Skandinaviska Enskilda Banken AB (publ) (SEBA) Earnings Call Transcript

Welcome to SEB's Q3 2026 Preclose Call. My name is Pawel Wyszynski, and I head up the Investor Relations team here at SEB. This call is being recorded. The script and recording for this call will be published on SEB's website after the call. We will only answer questions related to all of the disclosed information as well as publicly available data. We will cover rates, key P&L lines, rearing capital, followed by Q&A. Please raise your hand to ask a question. Average 3-month LIBOR is down 1 basis points quarter-to-date versus end of Q2. SEB has changed on Swedish lending and deposit rate this quarter and most rates are available on sub.sc. Average 6 months EURIBOR, we have earlier talked about 3 months arrival, but the 6 months is more relevant, is up 23 basis points quarter-to-date compared to Q2. Increased or LIBOR rates affect mainly our Baltic operations and mostly the deposit side. You can find the relevant deposit rates and changes on the domestic SEB website for each of the 3 Baltic countries. Before turning to the P&L, I just have some FX remarks. The P&L is affected by average FX during the quarter. All else equal, a stronger average CC leads to lower income and lower costs. The opposite applies for a weaker average SEK compared to the second quarter of 2026, on average, the SEK has weakened somewhat versus the euro. This would imply a tailwind on income and a headwind on costs. The balance sheet is affected by Ultima FX rates, where stronger SEK reduces the level of total assets and therefore, also the risk exposure amount. As our equity is CC denominated and is not hedged a stronger teeth common equity Tier 1 capital ratio positively. The opposite applies for a weaker SEK. Given ULTIMO SEK is weaker versus euro, this indicates somewhat higher lending and Ria volumes due to FX effects. In the Q2 2026 investor presentation, you can find on sebgroup.com, the currency split of risk exposure amount was 42% in SEK, 39% in euro and 8% in U.S. dollars. Plus/minus 5% change in SEK versus other currencies affects a CET1 capital ratio of around 40 basis points. Lastly, the third quarter is affected by seasonality, given summer and vacation months where activity is generally lower. I will now turn to the profit and loss lines. Net interest income. On volumes, there is lending and deposit growth in Sweden and in the Baltic on a system level. Let's see how much of that we capture. Regarding sensitivity to rate changes, we would point out the simplistic approach to look at our equity, roughly SEK 225 billion, the private and corporate transaction accounts and savings accounts within BRB roughly SEK 355 billion. And lastly, in the Baltics, it's mainly the private transaction accounts and then some of our corporate transaction accounts in totality roughly SEK 135 billion. These volumes are all as of Q2 2026. In connection to the Q2 call, we stated that our markets NII had an elevated level of some SEK 100 million. This level is back to more normalized levels in Q3, during the quarter, we have also done a lot of funding, and this will be a drag on NII quarter-on-quarter. Looking at the day count, there is 1 more day in the third quarter, which adds some SEK 100 million compared to Q2. Moving on to net fee and commission income. A large part of net fee and commission income is derived from assets under management and as a custody as correlated to the general equity market development. On average, equity markets are up some 3% to 5% compared to Q2 this should thus be a tailwind for this line. Another large part of the net fee and commission income is the payment and card fees. In Q2, we stated that Q2 had a seasonally strong quarter, Q3 is normally the seasonally weakest quarter as corporate travel is limited during the summer months. Regarding activity, our CFO stated in connection to the Q2 report call -- the activity level in Q2 also reflects some of the pipeline that was held back during the first quarter following the outbreak of the conflict in the Middle East. With this in mind, we should expect the seasonal third quarter effect to be somewhat more pronounced than usual this year. Moving on to net financial income. As shown in connection with our quarterly presentation, looking at the past 12 quarters, the average quarterly level of net financial income has been around SEK 2 billion per quarter with a standard deviation of plus/minus SEK 400 million from the average. Based on market developments in the quarter, in combination with the seasonal slowdown in volatile markets, an outcome around the lower end of the range could be a reasonable proxy for Q3. Net other income, we have earlier stated that this line item should normally be between SEK 0 and SEK 100 million for this quarter due to some one-offs and outcome closer to the lower end of the range could be expected. Total expenses. As our CFO stated during the Q2 call, looking at the run rate of expenses for the first months of the year, we are currently tracking below that full year target. Now as you know, typically, we incur a larger proportion of our full year costs in the second half of the year and also still in the process of ramping up some of our investments in our prioritized areas. That said, we are in a good position to meet the target or even come in somewhat below it. Turning now to the development of the SEB share price in Q3, it has continued to increase. In Q2, the negative effect stemming from the higher share price during the quarter had a negative effect of roughly SEK 100 million, as stated by our CFO with the conference call in Q2. In Q3, the negative effect should increase compared to Q2 as a result of a further strengthening of the share price, resulting in higher cost for outstanding downterm incentive schemes as they are linked to the share price development. Net expected credit losses. Just reiterating what we said in Q2 that the underlying asset quality remains robust. Imposed levies, at the Q2 results call, we said that for 2026, we expect levies of around SEK 3.5 billion. Moving on to tax. We have previously said that going forward, a tax rate of 21% is a good proxy for forecasting. Capital and risk exposure amount SEB current share buyback program amounting to SEK 1.25 billion and slow later in October '20, as stated in our press release on July 15. Risk exposure amount is affected by, among other things, FX movements, which I addressed at the beginning of this call. As a reminder, lending volumes on a system level are growing. This concludes our prepared remarks for this pre-close call. Please monitor how the FX rates close at the end of the quarter for the most up-to-date data. Before we move on to the Q&A session, I would like to highlight that we enter our silent period on October 1 and at our Q3 2026 interim report will be published on October 22 at 6:30 a.m. Swedish time. With this, we wish you all a good day. With that, I see a hand up from Andreas firstly and then Sofie.

First question, you said that 6 months, your river is up 23 bps in the quarter. But -- does that really matter isn't what's interesting is how much Q3 is up compared to Q1 given that loans that are repricing now in Q3 should come from the Q1 level given that they are rolling 16 every month, right? .

You are right that when Euribor rates start to increase, obviously, interest income starts to move ahead of any interest rate changes. But I'm just more fixed on looking -- previously, we were looking at 3 months you're right. And that was, I would say, maybe more incorrect given that maturities typically range between 3 months Euribor and 1-year Euribor with the average being roughly 6 months. But I'm not sure if I would use maybe I would use it, but then I guess I wouldn't be using the full volume, which I stated earlier. So if you look what happened to Q1, I would use a lower volume.

Yes. No, that's, of course, but it's probably 40, 50 bps then. But then on. Did you said you did a lot of funding in the quarter. Could you tell us a little bit what type, what levels and when in the quarter?

We did it throughout the quarter. I think I will do it just a bit easier. I think the negative effect Q-on-Q and NII from all the funding done is roughly maybe DKK 50 million. Sofie?

Just on the funding side, I understand you have the benefits in the Baltics from higher Euribor rates. But how should we think about your wholesale funding that is in euros and U.S. dollars like in general, is this hedged and kind of have river rates going up, like how should we think about the back book funding cost in the quarter, if that makes sense.

It makes sense, and that's the easiest question. I mean everything is swapped back to floating. So I think that's the main part. Of course, when funding costs or when interest rates increase significantly, that could be somewhat of a drag. But I would again say we don't really have timing effects. We don't have a notice period, et cetera. And then, of course, parts of the corporate book roll in -- it's evenly spread. So it depends which part of which corporate book rolls when. So I think it is a bit more tricky for us trying to capture the timing effects because then you need to know exactly the type of volume and exactly which date and also where swap spreads are at that point in time. So I think even sitting inside the bank, it's quite tricky to solve for this because you would need to have all of the loans. So I wouldn't be kind of flagging any large negative timing effects from that perspective. But again, we typically try not to comment too much on these timing effects as they are quite tricky to capture.

Sorry, just to get back on the swaps you've swap any fixed euro funding in floating SEK or floating euros like the cross currency swap -- or do you just like FX, same life swap?

I think we would do both, given that we have lending both in SEK and euro and dollars, and we take up funding in different currencies. So again, it gets even more complicated when trying to look at both the FX side and the swap side just to getting it down to floating. This is why I'm saying, looking at this internally is fairly complex.

Okay. And what about the swaps because I mean you and you have quite a lot of late on Swedish funding. Like are there any more to market impacts that we should take into consideration for your core equity Tier 1 in the quarter?

No, we typically don't run that much interest rate risks on our books, which would flow through other comprehensive income. So not really material for us now when we have no hedges, which again run in other comprehensive income from that perspective. So no, I would say, not meaningful for us.