Carl Cederschiöld: Good morning, everyone and welcome to the conference call for the fourth quarter earnings of 2021. This is Carl Cederschiöld, CFO speaking. And with me today I have the Head of Investor Relations, Peter Grabe; as well as the Head of Accounting, Annika Engler with me. Before going into the results, let me start off with some general comments since this quarter is a bit of special from an accounting perspective. First, regarding Denmark and Finland.

The divestment process is running at a high pace and we see good potential buyer interest in both markets. However, we cannot provide any more details at this point but we'll of course come back as soon as we have more information to provide. Second, the fact that Finland and Denmark are in a divestment process means that the accounting is affected. In accordance to the accounting rules, the operations that are to be divested are from Q4 being reported separately as discontinued operations. In order to be transparent and help you assess the overall progress of the bank, we've also disclosed the reporting, as if Denmark and Finland would still be business segments.

You'll find all those numbers in the fact book on Page 29. Third, an accounting technicality that could be relevant for your forecast. The group's euro liquidity is placed on the Central Bank in Finland at negative rates. Due to the accounting on discontinued operations, the negative interest income is booked in discontinued operations and not in continuing operations. During Q1, the bulk of this euro liquidity will be placed in the Netherlands, meaning that the negative net interest income effect will move from discontinued operations to continuing operations.

Effectively, this means that the quarterly NII in continuing operations should drop by all else equal roughly SEK 100 million or 1% with full effect from Q2. Of course, NII in discontinued operations will increase by the same amount. Fourth, there were three main one-offs in Q4. On the income side there was a one-off gain from the sale of the card acquiring business of SEK 574 million, of which SEK 408 million in continuing operations and SEK 166 million in discontinued operations. Then we had an Oktogonen allocation of SEK 83 million, of which SEK 64 million in continuing and SEK 19 million in discontinued operations.

This compares to the reversal of SEK 263 million in Q3, which means a delta of SEK 327 million in continued operations between the quarters. Finally, there was a write-down of IT systems in Finland of SEK 377 million, which is connected to the divestment process and showing up under discontinued operations. So with that in mind let's move to Slide 4. Q4, as well as the full year, showed the highest earnings so far in the bank's 150-year history. We see good volume growth in areas which we are focusing on, i.e.

property management, financing and asset management. Costs are under control and the pickup we see is entirely related to the planned increase in development costs, primarily targeted towards business generating development. Asset quality continues to be very strong with zero basis points credit losses both for the year and for the quarter. We have not reversed the pandemic-related overlay either. Our capital position is very strong, which provides flexibility to capture growth potential.

And then finally, in terms of the mega trend regarding sustainability, which gradually is being integrated in everything we do as well as in the customer demand, we have a very strong offering to help our customers take part of the transition. During the year, we've launched several new green and sustainability-linked offerings for both private and corporate customers. On the financing side and on the asset management side, there has been a key focus for several years. Please continue to Slide 27 and the financial summary for Q4. You find Denmark and Finland as discontinued operations on the slide.

Adjusted for FX and the one-off gain, income grew by 2%. NII increased by 2% and fee and commission income by 10%. NFT was down by 26% due to very strong Q3. Adjusted for FX and Oktogonen, the costs increased by 5%. The major part was driven by the increased IT development.

Q4 is usually seasonally high on the cost line due to the increased activity after the previous summer quarter. We see however, that the underlying costs excluding the increase in development costs only increased by 1%. The low figure is an indication of the ongoing cost initiatives gradually filtering through. Credit losses were more or less insignificant and underlying operating profits increased by 2%. Discontinued operations dropped by 15% in the quarter and were mainly explained by the write-down of SEK 377 million of IT systems.

On Slide 8, you see the underlying income and cost development over the last years. Income is now growing faster than the expenses, which leads to a declining path of cost-to-income ratio, which we expect to continue. This of course means a positive earnings momentum, when the income growth is accompanied by good cost control and strong asset quality. Over the past four years, we have seen an average earnings growth of 5%. And in 2021 alone the growth was 12%.

Over to lending volumes on Slide 9. The household lending growth is stable and strong, and we see an annual growth rate of around 5% in the past years. The green mortgages are still only a small part of the volumes, but grew by 61% during the year. On the corporate side, we see again growth in line with the longer-term trend. Compared to the end of the last year, the volumes are up by 7%, as well as on the private side, green volumes are growing, although, from a small base.

Green loans by corporates increased by 40% to SEK 22 billion. And in addition, sustainability-linked facilities more than doubled to SEK 32 billion. The bank's goal is to have 20% of financing volumes consisting of green, sustainability linked or financing with conditions contributing to a sustainable transformation for the borrower by 2025. Now over to Slide 11, and an illustration of the breakdown of the bank in terms of its home markets. Three of the home markets representing 92% of the earnings and are showing a very strong development, while UK representing the last eight has had a few challenging years.

Sweden today accounts for almost 80% of the earnings in the home markets. 2021 was a record year for the Swedish operations, and was boosted by growth in the property-related lending and asset management. The intensive work on strengthening the customer meeting, further improving the digital meeting channels and increasing the availability is seen in income growth. On the mortgage side, the growth has been stable at 5% per year and the bank is one of the main players when it comes to net inflows. On the corporate side, the volumes grew by 5.6% in 2021 compared to 3.5% for the market.

And the bank's market share of net inflows was 34%. The fee and commissions are also increasing, with asset management being the key driver. The bank has been the biggest when it comes to net inflows consistently for over a decade. And in 2021, the market share of net inflows was 26%, which compares to the back book market share of only 12%. Operating profits grew by 11%, cost-to-income ratio is below 35% and the return on equity is above EUR 15 million.

Norway, which accounts for 11% of the earnings, grew by 19% in 2021 showed a cost-to-income ratio of 37.7 and a return on equity of 11. We see good growth within financing and asset management. The Norwegian private business, offers good growth potential for example, within asset management, where the bank continues to advance by strengthening of the private banking offering while at the same time improving the digital experience. The NII was hit last year from Central Bank rate cuts. And since then the NII has recovered.

The rate tax in the past month is positive for the longer-term NII outlook in Norway. The Netherlands is comparably small as you see, accounting for only 3% of the earnings. However, the development lately has been very strong, with a cost-to-income ratio that is quickly dropping and approaching the 50s. And the return on equity is almost 17. Finally the UK, today stands for 8% of the earnings.

And the development seen in the recent years is something, we of course are not happy with. However, we see good reason to break the negative trend after the past year's patient work on equipping the operation for future growth. Since establishing the plc back in 2019, the bank has changed the organization from five renewal banks to one country operation. Some branches have merged and some have been equipped with increased expert advisory capacity. Furthermore, in conjunction to the subsidiarization, the bank decided to make a thorough run-through of all customer files, which was a natural step to ensure a foundation for a strong future bank.

During these years the bank has been restricted when it comes to onboarding new customers, in awaiting the finalization of the remediation work. Last month the work was finally -- was finalized, which means that the resources are now freed up for a refocus on the customers and growth again. With a nationwide distribution network on a very large market the most satisfied customers in the market and a very strong credit portfolio. The bank sees significant growth potential. Just to note also.

Just like in Norway, the NII was quite heavily hit by the Central Bank rate cuts last year. The recent hikes and the path going forward should over time provide some tailwind to the NII in the UK business. Now to address the P&L lines, let's look at Slide 12 and the NII in the quarter. Volume growth is now back as the key driver and more than offset the underlying margin pressure, which we see in particular on the mortgage side. Otherwise NII in Q4 was boosted by a positive SEK 70 million impact, as the authorities made the final deposit guarantee fee calibration for the year.

On Slide 14 you see the fee and commission development which once again was at all-time high. The average annual growth has been hit -- sorry has been 9% over the past year. And the key driver has been the asset management business which you see more in detail on Slide 15. The positive development is of course to a large extent driven by strong stock markets, but also due to very strong net inflows in the bank's mutual funds. Payment fees have also clearly continued to recover and the trough about a year -- after the trough about a year ago.

Lastly other fee and commission increased again after a period of decline during which operations in Asia were closed. In Q4 the pickup mainly stemmed from strong corporate finance-related fees within capital markets. Over to Slide 16 and a closer look at the mutual fund volumes where the bank continues on the same path in Sweden as seen over a decade with a market share of net inflows being not only the biggest in the market, but also more than twice the market share of the outstanding volumes. But the net inflows are also seen in other home markets with inflows of SEK 15 billion in 2021 compared to SEK 6 billion in 2020. The total managed fund volumes increased by 28% to SEK 987 billion by the end of the year.

Almost 1/3 of the increase is related to net inflows. Sustainability has been a key focus for a long time in the asset management operation and also a key reason for the success together with strong distribution capacity, dedicated development and a strong performance. 95% of the total volume in the group's mutual funds were in the two highest categories i.e., Article 8 and 9 according to EU Sustainable Finance Disclosures Regulation. Now over to cost on Slide 17. Back in 2020, we communicated our plan to increase IT development spend over two years mainly focusing on business generating development.

We are happy to see progress being made. Overall the bank continues the bank's continuous development spend is well balanced between 1/3 going to the business development with improved profitability growth and customer satisfaction in focus. These investments target the customer meeting for example through digitalization of product and customer processes, as well as remote advisory services. The second 1/3 is targeting long-term efficiency and business value creation for example through advanced data analytics, cloud investments and IT automation. And the final 1/3 targets risk minimization and good administrative order.

For example, in terms of adaptations to new regulations and technical life cycle management as well as financial crime prevention. In the graph to the right, you see the increase in development spend in the past year. About half of the extra billion SEK 500 million of the targeted total IT investment of SEK 1 billion over 2021 and 2020 was used in 2021. All according to plan. This targeted IT investment is more tilted to development associated with the customer meeting which consumes more than half of the SEK 1 billion.

On Slide 18 you see the expenses adjusted for one-offs in Oktogonen. The planned increase in development costs are being met by gradually falling other underlying costs. To the left, you see the increase in development expenses. The increase in 2021 is of course driven by the increased IT spend of which SEK 357 million was expensed. But there is also a fairly large effect SEK 347 million relating to a lower capitalization rate as more is being developed in cloud solutions.

The capitalization rate is purely driven by the accounting rules. However, we see this as a positive as the cost outlook becomes more transparent with less cost being placed on the balance sheet for future write-downs and instead recognized straightaway in the P&L. The remaining underlying expenses dropped slightly for a second consecutive year. The gradual execution of the cost initiatives in the past year more than offset the underlying inflation. The total cost-reducing measures amount to over SEK 3 billion.

Since the fall of 2020 around SEK 2 billion has been addressed and agreed upon. Of this SEK 1 billion has been realized as lower cost and SEK 1 billion remains to be realized in 2022. The last initiatives yet to be addressed amounting to SEK 1 billion mainly related to continued organizational efficiency in Sweden and in central units partly relating to the ongoing IT development, declining AML and FCP-related expenses in the U.K. and divestment of the subsidiary Ecster. All work with the initiatives continues unabated.

So total costs were up 3% which in its entirety is up according to the planned increase in IT development. If we move on to Slide 36 and cost development of the quarter. Costs were up by 13% mainly due to the Oktogonen provision compared to the reversal last quarter. The development expenses explain most of the other cost increase. While the remaining costs were up marginally as a normal seasonal increase was offset by the continued and gradual realization of the cost-reducing initiatives.

On Slide 19, you see the credit losses. And as stated before the credit loss ratio was 0% or zero basis points. The total pandemic-related reserve, including discontinued operations, declined slightly to SEK 577 million from SEK 606 million in Q3. The decline was only a result of somewhat lower lending to exposed sectors. Please go to Slide 20 and capitalization.

The CET1 ratio was unchanged at 19.4%, which was 550 basis points above the FSA requirement, including a Pillar 2 guidance of 1.5 percentage points and 250 basis points above the bank's target range. The Board proposes a dividend of SEK 5 per share to the AGM. The dividend proposal is based on a positive view of the bank's growth potential and ambitions and uncertain macro pandemic-related and geopolitical risk environment as well as the gradual build-out to a countercyclical buffers. There is no change to the bank's intention to be within the target range of 1 to 3 percentage points above the FSA requirement under normal circumstances. But having a good buffer puts us in a really good position to focus on growth.

When the divestment of the Danish and Finnish operations, are carried out, the Board will naturally look at the capital position and decide accordingly in terms of the magnitude of capital repatriation. Please go to Slide 21. Stable finances are at the end of the day crucial in order to maintain trust among customers and investors and to be able to capture growth potential. The bank has the highest combined ratings from the rating agencies among comparable banks worldwide. The asset quality is second to none, which is illustrated each and every time when there is an economic downturn.

The earnings volatility is lower as a result of the consistently conservative approach to all kinds of risk and the capital buffers in relation to the asset qualities are materially higher than any other comparable bank in the peer universe. This means that the bank has a very stable base that not only future-proof the business but also creates opportunities and flexibility to grow. And to sum up on Slide 22. The bank is continuing to execute on the plan set out almost three years ago with costs being under control and IT development speeding up. The earnings in both Q4 and for the full year were the highest in the bank's 150-year history.

The income growth we now see is volume-driven within the areas we strategically have chosen to focus on and high activity leads to an income growing faster than cost. We continue to strengthen our business by -- our business by business -- by business generating development while at the same time increasing the efficiency. Asset quality is very, very strong. And we have a really good capital position that creates flexibility to continue to grow while at the same time have good buffers to regulatory requirements. We have during 2021 launched extensive and ambitious sustainability targets and see good growth potential from supporting our customers in the transformation that is affecting us all.

Finally, we see good potential for increased growth and efficiency in all of our home markets where especially a recovery of our UK business is expected. So, with that, please let's open up for questions.

Operator: Thank you. [Operator Instructions] And the first person in the queue is Magnus Andersson of ABG. Please go ahead.

Your line is open.

Magnus Andersson: Yes. Thank you. Just the first one is on costs. Now that you probably have better visibility on the impact from divesting Denmark and Finland, although I guess there still be some things with internal funding et cetera, that is a bit uncertain.

But at least you should have significantly better visibility now. Why don't you put in a new absolute cost target in order to put pressure on the organization? And related to that, you talked about the gross cost savings of more than SEK 3 billion still and that the divestment of Ecster is still a part of that. If that's the case, why is it not accounted for as a discontinued operation as Denmark and Finland? And my second related to cost. On the bank tax, you say that we expect the net impact in 2022 of SEK 1.2 billion. My question is have you then assumed that part of it will go on the discontinued operation line? And what will the gross amount be in 2022, 2023 in the remaining business if that's the case?

Carl Cederschiöld: Okay.

Thank you, Magnus for the questions. Let me start addressing the first one. As you say, of course, we have a better transparency around the cost consequences of divesting Denmark and Finland. But as you know, in the last quarter, we were highlighting that we are moving away from an absolute cost target to steering the bank towards more on the cost-to-income levels. That doesn't take away the focus of our sort of cost initiatives and it doesn't take away the focus of ours of taking down the cost accordingly when we divest from Denmark and Finland.

But it is the reason why we don't set up an absolute cost target going forward. Then when it comes to the question around the gross cost initiatives of SEK3 billion. Yes, it is true that Ecster is included but we have -- we've always been transparent around our view of we make a review of the payment business. And since then we haven't classified as discontinued operations. So when we have more information on Ecster we will get back to it.

But so far it is -- that's the way it is accounted.

Magnus Andersson: Can I follow-up on that one then?

Carl Cederschiöld: Sorry?

Magnus Andersson: Can I follow-up on Ecster then? Since you say planned divestment of Ecster in the report, but does that mean that we could end up in a scenario where you actually decide that you will keep it that it's more strategically viewed than planned?

Carl Cederschiöld: Until we have further information to give, everything is theoretically possible. Yes.

Magnus Andersson: Yeah. Okay, thanks.

Carl Cederschiöld: And then regarding the bank tax the SEK1.2 billion we're referring to is based on the balance sheet at the end of 2021, i.e. including Denmark and Finland.

Magnus Andersson: Okay. So of that SEK1.2 billion net after tax, a part of it will go in discontinued operations then since it will go on your whole balance sheet?

Carl Cederschiöld: When it comes to the details when we move into Q1, we will have to come back on that specific topic.

Magnus Andersson: Okay.

Thank you.

Operator: Thank you. Our next question comes from the line of Maths Liljedahl of SEB. Please go ahead. Your line is open.

Maths Liljedahl: Yes, thank you. Maths here. I could continue a little bit on cost. On the cost initiatives you have now reached SEK2 billion. Do you have any indication of how the magnitude or how much of income has been affected on that? I know you previously from the beginning said around SEK1 billion.

Is it measurable? And do you have any details on that? And then the second question perhaps more details but on the discontinued operations, which you provide in the fact book, it does not match my historical numbers if I look at the Q3 fact book. What is the reason for that? And I see different movements related to Finland and Denmark. Is there a reason for that, or will some of the business remain? Thank you.

Carl Cederschiöld: Thank you Maths. Well, first let's dig into the cost and the income consequences of it.

As we've been highlighting before, we saw a possible negative income effect of moving out from the international markets. And also we included a negative effect from the payments business. We are done with the changes in the international business. And so far we've definitely seen less of an income effect than we were guiding on in advance. When it comes to the payment business, we have divested the card acquiring business.

And the income effect there will be less than we thought ahead of it. But, obviously, if we are to divest Ecster, the income consequences will show up later on. And then in terms of your second question regarding discontinued operations. I'm not sure I 100% understood your question, but you have in note nine on page 43 in the report, you have a disclosure of which parts that are included in the divestment groups and they are not 100% correlating with the previous segment definition. So there is a slight discrepancy, but was there anything else you were asking about regarding that?

Maths Liljedahl: No, no I just wondered.

So I should go for -- yeah, for the ones you provide today when I look at historical numbers then that is better then.

Carl Cederschiöld: When you consider the sale that's accurate. But at the same time, we are extremely keen on being as transparent as possible when it comes to -- for you guys to be able to track the development of the bank. So, therefore, we are disclosing as you know -- also in the fact book on page 29, we disclosed the historical way of accounting the P&L as well as the business segments of Denmark and Finland.

Maths Liljedahl: Yeah.

That was the one I used to compare to the old -- my old historical numbers from, yeah, let's say the fact book from Q3. But okay I'll get back to you on that if I don't solve it.

Operator: Thank you. And our next question comes from the line of Andreas Hakansson of Danske Bank. Please go ahead.

Your line is open.

Andreas Hakansson: Thanks, and good morning everyone. Two questions start with from my side. First one is on capital. You said that you have 550 bps of management buffer and then we could -- or you have 550 bps of buffer.

And if you take away SEK300 million, let's say SEK250 million, could you tell us about the moving parts? Consequently we had buffers coming back in over the next year, 1.5 years. How big is that going to be? What's your expectation via the overhaul? And also the discussion now about restructure FX positions, how big could that impact be? Could it be that you're actually not overcapitalized at all today? And is that why your dividend is actually quite small today? That's my first question. We can take that.

Carl Cederschiöld: Thank you, Andreas. It's a very good question of yours.

Yes, as you say we are 550 basis points above or 2.5 basis, -- percentage points above the target range. The countercyclical buffers we estimate to roughly SEK15 billion to SEK17 billion in effect. So that's obviously going from roughly zero to more or less two percentage points. The IRB overhaul we don't have any negativity and no negative estimates on, but it is to -- it is a bit premature to really know. We will have to see until the regulatory body comes back with information around that.

The structural FX position is obviously a slight negative. The decision they've taken, we don't agree with it. We have a really good discussion with them. When it comes to the consequences of that one it will be a mix of the way you choose to run your FX hedging. And since we're -- first of all obviously we're divesting Denmark and Finland and that will obviously take away part of the need to do structural FX hedging.

Then obviously, you have more tools in the toolbox. So it's far too early to understand, what the decision in the end will be. It is also too early to tell the way we will treat the issue. So no, we don't foresee any big negative consequence of that one. And therefore, that -- the topics you raised apart from the countercyclical buffers, that's not a major part of the decision around distribution.

Andreas Hakansson: Okay. Thank you. And then the next one, if I look on your -- this slide about net interest income in the quarter on page 12 in your presentation, you have the volume growth of SEK69 million positive and then you have margins and funding of SEK39 million negative. I like to look at margins in one go and then funding in one go. Because hasn't funding actually been a tailwind of late, as you've been able to replace wholesale funding with the deposit funding? And if you only would look at the margin impact, could you tell us how that would have been in the quarter?

Carl Cederschiöld: No.

As you know, we -- I fully appreciate your view of looking at the markets and the way you divide it. But that's not the way we divide it in the bank. Obviously we see that -- of course we've seen a trend for many, many years now. We have gone from -- we've increased the deposit funding quite a lot actually over the last five years and that's obviously a tailwind to our financing cost. And as you say there's many more components of it.

But that's the reason why we also choose not to break it down into components. But the positive thing around the quarter and the year as such, is that, we've actually seen our volume growth becoming more than the margin pressure. And that's actually quite a change and something we see even more transparent in some of the markets like Norway and U.K. So all else equal, we look positive to this.

Andreas Hakansson: Thanks.

And related to that, just finally on, -- we've seen rates rising in the U.K. and in Norway. When you commented on that you said that, it sounds like you believe there is going to be a slight positive impact at some stage. Could you tell us, when will the negative impact from the movement move away and you start to see the positive impact?

Carl Cederschiöld: Well, as you know, we don't really guide on that one. But what we can say is that, when rates move down in the first quarter of 2020 or second quarter of 2020, it was when rates moved to zero in U.K.

and Norway we dropped SEK400 million in net interest income. If we see the reversals now obviously some part of that will most likely come back as deposit margins increases. And it is also true that we have these notice periods in these markets. So for the first quarters when you see the hikes, it could actually be a negative development. But sooner or later, we'll filter through.

Andreas Hakansson: Okay. That's all for me. Thank you.

Operator: Thank you. And our next question comes from the line of Maria Semikhatova of Citibank.

Please go ahead. Your line is open.

Carl Cederschiöld: Hi Maria. [indiscernible]

Maria Semikhatova: Yes. Hello.

Thank you for the presentation. A couple of questions on NII outlook, yes can you hear me now?

Carl Cederschiöld: Yeah, we hear you.

Maria Semikhatova: Hello?

Carl Cederschiöld: We hear you, loud and clear.

Maria Semikhatova: Okay. Good.

Good. Yes. Thank you so much. Two questions, first on, NII, if we see a rate hike in Sweden auto sensitivity and potential benefit are specifically for the Swedish operations? And the second question on capital return, you extended the mandate for a buyback and you haven't executed anything for a number of years. Just can you provide a bit of clarity? Is it just a formality that you have this mandate every year, or maybe you're thinking after the completion of Denmark and Finland, there could be a potential return and you actually can execute the buyback? Thank you.

Carl Cederschiöld: Thank you, Maria. Well, the first question is the consequences from a rate hike in Sweden, if we were to be one. No. We don't guide on that one. And the reason for that one is, obviously, we live in a competitive landscape.

We will have the banking tax affecting prices. We will have a rate hike affecting the margins. There's many components affecting the competitive landscape. Our ambition is to be competitive. We like the mortgage business.

We like the lending business as you know. But the outcome on the margins we will have to wait and see. It will be dependent on many factors. When it comes to the equity buyback scheme, it's – it doesn't have a one-to-one correlation at all with the Denmark and Finland decision. When we've divested them and we have the money in the wallet, we will get back to you and tell about how we will repatriate capital on that circumstance.

Peter Grabe: And then just regarding your question whether it's a formality. I think if you look back historically, you will see a similar formulation in each Q4 report.

Operator: Thank you. And our next question comes from the line of Nicolas McBeath of DNB. Please go ahead.

Your line is open.

Nicolas McBeath: Thanks. So first a question on UK. So you talked very positively about the outlook for UK following the years of internal focuses on processes. So – but there are no signs yet in the numbers from what we can tell of improvement there.

So – could you share some insight there? Are you already seeing indications of improving business momentum in the UK. And when should we expect to start this translating into better volume growth or revenue trends in the UK, please?

Carl Cederschiöld: Yes. Thank you, Nicolas for that question. Well the way we've obviously seen a struggling development in UK for many years. And we've obviously, adapted to that one.

So we made quite a lot of changes to the way we run our operation within the bank. And first of all obviously, you saw quite a lot of restructuring going on last year where we changed from five regional banks to one country operation we improved part of the digital operations. So we've already seen the trend of the costs are starting to change. And as we've said is that we have for many years now spent a lot of time to focus really on going through all the client files and do the remediation process. That has costed us quite heavy in consultant fees and also taking the energy of the staff to focus on internal perspectives.

This is now finished. So that obviously, makes us believe that being a bank with a really, really strong distribution network, having the highest client satisfaction in the country, being accounted with SEK 67 million in population and the clients are really happy with us. Obviously, that makes us believe that we actually can start changing the income line as well. And if you were to see cost dropping income increasing it can – things can change quite rapidly. So that's the reason why we're optimistic.

So a lot of changes has been made. But yet as you've obviously seen, no changes to the top lines yet but we look positive.

Nicolas McBeath: Yes. So just a quick follow-up on that. So if we compare the cost level now in the UK compared to – prior to Brexit I think it's around SEK 2 billion higher in Swedish currency.

And yes, I think the cost income ratio is around 20 percentage points higher. So do you think there's more potential for cost reductions in the UK beyond what is included in the benefits that you talked about in your SEK 1 billion cost savings in total for 2022 to bring it closer to the previous cost level? So do you think that because efficiency in the UK has been structurally worsened since the reorganization?

Carl Cederschiöld: I definitely think that since the reorganization and running the operation as a plc, it is more costly. But that's – it is another side of that coin as well. And that's that we are very well suited actually to assume growth and to leverage out of that one. And being UK is obviously from our perspective, it is the home country with the highest standards when it comes from a regulatory body.

And that's obviously challenging for the UK and for the figures in UK but it's also something which the rest of the bank can actually piggyback on and learn a lot from. So we don't foresee us going back to a cost level pre-Brexit not at all. But we'd rather see the – but us being able to use the consequence of that cost base in a positive manner.

Nicolas McBeath: Okay. And then my second question on the outlook for development, IT development costs in 2022.

Do you expect any meaningful changes here versus 2021? And related to that you write in the report – continue to write in the report that the SEK 1 billion in additional development cost over 2021 and 2022 are temporary. So do you still or does this mean that you anticipate IT development costs to come down in 2023, or will there be other reasons to have elevated development costs beyond this year?

Carl Cederschiöld: Yes. No, we don't have any other guidance on 2022. I mean we will keep on working according to the plan of the extra billion and the other IT development is also no changes. So no change in 2022.

Yes, we are guiding on that the plan we are – the plan we initiated about a year ago were a bit more. We're following that one. So that will drop-off. Obviously, we've also guided last quarter that – moving into – as you see, we have three home markets now which is moving extremely positive. Two of them have cost-to-income levels between 30% and 40%.

Sweden is having an ROE, of between 15 and 16 percentage points and we see strong momentum in Norway. If we foresee, really good business momentum, we will try to invest to find that. That doesn't mean that -- and if so, we will get back to clarity around these issues with you. So we don't foresee the development being prolonged at these levels, but we might also see investments coming through later on. But then we will get back to that one.

Q –

Nicolas McBeath: Okay, perfect. Thank

you
Operator: Thank you. Our next question comes from the line of Namita Samtani of Barclays.

Namita Samtani: Hi. I've got two questions, please.

Firstly, can you explain what's going on in Norway, the contribution to net interest income from volumes is negative this quarter and there's barely any contribution from margin and funding costs, despite a rate rise? And secondly, a question related to the sale of Danish and the Finnish operations. I'm just struggling a bit, if I do the math, because the positive impact of the RWA release versus the earnings loss from divesting these businesses, say if I put these businesses at nine to 10 times CE, they're basically counting each other out. So is there something, I'm missing out or perhaps the businesses will be sold for above book or there's a positive tax treatment or some capital add-ons being taken off for exiting these countries? Thank you.

Carl Cederschiöld: Let me start with the Danish and Finnish question. And then, I mean the strategic decision to divest from Denmark and Finland is based purely on that -- we saw challenges in growing, as we wanted in these two countries.

It would come at a high cost. And what we've told you earlier on was the contribution of income and cost lines where obviously, Denmark and Finland operations were harming the cost-to-income levels within the bank quite a lot. When it comes to the risk-weighted assets, if we divest this one the drop in risk-weighted assets we will have to come back with. But as we've guided on before is that, roughly we'll take away a CET1 ratio demand of SEK 12 billion-ish. That's the estimate we have.

The number of the actual -- what the sale will be valued at that's a question for the future. And obviously, will depend a lot around that figure when it comes to measuring the P&L impact vis-a-vis what we get paid. I don't know if that was an answer on your question, but otherwise you will have to get back on that. And please, Pete?

Peter Grabe: Yes. Well in terms of Norway, the household lending volumes are up 1% in the quarter.

Corporate lending volumes are down 1%. Corporate lending volumes are usually a bit more volatile in household lending. And I think that's all we can say in terms of the, volume development in Norway. I don't know, if that answers your question.

Namita Samtani: Yes, that's fine.

Thanks very much.

Operator: Thank you. Our next question comes from the line of...

Carl Cederschiöld: I can add -- perhaps I can add to that one. That if you -- over time when you look into the Norwegian volumes, is that we obviously -- the core focus of the bank to the sectors we're focusing on has seen a really good development.

But we've also divested a few of the volumes when it comes to sectors, we don't prioritize on. So you will have gross movements in each direction coming back to the levels here. So we look positive on the underlying development in Norway definitely, when it comes to lending volumes. Sorry. Please go on.

Operator: No problem. Our next question comes from the line of Rickard Strand of Nordea. Please go ahead. Your line is open.

Rickard Strand: Hi, thank you.

Starting off with a question on costs. So the SEK 2 billion in gross savings potential that you see that have not yet been realized but you had planned for. Could you share some color to the timing of when you expect this to be fully visible in your cost development excluding then the divestment of Ecster? Is that by the end of 2022, or will it take longer you think?

Carl Cederschiöld: Thank you, Rickard. Well a good question of yours. Obviously, when it comes to the SEK 2 billion, which are not yet realized, one of them is already agreed and negotiated.

So that will filter through now during 2022 definitely will be realized during the year. The other SEK 1 billion as you say is dependent on a few things. And we've highlighted that it is both efficiency within the Swedish organization and central departments. It is a drop in cost when it comes to the financial crime prevention in UK -- and it also divestment of Ecster. Obviously, Ecster is uncertainty around the FCP drop in UK will filter through during 2022.

And the effectiveness or the efficiency around the Swedish operations and the central departments, we plan on executing on this year but -- and we will have to get back and see exactly when it filters through. But that's some granularity for you.

Operator: Thank you. Our next question comes from the line of Jens Hallén of Carnegie. Please go ahead.

Your line is open.

Jens Hallén: Thank you very much. And first one on cost. I mean, there are quite a few moving parts here. And I just wanted to get your view on what the correct baseline is now for 2022.

And are we looking at the SEK 19.2 billion underlying cost plus SEK 0.5 billion of development costs, plus the SEK 1.2 billion in bank tax, less the SEK 1 billion on cost initiatives that should be built in through, i.e., just below SEK 20 billion. And then, of course, any expectations for inflation in Oktogonen? Is that how you view cost now going into 2022 as well, or am I missing something?

Carl Cederschiöld: I have to look at my paperwork, what you said now is that -- we don't -- the way I would explain it is that we have some moving parts as you say. We obviously have IT development or IT costs. And what we know is that, we will spend a bit -- we will have an increased spending in 2022 as well. The outcome of the -- how much is taking over balance sheet or upfront cost is to be -- or we don't know that.

But -- so that's one part. Then we obviously have the cost initiatives, which we should see still taking down cost SEK 2 billion going forward from this level. Then we obviously have normal cost inflation, which we might estimate to 2 percentage points. The outcome we will have to see. It's obviously a huge debate around inflation.

But so far, we can't say that we see any major difference there. Yes, as you say, we will have the bank tax coming at it, which will actually -- and I might be proceeding that question now. But our view is that, that will be amortized over the income line on net interest income. So if that's a cost of yours, it's rather actually a negative hit on income, but still. So I don't know if that was an answer to your question, but that's the way we view the different components.

Jens Hallén: Okay. Fine. And I think, if I do that math reasonably quickly, that comes out to somewhere around SEK 21 billion, plus some Oktogonen contributions. Okay. Second question is on the discontinued operations, because clearly unless you sell it now, it's going to be here for the next few quarters.

And then I wanted to understand whether Q4 is a good starting point to look at adjusting for the card business and the impairment. And were there any other sort of temporary effects in the quarter? Of course, it was a lot -- it was down a little bit from Q3.

Peter Grabe: No I think it's a fair basis to start from. But then, as we touched upon in the report, we have the euro liquidity in Finland, which is now taken over the discontinued operations. And as Carl mentioned, this will be transferred to the Netherlands during the course of Q1, meaning that give or take SEK 100 million or so with full effect will move from discontinued operations to the continuing operations and then into the other segments.

So that is, I would say, the thing you should bear in mind when you make discontinued a starting point at this point.

Jens Hallén: Okay. Perfect. Thank you.

Operator: Thank you.

Our next question comes from the line of Sofie Peterzens of JPMorgan. Please go ahead. Your line is open.

Sofie Peterzens: Yes. Hi.

Here is Sofie from JPMorgan. So your dividend was SEK 5 per share, which was a little bit less than what the market had been expected. I was wondering, could you elaborate a little bit on the growth opportunities that you mentioned? Kind of macro uncertainties, I guess, it's pretty clear with the contracyclical buffers going up. But growth opportunities; are you purely considering organic growth opportunities, or are you also considering any inorganic growth opportunities? And if you're considering inorganic growth opportunities, where would that be, in Norway or U.K. So that would be my first question.

Carl Cederschiöld: Thank you, Sofie. Yes, I understand that some would have thought we should have paid out a bit more. But, yes -- no, we obviously see good growth opportunities. And first of all, when it comes to an uncertain marketplace that is actually the timing where normally Handelsbanken grows a bit quicker vis-a-vis our peers. So if we see even further market turbulence, it might hit the bond markets.

We obviously are focusing quite a lot on real estate clients. Real estate clients might have a bit more trouble financing themselves in the bond markets. We want to have a balance sheet which can support them going forward then. So moving into more problematic markets might actually mean more possibilities for the bank of us. Then when it comes to growth perspectives, yes, we have a good business momentum in Sweden where we grow quite a lot.

We obviously have talked a lot about U.K. and what we think is turning in to become a growth story rather from being in contraction. And we also obviously are really interested in growing in Norway. We don't overrule inorganic growth, but we also spend the majority of focus definitely on organic growth. If we -- I don't have any more comments around where we would pursue inorganic growth if so.

Sofie Peterzens: And if there is an inorganic growth opportunities, what would be kind of key metrics that you would look at kind of in terms of size product...

Carl Cederschiöld: It becomes a bit theoretical this. I'd say like this, I mean have our core focuses. We like the core markets. We like the core product areas.

If we were to think of inorganic growth, it would be in these segments. But it is for you to speculate around numbers, not us.

Sofie Peterzens: Okay. That's clear. And my second question would be on the fees.

When I look at your fee increase this quarter, it was very strong, but it's pretty much all explained by mutual fund performance. How much of that performance is kind of linked to just a few specific funds and also how much of that performance -- or did you get any performance fees that kind of boosted SEK 110 million or so increase in mutual fund fees this quarter and kind of eastern markets perform? If we would see flat performance in the market this year, what would that mean for your mutual funds?

Carl Cederschiöld: Yes. Thanks, Sofie. We'll obviously, first of all, as we've had a tailwind for many years now in mutual fund business. So of course, we're positively affected by the strong equity market.

So that's something for you to take into consideration. Then, when it comes to the flows and the fund flows in it, I must say that I've obviously been working that business. And when I was there we had a really strong Swedish operation and we put a lot of emphasis in trying to build a non-Swedish operation. I am extremely pleased to see now that we're growing SEK 15 billion outside of Sweden. And that's obviously a really -- it's starting becoming actually a really diversified net fund growth story and that's really, really positive.

When it comes to the specific sectors of it, I don't think it is -- or it isn't actually going into one fund or another. We had an exceptional year in 2020 where our sustainable energy fund obviously accrued a lot of flows. But since then, it is much more spread out story actually there. It is true, as you said that in the fourth quarter we had a performance fee in our Dutch Asset Management business. And that's obviously something actually quite strange in our progress.

We haven't seen performance fees. We don't have performance fees on a lot of our fund flows. So, that's something we look we're extremely positively surprised by it, but you shouldn't extrapolate any performance fees going forward. And our fund business isn't sensitive to performance fees in general.

Sofie Peterzens: Thank you.

That’s clear.

Operator: Thank you. And our next question comes from the line of Robin Rane of Kepler Cheuvreux. Please go ahead. Your line is open.

Robin Rane: Hi. Thank you for taking the questions. So, I mean keeping some -- keeping excess capital like you do, I think you have the lowest payoff ratio of Nordic peers so far. Would you consider altering the circulation or even I mean consider -- when you consider Oktogonen payouts to adjust for the excess capital that you retain? That's my first question. Thanks.

Carl Cederschiöld: Well, I think another way of putting it is that, the way you think about payout ratios are obviously, yes, many of the banks are paying out. But being a bank now with a return on equity perhaps a bit above 12% and growing at this magnitude, if we can improve that growth we believe that's a really profitable growth story which should benefit all of your shareholders. So, obviously -- and you are correct in the sense that there is noise around the whole distribution debate and many people are being measured around. There is obviously in conflict paying out more to boost your return on equity. We will never ever do a strategic move as that.

And obviously that's something to consider yes, when it comes to the way your incentive schemes are. But nothing on the agenda right now.

Robin Rane: Okay. Thank you. And then you mentioned that you do not have an absolute cost target now going forward.

But what is then your -- what would you say is a normal cost-to-income level to run a bank at in a couple of years' time?

Carl Cederschiöld: No. I mean we've obviously said that with the cost initiatives we've highlighted and with the absolute cost target we had, even though we've abandoned the absolute cost targets, we obviously keep on focusing on the cost initiatives. And we said that these cost initiatives were going to lead the bank to a cost-to-income level sub-45. And then obviously, we've also said that we are divesting Denmark and Finland, which had a higher cost-to-income level. So, the consequence on that one will most likely not the cost-to-income level.

So you should think about us trying to run the bank somewhere between 40% and 45%.

Robin Rane: Okay. Thank you.

Operator: Thank you. And our next question comes from the line of Jacob Kruse of Autonomous.

Please go ahead. Your line is open.

Jacob Kruse: Hi. Thank you. Just two quick questions.

First on the commission income slide, just the movement in the payment commission in the quarter. Is that now the sort of normalized view of payment commission expenses coming down quite a lot and then a much smaller reduction in the payment income? So, is this sort of normal, or is there anything sort of disposal related in those numbers? And then just my second question, just to come back on cost just to understand you're talking about the SEK 1 billion gross cost reduction to come this year after having realized SEK 1 billion last year. But then you say your underlying cost last year was down by about SEK 100 million after accounting for the inflation. Is that SEK 100 million net reduction a reasonable guide to this year as well, or was there something in 2021 that shouldn't happen again in 2022 on the underlying side? Thank you. Carl Cederschiöld : Well, let me start with the second question and then Peter can take the first one.

No that's a really good question of yours. Obviously, we are guiding to that we will see another SEK 1 billion being realized in 2022. And as you said, we've obviously seen now a realization of SEK 1 billion in savings in gross terms, but only SEK 100 million in net terms. When it comes to that, you have some counter effects then. First of all, you have a wage inflation or cost inflation.

But if we guide that to be roughly two percentage points that's not taking out – taking the entire cost decreases away. So the other consequences as well is that, we have some of the obviously being a bank now which restructures quite a bit of the bank and are putting some things up sale et cetera that actually do increase some of the one-off costs in the bank. We won't guide on that one. But obviously that is something, which affects the cost line to a certain degree. You shouldn't extrapolate this going into 2022, and say that when we realized another SEK 1 billion, it will only filter through to SEK 100 million net savings that we will have to see that going forward.

Peter Grabe: And then in terms of the payment fees, the gross numbers are lower due to the fact that we divested the card acquiring operation in Q4. So that's the explanation. Both on the payment income and payment cost side.

Jacob Kruse: Yeah. So just to be clear, your payment expenses dropped by about SEK 150 million and your payment revenues go down by I guess SEK 70 million.

So is that kind of benefit to net payment commission income the effect of the divestment? Because it seems a little bit counterintuitive that you do sell it, but you get the net commission uplift?

Peter Grabe: Let us come back with the details on that. But generally speaking, you can say that, in the car business activity was higher in Q4 as opposed to Q3. So that's sort of the general answer. But when it comes to the details on your question, let us touch base after this call and we can go through all of the details.

Jacob Kruse: Sure.

Thank you.

Operator: Thank you. Our next question comes from the line of Martin Leitgeb at Goldman Sachs. Please go ahead. Your line is open.

Martin Leitgeb: Yes. Good morning and thank you for taking my question. Could I just follow-up on the comments you made earlier with regard to the rate sensitivity in Sweden. And I guess, you're hinting at competition. I assume this is more on the asset side as opposed to on the liability side, if there was to be a rate hike in Sweden.

Is the assumption that, if there would be a rate hike that there would be a limited pass-through on mortgages? And related to that, I was just wondering how do you think about the outlook for the mortgage lending business in Sweden as we head into 2022? 2021 obviously marked a very strong house price progression and growing in system mortgage volumes. Would you expect it to slow somewhat this year? Thank you.

Carl Cederschiöld: Thank you, Martin. Well, obviously rate sensitivity and that's the reason why we don't try to break it down on the consequences on the asset side and the liability side obviously that – the consequence on the total margin gain will be a mix of the competitive landscape and the obviously funding levels vis-a-vis the pricing terms to the client et cetera. And it's many moving components there.

So we don't have any guidance on the consequences of a rate hike going forward. The other question of yours is the outlook for the mortgage business moving into 2022. I think, there as well, I mean, obviously it's been a fierce market. Prices have gone up quite a lot. There are components, which should make the market perhaps cool off a bit.

But apart from that one we've also seen demand being extremely resilient going into in the past. What we see now is obviously, if the market were to turn a bit more problematic, that's obviously usually quite a good place for Handelsbanken. And then, the competitive landscape could ease off a bit. And we obviously have a balance sheet to support our client needs. So we really like the mortgage business.

We're not here to make guidance on think, we don't build our business model based on being just superior when it comes to markets moving up or down we want to be here for the long-term.

Martin Leitgeb: Thank you. Can I just follow-up on your common prices having gone up in mortgages? Is that something recent that you have seen headline pricing go up? Is that something you would expect to continue sort of a pricing point being better, from what we have seen over the last month?

Carl Cederschiöld: No, we don't have any view on that one, no.

Martin Leitgeb: Okay. Thank you very much.

Operator: Thank you. And we currently have one final question. That's from the line of Rickard Strand of Nordea. Please go ahead. Your line is open.

Rickard Strand: Hi. Sorry, my line broke the previous time, I asked questions. So I'll just shoot my second question here now. So in terms of the Swedish mortgages, in Q4 you continue to increase the gap between your front book market share and the back book market share of around seven percentage points. Just wanted to hear your reasons around the current development, if you think that this is something temporary that it continues down your front book market share given the sort of Swedish restructuring or if you expect that to pick up going forward, or if you are okay with this sort of gap, given that you would rather sort of defend your margins?

Carl Cederschiöld: Thank you, Rickard.

It's obviously a good question. No, I think from time-to-time I can feel that the market is too much focused on the market shares. And obviously, what we see now is a really, really strong level of growth when it comes to the lending business. And that's a component of both household lending and also corporate lending. It is true, that we saw some -- during the last quarter of last year, we saw some drop in our market share when it comes to mortgage lending.

We obviously like that business. We put an enormous amount of effort into our presence there. So you should not at all expect us to be satisfied when we dropped market shares there, having said that, if you look at corporate market shares, as you can see the opposite direction there, so we're actually strengthening the perspective there, so we definitely want to be strong in the market in total. Then when it comes to I think some facts actually to highlight, when it comes to household lending is that we had a market share of -- or we had a growth level of Swedish mortgages at 5.2 percentage points as you highlight. The -- in the total bank we actually really had 6.5%, so in remaining business -- in continuing business.

So that's quite a good number actually. So market shares are a component of growth levels. And we really like to grow in lending.

Rickard Strand: Okay. Thank you.

Operator: Thank you. And as there are no further questions, I'll hand back to our speakers for the closing comments.

Carl Cederschiöld: Yes. Thanks for that one. No, as we said, as Carina said on the conference earlier on and as I continue to say, I think we're posting a really, really strong quarter.

We're happy to see a lot of the efforts, Carina initiated three years ago is actually being seen in the figures now. We have seen cost taking -- we have seen us taking control of cost for a few quarters or a year now. But now you also see the continuation of a positive income development which we really, really like. We obviously play conservative when it comes to the capital situation, but that should be seen as an aggressive move actually because we believe that we can find growth and that -- and we really want to be able to pick that growth when we see it as well. So, no, we're really happy with the quarter.

And thanks for all the discussions and the good questions. And hopefully, speak to you soon. Thank you.