Skandinaviska Enskilda Banken AB (publ)

Good day and thank you for standing by. Welcome to the SEB Financial Results Q4 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 first speaker today, Johan Targeby, President and CEO. Please go ahead, sir.

Thank you very much. Good morning and welcome to this closing of the books for 2024 earnings call. As always, we will run through the PowerPoint presentation that we have posted on our website. Going to highlights, we have seen increased customer activity within corporate and investment banking, still called large corporate and financial institutions division, and some healthy customer activity with low growth in the Baltics. Both costs and capital came in as planned for our full year targets. The cost target for 2025 is set at 33 billion, which will enable us a fair balance between incorporation of AirPlus, reinvesting in the business, acknowledging some higher inflation rates going forward, compensated by continuation of extract efficiencies and productivity gains within the group. The board has proposed to the AGM an ordinary dividend of 8 kroner and 50 öre per share, combined with a special dividend of an additional 3 kroner per share. And we've also announced the intention and the share buyback program for the full year of 2025 of 10 billion kroner. Going to page three, some of the recent developments when it comes to the all-important customer satisfaction scores that we follow very closely. It is very encouraging to see that we maintained the top position for the Nordic Corporate Bank. We also came out, and this is a little bit novelty for us because we haven't had this position for some time, as the top-ranked domestic equity provider, equity service provider in the Nordics. While for financial institutions, we came out at number two with the top position in Sweden, Finland, Norway, but a third position in Denmark. The yearly Prospera survey of private banking in Sweden, we came out six, which is something we're not satisfied with. Double-clicking on the six, which comprises three different categories, the mass affluence of below 10, we're number two. The affluent, which is 10 to 49 million, we're number six. And the high net worth, about 50 million, we're number one. We also got awarded the best fund company of the year. And also for many years, we have not had any change on the credit ratings, but it's encouraging to see that S&P has moved its outlook for S&P to positive when it comes to our external credit ratings. Page 4, we look through the lending and our credit portfolio development and broadly speaking, it is muted and we can see a sideline movement as we have for some time. The reason top line grows very nice is of course that FX has worked in favor of SEB. And therefore, we note the 5% to 6% increase in the lending portfolio and corporate credit portfolio for corporates. But FX adjusted, it is still saying that we're moving sidelines. This also goes for households, and I would say for the smaller areas within real estate and housing co-ops. with one exception, and that is Baltic. So in Baltic, corporate lending is up like for like in local currency of 4% year-on-year, and Baltic mortgages are up 6%. So there's a clear sign that something positive is happening in the Baltics. With that intro, I'll hand over to our CFO, Christopher Malmer, to run through the financials in more detail.

Thank you very much, Johan, and good morning, everyone. So I'll start on slide number six, where we'll have the financial summary for the full year 2024. Operating income is up somewhat compared to the previous year at 81.9 billion. Operating expenses at 30.9 is at, or as you can see, a sliver below our communicated cost target of 31 billion. and that's an increase excluding Airplus of 6% on an underlying basis, and operating profit of 46 billion, down 2% versus last year, excluding the impact of Airplus for the year. Net profit at 35.9 billion sequentially from last year, down 3%, and as you can see from the EPS developments, down 1%. Underlying, you can see the impact of our continuous and ongoing share buyback program that we also announced a new one last night. Return on equity for the full year at 16.2% and asset quality remains very benign with net ECLs at three basis points. Going to page number seven and a closer look at the financial summary for the fourth quarter. Please note that we now continue to provide comparison columns both within, including and excluding AirPlus. This will be the last quarter that we'll be doing that. We're now working very hard on the integration. And as we are effectively merging AirPlus into SAP Card, you will start to see merger effects and synergies in both of those areas. And therefore, we will continue going forward to report this as part of CNPC. Now, having said that, we will, of course, provide an update on the progress and an evaluation of the business case as we progress. And a brief reminder, Q3 had two months of AirPlus, and Q4 has the full period of AirPlus included. Looking at the income line, at just under 20 billion, it's down underlying 6% compared with the previous quarter. And if you look at the mix of that, we'll see the net interest income is down 2%, and we'll come back to that in a moment. Fees and commissions at 6.5 billion on an underlying basis at an increase of 7% compared to the same period of last year. And because of the seasonality, of course, Q4 of last year is the most relevant comparison. And here we can see underneath that 7% growth that there are some signs, and Johan alluded to them, of activity levels in the Corporate Investment Bank, in LCNFI. Fees around advisory, securities, and secondary trading are up in the region of 25% to 30% compared to the same period of last year. So some encouraging signs of activity levels picking up. Net financial income is down from the Q3 high print. As you will recall, Q3 was a significant increase compared to the average run rate. And here we have the mark-to-market effect, not least of our strategic holdings, which in this quarter is an adverse impact, so a decline of negative mark-to-market about 390 million. Against that, we have positive X-ray effect of about 150. That takes us to the income line. looking at the expenses for the quarter of 8.7 billion, and then noting that within that 8.7 billion, there is about 500 million of implementation charges related to AirPlus, as previously communicated. In note number 16 in the release, you will also see that about 400 of that is actually booked in AirPlus, and the rest, the balance, is booked within SEB cards. As you will recall, we also have 200 million of transaction costs related to Airplus in Q3, so the total Airplus-related implementation and transaction costs for 2024 then adds up to 700 million. Going below the profit end before ECLs and imposed levies at 11.3, we come to the ECL number, and there we're reporting 377 million, similar to in line with the previous quarter. And the underlying pattern is quite similar as well. There's a handful of larger exposures that are requiring provisioning, uncorrelated, both geographies and industries. And we're also releasing some of our portfolio overlay to the tune of about 400 million. So a similar release as we saw in the third quarter. On imposed levies, there is a decline compared to Q3. And here we have a primarily related to the solidarity levy in Lithuania. Looking forward into our levies going to this year, 2025, we will continue to see the resolution fund fee and the risk tax roughly at the same level as we are this year. The mortgage levy in Latvia will discontinue and will be replaced by a solidarity levy instead. Largely the same effect, somewhat bigger. And the Solidarity Levy in Lithuania, we're expecting to decline somewhat and that's a mathematical effect as it is based on an average net interest income over historical run rate. In total, we're estimating this to be somewhere in the region of 3.3 billion for 2025. That takes us to an operating profit of 10.1 billion. You will also note that the tax rate is somewhat higher at 25.6 and there's a couple of reasons for that. First of all, there is some dividend payments between our subsidiary in Estonia up into the mother bank, and that has a tax effect in the quarter. We also have a slightly higher amount of subordinated debt outstanding. You will recall that we did an 81 in October. So the tax on those securities is non-tax deductible, so there's a tax impact of that. And the third effect is also a prudent and cautious treatment of deferred tax assets related to Air+. Now, having a look at the, and just to mention the ROE for the quarter of 13.2, and we're also providing the ROE adjustment for all the R-plus effects at 14.6. Now, double-clicking on the net interest income and the development in the quarter from 11.1 to 10.8. Looking at the divisional effect, you will see that the large corporate and financial institutions, excluding the effect from IFTP, is largely flat. You will recall that in Q3 we did have some effects from IFTP, internal funds transfer pricing, and we flagged that they would continue into the final quarter of the year, and that's what you're seeing now. We talked in Q3 also about a negative deposit mix effect in LCNFI. That has abated. None of that we're seeing in the quarter. However, the yield curve effect that we alluded to in Q3, which had a negative impact at the time with an inverted yield curve, That is now flattening out, and it's actually a small positive contribution, and the steepness of the yield curve is an important development. And as you will recall, the difference between the coupons that we're booking on our fixed income inventory in FICC relative to the mark-to-market effects that goes through the net financial income line. Online volumes and margins are largely flat, so adjusted for ISTP, a sideways movement. Looking at the CNPC division, you'll see that the IFTP effect is about 200 million as well. Both of those effects, by the way, are offset in funding and others. So in Treasury, that's a full mirror image of those IFTP effects. Outside of that, there's a decline of 200 million, which reflects the lower rate in the quarter, impacting deposit margins somewhat offset by improving mortgage margins. You will also have seen in the quarter that we have had repricing of our wholesale funding at market rates, which have been declining, linked to Stiver over the course of the quarter. And some products, which are lending products that are priced off the policy rates, have stayed somewhat higher in the quarter, resulting in a positive contribution to net interest income from those repricing effects. And we're estimating that somewhere in the region between 100 to 200 million, and they will eventually fade away as rates stabilize and normalize. In the Baltic division, there's a sequential decline of 100 million, and that is reflecting, as Johan was alluding to, a positive contribution from volume growth, as we have seen some pickup there, offset somewhat by a continuous competitive environment in margins on the lending side, and the lower rates, of course, impacting deposit margins, resulting in the 100 million sequential decline. In the treasury funding and other, you will see the mirror image of the ISTP effect in combination with a positive trading treasury net interest income. Turning to page number nine, you will see our normal distribution of net fees and commission trends. And on an underlying basis, as I mentioned, an increase of 7% compared to the fourth quarter of last year. Now, the positive effect is split over two categories in this disclosure. So if you see the securities and commission income that is up 17% year-on-year, that does reflect those trends that we've been commenting and those activity levels in combination with continuous good growth in our asset and wealth management business. Net inflows in the fourth quarter amounted to $12 billion, and net inflows for the full year stood at $60 billion. In the advisory fee and lending fee, you'll actually see a drop year-on-year, and that is primarily related to the fact that lending fees in the fourth quarter of last year were very elevated, so the advisory fees are the strongly performing year-on-year contributions. Payment to card fees, largely reflecting the consolidation of Air+. Turning to phase number 10, you will see the breakdown of our net financial income development. And as I mentioned, the biggest swing factor between the quarters is related to our strategic holdings, and that impact is 390 million of that. Euroclear is the largest contributor, around 350 million of that. You will also recall that the yield curve steepness that we talked about previously would have had a positive effect here in the third quarter. And consequently, when that is reversing, that also presents somewhat of a headwind. Nonetheless, a solid underlying divisional NFI of 2.4 billion, largely in line with the longer-term trend of that line item. Turning to slide number 11, and the development of common equity Tier 1 buffer quarter-on-quarter. We ended the third quarter at a buffer of 470 basis points, and we communicated that our ambition before the end of 2024 is to come in within the management buffer range of 100 to 300 basis points. The developments during the quarter is, of course, our retained earnings after the proposed dividend, and as Johan mentioned, the proposal of the ordinary dividend is 850 per share. We then deduct the impact from the special dividend that was also proposed of 3 krona per share. And then the share buyback, where we have applied for a full year 2025 buyback program of 10 billion. And since that has been approved, as usual with approved buyback programs, we deduct them in full from the Common Equity Tier 1 ratio. You will see some impacts from RIA in the quarter, but perhaps worth calling out is that FX impact with increased RIA by about 13 billion in the quarter, primarily as a result of the weaker Swedish Corona. This had a negative impact on the common equity one ratio of 26 basis points in the quarter alone. Another 26 basis points attributable to market risk RIA, risk RIA, and also some Article 3 add-ons related to IRB models in retail. That takes the management buffer at the end of 2024 to 290 basis points in line with communicated targets. Turning to page number 12, the cost target that we're announcing for 2025, and as Johan mentioned, of 33 billion, and here's a little bit more color behind that. We will start with the reported 2024 full year cost level of 30.9, so just under the 31 communicated in Q3. Now, bearing in mind, and as I mentioned, this includes the 700 million implementation and transaction costs related to AirPlus. As we're expecting roughly the same size of implementation charges in 2025, there is no delta from the AirPlus implementation cost charges. So the delta we'll go through here is primarily related to inflation, which we expect to have an impact of about 8 to 900 million. And then, of course, the full year consolidation. So for five-month consolidation in 2024, we will have 12 months of AirPlus in 2025. And, of course, the impact from the ongoing activities consolidating these businesses and reaping the synergies. And just a quick word on that. The integration is running at full speed. And as I mentioned, it's effectively merging the businesses of AirPlus and SDP Card. And the synergies will then be realized in both parts of that equation. We've had good progress in negotiations with the unions, and we have reached an agreement with the Workers' Council, which allows us to proceed with our plans in that area. We can also see that our new offering is attractive. So combining the footprint of Airplaf with that of SCP Court has allowed us to sign, at this point, two quite sizable whole market customers that otherwise we would not have been able to serve to that same extent with this new offering. And we have a number of exciting projects prospect discussions with that new offering. We're also proceeding with the exit of 29 markets that we will be leaving as part of the restructuring program. Now, having said that, we are of course facing a challenging macroeconomic backdrop in Germany in particular, and that is the biggest and most important market for Airplus. So the range that we're providing on the cost outlook for Airplus in 2025 is really giving us the ability to take action if needed to accelerate the implementation activities in the event of any adverse developments on the revenue side, and therefore allowing us to meet our communicated target of breaking even of that business effective income meeting costs, so a neutral EPS effect excluding implementation charges in 2025. It is a challenging target, but we're committed, and we're giving ourselves this flexibility to deliver on that target. So with that, we are concluding the fourth quarter reporting and we're moving into a business plan update, as you want to mention. And before I hand over to you, I want to take us through the outlook for 2025 and our business plan activities. Going to page number 14, just putting the business plan into context of our longer-term strategy. As you will recall from 2021, we announced SEB's 2030 strategy. based on a number of pillars, and this very much is the foundation of what goes into the business plan. The business planning period is in three-year cycles, and we just concluded the one between 22 and 24, and now Johan will go through our forward-looking ambitions for 25 through 27. In addition to that, as you know, we're also calibrating these annually and providing annual cost target guidance, just like the one we're providing today. Quick look in the review mirror on page number 15, just a glance of the activities and achievements from the business plan 22 through to 24 across the strategy 2030 for pillars of acceleration, change, partnerships, and efficiency. And starting with acceleration, I think it's worth calling out that we continue to expand our corporate banking business carefully, but importantly, in new markets in Europe. And having added then the Netherlands, Austria, and Switzerland categorized as home markets for large corporates and financial institutions. A new one will talk more about our plans going forward in that area, but that, of course, has been an important accomplishment in terms of accelerating our growth and our ability to address customers across Europe. I would also call out the acquisition, of course, of Airplus, which will create a European leader in corporate accounts, cards, and payment activities, which, of course, is also an important part of the acceleration of our income and profitability ambitions going forward. Under change, I think it's worth mentioning that we have created the new division, Wealth and Asset Management, combining private wealth management and family office together with SCB Asset Management and SCB Life to really emphasize our ambitions to grow within this area and underlying the opportunity and the potential that lies therein. We've also continued to work on our digital presence and upgraded activities both in our Swedish mobile app and digital platform as well as in the Baltics where we actually moved to a new digital infrastructure that allowed us to release a number of exciting features and products over the last couple of months. We're also live in production with our banking as a service platform on a cloud-native platform in SED Embedded. Across partnerships, we continue to work with partnerships to improve our product offering and there we work with partners to both provide products but also to enhance our distribution capabilities. For example, with PE accounting for digital accounting services and also helping our small businesses to open new companies together with Fortnob. So combination with partners allowing us to both expand our product footprint and leverage technology partners and distribution channels. Finally on efficiency, We continue to expand our digital presence and our capabilities around our API infrastructure. This is a critical enabler to be able to tap into new technology capabilities that we would like to add going forward, but also allowing us to more cost-effectively operate our broader technology stack and become more nimble and able also to leverage SaaS partners and SaaS providers. We continue to see an increase in operational productivity by 18% over the last three years, And that is measured as transactions per employee within business services and operations. So a good continuation. And focus going forward is to continue to automate and make more efficient anything that can be automated. So with that glance in the review mirror, I'll hand over to Johan to look forward on the horizon.