Mandatum, but today we look at the third-quarter numbers in a pretty stormy quarter, you could say. A lot has happened again in the capital markets. So how? How did you see it?

Well, yes, you could say that the quiet holiday quarter turned pretty stormy as soon as people returned to work. So, of course, actually for us as well. July and August were quite steady, and the market looked fine. But then the September market was anything but calm, and the sharp rise in interest rates had a particular impact. It naturally had an impact then, along with many other things in the markets. The rise in the oil price and so on, so this wasn't a very easy quarter given the market conditions. Not for us, and certainly not for anyone else either.

How then, if you look at your key figures and, above all, the earnings lines, what do you? How satisfied were you with what we have here?

Very satisfied with our earnings lines. You have to remember that a single quarter's net flows or AUM growth, for example, doesn't have an impact yet. It's too short a time for good or bad, unless there is a really drastic revision. The work we have done in the recent past has definitely borne fruit and continues to bear fruit. Meaning the earnings of our asset-light businesses saw an 18 percent growth compared to the previous year. Fee result, the share of fee income, an 11 percent growth in the fee result, those are tough numbers. AUM growth was 13 percent year-on-year. I am really pleased with the earnings lines. I'm also very satisfied with the net finance result, as I feel that in that environment with interest rates rising so sharply, we hold a lot of fixed income on our balance sheet. Still an exceptionally good result considering that.

The line you weren't satisfied with, you said it straight in the call and you said it straight during your CEO term, let's take that up. Net flows, for a long time, net flows remained at a very subdued level. Both absolutely and relatively, that 50 million for the quarter is quite far from what your engine is capable of, and how? How do you break down this softness in sales during Q3?

Well, I break it down such that, without going into too many exact details, let's just say we were still in a pretty good position after the summer. And September definitely changed a lot. With a little bit of timing, that figure would have looked very different. So it comes down to small margins when quarters change as well. So, so. So this perhaps also describes our business. We don't have a large, broad retail base that churns out net flows from a huge mass and where movements are slow, but our tickets are large in both directions. And then if they fall inconveniently or positively around the turn of the quarter, it has quite a big impact on the final outcome.

But let's put it this way, maybe a bit like this. A certain kind of, I would say, since I'm not satisfied with sales, one shouldn't make too many excuses about market conditions, but rather the fact that maybe there was also a bit too much. Freezing up in that situation in September, not acting swiftly enough, but let's say that corrective actions have of course been taken and the new quarter is already well under way. There is nothing wrong with our products or their demand, nor with the performance or the customer interface. This just requires a slightly more vigorous approach.

Customer behavior clearly changed in September. You can see it. You can see it across the board. Everyone essentially says that customers pulled the plug, so to speak, hit the handbrake. What has changed compared to previous market disruptions like this? You and I have talked on video before about how it's been pretty much the same no matter what comes out of the White House, investors have become a bit desensitized to it until now, what is different now? That now the handbrake was pulled.

Well, I think it's a historical move. If you think about French government bonds, which are yielding higher than corporate bonds in Europe. That change in interest rates was historical, it was exceptional, and we all know what that means for fixed-income investments in the short term. No one invests in bonds with a one-month maturity. So you inevitably get a negative movement there. And that is naturally an event where you look at the past. What kind of moves have we had? Well, we haven't seen anything of this type before.

Naturally, for us and a few other houses that are strong fixed-income houses, this is the interest rate movement where it feels like a slowly rising or slowly falling rate is quite a small ripple in the bond world. But this is where you quickly see losses when interest rates rise very sharply, unless you can keep durations truly short. Truly short, and nobody has that right now, so, so, so this. But conversely, on the other hand, the fact that interest rates have now risen to a completely new level and spreads have widened. Meaning these risk premiums mean that Mandatum's capability to sell our fixed-income products has actually improved. Let's say over the past six months.

Yeah, let's touch upon that a bit more. In the big picture. It goes hand in hand. The higher the interest rates, the better. That's for a fixed-income dealer, because the yield level of interest rates is attractive. But at some point, there is a peak. When does the level of interest rates start to brake economic growth? And then that pain point is somewhere. Now, who knows for sure where it is, but let's try to ask anyway, do you still see that this current interest rate level is.

Not too high at all? It probably is for certain operators. I suppose for mortgage banks, for granting mortgage loans, this has been poison once again. Meaning interest rates have gone up. Not that they anyway. If you have a mortgage tied to the three-month Euribor, it has gone up a lot. But let's say for the real economy, housing and real estate transactions, this rise in interest rates. But we are not in that business to that extent. Even though it hurts us too, relative to how it benefits us? It is still post-net positive, so rates would have to go really high for it to genuinely start hurting us, at least in the short term. Then again, in the long term, if interest rates are very high, it dampens the Finnish business environment. And we are quite big in Finnish corporate business, supplementary pensions, and so on, so that starts to show up there at some point. But we are not there at the moment.

So in that sense, it was mentioned in the call as well. You were quite confident about it, and you stated quite directly that in your view, this movement is net positive for you as a whole nevertheless.

Exactly.

Yes. Right. Then the Cliens deal was finally finalized after the review period. You've now managed to get there. First you are here.

It was completed quickly actually, quite quickly. In fact, after the signing, you got you got.

That was positive. You've now been able to fully dive into the work there, for a short while already, so. Are there any initial feelings about how it's going? How has the customer reception been? Have you had a chance to test it out at all? On the other hand, what are the concrete steps now? What are we going to do next?

So, so. We already knew about the customer reactions when we announced this deal in August. And the customer reception was really positive. In Sweden, we've received a lot of comments from Swedish operators and clients saying it's a great acquisition, that we bought a quality house, a great move and so on, seeing that we made a good move and seeing us as a good owner. For Cliens, meaning the reception in the Swedish market. Which is the particular one? That of course, the important thing for us in this situation, has been really positive.

What we are concretely doing, we have. We already talked about this, meaning the synergy play. For example, on the cost side, that's not what we are going to do. We are not going to integrate our back offices or IT systems and so on, Cliens is a very lean company, efficiently run. Some savings can perhaps be achieved in larger-scale procurement and so forth that benefit them. Fundamentally, that hasn't been our whole idea here at all, but rather cooperation. We have somewhat different customers. We have had our own strengths in our historical operations. We are of course now aiming to increase cross-selling, in which we have proven to be exceptionally good in Finland. Time will tell how that works in Sweden, but that is nevertheless what we are aiming for. Then of course we are discussing across the Gulf of Finland here towards Finland. For instance, how Cliens' products fit into our distribution to Finnish clients, where we have an excellent grip and so on, so these things—seeking synergy and growth and cross-selling specifically on the customer side—have now been set in motion right after closing.

You would imagine, since they are two dynamic organizations after all. One organization is nevertheless very small in this case, and you'll probably get up to full speed with them pretty quickly, by all logic.

This is so difficult. This is not a huge undertaking. There are also six employees. Exactly. This is kind of like that. Communication is easy, of course. Yeah.

Well, then one less-than-welcome issue that has been in the news regarding you is Mandatum Trader. You have experienced data breaches there. It has gone on for a bit longer. Could you elaborate a bit on what has happened here? And of course, investors are interested in what Mandatum's potential liability is in this, meaning how your. How is liability divided between you and Germany? Who operates. The platform in practice anyway?

Yes, so as for what has happened, it has of course been reported in many places now, but just to recap. So three weeks ago on Tuesday, a major disruption was detected on the Trader platform. And then, of course, together with Germany, we looked into it, and it turned out to be unauthorized access to the platform, and from the accounts of certain customers, around a few dozen customers, unauthorized transactions had been made. So they had not made those trades, purchases and sales themselves. Because of this, Trader was shut down, and it was completely shut down for some time until a way was found. A securely safe route to bypass the normal path so that customers could once again see their holdings and also trade.

And now, what have we done? Naturally, now that we have informed about it, we have restored these customers' accounts to their previous state, meaning to the point they were at before these unauthorized trades. So the customer has not suffered financial loss, as if they had not done anything. That is the situation. So just to be clear. This works in such a way that the German customers are, after all, German customers. Every Trader customer is a customer of the German bank and operates on the German bank's trading platform. What is Mandatum's role? We are responsible for customer service in Finland. And then onboarding to the system. So when a new customer arrives, we onboard them and do certain things. So we are their agent, and this is of course our bilateral relationship. This is a principal-agent relationship.

That is what we have with Trader. It is. It is. It is an interesting addition and a good thing for our business, because it also enables our wealth management clients. Those who do not want wealth management can trade and transact themselves. But then, as you probably know in our overall figures. It is quite a small business for us, and now with the clarification. But at this stage, when discussing financial liabilities and other matters, our assumption is that they will not be very significant for Mandatum.

Yeah. Yes, this was a good clarification that it truly is part of your business. Practically, viewed from this side, it is a negligible share of the financial side.

Yes, it has very much been strategic for us as well, so that we can serve customers in that area too.

Let us then finally look at the big picture of the Finnish wealth management market. Right now, it seems to be an extremely strong trend that everyone who is able wants to do discretionary wealth management. That is the buzzword in town, everyone is doing it. There is quite a big contrast here to the zero-interest-rate era, when this was much more product sales. Back then, alternative products in particular were all the rage when the zero-interest-rate era was different. Like that. So true. How do you see this now that everyone is offering that same discretionary wealth management? What is still there, it is difficult to differentiate. We know that. Right. Is there a risk here that discretionary wealth management will become commoditized at some point, when practically everyone is just offering it? And will this pendulum then swing back toward products next?

Well, you know this. This pendulum movement probably exists in all businesses, in this one too, and in the wealth management business, much like fashion changes, it comes from time to time, houses change. Indeed, we also see why operators have gone where they have. So as you well described, going into the zero-interest-rate era, real estate investments or alternative investments in general were launched. All kinds of things. Then when the world has changed and, let us say, the normal bond and equity market has once again become more attractive in terms of yield. Among other things, there has been a shift to product and wealth management. And of course, wealth management is a more scalable business than having customers holding this and that and products sold at different times. And managing that is also quite a task of its own.

But I would not say that this is becoming commoditized; there is still a vast difference between various providers even within discretionary management and mandates. And that does not remove the fact that alternative products have long been included inside the mandate as well, for instance in our mandate. So we have not had, e.g. Pure fixed income and pure equities, but there have been many other investments as well, and that is also how one differentiates. What you offer within that mandate, so that it does not sound the same, and even though the name might be the same, discretionary, the differences are quite big. Of course, at the end of the day, everyone competes over whose mandate yields the best or where it stands, because the leader changes even in a sports competition in a ten-kilometer run. But, but. Naturally, everyone's goal is to stay in the top quartile or top third. And competition there is fierce.

But it is completely clear that, let us say. Let us assume, for example, a situation that goes so well. At some point it will probably happen that the Finnish real estate market starts to open up again, an upturn occurs, foreign capital flows in, and so on. We can surely be entirely certain that new real estate products will then be brought to the market again. They will be sold to customers.

Yeah, exactly that.

It just keeps coming back.

Yeah, that is how it goes. That is how the pendulum swings in this industry too.

And of course, throughout all this time. For example, private equity products and e.g. This opportunistic credit fund of ours, we certainly still sell products as well. And then one must also distinguish between two. Two business areas: wealth management and then asset management, where in asset management products are perhaps sold more to institutions and family offices. They would take care of their allocation themselves, and then again when moving to smaller clients. The more it is about selling discretionary wealth management, where complete allocation expertise is sold.

And then when going across borders abroad, only products are sold there.

Indeed, like we do. We only engage in product sales outside of Finland.

Let us see where this next trend swings the Finnish wealth management market. Thanks to Petri for the interview. Good luck with that light integration into Cliens that you have started undertaking.

Thank you very much!