Jyske Bank A/S (SHBA) Earnings Call Transcript & Summary

Hello, all, and a warm welcome to today's call on the acquisition of Handelsbank in Denmark. My name is Lydia, and I'll be your operator today. [Operator Instructions] It's my pleasure to now hand you over to our host, Lars Mørch, Group Strategy Director, to begin. Please go ahead when you're ready.

Thank you, Lydia, and thank you to everybody for joining the call here today. We are very pleased and excited to present this acquisition that we just announced today of Svenska Handelsbanken's activities in Denmark. We think it's one of those occasions where it's possible to do a deal that makes sense strategically for the clients, for the employees and also financially. So we're excited to present this to you today. Next to me, I have our group CFO, Birger Nielsen, who'll be the main man here on the majority of the presentation today. So if we take a brief look at the acquisition that we've just announced, we have announced that we've reached an agreement to buy the business activities in Denmark of Svenska Handelsbanken. We've also announced that, that would be done by paying a DKK 3 billion total goodwill for the business. And also in terms of financing, we have communicated that we have a very strong capital base today, and we'll be issuing AT1 and T2 instruments of approximately DKK 2.5 billion as well as senior debt. The time line for this acquisition would be that we expect a closing subject, obviously, to the needed acceptances in terms of antitrust clearing and so on by the end of this year. And then we expect to have a full migration by the end of 2023. And then synergies will be fully realized during 2024. So 2025 would be the first full financial year with full effect. If we then take a look at what we have chosen to call a unique opportunity here to strengthen our market position further, there are a number of things in relation to strategy, there are a number of things to the capabilities in the organization, and there's a number of things in relation to both customers and employees that we think is very attractive in this deal. So if we take the first one, which is predominantly a strategic point, Jyske Bank will gain important scale advantages by this acquisition. We'll get new strong talent in, and we'll get a critical mass within existing business and geographies. There will be good opportunities for strong people coming in from Svenska Handelsbanken with strong track records. This is a deal that we're doing in country -- in the only country where we operate. It's a deal that we do within business units and products that we already have on the shelves. So in that sense, it's gaining scale from a quality asset onto the platform that we're operating today. Moving on to the next one. I think it's fair to say that we have a fairly clear picture that when we started looking into this possible acquisition that the corporate cultures were compatible and that picture has been strengthened throughout the process here. There's no doubt that corporate cultures is underpinned by decades of stable professional and sustainable banking in both organizations. In terms of the clients, we see this as a potential strength of the value proposition that the Svenska Handelsbanken customers have already today. We can service the clients with the products that they have now. We have them generally on the shelf here. And on top of that, we have product areas and service offerings outside what is available today. We do not need to develop a lot of new products or services. We generally do not need to develop any new services from scratch to Handelsbanken clients and to accommodate that business, which makes the integration also that much simpler and which from a customer value perspective means that the customers know that we can handle the businesses that they are doing today. Then we have experience in the bank. The bank itself has been doing a number of different integrations and migrations in the past. And there's a number of people around the senior management who has been part of this in the past. The data platforms have been doing similar migrations a number of times also recently. So it's fair to say that we believe that we have the experience and the competencies in-house and at the data centers to do this. In terms of the financial part, we have a strong capital and funding position, and that allows us for an all-cash deal and no need for an equity raise. The transaction is then, as a consequence of this, expected to increase the EPS. But it's also expected to increase the EPS by more than what we could have done with a stand-alone business plan, i.e., including buying own shares. So to take a look at the business that we are adding to the existing Jyske Bank, it's a business that is headquartered in Copenhagen with 43 branches and approximately 600 employees. It's a full-service bank. It has a larger share of personal clients and business clients, but it is a strong bank in both areas and have the necessary products and capabilities. Our view is and I think the market share that Handelsbanken has shown a remarkable track record in terms of asset quality. And we've had obviously a chance throughout this process to get a deeper understanding of the portfolio, which to us looks very attractive also from a credit risk perspective. The performance of Handelsbanken in Denmark has been strong, and they've delivered fairly good results. It's not a business that have remarkably outgrown the market. It has been rather stable instead and growing at rates that are not extremely high. Instead, there has been a clear focus on building quality, which is one of the key things that we've been looking for. They've had a profit before tax of DKK 0.7 billion; cost/income, high 50s; and nonperforming loans on 0.5%; altogether, a market share of approximately 2%. When we're adding the 80 branches that Jyske Bank has today with the 43 branches in Svenska Handelsbanken in Denmark, we'll have, by far, the largest net of branches in Denmark. Obviously, that gives very good possibilities for integrating some of the branches here. And it also gives good opportunities for getting critical scale in important areas, in important parts of the country. i.e., Northern Sealand is important and a part where Svenska Handelsbanken is very strong. If we're looking at the portfolio, well diversified. And if we look at the country with the branches, we'll basically be covering all of the country even with a slight reduction or a reduction in the branches that we are planning. Birger, would you take the next slide?

Thank you, Lars. Yes, I'd be happy to do that. Looking at the next slide, it's very important for us to stress that this transaction adds critical scale to Jyske Bank in several areas. One, if we look at the financials, we will approximately add 1/5 to the profit. We will approximately add 1/5 to the volumes. And we'll approximately add between 1/5 and 1/6 of the employees of the existing group. And if we look at the right-hand side at the bottom, you can see that it actually also adds to diversifying the portfolio of Jyske Bank since there is a higher concentration of private customers with the acquired entity, 70% is retail, 30% is corporate. So that adds to the stability of the cash flow in the new entity going forward. From day 1, this transaction will have a positive impact on our financials. Even in the transition year 2023, we'll deliver expectedly an add-on to pretax profit of DKK 0.3 billion. And if you look at the composition of that calculation, you can see that from a standpoint of a normalized provision year -- provisioned year or impairment year, we expect the profit from Svenska Handelsbanken Denmark of DKK 0.6 billion. Then we expect to see cost synergies of DKK 0.2 billion, which primarily relates to replacing costs paid for the group services. And then we start the integration and restructuring, which will cost us expectedly DKK 0.4 billion in 2023, mainly driven by IT costs. Be aware that the exit costs from leaving BEC will be paid by Handelsbank. On the income side, there will be a slight negative from customer churn and higher funding costs in the year of 2023, adding that together to DKK 0.3 billion on pretax profit. If we then move ahead and look longer term '24 onwards, we expect pretax profit to be lifted by approximately 25% in the long run, approximately DKK 1 billion pretax from '25 onwards. And if we again look at the projections here and the composition, you can see that in the third column, the cost synergies will now be expectedly 0.4. Again, replacement of group services is one element to it. And second element is the common IT platform and common platform for products. And finally, we expect to see some FTE reduction in the years ahead via natural attrition in the whole group. And then in 2024, we expect to spend the last DKK 100 million in integrating/restructuring costs, i.e., a one-off that will then be finalized by the end of '24. And looking at the income synergies, we haven't yet spelled out any specific numbers here, but it's obvious that there are upsides to the income synergies from higher interest rates, from different deposit margins and maybe also from increased repatriation of existing loans from Totalkredit. So we see potential and upside to the numbers that we present here in the very long run. If we then look at the capital side of things, Lars has mentioned that this transaction will take place without need for an equity raise. We are at 17.2% as of now here in Q1 in the existing group. Then we pay DKK 3 billion in a fixed goodwill payment. And further to that, we estimate DKK 25 billion of REA of risk transferred via this transaction. And finally, we will see and have seen some retained earnings from the -- in Q1 numbers that will add to the character levels. Summing that together gives us expectedly a CET1 level well above 14% at the time of closing, slightly below our interval -- management interval, which we have stated in the market of 15% to 17% long term. But it's also -- despite slightly below the 15%, it's well above the regulatory requirements which as of now is around 10%. And we will spend the coming quarters after the closure to rebuild capital bringing it back into the interval between 15% and 17%. And we will also during the course of '23 reconsider starting buying back shares again depending on the development in the market and our actually ability to grow the capital levels. When we look at the funding overview, as you can see on the slide, we have a very strong funding position. And the consideration here is expectedly a net asset value number of around DKK 30 billion, which will be precise at the day of closing. And then we can add the DKK 3 billion in goodwill amounting to all-in DKK 33 billion. On the sources, from the top, we will deliver retained earnings. Adding to that, we will issue AT1 in the very short term and also Tier 2 shortly, probably after the summer break of approximately DKK 2.5 billion. We will issue unsecured debt, to some extent. And then the largest part of the funding vehicle will stem from covered bonds funding out of Jyske Realkredit. And finally, in the bottom, you can see we have excess liquidity simply because our liquidity metrics as of today is very strong. This transaction if we should sum it up with some milestone is announced today the 20th of June. And we will between signing and closing manage the funding need. AT1 and Tier 2 instruments will be issued in the market and a smaller degree of senior debt as well. And we expect the closure of this deal to happen in the fourth quarter of this year. The completion of this transaction with migration of data from BEC to Bankdata will take place in the second half of next year expectedly. And finally, the full realization of synergies will be in place during the year 2024, i.e., with full financial impact from 2025.

Thanks a lot, Birger Krogh. And then just to sum it up, we feel that this is a highly compelling transaction for basically all stakeholders involved And I think during the day, the view that we get from customers and employees supports that strongly. The customers of Handelsbanken are strong clients. They will still be able to deal with many of the same employees going forward. They'll still be able to get the main offerings that they're happy about that will not add any extra cost to Jyske Bank. And on top of that, they'll get the benefit of Jyske Bank's stronger platform, i.e., also in terms of digital solutions. It's also highly attractive to employees because that will give good career opportunities and strong people will find a good place and home in Jyske Bank. The shareholders -- for the shareholders, this is a, we believe, a very unique value-enhancing opportunity. It has been a possible -- a possibility for us to add extra volume to the bank for the last couple of years. But we've been looking for the right quality, and we think that we have found the best quality in the market going by together here with Handelsbanken's Danish business activities.

[Operator Instructions] Our first question today comes from Sofie Peterzens of JPMorgan.

Sofie from JPMorgan. I hope you can hear me. My question would be on the risk-weighted asset or the REA. So you're going for around DKK 25 billion of REA and that's Danish Kroner, whereas Handelsbanken is saying that the REA benefit for them will be around SEK 22 billion. So if I convert Swedish krona into Danish kroner, it's only around DKK 15 billion. So DKK 25 billion versus DKK 15 billion is a quite big difference's, could you just explain why the REA is so much higher at Jyske compared to Handelsbanken. And should we expect every time that there is some REA benefit? I don't know if you can ask for model approvals or, yes, anything that we should kind of take into consideration? So that would be my first question. My second question would be on the payout. You mentioned that you will consider kind of starting the buybacks in 2023. So how should we think about kind of buyback levels, if you could give us some guidance that I don't know, is Common Equity Tier 1 is within a certain bucket that this means that you will consider a certain payout? And then lastly, could you just comment on the rate sensitivity of Handelsbanken Denmark and how much upside we should potentially expect from higher interest rates in terms of the income synergies?

Thank you, Sofie, for the very good questions. If I should take them one by one, the RWA or the REA DKK 25 billion is based on our assessment. Given our internal risk weights in the portfolio today, it is so that we are able until their customer data is available to use our internal risk weights on this portfolio, and that adds around DKK 25 billion in REA. The difference between our calculation and the ones in Sweden, I'm very -- I'm not able to answer, but this is our assessment. Number two, the payouts, we will, as I said, reconsider buybacks during the course of '23 when capital level, CET1 levels is again reassured in the interval between 15% and 17%. And the number or amounts the being paid back, of course, very much depends on the retained earnings and the market situation as of -- at that point in time. Finally, the risk sensitivity of the new entity, we are not able to provide you with specific numbers. But it's our ambition that we will -- they will not deviate very much from what you expect Jyske Bank to have of sensitivity in our book.

Our next question today comes from Jakob Brink of Nordea. Your line is open. Unfortunately, we're not receiving any audio from that line. [Operator Instructions] We have a question on the line from Asbjørn Mørk from Danske Bank.

Asbjørn from Danske Bank here. And congratulations on the deal as well. A couple of questions on my side. First, on your assumptions for normalized profit in Handelsbank going forward, the DKK 600 million versus the DKK 735 million that was delivered last year. Could you just give me a little bit of a guidance on how do you get to the DKK 600 million level? I guess loan losses were 8 basis points last year. So maybe that's one of the reasons in fee income as well. But just a little bit of clarity on that one would be quite nice. And then on the negative synergies, the DKK 100 million. Just to make sure I got it right, so the lending total book is DKK 66 billion. The total consideration is DKK 33 billion, of which DKK 3 billion is goodwill. So I guess there's something like DKK 36 billion of loans that are not on the balance sheet. Is that correctly understood? So that will be to take credit loans that you could risk losing income on going forward. And just a little bit on the assumptions on the funding side as well, what are you assuming just get a struggle it to go -- get to only DKK 100 million negative on the synergy side there?

Thank you very much, Asbjørn. I'll be happy to answer them. The normalized profit in '24, as you stated, is normalized given the long-term average of impairments around DKK 600 million plus/minus, but that's our gross -- rough estimate as of now. The DKK 735 million in '21 was the strongest year ever. And of course, that entails a very strong performance on all the lines in their P&L. And what we now sense is that we -- the DKK 600 million in a normalized year, impairments would be an appropriate starting point for looking at this case. When you talk about the synergies and the DKK 66 billion in loans. We have DKK 66 billion, DKK 36 billion in deposits. That's a gap of DKK 30 billion, plus the DKK 3 billion in goodwill, which will be paid to Handelsbanken. I think that adds to the equation very well. So please correct me if I didn't understand your question.

I think there was a part to the question here which was about what is the Totalkredit amount?

And I think just to add a little bit of flavor to that one, Asbjørn. The Totalkredit amount is roughly DKK 9 billion. So that's not the DKK 36 billion. That's approximately DKK 9 billion. Yes...

That's only DKK 9 billion of Totalkredit lending?

Correct. And then you asked about the funding size and the negative implications of that. We will issue AT1 and Tier 2 at the amount of around DKK 2.5 billion. We will probably also issue some senior debt. The estimate is, of course, based on the market conditions. And we are also incorporating in our calculations slightly higher spreads than what we have seen formally due to the market situation as of now. So we believe in the calculations we calculate and incorporate also some uncertainty as to development in issuing debt capital instruments as well as debt.

Okay. If I then could just a follow-up question, but basically on the last year, you mentioned that this will be fully factored in by 2025. And then you that say the EPS boost will be 10% by 2024. If I look at your -- the slide 7 in your presentation and trying to extrapolate that to 2025, I guess cost synergies could be higher. But I guess the moving factor here would be the integration cost that will come off by 2025. So is it sort of fair to assume that the 10% boost for 2024, it will be all things equal around 11% plus for 2025? Is that how you think about it?

Yes, it's based -- if you do it on a capital-neutral -- well, sense and level, you will We will see it slightly lower. The main difference here is based on the fact that we at the outset bring our capital level slightly below our long-term levels and also the leverage that we initially will keep if we were running Jyske Bank as a stand-alone entity.

Okay. Final question from my side will be on the SIFI status. So do you think this acquisition will have any impacts on your SIFI surcharge going forward?

Well, if you look at the calculation of SIFI today, we add, I believe, 12 different triggers. And adding a 2% market share well-run bank to Jyske Bank will not jeopardize any stability on our SIFI. So the 1.5% uplift is still solid and valid after the inclusion of Svenska Handelsbanken.

And the next question from the telephone line is from Martin [indiscernible] Of SEB.

Just a couple of questions. Now you don't want to -- I assume you don't want to tell us your 2024 business plan. But if you at look at the Jyske Bank as a stand-alone, I mean, this is a bank that is going to buy roughly 10% to 15% annually of your market cap in share buybacks in the market. Why wasn't that a more attractive value proposition for your shareholders rather than buying someone else's shares?

Well, I can start. Maybe you can comment further, Lars. But if I look at the acquisition, it is very crucial what Lars said at the outset that it adds critical mass to the group's possibilities to deploy resources, competencies, IT systems, setups, et cetera. And this is the strategic view on this transaction, point number one. And as we also alluded to, adding a strong bank at a [ DC ] price actually also lifts the EPS relative to a stand-alone comparison, which you also referred to here. So we think these elements in common makes very good sense compared to where we stand at present.

Yes. And I agree to your comments Birger. If I should just add one thing that is with the bigger frame that the bank will have, going forward, driving efficiencies will also be easier.

But I feel like this is a story that we have heard before from your CEO. I mean he's been talking about achieving critical mass. He's been talking about achieving a market share of 15% for years now. And -- but what does it actually mean for you guys to have critical mass? Because it's not like synergies, at least the cost synergies to measure them as a function of Handelsbanken's running cost base are flattering.

Yes. I think if you look at the Jyske Bank, we have all the head office functions of a fairly large bank, but the volume is not that large. And over time, we'll be able to add extra volume without increasing the general cost of the frame of running the bank here. And I think that's an important point, so efficiencies with a 15% market share will be a lot better than half the size. Then I think in terms of practical terms, we're running a business which is a mix of physical presence and digital solutions, and we are running a bank across the totality of Denmark. In order to be able to do that, you need to have also critical mass locally. So -- and that will be difficult also with a lower market share than the one that we have now.

Okay. And maybe just a final question. So when we move into 2023 and you guys are potentially looking at returning to share buybacks, Birger, what's going to be your guiding here? I mean previously, we have talked a lot about the RAC ratios that are going to come back into play?

Yes. Well, I think there are several triggers as to when we start buying back shares. Of course, as we well know, the Board today decides on a quarterly basis, and that also applies going forward. One thing which is crucial, of course, is the levels that we stay within the guided levels longer term, point number one. Point number 2 is the ability of retained earnings in the group, which has been very strong and steady for some quarters now but -- and hopefully can continue. That's the second trigger. And as you said and alluded to the RAC ratio is the third one, we are quite reassured that with these metrics we provide here and the way to manage this transaction that the RAC will stay in a safe and sound territory as to the stability of our rating.

And you haven't had any comments from the S&P? I mean I assume that this is going to be a slightly credit negative event as more of your capital base will be based on nonequity instruments?

S&P is fully aware of what is going on, and we expect them to give some message to the market in the near future.

We have a question from Maria Semikhatova of Citi.

I hope you can hear me. A couple of questions. First of all, you mentioned that you are in dialogue with Handelsbanken on selected large corporate portfolio. Just wanted to get a sense what is the potential size of this portfolio? And what is the return on equity on these specific operations? Second, on cost synergies, you mentioned expected natural attrition from 2024. What is the natural attrition for Jyske or combined, if you can disclose that? And is there any differential on salary levels for both entities? And just one final question for me. You mentioned the option to issue equity of up to DKK 1.5 billion. Just wanted to get a sense under which circumstances you would consider this option.

Yes. Thank you very much, Maria. We have stated, yes, there can be and will probably be dialogues regarding large corporates is the fact that the very large Nordic corporations which they have in their portfolio today is excluded from this transaction simply due to some special terms and conditions they have in their agreements with Svenska Handelsbanken. Going forward is that some of those customers want to engage with Jyske bank, we'll be happy to have a dialogue with them and that could potentially lead, of course, to higher volumes and higher engagement with that segment as well. Yes, sure.

Yes. I think I can add to this that if you look into this portfolio, it's a very limited portfolio in terms of numbers of clients. And what they have in their contracts is very normal in terms of clauses. And we expect that a number of these clients will be happy to Jyske bank as a bank going forward where some of them would have specific needs that is better handled by other banks. And some of them will be less attractive also from a return perspective from Jyske. So we expect to have some extra volume based on these dialogues that is starting now.

Yes. And to your point, Maria, cost synergies via natural attrition, that is our clear expectations going forward. I believe that an attrition -- a natural attrition in Jyske Bank is very much aligned with market conformity or market levels, i.e., in the high single-digit percentages. And then point number three, you alluded to, yes, there is an option to raising equity up to DKK 1.5 billion. The reason for that is that we, in the process here and the project, has assessed the possibility or the option of going to issue equity. As you know, this is not the case because the transaction is fully aligned with the existing capital levels. But as of now, yes, we maintain that option. But the transaction itself doesn't need it.

Our next question today comes from Jakob Brink of Nordea.

I hope you hear me now.

Yes.

Yes. I assume it's not my best friend apparently. On just coming back to page, was it, 5 and 6, Birger, on the old Handelsbanken profit of DKK 735 million down to DKK 600 million. Is the difference -- I mean, how much of that sort of normalization is due to the roughly DKK 15 billion of lower lending from those larger customers? And how much of it is due to loan loss normalization?

Yes. Well, first of all, the DKK 600 million is the new perimeter, so to speak, the transaction that customers involved in the transaction that will add to DKK 600 million. And the main difference still lies within the difference between the impairments in '21 and the impairments in a normalized year.

But just I understand, so the -- but in that difference also lies the fact that some of the customers, roughly 14 billion will not come along in the agreement?

Yes. Everything -- Just one second, [ Simon ], you have a comment here?

Yes. Just to clarify quickly. So all the numbers stated in the material is on the perimeter, excluding the few selected Danish large corporates. So that would also entail the DKK 735 million is excluding those. So the main difference moving from the DKK 735 million down to DKK 0.6 billion is from normalization of credit quality where you should note that they had reversals of DKK 51 million in 2021.

Okay. So the large customers are already out of the -- okay. Fair enough. Okay. Then on the FTE reduction or cost synergies of DKK 400 million, potentially higher later on. Could you just -- how is it with Bankdata? How much of the -- when you take over, I think they have had around DKK 200 million in IT cost on BEC platform. What will that number be in the Bankdata setup? I guess some of your fees are fixed fee, and some of this is activity-driven fees. So how much do you expect to save from IT?

As we said in '23, the main difference is the payment for group services. And then going forward, the difference between BEC and a new entity with Jyske Bank and Bankdata, we expect and have estimated slightly lower numbers due to the fact that we make synergies in the coming years, bring down the total number of FTEs in the 2 entities. So bringing those together will add to bring down the total cost relative to what we're paying separately today.

So a small saving from IT, you say when everything is...

A decent saving from IT because some of it, as you said, is driven by transactions and amounts and some of it is driven simply by the number of FTEs that we attach from each group at Bankdata.

Okay. And how much does that leave up the DKK 400 million to come from FTEs?

We haven't yet spelled out that number. So please accept that this is the full number that we can provide today.

Okay. It's just when you say 10% or high single-digit natural attrition, is that then on the whole new group? Because otherwise, I guess, it doesn't quite add up to a number large enough if it's only on the Handelsbanken platform that you...

Jakob it's on the total group. So you have 3,200 employees in Jyske and you have a churn of approximately 10% and fairly high during the next couple of years because it's larger generations who are leaving for pensions right now. And you would have approximately also 10% from Handelsbanken. So that actually adds to more than half of their organization in 1 year.

Okay. And then just last question from my side on the -- why is Handelsbank paying the exit fee on BEC? Is there any sort of tax reasons or any sort of fees that will be lower if you do it this way? Or why isn't it just added on top of the -- of what you have to pay or reducing the DKK 3 billion instead?

Well, it's straightforward. They are a member at BEC today, so they have to pay the exit cost. And what we deliver to them is a goodwill that is an all-in number for the premium on the book as well as other costs that are related to the transaction from their side.

Next, we move on to [ Jacob Kruse ] of Autonomous. Unfortunately, the audio doesn't seem to be working. But Jacob did submit for questions orally, so I'll read those out for you. These were on the cost synergies, does this include branch closures and staff reductions? And is it more on the acquired entity? Or is this an opportunity to review efficiency in the existing Jyske business? I believe Handelsbanken has issued via Nykredit. Are there any complications with transferring this back to Jyske bank? On the consideration, what do you view as the P/E multiple you pay for the acquired entity?

Thank you very much, Jacob. Cost synergies, yes, they include all the cost synergies that we expect going forward, and that actually covers the whole group. And yes, as Lars also said, we have grown -- we can grow the scale and we can grow the efficiency in many areas of the group going forward. The transferring of Totalkredit is -- if I just fully understood the question, please rephrase it. Can you do that? Okay. I'll just jump to the P/E ratio. Well, the P/E ratio is a difficult task. If you talk about price-to-book or P/E ratios, they all rely on an equity in a subsidiary or in a company. Since we buy activities, we're not able to provide you with specific equity in this case. So we will not be able to provide you with any P/E multiples as of now. And then the question from Totalkredit. Yes, okay, thank you very much. We will, of course, do our utmost to repatriate as many loans as possible from Totalkredit, Nykredit. We see no complications in approaching the customers when we are allowed to and ask them to look at the Totalkredit portfolio and see whether this would be suitable in Jyske Bank. And be aware that if I look at the pricing to Jyske bank credit, we seem to be fully competitive.

And Jacob's final question was what do you use for AT1 and T2 costs?

It depends on the market situation, but it's obvious that prices and spreads have gone out to some extent over the last few weeks and months. So we incorporate that into the issuances that we're making. The exact numbers is not for us to state now because it depends on the actual day that we do the issuance. But it's obvious that prices have gone up, both in terms of AT1 issuance as well as T2 issuances.

[Operator Instructions] We do have a question again from Asbjørn Mørk on the telephone.

Two follow-up questions from my side. If I go back to Slide #5. So basically the DKK 51 million of loan loss reversals last year is 8 basis points. If I just apply 10 basis points of sort of normalized loan losses, that's around DKK 120 million of headwinds. So that brings us DKK 735 million to close to the DKK 600 million you guide for. And then if you look at fee income, which has been growing DKK 150 million in 2 years, I guess normalizing that line could provide some sort of headwinds as well. So I'm just trying to understand why DKK 600 million is a fair through-the-cycle number and not a little bit ambitious numbers for the business stand-alone?

Well, through the cycle, you're right, when we normalize impairment, we come to these around DKK 600 million. Looking at the fee income, yes, it has grown simply because asset management has been a significantly growing business for all banks, including Handelsbanken over the last few years. But we have a clear ambition in the field of private banking to grow the new united entity even further. As you may know, we have been approved 7 years in a row now as the best one to provide service for private banking clients, which we are very proud of, and we want to actually to merge the competencies in this field to grow that book even stronger. So we don't see that this is a too ambitious starting point for the new entity.

But wouldn't your asset management ambitions be under your potential synergies of the deal? And I guess asset management volumes are down around 10% so far this year. So I guess that's a tough comp if compared to last year.

Well, it's, of course, a long-term goal we're talking about here. 2, 3 years ahead, we certainly expect markets to come back. But of course, timing is uncertain. When it comes to growth, we believe that we can deliver the same growth in Handelsbanken as we expect for Jyske Bank. And we have ambitions to outgrow the market in this field in the coming years.

Okay. Fair enough. And then final question on my side. I mean on my numbers, you do make quite a decent return on investment on today's deal. And that's despite the fact that you were, of course, you had some disadvantages on the [ IP ] side versus some of the -- some of your competitors that, at least on a rumor basis, were interested in this deal. So maybe just some reflections from your side on what was sort of your competitive edge in this transaction that sort of made you seal the deal?

Yes. Thank you, Asbjørn. This is obviously a question that's better suited for Svenska Handelsbanken. But I'll try to the portray view that we have had in terms of our acquisition here. I think Handelsbanken have communicated that they wanted to exit Denmark and they wanted to exit Denmark in the best possible way. And I think in terms of that, the simplicity and the way that they could exit has been important for Handelsbanken. That has been our view. We do not think that this has been a price competition predominantly. We think that they've been looking for a buyer with the right quality, competencies and size to take over the clients in a good way and to take over the responsibility for the employees also and a client that has been able to provide a structure for the team that's not too complex to execute. So I think these have been -- that's our view at least, has been very important for striking this deal.

And moving back to Zoom, we have a follow-up question from Jakob Brink of Nordea.

Just one follow-up from my side. On asset quality, I think, at least historically, I think even you might have said that. But at least someone has speculated whether Danish sort of FSA guidelines on provisions has maybe been a bit tougher than what we have seen in the Swedish market. So what kind of -- when looking through Handelsbanken Denmark's book, what have you found? Do you think it is the same growth that has been applied? Or do you maybe feel that there's a need for some upfront provisioning?

It's correct we've done a thorough due diligence in all fields, of course, surrounding this transaction. The FSA guidelines could potentially differ between Denmark and Sweden. But we are very reassured that what we have seen and spoken with experts about is quality, both when it comes to retail customers, when it comes to corporate and also the split between bank and mortgage loans. So we are very reassured that what we're taking onboard is a top quality portfolio. And the adjustments to be made relative Swedish versus Danish guidelines will be managed properly in the coming quarters. We see no need whatsoever of making significant changes at the outset because it is a quality book that we are looking at.

[Operator Instructions] We have a question from [indiscernible]. Could you please state your company name and proceed with your question.

Can you hear me?

Yes, we can hear you.

Yes. This is [indiscernible]. Two questions on my side. The cost to income ratio of the business you are acquiring is 58%. So I wonder if you have an idea of the level you want to achieve in terms of cost to income ratio for the business you are acquiring? And my second question is about the equipment rate of the current customer you are acquiring. This is just to have an idea of the cross-selling potential.

If I take them one by one, the cost to income was, yes, 58% last year, very much aligned with a very strong bank in Denmark. We have in Jyske Bank a level of in the mid-50s, well, 53, so to speak, so mid-50s for last year, which was also due to the fact that we have synergies and scale synergies on the mortgage side. Looking at the new entity going forward, we will very much focus on the whole group and not just separate solutions or metrics for the acquired entity. So going forward, we have an ambition, of course, to keep the group's cost income ratio in the mid-50s. Talking about cross-selling elements, we haven't spelled out in the investor material any specifics about cross-selling potential. We will be very happy to dig into it in further detail when we can get access and are allowed to do so. We have some potential fields where we can see cross-selling possibilities. But as of now, this is kind of an income upside as you can see on -- stated on the slide. Sorry, maybe just to clarify, to make it very clear that the 58% as a stand-alone entity will, of course, be lower. But when we calculate it going forward, we're very much focused on the group's total cost income ratio, which we expect to keep low or lower than they were as we talked about in '21.

We have no further questions on Zoom or on the telephone line, so I will hand back for any closing remarks.

Thank you, and thanks to everybody for listening in. Okay. That was difficult to get unmuted here. Thanks a lot so everybody for listening in. Don't hesitate to come back if we can help with answers on some of the questions or if we need to be more clear on some of the answers also. But thanks a lot for listening in. We hope that this transaction makes almost as much a sense to you as it does for us. Thank you, and have a nice day.

This concludes today's call. Thank you for joining. Your line will now be disconnected.