arkadin managed calls - swedbanki/@sc/@all/@gs/@ir/... · arkadin managed calls event: swedbank...

26-28 Hammersmith Grove / London W6 7PE

Tel: +44 (0)20 8742 6350 / Fax: +44 (0)20 8742 6355 www.arkadin.co.uk

Arkadin Managed Calls

Event: Swedbank Interim Report January to June 2015 Date: 16 July 2015

Speakers: Mr Michael Wolf, President & CEO

Call Duration: 00:48:09 Conference Ref No:

2 26-28 Hammersmith Grove / London W6 7PE


Thursday, 16 July 2015

OPERATOR: Ladies and gentlemen, welcome to the Swedbank Interim Report for January to

June 2015. Today I’m pleased to present Mr Michael Wolf, President and Chief

Executive Officer. For the first part of this call, all participants will be in listen only

mode. And afterwards, there will be a question and answer session and Mr Wolf,

please begin.

MICHAEL WOLF: Thanks, and good morning everyone and I appreciate that you made the time to

make this call. The quarter is yet another very stable quarter result wise, good

quality in our minds. We see decent client activity, we grow where the market is

growing. And I’m very proud that we have been able to show that we are cost

efficient. It gives us room to invest in more client related challenges going forward.

The crisis in Greece has of course been on the front page for quite some time. Our

focus when it comes to that is to advise customers in the prevailing market situation.

Neither us, nor the majority of our client base have any direct exposure to Greece.

The Central Bank in Sweden continued to lower its repo rate with another ten basis

points.

We remain sceptical that we don’t see any political reforms. The lack of political

reforms increases the risk for unsustainable price development in different asset

classes. And we have therefore -- as earlier announced -- tightened our lending

standards towards the property sector. However, we continue to prove our strong

market position when it comes to mortgages in Sweden. And the growth in

corporate lending has fallen off compared to the last six months of 2014 according

to plan.

I’m also very happy to see that we see loan growth in all three Baltic markets for the

first time since 2009.



Within the savings area, we are seeing good volume development on deposit, whilst

fund flows net out -- as in net outflows -- and that’s something we’re not satisfied

with. We’re working hard to adjust our offering in this low interest rate environment.

And as we earlier announced, we have lowered the fund fees across the range and

that should over time hopefully give us a positive effect. When it comes to fund

performance, we have seen an improvement the last six months.

Digitalisation continued to be a hot topic in all four home markets. In Sweden, the

number of Swish users crossed three million and we see 5000 clients signing up

daily. The mobile bank in Sweden has now 2.2 million customers, an increase of

225,000 since December. And on the private side, we’ve launched a service where

you can sign up your Spotify service to our mobile bank and on the corporate side,

we have a standard services to improve cash flow control and transaction

management for corporates.

This development is also being manifested by the fact that we see a significant drop

in the number of transactions in the branch network, the drop was 16 per cent

during the quarter. Also in the Baltics, Digitalisation and the usage of the card

payments are pronounced and increasing. The number of card transactions

increased to 12 per cent, and as I mentioned last quarter, more than 40 per cent of

new sales are down in the digital channel for the private customers.

When it comes to large corporates and institutions, I’m proud to see that we

continue to manifest our strong market position when it comes to capital markets

issues. Our market share on Swedish bond issuance was 26 per cent and thereby

we are the largest player. In Norway, we are the third largest player with a market

share of 16 per cent.

Our low risk profile has led to that both Moody’s and S&B has upgraded us during

the quarter. And we have used the prevailing market situation to extend funding to

build more liquidity buffers. If we look at the risk area, one of the major issues that

we’re investing is of course stability in our IT environment. We need to be up 24/7



as customers are changing behaviours. So, more investments will go into stability

related IT investments. With that, I hand over to Göran.

GÖRAN: Thank you Michael, I will like always quickly go through the three business areas

and then move into sort of group common issues in my presentation. Starting with

Swedish banking, I think we are very pleased with the results in the quarter. We’ve

seen -- as you all know -- a shrinking deposit margin as a result of the negative

interest rates in Sweden, but at the same time, it has been an ongoing repricing of

the mortgage loans with regard to the higher capital charges for Swedish banks.

And that has enabled us to mitigate the first effect.

Volumes on the loan and deposit side has been good. We’ve been taking our

market share on the mortgage market and we have had a better quarter in terms of

deposit gathering which I’m pleased with. On the commission side, we grew. Much

of that is seasonality I would say, within the card and payment areas. But it’s good

to see that we continue our long term growth in the commission line according to

the EDP development.

Cost control, good as always in this area. Continue to transform the organisation

and the channel strategy, reducing you could say, the branch network on the

margin, and increasing activity and investment in the IT related channels or an

ongoing process and then continue to be there, we’ll try for quite some time.

Credit impairment and the quality on this we’ll come back to more in detail, but

continue to be very, very stable.

All in all, the key ratios are developing favourably in the quarter.

Turning to the Baltic, I’m actually quite pleased to say that the Baltics are becoming

more and more like the Swedish result. Very stable and low volatility result. That’s

exactly how we would like it to develop. And the specifics of this quarter I think is

that we do see actually landing growth like Michael was saying in the three



countries. I think that’s very positive underlying considering that we continue to

have a geo-political uncertainty to some degree.

We continue to see good activity in terms of commission income. And we are also

effected of course by the shrinking deposit margins there. So, all in all, I would say

that the result and the various lines are very good. As for quality, we have some

reversal. That Anders will come back to, but it manifests in the low risk in the

balance sheet here I think.

In this quarter, we have taken an extra dividend from Estonia and the tax regime in

Estonia is so that trade year’s for the first time income taxation, and therefore we

have an extra charge that we have pre-announced on a little bit more than SEK 900

million.

Continuing with large corporates and institutions. The NII is flat, very stable. We

see I would say slight volume growth, continue to take market shares on our specific

clients being active with them. At the same time, there is a slight volume pressure I

think in the corporate landing that we have witnessed by the people working there.

We continue to be negatively affected by deposit margins. And then, towards the

latter part of this quarter, of course we have been affected by more volatility in the

market due to the Greece situation and the widening of credit spread as an effect on

that.

I think we are being able to capitalise on that on the foreign exchange and we’ve

been actually -- like Michael was saying -- also good in the debt capital markets

origination, while our activity on the Swedish IPO market has been somewhat

weaker.

Asset quality, very good, and key ratios I think are holding up very well in

comparison to all our peers in this area. We are good with another stable quarter.

Summarising things on the group, we have a stable NII, where we see volume

helping us, repricing on mortgages being sort of a tailwind and we have a headwind



with regards to deposit margin and some small margin erosion on the corporate

side.

There is a very good cost development, we are clearly ahead of schedule I think.

Much of that is relating to the fact that we have been very much less wanting to

externally recruit. We have wanted to take care of our downsizing of staff, with

higher mobility internally. And that has been very successful. And it creates now

for us a lot of flexibility in terms of reviewing our IT investments, where we see an

increased need. But also seeing to it that we deliver more client values and don’t

feel that the organisation is under too much stress in some areas.

So, the cost guidance that we have previously given is continuing to be, that we will

strive to come towards SEK 16 billion in costs by the end of 2016. On the net gains

and loss, we have been slightly negatively affected by the volatility and the widening

of credit spreads. That has drained the result somewhat in the treasury area. So,

that line is slightly weaker than the previous quarter.

Asset quality on the group level, credit impairment or virtually non-existent and I’ll

leave that to Anders to elaborate on. Tax wise, we have been able to mitigate part

of the increased tax burden in the Estonian operation with tax relief coming from a

restructuring of our US operation, where we’ve been reclaiming part of a very hefty

tax burden we had in conjunction with the profit we made on the Lehman claim that

we sold, so that is good that we’ve been able to do that.

But overall, you could say looking at key ratios, this quarter is of course impacted by

the tax situation. The underlying results, profitability and cost efficiency is extremely

stable and on a very high level.

Then turning to capital, stocking and funding. Starting with the development. We

have had big move capital in terms of core tier one ratio. Part of that is relating to

the continued decrease in REA. That is many small factors affecting that, but we

continue to see better credit quality and the PD’s are migrating to the positive, as



the Swedish corporate base continue to become cash rich. And also, the Baltic

corporate base are improving their financial position.

Also, their lending is becoming better collateralised, we see a positive effect on the

LGD side. Then we have also been positively effected in REA by the fact that long

term rates have gone up very significantly during the quarter. And that has made

capital need towards financial institutions and derivatives portfolios less needed.

And that’s sort of something that has been building capital need over time, and then

suddenly when the market is volatile, we have a release on that side. And then the

last area I want to mention is that we have a new value at risk model approved in

the market risk area. That has released capital as well.

The area of development together with the change in the valuation of the pension

situation and the pension obligation has released a lot of capital. And the main

reason in the pension area is of course the significant increase of the discount rate

that happened in the quarter. These two together makes us jump from 20.5 to 22.4

in core tier one and with a new contra cyclical buffer requirement that has been

announced in Sweden, we think now that we have a requirement around 19.6 so we

have actually a buffer of 280 basis points, which is a very nice position to be in. But

as we can see, the volatility is high in terms of especially the pension situation. And

also I think the signs coming out from the regulator with regards to increased capital

need and the risk of increased capital need going forward is still there. So, we don’t

see any excess capital in the bank.

Lastly, before leaving over to Anders, I just want to highlight that we’ve been

actually significantly more active in the first half of the year. It started very early that

we increased our funding quite significantly. We have up until today actually taken

in long term funding of over 140 billion and last year we were around 125 for the full

year. And it’s been a deliberate strategy, where we actually felt that the spreads in

the beginning of the year and the easiness of actually extending your -- and the cost

of extending your funding was a worthwhile exercise to explore. And as you can



see, we have increased our unsecured funding quite significantly. That has meant

that we have extended average maturity on the funding for the full wholesale

funding compared to the year end, it’s been extended by three months and if I look

at only the senior tranche, it’s been actually extended by as much as six months

during these two quarters. Which I think is very good.

And lastly, like Michael was saying, I think we are extremely pleased to feel like we

are being rewarded for the strategy and being executed that we are a low risk bank

with a very low credit losses and a stable capital and funding position. We have

good profitability on a very high level, very much of it based on good cost control.

We have been rewarded by Moody’s that are upgrading us, S&B’s upgrading our

standalone rating and Fitch is having us on a positive outlook.

So, we will continue to work with them, we think we have further to go there, but as

you know, that all takes time. With that, I would like to hand over to Anders.

ANDERS: Thank you Göran. Most of it has been said already, but yet another quarter -- the

21st -- with very low loan losses and ending up at 6 million. Baltic banking

continues to show reversals. In this quarter it’s primarily coming from a single court

case in Latvia, so it’s nothing to be in your forecast. Impaired loans continue to

decrease, ending at 36 basis points in the quarter.

Assets in the Ektornet continue to decrease during the quarter and the ambition to

close down the Ektornet by the end of the year remains. Outstanding assets are

around 450 million. And finally, I would like to mention that our direct exposure to

Russia is now down to SEK 140 million. Thank you.

MICHAEL WOLF: Okay, thanks Anders and Göran and with that, I open up for the Q and A.

OPERATOR: Thank you. Ladies and gentleman, if you do have a question and haven’t already,

could you please press zero and then one on your telephone keypad now and you’ll



enter the queue. And then after I announce you, just ask that question and we’ll

have a brief pause while all the questions are being registered.

Okay, our first question is from the line of Mr Peter Wallin of Handelsbanken.

Please go ahead, your line is open.

PETER WALLIN: Thank you and good morning. I would like to start off with a few regarding the

mortgage margins which continue to improve. How much do you think there is left

in terms of fully compensating the higher capital charges? And connected to that,

do you think that it could be more difficult to improve margins going forward on the

back of the higher transparency of actual mortgage rates that we have now in

Sweden?

MICHAEL WOLF: As you saw, our average three months fixing rate came down a bit compared to last

month and we have seen an increase in funding costs relative in the market. So,

we feel that we have been well compensated for the increase in capital, and it’s a

competitive situation that will drive margins. Mind you, we are one of the few banks

with a widespread footprint in Sweden. The mix also matters, and here we and

Handelsbanken are the banks with the most vast footprint in Sweden.

PETER WALLIN: Okay, thank you. And then I’d like to come to corporate landing where we’re saying

there’s a volume momentum you’ve seen over the last years has now come to an

end as planned. So, shall we expect flat volumes from here, or is there any kind of

volume growth or any planning for the coming quarters?

GÖRAN: I don’t think we are planning to have volume growth come to an end. But I think if

you look at the whole property sector in Sweden with the need for housing, I think

there will definitely be -- should be -- lending growth. What we said prior was that

we felt we took a bit large a proportion of such a segment on the market. So, that



has been calibrated but other than that, I think we definitely would like to grow with

the market, but the industrial part of the market that relies on sort of export to a

higher extent is to continue to be rather subdued.

MICHAEL WOLF: And has strong capacity to finance investment.

PETER WALLIN: Okay, so we’re talking very low single digits there in expectation it sounds like. And

then a final question of mine before I hand the questionnaire over regarding costs.

Now if on like a seasonal adjusted base you’re almost already at your target run

rate for next year, so did I understand correctly that you’re going to utilise this -- the

timing -- to invest even more than previously planned into IT and similar projects, or

is it more -- is it realistic to believe that the 16 could actually be a fairly easily

achievable target for next year and maybe you could undershoot that?

MICHAEL WOLF: I mean, we remain with our guidance on target. I -- so, basically what I’m trying to

say is that the cost development has been moving faster than planned. We’re very

pleased with that the recruitment stop has enabled internal mobility. There is

no-one waiting for a job in the restructuring sort of program. So, that mobility is

essential for us going forward, because there will be more transformation in this

bank.

But it also allows us to do investments in the digital services, but also resources in

areas where customer satisfaction needs to be improved. Answering times etc. etc.

on the telephone bank. It’s an area where we have done quite a bit lately. So, you

will see us selectively spend money in areas where we can improve customer

satisfaction.

PETER WALLIN: Okay, thank you.



OPERATOR: Our next question is from the line of Masih Yazdi of SEB, please go ahead your line

is open.

MASIH YAZDI: Good morning, a couple of questions from me. I think Michael you said this morning

in interview that you don’t want to keep losing market shares in your asset

management business and I’m just wondering what your own analysis there is of

why you’re doing that, given that you’ve been cutting fees more aggressively than

your peers. So, what is your analysis there and what are you doing to change that

current negative trend?

MICHAEL WOLF: First and foremost, we have a new environment, a low interest environment, and in

this environment, fund fees becomes a more material issue. And here we have

been able to cut fund fees without losing overall profitability and that’s a competitive

strength in my book. Short term, it hurts probation income, but long term it should

build the client base.

Secondly, we see that our fund performance in the last six months is improving to

the positive. And that is without the fund fee -- help on the fund fee. So, it’s an

underlying good fund performance, and of course the fees add to that. That should

also make the sort of competitive position improving.

Thirdly, we are guiding customers to taking lower risk. We see a good inflow on

deposits, we are actively promoting that over in money market funds. And we are

also tightening our fund range and trying to simplify the savings message. So,

these are all sort of activities that over time should hopefully lead to more customer

activity. But the lag time is there, and we need to respect that it takes time to turn a

tanker.

MASIH YAZDI: Okay, thank you. Just a question there on your -- you commented on the deposit

inflows. I’m just trying to understand, you had some very large deposit inflows into



your retail business in the quarter at the same time as you were issuing a lot of

wholesale funding. And as you said, the market conditions have been favourable

for doing that. But what are you doing with all that excess liquidity you’re creating

and should I see that -- given this sort of negative interest rate environment, should

I see that the wholesale funding together with the deposit as a net negative or a net

positive for the bank, how do you think about that -- sort of creating that much

liquidity and funding?

MICHAEL WOLF: If we look at the business strategy, of course it’s extremely important that our front

line understands that lending and deposits are two sides of the same coin. And we

have stressed that deposit growth is vital if we’re going to continue to have lending

growth. And I think that message has been well received, but it’s also a reflection of

people’s risk awareness. Deposits are a good place to be in right now, bearing in

mind where the markets are.

So, that’s I think more a business strategy and a good execution of that strategy,

whilst funding maybe Göran could talk about.

GÖRAN: I think -- I mean it’s easy when you have negative rates to be tempted to sort of

explore short term measures to improve your result at all terms. But like Michael

says, I think you can go against that tide as well and take a little bit of pain and

gather deposits and build relationships and so forth and I think that that’s a smart

move. That’s our thought at least. We want to see that lending and deposit growth

are following each other all the time.

And that costs a little bit of money, if you want to maximise profit it’s not the best

strategy. On the other hand, we have been early out funding long term very good,

so I mean there we have an advantage now I would say that we have taken up

here. We were very active in the first four months, when money was extremely

cheap and around and the house rate has come up, so from that perspective, we



have a little help there. So, net I don’t consider it anything from P and L point of

view, it doesn’t give me -- it balances out to some extent I would say if anything.

MASIH YAZDI: Okay thank you. And just one last question on the net 447 million tax charge in Q2.

Will you include that or exclude that when you decide for your pay out of 75 per cent

for 2015?

GÖRAN: That will of course -- paying tax is part of normal business, it’s nothing you do

extraordinary, so that will of course be part of the end results for the dividend.

MASIH YAZDI: Okay, thank you very much.

OPERATOR: Our next question is from the line of Mr Omar Keenan of Deutsche Bank. Please go

ahead, your line is open.

OMAR KEENAN: Good morning, thanks very much for taking the questions. I just have two

questions, one on margins and one on capital. Firstly on mortgage margins. What

are the front versus a back book on mortgage look like at the end of Q2 compared

to what it was at the end of Q1? And then my second question was on capital. Just

the -- I guess you talked about the standardisation of risk weights and basal fall and

potentially capital flaws. Have you done any benchmarking work on where

Swedbank may compare or stack up to peers on that kind of floored ratio basis?

You don’t have to point out exactly where, but have you done any analysis on that?

Thank you.

MICHAEL WOLF: With regards to mortgage margins, I think during the quarter, the margins continued

to widen. Towards the end of the quarter I think that came to a halt and slightly

diminished. I think over time, it will be – I think we have repriced capital, I don’t



think it’s logical over time that mortgage borrowers should be the ones that are

paying for negative interest rates, especially since mortgage refinancing is very

much a capital market activity with capital bonds for refinancing. So, I think you can

reprice your capital yes, but you can’t substitute negative interest rates with

mortgage borrowers all the time.

In essance that it is over time actually something that should be borne to a higher

extent, if we fix a deposit at zero that it needs, that is actually a deposit base that

are refinancing to a higher extent it is on the corporate lending activities, so it could

be borne by corporate lending actually, if you think of that connectivity. So, I hope

that gives you some clarification on the mortgage side.

On capital, I think we have not done any specific stress test or anything that gives

us any quality there. Because the unclarity and sort of -- if you look at the

consultation paper that comes out from the Basel committee, it’s too wide in its

approach, it’s rather meaningless doing it and also we take rather good comfort that

we have a very strong capital position in the beginning, and we generate capital and

tangible equity that is, if not the best in the class, a very high numbers. So, really

we don’t see that that as an asset capital issue in there, it is more an issue of how

the business model might change and the securitisation and originations of

transactions over time. And in that area, we are very reactive and being against it

that low risk assets should go out from the banking system, out to the shadow

banking market. And that is something we share in common with the finance

department and also our regulator.

Is that helping you?

OMAR KEENAN: That’s great, thank you very much.

OPERATOR: We now go to the line of Johan Ekblom of Bank of America, please go ahead your

line is open.



JOHAN EKBLOM: Thank you. I just wanted to sort of follow up I guess on capital. I mean, you spoke

about the high volatility that I guess is caused in part by the pension accounting.

But isn’t that exactly why we have the pillar two requirement, so shouldn’t that

already be accounted for in your sort of capital buffers? So, maybe if you can

comment a bit on, I guess what do you feel is not currently captured in the FSA’s

requirement that you need to hold incremental buffers for?

And related to that I guess it is a busy morning, but Nordea commented this

morning that they’ve taken a prudential risk exposure amount increase for the

expected outcome of the SREP process. Do you have any similar indications that

you’d expect capital add-ons that are not covered by what’s been announced by the

FSA so far?

GÖRAN: The capital surcharges in the pillar two process are partly common, but to a higher

extent also very specific for banks. But we don’t think that there is anything -- or

having seen anything coming in that area. I think though that you need -- what

we’re saying is that you need a buffer for volatility and for foreign exchange and

interest rates. And if you see that, it effects my REA quite a bit and it also affects

my pension valuation. And then we have quarters when you grow much faster than

other quarters and so forth. And so you are definitely in need of a buffer about the

pillar two.

The question is to what extent and size do you need that buffer? And there you

could say that now we have come from a period with extreme volatility in the interest

rates, so I would say that if anything, the buffer need has gone up, because we

have rather large swings. But on the other hand, it’s been very rare market

circumstances. So, I think we need to continue to evaluate that and see what kind

of buffer we are.



And then the other issue is really, will the regulator push us into -- through the

European legislation, push us into higher capital in general, due to minimum of risk

weight floors on corporate lending? That’s a completely different issue, and there

we have a lot of uncertainty, and we say that we don’t want to talk about having

excess capital until we know where that is going. It’s better to be in a good position

there, and then I can control my fate, rather than chasing and being behind the

curve. So, let’s be a little bit ahead of the curve.

And then to summarise, the shareholders are getting between 14 and 15 per cent

return on this capital, where do you get that otherwise so what’s the issue here?

JOHAN EKBLOM: Perfect. And then maybe just a second question. Can you just comment on your

outlook for the treasury unit? I mean, you’ve sort of been guiding I think for a 500 to

a billion decline year on year, is that still your best guidance?

GÖRAN: I think that’s very much a valid guidance, I don’t think I have anything to add from

what we said in the last quarter there.

JOHAN EKBLOM: Excellent, thank you very much.

OPERATOR: Our next question is from the line of Heiner Luz at Goldman Sachs, please go

ahead.

HEINER LUZ: Hello, I’m just sorry for potentially coming back to two things that got touched on.

But basically just because I didn’t understand previously. Did I understand correctly

that you’re basically on a ROBUR side sort of potentially thinking of cutting margins

further? And on that side, also another question I think your reports states here

basically cutting the total amount of funds. So, should we sort of expect things



there to get sort of worse first before they start to get better, sort of in a restructuring

process?

And then, sort of secondly on the capital volatility sort of coming back to that, the

swings you’re having on a quarterly basis particularly due to the pension are very,

very extreme. If you think about sort of capital buffers, do you really think sort of

anything that’s asset capitals for that extreme swings, or is it something that you feel

like, “Okay, we want to have even higher buffers because we’re basically seeing

quarterly capital moves.” This time positively, but they are very, very large for

something we would usually sort of expect to more linearly grow over time.

Thanks a lot

MICHAEL WOLF: If I start with Robur. We have worked with Robur the last 12 / 18 months in this

direction and I feel that step by step it’s starting to pay off. And at the end of the

day, client behaviour takes a while to change, despite the fact you might have

improved fund fees or performance. I’m very content with what we have done, and

if you look at the growth flows, they look quite okay. So, bearing in mind we are the

oldest fund company in Sweden, with a very large client base. There are some

demographic challenges that relate to the outflow. So, I’m overall comfortable with

where we are today with Robur. Göran?

GÖRAN: Yeah, on the capital I think -- if I come back to that -- I just want to say that we have

seen extreme markets and we’ve seen extreme volatility that will put higher

requirements for a buffer than we previously thought in general. But we need to

follow that going forward. We have previously talked about 100 to 200 basis points

and in this quarter alone, we had 190 basis points. So of course, we need to review

that and come back.

But we feel comfortable in the question with 280 basis points above the

requirement. And we don’t see any excess capital.



HEINER LUZ: Okay perfect, thank you very much.

OPERATOR: We now go to the line of Anton Kryachok at UBS. Please go ahead.

ANTON KRYACHOK: Good morning, thank you very much. Just two questions please. Firstly, sorry to

come back to capital but I was wondering. When you think about your capital

position going forward, do you still think in basis points / buffer terms, i.e. buffer over

this Swedish FSA requirement, or do you think given that there is different

uncertainties around capital requirements, we need to start thinking about absolute

capital levels expressed in SEK billion terms? That’s the first question please. And

the second question on the Baltic offer quality. I think the provision write back cycle

has lasted a little longer than some people had expected. Can you please comment

on the asset quality outlook in the Baltics for the second half of the year? Thank

you.

ANDERS: If we start off with the asset quality in the Baltics, it has been strengthened since the

crisis, it continues to be very strong and as we said in the previous quarters, the

Russian situation has not impacted the portfolio in any substantial way. There are

some exposures that are more affected by the Russian situation, but they still

manage. So, as far as the asset quality in the Baltic comes, it remains strong in my

books.

When it comes to reversals, I have said that previously and I continue to say that.

You should not expect that to continue, that is going, coming to an end.

MICHAEL WOLF: On the capital in terms of buffer in percentage terms or in nominal capital, I think we

are continue to see it in percentage terms over the buffer as it is today. But of

course, we are acknowledging that leverage ratio discussions are becoming more



important with the floors and also, we have no really clear view on how things will

interact with TLAC and MREL, so coming as regulation as well. So, I think there is

a fair bit of technicalities and work to be done on this area and fine tuning of the

capital structure. But it’s nothing that worries us really. It’s something that we just

have to adjust to as it becomes clear.

ANTON KRYACHOK: Thank you very much, that’s very helpful.

OPERATOR: Our next question is from the line of Mr Andreas Håkansson of Exane. Please go

ahead, your line is open.

ANDREAS HÅKANSSON: Yes hi. I guess we’ve gone through almost everything, but just a question on

your mortgage margins. You say that they probably came down a little bit towards

the end of the quarter. I would assume that’s -- you’re talking about front book.

And can you tell us a little bit about the difference between the front and the back

book, and if you now see that the front book is flattening out, should we still see a

positive contribution from the back book for some time going forward? Thanks.

GÖRAN: You have a fairly quick repricing going through as you know in the Swedish,

because it’s a very high degree of 3-months fixes so -- but I would say that of

course you -- if margins were to stay sort of where they were coming out of the

quarter, you will have a tailwind going into the third quarter by repricing coming

through, because the back book is still lower than the front book in that aspect. But

at the same time, it’s a lot of things happening, so we don’t really -- I don’t really

want to be sort of too specifically guiding there, I think it’s a fluid situation.

ANDREAS HÅKANSSON: No, yeah but it is clear that you talked about the front book right rather than the

back book?



GÖRAN: Yes.

ANDREAS HÅKANSSON: Thanks.

OPERATOR: Our next question is from the line of Riccardo Rovere of Mediobanca, please go

ahead your line is open.

RICCARDO ROVERE: Thank you very much for taking the question. I just wanted to try to summarise a

little bit the messages that you are conveying on capital and be sure that I

understand it correctly. Are you basically saying that first of all the positive and the

negative one-offs that you have seen in this quarter will be part of the distributable

profits at the end of the year? I just want to be 100 per cent sure I understand it

correctly.

And on capital again, it’s my understanding -- the messages I’m getting from your

wording is that from now on, when we see every movement upward -- probably

upward movement in the capital ratio, it’s becoming and especially the portion

related to lower REA if any -- is basically becoming immaterial -- irrelevant sorry, not

immaterial. Because you think that the picture today is going to change in the

future, maybe also in the short term. Is that correct, the picture that I am -- the

message that I’m getting from you or from your wording? Thanks.

GÖRAN: I think it’s not becoming irrelevant, it’s never -- I mean, we believe in a risk based

measurement system, but we are hearing sort of I think it becomes more pressure

for risk weight floors. And also for calibrating the models as such. I think there is a

slight change of tone in the wording there from the regulators. So, we are sort of

cautious on capital in that respect.



On the first question, the tax will impact the dividend, yes so that’s clear. But I hope

that is clarifying?

RICCARDO ROVERE: Yes, yes, that is very, very clear.

OPERATOR: Our next question is from the line of Matthew Clark at Nomura, please go ahead

your line is open.

MATTHEW CLARK: Good morning, I guess a couple more questions on the capital situation and just

when do you expect to get critical visibility on capital that might make you more

comfortable in thinking about what to do with the ever-increasing headline rates at

CET1, is this something that you think you’ll get from the FSA this year, or are we

really waiting multiple years for clarity from the Basel committee and the European

Commission and so on?

And then kind of related to that, do you think it’s feasible for your capital ratio to ever

move backwards, or do you think that as this headline ratio moves up, effectively

the bar just keeps moving higher and that becomes the new normal, can you

foresee a situation where actually you get visibility and say, “We’re going to repay

the couple of percentage point surplus over regulatory minimum.” If you do get that

kind of visibility in the future? Thank you.

MICHAEL WOLF: I think that’s a very tricky question. Bearing in mind that Sweden is -- having had a

banking sector that has performed very well during the crisis. The country has been

strong, we were able -- or the Swiss regulator was able much earlier on than

anyone else to add capital to the Swedish banks. You remember the Troika of

2011, the 500 per cent SIFI surcharge.

What is happening now is that Baltic and Europe is trying to sort of standardise and

deal with their problems. And the situation in the European banking market is



dramatically different compared to Swedish banks. And ECB trying to sort of --

monitoring all the banks in Europe, definitely it’s a more mathematical focus, more

standardisation. And that is slightly a threat to the Swedish model. And this is

where the discussion is waging.

The regulator in Sweden wants a risk based model and that proved to work during

the crisis. But the model didn’t capture certain structural risks. The challenge in this

environment is that you will -- the further you go -- create a larger and larger shadow

banking market, and sooner or later the politicians need to sort of relate to that as

well. You can’t just push out lending outside of the banking system without getting

any sort of other challenges.

So, I think we are in a multi-year situation, where things will change. From a risk

perspective, I think the Swedish regulator has definitely sent a strong message that

we are well north of the capital we need to cover for the risk. So, if we were to

return to whatever normality that might be, yeah it can reverse definitely. I think it

should, if Europe does the necessary political reforms, quantitative easing is

withdrawn and we get a more normal environment, but that’s a number of years out.

So, and then I go back to Göran’s conclusion, we are ahead of the curve and we do

deliver great returns even with these capital levels, so it becomes more a

philosophical model type of issue and I don’t really feel that Sweden should suffer

from a model change, that’s what we are trying to protect. I think the Swedish

model works quite fine.

MATTHEW CLARK: Okay, thank you.

OPERATOR: Before we go onto the next question, if anyone has any further questions could you

please press zero and then one on your phone keypad now? And while we’re

waiting for further questions, we go over to line -- back to the line of Riccardo

Rovere of Mediobanca, please go ahead.



RICCARDO ROVERE: Yes, thanks again for taking my further question. If I’m not mistaken, you don’t

have a formal target for that. Would you be able to provide an idea of what is your

let’s say optimal or adequate leverage ratio? Is it the number released by DNB last

week -- 5.8 per cent too high in your view, can you add any colour or any comment

on this? Thanks.

GÖRAN: No, I don’t think -- I think you -- the leverage ratios are different between banks

because the DNA and the look if the asset side from a lender. I think we feel very

okay and confident with being at 4.5 and if we look at our -- in comparison to our

competitors and how they might need to change a business model or -- we feel

okay as well, so we don’t have any sort of targeted picture there and we -- as you

know, there is uncertainty on the regulations, so we have to wait and see on them

before we do anything. But the position is okay.

RICCARDO ROVERE: And is there any way to reduce -- without touching the numerator -- is there any

way to reduce the denominator of the leverage ratio in order to get a better ratio

than the 4.5 per cent in a reasonable period of time, let’s say six months, something

like that?

GÖRAN: I mean for us, we could quite easily get a leverage ratio for higher than 5 per cent

without any sort of big sacrifices on the P and L statement line, so there are things

to be done. But overall, the important thing is really in general, are low risk assets

do you want to be securitised or not, and that is the key question really.

RICCARDO ROVERE: Yeah, very clear thanks.



OPERATOR: At this stage, there are no further questions in the queue so may I please pass it

back to you Mr Wolf?

MICHAEL WOLF: Thanks for your active participation, I hope that everyone gets a few weeks’

vacation now and that you enjoy that. All the best.

OPERATOR: This now concludes the call, thank you all very much for attending, you may now

disconnect.

arkadin managed calls - swedbanki/@sc/@all/@gs/@ir/... · arkadin managed calls event: swedbank...

Documents