On Friday, Swedbank (OTC:SWDBY) discussed second-quarter financial results during its earnings call. The full transcript is provided below.

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The full earnings call is available at https://access.creomediamanager.com/registration/61362474-9498-4b0f-8c8e-f1dfcca6c295?ref=https%3A%2F%2Fswedbank-live.creomediamanager.com%2F61362474-9498-4b0f-8c8e-f1dfcca6c295

Summary

Swedbank AB reported a strong quarterly profit of 7.2 billion Swedish kroner, with an adjusted return on equity of 15.5% and a cost-to-income ratio of 0.39.

The company settled a $50 million fine with the New York State Department of Financial Services, concluding all investigations into past compliance issues.

Swedbank's strategic initiatives under the Swedbank 1527 plan focus on customer interaction, business volume growth, and efficiency, with AI solutions being introduced to improve operations.

Lending volumes increased by 2% during the quarter, and net interest income grew by 1%, despite pressure on lending margins.

Strong performance in the Baltic regions was noted, with mortgage and corporate lending seeing significant growth.

Swedbank's CET1 capital ratio stands at 17.4%, and the company is targeting a mid-range capital buffer of 200 basis points.

Asset quality remains solid with credit impairments at 313 million Swedish kroner, and the company is optimistic about future growth and profitability.

Full Transcript

Maria Kahneman, Head of IR

Morning. Thank you for dialing in this morning. I am Maria Kahneman, head of IR here at Swedbank. Welcome to our second quarter results. I'm joined today by CEO Jens Henriksson and CFO Jun Lindeveld. We will first listen to their presentations and then you will have an opportunity to ask questions with that. Over to you, Jens.

Jens Henriksson, CEO

Thank you, Maria. Swedbank has once again delivered a strong result in uncertain times. The global economy continues to show resilience despite geopolitical tensions. Last week the IMF projected a modest slowdown in global growth this year. Technological development and especially AI is offsetting some of the negative effects from geopolitical tensions. The global economy is being pushed in opposite directions. Our economists estimate that the GDP of Sweden, Estonia and Latvia will grow by around 2% this year.

Lithuania is expected to see stronger growth by around 3%. In these uncertain times, Swedbank has once again delivered strong results and the quarter was characterized by a clear customer and business focus. Profit for the quarter amounted to 7.2 billion Swedish kroner. If we exclude the extraordinary cost related to the restructuring program announced last quarter, we return on equity amounted to 15.5% and the cost to income ratio to 0.39. Earnings per share was 6 kronor and 37.

Our credit quality is solid. Credit impairments were 313 million Swedish kronor corresponding to 6 basis points. Swedbank has a strong capital and liquidity position and our CET1 capital buffer amounts to 2.6 percentage points. During the quarter, both Fitch and Moody's raised Swedbank's credit ratings in their decisions. They highlight the bank's strong capitalization, good credit quality and stable risk profile. Yesterday, Swedbank reached a settlement with the New York State Department of Financial Services to pay US$50 million for failure to disclose information to the authority on two occasions, once in 2016 and once in 2018.

With this settlement, all investigations into Swedbank's historical shortcomings have been concluded and we can now put this behind us. Our customer promise is to make our customers' financial life easier and we continue to deliver on our plan Swedbank 1527. It's a plan with a clear customer focus to strengthen our customer interactions, grow our business volumes and increase our efficiency. As part of this, subsidiaries have been moved into the business areas to further increase focus on business and customers and the bank's savings business have been moved into a unified organization.

Swedbank Ruber and Swedbank Vesseling, our insurance company, are now part of premium and private banking and the name of the business area has thus been changed to wealth management. During the quarter we had strong lending growth and the activity in advisory was high. And we have a clear business momentum across all our markets. Through high availability and stronger business focus, we can further support our customers with financing, savings and advisory.

Our proactive work contributed to high activity in the mortgage business during the quarter and during the first two months of the quarter we captured around 20% of total market growth in Sweden in our own channels and this reflects our goal to grow more than or at least in line with the market. We also saw continued strong growth in Estonia, Latvia and Lithuania and our mortgage portfolio increased by 3% in local currency. The high level of activity is also reflected in the positive development in our savings business.

Growth was driven by strong net income flows and positive market development. And the net inflow to Swedbank Ruber was 22 billion Swedish kroner. Among strong competition, two additional Swedbank ruble funds were selected to the Swedish premium pension system and this reflects the strength of our offering. The bank's corporate business continues to develop well. Our clear customer focus is producing results and corporate lending grew by 18 billion.

The growth was driven by several sectors and mainly by the real estate sector. We also saw high demand for bond issuance and in continued times of uncertainty we support our customers and the activity in corporate advisory increased. The interest in sustainable products remains high. Around 40% of the bonds we arranged during the quarter were classified as sustainable and our sustainable asset register now amounts to 179 billion Swedish kroner. We constantly work to develop the bank and our customer offering and we see that AI solutions used within the bank are producing clear results.

For example, we recently introduced an AI solution that will be rolled out to all employees during the year. Oken, as it's called, will contribute to higher quality security and efficiency and not the least cost control. And speaking about cost control, I'll hand over to our CFO Jun Liedeveld.

Jun Lindeveld, CFO

Thank you, Jens. We deliver a strong quarter characterized by high business momentum and continued focus on long-term shareholder value. The return on equity was 15.5% and cost income ratio 0.39. Excluding the extraordinary costs, including the 860 million in extraordinary costs during this quarter, return on equity was 14.2 and cost income ratio 0.43. We are delivering on our plan Swedbank 1527 and the restructuring program presented in Q1 is progressing according to plan.

Lending volumes increased by 2% during the quarter supported by strong activity across all core markets and business areas. In Sweden, mortgage volumes originated through our own channels increased by 7 billion in total. Mortgage volumes increased by 8 billion. The positive trend in corporates and institutions continued with 16 billion of loan growth. In Baltic banking, growth momentum remained strong. Mortgage volumes increased by 4 billion and corporate lending by 2 billion, supported by demand across sectors.

Deposit volumes continued to trend positively during the quarter, primarily driven by private deposits. In Sweden, private deposits grew in general. Corporate deposits also increased but were offset by a decrease from a few larger institutions. In Baltic banking, private deposits grew by 14 billion kroner mainly due to the Lithuanian pension reform which also impacted corporate deposits negatively. Net interest income increased by 1% compared with the previous quarter, mainly driven by higher market rates in Baltic banking and the generally higher business volumes.

Lending margins continued to be pressured while deposit margins increased. FX and day count effects had a positive impact of 127 million. Funding costs increased during the quarter, primarily driven by higher market rates early in the period. This was partly offset by higher income from central bank placements. As a reminder, changes in mortgage rates typically flow through to our lending portfolio with a lag of approximately three months in Sweden and six months in the Baltics.

Overall, our interest rate sensitivity is as expected with the effects on funding materializing ahead of the asset repricing. Net Commission income increased by 7% compared with the first quarter. Asset management commissions benefited from strong stock market performance, positive FX effects and high net inflow of 22 billion. Total assets under management increased to 2.9 trillion. Payment related income continued to develop well with seasonally higher cards income.

Insurance income was lower mainly though due to the annual profit sharing from insurance partners that was booked in the first quarter. Net gains and losses was high in the quarter with strong underlying customer driven result characterized by high business activity primarily in fixed income and debt capital markets. Net gains and losses was further impacted by positive treasury revaluation effects. Other income increased by 23% in the quarter, mainly driven by stronger result from the insurance business in Baltic banking due to claims normalizing and positive revaluations.

Results from associated companies improved and as a reminder, our collaboration with the savings banks includes cost sharing for IT development and administrative services. The compensation received from the savings banks is recognized within other income, while the corresponding costs are included in our total expenses. Costs developed as expected and in line with previous communication. We incurred 860 million of the announced 1.3 billion extraordinary costs for 2026.

Adjusting for this underlying cost, follow the usual seasonal pattern and are somewhat higher in the quarter due to the annual salary revision in the Baltic countries. Our cost guidance of 27.5 billion for 2026 is unchanged. It is excluding extraordinary costs and FX. As we said in Q1, by the end of next year we expect our FTE level to be around 16,800. This is an effect of the restructuring program where we are strengthening our foundation for future growth, enhancing efficiency, supporting capital generation and our ability to deliver attractive and sustainable returns to shareholders over time.

In 2027 we will continue to have an elevated investment level related to this. But as the synergies will start to materialize, I expect them to offset the additional costs in 2027. By the end of 2028 the changes are expected to be fully implemented delivering a lower cost run rate of 1 billion Swedish kroner. Asset quality remained solid. Total credit impairments amounted to 313 million or 6 basis points. Macroeconomic assumptions were updated during the quarter adding 108 million.

Rating and stage migration added 462 million and was primarily impacted by a few corporate customers and by the updated macro assumptions. As a consequence of the updated macro scenario, the post model adjustment is reduced by 109 million and now amounts to 161 million. Individually assessed provisions decreased primarily related to a limited number of corporate customers where stage three exposures have been resolved. MTACard added 116 million to total impairments driven by model adjustment.

Overall, we continue to see a resilient credit portfolio supported by prudent underwriting standards, strong collateralization and a well diversified lending book. Our CET1 capital ratio at quarter end was 17.4% corresponding to a buffer of 260 basis points above regulatory requirements, highlighting our strong capital and providing substantial flexibility to support customers' growth and shareholder value creation. And with that, back to you, Jens.

Jens Henriksson, CEO

Let me now summarize. Swedbank has once again delivered a strong result in uncertain times. We present an adjusted return on equity of 15.5%. The quarter was characterized by high activity and we have a clear business momentum across all our markets. We've had strong growth in our lending, the activity in advisory was high and we are well positioned for continued growth and profitability. We continue to deliver according to Our Plan Swedbank 1527.

With strengthened customer interactions, increased business volumes and improved efficiency. Our customers' future is our focus. And with that, back to you, Maria.

Maria Kahneman, Head of IR

Thank you. We will now begin the Q and A session. Kind reminder to please limit yourselves to two questions per turn. Operator, please go ahead.

OPERATOR

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone, you will hear a tone to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of Jakub Eslevik from SEB.

Please go ahead.

Jakob Eslevik, Analyst

Good morning and thanks. My first question is on capital. Now that the DFS settlement removes the last major outstanding legal uncertainty, how do you think about the appropriate CT1 buffer going forward? And does this change the calculus around capital returns to shareholders, whether through buybacks, dividends or both?

Jens Henriksson, CEO

Thank you. As you know, we have a capital buffer range between 100 and 300 basis points. And in our 1527 plan we target the middle of it, that is 200 basis points. And as you know, we have a dividend policy of 60 to 70% and capital release above our dividend policy continues to be a judgment call. With all the US investigations behind us, the uncertainties have of course diminished and we have no intention of holding more capital than necessary.

Jakob Eslevik, Analyst

Perfect. But if I remember correctly, Jens, you have said before that you were open to the possibility of calling an extra AGM once all the investigations were closed and do an inter year dividend distribution. Has this changed or how do you view the excess capital that you currently sit on?

Jens Henriksson, CEO

Well, I have no recollection of saying that we have an AGM each and every year and have no plans to do something different.

Gulnara Seidgulova, Analyst at Morgan Stanley

Hi, good morning and thank you for taking my question. So, on the market shares in Sweden, previously you've mentioned that you were working to regain market share in Sweden with their objective of gradually bringing the front book performance in line with the back book. Can you elaborate? How is that progressing? And could you provide an update on the initiatives that you have implemented to support this effort?

Jens Henriksson, CEO

Well, thank you. That's a question I love, but let me sort of go on top and take the overall perspective because we are the market leader in all our four home markets. First, let me say a few words of the Baltics or Estonia, Latvia and Lithuania. And we see continued growth, as Ewen pointed out in his slide. And during the quarter volumes increased by 4 billion. Now if we go to the Swedish housing market, it has improved. It's a combined effect of new mortgage rules and a stronger domestic economic sentiment and so have our mortgage volumes.

And I don't need to remind you but a few years back we had low volumes and in April, in May then we have sort of comparable results from the Bureau of Statistics. We had around 20% front book market share in our own channels. Why? Well, the reason is we are available. Last time I called up in Sweden we had a waiting time of 14 seconds to get in touch with sort of an advisor. I haven't called Estonia, Latvia, Lithuania. I will probably do that later on, see if they beat them.

We are faster and we have a strong business momentum. We can be better. But it's very cool that we are sort of seeing these advances. If we look at the market, it's characterized by strong competition and low margins. The margins are on historically low level and our focus then is on availability, speed and forward leaning attitude. And when you have these volumes we will of course use this momentum to increase our customers' share of wallet and everything in line with our plan.

Swedbank 1527 strengthening customer interactions, growing volumes and increasing efficiency.

Gulnara Seidgulova, Analyst at Morgan Stanley

And more broadly for Swedish market, what conditions would need to be in place lending margins to stabilize and begin contributing positively to the net interest income? What is yet the key factors that would allow the current margin pressure to ease?

Jens Henriksson, CEO

Well, the first thing is of course if you look on history you would expect that but we don't see it. It's a tough competition and there are a lot of providers there. Of course we see that volumes are up. We are not really to where we were before but I think we're seeing that continued interest and the new amortization rules have it a bit more easy for customers to increase while it also made it a bit more difficult for those who want to have mortgage more.

OPERATOR

The next question comes from the line of Martin Exted from Handelsbanken. Please go ahead.

Martin Exted, Analyst at Handelsbanken

Just picking up on Jakob's question around capital repatriation. So before the AML issues broke out, I recall you had a 75% give them payout ratio target. Would it not perhaps be a fitting end to the story if you return to that now that you seem to have the headroom. I mean we both enter card and payex earmarks of divestment might add perhaps 25 to 40 basis points further of quarter one. And that's my first question.

Jens Henriksson, CEO

Thank you, Martin. I mean as you know the dividend policy of course ultimately up to the board of directors to set. But the reason for having the 60 to 70% it is balanced so that we can capture good growth on markets without having to be limited by the dividend policy. So we think it's a balanced policy, ensuring that we can focus on long term shareholder value and have a balance between growth and giving back capital to the shareholders.

Martin Exted, Analyst at Handelsbanken

Okay, thank you. And then secondly we saw some staged migrations impacting long loss provisions attributed to, as I think you wrote, a few re-rated corporates. Can you share with us a little bit more in which sectors these are concentrated in, if any? And do you see these as isolated events or early signals of something in some market or another?

Jens Henriksson, CEO

Yep. Thank you. I think first of all there are a couple, if you look at the slides that I showed, there are a couple of these bars that you need to look together. Macro and post model, they need to look at together. And then you also need to look at the rating and stage migration together with the individually assessed bar that is reducing because there are movements between this. But having said that, so if you add those together you see that it's around 26070 in provisions. It is related to individual customers in CNI and Baltic banking, mainly a few customers, no particular sector, no particular trends. So it's nothing that I'm worried about or anything that concerns us.

We have these movements up or down from time to time when you have lending and now it's also, as I said in the speech, impacted the macro change sort of has also an impact on the movement or the amount when you move between stages.

OPERATOR

The next question comes from the line of Andreas Haakanson from Nordea. Please go ahead.

Andreas Haakanson, Analyst at Nordea

Good morning. Well, I normally make fun of anonymous congratulating management, but I think Stefan, with all the US investigations now, I think congratulations are in order. Actually then to my question, first of all on the net interest income, I mean we missed, we were a little bit above and I was surprised how much funding you did in the quarter. So first part of the NI question is that do you feel that you're now pre-funded basically the whole year given that you grew both your deposits and your covered bonds quite significantly and relating to the NII as well.

I mean it's the negative impact we saw in the second quarter, very much driven by the rise in Skyborg that drove up your carbon bond funding cost in the quarter, which wasn't then offset by higher mortgage margins. And since Stybor has now come back again, was that a temporary impact in Q1 which is that when we come in Q2 and which means that we're now coming to Q and I should start to behave more normally. That's my first question.

Jens Henriksson, CEO

Thank you, Andreas. You're right that we are front loaded in our. In our funding. We have done, I know, close to 2/3 or something of our yearly funding. It has been volatile markets and we have taken the advantage to go out when on days where the situations have been good so that we could sit still if things get volatile on other days and weeks. So that has been an approach we've had throughout the year. So yes, we are front loaded. We have taken 80 out of the 130.

Basically that was our funding plan for this year. The other part, when it comes to the NII, I would say two things. We have grown a lot in the quarter, but you don't see the full NII effect of the volume that comes into this quarter. I mean, they can come during the quarter. And so first next quarter you would see the full quarterly NII effect of the volume growth this quarter. The other is what you also touched upon. I mean, we have an earlier reaction on our funding costs than what we benefit on our asset side.

So funding wholesale funding reacts earlier and then it takes three months in Sweden and six in the Baltics for it to fully roll through on the asset side. So you have a bit of timing effects when rates go up opposite what you saw when rates went down. Then you have the opposite that we.

Andreas Haakanson, Analyst at Nordea

Thanks. But shouldn't that actually be even a bigger positive effect in Q3, given that Starbucks things come down? So your funding cost should have normalized down, but the margin increases you did on your mortgages, I think you hiked by 50 and then you cut by 10. So you keep some of the margin expansion and so shouldn't that actually be a double positive?

Jens Henriksson, CEO

I don't want to go in and forecast in the NAI in that sense, but. So I tried to give you the mechanics, but you're right that the increased list prices on mortgage they will throw through during three months. So in that sense you're right. Otherwise you'll have to do the assumptions I will not speculate on then.

Andreas Haakanson, Analyst at Nordea

My second question is, I mean, we've seen monthly data that all of a sudden you start to have good mortgage growth again. And then when I look at your net inflow in Swedish mutual funds, it's the highest level I've seen for I don't know how long and it's 22 and a half billion. So when you settle with the DOJ, I remember I was a bit disappointed that you didn't want to commit to reduce headcounts. But you said that you rather wanted to steer staff over to service your clients better.

Are we now actually starting to see a positive effect from that? Is that too early to say?

Jens Henriksson, CEO

Well, I would say it's too early to say because you have to remember that the inflows of RUBR consists of many things. There are institutional flows, there are premium pension flows that are sold through our own channels. We can be better within the bank to capture even more sold for our own channels. And the mortgage growth gives us this possibility. But of course, when people have their mortgage with us, we can do more business, we can talk with them more and we have a strong business momentum. And even though the number of people that been working with sort of the historical shortcoming and investigations into that, of course it means that less management attention and more focus ahead.

OPERATOR

The next question comes from Sophie Petersen from Goldman Sachs. Please go ahead.

Sophie Petersen, Analyst at Goldman Sachs

Yeah, hi, here is Sophie from Goldman Sachs. So just on the fine, Danske, when they got the fine from the U.S. they also had some us or they had a corporate probation period for some time. Do you have any restrictions set by the US authorities post the settlement? And then I was wondering, on the Baltic IRB models, is there any update on the potential impact and have you changed your thought process since the Q1 earnings?

Jens Henriksson, CEO

Hi, Sophie. Well, I have no real updates. I mean, as you know, the IRB overall has taken longer for us and others than what we expected and we don't fully know the timeline. We have fairly good visibility that the final outcome, when we're done with everything, will be somewhat positive compared to where we are now. But we don't really know the order of things to be approved. And as I've said before, even if we're positive on the final outcome, it might go a bit up and down as things get approved.

We will get back when we have something tangible. We are in the approval process with both ECB and with the Swedish FSA. And I have hopes that we will during this year be able to come back with more tangible results on a couple of the models. But let's see, the timeline is not owned by us.

Gulnara Seidgulova, Analyst at Morgan Stanley

That's right. And is there any update on the Swedish IRB models?

Jens Henriksson, CEO

It's the same. I have hopes for some progress both on some Swedish and Baltic models, but the timeline has been prolonged. So I'm cautious in sort of speculating on when we can get the approvals.

Gulnara Seidgulova, Analyst at Morgan Stanley

Okay, that's very clear. Thank you.

OPERATOR

The next question comes from Ricardo Rover from Media Banker, please go ahead.

Ricardo Rover, Media Banker

Thanks for taking my questions. I hope you can hear me well. Just one if I may. Your buffer is about 260 basis points. So it's technically 60 basis points above the mid of the range, 100 to 300 now that the ALMK is gone. You're going to be fined a relatively small amount. Do you think that the outlook out there is just certain enough to eventually bring the 260 closer to 200 over the foreseeable future? Or do you think there is still too much uncertainty related to modern approval?

Thank you.

Jens Henriksson, CEO

Well, hi. I'm sorry, I don't have any new answer to compare to what I said before. And that is that we target the middle of it, the capital buffer range, that's 200 basis points. We have a dividend policy, as Ewan talked about, to 60 to 70%. And that capital release above this dividend policy continues to be a judgment call. And as I also said, with all the US investigations behind us, the uncertainties have of course diminished. And the final thing, they always say that we have no intention of holding more capital than necessary.

Ricardo Rover, Media Banker

Very clear, thanks.

OPERATOR

As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question comes from the line of Magnus Anderson from ABG. Please go ahead.

Magnus Anderson, Analyst at ABG

Yes, hi, good morning. Just sorry if I come back to this, but just to be crystal clear on your Article 3 add-on you made in the Baltics in Q1 there, I think you said at the call back then that if you would do the same exercise for the corporate book, it would add some 20 billion of risk-weighted assets. I don't recall if that was kind of a reaction of what could happen or if it was just a hypothetical exercise. And if it is another potential 20 billion in the short term that you might get back eventually.

Is that something we should have in mind when thinking about your capitalization? That's the first one thinking.

Jens Henriksson, CEO

Thank you, Magnus. Yeah, as I said, and that stands, I mean we are in the approval process with ECB and as soon as we have some outcome, we will come back. But you're right, what I said. If we have to do the same with the corporate as we did with the retail portfolio, then it would mean 20 billion additional RWA. The exact number will depend on the timing, but around there and that stands.

Magnus Anderson, Analyst at ABG

Okay. So we should keep that in mind when looking at your buffer for the short term at least.

Jens Henriksson, CEO

I guess I won't speculate in the outcome, since we are in the approval process, but if we would have to do the same, then it would be 20 billion for this portfolio. Yes.

Magnus Anderson, Analyst at ABG

Okay. Okay, thank you. And my second one is just a bit curious about your IT cost and IT expenditure and what we should expect going forward. I realize you're in the restructuring program, but we also remember that you talked about elevated IT costs in 2024 and 2025. And now when I look at it year on year in the first half, IT costs are up another 15% from the previous temporary elevated levels around 800 million and 8% year on year. Is this additional cost increase, is it the restructuring driving this or is there something else, if you can give us some color on that.

Jens Henriksson, CEO

I think if I start. For a couple of years back we had extra investments. Now we are apart from this 1.3. We are in the normal mode where we steer the bank so that we over time can increase the profit because that is what needed above the dividend for us to ensure that we can bring the shareholder return. And then we need to balance sort of both costs and income growth to get this together. Of course, it, I mean it, it. We are using IT AI IT all over the place. So of course that I think general will. Will. Will be a part that we need to focus more and more on in. In the future. And we will automate more and more. So there might be differences between the lines over time. If you look at this 1.3, then you can see the split between staff costs and other things for this 1.3 in the report. But so far it has very much been that we have taken a reserve for severance pay.

We have also started with other integration going forward. It will be more IT integration where we merge systems and adjust them so that we can have one system instead of two. So that will be a bit elevated next year, but synergies will start to materialize. So total costs should not, from that perspective, be elevated next year. Can I take the chance and say a few words about AI? Because I think it has to do with this and that is that as you know, we worked machine learning and AI in the bank for a very long time. And that's something we will continue to do. When we do that, we have a twofold focus. The first one is that we empower employees with the right AI tools and skills. We say AI for all, opportunities for all. And we've just, as I said in my call, that we just introduced a new AI solution.

And the idea is that each and every employee should have it and it should be sort of quality, security, efficiency and as I said, cost control. Because the idea is to have AI capabilities through a vendor agnostic architecture. That means that we can be agile and we can adopt the tools we prefer and are willing to pay for. The second part we use AI is that we use it in specific cases where we see significant improvements and we can get return on our investments.

And a few things we talked about is call summary KYC processes and software development. And the key drivers here are the CFO and the CIO.

Magnus Anderson, Analyst at ABG

And what kind of productivity improvements do you expect from this in terms of headcount development? For example, if you look three years out, do you think we will see a significant headcount reduction because of your implementation of AI?

Jens Henriksson, CEO

Well, looking ahead three years in AI is extremely difficult. I expect that we will be less people working in the financial industry and in the bank. That is what I see ahead. I see that each and every individual in the bank will have a great person working with them. And that is what I call the token. And then I see fantastic opportunities to do more, both when it comes to the customers and processes and things like this. But remember that AI will cost money, of course, to use.

That's why it's so important that the CFO is the driver here. Because we need to make sure that we understand how many tokens are used, what kind of models. If I ask simple questions, you should not go to the most expensive models and things like that. So we need to have an orchestrator and a thing like that. And we are moving ahead and it's a lot of fun and I'm heavily involved. I can speak for hours about it.

Magnus Anderson, Analyst at ABG

Okay, thank you. Sounds exciting.

OPERATOR

The next question comes from the line of Jakob Kruse from Autonomous. Please go ahead. Mr. Kruse, your line is open. We cannot hear you. Maybe your line is.

Jakob Kruse, Analyst at Autonomous

Sorry, can you, can you hear me now?

OPERATOR

We can hear you, Jakob, we can hear you.

Jakob Kruse, Analyst at Autonomous

Okay, great, great. Thank you. So I just wanted to follow up on the AI question just before. So you are one of the banks that give pretty good disclosure around your IT cost, including cloud balances, etc. I see you are not putting anything in for inference and tokens and these kind of things. Could you, could you comment at all on how much of a spend that is within your IT cost at the moment or where you see it going, especially in light of the cost with perhaps being less subsidized going forward?

Jun Lindeveld, CFO

No, I can't give you the number of AI in here. But I think the key is of course AI. We have used it for a long time as Jan saying and we're increasing the usage. I think the key is that the heavy investments in the AI development that we see in the world it has to be paid by someone. So we need to make sure that we're not one building us into being stuck with certain suppliers. We need to be flexible here and be able to change models as Jan said, both from the cost perspective but also because we don't know which LLM model will be the best for certain things in one year's time.

And the second is that we need to make sure that we actually measure the efficiency. We need to look at the efficiency from AI and the costs versus other types of automations versus the savings in labor manpower that we're having and then look at the totality from the efficiency perspective and that's what we are focusing on.

Jakob Kruse, Analyst at Autonomous

Okay. I do think you might start to disclose this as we go forward.

Jun Lindeveld, CFO

I don't think so. We don't have the plans and I'm not sure it will be fully relevant and possible to fully separate out either because it will be so integrated in everyone's daily work. So. So but who knows. I have no plans at this moment but if we change ourselves we'll let you know.

Jakob Kruse, Analyst at Autonomous

Great, thank you very much.

OPERATOR

Once again to ask a question please press star and one on your telephone. We have a follow-up question from Sophie Petersen from Goldman Sachs. Please go ahead.

Sophie Petersen, Analyst at Goldman Sachs

Yeah, hi, here is Sophie from Goldman Sachs again thanks a lot for taking my question. So just a quick follow-up on Intraguard at the sale you guide that the net interest income impact is around 600 million. Could you also give guidance what the cost impact from setting the 11 billion Intraguard consumer book will be and also how we should think about the fee impact and maybe also yeah cost of risk if that will have any impact. Thank you.

Jun Lindeveld, CFO

Yeah, thank you Sophie. If we start, I mean we are in the sales process on this. We will come back when we have concluded it and let you know but for you to be able to manage the NII we have separately reported the full year 2025 NII effect on this portfolio and I mean when it's sold and moved out that will go away. The sales process is going fine but I will not speculate in exact timing for when this will come out. When it comes to the cost of risk.

What I've said before when we bought Intraguard and in the end of last year that it will have an impact on Swedbank's credit provisions of around 1 to 2 basis points. That stands what you saw this quarter. The 116 was mainly related to a model adjustment. And for the portfolio that is up for sale, you can also see that in the report. So going forward, expect one to two basis points on the Swedbank cost of risk when it comes to the savings. I mean, of course when we sell it, we can reduce the costs, but that will come with a little bit of lag.

And it's also included in the total restructuring that we're doing of where Intraguard is included. Intraguard, Swedbank Pay and so forth is included in this extra restructuring. 1.3 billion that eventually will lead to cost efficiency or a run rate of 1 billion lower per year. So that is included in all this program.

Sophie Petersen, Analyst at Goldman Sachs

Okay, and just a similar question in for PayEx, around 400 million cost saves. Is that also already included in the 1 billion cost guidance?

Jun Lindeveld, CFO

No. And PayEx is not included in the 1.3 extra cost with the corresponding 1 billion lower run rate later. PayEx, it's outside of that there. We're selling a company. So of course you will. We will sort of get rid of both the costs and the income from PayEx when that deal is concluded. And I hope that we can partly invest some of that in something that will bring higher shareholder value. But it's not included. PayEx is not included in the restructuring program.

It's a side thing that we're working with.

Sophie Petersen, Analyst at Goldman Sachs

Okay, that's very good. And then maybe just a final question. How do you think about M and A opportunities both in the Nordics and outside of the Nordics?

Jens Henriksson, CEO

Well, the first thing is that we see a strong organic growth. That's the first thing to keep in mind. Second thing is that we've done that with both Stabilo and Entercard. And the third, we're always looking for opportunities as a part of my job. And if we see something interesting, we will act upon it. And if we act, we will tell you.

Gulnara Seidgulova, Analyst at Morgan Stanley

Okay, that's very clear. Thank you so much.

OPERATOR

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Swedbank for any closing remarks.

Jens Henriksson, CEO

Thank you. I'll steal the word Maria, if that's okay. Thank you all for calling in and as always, ask difficult and challenging questions. It makes us better. And we now look forward to meeting a few of you and continue our dialogue. Otherwise, take care and enjoy the summer. Thank you.

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