Executives: Rolf Marquardt - Acting CFO Mikael Hallaker - Head,

IR
Analysts: Jan Wolter - Credit Suisse Jacob Kruse - Autonomous Research Riccardo Rovere - Mediobanca Omar Keenan - Deutsche Bank Willis Palermo - Goldman Sachs Yafei Tian - Citigroup Anton Kryachok - UBS Adrian Cighi - RBC Matti Ahokas - Danske Bank Andreas Hakansson - Exane BNP Paribas Daniel Do-Thoi - JPMorgan Johan Ekblom - Bank of America Merrill Lynch

Rolf Marquardt: Good morning, everyone; and welcome to this conference call for the third quarter 2016. My name is Rolf Marquardt and I am the CFO of Handelsbanken. And I have a long background in the Bank, although I'm new in this position. My most recent position was Head of Group Compliance. And I have also been CRO for six years and I have headed our U.S.

operations for 2.5 years. Joining me today I have Mikael Hallaker, Head of Investor Relations; Lars Hoglund, Head of Debt Investor Relations; and also, Jorgen Olander, Head of Group Accounting. The slides used for this presentation are, as usual, available on handelsbanken.com. So, now turn to slide number 2. As you know, Handelsbanken business model was implemented in the Bank more than 45 years ago.

It has been developed over the years, but the essence remained the same, I would say. The model is based on a very basic idea and that is that decentralized decision making, close to the clients and to the local markets, is successful in its way of creating satisfied customers, high cost efficiency and also in creating good returns for shareholders. And this is also what you can see on this slide. The Bank has reached its goal regarding return on equity for 44 consecutive years. And during and after the worst financial crisis in modern times, we have produced stable growth in equity.

And we have continuously had more satisfied clients than the average of our peers in our core markets. The model has been very successful, not only in producing a good outcome, but also in adapting to changing conditions, as we also experience today. Now, turning to 2016 and the first quarter, the return on equity for the first nine months was 14% and it was 14.7% during Q3. Our common equity Tier 1 ratio was 24% at the end of the quarter. And the latest requirement from the Swedish FSA in the SREP was 21.1% which means that our capital position is within our target range.

This also means that, from 2017, the Bank has decided to resume allocations to Oktogonen; provided, of course, that return on equity for the Bank is better than the average of our peers. Now, turn to slide number 4. Here you can see the P&L for the third quarter compared to Q2. Operating profit increased by 8% to just below SEK5.7 billion and if adjusted for capital gains from the sale of Industrivarden shares and also some dividends received during Q2, the underlying operating profit decreased by just below 1%. Looking at more or less unchanged underlying operating profit, improved net interest income and seasonally lower costs compensated for slightly higher loan losses.

Net interest income increased by 3% to just over SEK7 billion. High lending volumes somewhat improved lending margins in Sweden and lower funding costs were the main drivers. At the same time, lower interest rates, especially in Sweden, added further pressure on deposit margins; and that is something we have seen over the last few years, as you know. Net fee and commission income was more or less unchanged. Higher fees in the fund management business compensated for seasonally lower activity-driven fees in equity brokerage and also advisory services.

Total expenses were down by 2% which is explained by normal seasonality in other expenses. Staff costs declined marginally and the adjustment in Sweden which we had talked about over the first quarter, proceed according to plan. We still assess that the expenses in Sweden will be SEK600 million to SEK700 million lower from 2018 and onwards, all else equal. During Q3, the average number of full-time employees in Sweden and Swedish regional banks and branch offices was 84 people less than in Q2; and that is if you exclude temporary summer staff. Compared to the start of 2016, the reduction is just over 130 people.

At the same time, we continue to expand in the UK and Netherlands and that, of course, adds staff. And this is completely in line with the ambition we have to increase efficiency in Sweden and to grow in the new home markets. Loan losses increased in Q3 to SEK476 million; and this is corresponding to a loan-loss ratio of 10 basis points. This is, to a large extent, due to an increased provision on an older problem loan in Denmark. But the underlying credit quality still looks stable in the portfolio.

Now, on slide 23 we dig deeper into net interest income. Lending margins in Sweden improved somewhat. The mortgage margin was up 2 basis points in the quarter and ended up at 106 basis points. Together with higher Swedish lending volumes, that added SEK85 million during the quarter. But, on the other hand, STIBOR drops another 8 basis points in the quarter.

And that has a negative impact, of course, on net interest income; and it was reduced, because of that, by SEK106 million. The strong volume growth we also had in household deposits actually means a negative impact on net interest income, of course. Outside Sweden, lending volumes continued to increase in all of our home markets. We have seen some lending margin pressure in most of them outside Sweden during the quarter. But all in all, lending volumes outside Sweden contributed SEK23 million net interest income.

Also, deposit volumes continue to increase outside Sweden. And together with somewhat higher deposit margins in Norway, deposits also added SEK23 million this quarter. The third major element in the improvement of net interest income is found in the other item. This is primarily due to lower funding costs achieved during the quarter. All in all, net interest income increased by 3% during Q3.

On slide number 6, you can see the stable growth we have in our lending volumes. During the third quarter, lending grew sequentially in all home markets. Sweden continued to have a growing mortgage market; and also, after the introduction of the amortization requirement in June, that happened. The market has grown about 8% on an analyzed basis. But we think that the long term impact of the requirement still remains to be seen.

Our market share here is very stable over time, though. Corporate lending volumes in Sweden are still more or less flat. In the UK, the growth, expressed in Swedish krona, is, of course, affected by the depreciation of the pound. But in local currency, UK lending grew by 12% year on year, with a slight bias to the household sector. And our other real growth market, Netherlands, grew by 17% sequentially and 35% year on year.

Even though the growth numbers are large in UK and Netherlands, we really make sure that we grow carefully by selecting high-quality customers on the household side, as well as on the corporate side. Now, turning to slide number 7, this slide shows you the impact of the negative interest rates in Sweden. And you can see that the impact is quite dramatic. Since Q4 2011, when short rates peaked, the annual impact is SEK7.5 billion measured as the net interest income drop on deposits, as well as lower yield on the Bank's equity. This dramatic impact is not really seen in the actual net interest income of the Bank and there are many explanations why that is the case.

One key explanation is the ability we have shown over time to reprice assets. Our mortgage margin in Sweden in Q4 2011 was 82 basis points; and in Q3 this year it was 106 basis points, so quite a big change. This development has also been affected by the increasing capital requirements, of course. Now, moving to slide number 8, here you can see another explanation why profitability has been stable, despite the sharp drop in Swedish interest rates. You can see that net interest income in Sweden and in other home markets have been improving.

About 15 years ago, we relied almost entirely on the Swedish operations in our net interest income. Looking at the home markets outside Sweden, net interest income has increased by over 60% or close to SEK1 billion, since Q4 2011. So that's quite massive. The volume growth we have outside Sweden, in many cases, also comes with higher lending margins than we normally see in Sweden. So, all in all, in this period of dramatic interest rate decline the Bank has been able to grow net interest income by over 10% in the third quarter of this year compared to 2011.

The fact that we have an organic growth model clearly has been instrumental in this period of falling interest rates. And once interest rates stop falling, the positive impact of this model will become more visible, we expect. On slide number 13, a few words about the UK. We continue to be very optimistic about our growth prospects in the UK. Operating profit, in local currency, increased by 9% year on year.

Fees and commission income continued to increase its share of revenues and the growth was 28% in the first nine months. Loan losses have dropped during the course of 2016 and were 6 basis points for the first nine months and 4 basis points in the third quarter alone. We have opened up one new branch during the quarter and have appointed also two new branch managers for new openings, soon, we hope. No branch in the UK has a share in the local market of more than 1%, so clearly there is a lot of room for improvement and additional business opportunities for the current branches. On slide 15, you can see the development we have in the Dutch business.

Our newest and smallest home market has had a strong development with operating profits up 67% in local currency, year on year. Cost/income ratio dropped by more than 6 percentage points and the loan loss level was 0.0%. Lending volumes increases by 39% to households and 35% in total. During Q3, we have opened up two new branches and also finalized the acquisition of Optimix. And in spite of this expansion of our geographical presence in Netherlands, return on equity is already at 10%.

On slide 16, you see our capital position and liquidity ratios. The Bank has built substantial capital during 2016 and common equity Tier 1 ratio at the end of Q3 was 24%. Total capital ratio was 30.1%. Common equity Tier 1 has increased by 1 percentage point since Q2; 60 basis points of that is due to the divestment of our Industrivarden shares. Profit in the quarter added 30 basis points and conversion of the staff convertible another 10 basis points.

No other material items affected the capital ratio in this quarter. Discount rates in the pension system was further lowered to 1.8% in Sweden. But the negative impact from the lower rate was compensated by higher values of pension assets. A few weeks ago, as you might have seen, the Swedish FSA concluded their SREP for 2016. The common equity Tier 1 requirement for Handelsbanken at the end of 2016 was assessed at 21.1%.

This includes the new Pillar 2 requirement and add-on for higher corporate risk weights and the maturity of 2.5 years. Part of this add-on will be moved to Pillar 1, once the FSA have approved our application for the new IRB models on corporate exposures. Once that is done, it means that all ratios will change and be recalculated. In summary, the Bank is well within the target range or 2.9% above the SREP requirement in Q3. On the back of this position, the Bank has decided to resume allocations to Oktogonen in 2017, provided, of course, that profitability target is reached.

Now, summarizing my presentation, the business model continues to deliver a stable profitability and it did so also in the third quarter. Operating profit adjusted for capital gains and dividends decreased slightly in the third quarter; net interest income improved; costs were seasonally lower and these effects compensated for slightly higher loan losses. In spite of continued lower interest rates in Sweden, net interest income increased, due to high lending volumes in all home markets, high lending margins in Sweden and lower funding costs. Fund management fees had a good development again and the Bank attracted 70% of all the net inflows into Swedish mutual funds in the first nine months. The adjustments in Swedish operations proceed according to plan and the average number of full time employees in Sweden was lower than in Q2.

We still assess that expenses in Sweden will be SEK600 million to SEK700 million lower than -- from 2018, all else equal. Our capitalization has strengthened further. Common equity Tier 1 ratio was 24% and the SREP requirement from the Swedish FSA is 21.1%. Our capital position is strong and within the target range. This concludes my presentation and I now open up for questions.

Thank you.

Operator: [Operator Instructions]. Our first question comes from the line of Omar Keenan of Deutsche Bank. Please go ahead. Your line is open.

Omar Keenan: I just have one question on net interest income; and then, secondly, I have a macro question. Firstly, on NII, as you pointed out in the NII bridge, there's about SEK221 million of non-specified other which was put down to funding costs. It's quite a large number to come through for lower funding costs in a quarter. I was just wondering if you could add some color around the moving parts and how much of that figure, shall we say, real NII to carry forward from next quarter? Shall I give the second question or--?

Rolf Marquardt: Yes, please.

Omar Keenan: Then the second question, I just had a macro question.

I just wanted to get your views around monetary policy in Sweden. Obviously, it's at very negative levels; CPI is around 1% and growth is quite strong. What do you expect in terms of what the Riksbank does in terms of monetary policy in the next couple of quarters? You seem to imply that the good development on NII outside of Sweden and on the lending margins, had been masked a little bit by the lower deposit margins. Do you think that when eventually rates do start to move up then much of that can be kept and we'll see much better growth development in net interest income, going forward? Thank you.

Rolf Marquardt: Yes, starting with the net interest income question, so that is actually the internal rates we charge, all branch offices, when they do lending to clients.

That is slightly higher sometimes than the funding costs we have within the Bank and in that part of the accounting. So it's actually lower funding costs. And the difference between internal rates, we do apply and the funding costs we do have. So net interest income margin, that's for sure. And we don't give any guidance specifically how we expect that to change, going forward.

But it is, of course, very much affected by the interest rate level we do have, in particular, in Sweden.

Omar Keenan: I guess, I understand the internal accounting point, but that's just how it's represented between the divisions. But if I look at the Group quarter-on quarter numbers which has gone up by SEK221 million, regardless of whether it's in the branches or in the treasury, if I annualize that it's SEK800 million. So conservatively, upwards of 100 basis points funding cost, funding spread on that, then we're talking about a notational of SEK80 billion. And it seems like an extremely large number for one quarter and I was just hoping you could help me to understand what were the issuance versus the redemptions? Was there particularly expensive block of funding that came off this quarter? It is a very large number.

Rolf Marquardt: No. No specific instance of that kind, I would say. Anything more to add?

Mikael Hallaker: Omar, it's Mikael here. If you're looking for -- I think there are always small things moving around in a balance sheet at [indiscernible], but generally, I would say that the level in Q3 is a reasonable level to start from when we look forward as a quarterly NII.

Omar Keenan: Okay.

So the full SEK220 million, it's, for various reasons, sustainable going forward?

Mikael Hallaker: You know, Omar, you and I had a conversation about this early this morning and I told you that there are some other movers. But the majority of this is related to lower funding cost -- money.

Omar Keenan: And second question on Swedish macro?

Rolf Marquardt: Swedish macro, well, yes, the forecasts are not as good going forward as they have been in the past so -- but still are in a very good position. So when it comes to macro and development seem to slow down a bit, but we don't expect that to have any significant impact on the Bank, as far as we can see. And then, you had a related question regarding margins also outside Sweden.

Is that correct?

Omar Keenan: Yes. I guess, my question was what you're expecting from monetary policy, what do you think the Riksbank does from here, I guess, given inflation and where growth has been? And if essentially we do get some relief on the monetary front, say, a year from now, do you think most of the lending repricing can be kept?

Rolf Marquardt: Yes, as you know, we don't make any forecasts regarding that. But, historically, we have been able to do the repricing necessary. And what we actually do is to -- both when it comes to capital and also liquidity, we do charge internally the true cost of funds; and then, historically, we have seen that we have been able to reprice accordingly. I also think it's important to underline that in a way we try to achieve a business model and run a business model that is macro independent, in a way, meaning that the changes in interest rates shouldn't have a really big impact on the margins we receive and the net interest income.

Operator: Our next question comes from the line of Willis Palermo of Goldman Sachs. Please go ahead. Your line is open.

Willis Palermo: I have two questions. The first one is on capital.

It had a very strong progression during the quarter and we also had an area of clarity regarding the corporate risk weight, however, the buffer that you want to keep remain unchanged. I was wondering is this a sign that the remaining risks around capital are unchanged as well, despite this additional source of clarity? And is the buffer all related to additional requirements from the Basel update, suggesting that this impact could be as big as the 300 bps that you plan to hold? Or is there anything else, any other risk to keep in mind? That's for the first one. The second one is around the UK operation. I was wondering if you could give a bit more granularity and describe the landscape and what you saw during the quarter; and especially, if you could describe the pricing pressure that you are currently seeing in the UK. And secondly, there was a somewhat slowdown in branch opening this quarter.

Is this the growth pace we should expect, going forward? That's all from me. Thanks.

Rolf Marquardt: Well, if I start with the capital-related question, now the Swedish FSA have made the assessment, as you have seen and so the requirement is 21.1% in core equity Tier 1 ratio. And we're quite a bit above that which is good. The reason for the outcome is that mainly the corporate risk-weighted came out maybe lower than the market seemed to have expected and what was also communicated by the Swedish FSA earlier this year.

And that is a reflection of -- when we have done this we have looked at our historical losses and then we have made very conservative assessment of those; and then, based on that, we have proposed a new model which we also have applied for with the Swedish FSA and that came out lower than the 30%. Now, will that mean that we expect to change the range at 1% to 3%? That is a decision that is going to be made by the Board, actually, so they make that decision. The reason why we do that is that we want to be sure that when the world go into the next crisis or in more difficult times, there are always movements in risk-weighted assets and so on, so we need a buffer to take care of that volatility and we will make an assessment of how big that buffer will be. But the decision will be made by the Board later on this year, so we don't make any particular forecasts around that. So that is 1% to 3% is what we do apply and that's the way it is now.

And when we decide not to change that we reflected on what could come out Basel IV. Regarding Basel IV, I think it's important to keep in mind that it's really difficult to say, at this stage, what the outcome will be, because that is really unclear to us, both when it will happen, when we will have an outcome and also what the outcome will be. And on top of that uncertainty, we don't have any additional information than others do have about this process, so it's really hard to know where it will end up. But what also comes into the picture is how that is going to be applied in Sweden and that is also something we don't know for sure. So we just have to wait and see, I would say.

And then, regarding the UK operations, well, the development we have seen in the UK and here as well, to quite a big degree, we're not that macro dependent and we see really good opportunities in the UK going forward. We're not a mass-market bank; we have a very small part of the total British market, so we also have good prospects to develop that and increase our footprint in the UK even more. And we see that we're not that negatively impacted by Brexit and other things like that. So we think that we could have good progress also going forward. When it comes to the question of the number of branches we have opened recently and also what will happen in the future, we don't make any forecasts about that either.

But I also think that in the past that was a very important issue, because that was the way we really created growth in the UK. But now, we have such a big presence in so many different places so we have great growth opportunities even though we don't open up new branches. So it is not as relevant as it used to be when we didn't have the geographical spread we wanted to have in order to really be able to grow in the way we want and to the extent we want in the UK. But today we have the footprint we need in order to have that growth, anyway.

Operator: Our next question comes from the line of Yafei Tian of Citigroup.

Please go ahead. Your line is open.

Yafei Tian: I have three quick questions. The first is on net interest income. I would like to understand that, given two other Swedish banks have talked about the possibility of repricing SME loans in light of higher corporate risk weights, are there any plans from Handelsbanken when it comes to higher repricing on corporate loans, especially SME loans? And then, the second question is a follow-up question on the capital point.

We know that Handelsbanken is now almost at the top range of the target capital, does that mean, from a dividend or capital distribution point of view, you would be at least paying out as much as last year, even if the EPS this year is somewhat lower? Lastly, very quickly on the loan losses in Denmark, is it possible to specify which sector is this loan losses related to? Thank you.

Rolf Marquardt: About the repricing of SME loans on the back of the corporate risk-weight increase, so now we do not set prices centrally in the Bank, meaning that that is left to the branch offices to do in each one of the customer relationships and as part of the total client relationship. So, it will be their decision. But what we do is to allocate capital and to internally price. And when the price of the raw material which is money in this case and the capital that we need to keep goes up that is something that we'll feed through in our internal pricing system; and that means that the branch offices will have that as part of their business decision.

And if you look at what we have been able to achieve when it comes to adjusting margins in the past, we have been quite good at repricing when there has been a reason to do so. So, that's how we approach that issue. Regarding capital and us being now in a top range of where we want to be, 1% to 3% range, we don't make any forecasts about dividends; and we haven't done so in the past and we will stick to not doing that. That decision will be made by the Board after Q4, when the year has ended and when we see and they see, what they have at hand. But I also think what is important in our case is we have three things in mind when we make those decisions.

Number one is to make sure that we're compliant. And now things have cleared up a bit we know, at least for the time being, what to be expected; but we still have some uncertainties around that, of course and then I refer to Basel IV. So to be compliant is the basis, of course. Then, we want to also grow. And that is capital-consuming.

We have been able to grow on a quite steady pace over the years and that is capital-consuming, so we need capital to do that. And then, thirdly, there is the additional money available. And what happens with those is something that would be decided by the Board and that will happen after Q4 report. And then, when it comes to the Danish credit loss, no, we don't give any specific guidance on what industry that is related to, but it is an old exposure; an old problem loan.

Yafei Tian: Can I just follow up on the SME repricing question? Do you have a timing when, from a pricing point of view, pricing of the raw material point of view, will you pass that cost to the branch?

Rolf Marquardt: What happens, we always allocate all the capital we have within the banks.

We don't keep anything centrally that we now start allocating; we have allocated all the capital we do have. So what will happen is that we make an adjustment of this internal pricing; and exactly when that is going to happen has not been decided. It's too early to say.

Operator: Our next question comes from the line of Anton Kryachok of UBS. Please go ahead.

Your line is open.

Anton Kryachok: Just a couple of points, please, from me. The first one, I just wanted to follow up on the question that Omar raised on net interest income outlook. Are you planning to pass on these lower funding costs on to the divisions? And do you think they will keep it or will they reflect this in their asset pricing? The second question, please, on deposits. I remember that at the end of last year you've made a point of shrinking the balance sheet towards the year end, particularly by getting rid of some of the corporate deposits by the end of Q4 2015.

I've noticed that this quarter corporate deposits have fallen as well, so I have two questions regarding this. Firstly, is this at all related to the reform of the money market funds in the U.S.? Has it affected your business at all? Secondly, are you planning to shrink the corporate deposit base further by year end? Thank you.

Rolf Marquardt: If we're going to pass on the -- regarding the question about passing on the lower funding cost to internally to the branches and to the different segments, we haven't decided about that, so I can't give any guidance. Regarding how we manage the balance sheet according to year end, that is also something that I'd like not to comment about. How we have been affected by the money market reform in the U.S., it hasn't impacted us in a significant way so far.

I think it remains to be seen, to some extent, how we will be affected. But it doesn't pose a problem to us and we have kept a lot of volumes also. So it's not a big problem and we're not totally dependent on that source of funds either. Yes, that's where we're.

Anton Kryachok: And that doesn't change the economics around the carry trade that you used to have with the short term U.S.

liquidity?

Rolf Marquardt: So far, I would say that, no, we haven't seen any major changes.

Operator: Our next question comes from the line of Matti Ahokas of Danske Bank. Please go ahead. Your line is open.

Matti Ahokas: Two questions, please.

Firstly, on the only area which you don't seem to be growing that much, i.e., the Swedish corporate lending, as pointed out, you seem to have some repricing opportunities, but the volume growth has been really low. Is it because of risk? Or why is the volume growth in the Swedish corporate lending so low? The second question is regarding Denmark. That is an area on the mortgages which is growing extremely fast. Have you done any pricing changes here or is it just that you like the risk reward in the Danish mortgages? Thanks.

Rolf Marquardt: When it comes to Swedish corporate lending, yes, it has not been growing; it has been very flat over -- during the last year.

We're looking into that, of course. Of course, we want to grow, so we're looking into it. The demand hasn't been that big, so no dramatic changes in that market. But we will have a closer look, of course. Denmark, the mortgage book increasing, no, we haven't made any significant changes.

So, do you have any--?

Mikael Hallaker: Yes, Matti, I think we could say we always charge the price then, of course, it's up to local management how they do in the branches in Denmark to how they go about the business. There's no other change being made at this. On the previous question, I think it's fair to say that there's been very little demand in Sweden from ordinary companies who -- look, over the last couple of years there's been a lot of -- there is private equity business out there. There's been a lot of property and property financing business out there. We're not entirely happy with the structures of those.

But the underlying demand from ordinary companies is still quite low in Sweden.

Matti Ahokas: Just to follow up on the Danish mortgages, still 12% volume growth in a market which is not really growing, how come are you winning this market share?

Mikael Hallaker: Matti, I don't have a good answer, really, to that question. We have a good product and we're a small bank. We're working with prospect list and we're doing that for a long time. You can also see in other times in the financial crisis, when, actually, the entire market was shrinking in Denmark, we actually grow quite nicely and even almost 20% at some years.

I think it's very good job done by the Danish management.

Operator: Our next question comes from the line of Adrian Cighi of RBC. Please go ahead. Your line is open.

Adrian Cighi: I have two follow-up questions; one on capital and one on net interest income.

On capital, we have credit risk migration contributed to a negative 50 basis points on a year-on-year basis. Can you provide any color on this, especially in an increasing real-estate price environment and maybe how you see this developing over the next 12 months? And a follow-up question on repricing, please. You mentioned the process of repricing, based on the internal price allocation, is ongoing, can you maybe discuss the expected quantum of this repricing? Are we talking about 5 basis points, 10 basis points or more, on average? Thank you.

Rolf Marquardt: Sorry, could you please repeat the last question, I didn't get it completely?

Adrian Cighi: Sure. The repricing question, you mentioned the process of repricing based on the internal price allocation is ongoing, can you discuss the expected quantum of this repricing? Are you thinking about 5 basis points, 10 basis points or potentially more, on average?

Rolf Marquardt: Yes, okay.

And could you also repeat, there was something on the line, the first question as well, the capital question?

Adrian Cighi: Sure. The credit risk migration contributing to the 50 basis points year-on-year basis, can you provide any color on this, especially in the increasing real-estate price environment? And how do you see this developing over the next 12 months?

Rolf Marquardt: Regarding risk-weight changes, that is a slight migration between really good risk classes to slightly lower. So it is a quite minor change. Then, we had a few cases also that migrated in bad end of the scale that didn't make that contribution. We're not talking about major changes, but that is what is behind that development.

Regarding repricing and the level of that margin, we haven't commented about that externally, so I won't give any guidance on that.

Operator: Our next question comes from the line of Johan Ekblom of Bank of America. Please go ahead. Your line is open.

Johan Ekblom: Just two questions, please.

Firstly, on the SREP release, my understanding is that that's based on a rear projection, based on 2015 full year. But, clearly, you've made some disposals and maybe growth has surprised positively in some areas and negatively in some. Should we expect the 21.1% to move materially when the FSA releases their Q3 update in November? That's the first question. Secondly, since the release of the SREP dividend expectations have increased by about 10% for this year. I know that you don't want to give any guidance on specific dividend levels, but do you view that consistent to pay 70%-ish to your shareholders and maintain fewer allocation to Oktogonen in the same year?

Rolf Marquardt: Okay, regarding the SREP outcome, yes, that's correct, it's based on -- the figures of -- the basis of the calculation made by the Swedish FSA is the figures for end 2015; and then, they make a forecast of where they expect us to be by the end of 2016.

And then, of course, they have information about what has happened so far during the year, so they have a quite good way of making that estimation. The 21.1% we have communicated and they have communicated also to us, is something that is the forecast for year end. That also gives you guidance for what you can expect from them when they publish these figures in November. Also on that topic, what could move the figures is if we, later on during the quarter and ahead of Q4, would get an approval of the application we have made for the new PD models, because the capital requirement will be the same on the Bank. But that would move this from capital requirement to risk weights instead, so that would have a -- make the figures change, but the underlying capital requirement would be the same.

Regarding dividends, as you know, we don't make any forecasts about dividend decisions; and that will be made by the Board in Q4. We don't have anything to add in that respect. The same goes for Oktogonen. The decision to stop making provisions to Oktogonen was made, as you know, for the full 2016 and we will resume January 1, 2017, provided, of course, that we meet the goals that have to be met in order to make those.

Johan Ekblom: Is that a final decision that cannot be changed?

Rolf Marquardt: Sorry?

Johan Ekblom: Given the capital and maybe the ability to pay a bigger dividend is there, does that mean that the decision not to allocate anything to Oktogonen for this year is final? Or can that be reviewed in conjunction with the full-year dividend decision?

Rolf Marquardt: That is up to the Board to make that decision.

I can't give any guidance regarding that; that will be decided by the Board.

Operator: Our next question comes from the line of Daniel Do-Thoi of JPMorgan. Please go ahead. Your line is open. Daniel Do-Thoi: I just have two questions.

The first one is, again, on corporate lending, the second one more on regulatory costs. Can you just give a little bit more color on what part of the corporate loan book was most impacted by the higher capital requirements following the SREP? Can you also confirm that it's at least your ambition to neutralize the SEK10 billion or so increase in capital requirements that resulted from the risk-weight review? Secondly, on costs, looking at 2017, would you just be able to provide us with some rough guidance on the additional tax expense due to changes in tax deductibility of hybrids; and any increase also with regards to the resolution of fund contributions in 2017 versus 2016; and, of course, anything else I might have missed in terms of regulatory costs? Thank you.

Rolf Marquardt: Regarding the risk-weight question and which part of the corporate book that was most notably affected, that is not something we have communicated externally. That is also an ongoing process, because we have applied to the Swedish FSA. We don't really know the exact outcome of that process, so that is too early to say.

But you will have information about that when we have received it, the approval and when we publish those figures. That is too early to tell. The second question I didn't get, so could you please repeat that?
Daniel Do-Thoi: The second question was just on any increase in costs in 2017 versus 2016, so, for example, from higher tax expense due to changes in regulation around tax deductibility of hybrid debt, Tier 1s. Secondly, if you expect any increase in the resolution fund contribution in 2017 versus 2016.

Rolf Marquardt: Yes, the question of the first effect is about SEK200 million.

Then, the contribution to the resolution fund, the fee will be doubled next year. The fee is half in Sweden this year; it will increase to 9 basis points next year or roughly 9 basis points because it's risk based. Daniel Do-Thoi: Just to confirm, the run rate is currently around SEK250 million per quarter and that is to double next year?

Rolf Marquardt: Yes, that's right.

Operator: Our next question comes from the line of Jan Wolter of Credit Suisse. Please go ahead.

Your line is open.

Jan Wolter: A couple of follow-up questions. First, can you say how much is left of the staff convertible to convert and what impact that could have on the core capital? And then, wonder if there is any excess capital in Handelsbanken in [indiscernible] at this point and if the Bank then could consider to upstream this, as the Bank did earlier this year. Thank you.

Rolf Marquardt: On the first question, very limited amount still outstanding on the staff convertible, so 2011 one; so, most have been converted and the second question, I didn't get that.

Jan Wolter: Yes, I wonder, in Handelsbanken [indiscernible], if, at this point, there's any excess capital that the Bank could consider to upstream as a dividend? I think the Bank did that earlier in the year.

Rolf Marquardt: Yes. And the answer is no, don't expect so.

Jan Wolter: Okay. And then, a follow up on, I think, the remarks earlier on the cost reduction there.

I think also [indiscernible] commented earlier today that the cost reduction, SEK600 million to SEK700 million, should be achieved by 2018. But it's also, I think, a decision of all branch managers to make that, given the decentralized structure of the Bank. Doesn't this mean that it could take longer? Or how do you think about this situation? Thank you.

Rolf Marquardt: Well, first of all, yes, we still make the assessment that we will lower costs by SEK600 million SEK700 million from 2018 and that assessment remains. The work is ongoing; and that is not only ongoing in the branch network and the regional banks, but also at head office, particularly, in Sweden, of course.

And regarding the number of branches, we're not focusing on the number of branches actually, because the major costs we do have is, of course, for headcount, so that is the main contributor to our cost base. So the number of branch offices, that is a tiny cost in relation to costs for staff. And that work is ongoing and it will continue during 2017. But we still have the same -- made the same assessment as we did one quarter back.

Operator: Our next question comes from the line of Andreas Hakansson of Exane.

Please go ahead. Your line is open.

Andreas Hakansson: Sorry, just a follow up from the meeting earlier today. On the NII discussion, you say that the driver has been the lower cost of funding. But if I look at the mortgage book, isn't the main driver of the margin expansion on mortgages just the lower cost of funding? And shouldn't we see that overall, as mortgage margins are going up rather than calling it a lower cost of funding, because isn't that really the same thing?

Rolf Marquardt: It is to some extent.

Of course, it's related.

Andreas Hakansson: Yes. But because, since there's no lending on the corporate side really at the moment, there's no growth, the main driver really needs to be the mortgage side, right, rather than corporates? Is that correct?

Rolf Marquardt: Yes, we have the improved margins, as you know, on the mortgage book, so that is main contributor. But we also have improved margins slightly--

Mikael Hallaker: It's also the fact that our funding is, of course, rolled over gradually. Even if it's not growth in the book, we still have to fund the book--

Andreas Hakansson: Sure.

Yes, of course.

Mikael Hallaker: We have new funding coming in which also has an impact on the funding costs.

Andreas Hakansson: Yes. And I can just check, when you have been improving your margins so significantly on the mortgage side over the last few years, have you all the time said that it's driven by the new capital rules and not really to be offsetting the negative rates on the deposit side? And, if so, when rates go up shouldn't you just continue to keep the same margin? Is that correct or--?

Rolf Marquardt: Well, it has mainly been driven by the increase in capital requirements. As you know, they have been fairly dramatic, so there have been repricing going on for a while.

So that's the main part of it.

Operator: Our next question comes from the line of Riccardo Rovere of Mediobanca. Please go ahead. Your line is open.

Riccardo Rovere: A couple of questions, if I may, I'm looking at Bloomberg, I see statements from your CEO, according to which a 24% capital ratio might not be enough.

When I see this statement which seems to be a bit clashing with what you have been saying so far, is it fair to assume that when you provide the range between 22.1% and 24.1% we should actually look at 24%, rather than any other number? And the other thing I wanted to better understand, you're also saying that it's not clear, at the current stage, whether building capital buffers has come to an end or not. During your call, you have been mentioning Basel IV, but Basel IV is not going to come probably, be right at the end of the year. So what are you referring to? Is it you think there is possibility of having further initiative from the Swedish FSA? The other question I have is on the Danish provisions. You're not mentioning -- you're not telling what the name is, fine. But you don't even want to say the industry related to this one-off provision.

How can we be convinced that this is a one-off provision?

Rolf Marquardt: Okay, so I start with the first question about 24% in core equity Tier 1 ratio. And we haven't, as far as I know, communicated that we should know more. The capital targets we do have is to have 1% to 3% above the SREP requirement and that is what we stick to. And when it comes to Basel IV, if that is going to happen or not, no, we don't know that. And we don't expect the Swedish FSA to, as far as we know, have something in their mind, in addition to what you have seen already during 2016.

About Basel IV, we have to see what happens. And we don't know. But potentially there could be a decision, but that we don't know. And that hasn't been a major part of our assessment of the capital we need to have. And about the Danish exposure, no, we simply don't comment.

That's one specific case. We have made the best assessment we can make according to what we know today and that's the basis for that decision. And that's the way it is. And we don't comment the industry.

Riccardo Rovere: Okay, fine.

I understand. If I may, just one little follow up. With regard to the provisions on Oktogonen, this year you will not charge anything. But you say that next year you might resume the provisioning for Oktogonen. So this year, it should be treated like say a capital gain, like a one-off.

Now, in your dividend policy, normally, how do you treat one-offs? Do they enter into the distributable amount and especially in the current uncertainty on regulatory requirement?

Rolf Marquardt: Okay, when it comes to Oktogonen, reason I said we might is not -- we're going to resume allocations to Oktogonen, provided that we fulfill our targets that needs to be fulfilled in order to do that. So, we're back to the normal situation, when we have a higher return on equity than the average of our peers there will be an allocation. And if we don't reach that, to the extent needed, then there will not be an allocation. So it's back to normal, so to say. And that's that part.

And the second question, where that will end up in, okay, Mikael, please.

Mikael Hallaker: Riccardo, if you wanted to call Lars Kenneth Dahlqvist after the meeting he can go into details on the calculation.

Operator: Our last question comes from the line of Jacob Kruse of Autonomous. Please go ahead. Your line is open.

Jacob Kruse: I guess, just two questions. Firstly, on this repricing issue of corporate, could you just -- in terms of what you're sending down to the branches from a central level, does that then include the full capital weight, so that SEK8 billion/SEK9 billion of capital? But then, do you also include the sub-debt cost, the Swedish bank tax that might be coming in 2018, as well as this resolution fund fee? If I add all of those things up, I guess, I end up with something like 30/40 basis points of repricing requirement. So is that the way we should think about this; is that roughly how the kind of quantum you're looking at? Secondly, just on the Oktogonen thing, I recognize it's a Board decision, but what kind of feedback are you getting from your branch managers and staff with respect to the prospect of you paying a special dividend and not rewarding your staff in the same year? Thank you.

Rolf Marquardt: Regarding repricing, what we do is actually to feed that through to the branches, based on what clients they do have and so on. We will change the way we do that slightly.

It's the same amount of capital that we will continue to allocate, so there might be some impact, of course, of the internal estimates, based on where we will end up, when we have the final approval from the Swedish FSA. And that's the business model. When we have cost for taxes or when we have to pay for the resolution fund and the deposit guarantee scheme and so on, that is also something we charge internally and then also give the branch offices the incentive to charge their clients to the extent they decide to and they need to. And regarding Oktogonen, well, once again, we haven't made any forecasts about the dividend. And that's a Board decision and so I can't comment more on that I think than I have already done, that will shed light on the question.

Operator: I'll now hand the call back.

Rolf Marquardt: That was all from our side this time. Thank you very much for calling into this telephone conference. And if you have additional questions, we're very happy to support you and to answer those, so please then contact investor relations through telephone or email. Thank you.

Operator: That concludes our call. Thank you for attending. Participants, you may disconnect your lines.