Handelsbanken - Interim Report January - September 2006
Summary
The Group
Operating profit increased by 10% to SEK 12,132m (11,041).
Operating profit was SEK 12,132m (11,041), an increase of 10%. Income rose by 12% to SEK 21,212m (18,911), and expenses went up by 13% to SEK 9,191m (8,098). Return on shareholders' equity was 20.2% (17.1). Earnings per share were SEK 14.63 (12.00), and as a 12-month moving total SEK 19.62. The cost/income ratio was 43.3% (42.8). Profits for the third quarter fell and were SEK 3,002m, compared to SEK 4,114m in the second quarter.
Higher business volumes and income
Business volumes continued to increase both in Sweden and in the operations outside Sweden. The average volume of lending to the public was SEK 1,034bn (917), up 13%. In Sweden, the increase was almost 10% and in the branch office operations outside Sweden it was 27%. Deposits from households went up by over 11%, both in Sweden and abroad.
Net interest income was SEK 11,246m (11,297). Increases in volume and higher deposit margins compensated for the decline in lending margins. Third-quarter net interest income was SEK 3,696m, compared with SEK 3,766m in the second quarter.
Net fee and commission income rose by 28% to SEK 6,483m (5,076). The increase was mainly due to higher insurance commission, brokerage fees and commission from mutual fund and custody operations. Net fee and commission income in the third quarter was SEK 2,072m, compared with SEK 2,069m in the second quarter. Insurance and payment commissions increased the most.
Net gains/losses on financial items at fair value fell by just over SEK 1.3bn from Q2 to Q3
Net gains/losses on financial items at fair value were SEK 2,654m (1,942), an increase of 37%. For the third quarter, this item was SEK -247m, a decrease of SEK 1,311m from the previous quarter. The decrease stemmed mainly from the allocation of the impact on profits of holdings in the Bank's own bonds, provisions in the insurance operations and a decline in net trading income.
Both Handelsbanken Markets and the Bank's Treasury function invest in the Group's own securities, mainly bonds issued by Stadshypotek. This is part of normal business operations. In the consolidated accounts, the impact on profits of the Bank's holdings of its own bonds is allocated over time. This had a negative impact on the profits of SEK 693m between the second and third quarters. These effects have been unusually large and action has therefore been taken so that they will be substantially less in the future. Over the nine-month period, the overall effect is SEK 6m.
When SPP was demutualised, some of its insurance contracts were underfunded. These were capitalised through the capital contribution made by the Bank when the demutualisation took place. When calculating the insurance liabilities, a long-term market yield is used as the discount rate. This fell by 43 bp during the year, which increased the need for provisions for the insurance contracts that were underfunded at the time of the demutualisation. The increase in the deferred capital contribution and other items in the insurance operations had a negative effect on net gains/losses on financial items at fair value of SEK 233m. The amount would have been higher, had the Bank not hedged itself against changes in the long-term yield. The intention is to further reduce the financial risks in SPP.
Finally, the Bank's trading operations showed lower income of SEK 194m. This was a decrease from the high levels recorded in the first and second quarters. Moreover, in seasonal terms, the third quarter is normally somewhat weaker for trading income.
Expenses fell between the second and third quarters
Expenses dropped by 22% from the second to the third quarter, to a figure of SEK 2,609m (3,330). At the end of each quarter, the Bank assesses the size of a possible allocation to its profit-sharing plan, the Oktogonen Foundation. After the lower profit for the third quarter, this assessment was revised which led to the Bank reversing parts of the previous provision for a possible allocation to the profit-sharing plan. The reversal totalled SEK 272m, and the change from the previous quarter was SEK 478m. Both staff costs and administrative costs decreased from the second quarter to the third. Expenses for the nine-month period increased to SEK 9,191m (8,098), a rise of 13.5%. Of the total increase, the consolidation of SPP represented 7.3 percentage points, an increase in performance-related remuneration 1.9 percentage points, and the rebuilding of premises and exchange rate changes 1.2 percentage points. The remainder of the increase - 3.1 percentage points - was chiefly due to the larger number of employees and salary rises.
Recoveries exceeded loan losses
Recoveries exceeded loan losses for the period; total net recoveries were SEK 110m (224). The loan loss level was -0.01% (-0.03). Net bad debts were SEK 1,071m (1,423), equivalent to 0.09% (0.14) of lending. Third-quarter loan losses amounted to SEK 22m.
Capital ratio, buy-back of shares and rating
The capital ratio was 9.7% (9.9) and the Tier 1 ratio 6.8% (7.4).
At the 2006 AGM, the Bank's board received a mandate to repurchase 40 million shares during the period until the 2007 AGM. During the second and third quarters, the Bank utilised the mandate and repurchased a total of 14.8 million shares. The total number of shares is 649.0 million, and thus the number of outstanding shares at the end of the third quarter was 634.2 million.
Handelsbanken's rating was unchanged with all three rating agencies which rate the Bank. Moody's rating for the Bank was Aa1, and from Fitch and Standard & Poor's AA-.
Satisfied customers do more business
Satisfaction among bank customers, both private and corporate, is now measured in a uniform manner in Sweden, Denmark, Finland and Norway. The results of this year's surveys were presented in early October, and all in all, the Bank has the most satisfied customers in the Nordic region - corporate as well as private. In all four countries, the Bank's results are well above those of its major competitors.
Satisfied customers are also leading to record volumes in several business areas. The Bank has never sold as many cards as it does now, has never had so many and such large volumes of standing orders to mutual funds as it has now, and has never issued such large sums of structured products as it does now. Furthermore, the Bank's share of the mortgage market is growing, and its share of net new sales in the Swedish mutual fund market has also increased this year.
Six new branches opened
During the third quarter, the Bank opened branches on the island of Sotra outside Bergen in Norway, in Oxford, Swindon and Leicester in Great Britain, in Poznan in Poland, and in Mumbai, India.
Pär Boman
President and Group Chief Executive
Pär Boman, Group Chief Executive
phone: +46 8 - 22 92 20, e-mail: pabo01@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: