentioned that the funding cost tailwinds are basically fading away. If loan growth remains as it is this year, next year, is it fair to assume that next year, you will have relatively low Net interest income growth because if we look at your loan growth in 2021 year to date, it has It's been kind of low single digit, what was it, 1% or 2% year on year. So how should we think Got it. About net interest income growth, if you have margin pressure, funding there are disappearing, potentially rate hikes, What will really drive net interest income growth next year? Yes, Sophie, I'll try to answer that. I mean, we don't do a forecast for NII next year, but we do comment that this year, so for the main contribution has been lower funding costs, and we don't see that continuing into next year, the way things look right now. When it comes to lending growth, I mean, there is strong lending growth with everything that is real estate related, mainly on mortgages. We are growing at 7.5 this quarter compared to same quarter last year. But then on the corporate side, I mean, right now, we do have muted demand on regular corporate lending. But at the same time, the economy is recovering. Resource utilization is going up. It's actually starting to become higher than normal level. And typically, when that is has been at the higher than normal level for a period of time, you start to see corporate lending recovering and increasing again. So whether that's going to be a theme for next year and at what point next year, we don't know. But right now, it is muted demand on the corporate side if it's not event driven. And on the real estate or mortgage side, it's going fairly well, and the funding tailwind will probably not continue into next year. Okay. That's right here. But you don't expect any margin or you kind of expect the current margin pressure to persist, But not to accelerate from the current level on the interest income side. On the mortgage side, I don't think there's any reason to believe that the margin pressure will accelerate. It will still be intense competition. It will be there, but it shouldn't accelerate from here. On the corporate side, it depends a lot on the mix effects of what type of corporate lending do we do. In Q3, it's being a positive margin effect. We think that given how the pipeline looks like right now, it is possible that, that positive margin effect due to mix can continue for a couple of more quarters. It doesn't mean that the underlying margin development like for like is positive, but the mix effect is positive right now. But if I may just add, there is no margin identified on the corporate book, which is the large one. This is very much only related to the mortgage side. So it's stable. There's no margin increase other than the mix, which is, of course, different. And then I'll just make 2 more points. The velocity, you need to assess because that's how the loan book translates into NII. So they're different. But you're absolutely right. Of course, in the long run, the loan growth is driving the NII because that's the call it the banking type of business that generates it. The other thing why it is partly muted now and it will take some time is that cash is, of course, growing. So cash at hand for corporate needs to be consumed first. So this is just a general statement that you see deposits going up for everybody. And of course, that means that less borrowing is required. This goes I saw from the U. S. Banks that reported on lower credit exposure on credit cards, etcetera. And it goes for the whole economy that we see these cash paybacks. That's also, of course, a source that is typically first used for any type of spending or investments. Okay. That's very clear. Then my final question would be on M and A. We had one of your peers say they want to exit Denmark and Finland. Is this something that you would consider currently looking at? And would you consider expanding into Finland and Denmark? And what are your thoughts here. Thank you. Yes. We have organic, very modest, but still very clear growth strategy outside Sweden for large corporates only. We don't comment on M and A. I can say that we don't have any in our current business plan. This is not an M and A driven business plan. We are, broadly speaking, organic. On the other hand, we, of course, always look at all options available to us. Great. That's very clear. Thank you. Thank you. The next question comes from the line of Jacob Kruse from Autonomous. Please ask your question. Hi. Thank you. Maybe just follow-up with the last one. Would you say, Given your current strategy in terms of the focus areas, is there anything in these assets that you feel add to the target areas that you have set out? And then secondly, just about some of your initiatives on the retail brokerage side with the mobile apps, etcetera. Is that a Indirect competition with peers like Avansa Nordnet? Or is this more a support for your private banking client base? So just what is your ambition level there In Nordic region. And then maybe certainly, if I could, do you see any reason or any need to change the Structure of how some of these things like SEBX and other more innovative projects are being held or owned, I would say they're kind of hidden within the greater P and L of SEB. Thank you. Thank you, Jacob. The first one, I actually can't answer without guessing too much. I know too little about what they have in their portfolio. This came out quite recently. Broadly speaking, I'm just making a general comment. We are very well penetrated in Norway, Denmark, Finland and Sweden. If you were to look at number of large corporate clients, which is our focus, that would say they have a deep meaningful relationship with SED. We are close to 100% in Sweden and Finland. So there's very little, call it, organic growth in terms of new clients in our current thinking about SEB outside Sweden. However, I can't rule out that there are things I don't know. So I'll just leave it there for now. On the mobile app, what We are talking about savings and investment. That's predominantly on the retail mass market side. It's not large corporate or institutional, and it is very much so that it should be seen as a competitor to the online brokers that have had a fantastic run over the last 2 decades in order to service the client base of this part of the world in an innovative, very good way. We have, of course, and lost an opportunity here. This is an opportunity loss that we haven't really had the same capabilities. And we see the number of clients, and we're talking about million or millions that are actually financially literate, very interested in financial markets and like to do, call it, self-service. They like to trade themselves for funds, etcetera. So what we now launched in April is kind of the first version of the basic minimum viable product to not have clients to leave us because they find a better opportunity to do these things outside the bank. But it needs to be still developed, and we are that's what the focus is. Then on S and P X and other partnerships and FinTech Investments and Bank ID and Swiss And those that's just a very large portfolio of you called it hidden values, and I guess it is to a certain extent. But that is just motoring on. SCBX has just commercialized and launched. It's a very quiet one, but we do have an offer available on App Store right now to download the 1st new branded bank for solopreneurs, single employed, called Unquo. You can download it today and try it out if you want, even if you're not a company, you can see how it looks and how quick the onboarding is, etcetera. And then for the cooperations, They are, of course, more of utility nature, many of them. It's where we have partnered with our peers, and we've tried to find an infrastructure solution that benefits all. So I'm saying that there are enormous values in my book from all those type of partnerships, but they're very hard to assess in a traditional type of a fintech investment area. It's not impossible. We have seen a very interesting transaction made by Denmark and Norway in their equivalent to Zwish. And I know that these companies that are separate from SEB, but we are, of course, a large stakeholder, they are considering strategic options, too. Matti, anything? No, it's a very good question and good point. We do talk a lot about what kind of values these different assets would get in the market had they not been owned by an incumbent bank. So we do have that discussion, and it's a very important point. Swiss stand alone has 7,000,000 or 8,000,000 users. And the question is, what would that be valued on a stand alone basis? So we do have those discussions. But we do have to cooperate with the other banks, which also have a holding of these assets, and we have a partnership with them. But surely that's something the banking industry, the incumbent banks have to work on that when we do innovation that we can extract the value of that innovation. Thank you. Thank you. The next question comes from the line of Richard Stran On the corporate deposit Sai, I was just going to ask you, if the sort of current elevated level of corporate deposits in the discussions you have with your clients, do you See that these levels could sort of remain as a wet blanket over the demand going forward? Or do you see that the composition of these deposits make it less likely to be so that Corporate demand could pick up more sooner than later. I don't know if I want to use the word wet blanket, but I kind of want to and say yes, it is definitely a risk. You need to also think about microeconomics. Macroeconomically, that's very clear. Microeconomic is very different. So a company who has an elevated of deposit on their, call it, current account, will definitely be able to use for regular spending. It's much less relevant for large scale transformative. It's not enough or nowhere near. So it doesn't really change the picture for M and A, but it does change this organic need for borrowing for working capital need or such if you are, call it, involuntarily accumulating more liquid funds because you don't have anywhere to spend it for now. That will be used for sure because it's inefficient for them. And as you know, we are broadly speaking charging for that money. So from a corporate perspective, it's no value being created whatsoever over and beyond whatever they've decided to have for contingency reasons. Then I think this could go very quickly. I believe it's a very, very clear consequence of monetary stimulus. So if monetary stimulus stops, positive yields becomes introduced in the corporate bond market, in the government bond market, all of a sudden, the bank deposit market as a true competitor had a positive yield, and it could move very quickly into another place. And that's, of course, in the positive year. But you need probably to see tapering or monetary stimulus being reduced because right now, the cash needs to go somewhere and it kind of all ends up in a bank account at the end regardless of whom you spend it to because then you've spent it to a corporate or a private person and it comes back. So it is a monetary phenomenon in my book. Thank you. And then regarding the investments that you have talked about both in the corporate and also in the retail segment Going forward, sort of if we could get a sneak peek of your upcoming financial plan, do you see Sort of a lag between when these investments will be taken and when you will see the sort of higher growth taking off? Or do you see that they will materialize simultaneously in the P and L? It won't be simultaneously, and we won't give a sneak peek. Okay. Thanks. Okay. And then a final one on the what you have About in the investments that you're doing now in the new savings set for your retail clients, are you also considering to broaden your product offering and Start distributing savings products from external institutes there and external fund companies, etcetera? Or is it Still sort of mainly SEB products that you want to offer there? No. It's certainly not SEB products that will be offered on the call it to cannibalize on the opportunity as a client to get others. So it will be an open platform. We will have thousands of funds and fund companies available to you, but of course also SEB. Thank you. Thank you. The next question comes from the line of Maria Remi Katvo from Citibank. Please ask your question. Yes. Thank you for the presentation. A couple of questions. First, just a follow-up On this new app that you launched in April, how many users do you currently have? And then a question on you had net out Slows of SEK 8,000,000,000 for the quarter. Could you provide a bit more color, retail versus institutional and maybe by country as well? I think you mentioned outflows from the Estonian pension reform, if you expect further impact going forward. And the final Question, if you could provide at the group level the impact of volumes versus margins for this quarter. Thank you. Okay? And we have decided that we don't go out with a number of clients that are trading equities in the app right now. But we have shown the index today that we more than doubled the number of trades and that we have 30% plus of those in the mobile channel. We will take that with you, your question, and see if we can get back to you at a later stage. Yes. On the outflows, yes, we did have SEK 8,000,000,000 of net outflows during the quarter. It's you could see in September that when the stock It had a worse performance. There were some outflows out of equity funds. At the same time, we did see some inflows within fixed income funds. These outflows are mainly related to what we call strategic assets. So basically private banking customers that house where there are assets with us. So the yield related to these outflows is very, very low. It's not non existent. So the underlying business, the retail business is actually doing fairly well during the quarter, although we did see some outflows. So the mix effect, if you want to call it that, is actually positive in terms of fees on the quarter as the outflows are related to very low fees. And what remained at the bank has higher average fees. Thank you. And then on the impact of volumes and margins, if you can comment on that. Related to can you explain that, please? Yes. Just you commented that because of the transfer Pricing, there was a different allocation. But if you look at the group level, can you disclose the contribution of volumes over the quarter versus margins? Well, we just say that there's a positive contribution from volumes during the quarter. There's actually positive contribution from margins during the quarter as well. But if you look at the increase in net interest in Treasury, which is reported on the group functions. That entire increase is coming from internal funds transfer pricing. So you can add as much back to the divisions really from that increase. And then you can have an estimate of what actually has been sort of removed from the divisions into Treasury. Okay, understood. Thank you. Thank you. The next question comes from the line of Riccardo Rovere from Mediobanca. Please ask a question. Thanks. Good morning, everybody. Three, four questions, if I may. The first one, again, On the capital return, the actions that you have announced, the dividend, let's call it, extra dividend and the buyback Is that 3 quarters roughly 3 quarters is cash, one quarter is the buyback. Is it a way to look at what you might eventually decide to do in the future? Or am I just looking to march into this? The second question I have is, Johan, when you mentioned right at the beginning of the call, you have roughly 7% market share in mutual funds. If I'm not mistaken, you mentioned that your natural market share should be more similar to 10%. If I got it right, it would be a kind of 50% increase in market share, which is not irrelevant, I would say. You think this can be done organically? Or are you thinking about maybe adding a little bit of acquisitions to some kind of support, some tailwind from acquisition in that? The second the other question I have is on inflation. If we assume the inflation will stay elevated for a while, Do you think this will sooner or later be somehow incorporated in your cost base? Or could it eventually hamper Credit demand, especially corporate credit demand, these bottlenecks in the supply chain had to, let's say, to last for a while. And then another question I had on RWA is, can at the with the stage where we are, Can we say that negative credit risk migration impacting risk weights in RWA? Can we just forget it now once for all? And the last question I have, you still have the overlay On the large corporate sitting on your balance sheet and still being part of the furniture, For how long can this you can discontinue? Will you take a final decision this year? Will you go on taking this for also in 20 And 22, what is the dialogue here you're having with your auditors on this? Thanks. I think I'll start with capital and the market share on investment management and inflation. And I'll hand over RWA and overlays to Matti. So on capital return, we haven't explicitly communicated that type of mix. But what we have reasoned with you guys around before is the following narrative. Before we changed to 50% payout ratio and share buyback, we had a practical history of paying about 70% payout ratio. There has not been, in my mind, any shift in terms of how much we would like to repatriate or not in total compared to the past. And for me, those 70% is a good indication of where we ended up the last 3 or 4 years we had before we had this change. So if we were to do that, I would say 50% of a dividend payout ratio, which is lower than the SEK 70 we used to have, creates increased flexibility for us. We are increasing the probability to be able to pay that number because it's lower in good and bad times. We will then allow the share buyback program to calibrate on top of regardless of what happens. So if it's a really bad period in the market, You can cancel it. If it's a surprisingly good one, you can increase it. But the base case is still for me somewhere around that historical 70. It depends very much on the starting point. Right now, we are starting from a luxury position. And sometimes in history, we've been saying that it's a bit much for the taste of being able to support the increased demand that you might see in the future. So I think that gives you a little bit of balance around how we are considering it. On the 7% and 10%, it's all organic. So in order to get the 10% is just that statistic that we showed in the presentation is the official statistic for Swedish fund in Sweden, which is, I think, roughly 80% or 90% or so of the funds. We are, of course, also selling abroad. We have then the institutional business. So the total AUM is closer to SEK 2,400,000,000,000, and of which SEK 14 100,000,000,000. So out of it, this is the Swedish one. This is where we sell through the channels, the digital channels through the physical branch office and telephone bank. And here, there's no reason if we do this well, we shouldn't be at our natural we probably have around 10% of the fund market in Sweden, and we should also have 10% of the new sales. That's my only point on that. On inorganic, we don't need to it's not acquiring asset managers to get there. On inflation, I think it's a very complicated issue in terms of assessing the consequence, and you take both clients and the bank. So I do think that if the inflation is maintained on a more permanent high level, it will affect us just like any other company. That will be a cost increase in the bank that has not been planned for or foreseen. And we also know that the financial industry do there is a lot of anecdotal evidence as we speak of higher cost inflation than average. This is a compensation, which is, of course, 70% of our cost base. It's to compensate people. It's on IT, where services in order to buy information, real time systems. They are not becoming cheaper. They're becoming more expensive. And then the transformation, which is meaning that we do less own developed IT, and we're buying more of services. Take the cloudification of our bank, for example. That goes away from in house producing all the infrastructure required, and we're moving it out to a 3rd party, and we buy the service. That is not an investment that you then capitalized. It's more of an operating cost, but it's replacing an only investment you otherwise would have done. So inflation will, of course, hit there for us like anyone else. On the current side, inflation means that companies are increasing prices. So there will be many who benefits from inflation of our client base, improving credit quality, improving profitability. It's the ones who cannot push through any cost inflation they're experiencing through pushing it through the client, which means that producer price inflation might be a tricky thing, but inflation is, of course, a price increase. If that is not associated, not associated with an increase in interest rates, it's just going to be the good thing. People will increase prices, and they will try to push through cost increases to the end customer, whilst not having an increased cost of financing, the financial net cost. If it increases cost through inflation, meaning higher interest rates, you will have a double cost increase. You will also have to pay more for whatever indebtedness you have. And there, the analysis is, of course, pretty simple. If you don't have any debt, it won't affect you. If you have a lot, it will affect you a lot. Marci? Yes. So your last two questions, the first one on risk migration, I'll answer that contingent upon something. So if the recovery continues based on our economists' view and the sort of consensus view, then yes, you're in the next 12 months, you should not see negative risk migration. We had positive risk migration net in Q3. It's more likely that's going to continue than turnaround if the recovery continues. And the last question is the same thing. I mean, if the recovery continues, we have put on about SEK 1,400,000,000 in overlay last year. We will, in the next few quarters, obviously, look at that. And if the recovery has continued, we'll have to start to reverse some of those recoveries if it's not utilized for credit exposures that we have seen that have deteriorated. So assuming that doesn't happen, yes, this will be reversed at some point gradually again. Exactly when we start and how to do it, it's going to be a decision that we take, obviously, in cooperation with our accountants. Thanks, Mads. But this is But the thinking about this will probably start in 2022, am I right in That sounds about right. Okay. Thanks. Thank you very much. Thanks. Very clear. Thank you. The next question comes from the line of Robin Rain from Kepler Cheuvreux. Please ask your question. Yes. Good morning. Thanks for taking the questions. Hopefully, 2 shorter ones from my side. The tax rate has It's been pretty low at 70%, I think, for Q4 now. What should we assume as the tax rate going forward? Yes. Robin, it is correct. It's been lower than what we typically guide for, which is around 20 percent or so. The main reason is that we've had some valuation gains that are tax exempt. In Q2, we had the Zinc revaluation. And now in Q3, we have the Euroclear revaluation, and those 2 are tax exempt, which takes this tax rate down. We don't expect these kind of revaluations to happen all the time, at least not to the magnitude we've seen in the last two quarters. So we still believe that the normal tax rate is around the 20% mark. Okay, great. And then secondly, You said that the front book margin was lower than the back book. Could you provide some the differential there? No, that's pretty much what we want to guide for. It is lower. There is intense competition on mortgages on the front book. But given that the front book is about 5% of the book, so 95% is the back book, it takes some time for that to have any real implications on the mortgage margins in general. Okay. Thank you very much. Thank you. The next question comes from the line of Martin Laidkeb from Goldman Sachs. Please ask your question. Yes. Good morning. Just a couple of follow ups on the mortgage market in Sweden. I mean in terms of front book, back book churn, I appreciate in terms of the wider guidance on the yield differential. But how quickly will this feed through? I mean, if we assume a split variable fixed and the usual majority, is it fair to assume 20%, 30% of that book Rolls over each year, the new front book pricing. And then related to that, some of your peers called out that the continued switch from Straight mortgages is also impacting margin, but this also apply for SEB. And could you update us on where the split is for Currently in terms of variable versus fixed and how it has evolved over time. But I'm trying to get to it how we should think about mortgage and I going forward. Do you assume that the margin which is actually lower is more than offset by continued volume growth. And second, just a question on house price growth, which was obviously extraordinarily strong in Sweden over the past year. Do you see risk that there could be policy measures being applied to the Swedish markets in order to try to offset or at least slow down some of this house price growth? Thank you. Thank you for those questions. So when I talk about the front book of the mortgage market, we're talking about the 6% or 7% growth that we have right now, so new mortgages that we grant. So the back book or the prolongation, so the book that we need to renegotiate the prices for every 2 years. That part is stable, whereas new mortgages are given out on a lower average margin than the back book. So it takes quite a long time before that has a large impact on the whole mortgage book. That's pretty much all the guidance I can give you. We have seen the same kind of trend of more fixed rate mortgages and less variable mortgages, margins on fixed rate mortgages, 1 to 3 years are slightly lower than the variable side. So that has already led to marginally lower margins. I'm not sure if that trend is going to continue, but most of that impact has already happened. On the house price, yes, obviously, to the extent that the house price growth is leading to higher household indebtedness that obviously leads to a higher risk of new regulation coming in. At the same time, the Swedish FSA here has done a lot in the last decade. You have the LTV cap. You have the first amortization, the second amortization. You have the risk rate floor on mortgages. And there is a debate here on to what extent can macro prudential regulation really curb this development we've seen. So it sounds like, at least right now, that if they use new tools, it will not be macro prudential regulation, I. E, the Swedish FSA coming in and make it more difficult for people to get a mortgage. And already now, risk weights on mortgages are the highest in Europe, in Sweden, which and historically, it has been the best quality mortgage books. So the question is whether you can increase that further, especially when we know that in Basel IV, it actually go down again. So it doesn't really matter. So surely, regulation, the risk of that increases with house prices going up and indebtedness going up. But it sounds like right now that it will be have to be other tools than that we used historically to curb that development. Thank you. So in terms of mortgage and iodine, it sounds like that you have a fairly comfortable view that This could continue to grow basically the volume offsetting margin. Is that fair? Yes. I mean, as long as the market is growing around 7%. There's a lot of supply to go around for a lot of mortgage providers. If the growth rate does come down to closer to 0, then you should expect more competition and more margin pressure. Perfect. Thank you very much. Thank you. There are no further questions at this time. I would like to hand over back to our speakers for closing remarks. Okay? Then I'll just end and say thank you very much for participating today, and we wish you all a good Wednesday. Goodbye. That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day.