Skandinaviska Enskilda Banken AB (publ) (STO:SEB.A)

Earnings Call: Q1 2021

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Apr 28, 2021

Of the regulatory requirements of 7 80 basis points. This is actually the highest profit ever in SAB's history, but as we're holding more capital now than we've done in the past, the return on equity is not the highest ever. We also say in this quarter that given the improving macroeconomic outlook, we now expect that expected credit losses will normalize already in 2021. And by normalization here, we mean around 8 to 10 basis points or about SEK 2,000,000,000 given the size of the current balance sheet. We also note that the largest division, LC and SI, Large Corporates and Financial Institutions, they continue to strengthen their position in the market and this quarter report a return on business equity of 14.9%. And then Johan will come back with the establishment of the new division for Private Banking, the Private Wealth Management and Family Office divisions. If we move on to Slide 5 and look at the financial summary for Q1, and I'm going to compare it to Q1 2020 all through this presentation, we can see that the operating income is up 32%. Costs or expenses are pretty much unchanged. And given much lower expected credit losses, we see an operating profit increase of 153%. You should note here that on a year on year basis, we have a negative FX effect of almost SEK300 1,000,000 on income any positive FX effect of almost around SEK 100,000,000 on cost. Just keep that in mind. And then to the right, you see the expected credit losses in basis points, 3 basis points, the cost income ratio of 0.43%, the capital that we'll come back to later and the return on negative 13.8%. Moving to Slide 6, the net interest income development, it's plus 3% compared to Q1 last year. That is mainly driven by slightly higher lending than Q1 last year and primarily driven by lower funding costs. And this is not predominantly with spreads coming down. It is the case that we've seen strong deposit inflow in the bank, which has allowed us to do less wholesale funding, which has lowered the funding cost of the bank. Quarter on quarter, net interest income is down. That is mainly driven by higher regulatory fees and a shorter quarter in Q1 versus Q4. We noted in Q4 that the net interest income coming from our markets business was elevated about SEK 100,000,000 above a normal level. We note that it continues to be elevated in Q1 of about the same level as it was in Q4. Also on NII, I'll just note that there is a negative FX effect on a year on year basis of around SEK 80,000,000. We can see that mortgage lending has accelerated. It's about 70% higher Q1 this year versus Q1 last year, although that was a low base, but we see an acceleration there. At the same time, corporate lending growth is continues to be muted. Move on to Slide 7, net fee and commission income. Also here, we see a 3% year on year growth, but there are quite large movements underneath this aggregate number. We see an improvement in asset management to a large degree driven by the strong equity prices, and we've seen improvement in investment banking related fees compared to Q1 last year. At the same time, the lower corporate lending demand has led to lower lending fees. We see slightly lower fees coming from our markets business and also the fact that Q1 last year was the last sort of normal quarter or close to normal quarter in terms of card turnover, we see a negative effect from card and payment fees versus Q1 last year. You should also note that when it comes to the FX effect, it's about SEK 140,000,000 negative year on year. So the net fee and commission income line would have been up 6% compared to the 3% had FX stayed where it was. We know that we continue to have a strong pipeline for Investment Banking and only a small fraction of that has materialized during Q1. Move on to Slide 8, net financial income development. Here is obviously the big swing factor, SEK3 1,000,000,000 above or contribution from the Q1 level last year. We have seen a good development in our markets business and mainly within fixed income. And we've seen a recovery of the negative ex VA effects we had Q1 last year. So the minus SEK1.3 billion, we can see that if we sum up the last 4 quarters, that is actually fully in line with the minus SEK1.3 billion. So that has been fully recovered in the last four quarters. Historically, we have said that this line should be about SEK1.2 billion to SEK1.4 billion if you exclude ex VA effects and exclude the treasury business, we now believe that we can increase that guidance slightly given the stronger position, we feel that we have in our markets business, mainly within fixed income. And also given the steeper yield curves, we believe that we in the future on average should be able to generate SEK 1,300,000,000 to SEK 1,500,000,000. So about SEK 100,000,000 higher in the previous guidance, excluding Treasury and XVA effects. I'll move on to the next slide, the one we always use, the operating leverage, obviously, looks very good right now, keeping costs pretty much unchanged compared to the average cost level for last year on a quarterly basis, but with a strong income growth, we see a strong operating leverage, but obviously 3 more quarters to go. So we'll see what happens. Moving on to next slide, just a few key ratios, I think the ones worth noting in addition to what we've talked about already is the customer deposits, a very significant growth, that seems to be continuing, which has some potential negative implications in long term, but right now it allows us to do less wholesale funding, which is positive for net interest income. We also disclosed the net stable funding ratio for the first time this quarter, it's going to be mandatory from next quarter, but we do with Otterin now. You can see it's at around 111%, so clearly above the regulatory requirements that will be put into force. And then on capital, I'll just move on right away to the next slide, so Slide 11, looking at the capital development. So we've seen a reduction of the buffer from 8.40 basis points in Q4 to 7.80 basis points in Q1. First of all, the strong profit generation in Q1, taking away the expected payout of 50% of the profit has added 42 basis points, which is a pretty good number. At the same time, we've seen an increase in market risk, and we've seen negative FX effects and also a small increase of the asset side. When it comes to market risk, we note that the risk exposure amount related to that is at the very high level, SEK 55,000,000,000 compared to around SEK 40,000,000,000 on a sort of normal quarter. And we think that this over time will come down again to approximate the same levels we've seen in the past. So we think that part is fairly temporary. Obviously, FX is difficult to predict, but right now it's the krona is a bit stronger than it was at quarter end. It. Then finally, for me, move on to Slide 12. If you look at the development of the credit portfolio. And just a reminder here, on the credit portfolio is the combination of the on balance sheet lending as well as the off balance sheet commitments. I think the numbers worth noting here is the corporate FX adjusted credit growth that is down 2% Q on Q. This is mainly driven by the off balance sheet commitments. It, if you look at just the lending side on corporates, there's a small increase Q on Q. On Swedish mortgages. Again, this is both lending as well as the mortgage commitments we have, which is accelerating to a 9% year on year growth level. If you just look at the lending side, the growth rate is about 6%. And during Q1, we just we took slightly higher than our back book when it comes to mortgages, so around a 15% market share in Q1. Also, we can see that when it comes to CRE, there is a negative growth rate both on a quarterly basis as well as a year on year basis, which is pretty much in line with the strategy we have in the bank. With that, I'll move on to Johan and some thematic slides on sustainability, savings and international expansion. So Thank you, Mansi. That's exactly the three themes I'd like to address today, starting with our sustainability mark. On Page 14 is just an update on some progress we've made when it comes to policies, procedures and the different type of initiatives that we have engaged in, in the Q1. First, we have probably 2 of the most topical policies for the bank, the fossil policies for the bank for lending and the fossil policy for investment management, both being updated and sharpened and quite a lot increased in detail. The purpose is, of course, to reduce any did CO2 footprint, SEB generates directly or indirectly through its engagement through clients, and these are our first step in trying to accelerate that journey. On I'm it's about what do the funds that we manage investment and invest in, and we've also tightened that framework. And I'm also very optimistic to see that we now talk about things like paragraph 9 and paragraph 8. And for the first time, it feels like we're starting to have a common standard for what and how to classify some of the investment activities as we do, as we all know, it's a tricky area where every institution chooses their own adjectives in order to understand what this is all about. And lastly, there is pretty much a new movement from when we signed principles for responsible banking in 2019, and that's the new UN King in 2019. And that's the new UN sponsored call for action called Net 0 Banking Alliance. And we have signed this as 1 out of low 40 type of bank joining forces in order to, in the next 18 months, try to put the common standard how to report, what to do and how banking should be viewed in the context of what is Paris aligned and making sure that we are a positive force for positive transition. On the next page, we go into a more business update on sustainable finance, which you've heard me said many, many times is the most interesting thing from a future growth perspective for financial institutions like SEB to make sure that you are relevant, picked by the clients, that you have valuable advice in order to be part of the whole world's transition. This is not Nordic. It's not for SEB. So here, I've just shown the sustainable finance characteristics from 2013. And first, we can just conclude this is growing dramatically, and we're getting close to a full year number for 2020 of USD 800,000,000,000 in total volume in these 6 or 7 or so different categories. This year's Q1 indicates if this pace is maintained, we will double this year's volumes compared to last year. So right now, Q1 is a fantastically encouraging sign to the tone that we have set in the past that this might be the super cycle for sustainable finance, starting. And this is a very long term prospect. What I would like to highlight is everyone knows about green bonds. They've been around since 2,008, but there's so much other things happening. And right now, I just want to present the market around sustainability linked notes, bonds and loans. These are the SLLs. And as you can see, the light green area in the global market it's one of the fastest growing in the last 3 years. To the right, we have taken the sustainability linked loans. These are bank loans to companies and just our market share split. So we have the largest part of this market. It's 20%. And the issuance in our part of the world has been USD 16 $15,000,000,000 and some examples of clients doing it. Two things to point out. The loan market in Europe is vastly larger then the bond market. Hence, the green bond market is targeting a smaller constituency of all the corporates that borrow money. We often talk about the seventy-thirty versus the U. S. Has thirty-seventy when it comes to bonds versus loans. So in order for the loan market to adapt into sustainable loans, it's a much greater opportunity. And as we have many smaller companies in Europe, they are more or less 100% dependent on the bank market. They have bank loans and no bonds. What is more a novelty is that the sustainability linked bonds also is starting here. There's a global market last year that grew 15x, but it's a very small portion yet. So the S and L amounted to $12,000,000,000 And we have done maybe the most notable one with H and M, which I think was a really a landmark transaction to define how these things can be. What is incremental interesting with SLLs is that they are not only green. They are partly green, but a company can design any sustainability criteria relevant to their ambition, their footprint and what they want to achieve and link it directly to the use of proceeds, to the financial cost of that financing an even event of default if one wants to. So this is creating enormous flexibility to put in inclusion, diversity, gender using recycled material, etcetera, in order to show and make a hard commitment. The other thing that managers of businesses say, around the SLLs that they have enormous impact internally. So once you have signed or done one of these transactions, the whole organization automatically gets aligned because the financial result is now directly contractually dependent on you living up to whatever you have said are the key criteria for your business. Next page, we will step back a bit. And these next three slides are really the context of why, as you probably have seen, we have announced that we will try to expand our corporate business in Holland, Austria and Switzerland. So I'll try to share now why we are confident in trying this on. And it's based on the last 10 years of strategies, it's actually, to me, very much a continuation of what we have done in the past. So a quick reminder, SEB is trying to be a very internationally capable institution for the Northern European clients. So we are in 22 places, and we are committed to the international network and the business that we have outside Sweden. We define our market in home markets versus the international network. The home market is where the clients reside. And up until now, that's been in the Nordics, Baltics, Germany and the U. K. And we have an international network anywhere between New York in Shanghai, where we don't source clients, we service the clients we have in an attempt to give them a global 20 fourseven capability. We are predominantly focused on large corporate. I think it's around 70%. There is no retail banking in this, except for in the Baltics and Sweden. So it's all large corporate. But for the financial centers in New York, Singapore, Hong Kong and London, we also have a meaningful financial institutions business of roughly 30% of this business. In 2010, we decided to do what we then called the Nordic German growth expansion. This meant to bring in roughly 500 new clients on a base of just shy of 2,000 in the countries outside Sweden, where we had nowhere near the Swedish market share. That now 10 years later, I think we can conclude was a good thing. As we know that the wholesale banking industry have struggled a lot with generating any type of growth, and it's a very highly competitive market with enormous increase of capital allocated to its business. So we all know it's been a challenge for everybody. To the right, we show that we did not have these clients in 2,009. And from the growth of income for large corporate and financial institutions from SEK 13,000,000,000 in 2009 to SEK 22,300,000,000 last year. We split out the share coming from those clients that we added in these growth initiatives. And in 2020, that was 19% of total income. You could argue, you've had a quite modest growth on the part that we did not decide to grow as everyone has, but we've succeeded there in a decent way. But the key was, of course, to bank more clients and make sure that we service them in the deepest, broadest possible way. That has generated these 19%, which equates to SEK 4,100,000,000. On the next page, I just want to share with you the international split, the return on equity, cost income and the resources that goes into this type of international business. And out of those growth numbers that has been generated, it's very clear that all countries have contributed in a meaningful way. U. K. As at 4%. And please remember, that's not part of that 10 year. It's a 5 year. So we're halfway through on the U. K. Compared to the others. However, Norway, Germany, Denmark, Finland, all have had a meaningful impact in generating this. Looking at the cost efficiency and the capital efficiency of having SEB outside in the world, we've now shared today the return on equity, measured here as roadmap for the different countries, the cost income and the resources in terms of FTEs that goes into this. And for us, this is very much the conclusion that there is scalability on our platform. Many of the central cost to run a business like this, the investments one have to do in markets, in derivatives, in different advisory areas are actually taken in Stockholm and it is scalable. So going into a new area, you need people and not that many of them to meet clients in order to provide the products and services that S and B has assets disposal already produced. The other is that when we now enter into new markets, this is very much true as well. There will be very marginal cost differences. We are talking a few tens of people to begin with, and I'll come back to that. What's more important is maybe the D and A change, if you want to express it like that, that this has resulted in. In 2010, 66% of the large core business, was Swedish. And slowly but surely, after an initiative like this, we have now more than 50% outside Sweden. And this is thanks to Norway, Germany, Denmark, Finland, U. K. And in the international network growing faster than Sweden as we acquire new customers. This means that we are going have gone from a very Swedish bank to a much more broad bank in a Nordic, German, U. K. Perspective. And what we're now talking about is to taking this next step where it all, call it, in the narrative that we put on here, we're becoming more of a Northern European institution as we will have most of them ignore the European countries as part of our business. On the following page, I'll just share the income growth of those 19% per country. And here, one can see that over the last 10 years, we've had a CAGR, so compounded average growth rates per year of 3%. That's a stable, very good business, but it's really part of the strategy. We have a position to defend, and it's very hard. We have most of the clients we wish to have. But the growth opportunity has clearly come in the last 10 years in the other markets. Now, we are getting to a very similar position in the other markets to Sweden. So from today, there is still a lot to do, but nowhere near what we've done over the last 10 years. But both I would say in Norway and Finland, we are very close of having the same type of market presence as we do for in Sweden when it comes to large corporates. Denmark, we have a little bit more to go. And in Germany, we have a completely different strategy because we're not trying to become a dominant bank in Germany, but a niche bank for the clients that we've selected, the same in the UK. It. So to conclude this part, I just want to summarize what this humble expansion that we are planning to now put on in motion is about. So Netherlands is a new market for us. So we will establish ourselves for the first time. We will have to wait for corona to not restrict our traveling for this to come up, but we've just appointed a country head for the Netherlands we will just now start the work of mapping up exactly how we should approach this. We will initially coverage from Sweden. So there will be no office or any incremental cost associated with opening it up. But the plan is to have some type of physical presence in Holland, I guess, most likely Amsterdam. And we're talking perhaps at the first stage up to 10 people or so. Austria Switzerland, we're strengthening our services to cater for their needs in those countries, but we already have it through our German operation. And we actually have a few of the German speaking countries' clients in Germany despite them not being headquartered in Germany. So this is really about expanding our coverage possibilities of these markets from Germany. So we're not opening up an effort, and we will center this effort around our office in Munich, who has a very good infrastructure to do this. And who what how large is this? What clients are we pursuing? So I've listed here some of the key just frames for what we call customer acceptance criteria. And those are that we want a minimum of €1,000,000,000 sales. So we're looking at large corporate. Most of them, if not all, will start with being listed investment grade type of companies. So good for average asset quality and in industries that we are skilled in covering. So we don't go for everything. We take the ones that we think are most relevant for us and where we have the right expertise and track record from the previous 10 years. This could result in roughly 50 to 100 large corporate clients being in scope of becoming clients of SAB if we are successful. And this is very much in line with the UK. So that some of this actually looks a little bit like the UK and that gives you a little bit of frame what we're talking about. But they are marginal from a financial impact point of view, excuse me, in the short run. But as you've seen, very meaningful in the decade type of perspective to changing slowly but surely your position of your institution. Lastly, on Page 20, we are talking a lot about investment and savings and having in the business plan, as I presented previously, a very strong reemphasis and focus on this area. You know that in several areas, it's hard for us to conclude that we have done everything we can, and hence, it's time to do some changes and move forward in a different way than we have in the past. And I just have 3 things this quarter. First, today, we have announced that we will break out private banking. Private banking in SEB has more than SEB 1,000,000,000 of asset under management. It's one of our historically strongest business areas, and we would like to bring it to the next level. Hence, we're breaking it out, and we're making it a division of the bank reporting to myself directly. And we take a very strong business person in William Paus, currently co head of LCN FI, to run this effort. And it's a focus on private banking outside Sweden, also in Sweden, focus on family office, the new generation, the next generation and particularly female, which is a very interesting thing to see that we are not attracting some of the people we are finding very wanted to come to us, and we need to change our ways. This is about client satisfaction and profitability and having this as a main part of SAB in the future. Secondly, on the digital capabilities for the savings and investment areas, we've talked a lot about the formidable success some companies have shown in using tools of technology in order to that, reinvent the way you meet clients and doing it in a cost efficient way. And here are 2 responses to that, which have taken some time, but we're very at least encouraged that we are getting somewhere. So we have now launched 2. The first one is about robo advice our automatic investment advice, algorithmic based automatic advice. And we've just launched the SAB Bot Advisor, as we call it, for our 700,000 customers in the pension area. This is a client segment that for many, many decades put in a small premium and is a low touch type of client base. And it's always been a challenge how to take care of them in the best possible way as they are a client saving for their time after they end professional life. With this bot, we hope to meet them all in a customized individual way during the life they live and over time, help them to allocate their pension assets in a smarter way. We also, next Tuesday, plan to go live with our online trading capabilities for equities. We have tried it for 2 weeks now. We only have about 100 people in the bank who has used it. And this is really for a capability that we have lacked for some time to allow SEB's 2,000,000 clients in Sweden and in the future, 2,000,000 clients in the Baltics to get access to direct access to single stocks and single financial securities in their mobile channel in a real time type of way. So this is a minimum viable product. It's not going to be launching a formidable new bank, but absolutely the most critical function will now be available. With those words, I'd like to thank you for your attention. And I don't know, maybe hand over to the operator, and we'll open up for Q and A. Thank you. And we now have our first question that comes from the line of Andreas Hakansson from Danske Bank. Your line is now open. Yes, good morning, everyone. First question, we had a long debate with one other Swedish bank yesterday about mortgage market shares, and it. You seem to be doing significantly better at taking quite a bit of market share at the moment. Could you tell us how are you doing that in your view. Where are you taking it? Are you taking it in the main growth areas? Are you competing on price? Or what are you doing right it in your view? That's the first question. Okay. Thank you. First, I think I'll just give a context. I mean, it's a remarkable last 3 months. House prices are up more than 20%. Single flat homes are lagging a bit, but still up 7%, 8% or so. So I think one needs to conclude it's a remarkable positive driving force in the mortgage market right now. If this is maintained, you don't need to make too much of an assessment. These the demand for mortgages will go up unless you think all LTVs will go down, and there's no reason to think that. The question for me is sustainability of this price move and the current levels. So that's all positive. The other positive for us is that for once, it's been mostly in centered around the larger cities. This is where the price tags have gone up the most and also on single family houses, which we have a larger portion of. This has been the opposite scenario for many, many years. But that's, of course, where we have a much higher market share we're probably 20% -plus in the areas where this is happening right now compared to the average of 14% and have a quite low market share on the countryside. It. The other, as you remember, we did have a pretty self critical position on the mortgage market some 3, 4 years back and rechanged a lot of the simple stuff that you need to do in order to be relevant. And I'm not talking about price. It's about picking up the phone when they call. It's about making sure that it's serviced in the fastest possible way. And also the follow-up is very, very critical. We still have no larger ambition to increase the market share, but it seems to have been working for the last time. On the pricing, we're not doing this by lowering the price, but there is definitely a price pressure around this market. As more entrants are coming in, focus is clear from everybody, and particularly now if it's a bit positive in the underlying, it's, of course, an important area for many of us to perform. Marcio, would you like to add anything? No, I think that's it. I mean it. Price is an important factor, but it's definitely not the sort of most it is most important factor, but there are many other factors you have to put in place. We just launched a few weeks ago, the mortgage commitments in the mobile app, so you can get it from there. So the lead times are coming extremely important. As you can see that the time to buy a flat or a house is getting shorter and shorter. So the buyers are extremely stressed to get the mortgage commitments and the mortgages timely. So I think the your handling of that process and the pace you can do it at is becoming more and more important. And I mean, we track nowadays the time on the telephone bank, etcetera, in order to as I pointed out in 2018, these are things we need to address. And it's still not easy. I mean, we're still working and have more to do. But it's definitely part of doing it right. Thanks for that. And then just maybe a bit more detailed question. On your fees and commissions, we see issue of securities and advisory doing okay, I guess not amazing. But it. You have been quite weak on ECM over the last year, and you're much stronger on the M and A side, on the advisory side. Do you have a feeling that 2021, we could see actually a year of M and A rather than small ticket ECM? Or what's your feeling on activity on those 2 areas. Yes. I'm not I don't know if I'm hopeful or if I'm making a prediction. But yes, there is definitely no reason to think that the things that been active, as you correctly point out, has not been a perfect fit for us. So the smaller type of ECM businesses, there are some very strong, let's call it, niche investment banks who have done very well. And we are, of course, having, as part of our business plan, to enter into that in a much better way. So we've just staffed up what we call the growth corporate banking unit, which is going to go for the hundreds of thousands of SMEs that we actually have in the bank whom we've not serviced with, let's call it, investment banking like services. M and A is a bit too early to call, but there's definitely something happening now when optimism has a little bit more a comeback and we kind of see that the vaccines might work, this pandemic, we might be at the beginning of the end of this type of journey. And we can clearly see that on the pipeline and on the work level in the investment bank and the corporate bank. It's exceptionally high. It's often very high. But now I think there is some at least connotation that this will be spreading not only to the small, but also the larger deals can be there. And that's, of course, when it's time for us to show and test what our market position is if that happens. Okay. Thanks very much. It. Thank you. And your next question comes from the line of Magnus Anderson from ABG. Your line is now open. It. Okay. Thank you, and good morning. First, more of a high level question just on operational leverage. You've had a quite impressive cost income ratio trend with continuous declines since 2010 despite similar money laundering acquisitions that has resulted in cost increases in other banks. If you look ahead. Ahead, you're now at 43% costincome ratio in Q1. It was a very strong quarter, obviously, but you were at 46% just for one offs in 2020. So if you think about this and the coming, let's say, 2, 3 years throughout your Next business plan, do you think I mean, how low can you go? Do you think that this can continue given Ramping up your IT platforms, you initiated partnership with Google Cloud, etcetera. Where is the bottom? Or are we at the bottom now there? Yes, Magnus, don't put these numbers into your Excel sheet after I say these things. But this is how I'm thinking about it, and I'll ask Marci to clarify with the new financial targets. Operational leverage does not need to come by falling cost income. There is another way, which is a more stable way. Falling cost income, you have to stop at some point, otherwise it goes to 0. That is by having income growing more than cost. That's the important bit. It doesn't mean that you in, call it, dollars and cents. So you increase the profits. And if you look at the financial targets, this quarter was, of course, a huge positive driver from lower credit losses and a recovery of NFI and a stable growth in the NII and fees and commission. But it's not we're not indicating to you that we can do this trick for another 10 years. Yes, I'll just try to phrase it in a way you can put it in an Excel sheet maybe. So yes, I mean, the low cost income ratio this quarter is obviously driven to some extent by market valuations. And those will typically not be repeated. And if you look at the financial aspirational targets we set last quarter, we say there in the long term that we expect to have the cost income ratio, if we achieve our target of 15% return on equity, that will be on a cost income ratio of 0.45. So we don't believe that we need to be at much lower levels than that to reach the return on equity target that we that. And I think what we are emphasizing is that we want to see income growth. And if there are investments needed that will drive up the cost line to get that revenue generation. We are prepared to do so as long as we continue to be an efficient bank and we have the cost income ratio that is competitive in the market. So I think just repeating what Johan said, it's not about taking the cost level down because we've seen that being tried in other banks and elsewhere, that typically leads to a negative revenue effect, maybe not immediately, but sometime it does, we think it's more important to invest so that you can get the revenue generation and improve profits through that. It. Okay. Thank you. And when are you going to present your new 3 year plan? We will very likely do that by year end as we typically do, so in conjunction with the Q4 report. Yes. Okay. Good. Thank you. And then just more detailed one on NII. We saw that your markets, it. So it was elevated in this quarter, thanks to partly that the markets related NII remained. And you expect this to normalize At some point, is that I mean, do you think it will happen in Q2? Is it just impossible to say? It could very well remain. Maybe it's possible to say, it's impossible for me to say. We typically see that it sort of as long as when it's low or high, the next quarter, it typically goes down to a more normalized level. This is pretty uncommon that we've seen sort of 2 quarters in and on exactly the same level. So yes, I think you should just assume that to be conservative, next quarter it goes down to a normalized level. If it doesn't happen, then we'll see it then. It. Okay. And on NII, have you any updated sensitivity analysis how higher short term rates Would impact you assuming that lending margins are unchanged? Yes. We just updated that. So it's short term rates, we're talking about just Swedish krona. If the repo rate goes up by 0.25, that will have a positive effect of just over SEK 1,000,000,000, this is the gross effect, so assuming no change to lending margins. And if it goes down by SEK 0.25, that's around SEK 1,000,000,000. So slightly more positive if it goes up compared to if it goes down. The balance sheet has grown and deposits have grown, but it's also the case that we've done some changes to our deposit pricing model. So the sensitivity has gone down. But as the volumes have gone up, the implications of a rate change are pretty similar to what we had about a year ago. Okay. Thank you very much. That's all for me. Thank you. And your next question comes from the line of Richard Strenth from Nordea. Your line is now open. Yes. Good morning. First question on the lower funding costs from not reissuing maturing bonds. If you could give any guidance given the continued strong inflow deposits, how do you foresee that in the coming quarters? Yes, we can try to do that. I think it will be something that will continue for some time that we will see wholesale funding maturing that we will not fully replace. So hopefully, that will be a small tailwind also in the coming quarters. But it's also difficult to say if spreads go up on the wholesale funding we need to do and something happens in the market that might not materialize in a sort of lower funding costs. But assuming the same spreads we have today and assuming that we we keep the deposits we have on the balance sheet today, we should see less wholesale funding issuance in the coming quarters than what we have maturing. Okay. And then on the corporate loan demand, if you could share any insights on sort of any indications of improvements there and if there are any specific segments or sectors that are sticking out in any direction positively or negatively? Yes. Sure. There's no sectors I can think of. But I'd say this, that the first half of this year is very much in line with, I think what we tried to explain in Q3 and Q4, and that's a base effect that March, April May last year, we saw this explosion from COVID response from clients in asking for new credit. It didn't materialize in real loans, but all those are now falling off, March, April, May and will not be refinanced. So the underlying kind of credit exposure should have a little bit of a pause, just like we see this quarter in the first half this year for no other reason than that one. And then that doesn't mean anything for the long term prospects for our client activity. So one needs to go into the pipeline and the optimism for businesses to start to expand and having capital intensive plans that needs to be financed. And there, I can just make an observation for the long term that I have rarely seen a more I've been rarely more optimistic on where balance sheet deployment can take place in the future when it comes to lending to the sustainable transition, the numbers we see from our clients coming out now rapidly are staggering in terms of investment needs. And this is very much fixed capacity in the CO2 challenged areas, which is a lot of anything from factory to energy to raw material extraction, etcetera. So that's a super trend that's where we see it could come from. And then coupled with my previous comment on just M and A, ECM for the areas that we have not seen being very active, it's also a very positive backdrop if that kind of that optimism continues, and we'll start seeing more transactions. Thanks. And then finally, just a quick one on your credit exposure towards it. Fossil fuels. And if you could share any guidance on how much you will see the cap being lowered annually? Yes, we don't have any numbers yet, but we will come out with those numbers. We're modeling like crazy right now. There's a lot of different engagements. It. This is where the ambition is. We will come out and have a, in our world, quite significant reduction in the relative exposure to this industry. And that is not industry as the classification of a company, but what part of that company is particularly damaging and try to become an advisor in the sustainability financial sense to those companies to accelerate that transition. And lately, as I've shown, when it comes to loan advice, leading these transactions, sustainability advice, M and A advice, energy advice, we are, I must say, doing very well right now. So those things will come out. When it comes to coal and certain other areas, mining, thermal coal mining, that's very clear in the policy. That's just out. And we've put down a few dates there. We will not take any new exposure. That's actually from 2015. So there's nothing no new clients, no new projects. The ones we do have, we do have clients with some exposure to that 3. We're phasing that out by 2,030, I could say, with a few couple of exceptions is actually in my presentation. And then on the one we are modeling is very much the traditional E and P business, the oil extraction business, which is not going to go away in 5 years, but we would like to show a clear path aligned with all our commitments in order for it to be transparent and that everyone can follow it. And I won't commit, but I'm really hopeful that we will come out soon. Okay. Thank you. It. Thank you. And your next question comes from the line of Nicolas MacVic from DNB. Your line is now open. It. Thanks. So starting off with a question on cost. I was wondering if you have any reflections of it. So far, whether new ways of working during the pandemic has any structural impact on your cost base, like use of office premises or traveling or anything else you can think of at this point? Ineclads, I'll start with that one. Yes, I mean, we know that there's going to be a new way of working, and we will implement a new policy shortly on how people can work remotely. And so people will be in the office less than they've been in the past. And I think in general, banks do see this as a possibility to reduce office space and see an improved sort of cost level given that. But at the same time, you've seen indications in the market that when companies do that, they actually want to have more office space when they are at work because they work differently in the past. So it's actually fairly early to be able to call that exactly how it's going to develop. But we are seeing it as an opportunity to start with. And but then we have to follow the market and see exactly how this develops and how we need to reshape our office space as well. But yes, it is an opportunity, and we're just going to follow it and make sure that we utilize it if it emerges. It. Okay. And then on loan losses, I think your guidance now implies around SEK 600,000,000 per quarter for the remaining quarters this year in loan losses. So could you comment anything on why you expect loan losses to it. Come up from the Q1 level? And then secondly, also on loan losses. I think your earlier guidance was that normalized loan losses would be between SEK 2,000,000,000 to SEK 2 it. €500,000,000 per year, now you're saying €2,000,000,000 And at the same time, your balance sheet has grown, I think, over the recent quarters. Is this a reflection that you have somewhat revised your view on the long term cost of risk in the balance sheet? Or is it just a kind of rounding detail that I'm noticing here? Yes. So if I start with that guidance, if you look at this quarter Q1, we have very low level, but we also had 3 fairly large recoveries this quarter, up to about SEK 300,000,000. So these are exposures that we had reserved for last here. And what we've seen now, they've materialized. So we've seen some debt to equity conversions, for example. We've seen that the reserves that we had down on a name on name basis, we're higher than the actual losses in the end. If you look at the underlying level this quarter, it's closer to SEK 500,000,000 or between SEK 400,000,000 and SEK 500,000,000. So the guidance for the remaining quarter is not too far away from that level. But then surely, we're a bit conservative on what could happen if you see a contraction of the fiscal support of different programs that have been in place. So yes, it's just based on that, that there is some conservatism when it comes to the second half of the year and the fact that the underlying level this quarter was higher than you can see in the numbers. On that guidance, I think we've said sort of normalized by 2022, 2023 is between 2,000,000 to 2.5,000,000. That is more a reflection that we do expect the balance sheet to grow over time. With the current size of the balance sheet, it's about SEK 2,000,000,000. But if the balance sheet does grow, obviously, the expected losses could go up in line with that growth in the balance sheet. It. Okay. That's clear. And then finally, a follow-up question it. On sustainability, you were talking about, yes, capping the exposure to fossil fuels and it. Yes. At the same time, there's strong demand for renewable financing. So if you could elaborate if you expect the demand for Renewable Financing to offset the decline you expect to see in your fossil fuel exposure on the balance sheet. So the net effect of those are becoming, I guess, 5 to 10 years. And then also any margin implications from such transition in the balance sheet? Do you expect Any net effect on the profitability on this part of the balance sheet and yes, profitability implications for the bank, please? Yes. I'll take that. The hypothesis, as you're rightly pointing out, it's a 5 to 10 year horizon. It's very much that it will be widely better for us in the opportunity of the super cycle renewable, but also financing transition, which is doing less bad compared to what we through the cap is avoiding to grow in. And by the way, we have a cap already. We've had a cap for a long time, and that cap is lowered all the time. So you can track in the numbers that, to a certain extent, several areas of the higher risk areas, such as regardless of sustainability, we have used that. We also have it, as I've talked to you guys about before, on real estate and structured finance and emerging markets exposure in order to protect the asset quality of the bank, we're just tightening it much more now due to a new phenomena. That's because of the transition of the world into a low carbon a society. The margins are almost impossible today. Volumes are very clear. That's in our favor over a long period of time. That's our hypothesis. Margins are, in my book, inconclusive. I would say there's no major change, but there are two indications to point out. The green bond market has currently noted the highest discount for being green versus brown we've ever seen. But we're talking a few basis points. It. So it's tiny because credit risk and economic value are still very important factors when one decides to value financial security. But there is at least the first sign that a company can fund themselves cheaper, and we can lend cheaper if it is deemed to be future proof. The other aspect is the opposite from the positive. It's to avoid the negative. And that's a very important factor, namely the risk of anyone who invests in financial security or has risk on that you're risking of stranded assets or having exposure to non future proof business lines, that's also avoiding that risk. So that is always a risk. And as you are more cautious in this area, you're reducing that. And that's a negative P and L effect you are avoiding if you do it this way. So I would say those 2. So on the margin, positive, but hard to say. And right now, I do want to point out there's such a hype around many of these new companies, etcetera. So right now, it's the credit quality, which is the no, not the purpose or the intention. Those are fantastic. But as we see that financial prices are going up quite dramatically in certain areas of the economy, one need to also have some tight underwriting standards, so you don't go and overextend yourself in the short run. In the long run, there's no debate. This should increase as a portion of the balance sheet and as a portion of our business as a whole. It. Okay. That's interesting. Thanks. Thank you. And your next question comes from the line of Namikha Samtani From Barclays, your line is now open. Hi. I've got two questions, please. Just coming back to the Swedish mortgage market, it. It appears that you've been vocal about wanting to be more aggressive in the larger cities, which is a big part of your business. So Just curious to know if you feel threatened by this and how you would defend your position in the larger cities? And my second question is on the market risk RWAs that you expect to normalize. But you talked about an upgrade in trading guidance. So I'm not sure how these two statements go together. So if Could you give some additional color? And should we expect this type of volatility in the core Tier one ratio quarter on quarter? Thanks. Yes. I'll start with the second question, and I didn't really catch the first one. So Alain, you want to take that one. Yes. I think I caught it. Okay. On market risk, yes, I think in general, you have to look at different things happening at the same time. So obviously, the nominal amounts of trading bonds you have on your platform to facilitate for a client training has an implication on the capital requirements. But also much more important implication is the market events, so what's happening to spreads, what's happening to volatility, which has a big effect on VAR and stressed VAR. And in this Q1, it's a combination of those 2, us holding more bonds on our balance sheet to facilitate customer activity, but it's also a large implication coming from market movements. And so I think what we're guiding for that we will see that part that is driven by market movements come down in the future. That's what we're seeing. So the rea should come down to closer to the sort of average historical level. It doesn't mean that it we'll come down to exactly the average level, but clearly down from the very elevated levels we've seen in Q1. Yes. And if I understood the first question correctly, it was around the strategy for the mortgage. And I wouldn't say if I understood you that we are aggressively pursuing anything. But I would say this, that we want to grow with our clients. There is an underlying growth in the housing market and in the mortgage and we're very inclined to maintain a super relevant position. So we are there for roughly 15% as the first rule. This means that we do not have a market share KPI as an important one. It's not that we're trying to take another 5% in the classic market, but maintaining a good integrity around the underwriting standards, making sure that we service clients. So we don't want to go down. We don't want to have an offering not worth its name amongst our clients. Now that being said, this is partly related to this more cautious market share approach, not that growth it's not being seen. That's a function of how the housing market goes and how the clients of ours invest in larger properties and getting flaps and bigger houses and getting families, etcetera. But there is something very interesting happening as mortgages have been very historically closely connected to the physical meeting. And as we are now getting very close, I think, to the inflection point where the whole mortgage process in Sweden can be digitized. We're not there yet, but we're working together with the other banks to get the transfer of deeds, the last portion of a housing transaction digitized, it means that all of a sudden, I think, the physical meeting will be reduced in importance. You always need to have it if a client wants to see you or talk to you, but it's not going to be so highly correlated to where you have the branch. And hence, the next phase of branch offices in retail banking will be affected because right now, mortgages is a key area, why we still need to see people. It's a big life decision, and they it's still a manual process. So that means that we could definitely come into the next generation of digital retail banking, where this becomes completely in is not important where you have your branch because most of this market will go online. And then, of course, we will try to be as competitive as we can and no longer have the relative advantage of being fairly low on number of branches and geographical spread, which is clearly a benefit if you need to have a lot of face to face meetings. So we have our 100 branches, and we look very positively on the digital side in the future of mortgages. But let's call it a cautious market share and a very strong focus on delivering good products to our clients. It. Thanks. Sorry, what I meant to ask was, I'm just referring to Swedbank talking About yesterday saying that they wanted to be more aggressive in larger cities. So I was just wondering like how you feel about that and how you would defend your actual Position in the last piece. Okay. Yes, yes, yes. I didn't think about that. But well, bring it on. Cool. Thanks very much. Thank you. Thank you. And your next question comes from the line Jens Haaland from Carnegie. Your line is now open. Thank you. Yes, actually, 2 follow ups. Sebastian, you talked about the credit growth and optimism amongst your customers. In terms of timing, I mean, how easy are they to start doing these investments? Do they need a big buffer after COVID-nineteen is over? Or what's the feeling there on the website. Yes. I think it's too early to call. So I'm not daring to be super optimistic, but it's a timing matter, as you point out. I think there are 3 things that needs to happen and take it for my personal assessment of the current situation rather than any academic proof. First is that the supply chains have been disrupted after COVID. Everyone needs to make sure that in the future, you have a secure supply chain. So the dependence, particularly for companies in our part of the world, is huge on international trade and making sure you get critical components. And as you remember, the automotive industry last spring had a huge problem because maybe 1 or 2, very few critical components got stuck on the way here. So I think many people are changing their view and the risk assessment of the supply chain dependence. That in itself is an investment. But that's something that needs to before you go out and start doing. The other one is the demand side. So we have seen a pretty good demand for services, local services. If it's not travel or holiday making, you see that there have been a decent demand for services. You haven't been able to spend the money if you've had lockdowns, and you've actually had a very good demand for retail goods. So people have been buying TVs and renovating perhaps instead of traveling. When that gets normalized, there will be also a potential demand side that will come. And we have seen now that we have shortages in certain industries. That is that the supply side, the supply chain, cannot right now meet what we see on the demand side. So that's kind of happening right now. And here, I would just listen to our own economists yesterday. There's a quite positive, call it, a tonality around purchasing managers, the use of the future, etcetera, which I think is a good summary of supply and demand. Then there needs to be an equity market type of owners type of desire for companies to transform and strategically changed, not only organic. So this, to me, is very much about the optimism and the confidence in the boardrooms that you want to go and acquire growth or you want to build your business organically in size. And there, I think, we're getting to an inflection point to see if that is actually going to occur or not. It. And looking at the activity levels in our own bank, there seems to be a lot going on. And then you always have this new type of entrepreneurship of the world, which means that there is and I mean new start up, fintech, other tech companies, sustainability companies and the whole expansion of the private equity industry, which is, of course, a fantastically strong engine behind listings an equity market transactions in the future. So that's, of course, what we're also working with. Okay. Thank you very much. And then just a perhaps a quick question on capital. I just wanted to understand if there's anything Yes, the SSA decision on the dividend caps that you're waiting for before you can make a call on how and when to distribute capital. Let's assume we get this now before September. What else is needed for the board to make a call? No. Obviously, that's the main input we need. As we've talked it out in the past, we also look at the strategy we're planning for, for the next coming years. I think given the capital position we have today, that's not going to be a a game changer when it comes to the overcapitalization of the bank and how we can address that. So it is the inputs from the FSA that we're waiting for and then past that, we can decide on exactly timing and in both proportion, we do dividends and share buybacks. Okay. And do you have a desire to do this quickly? Or is that the filter on the system to say? I can't really answer that. We have a target of being between 100,000,000 to 300,000,000, and we're going to work our way towards that target in a timely fashion. Fair enough. Thank you very much. Thank you. And your next question comes from the line of Jeff Dorris from Societe. Yes. Hi, good morning, everyone. Jeff Dorz here from SocGen. Just a quick question, I won't keep you any longer. In terms of your merchant banking division, deposits are now greater than loans, probably for the first time ever. I mean, I haven't looked through the history, but it's quite an abnormal place to be. In terms of looking forward, do you see that as an abnormal situation? Or is it just kind of a response to a new funding model from corporates and this will become more normal going forward that they will use their the market's balance sheet much more than your own balance sheet going forward. And if so, can you give us an idea of how this shows up in the revenues for the group, so the distribution between NII fees and everything else? It. And whether on a net basis, it's more or less profitable for you? That's the main question. Thank you. It. Thank you, Jeff. I think, I mean, first of all, this is not predominantly driven by the lending side. It's driven by the deposit side. So we've not seen a very strong sort of structural trend on the large corporates going through capital markets, I mean, that's been happening for some time, but it's not the reason why we have a loan default ratio in LPNF 5 below 1 for the first time. It is driven by deposit side, it's driven by QE. And as long as you have this amount of extra money in the system, you're going to see this end up on a bank's balance sheet in one way or the other. It could be deposits from financial institutions, corporates or households. But either way, it will end up on the bank's balance sheets. Right now, given that the large corporate customers and the financial institutions are professional, it doesn't have a big implications on our revenue side really because good pricing on deposits is efficient. So we can charge negative deposits rates. So it's not a big problem. It will become a problem if it happens on the household side, where we still have a clear difference between the size of the lending and the deposits. So I think it is driven by deposit. It's not driven by lending. And then right now, it doesn't have a clear negative effect, but we will have this situation as long as you have QE at the levels you have today. So central banks need to withdraw the money, the supply to the market for this to reverse at some point. It. Yes, that's very clear. And on the flip side as well, on the credit side, do you see corporates using the market balance sheet much more than your own. Is that part of the push higher in fee income? It. That's been a trend for some time in Europe as we're sort of lagging the U. S. In terms of how much corporates are using banks' balance sheets relative to the markets. But that's sort of in a cyclical point of view. It's more driven by credit spreads in the market. So we saw last year when you had the height of the pandemic and markets froze, we could see that they came to us and used our balance sheet much more. Right now, spreads are very low. So the companies that do have access to capital markets can utilize that to a larger degree than they did a year ago. But that goes up and down in cycles. And typically, our spread, our funding cost moves slower than the companies that we lent money to. So when you have spreads widening, they come to us instead because that's going to be cheaper for them. But it moves in cycles, but it's an underlying trend towards more capital markets financing, but at a fairly slow pace. It. Yes. Great. That's really clear, really helpful. Thank you. Thank you. And your next question comes from the line of Chris Hartley from Redburn. Your line is Hi, guys. Just one question on the credit losses and the expected normalization of that down to 8 to 10 basis points, Steve. Is there an assumption in there that some of the conservatism that was sort of put on last year will unwind this year? Or are you saying the 8% to 10 basis points is because the kind of the world is back to normal and the front book loans that you're writing are on an 8 basis points to 10 basis points. And so we're still to see whether the provisions from last year were overly conservative, and we may or may not get write backs on top of that production to up to 10 basis for this. Yes. That assumption on normalized credit losses for this year is based on that we do not to utilize any of the model overlays that we put on. And if you look at last year, we put on SEK 1,300,000,000. We've added another SEK 100,000,000 in Q1. So assuming that we don't utilize any of that, then we think that ECL will be around 8 to 10 basis points or SEK 2,000,000,000 this year. Okay. So there's still potentially a little bit more benefit from that if you don't end up needing those overlays? It depends. We have to wait and see what happens. If we are concerned about bankruptcies going up maybe in 2022, if you see a withdrawal of stimulus and stimulus packages in 2022 rather than 2021, we might want to keep that for 2022 instead or further on. Thought, it depends on what happens to the recovery of the economy and how stimulus packages are removed or scale down. And so we haven't decided exactly whether we use those model overage or not this year or next year or the year thereafter. But the guidance in itself is based on us not utilizing it this year. Perfect. Yes, that's really clear. Thanks very much. From Mediobanca. Your line is now open. Good morning to everybody. Thanks for taking my question. 2 or 3, if I may. To Get back one second on the expected credit losses. Now if the situation is going to normalize already in 2021, Is that fair to say that we should not expect any material negative risk Migration with regard to risk weights in the calculation of credit risk capital requirement if the situation is going to normalize already this year. This is the first question. The second question I have is on the change in the funding mix. Now MREL has been postponed. To what extent you can go on Postponing the issuance of medium to long term funding. And if you had to issue today senior and preferred, But it costs much more than a normal, let's say, a normal senior. And then the third question I have, it. With the share price at around SEK 105, SEK 110, could you be Ready, prepared to sacrifice share repurchases On the halter of cash buybacks or M and A bolt on acquisitions, does it change anything the fact that the share price is SEK 110 or so. Okay. Thank you, Ricardo. I'll start. There is a clear distinction between expected credit losses and risk migration. So even though we've changed the guidance on ECLs this year, we do still believe that we're going to see negative risk migration. Again, we didn't see that to a large a degree in Q1. But I'll try to explain why we expect to see that. So we typically if you look at our large corporates, we do annual reviews of them and sort of find a new risk class for them once every year at least, if there's not a new deal coming up. Now, we're going to get their annual reports for 2020, which will be an input in that. And obviously, some of them did see their profits come down in 2020 versus 2019. So that new input in the new grading of those companies will, to some degree, leads to a negative risk migration. It doesn't mean they're going to default. It just means that maybe if there was risk class 7, it could be a risk class 8 now because of the financials deteriorating a bit in 2020. So that's one of the reasons we do still believe that you're going to see some negative risk migration in 2021. On the funding mix, it is correct that MREL is one of the restricting factors on how much we can take down senior unsecured funding as well as senior nonpreferred. So we have to check that and see that we have the outstanding a share of senior funding preferred funding as non preferred that we need. Right now, I haven't checked it lately, but I think it's about a 20 basis points difference for us to issue senior nonpreferred versus senior preferred. But that goes up and down quite a lot. But right now, it's fairly low. It. On the valuation of the bank and whether that changes our sort of disposition between dividends and share buybacks, I would say no, not really. It's it's difficult for us to guess how the share price will move in the future, and we just have to assume that it's a fair value at each point in time. So we will just when we've decided exactly how we're going to do this, we'll do it in that fashion, a bit sort of irrespective of the share price at that point in time. It. Okay. Okay. That's fine. All right. Thanks. Thank you. And your next question comes from the line of Martin Leitgeb from Goldman Sachs. Your line is now open. Yes. Good morning. Thank you for taking my questions. My first question is just to follow-up on flow share comments in 3 d mortgages. I mean, 2 of your competitors reported so far indicate that they intend to increase their flow share going forward. And I was just wondering, it. Is SEB happy to see the flow share dropping, potentially dropping below the stock share level for a period of time? Or your comments earlier in the call essentially mean that you want to be around the 14% mark going forward. Secondly, if we just look at average negotiated pricing for SEB mortgages that have seems to have edged lower over the period of the last 12 months, a period in which your flow share has increased. And I was just thinking, wondering how should we think about negotiated pricing going forward, do you see the trend to continue that negotiated pricing whether that's 3 months or fixed term continues to edge lower? Or do you see the trend there as you see with some of the smaller players in the 5 year segment that negotiated pricing could actually start edging higher? And related to that, I was just wondering if you could give us an indication how much of your new mortgage business in Sweden is on a fixed term versus viable basis. And finally, third question, if I may. I was just wondering what implications the large increase in deposits in the Q1 has on NII and NIM. And apologies if I missed it. I didn't fully understand it in the previous answer. And related to that, I know you don't give guidance on NII progression from here, but is it fair to assume that NII continues to gradually expand? Or could there be a scenario where NII would stay flat or even atch lower from here? Thank you. Thank you. I'll do my best on those to 4 or 5 and then ask Masi to complement. We would not be happy if our part of, as you expressed it, flow share goes down. So we will, of course, do our utmost to maintain relevance to the same extent. And that is nothing new. I think we have seen competition increasing over time in the mortgage market. And as you point out too, there might be more right now from competitors out there. But it's nothing new, and it's always a fight to try to maintain your clients to pick you. The other one was on negotiated prices. I think we are of the view that there is some type of underlying margin pressure in terms of negotiating prices are coming down and also the disruption from fixed price. So in Swedish, we say something called klutat or klart. That means negotiated and done, take it or leave it type of pricing. And I think all those effects are pointing in one direction that there is, of course, a lower price point potentially. I do think, however, the 0 interest rate, the 0 deposit rate is a very strong cushion that banks need to have these 2 communicating with each other. Should we have increased rates and we have a different position on the deposit side, the dynamic will change for pricing and mortgages. But there's a lot of stability there, and they are very low, the levels at an outright level as they are. For SEB compared with others, we, of course, look at the same statistics you do. This is not something that we know daily or weekly what's happening. But we know that it. The larger mortgages tend to be much lower in price point than the smaller. What has increased lately, we believe, is the larger. The larger cities have a lower average price than the countryside because it's larger, and it's also maybe tougher clients to some extent that negotiate, etcetera. And this is, of course, the area that we are. So this is not to be mixed up with any strategy or attempt from SEB to try to gain market share whilst not having a good offer in order to protect it. So we are trying to have a quality driven service rather than using price. Matti, anything to add before the NIM question? No. Should I take the NIM? The fixed variable on the new business we do, it's increasing in fixed. It. Did you know that? I don't know the exact numbers now, but SEK 6 has been increasing structurally for some time as SEK 6, 1, 2, 3 years at least is approximately the same price as 3 months. But we have to come back to you on that one exactly what the mix has been in the latest quarter. On NII, I mean, we won't guide on how that's going to develop. I think we see some lending growth, both in corporates and especially mortgages right now. We see some tailwinds from funding costs. And then on the front book, there is some margin pressure on mortgages. And then you're going to see regulatory costs going up or down and other implications. But we'll see exactly how that's going to pan out. But obviously, flat, we had 10% NII growth. It won't be near that level this year. I just got the number on fixed and variable. It's about fifty-fifty. It. Perfect. Thank you very much. Thank you. And your next question comes from the line of Antonio Reals from Morgan Stanley, your line is now open. Hi, good morning and thank you for taking my question. You just answered the question on NII, But I have another one on your international expansion plan, please. So if I look at Northern European Corporate Banks, they deliver returns that are on average it. Below 10%, which will be sort of dilutive to your group ROE. I guess your decision to enter this market implies that The return allocated capital, as you project, is higher than that. So my question is what makes you confident that's the case? And what would you be doing differently than, say, a domestic Dutch corporate bank for you to be able to ruminate capital adequately? Thank you. Yes. And thank you. It's, I guess, the $10,000,000 question about why do certain banks succeed and others don't, and we have our subjective view on this. The first thing I want to point out to that when we talk large corporate, it's more or less a given market world price on credit. So you cannot negotiate. You don't get a different price. These are often constructed on the corporates that we talk about here in combinations of 10 banks helping 1 corporate. And there is a very multibilateral type of negotiation to find the price, the credit market in the public sense is also a very important factor. We know roughly what the price of credit is. Hence, the real differentiating factor is the cost side, the efficiency and the fast and decision process. And here, we are of the belief that we can do this in a very cost efficient way. We are this is very scalable on the existing processes and infrastructure that we have. So that's a main difference. The other one is the funding cost outright. So if you look at a loan priced at 50 basis points and take, for example, Holland, you can just immediately look at where the bank is funding itself, and you can do the kind of the profit that bank. And that varies a lot depending on what type of credit rating and what price you face in your own institutional market. Deposits and all other things come into this as well as well as cost of equity, of course. And then you have what is unique by and every institution has every bank has their own niche. We are, of course, always having this. We start with being a niche provider for international companies in Nordics. So if any large international companies have any business in Norway, Denmark, Finland or Sweden, that's now, we, of course, have a place at the table because all of them do. Even though it might be small in the company's perspective, for us, it might be very significant. Think of any global brand, they have a business in Sweden, they're selling their products here, and they need a local bank for that need. There's no bank in the world who can cater for everything. The other one is that we have a very underestimated vast international network. So when we go into other countries, they often have no clue that we have a very functioning corporate bank in China or in the U. S. And we can often be part after time in those type of RFPs for the business all these companies do. And if you were to look at the international network that we do have, you will see that a lot of the income is actually coming from these new markets that we have entered lately. So that means that you are, in the eyes of the clients, a bit of a niche provider, but you are more often than not, after 5 years in our history, being invited into the core group. And the core group needs to be a diverse group catering for any company's need. Then without I don't want to sound like I'm bragging, but I have worked for a couple of institutions, and there is a very fast process in this bank for corporate lending if required. And these things are critical once a client has a problem or an acquisition that you have fast access to management, senior representatives of the bank and can do credit decisions in a fast way. That's something you can say, but until you've tried it, you don't know. And these things take times, often decades. But we know that we are a fairly nimble small Nordic bank, which is quite different from some, and that's also something we find clients often appreciating. That's not to say that we're always the easiest to deal with or anything like that. And then we have a rather full service capability outside lending, which is, of course, the core to your first point. We do not do this expansion to come in at the return on equity that the average of European Corporate Bank is enjoying. We are doing it to have a higher return on investment on equity for LCNFI. And that's currently our long term aspiration of 13%. And these are all over time planned to be accretive on that notion. Yes. Can I just add? I mean, if you look at the Slide 17, we have look at the German financials, you can see that the cost income ratio for the German business is 0.3, which is allowing us to return 13 sense in Q1 for that business. And obviously, the biggest difference between us is that cost income ratio. And there's another angle to this as well. We have what we believe is a very scalable platform in Sweden. The more we expand, the more customers we add to that platform, the lower the cost will be for the remaining business in Sweden because we can allocate some of that cost to the new businesses we add. So it also not only adds to the income generation for that division, it also reduces the cost level that is allocated to the remaining part that we didn't expand. So So I think that's an important angle as well. Scaling your business has become extremely important in any businesses these days. And we feel that within wholesale banking, we have a scalable business, and we're just utilizing that even further now. And just a final remark. When we do any of these, we kind of start with client satisfaction. So what this is about to begin with is to meet these new companies and see if we have a mutual understanding of coexisting together and doing something fantastic together. And customer satisfaction is the key. If we can't get there, we won't. If we can't, there is always an economic opportunity to engage. Very clear. Thank you for the answers. It. Thank you. And your next question comes from the line of Sophie Victorzen from JPMorgan. Your line is now open. It. Yes. Hi. Yuri, Sophie from JPMorgan. So my first question would be if you could give an update on the money laundering. I see you still have the same comment in the annual report in the Q1 report. But I would also flag that it. When we look at Danske Bank, who reported this morning, they are flagging that they might need to do additional money laundering investigations Internally and that it bounced from that, that they are that the U. S. Authorities are looking at Got a case across Europe. So if you could just give an update on the money laundering case. And then the second question would be on the banking tax. Have you heard anything on the banking tax? Do you think it's going ahead? How should we think about it? And then my final question would be on a little bit related to the previous questions, but how should we think about excess capital? How much capital is all your growth plans in Private Banking, Private Wealth Management, Austria, Switzerland, Netherlands? How much Capital, is that going to consume? And how should we think about the kind of capital progression going forward? How much is going to be Going to risk these growth projects. And on the private banking project, are you planning to also Fund in your international markets or is it purely in your home markets? Thank you. Okay, Sophie, I'll start and ask Johan to add. On AML, we haven't changed our disclosure because nothing has really happened during Q1. We continuously have discussions with the authorities that are asking questions to us and we continuously provide them with new information. So it is stuff happening, but nothing material that sort of led us to change our disclosure. And we've said that if something happens, funds, if we get any indications of anything in terms of sanction process or anything material changing, we will disclose that to the market if that happens. The banking tax, haven't heard anything new, to be honest. That typically comes up in the autumn proposal on the budget from the government and as they flag that this will be introduced in 2022, this autumn they should have that in their budgets. So we just have to wait and see and it might come out something just before that. They typically flag something before the budget comes out a few weeks or months before that. So I think maybe this summer, you could see something. On excess capital, the way we look at it is that we try to normalize the regulatory requirements it, we can expect in the future. We know that right now it's 12.5%. We know that the Pillar 2 guidance will be added. We think that's going to be about 1 percentage point. And it's very likely that the Swedish countercyclical buffer will be increased back again to 2.5%. So if you look at that, our go to regulatory comment will be around 15%. You add the measurement buffer that takes you to 16% to 18% and then anything above that would be excess capital. The initiatives we have launched in terms of growth outside of Sweden sorry, outside of the current home markets, private banking, everything else, it doesn't really move the needle, to be honest, it's very little in terms of capital. And if you look at how much capital we generate in Q1, 100 sorry, 82 84 basis points pre dividend, we do generate a lot of capital to be able to finance the future growth we expect. So in terms of the current situation with the excess capital, that is very unlikely to be needed for the expansion plans that we have. Great. That's very clear. Thank you. And yes, maybe just a follow-up. On the Private Banking, Is it purely in the Nordics that you're going to purchase? Or you're also planning in Germany and U. K. And the other countries? Yes. We are going to start with a focus on the Nordics outside Sweden because the market position is very different in Sweden versus outside Sweden in the Nordics. But Germany and U. K. Are also in scope as they are defined as home markets. It further international scope is not included. So we will not start opening up the private banking private wealth management business outside the geographical remit where we currently exist. So don't mix it up with the international network. However, with one little clear difference, If you are a Nordic or German or UK person who has a relationship and you move abroad, there's no limitations for us to continue to help you if you move to a different country where maybe SED is not present. But we call that the international network. Singapore and Luxembourg is currently already the 2 centers for taking care of the international people who are out in the world. So we have these 2 international centers, and that will be continued to build on. It. That's very clear. Thank you. Thank you. There are no further questions at this time. Please it. Then I say a big thank you to all and wish you a healthy time until we see next time. Thank you.

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