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Edited Transcript of SEB A.ST earnings conference call or presentation 31-Jan-18 12:00pm GMT

Q4 2017 Skandinaviska Enskilda Banken AB Earnings Call

Stockholm Mar 30, 2018 (Thomson StreetEvents) -- Edited Transcript of Skandinaviska Enskilda Banken AB earnings conference call or presentation Wednesday, January 31, 2018 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Johan Torgeby

Skandinaviska Enskilda Banken AB (publ.) - President, CEO & Director

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Conference Call Participants

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* Andreas Hakansson

Exane BNP Paribas, Research Division - Analyst of Banks

* Jens Hallén

Carnegie Investment Bank AB, Research Division - Research Analyst

* Magnus Andersson

ABG Sundal Collier Holding ASA, Research Division - Research Analyst

* Maths Liljedahl

Handelsbanken Capital Markets AB, Research Division - Research Analyst

* Nicolas McBeath

DNB Markets, Research Division - Analyst

* Peter Kessiakoff

SEB, Research Division - Research Analyst

* Rickard Henze

Nordea Markets, Research Division - Senior Director

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Presentation

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Unidentified Company Representative, [1]

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Good morning, everyone. You are all very welcome. It is time to present the annual accounts. Johan is going to open up with his address and then we'll have a Q&A session immediately after. Go ahead.

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Johan Torgeby, Skandinaviska Enskilda Banken AB (publ.) - President, CEO & Director [2]

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Thank you. Can you hear me in this microphone? Welcome, everyone. Excellent. Welcome to the SEB annual accounts 2017 presentation. Starting off with a comment on the favorable conditions and premises we've seen with a growth on the stock exchange globally speaking, little bit less so in Sweden, but nevertheless it has to be characterized as a very good year indeed to operate in financial activities, continued low interest rates and in fact a new all-time low in recent history and credit spreads.

So we've had a truly favorable situation in terms of operating in the bank. SEK 22.7 billion profit, 5% increase on income items, 1% on expenses but well in line with the SEK 22 billion that we have as a cost cap that led to a 12% increase after credit losses. It's worth noting as well that the credit loss level remains at an exceptionally low level. Cost/income up by 2 units to 0.48, and provided the proposed dividend from the Board of Directors to the AGM SEK 5.75, an increase by SEK 0.25 per share. Core Equity Tier 1 19% -- so CET 1 at 19.4%. The return on equity was 12.7%, and I mentioned all of these numbers before the items affecting comparability.

Q4 in isolation then. It should really be seen against the backdrop of Q3 which seasonally speaking was a lower, more weak quarter. Q4 on the other hand slightly stronger, in particular towards the end of the quarter where we saw increased customer activity in several parts of the bank. So on an annual basis, we saw an increase of the fourth quarter compared to the previous year by 2% and costs down by 2%, and on an annual basis profit up by 10%, approximately the same number for the bottom line numbers that you can see here.

So if we look at net interest income, the NII, it's up by 6% for the full year compared to last year driven by marginally higher volumes and somewhat lower funding costs. Those 2 contributed in a positive manner, we can see this in lending in particular. In our disfavor on the other hand, we had a very negative interest rates. That's very clear now that the contribution to deposit is down to 0. And funding and other saw a slightly less negative contribution reflecting some slight improvement in funding.

And it's worth underlining the resolution fee here. In 2016, it was based on 4.5 basis points. It went up to 9 points this year, SEK 450 million more in terms of its impact on our results. For 2018, it's going to be hiked up to 12.5 basis points, and it's going to be an another increase of SEK 600 million to SEK 750 million in addition, before we get to 2019 when it continues or when it changes to and will be lowered. All-in-all for 2017, SEB in resolution fee and deposit guarantees schemes were paid about SEK 2 billion.

The net fee and commissions up by 7% for the year up to SEK 17.7 billion, and the factors driving this in a positive direction were the positive development in the equity markets, the performance fees and upturn for assets under management. Towards the end of the year, we also saw an increased customer activity in many parts of the bank, not in the least investment bank, and [also] the 5 large corporates and financial institutions with IPOs, a number of advisory services for acquisitions as well as payments and lending. They all contributed in a positive manner.

We'll proceed and look at the net financial income situation. We noted a drop by 3% down to SEK 6.9 billion. And an innovation in this slide, many of you have seen it before of course, but here rather than just talking about the so-called market valuations or letter combination, not primarily driven by our operations, it's now in a bright purple shade to point out that in this year 2017 should I say, these letter combinations or market valuations on financial instruments had a positive contribution of SEK 210 million, and that's the sum total of what you see on the 4 quarterly illustrations for the year. Last year, however, they contributed negatively to the tune of SEK 219 million, so SEK 429 million in terms of the change over the years. In the contribution of the market valuations, we often talk about stability and resilience in this item. And we expect with some variation that this should be somewhere between SEK 1.3 billion and SEK 1.5 billion per quarter.

And here is another favorite, operating leverage. This is the slide, the graph which shows our most concise way of presenting these points, and it's very nice to see that after the small glitch in 2016, we're now reporting higher quarterly income. We have falling or unchanged costs for the eighth consecutive time and we also have an increase in average quarterly profit. Our cost cap of SEK 22 billion remains in place. We're now in its third year of the 3-year business plan. So we still have the same in place for 2018 therefore.

This is an attempt to talk a little bit about our cost cap in more detail and our thinking in terms of investments, focusing on IT needs for the future and the concept of not costing any more than the year before. It might sound a little bit simple, but it's not a self-playing piano by any manner or means. We've listed things to the left, the items we need to focus on in terms of cost cap. We have the inflation on goods and services, properties, real estate, it gets more expensive in terms of running into using every year. There is also the fact that the cost increases by 2%, 3%, but in the Baltic states 7%, 8%, 9% in terms of the factories. And all this has to be taken into account.

There can be operating efficiencies or reducing the costs to compensate. But at the same time, we have an ambitious growth agenda and you need to see this in light of SEB. An organic growth agenda where all parts of our business have plans to do more with the same or even using less of available resources. We've also invested in our analytical capabilities in equities. We have invested in investment banking, staff, IT investments in private customer becoming a customer via the electronic way, for mortgages and also links here to SMEs in Sweden. And we're expanding to some extent in the U.K., which is a parent for the first time in our annual accounts this year. We can give you an initial presentation.

In IT, a great deal of our cause have been focused on IT for the future. We're focusing on the future so that operational efficiencies can take a real leap forward. And at the same time, there is an absolute must where we have to stick to the regulatory requirements. And without sounding boastful in any way, the second part of 2017 we saw a very proud SEB getting through here so far at 9 MiFID II, turning Germany into a branch and it was an indeed a very hectic queue for all parties involved. To the right here, we have our thinking on how to finance all of this.

The first point is operating efficiency in every manner or means, doing everything a little bit better with less resources. That's a real mantra for change in transition and it's part of the DNA of the bank I would put it to you right now. Strategic initiatives are also required. You cannot simply rely on operating efficiencies to free up all these resources to achieve everything that's listed on the left on this slide. So over a long period of time, we made quite extensive and significant strategic initiatives selling of retail in Ukraine, retail banking in Germany, closed down Dusseldorf and Hamburg 2 years ago.

And now if anything that has really been accentuated even further now that we finally revamp our German operations from a legal entity in AEG into a branch of SEB. And at the same time, we've announced an intended sale of SEB pension in Denmark. All of these strategic decisions are intended to give us more of an opportunity to invest in the most relevant part of our customer base.

And then if we look at the different customer divisions, we can look at larger corporates and financial institutions where we had a downturn 7% to 8.8% return on equity ended up at a 10.1%. And I talked about this during Q3 as well that there are couple of reasons for this. Trade with the securities has been lower because of low volatility and at the same time, we have advisory fees on those parts that have been doing very well. And we see that we are moving sideways still when it comes to loan and capital, but we have seen certain signs of increased customer activities, so should we say, the last few months during Q4.

And the reason why this was somewhat weaker was that we had a weaker Q3 that was not compensated for during the other quarters. But Q4, we have 26% up compared to Q3 and ROE there looking at just Q4 was 11.1%. And then we have corporate and private customers where profits increased with 11% to SEK 8.1 billion and return on equity pretty much as last year at 15.1%. And the positive driver here has been the customer behaviors that we have seen, they've improved thanks to digital improvements, digital mortgage promises that you can use digital means to become a customer and also the better-improved app with a new look and feel.

Mortgages were up 4% and have also contributed positively. And it should be noted that we continue to grow under the market average, the market being at 7%. And how surprised is in Sweden, they have pretty much stayed the same during the year. And then looking at smaller companies, we have moved from 10% few years ago in market share and we continue to gain market share, and we got some 7,000 SMEs as customers in 2017. Then the Baltics and this makes me feel like a parrot, continues to go well in all 3 countries. They have momentum in customer segments and increase over the year 24% ending up with the profit of SEK 2.2 billion.

And here as well we have seen positive effects from digital improvements, and we have the equivalent to mobile banking in Sweden that has now been introduced in the Baltics and also mobile payments and remote advisory services as well where we do not have to have physical meetings but we can use IT solutions to meet customers using a screen or something similar. And then Life & Investment Management, we are up 13% to SEK 3.6 billion with an ROE of 27.8%. Total assets under management was up to SEK 1,830 billion, an increase by around SEK 81 billion compared to 2016 where we can see that we're still not completely satisfied albeit things are moving in the right direction. We think that we can improve things further in how we meet the customers. And here I would also like to stress that we have a focus on sustainability and that has been beneficial when it comes to investment products where we are still strong.

One topic I feel has been topical throughout the year is growth perspectives for the balance sheet. The companies, what do they think about borrowing more compared to what they've done before. So we wanted to look at the history, not just comparing quarters. And here we have a corporate for example and also to a certain extent public administration, and we see the journey and we see our Nordic German growth case that we had between say 2009 and end of 2014. But no hope for the last few years, things have just been moving sideways and we have been sort of confused thinking about the macroeconomic strengths that we have seen over these years, why have companies not needed that capital to meet the macroeconomic growth.

And things have been moving up and down of course, but if we look at 2 years, these 3 categories that you see on the screen you see, we see that they're all between 8% and 10%. But we see that companies have not grown at all and the households have contributed with a 5% growth. And here we have tenant-owner associations and mortgages. And what we want to say here is that we see sign of a pickup, and that is the green line where we have the quarter with the 3% increase between Q3 and Q4. And we do not want to exaggerate this trend, but I do think that there are signs that give hope.

We also have households and here we see that we're with real estate down about 10% and we're pretty much at the same level when it comes to house prices today as in December 2016, even if we've seen some cooling off effects when it comes to mortgages. But market, as I said before, 7% up and we were up 4%.

Another theme that has been discussed is how to work with information technology in a world that changes very rapidly and what are different banks doing. It's very difficult to make comparisons. And we feel that there is an old bank at the door with the bigger circles where you think in cycles 1, 2, 3 tiers and do spend a lot of time making forecasts on ROE, work with a project at the time, you look at future costs and revenue, and you check all the time that you're on the right way.

This is something methodology that's based on the utility (inaudible) waterfall technology. And here we want to work instead with value delivery based systems. And that is where we have the 90 kilometers an hour sign, we always want to be able to deliver within 90 days to a customer. So instead of looking at big projects and doing one thing at a time, we want to work with thousands of small improvements every year in the bank. We feel that this is much better, better suited to what we feel about this rapidly changing world where we need to calibrate all the time and you need to make decisions as to what IT you want to buy and you have to be able to rethink. And the idea, of course, is to increase quality and get faster results.

Something else that is very interesting is robo advice and robo advisers. This has been something that has been hotly debated with startups who work with offering these advisory services based on algorithm. And recently, we introduced our own functionality based on robo advisers. You can only do this if you log in unfortunately. So you have to be a customer of the bank or become a customer of the Bank to use it. And this is a first version, but it's advisory services that's based on algorithms looking at all assets and all debts that a customer has with the bank and that is used to produce good sound advice as to what to do. And we also have follow ups on those advise automatically when things happen and not just with robots, but we also have people there if you want to ask something or check something. And we feel that this is the beginning of something very exciting.

And the balance sheet, well, I just want to say that we have a very, very strong capital position and asset quality is very good. And well, I just wanted to mention that and say that this year has seen low interest rates, strong equity markets, and low volatility. And it feels like there is a big belief in the market and I don't think there is anything that will change that image. We've seen certain signs that we've seen more activities towards the end of the year and continued good capital positions and credit or asset quality. Thank you.

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Questions and Answers

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Unidentified Company Representative, [1]

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Thank you, Johan. Now it's time for the Q&A session. Wait for the microphones. And we'll remind all of you to remember to say your name and the institution you represent when you get the floor. Starting with Robin over there. [Lez] is on his way with the microphone for you. Starting with Robin, right over there.

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Unidentified Analyst, [2]

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Robin (inaudible). First of all, the growth you see in corporate lending has mainly been on the SME side, I understand. Which sectors are drivers in this setup? And what's the outlook for large corporate lending? And second question, did you make any calculations for Basel IV that you can share?

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Johan Torgeby, Skandinaviska Enskilda Banken AB (publ.) - President, CEO & Director [3]

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I'll take the first one. You can think about the second one, the easier one. The numbers would suggest that that is the case, but it is actually a little bit broader than just SMEs. If you look at the different lines, so -- like leverage finance, et cetera, it's all gone up. The entire corporate sector is up. I think it's to the tune of SEK 19 billion approximately with small increases pretty much everywhere on every line, but also in SMEs, small- and medium-sized enterprises. So this rather low increase, which feels bit broader than just one particular factor, this is something which is not just a recovery from a rather weak Q3. We're just indicating now that the situation was even better towards the end of the year without reading too much into it right now.

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Unidentified Company Representative, [4]

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As for Basel IV, we have made -- we've made more calculations than some of you might believe in this, and we've been doing this for a long time now. We've heard what the Basel Committee would like to see as their final proposal and based on what we've seen before, I think this shouldn't be translated into the actual end result because this entire regulatory package needs to be grinding its way through the EU starting in 2020. It's going to take one or even a few years before it's through the EU machinery and then it has to be implemented in national legislation in Sweden. And we know that we have the Swedish Supervisory Authority and Swedish government agencies who do not always or often agree with the proposals from the Basel Committee. So I think in the end, it's going to be something other than what we see right now. But when we're standing here now, we feel very secure in what we've seen so far. It's a somewhat more light version in the final word from the Basel Committee than we'd expected and our ability to adapt is good. We are very well placed right now with a good capital quota and good levels of flexibility for how we can deal with the very long implementation period ahead until 2027. So we feel that this is a development we'll be able to manage well.

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Unidentified Company Representative, [5]

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Passing the mike on to Maths Liljedahl from Handelsbanken.

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Maths Liljedahl, Handelsbanken Capital Markets AB, Research Division - Research Analyst [6]

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Could you say a few words about -- well, you said that you had a good level of customer activity in Q4. What's the situation so far this year? Have you seen a continued good level of activity? And in particular, issue of securities for example, that was fairly strong in Q4 after all. And then more on the new 5-year plan, when will you tell us more about the plan?

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Johan Torgeby, Skandinaviska Enskilda Banken AB (publ.) - President, CEO & Director [7]

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Thank you. I'm not going to say anything about the first days of the year, but 2017 was a very strong year for IPOs. It improved for in terms of M&A, advisory services on acquisitions and in DCM, and that part of operations, and it's an unchanged positive picture for the year. We see a continued good level in the bank with high level of activity generally. When it comes to the plan, management and all those concerned in the bank during the course of this year will be doing 2 things. First of all, summer of '15 we adopted a 2025 vision, sort of a blueprint on a big map to relate to when we table our regular 3-year plans that we update every year. We're going to revise the plan we adopted in 2015. It's going to be about 3 years with summer 2018, and see whether our commitments then are sufficient, if we need to recalibrate it in any way. And then we're going to add a few additional significant points, what we're going to do above and beyond that 3-year horizon. So I think we can commit to saying something by the end of this year. We'll have to get back to you on that.

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Unidentified Company Representative, [8]

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If you can please pass the microphone to Magnus.

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Magnus Andersson, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [9]

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Magnus Andersson from ABG and a follow up from the telephone conference that you had about a week ago and perhaps we can look a bit more into the future today. And the cost guidance for 2018 SEK 2 billion in spite of you selling the activities in Denmark and you have write-offs as well with some SEK 200 million for the year, and Germany should also reduce costs perhaps that you do have IT investments that you need to do. But why do you keep that guidance unchanged? Is it because you have big investment needs and you want to use the guidance or is it that you wanted to, well, not make any changes before you have the new 3-year plan in Q4 2018?

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Johan Torgeby, Skandinaviska Enskilda Banken AB (publ.) - President, CEO & Director [10]

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Well, both I guess. We need to wait for Denmark to close down. So we'll see limited effects now compared to '19, the full year effects if this goes through we'll have in 2019. And there is no shortage in investments that we could do to increase returns and customer benefits. There is a long, long list and I mentioned a few initiatives, but you should not believe that it's difficult to, if you have the money the resources to make a better bank. But it's sometimes difficult to calculate the revenue. We do not wanted this to be a black hole. We have certain things that will happen and we need to invest in such a way that things are good for the bank and the customers, and we are doing solid work within the bank now to think about where we want to have an imprint, where we are strong in this part of the world. And what SEB is doing here that is what we need to think about, where we want to be and here it's cost efficiencies that we have and that is something that we can use when we make strategic decisions and we wanted to be very, very strong in terms of capital if we will want to expand and that is why we want to be a bit cautious now to have that flexibility. But it's not like you're saying 22, that is going down to 21.6, no, that's not what I'm saying.

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Magnus Andersson, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [11]

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And then another question. Germany, you write in the report that what is not being moved into the bank as a branch that there will be write-downs over time. How much there is no mention of how big a part of the portfolio, the time span and what effects that will have on our OE. So could you give us a bit more of a feel for, well, the road ahead, what it looks like?

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Johan Torgeby, Skandinaviska Enskilda Banken AB (publ.) - President, CEO & Director [12]

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Well, I think we will be able to provide more information about Germany over this year to you and others. And what we have done is that we have transferred much of the support functions in the AG and what we have there that has been moved or sold to the branch. And then I think we're talking about a time span up to 2020 perhaps well, we will be working with the things functionality will be moved to Swedish IT platforms, Nordic platforms offshoring and the Baltics will happen over that period of time. And the AG will be dismantled step by step, so maybe 2020, maybe it will be a little bit faster. And over time, the AG will then be dismantled and will become something very, very small where we basically just have a funding license maybe a little bit of funding and real estate. And what will happen basically as of now with (inaudible) is that we'll have a branch. And from a German perspective and our perspective, that will be value created for a bank and that is something we have in place already as of January 1. So this branch, it should be seen as something positive, something good and the AG now is a support side that will continue up until 2020, but will be dismantled and something you have to sort of see on the side. Question about the volume split. Well, we basically have no business there in AG with exception of what I just mentioned, some funding and some real estates. It's very small today and it will successively over the next 2, 3 years become smaller. So most of the lending will be moved then to the branch. Well, there are some real estate business still in the AG, but basically everything has moved into the branch.

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Magnus Andersson, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [13]

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And then finally trading income and why that line you moved from 1.3 to 1.5 and you have since 2015 Q1, basically have been on 1.2. And is there something, some reason why you're below that?

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Johan Torgeby, Skandinaviska Enskilda Banken AB (publ.) - President, CEO & Director [14]

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Well, it's difficult with -- well, looking at the variations, we have had a good treasury funding costs the last few years and perhaps that is why it's a bit higher than what we have had in our guidance, but we think it's positive.

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Nicolas McBeath, DNB Markets, Research Division - Analyst [15]

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Nicolas McBeath from DNB. I have a question on mortgages. You mentioned that you're growing a little bit less rapidly than the market. Looking at Q4, we had a quarter of low growth. One of your competitors have announced that they're going to grow faster than the market and adjust their pricing in mortgages. Do you see an equivalent need to make changes to increase your rate of growth or are you satisfied with the current situation?

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Johan Torgeby, Skandinaviska Enskilda Banken AB (publ.) - President, CEO & Director [16]

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We don't see that need. We're happy where we are. It's about giving a really competitive offer to each customer. Sometimes you are at 3% growth, sometimes you end up at 5% in a fairly strong market. So it's not that we have the realization that we need to reduce prices to get to some sort of average level for Sweden. We deal with one customer at a time with a fairly cautious credit policy.

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Nicolas McBeath, DNB Markets, Research Division - Analyst [17]

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And a more detailed question on NII, the net interest income. For Q4, SEK 64 million more positive on lower fees on the deposit guarantee scheme compared to Q3. What's the underlying here? Do we expect to reduce by SEK 64 million? How should we think?

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Johan Torgeby, Skandinaviska Enskilda Banken AB (publ.) - President, CEO & Director [18]

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That's a good question. I'll start, this is Johan, and then the others can add to what I said. This is the charges for the deposit guarantee. It was lower and we saw the impact in the fourth quarter depended on the [substance]. Initially of course, if you assume that you would get it in bulk over the year, you can look at the annual number and there is no need to make any adjustments. But if that hadn't been the case, then you probably need to divide it by 4 if you're an analyst and see that we had a slightly better net interest income for the first 3 quarters and the change for the fourth quarter, that's pretty much what I'd say.

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Unidentified Company Representative, [19]

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I think it's important to look at all the other items as well in fact in markets. For example, if you look there, you see that the NII is in fact down there to the tune of 400 for the year, SEK 1.1 billion since year one. Yes, and this means that there is a lot more within the bank which has been performing extremely well to compensate. So it all depends on your assumptions originally as Johan pointed out.

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Unidentified Company Representative, [20]

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Thank you. You can pass it on to Jens.

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Jens Hallén, Carnegie Investment Bank AB, Research Division - Research Analyst [21]

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Jens Hallén, Carnegie. You've talked about the cost cap for 2018 and you had an objective as well for operating profit. Do you still have it?

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Johan Torgeby, Skandinaviska Enskilda Banken AB (publ.) - President, CEO & Director [22]

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Well, it has been documented. So of course it's still there, but it's always difficult in advance. We ended at SEK 22.7 billion. We had talked about to SEK 24 billion and of course you can compare those numbers, and we have assumptions about increase in interest rates for example that never happened, but we're working on it.

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Jens Hallén, Carnegie Investment Bank AB, Research Division - Research Analyst [23]

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And the credit growth, things are going pretty well in Sweden. And if you look at demand, what is it like? What do you think? Just to get an idea of what you think about 2018 demand for what?

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Johan Torgeby, Skandinaviska Enskilda Banken AB (publ.) - President, CEO & Director [24]

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Well, I'm primarily thinking about mortgages. Well, we do not have any strong views when it comes to -- well, in market call, if I may say that we have to remember that it takes time for these things to change. It's kind of slow. It doesn't move that easily. And we have seen a 10% decrease and decreasing activities since so there are no surprises there and we also have the new amortization requirements that we'll see as of March 1, and perhaps we'll see a slight increase before then to get in so to say before March 1. We have seen that before that we have certain fluctuations there between the left and the right side. But basically, the situation in this country is very sound also for households and mortgages, and there will be a big need in the future as well for building more, looking at income, decreasing unemployment, GDP et cetera. I think that we have a good protection. We will not see any dramatic downturns.

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Jens Hallén, Carnegie Investment Bank AB, Research Division - Research Analyst [25]

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Well, last question. Credit losses are exceptionally low in Q4 looking at large corporates. And looking at 2018, do you have any comments there?

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Johan Torgeby, Skandinaviska Enskilda Banken AB (publ.) - President, CEO & Director [26]

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Well, it has been exceptional for a while and now it's going down a few basis points. It's within the margin of error though. And I don't think you can use that to look at a longer term. There is no concern at all shorter term and we see that margins are higher and we have been through a difficult situation for example Norway, we now begin to see the light. So in short-term things are good, but I don't think that you can expect that low level. And you also have to remember that we're entering into new regime with credit losses and we basically do not have anything from the past we can use. We have to look at Q1 and then we have to learn from there.

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Andreas Hakansson, Exane BNP Paribas, Research Division - Analyst of Banks [27]

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Andreas Hakansson from Exane BNP Paribas. If we go back to the net interest income, you talked about the margin on lending and the volume are positive and a negative impact from the deposit margins. Could you tell us about the STIBOR impact in Q4 and how it impacted the deposits? And if we go into Q1, STIBOR is pretty much at the same level as the beginning of Q4. Do we have the negative impact behind us?

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Johan Torgeby, Skandinaviska Enskilda Banken AB (publ.) - President, CEO & Director [28]

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I'll go first and then you can comment on STIBOR. If we look at the price against market for shipping, for real estate, for mortgage, SME lending, et cetera, we see that there are no major changes more or less. It's just moving at level with -- it's the margin measured gets customer and it's stable. But we also have funding costs of course impacting what remains and what doesn't. And we've seen a positive impact in that. Our funding has been better than the ones we did a number of years ago, and as they mature we've managed to achieve an improvement. And this time, we're impacting Q4. When we make a change between the bank internally and the different divisions on the deposit margin, it will have an impact throughout and so it appears as if it's the customer-driven [margin] which is lower and with a smaller impact on the buying internally.

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Unidentified Company Representative, [29]

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That's a movement and it takes longer when you have the STIBOR impact on the lending side. We're going to grow into it. So it takes a lot longer to see the impact there. So because we're funding for a longer time horizon, I would actually reduce the sensitivity for short-term STIBOR impact. The repo rate is more relevant, policy rate, than STIBOR generally and as Johan mentioned already, it's important to bear in mind that both lending as Johan explained and how the markets NII and treasury NII look like with this very flat curve, and we've reduced inventory levels of course considering the current situation. And we see lower levels of activities towards the end of the year. You need to include all those factors when you look at this.

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Andreas Hakansson, Exane BNP Paribas, Research Division - Analyst of Banks [30]

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But the impact is mostly seen in retail NII I assume?

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Unidentified Company Representative, [31]

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No, I would say that you also find it in large corporates and institutions.

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Andreas Hakansson, Exane BNP Paribas, Research Division - Analyst of Banks [32]

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And one final question, the maturities which impacted favorably on funding towards the end of the year, you probably had things that would impact more this year than last year. How much more can we expect there?

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Johan Torgeby, Skandinaviska Enskilda Banken AB (publ.) - President, CEO & Director [33]

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I think we said in Q3 that we have treaties in September I think which more or less made us earn about a 100 on lower funding costs as a result of that. And then we said that for the next quarter, we expected this to continue. And I think that's pretty much more or less where we are. We had an 81 which maturated in December. I think we refinanced that in March. So give or take a 100 plus 100 possibly. I think that sounds a little bit high if you ask me, but nevertheless. So plus/minus, minus something like that.

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Unidentified Analyst, [34]

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Well, I have 2 questions. One having to do with income growth. I believe around 5% where you see better primary market activities, for example in Q2 and Q4 being very good, and then you had a letter combinations. And 5%, what do you feel about that growth level for 2018? Is that less of a challenge or more of a challenge? We have the resolution fund and other things, will those costs will go up maybe SEK 650 million? And then you have SEB pension in Denmark and that will have maybe the same type of an impact this year. So what is your thinking there? What will drive quarter, what would have to drive quarter to manage 5%?

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Unidentified Company Representative, [35]

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Well, I do not really like to talk about 2018 performance compared to -- talking about 5%, but it's interesting to look at securities and markets and looking at the industrial side where we see or this sector where we see big banks would have a downturns. And we needed to decide whether there is a real need for these types of services for trading raw materials, et cetera. We believe so, but there is a cyclical component, also structural component that we could discuss looking at that part of industry where things seem to be changing. But 2 components, that and there is no big contribution from large corporations that contributed to the 5%. So it depends on what you believe will happen about these 2 aspects. Well, looking at pipeline, et cetera, what it did do well, if those things continue to do well, then of course things will improve.

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Unidentified Analyst, [36]

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Another question having to do with the capital levels. And you say in your report as well and you have been saying so for a few quarters. And you have also said that it takes a while to get more information, but the capital situation in SEB, when do you think that the board will say, no we need a buffer that is 150 points or more compared to the capital requirements? How much more information will you needed to make such a decision considering the factor that will know -- we will not really know too much about Basel IV until 2020, and given all the political negotiation that will have to be done?

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Unidentified Company Representative, [37]

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I can't say much about the board and what they will do, but the plan I can talk about. And based on this one factor, but it's far removed. We are going to discuss our new thinking about the bank with the board and all these components will be included, and then the board will have to make a decision about capital requirements, management buffers, et cetera. But we're looking at these things. What we're saying today is that we're saving. We want to have some dry ammunition so to say. And we will then also be able to look at, well, real management and strategic decisions. So you cannot say anything today. Do we need to wait for Basel IV and that decision for example before you change to buffer level, I can't say anything about that.

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Peter Kessiakoff, SEB, Research Division - Research Analyst [38]

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Peter Kessiakoff, SEB Equity Research. Two questions. One has to do with employees and secondly, corporate lending. On the number of employees, you're currently at about 14,900. If we go back one year from now, you mentioned that the reduction would be more or less on par with previous years implying that you would see a drop by about 400 in headcount during 2017 ending up -- by totaled or up about a 100. What are your ambitions moving forwards? What levels of -- what numbers of employees towards the end of 2018 or early '19?

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Unidentified Company Representative, [39]

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Johan.

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Johan Torgeby, Skandinaviska Enskilda Banken AB (publ.) - President, CEO & Director [40]

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Well, I'd like to say pass on that question until we've finally determined our plans beyond 2018. However disregarding that, we still have the same trend that we see. We certainly won't be more, but 2017 in many ways didn't turn out as expected. We needed hundreds of people to get MiFID II and IFRS 9 through and working with everything that needed to be focused on. So we needed a lot of hands and feet available to work with extremely complex issues updating the systems of the entire bank in fact to adapt. And that's really the only thing I'm prepared to say on that question right now.

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Unidentified Company Representative, [41]

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Perhaps I can just add that we do not have any specific targets on the number of employees. We have profitability and customer satisfaction and cost targets. However, the number of employees is just one of a number of different variables that we have as relevant. We just focus on for everyone in the bank with no particular indication there.

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Peter Kessiakoff, SEB, Research Division - Research Analyst [42]

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And what about corporate lending, my second question? I feel like you are slightly more optimistic. After all you showed us the graph of corporate lending of the past few years, if you look at the 1 year lending it's up somewhat. If you look at 2 years, much bigger upturn. Look at 3 years, however, in the same graph, you get the impression that it's unchanged over a 3-year horizon. Where do you feel more confident? Where are these green budding signs of growth going to come? There used to be some of them before, some hopes in the past as well, but they didn't always come true.

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Unidentified Company Representative, [43]

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Well, it still hopes, and you saw the picture that I showed you. It's difficult to draw any far-reaching conclusions, but I did mention that it has been a bit surprising that it hasn't grown even more considering the macroeconomic growth situation that we've witnessed. But there is a type of argument which changes over time, the macroeconomic approach to capacity utilization as employment is going up and capacity utilization in this country and industry and globally going up. My interpretation would be that the likelihood is going up for an increase. But there has been some disappointment in that type of analysis. We haven't seen it. So few green budding leaves absolutely and hopes which we're presenting, but nothing more than that today.

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Rickard Henze, Nordea Markets, Research Division - Senior Director [44]

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Rickard Henze from Nordea. A couple of follow up questions. The SEK 24 billion, the objective for operating profit, is there any thinking, perhaps external investments that will contribute or are you just thinking internal investments that are going to contributed to possibly getting there?

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Unidentified Company Representative, [45]

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Well, that is next year. We have ways to go, but we're basically thinking organic. We have no plans to do anything else to close those holes. Of course, we can never say never, but we have accelerated and we have focused on transformation with the AG, that is being changed to branch and also the changes in Denmark. And of course, we have to use that where we see long-term possibilities to improve customers.

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Rickard Henze, Nordea Markets, Research Division - Senior Director [46]

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And 70% of the profit adjusted for nonrecurring effects is being distributed that compared to other banks Handelsbanken, that's talked about an extraordinary dividend to get to the interval. So you will be the most conservative bank perhaps when it comes to dividends. And what is your thinking because your capital buffer is just as strong as the ones in the other banks?

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Unidentified Company Representative, [47]

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I cannot really talk about the other banks, but we have a dividend policy that has been decided upon and that is to pay 40% or more of the profits. And then we usually talk about our strong commitment that we wanted to be progressive over time. It should increase progressively over time. And now we have a 5% increase, i.e. SEK 25 per share and we feel that that is good and appropriate for us living up to that promise and to try year-on-year to increase at the dividends. And then well, thinking about our strategic work, perhaps we also want to have that little bit extra in the margins to be able to use looking at capital position, risks, cost levels and now we have that freedom to do things.

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Rickard Henze, Nordea Markets, Research Division - Senior Director [48]

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And then another maybe more detailed question, looking at inflows and outflows under asset management, it was negative in Q4. Have I missed something like a restatement or was it just that, well, it happened?

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Unidentified Company Representative, [49]

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Well, thinking about asset management, you also have to remember that it could be how you define things, something goes from one item to another, maybe move to real estate or somewhere else and you have to look at that entirety, the entire picture. And outflows, you can assume from asset management has gone to other asset types.

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Unidentified Company Representative, [50]

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Okay. I don't see any further requests for the floor. Individual interviews with Johan will begin now outside. Thank you all for joining us today.