Operating profit increased by 21% to SEK 3.4bn (2.9)

Profits after tax increased by 23% to SEK 2.5bn (2.0)

Return on equity was 16.5% (15.1)

Income increased by 12% to SEK 6.2bn (5.5)

The C/I ratio improved and was 44% (48)

Loan losses are still low

Earnings per share rose to SEK 3.57 (2.89)

Moody's raised the Bank's rating to Aa1 - one of the highest in the world

The policyholders in SPP will vote in May-June concerning whether or not SPP should demutualise

 

 

Handelsbanken's profits were SEK 3 447m (2 857), an increase of 21%. Income increased by 12%. The return on equity was 16.5% (15.1). When calculating the return on equity this year, SEK 2.0bn has been added to the shareholders' equity as a consequence of new accounting regulations whereby the surplus values in the Bank's pension foundation (net after deferred taxes) 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 43.3% (47.5) and after loan losses 44.1% (48.1). Earnings per share were SEK 3.57 (2.89), and as a 12-month moving total they were SEK 12.38 (10.70).

 

The Bank's income rose by 12%. Net interest income was unchanged while other income categories increased. Net interest income was SEK 3 688m (3 698). Declining interest margins could be compensated for by larger mortgage volumes and rapidly growing volumes at the regional banks outside Sweden. Net commission income rose to SEK 1 576m (1 251), an increase of 26%. The increase was due to equity-market related commissions which totalled SEK 721m (481). Net trading income increased by 63% to SEK 741m (454). This was the result of improved equity-related net trading income. Insurance operations performed well and in contrast to the comparative period, the demutualised Handelsbanken Liv reported a surplus. In the Bank's operational profit and loss account, most of this is reported under net trading income.

 

Lending to the general public increased during the quarter by SEK 18bn to SEK 841bn (823), an increase of 2%. Average lending volumes increased between the quarters by SEK 6bn to SEK 838bn. Compared to the first quarter last year, average volumes increased by SEK 14bn. Lending volumes in the regional banks outside Sweden grew the fastest and the average volume of lending there increased by over 10% to SEK 143bn (130).

 

Expenses rose by 2% to SEK 2 670m (2 619), which was due to higher performance-related staff costs. The number of employees fell by 323 to 8 975 (9 298). Compared to the year-end, the decrease was 82 people. Salary reviews in Sweden for 2004 were concluded well before the end of the year and the result of this is included in staff costs. Starting in this quarter, the Bank reports employee benefits according to the Swedish Financial Accounting Standards Council's recommendation, RR 29. The changeover to RR 29 will have a slightly positive impact on the Bank's net profits.

 

Loan losses continued at a low level and were SEK 45m (31). The loan loss ratio was 0.02% (0.01). The share of bad debts in relation to lending was 0.31% (0.25). The Bank made a provision of SEK 60m (80) to a general reserve.

 

The capital ratio was 10.3% (9.6) and the Tier 1 ratio 7.5% (6.5). These ratios include profits generated during the quarter and the effect of the surplus value in the Bank's pension foundation being added to shareholders' equity.

 

At the annual general meeting in 2003, the board received a mandate to repurchase a maximum of 20 million shares. During the period, the Bank repurchased a total of 7.2 million class B shares. The Bank's holdings of its own shares were 28.6 million shares.

 

At the 2004 annual general meeting, a proposal from the board will be considered for a new mandate to repurchase a maximum of 40 million shares and that 21.4 million shares be cancelled by means of reduction of the share capital.

 

Moody's raised Handelsbanken's rating to Aa1. This means that only one listed, non-government owned, banking group in the world has a higher rating than Handelsbanken. Handelsbanken's rating was unchanged with the two other rating agencies, Fitch and Standard & Poor's.

 

Since the Bank acquired SPP at the beginning of 2001, the intention has been to demutualise the company as the Bank did with Handelsbanken Liv in 2002. There is no requirement that the policyholders must be allowed to vote on whether or not the company should be demutualised. But both SPP and the Bank consider it of the utmost importance that the policyholders give a clear mandate. A ballot of the policyholders will therefore be arranged. It will begin in early May and will be completed by the end of June. Some 330 000 private individuals and companies are entitled to vote.

 

If the result of the vote allows the Bank to demutualise SPP and the Bank receives permission from the Finansinspektionen (the Swedish Financial Supervisory Authority), the company will be demutualised on 1 January 2006. The Bank will then inject new equity of SEK 6-8 billion into SPP, and SPP will be included in the Bank's consolidated accounts. The assessment is that SPP will increase the Bank's operating profits already in 2006.

 

Lars O Grönstedt

President and Group Chief Executive