Svenska Handelsbanken AB (publ) (SHBA) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to this presentation of Handelsbanken's results for the first 9 months. The bank reported a solid quarter with earnings growing compared to Q2. Operating profit grew by 8% and the ROE amounted to 13%. As income grew, increased by 4% -- as income increased by 4% and costs dropped by 5%, the cost/income ratio improved from 44% to 40%. The cost/income ratio improved in all of our home markets in this quarter. Net credit losses again, now for the seventh consecutive quarter amounted to net credit loss reversals, and clearly, the asset quality remains very strong. And highlighted many times before, the bank is not only run with low credit risk, but also with low funding and liquidity risks and an ample liquidity portfolio amounting to around 1/4 of the total balance sheet. The CET1 ratio stood at 18.2%, which was 350 basis points above the regulatory minimum and thereby, 50% above our long-term target range. The anticipated dividend for the first 9 months, which is deducted from the capital base amounted to SEK 10.65 per share or 119% of the earnings generated this year -- year-to-date. During the quarter, the bank received a number of external recognitions, highlighting the customers' appreciation of the way -- our way of running a bank. For the fourth consecutive year, the bank received the reward, the Business Bank of the Year. And for the 13th consecutive year, Sweden's SME Bank. In the annual EPSI survey in each of our home markets, the bank scored higher overall customer satisfaction among households and corporates than the sector average as well the larger peers. And to note in the comments by the Swedish arm of EPSI, or SKI, as it's called here in Sweden, the customers do not only appreciate the local presence and offering, but also rank our digital offering the highest among the larger banks. For the bank, a state-of-the-art digital offer to the customers is merely a hygiene factor, and we rather believe that the USP for the bank relates to our locally connected, decentralized and customer-oriented business model. But of course, we recognize, and we appreciate the recognition. Now if we look closer to the financial summary of the third quarter, compared to the second quarter, ROE amounted to just above 13%. In the wake of lower policy rates, the NII dropped by 2%, which offset otherwise beginning signs of lending volume growth in several of our home markets. Increased volumes in the savings business contributed to an increase in fee and commissions by 4%. Compared to Q2, the income development was also supported by NFT returning as expected, to a more normal level after temporary negative effects in the previous quarter. All in all, income grew by 4%. Expenses continued to develop in line with the trend seen for some time now and decline a further 5% in the quarter. The drop is partly to seasonality but also a stronger general cost awareness throughout the bank with an everyday challenging of unnecessary costs. The cost-to-income ratio improved to 40%. Again, we saw net credit loss reversals this quarter of SEK 35 million. Now if we instead compare the 9 months of the year compared to the same period last year, NII declined by 7%, again, mainly as a result of the material cuts in Central Bank policy rates. Net fee and commission income, on the other hand, remained resilient and increased by 1%. The key contributor was again the savings business. Due to primarily the drop in NII, the total income declined by 8%. Expenses dropped by 6% when adjusting for FX, restructuring expenses and Oktogonen, the underlying decline was 3%. The reduced cost base comes as a result of the initiatives carried out over the last year with effect offsetting general inflation and annual salary increases by a wide margin. Net credit losses reversals amounted to SEK 308 million compared to SEK 369 million a year ago. So all in all, the underlying operating profit was down by 10%. Now if we turn to Slide 5. Over a number of months, we've seen positive sign of recovering growth, particularly in the U.K. and the Netherlands, but also in the mortgage lending in Sweden. Overall, however, volume development only contributed with SEK 22 million to the NII in the quarter. The main effect in the NII, however, related to policy rate cuts that impacted the net of margins and funding. Other effects overall had a fairly small effect. So if we look to Slide 6, net fees and commission income for the 9 months increased by 4%, and the quarter -- in the quarter and by 1% accumulated year-on-year for the first 9 months. The bulk relates to savings business, especially in the mutual funds offering. The increased commission come as a result of higher assets under management, thanks to both the positive market development as well as continued strong net inflows into our fund markets funds under management. The bank has for more than a decade, continuously had a market share of net inflows into the Swedish mutual funds market at around 2x the market share of the bank's current outstanding mutual funds volumes. We saw that the trend continued during the quarter as well as the first 9 months of this year. The second largest fee and commission line is payment fees, which followed the seasonal trend of upticking in the third quarter. These were up, along with the normal seasonality and fairly stable compared to last year, and the other fees were relatively stable. Now over to the expenses. Over the course of the past 18 months -- the past 18 months, intense internal work has been carried out to put the bank in a more cost-efficient position. We've streamlined in central and business support functions and reduced the uses of external consultants. The level of our IT development spend has also affected the run rate of the cost, and it's currently at a lower level compared to the elevated levels in the previous years. Although running the bank with a lower level, there has been no change in our ambitions to continuously invest in order to improve efficiency and productivity in our daily operations as well as continuously develop and enhance our digital offering to our customers. The total staffing, meaning employees and external resources has been reduced with more than 1,200 people or 9% compared to when the internal efficiency work was initiated in Q1 last year. Compared to the same quarter last year, the total underlying cost and other expenses -- staff costs and other expenses were both down by 5%. Now over to asset quality and credit loss reversals. Over the past 5 years, the bank has total booked net reversals. And to bear in mind, this includes a period of pandemic, sharp up and downturns in policy rates, disruption of supply chains, stress in commercial real estate sector, war breaking out in the Ukraine, tariff turbulence, et cetera. The absence of credit loss is an evidence of the prudency in the bank when it comes to managing credit risk, both in terms of underwriting capacities and risk appetite, the customer selection and consistently -- consistency, sorry, in our underwriting procedures and policies as well as the preference for collateralized lending. But also not least in the ability to detect early signs of credit risk deterioration and the ability to quickly make necessary actions. In this context, the local presence throughout our branches and the close connection to our customers is essential. Now in the bank, we always limit funding liquidity and market-related risk as much as possible in order to ensure the capabilities to always be able to support our customers and safeguard the bank regardless of whatever unknown external events that might occur. In Q3, we received the annual regulatory requirement by the Swedish FSA, the so-called SREP. The Pillar 2 requirement was lowered by 15 basis points, which means that the regulatory requirement dropped to 14.7%. As we anticipate the dividend during the year to calibrate the CET1 ratio to be at 350 basis point above the SREP, the CET ratio was 18.2%. And as I previously mentioned, the anticipated dividend for the first 9 months amounted to SEK 10.65 per share, which was 119% of the earnings generated during this period. The CET1 ratio was in order -- in other words, 50 basis points above the long-term target range of 100 to 300 basis points, above the regulatory requirement. And as we've said previously, this buffer level above the target range is renewed at a continuous basis. The solid financials, including the robust capital position, put the bank in a position of strength, being one of the most trustworthy and stable counterparts in the industry. This view is shared by the leading rating agencies who rate the bank as the highest among the comparable banks globally. And in Q3, the bank also again was ranked as the safest bank in Europe, and one of the world's safest banks by independent surveys. Now turning to Slide 10, a few words about our respective home markets. In our largest home market, Sweden, which accounts for 73% of the group earnings, the market position in Sweden is very strong with the bank being the largest combined lender in private and corporate lending. Mortgage volumes are showing signs of picking up, while corporate remains a bit cautious given the current business cycles and geopolitical situation. The savings business, as I've touched upon earlier, continues to develop very well. The cost/income ratio was 31% in Q3. The profits grew by 1% in the quarter and the profitability was 16%. The U.K. amounts to 13% of group earnings. The trend in household lending volumes have broken the negative trend seen for a number of years, and we have now consistently seen volumes increase each month since the beginning of this year. Also on the corporate lending side, we've seen a clear trend shift since a year ago with growth again. High activity within our branches have led to more business, at the same time as the amortization levels have come down from the high levels seen in the past year, meaning that the new business we've seen now also start to show in the net number. In the recent quarters, the U.K. has been improving the efficiency. And we're starting to see initiatives filtering through in the cost base to offset margin pressure on NII relating to the lower short-term rates. The cost/income ratio improved slightly to -- in the quarter to 59%. The profit before credit losses were flat versus Q2, but operating profit decreased by 4% as the net credit loss recoveries were a touch lower. The profitability was 13%. Now Norway accounts for around 10% of the group earnings. After a refocused period that started during the spring last year, the business is now gradually becoming more balanced between lending, deposits and savings. With the competition, especially in the mortgage market is fierce and has picked up gradually over the last year. The bank continues to focus on deepening our customer relationships, also in the field of deposits and savings. In Q3, deposits grew by 2% and asset under management grew with 6% compared to Q2. The increased cost focus is also gradually showing in the numbers, offsetting margin pressure from lower rates. The cost/income ratio improved to 41.5% and the profits grew by 3%. The [Technical Difficulty] was 12%. Finally, the Netherlands account for 2% of the group earnings. Since a year back, we've seen growth in both our household and corporate lending. The positive volume development was, however, been offset by margins that also in the Netherlands have been affected by lower short-term rates. Although coming from a low level, the commission income is ticking upwards, mainly as a result of a growth in assets under management. The ROE improved somewhat in the quarter. Finally, a few words to wrap up where the bank stands after this quarter. NII has adjusted to a more stable level after a period in the past 2 years with unusual big volatility in margins as a consequence of the big swings in policy rates. We start to see positive household lending growth in most of our markets and with corporate lending growth also in the U.K. and the Netherlands. In Sweden and Norway, the corporate lending growth remains somewhat muted, which is not surprising given where we are in the economic cycle. However, we have a firm belief that the activity and borrowing demand from customers eventually will pick up along with an improved macro picture. The commission business is growing, and we see momentum continuing to build in the customers' saving volumes. Costs are decreasing as we gradually become more and more efficient. Asset quality is strong also in the financial position, even though the bank is anticipating 190% of the earnings in dividend. And finally, and not least, our endless efforts on making sure that our advisers in the branches are close to and easily available for our customers continue. And we're happy to see evidence not only in our own interaction with customers but also in external surveys. And with those final remarks, we now take a short break before moving into the Q&A session. Thank you so much. [Break]

Hello, everyone, and welcome back, and welcome to the Q&A session. This is Peter Grabe, Head of Investor Relations speaking. And with me in -- for this Q&A session, we have Michael Green, CEO; and also Marten Bjurman, the CFO. [Operator Instructions] And with those words, operator, could we please have the first question?

The first question is from Magnus Andersson from ABG SC.

Yes. I have a question about the household mortgage market in Sweden as margins appear very thin. So what do you think about the prospects to eventually increase household mortgage margins in an environment where rates no longer fall? And related to that, what kind of volume growth do you deem necessary for the margin pressure to ease?

Magnus, this is Marten speaking. Yes, I agree with you that the mortgage business is super thin in terms of margins, but the whole idea with the mortgage business for our -- from our perspective is to broaden the business with the customer, obviously, to have a more broad business with each and every one of them. We've been fairly successful with that throughout the years. And if you look at the hindsight also, we have had a huge market share in the mortgage business in Sweden for a long time. We are now, since a couple of quarters, also taking a fair bit of the market as well, and we are happy with that. So in terms of the margins, I think that obviously, as you alluded to, long term, I think that we will see margins also come into a better position, but that will potentially take a little bit of time. As of now, the margins are very thin and the mortgage business stand-alone is not a good business, profitability-wise. But again, it's just an entrance into a broader customer relationship with our customers, and that is nurtured by the branch office network, as you know, Magnus.

Yes. Okay. And I guess it will be very difficult to raise list prices when rates don't move. So number one, are you alluding to that you will reduce the discounts to clients? And secondly, is it -- do you think that the 3-month mortgage product will reach profitability in line with cost of capital again as a stand-alone -- on a stand-alone basis?

So Magnus, this is Michael. So the list price is something and the real price that we do in our day-to-day business with customers is really what it comes down to. And the branches and the employees working with this always strive to minimize the discount from the list price, if you put it that way. So that's a day-to-day ordinary regular business with customers. And we do not -- we can, but we don't measure specific products. So we always measure the business we have with the customer. And that includes mortgages, that actually includes occupational business and also deposits and asset under management. So we always focus on the customer, not on products. And sometimes, over the years, the product is more or less profitable but we're very long term. And we have very strong customers. We focus on doing more of their business with us and thereby creating a profitable business with each and every customer.

We will now take the next question from the line of Andreas Hakansson from SEB.

I have a question on the U.K. I'm looking at NII that's been declining, what is it 10%, 15% over the last year on falling interest rates, of course. And the ROE is now down to 12.8%. I mean, we expect Bank of England to continue to cut rates, I guess, something like 100 bps more. Could you tell us the sensitivity to rates now in the U.K.? Has that increased as we come lower down in rates? Or how should we expect the NII to develop? And how low ROE are you forecasting for the U.K. operations on those lower rates, please?

Yes. Thank you for that question. I think first and foremost, I think we see a pretty strong quarter in the U.K. We are happy to see finally, if I may say so, the business momentum is turning a little bit to our favor as it regards to corporate lending. We saw small signs of that during the Q2. And now we feel confident that, that is really something that has changed. That's the first thing I would like to say. And then as you say, we expect, I think it is -- I think most believe that we will have 2 more cuts, but over the next 2 years or so in the U.K. And obviously, we will be affected by that. But we have to keep in mind also that the market share that we have in U.K. is still fairly small. So I think that we can grow, and the volume pickup that we have started to see now in U.K. will be the factor that will play into that also in our favor. So we're not too worried about the margin pressure in U.K.

And just on the back of that, you said that the volume growth, I mean, then we seem to only talk about lending. I mean mutual funds, you have negative flow in the quarter. And I mean, look at the staff numbers go down 7% year-on-year, your number of branches go down 7% year-on-year. So are you willing to invest in the business to grow it? Or are you just hoping that lending picks up?

You're right that we expect a little bit more in terms of the asset management side in U.K. I agree to that, and we've been waiting for that for quite a bit, actually. And we have a plan now in place to try and grow that as well. The flows in the asset management are going down a little bit. So again, we're working on that. And I think we can only look at, for example, the Netherlands, where we see now that the trend is shifting also there, where we have inflows in the asset management side from the branch office network coming into play. We expect to see that in the U.K. also, but it will take some time. We have a little bit of obstacles in the way to sort out before that can actually kick off. So in terms of the asset management side in U.K., that's it. And I think that are we willing to invest in the U.K.? Yes. We still believe that we have a really niche piece of the market that's super sweet for us. The model that we have with a decentralized model and the local knowledge also being very close to the customers is very fitting to that market. So I think that basically, since we are so small, we are less affected by the macro as such. So we have high hopes for U.K. still.

We will now take the next question, from the line of Nicolas McBeath from DNB Carnegie.

So I had a question on the staffing level. So if you could please first confirm what the staffing level was by the end of the quarter? And also, what you think is the kind of right size of the organization currently? Are you kind of seeing the organization as rightsized at the moment? Or where do you think the staffing will trend from here? What are you hearing from the Swedish branches? Are they seeing increased business opportunities and as expect to increase staffing? Or do they see more potential to work with more efficiency?

Thank you. I think I'll start with the branch office filling in Sweden. I think in terms of staffing, we are at a good place. We should also bear in mind that we have actually launched a pretty extensive help in terms of IT to the branch offices lately. So they are now digging into that and trying to improve their processes and make the ability to stay closer to the customer even better. So in terms of staffing in the branch offices, I think that we are in a very good place. So you shouldn't expect that piece to go either up or down, I guess. In terms of the head office, I think we are at a good place also there. I think that we have seen a huge effect of those initiatives that was carried out a little earlier in the year. You shouldn't expect too much more on that end. So I think all in all, I think we are in a good place to run the business as we would like to.

And if I just may add, I think it's important for me to again stress the fact that we've been working with our efficiency and the productivity and the cost side. You know all about that the last couple of years, actually 1.5 years. But now the focus in the bank is not working to decrease costs further. This is -- now we're in a position we have a strong -- we have a strong operating bank right now. We, of course, will watch out for unnecessary cost. But the focus for this bank is now to grow with profitability. So all efforts we are making now when it comes to do more business with more customers, bring on volumes, both in the -- on the lending side as well as the deposit side and the AM, asset management side and all that, that's the primarily target for the bank now. So you should not expect us, me to talk so much about costs going forward. We're in a good place. Now it's focused to grow our income and the revenues should grow balanced between those different product types in order to create profitability for the bank. This is the focus. It's not about reducing anything more. So yes, I just wanted to stress that.

If I may just follow up based on the comment you made about the new help from IT systems in the branches. How are the branches at this point, incentivized to implement these kind of IT systems, which I suppose are more centralized initiatives? If you could comment on that, please?

Right. So when I speak to the -- our employees in the branches, they are -- you don't need that much incentive because the working tools that we provide them now, which are new to them is so easy to use, and it creates so much more business opportunities and also the offering we can give the -- our first -- both private and corporate business, when it comes to how we team up, how we approach customers, how we work very efficient with the branch managers, the branch employees, but also all of our specialists throughout the bank. So we are -- it's very -- you don't have to incentivize them. It's very easy to use, and they see so much benefits in their day-to-day business, and they can do so much more with customers and create so much more quality when they meet customers. So I think they do it by themselves actually, which is very good.

We will now take the next question from the line of Tarik El Mejjad from Bank of America.

Just one question from my side, please. I mean we've been discussing for a while now, the potential churn in household lending growth, especially in Sweden. You sound more constructive on some first signs. I mean, the numbers we see mainly in Netherlands and U.K. Can you expand a bit on what you see on the ground in terms of potentially increasing demand on the household -- housing markets? And maybe how do you read the potential positive news from the elections and also from the fiscal stimulus next year?

Yes. Yes, you're correct. We will see fiscal stimulus coming into play sooner or later, probably in the first half of next year or so, and that will probably have an impact, obviously, of the household, as intended. And by that, I think that we are cautiously optimistic about the household lending demands. And we are supporting those customers, obviously. But as I said earlier, I think that we are happy with the pace in which we grow the mortgage book as of now. We don't want to bring on every customer. So the growth that we have in the mortgage book in Sweden as of now is perfectly fine. It's more what Michael just said that growing the business profitability-wise is the measure that we take right now.

And if I just may add, the -- I'm a bit more optimistic now than I was last quarter when it comes to the -- our corporate side, our corporate customers having more discussions with us when it comes to investments from their perspective, both in M&As, but also in just regular investment in their business. So I think it's a bit more positive underlying feeling, if you put it that way, when it comes to the corporate side, but also in the -- as Marten just said on the mortgage side, where we've seen a pickup in volume growth over the last 2 quarters or so, which is quite nice. So the -- I think in general, the consumers in Sweden are gradually becoming more and more, what you say, safe or -- yes, safe when it comes to their ability to invest more. So I think we -- I'm a bit more hopeful even there. But I said that last year, it didn't come into play because there was too much noise this year as well. But I think now when it comes to lower rates, fiscal stimulus, inflation is coming down and you have had time to adjust to that. I think we are a bit more -- in a better position now when we look forward than we were a few months ago.

I mean, it looks like really the fiscal stimulus and getting distance away from the crisis helps the household sentiment to improve. But I mean what about the risk to see a behavior in terms of lending deleveraging cycle maybe in Sweden? I mean this is something that you think we should exclude it at this stage as a scenario? Or it's still a risk from a behavior point of view to be witnessed?

Sorry, I didn't really get the question. Sorry about that.

The question is -- no, no worries. The question is, I mean, we've been -- there have been a risk of a scenario of credit cycle deleveraging, means household not willing to leverage more, which was actually kind of a scenario that could be possible given that we are already at the end of rate cycle, and there's no pickup at all, which is quite unusual in Sweden. So do you think that risk is now behind us? Or it's still something we could contemplate?

Yes. So as I just said, I think risk off is not really how it looks right now. I wouldn't say it's risk on, but it's something in between. I see signs of actually the willingness for consumers and corporates to bring on more risk and not deleverage anymore. So I think we're just in that position to see the shift. That's what I feel.

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

Here is Sofie from Goldman Sachs. So I wanted to talk about your capital position. You have accrued already a dividend of SEK 10.65 in the first 9 months of the year. You're with 350 basis point capital buffer. Why not use some of the capital for kind of organic and inorganic growth opportunities? Would you consider M&A? And if so would you consider any M&A potentially outside of the Nordic region? And if you were to consider any M&A, what would be kind of the type of transaction that would make you interested? And also related to capital, if you're not keen on M&A, how do you view kind of share buybacks and potentially also announcing an interim dividend similar to one of your Swedish peers?

Okay. No, let's just say that we don't have any news as it regards to the buffer as such. We want to stay 1% to 3% above the required capital. And so no news for you from that perspective. We have said earlier on that we will move into the range, and we continue to say so. The only thing we don't know for the moment is when. So no news from that angle. As with regards to the M&A, yes, we have our eyes and ears open, obviously, to those opportunities. We're not ruling it out. That being said, I think we all know that our preferred method of growth is customer by customer, strengthening the relationship with each customer along the way. It takes a little bit more time, but it serves the purpose of being really cautious and sensitive also from a credit risk perspective. We know actually what we bring on to the books a little bit more careful than through M&As. But again, we're not ruling it out. And if you look historically, we have also bought businesses throughout the history. So we're not ruling that one out.

And would you consider any M&A that would be more transformational?

I'm not sure I want to go into that. Obviously, as I said, we are looking into all opportunities as with regards to M&A. We have been investing in bolt-on acquisitions in the history, and we could potentially do that again if the timing is right and if the counterparty is right and the customer base is right. So we're not ruling that one out.

And what about using some of the excess capital to introduce an interim dividend? Is that something you would consider?

I didn't get the question really.

I said did you like an interim dividend that you pay one dividend, let's say, in the second half and the final dividend in the first half of the year.

So we do not consider that right now.

We will now take the next question from the line of Riccardo Rovere from Mediobanca.

A quick one. You have roughly SEK 580 billion in assets and liabilities in dollar, which makes a lot of sense to me that the numbers match each other. But more than 50% of the assets is in cash, and more than 50% of the liabilities are in bonds, which I guess the 2 should be somehow, the remuneration from the 2, or the cost of the 2 should be linked to something different, short-term rate for the cash and maybe long-term rates for the bonds. So when the Federal Reserve will start cutting rates again, should we expect a negative impact on NII from the [ current ] -- these two things may be linked to the different rate outlook. And then a second one, sorry to ask a second one. But if I calculate total risk-weighted assets for credit risk divided by the loan book, I know it's not just the loan book, but it's a bit brutal. But I noted that over the past 2 years, that ratio has gone down from 33% to less than 29%. Half -- what is driving the consistent continuous progressive reduction in the risk density of your loan book, of your credit exposure? It's a fairly large one. It's 4 percentage points in only 2 years out of 33%. So it's already low and it's getting lower and lower. What is driving that SRPs? Maybe, I don't know, anything that can explain that?

Yes. This is Peter speaking. Just on your first question, the simple answer is that the rate cuts in the U.S. should not be expected to impact NII, and the reason for having balances in the U.S. relates to partly our sort of normal long-term funding of the bank where we utilize the U.S. dollar market. And then also from a liquidity reserve perspective, we also deposit money at the Fed. But the simple answer is that you should not expect a rate cut in the U.S. to materially impact the NII as such. And then to the second question. I'm sorry, could you please repeat the second question?

The second question is, you take credit risk RWA, you divide it by the book. In September '23, the ratio was 33% and now it's less than 29%. So I'm wondering from an already very low levels, how can it be possible that this number keeps going down and down and down every single quarter. Every quarter it goes down. So I'm just trying to understand what is driving the intrinsic positive risk migration within the book despite everything that happens on this planet. I mean whatever happens on this planet, it doesn't affect you. And nothing affects you. It looks like. So I was just wondering how this can be possible because it's already -- it's already very low and it's getting lower. I mean I'm not like -- it's not -- I'm just trying to understand why.

I think the simple answer is that the underlying credit risk in our books has decreased. You can see it on a quarterly basis when you track the drivers for the RWA development in between quarters. You can just look in the appendix of the past number of quarters. You can see that we have had -- we've seen, in particular, positive volume migration, i.e., new customers are coming into the books with lower risk rates than the ones leaving the bank. So I would say that, that's the key driver. The other thing, of course, is relating to mix effects in the overall book, which can vary over time.

Okay. So there are no SRPs, transfer of risk, anything like that over the...

No. It's -- you can read it as it's pure underlying positive development of the asset quality in our books.

We will now take the next question from the line of Shrey Srivastava from Citi.

It's just conceptually on how you think about the cost base. Again, you beat expectations this quarter, and we know that you mentioned sort of a continued emphasis on just the cost culture around the bank. Is it now that you reached sort of steady-state cost from which you can invest further, particularly in the international operations? Or as a business, for these costs that are sort of top down rather than branch-driven, how exactly do you think about them?

Well, again, I think that the initiative as such that we launched, and it was a necessary one in the head office, taking down the IT spend a little bit and also merging some group functions with Swedish similar ones. That had a huge effect. That was very successful. But on top of that, I think it also brought something from a culture perspective into the bank and into many parts of the bank. So as we see it now, I think if you look into U.K., for example, Norway, for example, they have done pretty much the same journey as the Swedish head office has done, bringing down the cost. And if you look into where we decrease cost, it's not related to a business close to the customer. It's rather supporting functions that we have decreased cost in. So it's a little bit of a mindset. The initiative, as such, we have that behind us now. We are extremely happy with the outcome. But we are also happy with the steps that we have taken from a cultural perspective, taking us back basically to our roots where we are very cautious in terms of spending our money. So I think that the initiative as such, that brought more than one good effect.

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

Yes. I have another question on the savings business and then just a follow-up on the U.K. If I look just -- you talk about the savings business, and you're obviously proud about the inflows and have been for quite a long time. However, when I look since -- if I just look at the fact book since Q4 '23, your assets are up by more than 20%, 23% or so, while when I look at the fee level, it's up 7%. So obviously, you have quite significant margin pressure there. Do you have -- any view on that? Anything you can do about the mix, any initiatives you are taking there? And secondly, just a follow-up on Andreas' questions about the U.K. I mean your cost-to-income ratio is nearly 60% now. It's twice the level in Sweden and the market is pricing in another 3 rate cuts. I know you've earlier talked about an elevated investment level in the U.K. impacting costs. So I'm just wondering for how long will that cost level remain elevated? And how should we think about cost-to-income ratio progression with normalized rates? Because as it looks now, you will have to answer questions about the U.K. every quarter for another year or 1.5 years.

Right. So I'm happy to talk about the U.K. as well as I'm happy to talk about all the other home markets, Magnus, as you know. So bring it on. But I'll -- to start with just on the margins within the -- our mutual funds business. So the -- you're right, the numbers are, as you described, I would say that the -- and we've seen that for quite a long time. There are some flow now more into the -- what do you say, index funds. Do you say that? Or yes, index funding instead of the actively managed funds, but not a huge part. I think -- and -- so we try to always have the offer -- a very strong offer in the market. And then of course, people choose, customers choose their own risk profile. And for many years, 10, 15 years, we've seen an increased inflow in the index fund. And that's probably how we should look at it. We always do what customers feel like it's the right thing for them. But the good thing is that the flow is there. The inflow is there, and we'll bring on much more new customers to the bank in the private banking side as well in our premium side. So I'm quite happy with that, actually. And when it comes to the U.K., just -- I mean you're right, the cost/income ratio is a bit on the high side, but we're now in a position where we are able to grow the bank. So it's all about growing. It's not so much about bringing down costs -- and the cost/income ratio of 30% in Sweden, that's something else. So I would say, look into -- we'll be looking to volume growth, we're looking to increase income in the U.K. That's where we focus right now, not on the cost side, and we try to bring down the cost/income ratio. Mainly it should be driven by higher income.

Okay. So the cost level in the U.K. is not impacted by any temporary elevated investment level or so. This is the actual running cost base...

Yes, I would say that.

We will now take the last question from the line of Andreas Hakansson from SEB.

On -- you talked about an improved corporate environment in Sweden. And can I just ask, when I look at your lending, you're, of course, very big in commercial real estate lending, that's declining in the quarter. And I see it across from our commercial real estate analyst here in Stockholm, and he is very optimistic on the bond side of the funding for corporate real estate -- commercial real estate companies at the moment. So could you tell us what's the outlook for volumes in that sector? And also, if the bond market is back and being now at quite tight levels, what are margins really doing when it comes to bank lending to that sector?

So yes. So we -- I recognize also the bond market and the capital market is -- it's very liquid and the pricing is quite tight, as you say, but it's been that for a while. We always compete with the market financing and bank lending. It's nothing new. The -- I would say -- when I say I'm a bit more optimistic, it's because I see many more, what do you say, we talk a lot more with our corporate business, not only on the commercial real estate side, but also on the -- on other corporate business, and they are much more interested in discussing investments and also mergers and acquisitions -- sorry, acquisitions. So we don't have any forecast, but I'm just saying I feel a bit more confident that the volume growth will pick up, not only on the CRE side, but also on the other corporate side. We'll see. And we always compete with the capital market and the financing going there. And we're also there. So we help our customers enter there and also to finance themselves in the bond market as well from our investment side, obviously. So that's also a business for us.

Thank you. I would now like to turn the conference back to Peter Grabe for closing remarks.

Well, thank you, everyone, for listening in, and we wish you all a good day. Thank you very much.

Thanks. Bye-bye.