Handelsbanken's interim report January - June 2002

Profits - SEK 5.4bn
Profits were SEK 5 360m (6 005), resulting in return on equity of 15.9% (20.9). The corre-sponding figure for the whole of 2001 was 18.4%. The C/I (cost/income) ratio before loan losses was 50.4% (45.2) and after loan losses 51.3% (44.6). In January 2002, Handelsbanken Liv was demutualised which means that it is now included in the consolidated accounts. This had a negative impact on the Group's C/I ratios, which were 49.1% and 50.0% respectively, excluding the effect of the demutualised Handelsbanken Liv. Earnings per share were SEK 5.65 (6.59), as a 12-month moving total SEK 11.05 (12.91) and for the full year 2001, SEK 11.99. The second quarter of 2002 was the third quarter running with increased profits. Return on shareholders' equity in the second quarter was 16.5%.
 
 
Income continued to grow
Income rose by 2% to SEK 11 002m (10 837). Net interest income rose by SEK 561m to SEK 7 025m (6 464), an increase of 9%. Lending to the general public was SEK 806bn (762), a rise of 6%. From the beginning of the year, lending to the general public increased by more than SEK 6bn. The figure at 31 December included lending to the National Debt Office which was not the case at 30 June. Excluding this, lending to the general public rose by over 2.5% during the first six months or SEK 20bn. The increase in net interest income was mainly due to larger business volumes.
 
Both net commission income and net trading income fell, by 1% and 28% respectively. Commission related to the equity market fell by some SEK 250m while commission increased on payments and lending and deposits. Lower volumes, particularly in equities trading, explain the fall in net trading income. Net trading income also includes the financial result from Handelsbanken Liv, that is the surplus or deficit which arises after the policy-holders have received their guaranteed return. Due to the negative trends particularly on the stock market, a deficit of SEK 87m (0) arose.
 

 
Expenses were SEK 5 542m (4 897), an increase of 13%. The acquisitions of SPP and Midtbank and the consolidation of Handelsbanken Liv affected the comparison of expenses between the two years. Excluding these and also the weaker Swedish currency, the underlying pace of the cost increase was declining and was 4.8%. Most of this was due to higher IT costs and starting up new units outside Sweden, mainly in the other Nordic countries. IT expenses were SEK 1 444m (1 226). The average number of employees was 9 763 (8 898). Midtbank and Handelsbanken Liv represented 486 of the increase. The number of employees in the Group fell by 91 from 31 December 2001 to 30 June 2002.
 
 
Loan losses continue to be low
Loan losses were still at a very low level and were SEK 100m compared with net recoveries of SEK 65m in the previous year. The share of bad debts in relation to lending fell to 0.25% (0.37). The volume of collateral taken over was SEK 169m (135).
 
 
Capital ratio, share buybacks and rating
The Group's capital ratio was 9.4% (9.3). The Tier 1 capital ratio increased to 6.3% (5.9).
 
The Annual General Meeting of shareholders in April 2002 authorised Handelsbanken to repurchase up to 20 million shares until the next general meeting in 2003 and, if considered appropriate, to sell shares that had already been repurchased to finance acquisitions. Handelsbanken has not repurchased any shares during the year.
 
Handelsbanken's rating from all three rating agencies was unchanged. In mid-April, Standard & Poor's changed its outlook for Handelsbanken's rating from stable to positive.
 
 
Great Britain - the Bank's eleventh regional bank
As of 1 July, operations in Great Britain were lifted out of Handelsbanken Markets and are now run as the Bank's eleventh regional bank. The regional bank has eight branches of which two were opened during the year.
 
 
Handelsbanken strengthened SPP's capital base
Developments on the stock market have undermined SPP's capital base. At the end of July, SPP issued a perpetual subordinated loan totalling one billion Swedish kronor to Handels-banken. Since then the stock market has continued to fall and the Bank envisages granting SPP further subordinated loans, if considered appropriate. Handelsbanken's key figures and ratios are not affected by these transactions. For Handelsbanken Liv, there is no need to strengthen the capital base at present. When the company was demutualised, capital was injected so that it would be able to resist financial strain and also to expand, without the need to reinforce the capital base.
 
 
Handelsbanken's pension foundation and pension fund
As at 30 June 2002, Handelsbanken's pension foundation and pension fund had assets totalling SEK 16.3bn. The total pension liability was SEK 11.2bn at the same date, resulting in surpluses of over SEK 5bn.
 
 
 
Options, bonuses and other benefits
During the first half of the year, corporate remuneration systems have been the subject of extensive discussions. Therefore, there are good reasons to summarise Handelsbanken's view on different types of remuneration. Some 3.8% (8.9) of Handelsbanken's total staff costs consist of performance-related remuneration.
 
Performance-related remuneration exists only for Markets, Securities and Asset Management. In these business areas, Handelsbanken complies with the existing practices for the different markets. The Handelsbanken Group management have fixed salaries without any other element of performance-related compensation than the synthetic options described below.
 
In October 1999, Handelsbanken invited management, branch managers and other key personnel to acquire synthetic options. Over 86% of those eligible subscribed to purchase the options, representing a total of 3.85 million options. Since these are synthetic options, they will not dilute the current holdings of shareholders. The options programme was set up on market terms. An external securities brokerage company set the price at SEK 11 per option at an exercise price of SEK 178.50. Thus, each subscribing staff member paid SEK 11 per option in cash. The life of the option extends to 25 November 2004. The costs of the options programme are presented annually in the annual report. The costs, which are mainly for hedging rises and falls in the price of Handelsbanken's shares, were SEK 2.1m (4.2) as at 30 June.
 
The Oktogonen Foundation represents an important part of Handelsbanken's remuneration system. Handelsbanken can allocate an amount to Oktogonen if its return on equity has been higher than the average for the other listed Nordic banks and if the dividend to its share-holders has not been cut. This takes place following a decision by the Bank's Board of Directors. All full-time employees receive the same amount, i.e. the distribution is not linked to other forms of remuneration nor is it related to the employee's position. The amount is paid out when the employee retires. Since this profit-sharing system was created in the early 1970s, the principles for distribution have remained unchanged. At the end of June 2002, the value of a full participation, i.e. the participation for an employee who has been with the system since it commenced was slightly in excess of SEK 3.8m.
 
 
Handelsbanken receives awards from international business periodicals
Handelsbanken was acclaimed best bank in the Nordic countries including the Baltic countries, by Euromoney and best bank in Sweden by The Banker. This is the second year running that Handelsbanken has received these awards from the periodicals in question. While it is very gratifying to receive this kind of acclaim, for the Bank it is more important to be the bank with the most satisfied customers than to receive awards from magazines. Since independent surveys of customer satisfaction started in Sweden, Handelsbanken has had more satisfied customers than the other major Swedish banks. This autumn, independent surveys will be carried out on customer satisfaction in four Nordic countries.
 
Stockholm, 20 August 2002
 
Lars O Grönstedt
President and Group Chief Executive
The full Interim Report including tables is available to download from the enclosed link.

For further information please contact: <!-- hugin-supplied --><br> <!-- hugin-supplied --><br> <!-- hugin-supplied --><br> Lars O Grönstedt, Group Chief Executive <!-- hugin-supplied --><br> tel: +46 8 22 92 20 <!-- hugin-supplied --><br> e-mail: lagr03@handelsbanken.se <!-- hugin-supplied --><br> <!-- hugin-supplied --><br> Lennart Francke, Head of Control and Accounting <!-- hugin-supplied --><br> tel: +46 8 22 92 20 <!-- hugin-supplied --><br> e-mail: lefr01@handelsbanken.se <!-- hugin-supplied --><br> <!-- hugin-supplied --><br> Lars Lindmark, Head of Corporate Communications <!-- hugin-supplied --><br> tel: +46 8 701 10 36 <!-- hugin-supplied --><br> e-mail: lali12@handelsbanken.se <!-- hugin-supplied --><br> <!-- hugin-supplied --><br> Bengt Ragnå, Head of Investor Relations <!-- hugin-supplied --><br> tel: +46 8 701 12 16 <!-- hugin-supplied --><br> e-mail: bera02@handelsbanken.se <!-- hugin-supplied --><br> <!-- hugin-supplied --><br> <!-- hugin-supplied --><br> <!-- hugin-supplied --><br> <!-- hugin-supplied --><br> The interim report for the third quarter of 2002 will be published on 22 October 2002. <!-- hugin-supplied --><br> Handelsbanken's interim reports and other publications are available on the Internet (http://www.handelsbanken.se/ireng). <!-- hugin-supplied --><br> <!-- hugin-supplied --><br>

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