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

Good day, and thank you for standing by. Welcome to the SEB Results Q1 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Johan Torgeby. Please go ahead.

Good morning, everyone, and welcome to our Q1 2025 financial results for SEB. As always, we will refer to slides that we've posted on our website. On Page 2, we summarize firstly that we saw higher fee and commission coming from the CIB division that partly offset lower net interest income. We had a stable underlying asset quality despite somewhat higher reserves that we took during the quarter. We'll also come back to some of our AI initiatives that are in production across the bank. And the Board has decided to continue its share buyback pace of SEK 2.5 billion per quarter. As the world severely has changed since we closed the quarter, we thought it would be timely to give a few remarks on current trading. Early Q2 observations are that there has been a wait-and-see mode introduced in the market. The very high volatility and uncertainty that we've experienced since we started to talk about potential trade wars have clearly had an effect in a wait-and-see stance introduced. With our strong capital and liquidity position, we stand in a very good position to continue to support our customers as they see new opportunities and/or in search of new firmer liquidity to conquer any uncertainty in the future. Going to Page 3, we have just listed some of the most recent customer satisfaction surveys and one can conclude that this more or less ends the yearly cycle of the customer surveys that typically starts in the fall and ends in the spring. It was a very strong result in fixed income, interest rate derivatives, sustainability, the capital markets investment grade, acquisition finance and the #2 position just like last year in mid-corporates. Two developments within predominantly Retail Banking has been observed during the quarter. First, we've launched the mobile ID online self-service for minors with parental support. This means that you can now do this completely digitally. Also signing for mortgages, you don't need to do that with a pen, you can do that digitally. We've also launched a new cloud-based predominantly fully new tech stack for the SEB Neo, which is a new attempt to service our minors with good parental control. So this is really for young, first entrants into the banking system, below 18 years old. And if you haven't tried it, I recommend everyone to download it and see what you think. Going to Page #4, once a year, we look at the bank through the lens of geographical split. Nothing new has happened on the corporate growth strategy, we continued to search for more geographical diversification. And also good to be reminded that outside the Nordics, we predominantly focus on large, typically listed investment-grade companies. And I do think it's interesting to see that over the last 14, 15 years, we have now gone from having about 33% of income generated outside Sweden to now roughly 50%. Going to Page 5. We'll just do a quick double-click in how can we continue to grow the Corporate & Investment Bank. There are 2 ways to grow our business: one, we increase the number of clients that we service; and two, we do more and deeper relationships with existing clients. And now I'm just going to go through some of the development within these 2 areas. On Page 6, we have a slide showing the last 15 years where we divide the income between the clients we had before 2009 and the clients that we have entered into a relationship with since 2005. You can clearly see that the growth rate for the new clients have been higher, almost twice the CAGR compared to the average growth of the division. Also now in 2024, we ended up with almost 20% of total income coming in clients that we've added in the last 15 years. Dividing that up by country, Germany has clearly been the strongest contributor with 27% of the new income coming from Germany. We also added a few in Sweden, but otherwise, it's Denmark, Norway and Finland. We also have, for the first time, a low but at least noticeable contribution from Austria, Switzerland and the Netherlands. Then also checking that capital deployment is efficient and that we generate a return on equity by geography, and it's good to see that pretty much all the countries are above the aspiration for the division and contributing to return on equity. We did have a one-off in the U.K. We have here shaded out the area, which encompasses the underlying, but recorded numbers were much lower for 2024. Next page, Page 7, is a picture that tries to explain the power of digging where we stand. This is working with existing clients in order to broaden the relationship, deepen the relationship and get more SEB products engaged with the client. There is an exponential relationship in a client relationship depending on how much they use SEB for. One can look here per bar is how many products do the clients engage with and what is the income of that client on average in the cohorts of products from 1 to 14, where 14 is the highest and 1 is the lowest. This incremental path comes very strongly when it comes -- in terms of income. So in this example, you make 15x as much of income on the clients that you've developed the furthest and are most deeply engaged with compared to the clients that have 1 to 3 products in their portfolio. To move clients from the left to the right is, therefore, clearly the most cost-efficient way to grow one's business. And there's plenty to go for many years to come as more than 60% of our clients are around the lower end of the scale, between 1 and 3 products, which we're now continuously trying to develop slowly but surely to move them towards the right. On the next page, Page 8, it's important when you grow and add clients that you have credit quality discipline. Therefore, we track what large corporates credit quality we have outside Sweden that we've added predominantly to the group. And here, it's interesting to see that we actually have a somewhat stronger credit profile on the large corporates that we bank outside Sweden, and that's a good sign that we can continue to grow with very limited increase of risk. On the next page, Page 9, we have the same, same story as we've had for several quarters and that is that we do recognize a muted demand function for borrowings. Even though corporates actually grew 2% FX adjusted quarter-on-quarter, some modest growth in the Swedish mortgage book, we actually had 2% in local currency in the Baltics as well. More or less, the full portfolio was flattish, and we continued to experience a sideline movement on credit growth. With that, I'd like to hand over to Christoffer Malmer to go more into detail.

Thank you, Johan. Please turn to the next slide. And before we go into the financials, I wanted to share some highlights of the work ongoing with AI across the bank. Our AI agenda is effectively driven in 2 dimensions. So one is to make AI tools more broadly available across the organization and to ensure that our proprietary data can be processed in those models in a secure manner. For example, now 2/3 of our developers can use AI tools for coding and testing and deploying. We're also rolling out our AI tooling for nondevelopers, and all these efforts are driving the broader AI adoption across the bank. The second dimension is to drive more specific AI use cases on a case-by-case basis in those areas where we have identified could be an efficiency gain or productivity enhancement. And we're then using third-party solutions where possible or we're developing internally where that makes sense. We're also working closely with partners to support and accelerate our AI agenda. And one example of such a collaboration is with General Catalyst, the global venture capital firm that has launched an AI implementation unit called Percepta. SEB is a partner of this initiative. And through this partnership, we have access to leading AI specialists as well as leading AI companies that are part of General Catalyst portfolio companies. Turning to the next slide, we provide some examples of use cases in production. So we moved into production with 65 use cases, those more specific ones that we have roughly the same amount underway for test and production. We also have a significant pipeline, and we're working on both data and AI governance to try and increase the throughput of such use cases all the way from exploration and development through to test and production. On this slide, we have distinguished between AI cases that we call reusable, which means that we have built a solution that can be applied in multiple cases. So for example, the document search and extraction that you see on the slide where the use of AI saves time in data collection in different types of reporting. The other category we call more off-the-shelf where we effectively use tools that are available in, for example, Google Cloud or Azure, this could be the GitHub Copilot for cogeneration that I mentioned earlier. And the third category is more custom made where we have developed a tool for a specific use case. And here, an example could be our voice-to-text AI in advisory meetings. So in conclusion, we believe that AI has the potential to fundamentally impact our industry, along with many other industries, and we engage actively to explore this opportunity. That said, while our experiences are very positive thus far, it is too early really to put numbers or to quantify the effects in terms of savings or efficiency gains. And there are, of course, also investments needed to make the progress. But in the medium to longer term, we do think that this technology can meaningfully enhance efficiency and productivity. Now turning to the next slide and into the financial summary for the first quarter 2025. Total operating income for the quarter of SEK 19.8 billion is largely unchanged compared to the fourth quarter despite Q1 being a shorter quarter. However, the mix has shifted quite meaningfully, reflecting the benefits of our diversified business model. Net interest income is declining sequentially as a result primarily of the lower interest rates. While net fees and commissions are performing strongly, increasing from a seasonally strong fourth quarter. Net financial income is also performing well. And looking across our capital markets franchise, our fixed income business is up 30% compared to the first quarter of last year, equities is up 20% and FX and commodities are also performing very well. Operating expenses of SEK 8.2 billion is down from the fourth quarter, while increasing from the first quarter of last year and that is partly due to the consolidation of AirPlus. The integration of AirPlus into SEB Kort is progressing well with positive developments in the key cost efficiency areas such as the voluntary lever program and the discontinuation of the 29 noncore markets. Operating expenses for the first quarter include around about SEK 160 million of implementation charges linked to AirPlus. Net expected credit losses or ECL amounted to SEK 663 million for the quarter, equivalent to 9 basis points. And as Johan mentioned, this reflects new reserves on a smaller number of larger uncorrelated corporate exposures in different industries and different geographies. Underlying asset quality trends remained steady. We did release some of the portfolio overlay in the quarter as part of our ongoing review of those reserves. However, that was largely offset by an increase in ECL, which is driven by model changes in retail. And that also explains why our Stage 2 exposures increased between Q4 and Q1. We will, as we always do, continue to monitor the environment and take actions accordingly. Imposed levies of SEK 964 million include the new levies introduced in the Baltics, partly replacing old ones. We have previously estimated imposed levies for the full year 2025 to be in the region of SEK 3.3 billion. Now with the first quarter concluded, we estimate the total levies for the year will end up around SEK 3.4 billion. We expect, however, the first half to be somewhat higher than the second half as the basis upon which some of these levies are calculated is a moving average. This takes us to an operating profit of SEK 10 billion for the quarter, which is largely unchanged versus previous quarter. And due to a lower tax rate, which was slightly elevated in Q4, the net profit is increasing by 4% quarter-on-quarter. Going forward, a tax rate of 21% is a good proxy for forecasting. Turning to the next slide and the development of net interest income. Please note here that our disclosure reflects the restatements that were communicated on March 26 and they were also covered in our pre-close call. So if we look at the development compared to the quarter, there is a negative impact from the fewer days as well as a negative FX effect from the stronger Swedish krona. Together, these effects amount to some SEK 300 million. The positive repricing effect that occurred in the fourth quarter as a result of those market rates tracking below policy rates did not fully repeat in the first quarter. However, we did see a strong performance in markets NII within fixed income as the yield curve steepened in the quarter. So the strong NII in markets did partly offset the lower repricing effects. Looking at how this played out in the division, starting with Corporate & Investment Banking. NII saw a small decline reflecting foremost factors that I mentioned, i.e., less number of days and the FX effect mainly versus euro. And the offsetting factor here was a notable contribution from markets NII as mentioned. Within Business & Retail Banking, in addition to the day count, the decline of around SEK 300 million compared to Q4 reflects lower deposit margins from the lower rates as well as some compression on mortgage margins, where market dynamics remained competitive. The Baltics division saw a similar decline in the quarter of around SEK 300 million with about 1/3 attributable to day count and FX and the remainder attributable to the effects of lower interest rates. Turning to the next slide and net fees and commissions. We can note that the development quarter-on-quarter is now comparable as AirPlus was fully consolidated in both Q4 and Q1. However, year-on-year, the underlying organic increase was 8% compared to the reported 19% on the slide. The strong performance in the first quarter is supported by primary and secondary market activity across both FICC and equities. Advisory fees were also strong, while lending fees remained softer in light of the broader loan demand context. Note also that the lower day count in the quarter has an impact also here on custody and mutual fund commissions and together with the decline in equity markets in the latter part of the quarter, which has an impact on Asset Management -- assets under management and related fees. Turning to the next slide and to net financial income or NFI. The first quarter NFI of SEK 2.7 billion reflects a strong underlying divisional performance, and the strength came primarily from fixed income, currencies and commodities or what we refer to as FICC. The kind of market environment that we experienced during this past quarter, including a steepening of the yield curve, rising volatility and high intensity of news flow has had a positive impact on customer activity levels within effectively all FICC areas. So with our strong market position in FX and fixed income and also SEB being the only Nordic bank active in commodities, we've been able to support our customers and capture a high share of these client flows. As a reminder, a large part of our FICC client income, including effectively all of our FX and commodities income is booked here in net financial income. The average of the past 16 quarters is now at SEK 2.4 billion. And as usual, this is our best proxy for the future. As you know, the market volatility increased dramatically after the events of April 2 and has continued since. And we can conclude that thus far, our FICC business has managed the volatility well. Moving to the next slide and to our capital development. The retained earnings in the quarter added 45 basis points to our capital buffers. And the increase in lending or the impact on REA consumed 26 basis points of CET1, which was then more than offset by the FX impact from the strengthening of the Swedish krona, which added 49 basis points to CET1. Impact from Basel IV day 1 resulted in a reduction of 58 basis points. It's in line with our earlier communication of around the high 50s. And after deducting a few smaller residual items, the CET1 ratio stood at 17.5% at the end of March. This is corresponding to a management buffer of 280 basis points, within our target range of 100 to 300. Concluding with a summary slide of our capital position and liquidity ratios following another quarter of strong capital formation, we have almost fully absorbed the impact of day 1 Basel IV. And with the management buffer of 280 basis points, we are well positioned to deploy our balance sheet should demand from our customers start to pick up. Our liquidity position is also strong, and we've continued to execute on our funding plan during the past weeks of market volatility. Finally, on our financial targets, they remain unchanged: 50% dividend payout, 100 to 300 basis points capital buffer above the regulatory minimum and the long-term aspiration to generate a 15% return on equity. With that, I hand it back to you, Johan, to conclude.

Thank you, Christoffer. That then concludes the prepared remarks for this quarterly result. And I'd like to hand over to the operator for the Q&A.

[Operator Instructions] We will now take the first question from the line of Magnus Andersson from ABG SC.

First of all, just on AI, I acknowledge that it's still early days, but you're at least the first one starting to talk about it and put it into slides. So I just wanted to ask whether you think that this could be something that eventually drives productivity and your ROE? Or whether you think that it will just be a ticket to play in the future? Remember, we had the same discussion with the implementation of Internet banking in the late '90s or the same debate and it proved to be net positive in the end. So that's the first one. Secondly, just on the current environment, obviously, it's pretty much up in the air. And I guess that you also have a more dire outlook now than -- in conjunction with the Q4 report. So just wanted to hear what the flexibility would be in the cost base to offset potentially weaker income. For example, you talked about an investment plan of SEK 600 million, SEK 700 million in the cost target for 2024, if something could be perhaps delayed. And finally, just on the integration of AirPlus, whether that's going according to plan or if there's been any positive or negative surprises?

Thank you, Magnus, and Christoffer here. So on your AI question, I think the reason we want to raise it is, to your point, we think that the medium- to long-term potential is really interesting and we think that over time, there is real opportunity for efficiency and productivity gains. And from the early signs we've seen from the use cases we've implemented, those are the indications we have. That said, to your point, can we conclude at this point whether they will be a net positive? Well, numerically, it's hard to square that up at this point. It is still relatively early days, but our conviction is that over time there will be those gains that I mentioned. But too early, but we want to flag that this is a high priority and a focus area for us for that very reason. I think do you want to comment on the outlook, I can take the AirPlus question? And AirPlus is progressing according to plan. And the -- as I mentioned, the voluntary lever program is an important part for the cost efficiencies that we mentioned and also the discontinuation of the noncore markets, which are also progressing according to plan. And overall, top line progression in line with plan as well. So on track.

Magnus, I also must give you just a shout-out that I think exactly like you. It's so similar for me like 1994, 1995, when it comes to the Internet and that's exactly where I find out myself right now when it comes to AI. It's going to be very meaningful, but who knows where and in what way. On the dire outlook, it's absolutely the case that everything that has happened since we closed the quarter has a clear direction of travel. I would say that direction of travel is the very lively debate right now is what's tariffs and trade -- call it, transaction costs in trade might do to growth. The consequence of that analysis is, of course, that if you lower growth, which is inevitable if you include tariffs, what will be the most resounding response? Will it be the deflationary impulses from lower growth leading to lower interest rates? Or will it be the inflationary impulses from increasing prices towards consumers? And I think during my years, this a very unique discussion that are being had right now and I see everyone is all over the map. But the direction of travel is, of course, a negative one in the sense that we're debating should growth tail off and to what extent and what consequences. We can clearly see here and now that it has an impact. And the way I'd like to express the client feedback and what we are sensing is that right now, we are in a position where there is high uncertainty of how much pain we might suffer going forward. And sometimes I find that to be a worse position than knowing what pain we are about to suffer because we can adjust. So what happens is that is a lot of inaction right now, which, of course, we can see that the pipelines that we have, very formidable ones on M&A and investments and IPOs and capital raising, they're kind of stalling right now because people want more information before you take important decision. Now on cost, we do have a little bit of flexibility. But right now, we are pursuing '25 as is. So we will -- have not guided today or made any changes. We are extremely close to this issue, and we understand what's happening around us. Also, it takes time in a bank like this to change it, but it definitely is on top of the agenda how one can mitigate this. But for now, the plan for 2025 is intact, but we'll come back to it continuously.

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

So first, a question on profitability. So looking at the ROE in the quarter, it's at 13.4%. And from what we can tell, it seems like there is no real excess capital at this point and probably some further wins from lower interest rates. So I was wondering what in your view are the main levers available for you to get back to the 15% ROE aspiration within the current business plan?

Thank you. So when we look at the outlook for ROE, there's a few drivers that are part of the business plan. One is the implementation and the consolidation of AirPlus, which was, as you know, a loss-making business when we brought it on and now we're aiming to be breakeven during the course of this year. So this is an important driver. The second aspect is the asset-light expansion so to grow the asset-light part, the Wealth and Asset Management business, as we've highlighted as one of the key focus areas to grow. And then to Johan's point about continuously reviewing our cost management and cost discipline in this type of market environment.

And Nicolas, I would just add that there are some cyclical and some structural consideration, everything Malmer said is kind of strategy. We have, of course, also a hope that this environment that we currently experience will tail off later in the year. And when stability introduced, there are 3 lines in the fee and commission that really can improve once things change. Right now, it's all benefited fixed -- FICC. So the trading market is doing extremely well. You know the swings around about. But both if you look at fees and commission generating from the lending activity, from payments and even the investment bank, those are more things that we have invested in quite significantly in order to maintain the best market exposure and presence, but we do need the cycle also to benefit us.

And just a reminder, Nicolas, you know this, of course, that in our equity, we have the surplus from the pension fund there, which, of course, was -- we did a little bit of a double-click on that, as you will recall, Q2 last year.

Yes. Just to follow up on that then maybe. I think -- like last summer, I think it was in Q2 you made a point of the potential to distribute some of those pension surpluses. But so far, I don't think we've seen anything of that. Is that the intention for 2025?

I think what you saw, Nicolas, last year was that we did what we have been doing in the last couple of years, which has been around about SEK 1.5 billion of distribution from the fund. So that's what you've seen and what we've had in previous years as well.

All right. So -- but no like ambition or intention to accelerate that to utilize more of that equity?

I think all those conversations really happen towards the end of the year when we look at the capital position for the year, including dividend considerations and all those discussions.

Yes. But I would be very clear, don't expect it Nicolas. We don't plan for any, call it, acceleration. For now, the plan as is even though that -- but it's good for us to point it out that is whether you do comparison or return on equity, I would recommend you to adjust it if you want to see the underlying performance of the business.

Yes, yes. That's a good point. And then my second question was related to your costs in U.S. dollars. So if you could please tell us how much of your total cost base is in U.S. dollars if we also include IT licenses, which I think are running at around SEK 4 billion per year, so around 13% of the cost base. I guess a lot of those should be in dollars as they are probably procured from U.S. software companies. And given the SEK strengthening year-to-date and also versus 2024 average, that should offer quite a significant cost tailwind, I would have thought, but it seems like you're not adjusting your cost guidance. So just if you could help us understand there the cost base and why not actually reducing the cost guidance given those FX movements.

Thank you for that. So broadly, the biggest non-SEK denominator of cost is in euros, but you're right, there is also in dollars. When it comes to the license costs, et cetera, in dollar denomination, we typically expect the business divisions to absorb that themselves. When it comes to the outlook going forward, the mathematical way we look at this is the difference year-on-year. And if I look at the average FX rate for Q1 versus average FX rate in Q1 of last year, there's a very small adjustment to be made, single-digit millions, in terms of the cost base and the cost target. Now to your point, if FX rates stay where they are right now or even continued SEK strengthening, we will then do the math again at the end of the second quarter. We'd look at the first half FX rates compared that with last year, and we will be doing the adjustments accordingly for the full year cost target 2025.

All right. So unless the SEK weakens again, we should expect the cost target for 2025 to be lower in the next few quarters. Is that correct?

Yes.

Yes.

Okay. And then just to understand the comment you said about the divisions to absorb the FX movement. So basically, what happens then if the SEK strengthens now is that they have more resources to invest in other things, if they want to, given those cost tailwinds, I guess, from the currency movements from -- on licensing cost, for instance?

I mean, there is a lot of moving parts. So for example, you also have the increase of the SEB share price impacting pension costs and those kinds of things. So there are a lot of moving parts then. Some of them we expect the divisions to manage and they have their cost targets on a divisional basis. So that's managed within and license costs for U.S.-denominated licenses is part of that.

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

Firstly, just on the risk-weighted asset increase quarter-on-quarter. Part of the RWA increase is due to the asset size, but the lending book hasn't grown. So I was just wondering how that's happened? I just find the RWA movements a lot worse than I was expecting even on the model update. So if you could give us some clarity there of why RWAs are growing quarter-on-quarter. And secondly, I just wanted to ask about how you're thinking about allocating capital to your businesses going forward because the Swedish mortgage market seems very competitive and there isn't much growth. Large M&A investment banking doesn't seem to be coming back anytime soon. And the Baltics seemed less ROE accretive than maybe a year ago. So are you happy with the current allocation? Or would you prefer to change the mix?

Thank you. So on your first question, the risk-weighted assets, the way we disclose it is to show that on an underlying basis, excluding FX, the balance sheet is growing. And that is what's consuming about 26 basis points of common equity Tier 1 in the quarter. And then we show the full FX effect, which is 49 basis points that then comes back. On the capital situation, you're right that we are accruing capital and building capital, and to Johan's point, the balance sheet is moving largely sideways. The buffer is now at 280 basis points, within our range 100 to 300. But should there be any deviation from the range, we will assess that during the course of the year.

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

Two or three, if I may. The first one is on NII. The Riksbank, right or wrong, is expected more or less to have come to an end with easing cycle or maybe a little bit more, but nothing dramatic. So I was wondering whether in current rate environment, is there much more margin compression do you think to come over the next few quarters, if they say they cut another 25 basis points over the course of the next few quarters? This is the first question. The second question I have is on -- is a clarification, Johan, on one of your previous comments on fee income when you stated that IPOs, investment banking, these kind of things were kind of stalling, if I understood correctly your wording. And if that is the case, were you referring to Q1 or were you referring to a period after the Liberation Day, so at the start of the second quarter? And then the third question I have is can you shed a little bit of light on why the provisions in a quarter where, say, somehow elevated at 9 basis points? This is a level that we have not been seeing for quite a while and then you have decided to use it, if I'm not mistaken, a couple of hundred millions of overlays. Why not more if the situation is getting a little bit more complicated, provided it's getting a little bit more complicated? And what should we expect about overlay? Is this going to be reduced by, say, SEK 100 million to SEK 200 million over the next 7, 8, 10 quarters and to bring them to 0? Or could it be used, let's say, in a larger way sort of -- just once in a quarter at some point?

Thank you, Riccardo. I'll start with my comments about stalling in the activity-based part of the bank. So let's do this, I'll start with these are the Q1 comments. It was not stalling in Q1. So if you look at the fee and commission from advisory issuance of fees, they were actually up some really hefty numbers. So that is a quite strong change after Liberation Day. So after the recent things, it's a completely new kind of environment for these more important decisions. That when it comes to fees from payments, that was very muted in Q1. So that's the same comment. We were all hoping that stopped soon. When we sat here last quarter, we were thinking that we were done on interest cuts and that we should see the lower interest rates, the lower mortgage rates start biting in the economy so that consumption, travel and investments increase. That also, of course, has changed. But there's no difference. We didn't have anything really to show for. It hasn't started. But you do see some pretty large Q-on-Q numbers when it comes to fee and commission, et cetera. On the overlays and the credit losses, so the 9 basis points is, as you correctly point out, a bit elevated from history. It's still, I would argue, a very low number. We are talking about SEK 200 million, SEK 300 million in a quarter. These are not to read anything into the future around. So these are very specific. It's a handful, few large corporate exposures where we have pinpointed an increase of our credit loss reserves because projection for these very few companies in 3 different sectors in different countries. So they are very much not correlating to anything about the future. And just a reminder around overlays, if you do have overlays that you had a problem to find in the model-based credit loss reserves, so that is how -- if your model incorporates everything you think it should, you don't need any overlays. That is accurately represented by the quantitative method. If it doesn't, you have this flexibility to put a little bit extra. And then you can release some of it when you earmark it or the negative event actually didn't happen. I do not think you should expect overlays to continue to go down necessarily because I find it to be highly uncertain right now where we will end up. And the next few weeks will be very interesting because new macroeconomic projections will come out that would affect the models and the general assessment that follows, namely, should one require overlays at the same, more or less and that's kind of going to be something we spend a lot of time on during second quarter. And why I say in the next few weeks because SEB's formal Nordic outlook, I think, is a week away or so from being published. And that's the base in the SEB way of doing model reserves.

And to your question on NII, Riccardo. As you know, we don't provide guidance as such. But if we reason a little bit around the current market outlook, just as you did, I think we stated in Q4 that we have the mechanics taking about 3 to 6 months of rate changes to work its way through the pricing of assets and liabilities. And based then, to your point, on what is currently priced into forward markets in terms of rate changes, Riksbank and ECB and also FX rates, which, as you know, impact NII, I think it's reasonable to assume that the quarterly NII could trough out here in Q2, Q3, somewhere thereabout. Now of course, everything that is subject to potential changes and market conditions are changing rapidly, but I think that's a reasonable assumption based on those indicators.

Just if I may, a quick follow-up, Johan. When you mentioned credit losses concentrated in G&As in key sectors, okay, forget about the names, of course, would you be able to mention some of these sectors is something that you can do. I'm not sure you can but...

Yes. We're not talking about many names at all. You can fit them in one hand. It's -- a couple of them are leveraged finance names in the large Corporate & Investment Bank division, which is quite normal. We have a pretty large P/E and leveraged finance book. There's 1 or 2 of them that is in particular sectors that have had a little bit of trouble and they are in 3 different countries. So this is very, very company-specific events that have been going on for years before they now materialized in that we put a little bit of more reserves against them.

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

So first one, Statistics Sweden data show that you gained ground materially within Swedish mortgages in terms of market share of net new lending in January and February. And we also saw the recruitment of a new head of that particular business in the quarter. Should we read into this renewed strategic focus on Swedish Retail? And would this, for example, be adjusting to a slower-than-expected recovery of corporate lending growth? And in that case, do you have any other initiatives in the pipeline on the Retail front? That's the first one.

Thank you. I would say do not expect this to be a symbol or a signal of any change in strategy or focus on Retail. Retail continues to be very important to us. Yes, I also noted that we had a bit higher market share on net new sales. But I think this is something that goes up and down, and we've had a little bit lower market share for quite a long time and I'm happy that some of the attempts that they've been trying has resulted in a positive outcome. Please remind, volumes are picking up a little bit, but it is very -- it's still very low volumes in a historical perspective on the kind of 2-way traffic in the market. I also -- I'm going to be very keen in a month or 2 to see the margins because this is a very tough situation where demand per se is very low. Confidence for future has just gotten a quite significant turn. And of course, no one wants to lose out. So there's a very high competition right now to maintain the mortgage volumes. And therefore, of course, margins have been falling pretty much all the way since its rates started to go down. But there is no significant change. And the external hire is nothing more than the normal course of a business where Jonas Soderberg has almost run the division for 5 years, and I had a situation where my current deputy CEO is moving over to take over U.K. and I asked Jonas to join me at the central office to help me run the bank and then we found a replacement. And in this instance, we found a returner to SEB, Sven, who used to be here in the past.

Okay. Understood. Just to put some numbers on that question then. For the last couple of quarters, I think you've taken between 2% and 4% of net new lending against a backlog market share of, say, 13% of Swedish mortgages. But now it popped up to, I believe, 20% of net new lending in February. What was the particular reason this happened in February? Or did you do anything in terms of marketing initiatives or so on?

Yes, we can -- I think Johan's point is valid that volumes are quite low, which means that market shares do swing around more easily. But there's been a number of activities going on during the past year, not least the digital signing of mortgages, which is one of the features Johan also mentioned in his introductory remarks, which just helps the flow. So a couple of those technology developments and other efforts to improve the flow has been yielding results. Early days and small volumes. But nonetheless, those are the effects that we're seeing the result of.

Can I also add just an explanatory point. This is not necessarily exactly explaining everything, but it's a view we have on ourselves. There are a couple of ways you can win -- you can do mortgages. One is the transfer market. So you have an existing mortgage. It comes up for renewal or you just want to shop around to see if you can get a better deal. We have historically a lower market share in that type. That's where everyone participates. We have traditionally higher market shares in the 3 larger cities, Stockholm, Malmo and Gothenburg. And when you buy something or you upgrade or sell, for that matter, so we have, as a larger bank, a more established, a clear difference in competitive dynamics when you want to get a new mortgage or your first mortgage compared to when they shop around. As you know, there are many participants that will not do first-time mortgages, but they are in the market or trying to offer a better deal with 10 basis points here and there. And even though volumes are low and supply and demand have gone up. So there is a little bit more 2-way traffic, as I used to say, buying and selling. And that's what we need. We need more 2-way traffic in the 3 larger cities, and we should have a higher market share in those periods where those are active.

Okay. And then changing focus to advisory fees briefly, if I may. So they seem to have held up really well in Q1. But looking forward, I just wanted to pick your brain on what you're seeing. So listening to, for example, JPMorgan's Q1, they cited they slowed down both of origination and of the conversion of the existing pipeline within, for example, M&A and ECM. Does this reflect your own experiences currently? Or are there nuances to being a Nordic bank that you want to share with us?

No, I would echo that probably a little bit milder for the Nordic flavor, but absolutely echo that. And it's very much when I mean that on the first page, I think we said wait-and-see mode. So you definitely see now when the volatility and uncertainty gets introduced, these larger one-off transactions that you might contemplate, which are often career- and life-defining for these companies. They are certainly not going to happen to the same extent that we thought before the 2nd of April. And you're right, it held up very well. But Q1, when we closed it the last of March, it kind of didn't have that notion to it. So we continued to see a very healthy development, but that is a little bit now too early to say, but it's definitely a wait-and-see mode.

We will now take the next question from the line of Johan Ekblom from UBS.

Just a few quick questions, please. On NII first. I think in past quarters, you've been quite helpful giving us some color as to the FICC contribution and kind of the over or under earning on -- relating to timing effects. Should we view the Q1 numbers as being meaningfully off trend? How much headwind would you expect in the coming quarters from that?

So for those effects, I said we had the tailwinds from the timing effects or the repricing effects we mentioned in Q4 is fading in Q1. And that fade is almost entirely offset by -- not fully, but largely offset by the market NII strength. So that should give you some indication of the quantum there.

Okay. And then just on the ECL, I mean, if I understand correctly, I mean, what you're saying is that the ECL this quarter doesn't reflect any meaningful changes to the macro scenarios. And yet you're stuck with a similar probability distribution to what you had between the different scenarios. Why not choose to materially change the probability scenario -- or probability of the scenarios in anticipation of what is bound to be a downgrade to economic assumptions and front-load the ECL increase? And then I guess related to that, you say you used the ECB macro teams baseline, is the translation of that into the upside and downside case mechanical? Or what -- how do you get from the baseline to the downside scenario?

Yes. I hope you said SEB and not ECB. It's very...

SEB. No, SEB, absolutely.

Yes, checking. So we use SEB. No. So first, on -- of course, I would like to just say the underlying asset quality, you can look at the watchlist [indiscernible] volume. So we do have what is actually out there in terms of special attention because we see their weakness, that's going down. Stage 3 exposures are going down. And Stage 2 exposures are going down, except for the model change, which looks on the headline, it went up a bit. And also past dues that when you start -- when it's someone in distress, it needs to be a few days that you haven't paid your bill. That's also roughly flat. So the underlying, which is, of course, this is how we judge the probabilities of the underlying credit quality for this to merit future changes to the reserves that we put aside. So all that looks very good. This quarter had those handful of companies that we reserved a bit more for. The main reason we haven't changed the scenarios for the macro is because we have to close the books of the last of March. So all these things really have changed everything. And if I look at the macroeconomics dispersion out there in estimates, it's probably never been bigger in my career. And people are talking about no rate cuts or even increases to stave inflation and someone thinks we will focus on growth aspirations -- growth prospects, which will go down and you become very bullish in Central Banks potentially reducing rates. All that is happening now. And on the downside, base case and upside case, it is actually set by the economists. So it's not something that you just manipulate as you see fit. But we do have a firm-wide view which they, of course, are the responsible people and area for making those projections. And that's, of course, part of the process that you also sign off with the regulators on how you treat these things. So it's -- I would say, it's outside management's control and it's based on this the SEB's and they are updating it right now. So they will be updated for the Q2, and we'll come back to it. But that's the main reason that we could have built -- tempted to do what you said, but it would have not been appropriate for the last of March.

But I'm correct in assuming that we can observe their baseline, but the upside and downside scenarios will get in July. They're not in the report?

I don't think that they give you the downside scenario probability in the Nordic Outlook report that we present when we have the next quarterly result.

In Note 10, Page 33, you see the macro assumptions and also the weightings that you were referring to. And broadly speaking, you could say that the probability -- shifting the probability weighs a bit more than shifting the GDP numbers from an IFRS 9 perspective.

Yes. And then just finally, in terms of the levies, I guess the Baltic levies we have in place now are temporary according to the law, but temporary can change or be temporary for different amounts of time. How do you think about the levies beyond 2025? And I guess that goes for the Swedish resolution fee as well. Are you expecting any meaningful reduction in the coming years?

We have to always plan for the worst and hope for the best. So we are not planning for any meaningful lowering of tax in the Baltics or in Sweden. There is no real noise or attempts to have proposals out to increase. So at least it feels, from my anecdotal evidence, it feels stable. . As you say, they have all said it's temporary, but you are also, I think, correct in assuming that, that's a political statement and you can't assume that they actually keep their word. Therefore, I always assume they are there until they're not. What was the other question?

The resolution?

The resolution, yes. And I think on the resolution fund fee, it's a mathematical formula depending on if the fund is full or not. And that is something that we can calculate and make estimates on. And your guess is as good as ours where we will be at the end of this year, so the outlook for 2026. It's a forward-looking one, so you will be filling up forward-looking requirements with 1 year in advance. And just to mention as well, and I did mention it, but just -- so that was clear that the front loading of the levies for 2025 is Q1 and Q2, and it will fade in Q3 and Q4 mathematically. I think I mentioned that, but just to clarify that.

We will now take the next question from the line of Patrik Nilsson from Goldman Sachs.

The first one was on -- you were alluding to it about the sort of competition in the mortgage markets. So I was just wondering if you could provide any color there in terms of how sort of the back book margin compares to where you're currently writing business and how -- and for how long we can see that rolling off to lower margins? And then the second one was just on the restatement on NII in terms of the amortization of inflation-linked bonds. You called out how much that impacted the previous quarters. But I was just wondering if you had a number on how much that benefited the Q1 number? Or is it -- or if it was a positive Q-on-Q or a headwind. So that's the 2 questions.

Thank you, Patrik. On your first question, the mortgage margins, we have commented that we have seen some pressure due to the market dynamics in the first quarter, but we don't provide the detailed numbers on front book, back book. On your second question on inflation-linked bonds, you're right, that was the restatement we did. Bear in mind that this used to be a drag on NII that was removed. And we are now showing the various effects of the inflation-linked bonds. So the pull-to-par effect and the mark-to-market and the -- brought together in NFI. So effectively, you now see them linked together in the NFI numbers. So what you see now is a clean and fine number, including both of those effects and a clean NII number.

We will now take the next question from the line of Jacob Kruse from Autonomous.

I just wanted to get back a little bit on the NII, if possible. So could you say anything on those timing effects that you saw this quarter, which you said are fairly similar to the market's effect. I thought this would be a fairly substantial number this quarter, a couple of hundred million. Is that about right? And is that the level of effect you see in markets? And then secondly, on the mortgage margin, it looked like the front book margin had some pressure just based on SEB data. Is that something that you're seeing, increased competition in the mortgage space or has little changed there?

Thank you. So on the first one, we did disclose in Q4 that the timing effect, the repricing effect were in the order of SEK 100 million to -- SEK 150 million to SEK 200 million. And what we're saying here is that the NII in market is not fully offsetting that, but a meaningful part of that repricing effect is fading off and partly then offset by the markets NII. On the mortgage margins, there's something to add in terms of the numbers that we're disclosing. The market dynamics remain competitive. As we said before, we would have expected at this point in time when rates start to change a little bit that we would see some easing and improving on the mortgage margins, which as you earlier indicated on the call here that this was the case earlier in the cycle. So we're watching this very closely. We're continuing to build and enhance our offering with the digital signatures and everything that we can to enhance our capability to deal with the flows that we have. But of course, the pricing environment is something we just have to work with. But I think if I look at anything, we continue to believe that the trajectory from here should be a positive one on both volumes and margins if the scenarios play out with the stronger households and the rate environment.

Okay. And just given what you're seeing now and the current rate levels, would you expect NII to mechanically trough in Q2 or Q3 or having troughed in Q1?

I think the answer to the previous question, along those lines, and that was the -- we don't give guidance, but reasoning around forward rates, et cetera, we concluded that Q2, Q3 could be a reasonable assumption.

We will now take the next question from the line of Markus Sandgren from Kepler Cheuvreux.

I was just thinking the financial income that's strengthened in the quarter, has that been gradually strengthening towards the end of the quarter? Or has it been the same customer activity or client activity throughout the quarter? Or -- so should we read into anything about what's coming for next quarter that the activity may be even higher? Or is it evenly distributed, so to say?

I can say there's been a fairly high activity throughout the quarter. The one thing to keep in mind is that Q1 is typically quite strong because there's a lot of issuance. A lot of corporates are issuing, particularly on the debt side, early in the year and that drives volumes as well. So Q1 should be a typically high quarter. Market flows and customer flows have been strong throughout the quarter. And the one comment we gave as part of the prepared remarks was to say that the FICC has continued to manage the volatility from the 2nd of April well. So that's the commentary we've given.

There are no further questions at this time. I would now like to turn the conference back to Johan Torgeby for closing remarks.

Then I'll just end by saying thank you to everyone for participating and look forward to seeing you soon. Bye-bye.

This concludes today's conference call. Thank you for participating. You may now disconnect.