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 after it, there will be a question and answer session. So today, I am pleased to present Grigori Karamoussis, Head of Investor Relations. Please begin.
Thank you, operator, and good morning, everyone, and thank you for joining us on this presentation of Swedbank's Q3 results. With me in the room today, I have our CEO, Jens Hendrickson our CFO, Anders Karlsson. After their initial remarks, we will open up for questions. Jens, please.
Thank you, Gregori, and welcome everybody this early morning to the Q3 results for Swedbank 2019. My name is Jan Vernekson. I'm the new CEO. I started the 1st October, which is actually the day after the quarter was closed. I would summarize the quarter as a stable quarter, but 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 analytics, I do with owners, I met customers, media, co workers and authorities. And out of the last 3 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 3 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. And the 3rd focus area for me will be sustainability. We have an almost 200 year tradition, and it was striking in the during the IMF meeting how many banks and stakeholders have talked about sustainability. And we have an advantage here.
But the problem is, of course, that you cannot have AML sorry, moneyloaning accusation at the same time. So my long run goal is to have 2 focus areas, digitization and sustainability. Now let me speak a few words on AML. So if you look on the slides now, well, let's see here, I'm going to change the slide. Now there has been some complaints that we haven't shown a time line.
So I'm going to show you a time line. And that time line, I think you should look on February 20. So at February 20, the Swedish news program, Utter Ganskin, 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 had hired subcontractors in FTI and FRA, which are forensic experts. What they are doing is they're going through SEK 30,000,000,000 transactions, just an example that you understand how much we're doing from 2,007 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. So 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, I may 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. Then we have the U. S. 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. And 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 1 to 5 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. And so what's happening is that we have a lot of ideas or proposals on how to improve our AML processes. And that comes from internal functions.
We have audit. We have compliance. We have risk. And just to give you an example because a lot of people are talking about the so called Grimsby Report, They are saying these are things they want us to do. Then from the Estonian and the Swedish FSA, they are also coming with proposals on what to do.
And then we have the internal investigation by Clifford Chan, as I told you. Altogether, we have 132 action points. And that concerns, as you can see, FIU reporting, that's reporting to the Financial Intelligence Unit, risk assessment, internal regulations, training, customer diligence, risk classification and monitoring. And Gregor, 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 to be hoped to close by the 31 December 2020 and the rest 61 will then close 2021.
Well, how is it then falling? Well, if you look on the 3rd slide here, this is the status as it was yesterday. Status will probably be different tomorrow, but we will keep track on this. And 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. And as it was yesterday, there were 3 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. Then we have 29 projects that hasn't started yet, and they may be due to interdependencies on the other one. So I will continue to talk about this until you are really tired of me listening to this.
And then during the annual report, I will try to be much clear exactly what those 132 point program is about. Now let me say a few words on the U. S. Because as I told you, me, my Chairman, Mr. Persson, and my CFO was 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, it was anti money laundering and was also a lot of discussion about the economic outlook. And 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. And in Indonesia, there was a discussion then that you would see inflation pikes in the U.
S. That will mean that the Federal Reserve will raise rates. And as a result of that, you will see flow from emerging markets into the U. S. That would give them problem.
Now when we met in April, it was sort of a waiting period. And the policy message was clear, do no harm. Now when we met this year, it was very simple policy message, harm has been done. And I would say that it felt like we are the calendar said October, but it felt like November. And if you look on the growth figures, they're talking about the 3% growth in 2019 and 3.4% in 2020.
And the uptick there comes mostly from Iran, Russia, Turkey because they were so depressed during 2019 that the statistical effect of bouncing back 2020. So the message is clear, lower for longer. And that, of course, means a lot of challenges for banks looking ahead. Well said that, now let's just say a few words about the results. We have a return on equity that right now that's just below 15%.
And but 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 an example when you talk about the investigation. The investigation has so far cost us SEK1 1,000,000,000.
And as you know so far, this year, we expect it to be SEK1 1,000,000,000. But Swedbank stands strong. Our capital position is good, and our credit losses are low. When I look forward, and I say this with sort of I'm still in listening and learning mode, I see both challenges and possibilities. Swaybank has a very broad customer base.
We have the innovative culture. We have competent and good people that work for the bank. And we are strong in Estonia, Latvia and Lithuania, countries that grow roughly with 1% to 1.5% more than Sweden. And we have an activity plan that I'm right now digging myself into. And we have a lot of work, which I see good possibility to optimize and digitize.
And we have an extreme clear customer focus. But I also see challenges. There is a harder competition on most areas. We will lower for longer, and that affects us. And there are AML related costs.
Our answer to this is to continue to deliver, but it's my as I said, it's my 23rd day, and this is questions I will return to. And then I give the floor to my excellent CFO, Mr. Anders Karpel. 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 5,000,000,000 due to a couple of large scheduled repayments.
Corporate margins also remained stable, but portfolio composition effects impacted the quarter slightly negative. Lending grew in all three Baltic countries by a total of SEK 6,000,000,000, somewhat more in the private than in the corporate segments. FX contributed positively by SEK 2,500,000,000. In addition to underlying growth in all countries and segments. Hence, the solid lending growth continues.
Lending margins continue to expand both in the private and corporate segments, while deposit margins weighed on NII as the Euribor
euroboar 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 1st two quarters. This quarter, we have a negative delta of around SEK 30,000,000. Also, the deposit guarantee fee is adjusted higher SEK 20,000,000. 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 Q3. The asset management business benefited from the overall positive market development in the quarter. And 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.
Also, valuation effects in 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 50,000,000, but a considerably smaller one compared to last quarter, which was SEK 220,000,000. And 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 SEK60 1,000,000. 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 1,000,000,000 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 3rd quarter, we have additional one offs of around SEK 500,000,000. 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, that the Swedish tax authorities changed a previously approved methodology. This model change will result in around SEK 60,000,000 of higher expenses per annum going forward. Also, 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 and 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 1,000,000,000 in 2019. Altogether, this means that a total of SEK 1,500,000,000 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 50,000,000 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 19,800,000,000. 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 $154,000,000 which equates to an annualized impairment ratio of 4 basis points. In the Baltics, we saw a decrease of impairments compared to the previous quarters.
Now summing it all up before we take questions. We delivered a quarter with stable income trends, supported by continued loan volume growth, albeit at the lower pace and higher activity in our cars business and a benign stock market development. Underlying expenses are under control, but 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.
And 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.
Okay. Our first question is over to the line of Andreas Hakansson of Danske Bank. Please go ahead. Your line is open.
Good morning, everyone, and thank you. My question is about costs. The EUR 19,800,000,000 which is, of course, higher than what we expected, includes the EUR 500,000,000 and, of course, the EUR 1,000,000,000. Could you tell us going into 2020, and I understand you're going to guide for that together with your Q4 numbers, but the EUR 500,000,000, comment on when the EUR 1,000,000,000 will fall off, do you think that the safe way for us to forecast is to keep the EUR 1,000,000,000 in and rather just take out the EUR 500,000,000 for now? Or what's your view on that?
Andreas, it's Anders here. You're right. Out of the SEK 500,000,000, the thing that I can see remains into the next year is the SEK 60,000,000 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 SEK 30,000,000,000 transactions that Jens talked about, then running them through the forensic process. And I would assume that, that word will not have to be repeated. But 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. So 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.
Okay. So we keep the SEK 1,000,000,000 but the SEK 440,000,000 we could basically take out?
$440,000,000 yes, if you want to keep the $1,000,000,000 on the year, it's really up to you.
Yes, 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 from the Swedish FSA. And as far as we understand, it will be something that will be part of the escrow process next year. But we expect more clarity to come later in the year. So we will revert to you as soon as we have anything that we can talk about specifically.
Okay. But you don't expect anything until the next SREP?
It will be part of the next SREP. And the process, the way it works, Magnus, is that the Swedish SFA expects you to take as much of future requirements into consideration as possible when you do the SREP. So it's a forward looking exercise. And that will start in the beginning of next year, and it will end in September next year. So it will be part of that.
Okay. And then secondly, just on NII, how concerned are you about being still being below your back book market share in terms of net new lending, although it looked a bit better in the last month here? 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, we obviously, our ambition long term is to be in line with our back book market share. As we have said, the dynamics in the market has changed once again this year. And we have been cautious, and we will continue to be cautious on price and origination standards
for the short term, at least. Well, I can 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.
So we see this as a full service. And I have I'm pretty optimistic on our possibilities in this area looking forward.
Okay. And then finally, just on costs. You've had a significant ramp up of capitalized IT investments since 20 15. I think 2017 was kind of a record year, but you're still around that SEK 1,000,000,000. When you look at ML related costs now, it's primarily consultancy costs, and we know about the SEK 1,000,000,000 that could level off in 2020, 2021.
But will this also have an impact on an even higher level of capitalized IT investments going forward that we see the impact of obviously in terms of amortization later?
If you isolate the development costs for AML related systems, it will not be of any significance because but having said that, Magnus, it's part of the overall development program that we are running. And we have, as you know, increased our development speed and our investments into developing new systems and processes. So I don't think you should isolate the AML issue. You should broadly 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 JPMorgan. Please go ahead. Your line is now open.
Yes. So hi, Iris Sofie from JPMorgan. So my first question would be on the EUR 30,000,000,000 of transactions that you are looking through. Could you just give us the amount, how much in Swedish krona or euros or dollars does this SEK 30,000,000,000 of transactions amount to? So that would be my first question.
Well, to be honest, I don't this is Jens here. I don't have that number. But I think it's very simple. You look at the banks, what we've done through 2,007 until 2017. Roughly, they're going through everything.
And that means that we're looking we talked about SEK 15,000,000,000 before, but that was just the Baltic business. We're also looking at the whole Swedish business during that time. And the idea is very simple, to look through and to see if we made any mistakes and to learn from those mistakes.
And 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. And as you understand, when we say that there is €30,000,000,000 transactions, the underlying number of in terms of volume is 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. Then it will become much less in terms of so it's not giving you any value as far as I can see to talk about the underlying volume for SEK 30,000,000,000 transactions.
Okay. And then in the initiatives that you have done and that are still ongoing out of these $30,000,000,000 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, they and if they find something important, they immediately go to us. But the idea is to now to focus and get this internal investigation finished during Q1. But as I said, if they find something, they will call us immediately. If they find something of importance, they will immediately go to us.
So just to clarify, so far, they haven't found anything? No sanction bridges, no suspicious activity, nothing?
Well, I'm just you asked me a question of no whether there was any sanction bridges. I answered that. Of course, they found some things they come to us, but your specific question was on sanction bridges, sorry.
On sanction breaches, do you have an answer on anything?
As I know now, I haven't been informed of any sanction breaches. Nobody has come told me. I'm not saying that they won't happen. I don't know. Internal investigation is ongoing.
Okay. And then 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 slower growth as well, but this is also a relative game. And my key point in my introduction was that I would expect growth to be 1.5% to 2% higher in those 3 home markets rather on the Swedish home market. And I think there is a tendency to only talk about the problems in the Baltics. Let's not forget that these are 3 aspirational countries that we are very proud to work within, and we have a strong market position and very innovative culture. So I have sort of a positive view on the Baltics looking ahead, but there is a weakness ongoing now and that you saw in the IMF numbers.
Thank you, Sophie.
Thank you.
Next question is over to the line of Richard Hentz at Nordea Markets. Please go ahead. Your line is open.
Good morning. I'm thinking about not asking an AML question. So firstly, in the details regarding items affecting comparability. You had the line of I don't have it in front of me, but SEK 100,000,000 plus of operational incidents. Can you shed some light of what that is?
That's the first question.
Richard, it's Ed Sanders. Your operational incidence is a number of frauds.
In which geography?
In Sweden. We usually the way our reality is that there are attempts to fraud the bank every day in many different ways. Every second and as we speak. And we have managed most of the cases. In some cases, succeed.
In this case, that happened. So it's fraud related.
All right. And 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. But 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. And 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, but I think my sort of if I look ahead, I think we have a good possibility to keep very strong here. Anders, do 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
from one. I wish you could hear your opinion on whether the current level of rate.
Sorry, Ricardo, I do apologize. We're finding it very difficult to
hear you as you're on a very poor line. Can you hear me? Can you hear me now?
Hear you better, Sorry. Yes. So please can you ask your question again?
Right. Okay. Thank you. Now I just wanted to have your opinion on whether the current level of rates, which are certainly denting the asset margin, could eventually also have at some point a positive impact on the issuance of medium long term funded covered bonds, senior non preferred and so on. Do you think that at some point is going to be feasible?
What I just wanted to share to have some opinion from you on this topic.
Thank you, Ricardo. 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. And there you have also seen in our latest issuance that the spread in the Cmin on 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 €900,000,000 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? Or if you just say it doesn't change what would look like for 2020?
And then my second question was just on the I guess on the AML. The 132 initiatives that you have talked about, are those how do they compare to the commentary that you received so far from the Swedish FSA? So are you well ahead of what they are asking for? Or is this broadly in line with what they want to do? And 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. So thank you for that question, Jacob. So let me first start on the 130 2 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 GreenSky is 1 of those reports and also the sort of 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.
And thank you, Jake. On the on your question on pension and FX, it's actually at €950,000,000 with current FX rates. When it comes to the pension liability, the by far most important variables to look at is the long term interest rates and the inflation expectations. And as you have seen during 2019, the long term interest rates have fallen quite dramatically. So we increased to 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 net for the bank. Having said that, most likely, pension costs for next year will, as a consequence of this, be higher.
And 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. Okay. Before going on to the next question, which is over to the line of Peter Kessiakov at SEB. And Peter, over to you.
Yes. Hi. First, one question on 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 created as 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?
And could you say anything about whether you expect that to be a temporary effect or if that if you expect that to continue into 2020 as well?
Thanks, Peter, for your question. You're right. And 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. So if you're perfectly correct that it's a drag on our sort of front book versus back book.
Whether that will continue at the same pace or not is very difficult for me to say.
But would you agree that, that probably removes roughly 1 percentage point of your mortgage and your mortgage growth at the moment, So roughly half of the market share losses that you're seeing.
You're in the right perimeter when you do that analysis.
Okay. Then on the 132 point plan, how much I mean, is it possible to say roughly how much of 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 December this year And then SEK 60,000,000 will last in sorry, SEK 61,000,000 will last into the next year. But Anders, you're the cost guy, so
Yes, I'm the cost guy. Yes. Yes, but 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. And part of that SEK 1,000,000,000, as I talked about at that point, was actually building run rate.
So 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. So 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? Because I think this is sort of if I understood correctly, this is almost the last question. This shows you that sort of AML, in many ways, people have seen sort of KYC. There's a Swedish expression that is I don't know if it's the 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 customer discussion. So 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. And I would guess that one of the reasons why we've had AML issues is that we did not go automize this fully out. And 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. So in the end, I will be a cost guy as well.
Okay. Then 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 capitalized in Q2, we were close to 100 basis points of a buffer, and 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 in the definitely in the low range. Then you can do either of 2 things. And what we did was to change our dividend policy.
That has been recognized by the Swedish FSA as a prudent action. And 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. So it looks as if we have another question over the line of Adrian Cighi 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, 1 on money laundering and 1 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? And then 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 plural, so the U. S. Authorities, and we have not talked about what authorities.
Anders, do you want to take that? To take that? Yes. And on the second question, I think what if you remember, what we also did in the Q2 was that we gave you a management buffer range. And that is for us to signal to you where we think that we need to be.
And 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. And that was the final question for today. May I please pass the call back to you for any closing comments at this stage?
It's Jens here. I just want to say thank you to everybody for attending. And I'm let me just be very clear. I'm very proud to be the CEO of this bank. I see sort of 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.