Hello, ladies and gentlemen, and welcome to the Swedbank AB third quarter report for 2019. For the first part of this, all participants will be in listen-only mode, and afterwards, there'll be a question and answer session. Today I'm pleased to present Gregori Karamouzis, Head of Investor Relations. Please begin.
Thank you, operator, and good morning, everyone. Thank you for joining us on this presentation of Swedbank's Q3 results. With me in the room today, I have our CEO, Jens Henriksson, our CFO, Anders Karlsson. After their initial remarks, we will open up for questions. Jens, please.
Thank you, Gregori, welcome everybody this early morning to the third quarter results for Swedbank 2019. My name is Jens Henriksson. I'm the new CEO. I started the 1st of October, which is actually the day after the quarter was closed. I would summarize the quarter as a stable quarter, with some extraordinary costs. I've been into my position now for, I think, 23 days. My attitude now is to learn, to listen, and to meet relevant stakeholders, as I do today with analysts, I do with owners, I met customers, media, coworkers, and authorities. Out of the last three weeks, I've spent a third of that outside Sweden in the United States and Estonia, but let me get back to that later during the call. As a new CEO, I have three priorities.
The first one is to take away the cloud that hangs, or the dark cloud that hangs over Swedbank. That is the allegations regarding money laundering. My second focus will be on digitization. I've always, in my own position, looked with envy at Swedbank because the playfulness, and I want to continue to sort of that playfulness where we meet the customer in a playful way at the same time so we have a stable system. The third focus area for me will be sustainability. We have an almost 200-year tradition, it was striking during the IMF meetings how many banks and stakeholders have talked about sustainability. We have an advantage here. The problem is, of course, that you cannot have AML, sorry, money laundering accusation at the same time. My long-run goal is to have two focus areas, digitization and sustainability.
Let me speak a few words on AML. If you look on the slides now, well, let's see here. I'm going to change the slide. There has been some complaints that we haven't shown a timeline. I'm going to show you a timeline. That timeline, I think you should look on February 20th. At February 20th, the Swedish news program "Uppdrag granskning" came with a show that started a lot of processes. One of those processes was, or is the internal investigation. We hired the international lawyer firm of Clifford Chance. They in turn have hired subcontractors, FTI and FRA, which are forensic experts. What they are doing is they're going through 30 billion transactions, just an example that you understand how much we're doing, from 2007 to March 2019.
They're also looking at internal conduct and what has been right and what has been wrong and looking for different ways to improve it. That's the first thing, and they will come with their conclusion to us in Q1. Roughly at the same time, we expect the Swedish FSA and the Estonian FSA to deliver their final, may I call it, verdict on what has happened. We've had back and forth different discussions with them, and we expect them to come during Q1. We have the US authorities, and I'm sorry as you see it's pretty vague. The reason for that is that it is pretty vague. We do not control that process ourselves.
During the IMF meeting, I met other banks that has been alleged to have money laundering issues, and they tell me this can last everything from one to five years, but that's not in our control. Now, Gregori, can you change the slide? Today I am taking out an action program for Swedbank. That action program consists of 132 points. Those are my 132-point program for Swedbank. What's happening is that we have a lot of ideas or proposals on how to improve our AML processes. That comes from internal functions. We have audit, we have compliance, we have risk. Just to give you an example, because a lot of people are talking about the so-called Grimstad report. They are saying these are things they want us to do.
From the Estonian and the Swedish FSA, they are also coming with proposals on what to do. We have the internal investigation by Clifford Chance, as I told you. All together, we have 132 action points, that concerns, as you can see, FIU reporting, that's reporting to the Financial Intelligence Unit, risk assessment, internal regulations, training, customer due diligence, risk classification, and monitoring. Gregori, please go back to the old slide. If you look on the old slide, you see that you have out of these 132 initiatives, 71 of them are supposed, or we hope, to close by the 31st of December 2020, and the rest, 61, will then close 2021. How is it then falling? If you look on the third slide here, this is the status as it was yesterday.
Status will probably be different tomorrow. We will keep the track on this. If you looked upon it, we have 132. We have completed 20 already. We have 50 ongoing projects that are just according to plan. We have 30 projects now that are signaling yellow. That might mean that there are some glitches. You might maybe overshoot the budget or may come in a few days later. As it was yesterday, we had three that were red. I see that as a stop signal. They need to get something before they can start going. Maybe that should be resources or personnel and things like that. We have 29 projects that haven't started yet, and they may be due to interdependencies on the other one. I will continue to talk about this until you are really tired of listening to this.
During the annual report, I will try to be much clear exactly what those 132-point program is about. Let me say a few words on the U.S., because as I told you, me, my Chairman, Mr. Persson, and my CFO, who is here with me, we were there in conjunction with the annual meetings of the IMF and the World Bank. I've been to those meetings for, I think now, almost 15 years. What we did was that we met authorities, we met other banks, and what was striking was sustainability, was anti-money laundering, and was also a lot of discussion about the economic outlook. Let me take a few words on the economic outlook, because it has an impact on the bank.
The economic outlook, a year ago, we met in Indonesia. In Indonesia, there was a discussion then that you would see inflation hikes in the U.S. That would mean that the Federal Reserve will raise rates. As a result of that, you will see flow from emerging markets into the U.S. That would give them problem. When we met in April, it was sort of a waiting period. The policy message was clear: do no harm. When we met this year, it was very simple policy message: harm has been done. I would say that it felt like The calendar said October. It felt like November. If you look on the growth figures, they're talking about the 3% growth in 2019 and 3.4% in 2020.
The uptick there comes mostly from Iran, Russia, Turkey, because they were so depressed during 2019 that the statistical effect of bouncing back 2020. The message is clear: lower for longer. That, of course, means a lot of challenges for banks looking ahead. Well, said that, now let's say a few words about the results. We have a return on equity that right now is just below 15%. If you look year to date, we are at 15.3%, which is slightly above our target of 15%. The target stands, but let's be very honest that it will be harder to reach, and the same thing applies to our cost target, not least in the short perspective. Well, I'll just give you an example. When you talk about the investigation, the investigation has so far cost us SEK 1 billion. No, not so far.
This year, we expect it to be SEK 1 billion. Swedbank stands strong. Our capital position is good, and our credit losses are low. When I look forward, and I say this with a sort of, I'm still in listening and learning mode, I see both challenges and possibilities. Swedbank has a very broad customer base. We have the innovative culture, we have competent and good people that work for the bank, we are strong in Estonia, Latvia, and Lithuania, countries that grow roughly with 1%-1.5% more than Sweden. We have an activity plan that I'm right now digging myself into. We have a lot of work which I see good possibility to optimize and digitize. We have an extreme clear customer focus. I also see challenges. There is a harder competition on most areas.
We will lower for longer, that affects us. There are AML-related costs. Our answer to this is to continue to deliver, but as I said, it's my 23rd day, and these are questions I will return to, and then I give the floor to my excellent CFO, Mr. Anders Karlsson. Thank you very much.
Thank you, Jens. Let me start off with net interest income, which is stable quarter-over-quarter. Swedish private mortgages continue to grow, still somewhat slower than our back book market shares. Margins were stable. Corporate lending in Sweden declined by SEK 5 billion due to a couple of large scheduled repayments. Corporate margins also remained stable. Portfolio composition effects impacted the quarter slightly negative. Lending grew in all three Baltic countries by a total of SEK 6 billion, somewhat more in the private than in the corporate segments. FX contributed positively by SEK 2.5 billion in addition to underlying growth in all countries and segments. The solid lending growth continues. Lending margins continue to expand both in the private and corporate segments, while deposit margins weighed on NII as Euribor rates fell. Group Treasury's NII was as expected, lower due to a less positive contribution from covered bond buyback volumes.
As we received the final level of this year's resolution fund fees last quarter and subsequently adjusted the fee booked in NII downwards for the first two quarters, this quarter we have a negative delta of around SEK 30 million. The deposit guarantee fee is adjusted higher this quarter by SEK 20 million. Over to net commission income, which was stronger this quarter. We see the usual seasonal effects in cards as usage is typically higher in the third quarter. The asset management business benefited from the overall positive market development in the quarter. Corporate finance and brokerage activity was, as expected, slower during the summer months. Turning to net gains and losses and other income. The overall lower market activity during the summer impacted trading income, especially the credit side. Valuation effects and derivatives impacted negatively, driven by lower interest rates globally.
In Group Treasury, the holdings of Visa and Asiakastieto shares, which are held at market value, had again a positive contribution of around SEK 50 million. A considerably smaller one compared to last quarter, which was SEK 220 million. Lastly, looking at some of the other core products of the bank. We saw the insurance business continuing its positive development with improved result following increased sales and lower claims. While income from the credit card business and savings banks and associates was stable quarter-over-quarter. We also had a few one-off items impacted positively by around SEK 60 million. Turning to capital. The CET1 capital ratio increased to 16.3% and the buffer to the Swedish FSA's minimum requirements stand at around 130 basis points. Net profit excluding dividend impacted the CET1 capital base positively.
On the negative side, we saw the pension liability valuation increasing following further declines in long-dated interest rates and the countercyclical buffer in Sweden increased to 2.5% in the quarter, leading to around 40 basis points of increased capital requirements for Swedbank. At the end of September, we received the final SREP for 2019 from the Swedish FSA. Overall, there were minor adjustments to the capital requirements compared to last year. The risk profile assessment remained at a similar level as before, but they also noted that the money laundering allegations have affected the bank, which should continue to be taken into consideration in the bank's capital planning. The risk exposure amount decreased by SEK 1.6 billion in the quarter. The main reason for the net decrease was positive asset valuations and somewhat shorter maturities in the corporate lending.
Let me also provide you with some guidance on expenses before I sum the quarter up. Underlying expenses are developing according to plan. That is important. We continue to invest in developing our customer offerings and digitalizing both the back and front end. We will, during autumn, review and develop our activity plans for next year and let me be clear, in conjunction with the Q4 result publication, come back to you with our guidance for 2020. As you all know, this year has been marked by extraordinary expenses. In the third quarter, we had additional one-offs of around SEK 500 million. They relate to a VAT reservation, to severance pay for management changes, and higher expenses related to operational incidents in the quarter.
The VAT reservation is due to that the Swedish Tax Agency changed a previously approved methodology. This model change will result in around SEK 60 million of higher expenses per annum going forward. The ongoing investigations into AML have cost more than initially anticipated. More specifically, the regulators' preliminary notifications led to additional work to provide them with everything they requested. Furthermore, our decision to speed up the measures we are taking to address the identified shortcomings in our AML processes have also led to higher expenses. Our best estimate at this point is that the investigations will cost around SEK 1 billion in 2019. This means that a total of SEK 1.5 billion of expected expenses in 2019 are of one-off nature, and will fall off in the future.
We don't have any visibility at this point as to how much of the investigation expenses will fall off already next year. Hopefully, we can give you more guidance at our Q4 result at the end of January. The headwind on expenses from FX movements have increased slightly in the quarter, adding SEK 50 million for the full year at current FX rates. Reminding you that a weakening Swedish krona is net positive for the bank's result. All in all, we expect total expenses for the full year of 2019 to be around SEK 19.8 billion. Let me also say a few words about asset quality, which remained resilient across all business segments during the quarter. Credit impairments in the quarter were SEK 154 million, which equates to an annualized impairment ratio of four basis points. In the Baltics, we saw a decrease of impairments compared to the previous quarters.
Summing it all up before we take questions. We delivered a quarter with stable income trends, supported by continued loan volume growth, albeit at a lower pace, and higher activity in our cards business and a benign stock market development. Underlying expenses are under control, higher expenses due to the mentioned one-offs and the ongoing investigations weighed on the bottom line. As we look ahead, as Jens mentioned, we see many opportunities and challenges. We will continue focusing on delivering customer-oriented solutions while taking out efficiency gains by digitalizing more of our processes. Finally, with the current macroeconomic outlook, we believe it's imperative to continue prioritizing origination discipline and pricing. Thank you.
Thank you, Anders. Thank you, Jens. Operator, we are ready to take questions, please.
Thank you. Ladies and gentlemen, if you haven't already and you want to ask a question, please can you press zero and then one on your phone keypad now in order to enter the queue. After I announce you, just ask that question. If you find that question has been answered before it's your turn to speak, just press zero and then two to cancel. There'll be a brief pause while the questions are being registered. Okay, our first question is over to the line of Andreas Håkansson of Danske Bank. Please go ahead. Your line is open.
Good morning, everyone, and thank you. My question is about costs. The SEK 19.8 billion, which is of course higher than what we expected, includes the SEK 500 million and of course, the SEK 1 billion. Could you tell us going into 2020, I understand you're going to guide for that together with your Q4 numbers, but the SEK 500 million, are there any reason why any of that should spill into 2020? If you don't want to comment on when the SEK 1 billion will fall off, do you think that the safe way for us to forecast is to keep the SEK 1 billion in and rather just take out the SEK 500 million for now? What's your view on that? Thank you.
Thank you, Andreas. It's Anders here. You're right. Out of the SEK 500, the thing that I can see remains into the next year is the SEK 60 million that is VAT related. Other than that, it should fall off. When it comes to the investigation costs, it is extremely difficult to guide you on that one. What we know is that there has been a massive amount of resources to go through, first of all, catch the 30 billion transactions that Jens talked about, then running them through the forensic process. I would assume that work will not have to be repeated. Having said that, Andreas, at the same time, we have requests coming in from the American authorities that is very difficult to predict, and they always entail a certain amount of resources. Let me put it this way.
We will come back to you if we have further information in Q4. It's extremely difficult to predict.
We keep the SEK 1 billion, but the SEK 440 we could basically take out.
The SEK 440 billion, yes. If you want to keep the billion, Andreas, it's really up to you.
Yeah, that's perfect. Thank you.
Okay. Our next question is over to the line of Magnus Andersson at ABG. Please go ahead. Your line is now open.
Yes. Good morning. With the cost question covered, I would like to ask you, perhaps I missed something on capital there, but do you have any view on what kind of increased requirement you might get from the commercial real estate add-on and when we will know what that could be?
Thank you, Magnus. We are still in the midst of trying to get more information out from the Swedish FSA. As far as we understand, it will be something that will be part of the SREP process next year. We expect more clarity to come later in the year. We will revert to you as soon as we have anything that we can talk about specifically.
Okay. You don't expect anything until the next SREP?
It will be part of the next SREP. The process, the way it works, Magnus, is that the Swedish FSA expects you to take as much of future requirements into consideration as possible when you do the SREP. It's a forward-looking exercise. That will start in the beginning of next year, and it will end in September next year. It will be part of that.
Okay. Thank you. Secondly, just on NII, how concerned are you about still being below your backbook market share in terms of net new lending, although it looked a bit better in the last month there? Can you say something about that and also the competitive pressure in the mortgage market?
I think as we have to reiterate answers from before, Magnus, obviously, our ambition long term is to be in line with our backbook market share. As we have said, the dynamics in the market has changed once again this year. We have been cautious, and we will continue to be cautious on price and origination standards for the short term, at least.
I could say a few words on that as well. For me, it's important that in this competitive market that we press what we are. We are a full-service bank, and that means that when we meet the customer, it's not only about mortgages, it's about the app, it's about making people grow and their companies grow. We see this as a full service, and I'm pretty optimistic on our possibilities in this area looking forward.
Okay. Thank you. Then finally, just on costs. You've had a significant ramp-up of capitalized IT investments since 2015. I think 2017 was a record year, but you're still around that SEK 1 billion. When you look at AML-related costs now, it's primarily consultancy costs, and we know about the SEK 1 billion that could level off in 2020, 2021. Will this also have an impact on an even higher level of capitalized IT investments going forward that we'll see the impact of, obviously, in terms of amortization later?
If you isolate the development costs for AML-related systems.
Yep
It will not be of any significance. Having said that, Magnus, it's part of the overall development program that we are running. We have, as you know, increased our development speed and our investments into developing new systems and processes. I don't think you should isolate the AML issue. You should rather look at our increased investment spend in terms of development for the future.
Okay. Thank you very much.
Our next question is over the line of Sophie Peterson at JP Morgan. Please go ahead. Your line is now open.
Yes. Hi, here is Sophie from JP Morgan. My first question would be on the 30 billion of transactions that you are looking through. Could you just give us the amount, how much in Swedish krona or euros or dollars that these 30 billion of transactions amount to? That would be my first question.
To be honest, this is Jens here. I don't have that number. I think it's very simple. You look at the banks, what we've done through 2007 until 2017. Roughly, they're going through everything, and that means that we talked about SEK 15 billion before, but that was just the Baltic business. We're also looking at the whole Swedish business during that time. The idea is very simple, to look through and to see if we made any mistakes and to learn from those mistakes.
Sophie, just to add to that, this is Anders. The first step is to ensure that we are covering all transactions that have been conducted
As you understand, when we say that there is 30 billion transactions, the underlying number in terms of volume, it is a ridiculous number. The next phase is to put analytics on it to see whether there are any of those that are of suspicious nature. It's not giving you any value, as far as I can see, to talk about the underlying volume for 30 billion transactions.
Okay. In the kind of initiatives that you have done and that are still ongoing out of these 30 billion of transactions, have you found any sanction breaches or anything that looks suspicious?
Well, not to our knowledge, but this is an ongoing work, and if the investigators find something important, they immediately go to us. The idea is to now focus and get this internal investigation finished during Q1. As I said, if they find something of importance, they will immediately go to us.
Just to clarify, so far they haven't found anything? No sanction breaches, no suspicious activity, nothing?
You asked me a question of whether there was any sanction breaches. I answered that. Of course, they found some things. They come to us. Your specific question was on sanction breaches.
On sanction breaches, you have not found anything?
As I know now, I haven't been informed of any sanction breaches. Nobody has come to tell me. I'm not saying that they won't happen. I don't know. The internal investigation is ongoing.
Okay. My last question would be on the outlook for the Baltics. One of your peers is saying this morning that they're seeing signs of a slowdown. How do you think about the operating environment in the Baltic region going forward, please?
Well, I think we see signs of a slower growth as well. This is also a relative game, and my key point in my introduction was that I would expect growth to be 1.5%-2% higher in those three home markets rather on the Swedish home market. I think there is a tendency to only talk about the problems in the Baltics. Let's not forget that these are three aspirational countries that we are very proud to work within, and we have a strong market position and very innovative culture. I have a positive view on the Baltics looking ahead. There is a weakness ongoing now, and that you saw in the IMF numbers. Thank you, Sophie.
Thank you.
Our next question is over to the line of Rickard Henze at Nordea Markets. Please go ahead. Your line is open.
Good morning. I am thinking about not asking an AML question. Firstly, in the details regarding items affecting comparability, you had a line of, I don't have it in front of me, but SEK 100 million-plus of operational incidents. Can you shed some light on what that is? That's the first question.
Hi, Rickard. It's Anders. The operational incidents is a number of frauds.
In which geography?
In Sweden, our reality is that there are attempts to fraud the bank every day in many different ways.
Every second and as we speak it's.
We have managed most of the cases. In some cases succeed. In this case, that happened. It's fraud related.
All right. The second question is if you can give some more information about the Swedish mortgage margins and the market of that. Are you seeing increased competition? What do you expect throughout the remaining part of the year and going into next year?
Well, I can start off. Yes, we see increased competition. I think it's important to remember that we are a full-service bank. We meet our customer, give them a full picture of that. You also have to remember, we've been there for 199 years. A few of our competitors out there, they've been there for a very short period. This goes up and down. I think if I look ahead, I think we have a good possibility to keep very strong here. Anders, you want to add anything?
It's nothing to add. What I said is the margins were stable in the quarter. Obviously, the competition is there. We continue to be prioritizing risk and price, and we will do that in the short term.
All right. Thank you very much.
Our next question is over the line of Riccardo Rovere at Mediobanca. Please go ahead. Your line is open.
Thank you. Thank you very much for taking my question. I have just one. I was curious to hear your opinion on whether the current level of rates-
Sorry, Riccardo, I do apologize. We are finding it very difficult to hear you as you are on a very poor line.
Can you hear me now? Is that better?
Can hear you better. Sorry. Yes.
Okay.
Please, can you ask your question again?
Right. Okay. Thank you. I just wanted to have your opinion on whether the current level of rates, which are certainly denting the asset margins, could eventually also have, at some point, a positive impact on the issuance of medium long-term funded cover bonds, senior non-preferred, and so on. Do you think that at some point is going to be feasible? I just wanted to have some opinion from you on this topic.
Thank you, Riccardo. I think you've already seen the effects on our funding cost because we have been in negative territory for a fairly long time. The important question for us is the cost relative peers, rather than the absolute level in the market. There you have also seen in our latest issuance that the spread in the senior non-preferred is about 10 basis points, which is a fairly low spread, and in all other funding sources, we are in the same level as the peers.
Okay. Thank you very much.
Okay. Our next question is over to the line of Jacob Kruse at Autonomous. Please go ahead.
Hi. Thank you for taking the question. Can I just first ask on cost, the current headwind, which I think is about SEK 900 million from FX and pensions. Just given where we stand today on the bigger pension deficit and I guess the weaker krona compared to the average for this year, what would that number look like if you did 12 months rolling from here on out? If you just say it doesn't change, what would it look like for 2020? My second question was just on the AML. The 132 initiatives that you have talked about, how do they compare to the commentary that you received so far from the Swedish FSA? Are you well ahead of what they are asking for, or is this broadly in line with what they want to do?
Could you also comment on the Grimstad report, some of the very big numbers of flows from these high-risk accounts, how we should look at that number? Thank you.
Thank you for that question, Jacob. Let me first start on the 132-point program or the 132 initiatives. They come from different sources. We have a database in the house, and that comes from, as I said, the internal investigation where Grimstad is one of those reports, and also the demands or questions from the FSA. I'm not going to divide the 132 project and say who comes from who. Usually it comes from many sides, but we have a good process and I think that's something that the relevant authorities will see. Thank you, Jacob, on your question on pension and FX, it's actually at SEK 950 with current FX rates. When it comes to the pension liability, by far most important variables to look at is the long-term interest rates and the inflation expectations.
As you have seen during 2019, the long-term interest rates have fallen quite dramatically. We increased with 300 versus the initial situation in 2019. How the long-term interest rates will develop into 2020 is something I would not like to discuss here, but you have the sensitivity in the annual report when it comes to that. FX, as far as I'm concerned, although it's a drag on costs, it's a positive net for the bank. Having said that, most likely pension costs for next year will, as a consequence of this, be higher.
By how much, if you just take where we stand today?
I don't have that information, unfortunately. We need to close the year in order to be able to give you more information around that.
Yep. Okay. Thank you.
Okay, before going on to the next question, which is over to the line of Peter Kessiakoff at SEB. If anyone has any further questions at this stage, please do press zero and then one. Peter, over to you.
Yes. Hi. First, one question on the question that we received, or an update on the question that we received earlier on the mortgage market, and that you're growing less than the natural market share. When I look at the developments for the savings banks, a lot of them are taking back mortgage volumes from your balance sheet onto their own, which clearly has a drag on your growth in the mortgage market. Would you say that that accounts for perhaps half of the market share losses that you're currently seeing? Could you say anything about whether you expect that to be a temporary effect or if you expect that to continue into 2020 as well?
Thanks, Peter, for your question. You're right. If you look back in time, you can see that it has been a certain volatility in the volumes that the savings banks are putting into our balance sheet. It is to a certain extent connected to their capital and liquidity situation. You're perfectly correct that it's a drag on our front book versus back book. Whether that will continue at the same pace or not is very difficult for me to say.
Would you agree with that probably removes roughly one percentage point of your annual mortgage growth at the moment? Roughly half of the market share losses that you're seeing.
You're in the right parameter when you do that analysis.
Okay. Thank you. On the 132-point plan, is it possible to say roughly how much the costs relate to the various points and given when you expect them to be fully concluded? Is that a significant part of the AML cost that will be removed once these have been completed?
Well, let me first say a few words about the 132-point action plan. As I showed in the slide, 71 of those will be closed the 31st of December this year, and then 61 will last into the next year. Anders, you're the cost guy.
I'm the cost guy. Yes. Peter, if you remember, although I was completely wrong in my forecast in Q1 on the investigation costs, I also told you that we will build up competencies. We will invest into processes and systems. Part of that SEK 1 billion, as I talked about at that point, was actually building run rate. When Jens is talking about the 132-point program, it is very much about building competencies, improving processes. All of that is not entailing increased cost because some of it is actually optimizing and digitalizing some of the manual processes we have today, for example, within KYC. The blurry answer to you is no. A fair chunk of the investments that are going into the program will be part of our run rate going into next year.
Could I follow up on Anders there? I think if I understood correctly, this is almost the last question. This shows you that AML, in many ways, people have seen KYC as. There's a Swedish expression that is, I don't know if it's a U.S. expression as well. You throw out in the yeast in the dough at the very last. That's not the point. The point here is what we want to do is we take AML and KYC and put it in the customer meeting. If you put all those questions first, I think that's a good way to start the customer discussion. I see a lot of these things needs to be put in the genes of the banks. I also see quite a lot of possibilities to use digitization.
I would guess that one of the reasons why we've had AML issues is that we did not go automize this fully out. I think there is a starting cost, but when you get it right, I think this will be good for the business and good for the cost. In the end, I will be a cost guy as well.
Okay. Just a final question. I think, Anders, I think you mentioned relating to the SREP that AML impacts the capital planning of the bank or that the SREP reflects that or your discussion with the FSA. Could you just elaborate a bit more on what you actually mean on that? What does it actually mean?
To give you a concrete example of what it means is that if you remember where we were capital-wise in Q2, we were close to 100 basis points of a buffer. We knew that we had a countercyclical buffer coming our way of 40 basis points. That is a situation where the capital is in the lower range for us under normal circumstances. Under these circumstances, it is definitely in the lower range. You can do either of two things, and what we did was to change our dividend policy. That has been recognized by the Swedish FSA as a prudent action. They will continue to follow us and ensuring that we are continuing to act prudently in the capital space. That is what I meant.
Okay. Thank you.
Okay, it looks as if we have another question over the line of Adrian Tsige at RBC. Please go ahead, Adrian. Your line is now open.
Hi there. Thank you very much for taking my questions. Two follow-up questions from my side, one on money laundering and one on capital planning. On the money laundering, have you mentioned which U.S. authorities are involved? Apologies if I missed it. Is the DOJ involved? Secondly, on the capital planning, you also mentioned earlier that you might take as long as 5 years to complete the investigation, the U.S. authorities. How do you expect this to impact your dividend policy in the meantime? Do you stand by the policy outline of the 50%, or do you feel the need that you might need to build a slightly higher buffer over these next few years? Thank you.
The first question is very simple. Answer, no. We have just used the word, it's a plural, so the U.S. authorities, and we have not talked about what authorities. Anders, you want to.
Yeah. On the second question, I think if you remember, what we also did in the second quarter was that we gave you a management buffer range. That is for us to signal to you where we think that we need to be. Having a return on equity target of 15% remaining, I can assure you that we will not build extra capital that is not needed.
Perfect. Thank you very much.
Okay, as that was the final question for today, may I please pass the call back to you for any closing comments at this stage?
In the end there, I just want to say thank you to everybody to attending, and let me just be very clear. I'm very proud to be the CEO of this bank. I see great opportunities in the future, and I'm looking forward to working with you and being as open and transparent as we can be. Thank you, everybody, and take good care, and have a good day.