Svenska Handelsbanken AB (publ)

Good morning, everyone, and welcome to this call for the third quarter 2021. Together with me today, I have our CFO, Carl Cederschiold, our Head of Financial Strategy; Investor Relations, Lars Hoglund; and Head of Accounting, Annika Engler.

Let me start with some general remarks before I let Carl go through all the financial details. In 2021, Handelsbanken is turning 150 years, and we're happy to celebrate this year with income and profits reaching the highest level recorded so far, both on quarterly and year-to-date basis.

The asset management operation remains a major driver for earnings growth, and we continue like we have for a decade to consistently have a front book market share twice as high as the back book. Loan growth on the private side remains strong and stable, and we are now seeing a gradual recovery again on the property-related corporate lending side as well the non-property-related corporate lending side.

Asset quality is very strong. And as a token, the conservative risk culture and the very large share of collateralized property-related lending, the credit loss ratio was 0 basis points in the first 9 months of the year.

And our capital position is also very strong with the CET1 ratio above our long-term target range. We make a special -- what makes us especially proud is the fact that even though we have a year behind us, we're probably the largest strategic and operational changes seen for decades in the bank business volume growth on both the financing and savings side continue to be strong and customer remains more satisfied with Handelsbanken than the industry average in all our markets.

I would like to spend a few minutes and talk about Sweden, which is not only our biggest operation by far, accounting for 72% of the earnings, but also the operation where we have analyzed, identified and executed on the largest strategic initiatives seen in the bank for probably decades and done so in only 12 months' time. First, the organization has moved from being based on 5 regional banks to 1 with 24 countries and the branch network has been concentrated to currently 230 branches compared to 380 a year ago.

The new branch network has been enhanced with a local private banking, occupational pension and capital markets expertise as well as with increased underwriting mandate and responsibility. So the decentralization is key in our business model, and we are now strengthening it.

As an illustration of how we have structured our operations, you can see the upside-down pyramid on Slide 7. To put it simple, the further up you go in the period with the larger number of products and services and the further down the pyramid, the more advanced and personalized are the services.

The branches represent the more qualified tasks that customers demand. Here, we are mainly talking about SME and corporates as well as private banking customers seeking physical advice and relations.

We will continue to roll out experts closer to customers where we see the demand for it. The branch office are, of course, physical, but our staff in the branch office is mobile and often meet with our corporate customer in their own premises.

Then we have the remote services, either via phone or video. Here, we have our telephone customer support and service since many years back.

But towards the end of Q3, we developed this further by opening up the first remote advisory unit, which is staffed with skilled and qualified advisers with underwriting mandate on the mortgage side. The remote services are available 24/7 and will offload the mortgage administration from the branches.

Then finally, we have the digital channels, the web and the app, where customers manage all daily errands as well as get digital support for all economic dimensions of the customers. In all the part of the pyramid, we adopt a disciplined cost focus while we, at the same time, invest continuously in order to strengthen our position by investing in tools that increased internal efficiency as well as in products and services to meet the customers' demand.

In order to remain profitable and generate growth, strategic overviews are necessary once in a while, and in particular, if the operational landscape changes. Sweden, Norway and the U.K.

represent the main markets for Handelsbanken today, accounting for 81% of income, 73% of expenses and 91% of the group earnings. It is also in these markets that we -- that the bank sees the largest potential to generate strong business development and profitable growth at low risk with satisfied customers.

In Denmark and Finland, we also have well-run operations with strong credit portfolios, with low risk and growth in asset management. These 2 markets today account for 10% of income, 13% of expenses and 80% -- 88% of earnings.

However, the volume in these countries is low despite a long presence. And along with new regulatory requirements, both locally and internationally, the synergies of running cross-border banking have failed significantly.

Today, central staff and IT infrastructure is needed locally in each market. That means that scale has become essential for profitable and efficient operation.

The bank sees limited opportunities for a necessary scaling up the offering in Finland and Denmark in order to achieve lasting improved profitability without significant investments. The bank has, therefore, decided to ceased its operation in Denmark and Finland, and the process is being initiated to divest these 2 operations.

The allocated capital to the operations in Denmark amounts to around SEK 7.5 billion, the corresponding amount of the operations in Finland amount to around SEK 7.6 billion, making a total allocated capital for Denmark and Finland of around SEK 15 billion. The common equity Tier 1 capital related to Denmark and Finland amounts to around SEK 6 billion.

In other words, a total of around SEK 12 billion. Given the bank's strategic repositioning, we believe that we have a good foundation to create even stronger growth and better profitability as well as continued highly relevant offering to our customers.

And despite the strategic initiatives in the recent years, our model is the same. We will continue to be not just any bank, we are Handelsbanken, and we will continue to have a different approach than other banks by focusing on decentralization, stability, low risk, good growth and high customer satisfaction.

And with that, I will leave over to you, Carl.

Thank you, Carina. I will dig a bit deeper into a few selected topics and then we're happy to discuss all the questions you have and details in conjunction with the Q&A.

So let's start with Slide 6 and figures for Q3. NII was flat as negative effects from funding and margins offset strong contributions from volume growth.

Commissions continued to grow and were again driven by savings business. NFT was strong and partly affected by valuation impacts on derivatives used in our funding operation.

In a way, you can say that the effects are related to the customer business too, but show up in the NFT and not in the NII. As Carina said, the income was record high and was up 2% from Q2.

Costs were seasonally lower, and adjusted for FX and Oktogonen, they were down 3%. Credit losses amounted to SEK 66 million or 1 basis point, and underlying earning increased by 4%.

Now over to Slide 24 and a closer look at the NII. The positive volume contribution was the highest seen for quite some time, adding SEK 93 million to NII in Q3.

This was primarily driven by mortgages, but also a recovering growth on the corporate side. This was, however, more than offset by the net effect of change margins and funding costs, which contributed negatively by SEK 125 million during the quarter.

For some time, we have witnessed a slight decrease in margins. This is no surprise when competition is increasing.

Over time, we believe the defining factors of a successful mortgage business is building efficiency in our operations and a strong distribution capacity. As long as we manage to service our volumes to a low cost and have capital to support growth, our branches can keep supporting our clients at the price levels prevailing at each time, building volumes steadily each day by day.

We are on a journey in lowering the cost to service our mortgage business, and we are strengthening our distribution capacity. Margins will fluctuate, but volumes will stick i.e., we think we are very well positioned in the mortgage business.

Finally, we saw positive sequential effect of SEK 55 million in total from government fees, FX and day count effects. If you go back to Slide 9, you can see an illustration of the stability of the growth of the mortgage lending as well as the recovery of the corporate lending volumes after the pandemic-related volatility during the last year.

And as said, volume growth is the main contributor to the NII development over time. On Slide 10, we take a closer look at the Swedish mortgages.

The growth has been very stable over the last decade with an annual average growth of 6%. And despite our front book market share being a touch below our back book in the past years, we see on the graph to the right that no other bank has attracted more of the net mortgage lending in the market.

Mortgages is a prioritized business for us and a fair share of our development spend is targeting the mortgage business. To make sure that we have a relevant offering and simplicity in the digital customer interaction, again, improving efficiency and profitability also with margins going up and down over time.

If we move over to the fee and commissions, we can see on Slide 11 that Q3 again reached a new all-time high quarterly figure. Fees and commissions now make up 26% of our revenues.

And not too long ago, the share was just over 20. On the next slide, Slide 12, you can see a rough split of the commission components, of which savings-related commissions in Q3 accounted for 66%.

The savings business has clearly accelerated. The very strong net inflows drove savings-related commissions up 33% compared to last year.

And it goes without saying that this will continue to be a key growth area for us. As you see on Slide 13, during the first 9 months of 2021, we took 31% of net new inflows in the Swedish mutual funds.

This corresponding figure for the 10 years between 2010 and 2020 was 25%. Worth keeping in mind that our total market share is less than half, only at approximately 12%.

Also worth mentioning is that in the other home markets, asset management has overall continued to develop very well. The payment fees have continued to show a slight positive development during the quarter.

It is fair to assume that the gradual transition to a normal economic environment following the pandemic has had a positive effect on the payment business. One should not, however, exaggerate the positive impact to date.

The sum of the remaining commissions, i.e., loan and deposit fees, guarantees, securities, commissions, et cetera, have shown a slight negative trend in the previous quarters, including this one. There is an effect of us winding down of the international business in these figures.

However, the vast majority of those effects are behind us. Let me take a moment to highlight the income mix of the bank.

As we have highlighted many times, we believe our lending business, with superior asset quality and very cost-efficient operations, are tough to compete with from a profit generation perspective. and even more so from a risk-adjusted perspective, creating business areas with high profit margins is essentially building a scalable bank.

As a side note, with current risk weight floors, capital in relation to historic credit losses is very high. This benefits the society more than our shareholders.

Being the European bank with the highest ratio capital versus historic credit losses means our business model give very low risk to the financial stability of the real economy. Our Asset Management business, on the other hand, complements our lending business perfectly by growing nicely and being extremely capital light.

Hence, it creates very good return on equity. The mix of the 2, we believe, are a good match for our shareholders, low cost-to-income ratios in lending and high ROE in asset management.

Let's move over to costs. The systematic work to reduce the cost continue according to plan.

The measures taken have primarily included adjustments of the geographical presence, divestments are part of the payments business, more efficient internal organization and development of the bank's branch network. The measures provide the bank with good prerequisites for strong development, which key ratios already suggest.

The bank's cost target of SEK 20 billion has, due to changes, lost its relevance. The current development results in a higher upfront expense recognition of the development spend as the capitalization rate of, in particular, cloud development runs with a lower capitalization rate.

At the same time, the divestment of the Danish and Finnish operation will reduce the cost base in general. Despite the large focus on reducing the bank's cost, the business development and income growth has been good, as you have seen on the ambition.

And the ambition is to see the cost-to-income ratio and return on equity to improve as a result of a combination of cost-reducing measures and growth-oriented investments that are expected to generate further revenue improvements. In the quarter, we made a reversal of previous preliminary Oktogonen allocation of SEK 263 million, decrease in staff cost in the quarter.

The reason behind this is purely mechanic and explained by the fact that the bank's ROE did not exceed that our peers in our home markets for the measurement period, which is always 12-month trailing until the end of the previous quarter. Now over to cost on Slide 14.

In order to illustrate the underlying trends, we have broken down the quarterly cost in, first, development cost, which targeted extra IT investment and investment you see in the dashed boxes; and second, underlying cost and adjusted for one-offs and Oktogonen provisions. To start off with the underlying costs, they were down 2% on a 12-month rolling basis.

At the end of the quarter, different measures summing up to SEK 1.7 billion has been agreed and -- has been agreed upon. But out of these, only SEK 0.7 billion, i.e., SEK 700 million, has materialized in the P&L.

Hence, about SEK 1 billion in annual costs have been addressed and agreed, but haven't yet been realized and will be coming in the coming quarters. So the total increase in the 12-month cost of 1% compared to a year ago is entirely explained by the increased development cost.

These, in turn, are a result of the bank developing more as we have planned for and talked about, but also the fact that we capitalized less than a year ago. Of the increase in total cost by SEK 188 million compared to last year, SEK 367 million was explained by the lower capitalization rate.

Now a few words on credit losses on Slide 15. Reported credit losses in the quarter amounted to negative SEK 66 million or 1 basis point credit loss ratio.

And for the first 9 months of 2021, the net credit losses amounted to SEK 11 million or 0 basis points. So clearly, the asset quality remains very strong.

No material changes have been made to the COVID-related overlays, and we still hold reserves of around SEK 600 million relating to increased risks in certain sectors due to the pandemic. Please go to Slide 16 and capital.

The CET1 ratio ended up at 19.4% compared to our assessment of the FSA requirement at 13.8%, put in the bank 5.6 percentage points above the requirements and 2.6 percentage points above the upper end of the bank's target range of 1 to 3 points -- percentage points above the FSA requirement. In the FSA requirement of 13.8%, a few things that have been included are worth highlighting.

The last remaining components are the Swedish implementation of the European banking package, the effects from the new risk weight floors on Norwegian CRE, the move of the Norwegian risk floors on mortgages from Pillar 2 to Pillar 1 and also a Pillar 2 guidance level of 1.5%. The bank's target range of 1 to 3 percentage points remain unchanged.

And over time, the bank will calibrate into the interval. Now let's look at the drivers of the CET1 ratio in the quarter.

Earnings contributed with 60 basis points, of which a normal 40% payout accrual was deducted. Then as a reminder, the bank has called an extra annual meeting tomorrow at October 21 to decide upon an extra dividend in the form of a dividend in kind of shares in Industrivärden that are to be acquired by the bank from Handelsbanken Pension Foundation.

Apart from the obvious that the Board wants to distribute excess capital to our shareholders, the transaction will significantly reduce the volatility and risk in our pension system, which in turn reduces the volatility of the bank's CET1 ratio and reduces also the risks of increased capital requirements relating to the pension system and then the stability of the bank. A deduction of 1.1 percentage points in the CET1 ratio in Q3 is related to the extra dividend proposal.

Positive effects from better underlying quality in our credit portfolio and volume effects increased the CET1 ratio by 20 basis points. Then in Q3, the new risk weight floors on CRE in Norway was implemented, which shaved off 40% as expected.

Risk weight floors on Norwegian mortgages were moved from Pillar 2 to Pillar 1, which increased the risk exposure assets and hence reduced the CET1 ratio by 30 basis points. This was, however, offset in the FSA requirement as the corresponding Pillar 2 requirement was removed.

And let me just stress then based on the information you got of the investment plans for Denmark and Finland, that over time, we plan to run the bank within the target range of 1 to 3 percentage points above the Swedish FSA requirement. So to sum up, the best income and operating profit in the bank's history, despite the extensive operational and organizational changes of the bank's operation that has been executed so far according to plan.

Income continues to grow and the cost efficiency measures have an effect on underlying costs despite extensive investments for future growth. The asset management business continued to be an important driver for growth.

Mortgage lending and property-related lending continues to be solid growth drivers. And we have shown during the pandemic that our credit quality is super strong.

Our capital situation is strong, and we are building capital for future growth. Despite the proposed extra dividend, we are operating quite far above our target range.

And finally, our journey towards a more focused bank and growth-oriented bank continues, and we expect cost-to-income levels and ROE to improve as we move forward. With that, please let's open up for questions.

Denmark and Finland, fine, but we must discuss the U.K. as we see cost income now increasing further to 75%.

And I also see a shrinking loan book and also NII, if I look in local currency. How do you think going forward about the U.K.

operations? What could you do?

That is the first question.

Thanks, Maths, for the question. No, it's obvious, as Carina was saying, the industrial logic for running a bank has changed during the last years.

And you -- out of regulatory change and local demands out of IT perspective, you need to have a fairly large body. In Denmark and Finland, we have income levels of roughly SEK 1.8 billion and SEK 1.7 billion.

In U.K., we have an income level of SEK 4.8 billion. This is for the -- for January to September 2021.

So in U.K., there's 55 million people living in the U.K. There's between 5 million and 6 million people in Denmark and Finland.

So yes, we have definitely adapted to running a bank becoming a plc. We have adapted to Brexit.

We have invested quite heavily in AML and FCP, which we now see the end of. So we believe we have really good opportunities actually in U.K.

and we have a really good foothold to our clients, and they view us extremely well. And in that essence, we see strong opportunities, both in Sweden, Norway and U.K.

So that's the reason why we stick to U.K.

We still see a shrinking loan book here and the number of FTEs is increasing. What is the reason behind that?

Do you have any good explanation? Are people amortizing too much?

Or how should you turn this trend?

No, but it's true, as you said. And we've obviously have had a time period where we have adapted to regulatory demands, but also building the government's process of becoming a plc.

So staff levels has increased and we haven't been able to attract the flows. So -- but we -- when we now move out of 2021, we believe we have a really good opportunity to move both these trends in opposite direction.

And we foresee that we can grow both the number of clients, the volumes, but also reduce the cost?

Okay. We'll leave it there then.

If we continue with Sweden, I mean, I see the same trend. NII is stable, you can say, and the margin pressure is offsetting the loan or volume growth, and you are still not grasping your back book market share fully.

What can you do to improve the situation here? I mean, I guess, digitalization is not the final solution.

So do you have any concrete plan to turn this around as it will stay competitive?

I can start, Carl. I think, first of all, I think that what we have seen in the numbers for quite some time actually is that we do have a very relevant offer in the Swedish market when it comes to the mortgage business.

And we have seen the inflow and the volumes are definitely increasing. So with that said, that is definitely building the business.

And moving forward, of course, we have to develop and increase the offer that we have through digitalization, through being available 24/7 and continue to be relevant in all the markets that we want to be. So that is a combination of a lot of things.

But again, with that said, I think it's important to say that when you look at the net inflow in the mortgage business, we still are the biggest factor that even if the competition definitely has changed throughout the -- for the last year.

And perhaps adding to that one. If you go in to check the fact book and look at our volumes, what you can see is actually that we grow quite nicely as well in the corporate sector now when it actually comes to our core segments.

So I think as Carina say, market shares are one really important component of building volumes, but it's not the only one. And as you can see on the slide on mortgages, we are steadily growing by 6% year in, year out and market share is one component of that.

So we have good -- we think we're in a good situation to keep on growing this.

It's Lars here. Just to do some housekeeping.

We have a lot of people who want to ask questions.

Yes. I have 2 questions, then just a follow-up on Maths' questions regarding U.K.

I mean we've been discussing this now for a very long time, I think, at least since Brexit. I think one way of you telling us where you see this and why you think it's a good idea to still be in the U.K.

is to tell us where you see a normalized profitability, return on allocated capital within 3 to 5 years without being even too detailed. I mean you were around 9% before the higher capital requirements you got a little more than a year ago.

Now you are at 7%. Where do you see yourselves there in 3 to 5 years?

That's the first one. And the second one, obviously, I mean, I think the reason why the shares are down today is probably that we all like that you had a very tangible cost target that you were committed to and that put pressure on the organization to deliver.

Why don't you think it's relevant with the cost target anymore? I mean you could have just recalculate the cost target, taking structural changes and different capitalization pattern into account?

Why is it not a good way, a good measure to use going forward?

Well, first of all, on the first question, we normally don't guide on the 3- to 5-year perspective, but what we can say is obvious that we view the banks with the ambition to target the markets in Sweden, Norway and U.K. and the positions we have and also the portfolio mix, as we've been alluding to around the financing, but also adding to the asset management.

We believe we, as a bank, has a good opportunity to have a really good both cost-efficient bank and good cost-to-income levels, but also obviously an attractive ROE. So -- but I don't have any figures on what we expect in U.K.

And second -- and the second...

Sorry, can I follow up on U.K.? Just let me rephrase then.

I didn't expect any tangible target, but let's say that you still have a return of 10% in 3 years. Is that good enough?

I think you will have to -- we will view the bank as a unit. And then you -- all the time, you -- the way you build the bank is, obviously, there you have 3 key components.

First of all, you need to have large income numbers to service the cost. And then you need to have efficiency in cost-to-income levels and then you have -- need to have good ROE drivers.

The way we see it is that the mix of financing business, but also as management business is a good mix there. So -- but going into details on the subcategories, I think they all add some components of these, but not necessarily all.

Maybe just to add one comment there on the U.K. also.

We shouldn't forget also that the U.K. is still a market with quite okay margins in comparison to most of the Nordic markets.

And that's a very good starting point, of course, when looking at profitability going forward.

But would it still be acceptable for it to be a drag on profitability in 3 to 5 years on group profitability?

We will guide the bank on the overall bank level. So that -- we still have the same corporate goal that we will have.

We want to have a return on equity higher than our peers.

And it's quite fair to say as well that if you look at the U.K. business we had before Brexit and all the things that we had to do relating to that and the AML monitoring that we have to have in place, we can see that it's fading away a bit.

And when the U.K. society opened up again, we can definitely be more proactive and focused back to business again.

So this is an interesting market and building a business now with a very strict focus to asset management and corporate lending mostly to real estate focus. I think that gives us great opportunities because we have really satisfied customers in the U.S.

and in the U.K. And we have -- can see also that the local position that we have close to the customer is really -- a really good offer that is appreciated with all the customers in the U.K.

So interesting market, and we do -- we are well positioned, so to speak, to move forward again. So looking forward, I feel quite optimistic.

And then I think your second question, Magnus, was around the cost target. And obviously, the way we will run the bank going forward is we will have as high focus on the cost program.

We still have the same internal guidance. We run the bank exactly in the same way.

And we have a long way to go. We have quite successful -- or we have really successful execution of it up till date.

So we will stick to that cost program. But then on the other hand, as Carina was alluding to, obviously, the -- first of all, the building less of the costs over the balance sheet and take them more upfront, that changed the cost numbers today, but lessens them going forward.

And then as well going into the Denmark and Finland perspective, obviously, moves away the absolute level. So you can be assured that we will continue working exactly the same, and we have -- we are really dedicated and we view our cost-to-income levels to drop and also our ROE levels to go up with this.

Yes. Okay.

So can I be sure -- I mean, if you leave the capitalization and amortization side, this kind of funding money just over time, will you execute on the exactly same plan, the same measures until the end of 2022, as you plan for your SEK 20 billion target, if you disregard from the capitalization, amortization of intangible assets? Or will you also change the plan from here because income has increased, is higher than you expected or something else?

Or is it the same plan you execute on?

Yes, it is the same plan and all the initiatives that we have started in the bank, as you can see today, SEK 1.7 billion, and that will continue according to plan, definitely.

Back a bit to the U.K. I mean, someone asked about the loan growth, but isn't the problem really that the only thing you generate from a revenue point of view is NII?

I mean 85% your U.K. revenues comes from NII, while in Denmark and Finland, it's around 65%.

And after 20 years, it doesn't seem like you've been able to cross-sell anything, but just doing low-margin lending. Is it the fact that no one was actually interested or you don't think that you could actually be able to sell this business?

Or what can you do with it to make it more attractive?

I think we've been running a very tough change program in U.K. now for a long time, adapting to the Brexit.

And it's true that we really like lending. We really like to make our clients happy and they are happy with us, and we produce a lot to them.

So yes, it's definitely true that we have been growing through lending. But it's also true that we've been adapting quite heavily to the Brexit, and we've been building the plc and the governance body.

So we believe right now that we have a good situation to actually start seeing volumes grow, business kicking in, but also cost to drop. So I -- we -- I'm not in agreement with you as seeing a strong lending business as a problem.

But also one of the reasons we like that market so much is that we do have the wealth management business there, and we see a very nice potential in growing that business in the U.K. market with the potential customer base that we have only sort of tapped the surface of yet.

So that's an important one.

Yes. Because I've been hearing that for quite many years and I can't remember when you bought Heartwood, but it was quite long ago and I haven't seen any impact on the P&L so far.

It was 8 years ago.

Exactly. That's quite some time.

Okay, we come back...

But you see some growth actually.

Yes, yes. But that is true, Andreas.

And I completely agree with you. And I think that the focus that we can see now from the U.K.

business is very much moving toward the asset management business. And we have seen that at least 2021 that they are improving in that direction.

And with the pandemic being over all of us for the last year, I feel and the management team in the U.K. feel very optimistic moving forward in this direction because the customer base is very much both the lending customer, so to speak, when it comes to real estate business at the same time, people with asset management that we can provide a really good offer to.

So we are on track with that. And you can see that in the figures even if they are small for the moment, but we're moving forward in that direction.

Okay. And then moving on, a little bit follow-up on the capital side.

I mean if you sell those units now in Finland and Denmark, you free up quite a lot of risk-weighted assets and you might get paid a little bit more than book value, let's see. Why can't you be more committed to what you're going to do with the proceeds?

I think it would have been very helpful if you say that you're going to distribute that capital straight to shareholders so it doesn't become a drag on your profitability. What's your thinking about that capital?

I think we've been -- what we want to send to you is a really firm message that we run the bank within the target range. So we don't want to run it much above.

So -- and you've seen us now go out and invite into the extra shareholder meeting tomorrow or the extra AGM tomorrow. And what you will see us then, then we will go into the ordinary AGM and make solutions again around the target range or around our capital level.

So I think it's -- since we don't have -- we don't have a transaction to guide you on today, it's too early to tell the way how we're going to use that money and the way we're going to do it. But let's be clear on we want to run the bank within the target range.

And just to add there, Andreas, I mean, I think we had this target range now since 2014, early 2014. And I think we can agree that we have a good track record since then of -- when we are above the target range, we have addressed that.

I think we have paid a number of extra dividends over the last few years. So I think we have a good record in actually delivering what we say in terms of moving into the target range.

I think we have proven that. And the extra dividend up for tomorrow is another example of that.

Well, the extra dividend is catching up, right? But anyway, you have a core Tier 1 ratio today of 20.5% and the target range is 15% to 17%.

Your peers are launching buyback programs. You have a transaction that's going to free up even more capital.

I don't understand why you're not launching a buyback program tomorrow as well.

As you know, we're a bank who likes to do things in the regular fashion. So we -- normally, we view the capital situation every quarter, but we only change it at the AGM.

So now we stick to this AGM tomorrow and then we will take the next step during Q4.

Just 2 from my side as well. I mean the first one, just to return to Sweden and NII outlook.

And I was just wondering how should we think about NII progression from here. Should we think of a continuation of roughly team so far?

So broad stability with kind of volume growth being offset by margins? Or how big a headwind do you foresee in the mortgage base going forward?

Could this potentially get worse in a way? I think we have heard of customers switching from float into fixed.

Could you just give us an update where you see the margin picture in Sweden developing on the mortgage side? And how should we think equally about volume growth from here?

So volume growth in the system has accelerated, I guess, driven by the strong house price evolution. How do you think about the scope for continued mortgage growing system over the next 1 or 2 years?

And then secondly, just a quick clarification on costs. And I was just wondering if you could be a bit more concrete in terms of what this means in terms of cost for 2022, so departing from the SEK 20 billion guidance.

Could there be scope that cost could be initially higher given the ramp-up in this time?

Thank you, Martin, for these questions. Well, first of all, I think that, obviously, all analysts and investors want to be able to put in the figures in their spreadsheets.

But the way we view the mortgage business is that, if we're able to construct a really cost-efficient business model here and have a strong distribution capacity, then we're in a good situation. And the distribution at each and every time, we are more or less a price taker there.

So we want to be able to attract the good clients which we really like. And in essence, we don't set the price at each and every time prevalent.

So as long as we've been able to improve the efficiency over time, then we will have a good development. And as Lars has been saying many times, volumes are the decisive factor over time.

So we don't make any -- we don't look forward and see what we believe is going to be the price at the next quarter or so. But having said that, one thing you can say is obviously that when clients move from float to fixed, yes, then the margins tend to drop a touch.

So far, we've seen quite strong competition here. We like -- we foresee strong competition going forward.

We know that with all the ambitions we have and with the actions we're taking, we know that we will improve our cost efficiency levels in this. And we have a really strong and improving distribution capacities.

So we look really constructive to this and do believe that we will be able to attract both clients and bring down the cost of service of these clients. So that's the first thing then.

Did you have anything around volume growth there?

Yes, outlook for volume growth.

And we're obviously looking constructive on that one. As I was saying, now this is not just mortgages, this is all of our core areas or the core clients.

If you go into the fact book and look beneath the top line figures of volume growth, you will see that we grow quite steadily and around 5% going backwards in all of our targeted areas. So we are constructing volume growth and think we will be able to see that.

Then having a guidance on what the markets will do, I'm not going into that detail. So we will have to see and watch the market.

But from a relative perspective, we're really constructive. On costs, what we said earlier on was obviously that bringing us down to SEK 20 billion was required a program of a value of around SEK 3 billion.

And we're following, we're sticking to that program, as Carina was saying. But the guidance for 2022, I don't have any absolute number to give you there.

Two questions, please. The first one, can I ask you to talk a bit about what's changing for the Dutch business with these strategic announcements?

It just confuses me a bit as a nicely profitable retail-heavy unit that you used to be quite excited about. It feels like moving into the capital markets business is a bit of a demotion, if we can call it that.

So do you see less opportunity today for it than you used to? And what's the sense of it sitting in capital markets?

And the second question, please, on your wholesale funding. We've seen some of your peers getting a bit of juice to their margin from issuing less debt.

And when I look at your balance sheet, it seems like you have the same level of wholesale funding that you had before the pandemic with SEK 300 billion more deposits. And then in the slides, we have all this talk of funding and margin pressure.

So could you talk us through your rationale for keeping up the same amount of wholesale funding when your deposit side is growing so quickly?

Thanks, Nick, for these questions. Well, let me start with the Netherlands then.

No, I really agree with you. Netherlands has -- is a success story of ours, and it's been growing really, really nicely in all of our key segments, obviously.

We -- we've been focusing Netherlands to real estate lending, to mortgages, but also to asset management business. And I think that is the key component of it.

When now we say that our major markets are Sweden, Norway and U.K., that's the reason that one is that Netherlands only stay, they only -- it's only 2% of our net results, which come from the Netherlands. We don't change any plans for the Netherlands.

We really like the focused way they run the business. We really like the growth opportunities there, but we really do believe that we can make that really good and efficient together with the Luxembourg operation in Europe.

Yes. And then, Nick, I'll take the funding question.

So I mean, we have definitely benefited from the increase in household deposits that we use for funding. And if you look at our funding volumes bearing in mind that our loan book has continued to grow quite substantially, you can see that on a relative scale, we have issued less wholesale funding both this year but also 2020, 2019.

So the funding mix has changed to more household deposits. And as long as they continue to grow, that will continue, so to speak.

Here is Sofie from JPMorgan. I was wondering, with your Danish and Finnish operations, given that these are branches rather than subsidiaries, how easy is it to ring fence them just considering kind of how much you drive an effort you have spent on ringfencing the U.K.

operations? How easy is it to just kind of take out Finland and Denmark?

And do you expect any additional costs associated that are from taking Finland and Denmark out from the group? And just going back to the costs, I recognized that you had SEK 262 million of kind of IT costs this quarter.

How much IT cost should we expect going forward? You talk about elevated or higher level of IT costs.

Is it fair to see that the current level is the new run rate? Or how should I think about it?

Sofie, and thanks for these questions. Well, let me start with the Danish and Finnish operations.

It's true, as you say, we run it as a branch and not a subsidiary. We don't foresee at all that it's going to -- we not think that we're going to move into the same process as we've been doing in the U.K.

It's a completely different thing to run a plc and a subsidiary in U.K. under the regulation of PRA and FCA.

And that we don't foresee at all these things. Rather, on the contrary, we think that the Danish operations might actually see bidders having the same IT platform as we do because we're using BEC, which is one of the common service platforms there.

So we don't foresee a tricky process of going into subsidiarization of these 2 areas.

This is Peter. And in terms of the IT costs, we don't provide any guidance on that.

What we do highlight in our disclosure is the IT investments and the development spend. And they are actually spread out between staff costs and other costs.

So that's the only kind of guidance we give on the IT cost side.

Okay. But I mean, I guess you've got to make a SEK 20 billion gross target a little bit redundant.

But I mean, if I would assume that Finland and Denmark are sold and you still target SEK 20 billion of underlying costs, that would mean by end of next year, you would have like growth around SEK 17 billion. Is that fair to assume or should we assume that it's SEK 20 billion plus more IT costs?

Just trying to better understand how to think about future growth.

Well, let me try it. And this is one of the key components why we don't guide on any new cost target, obviously, that we stick to the program, and the program -- the value of the program was roughly SEK 3 billion before.

That was a major component -- or that was the key component of taking us down to SEK 20 billion. As you say, the IT spending has moved according to plan.

We were saying ahead of this year that we were spending roughly SEK 2.5 billion to SEK 2.6 billion in yearly IT spend and then we were increasing that by another SEK 1 billion over 2 years. That moves according to plan, and we are increasing our IT spend according to that.

Then obviously, we are taking a bit larger proportion over costs, and that's up to 75% now roughly and less component of the balance sheet. But then -- and then obviously, the Denmark and Finland will change the absolute cost base.

So hopefully, that gave you some guidance to it.

I mean, yes -- I mean, I guess, end of the day, it just sounds like, yes, that you're sticking to the SEK 3 billion kind of growth program. But if I'm reading it correctly, you're not going to deliver on the SEK 20 billion underlying cost the end of next year.

And kind of -- instead of just saying it simplistically, you're just saying that it's becoming less relevant because you're selling Finland and Denmark. Or am I misunderstanding it?

I think one way of saying this is we will deliver on the cost execution program, but SEK 20 billion isn't a relevant figure.

I've got two questions, please. Firstly, when Handelsbanken does eventually exit Finland and Denmark, will the core Tier 1 requirement of the group decrease related to certain buffers coming down?

And secondly, another question related to the U.K., sorry. But in the report, it's written there are good possibilities in relation to the U.K.

So is this related to costs coming to an end related to Brexit, plc, AML, and therefore, we should expect the cost-to-income ratio to trend down in 2022? Or does good possibilities mean acquisitions in the U.K.?

Let me start with the second question. Yes, it's fair to say that we do believe that we have a good possibility to see income growing and costs coming down in the next year in U.K., i.e., cost-to-income levels dropping.

We're not saying that we are investing in something in the U.K. But we are obviously saying that focusing on Sweden, Norway and U.K., we see possibilities in these markets.

And we have an ambition to target these possibilities. And that's one of the key components.

When we are a more focused bank, obviously, we will review, as we've always done, possible investments.

Namita, I'm not entirely sure I got -- I understood your first question, but I think you asked about the capital requirement going down after divesting Denmark and Finland. Was that right?

Yes, exactly.

Yes. And I mean, from the numbers we provided yesterday, you can quite easily see that the risk exposure amount in these 2 countries is around SEK 60 billion.

So it's quite easy to see the capital requirement going down and the SEK 12 million of CET1, which is now sort of attached to these 2 countries is coming off, so to speak. So -- and one way you're seeing it is, yes, capital requirement for the group will come down in billions of kroner.

Some other questions on the IT. And so the first one is on the markets where you intend to stay in Norway, U.K.

and the Netherlands, outside in Sweden. Are you running on the same IT platforms there as in Sweden?

Or are there any difference, as you mentioned, Denmark before that's running another platform?

Thank you, Rickard, for that question. In the bank, obviously, what you can -- you can see the bank as having, first of all, the way we meet our clients, then we have a lot of product offers and then we have some core components of the bank.

You can -- a bit simplified, you can think about it as mail systems, et cetera. All of these ones, you can do jointly and have a central strategy or you could do it at a local perspective.

So the answer is a bit more complex than saying yes or no to your question. So in some of these verticals, we have joint solutions; in others, we have local solutions.

But it's definitely one of the key components of the IT strategy to make us more joint users of the same platforms.

Okay. And also on the IT spending beyond 2022, maybe if you don't want to comment on an absolute number, but just sort of compared to the plan that you launched a year ago, has the scope changed in any way?

Sort of is the list of things you want to accomplish getting longer? Or is it still same plan as you communicated a year ago?

I think it's fair to say, and as we've been saying, before that running a more efficient bank, that will most likely involve a higher ratio of IT spend and a lower ratio of staff spend. We were saying that when we were redoing the Swedish operation and the branch network are improving the way we meet our clients in a lot of fashions, then we needed to spend a bit extra on IT development for that.

And we are sticking to that plan. We are doing that.

And in some senses, we have the scope of that on a fairly high level and then we actually develop fairly agile there. So no, the scope hasn't changed.

We will stick to that and obviously -- so we're following the plan on that one. I don't know.

That wasn't the most concrete of answers I've actually said. But hopefully, that answers some of your questions.

I mean we can say we do have a high ambition on IT spending, making sure that we have profitable growth, and we do have a plan. But of course, what will happen moving forward, take that in consideration as well.

But the ambition is to make sure that we can provide growth in all the main markets that we want to, where we have our business moving forward.

And once you're becoming a more profitable bank with a higher profit margins as well, then you might be able to invest more as well. That comes with -- that comes as a consequence of that one.

A couple of questions. First of all, on head count, we've seen that actually the average number of employees continue to tick higher in the quarter.

And you previously mentioned that there are around 700 employees that agreed to leave the bank. I just wanted to clarify where we're going to see this reduction in headcount levels.

And do I understand correctly that this is actually included in SEK 1 billion of savings that have been agreed but not yet materialized? And then second question on Oktogonen contribution.

Does the change in the quarter relates to revision of the core market. So now you're effectively tracking profitability just in -- relative to peers in Sweden, Norway and U.K.

And let's say, if we look for next year, take it into account continuous required IT investments and then go in transformation in the U.K. Is it fair to assume that you won't make any contributions in 2022?

Let me start with the first one, and thanks, Maria, for the questions. Well, we've been -- we -- the headcount numbers of the bank has been going down roughly 500 in total staff since a few quarters back.

Obviously, going down in the number of staff is a key component of lowering the costs. What we have seen beneath that headline number is obviously that when we are speeding up IT development, we're actually staffing up there in -- even though it's quite temporary, and then we're going down in the underlying staff levels.

Another way of -- for you to keep track on this is to look at the Swedish segment. In the Swedish segment, you can see, and this is more or less illustrating the time lag of realizing cost reductions.

You can see that we've gone from 376 branches to 230. So that's a reduction with 146.

You can see that the staff levels has dropped in a year's time from 3,700 to 3,350. So that's a drop with 350.

And you can see that the staff cost has actually just gone down very, very marginally. So the realization happens with a time lag.

And just one comment, also, Maria. I mean in Q3, we obviously have some summer temporary employees in the bank.

So that's why the number versus Q2 on average was a bit up. But year-on-year, it's clearly down.

Okay. And then on Oktogonen, no.

So I mean, we described this a little bit in the other section of the report. But I mean, this is purely mechanic formula, how we do this during the year in the quarter.

So it's -- right now, Q3, we look at the Q2 ROE of our bank vis-a-vis the peer banks in all our different markets, including Denmark and Finland as well. And we could see as of Q2 that the gap was more or less gone.

And that's why the reversal of the provisions we did early in the year was down now. So it's got nothing to do with any changed peer group or anything like that.

It's a pure mechanic formula.

Just thinking a bit about the longer-term cost. I mean you're talking about selling these businesses that are branches rather than subsidiaries.

How long do you think it will take to rightsize the cost base? I mean, clearly, I think 30% to 40% of the cost base of these units are internally debited costs.

Presumably, those are stickier than the revenues in a disposal situation. So can you talk a little bit about the time frame in which you think you can rightsize the cost base for the group?

And then maybe just a quick one on the sale of the merchant acquiring business. Can you just remind us what the impact will be on fee income and operating expenses, I guess, starting in halfway through Q4?

Thanks, Johan, for these questions. Well, let me try.

Long-term cost, well, obviously, that's a bit of a philosophical question because obviously, we're redoing the bank quite a lot with them now for the last 1 or 2 years. And obviously, that -- for every step we take, it actually opens up questions to cut cost a bit more.

So in that sense, what is the long-term cost? But yes, it's going down.

And then looking into a bit more detail out of the cost levels for the segments, Denmark and Finland are on an absolute level, SEK 2.8 billion in -- accumulated January till September. The levels of internal costs are 40% of that, yes, as you say, but the 70% of that is rather IT spend and the IT spend is rather direct in the essence.

We think there's good reason to believe that we should be able to rightsize the cost base fairly okay. And then I'd like to add to that one that one of the reasons Carina was highlighting for taking this decision is obvious that before you had positive synergies in opening up in other home markets, other branches, et cetera, now you might actually have negative synergies.

When you're entering another home market, there is very, very thorough regulatory demand. So you need to build central staffing at headquarters as well.

So -- and the relation of this is something we need to react to over time when we learn this. But I wouldn't overrule that we will actually see other cost savings than we see on the direct Danish and Finnish line.

And then on the fee income from the card acquiring business. It's fair to say that up -- for 2020, we had the net income of the card acquiring business of SEK 170 million.

That was then fee income but also fee cost. What we will have over time now is from Q4 and going 5 years out, so the coming 20 quarters, we will only have a fee income of roughly SEK 50 million.

5-0.

A yearly figure of SEK 200 million.

Okay. So basically, it doesn't change the net in these 5 years?

It increases the net.

Yes. And then, of course, we have the SEK 550 million to be booked in Q4 upfront, so to speak, as well.

I have one question. I just want to make sure that we're looking at capital in the same way so you have your 560 basis points back at the moment.

But when you do your capital planning, what else do you take into consideration? Do you add on 200 basis point countercyclical buffer, Basel IV or something else?

Or is this 560 basis points truly what you consider to be the buffer today and you can distribute or grow using the rest?

Thanks, Jens, for the question. Now obviously, it's fair to say that we don't want to -- the -- first of all -- the first phase of the capital planning is, obviously, to make sure that we can create stable situation for our branches and for our client representatives when meeting the client.

So we want to -- we don't want to switch on and switch off the capital possibility. So in that sense, since we know now that they will increase the countercyclical buffers, of course, we will take that in consideration when we plan our capital situation.

So in that essence, we already know that 13.8% will move upwards and then we will add 1 to 3 percentage points. And this is something which we will take into consideration when we move into the Q4 discussions ahead of the normal AGM.

And then perhaps a couple of words on expect the European Commission to publish, I think, a week from now. But it has been rumored quite strongly that the implementation will be delayed starting off in 2025, to be completed by 2030.

That's what we hear about, let's see. So that is, of course, not something that keeps us awake at night to put it that way.

Okay. And in that sense, is it fair to assume that something like Basel IV, that could have a big impact?

You should be able to cover that capital generation of the business, given the long implementation phase. And then of course...

Yes. And it also, of course, remains to be seen how the Swedish FSA will sort of redesign their capital requirement framework.

in the Basel IV, well, we don't know that yet. So it's really too early to say.

But again, we feel no stress about that one.

Just 2 quick ones. First, could you give us the book value where you get a gain or a loss on the Finnish and Danish businesses?

And in that, is the SEK 2.5 billion of goodwill in Denmark kind of associated with what you're selling? And then just second question on the cost target, you say you stick to the old cost targets.

It sounds like very much focused on the cost-savings initiatives. Would it, at the same time, be fair to say that given the flexibility that you've unlocked by scrapping the fixed number and the additional capital that's coming in through the door that you would also consider how that can be deployed into growing your remaining core areas, and that could impact the sort of net cost development.

Thank you, Jacob. Two really good questions.

We won't go into detail around book value. We have allocated capital of SEK 15 billion, and we have CET1 capital of SEK 12 billion there.

Going into the cost target, as you're saying, yes, we will stick to the program and we will carry on with that work. Then, of course, I don't know if I interpret you correctly now.

But yes, of course, when we are focusing the bank and becoming a bank with a lower cost-to-income level, a higher return on equity and a higher profit generation and profit growth, that creates possibilities and some flexibility both for investments and actually strengthening our position there. And I think you're targeting a really important point here that we obviously have a really good ambition to grow in the markets we're in.

So I don't know if that was -- I interpreted you correctly there, but -- yes.

Okay. No, that's clear enough.

And just on the goodwill, could you say if that's part of the goodwill that you have on your balance sheet in Denmark, if that's being sold? Or is that something else?

So the goodwill that we have in Denmark, as you can see in the annual report, around SEK 2.5 billion relates to, obviously, the acquisitions we did in Denmark way back. And we won't speculate what a potential buyer will pay.

But obviously, that is the goodwill that we have and which is related to ongoing business in Denmark.

Yes. So the margin development in the quarter was fairly negative.

And could you just give some color on the components there? Are there any components that we could expect to come back?

For example, last year, you had a negative component, I think, Q1 that came back. But could we see anything else in the next quarters?

Yes, this is Peter. No, I mean, the effect you see in the quarter of the net effects on margins and funding cost is actually the sum of various components.

Of course, you have the underlying pressure that we've seen on mortgage margins in actually most of our markets. That's part of the effect.

You, also on the corporate side, saw in this quarter a slight pressure on the margins. They are more volatile, go up and down.

And then as a third component, as you know, I mean, we have a few thousands of billions of Swedish kroners that are rolled every day in the treasury department. That means that, occasionally, to get a net positive effect, occasionally get a net negative effect when rolling all this funding.

And this quarter, it was negative. So those 3 components summed up to the net effect of margins and funding costs.

But as you look forward into Q4, there is nothing that should sort of bounce back again from the negative effect that you saw in Q3.

Okay. We are running out of time, but thank you very much for your attention, and thank you very much for all the issues and questions that we have had on the table today.

So thank you very much, and have a really nice day. Bye-bye.

Thank you.