Ladies and gentlemen, welcome to the Swedbank First Quarter Report 2019. For the first part of the call, all participants will be in listen only mode and afterwards there will be a question and answer session. I will now hand the call over to Grigori Karamuzis. Please go ahead.
Thank you, and good morning, everybody. Thank you for joining us on this call presenting Swedbank's Q1 results. With me, I have our acting CEO, Anders Karlsson and our Chief Risk Officer, Helo Meggas. We will first make a short presentation of the quarter's developments before we open up for questions. I will now hand over to Anders.
Anders, please.
Thank you, Gregory, and good morning, everyone, and thank you for joining us for this presentation, our Q1 results. The year has financially started off with a good momentum. Focus has, however, as you all know, been on information about indicative shortcomings in Swedbank's anti money laundering work. Let me therefore first make a few comments in relation to this before I hand over to Gregory, who will walk you through the financial result in the quarter. The United Nation estimates that the amount of money laundered globally in 1 year corresponds to an amount of about 3 to 5 times that of Sweden's GDP.
Money laundering has become a race between criminals and legislators, authorities, financial institutions and financial intelligence units. Criminals develop increasingly sophisticated methods to avoid discovery. Legislators respond with stricter rules and stronger regulations. We, the banks, play a central role in combating money laundering. It is the bank's responsibility to know their customers, to detect and report suspicious transactions to the authorities and to ascertain that all employees adhere to laws and regulation.
Previous internal investigations have indicated shortcomings in Swedbank's anti money laundering work, such as in our KYC and customer screening processes. A broader and more comprehensive internal investigation is now underway in order to review our AML processes as well as to validate and if needed address previous findings. In addition, there are investigations being carried out by various authorities in Sweden, the United States and the Baltics. The respective Swedish and Estonian investigations are expected to be finalized before year end. Allow me to take a step back.
The interest in the Baltic region from Swedish corporates dates back all the way to the fall of the Soviet Union in 1991. 7 years later, Swedbank invested in Hamsa Bank in Estonia, an investment that paved the way for us into Latvia and Lithuania. I can say with pride that we, through our presence in the Baltics, have contributed to the positive development in the region. Swedbank and other Nordic banks account for a very important part of the financial infrastructure in these countries. Regrettably, individuals who may have obtained assets illegally may have managed to use our bank in the Baltics for money laundering.
At Swedbank, we have continuously worked to improve our anti money laundering methods. For example, in 2016, this work intensified through an AML program with particular focus on the Baltic markets. More stringent procedures led to many customers being off boarded. However, no bank executive, me included, can guarantee that our AML work is flawless. To strengthen the work against all aspects of financial crime, we are now establishing a new unit called Anti Financial Crime.
The unit will focus on anti money laundering, counterterrorism financing and financial crime that affects our customers in everyday life, such as identity theft and card frauds. The unit will also focus on cybersecurity, information security and physical security. The unit will coordinate the broader internal investigation, but also manage the cooperation with the authorities within the AML area. In order for Swedbank to deserve the trust from our customers, authorities, investors, employees and other stakeholders, we will make sure that further progress in our anti money laundering work is achieved. I also strive to be as transparent as possible given the various legislations in the jurisdictions where we operate.
Bear in mind that these legislations in some regards collide. The bank are and I are nevertheless committed to find ways to be as transparent as possible. However, it is not enough for us to act alone to make the problem of money laundering disappear. The key to successfully combating money laundering is enhanced collaboration between financial supervisory authorities, banks, other financial institutions and financial intelligence units, both nationally and internationally. With these comments regarding our AML work, I would like to move on to the financial result in the quarter.
We are delivering a strong set of results with higher net interest income and better trading result on the back of improved market conditions. Expenses are impacted by extraordinary one offs related to the AML investigations and asset quality remains solid. Gregory will now go through the numbers in more detail before I will make a few comments on expenses expectations for the full year. And last but not least, Hilla will talk about asset quality. Gregory, please.
Thank you, Anders. As Anders already mentioned, summing the year's Q1 up, we delivered another strong result with an ROE of 15.5%. The year has started off on a positive note with the main income lines performing strongly, while expenses are somewhat higher than expected and asset quality remains resilient. I will now walk you through the P and L lines for the quarter in more detail. Let's start off with the net interest income, which is higher quarter over quarter on the back of lower resolution fund fee and the repo rate hike in Sweden in December last year.
The Swedish private mortgages continued to grow, somewhat slower than our back book market shares though. In addition, we are pleased to see loan growth in all three Baltic countries. Corporate lending in Sweden and LC and I did also grow mainly in real estate sectors. Margins in the quarter were mixed with lending margins somewhat lower and deposit margins higher. Over the quarter, we saw the vast majority of our Swedish mortgage book in 3 month fixings, which corresponds to about 60% of our mortgage book, repriced successfully by the 20 basis points rise in the list prices.
Since the 3 months STIBOR rates increased on average by around 30 basis points compared to last quarter, margins in new lending did however compress with around 10 basis points in the quarter. Lending margins in Baltics were stable, while corporate margins in Sweden and LC and I were slightly lower due to the floored loans. Deposit margins have expanded in Sweden as we haven't changed our pricing in any of the deposit. In line with what we communicated before, the resolution fund fee was around SEK 100,000,000 lower in the quarter. And also bearing in mind that the day count effect is quite significant this quarter with 2 days less corresponding to around SEK 80,000,000 in a negative quarter over quarter effect.
Group treasuries NII was as expected lower in the quarter and that is reflecting the immediate effect of higher short term interest rates on treasury interest expenses. On a group level, however, as we've talked about many times, this effect is mitigated by higher deposit margins in the business areas. Now turning over to net commission income, which was seasonally lower in the quarter. We see the usual seasonal effects in cards, asset management, brokerage and custody. And we also have a fewer day impact in this quarter in net commission income as well.
Payments are stronger in comparison to last quarter due to the higher expenses we booked last quarter. Look at the underlying business, however, in particular Asset Management, which had a very solid performance supported by the positive stock market development. In addition, we continue to see strong net inflows in our funds business, both in the private and institutional side across geographies and asset classes. Fixed income funds and mixed funds saw the biggest inflows, but also equity funds attracted new flows. Turning to net gains and losses and other income.
We saw improved market conditions and they led to a number of positive effects in the quarter. We had a strong quarter in fixed income trading, while tighter credit spreads led to positive valuation effects. In Group Treasury, we have the holdings of Visa and Assia Castieto shares. If you remember, we talked about that last quarter, which are held at market value. And this led to a positive delta of around SEK 350,000,000 in this quarter.
When looking at other income and excluding last quarter's portfolio sale by Entercard, which gave about SEK 75,000,000 in a positive impact, the underlying business had an overall stable development. Now saying a few words about capital. Our capital position remains strong. The buffer to the Swedish FSA's minimum requirements stands at around 140 basis points. Net profit excluding dividend, impacted the CET1 capital base positively, while the pension liability valuation was negatively impacted following significantly lower long dated interest rates.
The risk exposure amount increased by almost SEK 20,000,000,000 in the quarter, to be more precise, SEK 18,500,000,000 The main reasons for the net increase were the continued loan volume growth, the introduction of IFRS 16, higher market exposures and also the annual updates for operational risks. Now summing the quarter up. We delivered a strong set of results with the positive effects from the repo rate hike becoming visible and also the improved market conditions impacted trading and net commission income positively. Expenses were slightly higher due to one offs amounting to around SEK 120,000,000 related to the AML situation. And asset quality remained resilient.
Before I hand the word back to Anders, who will talk about expenses in more detail and later on to Hilla, who will cover the asset quality part, I will first say a few words about the bank's liquidity position. We continue to have a very strong liquidity position in the bank. Our solid liquidity buffer where we are prefunded for more than 12 months allows us to cope with severe stress in the markets and also to be selective of when we access the capital markets. During the quarter, we have issued long term funding of around SEK 47,000,000,000 while our maturities for the full year stood at SEK 68,000,000,000 in the beginning of the year. With these issuance volumes, we have already this year fulfilled around 1 third of our funding plan.
The funding spreads in our domestic and international cover bond market have not been impacted by the AML situation, while the senior unsecured bond spreads have by around 25 basis points. Our significant level of cover pool overcollateralization gives us however the flexibility to fulfill our funding plans if we choose so without tapping the senior market for as long as the spreads are elevated. In addition, since our core funding sources are deposits and term funding, we have no reliance on short term funding and can choose to either only take out really short duration money without paying up or stay out of the market. Our deposits with central banks exceed the outstanding volumes in our short term programs. And lastly, pointing to the regulatory liquidity metrics, which are continuing to be strong with large buffers to the minimum requirements.
As you can see on this slide, the LCR ratio is 167% and the NSFR ratio is at 110%. And now I will hand the word back to Anders, who will go through expectations on total expenses for the year.
Thank you, Gregori. As already mentioned, we have incurred one off expenses in the Q1 following developments in the AML area. Due to these developments and the extraordinary situation the bank is in, my key priority for the year will be to rebuild the trust of customers and other important stakeholders. We continue to have a strong financial position that provides us with a platform to meet this challenge. Our efforts to address the current situation will lead to approximately €650,000,000 in expenses relating to ongoing investigations, CEO severance pay, acceleration of projects to bolster our AML processes and meet new future regulatory requirements and customer initiatives to strengthen the brand.
In addition, we have been reprioritizing some projects relating to the digital transformation of the bank and doing more to maintain the speed and scope of the development plan. This has cost more than anticipated. As we believe these initiatives will create value and improve customer satisfaction, we will continue to invest in and execute on these activities. We also anticipate business one offs over the year relating to the closure of Luxembourg branch and additional VAT expenses regarding leasing. Altogether, these initiatives are estimated to increase cost by approximately SEK 1,000,000,000 during the year, in addition to our previously communicated goal of underlying expenses being below SEK 17,000,000,000 in 2019.
We have previously mentioned headwinds from FX and pension, which are currently estimated to be SEK 800,000,000 however, reminding you that the FX effects
are
net positive. The extraordinary circumstances require specific actions that we have chosen to take. Our key priorities of having a market leading cost efficiency and a return on equity target of at least 15% remain. And with that, I hand over to Hilo, who will walk you through the development in asset quality.
Thank you, Anders. I should give now a short overview of asset quality. Credit growth was moderate in Q1 with the loan portfolio increasing by SEK13.7 billion, of which SEK5 billion was FX effect. Aside from mortgages, growth primarily came from property management, the majority of it in Swedish Banking, both in commercial and in residential properties. Credit impairment in Q1 was DKK 218,000,000, divided between LC and I and Swedish Banking.
In Baltic Banking, we continue to record small recovery. The increase of provisioning is primarily a sum of rating migrations and slightly more negative forward looking assumptions, plus some provisioning for a few smaller defaulted clients, I. E. Stage 3 provisioning. So all in all, credit quality stays strong.
If I then conclude with the topic of housing developers, which we have been focusing in the last quarters, our exposure continues to go down and is at the end of Q1 at SEK 14,800,000,000. This is because finalized construction of the gain volume than lending to new projects. With that, I hand back to Gregori.
Thank you, Hilla. Thank you, Anders. Operator, we're happy to take any questions.
Yes. Good morning. Just on the costs. Now we know that you raised your guidance to around SEK 18,800,000,000 for 2019. And I would like to get a better grip on how much of this is should we look at as recurring into 2020 and potentially 'twenty one without being, I mean, extremely specific?
But for example, if you take the 6.50 for AML related initiatives, I mean, how much is legal consultancy, etcetera? And how much is due to own initiatives such as brand management, etcetera. And then of the investments of SEK 250,000,000, I guess it's mostly digitalization. If you move things forward, does it mean that it, all else equal, could be lower in 2020, '21. And I guess that the 100,000,000 in other business one offs should be one off for 2019.
But I think any light you could shed on how much we should I mean cost expectation should go up beyond 2019 would be very valuable at this stage. Thanks.
Thank you, Magnus. I will do my best. If I simplify it for you, I would argue that €500,000,000 is run rate and €500,000,000 is extraordinary costs. The latter part is, however, open ended Magnus because I don't know how long the process will continue. And on to your remark of the investments that we are doing, there are I think it is extremely important to do 2 things at the same time.
1 is to move forward some projects that are increasing or customer convenience at this point and also to push the sort of throttle on AML related projects. The reason for not sort of taking the foot off the gas is the fact that we have a plan as we have been talking to you about, which is transforming the bank. And in order to be able to remain cost efficient that will continue. So it is a rough number for you, but at least it gives you a sense of where we stand and how it is distributed.
Okay. So simply put, once the investigations, etcetera, are finalized, whenever that happens, roughly 50% of the SEK 1,000,000,000 should fade away?
That's the best estimate at this point, Magnus.
Yes. Okay. And then secondly, just on NII in connection with the Q4 report, we were talking about the NII impact from the Swedish rate hike, LIBOR moves and your rate action. And you expected an impact of around SEK 200,000,000 per quarter from Q2 in 2019. Does this number still hold?
What has changed since we last quarter communicated the parameters that matter for the NII sensitivity is that the 3 month STIBOR rates have increased even more during this quarter. And this leads to a couple of impacts. Firstly, as actually I mentioned already before mortgage margins are slightly lower, which means that the pass through on mortgages is smaller. Secondly, the floored corporate loans and the deposits where we have been charging customers will lead to an additional headwind in the Q2. And this headwind if 3 months LIBOR rates stand still or increase further from here, will, on the other hand, disappear going forward.
So all in all what has changed is that all these impacts lead to a somewhat smaller net positive impact in 2019 altogether.
Okay. Okay. And also do you have a view on the fact that when we look at front book rates on new 3 month loans, they are up by 5 basis points from December until March. Is that an indication of competitive pressure? Or how should we look at that?
Well, I think, Magnus, you're referring to the average mortgage rates, right?
Yes, yes. To the average actual rates, yes.
Yes. Well, the as you know, the average mortgage rates that are published monthly new contracts. That is the large part of the mortgage book that is rolled over monthly is not included there. That's why I made the comment before that the we actually did reprice with 20 basis points to the vast majority of the book. Your comment or your question is however still valid.
I think it indicates what happened during these couple of months and the market is in a calibration phase. I think we need a few more months to say if the actual new price is at those levels or if the price is at a different level. So it's too early to say if the book is going to reprice at those levels going forward.
Okay. And then just finally on NII. I guess your comments around liquidity position and funding plans and such during price that we should not expect any negative impacts on funding costs, at least for 2019. And then we'll obviously have to see what happens, right?
Yes. I would say I described the option, the optionality that we have, the flexibility that we have. So your comment is correct. To date, we haven't seen any higher funding costs on the back of widening funding spreads because we have the flexibility to meet our funding needs in a different way.
Okay. Thank you very much.
Next question is from Peter Kessiak from SEB. Please go ahead. Your line is open.
Hi, good
morning. Just a few questions. First of all, on the AML concerns really that has impacted you in all your markets, have you seen any impact on kind of client flows from that so far?
Thank you, Peter. I think our staff has done a fantastic job during the past 2 months talking to our customers. We have so far only seen a few customers that wanted to move the business away from us. Having said that though, I think we need to be humble in anticipation of the continued conversations with our customers. We will do what we can our utmost to keep the and of questions handled fantastically well by the staff, but we need to be humble.
Okay. Then on capital, as you mentioned, you have a buffer of some 100 and 30, 140 basis points. And then during the end of the year, we will have the countercyclical buffer rising in several markets, which could imply then that your capital buffer is at or below kind of 100 basis points above your requirement by the end of the year. Does that mean anything for you? Does that change your behavior in any way?
Or are there reasons to believe that the common equity Tier 1 ratio will rise from today's levels? Are there any kind of material effects?
We feel comfortable with our current buffer to the minimum requirements. As you know, we haven't yet made a statement about a range or a cap buffer internally that we have set. There are still some uncertainties as you know on the regulatory front before that need to be clarified before we set that buffer target. You should remember, if you look forwards, because that's really your question, our behavior doesn't change. We will continue doing the business that we want to do as long as those deals are meeting our return hurdles.
You should also remember that there have been a number of factors that have been going against us if I call it that for a number of years now. And I'm thinking about the pension liability valuation and the long dated interest rates and REA have been increasing quite a lot the last couple of years. That basically means that we have already taken a lot of hit basically on the RIA front. But for timing, nothing is changing in terms of how we conduct our business.
Okay. And being below say 100 basis points in buffer isn't necessarily something that you would find concerning?
No. I mean, there is a buffer that you can temporarily be below 100 basis points or even lower than that, but there is nothing that would worry us at this stage, no.
Okay. And just one final question on the AML issues. You mentioned that you have dialogue with Baltic, Swedish and U. S. Authorities.
Could you perhaps elaborate a bit on what the dialogue is with U. S. Authorities? What kind of questions are being asked? Or what's the focus here?
And how broad is potential investigation from their side? Any comments would be helpful. Thanks.
Thank you, Peter. Specifically on the U. S, I have unfortunately to be fairly limited. But there are numerous questions of different sorts and kinds. That's number 1.
Number 2 is that, that is why we as I said, we have a broad and deep internal investigation going on for the sake of us understanding, but also to be able to manage all the different authorities' expectations and answers. And as you have seen, we have been using Clifford Chance as our legal firm to represent us in the U. S.
Okay. I'm done there. Thank you.
The next question is from Jornick Plumb from UBS. Please go ahead. Your line is open.
Thank you. I think the majority of the questions have been covered, but I just want to come back a bit to the mortgages. I mean, you said the majority of your variable rate book was repriced during the quarter. Can you just give us a sense as to when in the quarter that happened? Just to kind of get a sense as to how much of that effect is fully in Q1 and how much is left to come in Q2?
And then secondly, also on the mortgage market, you sort of allude to front book market shares being below your back book. Can you talk a little bit about the outlook there? I mean, are you seeing lower growth because of the competitive pressures? And you're not wanting to write business at current levels? Or is this a conscious step in terms of risks that you see?
Just to get a sense to kind of what your appetite for growth is relative to what kind of market growth we're
seeing? Thanks, Johan. On your first question, we have rollovers, the way I call them, every month. So at the end of the month, a portion of the book is rolled over. So for the Q2, you would expect that the more or less the whole book of 3 month fixings would have will be repriced.
Your second question about front book, back book margins and what to expect in terms of growth. The first a comment on the potential gap between those 2, the front and the back book. There was a gap in the beginning of the quarter as a result of what I discussed before the significant 3 month stybri increase late Q4 and beginning of Q1. But this has now been closed as the mortgages with 3 month fixings very quickly reprice, as I mentioned, every month and become part of the back book. So today when we look at the book, the front and the back, there is no gap between the front and the back.
In terms of growth, I would describe the market situation as being in a calibration phase in terms of competition, how competition behaves, us capturing a little bit less market shares this quarter, I would assign to this situation or this phase that the competition is fierce and the behavior in the market has still not settled, if put it that way. So we will see over the next few quarters how things develop. And overall in the market, there is a slightly lower growth pace and that has to do with what we've been discussing in the past that the you've had the amortization requirement that were introduced. And you have a generic slowdown in the economy. Still the economy is growing robustly, so I would say, but in a slower pace and that impacts also the mortgage markets.
So can I just clarify? So on the mortgage rollovers, is it fair to say that it rolled over roughly evenly through Q1, so half the impact is in Q1 and half is still to come? And then on the second, on the growth side, I guess another way of putting it is, you talk about slower growth. To what extent is that market? And to what extent is that spread specific?
So do you would you expect to have a materially lower market share of new production than your back book this year?
On your first question, I would say that more or less half has already been visible in a little bit more than half has been visible in 2 thirds maybe in the Q1 and then you will have the 1 third coming in, in the Q1. So the full effect will visible in the Q2. To your second question, again, repeating myself a little bit to say if it's any Swedbank effect in these numbers. We don't see that so far. But we remain humble about both the competitive environment, the AML situation that Anders mentioned before.
And our main priority is to do the deals from a risk perspective that we can accept and to with the ambition to defend margins. But again competition is fierce and we'll see how this continues for the remaining part of the year.
Thank you.
Next question is from Jan Wolter from Credit Suisse. Please go ahead. Your line is open.
Hi, Jan Wolter here, Credit Suisse. Thanks for taking the question. So first, just maybe a clarification there. I think, Gregori, you mentioned mortgage repricing. Did I understand correctly that all the mortgage repricing, 2 thirds happened already in the Q1 and then onethree is yet to be seen in the Q2?
So that's the first question.
Correct. Roughly that is the case.
All right. And when we look at the margin impact in your presentation there, it looks like the total margin effect is roughly €58,000,000 Q on Q. So that would be a proxy, I guess, for the 2 third mortgage repricing in the Q1. Would that be fair?
It's included in that number, correct. But that number is a
total. Sure. Okay.
And then a couple of other questions there. First, on the Treasury NII NGL, do you still see unchanged level year over year as the best guess? And question around the internal investigation. I think, Anders, you mentioned that it's still ongoing. Do you expect some data on that to be disclosed to the market?
And specifically then, if we could see the amount of questionable flows from the bank? And if you intend to disclose when in time do you think that could happen?
Thanks. If I start off Jan with your first question about net gains and losses in group treasury. Last quarter, we went through the factors that impact the Group Treasury result. There was nothing new to you. But we talked about the for NII, we talked about the dollar funding market conditions.
For net gains and losses, we talked about the cover bond buyback activity, which we expected to be at about the same level in 2019 as it was in 2018. But then of course the market movements in basis swaps and credit spreads and the share price and FX development for the Visa and Asiakastieto shares will dictate where that line goes in the year. But everything assuming everything else being equal, I would expect more or less a similar level on that line. But you should look at this combined together NII and net gains and losses when we talk about the treasury result. So all in all, what we've said and everything has been equal and the factors that we mentioned before, you should expect the group treasury result to be lower year over year.
And the second question, I hand over to Anders.
Yes. Thank you, Jan. First of all, the internal investigation that I referred to has 2 prime goals. 1 is for us ourselves to understand what has happened in the past and if there is anything that we can learn from that. The second part is, as you rightly point out, to manage the different authorities' questions in the best possible way.
For me, it is extremely important to run a complete and with facts. The timeline for that, however, Jan, is I'm not in a position to reveal at this point in time since it is a very comprehensive investigation. We do not expect to be in a position to discuss any specific findings until our review and also the relevant authorities are complete. Having said that, again, coming back to my initial statement, we will try to be as transparent as possible. But promising anything at this point in time wouldn't be fair to us or to you.
Okay. So I think just to follow-up on that quickly. The internal investigation is running, but and even if you conclude that, the bank is unlikely to disclose any result to the market since you will be waiting for the outcome of investigations by authorities. Is that a fair description of the sequence of events here?
Yes, Jan. And I think I would like to remind you not being an expert in this type of investigations, but the internal investigation have twofold ambitions. One is for us to understand. The other one is to manage the authorities' questions and expectations. They might change over time.
And that is why it is important for you to understand that the investigation will continue until we have answered all the questions that the authorities might have.
Okay. No, but that's clear. Many thanks.
Next question is from Adrian Cighi from RBC. Please go ahead. Your line is open.
Hi there. Thank you very much for taking my questions. Just a couple of follow-up questions on AML and NII please. So your capital position remains strong at 140 basis points over minimum capital. Has the regulator abandoning 75% payout ratio even temporarily?
On your comment on dealing with the U. S. Authorities, can you specify which U. S. Authorities are involved in the investigation?
Is the DOJ involved or maybe other authorities are involved? And then very quickly, following up on the NII, can you provide any more color on the $46,000,000 treasury headwind? Is this sort of further headwinds from the U. S. Carry trade?
Or any additional color you can provide would be very helpful.
If I would start then with the question of the capital add on. Swedbank is currently holding SEK 69,000,000,000 worth of risk exposure amount for operational risk, and that is an equivalent of about SEK 5,000,000,000 of capital. So currently, we consider it to be sufficient to cover the possible operational risks what we are aware of. However, this is an ongoing process. We do make reassessments continuously whether the capital we keep is sufficient for any risks the bank is facing, including compliance and regulatory risks.
So we will, of course, inform the
S. And S. And I cannot give you any more specific details on that. I think the second question was about if we were becoming to a situation where we need to abandon the current dividend policy. And I think it is too early to say anything about that.
Did I catch your questions correctly?
That's correct. Thank you very much.
And lastly, Adrian, on your on the group treasury, this quarter, you as a delta quarter over quarter, the dollar funding conditions that changed, there is no delta between those because in the last quarter, there was no element of that in the numbers. But there is a one off correction or adjustment of €36,000,000 that is booked this quarter. It's basically a correction from previous for during a long period of time that is taken as a one off of SEK 36,000,000 this quarter. That won't be repeated.
Next question is from Bruce Hamilton from Morgan Stanley.
Thanks. Good morning, guys. I think most of my questions have been asked. But maybe just circling back on the cost, additional cost point. So should I you said sort of about half you think maybe one off or is linked to the investigations, half is run rate.
So if we assume that's assuming that the Estonian and Swedish investigations complete by this year, but the U. S. Ones proceed there after? I'm assuming that's the case. Or does that assume fairly quick conclusion on the U.
S. Side as well?
Thank you. Yes, the ambition from the Swedish and the Estonian regulators have been communicated to be finalizing, I think, in October, and then they will come to a conclusion whether there should be any sanction or not at the end of the year. On the U. S. Side, it is extremely difficult for me to have any view on how long that will continue.
Okay. Thanks.
Next question is from Riccardo Rovere from Mediatek Banca. Please go ahead. Your line is open.
Good morning to everybody and A couple, if I may. On the attempt you're trying to you're making to try to retain as much as possible clients, is it fair to assume that the clients that want to leave eventually will probably leave over the next, let's say, 6, maybe 9 months or so if we don't see, let's say, large client outflows over the next 2, maybe 3 quarters, we could eventually be fairly assured that the franchise is not going to suffer any further damage? This is the first question. And the second question I have is on the risk weighted assets on reals. Aside from IFRS 16 and the FX, the growth that we have seen in this quarter, is there anything that you could point out as one off or it was just trailing the volumes growth?
Thank you. To answer your first question, I reiterate. We need to be humble. My colleagues in the bank have been working and will work diligently with communicating around with the customers. And as I said, we are putting full throttle in order to deliver services and products that are increasing customer convenience.
I have no I don't know the answer, Riccardo, and I think you understand that. But we are doing the utmost to keep our customers, but we are humble.
And on the RIA question, there are really no one offs that will go away next quarter. You have the usual moving parts, which is the lending, the leasing book, which is IFRS 16. If those if the asset composition changes, then you would have RIA effects, but that's normal course of business. The one parameter or factor that is one off nature, but it's permanent for another year is the operational risk re increase. It moves up to a new level since it's calculated on a 3 year rolling income basis.
So we have 20 15 falling off the calculation and 2018 coming into the calculation. But that is also as I said permanent for the year.
Yes, very clear, Greg. Thanks a lot.
Next question is from Paulina Sokolova from Barclays. Please go ahead. Your line is open. Hi. Most of my questions have been answered actually, but maybe just coming back to costs.
Are you able to give us an indication of how much of the 0.5 $1,000,000,000 of temporary costs that you flag are related to the Estonian and Swedish investigations specifically? And then maybe just also on the U. S. Investigations, is it fair to assume that the investigations are broader than issues related to the Panama law firm, Mossack Fonesca?
Thank you. The estimate that I gave you and the best estimate I have is that around 50% of the SEK 1,000,000,000 are extraordinary costs and the other 50% is a run rate. How that will pan into 20 20 is too early to say since I do not know how long the investigations will continue, but that is my best estimate to you. As far as the U. S.
Authorities and the questions they are interested asking about certain transactions, customers, processes. So it's more general than specific in this case.
Okay. Thank you very much. Next question is from Jacob Kruse from Autonomous.
I guess I just have
2. So firstly, just going back to the question around capital buffers. So in Denmark, we saw Pillar 2 buffer being increased by regulators kind of ahead of any fines were set. And I guess in Sweden, Nordea had a number of Pillar 2 buffers in this kind of other category. So I guess I just wanted to ask, have there been any discussions or indications by the FSA that they may look to add such a buffer where you get your new capital requirements set or the new SREP set this year?
And my other question was just around the NII. You just made a comment that the Q2 NII may be burdened by the increase to stable rates going through this quarter. So should we look at rate movements and margins as broadly neutral for Q2? Or did I misunderstand that?
Regarding the Pillar 2 add on, I would want to reiterate what I said before. I'm not in a position to comment anything more specifically at this point in time.
And then, Jacob, on your second question, no, that there will be a net positive delta quarter over quarter. So Q2 will be higher than Q1 if you
Next question is from Connor Middleton from JPMorgan. Go ahead. Your line is open.
Hi. Good My questions have been answered, so I'll pass on to the next person. Thanks.
Next question is from Jeff Dorst from Soc Generale. Please go ahead. Your line is open.
Hi, good morning. Thanks a lot for the call. A couple of questions from my side, both quick hopefully. Mortgage side, but also if there's anything on the deposit side that's worth highlighting? 2nd question on mortgage volumes.
There's obviously been across the major mortgage markets. What do you think could change that? Do you see that continuing? Or is there anything that will reestablish the dominance of the larger players? Those are the two questions.
Thank you.
Thank you. On your first question, we saw in the beginning of the year a slight migration from 3 months to 3 years. I think it was specifically in 1 month, but then it has faded off. On the deposit side, it has been very limited. As far as your question around the market the mortgage market actors and the fact that there are more players coming to the market, I would expect that to continue.
That is my best guess at this point.
And to add to that is actually the competition description that we gave is coming from established players. So the new entrants, if I call them that, or the smaller players are not I mean, they are competing for sure, but they're not the ones that are moving the needle at this stage.
Okay.
That's great. Thank you.
And that was our final question for today. So I will hand the call back to the speakers.
Thank you, operator, and thanks, everyone, for participating actively. We will meet with most of you on the road over the next couple of days. Thanks again, and have a good day.
And this now concludes the conference call. Thank you all for attending. You may now disconnect your lines.