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

Good afternoon, everyone, and welcome to this call ahead of our silent period that starts on April 7. This is Peter Grabe speaking, Head of Investor Relations. And with me today, I, as usual, have the whole Investor Relations team, Lars Kenneth Dahlqvist, Andreas Skogelid and Per Aronsson. And we would like to remind you that this call will be recorded. And this call is intended for sell-side analysts and will not include any communication of new information, information that is not publicly known or any new guidance. The aim of this call is rather to remind about publicly communicated matters for housekeeping purposes of your estimates and expectations ahead of the interim report. In this call, we are not aiming at steering you towards any specific numbers, and the outcome of the quarterly results will occasionally deviate more or less to the trends we comment on in this call. We will only answer questions relating to public information and related to Q1. [Operator Instructions] Now let's go through the respective lines and start with NII. First, in terms of volume development, as usual, we can only refer to the official statistics. But general observation is once again that the volume growth overall in our home markets have remained relatively subdued. Second, in terms of margin development and NIM sensitivity, we don't guide, as you know, as it is challenging to have a clear view of the net of several factors affecting such as funding, competition, mix effects in the portfolios, et cetera. So we can only provide -- so we cannot provide any flavor on that nor the net impact on the margins from changed policy rates. And just to remind, in the previous quarter, we did not state any specific one-off related effects to the NIM. We rather explained the sequential NII development as a result of positive contributions from volume development and FX being more than offset by negative effects relating to the net of funding -- of funding and margins combined. The latter in turn showed a degree of resilience relating to the lag effect arising in a rate-cutting cycle since repricing of deposits sometimes occur earlier than the repricing on some of the variable mortgages. We did not quantify the effects specifically and have no guidance on such in Q1. And just to remind, in Q4, the Swedish Central Bank rate cuts that came into force were 75 basis points in Q4 and 50 basis points in Q1. And then third, in Q1, there are 2 days less than in Q4. And the sum of the day count effects in the business segments in recent quarters has been around SEK 100 million per day. And finally, in terms of FX, the krona has strengthened materially in the quarter. So on a net basis, that should be a headwind to the NII from FX. Then over to fee and commissions. Starting with savings-related fees, which account for around 2/3 of commissions. The development of the daily average stock market index usually tends to be a fairly decent leading indicator for the savings-related fees. So as always, you should have no problem in at least making a rough assessment of the savings-related commissions in the quarter. In terms of the development of other fee lines, we can only refer to the historical seasonal patterns. Moving on to NFT. The NFT is a minor income line, as you know, as we try to minimize market-related volatility in the income statement. It has on average been at around SEK 600 million per quarter over the last few years. And as seen in the past, it can, however, vary by a few hundred millions in between quarters when, for example, credit spreads and currencies are volatile, but we have no guidance for Q1. Then the cost lines. Just like on the income side, it's a fairly easy exercise to get a sense of the FX impact also on the cost side. So while income should see a headwind in the quarter from FX, the costs should see a tailwind, i.e., slightly lower costs relating to FX impacts in the business segments outside Sweden. Last quarter, we had restructuring costs of SEK 146 million, and the comments we made were that the bulk of the efficiency initiatives had been finalized towards year-end. In terms of Oktogonen, the provision in Q4 was SEK 68 million. And as always, there is a final calibration of the Oktogonen provision for the full year coming in the following Q1. This since all comparable peer group numbers had not been disclosed at the time of the Q4 report. And as you know, we cannot guide for the Oktogonen provisions, but we welcome transparency from your side in order to get some good transparency on your underlying cost expectations. Apart from that, we can only refer to the historical patterns of the underlying staff costs in Q1 versus Q4. And as you know, in Q1 each year, the annual salary revisions kick in. Normally, they have tended to align fairly well with overall labor union agreements. In terms of other operating expenses, they have historically dropped somewhat in Q1 from Q4 due to seasonality effects, and we have nothing to specifically comment on apart from that. Credit losses. The only thing we can say is that there have been no public disclosures that you might have missed for Q1. And then briefly on discontinued operations. In Q4, we divested the last part of the operations in Finland that we signed with the buyers in the summer of 2023. This means that there is only a limited operations left in discontinued operations and the P&L contribution should be minor going forward. Finally, on capital. The reported CET1 ratio in Q4 was 18.8%, which was almost 400 basis points above the SREP. What we said in Q4 was that the extra 100 basis points that we hold above the long-term target range will be reviewed continuously. So we will come back with comments on that going forward. And with those final words, we open up for questions.

I can see that Magnus has raised his hand. So Magnus, please go ahead.

Yes. I was just wondering, first of all, when it comes to the U.K. as the base rate is down again on average quarter-on-quarter, if you could say whether you have any timing effects at all given how the repricing works in that market. And secondly, also related to the U.K., at the Q4 call, you said on volumes that you had piloted 3 nationwide broker firms, which you would cooperate with. Does that imply that your margins on the -- which product will be lower going forward? And also if you could say what the cost is from using the broker channel in U.K.?

Well, firstly, on the first question in terms of repricing, I mean, we have no comments, I'm afraid, to state. And in terms of the second question, I'm also afraid that we cannot provide any flavor on the margin impact from using or starting to cooperate with these third parties. So I'm afraid I can't give you any flavor on that as well.

Okay. If I may continue just one on capital. Have you said anything about potential day 1 effects, et cetera, from Basel IV?

Yes, in terms of day 1 effects, we announced in Q3 that we expected to see a slight reduction of the risk-weighted assets relating to day 1 effects. Jacob, you're up next. So please go ahead.

Hope you can hear me. So just a couple of questions. Could I ask you, when you look at your salary adjustments and the negotiated salaries, what proportion of -- so what is the agreement and what proportion of your staff is subject to that agreement? If you could provide a little bit of detail there. And secondly, I'm afraid I missed the first minute, but could you comment at all on the pricing that has been done on the deposit side in your markets in the quarter?

Yes. Well, in terms of the labor, the amount of the staffing, that's part of the labor unions, I would say, most likely the vast majority of the employees in Sweden. And there are different unions that you can be a member of. But I would say that the bulk would -- is probably fair to assume to be members of the unions. And in terms of the pricing -- could you repeat the question? Was it regarding the deposit pricing during the quarter?

Yes, deposit pricing.

Yes. In the first action we took in Q1 was the 20th of January when we cut the interest rates we pay on the standard savings account by 10 basis points and the interest rate we offer on the 3-month term deposit by 15% -- sorry, 15 basis points. Then the 3rd of February, we got another 20 basis points on the 3-month term deposit and another 25 basis points on the standard savings account. And I can also mention that the list price on the mortgages, we cut by 25 basis points, the 3rd of February. So yes, and this is in Sweden.

Okay. And just -- sorry, just to be clear, you don't hedge the 3-month mortgages. I guess, they're funded by a floating 3-month rate?

It depends on how you define the hedge. I mean, obviously, if you have a mortgage that's running with variable rate or 3-month fixing, it's not funded with 3-month money. It's funded typically by a longer-term covered bonds to a large extent. That's swap down then to -- so that we match the interest rate periods. Nicolas, please go ahead.

Could you just confirm whether your capital is hedged to currency movements? Or should we expect any impact on the CET1 ratio from the SEK strengthening?

You can say that it's more or less hedged. And as you can see in our interim reports, in the slide package, you -- towards the end, in the appendix or towards the end of the presentation, you always see the FX effect on the CET1 capital as well as the FX effect on the risk-weighted assets, and they typically even out. So you can say that we are more or less 100% hedged.

Fully hedged, yes.

Andreas, you're up next. Please go ahead.

I kind of know what you're going to say, but I mean you don't need to guide for Q1, obviously, but don't you feel that you should give some sort of indication of how big the timing effect from the funding side was in Q4 in order to get analysts to get somewhat right in Q1?

Well, I'm afraid -- since you know what we're going to answer, I'm afraid I'm going to have to confirm that. No, we don't quantify it. And it's part relating to all vast amount of components affecting the NII. But I'm afraid we won't be able to disclose that.

And can you tell me just why? I mean, other banks are quantifying it quite clearly. And it's the name of doing business. There's nothing funny in it.

Yes. I mean, you have different directions pulling when it comes to, for example, the short end compared to the long end. I -- for example, on the liquidity portfolio, you get timing effects when it comes to your short funding versus your central bank deposits that moves in one direction. On the mortgage side and deposit side, you get dynamics in the other direction. So from our point of view, I mean, it's -- we have come to the conclusion that we will not guide on the net effects of several parts or guide on specific effects on separate parts. So yes, I hear you, but unfortunately, we won't be able to provide any guidance. Any additional questions? I see no hands being raised at the moment. Well, in that case, thank you, everyone, for listening in, and we wish you all a nice weekend. Thank you.