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

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

Good morning, everybody, and a very warm welcome. In the room with me, we have Jens Henriksson, our CEO; Anders Karlsson, CFO; and also Rolf Marquardt, CRO. We have 1 hour to run for the presentation and the Q&A. So for this time, again, I will ask that we have a maximum of 2 questions from each person. And without further ado, I hand over to Jens.

Thank Annie, and it's good to meet you all here in the middle of the summer to talk about Swedbank's results for the second quarter, and it's a good result. Our revenue increases once again in the second quarter in a row, it increases with more than 10%. In our home markets, restrictions have been rolled back gradually, thanks to vaccinations and fewer COVID cases. And we see strength and growth with the increased economic activity. But there is still uncertainty around the spread of new virus variant and, at the same time, there is a discussion on inflation and how central banks will act. For us, Swedbank, growth, better profitability and a clear business focus has characterized the quarter. Now when we look at the figures, our net profit improved with 12% compared with the previous quarter. And our profit for the quarter was just about SEK 5.5 billion. Expenses developed in line with our forecast and the cost cap of SEK 20.5 billion for 2021 and 2022 remains unchanged, now excluding the costs associated with the investigation by the U.S. authorities. Net interest income was stable. Mortgage loans are growing in both Sweden and in the Baltics. But corporate customers choose to fund themselves via the capital markets to a large extent, and deposits continue to grow. Net commission income was higher. Eased restrictions and increased consumption led to higher economic activity, and this produced higher revenues in our card business. And the continued strength of the stock market also contributed. And our DCM and ECM business increased during the quarter. Return on equity for the quarter was 14.2%, and our target on ROE of 15% remains unchanged. Now our result has improved continually during the past 3 quarters, and this quarter is the strongest since Q3 2018, which happens to be before the AML crisis. Now Swedbank shall be a low-risk bank and the confidence in us as a bank is the foundation for our relationship with customers and the market. And in our brand service, we see that the confidence continued to be strong in Estonia, Latvia and Lithuania. And in Sweden, it has increased during the last years. However, we have more work to do before we reach the same level as our peers in Sweden. Credit quality is strong and credit impairments are back at low levels. We have a conservative approach, and we keep a management buffer of SEK 2 billion. That's because we don't yet have an overview of all of the effects of the pandemic. Vulnerable sectors such as hotels and restaurants still rely on government support. Our capital position remains strong with more than 600 points margin to the Swedish FSA's requirement and our liquidity position is strong. On the issue of card fraud, which is directly felt by our customers, we are seeing a decrease, thanks to new security solutions and advanced monitoring. Card fraud has been cut by 40% so far this year, and online, the decrease is 55%. Swedbank is the bank for mortgages. And as I described last quarter, we have taken measures to win back market share. We have been faster at answering questions, meeting customers and providing feedback. And our availability was better during the quarter than at the start of the year. At the same time, the high level of activity in the Swedish mortgage market has spread across the whole country. Customers, they are renovating their homes and putting on additions. And that -- this is the season for it and it's also one of the effects of the pandemic. Our price strategy is unchanged. We are not the cheapest nor the most expensive. However, our total offering as a full service bank should be the best. We finished the quarter -- the first quarter with the market share of new mortgages of 12.7% together with the savings banks. And in May, it had increased to 17.4%. And this, as you know, should be compared to our back book of 23%. Our ambition is that we shall reach our own back book market share of 18% in new sales. And in May, it was just about 14%, and we continue to implement measures. And even though we don't have the market share numbers for June, our mortgage volume in terms of kroner reached an all-time high. In the Baltic countries, our business maintained its strength in competitive market. And we are the market leader. Our share of new mortgage lending continues to surpass our back book of the mortgage market. For more than 200 years, Swedbank's driving force has been to better enable our customers to make sound and sustainable financial decisions. Put it simply, to promote financial health. To get there, the bank has made its largest investment in digital infrastructure, a new savings platforms in collaboration with FNZ. The goal is to provide customized advice for all customers in all channels and create opportunities to new simple services for savings and investments. We are a digital bank with physical meeting forms. And the number of new Swedish retail customers that onboarded fully digitally increased by 17% compared with last year. And in the Baltic markets, more than half of all the new corporate customers are now onboarded digitally. And saving digitally is popular. Monthly fund savings started in the app for internet bank have grown by nearly 50% in Sweden. And the demand for Robur's funds in Estonia, Latvia and Lithuania has been strong. And since March, we see that assets under management have increased from -- although, very low levels, but they have increased and four folded. A good alternative to savings account. And it's great to see how digitization and new technology delivers simple services for our customers. Biometric identification, account aggregation and new corporate services are just a few examples. Our vision is a financially sound and sustainable society. And we have signed the UN Principles for Sustainable Banking. And we also set targets for our contributions to the UN's sustainable development goals. And in 2021, we will grow Swedbank's sustainable funding, among other things. Today, we have an unbroken chain of green finance, stretching whole way from the bank's own funding via green bonds to the client. And we offer loans for production of renewable energy, green construction and green mortgages. And our green asset register continued to grow as existing green mortgages were included here during the quarter. And now it amounts to a total of SEK 38 billion. And during the quarter, we issued 2 new green bonds amounting to a total of SEK 15 billion. And when it comes to equities, our pioneering work with Green Equity has contributed to the creation of the new standard to Green Equity, NASDAQ Green designation, which was presented by NASDAQ and me in the quarter. And we see continued interest in the green equity designation. And as you know, earlier this year, we updated our plan and policy. We decided to no longer directly finance unconventional extraction of production of fossil fuels or prospecting of new oil or gas fields. And in May, the International Energy Agency, IEA, published a report that shows that our climate policy is a step in the right direction. They say the same thing of us mainly that no more new oil or gas bonds should be there if we're going to reach net zero emissions by 2050. At Swedbank, we continue to integrate sustainability in everything we do. And that's a basis for good results. And talking about good results, Anders, that is what Anders will talk to you about. So a detailed description of result, Anders, the floor is yours.

Thank you, Jens. Yes, let's go into some details of the quarterly results. Starting with lending and deposits. Compared to last quarter, the total loan portfolio increased by SEK 20 billion in local currencies, excluding a negative FX effect of SEK 4 billion. Mortgage lending in both Sweden and the Baltic countries continues to grow. In particular, net inflows of Swedish mortgages increased by SEK 13 billion quarter-over-quarter. Corporate lending remains muted and quarter-over-quarter volumes were stable. LC&I's underlying net growth amounted to SEK 5 billion, excluding movements in the runoff oil portfolio and FX. Customer deposit inflows slowed this quarter, increasing by SEK 36 billion, excluding a negative FX effect of SEK 5 billion. Deposits in Swedish Banking were driven equally by corporate and private customers with the latter due to annual tax refunds occurring in June. Deposits in the Baltic Banking decreased slightly in local currency terms, while LC&I volumes grew by SEK 4 billion. Now looking at the revenue lines, starting off with net interest income, which is overall stable. In Q2, we saw higher average lending volumes. In Sweden, we upheld our pricing strategy in the mortgage market, which was characterized by high overall activity. We saw positive volume development due to good momentum through an increased business focus and especially through shortening lead times and reallocating resources. Now looking at the margin and group treasury columns combined for a complete view on margins. Lending margins declined in the quarter, driven mainly by the Swedish business where there is a continued trend of customers choosing fixed versus floating. Margins are lower for those [ tenors, ] which is in line with the general market pricing environment. The cost of excess liquidity placed with central banks was offset by lower funding costs, but not -- by not replacing most of the wholesale funding that matured. During the quarter, we received the outcome relating to the ECB and Riksbanken liquidity facilities that we participated in, resulting in a net positive contribution of SEK 73 million. We also received the actual resolution fund fee for Sweden, which was lower than expected, resulting in a delta of SEK 57 million this quarter. The total resolution fund fee for the group is expected to be around SEK 800 million for the full year 2021. FX and day count effects impacted NII positively. Reminding you that last quarter, we had a positive adjustment of SEK 101 million relating to the deposit guarantee fee. Over to net commission income, which is at a record high. The Asset Management business continues to perform well. Year-on-year income has increased by 35%. The development in the equity market continues to be supportive, and we saw net inflows of SEK 3 billion during the quarter. Quarterly income was impacted negatively by around SEK 30 million due to the introduction of a new pricing model relating to the premium pension component of the Swedish National Public Pension. Underlying card commission have improved through a combination of seasonality and improved consumption levels on the back of a gradual easing of COVID restrictions. Income from FX transactions from foreign travel is still lagging, however. And corporate advisory commissions were positively affected by one large IPO deal in the quarter. Turning to net gains and losses. The result was higher, thanks to a positive SEK 111 million valuation effects from shares held by Fastighetsbyrån, our real estate brokerage subsidiary in Hemnet, which IPO-ed recently. Underlying NGL was at a normal level. A few words on expenses before I hand over to Rolf. This quarter, expenses were on the same level as last quarter. AML investigation costs amounted to SEK 90 million. Cost control is key priority, and our overall cost development is in line with our plan. I will now hand over to Rolf to talk about asset quality and the credit provisions that we made in Corporate.

Thank you, Anders. Macroeconomic forecasts have improved further for our home markets. The vaccine rollout has been efficient across our home markets. And in the case of Sweden, 70% of the adult population has now received the first dose of the vaccine and 45%, 2 doses. Societies are gradually lifting restrictions and economic recovery is underway, but we are obviously not yet back to normal, and the viability of many businesses is still dependent on government support. The uncertainties, therefore, remain about the potential impact of removal of support measures and potential impact from new COVID variants. We, therefore, retain the post model adjustments made in previous quarters. Asset quality remained strong and stable during the second quarter. Rating migrations and collateral valuations slightly reduced provisions. The different factors reflecting payment behavior, like late payment statistics and watch list exposures, were at the same low level as in the first quarter. The key vulnerable sectors remain to be oil and offshore, hotels and restaurants and certain parts of retail and transportation industries. The total credit impairment was slightly positive with the recovery of SEK 27 million. This is explained by continued positive economic outlook and positive rating migrations, offset by individual assessments related to the oil and offshore sector. Macroeconomic forecast had a positive impact in Q2 of SEK 276 million. This was partly offset by a management overlay of SEK 144 million, which was allocated to COVID impacted sectors as well as oil and offshore. Provisions for individual assessments of SEK 298 million were mainly related to oil and offshore within large corporate and institutions. Rating and stage migrations reduced provisions by SEK 44 million. Volume migrations that is new lending replacing old lending and other factors reduced provisions by SEK 149 million. The total post-model adjustments, including adjustments made in previous quarters, therefore, increased to SEK 1.972 billion. As we have communicated before, 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 billion. We now have SEK 3.5 billion in Stage 3 and 53% of that has been provisioned for. So with that, I hand over to Anders again.

Thank you, Rolf. Let me now turn to capital. We report a strong capital position with a buffer to the minimum regulatory requirements of around 610 basis points. The CET1 capital ratio increased to 18.5% with a profit in the quarter and the SME factor relating to Sweden have impacted positively. The 50% dividend policy stands, and the remaining accrued dividend from profits generated in 2019 and 2020 is still deducted from the CET1 capital. In terms of future capital requirements, regarding the IRB overall exercise, we await a response from the Swedish FSA regarding our submitted model applications. It remains the case that, overall, we expect higher risk weights with the impact relating to probability of default to potentially start being phased in earlier than the loss given default component. The Pillar 2 guidance of the Swedish banking package is expected to be around 1% to 1.5% according to the Swedish FSA, and it will likely be set and implemented in Q3 as part of the SREP. If we look further into the future, we expect the Swedish FSA to reintroduce the countercyclical buffer at some point on the back of strong economic recovery. We do not yet know the exact impact from all these regulatory initiatives. But once we are through all these changes, we will remain well capitalized. And we expect our CET1 capital buffer to end up within our capital target range of 100 to 300 basis points. Now let me talk about some key trends. As Jens mentioned, we have been focusing on the business, improving accessibility and giving sound advice. When it comes to mortgages, our focus is on profitable growth, that means keeping up margins as much as possible while increasing volumes. We have not changed our pricing strategy, but rather focusing on new sales. We are active and engaged in new customers' loan requests, while we are proactive with customers to have a loan commitment outstanding, and those who are looking to renew their mortgages. Our churn rate is quite low, and our work in Sweden to manage this has a very limited impact on margins, while it has a positive impact on overall business. Similarly, customers choosing to fix their mortgages weighs on margins initially, but provides the opportunity to broaden the customer relationship over a longer period of time. In the current rates and credit spread environment, we expect our funding costs to gradually decrease, which will support NII and help offset the headwind from deposits and excess liquidity. Demand for traditional corporate lending is likely to remain muted, especially if capital market conditions continue to be benign. We will capture the client business through continued high DCM activity, which will be supportive of NCI. With that, I hand over to Jens to conclude.

Thank you, Anders. So let me now sum up the quarter once again dominated by the pandemic. And we continue to work in accordance with our strategy. And as you know, our purpose is to empower the many people and businesses to create a better future. Our core business remains stable in Sweden, Estonia, Latvia and Lithuania. And during the quarter, we gained market share in mortgages in all our own markets and our ambition to reach our back book market shares in the Swedish mortgage market is unchanged. Our asset management and advisory business has benefited from good market development, and Swedbank is among the top 3 arrangers in both the corporate and the ESG bond market in Sweden. We continue to strengthen our ability to provide our customers with an easier financial life. Investments in the availability creates a bank that is available whenever customers wants to reach us today and tomorrow. And during the quarter, we delivered return on equity of 14.2%, and we delivered an earnings per share of SEK 4.96 or in the quarter. The vaccine is working. Our economies are reopening. There is strength and growth, but we are not through the pandemic yet. There are still some clouds in the sky. We carefully follow the development and focus on the future for our customers. Thanks for listening. And now Annie, it's your turn to -- do I open the line? Who...

Well, operator, please open the line.

[Operator Instructions] And our first question comes from the line of Magnus Andersson from ABG.

First, just on costs, where we are running quite low in the first half relative to your guidance. When I look at it, it implies around SEK 1 billion higher costs in the second half of the year than the first half, despite the fact that headcount now seems to be flattening out quarter-on-quarter. So my question there is just what do you expect to drive that in the second half? It is quite a significant increase. And secondly -- by the way, Jens, I note that you in your CEO statement, you left out the potentially SEK 500 million in AML investigation costs, just talking about potential investigation costs without quantifying it. If I should read anything into that. Secondly, on NII and loan volume growth, you talked about the measures you've taken on the mortgage side. But we also see that your corporate lending growth is now flattening out after quite a long period of negative -- with the negative trajectory. So my question is, have you taken active measures there as well? And is there more to come? Or is it more a reflection of the market?

Well, thank you, Magnus. Let me first say, well, you should not read anything into it. We have sort of -- it's very hard to estimate on sort of how much the cost for -- the U.S. authorities will cost us. We had [ 500 ] as a rough estimate. That's the best guess we can do. But let's see. But Anders, I think you were sort of diving into cost more, yes?

Magnus, just to be clear, cost guidance remains. And as you rightly point out, we are running on the first half below that. But if you look back in history, Magnus, you compare the cost distribution between the first and the second half of the year, it is roughly so that the first half is between 47% and 48% in 2019, 2020. And so it is in this year as well. So you can expect higher cost in the second half. Cost guidance remains, as I said. On the corporate customer side, I can't say that there is a trend line to be drawn from this. We had a couple of individual deals primarily within LC&I, which we were very happy for, but it's not the trend line that I'm ready to discuss with you.

Okay. So not close to any active measures that has achieved this. Okay. That's my 2 questions.

Our next question comes from the line of Adrian Cighi from Credit Suisse.

I have 2, 1 follow-up on NII and 1 on capital. So on NII, I'm trying to understand your thoughts on the sustainability of the TLTRO and Riksbank headwind. Do any of these changes involve any degree of catch-up for past quarters? And how do you estimate them going forward? And then on capital, obviously, you've referred to a number of potential headwinds above the current 12.4% requirement. But what CET1 do you use for your internal capital planning purposes? You referred to the headwinds eating into the 610 basis points buffer to get to within your buffer. So does that mean you're effectively implying a 300-plus basis point headwind from expected sort of requirement increases?

On the Riksbank and the ECB TLTRO, we have repaid the Riksbank facility. And when it comes to a potential continuation on the TLTRO 3, we will take that decision on the other side of the summer. When it comes to capital, generally speaking, our approach when it comes to capital allocation and capital steering is to take as much as we can of future known regulatory effects into account. And that's sort of the general principle. When it's completely unknown, it's very difficult to put it in there. But otherwise, we try to allocate as much as possible to the business areas and on transaction level.

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

It's Antonio from Morgan Stanley. I've got 2 questions. The first 1 is on your outlook for mortgage growth in Sweden. I'm wondering how do you expect demand for mortgages to change in the second half of the year? And in your answer, could you please also provide what you expect the key drivers to be? And also maybe spell out what you think have contributed to the recovery in the origination this quarter. I think you mentioned pricing basically unchanged, excess liquidity still being an issue and corporate demand still muted driving competition up. So any color you can share here on outlook and what drove the recovery in the quarter will be much appreciated. My second question is a provocative question. And you've got a long-standing profit share agreement with 58 savings banks. And this is, of course, part of your history and DNA, I understand there's a lot of cross holding structure. But in a theoretical scenario, what would you say would be the pros and cons for Swedbank to dismantle the agreement, buy back the shares, buy all the minorities and integrate with savings banks?

Well, that was 2 easy questions. Now let's first talk about sort of mortgage development. Of course, we don't know what will happen with the housing market. We expect it -- we cannot see the same continued price increases we've seen now in the beginning. So we expect it to level off a bit. Three months ago, I said that we should take measures to increase our sales of Swedish mortgages. And now we are delivering. And we have shortened lead times with increased availability, and we've slowly hired some more mortgage advisors. Our ambitions to reach back our market share or full market share still stands. And we all do this with an unchanged price strategy for more power side. We will be there, we will be active, and we will meet the customers and do our very best to sort of have their business. The second question was on the -- to be honest, I haven't even thought about that question. We have a region where we come from sort of the savings banks movement. We started 200 years ago, and we are proud to have them both as big owners and as partners. They are selling our products, and we are co-owning a few of the savings in those banks. And it's a good arrangement, which I have not even thought about. And I'm not going to start thinking about the question you asked now.

The next question comes from the line of [indiscernible] from SEB.

Yes. In the CEO wording here, you write that you are about to take the largest ever investment in digital infrastructure in order for savings products to retail clients. Could you shed some more light on that? And is that part of what Magnus alluded to, higher cost in the second half of this year? And how do you intend to compete with -- there are a lot of other banks and smaller niche players that are really aggressive in this space.

Well, thank you for that question. It is a really cool thing we're doing. So we're talking with FNZ and what they are doing is they're looking, and what we think about doing is taking their sort of back book in order to be able to sort of deliver the best possible financial advice to all our customers. And we have a huge sort of customer base. And today, a lot of advice just goes to those who drop in at the bank. What we want to do is to make sure we can deliver advice in all channels. And by using digitization, we can do this customized. And I see a great business opportunity here. Is it tough? Yes, it is tough. But we -- I mean, when you were a kid, you probably read Lyckoslanten. We have a strong foundation. We have a strong history here. And now we're putting this together to do business about it. And it's really cool because it sort of bridges together our 200-year tradition and making sure that we are the bank for the many people and businesses.

But you're talking about like a digital offering on all your products, not launching like a savings platform like Avanza and Nordnet? And I mean, are there any costs -- there must be some costs related to this. Are these included in your -- in the higher cost guidance for the second half, or how should I read it?

No. I said the key point is that everything we talked about is included in our cost guidance. And this is, of course, a project that is going to give us better revenues and lower costs like all the new technology. And it's sort of -- it's a platform that's beneath the hood. We will still work on what we are best upon, and that is to meet the customer on their terms. I mean, you know that we have the best app in town, and we will continue to use that in order to sort of provide good financial advice to improve financial health for the many people.

Okay. And the second question, then perhaps a little bit provocative as well. I read that you -- I mean, corporate finance, do you have any ambitions here? I read that you have done one IPO in Finland and we know the market has been totally crazy here in the first part of the year. Do you have any ambitions to increase this business? I know that you have made some new recruitments in LC&I, et cetera. Is there any focus on this?

Well, first, I'm not going to give sort of a forecast on a single line. But of course, we have ambitions. And we have some very good people, both in the ECM and DCM area. And I would say one of the coolest things we did during the quarter was this with green equities. So that we were the first in the world to come out with a green equity. And the NASDAQ contacted us, and we sort of -- they now created an own class for that. We will continue, and we see interest, and I mean, it's a hot market out there, but we are fighting there.

Our next question comes from the line of Rickard Strand from Nordea.

To start off, I would like to hear if you could share some light on the share of your Swedish mortgage portfolio that's currently in the variable fixed rates and comparing that to how it was in the beginning of the year? That's the first question.

It's -- currently 45% of the book is floating. And I have to take it from the top of my head where it was in the beginning of the year, I think it was around 47%. So there is -- it is not...

Okay. So -- okay. So not that big change then?

Not since the beginning of the year.

All right. And then the second question is that now that you have sort of proceed quite far with your AML work, et cetera. I was just curious to hear, your FTE growth sequentially is slowing down. Just if you could share some light how you expect the number of FTEs to develop during the second half of the year and also into 2022?

So as you know, we don't guide on sort of individual FTEs. We guide on costs. But we have hired more people. And we have now -- this year, we expect around 1,500 people working full time in the fight against financial crime. And the issue is, of course, we have to do 3 things at the same time. First, we have to take care of our historical shortcomings. Second, we have to work with the flow that's ongoing right now. And third, we are investing for the future. So I'm not -- we don't give guidance on sort of on FTEs.

Our next question comes from the line of Andreas Hakansson from Danske Bank.

I had a question on NII. I'm looking on your Page 8 in the presentation pack, where you outlined the drivers of the NII. But when I add up the TLTRO, the resolution fee and the FX and the day count, that adds up to around SEK 160 million. Could you tell me, in the bridge, where do I find that SEK 160 million?

You find it in the 52 together with the FX and day count effect.

But all the effects are positive, right?

Yes. But then you -- remember that we had a one-off on the deposit guarantee fee in Q1 of [ 101, ] which is not coming into this quarter.

Yes. I'm just thinking if you wouldn't have had these quite temporary effects, NII would have been negative, right? So I'm thinking if I look into the NII in the third quarter and then potentially in the fourth quarter, what's going to change from the underlying trends? Do you think that the margin effect would still be larger than the volume effect? Or will something turn around underlying?

No, I think it is a very relevant question, Andreas. And I mean, as we said in this quarter, we -- on the volume side, we are very much reliant upon a continuation of mortgage growth in Sweden and the Baltics. It seems like corporate loan demand is not in any way picking up sustainably at least. So that's one thing. The second question is around how the people or customers are choosing to fix or floating. And as you know, the margin is smaller on fixed than it is on floating. The third element is how much deposits will continue to flow in, i.e., how much excess liquidity do we need to handle. We can replace some of it, of course, with maturing funding, but that is coming in gradually. So underlying is slightly down, Andreas, correct. But it's very much up to how we can keep up the volumes and our pricing and how our customers are behaving.

Okay. Then just a small question. In your CEO comment, you say that you would pay out the dividend given the approval from the FSA, of course. And then you said the right market conditions. Could you just tell us, is that related to COVID? Or what do you mean by the right market conditions?

Well, what we mean then is the economic development. Of course, there is a pandemic outside and even though the numbers Rolf talked about are very good on vaccination, we do not know what will happen with different variants, some mutations and things like that. We keep an eye on this, but we hope to -- I mean, the economic development looks right now, we hope to do this during -- after September then.

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

[indiscernible] Sofie from JPMorgan. So just going back to the net interest income. The net interest income in Swedish Banking was down 4% quarter-on-quarter. I recognize the outlook, it sounds reasonably good. But could you just comment if there were any internal transfer pricing or anything else impacting the Swedish Banking net interest income? I recognize also that you said the deposit guarantee fund fee was a little bit higher in Sweden. But was there anything else that we should be aware of in Swedish Banking net interest income? And also, if you could kind of just comment on what kind of volumes you have seen on the mortgage book now in July? And then my second question would be kind of on capital. I mean, your capital requirements are going off. Is it fair to assume that kind of longer-term mid target of 15% core equity Tier 1 at a minimum and then net plus 100 to 300 basis points of buffer? Or do you think that the core equity Tier 1 minimum could be even potentially higher than that? And kind of what do you think about potential Basel IV impact?

Let me start by talking about July numbers, and I'm not going to comment on that. we talked about the June numbers. And the June numbers, I think what is then the 28th of July, we'll get the market share. And that the June numbers are good. I think we had SEK 6 billion in sort of mortgages that, which is the highest ever. But it's a tough market there out there, and we're out competing and we -- well, we're there to sort of be there for our customers. But Anders, I think you need to go into the details, otherwise...

Sofie, that's -- you're right in Swedish banking, and that's why we in the speech combined Swedish sort of the margins with treasury because we did a change in the FTP where it means that we pay less for deposits, and that has an imminent impact on Swedish banking. So that is one part of it. The other part is the one that I alluded to, which is the fact that people are -- we have a margin pressure in mortgages on the back of people choosing fixed. On the capital side, Sofie, it was -- maybe the line was a bit noisy. I'm not sure exactly what your question was. So can you please reiterate it?

Yes. So it was more to just understand where you see the minimum core equity Tier 1 ratio going. Should we expect the core equity Tier 1 minimum including ARPU phasing in of contracyclical buffer [indiscernible] to be around 15%. And then on top of that, assume 100 to 300 basis points of money trend buffer? Or if you could just elaborate a little bit how you got to view that the minimum core equity Tier 1 ratio in the future?

Yes, I see your question. It will be more like shed on the minimum requirements when the SREP is published, which would be during Q3. So I will not speculate in that. What I alluded to is that we will consume some of the buffer on the back of higher overhaul, the introduction of the Pillar 2 guidance. And then you have seen clearly that SFA (sic) [ FSA ] has been communicating around the countercyclical buffer coming in at some point. And you can play around with whether they will put the maximum 2% or what -- if it will be a gradual step up. So I think it is too early to elaborate on that particular question.

[Operator Instructions] Our next question does come from the line of Maria Semikhatova from Citibank.

A couple of questions. First, follow-up. Can you tell us what is the margin differential on longer fixed rate mortgages versus floating? And I think you previously guided sort of a flattish NII for this year, is it still the case? And then the second question is on costs. You are guiding for flat underlying expenses next year, and your peer has signaled to the market, so the need to invest to capture growth opportunities, effectively abandoning the cost cap in place. I understand you cannot provide figures -- exact figures, but how are you thinking about your cost base beyond 2022?

Thank you. Very relevant questions. I will not give you a specific number on the margin. But if you look at the average prices, which is official information. And then if you look at the swap rates at the different nodes on the yield curve, you get a good sense for the margin in -- further out on the yield curve. On your second question, let's go to the cost, and then maybe you have to help me with your -- because you had 3 questions. On -- how you steer on cost is up to each and every bank as far as I'm concerned. I think you allude to what [indiscernible] talked about yesterday. And we will not, as far as I can see, move from having a cost target to a cost income ratio steering. We will -- our cost cap remains for '21 and '22. And the third question, I don't remember that one. Sorry.

Just if your NII outlook for the full year is still affecting a flat development?

I think -- yes. That's the sort of -- we did our best estimate with what we knew in conjunction with our fourth quarter. Now you have seen what has happened during the year. We have seen a continuation of central banks intervening, flooding the market with liquidity. You see continuation of deposit inflows, in particular, not only in Sweden but also very much so in the Baltics with negative rates. We have excess liquidity that we need to handle as cost efficient as possible. The loan demand from corporates are still low on the back of very benign capital markets. So I have given you the dynamics and you need to elaborate on that yourself.

Our next question comes from the line of Nick Davey from BNP.

Nick Davey from Exane BNP. Two questions. So firstly, on the mortgage market share. I just wanted to make sure I heard your comments correctly earlier. It sounded to me like you said the aspiration is to defend the 18% own brand market share. I just wondered if you've given up on the rest. And the second question then, Jens, a bigger picture. If I sort of chart your tenure, it's been a bit on the defensive, I suppose, to AML to the pandemic and now to this market share issue. If those 3 things are tentatively coming to an end in terms of absorbing your time and focus and you can move more onto the business offensive, what are really the aspirations on a 2-year view? And briefly, could you mention this -- the appointment of Deputy President and CEO, what Tomas can bring to the management team and to the bank?

Well, thank you. First, the number of 18%, that is what we sell through our own channels. And then on top of that, we have what the savings banks decide to put with our -- within Swedbank. And that goes up and down. We have some periods we see a lot of flow, and sometimes we see less flow. So we decided to have sort of goal or sort of the ambition to reach the 18%, and that is the target we talk about. And we have not given up on the others. I think that's the short answer. The second point is you talked about what is sort of -- my tenure has been focused about sort of on AML and sort of market share and issues like that. I think to summarize this quarter, it's been a quarter about growth, better profitability and a clear business focus. So in that sense, I'm not saying that we have closed the history when it comes to our AML issues. We still have a lot of work to do. And you know, we're still under investigation by U.S. authorities. But as I've been saying for a while, we're getting -- sort of we're not at the end, but maybe we're in the beginning of getting closer to the end. But we are working on that. When it comes to the long-term ambitions, I think I show you that in the last slide I show you, we have done a new strategic direction. And that's -- well, I would say, it's not new. It's actually 2 and [indiscernible], but it's revised. And that is that we want to be, the bank that empowered many people and businesses to create the better future. And that future is the future about financial health, it's a future about sustainability, and that's where we want to be.

And to any shareholders that are listening, that is sitting next to...

Sorry, I forgot Tomas. Sorry about that. So Tomas Hedberg has been working in the bank for a very long time. And he has been leading the sort of special task working with the U.S. authorities. And I've asked him to sort of -- to become the sort of Deputy CEO in order to help me with a few things. One is to take care of maybe our most important cooperation, that is with the local savings bank. So that's one thing. The other thing he would do is to help me to realize exactly what you just talked about, namely the strategic direction. And it's good to have him working with me, and it's going to be a lot of fun.

And briefly on the Slide 17. I mean, for shareholders that are listening, obviously, the flourishing industry is good for them in many ways. But if you were to sort of distill it into some financial metrics, that would be your primary focus?

Well, it's flourishing. Yes, I know it looks beautiful. But the key point is that if you look -- we talk about 3 foundations. The first foundation is that we're going to have an attractive workplace, we're going to attract the very best in Sweden. The second or the third foundation is that we're going to be available 24/7. And then we're talking about what sort of the core in the middle of the 3 below that, and that is that we should be running an efficient and compliant bank and financial services platform and delivering a return on equity of 15% stands. And we should have a sort of cost-to-income ratio that's very good. That's sort of the targets we have, and that's what we are working hard to reach. And it feels pretty good in that sense to deliver a quarter with 14.2% return on equity, which is the strongest quarter since the third quarter of 2018, and by coincidence, that's before the AML crisis.

[Operator Instructions] Riccardo Rovere from Mediobanca.

A couple, if I may. The first one, maybe for Rolf on credit losses. If I look at Slide 13, you are taking into account -- you have taken into account a better macro. Makes sense. You have positive impact from rating and migrations. Your individual assessment, you say, are mostly related to oil and gas exposure. And the amount of provisions in oil and gas exposure is already fairly high. So I would imagine that probably over time, the portion related to oil and gas in the 298 is going to dry up. So how long can you keep the one -- the almost SEK 2 billion in this COVID overlay, if this is the situation? What is the discussion you're having with your auditors on that? And still related to that, what's -- given, let's say, the yellow bars, what's the point of adding 144 expert portfolio macro adjustments? Why are you doing this?

Thank you, Riccardo. So how long we are going to keep these reserves. That's -- I mean what we are waiting for is what I also referred to in my part of the presentation. We need to get greater clarity about the uncertainties that we still are facing because the reason we are keeping that, and if you look deeper into how those results have been allocated, you will realize that those have been allocated to industries that are impacted by the COVID situation. And what we are waiting for is to see the development that will occur once the different support measures will be lifted because many of these businesses are dependent on those measures, and they will also need to repay, some of them at least, the tax credit they have accumulated. So that's one reason. And the second reason is also potential impact from the COVID development. Even though vaccinations have been developing in a good manner, that is a certain part of -- or a certain uncertainty still remaining. And then about the 144. So that's, to a very, very large extent, is related to relief we would have that would have been done related to the impacted industries and that we have decided not to release. So we have decided to keep that. And the reason is exactly the one I mentioned.

Thank you, Rolf, and thank you, Riccardo, for that question. And let me just take this opportunity to thank you all. Your difficult question makes us better. And thank you for watching on Swedbank, and I wish everybody a very good summer. And I look forward meeting you in real life. And let's hope that the economy keep on flourishing, and I really look forward to seeing you. So take care, everybody, and bye-bye.

This now concludes our conference. Thank you all for attending. You may now disconnect.