Today, and thank you for standing by. Welcome to the SEB Financial Results Q2 2025 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Johan Torgeby. Please go ahead. Good morning and welcome to SEB's second quarter result presentation. As customary, you can follow the slides from our website. Starting with reflecting a bit about the macro situation, I think it is sometimes helpful to make the distinction between risk and uncertainty. The typical risk definition is something that is measurable, something that is tradable or insurable or hedgeable, and you can monitor, and you can have risks going up or down in one's portfolio or business engagement. Here, I just show two classic risk measures. That is the risk premium in the credit market, here measured as the credit default swaps, and also the stock market and its outlook for the future. Both risk measures indicate that everything is actually quite benign. That feels a bit surprising to say. As uncertainty, which is the definition, something that is not known, not hedgeable or quantifiable, is actually very close to record highs. Here, that is represented by the trade policy uncertainty index, which is absolutely at the same level not seen since the 1920s. This is a quite unique situation where the financial markets over the last quarter have behaved very, very strongly, whilst we see geopolitical risks, cyber risks, trade risks, and others quite elevated. For SEB, this means that the client base typically has a little bit of a cautious stance. Despite financial metrics such as credit swaps and stock markets being very encouraging, we still see there is a little bit of cautiousness in the system, and not at least when it comes to consumption and investments. Going to the next page, we classify this quarter as a very solid financial performance quarter. Volumes grew in a broad-based fashion, where we saw growth in lending, both corporate and retail, growth in deposits, and also net sales positive for asset under management. In particular, we do highlight the contribution from Corporate Investment Banking that had a very strong recovery from a fairly slow April. It really caught up during May and June, also capturing a very high share of the frozen transactions executed in the market. AirPlus is on track, and we have this morning also announced a continuation of the pre-approved SEK 10 billion of share buyback from the FSA for 2025, and a continuation for the next quarter with SEK 2.5 billion. Return on equity, we note at 15%. Cost income of 0.41. Core equity tier one ratio of 17.7%, with a capital buffer of 290 basis points. A few noticeable events during the quarter on the next page, page four, is first we continue our efforts in terms of being progressive around deploying new technology within the bank, and not at least within the area of artificial intelligence. This quarter, we announced in a consortium with several other companies an investment in a supercomputer from NVIDIA. This is really to secure access to very strong capabilities for the long-term future in order to be able to use whatever comes our way when it comes to AI in the future in a secure manner. Also, this quarter, we had a few customer satisfaction scores, not at least for interest rate derivatives, FX, and debt capital markets investment-grade issuers, all coming out with very strong results. Turning to page five, we have the development of the credit portfolio and the loan growth. Here we can see that lending actually grew quite strongly in the second quarter, both Q-on-Q and year-on-year. This This is really breaking the most recent three or four quarters of a trend where we've seen a very stable sideline movement. A bit of caution is that we had a very strong catch-up effect. After a very slow April, which meant that there was a lot of events and event-related financing that actually helped this number to increase. Those are short-term in nature and not a guarantee for the future. In the other areas of the loan portfolio, also grew, albeit at a more modest pace. With that, I'll hand over to Christoffer for AirPlus update. Thank you, Johan. Turning to the next slide and a brief update on AirPlus, as Johan just mentioned. There are three important drivers of the turnaround project within AirPlus, all of which are progressing according to plan. Starting with the right-sizing of the organization, we have now agreed with all FTEs expected to leave during the course of this year, impacting some 350 or so staff. Secondly, we have discontinued operations in all markets that we were planning to exit, which includes 28 non-core markets. Finally, AirPlus has successfully, during the quarter, migrated away from its old technology platform onto the new cloud-based tech stack, which will also now form the foundation for SEB Kort corporate business going forward. With these three achievements, we're confident that we will meet the target of break-even before restructuring charges in 2025, and we can enter into 2026 with a positive business momentum based on a strong product offering of the two combined entities, a market-leading technology platform, and a period of internal restructuring now largely behind us. Our target for 2026 is to be profitable, including implementation charges. Turning to the next slide and the financials, the total operating income for the second quarter of SEK 19.6 billion is down marginally from the previous quarter. Net interest income is down sequentially by a moderate 1%, reflecting the continuous downward development of interest rates, which was partly offset by a broad-based increase in both loan and deposit volumes that Johan was referring to. Fees and commission income is flat compared to Q1, so following the soft start to the quarter during the month of April, May, and June did develop favorably, resulting in a robust performance for the period as a whole. As Johan mentioned also, it's particularly pleasing to see that within corporate investment banking, we're able to capture a lot of the business opportunities that did materialize in the period. Net financial income declined by 10% from the previous quarter, despite, I would say, a considerably more challenging market backdrop, and that's particularly, of course, in the beginning of the second quarter. Operating expenses declined by 3%, resulting in a profit before expected credit losses and imposed levies of SEK 11.6 billion. That's effectively in line with the previous quarter. Taking into account the exchange rate movements year to date, we are, as usual, providing an FX-adjusted cost target, and the FX-adjusted cost target for 2025 is SEK 32.7 billion. That is a reduction from the SEK 33 billion, which is now reflecting the stronger krona. We also maintain the range of ±SEK 300 million, and we feel comfortable with that cost target for the full year 2025. As we have mentioned in recent quarters, following a period of investments, we are now entering into a phase of cost consolidation, and we have stated that we expect underlying cost growth this year to decline from previous years, and that is also reflected in the target for the full year. We also see the opportunity to leverage new technology, not least AI, as a driver of productivity, which we did explore in some more detail in the previous quarter. As part of this consolidation and to ensure that we do fully leverage the investments that we have undertaken thus far, we have introduced a pause on external hiring, of course, with the exception of critical positions. Though this is a pause, so by definition, it is temporary, and we will evaluate the impact as we proceed. Net ECL, expected credit losses, amounted to just under SEK 300 million for the quarter. This is a decline from the previous quarter and corresponds to a four basis point ECL level. Within that net ECL figure, we have increased our portfolio overlays by around SEK 400 million, and that is primarily to reflect the uncertainties related to the impact of the trade tariffs and what Johan mentioned in his introduction. That said, our overall asset quality remained stable in the quarter. As we mentioned in previous quarters, imposed levies are expected to decline during the course of this year, starting now in the second quarter, and this is primarily related to the solidarity contribution in Lithuania. For the full year, we estimated imposed levies of around SEK 3.5 billion. That's a small upward adjustment from the SEK 3.4 billion we stated in Q1, and we should expect a total levy for next year of a similar magnitude as this year. A tax rate of 20.6%, very much in line with our expected 21% tax rate, a net profit of SEK 8.2 billion, up 5% from the previous quarter, and a return on equity of 15% with a common equity tier one ratio of 17.7%. Flipping to the next slide, we'll look at the development of the net interest income, and we can see that the negative impact from FX, which is around SEK 100 million, was largely offset by the positive day effect, which is the same order of magnitude. Market rates during the quarter have tracked largely in line with policy rates, so there's been no sort of meaningful repricing effect that we saw previous quarters when market rates were tracking ahead of policy rates. Looking at the development across the divisions, Corporate Investment Banking had a positive impact in the quarter from higher lending volumes, as we mentioned, but also an elevated NII from our investor services business. This is linked to the dividend season. This positive effect from volumes and investor services was largely offset by a lower NII contribution from the markets activity. Markets NII is now back to a more normalized level. The sequential decline of about SEK 200 million compared to the previous quarter for the division is effectively the result of an internal funds transfer pricing, the IFTP effect that we mentioned previously, and is fully balanced out by a positive effect in the treasury NII. Within business and retail banking, the decline in the quarter is reflecting the impact from lower rates on deposit margins, with here also an offsetting effect of better volumes, primarily on deposits where inflows have been higher than is normal for the second quarter season. We've also continued to experience pressure on mortgage margins in the quarter, although there were some stability and signs of improvement towards the end of the quarter. The Baltic NII reflects the lower ECB rates in the quarter, partly also here offset by higher volumes, both loans and deposits, not least in retail mortgages, where we have in the quarter originated a record volume of mortgages. Broadly, loan growth remains healthy and competition remains stiff. Finally, in treasury, we see the positive effect of the IFTP that I mentioned within CIB and also some benefits from lower funding costs. Looking forward, we continue to expect our NII to bottom out some three to six months after the latest rate cut, as we have previously mentioned. Based on current market rates, this is a little bit further out than what we said at the end of the previous quarter. This is, of course, always a function of where market rates stand, but also bearing in mind that the offsetting effects of volume growth, both loans and deposits that we saw in this quarter, should help mitigate the negative impact of future rate cuts. Moving to the next slide and the development of the net fee and commission income. As Johan also mentioned, corporate investment banking performed very well in the quarter, supporting fee income, both related to advisory and lending fees, and the latter primarily driven by structured finance and a lot of event-driven corporate loans. Investor services benefited from the higher activity, as I mentioned, in the dividend season, also reflected in fees and commissions, and overall, it is just pleasing to see that we have maintained or even expanded our market shares across the CIB franchise. Now we're heading into Q3 with all the summer months. That typically means somewhat lower activity across capital markets, although we do feel that we are very well placed to capture opportunities when they arise. Fee income from asset management and custody was actually negatively affected by the asset levels in the quarter. Even if equity markets started and ended the quarter pretty much in the same place, our asset-related fees are calculated on a daily basis, so therefore the headwind in the quarter. Net new assets, as Johan also mentioned, amounted to SEK 30 billion in the quarter, which is pleasing to see, of course, in a volatile quarter that we continue to see solid inflows. We are continuously bringing new products to the market, and we have also continued to show good performance across our investment management products. Turning to payments, the increase in payments and card fees is, of course, impacted still by the consolidation of AirPlus. The underlying growth rate there is closer to 4%. The decline sequentially from Q1 is broadly reflecting the weaker start to the quarter and the impact more broadly on spending and travel from the macroeconomic situation. If we turn to the next slide, net financial income for the quarter, the NFI declined from the previous quarter, and this is reflecting a lower contribution, not least from fixed income, following a very strong Q1. We should also recall, of course, that the start of the quarter, as we mentioned, was characterized by this wait-and-see mode among a lot of our customers, and then activities picked up gradually throughout the quarter. Overall, a commendable performance against a challenging backdrop. We should also mention the NFI supported by some valuation gains of our strategic holdings, and that is primarily our holding in Euroclear, where we also received a dividend this quarter. The XVA, on the other hand, went the other way, and we can just note that the 16-quarter average has now nudged up marginally to around SEK 2.5 billion per quarter. Turning to the next slide, we would like to provide you with a bit of an update of our expectations for future regulatory effects on our capital buffer, and I would like to start with the IRB repair program. As disclosed in our communication from this morning, we have received feedback in relation to the IRB repair program in our Baltic banks. Based on this feedback, we estimate that we will have a transitory increase in REA of about SEK 50 billion, translating into a capital impact of some 80-90 basis points of CET1 buffer on group level. This transitory increase will remain in place until our models in the Baltics are approved, and it is difficult to estimate when this will happen, but it is likely to be a number of years. The dialogue with ECB is ongoing, and we expect to recognize this effect gradually in our capital calculations, starting somewhere towards the end of this year or beginning of 2026. We see this effect being absorbed by the management buffer. As you know, we already hold a Pillar 2 add-on of around 100 basis points related to ongoing IRB work since 2023. We expect this add-on to stay in place and to be removed once all our models have been approved. As stated in the communication, the outcome of the updated IRB models in terms of impact on REA will be subject to regulatory approval. Turning to Basel IV, a n update there. The day one effect, of course, has come and gone, as you know, with an impact broadly as expected. We can also note that the EU implementation of FRTB, the Fundamental Review of the Trading Book, has been postponed once again, now until 2027. The remaining impact of Basel IV is related to the phasing in of the new standardized method and the output floors. This is sequenced into two steps. First, we have the impact of the output floors being phased in by 2030, and then we will have the expiry of the transitional agreements and arrangements in 2033. For us, with a high proportion of large corporate clients with investment-grade characteristics, it is really the expiry of their transitional arrangements, and more specifically within that, the treatment of unrated corporates that is the most relevant development. We are nonetheless confident that we will be able to largely mitigate this impact by extending the rating universe of our corporate portfolio, and we believe that we can do this at a very manageable cost to the group. Now, bearing in mind this is eight years out, there can, of course, be changes along the way, but we are prepared and we plan for what is currently on the table. If we turn to the next slide, we look at the development of our CET1 buffer during the quarter. We started the quarter at 280 basis points and closed at 290. Retained earnings contributed just over 40 basis points, and here you can see the impact on REA from the pickup in loan demand that we referred to a couple of times throughout the presentation, and you see the increase of our balance sheet consuming about 27 basis points of CET1. Asset quality and FX effects in the quarter were only modest. Turning to the next slide, and we will have a look at our asset quality and balance sheet metrics, a familiar slide. We have remained active in funding markets throughout the quarter, and we ended with a robust funding and liquidity position, an LCR liquidity ratio at 130%, and the net stable funding ratio at 112%. CET1 buffer, as mentioned, ending the quarter at 290 basis points. A final slide before I hand the word back to Johan. Just going through a brief reiteration of our financial targets. We continue to target a dividend payout ratio of 50%, a CET1 buffer range of 100-300 basis points above the regulatory minimum, and a return on equity competitive with peers and an aspiration of 15% over the cycle. With that, Johan, back to you. Thank you. I will round up. It was pointed out to us last quarter that we were missing one slide, and that was the operating leverage slide that we have been using since 2011. Of course, the development of jaws. Here, we brought it back, and it is quite interesting, I think, to reflect a bit. Between 2016 and 2021, where you had no real headwind or tailwind coming from a change of interest rates, we generated a very healthy compounded average growth rate. Two or three years ago, we got that enormous tailwind coming from the increase in interest rates, where, of course, the jaws worked extremely well. Now we are closing in on the end of this normalization, where income is dropping down as rates are coming down. Whilst we decide ourselves on the cost of the group, I'll just reassure you that we continue to use this as a filter on anything that we do. The very simple idea is, of course, to always allow for a medium to long-term strategy of the things that you can control, aiming at generating income that increases more than cost, hence creating positive jaws. As we have increased cost, you can also see in the slide that the increase is tailing off. We do have a few levers at our disposal, and I'll just point three of them out now. We are thinking about proactively reducing the cost growth, as Christoffer mentioned earlier. We will also try to outright get down in order to reinvest some of this in the group. Also, of course, there is a new brave world out there in how you deploy and engage with new technical capabilities such as AI. This is very much intact, and it is interesting to see that the first half of 2025 kind of hits on the underlying growth rate between 2016 and 2021, just disregarding a few years there where you get a lot of things for free on the financial result as interest rate went up so fast. With that, I will thank you all for your attention and hand over to the operator to open the floor for Q&A. Thank you. As a reminder, if you wish to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We will now take the first question. From the line of Martin Eksted from Handelsbanken, please go ahead. Good morning. Thank you for taking my questions. First one. You have in the past stated that buybacks will continue as long as the management buffer stays above 2%, I believe. In light of this new 5% RWA add-on that you announced today, do you see that there will be a risk that there will be a temporary break between buyback programs at some point after the fourth and final program based on the SEK 10 billion that you currently have approval for? That is the first question. Thank you. Thank you. This is, of course, something that was vetted and discussed at the board meeting we had yesterday, and the conclusion was not to change anything. Even though this is, of course, a future negative impact from the increased RWAs or REA, it does not change. We also announced this morning that we continue with the SEK 2.5 billion for this quarter, and the SEK 10 billion for the year is unchanged. There will be technically a new decision for the board, which I cannot speculate what it will be in one quarter. No change despite the fact that you pointed out that we are coming into the buffer will continue. Okay, great. Thank you. If I could stay with this 5% RWA add-on, please. How does this differ in purpose from the earlier 100 basis points add-on that you have in the capital requirements? What is the purpose of each of these? And then just to confirm, both of these are temporary. You mentioned the new one would likely be in place for years, you said. What is the reason for this? Is this a process pertaining to the Baltic region in particular, which is expected to take a long time? Why is that? Are you working with local regulators, which has a longer time period, basically? Yeah, let's try not to be too long-winded here. First, the non-compliance for the next generation credit models has already been handled by the Swedish FSA in its first instance, and it resulted in a 100 basis point, call it, add-on for the group. They are, of course, our home regulator, and they just do that for the whole of SEB. Now, this one that comes today is an ECB for the three Baltic states, and there is a slight difference in supervisory methodology. This is something where the credit models need to be updated to the new and ever-changing high standards. We have, of course, today flagged that we do not think these will be approved with the last feedback we got in the near term. These credit models do take years to redevelop and change, and that is why we want to be very clear that this is not something you fix in a month or two. This is the third version of model updates I have done in my career, and they can take a very long time. The explanation of the 5%, I would also say that. In the ECB type of supervision, you are either a bank that has IRB or you are not. If you are not, you are around the standardized capital risk weights, and you cannot be somewhere in between. Therefore, we have been very prudent today, just acknowledging that we are not today approved on our credit models, and therefore this amount of SEK 50 billion or 5% of RWA is very much in line with what would be the case in a transition to become an IRB bank again. Why it is so significant is obvious. It is because SEB ran one of the lowest risk portfolios of all banks, and therefore the distance between getting the credit we think we deserve for that low risk exposure compared to standardized, it is a very large distance. There is a handful of banks I can think of in Europe that have a similar position, but most do not. Yes, to your last question, these are temporary or transitory, is the word we use today, as they are there not because any risks have been identified or any capital needs to be added, but really as an add-on, as you have not the process concluded on how to get IRB models approved. Okay, thank you. That was very clear. That's all from me. Thank you. We will now take the next question. From the line of Markus Sandgren from Kepler Cheuvreux, please go ahead. Yeah, good morning, everyone. I was just thinking about the hiring freeze you're doing. Is that, in hindsight, have costs run away a bit too much, or why do you need to implement a hiring freeze? Yeah, it's a methodology which is a method that is very common. You think about it like this: we've added about 3,000 people to the group over the last five, six years. We've had a very ample ability to reinvest in SEB. Now, it is the pace of increase. We already one year ago flagged that we need now to lower the pace of cost increase and FTE increase. That is, of course, you see today very much intact, and now we take one further step to reduce the uptick that we've seen in the last few years in order to come to a more, let's say, consolidate the resources a bit. The easiest and friendliest way to do it is to stop adding external people to the firm. You do that for a temporary, it's a period of time until you don't need it. That's the only reason in order to change the trajectory of the cost development. Okay, thanks. And have a nice summer. You too. Thank you. Thank you. We will now take the next question. From the line of Patrik Nilsson from Goldman Sachs, please go ahead. Yeah, hi, good morning, and thanks for taking my question. I just had a question on net fee and commission income. This seems to have been a very strong quarter despite a lot of macro volatility that we've seen. Meanwhile, you discussed it as well, the average AUMs were down Q -on- Q, but they probably recovered as we've gone through the third quarter. I'm just wondering how we can think about the trajectory for the remainder of 2025, because it looks to me like you've had this challenging quarter and you still did better than expectations, and now you have a lot of tailwinds going into the remainder of the year. It would be very helpful to hear your thoughts there. Yeah, if I start with fee and commission, the quarter was very, very tale of two stories. It was really dampened activity after the 2nd of April. As you know, in March, we had a pretty constructive view of the world when rates are coming down, and we thought that activity-based banking, where we charge fees and commission, would increase. We had a very strong recovery in May and June. We actually had one of the most active two months. In history with DCM, the capital markets just exploding, particularly in May, and then a lot of ECM, equity capital markets, capital raisings, IPOs, etc. It is very hard for me to share outlook because of this fact, because I'm always worried that there is a catch-up effect after a very weak April. You see the quarter as a whole ended up very, very strong, still from a low base, but there is definitely something that has happened. If you look at all the different volume metrics we have, which are the leading indicators for the P&L, they are looking better. Both the lending growth was 7% year- on- year. We haven't seen that for four, five, six quarters. Corporate investment banking doing very well. Deposit growth was noted, and AUM net sales, which is the future AUM, was also very constructive. It was really payments, which is related to consumption, which was the weak point. Whilst all more or less fee and commission lines were good. That started bad, ended up on a high note. AUM was the kind of something different. AUM was lower because there was a dip during, but we ended the quarter, or where we stand today is close to an all-time high. Of course, that works a little bit with a lag, but we also were very happy to see that for a few quarters now, maybe even a year or so, we've seen some more positive net flows this quarter. I think it was SEK 30 billion for net sales for assets under management. Maybe just to add as I flagged as well in the remarks, of course, we're heading into Q3, which is a couple of summer months, but we're going in with a good pipeline and a good outlook. Of course, we'll be subject to market activity, but we feel confident with the position and our ability to capture whatever business comes around. Very clear. Thank you. Thank you. We will now take the next question. From the line of Nicolas McBeath from DNB Carnegie, please go ahead. Thank you. I was wondering about the comments you made on the NII, because if I understand it correctly, you said that the market and NII, which was elevated in the previous quarter, that normalized in the quarter, but then there were some other positive impacts from investor services and treasury that benefited the NII in this quarter. So could you e xplain, do you expect those to normalize with a negative impact going into Q3? If you could say anything more, kind of similar to what you did last quarter, when you expect NII to trough given the current interest rate outlook? Yeah, thank you. I think you're summarizing it well with the effects that they highlighted with the markets NII normalizing and the positive effect from investor services and the lower funding cost, and they largely offset each other. Of course, you have the positive impact from volumes, both on loans and deposits in the quarter. When it comes to the outlook, as we mentioned, the three- to six-month lag from the latest rate cut to see the trough is our best estimate as the rate cuts work their way through the balance sheet. Having said that, though, of course, when we start to see volume growth, that will have a mitigating impact on that development. Right, but is there anything in terms of these investor services benefits that we should kind of assume will be a negative delta going into Q3, or is that at a normalized level? What we did mention is that there is an investor's positive effect, which is seasonal, attributable to the dividend season. There are higher flows that drive balances in certain types of investor services accounts, which are contributing positively seasonally in the second quarter. Yes, there is a seasonal effect in the investor services contribution. Right, thanks. Shifting topics a bit, I was wondering whether you have an updated timeline for the ongoing German tax reclaims. As it's now been five years since you announced the German tax authority made its first request. Do you have anything new to share there? No, there's no news to share on that topic at this point. All right, could you say anything? What's the current expectation in terms of timeline when you think those can be resolved? No, I would just reiterate the process as I've always understood it. It's a five-year process. We will, of course, take it all the way to iron out what is what if it ever comes up. There are two, of course, there's a tax authority that first needs to say something to us on what we actually are deemed to have made incorrectly, and then that will then be processed. We have said that from the commencement of that, which has not yet happened, it's a five-year process. Is it a fair kind of conclusion that it's, given that it's been five years now, that you anticipate those processes to kind of approach some kind of conclusion now? No. I don't dare to assume that. I think these things are very political, very difficult to predict, but there's no indications that they would shut it down either. I think it's just this wait-and-see mode, and the process should start at some point, but it's actually closer to 11 years because this started in 2014. Still, no conclusion in how this should pan out. Okay, understood. Thank you. Thank you. Thank you. We will now take the next question from the line of Magnus Andersson from ABGSC. Please go ahead. Thank you, good morning. My first question is just on the corporate lending growth quarterly and the overall better activity. Just if you could tell us whether that is from any particular regions or areas. Also, if there are any high-margin lending in there, which is linked to your strong security and advisory business, IMA in the quarter, which might take off in an— Magnus, can I interrupt you, please? Sorry. Your line is so bad that we cannot hear. Can I suggest that you dial in back again, and we will take this question and see if you get a better connection? Yeah. Yeah, okay. Thank you. No problem. We will go with the next question when Magnus rejoins. The next question is from the line of Tarik El Mejjad from Bank of America. Please go ahead. Hi, good morning, everyone. Just one question from my side, please, on volume growth, both on loans and deposits. You have c learly reported an uptick in lending, 1% year- on- year, quarter- on- quarter. Johan, I think in your introduction remarks, you sounded a bit, at least cautious, about this trend, given that it's maybe just a catch-up on a very weak April. Could you maybe, a bit, go more in detail on that point and give us a bit of an overview on the dynamics for your mortgages in Sweden and on the corporate side as well and the activity? Thank you very much. It's Johan, thank you. First, just so we talk about the same thing. The corporate lending was up 4% Q- on- Q and 7% year- on- year in constant FX, so take away the FX effect. Here, you're correct. That's a very high shift, a very strong shift, positive shift in growth than we've seen for five quarters or so, particularly the 4% Q- on- Q. Which is, of course, a very high number. Three things that I just caution to just put that into the future. Number one, it was of short-term nature. As we had a very active, event-driven success generating the fees and commission this quarter, it also came with significant balance sheet commitments in conjunction with those events. These are pre-IPO bridges, it is bridges for M&A, it is bridges for capital takeouts, etc. Those are short-term in nature. In a good market, they always come, so they can be constant, but I do not dare to assume it yet. Then the catch-up effect. You never know if you kind of get a little bit extra because everyone paused for a month, and people still need to do refinancings. They still need to pay their bills. If you do not finance yourself or lend or borrow, you can get that little effect. The third one is it is less evident that the general economy, the broad-based economy, is ready to start growing, investing, and consuming. That is also what we really want to see, and it will come, but I do not know when. The disappointment here is really that the mother of all drivers is really consumption and investments. Consumption is the weak point right now. Even though rates have come down significantly, everything else—and you can see that in our payments number—that is where you see that it is not happening. I would also point to unemployment. Unemployment coming down, employment coming up, then that is when you will see that the monetary policy works. That is when you could see the more broad-based. Regardless, it was a very strong quarter. Thank you, Johan. I'll just follow up very quickly. I mean, we discuss this every quarter, and I think everyone is just surprised on why this cycle the rate cuts did not have this quick, positive impact on volume growth. Do you still see it as more cautiousness from consumer and maybe the depth of that down previous cycle, or do you have any more evidence or element to explain that delay? I just have my own thoughts and speculations, and that is the mother of driver in any economy is consumption. You can't invest and force people to consume your goods or services. You need the demand side of the economy to increase. I don't know, but we are, of course, discussing my initial remarks here today about uncertainty and risk. Uncertainty is exceptionally high. Unemployment in Sweden is high if you think about retail in Sweden. There is a very high propensity to save. I am very surprised that we took down the savings ratio very significantly from an elevated level when rates went up and inflation went up. Now inflation has come down, and what happens is not consumption. It is actually more evident that savings is going up again. So the savings ratio of double-digit number of your disposable income is very high. I can only contribute that to uncertainty. You'd like to be careful. You don't overconsume. You don't overinvest. You still don't see enough two-way traffic in the property market, the real estate market, the housing market. Therefore, I think there is very little problem for any company to satisfy the muted demand out there with costs too [guess]. That is what we would like to go up in order for them to then invest in better capacity to service a higher demand. I think the uncertainty and geopolitical uncertainty, but not at the—we are exposed here in the northern parts of Europe with a bank in Ukraine, and we have this debate that probably consumer confidence is a little bit somewhat hampered by having a war here around us. You do feel it from time to time, not at least in the Baltic states and in Poland. Very helpful. Thank you. Thank you. We will now take the next question. From the line of Magnus Andersson from ABGSC. Please go ahead. Yes, thank you. Do you hear me better now? Very good. Okay, good. Sounds like you answered pretty much my first question, although I only heard half the answer. If I just follow up, two things I did not hear in there. If there were any particular regions or markets standing out in that corporate lending uptick quarter- on- quarter, and also if you in any way, I guess that is pretty high-margin lending that comes in, which is transaction-based, whether you could quantify any NII impact from that in particular. Secondly, just on cost there, following up on Markus's question, in what areas or what regions will you address with this cost reduction to free up resources for further investments? Yeah. On the activity uptick, it is broad-based geographically. Actually, it is all over in most countries, so there is no particular geography or customer segment. We were just doing—we went through the whole list of what we did in Q2, and it is very widespread. It's pharma, it's pharmacies, it is corporate services, it's financial institutions. It's pretty much across the, it's private equity, it's private, it's public. Very, very broad-based. We have, of course, a little bit more positive coming from Sweden because this is where we did some of the very large transactions, but it was pretty constructive across the board. Looking at more retail business banking, I think Baltic actually outgrew the business. Corporate banking in Sweden. Also there, on the lower than CIB, it looks to be fairly broad-based. On cost, I'll hand over to Christoffer. Yeah, on the cost initiative, it's a firm-wide initiative. It's a question of, to Johan, previous remarks, stabilizing the cost base after a period of expansion and introducing this pause on external hiring with the exception of critical positions. That applies across the board to, exactly your point, continuously make room for the investments that we want to do. Okay, thank you. Thank you. We will now take the next question. From the line of Johan Ekblom from UBS. Please go ahead. Thank you. Can we just come back to the capital for a second? I just want to make sure I understood that. First of all, you are saying that the RWA increase in the Baltics basically puts you on standardized risk weight. The 50 billion is not a reflection of kind of the shortcomings of the model. It is rather a reflection of what they would have been under standardized. That is the first question. The second related to that is, you make the point that, one, there is mitigating actions. Two, there is the pillar two add-on that should go away over time. Ultimately, I mean, capital generation of SEB relative to the peer group is hampered by this, right, in the sense that you've had this 50% increase in risk weights in the Baltics. We haven't seen that magnitude in other places. We've seen the output floor impact where you are an outlier. Whether it can be mitigated or not, I guess it's a headwind that you have that some of your peers don't. How do you think about your competitive positioning from that perspective? Lastly, if there is that much mitigation to be done, can you help us understand timing and cost of that mitigation? Because I guess it's not free either financially or in terms of management resources. Thank you. I think on your first question, you're right to describe the capital add-on as a reflection of the equivalent of s tandardized rather than a reflection of the model accuracy. I think that's a correct way to read it. On the second question around the mitigation, just to clarify, the mitigation that we're mentioning and that we're referring to in the presentation is related to the discontinuation of the transition arrangements related to the phasing of Basel IV, and primarily related to the unrated corporates. Our mitigating actions that we're talking about there is effectively to increase our rating universe, so more and more of our corporates become rated. There's a number of ways for us to do that. One is to get external ratings. We also have a number of examples where we have subsidiaries of companies that are unrated, and they could become rated by getting the same rating as their mother company. That's something that we have ample time to p ut in place until this comes into force. Those are the type of mitigating actions that we are looking at. Our early estimates of the cost, primarily then related to external ratings, is what we refer to as very manageable in the context of the group. We see that as small investments to put those mitigating actions in place. Thank you. Thank you. We will now take the next question from the line of Namita Samtani from Barclays. Please go ahead. Good morning. Thanks for taking my questions. Sorry, just related to the IRB models, how deep into the management buffer can you go? Could you operate at a 1% management buffer, for example? My second question, are you excited by the German stimulus program? Are you happy with the size of your German business? Would you consider some M&A there to capture some of the potential positive impact? Thanks. Thank you, Namita. I'll ask how far into the buffer one can go. The question is, as long as we are within the boundaries of the buffer, there shouldn't be any problems. Technically, that would be in the range between 100 and 300. Obviously, when you start going down closer to the lower end of your buffer, there's always a prudent discussion that one needs to have that you prepare for mitigating actions. That's very normal for any bank, that when capital is consumed for whatever reason, you have all plans, and you also need to disclose these plans should something happen. There are no kind of limitations as such. There can be preferences. I'd just like to remind everyone about why one has buffers. This is exactly one reason why you have them, and you're supposed to use them. It is unforeseen events of which one can be supervision and the outcomes of supervised reactions. Germany, are we happy? I'm pretty happy. This is a very good part of SEB, and our exposure in Germany feels better than ever because of the stimulus packages, and not at least because of resilience, security, infrastructure, and defense. We do have hundreds of large corporate customers in Germany that are all, of course, turning to a much more positive stance for the future, as you can quite easily identify that the tone has changed dramatically since January and February, where we pointed to Germany as the weakest part of our business. We are not considering anything which is not organic. When it comes to acquisition, etc., that's something that we do not have in the plans in the current business plan. Also, as you know, acquiring businesses in banking is a very tall feat. It is all organic. We're also very happy with the credit exposure, so the risk side of our German business is very well maintained. It is very different to be optimistic, relatively speaking, on Germany of all countries. We have been very committed to Germany for a long time and happy to be there. Thanks very much. Thank you. We will now take the next question from the line of Riccardo Rovere from Mediobanca. Please go ahead. Thank you. Thank you very much for taking my two or three questions, if I may. The first one is on NII. I just want to be sure I understand your thinking. Basically, my understanding is if the balance sheet remains as it is today, the trailing effect of the rate cuts that we have seen over the past quarters would bring NII down, and this should bottom in three or six months, depending. I understand that part or completely, or you just do not know, maybe part of this decline should be offset by volumes growth, lending, deposits, and so on. Is that the right way of understanding your comment on possible NII trajectory? Bottoming out mostly related to the margin size. You are absolutely right. Yep. Perfect. Great. Thank you very much. The second question I have is on IRB and capital requirements. I just want to be sure I understand. Today, you have SEK 990 billion RWA, and you have a capital requirement of 14.7%. If I understand correctly, and maybe I am not. The SEK 990 billion will go to SEK 990 billion + SEK 50 billion the day this is in place. Everything else will be equal. Would the 14.7% capital requirement become 13.7%? Or not? Yeah. You're correct. The SEK 990 billion will then add the SEK 50 billion, and we expect this to be a gradual phasing, starting towards the end of this year, early next year, over a couple of quarters, still to be discussed with ECB. The minimum capital requirement of 14.7% will remain unchanged. That will stay unchanged. The 14.7% will stay unchanged. 14.7% will stay unchanged. Bearing in mind that the SEK 50 billion we're also mentioning is transitory until the models are approved. All right. Okay. On this SEK 50 billion, let's assume one second that this exposure is made by only one company, only one, and this is unrated. The day that you get an external rating on the SEK 50 billion, would the SEK 50 billion remain SEK 50 billion, or would it become SEK 45 billion? The day you get the rating and the external rating. No, Ricardo, it will still be SEK 50 billion because the rating is relating to Basel. This is completely different. This is only related to when you do not have your IRB models approved, they will just say that as we do not have an agreement on what capital and what risk that capital should equate to, you have to then assume at some point in time to just bluntly add, regardless of your risk profile, if it is rated or not, if it is triple B, triple A, or single B, you have to just add it in order to follow the standardized model-ish. There are different methods to do it. That one is very, very strongly correlated to do you have models approved or not. All the other things are still true, what you said. If you did have one, you had it unrated, you would have a significantly lower capital requirement towards that credit in Basel framework in the future if it got rated. It is not relating to the SEK 50 billion. Exactly. On your first question there, you are asking about the 14.7%. There is also in there the 100 basis points of pillar two add-on. Once all the models are approved, that will be removed, and then it will be 13.7%. That is the Swedish one. Yeah. Exactly. The Swedish one. Basically, now you have—it is not a double count. You have a double burden. You have a burden by the ECB and a burden in Sweden. Yeah. Actually, the Swedish one includes the Baltic one. That is something that we, of course, will be talking about as well. There is 1% of the group, the Swedish one. Okay. There is, let's call it this way, a partial double counting on the burden, if we may say so, on the Baltic operations. We have the RWA on one side and the Swedish FSA on the other side, at least partially. Okay. Now I understand. That now is very clear to me. Thank you very much. Thank you. Thank you. We will now take the next question from the line of Jacob Kruse from Bernstein Autonomous LLP. Please go ahead. Hi. Thank you. I guess two questions. Firstly, just on the German tax case. Could you just talk a little bit about what developments have happened since you last communicated, which I think was in 2021, and if the scope of that investigation remains unchanged compared to the previous communication? Secondly, just on the strategic plan, I think you would talk— Say 2021. Is that what you said? Oh, 2023. Sorry. Yeah. No, that's fine. Okay. Yep. Sorry. Go ahead, please. Secondly, just, I think when you set out your strategy a couple of years ago, you talked about becoming a Northern European bank, as well as SME and mid-core investment banking in the, I guess, Nordic market. Could you again just talk a little bit about what you have done there and if those ambitions remain the same? Yeah. I guess that's my questions. Thank you. Thank you. I can't remember exactly if it was 2021 or 2023, but the kind of movements over the last couple of years started with a very negative for the case. This is a development in the German, call it that, larger case for the whole country when it comes to the treatment of withholding tax. A parallel to this has been the criminal transactions where you actually reclaim tax you never paid. So there are two things. That is one. During 2023, I would say, yeah, 2023, this was a negative where there was a tendency from the prosecutor in Köln and in media to marry the two together. They are very, very different. SEB has, as far as we know, never, ever been involved in the reclaim of tax that never was paid, but we have done the withholding tax optimizations for institutional clients, which is the debate: was that accurate or not in order to whom should pay that withholding tax? That is the case. Now, that regime has lately completely left the establishment of Germany, and there is a new one. That has, if I would say it like this, not continued. Let's say the very, very tough stance is a little bit less today, but these are all kind of reading media and around. Therefore, it has been very, very quiet over the last, I would say, year. Nothing really of substance has come. The process is also very unclear, and, yeah, nothing more to report. On the Northern European bank rather than the Nordic, first, it's a little bit of a technicality in the sense that when we establish ourselves. Not only in—before we called ourselves a Nordic German, and then we opened up in the U.K. 10 years ago, and then, of course, now we have a home market philosophy around Switzerland, Austria, and the Netherlands, that you can no longer call a Swedish bank or a Nordic bank. It's actually just on paper. A bank that operates and has a desire to service clients in Northern Europe, pretty much everything about France. And we do have an office in Poland, and of course, we are a large bank in the Baltic states. State of affairs, we went through a little bit in the financial disclosure. It's still too small to kind of make a huge difference in Austria, Switzerland, and the Netherlands, but it's definitely large enough to be interesting and exciting for the long term. I think we would classify it like this. We have established ourselves very well in Austria and Switzerland. The German-speaking part has been easier. It's been a little bit trickier in the Netherlands. It seems to be going well now. Please be reminded, this is very small. It's very modest. We talk about a few client executives who cover 10 to 20 clients each. We are talking about 50-60-70, that type of range of large corporates in those three countries that for the long run can add a percent or so of income growth in a very stable manner. This is very much our philosophy to year in and year out, with a long-term perspective, outgrow on the income side. This is a small contribution to continue to do that in five years for the coming 10 thereafter. We have done that very successfully with Germany and the U.K., and actually also in Norway, Denmark, Finland, which we started in 2009, where before that, we were predominantly a Swedish bank. Yeah. Was that okay? Been clear? Yeah. Yes. Very clear. Thank you so much. Thank you. Thank you. We will now take the next question. From the line of Shrey Srivastava from Citi. Please go ahead. Hi. Thank you for taking my questions. My first one is going back to this capital point. I understand the point on unrated corporates, but that is more of a 2033 point, if I am not mistaken. If you look on a transitional basis, i.e., in 2030, you've still set to face about a 7% RWA uplift. Is there anything you can do on this? Any mitigating actions you're considering, or any commentary that you'd like to further give on this? That's my first one. Thanks. No. I think at this point, those are the two effects. We can just note that that effect is the smaller one of the two when it comes to our impact from phasing in. That phasing in of the output floors will come gradually over that period and will come through in the risk-weighted assets. Okay. Cool. Thank you very much. The second question, again, on the Swedish mortgage margins, I think you ticked up a little bit towards the end of the quarter. We've seen a little bit of a recovery in Swedish mortgage volumes. Have you seen a marked sort of increase in activity post the most recent rate cut? Are there any catalysts you think would encourage further growth? How soon after the sort of volume trend ticks up would you expect the margin trend to follow? Thanks. Yeah. I think the broader credit demand from the household side, I think, comes back a little bit to the comments that Johan made on sort of the standoffish approach that we've noticed among the households. There is, as we saw in this quarter, a little bit of a tick up in credit demand from households related to mortgages. We see a small increase in house prices compared to last year. We also take a little bit more market share this quarter. As far as the margin development is concerned, what I mentioned is that there is continuously pressure on mortgage margins, but we did see a stabilization throughout the quarter and a marginal tick up towards the end of the quarter. I continue to believe that there is a link between a broader pickup in activity levels and growth in the mortgage market and a development of the margins. We will continue to monitor this closely. Great. Thank you so much. Thank you. Thank you. We will now take the next question. From the line of Markus Sandgren from Kepler Cheuvreux. Please go ahead. Yeah. Hi again. Just two follow-ups. Speaking of the processes, how is it going with the U.S. authorities regarding AML? Is there no activity, or is anything happening? And then secondly, about this capital issue, how is the discussion with the SFSA going? I mean, now you get more in the Baltics. Will they do anything on the group-wide add-on? Okay. I'll start with the U.S. Nothing to update on the U.S. It's very, very slow and quiet. There is, of course, regular contact as we operate in the U.S. Nothing really to report. We had a little bit of wait and see. On the capital add-ons for non-compliance, not approved credit models, we have had the discussion with the Swedish FSA previously, some time ago. Ended up being the 100 basis points for the group of increased minimum requirement. That's all we have for now. Now, of course, on top of that, we got the Baltics, as we've discussed at length here on this call. That's all we know. That does not mean that things can change in the future, but we have no indications of what that would be. Okay. Great. Thanks. Thank you. We will now take the next question from the line of—one moment, please—Riccardo Rovere from Mediobanca. Please go ahead. Yes. Thanks for taking just a very, very quick follow-up again on RWA. One day, if I understand it correctly. The 100 basis point capital requirement imposed by the Swedish FSA will go away, but the risk-weighted asset in Sweden should go up by an amount that, at the moment, probably we do not know and it is not disclosed, right? I do not know when this is going to happen, but this is the mechanic if I am correct, if I understand it correctly. Yeah. That is correct. And the timeline of that is still unclear. Still unclear. The magnitude of that, I do not remember if you ever disclosed any kind of indication on that, Christoffer. I just do not remember, honestly. No. I just referred to what Johan just mentioned of the 100 basis points add-on to reflect the non-compliance of the IRB models at group level. Okay. Okay. Maybe a quick follow-up. Can you explain why DCB thinks that your internal models in the Baltics are not compliant? What does it mean? Yeah. I mean, let us say it like this. When you do the model investigations that you regularly do with your—sorry. A little bit of history. The last ones we did, we started in 2010, and they all got approved between 2015 and 2019. That is the models we currently operate under. I would say, and then the TRIM program came and everything changed in the beginning of 2000, and we should have new models in place. I think it was 2022. There are no hard deadlines. You need some type of certainty that we can agree. Before you kind of say that, "No, this is not going to be, this is not going to be adequate for now." That is where we are. It is very process-oriented. This has nothing to do with risks in the bank. It has nothing to do with whether we are adequately capitalized or not. It is more about, formalistically, "Do you have all the bits and pieces that the EBA's recommendation interpreted by the SSM and then reviewed in these internal model reviews where they have?" You can have differences of opinion. These are very, very complicated. It's probably one of the most, if not the most, complicated things I know, is to have hundreds of quants on both sides of the table trying to agree on how a model should be validated with the right key statistics for statistical certificates. Data is an obvious problem, ironically, because we have so little losses. When you do estimates, they tend to be quite poor because we have data issues. You can't really fix that except for buying data from other countries or other regions where you don't operate and try to find some statistical significance. There are many technical things around model validation, how those things should be done, etc. I would say there is also— We have, just so it's clear, we have an enormous proud bank for the last decades in terms of risk culture, how we manage risk, and you can all see the outcome since the 1990s debacle over the last 30 years or so. To prove that we have lower risk, that's what we're talking about. In order to deviate from what is standardized, to get credit for what you deem yourself to be a more— Call it less risk-prone model, you need to prove it. These are changing all the time, how you prove it and what certainty you need to do it. This is very much also, for me, the tendency for supervision in Europe now. It's becoming tougher and tougher all the time to prove your argument, and I would say in a technical and quantitative measure. Those are the—I would almost argue that all the points that we are debating here, how to fix, are of technical nature. Okay. Okay, Johan. Thank you very much. I think I understand. Thanks. Thank you. There are no further questions at this time. I would now like to turn the conference back to Johan Torgeby for closing remarks. I thank you all for participating and asking good questions. If we do not meet in the next couple of days, I wish you all a good summer. Thank you. Thank you. This concludes today's conference call. 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