Skandinaviska Enskilda Banken AB (publ)

Good day and thank you for standing by. Welcome to the SEB Financial Results Q2 2026 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, President and CEO. Please go ahead.

Good morning and welcome to summer in Stockholm to SEB's second quarter financial results presentation. Starting with the highlights for the second quarter we once again stab established positive jaws where income grew faster than costs reflecting a very strong business momentum that we've experienced during the quarter we noted a new high for our net fee and commission income supported by high customer activity and and we definitely saw some change to the demand for borrowings, including an acceleration of corporate lending growth. A few events during the quarter that I'd like to highlight. First, after the 7% increase Q1Q for our asset under management, we broke the notable number 3,000 billion kronor for the first time. Our corporate bank in Germany continues to develop very positively and now we are ranked as the third most appreciated foreign bank in Germany according to the German corporate customers. And thirdly, we have partaken in an initiative which is cross-industry in the Nordics to ensure and promote European and Nordic competitiveness and this is called Nordic Compass. SEB's contribution in this group will predominantly be focusing on capital markets, deep tech, defense, and energy. Moving to the next slide. On our business pulse, starting with corporate and investment banking, we saw broad-based corporate credit demand increase with a 5% loan growth, Q on Q. We also had close to if not a record quarter within activity for the capital markets and a very strong ranking in equity capital markets league tables.

And here are some logos of the more notable transactions publicly done in the quarter.

And also great to see that this year's customer satisfaction survey has been concluded for FX in Sweden and we came out on top. For business and retail banking we clearly saw an uptick towards the end of the quarter when it came to loan growth and here in this slide we have mortgages. We've made significant number of changes and improvements to our mobile app and we can also see that mortgage applications right now are up 27% compared to the same period last year. We still don't have the market share number for June but it definitely looks promising and moving in the right direction When it comes to WAM we have a headline number of net sales of 11.5 billion However during the quarter there has been a one-off event in Lithuania where the pension funds available to the public has made available and therefore there's been a one-off outflow of 11 billion. This is included in the 11 and a half so the gross number of net sales excluding this effect is actually 22.4 billion during the quarter. In the spirit of wealth and asset management where we try to develop timely and attractive products within the three categories of alternative investments, passive investments and thematic investments. Here are three examples of what we've developed lately. This quarter we closed the SEB Nordic Energy Fund with an AUM of 8 billion Swedish krona. We have launched a new SEB Global Index Linked Fund priced very competitively. And we continue with the thematics around defense and security to give a new opportunity to invest in this very important area for the future. Finally, Baltic is motoring on same similar picture as last quarter with very strong growth, particularly within mortgages and SMEs. and we've also received from the ECB a formal approval to merge the three banks which is on track and we aim to conclude in conjunction with year end. You may also have noticed that we have made some management changes with regards to the Baltic Division announced this morning. Nina Eikas after very successfully leading the Baltic Division has been appointed the new head of SEB in Finland. And we're also very pleased to announce that Sonata Gutuskaite Bubneliene has accepted the role as new head of the Baltic Division. On the next slide, looking at the loan portfolio of SEB, we have experienced some loan growth during the second quarter, predominantly driven by corporate lending. We are up 4%, quarter on quarter, FX adjusted. On the next slide, looking at the result for our ambition to aim for positive jaws, It is encouraging to see that for the first time in some time we did experience positive jaws in the second quarter of this year. Income rose more than cost both queue on queue and year and year and our aim is of course to design our strategies and efforts with this in mind. With that I'd like to hand over to Kristoffer Malmer.

Thank you Johan. So on the next slide we start with the summary financials. Total revenue increased compared to Q2 of last year reaching above 20 billion with both net interest income and fee and commission income posting year-on-year increases. Fee income increased by 8% from Q2 of last year and as Johan mentioned reached the highest level we have ever recorded in a single quarter. This reflects solid performance particularly within our capital markets related activities against a constructive backdrop for global markets during the quarter. The activity level in Q2 also reflects some of the pipeline that was held back during the first quarter following the outbreak of the conflict in the Middle East. So with this in mind we should expect the seasonal third quarter effect to be somewhat more pronounced than usual this year. The net financial income includes a contribution from our ongoing disposal of our shareholding in Euroclear. We entered into an agreement to sell our shares at the end of June and I'll come back to the financial effects of that shortly. The underlying divisional net financial income is largely unchanged from the previous quarter. Net Other Income is impacted by market valuations of non-core assets held within corporate investment banking and this has had a negative effect of some 300 million. Turning to costs, total operating expenses amounted to 8 billion for the quarter so largely unchanged from Q2 of last year. Sequentially however costs increased from Q1 by 5% or around 400 million Half roughly of which is attributable to the impact on our staff costs from equity linked remuneration where as we've communicated a higher share price has resulted in higher costs. The underlying cost development reflects the results of our ongoing cost consolidation along with our continued investments in the prioritized areas of AI regulatory readiness and resilience. As usual we update our cost target for FX rates during the quarter and this quarter the weaker Swedish krona has resulted in a small upward adjustment to 33.3 billion plus minus 250 million. Now looking at the run rate of expenses for the first six months of the year we are currently tracking below that full year target level Now, as you know, we typically incur a larger proportion of our full year costs in the second half of the year, and we are also still in the process of ramping up some of our investments in our prioritized areas. That said, we are in a good position to meet the target or even come in somewhat below it. Now, importantly, our focus on operating jaws allows us to make investments in order to accelerate income growth. and continuously such opportunities will be evaluated and considered as an alternative to lower costs. Net ECL of 345 million or five basis points is a decline from Q1 and in line with the second quarter of last year. We have continued to release some of our portfolio overlays in the quarter around 250 million, specifically those that we reserved for the potential impact from US tariffs. Our underlying asset quality remains robust. Within imposed levies for this quarter, you will see the impact from the deposit requirement with the Riksbank. The full year effect of this is 150 million, which is fully accounted for this quarter. Full year imposed levies are now expected to come in at 3.5 billion, up slightly from the 3.4 billion previously communicated. The tax rate of 19% marginally below our communicated guidance resulting in a net profit of 8.7 billion and an EPS of 4.4 krona. The return on equity for the quarter came in at 15.7% and the impact of our overfunded defined benefit scheme on our return equity continues to be material. So for comparisons, we inform you that the return on equity adjusted for the surplus in the pension fund amounted to 17.4% for the quarter. Turning to net interest income on the next slide. NII increased from the previous quarter by 4% or some 450 million. We have talked about a lag of some three to six months for a change in policy rates to feed through the balance sheet and this is effectively what we have seen playing out of the last few quarters. The most important contributions to the NII increase in Q2 came from the Baltics and the corporate and investment banking division. A Baltic bank saw the benefits of higher ECB rates along with continued volume growth of both lending and deposits as Johan mentioned already. The net interest income in the Baltic division has now increased sequentially since Q3 of last year in local currency. Within CIB it's higher lending volumes, cash management driven deposits and investor services supported by the dividend season that contributed to the higher net interest income. We also recorded a somewhat elevated level of NII within our markets operations. Business and retail banking saw a modest drop in NII partly reflecting internal calculations on day effects and some headwinds from the card operations. Deposits grew across both private and corporate customers and corporate lending volumes increased modestly year on year. As Johan mentioned, household mortgage volumes did pick up pace throughout the quarter and in June we recorded the highest number of mortgage applications we've seen for many years. Our efforts to increase speed and simplicity combined with competitive pricing have yielded results and leading to those improvements. Encouraging so far and hopefully more to come. Finally within treasury operations we had some traffic between net interest income and net financial income similar to what we experienced in the previous quarter. that's impacted our net interest income positively by around 100 million being then offset by corresponding negative effect in NFI. Turning to the next slide and net fee and commission income the level of 7.2 billion represents a notable increase from the previous quarter as capital market activity resumed following the slowdown that occurred after the Middle East conflict. It's also an 8% increase from Q2 of last year marking a new quarterly high as previously referred to. Within capital markets corporate finance and ECM performed strongly while transaction services enjoyed a seasonal increase linked to the dividend season. Outside of CIB fees also increased within business and retail banking primarily within the card business. This is partly seasonal but also a recovery of some of the postponed travel related fee income in Airplus during Q1. Card fees were also the main driver of the higher fee income in the Baltics. Within wealth and asset management net inflows as Johan mentioned were robust at 11.5 billion despite being materially affected by the Lithuanian pension reform which has led to significant industry-wide outflows. So excluding the effects of the reform underlying net inflows above 22 billion. Turning to the next slide a net financial income increased to 2.4 billion with a large contribution from our shareholding in Euroclear. Now firstly we received the annual dividend in Q2 and as I referred to earlier we also entered into an agreement to dispose of our shareholding. We have been a shareholder of Euroclear for many years however we have considered this a non-core assets for the bank and it has been continuously reviewed. Now the opportunity that we have decided to proceed with values Euroclear at a total value of more than 20% above where any previous transaction has been conducted. The total capital gain from the sale amounts to 76 million euros. However, due to a pending approval process of the disposal, we have for prudency purposes accounted for 41 million euros of that amount in this quarter. The impact on our CET1 ratio from the sale is estimated to be around 15 basis points of which 10 basis points will come at the time of closing. The divisional net financial income amounted to 2 billion so in line with our historical quarterly average which is now adjusted to account for the change in our strategic holdings portfolio. On the next slide we move on to our capital development during the quarter. We started the quarter with a CE21 management buffer of 290 basis points or 250 basis points pro forma for the remaining phase in of the Baltic IRB effects. That remaining Baltic effect of 40 basis points have now been phased in during the second quarter. And we also have some model developments going in the other direction. So you will see the net effect of 16 basis points under model changes another. You will also see that the increased lending has led to higher REA and impacted our CT1 ratio by 44 basis points in the quarter. And the weaker Swedish Krona has had a negative effect of 10 basis points. So adding the retained earnings for the quarter and deducting the share buybacks gets us to the quarter end buffer of 250 basis points. Finally, as usual, we would like to share our latest thoughts on AI and this quarter we want to focus on how we manage AI costs, particularly as pricing models are changing and a larger share of compute is now gradually being passed on to end users. Just as a quick recap, our AI rollout in 2025 focused very much on rapid adoption and learning across the organization. And in 2026 now, we have shifted the emphasis towards disciplined scaling, concentrating resources on the use cases with the greatest potential, while also applying stronger cost awareness, token governance and appropriate guardrails. So as pricing models now evolve and more compute costs, as I mentioned, passed on to end users, we're assessing each use case based on factors such as complexity, security, Value creation, suitability of a particular model and the slide in front of you illustrates some of those dimensions. So in short we want to use the right model with the right guardrails in the right kind of environment for each individual use case. Now this does not remove the room for exploratory or opportunistic AI use and not every initiative needs to meet the formal ROI hurdle But it does mean that we want to track cost usage and value creation closely as AI adoption now matures across the organization. As usual on the final slide we conclude with our financial targets which remain unchanged a 50% payout ratio, a capital buffer of 100 to 300 basis points and a return on equity of 15%. So with that I hand the word back to Johan for any concluding remarks.

Thank you. That concludes the prepared remarks and I'll now hand over to the operator.

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To answer your question, please press star one and one again. We will now take our first question. From the line of Andreas Haakonsson from Nordea, please go ahead.

Thank you and good morning guys. First, Johan, you often talk about how the bank hasn't been firing in all cylinders and you print a very good return on equity now. How does that feel today? Are you now getting close to it or would you say that you're about to actually be delivering in all areas at the moment?

Andreas, thank you for the question. We definitely have started a higher pace, but it's certainly not firing on all cylinders. The one that clearly has contributed this quarter is the Corporate Investment Bank. So both the corporate loan book that grew 4-5%, that's a positive change. But the real staggering numbers are really on the fees and commission from debt and equity issuance, up 100% plus on the quarter, and advisory fees up 30%. So as it is the highest fee and commission number for the group, we clearly have used more of the bandwidth of the bank. However, there's nothing really coming from loan fees, which is a very, very large. I think that was the line that was actually down. So that is a lot of upside potential if you look at the potential of the bank. And then, of course, we have BRB. So retail and business banking is certainly nothing to brag about. We are improving, but it is towards the end of the quarter. And also wealth and asset management. has more, particularly on the financial results. We broke 3,000 billion now on AUM, up 7% on the quarter, but there is definitely hope that we can generate a better financial result.

So that's interesting. So if I take out your one off in trading, your return on equity is 15% in the quarter. And coming back to the RE target that, Kristoffer, you mentioned, I mean, you say that it's a 15% RE target, but In reality, you talk about the long-term aspiration, which just doesn't say when you're supposed to deliver it, and aspiration sounds quite soft. Isn't it time to actually put your foot down and give us a firm RA target, or should we skip the aspiration already now and say that you are going to deliver 15%?

We have not changed our assessment of the aspiration. If you think about it as a three-year moving around some type of number, you will have had the last decade most years below or significantly below. You've had a few years where we were significantly above, and it goes up and down. The reason why we didn't change, we haven't looked at it now, we looked at it in December last, is really that in the medium term, price elasticity in competition in our assessment tends to kind of work towards a mark, and that mark we say is around 15. Then it is probably reasonable to assume during a cycle of two, three years, plus minus 200. That if we go 200 below, you know, we're starting to feel that we have a problem. 200 above, we start challenging sustainability of that number. So no change here and now, but I'm happy for the tone in your question because I find it constant. Sounds good. Thanks, guys.

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

Yes, good morning. Just on the corporate lending where it seems to be an inflection point here in this quarter, finally, if you could just share with us if you see it as purely demand-driven, and if that's the case, how robust you feel this is, given the signals you get from your client base, and also mentioning if you have taken any measures in the first half of the year in terms of pricing or other measures in order to achieve this.

Yeah. I would say that we don't know the market yet, but it does feel, at least from my perspective, that activity overall has picked up. So that's the beta. The alpha is, of course, that we need two-way traffic. We need a lot of buyers and sellers of things and demand to pick up for SCB to kind of come to its right. And that certainly happened this quarter. We have made an enormous effort, but it's not rocket science. to focus on the business as we've had two, maybe three quarters where we've been discussing are we as forward-leaning as we should be given that some other data points really pointed to us not being sure that we performed. And we started that in Q1. And that's really internal communication, focus on business, focus on winning, and making sure that we stay relevant to the customers we have and attract new ones. It's always hard to know what is what. We'll see when everyone else comes out, but this is a clear shift if we compare ourselves to ourselves. It's a much better trajectory right now.

Okay, and you said it was clearly an uptick towards the end of the quarter, right?

Yeah, I would say that April was very much similar to the crash in March. May things really stabilized and picked up and then we saw a very high activity in June.

Okay, good. And then secondly, just on NII there, Christopher, I might have missed something, but just out of the 10.7 billion you printed this quarter, how should we look at this number going into the second half? What portion of that would you say It's of a more kind of volatile nature that might not repeat.

Thank you, Magnus. Yeah, so there's two things that we're calling out, as we typically do in the markets business where we have an elevated NII. That's about 100 million or so for the quarter. And then we have this traffic between NII and NFI in the quarter that is within treasury, and that's also in order of magnitude 100 million. positive, NII, negative, NFI in the quarter. So those are the elements which are, to your referencing, a bit more volatile and harder to model and predict.

Okay. And on NFI, you said the new normal level, so to speak, after the divestment is 2 billion per quarter, right? That's right. Okay. Thank you. Thanks.

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

Yeah, thank you a lot for taking my question. Here is Sophie from Goldman Sachs. My first question would be just going back to the fees. The fees were very strong, but you also mentioned that there were some of the equity and debt capital market fees were up or advisor fees were up 100%. How sustainable are these fees and how should we think about the fee trajectory going forward? So if you could maybe just comment a little bit around that. And then my second question would be around the Cum-Ex in Germany. We saw some headlines from BASFIN earlier this week. Is there anything you can comment on your Cum-Ex case that has been going on for some time now? Thank you.

Thank you, Sophie. I would first say on the feeing commission, when you break it down on issuance of security, secondary market, et cetera, the percentage numbers are very volatile. Every single number is not that big. So obviously, there's nothing sustainable around 100% up and 150. These are clearly rebound numbers in a very strong quarter, Q1, Q2, with seasonality, etc. We know that Q3 will be a very quiet quarter, so I would actually look to Q4 to make judgment of what is this environment really in terms of volume and transaction propensity. That being said, this is a very strong broad-based quarter if you look at what we did. We have the defensive type of transactions where you have capital ratings to shore up the company. We have the offensive type of transactions, M&A-driven financing, forward-leaning, acquiring something. And we have several strategic transactions where you try to shift focus in a firm or reallocate in an investment company. And of course, the bread and butter beneath that, which is just normal course of business. The pipeline does not indicate this falling away. It looks very, very active. The dialogues are plentiful, and they are real. But I do have one cautionary thing, and that is Q1, end of Q1 was very weak, and beginning of Q2 was weak. And if I look at the first half, it gives a more sober picture of what the last six months have been, taking both of those into account. And then you come to different numbers like securities and commissions up 8%, the first half this year compared to others. So I think somewhere in between those two realities is probably where I think the current market stands. And then we will not get a real test of that until we have two more. On CumEx, I'll just say that we are predominantly in the Cum-Cum. So that is the withholding tax case. Of course, CumEx, which is the criminal side of tax evasion, has been loosely linked, but it's not what we have been accused of or having as a predominant discussion. And I have no update, no news to report.

Thank you, that's very clear. And maybe, if I may, just one final question. On the Swedish banking tax and the elections, anything we should be kind of thinking about going into Q3 or Q4? Like, do you think we could potentially get a Swedish banking tax increase?

Yeah, I'm not in a position to judge better than anyone, but I think it's worth noting for all of you that the centre and the centre-left does speak quite frequently and loudly around financing the future budget, the government budget, through increased bank taxes. The number I have in my hand is another 10 billion. Feasibility is a completely different matter, and I think it's not going to be that easy, but it's certainly something to have on the radar, and if it's something to take into account in a more meaningful way in modeling, et cetera, I'll leave it up to you.

Just to mention, Sophie, we've had the existing bank taxes, you know, it's called the risk tax, has been challenged in EU court context. So there is a debate around the existing risk tax at this point in time as well.

Maybe on that, if you got a win or if the banks win that challenge, could you get any rebates or what happens if you win? It just gets cancelled, or can you claim it back from the government?

Well, theoretically, both can happen. So you can have a tax being classified as unlawful and should be reversed. I would put that as a very, very low probability, even though it's technically possible. It's not something that we would consider. The more likely thing is that you would cancel it or amend it. But all of those are possibilities. And it's early days. It's probably a few years away before we can conclude on the matter.

Okay, that's very clear. Thank you.

Thank you. We will now take the next question. From the line of Namita Samthani from Barclays, please go ahead.

Good morning, and thank you for taking my questions. My first question, so Handels Banken today disclosed the Swedish FSA has approved their new PD models for corporate exposures. Have you got any feedback from the FSA on your models, and can you remind us what your best guess is, i.e., do you expect a neutral impact from the Pillar 2 removal? And my second question, do you have any updated thoughts on whether you think SAP can gain some benefit on the cost side or even from revenues from AI, or do you ultimately believe the benefits will go to customers? Thank you.

Thanks for your questions, Namita. On your first question, I think the best update we have is the one we provided in Q2 of last year, where we showed you the update and the expected impact, and we said that our models are under review in Sweden and we're working to get them approved and we currently hold around 100 basis points pillar 2 add-on for that IRB non-compliance and there's no further updates from that update we provided. On your second question on the cost outlook Yes, I think the opportunities here from the early assessments of our use cases within a number of areas of the bank is that there is good potential for efficiency gains. And I think the discussion going on right now is of course to what extent those efficiency gains should be brought in terms of lower costs or to be able to do more business within the existing cost base. As far as revenue opportunities are concerned, I think that's where developments have been slower. So that's for most of the use cases that we're looking at, primarily within customer service. We're looking at the credit process within mortgages. We're looking at financial crime prevention. And we're looking at software development in other areas. We're really looking at productivity gains and how those gains would be translating into bottom line benefits. So a little bit early in the meter to see what the outcome will be, but it's a lot of promising developments across the banks.

That's helpful.

Thanks, Christopher. I just made a guess. We have no indications that we are in a position to get this settled tomorrow. So I am assuming, without any information other than what Christopher just said, that this may take time. It's a long process to go through these model applications. So maybe it's a matter of sequencing. I don't know. But just so there's no expectations that this is going to come any day now from us.

Yeah, thanks Johan. Thank you. We will now take the next question from the line of Martin Ekstedt from Handelsbanken. Please go ahead.

Good morning and thank you for taking my question. So I just wanted to focus away from the corporate side a little bit on the retail side. Just to reiterate, last quarter you said that the retail banking transformation was centered on simplicity and speed, right? But that mortgage margins remained below where you would like them to be. So looking at Q2, what KPIs have improved the most since then? Is it business conversion, approval times, new customer acquisition, cross-selling, etc.? And have these improvements increased your willingness to compete for mortgage volumes in Sweden then? at current pricing levels. Thank you, that's my first question.

Thank you. No change in strategy, so simplicity, speed and the correct priced product with customer happiness at the core is the strategy. We didn't have very little to show for in April. I did show a graph on the business pulse, but this is the number one. It's actually the amount of loans that are being granted, which clearly picked up. We don't know the market share yet, so we'll see what the overall market did in June. Conversion is no meaningful change. So conversion is, of course, a number of how many applications or mortgage promises do you extend that then converts into real one. I think we are close to 30% in the mortgage application side. So if we compare to ourselves how we had it only a few quarters ago, it looks clearly better. We can also see that time to answer requests and time to provide an offer has also been reduced. So that's the simplicity and speed. So a leading indicator speaks to improvements. but still too early to say that it will have the meaningful effect that we desire to have. Margins continue to be squeezed. It's a tough market out there.

And maybe coming back to Namita's question, this is one of the areas where we're also applying AI to improve speed and simplicity in the process.

Okay, excellent. Thanks. And then for my second question, if I could focus on the cost base for 2026. So you fine-tune your full-year cost guidance to 33.3 billion today. But looking at what you've delivered during the first half of the year, the cost base for the second half of the year would need to increase roughly 8% year-on-year to get to that. But it grew only, say, 1% in Q2. It actually shrunk by 5% year-on-year in Q1. So I just wanted to ask if you could go into some more detail on where this cost base that you're guiding for is coming from. I mean, salary inflation should not alone take you all the way there and so on.

Yeah, thank you. Yeah, this is a development I was alluding to a little bit in my remarks. And you're right to say that the trajectory that we're currently on is suggesting a lower level for the full year than the full year cost guidance. The full year cost target with the adjustment we're making just because purely for FX, there's no other reason. And the comments I just make is that typically, if you look historically, you will see that our second half cost base has been higher than the first half. So there is a seasonality. There is an element of ramping up some of the investment areas that we talked about, AI, resilience and regulatory, that will have that effect. And also bearing in mind, we have that 250 million plus minus in the cost target that can of course go both ways. But to conclude, and on your observation, we are in a good place, and as I mentioned, we could come in below the target, but we're not making any changes to the target at this point.

Okay, okay. I'm just referring to the growth rate, right, where you would have a significantly higher year-on-year growth rate in your cost base towards the latter quarters of the year than in the first. But that's perhaps, is that the natural evolution for you from one year to the next as well?

Yeah, I mean, that's more of how things have been unfolding with the consolidation of AirPlus and restructuring charges and other elements that could impact the year-on-year comparison, but we're really focusing on the full-year total cost targets that have been buying growth in it, which is an underlying growth rate of around 2%, excluding those developments related to the consolidation.

Okay, understood. Loud and clear. Thank you.

Thank you. Thank you. We will now take the next question from the line of Shrey Srivastava from Citi. Please go ahead.

Hi, and thank you very much for taking my questions. Just one following up on the AI point and your shift to talking about sort of the cost of AI. How do you actually enforce this? Is it token restrictions for each employee or for specific businesses? We've seen a lot of banks talk about, including yourselves now, about the potential of AI in, for example, mortgage processing. You've been one of the first to talk about sort of AI at the European banks. Can you provide any sort of concrete examples of where your token cost for a particular application has reduced significantly just through trial and error? And my second question is, If you look at the comment you made on market valuations of non-core assets held within corporate investment banking, could you just give a little bit of detail on what exactly these assets are? Thank you.

Yes, thank you for your question. So I think the broader point on the token reference that you're making, I think, is that there's good reason to expect the cost per token to go down. There's efficiency models and there's efficiencies in the infrastructure as well that could drive costs of tokens lower. However, the number of tokens that have been used in the respective workflows is where we've seen a big increase. And that has been a rational development when the cost of tokens or AI compute has effectively been subsidized by the frontier labs to allow for rapid adoption. So what we're putting in place now, to your point, on your practical actions, those are the guardrails that I mentioned. So where we see token consumption exceeding certain levels, that triggers questions, and that could be then the right use of tokens. To your second question, we might say that in this particular instance, it actually makes sense, and then we can follow up and monitor. So it's making sure that we continuously follow the development and the cost of token consumption considering that the cost now is going up and the cost of compute is increasingly being pushed on to us as enterprise users. So hopefully that gave some clarification around that. On the non-core assets, if you're referring to the development of the net other income, is that right, the 300 million I referred to?

Yes, yes, I'm referring to that.

Yeah, so that is... That is effectively attributable to a pledged asset that has been sitting on our balance sheet for a long time within CIB that is now being disposed. So that's the effect of the net other operating income of over 300 million.

On non-core assets generally, I often think about it as the debt to equity conversion when companies fail. So normally a loan is a loan, that's the normal course of business, but we also get assets in the CIB business that are not something that we have a business line, but we still can hold them for a long, long time because that's the way you minimize the loss given default and you have a very good recovery strategy. We have the financial muscle and that's kind of what I think Thank you very much. Thank you.

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

Thanks and good morning to everybody. A couple of questions, if I may. The first one is on your buffer. The Baltic RWA add-on now is fully accounted for. You are also progressively releasing the amount of overlays was 1.3, then 1.1, now is 0.8 billion, so which I interpreted as sort of you're seeing less and less risks in your in your business, the 250, do you think it could progressively move toward the middle of the range, 200 basis points, between 100 and 300 over time, given that it sounds that most of the risk seems to be somehow embedded in your thinking when you release overlays? And the second question somehow related to that, you know, Two weeks ago, or days ago, we saw Bloomberg headlines about comments by Christopher on possibly being interested in wealth management acquisitions. If you can elaborate a little bit on that, is this a business you really want to invest, maybe something where you could redeploy some capital at the expenses of buybacks or anything, or maybe just moving down the buffer to 200 from 250? Thanks.

Thank you, Ricardo. So first on the buffer, I'll just make a very sweeping statement. We have the 1 to 300. All the risks, the credit quality, regulatory shifts, business demand upticks are all taken into account when we do capital planning and calibrate the buffer. And there's nothing Particular around this as I can see around Europe we kind of ending up around this range but practically speaking it means like you really have a desire to act if you're above 300 in order to come down which we've done several times over the last year and of course the opposite is also true when you get closer to the 100 you need to devise a plan to shore up that you're not getting close to your minimum That being said means that between 1 and 300, just generally speaking, we're kind of on fairway. So we let the bank live its life and its business as usual, and then it will move around within that range. We consumed 44 basis points this quarter just from good lending growth. So that is, of course, my dream, that that is the way that you would see the buffer being consumed for good reasons that generate high return on equity incomes. in the future. But there's more hope. So very little stress, if I may say so, in terms of targeting a particular level within the buffer. Let's see what happens. There's, of course, the number one reason for a buffer is also for unforeseen events. Business is a thing we really want to do, but things happen all the time that you can't really control. On the other hand, I'll give you an absolute positive shout-out that the overlays have gone down. which is, of course, a sign, if anything, that the unquantifiable risks, the unidentified risks, are coming down. They are not to the same level as when COVID hit and the Ukraine war broke out, which is where we put some of those on, but they have been replaced, so the coverage of expected ECLs and total allowances is not meaningfully changed. We've earmarked it and we've found places to identify it. And then we will not say no to any new business because of capital constraints. So right now it's really what we would use it for. Then I missed that Bloomberg news, so I hand over to my CFO and he can explain what is going on.

That's right, Ricardo. I think there was a reference to where, in which areas we would be considering non-organic growth. And as we have said for some time, the one area that we could potentially be looking is within wealth and asset management to accelerate our growth. The WAM division accounts for about 15% of operating profits, as you know, in the division, in the group, and it's a proportion that we would like to grow, and if there are anything in that space, that's the area we're looking. But no news, really, from what the communication we've had previously with you got.

Thanks. Thanks for that. Just a quick follow-up, Gustavo, on NII, if I may. When you mentioned 100 million, if I'm not mistaken, from Treasury, and you mentioned some hundred million traffic between NII and NFI in the quarter. If I understand it correctly, these are volatile components, but not one of components of your NII. Maybe the 100 can become 50, or maybe zero, or maybe go to 200, but those are volatile stuff, not by nature

Thank you.

As a reminder, to ask a question, please press star 1 and 1. We will now take the next question from the line of Jacob Cruz from Autonomous. Please go ahead.

Hi, thank you, Jacob. So, I guess two questions. Firstly, on the AI, you talked about how you are getting more aware of the potential cost of compute. Could you give us any kind of framing of what level of compute cost You cannot see in the percentage term or hundreds of millions or this what the range is on a sort of unsubsidized basis. So just what kind of numbers you're looking at. My other question was on the, I think a couple of years ago you set out on this strategic direction including Northern European corporate banking and the Nordic mid-corporate banking. Could you just update a bit on how how much progress you've seen there and what the outlook is for initiatives in those areas. Thank you.

Thank you, Jacob. I'll start with your AI question. It's going to be hard to give you detailed numbers on that, but I think the point I would make is that One of the reasons that we've gone together with AstraZeneca, Ericsson and Saab and building our compute capabilities here that are within our control is also a cost perspective. We know what the cost will be . We will continue to work with the frontier labs and there's going to be use cases where that makes sense and we'll continue to leverage on those impressive progressives. But I think the point we're making is really that when the cost goes up, And Jacob, on the Northern European Bank, which is of course a symbolic, very important gesture, as we call ourselves the Nordic Bank for decades,

I would say like this. This is organic, so we have not fallen for the constant temptation to buy a corporate investment bank to get things moving. So it's a very cautious, slow-moving, 100% organic expansion that takes time. Think a decade before you know how you started. Just the normal loan refinancing cycle with averaging five-year RCFs, you need two shots and that takes 10 years to try to get into a group or the core banking group for a large corporate in a new country But it costs very little other than the salaries for the people that are actually pursuing and advising clients and trying to, in competition, win. So going through it, Germany has done very well over the last three, four, five years, and we are establishing ourselves to a greater extent as a real international corporate bank. Investment banking, a little bit more humble around, so we do not have the largest of ambitions to be an M&A and large-scale ECM house in the euro market. That's for other banks to do, but as a corporate bank with investment banking capabilities, it's working very well. And as I showed today, I think also we have improved quite a lot. So we're number three now in the customer satisfaction. UK is medium mature, so we have a lot more to do. We've been doing that now for eight, nine years. No, a little bit more actually, 12 years. And then the new ones are Austria, Switzerland, and the Netherlands. And I would say that the German-speaking part of that trio has done quite well. And the Netherlands has been more slow. But we find now Netherlands to be happening. These are very small things. So from a modeling perspective, I will be cautious. And as a symbol, we opened up our Our office in in Amsterdam a couple of months ago with a very nice little event And we have some our first and call it ten core clients attending, but you know in the large corporate space We are talking 20 30 40 very large companies that you would cover in these countries So they they do help with a 1% income growth over time more than the market otherwise would have provided which over time becomes We have this graph you might remember, we show everything since 2009 on the new clients that we've added since 2009 and they today represent a significant share of the income in CIB and they certainly represent most of the growth. It would not have been at all that growth rate of a doubling of our business in CIB over the last decade if we wouldn't have added new clients to be covered. And they do not come from Sweden. Here we are close to 100% covered. Was that answering your question? Jacob, can I ask you, are you leaving Autonomous?

Thank you very much. Thank you. We will now take the next question from the line of Ricardo Rovere from Mediobanca.

Please go ahead.

Thanks for taking my quick follow-up. Christopher, you mentioned at some point that excluding the pension surplus, your ROE would actually look like 17.4, if I'm not mistaken. I don't exactly remember the decimals. Is there anything you could do to, let's say, to reduce this surplus and show Let's say a better ROE on an accounting basis without this kind of adjustment.

Yes, so the surplus is growing with the value of the assets and this is helping us both in terms of lowering our annual pension costs and of course it's very comfortable to have a very sizable surplus. That said, we are on an annual basis evaluating regularly the possibility to upstream capital into the bank and the last couple of years that has been around 2 billion per annum and previously to that there was about 1 billion and as we've indicated that could go up to 3 billion per annum. And this will be subject to that annual assessment, the status of the surplus at the end of the year and other parameters that goes into that. So that is our possibility to evaluate that, and we'll continue to do that.

Thanks. Thanks for that. And maybe similar to that, in previous calls you mentioned the possibilities of exploring SRTs. Any update on this?

No update. Work continues. So we want to be SRT ready as soon as possible, and we're doing the work together.

So you're working on it.

Yes, this is something that we're working on to be able to do it. And then, of course, it's another assessment, what type of portfolios, what type of exposure, finding and rationale and financial evaluation, etc. That is to get the pipes in place to be able to do it.

And correct me if I'm wrong, you have never done anything on SRTs so far. No, that's correct. Correct. Perfect. Thank you very much. Thanks. Thank you.

Thank you. There are no further questions at this time. I would now like to turn the conference back to you, Juan Torjevi, for closing remarks.

Okay, thank you everyone for participating and thank you for this semester. And we at Team SEB wish you a great summer break when time is appropriate to take that. Thank you very much for today. Thank you.

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