Handelsbanken - Interim Report January-June 2006

Operating profit increased by 29% to SEK 9,130m (7,073). All the main types of income were higher and in total, income rose by 25% to SEK 15,579m (12,498), while expenses rose by 22% to SEK 6,582m (5,401). A significant reason for the rise in income and expenses is that SPP is included in Handelsbanken's consolidated accounts from 1 January 2006.

 

Return on shareholders' equity increased to 23.3% (16.6). The cost/income ratio improved to 42.3% (43.2). Earnings per share were SEK 11.29 (7.67) and as a 12-month moving total SEK 20.58.

 

Income increased by 25% to SEK 15,579m (12,498) as a result of higher business volumes, higher commission income and a good result for trading operations. Net interest income was virtually unchanged. Lending margins continued to be under pressure while deposit margins increased somewhat during the second quarter. Business volumes increased. The increase was large in Sweden and even larger in the regional banks outside Sweden. The increase in business volumes pertained to both private and corporate customers. Net fee and commission income rose by 31% to SEK 4,411m (3,366), with the highest increases in equity-related commission income, insurance and card commissions. The Bank's share of new savings on the Swedish mutual fund market was 20.5% in the first half of the year, as compared to its share of the total volume which was around 13.7%. Net gains/losses on financial items at fair value were SEK 2,856m (1,141), an improvement of 150%. Trading operations represented SEK 1,497m (1,008), an increase of almost 50%. The value of the insurance liability for previously underfunded insurance contracts at SPP fell, which means that SPP could recover SEK 1,473m of the previous capital injection. The fact that the total return on policyholders' funds in Handelsbanken Liv and SPP did not achieve the guaranteed level during the second quarter reduced income during the quarter by SEK 276m.

 

Expenses rose by 22% to SEK 6,582m (5,401). The consolidation of SPP represented 7.5 percentage points of the total increase in expenses. Performance-related remuneration, including an allocation to the Oktogonen profit-sharing foundation, was nearly 9 percentage points of the increase. Ongoing enhancements of premises and exchange rate changes represented another almost 2 percentage points. Thus, the continued investment in organic growth outside Sweden, a small increase in the number of employees in Sweden and salary increases represented almost 4 percentage points of the rise in expenses. The number of employees in the Group rose to 10,058 (9,323).

 

For the fifth quarter running, Handelsbanken reported net recoveries on loan losses totalling SEK 132m (-28). Gross losses continued to fall, and recoveries were slightly higher.

 

The loan loss ratio was -0.02% (0.01). Net bad debts were SEK 1,209m (1,315), equivalent to 0.11% (0.13) of lending.

 

The capital ratio was 9.6% (10.0) and the tier 1 ratio was 7.1% (7.0).

 

The Bank repurchased 20.6 million shares from October 2005 to 31 March 2006, based on the authorisation of the AGM in 2005. At the AGM on 25 April 2006, it was resolved to cancel these shares. This process was completed on 13 June 2006. The number of shares was subsequently 649.0 million.

At the 2006 AGM, the board received a mandate to repurchase a maximum of 40 million shares during the period until the 2007 AGM. On 26 April 2006, the Bank resumed repurchasing shares on the Stockholm stock exchange. During the second quarter a total of 5.0 million shares were repurchased, after which the number of outstanding shares is 644.0 million.

 

Handelsbanken's rating is 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-.

 

The Pensions & Insurance business area reported an operating profit of SEK 1,694m (282) and for the quarter the profit was SEK 190m (199). The administration result was SEK 25m (26), where Handelsbanken Liv contributed SEK 37m. During the second quarter, the administration result was positive in both Handelsbanken Liv and SPP. The risk result in the insurance operations was SEK 346m (101), of which SEK 297m (82) was generated in the second quarter. This major improvement was partly because SPP could dissolve provisions for risks relating to disability claims. The financial result was SEK 1,505m.

 

In the second quarter, the Bank opened branches in Ekerö near Stockholm, Slough and Sheffield in Great Britain, in Hillerød and Køge outside Copenhagen, in Tallinn (Estonia) and in Gdansk (Poland).