Swedbank AB (publ)

Good morning and thank you for dialing into Swedbank's first quarter result presentation. My name is Magnus Alvesson, Acting Head of Investor Relations, and I have with me here our CEO Jens Henriksson and our CFO Jon Lidefelt. Jens and Jon, we'll start with the presentation and then there will be an opportunity for questions. Jens, I hand over to you.

Thank you, Magnus. Swedbank has once again delivered a strong result. in uncertain times. We are creating value for our customers and shareholders in both good and bad times. When I presented our results three months ago, I said that the global economy was weak, but that falling interest rates were cautiously beginning to have a positive impact on economic development. Since then, uncertainty has increased. During the quarter, the European Central Bank and the Riksbank cut their policy rates, while the Federal Reserve held its rate unchanged. Economic activity was strong in Lithuania, while the development in Estonia, Latvia and Sweden was more cautious. After the end of the quarter, uncertainty has reached new heights. Twice a year, the world's decision makers meet at the IMF, and the foundation for the meeting is the IMF's World Economic Outlook, which a week ago stated that, and I quote, global growth is expected to decline and downside risk to intensify as major policy shifts unfold, end of quote. The situation is so uncertain that the IMF presents three different forecasts for the global economy. But in all cases, they foresee lower global growth for both 2025 and 2026. But even in this new situation, our four home markets stand out. Strong public finances, low government debt, real wage growth, innovative companies, profitable banks and lower rates means that our home markets remain well prepared for the future. Despite downward revisions in growth for Sweden and the Baltics, it is expected that growth will be higher in both 2025 and 2026 than in the Eurozone and the US. In these uncertain times, Swedbank stands strong. Today I am proud to report the return on equity of 15.2% and earnings per share of 7 kronor and 26 öre for the first quarter. Net interest income continues to be robust, and the decrease we see is explained by lower market rates, fewer days in the quarter, and currency effects. Net commission income is down due to falling stock prices, seasonal lower activity in the card business, and here as well, day and currency effects. Costs decreased on a seasonal basis during the quarter. And our cost to income was 0.35. Strict cost control is producing results. Swedbank has a conservative and thorough lending process. And our credit quality is thus solid. And during the first quarter, we had credit impairment reversals of 140 million kronor. We have a strong capital position with a buffer of 4.5 percentage points. And our liquidity position is strong. And the fact that Moody's raised Swedbank's credit rating after the quarter ended is one testament to the bank's strength. Swedbank is the leader in mortgages in all our home markets, and we maintain our position in tough competition. During the quarter, we cut our mortgage rates, lending increased in Estonia, Latvia, and Lithuania, while it decreased somewhat in Sweden. Deposit volumes were unchanged in the Baltics. In Sweden, deposit volumes increased slightly. After a positive start to the year, global stock markets have fallen. And during the quarter, we saw outflows and reallocations within savings. In times of uncertainty, staying close to our customers, providing advice, and emphasizing the importance of long-term savings is central for us, being a bank rooted in savings banks' traditions. Despite market volatility, the premium and private banking business area has generated good customer inflows, and a large portion comes from the corporate segment. Corporate lending decreased slightly on the Baltic markets. However, we see that the demand for sustainable loans remains stable, and energy efficiency improvements are high on the agenda. In Sweden, corporate lending increased and our focus on the corporate business and partner strategy is producing results. Together with Sparabanken En, we are establishing a new Nordic investment bank, SB1 Markets. This partnership will enable us to better meet the needs of our corporate customers through increased industry expertise as well as expanded equity research and equity trading. We invest for a better and stronger Swedbank to sustainably deliver on our customer promise of an easier financial life. Thanks to our investments in technology and processes within Swedish banking, we have improved availability for our customers. In March, we adjusted the opening hours for dropping customer visits at our local branch offices so that our employees can spend more time meeting with the customers in scheduled appointments and by phone. The efforts are producing results, with an increase in scheduled advisory meetings and significantly reduced waiting times for customer service by phone. At the end of the quarter, more than 50% of incoming calls were answered within three minutes, compared to the meager 20% at the beginning of the quarter. And our goal is to reach 80%. Facilitating the transition to a sustainable society is a significant business opportunity for Swedbank. being named the most sustainable brand among Swedish banks, encourage us to continue driving change by helping our customers transition. And it's a strong testament to our sustainability efforts. We are now taking further steps to integrate sustainability more deeply into the bank's business processes by moving group sustainability to the CFO office. In our annual report for 2024, we reported in accordance with CSRD one year before it comes into effect. The bank's sustainable asset register continued to grow and amounted to 136 billion kroner at the end of the quarter. And we have successfully issued two green bonds. a third of our range bonds were classified as sustainable during the quarter. When it comes to financial health, that's a topic very close to our hearts, we continue to help raise general awareness of financial concepts and promote better financial decision-making in our home markets. In the Baltic countries, we have launched MyBudget for children and young adults. And in Estonia, we invested 10 million euros in the educational foundation that we established at the end of 2024. Strengthening financial health is especially important in these uncertain times. And with that, I give the floor to Jun, who will deep dive into the financials.

Thank you, Jens. Before I go through the numbers for yet another strong quarter, let me just reiterate our commitment to ensuring long-term shareholder value and hence have a diligent focus on long-term income growth, cost and capital efficiency, as well as on asset quality. Let me then start with lending and deposits. The overall loan portfolio increased by 9 billion, excluding a negative FX effect. Corporate lending volumes in the Swedish business areas increased by 10 billion, excluding FX. Also this quarter, we saw a positive development in terms of customer activity as a result of our increased focus on corporate business in Sweden. In the Swedish mortgage market, we continued with our pricing strategy and maintained focus on the balance between volumes and long-term profitability. Mortgage volumes decreased by 2 billion during the quarter. In Baltic banking, lending continued to grow. Private lending increased, supported by improved housing affordability, while there was a small decrease in corporate lending. Customer deposits increased in the quarter by 6 billion, excluding FX. In the Swedish business area, the increase was primarily due to corporate deposits growing by 6 billion. In Baltic banking, deposit volumes were stable following a fourth quarter inflow from public funds and a payment of a 13th month's salary in Lithuania. Turning to P&L, NII declined in the quarter by 785 million, driven by lower market rates, fewer days in the quarter, and FX effects. As expected in contrast to previous quarter, timing effects contributed negatively this quarter. Lending income decreased due to lower customer rates, stemming both from central bank rate cuts in the quarter and from roll-in effects. Lower deposit rates and funding costs, as well as higher business volumes, mitigated the decline. Mortgage margins in Sweden have remained stable when excluding negative timing effects in the quarter. Deposit margins decreased in the quarter due to transaction accounts already being at zero interest rates. Our NII sensitivity is unchanged, however, reminding you that the NII peak should not be used as the starting point since all contracts were not repriced at that time. Hence, the theoretical starting point is higher. Let me also remind you that the full repricing of the loan book takes at least three months in Sweden and six months in the Baltics. Over to net commission income, which decreased in the quarter, mainly driven by seasonally lower card commissions. Asset management commissions were affected by fewer days in the quarter and by FX, as well as market developments. Furthermore, we saw a decline in payment processing due to higher commission costs. However, during the quarter, the strong performance related to insurance and corporate finance continued and earnings from savings service concepts increased. Net gains and losses decreased in the quarter following a strong fourth quarter outcome. The decrease was mainly due to negative valuation effects in Treasury, mitigated by positive valuation effects due to equity investments. Business-related NGL was however slightly higher in the quarter, driven by fixed income sales and trading. Other income increased by 95 million, net insurance Income increased despite the negative revaluation effect. Both higher premium income and lower claims had a positive impact during the quarter. Income from partly owned companies was also higher. Total expenses were seasonally lower and decreased by 625 million in the quarter, amounting to 6.1 billion. The decrease includes VAT repayment, which lowered costs by 205 million. This was a result of a decision by the Swedish Tax Authority and is related to the tax year 2017. We will, as a consequence of this, also review possible VAT repayments for other years. A one-off donation to the Estonian Education Foundation added 113 million to the expenses. Despite annual salary increases, staff costs were stable in the quarter as the number of employees continued to decline. Looking ahead, I will continue to ensure a strong cost discipline and a focus on efficiency. Moving to bank taxes, which increased in the quarter, driven by changes in the Latvian bank tax. Credit quality remained solid. During the quarter, we made credit impairment reversals of 141 million. The reversals were mainly explained by exposure reductions due to customary payments, while individually assessed loans increased provision somewhat. The post-model adjustment was stable and amounted to 715 million. I feel comfortable with our strict credit origination standards and the solid collaterals that secure our lending as we go into times with increased uncertainty. Turning to capital and liquidity. REA increased by 5 billion and ended the quarter at 877 billion. The implementation of CRR3 increased REA by 20 billion, while credit growth added 3 billion and FX subtracted 9 billion. The remaining reduction in REA by 10 billion was primarily driven by improvements in asset quality and shortening of loan maturities in corporate loans. Our CET1 capital ratio was 19.7%, meaning we have a buffer of around 450 basis points above the requirement. The implementation of CRR3 reduced the buffer by 46 basis points, while profits added around 30. Our liquidity position remains strong. Back to you, Jens.

We live in uncertain times marked by geopolitical tensions and economic conflicts. In this context, Swedbank stands strong. Return on equity was 15.2%. Cost to income was 0.35%. Our credit quality is solid. And as Ewan just shown, our capital buffer is strong at 4.5 percentage points. On June 4th, we will host an investor day where we look forward to presenting an updated strategic plan for the coming years. We create value for our customers and our shareholders in both good and bad times. Our customers' future is our focus. And with that, back to you, Magnus.

Thank you very much. Let's begin with... Thank you very much. Let's begin with the Q&A session, and please remember to keep to two questions per turn.

We will now start the question and answer session. You may press star and one on your telephone. The first question from the phone comes from Hankinson Andreas with SEP. Please go ahead.

Thank you, and good morning, everyone. So, two questions then. First one on costs. I'm happy to say that your FTEs are declining quite rapidly now. But then when I look at the different divisions, it seems like the largest decline is in Swedish banking, which for me feels like a front office or client-facing division, while in the much larger group functions division, the FTE decline is quite much smaller, especially in a percentage way. So could you just elaborate a little bit if we have more potential in the future to reduce FTEs in the group functions section? Let's start with that question.

Well, thank you for that question. Of course, that is an area where we continuously work with, but it's difficult with all the new regulations, and we spend quite a lot of money and resources on that. When you go into Swedish banking, the key point there is that we've changed the way we work, and that has meant that we can be better with, as I talked to as I said in my introduction, with being quicker on the phone and having more advisory meetings.

Okay, hopefully we'll come back to that in June for them. Then on the net interest income, just a small detail on it, before analysts start to focus too much on it. In your NII page, page 11 in your fact book, you have this derivative line that's just over 1.2 billion in the quarter. Could you just confirm that that's related to your swaps with your funding versus your lending, so that's nothing funny, that's just the way of doing the normal business?

Thank you, Andreas. When you look at that, from the funding perspective, you should mainly look at the expense side. On the income side, you have mainly items related to CNI. From the funding perspective, it's only the liquidity reserve that is there. But on the expense side, you have the costs for the wholesale funding items that you can find there. and you also have for derivatives, and then you see how much of that that is moved out to NGL, that is a note below. But there you can see how the lower funding costs is coming through during the quarters, that's correct.

But the derivatives, that's mainly swaps, right?

The derivatives are mainly swaps, but they also have derivatives related to the CNI business, also on the expense side. So that's why you have the total derivatives that is moved out. So you need to look at the derivative lines in combination with debt securities at issue and the other wholesale funding lines in there.

Okay. Then on the NII, could you just tell us a little bit on the timing effects? You said they were negative. Could you give us some size? And if we now have a stabilization of rates, both STIBOR and central bank rates, should timing effects be flat from here? Is that how we should think about it?

It will get very theoretical if I should try to get the timing effects quantified. But I gave you the deep dive last quarter to explain the dynamics and also show the size of different components in here. Then you have, as I said, it takes roughly three months from the last central bank rate cut in Sweden before we have repriced the loan book. And in the Baltics, it takes six months. So that should give you an indication of the timing effects. And then also reminding you that you need to take into account that when you look at the peak that we had in Q4 2023, then the rate peak was very short during the quarter. So the full book was not repriced there. You also need to take that into account.

Okay, thank you.

The next question from the phone comes from Sait Kulova, Gulnara with Morgan Stanley. Please go.

Hi, good morning and thank you for taking my questions. So my first question on the client activity and the sentiment. Are you seeing any noticeable change in the client behavior at the start of the Q2, either in terms of the risk appetite, liquidity preferences or demand for lending? And what hint can this give us about the early sign signals about the confidence heading into the second half of the year? And how do you think the recent developments on tariffs affect your Swedish and Baltic banking business outlook? And the second question follows up on the NAI. One of your peers mentioned earlier today that Q2 and Q3 could be reasonable assumptions for their NAI bottoming out. Would you consider this is also similar for you, or do you think FedBank can see NAI trough later? Thank you.

Well, thank you for a good question. As I pointed out in my introduction, the uncertainty has increased after the quarter closed. So the question is, looking forward, how will this affect us? Well, let me divide it into three parts. The first is the direct effect on companies exposed to increased tariffs. and we've gone through the large and medium-sized export companies in our loan portfolio and so far we can only see limited effects the second effect is the macroeconomic effect from lower growth due to increased uncertainty and the latest forecast for sweden by our economist is 1.5 percent this year and 2.7 percent next year And that means we would still have higher growth in our home market, Sweden and the three Baltic countries, than in both the Eurozone and the US. Because all our four home markets have strong public finances, low government debt, real wage growth, innovative companies and profitable banks. The third effect comes from interest rates. When the quarter ended, we expected, or actually our economists expected, the Swedish Riksbank to keep interest rates unchanged during this and next year. And right now, I would say that one or two Two more 25 basis point cuts are priced in in the market. And as you know from our fact book and you just talked about, our interest rate sensitivity is around 3 billion kronor from a change of 50 basis points along the whole curve. In April, we've seen somewhat lower loan demand due to increased uncertainty. We have also seen some outflows from US and global equity funds into deposits, fixed income funds, and European equity funds. And reminding you, in these uncertain times, Swedbank stands strong. We are profitable, well capitalized, and have a clear strategy. We have an appetite for healthy loan growth while sticking to our conservative lending standards and focusing on profitability. Do you want to follow up, Jon?

I think I will not, as you probably know, guide on NII. But I gave you sort of the time that it takes to roll it through, roughly three months for the Swedish and six months for the Baltics. When we will bottom up will hence depend on future rate development. And you have to make your own assumptions of those, as you'll have to do on volume growth and margin development. But I've given you all the mechanics to do that based on your own assumptions.

Thank you very much.

The next question comes from Ricardo Rovere with Mediobanca. Please go ahead.

Thanks. Thanks for taking my question and good morning, everybody. Just one or maybe two questions, if I may. The first one is on credit losses, reversals of credit losses this quarter. Now, maybe given the macro uncertainty, maybe This should not be, let's say, the run rate going forward. In general terms, since macro uncertainty increased over the past few weeks, do you see any reason why asset quality should deteriorate in the coming quarters? And if tariffs... were to be enforced and stay for a reasonable period of time, how much time would you reckon would be needed to see an impact on your asset quality? It's going to be six months, maybe 12 months, or maybe more than that. And the second question I have, I know you probably know nothing about that, but with regards to the use of capital, because your buffer remains in the 450 basis point reason, at the end of 2025, should we expect... you taking a decision similar to what you have done in 2024, because you cannot eventually wait forever, whatever comes out from the US. Thanks.

Well, thank you. I think, let's see if I start, and then you and you see if I miss something. It's all about being close to your customers. It's about understanding them. And what I said in my answer on the former question was that, first, we've looked into our large and medium-sized export companies, and we can only see limited effects. from the tariffs and the uncertainty. And then, of course, it's the macroeconomic development. And you know that we have strong credit origination standards, and this is something that's important for us. And then you're tested in times like this. I have nothing to add there. Let's see if you want to end up. Then on capital. Well, the first thing to keep in mind is that with the new dividend policy of 60 to 70 percent, it means that the upper bound, namely the 70 percent of the profits, will be withheld for dividend purposes. And during the quarter, Jun just showed you that lending increased with 9 billion before FX effects. And if you add up Loan growth, profits, we've held dividends and CRR3. Our capital buffer ends, just as you said, with 10 basis points below Q4, giving us that buffer of 450 basis points. we still have a capital 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 then the question you're asking is, when can you expect capital release so that we reach this target? And of course, there are always uncertainties related to what the regulators might do. But the biggest uncertainty is, of course, the US investigations. And we have no information on when they will be concluded. And we have no information on whether we will get any fine. And if we do get the fine, we have no information about the size of such a potential fine. Do you want to add anything?

Hi, Ricardo. I think, as Jens said, in times like this, when uncertainty comes, then of course we put extra measures in place to safeguard and be on our toes, both for credit and for liquidity and for other things. Having said that, as also Jens said, both our liquidity position is very strong and we have a conservative view there. Our credit quality is very solid and we have had for a long time prudent and conservative origination standards. And then you asked about the credit reversals. If you look in there, and if you look at the slide that I went through, then you need to look at the individual assessment and the other points where we had repayments and write-offs. You need to look at them in combination. The move is among our existing customers that have been in Stage 3 for a while. In some cases, there have been increased provisions, but at the same time, we've also had repayments and shortening of maturity for some of them. So all in all, if you look at that, our risk level on the individually assessed in Stage 3 has actually come down somewhat. That is the reason for the credit reversals. then I don't want to speculate about what the future will have, but keep in mind that we have a prudent liquidity capital and credit standing when we go into the uncertain time. So we feel comfortable from that perspective.

Okay, thanks. Very clear. Thank you very much.

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

Yeah, hi, good morning, and thanks for taking my question. If I can start off with a bit of a bigger picture question for the Baltics. If I remember correctly, on the investor seminar last year, you mentioned that one of the macro trends that is helping the Baltics grow at the moment is that you have a lot of manufacturing in those countries now. To look at this in the light of these trade tensions and the conversations that you're having with clients there, How much is this impacting them, and is it mainly European companies manufacturing there, or do you also have a lot of U.S. exposure? Or just a comment on the sensitivity of the Baltic cities to this in general.

Well, I think that's a question probably I should answer, but Johan, you were head of Baltic Bank, so I leave that with a warm hand to you.

Thank you, Jens. What you have seen for the last couple of years is that, as also Jens alluded to in the intro, that Lithuania has been standing out, growing a lot, while the other two Baltic countries have been lagging behind a bit. Lithuania has been doing good, largely due to, they have a lot of exports to Poland, for instance, and Poland have been growing and doing good, and have also good prospects for the future. The export to U.S. is rather limited from all Baltic countries, so it's European countries. When you come up to the north, then Estonia has been lagging a bit due to both that they have increased taxes a couple of times in the last couple of years that has a dampening effect on the economy, but also partly due to the composition in exports that has gone to Finland and Sweden, which has also been been lagging. So that's part of the dependency. Latvia, as we've talked about many times, have still been very cautious going back to that they were severely hit from the financial crisis. We have from time to time seen positive signs, but then we have had COVID, inflation and now the uncertainty. So they have not really taken off. Having said that, the companies in the Baltics are very well capitalized. They have far lower leverage than most normal companies in Western Europe. So they stand strong in that respect.

That's very helpful. Thank you. And then if I can ask a bit more of an NII question. I understand that you don't want to quantify the timing of everything at the moment, but if you can then maybe look back to Q4 when you said, Q4-23, when you said we shouldn't consider that as the peak in AI. If I remember correctly, it was also, you know, at a stage where the sensitivity for any hike was quite reduced because you had a lot of headwinds from the public makeshift competition, et cetera. Can you maybe help us quantify what the real peak would be or if there was a lot of upside to what we've seen at the time? Thank you.

It would also get very theoretical since there are many moving parts. My point with underlining this was just that if you mechanically take that as a starting point and then add what has happened since then, then you will end up too low since everything was not repriced in there. So I will not go in further on it, unfortunately.

Okay, thank you.

The next question comes from Sandra and Marcus with Kepler. Please go ahead, sir.

Morning. So just coming back on costs. So now you've been cutting headcount for the last couple of three quarters. Is it mostly related to AML resources or are you taking down staff in general? And then on the one billion you're investing this year and last year, should we still expect that to come off next year so it should be cost inflation on top of everything else except from the one billion starting there.

Well let me start first is that just as you said we maintain strict cost control and we continue with our external hiring freeze while making business critical exemptions and as you can see we ended the quarter with 270 fewer than we were a year ago. And that means we are now less than 17,000 people in the bank. And we're now thinking about when to end this external hiring freeze. But as you know, we steer the bank on costs and not on FTEs. Jon?

Thank you, Jens. And when it comes to the one billion, the answer is the same as before. It is temporary and it will fall off after this year. And then you're also right that we have quite substantial headwind in terms of salary, inflation, etc. It's too early to estimate what that will be for next year, but I would expect that it's still there. But what I think, going back to what Jan said, what's positive is that the fact that we have come down on FTEs gives us increased flexibility going forward.

Okay, thanks. And then secondly, on trading income, it seems like It's coming up a bit on underlying activity among customers compared to quarter on quarter. Q1 is usually a season is strong. I mean, I expected a larger effect from that, basically. But is that because you have a lot of companies that don't need to hedge currency headwinds and so forth? Or is it just that you don't do much of that?

I think you need to keep in mind that we are, to a large extent, a retail bank with companies spread around throughout Sweden and the Baltics. So we have less of that than compared to some others. But what I think also is positive, both Jens and I mentioned the focus that we've had on corporate business in Sweden, and we've seen effects on that. So I think it's positive that both NCI and NGL from the business perspective, or from C&I perspective, I should say, has increased. That, I take, is a very positive part. Then you need to keep in mind what kind of banks Swedbank is, when you look at the total size. Okay.

Sure. Thanks.

The next question comes from Samtani Namita with Barclays. Please go ahead.

Good morning, and thanks for taking my questions. My first question is on the mutual fund sales, which were negative in Sweden. Um, and I find that quite off trend to Nordea and SEB. So I just wanted to understand what's going on there and whether you will, you believe that will continue.

Well, with talking about that, what we look upon is that we've seen an outflow. But also remember there are quite a lot of changes in the PPM, which is mainly the premium pension. And I have no clue what that's in English. But there are, you can see some changes there. But of course, we also have people that do not have as much money. And that means that we can see that you can see a bit of outflow there.

Thanks. And then secondly, I just wanted to confirm, have you dropped the cost target of 26.5 billion for 2025? And if you have, could you explain the rationale? Because you only gave it to us one quarter ago. Thank you.

No, we have not dropped the cost target, but then I guess you're alluding to the VAT recovery or repayment we got on 205 million. And these 205 millions are, of course, an extraordinary cost reduction, which we will not spend in our ordinary business, given that it's extraordinary.

That's helpful. Thank you.

The next question comes from Sribastava Shrey with Citi. Please go ahead.

Thank you for taking my question. My first one is conceptually on your business strategy in Swedish mortgages. I know you've talked a lot about balancing volume versus price. But is there a sort of stock market share position in which you'd consider sort of doing something on price relative to ? Thank you.

Well, thank you. And as you know, we are the market leader in Sweden. But we've had a difficult time since summer last year. And first, you need to start when you look at the overall number. You have to see that there is two parts if you look in the mortgage. And that's been the case now for For a few years, Swedish savings banks continued to put their mortgages in their own loan books due to they have a large deposit base, thus leading to a consistent outflow. So that is the first part. Then when you look at the mortgages distributed for our own channels, Well, we started 24 with a very good first half. Last half of 24 was not good. And when we started in January, we had an outflow. In February, we were up and were flat actually a bit more. And in March, we increased albeit with only 700 million kroner. And as Jon said, the competition is tough. And we strive to strike the right balance between margins and volumes. Now, I think the key point here is that our investment in the omnichannel communication platform, that means that we now, as I said in my speech, we serve customer calls both from service centers and local branch offices. And thereby we can use the full national potential of all our professionally, locally employed mortgage and client advisors. And this is a transformation that will take some time, but it will lead to results without increasing FTE levels. And our target is that 80% of our customer phone calls should be answered within three minutes. And at the end of the quarter, we were above 50% compared to a meager 20% in the beginning, while reminding you that we ended the quarter with 270 fewer employees.

Thank you very much. And just quickly following up on that, on your comments on expanding Swedish corporates earlier, do you think in the last few years there's been a sort of material shift different in the attractiveness of the Swedish corporate segment vis-a-vis the Swedish household segment and sort of how are you positioning your strategy in response to that?

No, I wouldn't say so. We stick to the sort of clear strategy that we've laid out, and that is that we want to be the bank that empowers the many people and businesses to create a better future. That is our strategy. And questions like you ask now, that is something we will get back to you when we meet again in June 4th, when we'll look forward and see how we can continue to deliver a 15% return on equity.

That's very helpful. Thank you very much.

The next question comes from Elmeja Tarik with Bank of America. Please go ahead.

Hi, good morning. Just a very quick follow-up on the asset quality topic, please. Can you remind us what's the probability you allocate for the base scenario, negative and positive? And also, what's in your internal processes the trigger for you to review these probabilities and implement the new, I would say, macro metrics? Thank you.

Well, you can see that in the quarterly report. You see the numbers we used, and I think the probability is like 16.666 on both two outliers and then 66% in the middle. But you can also see that if you compare it to the growth forecast we have in the fact book, the fact book is lower. So we've seen a decrease. And then our economists, when you upgraded, those were the numbers I showed on the slide. it's a bit lower than that as well.

Okay, thank you.

The next question comes from Eksted Martin with Handelsbanken. Please go ahead.

Thank you. So, Jun, you mentioned briefly on page 16 the Latvian bank tax, but could you give us an update on its implications for you in 2025 and onwards? and whether you anticipate to be able to make use of the rebate clauses in that tax. If you were to grow the loan book at a rate higher than the GDP growth, you would face a lower tax potentially. But on the other hand, if you do that and you grow NII, you would be subject to higher taxes potentially in the future if the taxes roll over and so on.

Well, I'll take that as well and see if you want to follow up. And then I need to sort of take this in overall perspective and talk about bank taxes because that is an issue that's always discussed. And first, let me, as always, remind you that we are an important part of societies. What we do is that we channel our customers' hard-earned deposits to lending. thus empowering people in business to create a sustainable future. And to do that, we need to be profitable, and a sustainable bank is a profitable bank. 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 unprecedented predictable regulatory and tax environment. What we do like is equal treatment, rule-based system, and an investment in the climate that fosters growth, financial stability, and green transformation. And then let's say a few words on each of the markets. In Estonia, corporate tax increased with two percentage points this year, and we were once again the largest taxpayer in the country. In Lithuania, corporate tax also increased this year, but with one percentage points. I'm reminding you that since 2020, there is a 5% extra tax on banks. Then you have the extra NII tax. And when I spoke with the Lithuanian prime minister last week, he was very clear that this investor tax on NII on top of all this will be phased out during the year. In Latvia, as you alluded to, we will have three years with an investor tax on 60% on NII exceeding a certain threshold. Let me be blunt. This 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 has had and will continue. to have an 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 amount of tax revenues, thus probably leading to an increased tax for the larger Swedish banks. And then on taxes, and when you talked about it, as Jonas mentioned, during the quarter we had a repayment of 200 million kroner that we paid too much in VAT in 2017. And we're looking into whether we can reclaim for more years. Do you want to add anything, Jonas?

You're perfectly right. Let me just add that the quarter-over-quarter effect of the Latvian tax is plus 140 million SEK. And while as the Lithuanian ASEAN said, that is gradually falling off.

Okay, thank you for that very clear run through. And then to my second question then, which is about your new collaboration around advisory with the Norwegian Savings Banks, SB1 Markets. Could you talk a bit about your reasoning behind entering this partnership and how we should expect to see the change from your previous setup with Kepler coming through? Are you strategically bringing this business closer to the core of what you're doing as a source of earnings diversification and fee income growth? Or is there really no change to your overall strategic stance to advisory? Thank you.

Well, first, this is really cool what we do, and it's quite a big effort, and we're really looking forward to starting this. And what we're doing is that we see that many companies, they do Nordic things, and then we have this great cooperation with the Norwegian savings banks. Then they had the S&P Bank in one market. We started to talk with them, and then we realized we can really put the foot on the ground here and do something cool together. So what we do then is that we move out a few people, and then they will do more equity research, and we see quite a lot of business opportunities there. And in the same way, when our advisor then meets the clients, they usually have partner offers that they can ship in. We have with Autoplan, we have... We've enter called, and I can keep on talking like this. And now we're going to have SP1 mark, SP at the end, which I think is really cool.

It sounds like there's a bit more of a strategic focus on it from your side than what used to be the case with Kepler. Am I right?

Well, it's a strong focus on it, exactly how we will work with this. You can talk with Bo Bengtsson that runs CNI, or you can talk with the head of SPTM. But this is a business opportunity. This is an offensive way for an offensive. Sorry, I was wrong. Well, you know, forward-looking at least. Forward-looking, that's where I'm working. So I think this is a great thing to do.

Okay. Thank you. That's all from me.

Next question from the phone comes from the line of Nelson Patrick with Goldman Sachs. Please go ahead.

Hi, good morning, and thanks a lot for taking the time. I appreciate we discussed it briefly, but I just had a follow-up on the cost guidance. So first, did I just understand it correctly that whatever happens to or, you know, the VAT today and whatever happens to any further potential VAT add-backs, we have to assess incrementally to the cost guidance you gave in Q4. And then also, I mean, just the cost guidance today or the cost print today seemed to be quite quite solid compared to where expectations were. So I was just wondering if there's anything on an underlying basis where you think that you are maybe progressing better than you thought in the end of last year. So yeah, both the underlying side, but also how to think about these incremental potential benefits.

Yeah, thank you. I mean, we gave the cost guidance based on 2024 year-end FX rates, and I don't sort of want to keep on updating the cost guidance as FX rates move up and down. But I will try to be clear that the VAT recovery repayment that we got of 205, that is something extraordinary, and we do not spend that within our cost guidance. So, yes, implicitly, We will deduct it from our cost guidance. We will not spend it in our normal operations. So otherwise, given that and given potential FX movements up and down, the cost guidance from end of last year, that remains. And this is how we always do. When there are extraordinary things, we do not sort of use those to either go down on cost short term because something extraordinary happened or to go up in cost as it would be now when we got this VAT repayment. So I hope that was clear.

Yeah, thank you very much. And then in terms of the underlying side, is there anything that's progressing better than you thought previously in terms of how the cost is progressing? So you have more money to invest in other initiatives or it's just running with a leaner cost base?

We have a long-term view on working with efficiencies and with costs, and also with investments, and we try to stick to that, because I think that is very important that we do that. Then we will come back more on the investor day on the June 4th. But all is going, or more or less, is going in line with our long-term planning, and then we will update you in June.

Okay, thank you very much.

The next question comes from the line of Brown Pierce with HSBC. Please go ahead.

Good morning. Just a couple of small follow-ups from me. On the VAT recoveries, can you quantify how large they may be if you're successful and what the timing could be? And then secondly, on USAML, can you just update us on what the state of dialogue currently is with US authorities. Is there any dialogue ongoing, or are you just waiting to hear from them, essentially?

Thanks. Thank you. When it comes to the VAT, this, as I said, is related to 2017. And the question is about that we have parts of our business, leasing mainly, that is where we have deductible VAT for the rest of the bank we pay VAT, we can't deduct any VAT. I don't know at this point what potential implications or any that it could have for the years after 2017. We are looking into that, and when we have more clarity, we will come back. But just reminding you that what the numbers are, it depends on every year, so it's both unclear if it has any implications and if it has the size of them. So we will come back if that happens. And the other question, I think I'll leave to you, Jens.

What was the other question? I was thinking about it. Yes. Well, I think I answered that.

I was just wondering if there's any active dialogue ongoing with U.S. authorities on the AML issue.

Well, as I said, I always say that we are in discussions with three U.S. authorities, the Department of Justice, Security and Exchange, and the Department of Financial Services in New York. and i have no new information i do not know whether we will get any fines and if we do get any fines i cannot estimate the size of those and as always we've been as transparent as possible during this process and when something material happens we will continue to adhere to that principle okay thank you

The next question comes from Andersson Martinus with ABG. Please go ahead.

Yes, hi. I was just wondering, I have a follow-up on slide 12 there on the NII bridge. If you could split the lending income decline between Sweden and the Baltics roughly, and secondly, if you could split the FX and day count FX to 204 million?

Thank you, Magnus. Yes, our total NII for the bank was down 6%. Then you had 12% down on the Baltics and 8% in CNI. Then there is always a movement between Swedish banking and premium and private banking. But I'd say combined, they are down 5-ish percent approximately.

Sorry, I was alluding to the 2.7 billion, the yellow bar, the first bar, lending income, that was down 1.3 billion more in this quarter than the previous one. I don't have that on my hand, unfortunately, Magnus. No, no, we need to come back on it. Okay, good. Okay, we take that later. And the FX and day camp split?

I'll have to come back on that one too. I don't have the numbers in front of me or in my head.

Okay, we'll take that offline.

Thanks. How about the last question, sir?

Sorry, I need to push the right button here. And the key point I want to say, thank you for, as always, asking difficult and tough questions. Now we look forward to seeing a few of you in other meetings. Otherwise, we'll meet again at the June 4th at Investor Day. Until then, be careful out there.