- Operating profit increased by 11% to SEK 6.6bn (5.9)

- Profits after tax increased by 13% to SEK 4.7bn (4.2)

- Return on equity was 15.9% (15.7)

- Income increased by 6% to SEK 12.0bn (11.3) while costs, excluding performance-related remuneration, remained unchanged

- Loan losses were very low - recoveries exceeded loan losses in the second quarter

- Earnings per share rose to SEK 6.90 (6.04)

- The Bank decided to apply for a banking license in Shanghai

- SPP's policyholders voted by an overwhelming majority in favour of demutualisation of the life insurance company

 

 

 

Handelsbanken's profits were SEK 6,609m (5,937), an increase of 11%. Income increased by 6%. Return on shareholders' equity was 15.9% (15.7). When calculating the return on equity for the year, SEK 2.0bn has been added to the shareholders' equity as a consequence of new accounting standards. These state that the surplus value in the Bank's pension foundation, after deferred tax, must be added to the shareholders' equity. Return on equity for the whole of 2003 was 14.9%. The cost/income ratio before loan losses was 44.7% (46.5) and after loan losses 44.8% (47.4). Earnings per share were SEK 6.90 (6.04) and as a 12-month moving total SEK 12.55 (10.90). Profits for the second quarter alone were SEK 3,162m compared with SEK 3,080m for the same period in the previous year.

 

 

Income rose by 6% to SEK 11,976m (11,284). Net interest income fell slightly but this was compensated by higher net commission and trading income, which increased by 23% and 18% respectively. Net trading income was mainly boosted by higher profits in equity-related trading. The commission categories which increased most were equity-market related, lending and insurance. Expenses increased by 2% to SEK 5,349m (5,245), which was almost entirely due to higher performance-related remuneration. The number of employees was 9,086 (9,192). Compared to the year-end, the number of employees has increased by 29.

 

 

Lending to the general public increased to SEK 854bn (831). Since the beginning of the year, lending has increased by SEK 31bn, corresponding to annual growth of just over 7%. Average volumes rose to SEK 845bn (826).

 

Branch office lending volumes outside Sweden increased more quickly than in Sweden. In the four non-Swedish domestic markets, average lending rose by 13% to SEK 146bn (129), of which lending to households by 18% and to companies by 10%.

 

Deposits from the general public rose by 5% to SEK 305bn (291). The rate of increase was higher outside Sweden. Deposits from households outside Sweden increased by 36% to SEK 24bn (18). In Sweden, deposits went up by 5%.

 

The Bank's share of new savings in the Swedish mutual fund market was 16.2% (14.9), which was much higher than the Bank's share of the total volume of mutual fund savings in Sweden.

 

 

Loan losses for the period were SEK 18m (102). The loan loss ratio was 0.00% (0.02). The share of bad debts in relation to lending was 0.23% (0.28).

 

In the second quarter, the Bank reported net recoveries, that is to say, recoveries were larger than loan losses for the period.

 

 

The capital ratio was 9.9% (9.6) and the Tier 1 ratio 7.1% (6.6).

 

At the annual general meeting in 2004, the board of the Bank was authorised to repurchase a maximum of 40 million shares during the period until the next annual general meeting. The board resolved that SEK 5bn is the maximum amount for which shares can be repurchased. In the first six months, the Bank repurchased 23.7 million shares for a total of SEK 3.4bn. Of the repurchased shares, 7.2 million were purchased with the mandate given to the board by the annual general meeting in 2003 and 16.5 million shares with the support of the mandate from the AGM in April 2004.

 

The annual general meeting in 2004 resolved that the 21.4 million shares repurchased during 2000 and 2001 would be cancelled through reduction of the share capital. In connection with the cancellation, a bonus issue was performed whereby the nominal value of the share increased from SEK 4.00 to SEK 4.15. These changes were registered on 5 July 2004, after which the number of shares in the Bank is 693.4 million. After the repurchase described above, the number of outstanding shares is 669.6 million.

 

Handelsbanken's rating in the second quarter was unchanged with all the agencies which rate the Bank: Moody's, Standard & Poor's and Fitch.

 

 

In May and June, SPP carried out a vote among the policyholders as to whether SPP should become a demutualised life insurance company. Almost 62% of those who were entitled to vote participated. Of these, an overwhelming majority - 89% - voted in favour of demutualisation. According to plan, SPP will be demutualised on 1 January 2006.

 

 

Handelsbanken has been represented in China since 1983 through its Beijing representative office. Two years ago, a representative office was opened in Shanghai and it is there that the Bank has applied for a banking license to open a branch.

 

The branch will focus on companies with Nordic and British links. When the Shanghai branch is established, the Bank will have banking operations in three locations in Asia, apart from Shanghai, also in Singapore and Hong Kong. The Bank also has representative offices in Taipei and Beijing. This means that Handelsbanken has by far the broadest presence in Asia of all the Nordic banks.

 

 

On 1 July 2004, Handelsbanken Liv acquired SPP's unit-linked company. The purchase price was SEK 1.1bn. Since the company was owned by SPP, which is run on mutual principles, the proceeds of the purchase go to the policyholders in SPP. The purchase price was based on independent valuations. To finance the acquisition, Handelsbanken Liv issued a subordinated loan for SEK 900m to Handelsbanken. Handelsbanken Liv also received a shareholder contribution of SEK 300m.

 

 

In the middle of June an agreement was made for the Bank to acquire XACT Fonder AB from OMHEX. The transfer took place as at 30 June. XACT is the only fund management company in Sweden which issues ETFs - Exchange Traded Funds. Unlike normal mutual funds, these can be traded in realtime. XACT Fonder has sole right to issue ETFs based on OM/HEX indexes. The Bank envisages great potential in developing the market for ETFs as such and also products where ETFs are an important component.

 

 

Lars O Grönstedt

President and Group Chief Executive

 

 

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

 

Lars Lindmark, Head of Corporate Communications
phone: +46 8 - 701 10 36, e-mail: lali12@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: