Skandinaviska Enskilda Banken AB (publ)

Good day and thank you for standing by. Welcome to the SEB Financial Results Q1 2024 webcast and conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your 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 your speaker today, Johan Targibe, President and CEO. Please go ahead, sir.

Thank you very much and good morning to our Q1 2024 quarterly results. As normal, we will refer to the pages that we posted on our website. Starting with the highlights of Q1, we've seen a clear shift in tonality, probably over the last six months, around the macroeconomic outlook for Sweden. We have, of course, pointed to several times that we've had a pretty rough ride when it comes to the picture of Sweden, and that has clearly had a change in this quarter, and this was partly reflected in improved market sentiment amongst our clients. As of quality remained robust and net expected credit losses are almost non-existent in this quarter. Return on equity of 17.2% and that's on a capital ratio of 18.9% which equates to a 420 basis points buffer above our minimum regulatory requirements. And we continue and reiterate our cost target, but also our progress towards our capital target of being in the range of 100 to 300 basis points by year-end 2024. On page three, we just double-click with a few data points on this change in tonality, particularly regarding Sweden. We've had a tailwind coming now from the expectations of lower interest rates. The previous headwind of having such a large proportion of the Swedish mortgage book, 89% in floating rate notes, clearly is a negative when rates go up, as it immediately hits and it is quite invasive in anyone's personal economy to have that fast and dramatic interest rate increases. This has now, of course, in expectations turned that if rates were to come down, which is broadly expected, this will also have now a positive effect for households and corporates, who have a large proportion of floating rate exposure. This monetary policy, which is accommodative, can also be very well supported by fiscal stimulus. The Swedish government has a very strong position and we can see also that the government debt GDP is very low and therefore there are room for, in addition to monetary stimulus, get fiscal stimulus in the budgets coming in the near future. Looking at business confidence, the PMIs, we have for the last eight months had a better position when it comes to these surveys than Europe on average. And as you might remember, we had one of the lowest expected GDP growth rates in Europe up until now, where we now can see a consensus forming of a pretty positive development for 2025, where I would characterize 2024 a year of transportation into 2025. But clearly, expectations are more constructive on the activity level in the economy going forward. On page four, a few events and developments during this quarter. First, the customer satisfaction surveys that we follow with surgical precision, and it was very encouraging to come out again as the number one choice for our customers when it comes to sustainability advice. Beneath this Nordic overall score, we actually had a grand slam and number one position both in Norway, Denmark, Finland, and Sweden. In fixed income, we came out at number two. During this quarter, we've also had a credit outlook change by Moody's where we are AA3, where we have had a change to a positive outlook going forward. And we continue to develop new anti-fraud features in our different products, particularly on accounts. And this, if you haven't noticed, is a major theme in Sweden right now, where fraud has increased. And we, as an important sector, need to develop other capabilities to mitigate this very sad development. Once a year on page 5 we look through the international network of SEB and first I just point out that we are a very well geographically diversified bank. This is a large corporate and financial institution so retail banking is not relevant on this slide. Our home markets include the Nordics, Baltics, Germany and the UK. We can also follow the decision to modestly grow our international footprint since 2009 and we just conclude that this has served us very well. where the international contribution with new clients coming into the bank over the last decade and a bit has grown in 2023 by 16.2% as a contribution to income, clearly above the average of the group should we have not entered into new geographies. On the next page, we look at from where, what countries did this growth from new clients come, and to your upper left-hand quadrant, you can see there are Germany's in top, then Denmark, Norway, et cetera. Beneath, you also see at what capital efficiency return on equity have we been able to do this growth, and on average, the international expansion must be deemed to be successful, and it is clearly higher than the the Swedish on its own, with good contributing cost efficiency and nowadays quite significant number of staff. Big picture, since 2010 to 2023, you can clearly see the geographical expansion working in our favor. As we last year broke the 50% being Swedish, we're now at 48% coming from Sweden on a 29.9 billion client income and just a bit more than half coming from international sites. On the next page, we will look at how this growth, which is of course also included in balance sheet expansion, has been conducted. And this is the non-retail corporates, both for Sweden and for the international expansion that we've had. And in both aspects, this has actually been a growing balance sheet size at a falling average credit risk. namely we have increased the proportion of investment grade lending and we've decreased non-investment grade and let's call it special credits type of exposures which are particularly troublesome. So this has been a very prudent or actually de-risking of the average risk of the balance sheet exercise accompanied by growth. On page 8 we look at the credit portfolios in the bank and I will be very short and say the muted demand following the elevated interest levels continues and also this quarter adjusted for FX we are more or less experiencing a sideline movement. There are, of course, some light at the end of the tunnel where the improved business sentiment clearly points to the activity level going up in the economy, and therefore the activity-based banking services we provide may develop more positively than the balance sheet, the beta, the interest rate-dependent part of the bank, which we will come back to. It is, however, too early to say if this will actually crystallize in the near term into tangible revenues and income. With that, I will hand over to our CFO, Matti.

Thank you, Johan, and good morning, everyone, on the call. I'm on page 10 in the presentation. So in the quarter, we have an income level of 20.7 billion, which is the second highest we've achieved in the bank. As you can see, net interest income is coming down for the second quarter in a row, but it's still up compared to Q1 last year. At the same time, fee growth is accelerating, up 9% compared to the same quarter last year. I'll comment on some of the other lines here before I move into the more specific slides. On net expected credit losses, as Johan said previously, almost nonexistent at one basis point. We, as always, have a couple or few new reserves, but we always have a few releases from previous quarters as well. What's happening now is that we are, in our macro forecast, more and more rolling into the more positive development we expect, or economists expect, for 2025. And as this happens, this leads to some reserves being released, driven by how the IRF-9 models work. In this quarter, we've had a release of about 125 million driven by that. And if estimates for 2025 stay where they are, and as we move more into using the 2025 forecast in our expected credit loss assessment, this tailwind should continue for the coming quarters. On the imposed levies, we have a new higher level of more than $1.1 billion. We said in the previous quarter that this year imposed levies should on average per quarter be in line with the Q4 level. As you can see in numbers now, they're slightly up, but that forecast still stands. We expect imposed levies to start to come down from the current levels and mainly driven by the fact that the imposed levies in Lithuania should drift downwards. And we expect the levies on average for the remainder of the year to be around 1 billion, a bit higher than that in Q2 and a bit less than that in Q4. as there will be a downward trend when it comes to the Lithuanian solidarity contribution. And then finally on income tax expense, it's a bit elevated again. In Q1 at almost 23% compared to the normal level of around 20%. And that's mainly due to dividends being paid out of our Estonian subsidiary in the quarter. If I move to the next slide, slide 11, we can look at the operating leverage we've achieved in the bank since 2011. As you can see on this slide, our income level is up by about 120% since 2011, at the same time as the cost level is up by only 20%, and combined, this has led to the profit pre-credit losses and imposed levies almost tripling over the same period of time. So moving to net interest income, up 4% year-on-year, but down in the quarter. We have a couple of technical effects. Q1 is a shorter quarter. The day effect is about 100 million negative. And we also have some FX headwinds in the quarter as the Swedish krona on average in the quarter was stronger than other currencies. We do have an underlying negative development as well. driven by the fact that deposits on transaction accounts are slightly lower in the quarter, as well as some customer behavior that continues with people moving money from low-yielding accounts to high-yielding accounts. At the bottom of the slide, you can see that when it comes to the interest income we've received in our lending book, that is flat, Q-on-Q, whereas deposits from the public and the interest expense related to that is up by $400 million. Now, this is not completely driven by changed customer behavior. A large part of it is coming from the fact that in Q4, we have less financial corporate deposits as the balance sheet is a bit more optimized, and now the volumes of financial corporate deposits have gone up in Q1, which has led to higher interest expense. That money is typically placed in credit institutions, which is outside of the interest expense on deposits. If you look at the interest expense on deposits from households, the increased Q on Q is only around $50 million. So the negative effect from changed customer behavior is not as large as this number could suggest. I move to slide 13, the net fee and commission income development, up 9% year-on-year, very much driven by asset management-related fees, largely due to the fact that equity prices have gone up in the last year or so. We do have good development of lending fees as well, both driven by the fact that we have a larger balance sheet today than we had a year ago, but also that a lot of the new business we've conducted has been in areas where you typically have higher lending fees, such as infrastructure investments, structured finance, and so forth. Payments and car fees are running at a pretty flat level as inflation has compensated for the fact that consumption is a bit lower now than it was about a year ago. On net financial income, on slide 14, it's a strong quarter at 3.2 billion, up 35% from Q1 last year. We have a strong underlying development within our business, mainly within fixed income, but also continued good activity within FX. In addition to that, we have positive XVA effects as credit spreads have narrowed during the quarter, and we have a positive development within the group's treasury business, as well as the treasury business in the Baltics. And as always, we say that our best guidance of this line is in line with the average we've achieved over the last few quarters. And as you can see, for the last 16 quarters, the average is about $2.2 billion. On slide 15, we look at the development of the capital buffer. It's down 20 basis points compared to year end. We continue to generate good profits, adding 57 basis points post 50% of the profit being reserved for dividends. But we have a large headwind from FX in the quarter. So despite the fact that the corona was stronger on average during the quarter, it was weaker at quarter end compared to quarter end in Q4, which is leading to this headwind on capital. And then post the optimization of the balance sheet at the year end, you have a rebalancing of the balance sheet leading to the risk exposure amount driven by asset size also leading to some headwinds in this quarter. On slide 16, looking at the few key ratios, deposits up significantly in the quarter. This is, again, driven by the year-end effect that that's been normalizing in the quarter. So a lot of this increase is coming from financial corporates. but we also see an increased deposit level from large corporates as well. Liquidity ratios all look very good, and the total capital ratio is up in the quarter as we've issued a Tier 2 instrument. Finally, reiterating our financial targets, dividend payout of 50%, around 50% of earnings per share, capital buffer of 100 to 300 basis points, and on return on equity that's competitive with peers. Obviously, we're at 17.2 in the quarter. We have a long-term aspiration of 15%. We still continue to believe that we have everything in place when it comes to our franchise and business mix to achieve this long-term aspiration, even if rates are a bit lower than they are today. With that, we end our presentation and can open up for Q&A.