Swedbank AB (publ) (SWEDA) Earnings Call Transcript & Summary

Welcome to the Swedbank first quarter reports 2021. [Operator Instructions] Just to remind you, this conference call is being recorded. Today, I'm pleased to present Annie Ho, Head of Investor Relations. Please begin your meeting.

Good morning, and thank you for joining our presentation of Swedbank's first quarter 2021 results. With me is our CEO, Jens Henriksson; and our CFO, Anders Karlsson; and our CRO, Rolf Marquardt. We will begin as usual with our presentation. And thereafter, you will be invited to participate in Q&A, where we would like to keep to 2 questions per person at a time to give everyone an opportunity. And with that, I'll hand over to you, Jens.

Well, thank you, Annie, and good morning to everyone, and welcome to the presentation of Swedbank's Q1 report for 2021. Today, I am proud to present the report with an increased profitability during a quarter where the bank has moved forward despite the challenging time. It has been a tough quarter for many people, businesses and the economy. And the most important issue for the global economy has been and is access to COVID vaccines. In the tough times, we have continued to deliver a strong result. Swedbank continues to be one of the strongest performers among large banks in Europe with a return of equity of 12.8%. We are also efficient with the cost-to-income ratio of 0.44. But the ratio is higher compared to what it used to be due to a high investment rate and a considerable effort spent on fighting financial crime. Our capital position is also strong with a reassuring buffer of 560 basis points to the Swedish FSA's requirement. Profit after taxes increased by 10% from the previous quarter, mainly due to lower costs and credit losses that were down by 50%. NII, net interest income was stable, and mortgage lending grew, but not in line with the market. NCI, net commission income was stable as well. Our capital management business had a positive impact on NCI during Q1, whereas income from our card business was negatively affected by both seasonal effects and pandemic restrictions. Costs for 2021 are in line with plan. Our cost cap remains unchanged SEK 20.5 billion and an additional SEK 500 million for investigations related to Swedbank historical Shortcomings. All in all, a strong result in tough times. But we have also faced challenges, especially in mortgages in IT. In Sweden, home prices have continued to rise. And the dynamics in the housing market is very fast, especially in large cities. Our Swedish market share does not match our ambitions and where we have to improve. We believe that we are well positioned when it comes to pricing, but we are too slow in responding to our customers' needs. We simply haven't kept up. And this is an area where we need to improve. Every day, Swedbank and the savings banks meet the customers through 6 million digital interactions. And the pandemic has accelerated the digitization process. Our customers are banking online more frequently and at higher expectations on our services to work smoothly. That has not always been the case. We've had incidents and disruptions with our services. And the accessibility so far this year has been below our target. And the disturbance in our equity trading platform have unfortunately been expensive. This does not live up to our customer expectations. They must be able to carry out the business and access the bank in the way they need to, 24 hours a day, 7 days a week, 365 and sometimes 366 days a year. We are working hard to address the challenges we are facing. Our share in new mortgage lending in Sweden needs to increase. That's why we're increasingly focusing on meeting our customers' needs. And our strength, as you know, is a broad base of customers across the country together with the savings banks. And we have made the loan approval process quicker to meet expectations during the quarter and have now cut the response time by 50%. We have reallocated resources and provide faster feedback to customers, both digitally and in person. And we proactively advise customers with an emphasis on creating deeper relationships and highlighting our full-service offer for financial health with savings playing a key role. And we are working actively to shorten our queues and wait times in the customer centers. The collaboration with our real estate broker subsidiary Fastighetsbyrån, has recently been expanded to include special offers and integrated marketing, both in virtual and physical channels. The activities in Swedbank and the savings Bank's IT platforms are record high. And the interest in equity trading is also historically high amongst Swedbank and the saving banks many customers. In order to future-proof the bank's IT platforms, we run a comprehensive program with a number of measures. It contains long-term plans to meet stability and availability requirements but also hear and know how to minimize and manage incidents. We are investing in simplicity, availability and stability, and when we reach customers, we also win business. As you know, we strive to be a low-risk bank, and we have addressed the historical shortcomings identified by the authorities and the Clifford Chance report. But in the wake of such historic events, there are still investigations yet to be concluded. NASDAQ, Stockholm, i.e., the Stockholm Stock Exchange in March, they concluded that the bank during the period 2016 to 2019 did not fully follow the market abuse regulation properly and the rules for the stock exchange. And the bank mainly shares the view of the stock exchange, and therefore, we anticipate a fine. And that fine can amount to a maximum of SEK 60 million. In September 2020, we informed that the Swedish FSA is carrying out an investigation around issues that are parallel in time and matters with the Stockholm Stock Exchange statement. And the SFSA, the Swedish Financial Supervisory Authorities can decide on a sanction even if the Stockholm Stock Exchange give us a fine. The investigation by the U.S. authorities are ongoing, and the bank doesn't have any new information about when these investigations may be concluded. I see that we take steps and close the historical issues, one after one, as the investigations are finished. And in order to do our part in the fight against financial crime going forward, the focus is now to have the bank on a low-risk level, and we lower risk through continued structured work with KYC measures. And at the same time, we're becoming more precise in monitoring suspicious transactions when both automatation and upgraded processes are beginning to fall in place. And we have, during the quarter, also decided to stop international payments via the Internet bank to several countries with high-risk profiles. For Swish services, we have tightened the rules to put the stop to new fraud patterns we are seeing emerging. And it is also reassuring for me as CEO that significant credit losses so far has not materialized. Credit quality is very strong, and credit losses decreased by 50% during the quarter. As of today, we made provisions of more than SEK 1.8 billion in addition to our models reassuring safety margin. We have continued in 2021 to adjust the bank to the needs of customers during the pandemic, both in how we work internally and how we support them. The capital markets are attractive in this new landscape for financing, both ECM and DCM. We assist corporate customers with issues of both traditional and green bonds and have strengthened our position considerably on the bond market. We have launched automated FX services to assist SMEs to secure their FX business. Corporate customers can now easily connect their accounting with our service in a digital onboarding process, which saves times both for the customer and us. And Robur, which is the largest fund manager in Sweden, has also launched in Estonia, Latvia and Lithuania, where we see considerable growth potential and an opportunity to contribute society's development that contribute to a culture of sustainable savings, all in line with our groups. It is satisfying to see that we continue to make our customers' financial life easier during the pandemic. And now Anders, it's your turn to go -- your time to go through the numbers and the quarterly development. So the floor is yours.

Thank you, Jens. Good morning, everyone. We achieved a return on equity of 12.8% in this quarter through improved profitability. Core income lines were stable and a more normalized NGL level was offset by seasonally lower expenses. Asset quality continues to be strong, and credit impairments decreased. The cost income ratio ended up at 0.44. Compared to last quarter, the total loan portfolio increased by SEK 5 billion, including a positive FX impact of SEK 7 billion. Mortgage lending in both Sweden and the Baltics continues to grow in local currencies, while corporate lending within Swedish Banking remains muted and in LC&I, total lending volumes decreased by SEK 4.5 billion, including a positive FX impact of SEK 2.5 billion. While direct lending to clients was stable, there was a large reduction of exposures in other lending. Customer deposit inflows continued this quarter, increasing by SEK 43 billion, of which SEK 16 billion stems from households and SEK 10 billion that is of a temporary effect stemming from 1 corporate clients pension premiums that will be invested shortly. Now, let us look at the quarter-over-quarter results, starting off with net interest income, which overall is stable. In Q1, we saw lower average lending volumes and excess liquidity placed with central banks being largely offset by lower funding costs as more expensive capital markets funding matured. Lending margins overall are stable, while we see the increasing trend of customers in Sweden choosing to fix their mortgages in longer tenors continuing to weigh somewhat on the margins. FX and day count effects impacted NII negatively. And the deposit guarantee for 2021 will be around SEK 550 million, taking the Q1 net effect down by SEK 78 million. In addition, there was a positive adjustment for previous years of SEK 100 million that was booked in the quarter. Over to net commission income. The asset management business continues to perform well as a result of the development in the equity markets, and we saw net inflows of SEK 7 billion during the quarter. Income was higher even compared to a strong previous quarter that was further boosted by performance fees. Underlying card commissions continue to be on low levels, further impacted by quarter-over-quarter seasonality and more restrictions due to the pandemic. Reminding you that there was a one-off payment to the savings banks last quarter. Commissions from brokerage and corporate finance decreased from a high level in the fourth quarter, which also benefited from a SEK 40 million market making fee. Turning to net claims and losses. The NGL result was lower with good client activity. Last quarter included large positive valuation effects and favorable FX trading conditions. Other income continues to be stable. Higher income from associates offset lower income from other line items such as net insurance and services to savings banks. Let's look at expenses before I hand over to Rolf. This quarter expenses were seasonally lower quarter-over-quarter and in line with our plan. I will now hand over to Rolf to talk about asset quality and the credit provisions that were made in the quarter.

Thank you, Anders. And now please on to asset quality. Which remained strong and stable and was largely unchanged during the first quarter. The outcome from the macro forecast for Q1 2021 was positive, and only minor changes were observed due to rating downgrades and revised collateral valuations. For the bulk of the portfolio, whether we look at late payment statistics, watch list exposures or other early warning indicators, the picture is very much the same as in Q4 2020. No visible impact yet. The key vulnerable sectors remain to be oil and offshore, hotels and restaurants, retail and transportation. The total credit impairment for the first quarter decreased to SEK 246 million. This is mainly explained by a management overlay in Baltic banking due to uncertainty about the long-term impact of COVID-19 on vulnerable sectors. Macroeconomic forecasts have improved for all home markets resulting in a modeled expected credit losses decreasing by SEK 200 million. However, as you know, Sweden and the Baltic countries, especially Estonia, have been hit by a severe third COVID wave. While the vaccine rollout is well underway, the recently introduced restrictions in the Baltic countries can be expected to stay in place for a longer period than previously anticipated. As before, the viability of many businesses will depend on sustained government support. The uncertainties on potential impact does remain. Therefore, we retain the post model adjustment made in Q2 and Q3 2020 in Sweden, while we increased the adjustments in Baltic banking, bringing the total post model adjustments for COVID-19 to SEK 1.852 billion, with a management overlay of SEK 283 million in the first quarter. Provisions for individual assessments of SEK 194 million was mainly related to a few oil and offshore counterparties within large corporate and institutions. Grading and stage migrations added SEK 138 million, while other items reduced provisions by SEK 169 million. The main part of our oil and offshore business is in runoff. Since Q1 2020, the gross exposure has been reduced from SEK 12.9 billion to SEK 7.3 billion. During the first quarter, 3 large exposures were sold and written-off with only a minor impact on provisions. We now have SEK 3.6 billion in Stage 3, and 45% of that has been provisioned for. So with that, I hand over back to you, Anders.

Thank you, Rolf. Let me now turn to capital. We report a strong capital position with the buffer to the minimum regulatory requirements of around 560 basis points. The CET1 capital ratio increased to 18%, with the profit in the quarter and the pension liability valuation having impacted positively. The remaining accrued dividends from profits generated in 2019 and 2020 is still deducted from the CET1 capital. In terms of implementation of future capital requirements, we expect higher risk weights from the IRB model overhaul exercise relating to probability of default to potentially start being phased in from the second quarter, while the loss given default component may be introduced early next year. On the other hand, during the second quarter, we expect a benefit of around 25 basis points from the implementation of the SME supporting factor relating to Sweden. The component relating to the Baltics will be implemented later. The Pillar 2 guidance of the Swedish banking package will likely be set and implemented in Q3 and it is expected to be around 1% on the buffer. If we look further into the future, we expect the Swedish FSA to reintroduce the countercyclical buffer on the back of a potential strong economic growth. We do not yet know exactly the impact from all these regulatory initiatives. But once we are through all these changes, we expect our CET1 capital buffer to end up within our capital range of 100 to 300 basis points. We are confident that we will remain well capitalized. Let me now go through some forward-looking comments, including some EPS drivers before I hand back to Jens. Mortgage volume growth and lower funding costs will continue to support NII. With regards to margins, if the trend of customers choosing longer fixings for the mortgages continues, we should expect some pressure on margins. Margins in the floating part of the mortgage book are expected to continue to move in tandem with market interest rates. Despite continued uncertainty from the pandemic, we are beginning to see some signs of increase in corporate demand. However, until there is a meaningful pickup and while capital market conditions continue to be benign, corporate lending will not contribute to positive NII development. On the other hand, we expect DCM activity to be strong, which will support MCI. The headwind from deposits and excess liquidity will persist if inflows continue to outpace lending. Net commission income is well positioned to benefit from an economic uplift. GDP is forecasted to recover to 3% to 4% in all our home markets already this year. And the revival of household consumption is predicted to begin in the summer if current vaccination plans hold. Around 75% of the assets under management in our asset management business is invested in equities, which will, generally speaking, naturally follow market performance. As the uncertainty from the pandemic is reduced, we could see a willingness for private customers to invest cash, held in deposit accounts in longer-term savings products. And the revenue potential will be further enhanced if our active equity and fixed income funds continue to outperform benchmarks. Payments and cards. Payment processing, i.e., income from transactions made through the bank, has been fairly stable since the onset of the pandemic. While card income has been significantly impacted. We expect card activity to recover by at least 10% as the economy reopens and travel restrictions around the world are lifted. Regarding expenses, we are keeping up the investment pace, primarily within AML and IT in order to future-proof our bank and fortify IT resilience. Cost discipline is a strategic priority during this phase. We, therefore, reiterate our 2021 and 2022 cost guidance of SEK 20.5 billion of underlying expenses, plus SEK 500 million is our best estimate on AML investigation costs. To summarize, we have the capacity and the appetite to lend. We are strong in SME and real estate, in particular, and we are doing our utmost to stay close to customers, and are making changes to capture more lending opportunities, especially in mortgages, as Jens has outlined. For clients who are looking at alternatives to bank lending, our capital market exports are on hand, and we continue to focus on our savings business. We recognize that cost has outpaced income growth in recent quarters. We are, therefore, working hard to grow our key income lines, while keeping to a flat cost development for this year and the next in order to improve the cost income ratio, earnings per share and return on equity. With that, I hand over to Jens to conclude.

Thank you, Anders. Let me say a few words more about the economic development before I wrap this up. So first, IMF in this April forecast said that it expects a vaccine driven recovery, and IMF has raised its global economic forecast to 6% this year and 4.4% next year. And the upward revision is mainly due to higher levels of fiscal support in a few large economies. And then we have to go back 40 years in time to find such strong growth numbers. But let us remind us that the pandemic is still affecting all of our home markets in Sweden, Estonia, Latvia and Lithuania. Health care continues to be under pressure, but vaccinations have started. Restrictions are expected to be eased gradually from the summer, and all 4 home markets are about to enter a considerable upturn where we are counting on households consumption to be in the driving seat in Sweden. The economic growth will return to healthy levels in the Baltic markets during '21 and the forecast for 2022 show good growth. Now looking at where the bank stands today, I see that the work we did within the whole bank with our strategic direction is underway and that important steps are being taken. In order to contribute to a financially sound and sustainable society, we have clarified the corporate governance and accountability within the group. We have addressed the authorities' requirements regarding AML-related standards, and sustainability is a core when we now assess climate-related risks. Because of this, we are talking with customers about how they can adapt their business, and we are a part of the transformation. We are improving availability for customers and the resilience we need to meet the demands of the complex digital society for investments in IT systems. And we have a strong capital position, and we have the ability and competence to empower the many people and businesses to create a better future in Sweden, Estonia, Latvia and Lithuania. I feel confident that we are well positioned for growth when it picks up speed. Now we are all 3 ready for your questions. And then I give the floor back to you, Annie, I think.

Great. Thank you very much. Operator, could you please open the lines for the first question? Thank you.

[Operator Instructions] Our first question comes from Magnus Andersson from ABG.

Yes. Just starting off with mortgages and NII. When I look at your market shares, it's gradually and steadily come down from 35% in '98 to around 33% today and is still continuing down. You are obviously taking action. But out of the measures you mentioned, more focused on larger cities, faster loan decisions and special offerings together with Fastighetsbyrån, I think focus on larger cities have probably heard that for more than 15 years. And special offers together with Fastighetsbyrån, I buy that, although I think you've had some already, but then increasing accessibility and shorter response times, I think that's probably the most important here. But my question is, do you think that what you are saying today will be enough to take you back to your back book market share also in terms of front book? Or do you think that you will still continue to gradually lose market share within mortgages?

Well, thank you, Magnus. I agree that sort of us being available and being fast is the most important issue we have to face. We haven't been good enough, and we are open about that. So we need to be more accessible and we want to get back to our market share. I'm not going to give you a specific date, but there is a full focus on that.

And just to add, Magnus, I think I missed some of your numbers there, but I mean, the market has changed quite dramatically since 1990 that you were referring to. As you know, there are so many more players in the market today than it was at that point in time. So I don't think it's a fair comparison from that sense. But we will definitely do whatever we can to come back to normalized back book market share.

Okay. So -- and what's a normalized share? Because, yes, of course, the market has changed, but the other banks haven't lost even close to what you have lost. Actually, they've been quite stable, of course has also lost, which was the other large player, but not to the same extent as you. So I'm just -- what I'm just after is, do you think that you will be able to stop this trend because it's also been going on during the last -- I mean, it doesn't matter whether you look at the last 3, 5, 7, 10 years, it's a steady decline.

Well, if you look at our market share, it's 2 parts. One is sort of the part we sell ourselves, and the other one is the part where the savings banks sell. And when you look at the savings banks, it goes up and down. And in the last periods gone down. And that is because they have good access to capital markets, and it's a tremendous inflow of deposits. When you look at our core market share is around 18%. And I cannot give you under information that we see the problem. We are not good enough. We're not fast enough in this market, and we have to be better and our ambition is very clear. We want to get back to our back book market share. The good thing, though, is that we haven't seen any problem with our pricing. We think that we are with the right prices, but it's about us being available.

Okay. And secondly, just on costs where you are running now on an annualized level below SEK 20 billion, are significantly below your SEK 20.5 billion cap plus potentially around SEK 500 million in AML investigation costs. Can you give us some feeling on where you are seeing costs increasing in what areas during the rest of the years and how we think about cost allocation over the year, i.e., in H2 versus H1? I would perhaps have thought that you would start to front-load some of this already in Q1, which obviously as before...

I'll start off before I get sort of let Anders get into the details. If you look on Q1, it's seasonally a bit lower. Our target of sort of keeping below the 20.5% still stands. And we have, as I mentioned, we are looking at IT investments. And in some places, we also need to hire some more people, so we can meet the customers fast enough. But with that, I give the floor Anders.

But Magnus, if you look at Q1 as a percentage of the total cost over the last 3, 4 years, I would argue that it stands around 23%, 24% and the same growth for this Q1 this year. So seasonally, Q1 is lower. What we have been talking about for quite some time now, Magnus, is the fact that we have been gradually hiring people during previous year and to a certain extent, during the beginning of this year. It has been necessary in order to primarily work with the shortcomings on AML. That will have a full year effect 2021. And if you look back, you see that H2 is typically, even though Q3 is a seasonally lower cost quarter, Q4 tends to be a higher one. So it's not a linear relationship. And the conclusion I make is that we are on plan.

Okay. And just -- I noted that your headcount increased, the rate is actually coming down, now in Q1 compared to the growth rate we saw quarterly in 2020. And I think you mentioned on the Q4 call that you expected headcount to be roughly flat in 2021. Is that still what you think? Has staff turnover changed to picked up, which was a problem for you last year?

It has not picked up, although I can foresee that if the restrictions are lifted and vaccination plans are coming through, you will most likely get back to normal turnover and maybe even higher turnover than you have seen previously, Magnus. The way we are managing costs are by 2 different levers. One is that we have put an FTE cap onto the organization. And the second one is the cost frame that we have talked to you about. The one that is binding is the cost frame.

Our next question comes from Johan Ekblom from UBS. 4

Maybe to continue a bit on the volume side. On the corporate side, I guess, for some time, you've been -- it's not only in the mortgages where we've seen underperformance on volumes. Can you talk a little bit about -- you said there are some signs that corporate credit demand is picking up. But what is needed for you to kind of take your natural market share there? Are there perception issues of you in the market? Is it an active decision on the risk side? Or why have we seen as weak corporate volumes as we have? And then secondly, just a very quick, is there any update you can provide in terms of timing of the payments review? I know you probably don't want to go into details, but is there any kind of deadline for that to conclude?

Okay. First of all, I think that we are not standing out, in particular, when it comes to lending to corporates. I think it is a systemic issue. One reason is that corporates has to tend during a period of such large uncertainty to invest in new capacity. And on the back of that, you see that they are cash-rich. You see it in the deposit accounts around in the banks, but you also see it on the tax account with the tax authorities. So they have money to invest. Secondly, as you know, we are heavy in real estate. And real estate is capital intensive, but it also is a fair number of large real estate companies that has access to the capital markets. And if you take a combination of risk weight floors coming from the Swedish FSA on commercial real estate and residential real estate and extremely benign capital markets, some of them are sort of using the capital markets rather than bank lending. So I think that is one part of it -- or the most important part of it. We see a, as we said, some positive signs. But again, until you see any meaningful pickup, we continue to say that it's subdued.

And let me just follow-up on sort of the payments business. We have no new information to give at this time. As you know, came out a while ago and said that we are doing a strategic review in this area, which is an area is sort of a lot of technical development, and we are continuing to do that, and we'll get back to you on that.

Our next question comes from Andreas Hakansson from Danske Bank.

Sorry, I'm going to have to come back to Magnus questions about the mortgage market because -- I mean when I look at it, you're bleeding clients every quarter. I think you lost around 5,000 clients this quarter. And I assume they bring with them other forms of revenues from the bank as well. So it's a very serious problem. And when I look at your exposure to the Stockholm region, it seems like you're not -- it's not that just you're underweight Stockholm, you're losing market share quite rapidly in Stockholm. And you're telling me that, yes, you're not being available and fast and all of that, but you're increasing your staff numbers by 1,000 people over the year, and costs are going up rapidly. I mean, what are you going to do about this?

Well, I think the key point is that we are not losing customers. We are losing a part of business. They have gone to other places, but they are still sort of customers of us. And we have their contact details, and now we are pushing even more on this. And we have not been available. If you look on sort of how fast we've been, we've not been fast enough. So we are doing things there, and I am confident that we can get back to market share.

But yes, it's not rocket science. If the clients call, you have to pick up the phone. I mean you spent -- I don't know how long talking about AML, is the organization overall still in AML limbo and forgot about the client? I mean you're hiring people increasing costs, but they don't pick up the following clients call. There must be a problem somewhere.

Well, put it like this, of course, the sort of AML problems have affected us and we are sort of spending a lot of time and a lot of effort, and we're hiring people here. And as you know, I know a lot of you was disappointed. When we said that we have roughly 1,500 people in the bank working full-time against financial crime. So I agree that there's been a weakness, but when we reach the customers, we do business. And we have not been fast enough. That's the only answer I can give and brutal answer. We think we're rightly priced. But in this fast market, we have not been good enough.

And I assume then that every KPI in the organization is now based on this. Is that...

Not every KPI. We need to think about sort of earnings per share, return on equity, sort of AML issues, compliance issues, sort of customer attractiveness and things like that. But it's an important step. And I'm pushing this, and I've said that we will get back to our market share.

Okay. I'll come back to that in next quarter. Next question. On your deposit growth, I mean you increased deposit by SEK 43 billion, even if you adjust it a bit and your loans by SEK 5 million. And I mean, why? Why don't you introduce negative rates like the Danske do, especially in the Baltics where had a massive increase in deposits in the quarter?

We have increased the charging in all 3 Baltic countries. So we have increased, I think, the number of clients charged with 50%. So we are doing that. It's not as easy as it sounds, Andreas, since we have introduced floors on our lending side, as you are aware of, and you cannot charge someone on deposits and have a floor on the lending side. So part of the customers, it's very difficult to do that. In Sweden, we are charging. I think it is in 20% of the clients, but we are very hesitant to charge Swedish small-sized corporates and private individuals.

So as you probably saw that in Denmark, Nordea introduced now a positive deposit margin of 50 basis points, but going down to minus 125 bps. That's quite aggressive.

I agree that you have to talk about that with in Denmark.

I will...

We have no plans to put in a sort of negative rates on private individuals in Sweden.

Our next question comes from Adrian Cighi from Crédit Suisse.

Hi there. Adrian Cighi from Crédit Suisse. 2 from my side. We've seen one of your Nordic peers pursue a similar strategy in their mortgage business over the past few years, defending their price on the back book, but recently announcing a bolt-on deal that is augmenting their capabilities by purchasing an online mortgage bank. Put it simply, could M&A help you bridge the gap versus your previous market share? And the second one is a clarification on capital. You mentioned that you expect to remain within your target range post the regulatory capital reviews. Does that mean that you're expecting at least 260 basis points of headwinds? Or have I misunderstood that point?

Of course, we're always looking at different opportunities to do sort of M&A business. But I think the key point here is that I'm getting back to what I've been saying all over is that we need to get better on sort of faster and sort of meeting our customers' needs. And this has been a period where we think we're right on price, but we are not fast enough in this fast-moving market where sort of all are taking on the time they have been shown or done just before they come to the market. In that time, we've sort of -- in this time, we've been too short from the loan promise to be relending. On the other, I'll let you answer, Rolf.

On the capital side, I mean, one of the reasons why we are increasing the buffer in the quarter is that we have not increased our lending volumes, which is a real driver. There is a lot of uncertainty, especially with the IRB overhaul. But if -- the only thing we have any visibility on, we think, is the Pillar 2 guidance of 1%. Re-instigation of the countercyclical buffer, it's difficult to judge when it will come and at what magnitude. But it's our best estimate at this point.

Our next question comes from Nick Davey from Exane BNP Paribas.

2 questions, please. The first one, if I can just focus on the large corporate and institutions business, which is doing a 9% return on capital in what's typically quite a good quarter. I just wondered whether you had a plan for the unit itself. I think you talked about sort of thematic plans. But for the division itself, how do you bridge the gap to a sensible level of returns? Is it as just a cost cap and hope for better activity? Or is there anything more focused on the division itself? And the second question, just coming back to this question of high deposit growth and what you can do about it. I think you made some comments about less wholesale funding issuance in general. It looks like you've actually issued a fair amount in Q1. So if you have any comments about the opportunity from high deposit growth, if you're not willing to charge negative rates maybe you can flesh out the comments about AUM or less wholesale debt?

First, on sort of -- we do not have specific targets for different divisions. We have an overall target, and that is to reach the 15% of return on equity. And I think that this quarter is a good quarter of 12.8%. And I think if you would withdraw the sort of capital that we put aside for accrued dividend paid out, then we end up with a return on equity of 13.5%. The other question is, of course, of these deposits. You have to think about 2 things when you look on sort of how we act on the bond debt market then. So the first one is that we have some regulatory demands that we need to fulfill with specific kind of instruments. And the other thing is that we need to keep an activity ongoing here in order to keep the market open. But of course, we'll take the opportunity to use the deposits in a good way. Anders, do you have anything to add on that?

No, not really. So presence in covered bonds and senior unsecured and nonpreferred is necessary. We are limiting it to the extent possible, but we have to be present there.

So can I ask a quick question on -- a follow-up on the no divisional targets? I mean, if you're running them with a 9% ROE and -- in the large corporate unit, obviously, you can have a cost cap and hope for better activity. But is there any point at which you would say this division needs to become much more capital-efficient in and of itself? And where -- what would it take to bring in divisional targets?

Well, we always look on sort of follow-up our sort of head of business, how they are doing. And we're always pushing them on that side. But I think the key point here is that we need to be sort of more active and we need to be there for our customers. And we have no sort of plans on putting in the extra targets on each of them. We have -- we are sort of a bank that are for the many people and businesses. And these are sort of product offerings that we need to give from everything, all but from the big companies to the small companies. And I think we've acted in many ways in a very good way in LC&I.

Our next question comes from Rickard Strand from Nordea.

I have 2 follow-ups. On the staff expense on FTEs, we see that the number of FTEs continue to be up sequentially, though at a slowing pace, but I was just going to ask if you could give any flavor on how you see the progression there going forward? And you talked about potential natural attrition coming up in the later part of the year, but what if that doesn't happen? And also on the AML capability, do you see that you have recruited the staff you need there? Or is there additional needs there?

No, but it's -- as I said, the -- I mean, as you know, when you hire someone, they are not immediately starting. So when you see increasing FTEs in this quarter, it's most likely people we have hired at the end of last year. We have put in FTE caps together with cost frames. And you're right, we underestimated the attrition rate coming down so dramatically last year. We sort of planned for a sort of normal turnover, and that did not appear. We expect to have a slower development on the FTE side this year, absolutely so. And what was your second question? I think we forgot about -- I forgot what you asked for.

The AML capabilities there in staff. Is it -- I mean do you see that you have the stuff you need in the AML side? Or do you see further needs there in some areas?

Well, we hire some people in this area. And -- but the sort of key number and the key metrics was the one I gave you last quarter, and that is that we expect almost a tenth of every person in the bank working with the fight against financial crime. And of course, in the long run, this is something we want much more automized and things like that. But in a time like this, we are working with 3 different perspectives. First, cleaning up our historical shortcoming; second, sort of following the flow as we speak; and the third, investing for the future. So in the long run, I do not expect so many people to work with this.

And then a question on the -- on your IT spending. You raised both -- that you're a little bit slow on responding to mortgage applications and also then the problems that we've read about in the newspapers regarding your equity trading platform. Overall, how do you see your sort of IT spending from your current level? And then going forward, do you see it -- I mean, is there a risk that you need to improve it to stay up with competition? Or how do you see that?

Well, the only thing we know about IT is that, that is an area where we'll continue to invest. And I think if you look on the investments on this year, I think it's the highest ever on sort of on all investments. And -- but we've had problems, and I was extremely open about that. And we are having a stability of resilience program. And I think we've been under-invested a bit in sort of in the sort of sewage systems of the IT part. And -- but we are a heavy focus both on the short-term actions and on the long-term remedies.

Our next question comes from Masih Yazdi from SEB.

Sorry to come back to the mortgage business again, but we consider it all your bread and butter. When could we expect you to come back with more details because when I read this more focused on larger cities, to my knowledge, that is not where Fastighetsbyrån have their strength. It's more out in the country side. We see that you need to invest. And obviously, you need to convince us here that you are doing something rational that will change the negative trend. Will you come back to us with more details on how you intend to proceed with this? That's the first question. And then the second is more of curiosity. I think Swish, you mentioned actions there to offend hostile behavior. Could you mention what has happened?

Well, first, don't be sorry about asking about mortgages. We love to talk about the mortgages, and we have a strong business there. And don't forget that. First, on Fastighetsbyrån, I actually thought that as well. But if you look at the numbers, we are strong sort of in a few parts of Stockholm. But we can always be stronger there. When -- regarding the action, I think the key point is that we need to sort of show that in the numbers. I don't think it's about us sort of saying we're doing A, B, C and D. It's about us showing strength there. And as you know, I'm putting my sort of -- I'm going out there, saying this very clearly that we haven't been good enough. I'm communicating that, and I think we have a good potential for getting back. On the Swish transactions, if I remember correctly, it's the number of times you can switch your phone numbers linked to an account. And what we are seeing is that some individuals are changing their phone numbers aggressively. And what we're now saying is we're only allowed to change your phone number 3 times during a year. Things can happen, you can change job and things like that. But when you start to see big changes, well, then that's a warning flag in our AML systems.

Okay. But all the initiatives here on mortgages and also the disturbances in united systems, et cetera, everything should go under the cost cap, as you see it?

Of course, we have a cost cap of 20.5 and we are doing this. But I think the key point is that look for – look in the numbers and that we need to deliver there.

We currently have just under 3 minutes to go. So I'm going to allow the last question, which is from Sofie Peterzens from JPMorgan.

Sofie from JPMorgan. I was wondering if you could just give an update on the banking tax in Sweden. What's your view here? Do you expect it to go ahead next year? Or do you think it will be delayed? Do you think that you can offset potentially impact by pricing and how you think about the resolution fund fee? And then my second question would be around the resolution fund fee. You say it's SEK 550 million in 2021. But it's not really clear how much it actually was in the first quarter? Because if I look in your fact book, it says that it was SEK 229 million in the first quarter, which just doesn't seem right given that it was SEK 220 million in the first quarter according to the fact book. So if you could just kind of guide how much the first quarter resolution fund fee was? And how do you think about the resolution fund fee going forward? And then the last question would be on the dividend. You still accrue the dividend from 2019 and 2020. How should we think about a potential payment of this dividend and this dividend restrictions for whatever reason are extended, what will you do with those funds?

First, on the tax, I got no new information that you have to ask the sort of government and parliament and the politicians. And here in Sweden, we've let the Swedish Bankers Association be the one taking the discussion on that. And I think a good argument against this tax because it's -- I'm not sure it lives up to the EU rules, and I think the way it treats large banks compared to small banks is not fair. I think the very idea that if somebody deposits on the bank that we should pay a tax for that is not fair. But -- so I have no information on that. The third issue you talked about was the dividend. The dividend is that we paid out, as you know, SEK 7.25 earlier during sort of this year for 2019 and 2020 within sort of the cap provided by the Swedish FSA. They've said that, that is a cap that would disappear the 30th of September. And what we are doing, of course, we're following the development both in terms of how the economy develops and sort of what happened with the vaccines and what the FSA is saying. But of course, we want to pay out dividends. We are proud to give out dividends. And we see that as a contract between the very people you advice and are the owners of us and the profits. So we hope to get back on that.

And Sofie, on your question around the resolution fund fee. I think there are 2 fees. We talked about this deposit guarantee fee, which will be approximately SEK 550 million this year. As you know, it's finally decided in Q3, I think, were in beginning of Q4. So that's an estimation. As far as the resolution fund fee comes, it will increase most likely from SEK 855 million last year to SEK 915 million this year. So I think you mixed the different fees up a bit there.

Okay. Sorry. So how much was the deposit guarantee fee then in the first quarter?

There are a couple of deltas in the first quarter that makes the comparison difficult for you, but the underlying deposit guarantee fee will be around SEK 550 million for the full year, that means that the underlying deposit guarantee fee for Q1 is around SEK 135 million. But then you had delta from Q4 and we have this retroactive repayment coming in for 2019 and 2020 that is disturbing the numbers a bit for you.

Thank you very much, everybody. Take good care all of you and see you out there. Bye.