Seb Sa Unsp/Adr

Good day and thank you for standing by. Welcome to the SEB's financial results third quarter 2026 webcast and conference call. At this time all participants are in listen only mode. After the speaker's presentation there will be the question and answer session. To ask a question during the session you need to press star 1 1 on your telephone keypad. You want to hear an automatic message advising your hand is raised. To withdraw a question please press star 1 and 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Jonas Ahlström, Acting President and CEO. Please go ahead.

Good morning, everyone, and a warm welcome to SEB's Q3 telephone conference. While I've met several of you before in my previous roles in the bank, for those of you who don't know me, I've been with the bank for 20 plus years, most recently as Chief Operating Officer. I've also headed the corporate investment banking division and prior to that Baltic division and several of you I met a long time ago having been both a buy side and a sell side analyst and these are my first quarterly results in the capacity of acting CEO. While the past few weeks have involved a period of transition, quick adaptation and a couple of external communications, focus across the organization has remained on serving our customers and executing on our long-term plan. Against this backdrop I look forward to sharing our results for the quarter. Let me start with a few highlights from the quarter. Starting with lending growth, we saw growth across all business divisions, reflecting continued good credit demand across the bank. We also had a strong quarter in terms of fees, with a record Q3 for net fee and commission income. FICC, however, faced challenging market conditions which weighed on the net financial income line. On costs, our strong cost discipline continues to yield results, and we now expect to come in around 5 to 600 million SEK below our 2026 cost target. This includes the 33 million dollars announced last week related to the resolution of historical matters with the DFS. Last week we received a decision from the Swedish FSA related to our internal ratings-based models. While the conclusion of the review does not point to weaknesses in SEB's credit risk assessment, but rather in the model's regulatory compliance, A temporary increase of REA will be implemented from 31st December. Looking ahead, our focus is on getting the new models approved. We expect to start submitting these models in the third quarter of 2027 at the latest. As for the impact of the decision on our capital possession, Kristoffer will go into this in more detail later on. In light of continued loan growth in combination with the capital impact from the Swedish FSA's decision, the bank will pause its share buyback program. Turning to the next page, Sverical, our shared AI system setup built on NVIDIA technology, is now live. Last week we celebrated the launch with an event here in Stockholm with NVIDIA founder Jensen Huang. As previously mentioned, Sverical provides SEB with secure access to advanced third-party independent AI infrastructure and compute capacity in Sweden. Enables us to develop, test, and scale AI solutions faster while maintaining control over data, models, and operations. Combined with the knowledge sharing across the consortium, It strengthens our ability to bring AI into the business, both responsibly and at scale. In connection with this, we also want to provide an update on the AI triangle that we have shown before, particularly the running the business dimension. We are already seeing good progress on how AI is being used across the bank and want to share a few examples. We are using AI-assisted investigations to improve efficiency in financial crime prevention. In software development, agentic engineering is helping our teams to become more productive With leading teams increasing their output significantly. We have also largely automated a high volume workflow in collateral management, having reduced manual handling by some 90%. And in business and retail banking, we are using AI to support our client-facing staff in our call center operations, known as 365. Customer calls are analyzed to help staff determine the appropriate next step for the customer. Approximately 70% of customer calls are now analyzed within hours. Previously, it was fractions of a percent, twice or four times per year, and this is just the beginning. Turning to the next page, we want to highlight some business developments from each division. Starting with corporate and investment banking, as previously mentioned, Q3 was a record quarter in terms of fees and commission income. Also, SEB was ranked number one among tier one institutions in the Prospera Nordic Equity Survey, and maintain its number two position overall and closing the gap to the number one position. Additionally, we ended the quarter with record assets under custody of almost 23 trillion Swedish krona. We also continue to receive external recognition. SEB consistently ranks among the leading providers in industry surveys such as Global Custodian and Global Finance, and most recently ranked number one in the Nordic Prospera Survey. Over time, we have built a strong position in post-trade services, Today, we are the leading provider of sub-custody services in the Nordics. We are also the largest custodian and depository bank for non-bank owned asset managers in the region, with a market share in excess of 50% in both segments. For business and retail banking, this is an update of the numbers we showed last quarter. Looking at the share of new mortgage lending in Sweden captured by SEB each month, we've seen positive data coming since May this year. In August, the most recent data point, SEB managed to take 19% market share of new mortgage lending. This is an encouraging early sign of our efforts to regain market share in the Swedish mortgage market. Within the mortgage process, we have also continued to improve and redesign key customer journeys, supported by AI-driven solutions that help increase efficiency, shorten processing times, and improving the customer experience. I also want to highlight that the legal merger of AirPlus and SEB cards is now fully complete. It has been a multi-step journey across platforms, markets, and operations, and the teams have delivered according to plan. Looking to wealth and asset management, there are a few things I would like to highlight. First, we have continued to see positive flows with net flows of 16 billion year-to-date and excluding the pension reform impact in Lithuania that numbers 30 billion year-to-date. We are also seeing good development on the lending side with volumes up 6% compared with last year. It was also pleasing to see the continued recognition over asset management business in the annual Prospera survey of institutional investors as it was ranked the leading external asset manager in the Nordics for the fifth consecutive year. The ranking is based on feedback from investment decision makers across Sweden, Finland, Denmark, and Norway. This year, SEB achieved a score of 4.09, the highest score recorded by any participant in the survey since its inception. The result reflects the strength of our investment offering, our teams, and our long-term client relationships across the Nordic region. Turning to the Baltic Division, both consumer purchasing power and corporate investment activity supported broad-based lending growth. with continued strong development both in mortgages, SMEs, as well as large corporates. In other words, the structural growth story of the Baltic economies continues. And it's also pleasing to see that we see some support on margins from rising interest rates. We also wanted to highlight a recent AI initiative now live in the Baltics. Since July, an AI-powered voice bot has been handling calls during night shifts, helping customers with card issues and internet banking access blocks. It has significantly reduced customer waiting times while creating operational efficiencies. The next step is to expand the service into daytime operations and explore additional customer journeys where the technology can be leveraged further. Turning to the next page, I won't spend much time on this as we already covered the lending growth to some extent. But to recap, we see continued lending growth with FX adjusted lending up 2% quarter on quarter and 5% year on year. We're now seeing growth across all of our divisions. Moving on to one of the bank's favorite slides and definitely one of mine. Our focus on positive operating jobs continues. This is supported by continued cost discipline which is delivering results as reflected in our expectation to beat this year's cost target by some 5 to 600 million. Now over to you, Kristoffer.

Thank you, Jonas. So if we turn to the financials and we'll go to the summary on the next slide. Net interest income is increasing both compared to the same period of last year and compared to the previous quarter by 3 and 2% respectively. The increase reflects a combination of the positive impact from stabilizing and increasing interest rates as well as continued support from growth in lending and deposit volumes. We can see that the underlying trend of strengthening corporate loan demand remains intact and on the private side mortgage volumes improved in the quarter. SEB also increased It's market share in both corporate and mortgage lending in Sweden during the quarter. Net fee and commission income posted a solid Q3 up 7% from Q3 of last year recording the highest Q3 fee and commission income on record as Jonas mentioned and the decline compared to the previous quarter reflect a seasonal slowdown within most capital market related activities compared to a very strong second quarter. So while both net interest income and commission income grew from Q3 last year, total revenues were largely unchanged due to a decline in net financial income. And this is primarily related to the challenging market backdrop that Jonas also referenced. The decline compared to the same quarter last year was around 600 million. and impacted primarily our fixed income, currencies and commodities businesses. We'll come back to this a little bit more in detail when we go through our usual net financial income breakdown. Net other income contributed negatively this quarter mainly reflecting a negative contribution from an associated company held in our central functions. Turning to operating expenses, 8.2 billion for the quarter increased moderately from Q2 and the increase relates primarily to the impact on our staff costs from equity linked remuneration and that's resulting from the higher SEB share price. We also had somewhat higher technology costs that were offset by seasonally lower costs for external consultants and marketing. Now the underlying cost development is steady, well within our full year cost target reflecting our ongoing cost consolidation. As we flagged already in Q2, we're tracking well to come in below our cost guidance for the full year. And now considering the seasonality of our cost base, along with investments that we expect to book in the final quarter of the year, we have now the visibility to communicate that we expect to beat our full year cost target of 33.4 billion by between five to 600 million. The main drivers contributing to the faster than expected cost consolidation during the year are related to effects from our external hiring pause which is helping us consolidate the cost base, also lower operating expenses within Airplus which have accelerated their cost efforts to offset some of the lower income trajectory and also lower pension costs which have been supported by the surplus in our defined benefits pension scheme. Net ECL in the quarter of 179 million continue to reflect a solid underlying asset quality across our credit portfolios. This quarter we released portfolio overlays amounting to some 60 million from business and retail banking exposures and overall our model portfolio overlays stand at 800 million. The ECL in the quarter corresponds to two basis points of our total credit exposure. levies of 857 million is in line with our full year guidance of 3.5 billion and a tax rate of 20% also in line with our guidance net profit 7.5 billion an earnings per share of 385 and an ROE of 13% and as usual we provide the ROE also adjusted for the effects from our overfunded pension scheme and this quarter that ROE is 14.4% Turning to the next slide and net interest income. The development in the quarter is a continuation of the trend that we have seen over the past few quarters as policy rates have turned from declining to steadying and in some geographies rising. These dynamics resulted in the first quarter of this year marking a turning point for net interest income in line with our expectations of that three to six months lag from the last cut to the full effect on our balance sheet. The same dynamics are now working their way through the balance sheet in the other direction and as a result the effect of the first ECB rate hike in June further supported by continued lending growth is largely now reflected in our Baltic NII. While the impact of the second hike that we had in September is still being realized. For the Baltic division this added up to an increase of NII of 200 million in the quarter. Within CIB the increase in NII was mainly driven by higher volumes particularly those volumes that were added towards the end of the second quarter which now had a full effect in Q3. This resulted in an overall increase of around 200 million. Margins in CIB were largely unchanged on the whole and within markets the NII declined somewhat compared to the previous quarter. For business and retail banking the NII increased by 100 million and that is also volume driven as policy rates were unchanged and Stiber largely flat over the quarter. Mortgage margins were also moving sideways. Within Treasury, net interest income declined due to increased funding costs and higher funding volumes in the quarter. Finally, the weaker Swedish krona had a positive impact on NII around 70 million and the day count contributed about 100 million. Turning to net fee and commission income on the next slide, the development in the quarter reflected the typical seasonal pattern with a decline in capital markets related income compared to a very strong Q2. Nonetheless, it's a record high fee and commission income for the quarter both within CIB and for the group. The most important drivers of the year-on-year increase include the securities related commissions rising 13% supported by mutual funds and custody fees. Advisory fees, lending fees and other commissions were largely unchanged. The nature of our card business within business and retail banking is also impacted by the Q3 seasonality due to the high share of corporate activities. So compared to the same quarter last year, though, card and payment fees increased by 5%. And we can also note that this is the first quarter where Airplus is comparable on a like for like basis following the exit market Closure at the end of Q2 last year. Turning to the next slide and the net financial income. As mentioned earlier the lower contribution from CIB in this quarter is primarily a reflection of a broad-based repricing of global rates markets during the quarter where rate expectations shifted quite dramatically from lower to higher rates in a quite rare way. This market movement coincided with a period of muted customer activity over the summer period which then impacted our client flows as well as our market making activities. As you well know we have a strong standing in the rates markets in the Nordics and we're a leading market maker across many products. So during the quarter we have seen long rates move away from many of our customers who typically seek to lock in lower rates in their financing. So against this backdrop we've continuously provided markets for our customers and that has impacted us both via the valuation effects on our inventories as well as a reduction in the flows. Now importantly risk management has served as well throughout these difficult market conditions. If we look at rates markets in October or the weeks we've had so far they remain challenging and And of course as we get closer to year end customers will typically start to pull back on positions and reduce risk. So early days but we'll come back as usual in our pre-close if there's any further developments to report on. As I mentioned in Q2 we are in the process of disposing of our shareholding in Euroclear. This quarter we booked a second part of that capital gain resulting from the divestment amounting to 36 million euros. Going the other way though this quarter we have had negative marks on other large holdings including positions in our fintech and greentech venture portfolios offsetting the gain from Euroclear. So the net contribution from these holdings was immaterial in Q3. Turning to the next slide and the development of our capital position. We closed the second quarter with a management buffer of 250 basis points. We added 37 basis points from net profit in Q3 and our continued credit growth consumed 35 basis points and the FX effect due to a weaker Swedish krona reduced the buffer by 22 basis points. Positive asset quality trends and other effects added 20 basis points to the buffer which then took us back to the 250 basis points also at the end of the quarter. Turning to the next slide I'd like to make a comment on the Swedish FSA decision that Jonas mentioned at the start of the call. As announced last week, the Swedish FSA has concluded a review of our IRB models, our internal rating based models. Due to the deficiencies identified, the Swedish FSA will implement a temporary increase in our capital requirement of 10 billion as of the 31st of December this year. Now, as communicated by the FSA, the findings relate to regulatory compliance and not to the risk level in our credit portfolio. nor to the capital position in relation to our credit risks. We already hold some 10 billion in extra capital since 2023 in the form of a Pillar 2 requirement that is equivalent to around 100 basis points. This add-on will now be moved to Pillar 1 as part of a change in practice at the Swedish FSA. These two effects will be implemented simultaneously. Looking forward, we expect to start submitting models no later than the third quarter of next year, so within the next 12 months, and thereafter the Swedish FSA will process the applications. The additional capital requirement will be lifted once the models have been approved and implemented. As this is a temporary capital effect, we will continue to operate our customer franchise as usual. We will also continue the work with our capital efficiency actions to support mitigation. This includes obtaining external ratings on more counterparties, which is a very efficient tool. It also includes continuing our readiness for SRTs, which we have talked about for some time, including other capital efficiency measures that are already underway. Since the FSA's decision last week we have revisited the bank's capital plan together with the board. Based on these discussions and taking into account the credit demand from our customers, our dividend ratio of around 50% and our plans for mitigating actions, we expect to close the year with a management buffer of around 150 basis points and this is based on FX rates as of the end of the third quarter. Finally, to conclude on the last slide, our financial targets, which remain unchanged, which was also part of our communication from last week. We continue to aim for a payout ratio of around 50%, a capital buffer of 100 to 300 basis points, and a return on equity of 15%. With that, we're open to take questions. Over to the operators.