Release Date: July 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Return on equity improved to 17.6%, indicating strong profitability.
- Capital buffer remains solid at 430 basis points over the regulatory minimum requirement.
- Increased quarterly share buyback program to SEK2.5 billion, resulting in an annual pace of SEK10 billion.
- Positive net flows in asset management, driven by private wealth management and family offices.
- 44% uptick in operating income for the investment bank, showing recovery from low volumes last year.
Negative Points
- Income tax expense was elevated in Q1, leading to a marginal decrease in net profit.
- Net interest income is down marginally in Q2 versus Q1, with continued margin pressure on the mortgage side.
- Uncertainty remains around the timing and magnitude of potential reserve releases.
- Operating profit is up only 2% so far this year, indicating slow growth.
- Imposed levies are expected to be just below SEK2 billion in the second half of 2024, adding to costs.
Q & A Highlights
Q: How do you think about jobs in 2025-26, income growth versus cost growth in an environment with falling rates? Also, what should we expect regarding headcount and integration costs for the AirPlus deal?
A: We see next year as a year of consolidation with less cost increase compared to the past few years. Headcount increased by 200 in Q2, mainly due to summer interns, showing a slowdown in underlying headcount growth. Integration costs for AirPlus will be incurred post-transaction, with some costs already taken for due diligence.
Q: Does your estimate for 2026-2029 incorporate the ramp-up of the output floor?
A: No, it does not. We expect the output floor to be restrictive post-2029. The Swedish FSA believes we are adequately capitalized, suggesting potential adjustments to requirements if the output floor becomes restrictive.
Q: Can you clarify the opportunity to transfer SEK3 billion from the pension scheme surplus to the parent bank?
A: We have done some contributions in the past but not up to the full amount. Given the increased surplus, we are more likely to make contributions at the top range of SEK3 billion going forward.
Q: How should we look at your core Tier 1 target in 2025? Is it 18.7% or 17.7%?
A: The target is 17.7%, considering Basel IV effects and the expected removal of the Pillar 2 add-on when IRB models are approved. The exact timing of the add-on removal is uncertain.
Q: What gives you confidence in turning around AirPlus, which has been EBIT negative since 2018?
A: The value creation is based on the combined entity of AirPlus and our current card business, which will have twice the scale. We will provide more guidance post-transaction closure.
Q: How do you see competition from niche banks in Sweden developing as rates normalize?
A: Competition remains fierce regardless of rate levels. Lower rates may make higher-yielding lending more popular, but overall, competition from niche banks will continue to be strong.
Q: Can you provide guidance on full-year 2025 imposed levies?
A: We haven't guided for 2025 yet. The Lithuanian solidarity tax extension will likely result in a lower amount due to expected lower NII. The resolution fund fee's future depends on whether the fund is filled by year-end.
Q: Do you expect the retail and corporate IRB models to be approved simultaneously? Does the ECB play a role in the approval process?
A: The outstanding approvals are predominantly for corporate models. The ECB is involved in the collaborative approval process with the Swedish FSA.
Q: Can you clarify the one-offs in net interest income (NII) this quarter?
A: There was a positive one-off in the Baltic division offset by a negative one in treasury, resulting in no net effect at the group level. Additionally, NII in LC&FI was slightly below the historical average.
Q: How do you plan to manage capital return and maintain your target interval of 100 to 300 basis points above requirements?
A: We will steer towards the target interval using share buybacks and dividends, adjusting based on balance sheet growth and regulatory requirements.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
