Summary January - September 2007, compared to January - September 2006

 

Operating profit increased by 10% to SEK 11.6bn (10.6)

Return on equity increased to 17.4% (17.1) and including discontinued operations it was 18.4%

Income totalled SEK 20.5bn (19.0)

Profits after tax were SEK 8.6bn (8.0)

Earnings per share increased to SEK 13.78 (12.42) and SEK 14.58 for total operations

Operating profits in branch office operations outside Sweden increased by 39%

Net interest income went up by 17% in branch office operations outside Sweden and by 3% in the Swedish branch office operations

The Bank opened 20 new branches outside Sweden and it has been decided to open a further 26 new units

 

Operating profit was SEK 3.5bn (4.4)

Return on equity was 15.7% (20.2) and including discontinued operations it was 15.4%

The Bank entered into an agreement to sell SPP and related operations to Storebrand for SEK 18bn

 

_________

*At the beginning of September, an agreement was made to divest SPP and related operations. This means that as of this quarter, the Bank will report continuing and discontinued operations in accordance with IFRS 5. Note 5 describes what is included in discontinued operations. All comments in the interim report refer to the continuing operations, unless otherwise stated.

 

 

Operating profit was SEK 11,631m (10,589), an increase of 10%. Net interest income went up by 4% to SEK 11,598m (11,099). It rose both in the Swedish branch office operations and in the branch office operations outside Sweden. Net fee and commission income rose by 11% to SEK 5,789m (5,216) and net gains/losses on financial items at fair value rose by SEK 576m to SEK 2,531m (1,955). Expenses rose to SEK 9,019m (8,473) and recoveries exceeded loan losses. Return on shareholders' equity was 17.4% (17.1) and the C/I ratio was 44.0% (44.7). Earnings per share were SEK 13.78 (12.42).

 

Return on equity for the total operations, including the operations reported as discontinued, was 18.4% (20.2). Earnings per share for the total operations were SEK 14.58 (14.63).

 

 

The Group's income increased by 8% to SEK 20,510m (18,951). Net interest income increased in both the Swedish branch office operations (3%) and in branch office operations outside Sweden (17%). In branch operations outside Sweden, the average volume of lending to the public grew by almost 25% and lending in the branch operations outside Sweden totalled SEK 319bn (256).  In the Swedish branch operations, the increase in volume was just over 9% to SEK 831bn (761). Lending to households increased more than corporate lending, by almost 12% as compared with just over 7%.  The average volume of household deposits in the Swedish branch office operations rose by almost 16% to SEK 118bn (102). Total deposits increased by 12%.

 

Net fee and commission income increased by 11% to SEK 5,789m (5,216). It was mainly equity-related commissions and card and advisory commissions that increased. Brokerage income continued to perform well and was considerably higher than for the same period in the previous year. Advisory commissions, which are mainly generated at the Bank's Corporate Finance department, rose to SEK 302m (188).

 

Net gains/losses on financial items at fair value increased by 29% to SEK 2,531m (1,955). The increase is almost entirely due to the fact that the Bank realised assets from its available-for-sale portfolio. The total amount realised this year is SEK 707m (204). Wider credit spreads affected the value of bonds that the Bank holds in its liquidity portfolio. The value change led to earnings decreasing by SEK 338m.

 

Expenses rose by 6% to SEK 9,019m (8,473), of which staff costs increased by 4% to SEK 5,533m (5,326) and administrative costs by 11% to SEK 3,486m (3,147). The increase in staff costs in the regional banks outside Sweden was SEK 129m, almost two-thirds of the overall increase. For other administration costs, most of the increase was due to external IT expenses and purchased services totalling SEK 267m. The costs of expansion for the non-Swedish regional banks totalled SEK 162m, an increase of just over SEK 56m. Performance-related staff costs were SEK 375m (461) and the provision for a possible allocation to the Oktogonen profit-sharing foundation was SEK 125m (98).

 

 

Recoveries exceeded gross loan losses and net recoveries totalled SEK 139m (110). The net loan loss ratio was SEK -0.02% (-0.01). Net bad debts were SEK 688m, a decrease from SEK 1,071m. The proportion of bad debts was 0.05% (0.09) of lending.

 

 

Operating profit was SEK 3,532m (4,385), a decrease of 19%. Compared with the corresponding quarter of the previous year, profits rose by 13%.

 

Net interest income continued to increase while net gains/losses on financial items at fair value fell by almost SEK 1bn. Expenses were 10% lower. Return on shareholders' equity was 15.7% (20.2) and the C/I ratio was 45.1% (42.8). Earnings per share were SEK 4.19. (5.33).

 

Return on equity for the total operations was 15.4% (22.7) and earnings per share were SEK 4.10 (6.00).

 

 

Income fell by 15% to SEK 6,427m (7,548). Net interest income rose by almost SEK 100m to SEK 3,967m (3,868). In the branch office operations outside Sweden, it increased by 10% to SEK 1,107m (1,002), while in the Swedish branch office operations it fell by SEK 34m to SEK 2,854m (2,888). Higher business volumes boosted net interest income, which was also affected by a higher funding cost, mainly for shorter maturities. All four regional banks outside Sweden increased their net interest income, due mainly to higher business volumes.

 

Net fee and commission income fell by 3% to SEK 1,945m (2,000). The largest individual decrease was for brokerage income (SEK -59m). The change is mainly due to seasonal fluctuations, commission from equities trading is always lower in the third quarter than in other quarters. Compared with the corresponding quarter of the previous year, net fee and commission income rose by 19%. Card commissions continued to increase and were SEK 366m (344).

 

The decrease in total income by over SEK 1.1bn was mainly due to net gains/losses on financial items at fair value. In total, this item decreased by SEK 947m between the quarters. SEK 267m of this is due to the fact that the realised result from the sale of assets in the available-for-sale portfolio was lower in the third quarter than the previous quarter. Net gains/losses on financial items at fair value were adversely affected by SEK 338m since unrealised values of bonds in the Bank's liquidity portfolio decreased. This meant that net trading income was SEK 489m lower, most of this being attributable to Capital Markets' operations.

 

Expenses fell by 10% and were SEK 2,899m (3,228). The lower staff costs derive mainly from the fact that in the third quarter, the Bank did not make a provision for a possible allocation to the Oktogonen profit-sharing foundation, while the provision in the second quarter was SEK 125m. Performance-related staff costs fell between the quarters by SEK 106m. Other administrative costs were down SEK 112m, which was almost entirely due to a seasonally lower level of activity.

 

 

At the beginning of September, the Bank entered into an agreement with Storebrand to sell SPP and related operations for SEK 18bn. The Bank's capital gain is estimated at some SEK 4bn. Information is available on the Bank's website.

 

 

Recoveries exceeded gross loan losses and net recoveries totalled SEK 4m (65). The net loan loss ratio was SEK -0.02% (-0.02). Net bad debts were SEK 688m, a decrease from SEK 898m. The proportion of bad debts was 0.05% (0.07) of lending.

 

 

(refers to accumulated figures unless otherwise stated)

 

 

Operating profit increased by 1% to SEK 7,555m (7,480). Income in all the most important categories increased. The increase in card commissions had a positive impact on net fee and commission income. A factor that contributed to this was the success of the Frikort, the card which is intended to replace the old Bankomat ATM card.

 

Volumes increased - particularly for mortage loans. The Bank increased its share of the market during the third quarter and during the year as a whole.

 

Household deposits increased, with quarter-on-quarter growth of almost 6%.

 

 

Handelsbanken had a total of 178 (156) branches outside Sweden. Of these, 158 (139) were in the Nordic region outside Sweden and in Great Britain. During the first nine months of 2007, a total of 20 new branches outside Sweden were opened: eight in Great Britain, eight in Finland, two in Poland, and one in Denmark. In addition, the representative office in St. Petersburg became a branch of the Bank.  In addition, 26 more branch managers were recruited for future new units.

 

Operating profit increased by 39% to SEK 2,144m (1,545). Earnings improved in all the non-Swedish regional banks, and in Handelsbanken International. The average volume of lending grew by 25% to SEK 319bn (256), while deposits increased by 10% to SEK 128bn (116). Great Britain reported the largest increase in volumes. At Handelsbanken International, the increase was over 40%.

 

 

Handelsbanken Capital Markets' operating profit was SEK 695m (879). It was adversely affected (SEK -220m) by a change in the unrealised values of bonds which are part of the Bank's liquidity portfolio. Business flow remained strong. Foreign exchange business grew, especially in September, and fixed income trading in short-term instruments also increased. Adjusted for the effects of the changes in value of the bond holdings, third-quarter profits for fixed income and foreign exchange trading increased by almost 50%. The Bank was also successful in Sweden, and No.1 in providing advisory services for corporate acquisitions with a Swedish connection. Brokerage income grew, with an increasing share of the business coming from customers outside the Nordic region.

 

 

Starting in the third quarter, Handelsbanken Liv is included in the Asset Management business segment and previous periods have been recalculated. The segment's profits improved by 13% to SEK 822m (727). Average fund assets under management grew by 17% to SEK 174bn (149).

 

Handelsbanken Liv's profits improved by 15% to SEK 401m (348). The total return amounted to 2.49% (3.41), and the company therefore received the yield split on some 45% of the traditionally managed portfolio.

 

 

The operating profit before hedges for "Discontinued operations" totalled SEK 1,228m (1,544).

 

New policies with SPP increased by 37% during the first nine months of the year to SEK 2,188m (1,593). SPP's share of new policies (occupational pensions market) rose to 15.7% (13.8) for the first six months of the year. Premium revenue increased to SEK 14,335m (6,142), of which 7,598m came from a portfolio transfer. Excluding this transfer, premium revenue increased by 10% during the year and the net inflow to SPP rose by 9% to SEK 2,683m (2,447). Finally, the administration result in SPP increased from SEK 3m to 109m.

 

Operating profit for the third quarter increased by SEK 138m to SEK -48m (-186), compared with the corresponding quarter in the previous year. The earnings decline relative to the first two quarters of the year, was mainly due to the fact that the yield did not reach a level that was sufficient for a yield split. Portfolio management did not achieve the same performance as the benchmark index which means that earnings were SEK 188m lower than they otherwise would have been.

 

 

An important means of achieving the Bank's financial target is to have satisfied customers. The surveys presented in early October by Svenskt Kvalitetsindex for the Swedish market and by EPSI Rating for Norway, Denmark and Finland clearly showed that Handelsbanken had reinforced its position as the Nordic bank with the most satisfied customers. Handelsbanken outperformed the three other major banks as regards both private and corporate customers in Sweden. In Norway, the Bank was ranked No.1 on the corporate side and No.2 among private customers. In addition, Handelsbanken achieved the top ranking in Denmark for corporate customers, and in Finland for both private and corporate customers.

 

 

The Bank has decided to step up the pace of its organic growth and aims to open 30-40 new branches during this year. So far this year, twenty branches have been opened outside Sweden. In addition, another 26 branch managers have been recruited for new units.

 

The proportion of the Bank's operating profit generated from operations outside Sweden was 19% (17). Just over 27% of the Group's lending to the public is in the branch operations outside Sweden, and almost 40% (33) of the increase in lending between the quarters was generated in the non-Swedish branch operations.

 

 

During the third quarter, banks' liquidity was in focus. Since the beginning of the year, Handelsbanken has systematically extended the average maturity of its funding. This resulted in the Bank having a liquidity surplus in the early summer, and it has been a net lender of Swedish kronor to the banking system since the end of May. In the Swedish market during the third quarter, the Bank could fund its domestic market operations as normal. Covered bonds were issued regularly.

 

At the end of the quarter, the Bank held bonds to a value of some SEK 100bn, which are eligible as collateral with central banks. The bonds have high credit quality and most of the holdings were rated AAA or AA, with none lower than A. The holdings in a portfolio that is held as a liquidity reserve are by nature long-term, although some bonds are in trading portfolios. These bonds are assessed at market value, and third-quarter earnings were adversely affected by some SEK 338m due to unrealised changes in value. Since the holdings are long-term by nature, the Bank will over time recover these changes in value.

 

 

Starting on 1 February 2007, the Bank reports the capital requirement and capital base in accordance with the Basel II rules. The changed capital requirements have a gradual impact since the transitional rules allow for an adaptation over a period of three years and in the first year, the Bank is only allowed to include 5% as a reduction.

 

Tier 1 capital increased to SEK 65,296m (58,543). Of this, SEK 6.7bn was in the form of Tier 1 hybrid capital. Calculated according to the transitional rules, the Bank's capital ratio was 9.4%, while the Tier 1 capital ratio was 6.9%. If no transitional rules had applied, the statutory capital requirement with Basel II would have been reduced by 42% compared to the requirement in accordance with Basel I.

 

At the AGM in April 2007, the Bank's board received a mandate to repurchase 40 million shares during the period until the 2008 AGM. So far, the Bank has repurchased 4.8 million shares, with the number of outstanding shares amounting to 623.4 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-.

 

 

This interim report has been prepared in accordance with accounting standards from IASB, as adopted by the EU, the Annual Accounts Act for Credit Institutions and Securities Companies and the accounting directives issued by the Swedish Financial Supervisory Authority.

 

On 3 September, an agreement was made to divest SPP and operations related to SPP. This means that as of the third quarter, these operations are reported in accordance with IFRS 5, "Discontinued operations". Briefly, this means that an operation which is being divested is reported net on a separate line in the Group's income statement. The comparative figures in the income statement for the present and previous year have been adjusted as if the discontinued operations had never been part of the Bank's operations.

 

In the consolidated balance sheet, starting in the third quarter, assets and liabilities relating to the discontinued operations are separated from other assets and liabilities. Separate summary income statements and balance sheets for the discontinued operations are presented in note 5. Previous periods have been recalculated.

 

After SPP and related operations were reported as "Discontinued operations", the business segment reporting has been changed. Handelsbanken Liv is now reported together with Handelsbanken Asset Management. The new segment is named Handelsbanken Asset Management.

 

As of the third quarter, the Bank is changing the reporting of loan and deposit volumes. The purpose of the change is to report volumes and net interest income in a more consistent manner. At group level, the volumes and net interest income are not changed, but they will be changed among the business segments. For more details, see the "Accounting Policies and Changes in Reported Disclosures" section on page 35.

 

Pär Boman

President and group chief executive

 

 

For further information please contact:

 

Pär Boman, President and group chief executive

phone: +46 (0)8 - 22 92 20, pabo01@handelsbanken.se

 

Ulf Riese, CFO

phone: +46 (0)8 - 701 1212, ulri02@handelsbanken.se

 

Bengt Ragnå, Head of Investor Relations

phone: +46 (0)8 - 701 1216, bera02@handelsbanken.se

 

 

The full report including tables can be downloaded from the attached link.