Skandinaviska Enskilda Banken AB (publ)

Good day and thank you for standing by. Welcome to the SEB Results Q1 2025 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 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 Torjevi. Please go ahead.

Good morning, everyone, and welcome to our Q1 2025 financial results for SEB. As always, we will refer to slides that we've posted on our website. On page two, we summarized firstly that we saw higher fee and commission coming from the CIB division that partly offset lower net interest income. We had a stable underlying asset quality despite somewhat higher reserves that we took during the quarter. We'll also come back to some of our AI initiatives that are in production across the bank. and the board has decided to continue its share buyback pace of 2.5 billion per quarter. As the world severely has changed since we closed the quarter, we thought it would be timely to give a few remarks on current trading. Early Q2 observations are that there has been a wait and see mode introduced in the market. the very high volatility and uncertainty that we've experienced since we started to talk about potential trade wars have clearly had an effect in a wait and see stance introduced with our strong capital and liquidity position we stand in a very good position to continue to support our customers as they see new opportunities and or in search of new firmer liquidity to conquer any uncertainty in the future going to page three we've just listed some of the most recent customer satisfaction surveys and one can conclude that this more or less ends the yearly cycle of the customer surveys that typically starts in the fall and ends in the spring This was a very strong result in fixed income, interest rate derivatives, sustainability, decappular markets investment grade, acquisition finance, and the number two position just like last year in mid corporates. Two developments within predominantly retail banking has been observed during the quarter. First, we've launched the mobile ID. online self-service for minors with parental support this means that you can now do this completely digitally also signing for mortgages you don't need to do that with a pen you can do that digitally we've also launched a new cloud-based predominantly fully new tech stack for the sab neo which is a new attempt to service our miners with good parental control So this is really for young, first entrance into the banking system below 18 years old. And if you haven't tried it, I recommend everyone to download it and see what you think. Going to page number four, once a year we look at the bank through the lens of geographical split. Nothing new has happened on the corporate growth strategy. We continue to search for more geographical diversification. And also good to be reminded that outside the Nordics, we predominantly focus on large, typically listed investment grade companies. And I do think it's interesting to see that over the last 14, 15 years, we have now gone from having about 33% of income generated outside Sweden to now roughly 50%. Going to page five, we'll just do a quick double click in how can we continue to grow the corporate and investment bank. There are two ways to grow our business. One, we increase the number of clients that we service and two, we do more and deeper relationships with existing clients. And now I'm just going to go through some of the development within these two areas. On page six we have a slide showing the last 15 years where we divide the income between the clients we had before 2009 and the clients that we have entered into a relationship with since 2005. You can clearly see that the growth rate for the new clients have been higher almost twice the CAGR compared to the average growth of the division. Also now in 2024 we ended up with almost 20% of total income coming from clients that we've added in the last 15 years. Dividing that up by country, Germany has clearly been the strongest contributor with 27% of the new income coming from Germany. We also added a few in Sweden, but otherwise it's Denmark, Norway and Finland. We also have for the first time a low, but at least noticeable contribution from Austria, Switzerland and the Netherlands. Then also checking that capital deployment is efficient and that we generate the return on equity by geography. And it's good to see that pretty much all the countries are above the aspiration for the division and contributing to return on equity. We did have a one-off in the UK. We have here shaded out the area which encompasses the underlying, but recorded numbers were much lower for 2024. Next page, page seven is a picture that tries to explain the power of digging where we stand. This is working with existing clients in order to broaden the relationship, deepen the relationship and get more SEB products engaged with the client. There is an exponential relationship in a client relationship depending on how much they use SEB for. one can look here per bar is how many products do the client engage with and what is the income of that client on average in the cohorts of products from 1 to 14 where 14 is the highest and 1 is the lowest this incremental path comes very strongly when it comes in terms of income So in this example, you make 15 times as much of income on the clients that you've developed the furthest and are most deeply engaged with compared to the clients that have one to three products in their portfolio. To move clients from the left to the right is therefore clearly the most cost efficient way to grow one's business. And there's plenty to go for many years to come as more than 60% of our clients are around the lower end of the scale between one and three products, which we now continuously trying to develop slowly but surely to move them towards the right. On the next page, page eight, it's important when you grow and add clients that you have credit quality discipline. Therefore we track what large corporates credit quality we have outside Sweden that we've added predominantly to the group. And here it's interesting to see that we actually have a somewhat stronger credit profile on the large corporates that we bank outside Sweden and that's a good sign that we can continue to grow with very limited increase of risk. On the next page, page 9, we have the same story as we've had for several quarters, and that is that we do recognize a muted demand function for borrowings. Even though corporates actually grew 2% FX adjusted quarter on quarter, some modest growth in the Swedish mortgage book, we actually had 2% in local currency in the Baltics as well. More or less, the full portfolio was flattish and we continue to experience a sideline movement on credit growth. With that, I'd like to hand over to Kristoffer Malmer to go more into detail.

Thank you, Johan. Please turn to the next slide. And before we go into the financials, I wanted to share some highlights of the work ongoing with AI across the bank. Our agenda is effectively driven in two dimensions. So one is to make AI tools more broadly available across the organization and to ensure that our proprietary data can be processed in those models in a secure manner. For example, now two thirds of our developers can use AI tools for coding and testing and deploying. We're also rolling out our AI tooling for non-developers, and all of these efforts are driving the broader AI adoption across the bank. The second dimension is to drive more specific AI use cases on a case-by-case basis in those areas where we have identified it could be an efficiency gain or productivity enhancement, and we're then using third-party solutions where possible, or we're developing internally where that makes sense. We're also working closely with partners to support and accelerate our AI agenda and one example of such a collaboration is with General Catalyst, the global venture capital firm that has launched an AI implementation unit called Percepta. SEB is a partner of this initiative and through this partnership we have access to leading AI specialists as well as leading AI companies that are part of General Catalyst portfolio companies. Turning to the next slide, we provide some examples of use cases in production. So we moved into production with 65 use cases, those more specific ones that we have roughly the same amount underway for test and production. We also have a significant pipeline and we're working on both data and AI governance to try and increase the throughput of such use cases all the way from exploration and development through to test and production. On this slide, we have distinguished between AI cases that we call reusable, which means that we have built a solution that can be applied in multiple cases. So, for example, the document search and extraction that you see on the slide where the use of AI saves time in data collection in different types of reporting. The other category we call more off the shelf, where we effectively use tools that are available in, for example, Google Cloud or Azure. This could be the GitHub Copilot for code generation that I mentioned earlier. And the third category is more custom made, where we have developed a tool for a specific use case. And here an example could be our voice to text AI in advisory meetings. So in conclusion, We believe that AI has the potential to fundamentally impact our industry, along with many other industries, and we engage actively to explore this opportunity. That said, while our experiences are very positive thus far, it is too early really to put numbers or to quantify the effects in terms of savings or efficiency gains. And there are of course also investments needed to make the progress. But in the medium to longer term, we do think that this technology can meaningfully enhance efficiency and productivity. Now turning to the next slide and into the financial summary for the first quarter 2025. Total operating income for the quarter of 19.8 billion is largely unchanged compared to the fourth quarter, despite Q1 being a shorter quarter. However, the mix has shifted quite meaningfully, reflecting the benefits of our diversified business model. Net interest income is declining sequentially as a result, primarily of the lower interest rates, while net fees and commissions are performing strongly, increasing from a seasonally strong fourth quarter. Net financial income is also performing well, and looking across our capital markets franchise, our fixed income business is up 30% compared to the first quarter of last year. Equity is up 20%, and FX and commodities are also performing very well. Operating expenses of 8.2 billion is down from the fourth quarter while increasing from the first quarter of last year and that is partly due to the consolidation of Airplus. The integration of Airplus into SEB Kort is progressing well with the positive developments in the key cost efficiency areas such as the voluntary lever program and the discontinuation of the 29 non-core markets. Operating expenses for the first quarter include around about 160 million of implementation charges linked to Airplus. Net expected credit losses or ECL amounted to 663 million for the quarter, equivalent to nine basis points. And as Johan mentioned, this reflects new reserves on a smaller number of larger uncorrelated corporate exposures in different industries and different geographies. underlying asset quality trends remain steady. We did release some of the portfolio overlay in the quarter as part of our ongoing review of those reserves. However, that was largely offset by an increase in ECL, which is driven by model changes in retail. And that also explains why our stage two exposures increased between Q4 and Q1. We will, as we always do, continue to monitor the environment and take actions accordingly. Imposed levies of 964 million include the new levies introduced in the Baltics, partly replacing old ones. We have previously estimated imposed levies for the full year 2025 to be in the region of 3.3 billion. Now with the first quarter concluded, we estimate the total levies for the year will end up around 3.4 billion. We expect, however, the first half to be somewhat higher than the second half, as the basis upon which some of these levies are calculated is a moving average. This takes us to an operating profit of 10 billion for the quarter, which is largely unchanged versus the previous quarter. And due to a lower tax rate, which was slightly elevated in Q4, the net profit is increasing by 4% quarter on quarter. Going forward, a tax rate of 21% is a good proxy for forecasting. Turning to the next slide and the development of net interest income. Please note here that our disclosure reflects the restatements that were communicated on March 26 and they were also covered in our pre-closed call. So if we look at the development compared to the fourth quarter, there is a negative impact from the fewer days, as well as a negative FX effect from the stronger Swedish krona. Together, these effects amount to some 300 million. The positive repricing effect that occurred in the fourth quarter as a result of those market rates tracking below policy rates did not fully repeat in the first quarter. However, we did see a strong performance in markets NII within fixed income as the yield curve steepened in the quarter. So the strong NII in markets did partly offset the lower repricing effects. Looking at how this played out in the division, starting with corporate investment banking, NII saw a small decline, reflecting foremost the factors that I mentioned, i.e. less number of days and the FX effect, mainly versus euro. And the offsetting factor here was a notable contribution from markets, NII, as mentioned. Within business and retail banking, in addition to the day count, the decline of around 300 million compared to Q4 reflect lower deposit margins from the lower rates, as well as some compression on mortgage margins where market dynamics remain competitive. The Baltic Division saw a similar decline in the quarter of around 300 million with about a third attributable to day count and FX and the remainder attributable to the effects of lower interest rates. Turning to the next slide and to net fees and commissions. We can note that the development quarter on quarter is now comparable as Airplus was fully consolidated in both Q4 and Q1. However, year on year, the underlying organic increase was 8% compared to the reported 19% on the slide. The strong performance in the first quarter is supported by primary and secondary market activity across both FICC and equities. Advisory fees were also strong while lending fees remained softer in light of the broader loan demand context. Note also that the lower day count in the quarter has an impact also here on custody and mutual fund commissions and together with the decline in equity markets in the latter part of the quarter which has an impact on asset management and related fees. Turning to the next slide and to net financial income or NFI, the first quarter NFI of 2.7 billion reflects a strong underlying divisional performance and the strength came primarily from fixed income currencies and commodities or what we refer to as FICC. The kind of market environment that we experienced during this past quarter, including a steepening of the yield curve, rising volatility and high intensity of news flow has had a positive impact on customer activity levels within effectively all FICC areas. So with our strong market position in FX and fixed income and also SEB being the only Nordic bank active in commodities, we've been able to support our customers and capture a high share of these client flows. As a reminder a large part of our FSCC client income including effectively all of our FX and commodities income is booked here in net financial income. The average of the past 16 quarters is now at 2.4 billion and as usual this is our best proxy for the future. As you know the market volatility increased dramatically after the events of April 2nd and has continued since and we can conclude that thus far Our FICC business has managed the volatility well. Moving to the next slide and to our capital development, the retained earnings in the quarter added 45 basis points to our capital buffers. And the increase in lending or the impact on REA consumed 26 basis points of CET1, which was then more than offset by the FX impact from the strengthening of the Swedish krona, which added 49 basis points to CET1. Impact from Basel for day one resulted in a reduction of 58 basis points. This is in line with our earlier communication of around the high 50s. And after deducting a few smaller residual items, the CET1 ratio stood at 17.5 at the end of March. This is corresponding to management buffer of 280 basis points within our target range of 100 to 300. Concluding with a summary slide of our capital position and liquidity ratios following another quarter of strong capital formation we have almost fully absorbed the impact of day one Basel IV and with a management buffer of 280 basis points we are well positioned to deploy our balance sheet should demand from our customers start to pick up. Our liquidity position is also strong and we've continued to execute on our funding plan during the past weeks of market volatility. Finally on our financial targets they remain unchanged 50% dividend payout 100 to 300 basis points capital buffer above the regulatory minimum and a long-term aspiration to generate a 15% return on equity. With that I hand it back to you. You want to conclude?