Q1 2007 compared with Q4 2006

 

The operating profit was SEK 3,859m (5,032). The overall profit from the Bank's branch operations, inside and outside Sweden, rose by SEK 301m or almost 11%. The decline in the Bank's operating profit was mainly due to the fact that the Bank realised value changes on assets available for sale in the previous quarter, and to a decreased profit in the insurance operations. Expenses were SEK 3,125m (3,260), a decrease of 4%.

 

Return on equity was 17.1% (23.2). The C/I ratio was 45.2% (39.0). Earnings per share were SEK 4.48 (5.79).

 

Net interest income increased by 3% and totalled SEK 3,853m (3,726). Volume increases in lending compensated for poorer margins and in general both deposit margins and volumes continued to increase. In Sweden, the average volume of lending rose by 2.6% and in the branch operations outside Sweden, the increase was 8.3%.

 

Net fee and commission income was SEK 2,213m (2,749), a decrease of SEK 536m or 19%. The Bank has never before had such high income in one quarter from brokerage and fund and custody operations. The decrease was mainly due to a lower yield split in the insurance operations. The yield split - the income which the Bank receives when the yield to the policyholders exceeds the guaranteed level - decreased by SEK 401m to SEK 117m.

 

Net gains/losses on financial items at fair value were SEK 678m (1,607), a decrease of 58%. The decrease was partly due to a lower writeback for the deferred capital contribution in the insurance operations - SEK 216m - and also that in the previous quarter the Bank had income of SEK 733m from realised value changes on assets available for sale.

 

Income totalled SEK 6,913m (8,347) a decrease of 17%. This was partly due to a decrease in the value change in the deferred capital contribution in SPP; that the Bank during the fourth quarter of 2006 realised value changes related to assets available for sale and also to a decrease in the yield split in the insurance operations.

 

Expenses decreased by 4% to SEK 3,125m (3,260). The decrease is mainly because staff costs were SEK 144m lower, which in turn was due to a lower provision for performance-related remuneration. The Bank made no provision to the Oktogonen profit-sharing foundation. Other administrative costs were SEK 1,281m (1,272). The costs for expansion were mainly unchanged. The number of employees rose to 10,500 (10,320).

 

Recoveries exceeded the period's gross loan losses and net recoveries totalled SEK 70m (-55). The loan loss ratio was SEK -0.02% (-0.01). Net bad debts were SEK 937m, an increase from SEK 876m. The proportion of bad debts was 0.07% (0.07) of lending.

 

 

Profits decreased by 23% to SEK 3,859m (5,016). This was entirely due to the fact that last year the Bank could write back the change in value of the previously underfunded insurance contracts, which reduced the deferred capital contribution. Expenses fell by 4% and totalled SEK 3,125m (3,252). Return on equity went down from 26.4% to 17.1%. The C/I ratio was 45.2% (39.7).

 

The comparison with the same period last year is similar to that between the quarters. Income fell by 16% and the whole decrease was because net gains/losses on items at fair value were lower. This was partly because the Bank realised assets available for sale at the beginning of last year for an amount of SEK 159m and also due to a change in the deferred capital contribution in SPP by SEK 1,105m.

 

Net interest income went up by SEK 69m or 2%. The rate of increase was negatively impacted by SEK 98m due to the repurchases the Bank made in connection with the transition to IFRS. Excluding this the rate of increase would have been over 4%. In the Swedish branch operations, net interest income grew mainly due to significantly improved deposit margins and outside Sweden, the increase in volume boosted the net interest income. The average volume of lending in Sweden rose by 11%, while in the branch operations outside Sweden it increased by nearly 24%.

 

Commissions fell by SEK 129m, which was mainly due to a lower yield split in the insurance operations. This was partly compensated for by higher fund and custody commissions. The yield split fell from SEK 284m to SEK 117m.

 

Expenses decreased by 4% from SEK 3,252m. Staff costs fell by SEK 197m which also in this comparison was due to a fall in performance-related remuneration. Other administrative costs grew by 7% from SEK 1,068m to SEK 1,144m, mainly due to higher external IT costs.

 

Recoveries exceeded the period's gross loan losses and net recoveries totalled SEK 70m (79). The loan loss ratio was -0.02% (-0.03). Bad debts fell from SEK 1,441m to SEK 937m. The proportion of bad debts fell from 0.13% of lending to 0.07%.

 

The Bank has decided to step up the pace of its organic growth outside Sweden. The aim is to open 30-40 branches this year in the branch operations outside Sweden. Three new branches were opened during the period: St Petersburg in Russia, and Mikkeli and Espoo Matinkylä in Finland.

 

A total of 25% of the Bank's lending to the public is in the branch operations outside Sweden and almost 40% of the increase between the years has been outside Sweden. The corresponding increase between the quarters was 50%.

 

Handelsbanken in Great Britain was noticed when the Bank came 11th in the Sunday Times' annual awards for Best Employer. A total of 650 companies participated in the group where the Bank was represented. This boosts the Bank's image in Great Britain and should make it even easier to recruit the best employees for its rapidly expanding operations.

 

Business volumes grew significantly in practically all parts of the Bank. In total the average volume of lending in the Group rose by 14% during the last 12 months. Outside Sweden, the increase was 23%. In local currency, lending in the non-Swedish regional banks rose by between 13% and 63%. The highest rate of increase was in Great Britain.

 

The average mutual fund volume grew by 15% to SEK 221bn (193) and the assets managed at Handelsbanken Pensions & Insurance rose by 9% to SEK 176bn (162).

 

Starting on 1 February 2007, the Bank reports the capital requirement and capital base in accordance with the Basel II rules.

Calculated according to the transitional rules, the Bank's capital ratio was 10.2%, while the Tier 1 capital ratio was 7.0%. If no transitional rules had applied, the statutory capital requirement would have been reduced by 41% compared with the requirement in accordance with Basel I. However, the transitional rules stipulate that banks are only allowed to include 5% as a reduction in the first year.

 

The main change in the capital requirement applies to credit risks. To calculate these, the Bank has elected to use an internal risk classification method called IRB, where there are two different approaches: a basic model and a more advanced model. Handelsbanken uses the advanced method for household exposures in Sweden and the basic method for corporate exposures in Sweden and Norway. However, the Bank intends to change over to the advanced IRB method for corporate exposures during 2010. It is expected that this will further reduce the statutory capital requirement.

 

Since the 2006 AGM, the Bank has repurchased 20.7 million shares, of which 5.9 million during the quarter. The number of outstanding shares was subsequently 628.3 million. The board is proposing to the 2007 AGM to cancel the repurchased shares. At the AGM, there will also be a proposal from the board for a new repurchase programme for a maximum of 40 million shares.

 

On condition that the board's proposal regarding dividend is accepted by the AGM, the Bank will have transferred 72% of the profit for 2006, or SEK 9.4bn, to the shareholders.

 

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 it was AA-.

 

Pär Boman

President and Group Chief Executive

 

 

Pär Boman, Group Chief Executive

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