Swedbank AB (publ)

Welcome to the Swedbank Second Quarter Report 2021. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question and answer session. Just to remind you, this conference is being recorded. Today, I'm pleased to present Annie Ho, Head of Investor Relations. Please begin your meeting.

Good morning, everybody, and a very warm welcome. In the room with me, we have Jens Henriksson, the CEO of Anders Karlsson, CFO, and also Rolf Mathquart, CRO. We have one hour to run through the presentation and the Q&A. So for this time, again, I will ask that we have a maximum of two questions from each person. And without further ado, I'll hand over to Jens.

Thank you, Annie. And it's good to meet you all here in the middle of the summer to talk about Swedbank's result for the second quarter. And it's a good result. Our revenue increases once again. It's the second quarter in a row it increases with more than 10%. In our home markets, restrictions have been rolled back gradually thanks to vaccinations and fewer COVID cases. And we see strength and growth with the increased economic activity. But there is still uncertainty around the spread of new virus variants. And at the same time, there is the discussion on inflation and how central banks will act. For us, Swedbank, growth, better profitability, and a clear business focus has characterized the quarter. Now, when we look at the figures, our net profit improved with 12% compared with the previous quarter. And our profit for the quarter was just about 5.5 billion kroners. Expenses developed in line with our forecast and the cost cap of 20.5 billion for 2021 and 2022 remains unchanged, now excluding the cost associated with the investigation by the U.S. authorities. Net interest income was stable. Mortgage loans are growing in both Sweden and in the Baltics, but corporate customers choose to fund themselves via the capital markets to a large extent. And deposits continue to grow. Net commission income was higher. East restrictions and increased consumption led to higher economic activity. And this produced higher revenues in our card business. And the continued strength of the stock market also contributed and our DCM and ECM business increased during the quarter. Return on equity for the quarter was 14.2%, and our target on RE of 15% remains unchanged. Now, our result has improved continually during the past three quarters, and this quarter is the strongest since Q3 2018, which happens to be before the AML crisis. Now, Swedbank shall be a low-risk bank, and confidence in us as a bank is the foundation for our relationship with customers and the market. In our brand service, we see that confidence continues to be strong in Estonia, Latvia, and Lithuania. And in Sweden, It has increased during the last years. However, we have more work to do before we reach the same level as our peers in Sweden. Credit quality is strong, and credit impairments are back at low levels. We have a conservative approach, and we keep a management buffer of 2 billion kronor. That's because we don't yet have an overview of all of the effects of the pandemic. Vulnerable sectors such as hotels and restaurants still rely on government support. Our capital position remains strong with more than 600 points margin to the Swedish FSA's requirement, and our liquidity position is strong. On the issue of card fraud, which is directly felt by our customers, we are seeing a decrease. thanks to new security solution and advanced monitoring. Card fraud has been cut by 40% so far this year. And online, the decrease is 55%. Swedbank is the bank for mortgages. And as I described last quarter, we have taken measures to win back market share. We have been faster at answering questions. meeting customers and providing feedback. And our availability was better during the quarter than at the start of the year. At the same time, the high level of activity in the Swedish mortgage market has spread across the whole country. Customers, they are renovating their homes and putting on additions. And this is the season for it, and it's also one of the effects of the pandemic. Our price strategy is unchanged. We are not the cheapest nor the most expensive. However, our total offering as a full service bank should be the best. We finished the first quarter with a market share of new mortgages of 12.7% together with the savings banks. And in May, it had increased to 17.4%. And this, as you know, should be compared to a back book of 23%. Our ambition is that we shall reach our own back book market share of 18% in new sales. And in May, it was just about 14%. And we continue to implement measures. And even though we don't have the market share numbers for June, our mortgage volume in terms of kroner reached an all-time high. In the Baltic countries, our business maintains its strength in competitive markets, and we are the market leader. Our share of new mortgage lending continues to surpass our back book of the mortgage market. For more than 200 years, Swedbank's driving force has been to better enable our customers to make sound and sustainable financial decisions. put it simply, to promote financial health. To get there, the bank has made its largest investment in digital infrastructure and new savings platforms in collaboration with FNZ. The goal is to provide customized advice for all customers in all channels and create opportunities for new, simple services for savings and investment. We are a digital bank with physical meeting funds. And the number of new Swedish retail customers that onboarded fully digitally increased by 17% compared with last year. And in the Baltic markets, more than half of all the new corporate customers are now onboarded digitally. And saving digitally is popular. Monthly fund savings started in the app. where the Internet bank has grown by nearly 50% in Sweden. And the demand for robust funds in Estonia, Latvia, and Lithuania has been strong. And since March, we see that assets under managed have increased from although very low levels, but they have increased and four-folded, a good alternative to savings accounts. And it's Great to see how digitization and new technology delivers simple services for our customers. Biometric identification, account aggregation, and new corporate services are just a few examples. Our vision is a financially sound and sustainable society. And we have signed the UN Principles for Sustainable Banking. And we also set targets for our contributions to the UN's sustainable development goals. And in 2021, we will grow Swedbank's sustainable funding, among other things. Today, we have an unbroken chain of green finance stretching the whole way from the bank's own funding via green bonds to the client. And we offer loans for production of renewable energy, green construction, and green mortgages. And our green asset register continued to grow as existing green mortgages were included there during the quarter. And now it amounts to a total of 38 billion kronor. And during the quarter, we issued two new green bonds amounting to a total of 15 billion Swedish kronor. And when it comes to equities, our pioneering work with green equity has contributed to the creation of the new standard for green equity. NASDAQ green designation, which was presented by NASDAQ and me in the quarter. And we see continued interest in the green equity designation. And as you know, earlier this year, we updated our climate policy. We decided to no longer directly finance unconventional extraction of production of fossil fuels or prospecting of new oil or gas fields. And in May, The International Energy Agency, IEA, published a report that shows that our climate policy is a step in the right direction. They say the same thing of us, namely that no more new oil or gas funds should be there if we're going to reach net zero emissions by 2050. At Swedbank, we continue to integrate sustainability in everything we do, and that's a basis for good results. And talking about good results, Anders, that is what Anders will talk about. So a detailed description of the results. Anders, the floor is yours. Thank you, Jens.

Yes, let's go into some details of the quarterly result. Starting with the lending and deposits. Compared to last quarter, the total loan portfolio increased by $20 billion in local currencies, excluding a negative FX effect of $4 billion. Mortgage lending in both Sweden and the Baltic countries continues to grow. In particular, net inflows of Swedish mortgages increased by 13 billion quarter over quarter. Corporate lending remains muted, and quarter over quarter volumes were stable. LC&I's underlying net growth amounted to 5 billion, excluding movements in the runoff portfolio and FX. Customer deposit inflows slowed, this quarter increasing by 36 billion, excluding a negative FX effect of 5 billion. Deposits in Swedish banking were driven equally by corporate and private customers, with the latter due to annual tax refunds occurring in June. Deposits in the Baltic banking decreased, slightly in local currency terms, while LC&I's volumes grew by $4 billion. Now looking at the revenue lines, starting off with net interest income, which is overall stable. In Q2, we saw higher average lending volumes. In Sweden, we upheld our pricing strategy in the mortgage market, which was characterized by high overall activity. We saw positive volume development due to good momentum through an increased business focus and especially through shortening lead times and reallocating resources. Now looking at the margin and group treasury columns combined for a complete view on margins. Lending margins declined in the quarter driven mainly by the Swedish business, where there is a continued trend of customers choosing fixed versus floating. Margins are lower for those tenors, which is in line with the general market pricing environment. The cost of excess liquidity placed with central banks was offset by lower funding costs, but not by not replacing most of the wholesale funding that matured. During the quarter, we received the outcome relating to the ECB and Riksbanken, liquidity facilities that we participated in, resulting in a net positive contribution of 73 million. We also received the actual resolution fund fee for Sweden, which was lower than expected, resulting in a delta of 57 million this quarter. The total resolution fund fee for the group is expected to be around $800 million for the full year 2021. FX and day count effects impacted NII positively. Reminding you that last quarter we had a positive adjustment of $101 million relating to the deposit guarantee fee. Over to net commission income. which is at a record high. The asset management business continues to perform well. Year-on-year income has increased by 35%. The development in the equity market continues to be supportive, and we saw net inflows of $3 billion during the quarter. Quarterly income was impacted negatively by around $30 million due to the introduction of a new pricing model relating to the premium pension component of the Swedish national public pension. Underlying card commission have improved through a combination of seasonality and improved consumption levels on the back of a gradual easing of COVID restrictions. Income from FX transactions from foreign travel is still lagging, however. And corporate advisory commissions were positively affected by one large IPO deal in the quarter. Turning to net gains and losses, the result was higher, thanks to the positive 111 million valuation effects from shares held by Fastighetsbyrån, our real estate brokerage subsidiary, in Hemnet, which IPO'd recently. Underlying NGL was at a normal level. A few words on expenses before I hand over to Rolf. This quarter, expenses were on the same level as last quarter. AML investigation costs amounted to $90 million. Cost control is key priority, and our overall cost development is in line with our plan. I will now hand over to Rolf to talk about asset quality and the credit provisions that were made in the quarter.

Thank you Anders. Macroeconomic forecasts have improved further for our home markets. The vaccine rollout has been efficient across our home markets and in the case of Sweden, 70% of the adult population has now received the first dose of the vaccine and 45% two doses. Societies are gradually lifting restrictions and economic recovery is underway. But we are obviously not yet back to normal, and the viability of many businesses is still dependent on government support. The uncertainties therefore remain about the potential impact of removal of support measures and potential impact from new COVID variants. We therefore retain the post-model adjustments made in previous quarters. Asset quality remained strong and stable during the second quarter. Rating migrations and collateral valuations likely reduced provisions. The different factors reflecting payment behavior, like late payment statistics and watch list exposures, were at the same low level as in the first quarter. The key vulnerable sectors remain to be oil and offshore, hotels and restaurants, and certain parts of retail and transportation industries. The total credit impairment was slightly positive with the recovery of 27 million. This is explained by continued positive economic outlook and positive rating migrations offset by individual assessments related to the oil and offshore sector. Macroeconomic forecast had a positive impact in Q2 of 276 million. This was partly offset by a management overlay of 144 million, which was allocated to COVID-impacted sectors, as well as oil and offshore. Provisions for individual assessments of 298 million were mainly related to oil and offshore within large corporate and institutions. Rating and stage migrations reduced provisions by 44 million, Volume migrations, that is new lending replacing old lending, and other factors reduced provisions by 149 million. The total post-model adjustment, including adjustments made in previous quarters, therefore increased to 1,972,000,000. As we have communicated before, the main part of our oil and offshore business is in runoff. Since Q1 2020, the gross exposure has been reduced from 12.9 billion to 7 billion. We now have 3.5 billion in stage 3, and 53% of that has been provisioned for. So with that, I hand over to Anders again.

Thank you, Rolf. Let me now turn to capital. We report a strong capital position with a buffer to the minimum regulatory requirements of around 610 basis points. The CET1 capital ratio increased to 18.5% with a profit in the quarter and the SME factor relating to Sweden having impacted positively. The 50 percent dividend policy stands, and the remaining accrued dividend from profits generated in 2019 and 2020 is still deducted from the CP1 capital. In terms of future capital requirements, regarding the IRB overhaul exercise, we await a response from the Swedish FSA regarding our submitted model applications. it remains the case that overall we expect higher risk weights, with the impact relating to probability of default to potentially start being phased in earlier than the loss given default component. The Pillar 2 guidance of the Swedish banking package is expected to be around 1% to 1.5%, according to the Swedish FSA, and it will likely be set and implemented in Q3 as part of the SREP. If we look further into the future, we expect the Swedish FSA to reintroduce the counter-cyclical buffer at some point on the back of strong economic recovery. We do not yet know the exact impact from all these regulatory initiatives, but once we are through all these changes, we will remain well capitalized. And we expect our CT1 capital buffer to end up within our capital target range of 100 to 300 basis points. Now let me talk about some key trends. As Jens mentioned, we have been focusing on the business, improving accessibility, and giving sound advice. When it comes to mortgages, our focus is on profitable growth. That means keeping up margins as much as possible while increasing volumes. We have not changed our pricing strategy, but rather focusing on new sales. We are active and engaged in new customers' loan requests, while we are proactive with customers who have a loan commitment outstanding and those who are looking to renew their mortgages. Our return rate is quite low, And our work in Sweden to manage this has a very limited impact on margins, while it has a positive impact on overall business. Similarly, customers choosing to fix their mortgages weighs on margins initially, but provides the opportunity to broaden the customer relationship over a longer period of time. In the current rates and credit spread environment, We expect our funding costs to gradually decrease, which will support NII and help offset the headwind from deposits and excess liquidity. Demand for traditional corporate lending is likely to remain muted, especially if capital market conditions continue to be benign. We will capture the client business through continued high DCM activity, which will be supported by NCI. With that, I hand over to Jens to conclude.

Thank you, Anders. So let me now sum up the quarter, once again dominated by the pandemic. And we continue to work in accordance with our strategy. And as you know, our purpose is to empower the many people and businesses to create a better future. Our core business remains stable in Sweden. Estonia, Latvia, and Lithuania. And during the quarter, we gained market share in mortgages in all our home markets. And our vision to reach our back book market shares in the Swedish mortgage market is unchanged. Our asset management and advisory business has benefited from good market development, and Swedbank is among the top three arrangers in both the corporate and ESG bond market in Sweden. We continue to strengthen our ability to provide our customers with an easier financial life. Investment in the availability creates a bank that is available whenever customers want to reach us today and tomorrow. And during the quarter, we deliver return on equity of 14.2%. and we deliver an earnings per share of 4.96 kroner in the quarter. The vaccine is working. Our economies are reopening. There is strength and growth. But we are not through the pandemic yet. There are still some clouds in the sky. We carefully follow the development and focus on the future for our customers. Thanks for listening. And now, Annie, it's your turn. Do I open the line?

Well, operator, please open the line.

Shoot. Thank you. Ladies and gentlemen, if you do wish to ask a question, please press 01 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 02 to cancel. And our first question comes from the line of Magnus Andersson from ABG. Please go ahead. Your line is now open.

Yes, thank you and good morning. First, just on... on costs where we are running quite low in the first half relative to your guidance. When I look at it, it implies around 1 billion higher costs in the second half of the year than the first half, despite the fact that headcount now seems to be flattening out quarter on quarter. So my question there is just what you expect to drive that In the second half, it is quite a significant increase. And secondly, oh, by the way, Jens, I note that you in your CEO statement, you leave out the potentially 500 million in AML investigation costs, just talking about potential investigation costs without quantifying it, if I should read anything into that. Secondly, on NII and loan volume growth, you talked about the measures you've taken on the mortgage side. But we also see that your corporate lending growth is now flattening out after quite a long period with the negative trajectories. My question is, have you taken... active measures there as well, and is there more to come, or is it more a reflection of the market? Thank you.

Well, thank you, Magnus. Let me then first say, well, you should not read anything into it. It's very hard to estimate on how much the cost for the U.S. for it is going to cost us. We have 500 as a rough estimate. That's the best guess we can do, but let's see. But Anders, I think you were sort of diving into the cost more. Yes. Good morning, Magnus. Good morning.

Just to be clear, cost guidance remains. And as you rightly point out, we are running on the first half below that. But if you look back in history, Magnus, and compare the cost distribution between the first and the second half of the year, It is roughly so that the first half is between 47% and 48% in 2019, 2020, and so it is in this year as well. So you can expect a higher cost on the second half. Cost guidance remains, as I said. On the corporate customer side, I can't say that there is a trend line to be drawn from this. We had a couple of individual deals primarily within LC&I, which we were very happy for, but it's not the trend line that I'm ready to discuss with you.

Okay, so not close to any active measures that has achieved this. Okay. Well, thank you very much. That's my two questions. Thank you, Magnus.

Thank you. Our next question comes from the line of Adrian Chee from Credit Suisse. Please go ahead. Your line is now open.

Hi there. Thank you very much for taking my questions. I have two, one follow-up on NII and one on capital. So on NII, I'm trying to understand your thoughts on the sustainability of the TLTRO and Rix Bank headwind. Do any of these changes involve any degree of catch-up for past quarters, and how do you estimate them going forward? And then on capital, obviously, you've referred to a number of potential headwinds above the current 12.4 requirement. But what CET1 do you use for your internal capital planning purposes? You've referred to the headwinds eating into the 610 basis points buffer to get to within your buffer. So does that mean you're effectively implying a 300-plus basis point headwind from expected sort of requirement increases? Thank you.

Thank you. On the RICS Bank and the ECB TLTRO, We have repaid the Rick's Bank facility, and when it comes to a potential continuation on the TPLO3, we will take that decision on the other side of the summer. When it comes to capital, generally speaking, our approach when it comes to capital allocation and capital steering is to take as much as we can of future known regulatory effects into account. And that's sort of the general principle. When it's completely unknown, it's very difficult to put it in there, but otherwise we try to allocate as much as possible to the business areas and on transaction level.

Thank you.

Thank you. Our next question comes from the line of Antonio Reale from Morgan Stanley. Please go ahead. Your line is open.

Good morning, everyone, and thanks for the presentation. It's Antonio from Morgan Stanley. I've got two questions. The first one is on your outlook for mortgage growth in Sweden. I'm wondering, how do you expect demand for mortgages to change in the second half of the year? And in your answer, could you please also provide what you expect the key drivers to be, and also maybe spell out what you think have contributed to the recovery new origination this quarter. I think you mentioned pricing basically unchanged, excess liquidity still being an issue, and corporate demand still muted, driving competition up. So any color you can share here on Outlook and what drove the recovery in the quarter will be much appreciated. My second question is a Provocative question. And, you know, you've got a longstanding profit share agreement with 58 savings banks. And this is, of course, part of your history and DNA. I understand there's a multiple cross-holding structure. But in a theoretical scenario, what would you say would be the pros and cons for Swedbank to dismantle the agreement, buy back the shares, buy out the minority and integrate with savings banks? Thank you.

Well, that was two easy questions. Now, let's first talk about mortgage development. Of course, we don't know what will happen with the housing market. We cannot see the same continued price increase as we've seen now in the beginning, so we expect it to level off a bit. Three months ago, I said that we should take measures to increase our sales of Swedish mortgages, and now we are delivering that. And we've shortened lead times, we've increased availability, and we've slowly hired some more mortgage advisors. Our ambitions to reach back our market share or full market share still stands. And we all do this with an unchanged price strategy from our side. We will be there, we will be active, and we will meet the customers and do our very best to sort of have their business. The second question was on the, to be honest, I haven't even thought about that question. We have an origin where we comes from sort of the savings banks movement. We started 200 years ago, and we are proud to have them both as big owners and And as partners, they are selling our products, and we are co-owning a few of the savings and loans banks. And it's a good arrangement, which I have not even thought about, and I'm not going to start thinking about that question you asked now.

Thank you.

Thank you.

Thank you. My next question comes from the line of Mats Liljedal from SCB. Please go ahead. Your line is open.

Yes, good morning. Thank you. In the CEO wording here, you write that you are about to take the largest ever investment in digital infrastructure in order for savings products to retail clients. Could you shed some more light on that? And is that part of what Magnus alluded to, higher cost in the second half of this year? And how do you intend to compete with... Would you know there are a lot of other banks and smaller niche players that are really aggressive in this space? Thanks.

Well, thank you for that question. It is a really cool thing we're doing. So we're talking with FNZ, and what they're doing is they're looking, what we're thinking about doing is taking their sort of back book in order to be able to sort of deliver the best possible financial advice to all our customers. And we have a huge sort of customer base. And today a lot of advice just goes to those who drop in at the bank. What we want to do is to make sure we can deliver advice in all channels. And by using digitization, we can do this customized. And I see a great business opportunity here. Is it tough? Yes, it is tough. But we... I mean, when you were a kid, you probably read Lykoslampen. We have a strong foundation. We have a strong history here. And now we're putting this together to do business about it. And it's really cool because it sort of bridges together our 200-year tradition and making sure that we are the bank for the many people and businesses.

But you're talking about like a digital offering on all your products, not launching like a savings platform like Avanza Nordnet. I mean, are there any costs? There must be some costs related to this. Are these included in the higher cost guidance for the second half? How should I read it?

No, I think the key point is that everything we talk about is included in our cost guidance. And this is, of course, a project that is going to give us better revenues and lower costs, like all new technology. And it's a platform that's beneath the hood. We will still work on what we are best upon, and that is to meet the customer on their terms. I mean, you know that we have the best app in town. and we will continue to use that in order to sort of provide good financial advice to improve financial health for the many people.

Okay, thank you. And a second question, and perhaps a little bit provocative as well. I read that you, I mean, corporate finance, do you have any ambitions here? I read that you have done one IPO in Finland, and we know the market has been totally crazy here in the first year. first part of the year, do you have any ambitions to increase this business? I know that you have made some new recruitments in LCNI, et cetera. Is there any focus on this?

Well, first, I'm not going to give sort of a forecast on a single line. But, of course, we have ambitions. We have some very good people both in the ECM and DCM area. And I would say one of the coolest things we did during the quarter was this with green equities. So we were the first in the world to come out with a green equity. And the NASDAQ contacted us, and they now created an own class for that. We will continue, and we see interest. I mean, it's a hot market out there, but we are fighting there. Okay. Thank you.

Thank you. Our next question comes from the line of Richard Strand from Nordea. Please go ahead. Your line is open.

Hello. Thank you. Thanks for taking the questions. To start off, I would like to hear if you could share some light on the share of your Swedish mortgage portfolio that's currently in the variable range. versus fixed rates and comparing that to how it was in the beginning of the year. That's the first question.

Thank you. It's currently 45% of the book is floating and I have to take it from the top of my head where it was in the beginning of the year. I think it was... Around 47.

Okay, so not that big change then?

Not since the beginning of the year.

All right. Then the second question is that now that you have sort of proceed quite far with your AML work and etc. I was just curious to hear your FTE growth sequentially slowing down. Just if you could share some light how you expect the number of FTEs to develop during the second half of the year and also into 2022.

Sorry, I pushed the wrong button there. So, as you know, we don't guide on sort of individual FTEs. We guide on costs. But we have hired more people, and we have now, this year, we expect around 1,500 people working full-time in the fight against financial crime. And the issue is, of course, we have to do three things at the same time. First, we have to take care of our historical shortcomings. Second, we have to work with the flow that's ongoing right now. And third, we are investing for the future. So I'm not, we don't give guidance on sort of on FTEs. Okay. Thank you.

Thank you. Our next question comes from the line of Andreas Hawkinson from Danske Bank. Please go ahead. The line is open.

Hi, good morning, everyone. I have a question on NII. I'm looking on your page 8 in the presentation pack where you outline the drivers of the NII. But when I add up the TLT row, the resolution fee, and the FX, and the day count, that adds up to around $160 million. Could you tell me, in the bridge, where do I find that $160 million?

You find it in the 52 together with... the FX and day count effects.

But all the effects are positive, right?

Yeah, but then you remember that we had a one-off on the deposit guarantee fee in Q1 of 101, which is not coming into this quarter.

Yeah, I'm just thinking, if you wouldn't have had these quite temporal effects, the NII would have been negative, right? So I'm thinking if I look into the NII in the third quarter and then potentially in the fourth quarter, what's going to change from the underlying trends? Do you think that the margin effect would still be larger than the volume effect or will something turn around underlying?

No, I think it is a very relevant question, Andreas. And I mean, as we said in this quarter, we On the volume side, we are very much reliant upon a continuation of mortgage growth in Sweden and the Baltics, since it seems like corporate loan demand is not in any way picking up sustainably, at least. So that's one thing. The second question is around how then people or customers are choosing loans. to fix or floating, and as you know, the margin is smaller on fixed than it is on floating. The third element is how much deposits will continue to flow in, i.e., how much excess liquidity do we need to handle. We can replace some of it, of course, with maturing funding, but that's coming in gradually. Underlying is slightly down, Andreas, correct, but it's very much up to how we can keep up the volumes and our pricing and how customers are behaving.

Okay. Dan, just a small question. In your CEO comment, you say that you would pay out the dividend given the approval from the FSA, of course, and then you said the right market conditions. Could you just tell us? Is that related to COVID or what you mean by the right market conditions?

Well, what we mean then is the economic development. Of course, there is a pandemic outside, and even though the numbers Wolf talked about are very good on vaccination, we do not know what will happen with different variants and mutations and things like that. We keep an eye on this, but we hope to – The economic development looks right now. We hope to do this after September then.

Okay, thank you.

Thank you, Andreas.

Thank you. The next question comes from the line of Sophie Petersen from J.P. Morgan. Please go ahead. Your line is open.

Yeah, hi. Here is Sophie from J.P. Morgan. So just going back to the net interest income, The net interest income in Swedish banking was down 4% quarter-and-quarter. I recognize the outlook sounds reasonably good, but could you just comment if there were any internal transfer pricing or anything else impacting the Swedish banking net interest income? I recognize also that you said the deposit guarantee fund fee was a little bit higher in Sweden. But was there anything else that we should be aware of in Swedish banking net interest income? And also, if you could just comment on what kind of volumes you have seen on the mortgage book now in July. And then my second question would be kind of on capital exam. I mean, your capital requirements are going up now. Is it fair to assume that longer term you target the 15% core equity tier one as a minimum and then plus 100 to 300 basis points of buffer? Or do you think that the core equity tier one minimum could be even potentially higher than that? And what do you think about potential buzzer for impact? Thank you.

Well, let me start by talking about July numbers, and I'm not going to comment on that. We'll talk about the June numbers. And the June numbers, I think, what is it, Annie? Is it the 28th of July we'll get the market share? But the June numbers are good. I think we had 6 billion kroners in mortgages, which is the highest ever. But it's a tough market there out there, and we're out competing, and we – Well, you know, we are there to sort of be there for our customers, but Anders, I think you need to go into the details.

No, but, Sofie, you're right in Swedish banking, and that's why we, in the speech, combined sort of the margins with treasury because we did a change in the FTP where it means that we pay less for deposits, and that has an imminent impact on Swedish banking. So that is one part of it. The other part is the one that I alluded to, which is the fact that we have a margin pressure in mortgages on the back of people choosing fixed. On the capital side, Sophie, maybe the line was a bit noisy. I'm not sure exactly what your question was, so can you please reiterate it?

Yeah, so it was more to just understand where you see the minimum core equity tier one ratio going. Should we expect the core equity tier one minimum, including a full phasing in of our country's cyclical buffer, W2G, to be around 15%? And then on top of that, assume 100 to 300 basis points of management buffer. Or if you could just elaborate a little bit how you got to view the minimum core equity tier one ratio in the future.

Yeah, I see your question. It would be more like shed on the minimum requirements when the SREP is published, which would be during Q3. So I will not speculate in that. What I alluded to is that we will consume some of the buffer on the back of IRB overhaul, the introduction of the PIL-2 guidance. And then you have seen clearly that SFA has been communicating around the countercyclical buffer coming in at some point. And you can play around with whether they will put a maximum 2% or if it will be a gradual step up. So I think it is too early to elaborate on that particular question.

Okay. Okay. Thank you.

Thank you. And just a reminder that we now have 10 minutes left in our call today. So if you do wish to ask any questions, it is 013. on your telephone keypad. Our next question just comes from the line of Maria Samihatova from Citibank. Please go ahead. Your line is open.

Yes, thank you for the presentation. A couple of questions. First, follow-up. Can you tell us what is the margin differential on longer fixed-rate mortgages versus floating? And I think you previously guided for Flatfish and AI for this year. Is it still the case? And then the second question is on costs. You're guiding for flat underlying expenses next year, and your peer has signaled to the market the need to invest to capture growth opportunities, effectively abandoning the cost gap in place. I understand you cannot provide exact figures, but how are you thinking about your cost base beyond 2022? Thank you.

Thank you. Very relevant questions. I will not give you a specific number on the margin, but if you look at the average prices, which is official information, and then if you look at the swap rates at the different nodes on the yield curve, you get a good sense for the margin further out on the yield curve. On your second question, let's go to the cost, and then maybe you have to help me with your, because you had three questions. How you steer on cost is up to each and every bank, as far as I'm concerned. I think you alluded to what SAB talked about yesterday, and we will not, as far as I can see, move from having a cost target to a cost-income ratio steering, our cost cap remains for 21 and 22. And the third question, I don't remember that one, sorry.

Just if you're an AI outlook for the full year, you're still expecting a flat development?

I think that's the sort of... We did our best estimate with what we knew in conjunction with our fourth quarter. Now you have seen what has happened during the year. We have seen a continuation of central banks intervening, flooding the market with liquidity. You see continuation of deposit inflows in particular. not only in Sweden, but also very much so in the Baltics with negative rates. We have excess liquidity that we need to handle as cost-efficient as possible. The loan demand from corporates are still low on the back of very benign capital markets. So I have given you the dynamics, and you need to elaborate on that yourself.

Okay, thank you. Thank you. Our next question comes from the line of Nick Davey from BNP. Please go ahead. Your line is open.

Morning, everyone. Yeah, Nick Davey from Exxon BNP. Two questions. So firstly, on the mortgage market share, I just wanted to make sure I heard your comment correctly earlier. It sounded to me like you said the aspiration is to defend the 18% to own brand market share. I just wondered if you'd given up on the rest. And the second question then, Jens, bigger picture, if I sort of chart your tenure, it's been a bit on the defensive, I suppose, to AML, to the pandemic, and now to this market share issue. If those three things are tentatively coming to an end in terms of absorbing your time and focus, and you can move more onto the business offensive, What are really the aspirations on a two-year view? And briefly, could you mention the appointment of Deputy President and CEO, what Thomas can bring to the management team and to the bank? Thank you.

Well, thank you. First, the number of 18%, that is what we sell through our own channels. And then on top of that, we have what the savings banks decide to put within Swedbank. And that goes up and down. We have some periods we see a lot of flow, and sometimes we see less flow. So we decided to have sort of the goal or sort of the ambition to reach the 18%, and that is the target we're talking about. We have not given up on the others. I think that's the short answer. The second point is you talked about what is sort of my tenure has been focused about sort of AML and sort of market share and issues like that. I think to summarize this quarter, it's been a quarter about growth, better profitability, and a clear business focus. So in that sense, I'm not saying that we have closed the history when it comes to our AML issues. We still have a lot of work to do, and you know we're still under investigation by U.S. authorities. But as I've been saying for a while, we're getting sort of, we're not at the end, but maybe we're in the beginning of getting closer to the end. But we are working on that. When it comes to the long-term ambitions, I think I show you that in the last slide I show you. We have done a new strategic direction. I would say it's not new. It's actually 200 years old, but it's revised. And that is that we want to be the bank that empowered many people and businesses to create a better future. And that future is a future about financial health. It's a future about sustainability. And that's where we want to be.

Thank you. And to any shareholders that are listening, that are sitting next to... Sorry, I forgot Thomas.

Sorry about that. So Thomas Hedda has been working in the bank for a very long time. And he has been leading the special task for working with the U.S. authorities. And I've asked him to become the deputy CEO of in order to help me with a few things. One is to take care of maybe our most important corporation, that is with the local savings banks. So that's one thing. The other thing he would do is to help me to realize exactly what I just talked about, namely the strategic direction. And it's good to have him working with me, and it's going to be a lot of fun.

Thank you. And briefly on this slide 17, I mean, for shareholders that are listening, Obviously, a flourishing orange tree is good for them in many ways. But if you were to sort of distill it into some financial metrics, that would be your primary focus?

Well, it's flourishing. Yeah, I know. It looks beautiful. But the key point is that if you look, we talk about three foundations. The first foundation is that we're going to have an attractive workplace. We're going to attract the very best in Sweden. The second or the third foundation is that we're going to be available 24-7. And then we're talking about what sort of the core in the middle of the tree below that, and that is that we should be running an efficient and compliant bank and financial services platform and delivering a return on equity of 15% stance, and we should have a sort of cost-to-income ratio that's very good. That's sort of the target we have, and that's what we're working hard to reach. And it feels pretty good in that sense to deliver a quarter with 14.2% return on equity, which is the strongest quarter since the third quarter of 2018. And by coincidence, that's before the AML crisis.

Thank you.

Thank you. We are now approaching the end of our call, so we have time for one more question, and that comes from the line of Riccardo Rovere from Mediabanker. Please go ahead. Your line is open.

Thanks, and good morning to everybody. Thanks for taking my question. A couple, if I may. The first one may be for Rolf on credit losses. If I look at slide 13, you are you have taken into account a better macro, makes sense. You have positive impact from rating and migrations. Your individual assessment, you say, are mostly related to oil and gas exposure. And the amount of provisions in oil and gas exposure is already fairly high. So I would imagine that probably over time, you know, the portion related to oil and gas in the 298 is going to dry up. For how long can you keep the one to almost two billion COVID overlay if this is the situation? What is the discussion you're having with your auditors on that? And still related to that, given, let's say, DVDs, the yellow bars. What's the point of adding 144 expert portfolio macro adjustments? Why are you doing this?

Thank you, Ricardo. So, how long we are going to keep these reserves? I mean, what we are waiting for is what I also referred to in my part of the presentation. we need to get greater clarity about the uncertainties that we still are facing because the reason we are keeping that, and if you look deeper into how those reserves have been allocated, you really realize that those have been allocated to industries that are impacted by the COVID situation. And what we are waiting for is – to see the development that will occur once the different support measures will be lifted, because many of these businesses are dependent on those measures, and they will also need to repay some of them at least, the tax credits they have accumulated. So that's one reason. And the second reason is also potential impact from the COVID development. Even though vaccinations have been developing in a good manner, that is a certain part of certain uncertainty still remaining. And then about 144. So that to a very, very large extent is related to relief we would have that would have been done related to the impacted industries, and that we have decided not to release. We have decided to keep that, and the reason is exactly the one I mentioned.

Thank you all, and thank you, Ricardo, for that question. Let me just take this opportunity to thank you all. Your difficult question makes us better. And thank you for watching on Swedbank. And I wish everybody a very good summer. And I look forward to meeting you in real life. And let's hope that the economy keeps on flourishing. And I really look forward to seeing you. So take care, everybody, and bye-bye.

This now concludes our conference. Thank you all for attending. You may now disconnect.