Skandinaviska Enskilda Banken AB (publ)

Good day and thank you for standing by. Welcome to the SEB Financial Results Q1 2026 webcast and 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 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 speaker today, Johan Torheby, President and CEO.

Please go ahead.

Good morning, everyone, and welcome to SEB's first quarter result presentation. First, I'd like to just comment on a pretty unusual quarter. We've clearly seen some turbulent times with some macroeconomic sharp turns during the first quarter of this year. After a very constructive start in January and February, we had the trigger of the military conflict in the Middle East, where we saw interest rate expectation significantly increase following higher energy prices and the risk of higher inflation. fairly sharp drops in some of the equity markets and also a widening of credit spreads. What's good to see is that April has really contrasted to this development and things have clearly stabilized. The highlights of the first quarter is really around the sentiment that ended positively and came out weaker during March after stabilizing in April. We saw some areas really benefiting from the market volatility that increased and we saw higher demand for commodity hedging supported by high activity in the secondary equities market. This quarter we can also clearly see the cost consolidation at work and this really creates the freedom degrees that we would like to use for the future to invest in prioritized areas. We will also continue the share buyback program of 1.25 billion for the coming quarter. Turning to the page with our credit exposure and lending, we noticed modest growth within the corporate segment. We also saw a little bit more growth within property management whilst household lending was flattish. We can clearly see measured as year on year that we continue to have good growth coming from the Baltics and wealth and asset management and some growth within corporate and investment banking. On the next page, we look at the business pulse and we can clearly state that we had a shift in sentiment during March. which really meant less activity in the areas such as listing on the stock exchange, M&A and large investment decisions on behalf of our clients. We also saw an improved sentiment around fixed income, currencies and commodities as market volatility increased, which is typical that activity thereafter follows. We also had four customer satisfaction surveys completed, and it was very constructive to see a good position for SEB within cash management, fixed income in Sweden, financial sponsors in Sweden, and debt capital markets in Sweden. We saw some customer inflow in the corporate portfolio of business and retail banking. The Airplus integration is on track. And we've also seen somewhat of an uptick in house prices in Sweden, which is clearly supportive of an activity level that might come back later during the year. In wealth and asset management, we had some inflow here measured as the Swedish mutual fund inflow in Sweden of 9 billion net with a market growing 4 billion in total. Also here, we got some recognition for our work within PWM and FO as well as asset management. Baltic continues to outperform, particularly measured as year on year with growth in mortgages and SMEs both at 10% and large corporate in the Baltics of 4%. We also continue to see constructive signs of growing long-term savings and investments in the Baltic states. Turning to the next slide, as customary, we once a year like to do the CIB numbers by clients in different geographies. First, one can conclude that the growth of total client income was muted with almost a sideline movement in 2025. But as we've experienced over the last decade, the new clients that we've entered into the bank over the last decade plus are the ones that outgrow the older vintage of clients that we do have. Looking at the dependence on Sweden, we continue to see a stabilization where we went from 66% of income coming from Sweden to now around 50%. Focus going forward will be to increase growth. This is a customer oriented approach where we would like now to see the total increasing in the years to come. Lastly, as we are designing the strategy of the bank with a clear focus on positive operating jaws, we can see that we have now with clearly a different cost trajectory path somewhat of a stabilization of the operating jaws. With that I'd like to hand over to Kristoffer Malmer.

Thank you Johan. So turning to the next slide and the summary financials. The net interest income in the quarter declined by 6% year-on-year and on an FX adjusted basis that decline was 4%. This should be put in the context of an increase in lending to the public of just over 3%, so the decline in net interest income is primarily reflecting lower deposit margins as a result of lower interest rates. The sequential decline in net interest income, so development versus Q4, was mainly driven by a couple of technical factors, including a lower day count, higher costs for the deposit insurance guarantee, and FX headwinds. Partly mitigating these effects was a positive contribution from Treasury, so there has been some traffic between net interest income and net financial income in Treasury in this quarter. Turning to fee and commission income, the momentum that was building during last year has been somewhat disrupted this quarter by the increased market volatility and the broader market uncertainty that Johan referred to in his introduction. While the pipeline of pending transactions remains healthy and corporate customers have demonstrated both resilience and strength during this period, transactions and new issuance have in many cases been placed somewhat on hold. Therefore, the outlook for market-related fee and commission income for the rest of the year will naturally remain subject to the broader market backdrop. Looking at net financial income from the divisions it actually increased from the fourth quarter notably within CIB driven by FICC so fixed income currencies and commodities and commodities in particular performed strongly. FICC risk management generally performed well throughout the market volatility in March. Here also the contribution from Treasury has an impact in the quarter and in this line item it was negative but as I mentioned offset by a corresponding positive effect in net interest income. For both fees and commissions and net financial income I think it's worth bearing in mind that the year-on-year comparisons are very demanding. The first quarter of 2025 was a record quarter for both those two line items. Turning to operating expenses, we continue to consolidate the cost base, which we started during last year. And for 2026, as we communicated together with our full year results back in January, our intention is to consolidate and reduce the underlying run rate to make room for prioritized investments. Now, this has primarily been implemented through a pause in external hiring. This allows the organization to consolidate past investments and also work with the natural churn of FTEs. This is also proving a helpful tool to realize efficiency gains related both to the increased initiatives around automation and the implementation of our AI tools. The development of operating expenses in the quarter has also benefited from lower costs from outstanding share price linked incentive schemes. So these effects had a meaningful positive impact on the cost base compared to the same quarter last year. In total expenses in the first quarter declined by 7% year on year. The number of FTEs is down by around 250 compared to Q1 of last year and is down by around 4% from the peak. Now taking into account FX movements in the quarter we provide an updated annual cost target of 33 billion plus minus 250 million so this is down from the original 33.4. As you can see we are tracking well below even that updated cost target for the full year and this is the result of our underlying cost base consolidating a bit faster than we are increasing some of the investments in our prioritized investment area. So this is according to plan. Now turning to the net ECL of 546 million or seven basis points. This is a drop from Q1 of last year and a small increase from Q4. Underlying asset quality remains robust and the provisions in the quarter reflect a similar pattern that we saw during the course of last year. with a few exposures in a few sectors requiring additional provisioning. We have also in the quarter released some of our portfolio overlays and some of that has been attributed to individual exposures. Levies and taxes are in line with our communicated guidance so the net profit comes out at 9.4 billion and the EPS at 3.83 krona. The return on equity for the quarter at 13.1%. And as we have mentioned before, we do have an impact from our overfunded defined benefit pension scheme. And that continues to have a non-trivial impact on our ROE. So for comparison, we also provide an ROE adjusted for that surplus and for the quarter that amounted to 14.5%. Turning to the next slide, we'll look at the net interest income. As the interest rate cycle now starting to stabilize, we pointed last year to a typical lag of some three to six months from the last rate cut until the full effect of lower rates would have made its way through the balance sheet. We see no reason to change that assessment. Looking at the Baltics, the latest ECB rate cut occurred in June of last year. And in the fourth quarter, we recorded a sequential increase in net interest income in local currency as reported. This trend has now continued in the first quarter of this year. So net interest income in the Baltics again is up in local currency for just for the day count. And that increase is about 2%. and that is driven by higher lending and deposit volumes with margins holding relatively stable. In Sweden the latest rate cut came in October last year so the turning point in net interest income is likely to occur now in the first half of this year but will of course continue to depend on the interest rate development. The more technical factors impacting the net interest in the quarter that I mentioned previously around day counts and FX adds up to around 250 to 300 million compared to the previous quarter. But on the other hand, a number of smaller effects going the other direction across most divisions. It's a combination of higher business volumes in some areas. There's a lower funding cost at Airplus in this quarter. And as I also referred to, some positive effects developments in NII offset by headwinds in NFI in Treasury. These together added up to a positive contribution of around 200 million. So net-net there is a 100 million, quite a modest development of net interest income declining in the quarter. Moving on to fee and commission income. As mentioned in the introduction, this is the area where the change in market sentiment has had the most visible effect. compared to the momentum we saw building towards the back end of last year. Comparing the results in the quarter to the same quarter of last year, so adjusting for seasonality, the decline we see is most notable in what we refer to as net payment and card fees, which is down 8%. Now this is primarily reflecting developments related to Air+. Partly Airplus exited 29 non-core markets during the course of last year so the scope of the change has changed and that is very much of course in accordance with the plan of the implementation and restructuring of that platform. And also we've seen a result of postponed corporate travel in the latter part of the quarter of course due to the conflict in the Middle East. The year-on-year decline in what we call securities commission is partly related to lower fees on new issues of securities, so IPOs and other type of activities, as well as some lower secondary commissions. The income related to assets under management and assets under custody increased somewhat, and that's broadly in line with the moving asset values. If we compare to Q4, there's also the lower issues of securities that accounts for most of the decline in fees from securities and there is a drop in performance fees which are typically higher in Q4. Finally on this slide we see a decline in life insurance commissions from the previous quarter and that is reflecting a lower day count and lower asset values and the year-on-year effect is primarily driven by lower margins within notably unit linked. Turning to net financial income on the next slide. This line item has been affected by the restatement that we have announced prior to this quarter. Historically, we have pointed to a long-term average for net financial income spanning over 16 quarters, which in Q4 was around 2.5 billion. And this we have pointed to as our best indication of the level around which this P&I item should move. Now taking into account the restatements, which is increasing a net interest income and reducing NFI, that equivalent level looking at the past 12 quarters over which we restated the numbers is around 2.1 billion. On the next slide, we look at the development of the capital position. We closed 2025 with a management buffer of 300 basis points. And then taking into account the developments in the quarter, we're adding 40 basis points from accrued earnings, which is largely balanced by the combination of the upcoming buybacks that we deduct up front, volume growth and FX effects. Then we do continue to see the impact as we face in the IRB impact in the Baltics and a positive contribution primarily from asset quality. That takes us to a buffer at the end of the quarter of 290 basis points. On a pro forma basis, so taking into account the final part of the IRB phase in the Baltics, the buffer stands at 250 basis points. Turning to the next slide, we continue to make progress in the area of AI, which is one of our prioritized investment areas. In this quarter we have progressed well with our efforts to secure access to sovereign and also cost efficient compute at large scale, a key component in growing and scaling AI solutions. So we have together with three other companies from the Wallenberg sphere being Saab, Ericsson and AstraZeneca formed a company called Spherical AI. Now this company is building powerful AI hardware here in Sweden together with Nvidia and during this past quarter we took delivery of around 1100 GPUs based on Nvidia's latest Blackwell Ultra architecture. This architecture offers significantly better performance per watt than any previous product from Nvidia. And just to give a sense of the capacity of this installation, because of course talking about GPUs is hard to quantify, we can say that the capacity of this installation enables around 150 to 200,000 users to simultaneously have a real-time AI conversation with everyone, effectively querying the AI at once, without any drop in performance. So it's a significant capacity that will allow us to roll out AI solutions and also use this capacity for sensitive data as it is our own installation and continue to develop use cases in and around AI. We expect to start accessing these capacities to be up and running later during the course of this year. Finally, at the final slide, we conclude with our financial targets. There are no changes here. We continue to aim for a 50% payout ratio, a capital buffer between 100 to 300 basis points, and return on equity of 15%. So with that, I hand over to the operator for questions.

Thank you.

To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again.

One moment for our first question.

And our first question comes from the line of Magnus Andersson from ABGSC. Please go ahead.

Yes, hi. Two questions, please. First of all, good to see that corporate lending was up slightly quarter on quarter. I was just wondering what initiatives you're pursuing to improve your market share in corporate lending, particularly in Sweden, where you seem to be losing ground versus competitors. If you please can tell us something about that. Secondly, just on net commission income, expectations have come down quite significantly since the pre-closing call. and yet you are even a bit below the down-guided number. So I was just wondering, from here, is it purely market-driven, what happens, or are there any specific actions you are taking, or are there any technical factors related to AirPlus or something else we should be aware of? Thank you.

Hey, Magnus, Johan here. So from last quarter, we discussed the corporate lending with a little bit of focus on Sweden. we've taken quite a lot of internal steps to do something that is not particularly difficult, but still hard to execute on, and that's back to business, back to focus on making the most effort we can to be relevant in the marketplace. And it's early days, but it's, of course, encouraging to see the point you made, that there seems to be a little bit of uptake. We also, for Sweden, last quarter looked very closely on the Statistical Central Bureau, the official stats for Sweden, and we can also see the same shift there, where I think we captured about 30%, which is significantly above our back-book market share of new corporate lending in Sweden, but still not outgrowing the best in the market. So a constant focus now on just continuing this improvement, and we're not going to hold back. We're going to try to do. I would say that we don't have a sense that we've lost a lot of business that we would like to do. So there are always different areas within the subsectors of a lending book which we have differences of opinion in how hard we pursue it. That's at least a little bit of a cushion for us that we've done the business at the price and at the underwriting standards we believe is appropriate.

Good morning, Magnus. So on the commissions, I think you're right to observe that the sequential decline is primarily attributable to the markets-related fees and commissions. It's the issuance of securities and the advisory that accounts for that. Going forward, of course, those are those market-related revenues that have the opportunity to recover, provided the market backdrop is constructive. From the cards business, there is the seasonality. So Q4 tends to be higher corporate travel quarter, Q1 a bit slower, and then Q2 a little bit higher. We've seen minor effects on the revenue in fees and commissions attributable to the corporate travel impact from the conflict in the Middle East, which will recoup when travel resumes, but that's a very small number.

Okay. Johan, may I just follow up on corporate lending? Do you have any comments about pricing discipline in the market? As you briefly touched upon yourself, there's particularly one actor growing extremely fast relative to all others. Do you think that has impacted pricing in any way?

I wouldn't say in a meaningful way that I can point to objectively, so I would be a bit cautious. But you can do a very simple analysis and see how lending growth has developed versus the NII development over the last 18 months. And you get a picture that there's definitely some signs of very tough competition. And it's not only one. There are a few more, which we definitely feel that there is a more forward-leaning ambition in the marketplace. So it is heating up.

Okay. Thank you.

Thank you. Our next question comes from the line of Namita Samtani from Barclays. Please go ahead.

Good morning and thank you for taking my questions. I've just got two small ones first. On the net interest income, Christopher, you mentioned the lower funding costs, the Air Plus, and some positive developments in net interest income offset by headwinds in NFI and Treasury. Are these components sustainable in net interest income, i.e. should I not be expecting these elements to reverse? And then my other small one is, on the costs and group functions. Other expenses improved by 500 million quarter on quarter, and even in the other expenses and the group cost base, it improved by 150 million quarter on quarter. So what exactly is this? And then my final question, I appreciate the comments in the report that given the current outlooks are stable to potentially higher interest rates, the ambition is to grow revenues and maintain a positive delta between income and cost growth. But when do you think you can actually get to a 15% ROE? Because consensus doesn't even have you there in 2028. So I'm just trying to understand what stops you from getting there over the next few years. Thanks.

Thank you. Let me just put the question in good morning. If we start with the net interest income, as I mentioned, we had those headwinds from the account FX and deposit insurance accounts here, about 300, offset by around 200 of the effects that you were referring to. I would roughly split those in half and say that half of that is more attributable to business as usual, and half of that 200 is more treasury traffic between NFI and NII. Can I ask you to repeat the cost question, please?

Yeah, sure. Look, I'm just looking at the costs and group functions and on the other expenses, just quarter on quarter, it improved by 500 million. So I'm just trying to understand what that is. And even when I look at the costs on a group basis and what you call other expenses, there's an other within that, which also improved by 150 million. So I'm just trying to understand that. what other is.

Yeah, so the biggest delta in those costs between Q4 and Q1, it's partly attributable to the AirPlus restructuring charges and related redundancy fees. The second element that you also have, which is primarily in the salaries line as well, where you see the bigger delta, is attributable to what I refer to as impact from the movement in the share price impacting our LTI schemes. So those two, I would say, are the biggest deltas between Q4 to Q1. But in the other line, you should find those implementation charges.

In addition to a reduction of FTEs.

Thanks. And just my final question.

Your final question was on... There's nothing holding us back as such. So we do control the cost base with pretty much surgical precision is our ambition. But what we are lacking is really the income side. So that we do not control. I wish we did. But we would like to have a much more active investment bank. That's the biggest drop if you look at percentage terms. Even though it's not that meaningful in quantum, it's about $2 billion more. 2 billion of income from that per year in terms of the corporate finance and primaries. Those are the two ones that are down now 30%, both Q1Q and year-on-year. And those are, of course, extremely high return on equity contributing areas as they are capitalized and doesn't really consume any capital. And the third one is, of course, that we do have a drag when we look at the 15%. to your point, from the pension fund, which is capital. I mean, it's a luxury problem to the extent that our surplus is growing as markets are appreciating, but it is capital that we really can't use for the business. And I would say those things are the ones that I think about in order to come quicker to the aspiration we have of 15 versus the consensus that you referred to.

Thanks very much.

Thank you. Our next question for today comes from the line of Martin Ekstedt from Handelsbanken. Please go ahead.

Thank you, and good morning. Can you hear me? Yes, very well. Excellent. Could I focus a bit on retail banking, please? So your new head of business in retail, he's had some time to sink his teeth into that division, I imagine. That should have included, I guess, a business review and some benchmarking perhaps against his former employer where he oversaw some impressive market share gains. So are you able to share with us some of his views and recommendations perhaps and the initiatives that we should be aware of to strengthen retail banking in particular? And just as a backdrop to this, please, your former CFO wrote an article in the Swedish Business Daily between quarters. saying mortgage growth basically will be unprofitable once it comes under current capital regulations and margins. Would you agree with this? I guess you may have read this article. What is the scope for widening mortgage margins in the current Swedish market?

Thank you. Retail banking side and now predominantly then for Sweden, it's nothing, it's not rocket science. It's really an assessment that Sven has done around simplicity and speed. So very much back to basics, back to banking and make sure that you have those things that are a prerequisite to be quick and have the right product at the right price. So this is very much what we are redesigning right now. It's not that we haven't done it in the past. It's just something that is quite easy to think about and quite hard to execute on. But it's everything from updating the technology side, making sure that you answer fewer questions, you get your mortgage promise in a very convenient matter at your own terms, et cetera. On mortgage growth, I would just say that margins move up and down. And there's definitely a relatively speaking low margin business right now. So if we grow on this margin, there's less impact financially than we had maybe five or six years ago. But in my opinion, mortgage margins are cyclical. They go up and they go down. Right now they are very depressed, but they will recover at some point in time in the future because they do. And I think that deposit taking and lending, they are communicating with each other. And the other thing on the totality, why this is, I would actually attribute it to a competitive market and a very well-functioning bank market, in particular in Sweden, where there are no systemic, permanent over-profitability products. They tend to be competed away over time. And there's not a permanent situation either where you have low profit as a whole that you make banking dysfunctional. So if you look at, you know, compared to many of the European countries over the last decade, you can see that there's higher swings between very high profitability to no profitability, whilst the market is quite well functioning here with some insecurity on pricing and return on equity that it kind of evens out over time. And this could be centered in our language around the 15% aspiration of return on equity. This goes into the analysis that we do of what we think is an appropriate medium to long-term aspiration to have. Some years we will get higher, some years we will go lower, but we will always try to work against that in the balance between customer satisfaction, very well-priced products, and profitability for the group.

Okay, excellent. Thank you very much. That's it from me.

Thank you. Our next question comes from the line of Nicola Macbeth from DNB Carnegie.

Thank you and good morning. I was wondering why you're keeping the cost guidance underlying unchanged, given what we see here in Q1, which seems to reflect a much lower running cost base with fewer FTEs and the change trajectory for cost as you mentioned, Johan. Do you have any large investment projects that require a large hiring increase in the near term? Or do you see potential for reduced cost guidance later during the year?

Good morning. No, I think the way we look at this is we talked about reducing the underlying cost growth and consolidating the cost base to make room for prioritized investments. And therefore, we do see some investments that are still scaling up and will do so during the remainder of the year. So when we conclude the first quarter, there is the impact of our underlying cost base coming down before some of those investments are facing up. Secondly, the impact that I referred to earlier around the share price movement remains, of course, an exposure that could go either way. And then we have an element of seasonality that Q1 tends to be a little bit of a lower cost base. We have the range still in the cost target of plus minus 250, but where we are after the first quarter, we think it's too early to have a discussion around any changes to the document.

All right. Can I just follow up? Is the hiring freeze still in place? And would you expect the FTE number to continue to decline also in the next couple of quarters?

So we continue to hire externally, only that we're working with a natural churn. So we are hiring less than are naturally leaving. And with the size of our organization, we have a natural churn around 800 to 900 FTEs every year. And what we've been doing over the last couple of quarters is continue to hire externally, but at a considerably lower pace than the natural churn. And for the time being, we like this model, we'll continue with it, because it also helps the organization to consolidate efficiency gains. We're introducing automation and AI, that's a helpful tool to work with. So for the time being, this will continue to be the model.

All right. And then my second question was on profitability trends in the Baltics. So we can see that your returns on allocated equity went down quite a bit in the quarter by I think slightly more than 10 percentage points due to higher equity allocation, I guess due to the to the model updates. Are you happy with this profitability in the Baltics or do you see a need or potential to widen margins given the increased capital consumption? I guess in particular given that your largest competitors are now in the Baltics also seem to be facing higher risk rates in the Baltics.

You're right, the effect is the technical one from the increase in the risk rates there. We continue to work with those models, and our ambition is, of course, to resubmit and get approved IRB models going forward. And when we look at the impact on pricing, this is a competitive market that is very much priced over market conditions. So I think for the time being, we're ensuring that we continue to win and take the business that we want to take in the divisions and the operating teams. So we're not expecting any change from the allocation of capital.

Okay. And am I correct, it's still 20 billion that you, or it's not 20 billion that you expect remaining RIA increase from the model of this in the Baltics. You don't see any further increases on that. Is that correct?

That's correct. We see no further increases. Okay. Perfect. Thank you.

Thank you. Our next question. comes from the line of Sophie Peterson from Goldman Sachs.

Yeah, hi. Here is Sophie from Goldman Sachs. Thanks a lot for taking my question. So just to follow up on the previous question, with the IRB models in the Baltics, when do you expect these to reverse? Like, what's the time frame, if you could give us a little bit of details here? And then also, I was wondering how should we think about the levies going forward? Is it fair to assume that the current level is a good run rate for the remaining year? And then finally, my final question would be on cyber security. We have seen a lot of headlines around Mises, and I kind of bad people kind of trying to crack banking systems. So how do you think about this and how do you ensure SCB's cybersecurity is top-notch? Thank you.

Thank you, Sophie. Good morning. So starting with the IRB models in the Baltics, this will take some time, so we are looking at years for those to be submitted and we expect to be approved eventually, but as I referred to on Niklas' question, the full capital effect from the Baltic Caribbean model is expected to be implemented by the end of the second quarter, and then we'll like to, of course, to work as quickly as we can to remediate that, but we are looking at years. The second question around the levies, the expectation for the full year is around 3.3 billion. So that's sort of our best guess right now where we stand adding the various risk taxes, levies, etc. together. And on your third question, when it comes to Mithos, you're right that this is a development that of course has triggered a lot of conversations in many industries thanking no difference. And we are very active working with our suppliers. Many of our technological partners are part of the project GlassWing, which do have access to the MIFIS model. So our way to work with our own exposures will be very much working with those partners. A second thing which we are certainly focusing in on progressing more broadly is the ability to just reduce the cadence of releasing patches. So when there are vulnerabilities identified, the ability to quickly move forward, identify them and release patches. That will continue to work with in parallel. But this is a development that we're following very closely and we are in close conversations both with authorities and our technology partners.

That's very clear. Thank you.

Thank you. Thank you. Our next question for today. comes from the line of Srivastava from CT.

Hi. Thank you very much for taking my question. The first one is actually on provisions. I know you've reduced your management judgment buffer somewhat, despite it seems seeing some customer-specific events this quarter. So if you could just elaborate on what exactly these were and why you don't expect them to occur first. The second question is on the potential for rate hikes in Sweden. During the last hiking cycle, we saw a little bit of coverage on Swedish banks now being able to partially model the contract maturity of urbanite deposits. If we do get any rate hikes in Sweden, is your behavior going to be materially different in terms of hedging this hiking cycle versus the previous one? Thank you.

Okay, thank you. On the provisions, well, you're absolutely correct in the question, so we take release a little bit, and we still have about half a billion or so. It's fairly concentrated to a couple of names within projects and infrastructure. So for us, this is, of course, never fun, but it's very normal, and the level is in line with what can be expected as we have more corporate and investment banking compared to to retail. It's not to be viewed as a broader sign of asset deterioration or quality deterioration, but rather a fairly specific number of a couple events in project and infra finance. On hedging, no change really. So obviously, we have had an unhedged version of SED. So if you buy the bank, you do get some interest rate sensitivities and We have not changed our view on that.

Understood. Thank you very much.

Thank you. Our next question comes from the line of Riccardo Rovere from MediBanca.

Thanks a lot for taking my question. Just a couple, if I may. If I'm not mistaken, just getting back, I think, to what Namita asked right at the beginning of the call. Christopher, can you explain a little bit what you mean when you say traffic between NII and FI, this water, just to understand if there is anything that should be taken as not recurrent in this quarter or the other way around. The second question I have is on the buffer, including the full impact of the Baltic IRB model. The buffer now is 250. Is this the number, 250 basis point, is this the number that you have in mind as an adequate buffer once the IRB models in the Baltic have been, let's say, the add-on has been completely absorbed? Or do you think you could go lower to 200, given that you have 100 to 300 basis point And the last question I have is, if I remember correctly, one of the few calls, I think was Q4 or maybe Q3, I don't exactly remember. You mentioned the possibility of looking into SRPs. I was just wondering whether this is still something you're looking at, if you've done something in the meantime, or it's something that you have not intention to do anything on this side. Thank you.

Thank you, Ricardo. So coming back to the net interest income, and hopefully I can clarify. So as I mentioned, there is about 100 million in this quarter that within Treasury is in NII, moving from NFI to NII. So what's behind that? Well, this is effectively attributable to the funding of our market-making business. And when you saw the kind of shifts in rate expectations and rate moves during the quarter that just passed, there could be an effect in some of the swaps that you get the booking in NII versus NFI or the other way around as rates move. So what we want to flag is that the movement of around 100 million could be reversed, and if so, it would show up in NFI instead. Does that make sense?

Yes, it does make sense. But it's not, let's say, a one-off by its nature. It's just rate movements. You know, this quarter rates go up and down every single day. I mean, there is nothing particularly one-off in this. It's just what happened in this quarter.

Yeah, well, you could argue that what happened in this quarter was quite unusual. And therefore, we just want to flag it that it moved from NFI to MII. But of course, in total revenues, it's still there.

If I understand the question correct, the 250 pro forma I have no disagreement with. That's roughly where we're thinking as well. When it comes to the acceptance of going down to 200, I'll just say there are two reasons personally. This is, of course, for the board and not for me. It's capital allocation discussions. would be acceptable, so you shouldn't rule it out, is that why do you go into the buffer? In this case, it's actually because we put in extra buffers in the Baltic. So that's a very good reason why you don't need to have extra buffer on buffer in terms of your management buffer. The other one would be business. So I would not rule out that you can absolutely hit 200 for two reasons. Namely, we do have extra buffer now. So we are a more safe and secure bank with more loss absorption, everything else being equal because of that. That's the positive. The other one, the negative is, of course, it's capital that we can't really deploy freely. And we are still hopeful that the April indicators of strong equity markets, falling interest rates, falling credit spreads, But we come back to where we were earlier this quarter that passed in having a more constructive view. Obviously, everything else being equal, the world looks more insecure right now after the war in Iran than it did prior to it. Otherwise, it's going to be the 100 to 300. And as always, if nothing spectacular happens, that's a decision we'll take in December.

Yeah, so on the SRT, we continue with that work. We have not undertaken any transaction during the past quarter, but we continue to work to prepare ourselves and increase our readiness if we should deem that relevant to going forward. So work continues.

Thanks, thanks. Just a quick follow-up, Johan. When you stated if I understand correctly on the buffer, I'm talking about the buffer, basically you have 100 basis point add-on because the Swedish FSA is reviewing the whole models of the whole group. Then the ECB decided for 50 billion additional risk-weighted assets on your Baltic exposure because of the IRB models. And then basically you are saying, if you kept, let's say, the 300 basis point buffer you would have A buffer. On a buffer, on a buffer, basically. Three layers. You know, the 100 basis points plus the 50 billion plus the 300. Do I get it right, your reasoning?

Yes, you are. And remember when we introduced the Baltic IRB add-ons, we did say we'll use the buffer for it. So I think you're right.

Okay, okay, thanks.

Thank you. Our next question comes from the line of Emre Prinzel from Nordea.

Hi, thank you. Emre Prinzel from Nordea here. Just a quick question for myself. How should we look at the Baltic NII going forward? I noticed you printed 10% year-on-year loan growth among mortgages and SME loans there. The six-month URI board is up some 30 basis points since the beginning of the war. And most, if not all, lending in the Baltics is explicit reference to the Euribor, right? So what does this mean for Q2 and Q3 sequential NII in the Baltics, would you say? That's my first question. Thank you.

Yeah, I think you're... Good morning. I think you're right. These are exactly the variables that I would look into. So the development of Euribor, our volume progression, and a margin development, of course. Now, from a deposit-based perspective, of course, we now have around 150 or 200 billion or so of zero-cost deposits across the Baltics, which would then be affected, of course, from rate pollutants as well. 100 to 150, I should say.

Thank you. And also looking at the corporate lending in Sweden, we already discussed it a bit, but provided what is happening now with the geopolitical uncertainty, how should we look at the market growth, would you think, and the corporate appetite for lending in Sweden going forward? It's been on a trend upwards, but will there be a dent in corporate's appetite or will they continue to have demand for credit in Sweden? Thank you.

I think it's a little bit too short term for it to have a meaningful shift. What happens is, of course, that larger investments, they're put on hold. So there is a marginal negative to lending demand. And in the end, as we've been talking about now for a year and a half, we do need the consumer to come to the table for corporates to start increasing capacity to satisfy the demand of the end consumer. So in my book, I'm still a little bit cautious. It's improving. There is a little bit of lag. Now it looks good again after a week march. So I don't draw too much conclusions from that. But I do think that the GDP estimates are being revised down, which is not helpful because we were looking for a consumption, consumer-driven pickup. That's kind of been the area that's lacking, not corporate stability, not investment ability, but really that you need an end to customer demand for all companies in the end to expand business. But it looks pretty constructive. And then you have, of course, small signs also on the retail side with mortgages, not at least in house prices, that at least looks neutral to marginally supported.

Thank you. That's it from me. Thanks.

Thank you. We will now take our final question. And our final question comes from the line of Jakob Kruse from Burstein.

I guess just two small questions remaining from me. First, on the expenses, if I look at your other expenses, the IT cost came down quite significantly this quarter, from I think about 1.3 billion in Q1 last year to just under a billion this quarter. So I guess my question there is, is that a shift, or is that just what you're talking about in terms of this quarter? ramping up investment idea. And then the other question I just wanted to ask was, in the mortgage business, when you talk about the pressure on margins currently, are there any effects here of the rate moves that have a temporary effect on Q1 that will reverse in Q2 in terms of the pricing of the back book? Thank you.

Good morning, Jacob. So on the IT cost, I would say the declining Q1 is more of a seasonal nature. So this is, to your point, one of the areas where we expect investments to show up. On your second question, if I understand correctly, no, there's no such impact in the first quarter visible in the numbers from those mortgage price adjustments.

Okay, thank you.

Thank you. There are no further questions at this stage. I will now hand the call back to Johan Torheby for closing remarks.

Thank you for today, and we wish you all a happy 1st of May, and see you soon. Thanks. Thank you.

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