Skandinaviska Enskilda Banken AB (publ)

Good day and thank you for standing by. Welcome to the SCD Financial Results Q3 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 Torgeby, CEO. Please go ahead.

Good morning, and I'd like to extend a warm welcome to all of you today for SEB's Q3 financial results. Going to our first page with highlights, we today post a solid financial result. in a quarter which is seasonally slower but we've also experienced less volatile and stable financial markets. Noteworthy is that investment banking activity has held up and showed resilience and we saw an increase in capital markets activity to the later half of the quarter. Customer satisfaction and employee engagement continue to show relative strength and it has been decided to continue the 2.5 billion share buyback program per quarter by the board as we announced today. Flipping to the next page we have some recent events and the first one is the infrastructure of payments which is now being disrupted to some degree by new technology coming from blockchain. We have together with eight other European banks launched a consortium with an initiative to see if we can launch a euro denominated stable coin on the chain targeting the first half of 2027. Also, Airplus has now been used as the new brand for our previous euro card. And this is an example of the a marketing campaign particularly towards the Scandinavian countries where EuroCard has been a long prevailing brand within the corporate card segment. It has now been rebranded under the headline green is the new gold and if you haven't already you will soon get an Air Plus instead of your EuroCard in the color scheme represented here on the slide. Turning to page 4 we have over the last couple of quarters updated you on our progress within AI. We have shown you the internal projects that we're running, about 130, which is funneling in in different categories of areas we think we can improve, but also gone through the recent investment that we've done together with a consortium to get compute capabilities available to us. Today, I'd like to introduce the third corner of this triangle, which is actually SEB, not only working with offering better products, integrating it in the products, not only running the bank using AI, but actually enabling banking in the AI community, which is the core business we do. We speak a lot about different business units in the bank, but this is probably one of the lesser known ones. In 2022, we created a business unit called SEB Growth, where we now have an offering tailored for fast growing companies with high innovative content and companies that plan to raise capital and or lift or sell themselves in the future. This is an attempt to combine corporate banking with investment banking, with private banking for those entrepreneurs and these fairly young companies as they begin their journey. We've also included a few of the logos which we have recently supported, such as Lovable, Sana, Modal and Legora. All these are well-known, fast-growing companies in the AI space in Scandinavia. The next page, we can then look at the development of our credit and lending portfolio. As all of you are aware, we've had a little bit of a sideline movement in recent years. However, both last quarter and this quarter, we have some growth, albeit modest. Lending year on year for the corporate book is up 4% FX adjusted, and the total lending portfolio is up 3% FX adjusted, with households and Swedish mortgages just shy with half of that growth in the third quarter this year. Looking on the next page on the JAWS slide we can see that the trajectory of costs is tailing off and we are roughly back to trend that we had prior to the elevated profits generated by the interest increase with a CAGR here represented from the time 2016 to 2021. And with that, I'd like to end this part and hand over to the CFO, Kristoffer Malmer.

Thank you, Johan. I would now like to turn to financials on the next slide. Operating income for the third quarter declined from the previous quarter, reflecting typical seasonal patterns, notably within net fee and commission income, where the second quarter performance was particularly strong. Net financial income was impacted by market valuations of our strategic holdings during the quarter, which had a positive contribution in the second quarter. This valuation effect accounts to around 500 million of the delta in net financial income between the quarters. Net interest income increased slightly despite continuously downward trending interest rates, explained in part by the higher day count in the quarter, some positive effects from FX, slightly lower deposit insurance guarantee fee and a lower short-term funding cost. Operating expenses declined slightly from the previous quarter, also following the usual seasonality. As the Swedish krona has continued to strengthen in the quarter, we are providing an updated FX-adjusted cost target for the full year of 32.6 billion, compared to the original cost target of 33 billion. We maintain our range of plus minus 300 million around the cost target level which is primarily related to the ongoing integration of AIR+. Here we see some potential scope for possibly accelerating that implementation program a little bit further. As mentioned at the start of this year and reiterated also here in the second quarter, we're now in a phase of consolidating recent years of investment, which is resulting in a lower cost growth. We also maintain our external hiring pools for non-business critical positions to facilitate this consolidation and to make room for continued investments in selected areas, notably within technology and AI. The full year cost target does imply that there are some effects to expect in the final quarter of the year. Net expected credit losses of around 200 million or three basis points reflect an underlying stable asset quality as also reflected in the continuous decline of stage three assets. We added around 100 million to the portfolio overlays in the quarter and we also had some sizable reversals. Imposed levies came down in the quarter as expected, reflecting the development of our Baltic levies and our full year guidance for imposed levies now, also including Riksbank's introduction of the interest-free deposit, now amounts to 3.6 billion. So that's up from the 3.5 billion communicated in the second quarter. Tax rate of 21% in line with guidance, net profit for the quarter of 7.7 billion and the return on equity at 14%. And we ended the quarter with the CET1 ratio of 18.2%. On the next slide, we turn to the development of the net interest income. On a divisional basis, the NII in corporate and investment banking declined by around 200 million. primarily reflecting a lower net interest income within investor services which was elevated during the second quarter and that was a dividend season as we mentioned at the time. NII also within our markets business was a little bit lower as customer activity came down for the season. From a volume perspective lending within CIB declined in the quarter as some of the event driven financing volumes generated earlier in the year rolled off and that together with FX effects explained the majority of the move in the loan book compared to the second quarter. Now year on year lending to corporates within CIB increased by 3% on an FX adjusted basis. Within business and retail banking, NII declined by around 100 million compared to the previous quarter and that's primarily reflecting the impact from lower interest rates on deposit margins. Lending volumes were largely unchanged in the quarter Following two strong quarters of market share gains in the Swedish mortgage market, Q3 volumes grew a little bit less than the market. Year-to-date, our net sales of mortgages represent a market share of around 13%, which is in line with our share of the stock. Competition in the market remains firm and mortgage margins moved largely sideways in the quarter, remaining at historically low levels. Within our Baltic banks, net interest income was largely unchanged as the impact from lower interest rates was partly offset by higher lending and deposit volumes across both private and corporate customers. Loan growth in the Baltics remained robust with mortgage growth around 9% and corporate loan growth at around 8% compared to last year. Within Treasury, NII was positively impacted by the yield curve as well as favorable funding conditions within short-term funding. Looking forward, we continue to expect our net interest income to bottom out some three to six months after the latest or the last rate cut. Bear in mind that that is based on how our balance sheet looks today, so volume growth and any proactive repricing could impact those dynamics. We turn to the next slide and we look at the fee and commission income in the quarter. Total fees and commissions declined by around 400 million compared to the previous quarter. And if we look on a divisional basis, we effectively see three developments behind this. Firstly, within corporate and investment banking, fees are seasonally softer in Q3 across most capital markets related businesses, including issuance of securities and advisory, which was also particularly strong in the second quarter. This is also true for lending fees and combined these effects accounted for around 400 million in CIB. Nonetheless, CIB generated the highest net commission income on record for a third quarter. The second factor related to card and payment fees within business and retail banking and again seasonal patterns impacting activity levels primarily within corporate cards and Airplus. And this affects around 100 million compared to the previous quarter. And thirdly, going in the other direction, we saw about 100 million increase in fees and commissions in wealth and asset management as a result of higher assets under management and continued business momentum. Net new money across the group amounted to 8 billion in the quarter. And on fees and commissions, when we close the second quarter, we refer to a more constructive fee environment. While Q3 will see or should see some usual seasonal patterns which we've seen we said that if the market backdrop doesn't change dramatically Q4 should see a continuation of this more constructive trend and this comment we think remains valid which is encouraging going into the last quarter of the year. If we turn to the next slide, we set out the development of net financial income. This quarter, NFI from the divisions was largely unchanged from the previous quarter at 1.9 billion. The decline in the headline NFI versus the previous quarter is, as I mentioned, largely explained by valuation effects related to our strategic holdings, and that's primarily in Euroclear, which also paid a dividend during the second quarter affecting that comparability. These effects were partly offset by XVA going the other way, and we continue to look at the long-term average of around 2.5 billion per quarter. Turning to the next slide, we look at the development of the CET1 ratio in the quarter. We closed the second quarter with a management buffer at 290 basis points. During the quarter from left to right as usual we received an updated SREP update from our supervisor and as you will have seen in our separate disclosure on that topic this resulted in a lower pillar 2 requirement related to lower capital impact from IRRBB interest rate risk in the banking book. Then we had a 41 basis points reflecting the net profit in the quarter after deducting our dividend accrual, while lower risk REA contributes about 14 basis points reflecting positive risk migration in the book during the quarter. Under REA Other, you will find a combination of other developments on the balance sheet, so the FX effect, the overall REA size, market risk REA and also a positive impact from us applying the SME factor to some of our CRE exposures. These factors in total added 22 basis points and largely evenly distributed between them. Finally, the decline of 18 basis points reflects the facing in of the REA increase in the Baltic banks that we announced in the second quarter and that is related to the ongoing work with our Baltic IRB models. This takes the CET1 buffer to 360 basis points at the end of September. And we also highlight that the remaining impact from the Baltic RIA increase is around 70 basis points. So in line with the communication at the time of the second quarter. And we expect to face this in over the coming three quarters. So that means that our buffers in effect on a pro forma basis stands at 290 basis points with the Baltic RIA fully faced in. other effects to bear in mind as we go into the end of the year is the impact from operational risk area in the fourth quarter when we do review that level on the next slide we summarize our capital liquidity position at the end of the third quarter our capital as well as our liquidity measures have all strengthened during the quarter reflected in rising LCR from 130 to 136 percent and a higher NSFR from 112 to 116 and the CET ratio is as we just discussed on the previous slide. Finally, I would like to conclude with our financial targets, which remain unchanged, including a 50% payout ratio, a management capital buffer target of 100 to 300 basis points above the regulatory minimum, and a return on equity competitive with peers with a long-term aspiration of 15%. Return on equity year-to-date stands at 14.1%. So with that, I hand the word back to you, Johan.

Thank you, Kristoffer. That ends our prepared remarks, and I'll hand over to you, operator, for the Q&A. Thank you.

Thank you.

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We will now take the first question from the line of Namita Samthani from Barclays. Please go ahead.

Good morning, and thanks for taking my questions. My first question. What should we think of funding costs related to net interest income going forward? Because surely if rates are still coming down or they have come down, which has yet to be factored into your net interest income, this will continue to be a tailwind. And secondly, I just wondered, do you lend to private credit and what percentage of that is part of your book?

Thank you.

Good morning, Amita. Thanks for your question. Christopher here. I'll take your first question on the net interest income. And you're right to say that we've had a positive effect from funding costs in the quarter, and you saw that also in the breakdown of the NII in Treasury. And we estimate that effect to be positive for the quarter of around 100 million or so. Now, going forward, we'll continue to reiterate the message on three to six-month lag from the last rate cut for the dynamics to work their way through the balance sheet before the net interest income would trough. So we should expect the net interest income to come down again in the fourth quarter and then in the first quarter, and then we'll see again what happens to rates, of course, as we go into 2026. Those are broadly the effects that I would bear in mind. Johan, you want to comment on the private credit?

Yeah, sure. Thank you, Amita. We have no meaningful noticeable exposure direct to any private credit. We do have a very, very small group of private equity firms that also have a private debt arm, but no direct exposure. So it is so small that it's not really noticeable.

Thank you. Thank you. We will now take the next question from the line of Magnus Andersson from ABGSC. Please go ahead.

Yes, good morning. Two questions please. First of all on corporate lending. Last quarter you said you had an elevated level of activity-based lending. and it comes down a bit now, quarter-on-quarter FX adjusted. Could you please tell us how you see the outlook for activity-based lending as transaction activity is undoubtedly picking up now, and also what you think about the more lending for general purposes, when you think that will pick up? That's the first question. Secondly, on capital and risk-weighted assets, the level was significantly lower than at least I thought in this quarter, and I see that your risk rate comes down in corporate IRB, for example. Is this, with the exception of the operating risk coming in into Q4, is there anything else here that could be volatile, or is this a reasonable run rate to use? Because I think you even included $10 billion of the Article 3 announcement as well here. And related to capital, do you know already now if you will continue with the share buyback approval for the full year in the Q425 report, or if you would consider doing it as you did previously with the half-year approvals? Thanks.

Thanks, Magnus. I'll start with the corporate lending. So first, just note that you did accurately depict what we said and what happened last quarter. Those temporary elevated levels for transaction-based exposure, they have now fallen off. So this quarter, with its 4% year-on-year, does not have those temporary bridges on as there was very little transactions done into the summer. So this is much more steady as you go. When it looks going forward, so the pipeline looks unusually strong. That doesn't mean that they naturally materialize for events and the event-driven lending that might come with it. But we did see a pickup investment banking and also capital markets transactions towards the later half of the third quarter, which is an encouraging sign. And we, of course, always keep a close look as a leading indicator of what Americans do. And you could see some similar signs or even more pronounced. But I also want to say that the lending fees this quarter, even though it's a very, very quiet one, is still 24% up year-to-date. The lending fees, which is, of course, what you typically, the majority of what you earn on these is not NII when it comes to transaction, is up 9%. the first three quarters this year compared to last. There is some underlying event-driven momentum, but I still want to be cautious because a lot of things need to happen and we don't want any of the risks that have been identified to materialize in Q3 that would create volatility. So if I'm a little bit constructive and hopeful, I think general corporate purposes, that's a longer transition. So we are not seeing this broad-based, let's invest in increased capacity. Then you need to borrow to invest further because the first investments, they're always done with the operational capital or cash at hand. to meet the demand. So in my mind, I often come back in this discussion around the lack of demand in the economy, retail sales and consumption in GDP. And that's kind of the last leg that we are looking for, really, to change the picture. And of course, looking at the economists, they are looking pretty constructive for 26 and 27 on this topic. But let's wait and see.

Thank you. So, Magnus, on the REA, if we look into the fourth quarter, you're right that we expect the up-risk effect. We estimate that to around 15 basis point negative impact. The other moving parts that are subject to movements during any quarter is the FX effect, of course. You see that is positive in the quarter. That remains, of course, unknown. It's the REA size, which in this quarter is, again, positive contribution. And coming to your previous question, of course, I hope that we will see that moving in the other direction. And the third one is REA asset quality, which, again, in this quarter, due to upgrades of risk classes of a number of counterparts, also contributed positively. So these are the moving parts, and then you've got the OPRISK REA. So when it comes to the buffer, the 360 basis points, and we look at the perform effectively the 290, assuming the remaining phase-in of the Baltic Ria. Last year at this point, we were around 470 basis points. Of course, the situation was very different. But still, there are, to your question, a number of moving parts in the Ria that will play out in the fourth quarter. I will come back at that time with comments on future buybacks.

Yeah, okay. Okay, thank you.

Thank you. We will now take the next question from the line of Marcus Sandgren from Kepler Chevre. Please go ahead.

Good morning. I was thinking about there is some growth in the Baltic lending business. So I was thinking your ambitions going forward, do you expect to grow in line with the market given your size or is there any reason to believe that you can capture more market shares there?

Yes, we are growing clearly higher, and it's not only this quarter. It's been going on for a while, so we're actually accelerating a bit. So we're now looking at 8-9% growth in this quarter year-on-year, compared to, if I remember correctly, it was about 6% last quarter. We are maintaining our market share as... The long-term picture is that it's quite concentrated, as you probably know, to two large institutions, Swedish banks and the Baltics. There has been, of course, increased demand for higher competition from everyone in the marketplace, but right now we have an ambition to maintain this position. I wouldn't commit, as it is a very high market share we start with, so this is a little bit defend and protect, but we are not going to give it up easily. So be careful in increasing market share, but definitely it's a fast-growing market. I'd also like to point out that it is a higher inflationary market, so in real terms, it is not as impressive as these headline numbers are, and you need to also take that into account, because the loan book, unless you re-lever the economy, will grow with nominal inflation plus whatever you do.

Okay, thanks.

Thank you. We will now take the next question. From the line of Martin Ekstedt from Handelsbanken, please go ahead.

Thank you. Can you hear me?

I hear you well.

Excellent. Thank you. So I wanted to focus a bit on your retail business. Looking at Statistics Sweden data on mortgage lending, during the first half of 2025, you saw quite strong market shares of net new lending. I think you took like 16%. a new lending against the backward market share of 13%. But as we enter the second half of the year, this trend kind of evaporated and you took just 1% in July and 3% in August, despite similar volumes in the market overall. Is there a story behind this that you could share with us perhaps? And then secondly, on that same topic, with Sven Egge Falk now joining you as a new head of the business line. Should we keep hopes up for higher volumes of market shares to return?

Good morning, Christopher. I can comment on this. I think, as I mentioned in the remarks, if we look at our market share year to date in net sales and mortgages, that stands around 13%, and that is in line with our historical stock level. So there is, as you point to, some movement between the quarters. I think when I look at the focus that we have for winning the mortgage market share business, we think of three components. It's the speed, it's the availability, and it's the pricing. And it's about us continuously evaluating and making sure that we are competitive along all those three. And as you will see that we haven't moved pricing much in the last quarter, but we're continuously working around speed and availability. But I would also mention that there is a volume effect into this as well. Volumes are still relatively small, which can impact movements in between individual quarters. But year-to-date, broadly in line with the stock market share.

Okay, understood. And then a second question, if I may, and just picking up on Namita's earlier question on private credit. I wanted to just pose this question to you a bit more broadly. I mean, the main focus around the private credit discussion has been centered on the US, right? And you said you don't do this yourselves currently to any large extent. But I mean, generally, you stand perhaps as the leading Swedish lender to non-bank financial institutions. So I just wanted to check with you for a Swedish take on this. How widespread is this concept in Sweden? And what are your views on the viability of the model in Sweden? And also a bit on the risks, perhaps. I mean, if you don't do this, who should be doing it? Or shouldn't we be doing it at all? Then why not?

Okay. This is a little bit of reasoning. Don't take this as facts. So first of all, this has been a development very much driven by the US. I hear numbers like 2,000 billion US dollars. It's actually surpassing bank lending if you extrapolate the current trends. And it is a very, very significant deep source of debt capital for the American economy. Europe is much, much smaller as a whole, and even the things that are growing fast in Europe is typically more American firms replicating what they've done in the US rather than European firms. Then you go to the Nordics, it's even more pronounced. So private debt is not a large funding source for the Nordics where we operate. And this is, of course, very much if you look at the classic private debt, private equity firms of Scandinavia, which is our home market, that it looks very, very different in terms of the balance between equities, infrastructure, alternatives versus private debt lending. So my take on this is that first the leveraged buyout market is very well functioning in Nordics. This means that there's much less of a free lunch to be had sourcing the money that you then refund and redeploy into a leveraged buyouts type of financing because this is almost like a game between the two different products. They are slightly different but they achieve the same thing. for a private equity firm. One is usually you borrow from a private debt with typically seven to nine percent yield expectations or you borrow from a bank which in the Nordics we're very efficient and we've been able to price the LBOs quite differently. But if you look at the overall market of LDOs, how they're financed, it's clearly in favor of private debt funds. But from the banking system, as far as I know, Nordic has very little exposure in the Nordic banks to this. It's other capital providers that have put the money in.

Okay, great answer. Thank you.

Thank you. We will now take the next question. From the line of Fraser Stava from Citi, please go ahead.

Hi, and thank you for taking my questions. My first one is your comments around the pickup towards the end of the quarter in capital market activity. Of course, this quarter was affected somewhat by sort of lower episodic transactions than you'd expect. So I just want to talk about what the pipeline looks like for the fourth quarter, what you've already seen in the fourth quarter, and going forward, please. And my second question is going back to your comments on the scope for accelerating the implementation of AIR+. You've previously, if I'm not mistaken, commented qualitatively about when you expect it to be accretive, excluding and including restructuring costs. Is there anything further you can now provide on that, given you've obviously had an extra quarter seeing the business and integrating it. Thanks.

Sure. I'll start with the pick up. The circumstances around capital markets and primary deals and M&A and IPOs, it's very, I would argue, benign. It's a good market. Markets are strong. They might be all-time high on the stock market, all-time tights on credit markets, recent tights in credit markets. and lower interest rates, and a little bit of European spurring optimism for what is going to come. It's not particularly strong here and now, but it's definitely more optimism around where Europe could go, not at least in Scandinavia and the Baltics, if you look at GDP projection, consumption, etc., And also I would argue that Germany has had the biggest delta from one year ago where they were very much not in favor. And now it's a little bit of, let's say, interest at least on what could Germany do with all these announcements around fiscal stimulus, defense, security, and resilience. The uptick is exactly what we would have expected. We've actually been a little bit disappointed, I would say, if you compare a year and a half ago when we saw that the interest rate has peaked and we had a very quiet couple of years behind us after the record years of the early 2020s. And now it looks quite constructive and you saw that before summer we did an unusually amount large deals in the Nordics. Then of course summer dies and I would say that the pipeline and the amount of discussions for the fall and next year still indicates that there is a higher level of potential than there was before. Now, don't take that too much, but I'll just look at issuance of securities and secondary market derivatives, which is, of course, its cousin in the financial result today. We're up 29% year-to-date compared to last year. on issuance and securities and services, M&A and equities, and we are 14% in secondary markets year-to-date. So there is something clearly better already happening compared to last year, and we are just saying that we feel quite constructive. We're not saying that this seems – there are no indications right now that this would implode tomorrow. Rather, being quite supportive of this could probably continue.

On your second question around AirPlus, a reminder of where we are there. So as we highlighted in the second quarter, the first critical milestones around IT migration, the discontinuation of non-core markets, and the right-sizing of the organization has been completed, and this process is on track. The next phase now is to increase the pace of implementation between AirPlus and the rest of the SEB Coutt business. So what we are now reviewing is if there is reasons to try and accelerate that phase. As you will remember, we gave a range around the cost target for 2025 of plus minus 300, as we said, largely attributable to the pace of implementation of AIR+. So it was in that context I made those comments.

Thank you very much.

Thank you. We will now take the next question. From the line of Johan from UBS, please go ahead.

Thank you. Just to come back on some of the comments you made earlier around AI, I guess trying to figure out what AI could mean for your business longer term, there's two aspects to it, I guess, that I'm interested in. One is, how do you think about the cost of AI? So we hear a lot of, stories about the cost of AI being heavily discounted today and that we should expect costs to increase materially as you get on to kind of normal rate cards for what you're paying. And I guess, when do you expect to see concrete benefits in terms of efficiency or revenue opportunities that will be kind of obviously visible in the financials? So that would be the first question. And then, and the second is just a bit of a, uh, detailed one on asset quality. I mean, we had a, a big green project that, uh, went belly up in Sweden earlier this year. And there's another one that's in the press now. Um, your corporate loan book tends to be very much focused on investment grade. How do you view these, you know, potentially higher credit risk, uh, project, and how do you manage risk around those? I realize you probably can't comment on individual exposures, but just from a more kind of top-down view.

If I start with the last, and I think you asked mostly for the financial impact, I'll ask Christopher to reason around that on AI. The traditional loan book is investment grade. The really minimum rule of thumb is that you have to have three years of good cash flow that is proven, resilient business model, etc. So that's what we do. But there are, of course, also a very, very small part of the balance sheet. that also gets dedicated to starting up of firms. The ones you mentioned, the larger green ones, they have been unusually very unique that they are of that magnitude, but we have had very, very modest, if I say it that way, exposure that you won't really have seen, even though there has been a little bit of actually blowout in the whole green and cleantech sector as we speak, and it's continuing. The other thing is to see that the capital stack of all these projects, if they're large, are very different from the past. They are mainly predominantly government guaranteed, and there are risks and offsets. So the nominal values often, if not always, exaggerate heavily what the banks actually are exposed to. So there are two mitigating factors to any worry, and that is that the amount is very small, and it's often guaranteed somewhere between 60% to 85% by a government.

If I reason a little bit around the AI and the financial impact, and you're right that we are at an early stage and trying to assess and quantify the ultimate impact is still difficult, but I'll make a few comments. I think in terms of the benefits that we can already see, there are certainly some areas where we do see tangible efficiency gains and productivity enhancements. One is in software development, where we see the use of co-pilot increasing developer productivity and output and deploys. Another area is in wealth and asset management, where we can see an increase in the number of outbound customer calls as a result of AI support in documentation. So we see those productivity gains. Now, how does that translate into P&L? Well, one of the comments that we made around the hiring polls that we're having is to consistently ask the question when we do replacement hires if there is a technology or an AI solution that could be levered for that same activity. So we will see this gradually coming through. In terms of the cost of the actual AI, one of the reasons we decided to team up with a couple of other companies in the Wallenberg sphere to invest in the compute power from Nvidia here in Sweden is partly to get access to sovereign access to compute, but also to ensure the cost. And to your point, buying compute power from the large compute providers around the world is of course an exposure that anyone would have if you want to grow and expand in AI. and that is also, for us, a level of comfort to have that cost under our own control. So those are some comments, but as you point out, it is still early days, but we are following it very closely, and the early signs that we're seeing is constructive productivity enhancement.

Thank you.

Thank you. We will now take the next question. from the line of Sophie Petersen from Goldman Sachs. Please go ahead.

Yeah, hi. This is Sophie from Goldman Sachs. Thanks a lot for taking my question. So my first question would be on the fee line. The softness that we saw in fees this quarter, was that reflecting margin pressure or was it just less volume than expected? If you could just discuss a little bit margin pressure compared to the volumes on the fee side. And then my second question would be around capital. What we are seeing is that the fiscal outlook or fiscal spending next year is quite good for Sweden. Macro outlook is improving. Should loan growth pick up for SEV? How do you think about prioritizing growth over shareholder returns and what takes priority if you look at growth versus dividends versus share buybacks versus any potential M&A? Thank you.

Thank you, Sophie. I'll start with the fees. The sequential development there is really in three areas where we see this. First, within CIB, and as Johan alluded to a little bit, even though activity level is benign in the third quarter, it was very strong in the second quarter. So you see the drop in fees and commissions sequentially of about $400 million being partly attributable to activity levels and fees in CIB. The second component you'll see is card fees in BRB, particularly on the corporate side. And as you know, we are in our BRB card business more exposed to corporate activity than private activity. And that being slower during the summer month is a second explanation. And the positive effect, and partly offsetting this, is an increase in fees and commissions on AUM-related fees in wealth and asset management. So there's no margin development impacting sequentially in the quarter, but more how the fees have fallen between Q2 and Q3.

And hey, Sofie, and nice to hear that you're back in a different role, so welcome. I would say that the... Reason for the more optimistic outlook, as you also pointed to, is partly driven by the monetary stimulus that we've already seen. Let that bite in the economy. Monetary policy typically works with 12 to 18-month lag, but also, as you pointed out, the fiscal stimulus that is expected to come. So those two, I think, are quite important pillars for economists when they do look at it. Will this increase loan demand? Well, that's the purpose of it. Both the monetary policy wants the economy to pick up in pace and particularly focus on consumption. Fiscal policy tends to be quite effective on consumption. But the pattern right now is because uncertainty is high, risks are very mitigated in my book. but uncertainty is still around. It means that households have been quite keen to save rather than consume. So all this is kind of part of that package to become a little bit more constructive for the future and it should be supportive of growth. But that prediction I'm not making, I'm just reasoning around it. So it's definitely a part of it. When it comes to priority, between growth and shareholder return. I assume you mean shareholder repatriation and not just total shareholder return, because I think growth in SEB, having more clients doing more with them, is very much aligned with total shareholder return. That's the same thing. But, of course, you might want to save more capital for the business rather than repatriating it. And there it's pretty easy. We always try to develop the bank first. I would love to use the capital that we generate to do more business to generate even more. So that's typically not a big conflict. Otherwise, as we've had for many years now, we generate more than we can redeploy and then we'll pay it out to shareholders.

Okay, that's very clear. And maybe just on the fee side, one follow-up. So in terms of D&B Carnegie, you haven't seen any business opportunities being able to take any market share from them?

I would say no, but I also want to acknowledge that it's a formidable competitor and they're very good. And this is not an easy market to win in. And It's tough out there.

Okay, very clear. Thank you.

Thank you. We will now take the next question from the line of Tariq El Mijad from Bank of America. Please go ahead.

Hi, good morning. I just wanted to come back on Johan's question as well on AI from a different angle. You know, the scalability of use of AI and the benefits also, I think, is based on how your core systems can actually be plugged to these AI tools. How do you consider today your IT system ready for this, I would say, evolution in terms of using AI, especially in your triangle on the parts on integration into the products? And also, I mean, there is a perception that the cost to achieve is actually much lower using AI versus the traditional kind of cost savings measures in the past. Would you confirm that perception? And as very quickly on the capital part, I mean, Sophie, I think addressed that partly, but I think you commented in the past that to go below the 300 basis points buffer or the high end of the range, that would be used for growth rather than special distribution or buyback. Given the headwinks on CT1 coming, on RWS coming in the next quarters from the add-ons on Baltics, should we assume that now the priority is for volume growth and the buyback would probably be secondary here? Thank you.

So if I start with the question on AI, You're right that there is a broader upgrade of core systems in general required to some extent. This reflects our ongoing work with our technology roadmaps that has been in place for some time. But there are also opportunities in multiple areas where AI can be applied without necessarily completing all those upgrades. And there are also ways where we can work with compartmentalizing certain parts of our legacy technology and making APIs available for new applications. And a third option that is also interesting to explore is actually to have some of that legacy code rewritten with the help of AI. So there are ways both in which we can address the challenges with traditional legacy systems, but also where we can proceed without necessarily completing those investments. Now, when it comes to the triangle, I think you're right to say that from a product perspective is probably where progress has been the least thus far in terms of introducing and implementing AI capabilities in the product. Where we have thus far seen the best impact and the greatest achievements thus far has been in running. And what we're highlighting this quarter as well is, of course, interesting opportunity working with a growing industry and exciting AI community in Sweden and the Nordics. So we'll continue to, of course, monitor this closely, but there are certainly areas where we can accelerate with AI implementation in parallel with legacy upgrades.

Yeah, and if I just may add, it's interesting, we had the IMF-IAF trip to Washington where all bankers met last week. that it is a clear distinction, the one selling AI capabilities between the ones buying them and selling them, and how much value has been created lately. So this third point that Christopher made, the third leg, is actually us banking the AI community, which is doing very, very well. On the capital repatriation preferences, so let's say that If we are above 300, as we have a stated target board mandate to be in the range of 1 to 300, we have one type of dialogue, and that is how to best come back to the range where the 300 is the upper end. That's the discussion we've had for three years from the day we had to cancel the dividends post-COVID. And, of course, that's kind of the new now. If we're in the range, We have a more forward-looking discussion in the board in December where we typically have room for both. So don't assume that you cannot do a share buyback only because you're in the range. However, there's a different discussion. It's more about if lending and if we want to retain it to improve business over and beyond 15% return on equity, if there's a reasonable degree of probability we know how to do that in the coming years, we'd like to be able to capitalize on that. If not, then, of course, it becomes more of a question of how to repatriate capital to the shareholders with a base 50% of profits go in the form of dividend. And as you can see in history, we've used both extra dividend in combination with share buybacks to look at. But that's a forward-looking. And I also would say, just the numbers, you need pretty significant loan growth numbers for this, for SEB not to be able to do capital repatriation in the combination of two or three types. So it would be lovely if that would happen, but that's a luxury problem.

Thank you very much.

Thank you. We will now take the next question. From the line of Nicolas Macbeth from DNB Carnegie, please go ahead.

Thank you. Good morning. My first question was on the NFI line, which came in a bit below recent quarters in Q3. So I was wondering how you think about how the lower interest rate environment is affecting this revenue line. With your current macro outlook for 2026, how confident are you that your previous indication of the past 16 quarters average is a good indication where the normalized NFI line should be and how you think about that given the macro outlook for next year with maybe lower interest rates and possibly also lower volatility than what we've seen in the past few years.

Thank you, Nicola. I think within that number that you have in the NFI number, for us, these are, to a large extent, customer-related income. So taking aside the strategic stakes and the mark-to-market and the valuation gains that we present separately in the XVAs, we have a significant proportion of our FICC business booked within NFI. And within the FICC, we have the fixed income, currencies and commodities. And if I look at the third quarter, we had after the very high level of volatility in the second quarter, a lower level of volatility in the third quarter in FX, which resulted to a somewhat slower activity related to our customer demand. Now, within fixed income, on the other hand, activity levels remained high with credit spreads at very low levels, issuance continues, and there was a clear demand to pre-fund during those favorable conditions. Within commodities, we are, as you know, the one Nordic bank that does offer this, and we have seen that contribution growing. But, of course, there's an element of volatility, but we think that the underlying structural development there is also constructive. So as we look forward, there are effects driving this. The volatility in FX space and the demand for FX products will be impacting that part of the FICC booked in NFI. We also have the steepness of the yield curve, which impacts the treatment of the inventory and the mark-to-market of the inventory within the fixed income in NFI as well. But at this point in time, we have our range, and I think that remains our best prediction for the future.

All right. And then I had a question on, like, if you have any general remarks or thoughts, how are you reasoning regarding the cost growth into 2026? I mean, on the one hand, you have lower rates, which are a drag on return on equity, but on the other hand, as you alluded to in the call, potentially higher activity, long growth, economic recovery during next year. So do you think 2026 is the year to expand and invest more or keep the higher increase and try and defend the profitability?

I think I'll start and ask Christopher to add. So the current... Let's call it plan of attack on cost control. It's the one that we, I think, launched last quarter or two quarters ago. And that is to change the pathway that we've been on for some years now of increasing investments in the bank and to tail that increase off. And as you can see this quarter, it looks to be supportive of actually happening. We are in a different place now where you have a different trajectory. The purpose is to sit when we do our business plan in December and hopefully be in a position where we have freed up some operational costs that we can discuss with the board and the management team how to redeploy. So it is still a different type of forward outlook now than we've had for the last years and that is more cost control, be cautious and handle resources a little bit more until we have a clearer look on the income outlook because we really need to have a high return on equity and a low marginal cost of income so profitability is secure if we were to start investing more. And then there are many other things, you know, must-do investments in banks, so there's no lack of holes to put all this money in order to maintain a good and solid and robust infrastructure. But it is the same tonality we've used now for a couple of quarters. There's no change in that, and that goes beyond year-end. It's actually to have a little bit of extra flexibility going forward. That doesn't mean that the decision in December where we set the cost frame for 26 will be up flat or down. It just means that there will be a discussion to be had and we'll communicate it as always in conjunction with the Q4 report.

All right, thank you. And then just a bit of a detailed follow-up question. Could you please give us the R-plus implementation costs for Q3 and how you think about the implementation costs in 2026?

Yeah, the AirPlus implementation cost in the third quarter was around 120 million, which means that we, year to date, have taken a little bit less as a run rate, which leaves a little bit more in the fourth quarter. And we have guided to around 700 million in implementation costs for the full year.

And for next year, how do you think about those costs developing?

Well, as I referred to earlier, we are now reviewing whether there are parts of the implementation program that should be accelerated. So we'll be coming back to that together with the cost outlook for 2026 together with our fourth quarter results.

All right, perfect. Thank you.

Thank you.

Thank you. We will now take the next question. from the line of Ricardo Rovere from Mediobanca. Please go ahead.

Thanks a lot for taking my questions. I have three, if possible. The first one is on the NII indication, Christophe, that you provided earlier in the call, meaning NII to bottom out three to six months after the last cut. Now, raising in Euro area should be done. Riksbank has cut 25. Okay, I understand the impact on the equity side, but the Federal Reserve should cut much more aggressively. And you have a much larger amount of US-denominated liabilities than assets. It's 300 billion larger amount of liabilities in dollar. So I was wondering why the rate cuts by the Federal Reserve should not have a mitigating impact for the only 25 basis point rate cut by the Riksbank. And by the way, you know, also this quarter, what this indication should have happened and did not materialize and is actually up quarter on quarter. So I was wondering why you keep reiterating that given the Federal Reserve cut expected in the coming quarters. The second question I have is on the 290 basis point buffer, if I'm not mistaken, this includes the whole 50 billion of RWE add-on imposed by DCB on your Baltic operations, just to confirm my understanding correctly. And if I understand it correctly, 290 is already at the top of your range in terms of management buffer, but you're expecting to go back to that level in only three months. And because if that is the way I understand, just a matter of how you want to return excess capital rather than if you can keep the current capital return. So what is your thinking about that? And then I have a question, a curiosity, that's more a curiosity. Overlays go up by 100 million, if I'm not mistaken. Some other Nordic banks have actually reduced them or brought it to zero. They're using that, progressively releasing those. Why do you keep accumulating those overlays? And when do you expect this to come to an end or this to be used at some point or released or allocated?

Thanks. Thank you for your questions. I'll start and I'll let Johan contribute as well. And we're just going to make sure we have the questions correctly. So if I start with the overlay, that is an assessment that we do every quarter. And we take into account geopolitical development. Sometimes we change our macro outlook and assumptions. And it's a continuous evaluation of our various exposures across our portfolios. And you have also seen in quarters that we have released some of those overlays. And in this quarter, we're adding And it's hard for us, of course, to comment on how other banks are proceeding with this, but that is our process. For the net interest income, you're right, we are reiterating the expectation of a three to six month lag from the last rate cut till we see the trough. What happened in this quarter were a couple of technicalities that led to an increase in net interest income sequentially. One is the number of days. We also referred to the deposit insurance fee that is booked over the year that happened to tilt a little bit more favorably for NII in this quarter. We had a positive FX effect, and we also saw some beneficial treasury contributions, partly from the funding costs and what we have been referring to as repricing effects or timing effects. So as we then Look forward, we continue to see pressure on deposit margins as the rate cuts will make their way through the balance sheet. And also bearing in mind that some of our transaction accounts both for corporates and households are down to zero, which means that of course the further down we come in the rate cycle, the more any incremental cut will have as an impact. And finally, to your comment around the U.S.-denominated deposits, those are primarily wholesale deposits, so those are priced off of market rates, and that's effectively a margin that moves with market rates rather than having an impact as they are being discretionary priced, but they are market rate linked.

This will go down. This will go down. The Fed will cut, this stuff will go down, the cost of this stuff will go down. The cost of the... When they cut. Yes. Of the wholesale fund, of this wholesale funding, and it's 400 billion. Check.

Right. Correct. And then, of course, the impact will then be on the asset side when Feds are being cut, when we have U.S.-denominated loans that they are funded by.

Sure, but it's smaller the amount. The delta is smaller. The liability is much, much larger than the assets in dollars. Much larger. 300 billion.

Right. And I think what we have also mentioned when it comes to the U.S. denominated deposits is the funds that we're also placing with the Fed. And that is effectively us operating in the U.S. with our balance sheet and where we collect deposits from U.S. financial institutions and placing with the Fed. And that is effectively a relatively opportunistic business that we have been running there. And that goes to an element of lumpiness between quarters. But that accounts for a sizable part of the U.S. denominated deposit as well.

All right. But what I see is $187.88 billion cash at the Federal Reserve, I guess. And you have $408.99. billion deposits, which you say wholesale is going to go down. One number is more than twice the other. So I don't understand how this cannot be positive, regardless of effects and all the other stuff. Calendar days, whatever.

No, I think this is one of many moving parts in the balance sheet. So when we are looking at the impact in totality from rate cuts, there are... various dimensions moving in different directions. And this is one impact that we get from the development of the Fed funds. We have other parts of the balance sheet that's impacted by the ECB rate, another from the Riksbank. So it's taken all these into consideration together, where we conclude that running this through our balance sheet as it looks today, we expect the trough. It doesn't mean that all the variables go in the same direction. some to your point might be contributing positively but the net of it all we expect to result in a trough three to six months after the last cut all right okay thanks thank you the 290. yeah so can you repeat that question ricardo the question the question is that 290 is already the top

of your, basically, the top of your management buffer. And that 290 includes the whole 50 billion, which should be, as far as I remember, phased progressively. If I'm not mistaken, you've got 10 billion this quarter. Maybe you will have another 10 billion next quarter. I don't know. But the real number is the 290. So that is already at the top of your buffer. So how do you see this? Were you expecting it to be already basically at the top of your buffer only with the whole impact of the ECB imposed on after only three months. There has been, let's say, some discussion around the impact of this stuff into mostly 2026 affecting your capital return, blah, blah, blah, blah, blah. Yeah, I think we understand that.

I can just start, Ricardo, with confirming that we have taken in this quarter the equivalent of 18 basis points, so 10 billion facing of RIA in the Baltics. And we're showing that the remaining, what we estimate to be another 70 basis point impact, would take our Performa buffer to 290 basis points. But we have booked so far in this quarter 10 billion of that.

So just to be clear, that's the pro forma today. So I think you're absolutely right. It's the 290 if we would technically have deducted all of it and it would have been over. But for accounting reasons and other things, couldn't or wouldn't do that. So we just showed it pro forma. Then you have, as I think you alluded to, now capital generation in the dynamic analysis going forward will, of course, continue to increase this number, everything else being equal. And therefore, I think we will have a better position when we get to Q4, and we will have to look at the current capital position then in a quarter for the board deliberations on repatriation. Was that an answer?

Yeah, yeah, yeah, definitely that's an answer. So 290 before then you start accruing the dividend, 50% payout or whatever it is, And then the rest, we'll see. But the starting point is 290.

Correct.

Yeah. OK. Fair enough. Thanks.

Thank you very much.

Thank you. We will now take the next question. Short question from Bettina from BNP Paribas XM. Please go ahead.

Yeah, hi, good morning. I would just have two clarification questions, please. The first one on NII, so you have been quite helpful over the past two quarters to try and isolate the temporary effect of the net interest income base. For this quarter, should we look at the effect in Treasury that you mentioned before of repricing quicker? Is that the 100 million or would there be other parts of the NII that you would also expect to get out again or reverse partially in the last quarter of this year or first quarter of next year? And then the second question would be on the dividend. At the start of this year, you said you had the intention to pay out a survey annual dividend in the next year. Is that still the plan or... Or are you still deciding on that? If you could just give a small update on that, please. Thank you.

Thank you, Bettina. So on your first question on net interest income, I think the number that you're referring to, the 100 million or so, as a positive impact in Q3 from those timing effects is the number that you should have in mind for that effect going forward. and for the semi-annual dividend, you're right, that is something that we mentioned at the start of the year, and we have ongoing dialogues with our shareholders, and that's something we'll come back to when we report our fourth quarter results and come back to the capital question.

If I can just double-check, so it's not set in stone yet, let's say, on the semi-annual dividend?

Correct, that's correct.

Okay, perfect. Thank you very much.

Thank you. That's all the time we have for questions today. I would like to hand back over to Johan Torgeby for closing remarks.

I'll just say thank you everyone for your participation and your interest in SEB and look forward to seeing you soon.

This concludes today's conference call. Thank you for participating. You may now disconnect.