Swedbank AB (publ)

Hello and welcome to Swedbank's second quarter report 2020. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question-and-answer session. Today, I'm pleased to present Grigori Kabarmousis, Head of Investor Relations. Please go ahead with your meeting.

Thank you. Good morning, everyone, and thank you for joining us on this presentation of Swedbank's Q2 financial results. With me in the room... I have our CEO, Jens Henriksson, our CFO, Anders Karlsson, and our Chief Credit Officer, Lars-Erik Danielsson. Following on their introduction remarks, we will open up for questions. Jens, please.

Thank you, Gregory, and welcome to this presentation of our Q2 results. And it is a strong result in uncertain times. The second quarter was completely dominated by the pandemic that has affected individuals, societies, economies, and Swedbank. And when I met you here three months ago, I stated that the economies and the economic policy would go through three phases, mitigation, restart, and the inevitable budget consolidation. and we are somewhere between the mitigation and the restart phase in Sweden. And the big question now is how quickly will we recover from the pandemic? Will the recovery graph look like a U, a V, an L, or a Nike swoosh? My favorite is the Victorian bathtub. And according to economic research, financial crises tend to be more severe and to have more long-term effects compared to other crises. But what happens when there is a pandemic? One difference compared to financial crisis is that the credit channel remains open. And one proof point of that is that how we as a bank face this crisis with increased lending, primarily in demand from large enterprises. But social distancing has a negative impact on both supply and demand. A restaurant can suffer from both reduced demand when guests don't want to come and reduced supply as a consequence of more space between the tables. Another issue to consider is how global value chains will be affected by the fact that some countries have shut down completely. And we do know that the pandemic will have an enormous global impact. On June 20th, the IMF updated its April forecast, and it paints a very dark picture. More than 100 countries have applied for support from the IMF, or as they call it, a crisis like no other. The global growth rate is revised from minus 3 to minus 5 percent. and the recovery in 2021 will be slower. The IMF expects a deeper and more protracted crisis. The full-year Eurozone growth is estimated at minus 10% this year, and in the U.S. we're talking minus 8%. France, Spain, and Italy are all expected to have over 12% negative growth. Sweden is affected as well, and the crisis will be deeper and last longer than we previously thought. Our economists at the banks, they believe in a negative growth of around 5% during 2020, and this is 1% lower compared to their outlook in April, and the recovery in 2021 is estimated to be 2% weaker than projected in April. As a result, unemployment rates will grow by 0.7% between 20 and 21, instead of being reduced with the same number as previously predicted. And this naturally affects provisions for future credit impairments. At the same time, there are clear signs of a turnaround. In our home markets, Estonia, Latvia, Lithuania, and Sweden, the forecast predicts that the decline in retail sales will be leveled out or turned around in the next quarter, and the real estate values are resilient. And looking at the rest of the year, it's very hard to predict the development in Sweden with a summer of historically low revenues in many industry sectors. Now, in this difficult economic situation, Swedbank has stood by its customers. As the bank for the many households and businesses, we have offered advice about various governmental measures response to COVID-19. We've given individual advice to both private customer and enterprises. We've also supported lending and liquidity to business. I'll give you some examples. In Sweden and the Baltics, we have approved together some 56,000 applications for amortization grace periods, and close to 10,000 applications from enterprises. Our web corona page has had one million visits, and the social media Ask Swedbank program has had more than six million views. And the crisis accelerates development trends in our society that would have taken place Without grown-ups, now they happen at a faster pace. The use of our digital financial services is increasing, and we are focusing on the fact that our customers' digital integrity must be carefully handled. It is just as important to manage and safeguard customers' data as it is to manage their assets. A growing number of financial services providers want to gain access to our customers' data, and we are clear on the fact that we will be restrictive in the best interest of our customers. Another area is financial advice, where demand is growing. However, we have identified a great potential for improvement within this area, and a lot of effort is being spent internally on a concept we call financial health. Well, now over to the beef. Let's look at the result for the second quarter. As I said, it's a strong result in uncertain times. Revenues amounted to 12 billion kroner, and we had a strong net interest income, which increased by 200 million compared to the first quarter. And this was due both to higher average lending volumes in the quarter and deposit growth. Net commission income was 300 million lower compared to last quarter as a result of reduced income from card payments. Lower values on assets under management, especially during the beginning of the corona crisis, resulted in lower commissions. Net gains and losses were unusually strong due to valuation effects from Visa and Asia Castietto, and we also recovered our losses in the trading portfolio from the first quarter, and other income, which is getting more and more important for us, for example, insurance operations and our savings bank holdings were stronger than last quarter. Our costs were lower compared to Q1, and mainly because then, well, you know, we were fined 4 billion by the Swedish FSA, but also because of the pandemic, and as we understand it, that has led to fewer requests for information from the relevant U.S. authorities. On the other hand, the underlying costs for developing and operating the bank were according to plan, and we see no reason to adjust the cost guidance of $21.5 billion for 2020. Now, this quarter, we made credit provisions of $1.2 billion, Last quarter, we made credit impairments of 2.2 billion kroner. And this was because we adhere to the revised IFRS rules, both in letter and in spirit. But let me also remind you that actual credit losses during Q1 was only 130 million, and actual credit losses during this quarter has only been 107 million kroner. so we made credit provisions for future credit loss. In the quarter, Swedbank had a 13.5% return on equity, and the cost-income ratio amounted to 0.40. And this means that our common equity Tier 1 capital was 16.4% at the end of the quarter, giving us a healthy buffer to regulatory requirements of 340 basis points. On May 28th, Swedbank held its annual general meeting and a new board of directors was elected. The AGM refrained from deciding on the dividends of 2019 upon the recommendation from the board of directors. And the board will revisit the dividend matter when the consequences of the pandemic can be properly assessed. Swedbank's position with strong earnings and stable capital liquidity buffers of 21 billion and 600 billion respectively is comforting in the midst of this crisis. And this means that we can continue to be there for our customers and support the economy in the future. And I could not... have a call like this without talking to you about our AML and anti-money laundering shortcomings. My belief is that during Q2, we entered the beginning of the end of Swedbank's money laundering crisis. The FSA in both Estonia and Sweden have completed their investigations and the report from the international law firm Clifford Chance has been published, and it is available for those who want to read it. The Estonian FSA gave us a precept, which we have until November to remedy, but there are still U.S. authorities that continue their investigation, and our U.S. legal advisor assists us. We know what shortcomings the bank has. We know how to remit them, and we know what we want to achieve, an industry-leading AML standard. And as I know that you all know, we have an action plan, and I promise to keep on talking this and report on its progress on each quarterly briefing. And when I started, we had 132 action plans. It has now grown to 245. This is primarily because investigations by FSAs and Clifford Chance have generated new actions. And, you know, the slides I've shown now shows the summary of the actions we implement divided into the different areas and the major areas of monitoring, international internal regulation, and customer knowledge. And of the 245 action points, 117 are completed, 87 are ongoing, and 41 have not yet been started. And according to plan, 100 action points will be completed during the rest of the year, and 28 are planned to continue in 21. Now, one of the questions I've struggled with since I took office is our corporate culture. And this is what I decided to appoint the consultancy firm, Oliver Wyman, to investigate the matters. Now, they've talked to more than 8,000 employees that have participated. And let me start with the positive. Swedbank fundamentally has a sound culture and strong values. Having roots that are 200 years old is a strength. When our employees are asked to talk about what characterizes the bank, it is a very positive picture that emerges. But that doesn't mean that everything is good. We have problem areas that we need to deal with. Things have not always been organized as they should have been, and during the year we are assessing the group's governance. We need to strengthen governance and control, and our subsidiaries must be given proper guidance prerequisites to comply with legal and regulatory requirements. We're also in the process of assessing our ability to manage risk, and we aim to have an updated enterprise risk management system for all types of risks during the year. And we need to have an atmosphere where all employees feel welcome to raise issues, shortcomings, and ambiguities. And finally, we need to be clear about our wanted position and how to reach it. This is why I recently launched an initiative with the purpose of clarifying our strategic direction. All 15,000 employees in the bank will be involved, and this is an important action on the roadmap towards having a more open and inclusive culture. it will be easier to set long-term goals and to reward good and sustainable performance as we clarify the way forward for the bank. The corporate culture in Swedbank is fundamentally positive and gives strength. And our values, open, simple, and caring, are deeply rooted in the bank and all its employees. What we need to improve is internal governance and control, which is exactly what caused The Swedish Financial Supervisory Authority defined us. Now, the past quarter was unlike anything any of us have ever seen. It is deeply satisfying to see how Swedbank and our customers work to alleviate the effects of the COVID-19 pandemic. Together with our customers, we create the prerequisite for a strong recovery. Now, Anders, now you have the luxury to present this strong result. Thank you, Jens.