Executives: Rolf Marquardt - Chief Financial Officer Lars Hoglund - Head of Investor

Relations
Analysts: Willis Palermo - Goldman Sachs Jan Wolter - Credit Suisse Jacob Kruse - Autonomous Research Riccardo Rovere - Mediobanca Michael Helsby - Bank of

America
Operator: Ladies and gentlemen, welcome to the Handelsbanken Q4 2017. Today, I am pleased to present Rolf Marquardt. For the first part of this call, all participants will be in a listen-only mode. And afterwards, there will be a question-and-answer session. Speaker, please begin.

Rolf Marquardt: Good morning, everyone, and welcome to this conference call for the fourth quarter 2017. Joining me today, I have Lars Hoglund, Head of Investor Relations; and Jörgen Olander, Head of Group Accounting. The slides in my presentation are as usual available at handelsbanken.com. Let's start with Slide number 2. In the fourth quarter 2017, we continued our stable value creation and we now summarize at 2017, we can conclude that we reached our corporate goal for the sixth consecutive year to have a high return on equity than the average of our peers.

This has been done through our strong and continued focus on the customer satisfaction, cost efficiency, lower rates and stable growth. Moving on to Slide number 3. Then summing the year, the operating profits increased by 2% to SEK 21 billion, but adjusted for one-off items, the increase was 3%. The one-off items relate to capital gains in 2016 of SEK 1.7 billion from divestments of our shares, the 700 million reserve we took in 2016, a positive 239 million affect in Q1 2017 from adjustment of the Norwegian pension plant and 576 million of dividends received from Sweden now in Q4. If adjusting also for the allocation to Oktogonen this year, the underlying growth was 7%, despite a major increase in the Swedish Resolution Form Fee by around SEK 750.

The growth model continues to deliver with a net interest income up by 7% and fee and commissions up by 6%. In total, income grew by 5% adjusted for the one-off. Loan losses decreased somewhat from last year and amounted to 8 basis points. The CET1 ratio at year end was 22.7% off the deducting the board's proposed dividend of SEK 7.50 per share, of which SEK 5.50 an ordinary dividend and SEK 2 in extra dividend. The Bank anticipates that the FSA minimum requirement was 20.2% at year end, which means that the Bank is within the target range of being 1 to 3 percentage points above the FSA minimum requirement.

Now turning to Slide number 5 and the income statements for Q4. Net interest income increased by 3% from previous quarter, driven mainly by increased business volumes as well as lower funding costs. The overall margin development was rather stable. Fee and commission income increased by 6%, apart from normal seasonality and strong asset management fees contributed to the increase. Net financial transaction is as you all know a fairly minor income line for Handelsbanken compared to what you see from our peers.

This quarter, it was a bit weaker than normal due to an early redemption of derivatives related to restructuring agreement. Other income in Q4 includes to dividend from VISA Sweden of SEK 576 million. Reported income increased by 9% but adjusted for the VISA Sweden, dividend, the increase was 2%. Staff costs increased by 1% and was mainly explained by FX. Other costs including depreciations and amortizations increased by SEK 490.

The normal seasonality in the past years has been an increase of around SEK 250 million. The further increase this time is explained by Brexit preparations, increased business development and higher cost related to regulations, such as [indiscernible] and PSD2. Loan losses amounted to 1.1 billion. The increase from Q3 is explained by two single exposures, one in Denmark and one in the U.K. The U.K.

case which was related to the company Carillion is completely closed. The Danish case has now undergone a reconstruction with new owners and we therefore assess the remaining risk to be low. The underlying credit quality continues to be stable and strong. In total, the operation profit dropped by 8% from Q3. Now moving to Slide 27.

You can see the quarterly development in the net interest income which increased by SEK 190 million. The main drivers were firstly, increased lending and deposit volumes in our home markets which together added SEK 180 million in the quarter. Secondly, currency effects which added SEK 65 million. Thirdly, lower funding costs. This explains the bulk shows off as other in the Handelsbanken Sweden and home markets outside Sweden in the table.

This is mainly explained by the net interest income that arises in Group Treasury when the actual funding cost for the Group deviates from the internal rates paid by the business units to Group Treasury. So it does to a significant degree represent lending margins. In Sweden, the mortgage margin was unchanged at 106 basis points and the overall modern development was generally stable. On Slide 6, you can see the net interest income development in the past five years. We can again see that the net interest income reached its higher level so far, despite the doubling of Resolution Fund Fee in 2017.

The last one and a half years have shown a very positive trend as you can see. When comparing the fourth quarter 2017 with the first quarter, the increase was SEK 700 million or 10%. Slide 7 shows the net interest income development over the last seven quarters in local currency in each market. We had a good business activity throughout the Bank with a growth in both the privates and the corporate sector in all home markets during Q4. Now on to Slide number 9.

Our well tested growth model that is well established in our six whole markets continued to deliver during the year and not only in terms of net interest income. As expected, our business is growing faster in our new home markets the U.K. and the Netherlands but lending and deposit volumes are also growing in the other markets. Lending grew by 5% and the deposit volumes increased by 13%. Also the net fee and commission income increased in all markets with a total of 8%.

On Slide 8, you see the development of a net fee and commission income in the past year in local currency. We grow the business at pace in all markets which is now come over an increased focus on net fee and commission income generating business and in particular in asset management. It is mainly higher fund and asset management fees which are behind the growth. During the second half of 2016, Optimix was acquired which a large extend explains the shop increase in the Netherlands. Slide number 10 shows the development in our Swedish mutual fund business.

We can conclude that the positive development in our Swedish mutual fund business continues. Since 2010, the Bank has taken 24% of all net inflow into the Swedish fund market. During 2017, the market share was 20%, which made the Bank the biggest player in the market in terms of net inflows. On to Slide number 11. The asset management volumes have grown steadily in the Swedish operations by 15% over the last five quarters.

And during the same period, the growth rates in the other home markets was 23%. The net inflow outside Sweden was almost SEK 10 billion, representing roughly a third of total inflows to the Group. In U.K. for example, funds and management increased from £2.9 billion to £3.5 billion in 2017. Fund and management reached an all-time higher level in all home markets during Q4.

On Slide 13, we take a closer look at Handelsbanken Sweden. In Sweden, the positive development continues and the efforts are paying off both in terms of customer satisfaction and earnings. Net interest income increased by 8% in 2017 and fee and commissions by 5%, driving total income up by 6%. The major part of the restructuring reserve of 700 million last year has naturally been used in our Swedish operations. The average number of employees in Handelsbanken Sweden was 225 less in 2017 compared to 2016 and the staff costs drop by 3%.

At the same time, the investments in IT development increased which together with costs related to adjust into new regulations explains the increase in other expenses. Loan losses continue to be very low and the operating profit in Sweden increased by 8% when adjusting for the restructuring reserve booked last year. The cost income ratio in 2017 was 34.2%. On to Slide number 14. In the U.K.

the business volumes have grown steadily, despite the fact that only a few branches have been opened in last two years. In local currency, the net interest income increased by 11%, while the net fee and commission income increased by 22%. In Heartwood, funds and management have increased by £500 million since the beginning of the year out of which £315 million in net inflows. Assets under management now amounts to £3.4 billion, which is the highest volume so far. Net inflows per month increased almost 90% compared to 2016.

Alongside, a positive development in our fund and management operation, the average household deposit volume increased by 4% to 7% compared to last year. All of this shows that our branches managed to capture a larger share of our clients' business apart from the inflow of new customers. So we obviously continued to see good growth opportunities in the U.K. regardless of Brexit. Then on to Slide 16 and a few words about the ongoing Brexit preparations.

In 2010, the Bank decided to setup a U.K. head office to consolidate the U.K. head office functions in London. Since then the operations have expanded rapidly. At some point, it's finding to take the last step and to establish a full scale bank and that is what we are currently preparing for.

Brexit has parked this process and possibly also shortened the time we will spend on it, but sooner or later, we would have done so anyway. The work in naturally associated with costs and investments and we estimate that the cost related to Brexit product during 2017 was SEK 86 million for our U.K. operations. When added costs at Group level and the total cost adds up to SEK 104 million in 2017. During 2018, the Brexit product will move into its most intensive phase and we estimate that the Group P&L will be impacted by approximately SEK 300 million.

The bulk of these costs will be carried by the U.K. and the smaller part by head office. For level in 2018 is not expected to increase thereafter and instead gradually decrease over the coming years. At the same time, it's important to underline that the actions and costs impost by the process for corporate governance, reporting, IT, staff costs et cetera will lead to improve business support and preconditions for our U.K. operations from business and efficiency point of view.

Slide number 17 shows you our market the Netherlands. The development continues to be strong, operating profit increased by 48% in local currency compared to 2016 and the business volumes grew rapidly, lending was up by 25% and deposits by 72%. Also in the Netherlands, the Bank has the most satisfied customers and the distance to our competitors is particularly high. Optimix that we acquired in 2016 contributes highly to the increase in net fee and commission income. Cost income fell by 1.9 percentage points and return on equity exceeded 14%.

We are obviously very happy about the development in the Netherlands and continued to have higher expectations on our Dutch business. Now a few words on cost development. Please go to Slide number 24. As earlier mentioned, the Bank's proven growth model continues to deliver. We have higher level of customer satisfaction than peers, a good business development and stable growth.

This strategy in combination with Brexit digitalization and due regulatory requirements cause for an increase level of development and investment. Having said that we are always very focused on being cost efficient and we continue to be so. In Handelsbanken Sweden and in capital markets, we today run the operations with few people than a year ago. This is offset by new employees in our home markets as a consequence of continued growth. All in all, the sum of the staff cost developments in our home markets in 2017 was flat.

The cost focus is also seen in the item other costs, which represents roughly 15% of the cost base. That have been unchanged during the year, despite the increased business volumes. The cost increase is explained by Brexit's and relates cost of SEK 104 and increased spending on business development and regulatory development. These costs show up under the items, purchase, services, IT costs and the cost for employees in IT departments. For 2018, as I mentioned previously, the cost associated with Brexit are expected to be around 300 million.

Back to Slide 18. After deducting the proposed dividend as the CET1 ratio dropped by 90 basis points from Q3 to 22.7% at year end. The Bank estimates that the CET1 requirement by the Swedish FSA at year end was 20.2%. The Bank is therefore well within the target range of 1 to 3 percentage points above the FSA minimum requirement. As we mentioned in the previous interim report, the impact from adopting IFRS 9 in Q1 2018 is limited and is not expected to affect the capital ratios for Handelsbanken.

As you all know, in December, the Basel Committee presented its proposal for a revised capital requirement framework. The new rules also adjusted to be implemented between January 1st, 2022 and 2027. Although the Basel rules are now known, the full implications of the standard can be assessed when the rules in EU and Sweden have been finalized. Despite this uncertainty, our overall assessment is that the Bank already at the end of Q4 2017 had a level of capitalization in line with the requirements communicated in December. In our assessment, the current capital requirement add on for mortgage risk weight floors has been deducted as it is closely linked to the internal rating spaced approach.

The liquidity position remains to be strong. LCR according the EU standard was 139% and NSFR was 102%. So to summarize on Slide 20. When adding another quarter, we see that the stable crumbs in 2007 continues with an average annual growth in equity per share including dividends of 15%. The fourth quarter show the strong business development with increased net interest income and net fee and commissions.

Brexit preparations, our increased focus on IT development and regulatory changes increased the evidence administrative costs. Loan losses increased due to two single exposures. But for the full year, the loan loss ratio dropped 1 basis points to 8 basis points. The common equity Tier 1 ratio was 22.7% and the Bank is within its target range. The proposed dividend per share increased from SEK 5 last year to SEK 7.15 this year.

We see good further growth opportunities in the Bank. And with that, I conclude my presentation and open up for questions. Thank you.

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Willis Palermo from Goldman Sachs.

Please go ahead, your line is open.

Willis Palermo: Hi, good morning, and thanks for the presentation. My first question is on the volume growth expectation that you pointed to and further improvement that you can see compared to a strong 2017 were growth was 5%. What would be the driver of improvement for 2018, if you could be bit specific maybe by geography by sector? And also if you could comment on the mortgage side, in the beginning of the year is likely to be stronger but to be a best case for the full year?

Rolf Marquardt: Hi, Willis, and thank you. So about volume growth, we - as you probably know, we don't make any forecast about that.

But I think looking back at the development, we've had during 2017, I think it's fair to - I mean that is what you can have in mind when you look at the future. Our growth, we have seen no made it changes in the demand for new loans and so it's acquired stable picture and we have seen, we have no reason to believe that it should change dramatically. And I think when it comes to specially markets outside the Sweden and in particular U.K. and Netherlands, that growth comes from both existing customers but also from as acquiring new customers. And the pace in which we do that I mean that's based on organic growth and that continues.

And I think also when it comes to corporate lending, I mean there is no specific sector that realistic self here, so it's what we have seen in our corporate related business say it's we have a good business momentum that shows up partly in lending growth but also in other areas like cash management and so on. But that is not related to any particular industry. And then finally, on the mortgage lending in Sweden, I know that expectations from many have been that the price decline we have seen during fall maybe should lead to a slowdown in the lending growth but that has not been the case and we have no reason to be believe either that should change going forward, because it is quite stable. And I think, it is actually driven by a few different factors. First of all, I mean there has been a significant supply to the market of new apartments and so on and that's also part of the reason for the declining prices.

But there is still a turnover, so our partners are being sold on the stock of all the homes, profit on the homes is increasing. So that also is not lying for us, will continue the growth, and it has been continuing to grow in a stable way. And also to comment shortly on the modern development in Sweden relates to that market that has also been stable also in Q4 and was rather stable during the full year of 2017.

Willis Palermo: If I can just jump on your comments on the corporate volume growth. Did you, whether - are there any noticeable pickup in corporate volume growth at the end of the year compared to the rest of 2017, and if yes whether it's across the board or still in that corporate lending sector?

Rolf Marquardt: The growth, it was quiet at the same level when of it comes to corporate lending and the changes and increases were mainly related to property management.

So it has been quite flat for other industries.

Willis Palermo: Okay. Thank you very much. And my second question is to follow-up on the property management sector and Handelsbanken exposure. Just looking at the disclosure in the site book and assuming that it will compare that with peers, what could you say to make us more confident that having twice the levels your closest peers in term of, if I group all the countries, is the right level as a proportional loan book.

And more specifically in this sector, volume growth appear also to be much higher that peers. Is it the result from a better franchise or do you think there is an over estimation of the risk from peers?

Rolf Marquardt: So, I think first of all, we grow our business organically, so it is related to where we can actually make business. And certainly property management is an important part of our total lending and in spite and we - so it is for quite natural reasons I think. But what is really important to underscore in our case is that we are really conservative when we do this in our assessments. So we want to be really on the safe side.

And I think that has also helped us when we haven't had that money seen that money credit problems so far in Sweden related to property developers and the like but that is an area where we have been very conservative and that's something good now I think. But - so we have an exposure but what we do always when we take on board new customers this to be really conservative and stick to our straight credit policy. And that is also what has been underpinning the very strong credit development we have had over the years and particularly in bad times. So we - and that's the approach we do have. And I also think I'd like to add that one reason why we have a certain degree of concentration to that sector is the growth levels we have in the new home markets.

And what we typically see there is when we start out property management lending of good quality is what we is easier to attract, it takes longer time to build relationships with other kinds of companies and to grow business volumes in those areas and so it's also a reflection part of our establishment process. So overtime that balance is likely to shift. And we see that in the number of customers in the U.K. for instance that is started out with a lot of property management and we still have a large volumes there, but we have also attracted over the years, so quite a large significant number of SME customers and so on and then the balance might change of course.

Willis Palermo: Okay.

Thank you very much.

Operator: Thank you. And our next question comes from the line of Jan Wolter from Credit Suisse. Please go ahead, your line is now open.

Jan Wolter: Hi, Wolter here, Credit Suisse.

Thanks for taking my questions. Just a couple of questions as a follow-up to the meeting in stock on this morning. I think you spoke about the subsidiarization of the U.K. and stating that this is something that Handelsbanken has planned earlier on from the start and I think Handelsbanken is operating model so far been run or being or running the company was bond structure outside Sweden. Has that changed and should we expect that for example Netherlands and another Nordic branches can be converted as well to subsidiaries or is this just something more specific for the U.K.? And the second question is around the exposure to the U.K.

company, which default there. Understand how spike insensibly reduced the exposure materially and lowering the loss, but in principle, this was an unsecured exposure and how much of this of Handelsbanken U.K. book of SEK 213 billion or so is unsecured and is any other part of the property management book unsecured as well? Thank you.

Rolf Marquardt: Hi Jan, thank you. Well, regarding the U.K.

itself and the strategy we have is that yes, we have communicated. At some point, we would have done this any way to form a subsidiary. And also to be clear on that, we haven't made a final decision, we are making preparations and it's very likely that we will good on that real time we'll have to as a consequence of expectation from U.K. authorities. And what we mean by that is that because you are completely right.

The strategy we have normally is to run our operations through branches and this is not going to change. So we will stick to that. But the reason why we have had a different way of thinking in the U.K. is that we have - there are rein sensing requirements when you become big enough on the deposits, retail deposit side. And at some point, we will hopefully reach the level of having 25 billion of deposits - £25 billion in deposits from retail customers and then we have to subsiderize and greater income bank.

So that is why that has been something that we have been aware of that would happen someday. And that will - now this development has been spot by Brexit, so now we have to start it earlier and now we have to finish that work within a much shorter of time than we probably otherwise would have been force to as a consequence of Brexit, because we want to finish this before March 29th next year. But it actually it is not a change in our attitude and strategy when it comes to the other operations we have in the home markets outside Sweden. And then when it comes to the exposure against Carillion, yes, we have reduced that, so we started to see some signals early on in 2017 and that's I mean it wasn't the major thing but it was things we didn't like to see since we are very conservative when it comes to credit risk and credit risk management. So we started to reduce our exposure and we did reduce it significantly before this fall.

And yeah, that part of the exposure that we have left was unsecured. And you asked about how a big part of the portfolio we have in the U.K. that is unsecured and also referring to property management. And that is almost exclusively supported by collateral, so we always to try to get collateral when we have the chance to do so. But it is of course a different story when you participate in syndications with major corporate customers.

So it is quite - it's different in this case. But I think you have the figures in your mind, Lars Hoglund.

Lars Hoglund: Yeah. Hi, Lars Hoglund here. Now, I mean just online what Rolf is saying, I mean also looking at the U.K.

portfolio, a vast majority of that portfolio is secured with a collateral and I mean indicates where is unsecured lending of course we use covenants and other terms and conditions to protect our exposure. But looking specifically to U.K. it's a very, very large majority which is secured.

Jan Wolter: Thank you. And just a follow-up there.

So, can we assume that the property book which is SEK 155 billion in the U.K. that's fully secured. I guess that this did not fit in that, it was not booked in that part of the lending book, if I understand correctly it was booked outside, so we can assume that the 125 billion or so property management exposure in the U.K. that's all secured then. Is that fair?

Rolf Marquardt: Yeah, it is a fair assumption.

And this was not a property management company, it was a servicing company, yeah.

Jan Wolter: Okay, many thanks for that.

Operator: Thank you. Our next question comes from the line of Jacob Kruse, Autonomous. Please go ahead, Jacob, your line is open.

Jacob Kruse: Hi, thank you. So just three quick questions. I guess first on the cost guidance, you have fully talked about the cost increase for the U.K. in 2018. When it comes to the other investment spending the IT regulatory, do you have some idea of how you are - what the cost there would look like for 2018 and 2019, is there a continued ramp up or potentially a decline.

My other question was just on the U.K., have you looked at what the impact on funding would be - funding cost would be for the U.K. loan book once you subsiderize it, if I mean? And then lastly just a question on loan losses, you seem to have extremely low impairments on the balance sheet, I guess this quarter your actual loan loss annualized 22 basis points was higher than the combined impairments that you have on the balance sheet. So is there element where you are a bit late in recognizing problem loans, or was this a very specific issue for those two exposures that they kind of came out with nowhere? Thank you.

Rolf Marquardt: Hi Jacob. Yeah, so when it comes to the cost development and the development we will do apart from the Brexit preparations and the subsidiarization and so the way we don't give a cost guidance as you know but we have during 2017 increased our capacity when it comes to carryout development.

And it takes time to build it. So it's not - and often you start off by hiring consultants and then you try to replace them with through employing people. And if you look at the numbers, you can see that in the other operations where we have a lot of activities being carried out related to development, number of employees has increased. So - and another way to put this is that we have increased our development capacity. And that capacity we can expect as we are going to keep.

And then in addition to that we have the Brexit related costs which we have estimated to be approximately 300 million during 2018. And then going forward that number will be reduced in 2019 and then continue to decrease during the coming years. And I think it's also fair to expect that in the long run in the U.K. that of course we are recruiting new people for governance reasons and then the requirements we need to fulfill running subsidiaries, so it will not come down to exact that a same level were before, but it will do down over the years. So I hope that answers your question.

I'd also like when it comes to the cost development, I mean you also should put this in the context of how business is progressing and then we have a strong business development and we have a nice income growth coming from many different sources into different - all the different markets. So that is the starting of the day. And our thinking about what we need to do in terms of business development, we did increase the pace last year and that is also what now shows up in the numbers. And then we have to also prepare for new regulations. And that is something to some degree also has to help the business development.

So it's not totally disconnected from business development. And I think a good example of that is all the improvements we have made in the offering we have and the internal support we have for giving customer advice when it comes to sayings and investments. So that is something that was an issue aided as a consequence of MSG2 [ph] but it has helped a lot also from business perspective. But to conclude on that, the capacity we have now build something we are going to keep. And then the U.K.

and creating the subsidiary on the potential impact on funding costs and what we plan to do but it hasn't been completed yet, but what we plan to do is to continue to run our liquid risk management and funding centrally based in Group Treasury in Stockholm, so they will be deeply involved. And we assess that the funding costs will not be impacted to significant we at least when we do that. And then finally, regarding loan losses and the levels, and everything we can see in our books is that have the credit quality remains to be a very strong if you look at the payment behavior of our customers, if you look at non-performing loan levels and so on, it is it is very stable. In these two cases and I think the Carillion, it's really as very special case. I mean it was a well-known company with a strong reputation and the really solid company.

And they have been a customer of ours for many years. And this is a case that we rarely have seen. But we have taken a full loss, so we have nothing left there. So in that case I think we have not been late. We acted on to reduce exposure when we started to feel uncomfortable and we took a full loss.

Now, so we have no exposure left in that case. The other case that has been painful to us is the Danish case. And we have been conservative all the way through when we have made the provisioning in that case. But it has deteriorated in a way that we haven't been able to foresee. We have used really conservative stale values on the collateral when we have made the loan loss provisioning in that case.

But it certainly not it hasn't been enough. But now that has been reconstructed and they have new owners and so the risk has not now been reduced and we don't see a major risk going forward. But I would say that we - in both these cases, we have acted but in the second one, it has been difficult to assess in a loss, sometimes that happen. So we don't, we try not to be late in the process rather we want to be in the other end and act early to deal with problems.

Jacob Kruse: Okay.

Thank you. And just from that point of view, does it not concern you at all that you identified so few impaired loans, just 13 basis points of your loan book at the moment?

Rolf Marquardt: No, I mean we are happy about that and we go through our books deeply when every quarter in particular and all the time. And the big advantage with having that situation is that it's very easy to just see the detected problems. So if you have a list of - if we list out 25 biggest highest risks, I mean the numbers you find on that list very soon becomes very lows. So in that kind of environment, it's really easy to see why you have the risks.

So it's - so I am I'm happy about it and it's the way it should be and in my mind is definitely not a reflection of that we sort of miss out own things that are risky.

Jacob Kruse: Okay. Thank you very much.

Rolf Marquardt: And Lars want to add something else.

Lars Hoglund: Yeah, maybe to add what you already know of course, Jacob, but I mean our business model working locally in the branches close to the customers, means that we take a lot of action very early before things become a problem and in some cases it means the customer is actually changing banks before any problem occurs.

So I mean this pulls down to our entire view about the importance of credit management throughout the lifetime of the credit. So - and that should normally generate lower level, so impaired loans stand for other banks.

Jacob Kruse: Okay. Thank you very much.

Operator: Thank you.

[Operator Instructions] And our next question comes from the line of Riccardo Rovere from Mediobanca. Please go ahead, your line is open.

Riccardo Rovere: Thank you very much. Just one question from my side. I'm sorry I have to disconnect for a while, so apologize if you've already answered to such question.

On the payout ratio going to 90%, if I remember correctly some of your previous comments you were, how can I say, you were not inclined to wait for the let's say for an enemy like Basel IV that was not coming, never coming. Now you're brought to your payout ratio to kind of 90%. Is this level you think could be we could keep as let's say as a sustainable in there let's say in the next couple of years before maybe you will have to start again thinking about the potential impact of Basel IV whenever this will be start to be introduced?

Rolf Marquardt: Okay. Thank you Riccardo. So first of all, the payout ratio of 90% is - and behind that is the strategy to that we have communicated and continue to stick to is that when we think about the payout ratio, number one is to be compliant and that means that we want to be within the target range and to have the margin to be able to cope with some volatility, it could be migrations, it could be changed asset values or it could be changes in models and so on.

And secondly, we want to have the capacity to grow in the way we want to without any restrictions. So that is sort of the foundation. And then what is then left is something that is we potentially could and want to pay back to shareholders. So that's the way we think about this. And that means also that the payout ratio for next year is something we - we will make that decision down.

So we don't make any forecast about that and that is the way we approached it, that's the strategy. And then when we then turn to the question of Basel IV, what now has happened is that the uncertainty is still there because we don't know about the implementation in E.U. and in Sweden in particular, when it comes to the capital requirements. To calculate the risk exposure amount using the standardized approach and the floors that is something we now know more about. So since that has been finally proposed now, it's easy for us to know approximately where that will end.

So we have a great certainty there. And then when we run the numbers and then apply the different capital requirements that the Swedish FSA applies today, we come to the conclusion that we are already in Q4 and now have a level of capitalization which is in line with the requirement we would face when fully loaded in 2020 - 2027. And that is a fairly conservative assumption, because we have then included very significant part for requirements that we think could be changed and then at least will be reviewed during the implementation process in both in EU and in Sweden. And the conclusion we have made around this topic as a consequence is that we don't see any restrictions today related to capital on Basel IV as consequence. So - but then we have to wait for the final details before we know exactly where it will end up.

Riccardo Rovere: Yeah, very clear. Yeah, thanks. But it's fair to say is, is this is the answer you have to say to the current stage, Basel IV doesn't seem to have a major role when you have to decide, when the board just to decide capital requirement of shareholder?

Rolf Marquardt: No that's correct. And I also think what will happen of course, when we calculate our risk exposure amount and the capital ratios, of course the capital ratios will be impacted, but when it comes to capital requirement, we are in line. So - and you are correct, it does have consequent impact that thinking now.

Riccardo Rovere: Very clear. Thanks.

Operator: Thank you. And our next question comes from the line of Michael Helsby from Bank of America. Please go ahead, your line is open.

Michael Helsby: Thank you. Good morning. Just three quick questions on the U.K. You mentioned in your remarks you sold down the Carillion exposure quite substantially. I was wondering what that beside of the position was at the peak, so we can just get an idea of what are concentration would have been? Also in your remarks, you referred to the top 25 biggest risks, I was wondering if you could tell us what the percentage of the top - those would cover in the U.K.

and how that would compare to Sweden? And then finally, again just thinking about this exposure, clearly the whole bank's philosophy and the foundation has been built on strong credit underwriting. So I was wondering if you could just give us a bit more understanding of what you think when wrong in your underwriting process and what lesson you've learned and whether this is something that should be read broader into the rest of the book? Thank you.

Rolf Marquardt: Thank you, Michael. Well, so when it comes to Carillion and the size of the exposure, we haven't communicated how big it is. It is a very significant thought of the loan loss we have taken this quarter in the U.K.

and we have not communicated which exposure we did have before things started to turn wrong way and when we started down. But the exposure was slightly more than twice as big when we started that process in April. And we acted early, so and that's the cause, we are conservative, so we saw signs and not very obvious signs but things we simply didn't really like and that's why we started due to try to step down our exposure. And I must say that the Carillion case is really a very special case. I mean the Carillion has been a customer of ours for many years, so it's not a new thing, it's not a new exposure.

And it has been a well-known, well-established and a strong company from everything we have known and it has been so all the way along until early 2017 when we started to change our minds. So I think from - I mean starting from what the company was and what we could know about it is, it's not strange that is turned up in our books I must say because it was at that point very solid company. But sometimes it could go wrong and it went deeply wrong at this stage unfortunately. And then when it comes to what has really happened and what is behind us, we have to wait and see for the investigations that are now ongoing and I guess a number of people are waiting for that to show up. When it comes to the top 25 exposures, I refer to that is nothing we communicate more specifically about.

But what I can say is that the credit quality we have in the U.K. is strong. And as this is the case for us, often when we have credit losses, it is a question about one or few single names but then the underlying credit portfolio quality is very stable and strong. And that is also very much the case in the U.K. We have been conservative during the years because we know about them potential dangers that you could face as a bank if you expand and on keep very strict control on credit risk.

And we have done so and we have shown that over the years. So the U.K. credit portfolio is of strong credit quality and stable. And when - yeah, I think I also covered the third part of your question, yeah.

Michael Helsby: Okay, thank you.

Rolf Marquardt: Thank you.

Operator: Thank you. As there are no more questions on the line, I hand back to you speakers.

Rolf Marquardt: Okay. So thank you very much for participating in this conference call.

Bye-bye.