Skandinaviska Enskilda Banken AB (publ) (SEBA) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the SEB Financial Results Q2 2026 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Johan Torgeby, President and CEO. Please go ahead.

Good morning, and welcome to Summer in Stockholm to SEB's Second Quarter Financial Results Presentation. Starting with the highlights for the second quarter, we once again established positive jaws, where income grew faster than costs reflecting a very strong business momentum that we've experienced during the quarter. We noted a new high for our net fee and commission income, supported by high customer activity and we definitely saw some change to the demand for borrowings, including an acceleration of corporate lending growth. A few events during the quarter that I'd like to highlight. First, after the 7% increase Q-on-Q for our asset under management, we broke the notable number SEK 3,000 billion for the first time. Our corporate bank in Germany continues to develop very positively. And now we are ranked as the third most appreciated foreign bank in Germany according to the German corporate customers. And thirdly, we have partaken in an initiative, which is cross industry in the Nordics to ensure and promote European and Nordics competitiveness, and this is called Nordics Compass. SEB's contribution in this group will predominantly be focusing on capital markets, deep tech, defense and energy. Moving to the next slide. On our business Pulse, starting with Corporate & Investment Banking, we saw broad-based corporate credit demand increase with a 5% loan growth Q-on-Q. We also had close to, if not a record quarter within activity for the capital markets and a very strong ranking in equity capital markets league tables. And here are some logos of the more notable transactions publicly done in the quarter. And also great to see that this year's customer satisfaction survey has been concluded for FX in Sweden, and we came out on top. For Business and Retail Banking, we clearly saw an uptick towards the end of the quarter when it came to loan growth. And here in this slide, we have mortgages. We've made a significant number of changes and improvements to our mobile app, and we can also see that mortgage applications right now are up 27% compared to the same period last year. We still don't have the market share number for June, but it definitely looks promising and moving in the right direction. When it comes to WAM, we have a headline number of net sales of SEK 11.5 billion. However, during the quarter, there has been a one-off event in Lithuania, where the pension funds available to the public has made available, and therefore, there's been a one-off outflow of SEK 11 billion. This is included in the SEK 11.5 million. So the gross number of net sales, excluding this effect, is actually SEK 22.4 billion during the quarter. In the spirit of Wealth and Asset Management, where we try to develop timely and attractive products within the 3 categories of alternative investments, passive investments and thematic investments. Here are 3 examples of what we've developed lately. This quarter, we closed the SEB Nordics Energy Fund with an AUM of SEK 8 billion. We have launched a new SEB Global index-linked fund, priced very competitively. And we continue with the thematics around defense and security to give a new opportunity to invest in this very important area for the future. Finally, Baltic is motoring on. Similar picture as last quarter. with very strong growth, particularly within mortgages and SMEs, and we've also received from the ECB a formal approval to merge the 3 banks, which is on track and we aim to conclude in conjunction with the year-end. You may also have noticed that we have made some management changes with regards to the Baltic division announced this morning. MENA ACA after very successfully leading the Baltic division has been appointed the new head of SEB in Finland. And we're also very pleased to announce that Sonata, Gut Gate, Bob Neena has accepted the role as new Head of the Baltic division. On the next slide, looking at the loan portfolio of SEB, we have experienced some loan growth during the second quarter, predominantly driven by corporate lending. We are up 4% quarter-on-quarter FX adjusted. On the next slide, looking at the results for our ambition to aim for positive jaws, it is encouraging to see that for the first time in some time, we did experience positive jaws in the second quarter of this year. Income rose more than cost, both Q-on-Q and year-on-year. And our aim is, of course, to design our strategies and efforts with this in mind. With that, I'd like to hand over to Christoffer Malmer.

Thank you, Johan. So on the next slide, we start with the summary financials. Total revenue increased compared to Q2 of last year, reaching above SEK 20 billion with both net interest income and fee and commission income posting year-on-year increases. Fee income increased by 8% from Q2 of last year. And as Johan mentioned, reached the highest level we have ever recorded in a single quarter. This reflects solid performance, particularly within our capital markets-related activities against a constructive backdrop for global markets during the quarter. The activity level in Q2 also reflects some of the pipeline that was held back during the first quarter following the outbreak of the conflict in the Middle East. So, with this in mind, we should expect the seasonal third quarter effect to be somewhat more pronounced than usual this year. The net financial income includes a contribution from our ongoing disposal of our shareholding in Euroclear. We entered into an agreement to sell our shares at the end of June, and I'll come back to the financial effects of that shortly. The underlying divisional net financial income is largely unchanged from the previous quarter. Net other income is impacted by market valuations of noncore assets held within Corporate and Investment Banking, and this has had a negative effect of some SEK 300 million. Turning to costs. Total operating expenses amounted to SEK 8 billion for the quarter, so largely unchanged from Q2 of last year. Sequentially, however, costs increased from Q1 by 5% or around SEK 400 million, half roughly of which is attributable to the impact on our staff costs from equity-linked remuneration, where as we've communicated, a higher share price has resulted in higher costs. The underlying cost development reflects the results of our ongoing cost consolidation, along with our continued investments in the prioritized areas of AI, regulatory readiness and resilience. As usual, we update our cost target for FX rates during the quarter. And this quarter, the weaker Swedish krona has resulted in a small upward adjustment to SEK 33.3 billion plus/minus SEK 250 million. Now looking at the run rate of expenses for the first 6 months of the year, we are currently tracking below that full year target level. Now as you know, we typically incur a larger proportion of our full year costs in the second half of the year, and we are also still in the process of ramping up some of our investments in our prioritized areas. That said, we are in a good position to meet the target or even come in somewhat below it. Now importantly, our focus on operating jaws allows us to make investments in order to accelerate income growth. and continuously such opportunities will be evaluated and considered as an alternative to lower costs. Net ECL of SEK 345 million or 5 basis points is a decline from Q1 and in line with the second quarter of last year. We have continued to release some of our portfolio delays in the quarter around SEK 250 million, specifically those that we reserved for the potential impact from U.S. tariffs. Our underlying asset quality remains robust. Within imposed levies for this quarter, you will see the impact from the deposit requirement with the Riksbank. The full year effect of this is SEK 150 million, which is fully accounted for this quarter. Full year impose levies are now expected to come in at SEK 3.5 billion, up slightly from the SEK 3.4 billion previously communicated. The tax rate of 19%, marginally below our communicated guidance, resulting in a net profit of SEK 8.7 billion and an EPS of SEK 4.4. The return on equity for the quarter came in at 15.7% and the impact of our overfunded defined benefit scheme on our return on equity continues to be material. So for comparisons, we inform you that the return on equity adjusted for the surplus in the pension fund amounted to 17.4% for the quarter. Turning to net interest income on the next slide. NII increased from the previous quarter by 4% or some SEK 450 million. We have talked about a lag of some 3 to 6 months for a change in policy rates to feed through the balance sheet, and this is effectively what we have seen playing out over the last few quarters. The most important contributions to the NII increase in Q2 came from the Baltics and the Corporate and Investment Banking division. Our Baltic bank saw the benefits of higher ECB rates, along with continued volume growth of both lending and deposits, as Johan mentioned already. The net interest income in the Baltic division has now increased sequentially since Q3 of last year in local currency. Within CIB, it's higher lending volumes, cash management driven deposits and investor services supported by the dividend season that contributed to the higher net interest income. We also recorded a somewhat elevated level of NII within our markets operations. Business & Retail Banking saw a modest drop in NII, partly reflecting internal calculations on day effects and some headwinds from the card operations. Deposits grew across both private and corporate customers and corporate lending volumes increased modestly year-on-year. As Johan mentioned, household mortgage volumes did pick up pace throughout the quarter. And in June, we recorded the highest number of mortgage applications we've seen for many years. our efforts to increase speed and simplicity combined with competitive pricing, have yielded results and leading to those improvements, encouraging so far and hopefully more to come. Finally, within treasury operations, we had some traffic between net interest income and net financial income, similar to what we expected -- experienced in the previous quarter. That's impacted our net interest income positively by around SEK 100 million being then offset by corresponding negative effect in NFI. Turning to the next slide and net fee and commission income. The level of SEK 7.2 billion represents a notable increase from the previous quarter as capital market activity resumed following the slowdown that occurred after the Middle East conflict. It's also an 8% increase from Q2 of last year, marking a new quarterly high as previously referred to. Within Capital Markets, Corporate Finance and ECM performed strongly while Transaction Services enjoyed a seasonal increase linked to the dividend season. Outside of CIB, fees also increased within Business and Retail Banking, primarily within the card business. This is partly seasonal, but also a recovery of some of the postponed travel-related fee income in AirPlus during Q1. Card fees were also the main driver of the higher fee income in the Baltics. Within Wealth and Asset Management, net inflows, as Johan mentioned, were robust at SEK 11.5 billion despite being materially affected by the Lithuanian pension reform, which has led to significant industry-wide outflows. So excluding the effect of the reform, underlying net inflows above SEK 22 billion. Turning to the next slide. The net financial income increased to SEK 2.4 billion with a large contribution from our shareholding in Euroclear. Now firstly, we received the annual dividend in Q2. And as I referred to earlier, we also entered into an agreement to dispose of our shareholding. We have been a shareholder of Euroclear for many years. However, we have considered this a noncore assets for the bank, and it has been continuously reviewed. Now the opportunity that we have decided to proceed with values Euroclear, rate total value of more than 20% above where any previous transaction has been conducted. The total capital gain from the sale amounts to EUR 76 million. However, due to a pending approval process of the disposal, we have for prudency purposes accounted for EUR 41 million of that amount in this quarter. The impact on our CET1 ratio from the sale is estimated to be around 15 basis points of which 10 basis points will come at the time of closing. The divisional net financial income amounted to SEK 2 billion, so in line with our historical quarterly average, which is now adjusted to account for the change in our strategic holdings portfolio. On the next slide, we move on to our capital development during the quarter. We started the quarter with a CET1 management buffer of 290 basis points or 250 basis points pro forma for the remaining phase-in of the Baltic IRB effects. That remaining Baltic effect of 40 basis points have now been phased in during the second quarter. And we also had some model developments going in the other direction. So you will see the net effect of 16 basis points under model changes and other. You will also see that the increased lending has led to higher REA and impacted our CET1 ratio by 44 basis points in the quarter and the weaker Swedish krona has had a negative effect of 10 basis points. So adding the retained earnings for the quarter and deducting the share buybacks gets us to the quarter-end buffer of 250 basis points. Finally, as usual, we would like to share our latest thoughts on AI. And this quarter, we want to focus on how we manage AI costs, particularly as pricing models are changing and a larger share of compute is now gradually being passed on to end users. Just as a quick recap, our AI rollout in 2025 focused very much on rapid adoption and learning across the organization. And in 2026, now we have shifted the emphasis towards disciplined scaling, concentrating resources on the use cases with the greatest potential while also applying stronger cost awareness, token governance and appropriate guardrails. So as pricing models now evolve and more compute costs, as I mentioned, passed on to end users, we're assessing each use case based on factors such as complexity, security value creation, suitability of a particular model. And the slide in front of you illustrates some of those dimensions. So in short, we want to use the right model with the right guardrails in the right kind of environment for each individual use case. Now this does not remove the room for exploratory or opportunistic AIUs. And not every initiative needs to meet the formal ROI hurdle but it does mean that we want to track cost usage and value creation closely as AI adoption now matures across the organization. As usual, on the final slide, we conclude with our financial targets, which remain unchanged, a 50% payout ratio, a capital buffer of 100 to 300 basis points and a return on equity of 15%. So with that, I hand the word back to Johan for any concluding remarks.

Thank you. That concludes the prepared remarks, and I'll now hand over to the operator.

[Operator Instructions] We will now take our first question from the line of Andreas Hakansson from Nordea.

First, Johan, you often talk about how the bank hasn't been firing in all cylinders. And you print a very good return on equity now. How does that feel today? Are you now getting close to it? Or would you say that you're about to actually be delivering in all areas at the moment?

Andreas, thank you for the question. We definitely have started a higher pace, but it's certainly not firing on all cylinders. The 1 that clearly has contributed this quarter is the Corporate and Investment Bank. So both the corporate loan book that grew 4%, 5%, that's a positive change, but the real staggering numbers are really on the fees and commission from debt and equity issuance up 100% plus on the quarter, advisory fees up 30%. And so as it is the highest fee and commission number for the group, we clearly have used more of the bandwidth of the bank. However, there's nothing really coming from loan fees, which is a very, very large -- I think it was -- that was the line that was actually down. So that is a lot of upside potential if you look at the potential of the bank and then, of course, we have BRB. So retail and business banking is certainly nothing to brag about. We are improving, but it is towards the end of the quarter and also wealth and asset management has more, particularly on the financial results. We had -- we broke $3,000 billion of AUM, up 7% on the quarter, but there is definitely hope that we can generate a better financial results.

So that's interesting. So if I take out your one-off in trading, your return on equity is 15% in the quarter. And coming back to the ROE target that Christoffer you mentioned. I mean you said that it's a 15% retail. But in reality, you talked about the long-term aspiration, which jaws doesn't say when you're supposed to deliver it and aspiration sounds quite soft. Is it any time to actually put your foot down and give us a firm ROE target? Or should we skip the aspiration already now and say that you are going to deliver 15%?

We have not changed our assessment of the aspiration. You think about it as a 3-year moving around some type of number, you will have had in the last decade, most years below or significantly below. We had 2 years where we were significantly above. And it goes up and down. The reason why we didn't change -- we haven't looked at it now. We looked at it in December last is really that in the medium term, price elasticity and competition in our assessment tends to kind of work towards a mark. And that mark, we say, is around 15%. Then it is probably reasonable to assume during a cycle of 2, 3 years plus minus EUR 200 million. that if we go 200 below, we're starting to feel that we have a problem to 200 above. We started challenging sustainability of that number. So no change here now, but I'm happy for the tone in your question because it's a final cost.

We will now take the next question from the line of Magnus Andersson from ABG SC.

Just on the corporate lending, where it seems to be an inflection point here in this quarter, finally. If you could just share with us if it's -- if you see it as purely demand-driven. I mean if that's the case, how robust you feel this is given the same you get from your client base? And also mentioning, if you have taken any measures in the first half of the year in terms of pricing or other measures in order to achieve this.

Yes. I would say that we don't know the market yet, but it does feel at least from my perspective, that activity overall has picked up. So that's the Bertam. The Alpha is, of course, that we need big -- we need 2-way traffic. We need a lot of buyers and savers of things and demand to pick up for SEB to kind of come to its right. And that certainly happened this quarter. We have made an enormous effort, but it's not rocket science to focus on the business as we've had 2, maybe 3 quarters where we've been discussing, are we as forward leaning as we should be, given that some other data points really pointed to us not being sure that we performed. And we started that in Q1. And that's really internal communication, focus on business, focus on winning and making sure that we stay relevant to the customers we have and attract new ones. And it's always hard to know what is what. You'll see when everyone else comes out, but this is lease it's a clear shift if we compare ourselves to ourselves. It's a much better trajectory right now.

Okay. And you said it was clearly an uptick towards the end of the quarter, right? So...

Yes, I would say that April was very much similar to the crash in March. May things really stabilize and pick up and then we saw a very high activity in June.

Okay, good. And then secondly, just on NII there, Christoffer, I might have missed something. But just out of the SEK 10.7 million you print in this quarter. How should we look at this number going into the second half? What portion of that would you say is sort of a more kind of volatile nature that might not repeat.

Thank you, Magnus. Yes. So there's 2 things that we're calling out as we typically do in the markets business, where we have an elevated NII. That's about SEK 100 million or so for the quarter. And then we have this traffic between NII and NFI in the quarter that is within treasury, and that's also in order of magnitude of SEK 100 million, positive NII negative NFI in the quarter. So those are the elements which are to your referencing a bit more volatile and harder to model in printing up.

Yes. Okay. And on NFI, you said the new normal level, so to speak, after divestment is SEK 2 billion the quarter, right? .

That's right. Yes, that's right.

We will now take the next question from the line of Sofie Peterzens.

Here is Sofie from Goldman Sachs. My first question would be just going back to the fees. The fees were very strong, but you also mentioned that there were some of the equity and net debt capital markets, the adviser fees were up 10%. How sustainable are these fees? And kind of how should we think about the fee trajectory going forward? So if you could maybe just comment a little bit around that? And then my second question would be around the [indiscernible] in Germany, we saw some headlines from [indiscernible] earlier this week. Is there anything you can comment on your Comex case that has been going on for some time now?

Thank you, Sofie. I would first say on the fee and commission when you break it down on issuance of security, secondary market, et cetera. The percentage numbers are very volatile as every single number is not that big. So obviously, there is nothing sustainable around 100% [indiscernible]. These are clearly rebound numbers in a very strong quarter, Q-on-Q with seasonality, et cetera. We know that Q3 will be a very quiet quarter, so I would actually look to Q4 to make judgment of what is this environment really in terms of volume and transaction -- and transaction propensity. That being said, this is a very strong, broad-based quarter if you look at what we did. We have the defensive type of transaction, where you have capital raisings to shore up the company. We have the offensive type of transactions, M&A-driven financings, forward leaning, acquiring something. And we have several strategic transactions where you try to shift focus in a farm or reallocating an investment company, and of course, the bread and butter beneath that, which is just normal course of business. The pipeline does not indicate this falling away. It looks very, very active. The dialogues are plentiful, and they are real. But I do have 1 cautionary thing and that is Q1 end of Q1 was very weak and beginning of Q2 was weak. And if you look -- if I look at the first half, it gives a more sober picture of what the last 6 months have been taking both of those into account. And then you come to different numbers like securities and commissions up 8%, the first half this year compared to other. So I think somewhere in between those 2 realities is probably where I think the current market stands. And then we will not get a real test of that until we have. On Comex, I'd just say that we are predominantly in the [indiscernible]. So that is the withholding tax case. Of course, Comex, which is the criminal size of tax evasion has been loosely linked, but it's not what we have and being accused of or having as a predominant discussion. And I have no update and things -- no news to report.

That's very clear. And maybe if I may, just 1 final question. On the Swedish banking tax and elections, anything we should be kind of thinking about going into Q3 or Q4, like do you think we could potentially get a Swedish banking tax increase?

Yes. I'm not in a position to judge better than anyone, but I think it's worth noting for all of you that the center and the center left does speak quite frequently and loudly around financing the future budget, the government budget through increased bank taxes. The number I have in my hand is another SEK 10 billion. Feasibility is a completely different matter, and I think it's not going to be that easy. But it's certainly something to have on the radar. And if it's something to take into in a more meaningful way in modeling, et cetera, I'll leave up to you, Christoffer.

Just to mention, Sofie, we've had the existing bank tax, as it's called the risk tax has been challenged in EU call context -- so there is a debate around the existing risk tax at this point in time as well.

Maybe on that, if you got a win or if the bank win that challenge, could you get any rebates or what happens if you win this console? Or can you kind of lay it back from the government?

Well, theoretically, both can happen. So you can have a tax being classified and lawful and should be reversed. I would put that as a very, very low probability, even though it's technically possible. It's not something that we would consider. The more likely thing is that you would cancel it or amend it. But it's all of those possibilities.

And it's early days.

It's early days is years away before we can conclude on the matter.

We will now take the next question from the line of Namita Samtani from Barclays.

My first question, so Handelsbanken today disclosed the Swedish has approved the new PD models for corporate exposures. Have you got any feedback from the FSA on your models? And can you remind us what your best guess is, i.e., do you expect a neutral impact from the Pillar 2 removal? And my second question, do you have any updated thoughts on whether you think SEB can gain some benefit on the cost side or even from revenues from AI? Or do you ultimately believe the benefits will go to customers?

Thanks for your questions, Namita. On your first question, I think the best update we have is the 1 we provided in Q2 of last year, where we showed you the update and the expected impact, and we said that our models are under review in Sweden, and we're working to get them approved and we currently hold around 100 basis points Pillar 2 add-on for that IRB on compliance and there's no further update on that update we provided. On your second question on the cost outlook, Yes, I think the opportunities here from the early assessments of our use cases within a number of areas of the bank is that there is good potential for efficiency gains. And I think the discussion going on right now is, of course, to what extent those efficiency gains should be brought in terms of lower costs or to be able to do more business within the existing cost base. As far as revenue opportunities are concerned, I think that's where developments have been slower. So thus far, most of the use cases that we're looking at primarily within customer service, we're looking at the credit process within mortgages. We're looking at financial crime prevention. And we're looking at software development in other areas. We're really looking at productivity gains and how those gains would be translating into bottom line benefits. So a little bit early, Namita to see what the outcome will be, but it's a lot of promising developments across the bank.

So I'll just make a guess. We have no indications that we are in a position to get this settled tomorrow. So I am assuming without any information other than what Christoffer just said, that this may take time. It's a long process to go through these mobile applications. So maybe it's a matter of sequencing that I don't know. But just so there's no expectations that this is going to come any day now from us.

We will now take the next question from Martin Ekstedt from Handelsbanken.

I just wanted to focus away from the corporate side a little bit on the retail side. Just to reiterate last quarter, you said that the retail banking transformation was centered on simplicity and speed, right? But the mortgage margins remain below where you would like them to be? So looking at Q2, what KPIs have improved the most since then? Is it business conversion, approval times, new customer acquisition, cross-selling, et cetera? And have these improvements increased your willingness to compete for mortgage volumes in Sweden than at current pricing levels? That's my first question.

Thank you. No change in strategy. So simplicity, speed and the correct priced product with customer happiness at the core is the strategy. We didn't have very little to show for in April. I did show a graph on the business pulse that this is the #1 in actually the amount of loans that are being granted, which clearly picked up. We don't know the market share yet. So we'll see what the overall market did in June. Conversion is no meaningful change. So conversion is, of course, a number of how many applications or mortgage promises do you extend that then converts into a real one, but volume is up. I think we are close to 30% in the mortgage application side. So it feels very -- if you compare it to ourselves, how we had it only a few quarters ago, it looks clearly better. We can also see that time to answer requests and time to provide an offer has also been reduced. So that's the simplicity and speed. So a leading indicator speaks to improvements but still too early to say that it will have the meaningful effect that we desire to have. Margins continue to be squeezed. It's a tough market out plan.

And maybe coming back to Namita question, this is 1 of the areas where we're also applying AI to improve speed and simplicity in the process.