Handelsbanken (HAND SE), a leading Swedish bank, reported robust financial results for the third quarter of 2024. The bank's return on equity (ROE) increased to 15.6%, up from 15.2% in the previous quarter, while operating profits rose by 6% to 9.1 billion Swedish kronor.
Notably, the cost-to-income ratio improved to 38.3%, and the Common Equity Tier 1 (CET1) ratio was a solid 18.8%, exceeding regulatory requirements. A dividend of SEK 3.95 per share was announced for Q3, amounting to 109% of quarterly earnings, with a nine-month total of SEK 9.20 per share.
Key Takeaways
- ROE increased to 15.6% in Q3, up from 15.2% in Q2.
- Operating profits rose 6% to 9.1 billion Swedish kronor.
- Cost-to-income ratio improved to 38.3% from 41.5%.
- CET1 ratio stood at 18.8%, well above the regulatory requirement.
- Anticipated Q3 dividend at SEK 3.95 per share, 109% of quarterly earnings.
- Net credit loss reversals with net recoveries of 141 million.
- Asset management business reached an all-time high.
Company Outlook
- Introduction of banking package expected to have a neutral or slightly positive effect on risk exposure.
- Bank aims to maintain strong financial position without government or central bank aid.
- Increased income, reduced costs, and continued customer satisfaction strengthen competitive position.
Bearish Highlights
- Concerns raised about sustainability of net interest income (NII) due to flat volume and declining interest rates.
Bullish Highlights
- Bank has maintained an extra 100 basis points above normal capital buffer due to historical conservatism.
- NII in Norway expected to remain resilient due to lag in interest rate cut cycle.
- Ongoing cost efficiency measures in central units, with further developments expected in Q4.
Misses
- No specific plans to release the capital buffer above the normal levels.
- No definitive guidance or headcount reduction plans provided until Q4.
Q&A Highlights
- Analysts questioned the sustainability of NII; bank cited diversified financing mix and potential shifts in customer funds as mitigating factors.
- Capital management remains cautious with no immediate plans to release buffer; preference towards dividends over buybacks.
- Swedish mortgage pricing saw list prices decrease more than negotiated prices, reflecting individual client negotiations.
- Divestments on track for completion in 2024, with an expected release of €1.3 billion in risk-weighted assets.
- Bank remains highly capitalized, targeting 1 to 3 percentage points above normal levels.
- Strategy focuses on stability and strong dividend yield, projected to exceed 10%.
Handelsbanken's third-quarter earnings call highlighted its strong financial performance, including a rise in ROE and operating profits, alongside improved cost-to-income ratios. The bank's solid CET1 ratio and anticipated dividends underscore its robust capital position.
Despite concerns over NII sustainability, the bank has demonstrated resilience, particularly in the Norwegian market, and is actively managing costs without current plans for headcount reductions. The bank's strategic initiatives and conservative capital management approach aim to maintain its competitive edge and deliver strong shareholder returns.
InvestingPro Insights
To complement Handelsbanken's strong Q3 2024 performance, let's take a look at some key metrics for Severn Bancorp (SVNLF), another player in the banking sector. According to InvestingPro data, Severn Bancorp boasts a market capitalization of $26.4 billion USD, indicating its significant presence in the industry.
The company's P/E ratio stands at 10.01, which is relatively low compared to many of its peers, suggesting it might be undervalued. This is further supported by its price-to-book ratio of 1.14, which is close to the book value of its assets.
Severn Bancorp has shown impressive revenue growth, with a 10.46% increase over the last twelve months as of Q2 2024. This growth aligns with Handelsbanken's positive financial trends and suggests a broader sector strength.
InvestingPro Tips highlight that Severn Bancorp has raised its dividend for 4 consecutive years, demonstrating a commitment to shareholder returns similar to Handelsbanken's strong dividend policy. Additionally, the tip noting that Severn Bancorp pays a significant dividend to shareholders resonates with Handelsbanken's attractive dividend yield projections.
It's worth noting that Severn Bancorp has been profitable over the last twelve months, with analysts predicting continued profitability this year. This aligns with the overall positive outlook for well-managed banks in the current economic climate.
For investors interested in a deeper dive into Severn Bancorp's financials and future prospects, InvestingPro offers 7 additional tips, providing a more comprehensive analysis of the company's position in the competitive banking landscape.
Full transcript - Svenska Handelsbanken AB (SVNLF) Q3 2024:
Unidentified Company Representative: Good morning everyone and welcome to this presentation of Handelsbanken's Results for the First Nine Months and the Third Quarter of 2024. The third quarter showed an increase in ROE to 15.6% from 15.2% in the previous quarter. Operating profits grew by 6% to 9.1 billion Swedish kronor. As income grew, expenses declined and again we saw net credit loss reversals. The cost-to-income ratio improved to 38.3% from 41.5% in Q2 this year. So in terms of the sequential P&L, we saw positive development in more or less all the key lines. The financial position remains very healthy. The CET1 ratio of 18.8 was 400 basis points above the regulatory requirement and the anticipated dividend in Q3 of SEK 3.95 was equal to 109% of the earnings in the quarter. In the first nine months, the anticipated dividend amount to SEK 9.20 per share or 88% of the earnings, so both a steady generation of distributable funds as well as the capitalization level. When the banking package will be introduced in January 1, the bank's assessment of the day one effect is a neutral or in fact a slight reduction of the risk exposure amount. Annual external surveys are usually published in Q3 each year and the long trend continued with evidence also this year of Handelsbanken customers being more satisfied than those in our peers and the highest scores show among both private and corporate customers and in all of our four home markets. The bank also again received the reward as the Business Bank of the Year in Sweden and for the 13th consecutive year Sweden's SME Bank. The external recognitions align with our view that our locally connected and long-term relationship-oriented business model really stands out in the market and is highly valued and appreciated by both our private as well as our corporate customers. Now if we look closer at the third quarter, we can see again that our ROE increased to 15.6% from 15.2% in Q2. The cost-to-income ratio dropped to 38% from 42% in the Q2 and credit losses again amounted to net reversals of two basis points. NII was up marginally and the fee and commission income grew by 1% to the second highest level seen so far. Total expenses dropped by 7%. Adjusted for the one-off costs relating to staff layoff agreements, Oktogonen and FX, the expenses dropped by 5%. Credit losses consisted of net recoveries of 141 million and that gives us all-in-all an operating profit growing by 6% or 4% adjusted for the items affecting comparability. If we move over to the accumulated numbers for the first nine months compared to the same period last year, ROE amounted to 15%, the cost-to-income ratio to 41% and the net credit loss recoveries to 2 basis points. NII was down marginally and fee and commission grew by 4%. Expenses increased by 10%; the increase was attributable to annual salary, inflation, increased pension and staff costs. The average number of employees increased by 6%, of which 4 percentage points were attributable to additional employees working in the branches due to a larger customer activity and 1 percentage point within the bank's IT development. All-in-all, the operating profit declined by 4% on an underlying basis. Now if we zoom in to the NII development compared to the previous quarter, interest margins were negatively affected by lower central bank rates and the net effect of margins and funding cost was 109 million negatively. This was however offset by a positive day count effect of 97 million. Apart from that, there were only minor effects from other NII components. Net fee and commission income continued to grow also in the third quarter. Almost 70% of the fee and commissions income comes from the savings-related commissions, of which the asset management business is the largest contributor. The positive development in the quarter was both driven by the stock market development, but also by higher net inflows. The other fee and commission lines were fairly flat in the quarter. Asset under management reached a new all time high this quarter. For a very long time we have seen the market share of net inflows into the mutual fund savings in Sweden so far exceeding the bank's market share and outstanding volumes. The bank has continuously over the past 15 years or so attracted around 20% to 25% of the net inflows into the Swedish mutual funds, but the market share of the outstanding funds volume has only gone from around 8% to 9% to around 12%. This suggests a potential for the bank to continue to grow well in this field also going forward. The success over the years is the result of a combination of a very strong performance, early focus on mutual funds with ESG profile, strong customer relationship and not least a strong distribution capacity. And since the spring we've also noted a strong development in Norway where we in the past two quarters have seen the market share of net inflows into Handelsbanken’s funds exceeding the market share by outstanding volume by more than two times. The growth in business volumes is naturally also connected to the customer activity and during this year we've seen a good pickup in the number of advisory meetings in our branches, especially in Sweden and Norway. In the past few years we've strengthened our branches with more capacity and underwriting mandates and in addition to what we believe also increased the availability for our customers to meet our specialists such as private banking and occupational pension advisors locally where the customer is situated. The number of private banking advisory meetings is up by around 40% in the first nine months of this year compared to two years ago, and the number of occupational pension advisory meetings is up by more than 90%. And quite naturally we see that the AIM -- asset under management, sorry, growing as a result. Increasing assets under management build structural earnings growth over time and also an ROE enhancing growth for the bank. Now, over to the expenses. We started this year by reviewing the efficiency in the bank. We have since then reshaped the organization and addressed efficiency measures initially primarily within business support and group functions. In Q3 we've started to see underlying effects in the cost base and underlying expenses dropped by 5%. The total number of staff, meaning employees and external resources, has now declined by 3% or around 440 people since the spring. And it's clear a negative trend in staffing has changed since the beginning of the year. Further initiatives are recognized and will be addressed continuously, just like we have done and showed now for the two consecutive quarters. The efficiency work is important in order to ensure the long-term competitiveness of the bank and the long-term shareholder value creation. Now briefly on assets quality and credit losses, or rather the net credit recoveries that we've for the third consecutive quarter. In fact, the bank has in total not burdened the shareholders with any credit losses since Q2 2020 or over more than four years. Credit losses have been more or less zero for a long time. We see no signs of deteriorating asset quality. This is a result of the bank's limited risk appetite, the consistency in the underwriting and the preference for collateralized lending. And importantly, the local presence and connections via our branches which enable the banks to be very quick in detecting signs of stress for customers and also handling such situations. Also in this quarter the management add-on was trimmed down a bit, this time by 76 million. The add-ons is reassessed each quarter and stood at 378 million at the end of the quarter. A stable financial position forms the foundation for long-term customer relationships and long-term business growth. The bank's strong view is that it should always be able to support customers with financing, regardless of external factors and without any aid from governments, central banks or shareholders in rough times. In Q3 the CE1 ratio was 18.8, which was 400 basis points above the regulatory requirement, just in line with the previous guidance. In order to calibrate the CE1 ratio to 400 basis points above the regulatory requirement, the anticipated dividend in the quarter amounted to around 4 SEK per share or 109% of the earnings in the quarter. For the first nine months the anticipated dividend amounted to 9.2 SEK per share or 88% of earnings. As always, the Board will make a holistic assessment of capital situation in the Q4 report in February and decide on a dividend proposal for 2024 through the AGM. January 1st next year the banking package will be introduced, meaning that the implementation of the last parts of the Basel III agreement in the EU. The Bank's assessment is that the day one effect will be a marginal reduction of the risk exposure amount. The banking package is hence not expected to affect the capital planning of the bank. A few words about the respective home markets which also improved cost-to-income ratios in the quarter. In Sweden the volume growth remained muted on both the lending and deposit side, but recovered on the savings side. The cost income ratio dropped to 28 which is the second lowest level historically and the ROE stood at a healthy 18%, the highest among the home markets. In Norway the cost-to-income ratio dropped to 44 and the ROE remained around 11%. After the refocusing period during the spring, we are now seeing a more balanced growth between lending deposits and savings, which bodes well for future improvement of the profitability in Norway. In the UK, the cost-to-income ratio improved slightly and the ROE was 17%. Deposit continued to grow as did the savings volume in the quarter. Finally in the Netherlands, the earnings grew by 10% in the quarter and the cost-to-income ratio improved to 51 from 55 in Q2. The ROE increased to 14%. So to sum up the first nine months for the year and the Q3, in particular, Q3 was a quarter which saw increased income, lower costs and net credit loss reversals. The cost-to-income ratio and the ROE improved. Customers showed their appreciation of the bank's locally connected and decentralized model in its annual external surveys and the bank is in a very solid financial position. So thank you very much for listening in and we will now take a short break before commencing the Q&A session. Thank you so much.
Peter Grabe: Hello everyone and welcome back to the Q&A session. This is Peter Grabe, Head of Investor Relations speaking and in this Q&A session we will have Michael Green, CEO, and Carl Cederschiöld, CFO. And as always, we would welcome you to ask one question at a time, please, in order to make sure that everyone gets a chance to ask their question. And with those words, operator, please could we have the first question.
Operator: Thank you. [Operator Instructions] We will now take your first question. One moment please. And your first question comes from the line of Magnus Andersson from ABG Sundal Collier. Please go ahead.
Magnus Andersson: Yes, Hi, good morning. I have a question on the sustainability of the net interest income level in Q3. As it looks, you're defying gravity here to some extent. I mean, volumes are fairly flat quarter-on-quarter while interest rates have been down two quarters in a row. Despite that, your NII is up two quarters in a row. And it looks like, if I look at slide 5, that the negative margin and funding impact is much smaller than it typically was in the quarters when rates went up by the same magnitude as they have been falling. So please, if you could shed some light about this. If there are any funding effects in here that we should be aware of? I know Sweden, for example, talked about liability swaps related to the Swedish covered bonds that resets every three months. That had a huge positive impact for them whether there's something in here for you so that we are not know whether we are facing kind of cliff effect in Q4 or not. Any light you can share of this, please. Thanks.
Carl Cederschiöld: Thank you Magnus and good morning, I'm Carl Cederschiöld. So yes, obviously we won't guide on this going forward, but I think there are a few components worth to highlight here. As you mentioned, I mean, when rates are dropping, obviously lending margins will drop or not, but the income from lending will drop and the financing cost, the ones we have a transaction cost, they can't go much lower than they are today so that will have a negative impact. But I think there are a few factors worth highlighting here, which have been a headwind when rates have increased, which doesn't necessarily become such a headwind or could actually become a tailwind when we drop. First of all, obviously it is the volume component and as you say, that hasn't been strong in this quarter, but we shouldn't see that as unlikely that would return to growth when rates are dropping. Second of all, I think it is the lending margin. We know that the deposit margin will drop, but the lending margin could actually increase quite a bit, and especially if the banking climate goes back to growth, that could ease off a touch. Thirdly, I think there's been very strong incentives to move your money from cash deposits and transaction accounts into term deposits or even amortize your debt. And I think there's reason to believe that at least incentives are dropping off when rates are going lower. So you could see amortizations dropping off and you could start to see people staying more of their cash at transaction accounts or even investing funds, which is always going to be beneficiary though on another line. And then I think it is also the financing mix. I mean, as you know, we have a diversified finance mix between deposits and bonds and capital market financing. And the capital market financing component will move in line with the rate movement or perhaps even stronger. So I think there's definitely reason to say that the movement for us doesn't necessarily need to mirror the opposite direction we had when rates were increasing. But we won't guide on the outcome of this, but I think these keys, these things are worth to have in mind.
Michael Green: So can I just add on. This is Michael Green. So I thought Magnus just said is there any specific extraordinary things referring to the NII in this quarter and I would say no, they are not. So you refer to Swedbank, we don't have that in our numbers. So this is quite clean from that perspective. And I think it's also -- and you know this, but I say it anyway. So it's also to add on what Carl just said, the product mix in our deposit side is crucial also to be able to maneuver and to adjust for interest rate both going up and down. So the higher amount you have on the savings accounts, if you compare to the salary accounts or the transaction accounts, is actually one component that mitigates to some extent the fluctuation in the market rates.
Magnus Andersson: Okay, thank you. So there are nothing that could swing back in the Q4 quarter then, as I read you. And just to follow up there, Michael, on your deposit mix, would you say now out of your deposits, is it still around 25% you have on transaction accounts and if you can break that down on the various countries?
Michael Green: Yeah, that's my view, around 25%.
Magnus Andersson: Okay. And for all countries?
Peter Grabe: It varies. This is Peter. It varies somewhat, but it's a touch higher in the other markets, but not by much.
Magnus Andersson: Okay, thank you.
Operator: Thank you. We will now take the next question. And the question comes from the line of Andreas Hakansson from SEB. Please go ahead.
Andreas Hakansson: Thank you and good morning everyone. Before I ask my question, I just want to follow up on Magnus question. So on the Page 5 again when you have the minus 109 you say margin and funding, we can all of course assume that deposit margins is a very big negative. If you would have split margins and funding in two boxes, would the funding actually be positive in the quarter?
Carl Cederschiöld: We won't break that up as you know, and the reason for that one is that it is many moving components within the equation. But obviously you are correct in that deposit margins definitely have a negative component in the quarter.
Andreas Hakansson: Okay, thanks. And then my question, Michael, it's for you. I mean you still have quite a much lower profitability than the peer group and comparing it to NUDI [Phonetic] and Swedbank that have reported the Q3 numbers so far and we have been discussing many times about your lack of capital light products. And in that light, did you look at acquiring Carnegie? And if not, why not?
Michael Green: Right. So no, I agree with you, Andreas. We absolutely focus on bringing up the return on equity for the bank and we do that with various activities, both on the cost side, as you know, but also to increase our commission part of the income flow. And we grow organically most of the time, sometimes we see fit that we could acquire something and we do not comment on a specific company or business. If there is interest and it will suit us, we will definitely be looking at it, but I'm not going to comment anything on the Carnegie transaction for that sense.
Andreas Hakansson: But I mean it makes sense, right, that it's the type of businesses that Carnegie is doing where you would like to grow, right?
Michael Green: Well, I'm not really super involved in Carnegie's detailed business, but I think some of the business there is absolutely a business. We also are driving the asset management, for example. We have a very strong and very well functioning investment bank and we're happy with that. So maybe to add on the AUM side but not, I'm not going to comment anymore more than that.
Andreas Hakansson: Okay, thanks.
Operator: Thank you. Your next question comes from the line of Gulnara Saitkulova from Morgan Stanley. Please go ahead.
Gulnara Saitkulova: Hi, good morning. Gulnara from Morgan Stanley. Thank you for taking my question. My question is on capital buffer. So at the start of the year you have decided that you will keep an extra 100 basis points above your normal capital management buffer range. However, now if you look at the rate cuts, they're flowing through faster than it was expected at the start of the year as well as the macro outlook looks more favorable, CRE remains resilient and you are delivering strong results. Given the solidity of the financial position and also the Basel IV bringing some reduction on the risk weighted assets front with the one effect, would you potentially consider releasing this extra buffer with the full year results? And can you please explain the reasoning behind the conservatism here and related to that what are the priorities when it comes to your excess capital? Would you potentially consider top up the ordinary dividend, do the special dividend, potential buyback or pursue organic or inorganic growth via bolt-ons? Thank you.
Carl Cederschiöld: Thanks Gulnara for the question. Well, as you know throughout the year we've been transparent that we keep the distance with 400 basis points, so we have an extra percentage points on top of our normal target range of 1 to 3 percentage points. And this comes obviously with a history that where we had the soft dividend ban throughout the COVID we were topping out at nearly 6% above and then we taken ourselves down to 4%. I think it's highly important that running a bank is obviously having a very strong balance sheet is the most important thing in order to build long-term relationship. And you know we're a very conservative and long-term bank, so we will definitely play this conservative. What we said is that in Q4 we will obviously recommend to the Board the guidance they will give to the AGM when it comes to dividends or distribution. Historically we've been using dividend more than buybacks. We don't close the door to do buybacks but at least that's what we've done historically. So we think we are in a really good position as you can see following the P&L lines, we've had tremendous asset quality. You have to go back to Q2 2020 before you see aggregated credit losses, so I think that's -- and this is throughout COVID, Ukraine crisis, and highly inflationary period, so I think this has been a stress test for the asset quality of the bank in real time. And so we are really pleased with the risk side of the bank, but it's also that way we want to run the bank and that's the way we believe you can be a very long-term bank which is benefiting the society and the shareholders.
Gulnara Saitkulova: Thank you.
Operator: Thank you. Your next question comes from the line of Sofie Peterzens from JPMorgan. Please go ahead.
Sofie Peterzens: Yeah, hi, this is Sofie from JPMorgan. Just follow up, on net interest income, there is no kind of timing differences that would be material that we should be aware of in the coming quarters that it's got a fair distinguishing, maybe some margin pressure but volumes that will kind of offset that. So if you could just kind of confirm that. And then my question would be on the Norway net interest income, when I look at Norway, it looks very, very strong in quarter-on-quarter, especially in -- and then when I look at the volumes, volumes in household lending was up, I think, 19% year-on-year, but your loan deposit ratio continues to be quite low or quite high, sorry, around 320%. So how should I think about Norway net interest income going forward? What's your plan here? How should we think about growth in Norway? Thank you.
Michael Green: Thank you, Sofie. Well, first of all, on the NII difference, no, there are no material financing mix changes you should be aware of. As you know, we had an 81 and the Tier 2 bond maturing in the springtime, they haven't been refinanced as of yet. We see no stress in it. We have ample room of capital, as you heard us saying. So no material changes in the treasury financing mix. When it comes to Norway, you've obviously heard us talking strategically over the quarters about our wish to build a more balanced business in Norway. We've signed the agreement with the academic and we have accrued quite a bit of clients throughout the year. The positive thing with that one is that we see a very solid and balanced business mix coming into the bank. You can see that quarter-over-quarter, our lending grew 1 percentage points and our deposits grew 8 and our assets under management grew 4. So we think that is promising to the ROE contribution even going forward. And this is a real focus of us to bring on the private clients, but have a really good business mix from them because it is a good underlying client mix within the union agreement. I think it's fair to say as well that if you compare our Norwegian segment vis-a-vis the other home markets, obviously we are late in the cutting cycle from Norges Bank and we also have had the notice periods previously. So we should expect NII to be more resilient in Norway.
Sofie Peterzens: Okay, thank you.
Operator: Thank you. Your next question comes from the line of Nicolas McBeath from DNB. Please go ahead.
Nicolas McBeath: Hello. I was wondering whether you could comment anything on how much of the cost efficiency measures you initially spoke about at the start of the year in central units. How long you have come on this project, Is there substantial more efficiency to take out or have you conducted most of it? And related to that, if you could say whether we should expect the net impact of any further efficiencies in central units to lead to net FTE reductions, or if we should think that higher number of FTEs in the branches should compensate for any further reductions in the central units.
Michael Green: So, hi Nicolas, this is Michael again. I would say that we've started the year by reviewing and I said that we would now start analyzing and also putting plans for make the bank more efficient, starting with the head office and group function and business support functions, as I told both -- in Q1. And we've then reorganized, we've started to execute on the plan, but I'm not going to guide and I think it works well. So I'm happy with how it works and what's being done and I'm not going to guide into Q4 in terms of any reduction of headcount or any reduction on the cost side. But we do as we say and we will come back to you in Q4 with the outcome. But it works well.
Nicolas McBeath: Well, okay. Thank you.
Operator: Thank you. Your next question. One moment please. Your next question comes from the line of Johan Ekblom from UBS. Please go ahead.
Johan Ekblom: Thank you. Can maybe just come back to capital and your guidance around the impact of the introduction of the banking package where you're now talking about a small reduction in risk weighted assets. Can you give us some color as to where that is coming from? I think the general view would be that your risk rates are lower than many others and some of that is clearly due to the asset quality. But with floors coming in on certain parameters, I think most would have expected some negative impact. So what part of your book is driving that net reduction in risk weighted assets, please?
Carl Cederschiöld: Yes, thanks Johan, for the question. First of all, you can look at slide 34 in our debt package to have a more granular information on this. But if we put it in perspective, I think it's fair to say that Handelsbanken, as you know us, we are a very conservative bank and we are not present in the most volatile or financial engineering aspects of the balance sheet. And being a large bank then we have had exposure in many of the areas which already have risk weight floors on them. So I think it's fair to say that we, as a banking vehicle, has been fairly conservatively treated and we've had thereby quite high capital density to the business mix we've had. Coming in now to the banking package going into the first day effects, what you can see on the slide is that our operational risk, and this is just a purely model movement, our estimate is that that will increase 22 billion in risk exposure amount, and that doesn't take into account the more the dynamic resettling of the operational risk. You know that we will look back on the P&L the last three years and then we will come to a different figure when we go in. But the model adjustment is adding 22 billion. Then as you can see the credit risk plus CVA component, they actually take away a bit nearly 25 billion. And this is due then to the more detailed effects of going into the banking package, comparing them to the risk rate floors we already have and the standardized components of our portfolio that will have a positive implication for us. So the net effect in our view is more or less that risk exposure amount is dropping or is decreasing by roughly 3 billion or so. And I think this comes down once again to the fact we've been highlighting many, many times that if you buy Handelsbanken as a share, you buy one of the most stable banks in the world. You buy a bank which is not trying to more or less arbitrage the regulatory regimes in short term. Rather we are involved in the more core and the more traditional banking areas. We have really strong clients there, really strong relationships. We pay the taxes to the society, which are in place. And over time when regulators catch up, you normally get the balance back. And that's the way we read this at least that having a marginally positive effect from banking packages is credit to our business model.
Johan Ekblom: Perfect. Thank you.
Operator: Thank you. Your next question comes from the line of Namita Samtani from Barclays. Please go ahead.
Namita Samtani: Good morning and thanks for taking my question. Could I just ask on Swedish mortgage pricing? If I look at September data of Handelsbanken versus the start of the year, you've cut 3 month mortgage list prices by 65 bps, but the negotiated price has only come down by 54 bps. I just wondered how you managed to achieve this and why clients would accept this, given it's quite a competitive market. Thank you.
Michael Green: Yeah. So how the pricing is set in Handelsbanken when it comes to mortgages is that we need to have a list price, as you are well aware of, and that list price when it comes to the three months offer list prices is reflected to some extent on the risk bank interest rates, but not all of it. So we refer to market rates in general, of course, but the way we set prices, we set prices with our customers on an individual basis and we talk and we deal with the customers in our branches and with our mortgages experts all over the bank. And then we offer them both pricing and also other stuff. I mean it's a General offer, which include mortgages and pricing is set by the branches on an individual basis and does not reflect on the list price.
Namita Samtani: Thanks. Do you think that people are accepting maybe a slightly higher price because they're getting other products from you guys?
Michael Green: So sorry, I didn't really get the question because the sound is not that good, actually.
Carl Cederschiöld: It could be. Namita, you're asking about if we think we can -- the clients of us accept a higher price due to the services and aborted.
Michael Green: Right, right. So yeah, so okay. No, I don't think it's -- we don't get higher price than the market gets. So this is a very competitive market with a very transparent pricing. We will have the -- we need to be able to have the same price offer as anybody else. But on top of that we add on other stuff that really probably sticks out in terms of local service, local knowledge availability and the quick credit decisions and so on and so forth. So, it's a general offer and we -- but we're not able to over time, I think, really stick out on the pricing. We do as much as we can, but it's a very transparent market with strong competition actually, and that's always been the case, so it's nothing new.
Carl Cederschiöld: But I think, Namita, the way we build our business model is obviously, yes, many relationships or the mortgage is a key component of a private relationship we have with private clients. So obviously that puts us in a good position and we are lucky to see that the activity has actually grown quite meaningfully this year. As Michael said in the press conference, we have, or I don't know if you said, but we have 90% higher advisory activity when it comes to the occupational pension and nearly 40%, 50% on the private banking. So obviously, even though we live with the same prices in mortgages, that is obviously a key component of building a strong and income generating relation.
Namita Samtani: Thanks very much.
Operator: Thank you. Your next question comes from the line of Shrey Srivastava from Citi. Please go ahead.
Shrey Srivastava: Hi, thank you very much. My first question is rather simple. Can you confirm that your finished divestments are on track to complete in 2024, and is the expected total RIA release still about 1.3 billion Euros?
Michael Green: Yes, we can confirm that we are on track to close the other component as well during Q4.
Carl Cederschiöld: And we haven't been explicit on the Riyadh amount, but what we said initially was that we had roughly 30 billion of Riyadh and Finland and Denmark, roughly 50:50 when we announced the ambition to sell.
Shrey Srivastava: Okay. Thank you. And secondly, just about the UK. Do you have a structural hedge in the UK? Can you confirm this and, if so, can you help us size this up at all?
Michael Green: Sorry, what's your question? If we can have structural hedging on the deposit base?
Shrey Srivastava: Do you have a structural hedge in the UK business?
Carl Cederschiöld: Yes, thanks for the question. First of all, obviously, yes, PRA deems us to have structural hedges or they deem us to calculate the behavioral maturity on our deposit base. That's the right way to put it. And thereby, obviously, if we choose to have the asset side on another level of maturity, then we will need to carry capital for that one. But as we've been highlighting and we've actually got in the new joint assessment decision now, which we got end of September, we've actually have the approval now to have -- to calculate the behavioral maturity on the Swedish component as well. We got a partly approval, so that is definitely something positive for us, so we don't need to have the inconsistency nowadays between group and UK as much as we've done before. And what we said is that we already have partly hedging in place. So it's not necessarily that we immediately change our behavior on the treasury side, but at least nowadays the regulators are more in line with each other and it makes us easier to steer the bank and we think this is a much better representation of the true risk in the book.
Shrey Srivastava: Got it, thank you. And if you could give any sort of indication as to how much that contributed this quarter and is expected to contribute going forward.
Carl Cederschiöld: No, we can't give any guidance to that one. As I said, I mean we won't -- it's not necessarily that we change anything of our behavior short term, this is obviously we like to have a hedged bank, but we're not immune to the market levels either. So I mean the timing where we change our decision is obviously dependent on market movements as well, but we won't guide on the impact of that one.
Shrey Srivastava: Got it. Thank you very much.
Operator: Thank you. Your next question comes from the line of Riccardo Rovere from Mediobanca (OTC:MDIBY). Please go ahead.
Riccardo Rovere: Thanks. Thanks for taking one -- my single question, I just want to better understand the 400 basis points stance you have. So I may be confused, is the 400 basis point something that stands now but may be revisited at the end of the year results or is it something that is written in the stone for 2024 and maybe will get back to 300 basis points or the previous range from 2025 onward? Thanks.
Carl Cederschiöld: Thanks Ricardo. You're very polite asking just one question. Thanks for that one. Well, I think it's -- I mean we are in a very good situation. We are highly capitalized. That's really good condition to run a bank. And we come from a higher level. What we said is that our normal target range haven't changed, that is 1 to 3 percentage points above. We will get back in Q4 and tell you about the distribution. We will guide or we will propose to the AGM. So you will get information in Q4. But I mean being a long-term shareholder of the bank, this is a good situation because there is distributor amount for them.
Riccardo Rovere: Thanks. Thanks a lot.
Operator: Thank you. Your next question comes from the line of Patrick Nielsen from Goldman Sachs. Please go ahead.
Patrick Nielsen: Hi, good morning and thanks a lot for taking the time. I just had another question on NII and I appreciate there's been a few already. But specifically on the Swedish NII, we've so far seen 75 basis points of cuts in Sweden. And I was just wondering if you could provide any color of how much of those 75 basis points that are reflected in today's NII figure and how much is yet to come and maybe also how much you benefited from lowering your current account rates in Sweden. Any color would be helpful. Thank you very much.
Michael Green: Yeah, when it comes to the impacts, I'm afraid it's difficult to answer that question since there are so many moving parts in the NII and you can't really isolate that 75 basis point impact as such. And also again, I'm afraid we can't really guide as to what to expect going forward. It's, at the end of the day, a matter of competition and how the pricing not only on the deposit side but also on the lending side, how that overall would affect the total name for the bank.
Peter Grabe: Operator, are you there?
Operator: Thank you. We will now go to the next question. And your next question comes from the line of Jacob Kruse, Autonomous
Jacob Kruse: Hi, thank you. So could I just ask on the capital side, so you give this small positive impact of the day one effect. Do you have any idea of the full effect when the course gets phased out? Thank you.
Carl Cederschiöld: Thank you, Jacob. Well, first of all, what we've guided on before, what we said before is that we saw a fairly neutral total component. So now we got partly the first day effects of the banking package. We know -- from the banking package we know that the market risk, FRTB, will come, that would come autumn 2026. I think that will have a negative component, we think. Then we have the IRB overhaul. That is obviously -- we don't know as of yet, but we think we have a fairly neutral there. Then we have the finished divestment. Then we have the IRB approval in UK and Netherlands which can be beneficiary. So there are quite a few moving components. This is a fairly neutral outcome from day one and thereby you should think about it that we see it as a fairly neutral component going forward. But it could have implications, it could have positive or negative components timing wise through quarters. And my colleagues here are pointing out that I actually forgot that there is a possibility for us as well to apply to move from IRB into standardized model when it comes to the government exposure, and that will, if so, have a positive impact. So fairly neutral the future factors hitting us.
Jacob Kruse: Okay, thank you.
Operator: Thank you. We will now take our final question. And our final question for today comes from the line of Piers Brown from HSBC. Please go ahead.
Piers Brown: Yeah, good morning, everybody. Just a final question on the dividend, so if I look at the accrual, you've accrued over 100% of profits in both Q2 and Q3. I think the year-to-date accrual is running at about 9 krona and you've accrued 4 of that in the third quarter. So the question is, is there any reason that the fourth quarter accrual would be a lot lower than what we've seen in the last couple of quarters? And I guess where I'm getting at with this is obviously if you were to accrue in Q4 similar to Q3, you'd probably be year-on-year dividend level, pretty much the same level as last year. So is that a realistic assumption?
Carl Cederschiöld: I think that's a good point of yours, Piers. I mean what we've said is that going into Q4 we guided on the structural changes. It's obviously the divestment of Finland. So that will take down risk exposure assets. And then obviously we don't know about the growth aspect excessive yet. We shouldn't be surprised if we return to grow in the bank, but nevertheless. So yeah, we could, at least structurally, we definitely have things pointing to an accrual level which is high and thereby obviously I think we went into this quarter with an expectation of a dividend just north of 11 kronas per share. And obviously we don't know the P&L as of yet and we will have to wait and see. But yes, as an accrual level we could prove to be fairly close to the 200% as well next quarter and that should definitely be positive. And I think that's one of the key components of our bank now that if you invest in our bank, you buy one of the world's most stable bank running more or less any risk angle you can look at more conservative than most of our peers and then generating a dividend or a distribution or a direct yield above 10%, that's not that many banks you see doing that one, especially if you measure that vis-a-vis the stability of the P&L lines. So I think that's a real core component of finding the interest in the share as well.
Piers Brown: Okay, it's very clear. Thank you.
Operator: Thank you. We have a follow up question. One moment please. Your next question comes from the line of Andreas Hakansson from SEB. Please go ahead.
Andreas Hakansson: Hi, sorry, I dropped out for a second. And on the hedge we talked about, someone asked about UK hedge. When you answered I wasn't clear. Do you now actually have a hedge in place also in Sweden or was that only related to the UK?
Michael Green: No, no, you are correct, Andreas. We have a partly hedge in Sweden as well in place. So we have been holding capital to that one and thereby my message going forward is that it's not a black or white situation. If you get this approval, it's not necessarily you change your hedging or your treasury operation immediately. So yes, we have a part hedging in place in Sweden and we have hedges in place in UK as well.
Andreas Hakansson: I mean I hadn't heard it before, must say. And that has quite a big impact on how the market is forecasting. So don't you think you should give some details on that in duration and size and structure of it?
Michael Green: No, I think as I highlighted earlier on today, I think there's many, many moving components when it comes to the NII. And I mean we've had the hedges, it's not a meaningful change in the hedging component now which we, which you've seen the bank perform during in the last two years. So I don't think this is a bigger impact than it's been prior and not more than the other components either.
Andreas Hakansson: But back to I think was Magnus made a point in the beginning of the call. Does this mean that you are delaying the decline in your NII or do you think you're protecting it?
Michael Green: Well, of course obviously, the NII hedge per se is protecting the NII levels but they were in place as well when rates were moving upwards. So I mean it's one of the moving components within the NII equation.
Andreas Hakansson: Okay, I think we'll come back to that in coming quarters as well, but thanks for now.
Michael Green: Thanks a lot.
Operator: Thank you. That was the final question for today. I will hand back to the room for closing.
Peter Grabe: Well, thank you everyone very much for listening, and we wish you all a good day. Thank you.
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