Swedbank AB (publ)

Good morning, and thank you for joining us today. My name is Maria Kahneman, and I recently joined Swedbank as head of investor relations. I have a long background in banking, so I've already had the pleasure of getting to know many of you investors and analysts. I look forward to reconnecting and interacting with you. I am very happy to be here and to welcome you to our second quarter results presentation. With me today is our CEO, Jens Henriksson, and our CFO, Jon Lidefelt. Jens and Jon will start with the presentation, and then there will be an opportunity to ask questions. Jens, I hand over to you.

Thank you, Maria, and a warm welcome to the bank, and a warm welcome to all the people calling in. Swedbank has once again delivered a strong result. We are creating value for our customers and shareholders in both good and bad times. The global economy continues to be marked by uncertainty. Geopolitical tensions and trade conflicts weigh on prospects for global growth. During the quarter, the European Central Bank and the Riksbank cut their policy rates while the Federal Reserve held it unchanged. Economic activity was strong in Lithuania, while developments in Estonia, Latvia and Sweden were weaker. The government has cut their growth forecast for the Swedish economy in half for this year compared to their prior forecast in May. Despite a challenging economic situation, our four-hole markets stand out positively. Growth in Sweden, Estonia, Latvia and Lithuania is expected to be higher than in both the Eurozone and the US in 2026. Strong public finances, low government debt, real wage growth, innovative companies, profitable banks, and lower interest rates mean that our home markets remain well prepared for the future. In these uncertain times, Swedbank stands strong. Today, I can report a return on equity of 15.4%, an earnings per share of 6,99 kronor for the second quarter. Net interest income decreased during the quarter due to falling interest rates. Net commission income fell as a result of lower average stock market performance. Seasonally higher card commissions contributed positively. Costs remained at the same level as in the first quarter. Our cost to income was 0.36. Strict cost control is producing results. Swedbank has a conservative and thorough lending process. Our credit quality is solid and during the second quarter we reported credit impairments of 150 million kronor. We have a robust ability to generate capital and a strong capital position with a buffer of 4.5 percentage points. Our liquidity position is also strong. At our investor day in June, we presented our business priorities and financial plan until 2027. Swedbank 1527. Our plan is to continue to deliver a sustainable return of equity of at least 15% with a cost-to-income ratio that does not exceed 0.4%. Our plan focuses on three main areas. Strengthen customer interactions, grow volumes and increase efficiency. We have a proven business model, clear business priorities and a strong foundation. In the business area of Swedish banking, we will increase our availability and do more business. In premium and private banking, we will grow our customer base while ensuring that each advisor meets more clients. In corporate and institutions, we will expand our corporate business increase the number of customer interactions, and strengthen our market share. And in Baltic banking, we will maintain our leading market shares and continue our long-term efforts to promote a savings culture. Svalbank is the leader in mortgages in all of our four home markets, and we maintain that position in tough competition. During the quarter we cut our mortgage rates. In the Baltic countries we see an increasing demand due to lower interest rates. But the demand for mortgages remains muted in Sweden. During the quarter Mortgages through our own channels in Sweden increased by 3.5 billion kronor. Consequently, our front book market share has increased compared to the first quarter. But we want to grow further. In July, Swedbank announced the acquisition of the fully digital mortgage company Stabelo, a digital native. This is an important step in developing the mortgage business and better meeting younger and more digital customers. Within Swedish banking, we are optimizing our ways of working with a focus on increased availability and improved customer experience. Customers should seamlessly be able to meet with Swedbank across different channels. And during the quarter, we have further improved our availability via phones. Deposits increased in both Sweden and in the Baltic markets. And during the quarter, the development in savings, insurance and pension was positive. Corporate lending increased in Sweden and within our Baltic business. In Sweden, our corporate business is strong. We have increased our market share in lending, and our proactivity is producing results while maintaining our high credit origination standards. We see good activity in the real estate sector and manufacturing as well as among small and medium sized enterprises. In Estonia, Latvia and Lithuania, we maintain a strong momentum and we see an increasing demand for credit related to the energy transition. Additionally, we have seen higher activity in Norway and our partnership strategy is working well. Within corporate and institutions, we are establishing two new client teams in defense and in food production. Two important sectors for the society and the bank, both from a business and sustainability perspective. Our vision is a financially sound and sustainable society, and the business case that the sustainability transition presents is clear. The sustainable asset register continues to grow, and during the quarter it increased by 6 billion kronor, reaching 142 billion kronor. Moreover, during the quarter, half of the arranged bonds were classified as sustainable. This is a business opportunity. A sustainable society also involves financial health. More people should be able to build up their finances and get the financial knowledge they need to feel secure in their everyday lives. And last week I had the pleasure and privilege of meeting Swedbank colleagues in Riga in Latvia who gives lectures to young students on motivation, inclusion and values. And through the initiative Moot, they reach over 12,000 young people every year, helping them to grow into confident, caring, and motivated individuals. And this is one of the many initiatives we value highly, because our work on financial health is particularly important during these uncertain times. And with that, Johan, it's your turn to deep dive into the financials.

Thank you, Jens. Before I go into the details of yet another solid quarter, let me just remind you of our financial plan presented at our investor day on June 4th. The plan will result in a continued robust capital generation by maintaining a 60 to 70% annual dividend payout ratio and a normalized capital buffer of 200 basis points, we will achieve a return on equity of at least 15%. The cost-income ratio shall not be above 40%. We have no intention to hold more capital than necessary. The right capital target level is ultimately a judgement call. Increased profit over time through business growth and efficiency improvements to mitigate cost headwind is key to ensure long-term shareholder value. The overall loan portfolio increased by 21 billion. Mortgage volumes in Sweden increased in the quarter by 2 billion. the savings banks reduced mortgage volumes on our balance sheet with 1.5 billion. Hence, volumes sold through our own channels increased by 3.5 billion as a result of our increased efforts on customer interaction and availability. Corporate lending volumes in the Swedish business areas increased by 11 billion. We saw continued positive development in terms of customer activity across several sectors as a result of our increased focus on corporate business in Sweden. In Baltic banking, lending continued to grow. Private lending increased by 4 billion, driven by mortgages. Corporate lending increased by 4 billion in the quatum. Customer deposits increased in the quarter by 27 billion. The increase was mainly driven by retail deposits in Sweden, partly impacted by seasonal inflow of tax returns. Corporate deposits in Sweden increased by 2 billion. In Baltic banking, private deposit volumes increased by 7 billion, while corporate deposits declined by one billion. Net interest income decreased in the quarter by 572 million, driven mainly by lower interest rates. As expected, the phase-in of lower customer rates was partly offset by lower customer deposit rates. Reduced policy rates impacted earnings from central bank placements negatively. Lower funding costs, as well as higher business volumes, had a positive impact on NII. The policy rate cut announced earlier in the year has now largely been materialized in our NII in Sweden. both the Swedish and the European Central Bank cut rates towards the end of the quarter. Hence, there are further repricing dynamics in play. As we have previously talked about regarding timing effects and NII sensitivity, in general, the Swedish loan book takes around three months to reprice and the Baltic loan book six months. At the same time, the liability side reprice faster. Hence to conclude, the positive effects from policy rate cuts on the liability side materialize earlier than the negative effects on the asset side. We will continue with our pricing strategy on both sides of the balance sheet and maintain focus on the balance between volumes and long-term profitability. Net commission income decreased in the quarter. Card commissions were seasonally higher, while asset management commissions were negatively affected by the stock market performance in the quarter. Let me remind you that asset management commissions are generated by daily fees. and was negatively impacted by the large stock market declines we saw early in the quarter. Net gains and losses were strong in the quarter and amounted to 856 million. Income was strong, driven by high business activity in fixed income and FX products. Revaluation effects were net positive in the quarter. Other income increased by 39 million, driven by revaluation effects within net insurance. Underlying insurance income was stable, as was profit from partly owned companies. Total expenses were flat in the quarter and amounted to 6.1 billion. Staff costs decreased, mainly driven by the lower number of employees. IT and consultancy costs increased in the quarter. Let me also remind you that we had a one-off in the first quarter of 113 million related to the Estonian Education Foundation. Hence, marketing costs are lower in Q2. The quarter included VAT recovery for 2018 of 174 million, similar to the 205 million in the first quarter, which was related to 2017. We have also, after the quarter ended, been notified of a VAT recovery amounting to 197 million for the year 2016. We have also requested VAT recovery for the years 2019 to 2023. The cost guidance given for this year is 26.5 billion. Actual costs will be lower due to not at least the VAT recoveries. The temporary investments of 2 billion for 2024 and 2025 were also somewhat front-loaded, with more than 1 billion in 2024. And we expect the 2025 level to be around 800 million. Furthermore, due to strengthening of the Swedish krona, costs have been around 140 million lower during the first half year. These effects sum up to around one billion lower actual cost for this year. We will revisit the full year cost guidance in conjunction with the Q3 report. The hiring freeze has now been phased out as previously mentioned. We have a strong governance model in place to ensure we maintain our strict cost control and focus on efficiency improvements. Our collaboration with the savings banks include cost sharing for IT development and administrative services. The savings bank's share of the cost is included in Swedbank's total cost, and you can see the corresponding income as services sold to the savings banks under other income. Bank taxes in the quarter will lower, driven by retroactive adjustments in both Latvia and Lithuania. Credit quality remains solid. During the quarter, credit impairments of 150 million were reported, mainly within Swedish banking and Baltic banking. The post-model adjustment decreased by 129 million and amounted to 594 million. I feel comfortable with our strict credit origination standards and the solid collaterals that secure our lending as we operate in times of high uncertainty. REA increased by 12 billion and ended the quarter at 889 billion. This is mainly driven by lending growth, which added 7 billion, and FX effects of 3 billion. Our CET1 capital ratio was 19.7%, meaning we have a buffer of around 450 bps above the requirement. And with that, back to you Jens.

Swedbank has once again delivered a strong result. Return on equity was 15.4%. Cost to income was 0.36. Our credit quality is solid, and our capital buffer is strong at 4.5 percentage points. 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, Maria.

Thank you both very much. We will now begin the Q&A session. I'd like to start with a kind reminder to please limit yourselves to two questions per turn. And operator, please go ahead.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their 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. questionnaires on the phone are requested to disable the loudspeaker mode while asking a question. Anyone with a question may press star 1 at this time. The first question comes from Pracilius Patrick from ABG. Please go ahead, sir.

Thank you. Can you hear me?

Yes, we can.

Great. Thank you. You talked about the VAT recoveries here on the call. Can you please elaborate a little bit more? What is the expected amount for these? You mentioned 2016, but can you highlight a little bit about these expected outcome from the 2019 to 2023, please?

Thank you. I don't want to speculate on the numbers for the coming years. It's ultimately up to the tax authorities to decide. And the numbers is also dependent on interest rates and hence the different turnovers from different parts of our business. So I will not speculate. We will come back when we know what the tax authorities decide.

But for now, the denominator that you mentioned, 197, is that what we should expect for Q3 then?

It will differ based on changes in interest rate year on year and the it's ultimately the tax authority that will decide. So I don't want to speculate. We will come back when we're sure.

Okay, thank you. And my second question is regarding the performance-based part of the Stabielo purchase. And if you can confirm Criode's view from their press release that it would be up to one billion. And can you share some details about the criteria's needed to be met in order to reach this full payment?

Well, I won't say more than what's been said in the press release. We are in the process right now to see whether this goes through, and let's hope that it turns out to be a successful business.

Okay, thank you.

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

Yeah, hi, good morning, and thanks for taking my question. If I can start with a question on net interest income, please. I think on the quote-over-quote decline, I wasn't as surprised, but I was quite surprised by the moving parts of your NII bridge, especially the deposit expense and how much it was able to mitigate the lending income. I think I'm just trying to understand, you didn't have any deposit rate cuts on the retail side, from what I remember. And from your explanations on the timing lags, you flagged previously that that comes through quite quickly. So in my mind, what the mitigation for this quarter was relatively low, was you still had the catch-up on the lending side. So any color that you could provide here would be very helpful. Thank you.

Thank you, Bettina. We have, if I start in the other one, we have reduced deposit rates both in Sweden and in the three Baltic countries, and the deposit beat on the remunerated deposits in Sweden was close to 100. In the Baltics, it was between 50 and 100, depending on what kind of accounts it was. And as we talked about before, I mean, this is mainly business judgments that is made on the long-term customer profitability and less so to actually due to competition on the deposit side. So that is what you see in the deposit expense part there. During the quarter, I've talked about timing effects and positive effects come precede the negative from rate cuts. During the quarter, we're mainly seeing the negative parts of the previous rate cuts that we saw in the first quarter. But having said that, we also, as you know, have had quite good lending growth, and the average increased lending volumes added around 150 million in a positive contribution to the NAI in the quarter. So I think that there you have sort of the bits and pieces for the quarter.

Sorry, just to confirm, I thought that you, so in the pre-class call, I thought it was said that there were no rate changes on the deposits during the quarter. So the deposit rate changes that you mentioned, were they ahead of, so in Q1, and it's just a rollover effect that we've seen this quarter?

We have changed the deposit rates during the quarter.

Ah, okay. All right. Then to move on to the second question, please. On the Stabelo acquisition, I think my question perhaps is just what your plans are or what your vision is, what you want to do with the platform. You already talked a bit about it in the introductory statement. But are you planning to use the technology platform also for the – for your overall customer-facing side on the mortgage part in Sweden, or are you just going to let it run standalone for a couple of years and see how it's going to go? Thank you.

Well, thank you for that question. It's an exciting opportunity to further develop the mortgage business. And as you know, Stabelu has a fully digital mortgage process. They are a digital native and have a distribution of mortgages under its own management and also through partnership agreements. And what it will is that it will give us new opportunities to meet more target groups, among others younger and more digital customers. And we will run Stabelo on arm's length distance with its own brand and management. Can we use some of the technology there? Let's hope. But maybe it's the other way around as well. We have some great people in Swedbank and a great IT. So maybe we can switch back and forth. But in the end, this is something I'm super excited about.

Thank you very much.

The next question comes from Andreas Hackeson, SEB. Please go ahead.

Thank you and good morning, everyone. First question, I'm just going to have to come back to the cost question. I mean, you are running at an annualized level of below $25 billion. And so if we're going to be even close to the $26 billion where consensus is at for the full year, you would have to start some new investments in the second half of the year. So the first part of the cost question is that do you really feel that you need to invest more or should we expect that this is the run rate we should be looking at? And then just to confirm, when you said 2019, you say to 2023, so we're actually talking about potentially five years of reversals of the AT. That's my first question.

Thank you, Andreas. What I said was that if we start with the cost, I'll come back when we have more clarity in conjunction to Q3 report and give you an update. What I said now is that 26.5 is our guidance since before. I mean, if you sum up the numbers that I just have given, then it's one billion less. It's VAT, it's FX, and then the fact that the two billion over the two years were a bit front-loaded, so it was above one billion last year. And 800 is the estimate for this year. So then that is the billion. I think you should also remember, which I'm sure you know, that our second half is normally a bit higher on cost than the first half. Having said that, we have long-term plans for our investments. We try to stick to them. Of course, we are agile and adjust based on what's happening around us. But I think sticking to the long-term plan is important to make sure that we create long-term shareholder value. Then I can confirm, yes, 2019 until 2023, that is five years that we have requested the VAT to be recalculated for from the tax authorities. And when we have some clarity there, we will come back.

But even though we don't know the sizes of it, would it be fair to estimate that it's going to come one year after in a quarter has been happening so far, could you get it all at once? So how could it be?

I don't know, but it could very well be so. I mean, I guess that they're looking year by year, so it could come gradually. But it's not in our hands. The timeline is in the hands of the tax authorities. So I'll be back.

Question on, we had another Swedish bank yesterday talking about its Baltic corporate IB models that hadn't been approved by the ECB, and that's going to take now quite much longer time. Could you tell us what's your status on the same models, please?

Well, on the same models, I would say, Johan, you worked with that. But the key point is that on the IRB models, everything goes according to plan. But Johan, do you want to underline anything?

Yes, we did some years back initiated a total overhaul of our models. We didn't update the current models because we know that the requirements was fundamentally different. And we've been working on that. And we then also had an agreement with ECB on the plan for this. Part of that agreement was that Before, we had so-called Article 3 add-ons that we voluntarily put on to sort of take into account the difference between the estimation of new models versus the current models. In the agreement with ECB on our plan forward that we struck a couple of years back, then they changed that Article 3 add-on to multipliers on the models. So you see that reflected if you look at our risk weights for the Baltics, which you can find in the fact book. So we are holding today around 16.5 billion SEK in extra REA, which is included there. That should be sufficient to mitigate the difference between when we have then approved approval for the new models. We are now in the evaluation process. ECB is working together with us on that. We have no indications, but that we should come through that process. Then of course, they have a lot of questions and I would expect also some requests in the end, but the process is going according to plan. And then if I may add for Sweden, as we have talked about on total level, as I talked about, I expect that we have approvals for Most of the IRB models during the course of this year and next year, some might spill over, but the majority should be approved latest during next year.

Thank you.

The next question comes from Gulnara Saitgulova for Morgan Stanley. Please go ahead.

Hi, good morning, and thank you for taking my questions. So my first question is on NAI sensitivity on slide 22. No sensitivity for 50 basis points rate cuts showing 4.1 billion NAI impact. Well, if you look at the previous quarter, you were guiding for 3.2 billion on 50 basis points interest rate shift. Can you comment what drove that change in the sensitivity? And in the prior quarter, you had the detailed slide where you were showing the key moving parts in the sensitivity, both for the group and the Baltic banking. If you could talk about the key changes when it comes to the moving parts and that sensitivity, and whether the change is more attributable to Sweden or the Baltic banking, that would be helpful.

The change is attributed to both, because we now have more asked questions. We have already, as I talked about before in the question, we have cut rates on deposit accounts both in Sweden and the Baltics. We now have more accounts that sort of pay less than 50 basis points, meaning that our sensitivity increases since we assume that we will not go below zero on the accounts. So that is the reason for the sensitivity for a downward shift of rates has increased. Anything?

Thank you. And can I also ask a question on the competition? So we're seeing that the volumes are somewhat picking up. Can you share what are your current observations when it comes to the competitive behavior in Sweden? Are you observing any meaningful changes compared to the last quarters or last year? And where the competitive pressure is mainly coming from? Is it still from their smaller players?

Well, first I want to say, as I said in my introduction, that there is a tough competition in the mortgage market. And when you look upon it, I would say that we have some very strong competitors out there, and we fight for volumes each and every day. But as I also said, we have increased it much more, our mortgage book, than we did last quarter, but we want to grow more. If you look on the business side, company side, I will say that it's tough competition, but over and all, we've managed because we are more focused and a bit more forward-leaning, as I said in my introduction as well. And that means all in over, we've increased our lending with roughly 20 billion during the quarter.

Thank you.

The next question comes from Shrey from Ceti Group. Please go ahead, man.

Thank you very much for taking my question. It's another one on the Stabello acquisition, actually. Does this represent sort of a conscious business move into higher loan-to-value mortgages, given the proposals from the government to raise the mortgage ceiling to 90% and removing the 1% amortization requirement on loans above 4.5 XLTI.

I'm sorry, maybe I did not get it, but I would say that there are changes ongoing right now. And that will mean that what they're doing is that first they're taking away some amortization on top of it. That's one thing. The other thing is that they're increasing the LTV from 85 to 90 percent when it comes to new lending. But on the other hand, they're actually lowering the LTV ceiling when it comes to sort of extended there are business opportunities for this and we will use it Stabelo is a part of that and as I said we'll keep it at arm's length distance and keep it under their brand and they have other channels and other target groups but we have a great offering as a Swedbank as well we have a full service bank and we'll continue we want to grow this market

Okay, thank you. And a second one, just a more longer-term one. Are you not tempted to use some of these sort of VAT recoveries and the benefit you get on the cost side to invest further in the business, and particularly in Sweden? Is your sort of capability exactly where you want it to be? Or do you not see further opportunities to actually use this to regain some market share that you lost in recent years?

Well, I would say that start by looking back a few years, because then we saw that NII went up quite dramatically. And we used that to increase and do an extra investment for two years. And as Ewan talked about, roughly 1.2 the first year and roughly about 800. When we look at our investments, we have, as Jon said, a long-term plan, and we do that. And for me, it's important not to take on a costume that's too large, because that means that you have to do things you don't want to do the next time. So we look upon this, and we are careful. Would something specific show up that means that we can do great business? We can do it, but we would have done it no matter what, because in the end, it's about us delivering customer value and, in the end, shareholder value.

The next question comes from Martin Extent from Handelsbanken.

Yes, hi. Thank you. So I just wanted to ask on net gains and losses, what are the equity holdings generating the gain that lifts this item quarter on quarter? And what are the drivers behind this? Thank you.

Thank you, Martin. We have small ownerships in SB1 and in Sydbank, and they are listed companies. So it's stock market value changes that comes in there.

Okay, thank you. Understood. And then looking to commission income then. where that constituted a miss against consensus this quarter, right, where the largest negative was in asset management. So you mentioned market development that's underlying a decline in AUM volumes and such, but could you also comment around the net flows you saw in the quarter, and perhaps a little bit month by month, if you could do that, and what you saw towards the end of the quarter?

Yeah, you're right. The development, if you look at the average stock market value during the quarter, then that would be a quite good estimate of our outcome, actually. I don't know how the mix shifts have been during the quarter, but if I look at the quarter start and the quarter end, then they look very similar, actually. So if there have been changes during the quarter, then they have come back. We have more or less the same mix between different asset classes in the end as we had in the beginning of the quarter. Then I think you should also look, if we have a higher equity share in our fund mix than our competitors, at least 10 percentage points or something like that higher. So of course that adds a bit to our sensitivity when stock markets go down, but it's also something we gain from when stock markets go up. understood. Thank you very much for that.

The next question comes from Namita Santani, Barclays.

Morning. Thanks for taking my question. My first one, how much do you expect the Swedish bank tax to go up in 26 versus 25? Is around one billion the right number? And secondly, Do I understand correctly on the third quarter net interest income, that's going to show timing effects from the last rate cut in June. So we should basically expect flat NII quarter on quarter or even growing due to volumes. Thanks.

Well, thank you. If I start with the bank tax, then you have, first of all, you have the, that we discussed, deposit money at the central bank without gaining interest rates. That is roughly six billion SEK that we have to put there. And then the cost will of course depend on interest rate development at that time. Then you also have the change that the simple puts that we have to pay seven bps instead of six bps on our liabilities. that extra cost is around 50 million based on the balance sheet we have now. Then about the NII going forward, I don't, as you know, guide on the NII going forward, but I gave you sort of reiterated the timing effects. We had rate cuts in the end of the quarter. Then I said the positive effect on the funding side and on the deposit side precede the negative effects on the asset side. And then I also said that we've had quite good volume growth and already in this quarter the average volume changes, lending volume changes compared to previous quarters, 150 million positive. But then you'll have to make your own sort of assumptions of margin development, volume development going forward. But I'm trying to help you with the dynamics.

Thanks very much.

The next question comes from Nicholas McBee from Carnegie. Please go ahead.

Thank you. First, another follow-up on the Stabilo acquisition. So I was wondering, how do you think about accelerating volume growth the mortgages that are distributed through Avanza, because a majority of Stabilo's mortgages are currently distributed by third parties. So, essentially, that would mean that you're financing another platform with what is currently a relatively low margin and RE product without any ancillary revenues. You don't gain any deposits or savings connected to those mortgages. And also that you're handing over your client relationship to a third party. So how do you think about it? Do you think more like you want to grow volumes through Stabilo's own channel or are you happy with continuing to growing mortgages through Avans and third parties with Stabilo?

Well, thank you. I would say, first, the acquisition hasn't gone through, but mainly I would say you're asking two different questions. The first question is, we want Stabel to grow. They have different channels and different groups. The other thing is, how can we grow our savings business in Swedbank? And I was, what was it, a month ago, we presented our plan. And we are right now in the process of redoing the whole platform for savings, for distribution of funds. So we have a great product at Swedbank. Of course, there is competition out there, but we want to grow here as well. And that's what both Malin and Anna Karin talked about when we presented Swedbank 1527.

Okay, thanks. And then a question on the tax rates. You write in the report about a raised corporate tax rate in Estonia. So could you please indicate what kind of normalized tax rate you expect taking these changes into account for the next few quarters?

Well, I always hesitate whether I should go into sort of a long discussion about all the bank taxes, but let me do that because this is an area which is important for us. And I will always start with reminding you that banks, we are an important part of society. And what we do is that we channel... the 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. We are proud taxpayers that contribute to the financing of welfare and security in all our markets. What we do not like are sector-specific taxes, retroactive measures, and an unpredictable regulatory environment. And what we do like is equal treatment, rule-based system, and an investment climate that fosters growth, financial stability, and sustainable transformation. So when I then look at the four-hole market, first, as you talked about, and then Jon can think about how it calculates into the the effective tax rate. But in Estonia, general corporate rates are increasing. They increased and they're increasing further. In Lithuania, corporate taxes are also up. On top of this, since 2020, there is a 5% extra tax on banks. Now, further on top of that is the extra investor tax on NII that will be phased out during the year. Now, in Latvia, we will have three years with a similar investor tax. The difference is that in Lithuania, new lending is excluded from the tax. Not so in Latvia. That will lead to even more negative effects. And this will hurt the Latvian economy in the short, medium and long term. And therefore, we have filed a legal complaint. Our ambition to become the leading corporate bank in Latvia, it remains. But the investor tax has had and will have an impact on our business strategy.

Sweden, Jun talked about that before, but now, have you calculated the effects on the... No, I haven't calculated the effects, but in Estonia in particular, there was previous discussions if there would be a two percentage point higher tax to finance defence and that that tax should be limited for some time. But in the end, They just increased the tax without sort of an end date with the two percentage points. So I would assume that it's here to stay and then until further notice.

Okay, thank you.

The next question comes from Tarek Elmeyad, Bank of America. Please go ahead.

Hi, good morning. I don't want to drag the call further, but just a quick question on the cost, please. I'm more interested in 26, 27 years. So clearly you have $1 billion less cost versus the guidance, and most of it is coming from the VAT, but also the end of the investments and the FX. So if you go back to below 40% cost income guidance you gave in the very recent CMD, that means that unless there's a much more significant drop in the revenue side, the need for cost is still to invest and grow, right? So the update you'll give in Q3, is it relevant to 26, 27 or even 25? And would that also include your plans to invest and grow? And also, I think we all agree that a higher freeze is not sustainable. At some point, you need to grow again FTEs if there is a growth recovery in the market.

Well, let me, before I give the floor to you, just say that, as Johan said in his introduction, the external hiring freeze is phased out. Now we have a stricter process, and it's run by the CFO and the head of HR. But remember, we stare the bank on costs, not the FDs. Do you want to go further there, Johan?

Yeah, no, I mean, I will not go into 2026 and onwards, but what I gave you, the sort of what has happened so far this year compared to the initial cost guidance. Then you know that the extra two billions that we've had then over two years, 800 this year, they are temporary. They will not go into the upcoming years. Then you also know that we do have a cost headwind. We know that we need to mitigate parts of that cost headwind in order to, over a long period of time where rates are more stable, to make sure that we can create increased profits and ensure shareholder value. So that is something that we constantly work very hard with. And the cost-to-income ratio of not above 40 percent, that is sort of calibrated to the kind of bank that Swedbank is and our target to deliver a sustainable return on equity of 15 percent or more. And then how much, how close or how much below It's, of course, dependent on the environment and the income level on the years. So that's as much as I can say now, and then we will come back later on with further guidance for the future, yes.

The next question comes from Rovere Riccardo from Mediobanca. Please go ahead.

Thank you for taking my question. The first one is on gains and wearings from items at fair value. Over the past three, four years, the total contribution of these P&L lines has been going up. It's averaging about 524, 722, went to 723, 924. If I take the first two quarters of this year, it's going even higher than that. So I was wondering whether these are the deliberate decisions that you want to, let's say, put more capital at Trace or at New York, and if, let's say, the one way to have everything seen over the past two quarters can be considered a sort of reliable base. This is the first question. The second question I have is, Sorry, I think I missed the first part, pretending to record.

Sorry, Ricardo, can I just... Ricardo, sorry to jump in here, but it's a bit of a poor line, so I think we didn't really catch your first question there.

Is it better now?

Yes, let's try this again. Is it better now? Thank you, yes.

Please go ahead. Yeah, okay, fine. Okay, no, I just was wondering whether the trading lines and items at their value went constantly up over the past three, four years. 500 million per quarter, 21, 22, 723, 924. Now we're running because the quarter's ahead of that too. So I was wondering whether the last quarter, is this a deliberate decision to put more capital at work? And if there is... The last number is a reliable base to think about the future. And the second question I have is, what part of your deposit in Sweden and in the Baltics are now if you can share this information?

Thank you. Thank you, Ricardo. I think you asked about the NGL line and the trading-related parts of that in the first question.

Yes, that's correct.

The other line, yes, correct. I mean, that is, of course, very hard to forecast, and I will not even try it. But as you know, we have increased our focus on the corporate business in Sweden, and this is, of course, one important part of that. And then... If the second question, was that related to our deposit beta? It didn't fully, the line got a bit bad again, so.

No, not the beta in itself. I'm just wondering what part of the deposit base is remunerated at zero. Ah, okay.

Yes, then let me just find that here. In Sweden, we have roughly 50-50 between remunerated and non-remunerated. In the Baltics, it's 70-30. So in the Baltics, it's roughly 30% that has an interest rate paid and 70% without. It's been stable during the quarter. The percentages have been stable during the quarter.

Okay, okay. Thank you very much. Thanks, Louise.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Maria Canemore for any closing remarks.

Maria? Thank you. So that concludes our Q&A session. And Jens, anything you would like to end up the call with?

Well, like always, thank you for always asking difficult and tough questions. It makes us better. And I now look forward to meet a few of you and continue our dialogue on Swedbank. Then I will go on vacation for a while. I'll probably walk on that path there soon. looking at the great lake and the forest that's in Sweden, Estonia, Latvia, Lithuania, Finland, Norway. And enjoy the summer. And remember, be careful out there.