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

And the first question comes from the line of Andreas Hakansson, Danske Bank.

Looking at your ROE target, and I was hoping that we get something a bit more tangible for 2024. And when I read your statement, it says that you do all of those things in order to reach your long-term target of 15%. Could you tell us when is it that you expect to reach that 15% target? That's the first question.

Andreas, Johan here. Well, we don't have a particular time stamp on it. It's more aiming to be a reflection of the bank that we see, the one that we know, as we see it, has this ability in a stable fashion to generate it. There are so many things in the return on equity in the short and medium term that we do not control. I have no clue about income levels, macro level to interest rates in order to make such a prediction of when. But I also say one thing is very clear. The surplus capital which we currently consume is a major factor behind why it's not there already. And that we have committed to during these 3 years, we will try to normalize. So I think if you were to do that, you would end up that we are probably there without any particular drama, if that would happen subject to the current market conditions.

And I mean, a key piece of deposit to get there is the cost level. And you gave us a good cost target for 2022. But if I go back to the previous 3-year plan, then you were very clear on a 3-year cost development. What do you expect what happened post 2022?

Yes. I mean, we go to 1 year because we have not yet decided. And this is a more forward-leaning strategy. This is actually quite a large change from the last 10 years where we had 0 most of the time, further resources at our disposal. We had to have a flat cost. This little thing we did was almost like a test balloon in 2018 to see if we could control the cost and see if we can get the operational leverage on the income, which we have no reason to believe we didn't, although it's always very hard to attribute what income and what activity was linked to a particular dollars and krona in a spend. So what you have to be guided from is that we will in say now 1 year, 24.5%, that's a target we will have to muscle up all people in the bank to keep that one. We will then play it smart. So if these return -- if the return on these investments changes, we won't spend it. And if there is a market opportunity, we might want to increase it. And this is about a 10-year plan to try to do the right things over the next 3, 4 years here. So we have another decade of our performance just like the last one. And we are saying, if we do not do this, there is no more added initiatives in the 10-year perspective. So we need to make some changes here. The cost/income you have, that's a medium to long term. So it doesn't mean first of all, that you can't invest if you find a good opportunity. If we do that, of course, we need to describe to you guys what the return on that investment would be in terms of income. And the other one, we don't dictate income. So cost to income is, of course, very dependent on where income goes. So I think the return on equity of 15%, the cost/income for the group and by division coupled with exactly saying cost and income will have a link in the medium to long term.

That's fine. Just one maybe odd question. I can't remember if it was Jonas, but someone said that you don't really get credit for the so fintech products that you have together without the banks like Swish and BankID, which I agree with. But then you also have developed this SEBx. And maybe I would have hoped to hear from Christoffer today. And do you think that over the next year, we could actually start to get some data? Or given that today, SEBx is valued at 0 within your group? Is it some way that you could show us enough that we can actually start to value it because I think it's quite an interesting holding that you have there.

It's a good point. I haven't thought about it, but I can commit that I will think about it. And it would be nothing strange for us to ask for Christoffer and team to give you guys a presentation on the status of SEBx. And there's a lot of interesting things happening there right now. And I completely agree with you. For good or bad reasons, there's no way we can monetize these things as a 100% owner of these fintech or a part owner with other banks. We just don't get any of that value. We know that if this would have been outside the bank, they would have done fundraisings very, very quickly as we are helping many of these fintechs do that, and the tricky task of valuing them before they have an income. So we'll take that with us, and my ambition is to share that with you. Banking as a Service, Peter Kessiakoff talked about, it was in several slides, is really the new thing, which is super interesting. And we are saying we expect to sign on the first Banking as a Service counterparties during 2022.

And the next question comes from the line of Magnus Andersson, ABG.

First of all, following up on Andreas's question there. Since we tend to live in 3-year cycles as equity analysts, I -- my thinking was similar there about tangible data potentially for the coming 3 years, which we've got to a larger extent historically. So I was just wondering, when I look at your investments there, Peter, that you talked about SEK 800 million, SEK 900 million, for example, in 2022, I mean the last plan entailed in gross investments of SEK 2 billion, SEK 2.5 billion. Is it fair to assume in coming 3 years that that will be -- if I take that 3x, it would be around SEK 2.5 billion that you will have roughly the same investment pace? Or will that be more adapted as you alluded to, now Johan to where income is? And related to that, when I look at the slide, it looks like you have the front 300 technology and data 350, house in order 250. Is it fair to assume that all of the investments you are doing roughly 1/3 is more kind of ticket to play investments generate no income really 2/3 or initiatives where you're into projects with clear expected returns? That's the first one.

Okay. Magnus, I'll start and ask Peter to fill in the gaps. So on the first one, I think it's not unreasonable to assume that the investment level we have now come out with today, the 800 to 900 is a good guidance for how we're thinking in terms of the future. It is not a guidance I can give you today that we will replicate that next year. So many things. I mean, if we have a -- one of our risks that we have identified materialize, such as a tapering or quantitative tightening that affects asset market prices, we will be smart about it to protect also cost/income and profit in the near run. It's structural changes, you can't stop. So the strategic investments we do, they will continue regardless. So we will believe in becoming a data-driven company. We will expand our capabilities to a certain extent, regardless of cyclical considerations. But we need, as we are switching from a cost flat nominal to a profit generation through cost income cap, we need to switch the whole gear from what you have been used to be a little bit tactical and smart in the short run. If you can assume that 2/3 would be the forward side. At 1/3, you don't really have any income. Yes, it's not an unreasonable assumption. We view the, of course, any spend to be income generating. The income can also increase by reducing cost or reducing mishap or reducing regulatory problem. That's also profit improving compared to what otherwise would have been the case. But you're right. We have the platform and we have the front. And this is -- don't focus too much on the numbers in terms of what is important to SEB. It's a very different cost depending on -- I mean, setting up in Netherlands and Austria and Switzerland, we're talking maximum 10s of people, and that's it. Whilst buying a new IT system or it could be 100s of millions that you need to do. It doesn't mean that it's less fundamental change for SEB when we now expand into a Northern European bank because we didn't spend that much money on it. That presence is clearly a very strategic change for us. Peter, anything to add?

Well, I can just take Magnus question on the cost side. I mean, we're talking -- you mentioned gross investments, and now we're talking net investments. So we're talking 2 different languages here. I guess if you simply take the SEK 800 million to SEK 900 million range and you just simply multiply it by 3 to get the same time period, you would end up with a similar number. I mean, we're not necessarily committing to anything on the long term. But from a purely mathematical standpoint, yes, you can say that we -- in 1 year are saying that we're going to invest in the same pace that we announced during the last 3-year plan. But I mean, coming back to what Johan said. This is a long-term ambition. We want a future proof of bank. We will calibrate our investments as we go along if initiatives are performing better than planned or things are not -- don't turn out as we expected.

Yes. Okay. And just on that ROE target, Johan, it sounded when you answered Andreas that it's just a 5-year perspective, but it's not necessarily 2026. It can be a year before or year after or whatever, depending on the income development.

Yes. That's correct. We're looking forward.

Yes. Okay. A final and then -- yes, just on the bank tax and potential repricing. My second question, how much of the bank tax do you think you can offset with repricing in, let's say, a 3-year period?

Yes. We don't know what we think we will achieve, but we have an ambition to, where appropriate, try to offset as much as possible of it. We do have this dynamic when considering this. Just illustratively speaking, half of our business is global competition, and we are a price taker. There is no chance for half of our business to make any adjustment because local taxation is changing. It's something you just need to swallow and you need to -- you can compensate by operational efficiency, but we're doing that anyway. We don't need an increased tax to focus on improving effectiveness. Half of our business, we do have pricing power. We have price lists, et cetera, where you can compensate for. And what has been announced already is a 5 basis point increase on the list prices on the mortgages and also the fees that we are charging in order to get the package of the basic banking products. And I don't know. Well, I mean, if we are getting somewhere between 25% and 50% of the products that we can, and we'll see where that ends up. The price elasticity of these is very unknown. So what happens to the volumes if you do increase prices too much because we live in a very competitive environment. And the #1 reason we dislike this is tax is actually that it's only 9 banks that have to pay it. So there are several who won't have this problem. So we increase. And of course, some doesn't need to do that and then you might lose volume. And right now, we find our strategy to strike the right balance to compensate for this. Peter?

Yes. If I can just add just a clarification on the bank tax because I know there seems to be some confusion in terms of the numbers. I mean, what we're seeing here is that the bank tax is expected to cost SEK 1.2 billion in 2022 on a gross level and SEK 1.4 billion for 2023. Given that it's tax deductible, that means a net profit impact of SEK 1 billion for '22 and SEK 1.2 billion for 2023. Then in terms of the accounting, where will this end up? There are still discussions ongoing where everything is flying around from the income side to the cost line or something else. So we will revert back on that during Q1. But again, the net effect is SEK 1 billion for 2022.

Yes. Okay. And just finally on capital. You're mentioning share buybacks between SEK 5 billion and SEK 10 billion for 2022 and that you will be done within your management buffer range in 2024. Does this mean that we should not expect any extra dividends now that you are down? So it's total buybacks to get down within your management buffer range from here? [indiscernible] no dividends?

No, you should not expect that. There's nothing limiting us for doing an extra dividend. Today, we've just concluded what we will do for 2022 with the information we have now. And this is, of course, a Board decision taken yesterday. This will be revisited on an ongoing basis. And part of why we introduced this strategy or policy is just to do that, to be able during the year to calibrate it through the share buyback whilst dividends are very permanent. But we have said it's a preferred route, but we still have a capital position that is affected by COVID. So there is an adjustment, so to speak, that could be still argued needs to happen during these 3 years, and there's nothing limiting us to do an extra dividend.

And the next question comes from the line of Nicolas McBeath, DNB.

So first question, looking back a bit and reflecting on the previous business plan. So it would be interesting to hear if you think that your financial performance in this ending business plan. How much can be attributed to the investments you've taken over these years and how much driven by macro development? So I mean, granted you've been outperforming large bank peers over the time period, but I guess you could argue that it's partly related to your footprint and the business mix relative to these peers and potential loss of some internal headwinds to some banks in this peer group. So I mean, how confident are you that those investments have been lifting your revenues? So yes, start with that question first.

Yes. I mean, it is very hard to be, call it, academically accurate in this type of question because we don't view the bank as that incremental investment of SEK 1 billion generating the SEK 50 billion of income. We are investing SEK 23.2 billion in this bank. That's the way we see it. It's just that the incremental needed to be explained in 2018. And it's only anyone's guess what would the income have been if we did not do those 11 or 12 strategic initiatives. But I can tell you, we wouldn't have had the energy. We wouldn't have had the sustainability setup, which is quite significant compared with others. And the energy is, of course, a corporate finance advisory lending, transition, and we wouldn't have had the investment banking fees. Or I should say, we shouldn't -- we wouldn't have had the investment banking staff that we now have dedicated to generate this result, what is very difficult. So we are fairly confident that the business activities that came out has gone according to plan. When it comes to the financial result, that has been very strong. And it is very hard to hand on heart to say that if we wouldn't have done it, we wouldn't have had it. So a little bit of humbleness in there. But the big picture is that we are not spending SEK 800 million to SEK 900 million in 2022. We are spending SEK 24.5 million. We just increased it a bit, and that is not -- that marginal investment is almost impossible to track to the marginal income.

Okay. And then a question relating to the Slide 32 on the presentation on the new business plan on shareholder value. And you mentioned EPS growth as a shareholder value driver over the business plan period. So I was just wondering if you think you can achieve positive EPS growth over this time period, keeping in mind potential headwinds from the bank tax, higher cost and potentially, I guess, some kind of normalization of loan losses. If you could please elaborate on what kind of assumptions or what would be needed for you to deliver EPS growth over the business plan, please?

I'll ask Peter to start, and then I can fill in.

Yes. Thank you, Johan. Yes. So as you were mentioning, that we have some headwinds in terms of bank tax, et cetera, and as well as the announced increase in investments. I mean, I think what is important to highlight here is that we have an ambition to grow this over the long term. We are highly exposed to cyclicality and external factors when it comes to income, which in turn impacts our profit growth as well during the same period. So I mean, I think it's -- we don't really look at it that way. Our ambition is to drive long-term growth, and then there are external factors that can impact the development in the short term. So I don't really want to guide on anything on that -- on the EPS growth over that time period.

And if may, I mean, our job is not your job to predict things or try to do estimates that are accurate. We -- our job is to do the right things for our clients in order to maximize the profits with the constraints we have through income. And there's definitely a possibility for EPS growth, but you need to make some assumptions around it on macro and nothing can go wrong, et cetera. We also don't know what will the short-term income effect be from these investments that are already up and running. Just point to custody. You might have seen in the report that we are up almost SEK 6,000 billion in asset under custody. And that is, of course, associated with an immediate full year positive impact if that maybe end of '22 or at the latest end of '23. But you need those assets onboarded. You need to have the staff onboarded. You need to have it for a year. And we don't know exactly, but there's definitely a possibility. Now we have the headwinds with tax. We also have the credit loss level, which is, of course, very low at the moment. Those 2 -- one, where you cannot design a strategy that compensates for that bank tax or the credit quality of the 100 countries we operate in next year. So those are definitely headwinds. We can just do what we think is the right thing to do for the long run.

Okay. Fair enough. And then final question from me on the German tax reclaim. So if you could please -- yes, what value do you estimate the potential reclaims to be if we also include the accrued interest on these claims? And by what you -- do you think such payments could be due in case you would have to pay those? And yes, is this at all taken into account in your capital planning at this point?

Yes. The tax reclaims are then the EUR 1,500 million. This is the full amount of the withholding tax that we will then -- will reclaim if our interpretation holds, which the tax authority in Germany is now wanting to investigate and see if that is the right one. And this is about who is the beneficial owner of an equity if it's a part of a securities finance transaction. And for decades, the treatment has been that if SEB owns the share, we are the beneficial owner in the securities finance format. Now that's being challenged is that it's actually not SEB. It was the institutional investor who lent the stock to SEB in the transaction, who should be treated at. And therefore, there would be a withholding tax for the institutional investor. This is what's being debated. The full amount is not what has been reclaimed in its true sense. It's the amount that is maximum for being in scope for the tax audit between 2008 and 2015. We are waiting for the tax authority in the year -- in the next year or 2 to come up with a concrete interpretation and its consequence. So we don't know. We just know that the tax audit is -- this is the sum. We don't expect -- and this is a probability assessment to pay anything. So we think it's more likely than not that we don't have the incorrect interpretation, but we cannot guarantee that. This can be many years. Our base case is that this will take 4 to 5 years. And we will definitely go all the way, so we could get clarity in the highest possible instance because we have legal opinions for the last decades that supports our view, and this is a fundamental, very important question for us that we haven't done this the wrong way.

Then if I can just add a bit to that, and you asked the question about the amount, just to have it said. I mean, the amount is EUR 1.5 billion, obviously. But then in terms of the interest rate component, that equals up to roughly EUR 2 billion. So that in total amount.

Okay. And is that still accruing that interest rate on the reclaim?

No, we have limited that. So it is not.

And the next question comes from the line of Antonio Reale from Morgan Stanley.

I have a few follow-ups actually. The first one on the use of capital that you've talked about. You're guiding for SEK 5 billion to SEK 10 billion share buyback program for this year. I wonder what is the rationale for the relatively wide range in the buyback program given perhaps visibility has improved compared to the last few years at least. That's my first question. Related to that, you've talked about growth and investments. I wonder what your stance is with respect to M&A. And secondly, on cost, it's all clear you provided the guidance you've outlined the moving parts. I'd like to ask you on how you see the outlook for core revenues for this year, particularly NII and fees. And if you can share your thoughts on how you see operating jaws play out in 2022 after a number of years of positive operating leverage. And actually lastly, if I can add. Could you also comment on your market position in the Baltics and how you see business developed both in light of the geopolitical outlook? That's all for me.

Yes. I'll see if I can remember all of them. We start with the range SEK 5 billion to SEK 10 billion. The main reason why there is a range is that we want to maintain the flexibility to decide given more information during the year. And those 2 things, let's call it, uncertainties. Why we didn't just say, let's launch a program of 8.5, and then we're done with it is that we want to see where the business takes us. Right now, you have seen this quarter, we probably dropped 40, 50 basis points because of just a few months of superb business consuming a lot of capital driven of events and M&A. We have this looming super cycle idea on green. So there are some really positive terms as well as negative. The negative one is really the geopolitical tension that is currently around us. The discussion about quantitative tightening and interest rate increases is an uncertainty for us, particularly when it comes to asset prices. So last year, we were very, very positively surprised compared to plan with how much asset under management and asset under custody contributed more than 2 -- I think, around SEK 2 billion extra in P&L terms from these areas, outside our control because the market was strong. What if this would be reversed? So we will, of course, have the 5% to 10%, and if we do not end up in that range more or less, that merits a comment and an explanation to you guys. Otherwise, that's the -- there's some upside and downside potential. That means that we want to keep the range. On M&A, I assume you asked for the bank's sake. The plan you have hopefully seen today is in all important aspects, organic. So there is nothing in what we have said today that is dependent on or decided on in terms of having an acquisitive growth plan. It's an organic growth plan by hiring people around in the bank. Now that should be said with a few exceptions. So in the fintech space, in the green tech, clean tech space, we are, of course, acquiring some companies all the time. But these are nontransformational, nonsignificant for the DNA of the group, and that we will continue to do. And then we are not against looking at transformative larger transaction. Any of the initiatives that we have gone through today, there may be a discussion in the future of some quicker way to get there. But it's not based on the plan. So let's call it, reactive and curious, but it's not part of the going forward. On the cost, I actually didn't hear it. So I'll take that last and I'd say market position in Baltics. We've had a very fortunate competitive dynamic for years in the Baltics. So as banks and many, many banks have exited in the last decade, of course, we have been committed together with more or less one other, and that has been quite good terms of trade. I often have said it's not good to only have 2, you need more. Right now, we feel a clear shift. So now we have entrance -- we see competition increasing. So this whole run of margins and volumes automatically coming our way, that's over. And therefore, we've also calibrated a little bit on what we think about the future. So competition is heating up. There are definitely a well-functioning economy now, very good credit quality and now people are getting a bit more interested.

And if I can just add to that. I mean, as you perhaps seen, I mean we are commenting also that in terms of business momentum, lending growth has started to pick up again after being fairly muted after COVID-19. So in terms of market growth, it is improving again.

And may I ask about the cost question clarification?

Yes, absolutely. Sorry, it was confusing the way I framed it. It was not on cost because I think it's all clear what you said. It was more on the outlook for core revenues, NII and fees, particularly for this year, if you could comment on what you expect performance to look like there and share your thoughts on how you see operating jaws in '22?

Yes. I have no guidance to give actually on the lines of the core revenue lines, et cetera, other than the plan. And the plan is, of course, how we organize ourselves. We love the NII. We are here to lend, but we do want to increase the focus on capital efficient banking as we conduct it. And that means more advisory focus, try to get deeper relationships with our lending clients. Anyone who's lent from us, there's more we can do. And that's where the focus is in order to get return on equity up and have an accretive strategy.

I think maybe if I can just add to that as well is that, I mean, it's of -- I think you referred to operating leverage. I mean, what I tried to emphasize in my presentation and especially when kind of putting our strategy in a bit of context, we are striving to grow within products with higher ROEs, which tends to be products that also have a higher cost/income ratio, meaning we don't really need to have a positive operating leverage in order to improve our return on equity. And as you probably agree, return on equity is really what pays the build in the end to the shareholder. So I mean, we're focusing slightly less on the operating leverage in that sense.

And there's 2 types of -- just to elaborate, 2 types of operating. And this is an important point that we've had that slide for a decade, and it's been built on flat cost and a modest income growth, which is then double the bottom line. With going into an investment and allowing the bank to increase its footprint, meet more clients in new areas, you're expanding your bankable presence or footprint, if you wish. But there's -- even if you do that and using cost/income as some type of guidance, that type of operating leverage you've experienced will not happen. But there's another one which will happen in even more, and that's the scalability of our operations. So when we enter into a new country for corporate and investment banking, there is no incremental meaningful cost in the platform we require. It's the front, the people, and we can add it to the [indiscernible]. So there's a very, very high operating leverage in terms of revenue per cost we spend and scalability of the technology platforms and the infrastructure and the systems that we have to add one more client -- one more large core client. So it's a fantastic marginal return on equity and marginal cost/income of those transactions. But the people that we need to also hire has, of course, an advisory tone to them. And as we shared today, you know all that corporate finance and these areas, they have very high return on equity, but also higher cost/income than average.

And the next question is from Robin Rane from Kepler Cheuvreux.

So trying to get some more sense on the investments versus underlying costs. And I note you on that you said that you view the SEK 24.5 billion as almost [ all of with ] investments in the bank. But if I look at this 2021 figure, you said in the previous business plan that of -- on the cost in 2021, about SEK 1 billion would be investments. Are these investments now to be seen as sort of transforming into underlying costs going forward in the years ahead. And also on that, I guess the underlying costs in 2021 was SEK 300 million to SEK 400 million lower because of the COVID situation. Have -- should we view as this amount being that there has been an investment for this amount instead? That's my first question.

Yes. Thank you. I mean, this is a fascinating topic to discuss because we are talking in the financial industry about investments, but it is not a factory. So we don't have a fixed capital formation investments. When we talk about investments in the financial services industry, it's around putting more money towards a business opportunity and often in the form of people. 66% of our bank is staff cost. The rest is premises, hardware, external software information and a little bit of extra. That's where it is. So when we invest, it is operating costs. Hence, it's very difficult for a service company to differentiate. I usually take for fun, the example of a hair dresser. When they invest, they hire another hairdresser that then can cut then people's hair. Banking is very similar in the advisory sense, except for the capital side. So yes, the large -- if you look at the slide in today's presentation that I think Peter showed on the cost, those are the investments that's on there as a example. Custody, expand investment banking, get remote advisory in retail, which is people that needs to see clients on teams like capabilities, and it's people that needs to answer the phone. So we won't see them physically. We will also increase the ambition of meeting customers physically by appointment. And hopefully, we can do that more efficiently in a manner. And there are PWM, so private wealth management and family office, we will establish it outside Sweden. All that is investments in the narrative we presented today, but they are permanent. There are other areas in technology and projects that you can definitely see has a slightly different, more classic. We invest to increase productivity and there will definitely be productivity gains and maybe cost savings in the long run that you can shut down systems, but I wouldn't exaggerate that. So this is for me very much an increased size of SEB that we are talking about here, both on cost and income.

All right. Great. And then to go back to income and maybe the lending, so you said that the event-driven lending balances in the fourth quarter are very high. I'm just wondering how does the pipeline look? Will it be challenging for you to remain at these levels? Or can you grow them even further?

It is a very constructive pipeline. So if I forget the market's side a bit, we have no indication that we don't continue this very benign environment. What's good is that there's been a little bit of shift that you also complement a very large activity in equity capital markets and ECM with M&A. And I showed you a few logos here, which is more -- which were more transformative in nature. However, uncertainty is increasing in the market. So this is -- we know that big transactions, they need stability. They need predictability. And this volatility is typically very good for the markets and trading operations because activity goes up. But I'll -- let's see if anyone -- as Joachim and Jonas sits here, maybe I'll just open up and see if anyone would like to give some more color on the sustainability of this level.

No. It's Jonas here. And I think I can only think of your comments, Johan. I mean, the pipeline remains good. And as you say, there's been a good mix of M&A and ECM activities. M&A complementing the strong ECM, and -- yes. So -- and that said, sort of market volatility has increased in recent weeks. And as Johan said, we -- I mean, typically a more stable environment is favorable. But at this point, we have no indication that this pipeline outlook should change.

Okay. And the last question on the investments into the savings area. Is -- should we view this as a measure from your side to just extend the outflows of customers to niche banks like Banco Nordnet? Or have you an ambition to actually gain market share in this segment?

Yes. And first, just to conclude, we've had a pretty -- it's not a great track record in the last years. But this year, just we are noting a little bit light in the end of the tunnel. So last year, we had net outflows of SEK 13 billion in the bank. This year, we had net inflows of low SEK 550 billion. On the slide with the competitive dynamic where you are losing market share to fintechs and niche banks like the ones you are mentioning, that has been a 25-year old trend. So the trading, the investment and the buying and selling of funds and equities has, of course, gone from where it used to be in the '90s, early '90s to these, call it, online brokers or wealth accumulators, what you call them. Now that is something that we want to stop. It doesn't mean that we can sit here and say we would take market share, but we might lose, which means we will take because we still have a lot of people dealing through SEB. I mean we are very, very large in AUM and trading of equities and funds. It's a little bit about being good enough to never ever have an outflow again because for many, many years in traditional banks, you've had almost -- you'd almost been forced if you are a financially literate and interested person and you want to trade to go to someone else because the banks have not kept up with the development of digital, web-based and nowadays with mobile the last 10 years. So we want to put an end to that, and we can see it very, very clearly that when we launched the trading of single stocks in the mobile app April last year, things have started to change quite dramatically. But it is -- it does not to say that we are on par with the best yet.

And the next question comes from the line of Nick Davey from BNP Paribas Exane.

Three questions, please. The first one, can you update us on your rate sensitivity, please, in the key markets? The second one, coming back to this discussion around Slide 22 and a more cost intensive growth from here as opposed to capital intensive. Do you have a sense from here on that risk-weighted asset growth will be lower than we've been used to in the previous plan as a result? And the third question, which is related because when we talk about ROE, you obviously made lots of comments about the problem you have with excess capital in that equation. My question is, in a vision of the future, where you're not using much capital for growth, I'm wondering why not start to push your total payout ratio to get it above 100%. Otherwise, we could be here for a few years yet complaining about this excess capital problem. But I think with a 50% payout and even SEK 10 billion of buybacks this year is still looking like about 100% distribution. So I know Q2 is the risk of this year. I'm sure there will always be a risk in January. So why not push a bit harder on distribution now and get started on the denominator?

Thank you. I'll ask Peter to do the rate sensitivity, and I'll start with the RWA. You shouldn't interpret today's presentation that we don't like to expand our lending activities in a profitable way. We do. We are just saying that the proportion between what is very capital-efficient lending or doesn't consume any capital. We would like with this plan. We would like to try to increase that so we get more leverage on the low return investment-grade lending we do. You can turn this around and don't forget, this is also why we have such a strong balance sheet and good credit quality, but the downside is that you don't have any terms of trade in investment-grade lending for that to be a good business on its own. You need to do more. So I don't know where RWA will go. It has very much to do with the demand from our existing client base and the little incremental client base that we are now going to be in pursuit of. So it will increase if we're not failing completely. The important thing is that it doesn't increase more than profit because then return on equity doesn't go up. So we need some type of bottom line to improve more than the business equity consumption is. And this is for planning purposes. In reality, I'm very humble. I have no clue where it goes. This -- I couldn't predict in September that we would have done a 13% increase in the exposure. It's like 10 clients that really go for it and do massive M&A transactions, and they choose us to work as their sole or joint lead adviser and arranger of the financing. So the important bit, I think, is to see that in that slide, I think you referred to, lending is the low return on equity, a very -- sorry, low return on equity, very low cost/income business. You got to be careful with that because we are wanting to have an increased return on equity. Transactional banking is in the middle. It's around the 15% to 20% mark. It's transaction finance. It has to be core cards, credit card business, where you do transaction, move money from A to B and you charge a fee. And then on the advisory side, you have no capital. So in some instances, it's infinite return on equity on the margin, if you do more, but they tend to be much more to the 0.67 and 0.68 in cost income. And that's the point. We want to do more of the balance -- do more on the balance sheet we've already committed. But in order, a ticket to play in this industry is to be a top lending bank in the core group of any corporate, and we need to be there.

Yes. Then on the rate sensitivity side, I mean, we're pretty much sticking to the message that we've had since before, which is 25 basis points in terms of short-term rates is roughly SEK 1 billion gross for the bank, meaning gross then, meaning that then you have customer behavior changing that number in different ways. I can also mention that when you look at the resolution fund fee and the deposit guarantee scheme, those will increase cost by roughly SEK 100 million or expenses by roughly SEK 100 million during 2022, pretty much in line with how it mathematically works.

And on the payout ratios?

Okay. [ I'm sorry ] [indiscernible] I guess there's nothing theoretically limiting us. I think you're absolutely correct in your assessment that if the bank stands and goes as we see it today, your conclusion is accurate. And I think we just have to play it by ear and see if we get there. But the only way to do it, if you don't want to take 10 years, if things go as well as they do now is exactly like you said, you got to get to the 100 or above 100. Otherwise, it won't go down. So that's -- but it's a Board question, so don't kill me. It's up to the owners of the bank to decide.

And the next question comes from the line of Johan Ekblom from UBS.

Just a couple of follow-ups, please. So maybe starting on the kind of short-term lending facilities in LC&FI. When we think in the very short run, what kind of maturity do they have? Should we expect a lot of these to fall off already in Q1? Or do we have some staying power beyond that, just to think about the near-term top line trends? Secondly, just on the cost side, you talked about this SEK 800 million to SEK 900 million investment. I'm assuming you're not at that kind of run rate on the 27th of January. So is there a spillover effect in terms of cost growth, irrespective of what kind of incremental decisions you make for 2023 into next year? And either if you can quantify that or maybe give us some pointers as to how we should think about that? And then thirdly, just on -- we spoke a lot about excess capital and capital distributions. What capital headwinds do you see apart from organic RWA growth, be it model reviews? Or do you have anything to share with us on potential Basel IV estimates, et cetera?

Thank you, Johan. The first question, I'll hand over to Joachim, after I've answered the second and third. So you're absolutely correct. The second one is the SEK 800 million to SEK 900 million. It's not really, let's call it, with surgical precision that's starting the 1st of January, and that is ending the last of December. So as this plan has been in the making for almost a year, you can probably trace many of the things we have presented today that are already in motion. So we have started some of it. Now regardless, if we have taken cost already accounted for in 2021 or not, the SEK 800 million to SEK 900 million is the incremental that we say. And just so I can say in this way. If we wouldn't have asked for your -- the shareholders, let's say, confidence in us to spend a bit more, we would have ended up with a cost target, SEK 800 million to SEK 900 million. As you have seen, the inflation, it's constant. It doesn't change. The cost efficiencies that we need to call it, address inflation with, they have for the last 10 years being lined up this way. We kind of -- we have to do that as best as we can. And the normalization of behavior in the bank due to COVID, we must expect to partly come back. And that's the T&E, the conferences, the meeting, the -- everything else. So even though we call it investment, it's like an 800 to 900 extra to put into SEB's future. And those will definitely be ramping up during the year. So they will not -- they are not a run rate here or now, which means that you could have a run rate which is above this at the very end of the year. That is then indicating a continuation of further investments or not depending on where. But for now, we can commit to doing our best to keep it at 24.5%. And then we will, of course, clearly review as we go along what income are we estimated to get out of this, which is the key to continue and have the faith in allowing us to do more. The capital headwinds, it's -- well, it's pretty much macro away from the things you mentioned. The models, I don't think are there really as a headwind. There is a little bit of margin plus and minus. And then there's Basel IV, which is beyond this planning period. So that's in 2025 beginning and coming on thereafter. And right now, it's not really affecting us in terms of capital planning, et cetera. But as we go closer to the 2025, of course, you extend the planning period every year. It will, of course, come into account, and I think be quite relevant to discuss in 2024. Peter?

Yes. If I can just add on the -- in terms of capital headwinds. I mean what we are expecting, however, is, of course, some sort of normalization of the countercyclical buffers, which were lowered in connection with COVID. And there are already announcements with hikes over the coming years. So if you look over the business planning period, we are expecting it to pretty much normalize versus what we had in the past.

Okay. And then Joachim on the short term or maturity profile of lending?

Yes. Thanks, Johan. So it's -- I don't have an exact number, but I would say that the average duration of those bridge facilities is somewhere between 6 and 12 months, probably about 9 months. Normally, they get taken out in the bonder equity market earlier than so. So I would calculate for the duration of about 6 months. As Johan pointed out, we have a higher and larger amount of those than usual at the moment. Some will most certainly run off in Q1, and they should. But with the pipeline we have, we're fairly optimistic that we will be able to replace those for now.

And maybe just a quick follow-up. With the way that the buyback announcement is structured today, from an accounting perspective, will you do this piecemeal announcing SEK 2.5 billion a quarter or something like that? Or how should we think about it just from a walk forward on the CET1?

Let me come back to you on exactly how it works. The rule of thumb is that when you announce it and you implement it, you deduct it. And I don't think you should view this as a commitment or an activation of the buyback. Yes, we will do it gradually. You can think by quarter. We also might do it by 6 months. So the one that is currently running is SEK 2.5 billion, and that's 6 months. So that's what we announced. This is -- we are, of course, a little bit more than halfway through the first round, which was SEK 2.5 billion. You do that 2x, that would have been the SEK 5 million. Now we open up for doing a bit more in the next 12 months, starting the day after the AGM. So the cycle for the buybacks as we have them right now, is in the AGM. And then technically speaking, there are 2 limitations to the buyback. One is, of course, the AGM always need to approve it, which is a standard issue of up to 10% of market cap. And the other one is that we have limitations on volumes, how much you can do for it, not to be deemed to perhaps affect the price. So there are those limitations that it can be as large as you want perhaps.

And I mean, as we also disclosed on our web page and we talked about before, we have a buyback program of SEK 2.5 billion running for -- during a 6-month period and roughly half of that has been done and runs up until the AGM, which is in March.

So when we announce the next buyback, they will be deducted. But I will double check so I am not mistaken and correct myself if I'm wrong.

You're right.

Peter said I'm right. So maybe we're fine.

And the next question comes from the line of Rickard Strand, Nordea.

In terms of capital, you have talked about capital distribution and focusing on capital-light advisory business, et cetera. But did you see any scope at all for working with your current REA in terms of sort of working with your current loan book or optimizing your market operations?

Yes. We are constantly doing that. I mean, there's a task force any day of the week who's trying to optimize and capital efficient, make the capital we do have as efficiently treated and secure as possible. So there's nothing new on this one. I cannot guide that there will be a meaningful improvement because I don't know of any particular low-hanging fruits after all these years. And Joachim and team have done a tremendous job in the market side. There are always things that will be very relevant now, and that is particularly on the collateralized side. So if we can get all the collateral that we have in the bank perfectly aligned with data knowledge around the accuracy, you will have a little bit of improvement potential in there. When it comes to overlay strategies, which is very common for some investment banks to come and propose you can sell off portfolio, so particularly bad yielding balance sheet, we have none of those. We are pretty happy with the exposure that we have.

And then one of your investments there in the what you call house in order of SEK 250 million. Just curious to see if there's anything -- if you see that you're previously underinvested in these areas? Or is there some regulatory change or something that you foresee that makes you -- [ is it ] necessarily to do this further investment?

Yes. No, it's not coming from the thought of underinvested in the past. However, a little bit humbleness is appropriate. I have very much trouble saying in hindsight, did you invest too much or too little, but we look forward. And looking forward, we see as many of my divisional colleagues pointed out, complexities is increasing further. The regulatory pressure, and now we have all these things around sustainability. This is coming -- an absolute tsunami is coming our way in classifying millions of credits that we have extended and calculate what is the actual CO2 footprint of that credit to a company, a household or a real estate. And financial crime prevention is the second one. This is really -- we have just announced this reorganization. So we are gathering all resources in the bank who are actively working with transaction monitoring, with onboarding offboarding, screening to making sure that sanction lists are approved. They have been scattered around in all divisions and in technology and around the bank, and we have named this the Financial Crime Prevention unit. And we are now talking here 200, 300, 400 people in the coming years, and we're starting, I think, with 200 plus. And this is really to the next-generation technology that we need to do for improving our track record in finding crime.

And Johan, you talked about in the presentation about the looming request from clients related to ESG-related lending and services. Can you share anything about what you see here in terms of timing if you think that this will materially impact your revenues in the medium term or if it will be later on?

Yes. If we start with the looming -- let's divide it into 2. When we talk about the super cycle, that has nothing to do with this quarter or next year's assessment of green bonds, sustainability linked loans, et cetera. This has to do with the massive amount of new fresh money that needs to go into infrastructure in the next 30 years in order for -- the sum of the installed capital in the economy on the planet, as we know, it needs to be changed. And energy is, of course, the easiest one to make references to our automotive industry that needs to go into electrification. We are already today seeing this mega shift towards purposeful lending. So I will hand over to Joachim or Jonas to give you some stats, but we have seen very, very much more of the traditional loans being replaced now when they refinance them with some sustainability linked loan or so. And I -- we might not be able to quote numbers, but we are quickly growing in this. The P&L impact is not -- it's not meaningful in the negative sense that we will, of course, stop doing some business. We will have to rethink some client relationships, but the money that you will potentially give up because we don't have alignment on future strategy is much smaller than the opportunity, which we call the green index, and we have specified the 4 areas on advisory, lending, investments and asset management in comparison. Any other comment maybe to add from [indiscernible] on the sustainability activity?

Sure. And I mean, if we look at our interaction with clients, I think not everyone, but close to it, where we talk about refinancing, it has an ESG component or typically every refinancing we do has a sustainability link. And that is gradually transforming our credit portfolio as we speak. And on top of that, we see a good and healthy deal flow on the infrastructure side. So infrastructure projects, we typically have a green angle, be it wind farms or solar or similar.

100% growth. Thanks. 100% growth in sustainability lending right now, doubling from last year in the pace.

Yes. Then finally, just a clarification there on the slide you showed with the potential income growth from your growth investments. If you could just clarify what you see as medium term in -- yes, is that 2 or 5 years or something else?

Yes, 2 to 5.

And the next question comes from the line of Sofie Peterzens from JPMorgan.

Here is Sofie from JPMorgan. I was wondering, can you just give an update on Masih, your CFO? When will he be back? And what's the reason he is out? Is it any kind of health related? Or is it anything to do with the kind of SEB? Or is it kind of a personal issue? There if you could give an update here. And then in terms of your efficiencies on Slide 23 -- or sorry, 24 in the presentation, you talk about efficiencies of 2% to 3% or SEK 400 million to SEK 600 million. Could you give an update on where these efficiencies are coming from because 2% to 3% is quite a lot? Are you looking to reduce staff? And kind of what are you doing to take of the SEK 600 million of costs? And then just a final clarification. So in terms of the German tax litigation case, given that their -- given that the withholding tax is a maximum of EUR 2 billion, is it fair to assume that in a kind of first case scenario, these could be the maximum amount that you are kind of liable due to pay to the German authorities? And also kind of related to litigation, you mentioned at the very beginning of the presentation that some employees in Germany were also on your investigation. What are -- is the potential maximum point here? And also related to litigation, is there any update on the U.S. requests that you have had? You have now had it for quite some time in your interim reports. So how should we think about the U.S. investigations?

Okay. Thank you, Sofie. On Masih, I think he is doing very well. He is home and relaxing and we'll get back to you. So in a couple of months, I think we will tell everyone what Masih is doing and what's the permanent solution is. For now, we're very happy to have Peter on board to act as this -- in -- as an acting CFO. On the -- we can start with the efficiency. This is what we've done over the last more than a decade. So as we have maintained a fixed cost, nominal cost as our target year in and year out, that is not to say that we haven't invested a lot. I think, for example, Joachim Alpen was describing today the massive investment we've done in markets and custody for the financial institution space. So just to -- give me a minute how it works from our point of view, how to run the firm. So every year, we need to increase productivity. We need to do more with less resources. This is a mindset of running the bank as effectively as we can. The tricks are many in how to gain that kind of cost efficiency. One is to stop doing something, which we have deployed many, many times over the last 12, 15 years. We have cut businesses. We have stopped complete segments, cash management in mid-corporate Germany, in the retail business in Ukraine, retail business in Germany, the Paris office, et cetera, et cetera. So we will have to find something. This is one area which is stop doing, which is not high return on equity, which is not contributing to P&L, but mostly cost and you try to take it out. The problem we have had now in the recent 3, 4 years is that we are very clean. There is not a lot of bad things in the bank, like if you compare it to 15 years ago, where we've done all these massive restructurings to this benefits. The other one is, of course, when we hire people for a new initiative. Let's take expansion in Austria, Holland and Switzerland. The way that happens more likely than not is for people internally to take those positions. So that doesn't mean that we add anyone just because we appoint a person called Jonas Ahlstrom as Head of the Netherlands, but he is then leaving another golden opportunity to review, do we need him to be replaced at the same cost, a lower cost or at all. Can that be shared by others? And this we do about 1,500 times a year because that's the number of times people leave us plus all the people that are now taken on. And every one of those is an opportunity to rejuvenate, to get a different price point to hire maybe a more junior person. That's another area how to gain this. IT systems, we, of course, have a very forward-leaning agenda on new things. And we need to never forget, the agenda needs to be equally energetic on shutting down things. So this is the gross side of how you need to replace legacy systems, and we know this is very difficult. It takes a long time, but it's, of course, an area. Then we have procurement. This is the way we buy away from salaries and staff costs, which is about 66% of the bank. We do spend about SEK 5 billion, SEK 6 billion or so just having external providers. The procurement effect is fantastic. Many instances where good people in the bank are renegotiating contracts on everything from IT systems, which are very expensive, very expensive providers to consultants, et cetera. Another area would be to replace consultants with staff. So you might have FTEs going up, but you actually reduce cost. And if you were to do the staff cost in 2021 versus 2020, you will see a fantastic number, the average staff cost. So take the total staff cost divided by employees, you see there's no update, less than salary inflation, and we have added people. And that is between these 2. [ Rejuvenation ] taking younger, less expensive people to replace more expensive when they leave and also be very smart around whom you hire as a consultant versus higher as a permanent part of the bank. And there's many other areas. But to give you a little bit of flavor how we think about running it. Then on Germany, yes, you're right. For the tax audits, I believe with what I know today, the maximum will be the EUR 1.5 billion plus interest. And that is for what we know today is around the EUR 2 billion maximum. And then I have no news or new information on the U.S. And that is not, as I point out, a litigation. So we are nowhere near to having a litigation situation in the U.S., but we are having a request for information, which we have complied with, but not heard anything back. And I think just from experience now since 2016, '17, many of our peers are still waiting to hear back and it's been 4, 5 years. So we are not holding our breath, but we really would like to accelerate this because we would just want to get clarity so we can move on. And I have no fine guidance on the German situation, the other one, which is the employees. So no information to give. We just know that -- the little I know, that it's not the institution predominantly that can conduct a tax for. It's an individual. So it might be very severe punishment for any person who will do this. And of course, if they work for an institution, the institution will be, of course, dragged into that. But as I understood and learnt recently, it's not something we have any sense of if that could punish, but we can't rule it out. Hence, we decided to disclose it very transparently in this quarter.

And the next question comes from the line of Riccardo Rovere from Mediobanca.

Two, three questions, if I may. Johan, right at the beginning of this call, you stated the 15% target, there is no precise time for that. Now if I understand it correctly, the strategy that you are unveiling today is part of a longer journey that goes until 2030. Now the 15%, is it a target that we should think about to be achieve the anywhere between 2024 and 2030 or within 2024? Just to have a rough idea, if I understand it correctly. The second question I have is on the 15% target, if -- let's assume it goes a bit further away, does it include any different rate scenario than we have today? So the Riksbank will hike 25 PPO [indiscernible] or whatever at some point. The other question I have is when I look at the strategic update presentation slide, I think it's 21. You provide this -- 55, sorry, SEK 55 billion, right in the middle of the slide. Is that a formal target? What is that? Is that a revenue target? What should we do with that number? And then the other question I have is on COVID overlaid. If you can just update us what is going to happen there? I understand there is Ukraine, Russia, all these things, but just to have an idea whether this will be used one way or the other by the end of this year. And last thing, if I may, on the cost, you show SEK 300 million, SEK 400 million of COVID related costs. These SEK 300 million, SEK 400 million would bring you back to the same level of 2019 with regard to these costs only, okay, like we were traveling or leaving exactly we were in 2019. And on the SEK 800 million, SEK 900 million investment, this is the amount for '22, if I understand it correctly. Is it fair to assume that this number will not really change over the next -- in '23 and '24?

Thank you, Riccardo. You have to guide me because I don't think I can remember it all. I love the way you pose the question of the return on equity is '24 or in the span '24 to '30. It's in the span '24 to '30 and not in 2024. It's not necessarily to say that we wouldn't love to achieve it this year. So don't mix up the plans we are making for the long-term aspirations with what we're trying to achieve. But as we are investing now in a few areas like we have talked about today like custody and expansion of PWM, it takes some time before the income comes. So therefore, of course, the investments have a time to the return is crystallized. But as I also pointed out, I think we are around there right now. So the group as such is subject to capital if we would have been in the financial range. On the different rate scenarios, no, we are doing the return on equity assessment also based on peers, who is -- what's a reasonable number to say best in class. If rates were to go up, this could definitely change. There's definitely upside for the whole industry. And as I've talked to you about, Riccardo, in the past, this is probably the #1 reason why profitability is low, everything else being equal for European banking. It's the negative and low-yielding environment in which we all operate. And very few have the ability to compensate for that through other means in terms of their business mix. But we have been in a fortunate position to be able to do so to a certain extent. So if rates were to go up, that could fundamentally change the profitability picture of banking. And we will not rest on our laurels. We will definitely calibrate it to be top of the class. That's the kind of the ambitions that we have. On COVID cost, this is a recovery of travel, entertainment, conferences, physical meetings, taxi trips, et cetera. And this is not a full recovery with 300 to 400 to the '19 level adjusted per person. So we are not expecting us to come back in the near future to the same level. And we actually have also targets in the bank, part of the efficiencies to permanently, at least in the medium term, lower the cost of spend on T&E and things we have learned. We've also implemented very expensive digital collaboration tools. We don't want that to be lost once we start returning back to normality. And as an example, we now do all my executive meetings, one physical, one hybrid and one digital. That's 50% saving in all the travel that would have been associated in a year with just coming to Stockholm from faraway countries to sit in the management group for a day. That's one example. The last one, what was that? Rate scenario. Two, on return equity COVID one.

Just the 800, 900 investment and the 55 in Slide 21, I think.

Yes. No, I don't exact -- [ either ] you can think about it. Will you always do SEK 800 to SEK 900 million more of new investments, and we certainly do not see that. We don't guide at all actually for beyond this period. Just to say that the 24.5, that's what we are committed to doing everything in our power to meet this year. And if it's lower, that wouldn't be too bad. If we can invest more cheaply than the current plan, that would be excellent. But also saying that it's sticky. So you should not view that as that type of investment that you buy something to improve and then you get rid of it. This is very much a labor-intensive investment. Even in technology, we are talking about people that needs to join us, software programmers, et cetera. Peter wants to add something.

Well, just very briefly coming back to the question about the SEK 55 billion number. That's the income that we're seeing for this year. And then just -- or sorry, that we reported for '21 to be very clear. Then on the COVID side, I mean, just to put a bit more color on that. For instance, one COVID effect is the lunch subsidies that SEB is very kind in offering its employees in different offices. So that is -- and that is a cost that, for instance, comes in under staff costs. So you have -- I mean, you have a bit of these COVID-related expenses throughout the P&L. So it's not enough simply looking at the T&E line.

Okay. Just, Peter, just to be sure, the SEK 55 million is an actual number. It's not a target? It's an actual number for '21?

Yes. Yes.

Yes.

And the next question comes from the line of Jens Hallen from Carnegie.

Two follow-ups from me. First question is on the capital and adjusting ROE for excess capital. I mean, I hear what you're saying about potential growth opportunities, market volatility, countercyclical buffers, et cetera. But I guess, presumably, your normal 100 to 300 basis point buffer target factors in the market effect and now you -- I think you expect to grow ROE slower than profitability. So can I just ask how do you then see this 590 basis points buffer that you start with? I mean, that's above your target range even if we deduct a full countercyclical buffer.

Yes. I mean, this is now me representing the discussion in the Board amongst the shareholders. And it's very clear that we are going now for this communication today to clearly say we are going towards the explicit financial target of 100 to 300. But it's also clear to everyone on this call and you have done the math as well, it's a very gradual process, and there's 12 quarters before the last one of 2024. And I do think you're absolutely right. If some of the risk -- identified risks that have been discussed in the industry and in SEB and around the market does not materialize, that will, of course, be an opportunity to accelerate the pace. And also, you need to make some assumption on operating profit for '23 - '24. And but we have such a strong year behind us. So it's very easy to come to the conclusion that we will just accumulate more unless we change. And we agreed that sensitivity analysis as one of them to be the case. But there are uncertainties, and I think you should see it in that perspective that this bank is a very conservative bank. You can look at the owners, the main owners, and you can -- and just be say -- this is a very, very prudent institution. And with the current uncertainties, we will make a gradual change, but still committed to reach the target.

Okay. And okay. I think I can -- we are -- I think I guess, probably I'd have to do a little bit of modeling on our side. Second question is on the bank tax and the offset. I mean, you already mentioned the list price increases and the higher fees. It just passed on then fully without being negotiated completed away. What portion of the bank tax for 2022 would that make up, i.e., how much have you already tried to offset?

Yes, we're not commenting on that, but I think you would get pretty close if you do the math. You're absolutely right that the list price is one thing, the actual mortgages you extend and at what price is a separate thing. But at least it's important for us also to show that we do not like this. This is not a positive effect on the economy. Investments will be lower, et cetera. We will no way compensate for the whole thing through the mortgage side. It's a much larger question. And as I alluded to before, a lot of things in the bank, there's no list price discussion to be had. We are competing on global terms at fixed prices. The price of a barrel of oil doesn't change because we had a risk tax. We just get -- we got to eat that and find other ways to compensate for it than increase the price on what we sell or what we buy. Then there are other areas. And the tricky thing is, of course, it's a balance sheet tax. So if you want to be a little bit linked to what is actually the taxable base, it should be done on lending and deposits. But deposits are already 0, and we are limited there. We can't really charge as far as we see it today for retail deposits. It's -- that's a very big question. The day I think the country of Sweden would go in to start charging negative interest rates for people. On the corporate side and institutional side, that's different. But this is a very competitive market. So it's not as easy to say, well, just put the 5 basis points on top of whatever negative interest rate they're already experiencing. But rest assured, business acumen is a key pillar in our strategy, and we'll do our utmost to make sure we strike the right balance between the clients' price point and the profitability.

Okay. Perfect. And then just the final part, which is a little bit linked to this bank tax offset. So I guess, I mean, we have the buildup of the resolution fund, perhaps will even reach the 3% in 2023 and then your fees should be coming down. When you did your budget, how do you see the resolution fund fees then coming out in 2023? And will that be almost enough to offset or offset part of the bank tax that you're now getting?

Peter?

Yes. So thanks for the question, Jens. Well, I mean, first of all, clearly, we're seeing what you're seeing as well. But I would say, from planning purposes, we expect no change really going forward. And we have no real comment on what our expectations are is there either.

Okay. Okay. Perfect. A conservative budgeting and that's not included in any of your forecast here rather or either on in the cost or on ROE aspirations.

Correct.

And the next question comes from the line of Namita Samtani from Barclays.

I've got 3, please. Firstly, on the Swedish mutual funds market. What's the incentive for customers to come to SEB directly for funds when the disruptors or the new entrants are offering substantially lower fees? And longer term, do you think SEB and the other incumbent banks have to follow the fee structure of the disruptors? So could we potentially be seeing some margin pressure? And secondly, just a question on SEB's cards business, given its majority corporate cards and business people still aren't traveling back at 2019 levels and possibly weren't for a while. How do you see the outlook of this business? And would you consider scaling back? And lastly, just a follow-up on the rate sensitivity question on the Swedish mortgage book. How many basis points is the front book below the back book to get a sense of any asset margin pressure, should rate prices occur?

Thank you. I can start with -- actually, we do card and the mortgage with Jonas. So I'll hand over to him.

Okay. Namita, I think regarding the cards, I think we have taken the position that we came into the crisis as a market leader. So we have strengthened that. We saw very early signs of a strong recovery when the society opened up now in Q4. So I think we don't have any reason to doubt that the recovery of the customer base that we're having should change so material so that we are endeavoring a scale down on that franchise. I think on the contrary, you can see that it should be coming out with a stronger market, as I mentioned in my part of the presentation. I think just reminding you of the -- on then on the mutual funds, I think that the key decision point for a customer when it comes to mutual funds is always a belief or look at the historic track record on performance. That is the main driver. And then also sustainability is coming into that one, coming into the picture also as being one of the key ingredients when you choose and can differentiate yourself. So I think that the price in itself is not the key decision driver for the mutual funds market, and we don't expect that to change materially going forward. And on the mortgage side, we can only say that, as always, the Swedish mortgage market draws a lot of attention to it. It's tough competition. It's strong underlying growth. And I think that the normal economic standard of increased demand should then be -- you should have a higher pricing power. I think that doesn't work on the Swedish mortgage market. So I think new competitors and also the new models coming into that one. And then you have topped that up with the bank tax that we have been discussing earlier today. I think that it's too early to say how that is developing, and we don't disclose any delta between the front book and the back book.

I would like to add one thing, which is counterintuitive. And when we talk about disruptors in the fund market, we are also a disruptor. So we are one of the incumbent banks who have a very open attitude to distributing any product. And I'll give you just a rough illustration. 50% of what we do with our clients in SEB are other firms savings products. So there's no lack of opportunity as a client in SEB to get the low-cost funds. We, of course, do not produce all of them, but we are charging the fee and making good business in providing that. Then SEB itself has all the price points. I would say, on average, is SEB Investment Management, which is also distributed by all the disruptors that you probably are thinking of, and they are an important future potential distribution channel for us. We are in the middle of the pack on fees. So half of the funds out there are more expensive. And then there's many funds that are much cheaper. The cheaper ones are, of course, attracting a lot of volumes right now. But alpha and beta are both valid business strategies for investment management, cheap and cheerful or very good money managers that is worth paying for. And SEB itself, we start our cheapest fund -- or we started 0.1. So we have some of these -- if cost of fund is the one you're interested in, we have some of those 2. And then it goes all the way up to, I guess, around 2% or so, which are the most expensive. And those are being challenged in the long-only space because if you don't have the best money managers, there will be a definite risk for margin pressure, and we've seen it over the last 10, 15 years, slowly but surely the passive side, the cheap side, the new way to charge is lower and cheaper than the old ways. But we are on to it.

And the next question comes from Andreas Hakansson from Danske Bank.

Sorry, I just had one follow-up. I'm looking at Page 22 of your presentation on the graph on the right-hand side, which I think is extremely interesting and probably one of the best loan from a bank in a very long time. And when I look at it, it seems like the profitability you have of your lending is then significantly below the average up there, which is somewhere in the middle. And I assume that some of that lending is done so you can do other products. But couldn't you also see that it's time to scale back some of your balance sheet and shrink in order to free up that capital and distribute it in order to improve the profitability of the group? Could you take such a step in the future you think?

Yes. No, I'm very happy to say that. Thank you, Andreas. This is something we think is very key when we think about the future. Yes, I can give you some rough and ready numbers. The investment-grade lending, this is the lowest RWE consuming part because risks are low, but volumes are massive. It's a huge percentage of the gross number in NII. I would say return on equity for an industrial, we're talking low single digit, 5,6,7 at best. And if you don't have our cost income, you will have a look at a European kind of average, they will have 0. You cannot get any return on equity. Now if you look at that, yes, you should cut the lending, but then all the NII disappears. So you will have a different problem. We have tried for decades to make sure that we deploy this capital in the right way, and we have no meaningful way of taking it out. We think we are very efficient because unless we look at it as a client return on equity. So take a hypothetical client, you lend them EUR 100 million at 5% return on equity at LIBOR plus 32%, just above where we fund ourselves internally for that loan. Nothing. There's no economic value being created. Then you add FX and hedging on that client. All of a sudden, you just doubled -- not doubled, but you took 20%, 30% more income. And all of a sudden, now you're at 7% return on equity, 10%. And then you'd had to do the bond deal, the trade financing, the cash management, and then you end up at 25%. That 25% is 100% dependent on you committing to 0. And if we don't have the 0, we won't have the relationship. So what we work with is called something red zone. So every year, we review the 10% of our client base where we do not manage to live up to what I've just described. We have committed the capital, but for whatever reason, the client doesn't engage with us. Maybe they have no need, maybe we're not competitive, maybe we have no good relationship. And we actively -- it's very tricky try to work those out. So there's a little bit of what you are alluding to. But for the profitability of [ and signifying ] the bank, not a lot can be done. We've been at it for a long time. And then on transactional banking, you are around 15%, 20% on those products. And then the advisory said right now with AUM and AUC you're looking at what, 70%, 80% return on equity this year on those. So it just tells you also that the asset accumulating strategy, assets entrusted to us, the advisory strategy and being smart around the lending. Now lending is also much better in C&PC. So if you go noninvestment grade, you have 15% return on equity. And if you go retail mortgages, very good collateral, fantastic risk profile and SME lending, they have a bit of better terms of trade. So that capital is not as challenging to get ancillary business in to motivate. Was that reasonably clear or…

No, that's perfect. It was basically the red zone, 10% that was soft. But if you're already looking at it, I mean that's exactly what we want, right? So…

I mean, we actually have a 12 -- if you're below 12% return on equity, we need to have special reasons for those type of businesses or relationships to be done. So we try to always focus on the lower end to make sure that we're doing the right thing with a long-term perspective. Don't forget, sometimes we need to be there for years, maybe 5 or even 10 to get there. But yes.

And the next question comes from the line of Jacob Kruse from Autonomous.

Jacob, you're on mute or you're not on the line.

Sorry. I'm off mute now I think. Just one quick question. You gave the split of cost going forward for the next year how you invest. And you talked to your revenue initiatives. Could you give any kind of indication of what you're looking for in terms of revenue uplift or percentage or which one is more important or scaling it somehow when it comes to these different initiatives on the revenue side?

No. We don't give any revenue guidance on that. But on Page 35, I can reason with you for about 1 minute. So you have their short-term, medium-term and long-term initiatives, and these are very much around a revenue or a return on investment perspective. We wanted to share that with you. And the custody side, you can always see what just happened lately that we put on SEK 5,000 billion or SEK 6,000 billion in asset under custody. You do the average margin on that. You will have a full year effect of that immediately. Investment Banking advisory, you can almost see by the day, just check the league tables. You see exactly what -- sorry, Slide 31, the selection of investment. I referred to the wrong -- now I have Slide 30. So pick one, 30, 31 or 35. It's supposed to be named a selection of investments for future-proofing the bank. And SEB Card has, of course, a very clear cyclical uptick and that is that the business travel has not yet come back, which is a good part, as Jonas talked about around the FX part, which we don't see right now. The transition and the green transition is happening as we speak, but it's definitely a medium- to long-term business case for the full impact to come. But you can see in the green league tables, the green bond, the sustainability linked loans, the sustainability link box, you can see we have a 20% market share. So these investments, they're coming back right now. Yes, the offering of investment management, we did -- we will report in the annual accounts. We did several of these product developments with good fundraising. Private wealth management, that will, of course, be some time before the Nordic expansion comes in. So we need to hire the people. We need to set up shop and decide where to go and how to do it. So that's a medium term. I'll stop there, but you get the picture. But I didn't give you a number, so I didn't answer your question, sorry.

Okay. But then just on that Slide 31, we should look for adding about SEK 4 billion if we had a 2026 - 2027 forecast to whatever growth rate we had in mind prior to this plan?

Well, there are some very detailed numbers on that slide, but I do want to stress a little bit of the dotted lines. They are aiming to be slightly illustrative. But you're absolutely right that when you do the investment, you do have a very limited short-term positive impact, which is over time. And I'm thinking now 10 years very meaningful. The best example where this slide comes from is our disclosure on Nordic German growth. You've seen maybe the chart of the total income for LC&FI, of which came from clients we did not have prior to 2010. And if you look at that, it's slowly, slowly upward grinding. And if I remember correctly, we're looking at, was it 15% or 20% now of that biggest income line in the bank, which is now coming from this initiative we started in 2011. This chart is that chart just to share with you how we are thinking. And don't think -- it's not too scientific. We don't have an income level of 2030 other than an ambition to -- for it to be much higher.

And we have one more question from Riccardo Rovere from Mediobanca.

Riccardo, are you still there? Operator, can you see if he's online?

Yes, he is still online, but he doesn't seem to have audio. So please continue with your closing remarks.

Then I'll just thank you all for your attention. This has been a big day for us. We've been muscling up to do this day.