Swedbank AB (publ)

Ladies and gentlemen, welcome to the Sweetbank Interim Report Q4 2024 conference call. I'm Sandra, the course call operator. I would like to remind you that all participants have been listened only mode and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcasting. At this time, it's my pleasure to hand over to Enni Ho, Head of IR. You will now be joined into the conference room. Thank you.

Thank you.

Good morning, and thank you for dialing into Swedbank's Q4 and year-end 2024 results presentation. My name is Annie Ho, Head of Investor Relations, and we have our C-suite here in the room with me, Jens Henriksson, our CEO, and for the first time, Jon Lederfeldt, our CFO, and Rolf Marquardt, our CRO. Let's start with our usual presentation and then follow up with Q&A.

Jens, I hand over to you. Thank you, Annie. Swedbank has once again delivered a strong result supported by timing effects. We are creating value for our customers and shareholders in both good and bad times. The global economy remains weak. Falling interest rates are cautiously starting to have a positive effect on the economic development, but regional differences are growing while the geopolitical situation has deteriorated. During the quarter, the Federal Reserve, the ECB and the Riksbank continued to cut their policy rates, and they are expected to be cut further in 2025, but uncertainty about when and how much has increased. Economic activity is strong in Lithuania, while the development in Estonia, Latvia and Sweden is more cautious. Significant public investments in defense as well as infrastructure will support economic growth and give us business opportunities. Strong public finances, rising real wages, innovative companies and lower interest rates imply that our home markets are expected to be among the fastest growing in Europe in 2025. In this environment, Swedbank stands strong. The profit for the full year 2024 increased by 2% compared to the previous year. The result for the fourth quarter amounted to 8.5 billion kronor. Net interest income declined during 2024 and was stable during the quarter due to positive timing effects. During the year, lower customer interest rates on lending had been offset by lower funding costs. Net commission income increased during 2024 and was stable during the quarter. Costs developed according to plan and ended up in line with what we have communicated. We maintain strict cost control and our hiring freeze implies inflation. that we are fewer employees today than we were a year ago. Our cost-to-income ratio was 0.34 for the full year and 0.36 for the quarter. For the full year 2024, we thus delivered return on equity of 17.1% and for the quarter, a return of 15.8%, a strong result. Swedbank has a conservative and thorough lending process. We had credit impairment provision recoveries in the fourth quarter as well as for the full year. Our credit quality is solid, our liquidity and capital position is strong, and we have a strong ability to generate capital. Swedbank's board of directors yesterday decided to change the dividend policy to between 60 and 70% of the profit. We have accumulated capital for a long time and we have no desire to hold more than necessary. This policy gives us the possibility to both develop the bank and increase lending as the business environment changes while securing a continued strong capital position. The board of directors therefore intends to propose a dividend for 2024 of 21 kronor and 70 öre per share, corresponding to 70% of the profit at the annual general meeting. The dividend goes to our owners in savings banks, insurance companies, pension funds, funds, retail investors, and foundations that in turn give back to society. At Swedbank's Investor Day 2022, the road to sustainable return on equity of at least 15% was formulated. It is a plan that we have delivered on. By leveraging our proven business model, we have increased business volume, grown in prioritized segments, and improved our operational efficiency. We look forward to presenting an updated strategic plan for the coming years at the new investor day before the summer. Swedbank is the leader in mortgages in all our home markets, and we maintain that position in tough competition. we have seen increased customer mobility on the Swedish market during the year, which has affected us to a larger extent as we have the largest number of mortgage customers. During the year, our mortgage use through our own channels have increased by about 2.5 billion kronor, which is below our market share. During the third and fourth quarter, our mortgage volumes have declined slightly. This is mainly because we have had too low availability at the time when many wanted to talk to the bank. In Estonia, Latvia and Lithuania, lending increased during 2024 as well as during the fourth quarter. And it is the green mortgage loans that continued to drive the mortgage development. The development in savings remains strong with significant inflows to our Ruber funds in 2024. In Estonia, Latvia and Lithuania, the development in savings has been very good, which continues to be a growth opportunity going forward. We are proud to contribute to a savings cultures in all our home market. In addition, Inflows to the pension insurance business also developed strongly in 2024. Premium and private banking has reached a new milestone. In 2024, 10,000 customers have signed up for our concepts. In Sweden, the demand for corporate loans remains muted. and Swedbank has maintained its market share in a declining bank lending market. Looking forward, the underlying view on the Swedish corporate market is positive. The combination of the local presence and national expertise remains at the center of our corporate business. Corporate lending increased in Estonia, Latvia and Lithuania for the full year and the quarter and the development since the summer has been strong. We are the leading corporate bank in Estonia and Lithuania and our ambition to establish the same position in Latvia remains. But we will be more selective going forward as the new bank tax will make new lending per se unprofitable in the coming years. We invest for a better and stronger Swedbank to sustainably deliver on our customer promise of an easier financial life. In 2024, we have had an accelerated investment pace. And let me give you some examples. Our advisory platform, we have now migrated half of our customers to the platform. our omnichannel communication platform to increase our availability, and an improved end-to-end lending process to increase our speed. In Sweden, we adapt our ways of working to meet customers where they want to meet us. And we see that more and more customers want to meet us digitally and by phone. Therefore, we are reallocating resources to advisory meetings in those channels, all to increase our availability and speed. Sustainability is at the core of Swedbank's business strategy and at the heart of our vision, a financially sound and sustainable society. In 2024, we reached several milestones. Swedbank's Sustainable Asset Register exceeded 120 billion kronor at the end of the year after increasing by more than 70 percent during 2024 and 36 percent of swed banks arranged bonds were sustainable bonds also in our annual report we will report under the eu sustainability directive CSRD one year before it comes into effect in Sweden. Directing financing towards sustainable assets is both profitable and our responsibility. It is our way of contributing to accelerating the necessary transition of society. Looking at financial health, which is an area close to our hearts, we continue to contribute to increasing general knowledge of economic concepts and promoting better financial decision-making in our home markets. In Sweden, we have educated more than 100,000 children and young adults in personal finances in 2024. Now, let me give the floor to Jo Lidefjell, who will deep dive into the financials in its first phase quarterly report as a CFO. Johan, you have been with the bank for nearly two decades in total, and he knows the bank very well, and his leadership is well suited for the next step in the bank's journey.

Johan. Thank you, Jens. I'm pleased to present the financials for yet another strong quarter. Some of you I've met in my previous role as head of Baltic Banking. and I look forward to further discussions with you in our upcoming meetings. But as a starter, I'm very proud of what we have achieved in the Baltics over the past years, where we have managed to combine substantially growing the business and at the same time expanding into new income streams. We have done so with a diligent focus on profitability, cost and capital efficiency. In my new role, The overarching objective for me is, of course, to ensure focus on shareholder value. To deliver on that, I know that we must have a diligent focus on return on equity and thus cost efficiency, capital efficiency, asset quality, and of course, income growth. Further, that we steer the bank with a long-term focus while being agile and adjust as we go. With that as a start, let me move over to lending and deposits. The overall loan portfolio was stable, excluding a positive FX impact during the quarter. In Sweden, the lending environment continues to be muted. However, household confidence is improving and the cautiousness to borrow is slowly subsiding. For mortgages in Sweden, we continue with our pricing strategy and maintain focus on the balance between volumes and long-term profitability. Mortgage volumes decreased with 2 billion, while mortgage margins increased during the quarter. Corporate lending volumes in Sweden decreased with 8 billion during the quarter, mainly related to a couple of individual customers' repayments. Underlying, we however see some positive signs in terms of customer activity stemming from our focus on one corporate business in Sweden. In Baltic banking, lending continues to grow. The interest rate reduction since June have improved household affordability and consumer confidence contributing to an increase in activity. Private lending increased with $2 billion. and corporate with 6 billion, excluding FX. Customer deposits increased by 4 billion, excluding an 8 billion positive FX impact. In Sweden, private deposits decreased by 1 billion and corporate by 16 billion, mainly due to seasonal outflows from money market accounts. In Baltic banking, we received some temporary inflows of public funds and payment of a 13th monthly salary in Lithuania, following the same pattern in December this year as previous years. Private deposits increased by 17 billion and corporate deposits by 4 billion. Year on year, we have increased our market share in private deposits in Baltics and volumes have grown by 13%. If we turn to the P&L, net interest income was stable, with a quarter-over-quarter increase of 45 million, mainly driven by timing effects. Lending income decreased due to lower customer rates, largely offset by lower customer deposit rates, as well as lower funding costs. Let me take the opportunity to deep dive on our NII sensitivity. We provide you with an update of our balance sheet composition and how we come to the full NII impact. That is also disclosed in the fact book. We have around 640 billion of non-remunerated deposits and equity. That implies that a rate reduction of 50 basis points leads to a 3.2 billion lower NII fully phased in. In reality, of course, volume, margin, and FX changes will have an impact, and you have to make your own assumptions of that. However, the journey to the fully phased in impact is hard to estimate, as was discussed during the Q3 call. Let me elaborate a bit on the dynamics here. The trends we saw in Q4 have been similar to what we saw in Q3, and therefore the NII development continues to be impacted by timing effects. These occur as our liabilities reprice faster than our assets. All on-demand savings deposits, where we pay interest, reprice immediately when the pricing changes. Further, as we have seen recently, IBOR rates have declined head-to-head of and even more than central bank rates, which means that our wholesale funding costs have declined earlier and faster than assets that are dependent on central bank rate changes. On the asset side, our Swedish mortgage book on three-month fixings reprises over a three-month period after we have lowered rates, which we have typically done around the central bank rate decisions. Therefore, when rates decline, our total funding costs will reduce earlier than our income. This is why, in a period where rates fall fast, we have experienced a better NII development short-term, and why the NII development quarter over quarter in the current environment is hard to forecast. Over to net commission income, which is stable, mainly driven by stock market performance within asset management and market maker fees of 50 million. Our emphasis on cross-selling pension and investment products have resulted in higher business activity. For example, our new business area, premium and private banking, has seen a positive effect in attracting new inflows from private occupational pensions. Card commissions were seasonally lower, hence following the same pattern as previous years. Net gains and losses were strong, but down in Q4, ending at 923 million. Client trading continues to be solid, and we benefited from revaluations of equity instruments, reminding you that Q3 was impacted by large positive revaluations of funding-related interest rate swaps. Other income decreased by 309 million. Net insurance income decreased by 142, of which 121 million stemmed from less positive revaluation effects quarter over quarter. Underlying net insurance income was stable Profit from partly owned companies decreased by 244 million, of which 120 million was a one-off adjustment in Intercard during Q3. The businesses in other income are meaningful, steady sources of income. One of our key business initiatives lies within net insurance, where the P&C business in Baltic Banking has seen an impressive 50% increase in revenue over the past two years. Total expenses for the year developed according to plan, including FX, ending at 25.4 billion SEK. Looking ahead, we continue to be in an investment mode, and I will ensure continued strong cost discipline and aim to increase our focus on efficiency. We strive for long-term positive jaws in order to achieve profitable growth with shareholder value in focus. With long-term, I mean that we need to see through rate changes and plan based on a longer horizon with stable rates. For 2025, we set a cost guidance of 26.5 billion based on 2024 year-end FX rates. Of that, we have temporary investments of around 1 billion to accelerate certain initiatives, such as the omnichannel advisory platform, payments infrastructure, data transformation, and IRB overall. It is also important to mention Swedbank's strategic partnership with the savings banks. Through our close cooperation, both on business origination, operations and IT development, our joint operational efficiency and customer offerings improve. Costs for services provided are compensated by the savings banks and thus do not negatively impact our net profit. A word on other impairments before I hand over to Rolf to talk about credit impairments. Following the front-loading of IT investments since 2024, which replace older systems, a regular accounting review of intangibles have resulted in a write-down of 757 million. With that, my hand over to you, Rolf.

Thank you, Johan. Credit quality is solid. For the full year of 2024, we made recoveries of 268 million. The economic recovery in most of our home markets has been delayed, and the impact still lingers from this. But we see positive signs on the back of lower interest rates. Past due loans increased somewhat in Sweden, but improved in the Baltics. In the fourth quarter, credit impairments ended at a recovery of 394 million. The impact from macro factors reduced provisions by 212 million, explained by updated interest rate projections. Rating and stage migrations increased provisions by 353 million due to downgrades of a few individual customers. At the same time, 146 million of the postmodel adjustment was released, mainly related to property management in Sweden and agriculture in the Baltics. The remaining postmodel adjustment is now 720 million to cater for geopolitical and related uncertainties. For individual assessments, we recovered 56 million. Net repayments and balances reduced provisions by 333 million. Out of this, 83 million was related to net recoveries on written-off exposures. In the property management sector, we have in 2024 seen a stable development with open wholesale funding markets, strengthened balance sheets, and stabilized interest coverage ratios. Our assessment is that the credit quality is solid. So with that, I leave the word back to you, Jan.

Turning to capital, REA increased by 14 billion net and ended the quarter at 872 billion. The annual recalculation of operational risk added 16 billion. Reminding you that next quarter, we will see the impact of the implementation of Basel IV, which we expect to have a limited negative impact. The effect is primarily stemming from revised coefficients for operational risk REA. With the new dividend policy and the 2024 dividend proposal, our CET1 capital ratio is 19.8%, meaning we have a buffer of around 460 basis points above the requirements. In addition, at the 1525 presentation, where we targeted 200 basis points, i.e. the mid of the management buffer, we talked about 300 basis points in excess capital. This has gradually grown. Given the new dividend policy and the proposed dividend for 2024, we now expect around 250 basis points in excess capital once we are through the work with IRB. Hence, our capital position continues to be strong. With that, I hand it back to you, Jens.

Let me now sum up the full year. We delivered a strong result for 2024. The profit increased by 2% compared to the previous year. Return on equity was 17.1%. Our cost to income ratio was 0.34. The credit quality is solid. With the change dividend policy, the board of directors intend to propose a dividend of 21 kronor and 70 öre per share at the annual general meeting. Our capital buffer is strong at 4.6 percentage points. We have delivered on our plan Swedbank 1525. And we look forward to presenting an updated strategic plan for the coming years at the new investor day before December. We create value for our customers and our shareholders in both good and bad times. Our customers' future is our focus.

Thank you very much. Let's begin the Q&A session. And to remind you to keep to two questions per turn.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questions on the phone are requested to disable the loudspeaker mode while asking a question. Anyone with a question may press star and 1 at this time. Our first question comes from Magnus Andersson from ABG. Please go ahead.

Yes, hi. Can you hear me?

Yes, we can.

Okay, good. Excellent. Just on NII, as your NII sensitivity analysis you have in your fact book hasn't changed for years, for a long time. I guess what you're saying is that we should continue to expect these positive timing effects for as long as short-term rates decline in average terms quarter on quarter and that it will reverse or normalize once rates flatten out, which according to the current expectations could be during the second half of 2025. which means that it's from that point we should come down to whatever we thought was the underlying level excluding these timing effects, whether that's correctly understood or not. And my question number two, Jon, since with your background in the Baltics, if you could comment on the windfall tax in Latvia from 2025 and 26, and whether you think that these windfall taxes we will have now in Latvia and Lithuania will be temporary or whether they will be replaced by something else, so that we should really expect bank taxes in the Baltics to be recurring. Those are my questions.

Well, thank you. I'll steal the word from you in here because he's the CFO right now. So I'll talk about the bondage. When it comes to bank taxes, let me first, as always, remind you that banks are an important part of our society. And what we do is that we channel our customers' hard-earned deposits to lending, thus empowering people and businesses to create a sustainable future. And to do that, we need to be profitable. And a sustainable bank is a profitable bank. And we are proud taxpayers that contribute to the financing of welfare and security in our home markets. What we do not like are sector-specific taxes, retroactive measures, and an unpredictable regulatory environment. What we do like is equal treatment, rule-based systems, and an investment climate that fosters growth, financial stability, and green transformation. And let me not just talk about Latvia, let me do a quick tour across our four home markets. In Estonia, corporate tax increased with 2% this year, according to plan. In Lithuania, the investor tax on NII will last the year out, and then the government has declared that it will disappear. The general corporate income tax increased by one percentage point from the 1st of January, while reminding you that since 2020, there is already a 5% extra tax on banks. In Latvia, we will now for three years have an investor tax with a similar definition of that to Lithuania, namely it 60% on NII exceeding 150% on our average NII between 2018 and 2022. But the main difference is that, unlike Lithuania, income from new lending will not be excluded. That will hurt the Latvian economy in the short, medium and long term. Our ambition to become the leading corporate bank in Latvia remains, but the tax will have impact on our business strategy. In Sweden, we have a bank tax that the government is reviewing with the aim to introduce a base deduction while delivering the same tax revenues, thus leading to an increased tax for the larger Swedish banks. Now you, NII.

Thank you, Jens. And if I just may add two things on the tax. Reminding you, Magnus, that the bare construction in Lithuania makes this tax at least temporary. At the same time, we also have an extra 5% corporate income tax for banks that is permanent. The Latvian has a different construction, as Jens said. But I'll leave it with that. On the NII, I mean, yes, is the short answer. I mean, I did this deep dive to give you the components and explain why we have these timing effects. At the same time, it will be very, very hard to do a correct forecast quarter over quarter due to all the moving parts and when rates are changing as they are now. So that's why I also reiterated the long-term sensitivity and and sort of the components that in the end will impact that, volumes, margins, FX and so on. And there you will have to make your own assumptions.

Yes, but nothing of this is really recovering, assuming that the asset side will also reprice, although it reprices a bit later. So when rates flatten out, we should be at the correct underlying level, regardless of these effects short term.

Yes, the long-term sensitivity is exactly what I have explained. Okay, thank you.

The next question comes from Martin Ekstedt from Handelsbanken. Please go ahead.

Thank you for taking my question, and welcome to the team. My first one, could you talk a bit about the derivatives effects that you see in the I.I. accounts, both on the interest income and interest expense sides? they contributed a material positive portion in the quarter. And then secondly, if I may, the fall in card commission income in Swedish banking. Could you just speak a little bit more about the underlying factors there that you saw in the quarter? Thank you.

Thank you, Martin. If I start with the derivatives, I think first of all, when you look here, you have Our trading-related NII is in this, and you can see also how much of the trading-related NII that is then moved out. So you need to keep that in mind when you look at this. The trading-related NII is moved to NGL in the end. But you also, on the expense side, you can see how our lowering funding cost is coming through. And here you need to look at the derivative line in combination with with the debt security in issue. And so you will see our lowering funding costs coming through, but you will also have to take into account the trading related to the NII here, which is in the end not included in the NII line. On cards, I mean, we have a move between different within the net commission income since we have concepts where we price. So things are moving from one part of the NCI to another part, moving out from cards to concepts partly. So that is the traffic you need to keep in mind there. Okay. Thank you for that.

The next question comes from Gulnara Saikulova from Morgan Stanley. Please go ahead. Hi.

Good morning, and thanks for taking my questions. When it comes to the volumes, to what extent do you think the potential recovery of those maybe throughout the 2025 can support the NAI dynamics? Can you talk about the outlook for the loan growth momentum for both mortgages and corporate customers in Sweden and the Baltics? And what are the key observations when it comes to the customer behavior on the mortgages? And maybe can you also touch on the competition? How does it evolve throughout the Q4? Do you see some easing of the competitive behavior lately, or do you think it still remains intense? And may I also ask the second question on the capital? Your capital buffer looks very solid. You're 460 basis points above the regulatory requirement, and you have increased the dividend payout, but still you are well above the management target buffer of 200 basis points. Assuming that after the AML investigation is closed, what would be your priorities when it comes to this excess capital? Would you consider potential buybacks, special dividends, M&A, or would you focus mostly on the organic growth? Thank you.

Thank you. Let me see what I can answer. Then you, Nune, have to see what's left behind there. The first thing, if you look on the loan demand, it is, as we said, muted in Sweden when it comes to the corporate side. We see that the mortgages have increased during 2024 compared to 2023, while still at a low level. And in the three Baltic countries, we still see continued good demand. But let me say a few words, deep dive into the mortgage market. And as you know, We are the market leader in all our four home markets when it comes to mortgages. In the Baltics, our mortgage volumes increased with 6 billion during 2024, and we have a market share of around 40%. In Sweden, mortgages sold for our own channels increased with around 2.5 billion kronor during the year. translating to a meager front book market share of around 5% compared to our back book of 18%. The year started well, but the last two quarters, our Swedish mortgage book has been slightly, slightly negative. The competition is tough, and we strive to strike the right balance between margins and volumes. And the market has been characterized by tough competition. increased customer churn due to high activity in our large customer base, and thus many customer interactions, which has caused, as I said in my introduction, availability issues and long waiting times. Our investments in the cloud-based Omni communication platform means that we can start serving customer calls, both from service centers and local branch offices. And thereby, we can start using the national potential of our professional local employee mortgage and client advisor. This is a transformation that will take some time, but lead to results without increasing FTE levels. Now, let me say a few words on capital, and let's take the overall perspective here as well. And we're very proud that the board yesterday decided on a new policy. dividend policy. And that policy is that 60 to 70% of our profit should be returned to our shareholders through ordinary dividends. And as you rightfully said, since 2019, we had a dividend policy of 50%. And we have continuously built capital. And that cannot continue forever. And we have no intention of to hold more capital than necessary. From now on, we have a sustainable dividend policy of 60 to 70%. That will give us the possibility to develop the bank for our customers and increase lending in line with the changing business environment while making sure that we have strong capital buffers. And you know that for 2024, the board will propose a dividend of 21 kronor and 70 öre, which amounts to 70% of our profit. After this, as Jun pointed out, our capital buffer is 460 basis points. We still have the management buffer range between 100 and 300 basis points. And in 1525, we targeted the mid of it, i.e. 200 basis points in 2025. That stands. So when can you then expect capital release so that we can reach our target? Well, there are always uncertainties related to what the regulators might do. But the biggest uncertainty is, of course, the U.S. investigations. And as I've said many times, We have no information, and when they will be concluded, the U.S. authorities fully own the timeline, and we cannot assess whether we will get any fine. And if we do get any fine, we cannot make an assessment of the size of such a potential fine. Sorry for being so long.

Thank you. The next question comes from Tariq El-Mehrad from Bank of America. Please go ahead.

Hi, good morning, everyone. Just a couple of questions from my side. First, I'll start on costs. Just to be clear, what do you factor in your guidance? Do you include the 1 billion extra investments you had for 2025? And also, I guess you're factoring the higher regulatory costs or windfall taxes in Baltics. And then another question, I mean, on the CMDI, you answered the part to Gunnar, I guess, but um i mean i understand that you reach a certain level of capital that's very comfortable and and you don't want to go above that that's very sensible um so how then you're comfortable come with the plan in you know and your plans tend to be quite a long long time frame without knowing exactly what the size of the fine could be are you do you have any idea or evidence that it will be within you know the buffer you set Just my experience of lots of banks having been through these litigation settlements is that it's hard to set longer term targets for growth and so on if you don't know exactly what capital you have in hand. And just, sorry to come back on the NII, I just want to make sure I understand this derivatives point as well. So basically on NII, you have the benefit from the derivatives, which is basically you're swapping your fixed rate liabilities into floating liabilities. which is actually what we refer as a time difference because these reprise faster and quicker than the loans. But then you have parts of it offset through trading, which would be a negative effect. We have the same actually effect in other banks in Europe, and I think it would be useful to show actually what's the kind of aesthetic elements outside NII. And then I guess this is where you say when rates will stabilise, that effect will basically diminish. Thank you very much.

Let me start by the U.S. authorities. And to zoom out, as you know, we are in discussion with three U.S. authorities, the Department of Justice, the Securities and Exchange Commission, and the Department of Financial Services in New York. And as I've said many times, when I was new SEO, I called around and met with colleagues that have been in similar circumstances, and they told me that a process like this usually takes three to five years. In spring, six years have passed, but the timeline is fully owned by the U.S. authorities, and we do not know how it looks like. And I do not know whether we will get any fines, and if we do get fines, we cannot estimate the size of those fines. And we have been as transparent as possible during this process. And when something material happens, we will continue to adhere to that principle. Jon?

Thank you. Let me start with NII. I'm reiterating that what you see there in the fact book is... trading-related NIA, and that is then moved out to NGL. That is not mainly related to the funding. And you see how much trading-related that is moved out, but it's partly in the derivative that you have there. As you know, then our wholesale funding cost, it is, as you said, then swapped to three months or floating, whatever you want to call it. and to see how the lower funding cost is filtering through, then, as I said, you should look at the development on the derivative side in combination with the debt security in issue. Having said that, I will not try to go into sort of what is the exact timing effect. It will be highly theoretical if I would filter that out, and I would have to make a lot of assumptions. So, I'll just reiterate that you need to keep the focus on the long term again and then accept that it will be hard to forecast quarter over quarter. On the cost side, first of all, yes, we have one billion extra investment included for 2025, just as we had for 2024. Then, as I know that my predecessor has talked a lot about, we have the headwind in terms of salaries, in terms of maintenance variety, in terms of general inflation impacting a lot of our costs. Over time, we need to mitigate that through increasing our efficiency. Otherwise, our costs will grow too fast. And for that, we have a structured process where We work with identifying efficiency potentials and also more structural cost topics that we can use. We have a process for identifying them, prioritizing them, and then continuously working with them. And it often takes some time, one to a couple of years, from we identify to we actually see the benefit of it. So that's why it's so important that we have this as a continuously ongoing process to make sure that we improve our efficiency year over year.

Thank you very much.

The next question comes from Bettina Turner from BNP Paribas. Please go ahead.

Hi, everyone, and thanks for taking my question. I have two questions, of which one is just a clarification. Maybe to start with this one, on your capital targets that you pointed out, I think John has made a comment on when you're through with the IRB model, the excess should come in at 250 bits. Do I understand this correctly that you expect this to be the excess over the MBA? Or if you could just clarify what you meant by that. And then the second question would be on your front book market share. You said that part of the reason was obviously that you were considering a balance between profitability and volumes, but also the availability issue that you're trying to fix with the cloud center. Would you say this is completely fixed now, or is this still in the process, or are you basically ready to go to pick up volumes from here on? Thank you.

Well, first, when it comes to availability, you cannot say it's fully fixed. We work with that quite a lot, and we are looking at the pilot projects, whether we can see sort of the health of our professionally locally employed people, how they can help answering the phone. We're working with it, but there's been a lot of customer activity, and this is a strong focus for the bank. Jon?

Yes. You're right. I said that once we are through the IRB, I expect our excess capital, with excess I mean then above the mid of the management buffer, so above the 200 basis points. I expect that to be around 250 basis points. I also said that now in Q1 you will see the effect of Basel IV, which we deem to be limited negative for us IRB most of the effects are already included in our current capital forecast as we think but then it might be a little bit on timing effects when different approvals come but when we are through it should be more or less new comparable to what we have today So, yes, 250 above the 200 one we are through is our best estimate today.

Perfect. Thank you very much.

The next question comes from Andreas Hakansson from SEB. Please go ahead.

Hi. Good morning, everyone. Sorry, just taking it back to the net interest income again. Could we just try to understand a little bit of the timing? And if we assume that the Swedish Central Bank is cuts one more time now in January, which I guess is fully expected, and then partly expected one more cut in March, and then the Swedish central bank is done cutting. How quickly do you think that the headwinds you have seen on the liabilities are primarily easing?

Thank you for the question. I think the reason, once again, to give you this detail was to give the components. In the end, it will depend on how fast IBO rates fall ahead of central bank rates and so on. So it will be very hard. So I'll just reiterate that you need to keep focus on our overall sensitivity. That is the one that you can make a correct assumption on in the end. So focus on that.

It's fine. I'm just thinking that If the market is now pricing that the central bank stops at 2% in March, then the IBRA rate should be in anticipation of that going to 2% before that, and then both rates stay at 2%. So does that mean or doesn't it mean that the headwind you've seen on the liability side should end quite quickly after that, or is it something else that drags on?

As I also said, our asset side mortgages are three months to a large extent, so And we tend to lower the rates around when central banks are changing. On the Baltics, it's six months, you're ripe. So that is sort of it. So I think you have it in the deep dive to make your own assumptions.

Fair. And then also on the net interest income, I mean, if I look at your issuance of senior secure bonds and also senior non-preferred over the last year, you increased it quite sharply at the same time as you haven't really done any volumes on the lending side. So your NSFR is now 127%, which I would argue is significantly too high. Does that mean that you actually pre-funded a lot also looking into 2025?

I mean, if you look back around the last to previous year end, then we had to catch up with MREL requirements. A lot of the issues there were related to that. Now we have the buffer levers that we want. So Going forward, we plan to issue around the same as we've done last year, around 145 billion. And we will, as you know, use covered as the instrument to handle loan and deposit development throughout the year.

I'm just thinking the cover is fine, but if I look at the two more expensive bonds... Is it then a reason why you should continue to grow it from the already quite high level or should we have it to stay there while the volumes are catching up with your funding?

As I said, we're fine where we are with terms of MRL. So it's more a matter of filling when instruments fall off, so to say, going forward. Thank you. That's it from me.

The next question comes from Sophie Petersen from JP Morgan. Please go ahead.

Yeah, hi. Here is Sophie from JP Morgan. Thanks for taking my question. And apologies for going back to net interest income. So could you just confirm that you don't have any derivatives on the asset side, i.e. that you would have been swapping some of your floating rates loans in the fixed rate to kind of manage your asset liability mismatch. So if you could just confirm this. And then my second question is also on net interest income. I know it's a timing issue, but how should we think about net interest income in the next couple of quarters? Is it fair to assume that Hypothetically, first quarter net interest income should be down compared to the fourth quarter. And then subsequently, second quarter, NII should be down quarter on quarter. And then my final question would be on trading income. Your trading income was 25% higher in 2024 compared to 23. With kind of higher interest rates, more volatility, is it fair to assume? some of your peers that trading or net gains and losses could be structurally higher going forward? Thank you.

Sorry. Thank you, Sophie. On the first question, the answer is no. We do not have or we have so small structural hedges that you should discard from it. We have talked about the reason before that it will require too much capital for us at this point. So No is sort of the short answer to that. When it comes to the NII development for the coming quarters, I don't and I can't go into to guide on that. It has so much to do with the different rate development short term. So once again, please focus on the long term. The sensitivity stand for that. When it comes to the trading income, I mean, it is volatile in the sense. So But of course, it is a business area that we want to do business in, but it is volatile by its nature.

Okay. And maybe if I can just kind of squeeze in a final question. We've seen quite a lot of M&A across Europe, both in Southern Europe, but also kind of D&B buying Carnegie. Do you have any comments on Carnegie? Were you looking at it? How do you think about kind of M&A opportunities for Swedbank considering that your capital position is so strong?

Well, first, let me just say that it is a strong competition. Of course, we follow what's happening out there. I always look at M&A opportunities. And if something will happen, I will get back to you on that. But there are no big things there. Thank you.

Okay, thank you. We have now time to take one last question from Markus Sandgren from Kepler-Chevreux. Please go ahead.

Hello. I was just thinking on NI again. How much volumes do you have in e-savings accounts and like that are administered to the set and what's the average rates on them? So that's the first one. And then secondly on costs. So it seems like the guidance is 4.5% higher than 2024. And is that, or I mean, you reduced staff a bit now in Q4. Is that including in staff reductions next year as well, or is it flat or up?

Thanks. Thank you, Marcus. If I start with the cost, you'll have to wait a bit for us to come back on the 2026 year cost guidance. So for this year, I've set the number, and it includes $1 billion temporary, and also that we then are mitigating parts of the underlying headwind to make sure that we are efficient on cost over time. Then on the NII and the deposit rates, I don't have them at the top of my head, but if you look at the EasySaver and so on in the Baltics, we have not in the quarter result that you see lowered them to the same extent that Euribor has gone down. So on the Baltic side, we've actually had a lower beta than one throughout the Q3. Whereas in Sweden, it's been more around one. But I don't have the exact figures on top of my head.

No, that's fine. But is there still room to go lower on them, I guess? So we can expect these timing effects in a couple of quarters more.

I mean, over time, yes, there are rooms. But then it's a business decision, short term, what is the optimal to when to lower different rates. And in the Baltics, they have kept them up a bit.

Yeah, very good. Okay, thanks.

Well, I think that sums it up. And thank you for always asking the tough problems, the tough questions. Let me also take this opportunity to thank Annie Ho for her service as Swedbank's head of investor relations. for more than four years. Annie has decided to pursue opportunities outside the bank, and I wish her the best of luck. Thank you. I now look forward to meeting many of you and continue our dialogue on Swedbank. Enjoy the rest of the winter. Take care.

Ladies and gentlemen, the conference is now over. Thank you for choosing Coral School, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.