Gustaf Unger: Good morning, everyone, and welcome to the presentation of Avanza's Q3 report. My name, as I said, Gustaf Unger, I am the CEO of Avanza, and with me in the room in Stockholm today, I have CFO Jonas Svärling and Karolina Johansson heading Investor Relations. Q3 was another strong quarter, both operationally and financially, reporting our second highest operating profit ever. It is also gratifying to see that Avanza continues to grow at a strong pace, adding 53,000 new customers in the quarter and a net inflow of SEK 23 billion. Customers are continuing to invest and once again, we are noting new record inflows to fund this quarter of SEK 18 billion. The Swedish fund market is also reporting strong net inflows and a fair share of that, 32%, is driven by Avanza customers.
Gustaf Unger: We have entered the autumn with great momentum across the organization, and I am very pleased that we, on 31 August, broadly launched Avanza Sigma to the full PB and Pro segment with great success, having reached SEK 710 million in only a month after the broad launch. As part of the continuous effort to enhance the offering for customers with a strong interest in equities, pre and post market trading in the US market was launched, enabling customers to act on corporate reports, macroeconomic data, and other market events outside regular exchange trading hours. Last but not least, I am very glad that we have recruited Christian Sillesen as our country manager for Avanza Denmark, and that he assumed his position this Monday. Christian brings valuable experience from the Danish savings market and from building and scaling customer offerings from scratch.
Gustaf Unger: He has a strong commercial drive and entrepreneurial mindset and shares our passion for challenging the market and creating customer value, which makes me convinced he is the right person to lead our venture. Despite ongoing global uncertainty, we are seeing signs of a better and brighter macro environment in Sweden, where GDP growth slowly but surely has gained speed. This is also evident in the savings market statistics. Last year, a disproportionately large share of net savings was parked in deposits with the incumbent banks. But now we are finally seeing an increase in capital directed towards stock market investments. This points to stronger confidence in the financial market amongst Swedes, something that is also reflected in our growth figures. During the quarter, we welcomed as many as 53,000 new customers and the quarterly net inflow increased to SEK 23 billion.
Gustaf Unger: Avanza stands well positioned to capture a fair share of the savings market growth. At the same time, I remain mindful of the uncertainties that remain in the world around us, where geopolitical tensions are affecting global markets and the probability for rate hikes in the near future has increased. However, I also stand positive that the economic pickup that is finally a fact in Sweden will not be slowed by a possible increase of the policy rate. We know from experience that our customers are good at adapting to current macroeconomic conditions and at prioritizing savings. At Avanza, our focus on supporting our customers to good savings and investments remains unchanged. The improved sentiment is also reflected in the risk appetite among our customers.
Gustaf Unger: We see clear signs of higher willingness to invest in the stock market, not only in the market statistics and by our growth figures, but also in the behavior of our customers. As mentioned before, the net inflow to mutual funds reached yet another record level this quarter at SEK 18 billion, and our share of the mutual fund market inflow was 32%. The net investing is also reflected by the share of deposits of the total savings capital that continues to decrease. We have also during the quarter seen margin lending volumes steadily increasing. Although customers have a willingness to invest, the trading intensity is, as usual, closely connected to volatility and stock market development. Volatility decreased during the summer, and naturally, so did the trading activity.
Gustaf Unger: At 7.5 more trading days in the quarter, this did not fully offset the effect from the lower daily turnover volumes. In a market environment with lower volatility and quite a few red days on the stock market, it is not uncommon that the broader customer base can become a bit more cautious while our most initiated customers continue to trade. This happened also in Q3, and we saw the number of brokerage-generating customers decrease. Private Banking and Pro customers generated 30% of the brokerage income, an increase from 26% in Q2, which pressured our income margin both in terms of brokerage income and FX income. As briefly mentioned, on 31 August, we launched Avanza Sigma broadly to all our Private Banking customers, thereby making tailored, algorithm-driven equity management available at half the cost compared to traditional alternatives on the market.
Gustaf Unger: As I have mentioned many times before, I am very excited about this product and confident that we have created something unique in the market where customers are able to tailor a bespoke stock portfolio based on their preferences and where they are even able to exclude certain single stocks if they would like to. Once they have their portfolio in place, they are able to track both the aggregated portfolio performance and can also view their portfolio in detail and follow the performance of the underlying single stocks. I am very happy with the reception where the capital in Avanza Sigma at the end of the quarter, just one month after the broad launch, amounted to SEK 710 million. We now maintain full focus on continuing to challenge the traditional discretionary portfolio management market with our new, unique, and digital solution, a market estimated at SEK 1 trillion.
Gustaf Unger: The high level of employee engagement at Avanza is a unique strength that lays the foundation for our strong customer satisfaction and our innovative corporate culture. In September, we held an internal culture week at Avanza where we launched updated guiding principles for the organization. Customer first always, better for real, and smarter together. The week included everything from external lectures to internal daily challenges and a live interview with our Chairman and Founder, Sven. My main takeaway from the week is that our strong culture is not static, but rather one of our absolute most important assets that we must continuously and consciously develop. It is through our culture and our guiding principles that we constantly create new and good solutions for our customers and help them towards better savings. This, in turn, is what creates shareholder value.
Gustaf Unger: With that, I will hand over to you, Jonas, to dig deeper into the financials.
Jonas Svärling: Thanks, Gustaf, and good morning all. As you said, we are concluding yet another strong quarter. We are still seeing a healthy income mix. However, our income did decrease slightly compared to Q2. The lower volatility in the market during the summer affected our trading-related income streams negatively while deposits also decreased, which pressured NII. However, we have seasonally low staff costs in Q3, meaning that costs were also lower, and all in all, our operating profit came in at SEK 920 million, which is the second highest quarter operating profit in the history of Avanza. This resulted in an EPS of SEK 4.9, and ROE was at 44% for the quarter, again, well exceeding our target of at least 35%. If you move further into the income side, as mentioned before, market volatility has decreased during the summer, and as a natural consequence, daily trading activity also slowed.
Jonas Svärling: This was partly but not fully offset by 7.5 more trading days compared to Q2. Our trading-related income decreased as a consequence of the lower brokerage generating turnover and trades. Additionally, the market environment in Q3 resulted in our Private Banking and Pro segments accounting for a larger share of the trading. As Gustaf said, this is in line with what we've seen before with lower market volatility and negative stock market development. In such times, the broader customer base can become a bit more cautious while our most initiated customers continue to trade. Private Banking and Pro customers generated 30% of the brokerage in Q3, which is an increase from 26% in Q2.
Jonas Svärling: At the same time, we saw a higher turnover per trade, especially in the fixed fee class. This resulted in a lower income per turnover krona, and our brokerage margin decreased to 10.3 basis points from 11.0 last quarter. The strong interest in foreign trading held up also in Q3, and the share of foreign turnover was stable at 31%. This meant that it did not have any positive effect on the brokerage margin this quarter. However, strong foreign trade is always positive for the overall income mix where FX income is growing as a share.
Jonas Svärling: If you look back and compare to only three years ago, the share of foreign trading is more than twice as high today. Although that share of foreign trading was stable this quarter, the overall trend has for many years been a steadily increasing share of foreign trading in line with Swedes reducing home bias investments, and we expect that to continue. However, in the quarter, FX income was also affected by the trading mix with a higher share of also the foreign turnover generated by the Private Banking and Pro segments. Pro customers have lower FX fees in general and Private Banking customers as well through the FX account, meaning that the FX margin is also negatively affected when these customers account for a larger share of trading. Looking at fund commissions, these increased by 8% in the quarter driven by higher fund volumes.
Jonas Svärling: Although trading intensity is very much connected to volatility and market sentiment, et cetera, customers' willingness to invest has clearly increased, and we are once again reporting a quarterly record inflow to funds and with, as Gustaf said, a market share of 32% of inflows. Share of index funds continued to increase by 1.7 percentage points to 55.5% at quarter end. This impacted the fund margin, which was at 22.2 basis points on average and 22.0 at quarter end. Hence, the effect of higher volumes continues to outweigh the lower income per fund krona resulting from higher share of index funds. Other income increased primarily as a result of higher income from Avanza Markets. Other commission income also increased, which was both a result from higher income from stock lending as well as several other smaller income lines that are a bit too small to disclose separately.
Jonas Svärling: Corporate finance should be noted this income is also seasonally low in Q3. If we look into more details of NII then, deposit volumes decreased compared to Q2, which result in a slight decrease in interest income for the first time in a year. Income from surplus liquidity decreased to SEK 499 million as a result of lower volume. At the same time, we increased lending volumes both when it comes to margin lending and mortgages, and all interest rates should be said, both on deposit lending side have been kept stable during the quarter. But just like in Q2, the average rates for both deposit lending did change slightly due to the mix effects in the lending and deposit volumes respectively. Average interest rates for deposits increased to 0.81% due to higher average deposit volumes on the savings accounts.
Jonas Svärling: This had a slight effect on the deposit expenses, which increased by SEK 2 million. The average interest rate for lending decreased to 2.68% from 2.7%, both as a result of volume mix changes within the different margin lending rate levels, but also because of the mortgage portfolio growing at a faster pace than margin lending. Our mortgage offering is highly attractive, and we have seen fantastic growth compared to a year ago, the mortgage portfolio is today 44% larger. To manage the extremely high demand and as we are still keen to not allow our mortgage to deposit ratio to grow significantly, we have now in October temporarily paused new mortgage applications for customers with a savings capital between SEK 3 and 10 million. We are also increasing the interest rate within this segment by 10 basis points as of 1 November.
Jonas Svärling: As always, NII development going forward will reflect the market rate environment. Geopolitical tensions are affecting global markets and the Riksbank confirmed in September that the probability of near-term rate hikes has increased. This would have a positive effect on our net interest margin, while we hope at the same time that a slightly higher interest rate environment will not slow the economic pickup that has been long awaited and is finally a fact in Sweden. We know from experience that our customers are quite good at prioritizing savings, and we will of course, continue to do everything we can to support them in that. When it comes to interest rates and changes going forward, our strategy remains the same. We will continue to make decisions in relation to each policy rate decision, giving us the flexibility to take customer behavior as well as competition into account when adjusting rates.
Jonas Svärling: Moving over to costs. Our operating expenses decreased by 11% compared to Q2 as a result of a seasonally lower personnel cost connected to summer vacations. Marketing costs increased as we typically do more marketing in early autumn. Depreciation amortization increased slightly as a result of our algorithm asset included in the acquisition of Sigmastocks now being amortized in connection with the launch of Avanza Sigma. This asset is amortized on a straight line basis, which means that just under SEK 2 million per quarter will be expensed up until and including August 2031. Our full-year guidance of 9% cost increase for the Swedish business remains. Our long-term target is an average annual cost increase of 8% for Sweden from 2025 through 2030. As previously communicated, 2025 and 2026 have been investment years in which we have expanded our headcount to make strong progress within our prioritized areas.
Jonas Svärling: In the coming years, we will not need to increase the number of employees to the same extent. When it comes to the international expansion, SEK 11 million of the quarter's costs were linked to this. Our expectation when announcing the Denmark expansion in April was that the 2026 cost base was going to be affected by SEK 15 million, but we have managed to be more cost-effective than expected. This is mainly because we have been able to resolve more with our own strong internal expertise without having to bring in external support to the extent we initially anticipated. Therefore, we are now lowering our 2026 guidance regarding Denmark to SEK 40 million. For the project as a whole, however, we remain humble that much can happen up until launch in H2 2027.
Jonas Svärling: We therefore choose to retain our overall estimate for the entire startup period of SEK 120 million to SEK 150 million, of which around 20% will be capitalized on the balance sheet. Moving over to capital. As you can see, our capital position remains solid, and we have also audited the Q3 figures, further strengthening the capital base since accumulated profit is included in the capital base. With the current capitalization, deposits on our balance sheet would be able to grow by SEK 46 billion without breaching the leverage ratio required. The non-risk-based leverage ratio requirement remains our main capital constraint, and at the end of the period, it was at 4.8%. All in all, as you can see, we are well-positioned both when it comes to the risk-based and the non-risk-based requirements. With that, I hand back to you, Gustaf, for concluding remarks.
Gustaf Unger: Thank you, Jonas. To sum up, I am very pleased to conclude another strong quarter, both financially, reporting our second-best operating profit ever, and operationally, where we have entered the autumn with great momentum across the organization. The Swedish economy has strengthened, and we are seeing strong growth figures this quarter. The broad launch of Avanza Sigma was highly successful with SEK 710 million in AUM just one month after the broad launch, and we maintain full focus to challenge the large traditional markets of discretionary portfolio management. In parallel to the Swedish business, preparations for our international expansion is moving forward according to plan, and I am very pleased to have recruited Christian Sillesen as our country head. Avanza stands strong and is well-positioned to capture future savings market growth. With that, I think we open up for questions.
Operator: Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We are now going to take our first question. This question comes from the line of Martin Ekstedt from Handelsbanken. Please go ahead.
Martin Ekstedt: Hello, and good morning. Can you hear me?
Gustaf Unger: Yes.
Martin Ekstedt: Excellent. First, I just wanted to ask on margin compression on brokerage due to customer segments, Private Banking and Pro. Can you share some more clarity around the dynamics at play there? Is this partially also effect of your strategic push into Private Banking that we're seeing lower margins today? Do you think this will continue in that case? Is it just these relatively larger customers are more initiated, as I believe you called them earlier, just behaving slightly differently in this type of market compared to your broader mass market customers and the mass market customers then lacking volume discounts, et cetera?
Jonas Svärling: I would not extrapolate that into the future in the sense that the investments in the prioritized areas that would mean a significant shift in terms of which part of the customer base is active. There will always be a variation around some kind of baseline, which in this quarter was affected by the overall market sentiment, the lower volatility, and a few more negative days. So it's more, I would say, temporarily related to how the market developed this quarter.
Martin Ekstedt: Okay, understood. Secondly, I'd like to ask about the temporary closing of the mortgage offering for customers with 3 to 10 million in assets and also that you're making this specific segment more expensive for existing customers. I just wanted to hear a bit more about the reasons behind this. Is it just the fact that savings capital growth has been strong and this makes an unexpectedly large portion of your customers now eligible for a mortgage? At the same time you're seeing a trend for decreasing deposits. I guess the underlying question is, are we seeing early measures from you to avoid the potential liquidity crunch further down the line if savings capital compresses?
Gustaf Unger: What we have seen is that our offering is maybe too attractive. What determines that? It determines the big players' funding costs and what margins they want. We have seen a very strong inflow to the product. It is due to pricing. It is also due to marketing. So when we have marketed to build up brand awareness around Private Banking, we have lifted up the mortgage in several of those marketing efforts. We feel that it's prudent to slow down the growth now. We have grown the mortgage book by 44%. It's easy to do the math. It doesn't matter how fast we grow the savings capital, or we need to grow it at extreme speed to be able to motivate such a growth in the mortgage book over time. So it's still very attractive, but we're making it slightly less attractive with the 10 basis point change.
Gustaf Unger: It is something that we need to do. The other one is that we are pausing the opening for the smaller Private Banking segment for now.
Martin Ekstedt: Understood. Just to stay with that one a little bit more. One way of seeing this is that you are taking precautions to shore up the liability side of the balance sheet in case of a larger market downturn, which is what I find interesting. But it is also, you say, part of the reason is just that your mortgage offering is too attractive, basically.
Gustaf Unger: Yeah. On your first, that is not the reason. I feel super comfortable with our balance sheet. But when we look into the future, it is just that the math does not equalize when we grow with 44% on the liability side and the asset side, our goal is to grow with 50%, and deposits should, over time, with fluctuations, grow with 15%.
Jonas Svärling: Maybe we should add that our appetite for liquidity risk and appetite for credit risk is very low. In terms of credit risk, loan to value is less than 50%. In terms of liquidity risk, our main activity savings investments, and therefore we have quite low risk appetite. So this is not really risk driven, but if you have a growth of above 40%, and if you look at the price even after a 10 basis points increase is very attractive still. We should also keep in mind that in the latest interest rate cycle, when interest rates increase, we did not fully pass on that interest increase all the way to customers. So that is also some way compensating for that part.
Martin Ekstedt: Understood. I understand you do not have access to wholesale funding markets for mortgage-covered bonds the way the large cap banks does. So you need to be a little bit careful with your mortgages too, the concentration on that. Thank you. That is all from me.
Operator: Thank you. We are now going to take our next question. This question comes from Patrik Brattelius from ABG. Please go ahead.
Patrik Brattelius: Thank you. Can you hear me?
Gustaf Unger: Yes, we can.
Patrik Brattelius: Perfect. A follow-up there on the mortgage offering being paused. How do you view this being aligned with your target of being the number one Private Banking player in 2030? Doesn't this go in the opposite direction towards that? Because pausing an offering, isn't that bad for the user experience, or how do you view that?
Gustaf Unger: You're partially right. On the other hand, we give more incentives to gather more of our Private Banking customers' savings with us, such that they come up to that threshold. It is an important product to unlock the big banks' attempt to retain savings with their customers by arguing that you can get a good mortgage rate, but then you need to retain the savings with us. We like the product. We would like to do much of it, but we just need to manage our balance sheet in a prudent way.
Patrik Brattelius: I see. Thank you. In terms of number of employees, I noticed that the growth of number of employees is the highest level since the pandemic. It seems to be up 15% year-over-year. Can you elaborate a little bit what is driving this increase, and where are you adding capacity, and how should we think of the cost base then looking into next year as this growth will come with a lag effect on the cost base?
Jonas Svärling: Yes. Thanks, Patrick. Fair question. The overall increase in staffing is in line with our strategy, where we want to grow in our prioritized areas, including cloud migration, Private Banking, pension, not just people talking to customers, but also those building the product and also operationally improving the processes. So that's in line with our plan, and the growth has been, as you say, larger, 26 compared to 25, but both 25 and 26, we're seeing a growth. So that overall trend is according to plan. Then there will always be a little bit of variation around that, and in particular in Q3, when we disclose FTE data, there is always an impact on hourly employed employees who work more during the summer. As you look at Q3 compared to other quarters, you will see that effect typically across most years. That exaggerates FTEs a little bit during summer periods.
Jonas Svärling: Then another explanatory factor why we are increasing FTEs relatively more in 2026, which is more 2026 related, is the fact that we employ staff related to our Denmark expansion, obviously. In some cases, we use consultants, in some cases, we employ staff. So part of the staff increase is related to the Danish expansion. Then if you look into the future, how to extrapolate this, it is a little bit difficult, one should say, not just rate of staff, but in general, what is an underlying quarterly run rate, because there will always be some costs that end up in some quarters. If you remember, last year was quite heavy towards the end of the year. So that is difficult to be compared with last year's. But also this year, there will be some variation between the different quarters.
Jonas Svärling: In particular rate of staff cost, there will also be some variations related to vacancies, to leaves, parental leaves, how much vacation is taken up, et cetera. But if you look into 2027, as we said earlier in the call, we have seen a significant investment in FTE increase this year. We will not see as large FTE increases going forward, in particular into 2027, where the staff increase will not be as large going forward. That is based also on the overall cost guidance with an 8% cost increase during the strategy period, and it was 11% last year, 9% this year, which means with the increased staffing that the room for additional FTE increases will be significantly less in next year. I hope that answered the question, Patrik.
Patrik Brattelius: That was a great answer. My last question is according to the Swedish National Debt Office, the resolution fund should be filled and cease to exist from next year. In the NII bridge there, how much is the resolution fund that you pay, and do you see that this fee should also cease to exist, or do you have a different view of this?
Karolina Johansson: It was 22 in the quarter. But the rest is-
Jonas Svärling: We have no clear view at this point whether that will be reduced or not. We will need to look into that.
Patrik Brattelius: 22 per quarter, yes?
Karolina Johansson: Yes.
Patrik Brattelius: Because you also write that it is insättningsgaranti of YST in there, but I do not know if that is the same amount. Yeah?
Karolina Johansson: Not sure about this bit, actually. I can look and get back to you.
Patrik Brattelius: Okay, thanks.
Jonas Svärling: Definitely that, Patrik.
Patrik Brattelius: Thank you.
Operator: Thank you. We are now going to take our next question. This question comes from Jakob Pesovic from SEB. Please go ahead.
Jacob Hesslevik: Good morning. Interest expense on deposit rose on higher average savings account balances, and the average deposit rate rose also this quarter. Is this customers moving cash from ISK into the savings account, or is it due to lower inflows and clients being net buyers during the quarter, resulting in lower balances?
Gustaf Unger: If you take the deposit volume as a whole, then it is a risk on appetite to activate more of the capital into risky assets. Then what client behavior makes our customer choose a savings account to a larger degree? I don't have a good answer to that one, more than it would be logical that it's more the transaction deposits that are activated to a larger extent than the savings account deposits, so to speak.
Jacob Hesslevik: Okay. Did you see the flow reverse towards quarter end? What are you seeing now in October?
Gustaf Unger: You have the three monthly statistics where you see the deposit development. I think during the quarter, we have seen fairly consistent net buying of risky assets, which per definition means slightly lower deposit volumes. At the end of the quarter, our customers had held 8.9% of their savings capital in cash. That is clearly lower than we have seen in the quarters before this one in the year. But when you look at the longer time series, it fluctuates from lower values to quite higher values. It really depends on the risk on, risk off perspective of our customers.
Jacob Hesslevik: Okay. That is fair enough. Could you also remind us of how reduced disposable income from political new taxes, et cetera, have hit your clients and their trading behavior in the past?
Gustaf Unger: I think if I start by looking ahead, I feel quite relaxed about who will sit in Rosenbad and govern Sweden when we finally get the new government. Do they have different perspective on things that are close to our hearts? Yes, they have. It has been discussion about banking tax. It has been discussion about how to treat ISK. We want to push for the deductible possibility on margin lending in the capital insurance product. But overall, we feel quite relaxed and feel that we will prosper in any case. What I would like to say is what we help our customers with is to get exposure to corporates. When you invest in the stock exchange, you invest in corporate. So I hope we will have a government that is positive towards corporates and corporations.
Jacob Hesslevik: Yeah, but I am just thinking, it sounds like you are not worried that we might get a real estate tax, a millionaire tax, wealth tax back on the table, increased capital taxes, et cetera. All of this is going to reduce the willingness to invest, right? Reduce your disposable income, maybe pushing down the risk profile of your clients, resulting in maybe more liquidity going into mutual funds rather than pure equities. Or you do not agree with me?
Gustaf Unger: I do not recognize that type of behavior. What we can see and what the textbook says is if the government is saving more, i.e., increasing the taxes, the private sector typically saves slightly less, and vice versa. So we have now seen disposable income going up for the last 2, 3 years with low inflation and real positive salary developments and lower interest rates costs. So I hope that will continue, that the Swedish household will continue to prosper.
Jacob Hesslevik: Yeah, I agree with you. I hope you are right. But we will see, I guess.
Gustaf Unger: Yeah.
Operator: Thank you. We are now going to take our next question. This one comes from Andrew Lowe from Citi. Please go ahead.
Andrew Lowe: Hi. Thank you for taking my questions. Gustaf, you said in one of the earlier answers that you thought that deposits should grow in line with assets under custody over time. Investors are very skeptical about this, so could you just talk about your expectation specifically for the platform deposits, i.e., deposits excluding savings as a share of assets under custody? You are now at 4% of investment assets under custody. So how should we expect this to evolve going forward? How low can this realistically go? As a follow-up to that, there has been a lot of debate in the market about AI agents allowing customers to optimize deposits across banks and investment platforms as well. Do you think that this may result in lower platform deposits for your business going forward?
Gustaf Unger: Two questions in one, Andrew. If I start with the first one, to forecast the share of deposit and different types of deposits as a share of the savings capital is difficult, but what can I rely on? I can rely on historical time series. What do we see there? We see that our customers hold between 7% and 12%, historically, of their savings capital on our balance sheets. Now, up until recently, as you recall, we also had this external savings account. If I include that, then the range increases to 11% to 16%. We are now at 8.9%. If I look at the historical numbers on deposits on our balance sheet, it is a little bit below average, but not dramatically strange.
Gustaf Unger: The question is, that I have in my head, how should I relate that more to the total deposit they had with us before when we had the external deposits? Then it is low. Your second question around will the client behavior when it comes to deposits change, as some investors thought when news came out. It is hard to predict, but I think that the cash that is sitting on our balance sheet to the largest extent is a by-product of our customers investing on the stock exchange directly or through funds. They are not always fully invested. They are waiting for better times. They are uncertain, and they wait, and that ends up with this, as we have now, 8.9%. Will customers behave totally different in the future? I think they want to have their cash readily available to get into risky assets.
Gustaf Unger: One analogy is why do Swedes like ETFs more now than they did two years ago? Maybe they saw the effect of Liberation Day and other events when you thought you got into the market or out of the market instantaneously, but you did not because with mutual funds, it happens one or two or three days later. Again, it is hard to predict, but I am not very worried about that.
Andrew Lowe: Thanks very much. Very helpful.
Operator: Thank you. We are now going to take our next question, and this one comes from Grace Dargan from Barclays. Please go ahead.
Grace Dargan: Hi. Good morning. Thank you very much for taking my questions. I just wanted to firstly come back on one of your previous answers, just around the margin point again. I appreciate you said not to necessarily extrapolate what we have seen in Q3, but for example, if volatility were to remain lower, why would we not use that as a baseline margin? Secondly, on the Danish cost, it is obviously really good that that is coming in better for 2026. You talked about the efficiencies that you have seen so far. But given you are holding that total cost guide unchanged, are you building some additional conservatism in there, or why wouldn't you change that now for us? Thank you.
Gustaf Unger: If I start with your last question, I will give the difficult one, your first difficult question to Jonas Svärling. When it comes to Denmark, now we are in mid-October, so we have fairly good visibility on where the total cost for Denmark will end up this year, and that is positive. So we are able to progress at the lower cost. Your question is why don't you change guidance up until launch? Well, it is still early stage, and it is difficult to know what could pop up. Would we need to do some other legal investigation? Would we need to solve a problem on the custody side that we didn't think of at this stage and so on and so forth. So we want to see more visibility before we change our view on the total cost.
Jonas Svärling: Yes, adding to the Danish cost question. How we optimize, for instance, between employing staff versus using consultants is an example of a swing factor where the cost difference is like a factor 4 or 5. So that obviously impacts a little bit how we choose to do things going forward. The second important parameter would be when the launch happens in H2 2027, i.e., the period up until launch costs included in that is also creating a little bit of a span, obviously. Considering all those factors, we thought it was reasonable to maintain our previously given estimate. The first question, the line was a little bit difficult to hear. That was the margin, right?
Gustaf Unger: Yeah. I read it as we have had lower activity among our customers in general this quarter. Why do you now say that it is not necessarily something you should extrapolate in the future?
Jonas Svärling: Yeah, exactly.
Gustaf Unger: But your question, Grace, was if we would have the same environment on the stock exchange, would you see a similar behavior?
Jonas Svärling: Yeah.
Gustaf Unger: Well, what can we rely on? We can rely on historical data, and then we see exactly what we see now in Q3. When we have a more challenging trading environment, then activity goes down. That is one of the effects, and the other one is that the broad customer group becomes more reluctant to act, whereas our more experienced customers, they continue to trade.
Jonas Svärling: Yeah, and as Gustaf showed earlier in presentation in terms of the share of brokerage coming from Private Banking and Pro customers, how that has developed the last three or four years. There is a variation around a quite stable line where Q3 was slightly above that general share, which is in line with how the market has developed recently.
Grace Dargan: Understood. Thank you very much.
Operator: Thank you. We are now going to take our next question, and this one comes from Ermin Keric from DNB Carnegie. Please go ahead.
Ermin Keric: Good morning. Maybe the first question on the FX income that we are seeing, the kind of take rate in the FX. Is that just the customer mix, or do you also see any tendencies that your Pro PB clients are now more inclined to actually use the FX accounts you introduced a while back?
Gustaf Unger: When we look at the data, we saw an uptick of that after launch, but that it has been quite stable since then and quite stable in Q3 versus Q2, so that is not the driver. It is the mixed effect of PB Pro versus the broader segment.
Ermin Keric: Great. Then, a more bigger picture question on cost. Given that you are saying Denmark is now looking a little bit cheaper than you expected before, you are able to do more in-house. Is that more general efficiency gains that you can get more done, or is it specific parts of the launch process that you just happen to be able to solve in-house? I am just thinking your long-term cost trajectory, the 8%, is there anything now you have learned with AI that enabled you to launch abroad easier, et cetera, that is making you feel like the 8% could actually be lower?
Jonas Svärling: Well, our guidance of 8% still holds. Just looking first at Denmark short term and then at the learnings from Denmark long term. If you start with the short term effect, it is really about the estimate that we had this year. Now when we have more visibility, we believe the cost will be somewhat lower. That is really not the effect of efficiencies in that work, but rather the mix of cost drivers when building this new platform. Just as an example, if we were to use external legal support to investigate in a certain area, that is easily one or a couple of millions more or less in SEK. So that explains that short term, which means that those costs could appear in 2027 if those kind of needs arise which we, using the guidance we have now, might possibly happen.
Jonas Svärling: However, more long term then, I would say we are building something new in Denmark, a new platform, but also new ways of working. It also shows when you develop something from scratch using AI methodologies, we learn a lot from that and try to use these learnings in other parts of the organization. That is an additional value that at least to me, has become clearer and clearer the further we have progressed into our Danish expansion. It was not one of the rationales for doing the expansion, but it is a very positive side effect that we learn from that and how we can use these learnings in the Swedish business as well. In particular then how we use AI methods in technology development, but also all the other things that we build in Denmark.
Jonas Svärling: We have a way of reusing those learnings in other parts of the organization, and hopefully that will lead to us becoming yet more efficient. But at this time, we still stick to the strategy guidance that we have today with 8% cost increase during the strategy period.
Ermin Keric: Excellent. Thank you.
Operator: Thank you. We are now going to take our next question, and this one comes from Emre Ünlü Prinzell from Nordea. Please go ahead.
Emre Ünlü Prinzell: Hi, good morning. Thanks for taking my question. I wonder if deposit volumes decreased mainly driven by improved risk appetite, risk-on mentality, why do we then see a bit weaker trading income? If broader customer base becomes more cautious now, then can we say that deposit volumes decrease because of risk on? See what I mean? That is my first question.
Gustaf Unger: Well, good question. I think one is to separate, do I want exposure to risky asset, yes or no? And there we see a bigger appetite to activate more of the capital in the stock exchange. We saw that the means to do that this quarter was more through broad exposure. So it is a willingness to invest, which is a kind of risk on, but we did not see this appetite to take thematic directions to the extent that we have seen before, but rather going with broad exposure to risk assets, i.e. funds. So you need to look at taking into account the very heavy inflow into funds, which is a clear data point to that. To get more activity, our customers rather want more directions to trade on, i.e. more volatility, a more positive stock environment in general.
Gustaf Unger: The stock market actually went up 2 point something percent in Stockholm. So it was not a bad month per se, but September, for example, was only the second red month this year. So it was a different environment in Q3 than we have seen in the earlier part of the year.
Emre Ünlü Prinzell: Thanks. Thanks a lot for that. On NII, the share of ISK deposits decreased somewhat. I guess my question is, in an increasing rate environment, if and when Riksbank starts to hike rates, how should we think about the migration of deposits to savings account, i.e. some mitigation to the potential pickup in NII due to such mixed effects?
Jonas Svärling: Yes. Very difficult to predict where deposits will go. In particular, if you would look at historical data, that would be also a bit difficult to relate given the fact that the savings account was introduced for private individuals, I think it was in 2023. That was in a rising interest rate environment, and we did have the external savings account at the same time. So if you look at historical data that might be difficult to draw conclusions from that. So I would say in summary that very difficult to say how the proportion will change both shift wise, but also the pass-through rates, obviously, both on savings accounts and transaction accounts. As we said before, we will make those decisions in connection with the Riksbank repo rate changes based on competition and the circumstance around when the rate decision is made.
Jonas Svärling: Sorry for not a super clear answer, but it is difficult to give a guidance on that.
Emre Ünlü Prinzell: Well, that's it for me. Thank you.
Operator: Thank you. We are now going to take our next question, and this one is from Oliver Carruthers from Goldman Sachs. Please go ahead.
Oliver Carruthers: Hi there. Morning, team. Thanks for the presentation, and thanks for taking my question. I've just got one question on net inflows. Given that you've paused the mortgage offering for those in the 3 to 10 million bracket, how much should we expect your net inflows to slow down over the next few months? Part of the reason I ask this is if you look at your net inflows over the last few months, they've materially accelerated year-over-year, but that hasn't really been mirrored in the customer growth. So it looks like there's been a reasonable amount of client behavior where my guess would be either you're acquiring more Private Banking customers or you're seeing a shift, like a top-up to the 3 million level so that they're eligible to access this mortgage offering. Thank you.
Gustaf Unger: Good question. So two points for me. One is if you look at the savings capital growth across our three customer segments, you see a higher growth for the Private Banking segment. That's what we want to see also in the future. This is one of our strategic priorities. Jakob, who is responsible for Private and Investment Banking, is he super happy about pausing the mortgage for the 3 to 10 million customer? No. Am I still positive towards our traction on the Private Banking side? Yes, absolutely. The second point is when I look at where does the net flow come from this quarter, one-third comes from existing customers and two-thirds from. No, sorry, one-third from new customers and two-thirds from existing customers. Increasing share of wallet is an important part of our strategy.
Gustaf Unger: It's the first pillar where we, I think, slowly but surely it's getting better and better at getting a bigger share of the wallet. So in Q3, one-third new customers, two-thirds existing customer is not exceptional when I look at the time series, even though it fluctuates quarter to quarter.
Oliver Carruthers: But is it still reasonable to expect a bit of a slowdown in the net inflows now that this offering is paused, or would you expect to continue to see the really strong net inflows that you've been seeing over the last few months to continue?
Gustaf Unger: Yeah. The isolated marginal effect is not positive, but I think we will still have a nice inflow on the Private Banking side.
Oliver Carruthers: Got it. That's clear. Thank you.
Operator: Thank you. We are now going to take our next question, and this one comes from Enrico Bolzoni from J.P. Morgan. Please go ahead.
Enrico Bolzoni: Hi. Thank you. Thanks for taking my questions, and partially you already answered similar ones. I just wanted to go back briefly, just generally, if we think that we are getting into a new rate cycle and it is still very fresh in investors at the previous one, would you agree with the statement that actually in terms of the rate that you will have to pass on to customer is probably higher than what it was through the previous cycle? I am just saying that because quite a few names in the UK, for example, even if rates are increasing, are not guiding for an increase in any interest margin they can achieve just because I think clients have a higher expectation of receiving that benefit. Then the second question, just on your investments in technology and thinking about the cloud migration.
Enrico Bolzoni: Can you just provide any additional color on whether you think you will be able to achieve some net cost savings over the next 3, 5 years? I am thinking, for example, reducing the number of employees or reducing other costs. So not just slowing down, but actually achieving some net savings there. Thanks.
Jonas Svärling: Should I start with the pass-through?
Gustaf Unger: Yeah
Jonas Svärling: rates, I understand, or I interpret your question as what will the pass-through rates be for both lending and deposits. As we said before, we will decide upon that in connection with each and every rate hike. You can look at how things were in the history, but things were different then, both in terms of what rate levels there were and how rates changed, and why they changed, as well as the product offering was different. We did not even have, for instance, the savings account back in those days, meaning, for instance, that what made them more pressured to increase interest rates on transaction accounts. So those things should be taken into account. There is no more guidance to give in terms of pass-through rates other than that we believe net interest margin will expand if rates increase as we believe they will within short.
Gustaf Unger: The other question was around the cloud migration. Did I hear AI also? Or was it isolated to the cloud?
Enrico Bolzoni: More generally, whether we can expect at some point in the future, not just a slowdown in cost growth, but actually some net reduction coming from all of these investments you are making.
Gustaf Unger: We could steer our cost base quite a lot already today if we wanted to. Now we have invested and increased our staff to be able to do more per time unit, and we are doing a lot of things in parallel now with advancement on cross-selling, Private Banking, occupational pension, moving the platform to the cloud, building a new platform in Denmark. So I would say right now we have more things on our plate that we would like to do than we can. So whatever we find in efficiencies here and now is deployed in faster execution. How that will be in 2 years' time, I do not know, but the best prognosis we have is to follow our guidance that we set out in Strategy 2030.
Enrico Bolzoni: Yep.
Operator: Thank you. That was the last question for today. This concludes today's conference call. Thank you for participating. You may now disconnect.
