Swedbank AB (publ)

Ladies and gentlemen, welcome to the Swedbank First Quarter Report 2020. For the first part of this call, all participants will be in listen-only mode, and afterwards, there will be a question-and-answer session. Today, I'm pleased to present Gregory Karamosis, Head of IR. Please begin.

Thank you. Good morning, everyone, and thank you for joining us on this presentation of Swedbank's Q1 result for 2020. With me in the room, I have our CEO, Jens Henriksson, our CFO, Anders Karlsson, and our chief credit officer, Lars-Erik Danielsson. After their introductory remarks, we'll open up for questions. Jens, please.

Thank you, Gregorio, and good morning to everyone. We are now seeing the consequences for the economy of the corona crisis. And let's be totally honest, a global recession is coming and IMF is calling it the great lockdown. But unlike the subprime crisis of 2007 and 2008, this time the banks are a part of the solution, not the problem. Swedbank have adapted quickly to the new requirement in our way of working in the way of the corona pandemic. All employees who have the need to do so can work remotely. And to achieve this, we have increased the capacity in digital channels without sacrificing security. And the technology works extremely well. And the IT-related investments we make to adjust our organization to the corona crisis will add approximately 250 million kronor to our total cost this year. Now, Many of our customers need advice and many need lines of credit. Our main task now is to do everything we can to help them manage the situation. We still have branch offices open in all our regions in Estonia, Latvia and Lithuania. And in Sweden, 159 out of 161 offices are open. and many branches offer special opening hours for seniors so they can visit us without risking exposure to the infection. The telephone bank has strengthened, and in March, our customer center handled half a million customer contacts via phone. That's 30% more than normal. And we've been able to respond quickly to changing customer needs by being agile, and by developing new digital service in a record-breaking speed. And that's something I'm extremely proud of. I'll just give you one example. We produced a digital application for the amortization easing in just a few hours. We have received some 25,000 applications from households and corporates in a few weeks, of which about 15,000 have been granted, and the rest are in the process. We participate both in the government's guarantee program for companies and the Riksbank's credit facilities. And the banks have an important role to play in order for these measures to have effect where they are the most needed without delay. And in the middle of all this, in the middle of the corona crisis outbreak, Swedbank settled our history with anti-money laundering. On March 19, the financial supervisor authorities in Sweden and Estonia presented the results of their investigations. And the Estonian FSA, they gave us a precept with 25 points to rectify within eight months. And the Swedish FSA gave us a warning and a fine of 4 billion Swedish kronor. is the highest fine ever imposed by a Swedish authority. At the same time, Clifford Chance came out with their report of what went wrong in the bank from 2007 until March 2019. And the message from the investigation is coherent and crystal clear. The Swedbank's governance and control were not good enough. And the bank has not lived up to the expectations that customers, U.S. investors, and society at large have the right to set on us. And we have not done enough to stop suspected money laundering in our bank. And the board of directors has decided to accept the decision of the financial supervisory authorities. The U.S. authorities continue to investigate Swedbank, and this is a working process, and it's a process that will take time to conclude. The cost of doing this is great. The AML-related investigation cost will amount to 1.6 billion kroner this year, according to our estimates. And add that to last year's cost of 1.1 billion kroner, means we're talking 2.7 billion Swedish kronor to be open and transparent about our history. And add to this the 4 billion kronor that came from the fine, and it's a lot of money, and now I'm not even calculating all the time that has been spent by management and all other on this. And it shows you that not having good enough order and internal control, it will cost a lot of money. And it's evident that the bank's ambition to make money on non-residents without having a fully functioning AML process was one of the worst deals in Swedbank's history. The good thing with this is that now we can leave history behind. Regaining confidence you can lose really quick, but regaining confidence takes time. Regaining confidence you do by being clear about your history, and we published a whole Clifford Chance report, and then you need to focus on delivering right now. As you know, we have a comprehensive action plan to improve the bank's routines, system support, and processes for crime prevention. And when I presented at the Q3 report last year, we had a 132-point program. By Q4, it had grown to 152 points, and now we're up to 217 points, out of which 87 has been concluded. This is something I will continue to talk about because it's an important part of making sure that we are fully compliant and we expect this program to almost end at the end of this. Good to have reached the beginning of the end of this very painful money laundering crisis. As with any large investment, it's important to use external experts to make an assessment. I've talked about Clifford Chance and the financial supervisor authorities, and an independent validation is also made of how the banks work against money laundering and other financial crime progresses in the three-year period 2020 and forward. An assessment is made of the bank's compliance function with the aim of reaching the highest industry standard. And it's obvious that we've had shortcomings in terms of governance and control, and therefore Swedbank's corporate governance is also evaluated. So, what about the Q1 results? Well, to summarize it, it's a solid underlying business during an unprecedented quarter with a large fine from the Swedish supervisory financial authorities. The underlying profit was 2.3 billion kronor, excluding the fine from the Swedish FSA. But after that, the net result for the quarter was negative. at loss of 1.7 billion kronor. Our return on equity for the quarter was 6.5%, substantially lower than the bank's normal performance. Our goal and target of 15% return on equity still stands. We have a capital buffer of around 300 basis points, and the fact that the Swedish FSA lowered their countercyclical capital buffer, added some 200 basis points. Our strong financial position gives us a lot of space for credit expansion in support of our customers. To state that the outlook for the rest of the year is characterized by uncertainty is no exaggeration. As you have seen, we published information about increased costs on April 8th And the total cost for the full year 2020 are now estimated at approximately $21.5 billion and excluding the fine of $4 billion. And compared to the previous estimates, that's an increase of $1.5 billion. Over the rest of the year, we will operate with higher cost than what will be required next year and onwards. And this is necessary to secure the success of our AML work and the work related to the ongoing U.S. investigations. But our goal to be one of the most cost-efficient banks in our category remains. And when we reach year's end, we will be able to present a more detailed plan of the development of banks' customers offering an increased efficiency. But with the investigation behind us, we can now look forward. Our focus shifts from 2007 to 2025. And the good thing is that a lot of customer, we can use this opportunity to regain trust because it is a challenging environment for our customers. Mr. Carlson, the floor is yours.