Ladies and gentlemen, welcome to the Swedbank Interim Report, January to June 2015. Today, I'm pleased to present Mr. Michael Wolf, President and Chief Executive Officer. For the first part of this call, all participants will be in listen-only mode, and afterwards, there'll be a question and answer session. Mr. Wolf, please begin.
Thanks, and good morning, everyone, and appreciate that you made the time to make this call. The quarter is yet another very stable quarter result-wise, good quality in our minds. We see decent client activity. We grow where the market is growing, and I'm very proud that we have been able to show that we are cost efficient, gives us room to invest in more client-related challenges going forward. The crisis in Greece has, of course, been on the front page for quite some time. Our focus when it comes to that is to advise customers in the prevailing market situation, nor us, nor the majority of our client base have any direct exposure to Greece.
The Central Bank in Sweden continued to lower its repo rate with another ten basis points, and we remain skeptical that we don't see any political reforms. The lack of political reforms increases the risk for unsustainable price development in different asset classes. We have therefore, as earlier announced, tightened our lending standards towards property sector. However, we continue to improve our strong market position when it comes to mortgages in Sweden, and the growth in corporate lending has fallen off compared to last six months, 2014, according to plan. I'm also very happy to see that we see loan growth in all three Baltic markets for the first time since 2009. Within the savings area, we have seen good volume development, development of deposits, while fund flows net out has seen net outflows, and that's something we're not satisfied with.
We are working hard to adjust our offering in this low interest rate environment. As we earlier announced, we have lowered the fund fees across the range, and that should, over time, hopefully give us positive effects. When it comes to fund performance, we have seen an improvement the last six months. Digitalization continues to be a hot topic in all four home markets. In Sweden, the number of Swish users crossed 3 million, and we see 5,000 clients signing up daily. The mobile bank in Sweden has now 2.2 million customers, an increase with 225,000 since December. On the private side, we launched a service where you can sign up your Spotify service through our mobile bank.
On the corporate side, we have extended services to improve cash flow control and transaction management for corporates. And this development is also being manifested by the fact that we see a significant drop in the number of transactions in the branch network. The drop was 16% during the quarter. Also, in the Baltics, digitalization and the usage of card payments are pronounced and increasing. The number of card transactions increased with 12%, and as I mentioned last quarter, more than 40% of new saves are done in the digital channel for private customers. When it comes to Large Corporates and Institutions, I'm proud to see that we continue to manifest our strong market position when it comes to capital markets issues.
Our market share on Swedish bond issuance was 26%, and thereby, we are the largest player. In Norway, we are the third largest player with a market share of 16%. Our low risk profile has led to that both Moody's and S&P has upgraded us during the quarter, and we have used the prevailing market situation to extend funding to build more liquidity buffers. If we look at the risk here, one of the major issues that we're investing is, of course, stability in our IT environment. We need to be up 24/7 as customers are changing behaviors, so more investments will go into stability-related IT investments. With that, I hand over to Göran.
Thank you, Michael. I will, like always, go quickly through the three business areas and then move into sort of group common issues in my presentation. Starting with Swedish Banking, I think we are very pleased with the result in the quarter. We've seen, as you all know, a shrinking deposit margin as a result of the negative interest rates in Sweden. But at the same time, there has been an ongoing repricing of the mortgage loans with regards to the higher capital charges for Swedish banks, and that has enabled us to mitigate the first effect. Volumes on the loan and deposit side has been good. We've been taking our market share on the mortgage market, and we have had a better quarter in terms of deposit gathering, which I am pleased with.
On the commission side, we grow, much of that is seasonality, I would say, also in the card and payment areas, but it's good to see that we continue our long-term growth in the commission line, according to the GDP development. Cost control, good as always in this area, continue to transform the organization and the channel strategy, reducing, you could say, the branch network on the margin and increasing activity and investments in the IT-related channels are an ongoing process and will continue to be there for quite some time. Credit impairment and the quality, Anders will come back to more in detail, but continue to be very stable. All in all, the key ratios are developing favorably in the quarter.
Turning to the Baltics, I'm actually quite pleased to say that the Baltics are becoming more and more like the Swedish result. A very stable and low volatility result. That's exactly how we would like it to develop. The specifics of this quarter, I think, is that we do see actually lending growth, like Michael was saying, in the three countries. I think that's very positive underlying, considering that we continue to have a geopolitical uncertainty to some degree. We continue to see good activity in terms of provision income. And we are also affected, of course, by the shrinking deposit margins there. So all in all, I would say that the result and the various lines are very good.
Asset quality, we have some reversal that Anders will come back to, but it manifests the low risk in the balance sheet here, I think. Yeah. In this quarter, we have taken an extra dividend from Estonia, and the tax regime in Estonia is so that that triggers, for the first time, income taxation, and therefore we have an extra charge that we have pre-announced of a little bit more than SEK 900 million. Continuing with Large Corporates and Institutions, the NII is flat, very stable. We see, I would say, slight volume growth, continue to take market shares on our specific clients and being active with them. At the same time, there is a slight margin pressure, I think, in the corporate lending area, witnessed by the people working there.
We continue to be negatively affected by deposit margins. And then towards the latter part of this quarter, of course, we have been affected by the more volatility in the market that due to the Greece situation and the widening of the credit spread as a, as an effect of that. And I think we have been able to capitalize on that on the foreign exchange, and we've been actually, like Michael was saying, also good in the debt capital markets origination, while our activity on the Swedish IPO market has been somewhat weakened. Asset quality, very good, and key ratios, I think, are holding up very well in comparison to all our peers in this area. So we are pleased with another stable quarter.
Summarizing this on the group, we have a stable NII, where we see volume helping us, repricing of mortgages being sort of a tailwind, and we have headwind with regards to deposit margins and some small margin erosion on the corporate side. There is a very good cost development. We are clearly ahead of schedule IT. Much of that is relating to the fact that we have been very, very much less wanting to externally recruit. We have wanting to take care of our downsizing of staff with higher mobility internally, and that has been very successful.
And it creates now for us a lot of flexibility in terms of reviewing our IT investments, where we see an increased need, but also seeing to it that we deliver more client values and don't feel that the organization is under too much stress in some areas. So, the cost guidance that we previously have given is to continue to be that we will strive to come towards SEK 16 billion in costs by the end of 2016. On the net gains and losses, we have been slightly negatively affected by the volatility and the widening of credit spreads that has drained the result somewhat in the treasury area. So that line is slightly weaker than the previous quarter.
Asset quality on the group level is credit impairment are virtually non-existent, and I leave that to Anders to elaborate on. Tax-wise, we have been able to mitigate part of the increased tax burden in the Estonian operation with tax relief coming from restructuring of our US operation, where we've been reclaiming part of a very hefty tax burden we had in conjunction with the profit we made on the Lehman claim that we sold. So that is good that we've been able to do that. But overall, you could say, looking at the key ratios, this quarter is of course impacted by the tax situation. The underlying result, profitability and cost efficiency is extremely stable and very, on a very high level. Then turning to capital, starting and funding, starting with the development.
We have had a big move in capital in terms of quarter one ratio. Part of that is relating to the continued decrease in REA. That is many small factors affecting that, but we continue to see better credit quality. The PDs are migrating to the positive, as the Swedish corporate base are continue to become cash rich, and also the Baltic corporate base are improving their financial position. Also, the lending is becoming better collateralized. We see a positive effect of, on the LGD side.
Then we have also been positively affected in RWA by the fact that long-term rates have gone up very significantly during the quarter, and that has made capital need towards financial institutions and derivatives portfolios less needed, and that's sort of something that has been building capital need over time, and then suddenly, when the market is volatile, we have a release on that side. And then lastly, I just want to mention that we have a new Value at Risk model approved in the market risk area that has released some capital as well. The RWA development, together with the change in the valuation of the pension situation and the pension obligation, has released a lot of capital.
The main reason in the pension area is, of course, the significant increase of the discount rate that has happened in the quarter. These two together make us jump from 20.5 to 22.4 in Q1. With the new countercyclical buffer requirement that has been announced in Sweden, we think now that we have a requirement around 19.6. We have actual buffer of 280 basis points, which is a very nice position to be in. As we can see, the volatility is high in terms of especially the pension situation, and also, I think the signs coming out from the regulator with regards to increased capital need and the risk of increased capital need going forward is still there, so we don't see any excess capital in the bank.
Lastly, before leaving over to Anders, I just want to highlight that we've been actually significantly more active in the first half of the year. It started very early that we increased our funding quite significantly. We have, up until today, actually taken in long-term funding of over SEK 140 billion. Last year, we were around SEK 125 billion for the full year, and it's been a deliberate strategy where we actually felt that the spreads in the beginning of the year and the easiness of actually extending your-- and the cost of extending your funding was a worthwhile exercise to explore. And as you can see, we have increased our unsecured funding quite significantly, and that has meant that we have extended average maturity on the funding.
For the full wholesale funding compared to the year, and it's been extended by 3 months. And if I look at only the senior tranche, it's been actually extended by as much as 6 months during these 2 quarters, which I think is very good. And lastly, like Michael was saying, I think we are extremely pleased to feel that we are being rewarded for the strategy being executed, that we are a low-risk bank with a very low credit losses and a stable capital and funding position, with good profitability on a very high level, and very much of it based on good cost control. We have been rewarded by Moody's that are upgrading us, S&P's upgrading our standalone rating, and now Fitch having us on a positive outlook.
So, we will continue to work with them. We think we have further to go there, but as you know, that all takes time. With that, I would like to hand over to Anders.
Thank you, Göran. Most of it have been said already, but yet another quarter, the 21st, with very low loan losses ending up at SEK 6 million. Baltic Banking continues to show reversals. In this quarter, it's primarily coming from a single court case in Latvia, so it's nothing to be in your forecast. Impaired loans continue to decrease, ending at 36 basis points in the quarter. Assets in Ektornet continue to decrease during the quarter, and the ambition to close down Ektornet by the end of the year remains. Outstanding assets are around SEK 450 million. And finally, I would like to mention that our direct exposure to Russia is now down to SEK 140 million. Thank you.
Okay. Thanks, Anders and Göran. With that, I open up for the Q&A.
Thank you. Ladies and gentlemen, if you do have a question and haven't already, could you please press zero and then one on your telephone keypad now, and you'll enter the queue. And then after I announce you, just ask that question. And we'll have a brief pause while all the questions are being registered.... Okay, our first question is from the line of Mr. Peter Wallin of Handelsbanken. Please go ahead. Your line is open.
Thank you, and good morning. I would like to start off with a question regarding the mortgage margins, which continue to improve. How much do you think there's left in terms of fully compensating the higher capital charges? And connected to that, do you think that it could be more difficult to improve margins going forward on the back of the higher transparency of actual mortgage rates that we have now in Sweden?
As you saw, our average three-month fixing rate came down a bit compared to last month, and we have seen increasing funding costs relative in the market. So we feel that we have been well compensated for the increase of capital, and then it's the competitive situation that will drive margins. Mind you, we are one of the few banks with a widespread footprint in Sweden, so the mix also matters. And here, we and Handelsbanken are the banks with the most vast footprint in Sweden.
Okay, thank you. And then I'd like to come to corporate lending, where we're saying this volume momentum you've seen over the last years has now come to an end as planned. So, should we expect flat volumes from here, or is there any kind of volume growth in the planning for the coming quarters?
No, I don't think we are planning to have volume growth come to an end. I think if you look at the whole property sector in Sweden with the need for housing, I think there will definitely should be lending growth. What we said prior has been that we felt it took a little bit large proportion of certain segments on the market. So that has been calibrated. But other than that, I think we definitely would like to grow with the market, but the industrial part of the market that relies on making sort of export to a higher extent is continue to be rather subdued.
And have strong own capacity to finance investment.
Okay, so we're talking very low single digits there in expectation, it sounds like.
Mm-hmm.
Then a final question of mine, before I hand the questionnaire over, regarding costs. Now, if on a kind of seasonal adjusted base, you're almost already at your target run rate for year. So did I understand you correctly, that you're gonna use, so like, this timing to invest even more than previously planned into IT and similar projects? Or is it more, is it realistic to believe that the 16 could actually be a fairly easily achievable target for next year, and maybe you could undershoot that?
I mean, we remain with our guidance on the target. So basically, what I'm trying to say is that the cost development has been moving faster than planned. We're very pleased with that, the recruitment stop has enabled internal mobility. There is no one waiting for a job in the restructuring sort of program. So that mobility is essential for us going forward because there will be more transformation in this bank. But it also allows us to do investments in the digital services, but also on resources in areas where customer satisfaction needs to be improved. Answering times, et cetera, et cetera, on the telephone bank is an area where we have done quite a bit lately.
You will see us, selectively, spend money in areas where we can improve customer satisfaction.
Okay, thank you.
Our next question is from the line of Masih Yazdi of SEB. Please go ahead. Your line is open.
Good morning. A couple of questions from me. I think, Michael, you said this morning in an interview that you don't wanna keep losing market shares in your asset management business. And just sort of wondering what your own analysis there is, or why you're doing that, given that you've been cutting fees more aggressively than your peers. So what is your analysis there, and what are you doing to change that current negative trend?
Well, first and foremost, we have a new environment, a low interest environment. In this environment, fund fees becomes a more material issue, and here we have been able to cut fund fees without losing overall profitability, and that's a competitive strength in my book. Short term, it hurts provision income, but long term, it should build the client base. Secondly, we see that our fund performance in the last six months is improving to the positive, and that is without the fund fee help of the fund fee. So it's underlying good fund performance, and of course, the fees adds to that. That should also make the sort of competitive position improving. Thirdly, we are guiding customers to taking lower risk.
We see a good inflow on deposits. We are actively promoting that over in money market funds. We are also tightening our fund range and trying to simplify the savings message. So these are all sort of activities that over time should hopefully lead to more customer activity. But the lag time is there, and we need to respect that it takes time to turn the tanker.
... Thank you. Just a question there on your, you commented on the deposit inflows. I'm just trying to sort of understand, you had very large deposit inflows into retail business in the quarter, at the same time as you're issuing a lot of wholesale funding, and as you said, the market conditions have been favorable for doing that. But what are you doing with all that excess liquidity you are creating? And should I see that, given this sort of negative interest rate environment, should I see that sort of the wholesale funding together with deposits as a net negative or net positive for the bank? How do you think about that, sort of creating that much liquidity or, and funding?
If we look at the business strategy, of course, it's extremely important that our front line understands that lending and deposits are two sides of the same coin, and we have stressed that deposit growth is vital if we're gonna continue to have lending growth. And I think that message has been well received, but it's also a reflection of people's risk awareness. Deposits are a good place to be in right now, bearing in mind where the markets are. So that's, I think, more a business strategy and a good execution of that strategy, whilst funding, maybe Göran could talk about.
No, I think, I mean, it's easy when you have negative rates to be tempted to sort of explore short-term measures to improve your result at all terms. But like Michael said, I think you can go against that tide as well, and take a little bit of pain and gather deposits and build relationships and so forth, and think that as a smart move. That is what at least we want to see, that lending and deposit growth are following each other all the time. And that costs a little bit of money. If you want to maximize profits, it's not the best strategy. On the other hand, we've been early out funding long-term, very good. So, I mean, there we have an advantage.
Now, I would say that we have taken up... We were very active in the first four months, where money was extremely cheap and around, and the spread has come up. So from that perspective, we, we have a little help there. So net-net, I don't consider it, anything from PNL point of view. It, it doesn't give me, neither it, it balances out to some extent, I would say, if anything.
Okay, thank you. Just one last question on the net SEK 447 million tax charge in Q2. Will you include that or exclude that when you decide for your payout of 75% for 2015?
That will, of course, paying tax is part of normal business. It's not nothing you do extraordinary. So that will, of course, be part of the end result for dividend.
Okay, thank you very much.
Our next question is from the line of Mr. Omar Keenan of Deutsche Bank. Please go ahead. Your line is open.
Good morning. Thanks very much for taking the questions. I just have two questions, one on margins and one on capital. Firstly, on mortgage margins, what does the jaws on the front versus the back book on mortgages look like at the end of Q2 compared to what it was at the end of Q1? And then my second question was on capital. Just the, I guess you talked about the standardization of risk weights in Basel IV and the potential capital floors. Have you done any benchmarking work on where Swedbank may compare or stack up to peers on that kind of floor ratio basis? You don't have to point out kind of exactly where, but do you, have you done any analysis on that? Thank you.
With regards to mortgage margins, I think, during the quarter, the margins continued to widening. Towards the end of the quarter, I think that came to a halt, and slightly diminished. I think over time, it will be, we have repriced capital. I don't think it's logical over time that, mortgage borrowers should be the one sort of paying for negative interest rates, especially since, the mortgage refinancing is very much a capital market activity with the capital bonds refinancing. So I think there, you can reprice your capital, yes, but you can't substitute, negative interest rates, with the mortgage borrowers over time. In that sense, that is over time, actually, something that should be borne to a higher extent.
If we fix deposit at zero, that is actually a deposit base that are refinancing to a higher extent the sort of corporate lending activities. So it should be borne by corporate lending, actually, if you think of that connectivity. So I hope that gives you some clarification on the mortgage side. On capital, I think we have not done any specific stress test or anything that gives us any quality there, because the unclarity, so if you look at the consultation paper that comes out from the Basel Committee, it's so wide in its approach, it's rather meaningless doing it.
And also we take rather good comfort that we have a very strong capital position in the beginning, and we generate capital on tangible, tangible equity that are, if not the best in the class, a very high number. So really, we don't see it as a capital issue in the end. It is more an issue of how the business model might change and the securitization and the originations of transactions over time. And in that area, we're very active in being against it that low-risk assets should go out from the banking system, out to the shadow banking market. And that is something we share in common with finance department and also our regulator.
... Is that helping you?
That's great. Thank you very much.
We now go to the line of Johan Ekblom at Bank of America. Please go ahead. Your line is open.
Thank you. I just want to sort of follow up, I guess, on capital. I mean, you have-- you spoke about the high volatility that I guess is caused in part by the pension accounting. But isn't that exactly why we have the Pillar Two requirements? So shouldn't that already be accounted for in your, in your, your sort of capital buffers? So maybe if you can comment a bit on, I, I guess, what do you feel is not currently captured in the FSA's requirement that you need to hold incremental buffers for? And related to that, I guess, it's a busy morning, but Nordea commented this morning that they've taken a prudential risk exposure amount increase for the expected outcome of the SREP process.
Do you have any similar indications that you'd expect, capital add-ons that are not covered by what's been announced by the FSA so far?
The capital surcharges in the Pillar Two process are partly common, and to a higher extent, for example, also very specific for banks. We don't feel that there is anything or haven't seen anything coming in that area. I think, though, that what we're saying is that you need a buffer for volatility and for an exchange and interest rate. If you see that it affects my RWA quite a bit, then it also affects my pension valuation. We have quarters when you grow much more faster than other quarters and so forth. You are definitely in need of a buffer above the Pillar Two. The question is, to what extent and size do you need that buffer?
And, there you could say that now we are coming from a period with extreme volatility in interest rates. So I would say that, if anything, the buffer need has gone up because we have rather large swings. But on the other hand, it's been very rare market circumstances. So I think we need to continue to evaluate that and see what kind of buffer we are. And then the other issue is really, will the regulator push us into, through the European legislation, push us into higher capital in general, due to minimum of, risk weight floors on corporate lending? That's a completely different issue. And there, you—we have a lot of uncertainty, and we say that we don't want to talk about having excess capital until we, we know where that is going. It's better to be in a good position there.
Then I can control my fate rather than chasing and be behind the curve. So let's be a little bit, ahead of the curve. And then to summarize, the shareholders are getting between 14% and 15% return on this capital. Where do you get that otherwise? So what's the issue here?
Perfect. Then maybe just a second question. Can you just comment on your outlook for the treasury unit? I mean, you should have been guiding, I think, for SEK 500 million-SEK 1 billion decline year-over-year. Is that still your best guidance?
I think that's very much a valid guidance. I don't think I have anything to add from what we said in the last quarter.
Excellent. Thank you very much.
Our next question is from the line of Heiner Luz at Goldman Sachs. Please go ahead.
Hello, I just—sorry for probably potentially coming back to two things that already got touched on, but basically just because I didn't understand previously. Did I understand correctly that you're basically on a Robur side, sort of, potentially thinking of sort of cutting fund, like, margins further, sort of? Also, another question, I think your report states you're basically cutting the total amount of funds. Should we expect things there to get worse first before they start to get better as you're still in a restructuring process? Then, secondly, on the capital volatility, also coming back to that, the swings you're having on a quarterly basis, particularly due to the pension, like, are very, very extreme.
If you think about sort of capital buffers, do you really think sort of anything that is also captured for that extreme swing? So is it something where you feel like, okay, we want to have even higher buffers because we're basically seeing quarterly capital moves, this time, this time positively, but that are very, very large for something we would usually sort of expect to more linearly grow over time? Thanks a lot.
If I start with Robur, I think, we have worked with Robur the last 12-18 months in this direction, and I feel that, step by step, it's starting to pay off. And at the end of the day, client behavior takes a while to change, despite the fact you might have, improved, fund fees or performance. So I'm, I'm very content with what we have done, and, if you look at the gross flows, they look quite okay. So, bearing in mind, we are the oldest fund company in Sweden with a very large client base, there are some demographic challenges that relates to the outflow. So, I'm overall comfortable with where we are today with Robur. Göran?
On the capital, I think, if I come back to that, I just want to say that we have seen extreme markets, and we've seen extreme volatility. That will put higher requirements for buffer than we previously thought in general. But we need to follow that going forward. We have previously talked about 100-200 basis points, and in this quarter alone, we had 190 basis points. So of course, we need to review that and come back. But we feel comfortable in the question with 280 basis points above the requirement, and we do see an excess capital.
... Okay, perfect. Thank you very much.
We now go to the line of Anton Kryachok at UBS. Please go ahead.
Good morning. Thank you very much. Just two questions, please. Firstly, sorry to come back to capital. But I was wondering, when, when you think about your capital position going forward, do you still think I, in basis points buffer terms, i.e., buffer over the Swedish FSA requirement? Or, or do you think given that there is, different uncertainties around, capital requirements, we, we, we need to start thinking about absolute capital levels, expressed in, SEK billion terms? That's the first question, please. And the second, question on, the Baltics, asset quality. I think the, provision buyback cycle has lasted a little bit longer than, some people has, have expected. Can you please, comment, on the asset quality outlook, in the Baltics for the second half of the year?
Thank you.
If we start off with the asset quality in the Baltics, it has been strengthened since the crisis. It continues to be very strong, and as we said in the previous quarters, the Russian situation has not impacted the portfolio in any substantial way. There are some exposures that are more affected by the Russian situation, but they still manage. So, as far as the asset quality in the Baltics comes, it remains strong in my books. When it comes to reversals, I have said that previously, and I continue to say that, you should not expect that to continue, that is going coming to an end.
On the capital in terms of buffer, in percentage terms or in nominal capital there, I think we are continuing to see it in percentage terms over the buffer as it is today. But of course, we are acknowledging that the leverage ratio discussion are becoming more important with floors, and also we have no really clear view on how things will interact with TLAC and MREL, so coming as regulation as well. So I think there is a fair bit of technicalities and work to be done on this area and fine-tuning of the capital structure. But, but it, it's nothing that worries us really. It's something that we used to have, we have to adjust to as it becomes clear.
Thank you very much. That's very helpful.
Our next question is from the line of Mr. Andreas Håkansson of Exane. Please go ahead. Your line is open.
Yes, hi. I guess we've gone through almost everything, but just a question on your mortgage margin. You say that they probably came down a little bit towards the end of the quarter. I would assume that's you talking about front book. And could you tell us a little bit about the difference between the front and the back book? And if you now see that the front book is flattening out, should we still see a positive contribution from the back book for some time going forward? Thanks.
You have a fairly quick repricing going through, as you know, in the Swedish, because it's a very high degree of three-month fixes. So but, I would say that, of course, you, if margin were to stay sort of where they were coming out of the quarter, you will have a tailwind going into the third quarter by repricing coming through because the back book is still lower than the front book in that essence.
Yeah.
But at the same time, it's a lot of things happening, so we don't really... I don't want to be sort of too specific guiding there. I think it's a fluid situation.
No, but it's just clear that you talked about the front book, right, rather than the back book.
Yes.
Yeah, thanks.
Our next question is from the line of Riccardo Rovere of Mediobanca. Please go ahead. Your line is open.
Thank you. Thank you very much for taking the question. I just want to, to try to summarize a little bit the messages that you are conveying on capital and be sure that I understand it correctly. You're basically saying that, first of all, that the positive and the negative one-offs that you have seen in this quarter will be part of the distributable profits at the end of the year. Just want to be 100% sure I understand it correctly. And on capital, again, the message, my understanding, the message that I'm getting from your wording is that from now on, when we see every movement upward, probably upward movement in the capital ratio, is becoming, and especially the portion related to lower RWA, if any, is basically becoming immaterial, irrelevant.
Sorry, not immaterial, irrelevant, because you think that the picture today is gonna change in the future, maybe also in the short term. Is that correct? The picture that I am, the message that I'm getting from your wording? Thanks.
I think it's not becoming irrelevant. It's never... I mean, we believe in a risk-based measurement system, but we are hearing sort of, I think, it becomes more pressure for risk weight floors and also for calibrating the models, as such. I think there is a slight change of tune in the wording there from the regulator. So we are sort of cautious on capital in that respect. On the first question, the tax will impact the dividend, yes? So that's clear. But I hope that is clarifying.
Yes. Yes, yes, it is very, very clear.
Next question is from the line of Matthew Clark at Nomura. Please go ahead. Your line is open.
Good morning. I guess a couple more questions on the capital situation, and just when do you expect to get critical visibility on capital that might make you more comfortable in thinking about what to do with the ever-increasing headline rate of CET1? Is this something that you think you'll get from the FSA this year, or are we really waiting multiple years for, you know, clarity from the Basel Committee and the European Commissioner and so on? And then kind of related to that, do you think it's feasible for your capital ratio to ever move backwards, or do you think that, you know, as this headline ratio moves up, effectively, the bar just keeps moving higher, and that becomes the new normal?
Can you foresee a situation where actually you get visibility and say we're going to repay the couple of percentage points surplus over regulatory minima, if you do get that kind of visibility in the future? Thank you.
I think that it's a very sort of tricky question. Bearing in mind that Sweden is having had a banking sector that has performed very well during the crisis, the country has been strong. We were able, or the Swedish regulator was able, much earlier on than anyone else, to add capital to the Swedish bank. You remember the Troika 2011, the 500%, the 50% surcharge. What is happening now is that Basel and Europe is trying to sort of standardize and deal with their problems. The situation in the European banking market is dramatically different compared to Swedish banks.
ECB trying to sort of monitoring all the banks in Europe, definitely leads to more mathematical focus, more standardization, and that is slightly a threat to the Swedish model, and this is where the discussion is raging. The regulator in Sweden wants a risk-based model, and that proved to work during the crisis, but the model didn't capture certain structural risks. The challenge in this environment is that you will, the further you go, create a larger and larger shadow banking market, and sooner or later, the politicians need to sort of relate to that as well. You can't just push out lending outside the banking system without getting any sort of other challenges. So I think we are in a multi-year situation where things will change.
From a risk perspective, I think the Swedish regulator has definitely sent a strong message that we are well north the capital we need to cover for the risk. If we return to whatever normality that might be, yeah, it can reverse, definitely. I think it should, if Europe does the necessary political reforms, the quantitative easing is withdrawn, and we get a more normal environment, but that's a number of years out. And then I go back to Göran's conclusion. We are ahead of the curve, and we do deliver great returns even with these capital levels. It becomes more a philosophical model type of issue, and I don't really feel that Sweden should suffer from a model change. That's what we are trying to protect.
Because I think the Swedish model works quite fine.
Okay, thank you.
Before we go on to the next question, if anyone has any further questions, could you please press zero and then one on your phone keypad now. While waiting for further questions, we go over to the line, back to the line of Riccardo Rovere at Mediobanca. Please go ahead.
Yes, thanks again for taking my further question. If I'm not mistaken, you don't have a formal target for that, but could you be able to provide us an idea of what is your, let's say, optimal or adequate leverage ratio? Is it the number released by DNB last week, 5.8%, too high in your view? Can you add any color, any comment on this? Thanks.
No, I don't think. I think you the leverage ratios are the difference between banks because the DNA and the look of the asset side, primarily. And I think we feel very okay and confident with being at 4.5. And if we look at our in comparison to our competitors and how they might need to change the business model or... we feel okay as well. So we don't have any sort of targeted picture there. And as you know, there is uncertainty on the regulations, so we have to wait and see on that before we do anything, but the position is okay.
Is there any way to reduce, without touching the numerator, is there any way to reduce the denominator of the leverage ratio in order to get a better ratio than the 4.5% in a reasonable period of time, let's say, six months, something like that?
I mean, for us, it, we could quite easily get leverage ratio for higher than 5.5% without any sort of big sacrifices on the P&L statement line. So, there are things to be done, but, overall, the important thing is really if, in general, are low-risk assets gonna be securitized or not? That is the key question, really.
Yeah, very clear. Thanks.
At this stage, there are no further questions in the queue. So may I please pass it back to you, Mr. Wolf?
Thanks for your active participation. I hope that everyone gets a few weeks vacation now, and that you enjoy that. All the best.
This now concludes the call. Thank you very much for attending. You may now disconnect.