Handelsbanken - interim report January - September 2005

Summary
  • Operating profit rose by 9% to SEK 11.1bn (10.1)
  • Profit after tax totalled SEK 8.0bn (7.3)
  • Return on equity was 17.1% (16.6)
  • Operating profit for the third quarter was SEK 4.0bn, an increase of 20% compared with the corresponding quarter in the previous year
  • Lending volumes increased by 8%
  • Income went up by 7% to SEK 18.9bn (17.8)
  • Earnings per share rose to SEK 12.01 (10.78)
  • SPP will be a demutualised life insurance company on 1 January 2006
  • Handelsbanken has the most satisfied customers in the Nordic countries
  •  
    The Group
     
    Operating profit up by 9% - profit for third quarter was SEK 4.0bn
    Operating profit increased by 9% to SEK 11,055m (10,142). Income rose by SEK 18,925m (17,752), an increase of 7%, while expenses went up by 6%. Operating profit for the third quarter was SEK 3,975m, the best so far for an individual quarter. The increase in comparison to the corresponding period in the previous year was 20% and compared to the previous quarter 6%.
     
    Larger business volumes compensated for deteriorated deposit margins and deteriorated margins for mortgage loans to households. Net commission income increased by 17% to SEK 5,064m (4,339). Net commission income for the third quarter is normally relatively weak but this year it was almost as high as for the second quarter. Compared to the corresponding quarter last year, the increase was 26%. The insurance operations quadrupled its profits.
     
    Return on shareholders' equity was 17.1% (16.6), and for the third quarter it was 18.2% (16.4). Earnings per share rose to SEK 12.01 (10.78) and as a 12-month moving total they were SEK 15.78. The C/I ratio was 42.8% (42.9).
     
    Increased business volumes and higher income
    Net interest income, net commission income and income from net gains/losses on items at fair value increased by 1%, 17% and 23% respectively. In total, income rose to SEK 18,925m (17,752), an increase of 7%. Net interest income rose since larger business volumes compensated for the decrease in margins.
     
    The average volume of lending rose by 8% to SEK 913bn (848), with household lending rising by 12% to SEK 397bn (353) and corporate lending by 4% to SEK 516bn (495). The rate of increase in Sweden was just over 6% and at the regional banks outside Sweden, almost 18%. The average volume of deposits totalled SEK 362bn (305), an increase of 19%, with deposits in Sweden at SEK 243bn (209). Net commission income increased by 17% to SEK 5,064m (4,339).
     
    In a comparison between the third quarter this year and the corresponding quarter in the previous year, the increase was 26%. A major contributory factor to the high net commissions income figure was the rise in securities-related commission and also continued strong performance for the Bank's insurance operations. The increase in income from net gains/losses on items at fair value was mainly due to a considerably higher risk result in the insurance operations.
     
    Expenses rose by 6% to SEK 8,098m (7,620). Higher IT costs, the Bank's expansion outside Sweden and the consolidation of SPP Liv Fondförsäkring AB represented over two-thirds of the increase.
     
     
    No loan losses
    Recoveries exceeded loan losses for the period and net recoveries were SEK 224m (8). The loan loss ratio was -0.03 (0.01). The share of bad debts in relation to lending was 0.14% (0.13). For the period, recoveries were generally at the same level as the previous year and the improvement was due to lower gross losses.
     
    Capital ratio and rating
    The capital ratio was 9.9% (9.8) and the Tier 1 ratio was 7.4% (7.3). The ratios include profits generated during the quarter. Handelsbanken's rating was unchanged with all three rating agencies which rate the Bank.
     
    SPP to be demutualised
    SPP, which is a wholly-owned subsidiary, is currently run on mutual principles. Ever since Handelsbanken acquired SPP in March 2001, it has been the intention of the Bank to convert the company into a for-profit company. In a ballot held in early summer 2004, the policyholders voted with an overwhelming majority in favour of demutualisation and the Finansinspektionen granted its permission to demutualise SPP in April 2005. At its December meeting, the board of the Bank intends to resolve to inject capital into SPP in order to demutualise the company on 1 January 2006. The life insurance and pensions markets continue to report strong growth and will be exceptionally important for the Bank.
     
    It is expected that a demutualised SPP will contribute to higher post-tax profits as early as 2006 and will boost both return on shareholders' equity and earnings per share.
     
    In order to demutualise SPP, new shareholders' equity must be injected into the company. The total capital injection is estimated at SEK 13bn, of which SEK 11.2bn is new capital. Of this, SEK 4.8bn will be used to cover the shortfall which is expected to exist in parts of SPP's portfolio after demutualisation. The Bank's assessment is that the capitalisation will fulfil the requirements of the Finansinspektionen in its recently issued traffic light model. The funding for the SEK 13bn will be raised by means of the Bank raising subordinated debt, which is tier 2 capital.
     
    Thus in accordance with the regulations adopted by the EU, the capitalisation of SPP will not need to be covered by tier 1 capital - only by tier 2 capital. However, the goodwill arising when SPP is consolidated into the Bank's balance sheet must be deducted from the Bank's tier 1 capital. This goodwill is estimated at SEK 4.1bn and the calculation is also affected by another intangible assets item of SEK 0.9bn, arising in July 2004 when the Bank acquired SPP Liv Fondförsäkring AB. Thus, SPP is expected to require a total of SEK 5.0bn in tier 1 capital as a demutualised company.
     
    After SPP has been demutualised, Handelsbanken's capital situation is expected to be very satisfactory, both in a short and long term perspective. The Bank is therefore considering resuming buybacks of its own shares in accordance with the decision taken at the annual general meeting earlier this year.
     
     
    Handelsbanken has the most satisfied customers in the Nordic countries
    Svenskt Kvalitetsindex, Dansk Kundeindex, EPSI Norway and EPSI Rating (Finland) have reported how satisfied customers are with their banks. Handelsbanken was in a class of its own and has the most satisfied customers of the Nordic banks. In Sweden, the Bank is number one among the major players, both in the private and corporate markets, a situation which has been unchanged since the surveys started in the late 1980s. In Denmark, customer satisfaction was measured among private customers and Handelsbanken is also number one there. In Norway, Handelsbanken has the most satisfied and most loyal customers in the corporate market, and the satisfaction index for private customers increased, with Handelsbanken a close second. In Finland, as in previous years, the Bank has the highest customer satisfaction ratings, in both the private and corporate markets.
     
     
    Lars O Grönstedt
    President and Group Chief Executive
     
     
    For further information please contact:
     
    Lars O Grönstedt, Group Chief Executive
    phone: +46 8 - 22 92 20, e-mail: lagr03@handelsbanken.se
     
    Lennart Francke, Head of Control and Accounting
    phone: +46 8 - 22 92 20, e-mail: lefr01@handelsbanken.se

    Elisa Saarinen, Head of Corporate Communications
    phone: +46 8 - 701 10 36, e-mail: elsa03@handelsbanken.se
     
    Bengt Ragnå, Head of Investor Relations
    phone: +46 8 - 701 12 16, e-mail: bera02@handelsbanken.se
     
     
    The full report including tables can be downloaded from the following link:

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