Profit and volume growth

Interim Report Second Quarter 2001 Profit and volume growth · Total operating profit up 22% to EUR 677m compared to first quarter. EUR 1,232m accumulated for the first half-year. · Stable growth in operating profit excluding investment earnings, up 6% from first quarter to EUR 604m. Up 20% in first half- year compared to previous year. · Net interest income continued to show stable progress. · Increased commission income in second quarter. · Net loan losses 0.18% (0.14% in first quarter), annualised. · Earnings per share EUR 0.16, up from EUR 0.13 in first quarter. · Deposits increased by 5% and lending by 3% during second quarter. · Combined ratio 100% in second quarter, improved 6 percentage points from first quarter. Strategic progress · Acquisition of Swedish Postgirot strengthens market position. · E-banking shows all time high in number of log-ons (18.4m) and payments (21.0m) an increase of 40% and 46%, respectively, since second quarter 2000. · Rating - several upgradings · All banks in the Group to be branded Nordea from December. · "Nordea is showing strong financial growth in spite of a volatile market. In a very competitive situation we have been able to integrate all business units without losing customer focus or tempo. Going forward we believe that earnings excluding investment operations will be in line with the two previous quarters", says Thorleif Krarup, Group CEO Nordea. Oper Q2 Q1 Change Jan-June Jan-June Change Full atio EURm 2001 2001 % 2001 20001,2 % year1 nal 2000 inco me stat emen t Net interest 885 872 1 1,757 1,348 30 2,838 income Commission 370 361 2 731 766 -5 1,454 income Trading 128 156 -18 284 213 33 415 Income from 185 134 38 319 220 45 451 insurance Other 52 36 44 88 63 40 134 Income 1,620 1,559 4 3,179 2,610 22 5,292 Personnel -556 -541 3 -1,097 -897 22 -1,829 expenses Other -421 -414 2 -835 -731 14 -1,491 expenses Expenses -977 -955 2 -1,932 -1,628 19 -3,320 Profit 643 604 6 1,247 982 27 1,972 before loan losses Loan losses -59 -45 31 -104 -37 181 -79 Profit from companies accounted for under the equity 20 11 82 31 32 -3 62 method Operating 604 570 6 1,174 977 20 1,955 profit excl investment earnings Treasury 25 68 - 93 203 - 267 Life 19 -17 - 2 48 - 61 insurance General 11 -32 - -21 53 - 81 insurance Other 553 2 - 57 127 - 164 Investment 110 21 - 131 431 - 573 earnings Goodwill -37 -36 3 -73 -49 49 -93 depreciation Operating 677 555 22 1,232 1,359 -9 2,435 profit Loss on - - - - -40 - -40 disposal of real estate holdings Refund of - - - - 17 - 32 surplus in pension foundations Taxes -193 -157 23 -350 -360 -3 -691 Minority -1 -1 0 -2 -2 0 -3 interests Net profit 483 397 22 880 974 -10 1,733 1 Including Unidanmark Q1 pro forma. 2 Profit Q1 - Q4 2000 excluding Christiania Bank og Kreditkasse (CBK). 3 Of which final settlement Aleksia EUR 5m. Ratios and key figures1 Earnings per share, EUR 0.16 0.13 0.29 0.33 Share price2, EUR 6.73 6.88 6.73 7.90 Shareholders' equity per share2, EUR 3.76 3.62 3.76 3.60 Shares outstanding2,3, millions 2,96 2,98 2,96 2,97 4 2 4 9 Return on equity, % 17.0 14.1 15.6 18.6 Return on equity excl goodwill4, % 23.4 19.7 21.6 22.5 Lending2, EURbn 135 131 135 109 Deposits2, EURbn 81 77 81 65 Shareholders' equity2, EURbn 11 11 11 11 Total assets2, EURbn 233 233 233 192 Assets under management2, EURbn 101 97 101 104 Cost/income ratio, banking5, % 55 55 55 52 Combined ratio, general insurance, % 100 106 103 102 Tier 1 capital ratio2, % 7.0 6.6 7.0 9.0 Total capital ratio2, % 9.6 9.2 9.6 10.8 Risk-weighted assets2, EURbn 135 136 135 110 1 Profit Q1 - Q4 2000 excluding Christiania Bank og Kreditkasse (CBK). 2 End of period, including CBK from Q4 2000. 3 Average number of shares Jan-June 2001 after full dilution was 2,995 million. 4 Excluding goodwill depreciation and excluding remaining goodwill, which has reduced shareholders' equity. 5 Before loan losses and goodwill depreciation. Quarterly development Not Q2 Q1 Q4 Q3 Q2 EURm e 2001 2001 2000 2000 2000 3 3 3 Net interest income 885 872 757 733 707 Commission income 1 370 361 368 320 386 Trading 128 156 94 108 72 Income from insurance 185 134 129 102 138 Other 52 36 36 35 29 Income 1,62 1,55 1,38 1,29 1,33 0 9 4 8 2 Personnel expenses -556 -541 -478 -454 -458 Other expenses -421 -414 -429 -331 -382 Expenses 2 -977 -955 -907 -785 -840 Profit before loan losses 643 604 477 513 492 Loan losses -59 -45 -22 -20 -20 Profit from companies accounted for under 20 11 -1 31 23 the equity method Operating profit excl investment 604 570 454 524 495 earnings Treasury 25 68 34 30 105 Life insurance 19 -17 -2 15 3 General insurance 11 -32 -10 38 -17 Other 55 2 20 17 71 Investment earnings 110 21 42 100 162 Goodwill depreciation -37 -36 -23 -21 -27 Operating profit 677 555 473 603 630 Loss on disposal of real estate - - - - - holdings Refund of surplus in pension - - 8 7 9 foundations Taxes -193 -157 -149 -182 -163 Minority interests -1 1 0 -1 0 Net profit 483 397 332 427 476 Not Commission income, EURm e 1 Brokerage 60 79 68 55 87 Asset Management/Mutual funds 116 113 130 122 128 Issue of securities 20 10 16 15 24 Lending 91 75 81 73 68 Deposits and payments 127 129 117 103 111 Foreign exchange 8 12 16 16 17 Other 27 20 16 13 15 Commission expenses -73 -73 -74 -64 -66 Net commission income 376 365 370 333 384 of which investment activities -6 -4 -2 -13 2 Commission income 370 361 368 320 386 Not Expenses, EURm e 2 Personnel1 560 545 482 459 460 Information technology2 104 95 80 49 68 Marketing 25 29 41 21 29 Postage, telephone and office expenses 63 57 67 49 56 Rents, premises and real estate 91 92 89 75 73 expenses Other 143 146 156 141 159 Expenses incl. investments 986 964 915 794 845 of which investment activities -9 -9 -8 -9 -5 Expenses 977 955 907 785 840 1 Of which profit related personnel expenses including profit-sharing system were EUR 70m, in 2001. 2 Refers to computer operations, service expenses and consulting fees. Total IT-related costs, incl personnel etc were EUR 395m, in 2001. 3 Profit Q2-Q4 2000 excluding Christiania Bank og Kreditkasse (CBK). The Group Result summary Operating profit in the second quarter of 2001 amounted to EUR 677m, which represents a 22% increase compared to the first quarter this year. Operations in the second quarter are characterised by stable growth in net interest income, maintained commission income despite continuing turbulence in the capital markets, and total expenses in line with the previous quarter. Net profit for the quarter totalled EUR 483m, corresponding to earnings per share of EUR 0.16. Return on equity was 17.0%, or 23.4% excluding goodwill. Operating profit excluding investment earnings, increased to EUR 604m in the second quarter, or 6% compared to the first quarter. Total income excluding investment earnings increased by 4%, whereas corresponding costs increased by 2%. Investment earnings increased to EUR 110m in the second quarter from EUR 21m in the previous quarter. Non-recurring gains totalling EUR 97m were included in investment earnings, as compared to EUR 68m in the first quarter. Adjusted for these gains the operating profit increased by 19%. Development in the second quarter The demand for credit in the Nordic region remains good despite increased uncertainty as to the overall macroeconomic development. Total lending increased by 3% during the second quarter, to EUR 135bn. Total deposits from customers increased by 5% to EUR 81bn. From year-end lending increased 5% and deposits increased 3%. Net interest income, excluding investment earnings, increased to EUR 885m (EUR 872m in the first quarter of 2001) following growth in lending and deposit volumes. Overall margins were in essence at the same level as in the previous quarter. Lending margins to corporate customers tend to increase in connection with a more uncertain macroeconomic situation. The cost for the deposit guarantee in Sweden was at the same level as in the first quarter, but approximately EUR 10m lower each quarter this year than the average level per quarter last year. The Nordic stock exchange indexes increased somewhat during the second quarter. However, both turnover volumes and number of transactions showed a marked decrease compared to the first quarter. Nordea's assets under management at the end of June amounted to EUR 101bn, compared to EUR 97bn at the end of the first quarter. Despite the reduced level of overall activity in the Nordic equity capital markets, net commission income increased somewhat compared to previous quarters and amounted to EUR 370m (EUR 361m). This was mainly due to sustained commissions from asset management and increased payments and lending commissions. Income from trading, mainly comprising income from foreign exchange and derivatives trading with customers, amounted to EUR 128m (EUR 156m). Trading income was lower than in the first quarter, which was characterised by high volatility leading to a particularly large business volume. Income from insurance, excluding investment income, increased by EUR 51m to EUR 185m in the second quarter, mainly caused by premium growth and lower claims within general insurance. Other income, which primarily consists of property-related income, was EUR 52m (EUR 36m). Expenses amounted to EUR 977m (EUR 955m). The cost level was largely in line with the previous quarter and illustrates a high level of activity during the quarter with respect to both customer-related activities and integration progress. Following further loan loss provisions on certain previously troubled commitments, mainly within acquisition finance, net loan losses amounted to EUR 59m (EUR 45m). Net loan losses correspond to 0.18% (0.14%) of total loans, annualised. At the end of the quarter, doubtful loans amounted to EUR 918m (EUR 841m), on a net basis, representing 0.7% (0.6%) of total lending. Comparison with the first half year 2000 For the first six months, operating profit totalled EUR 1,232m. This is 9% lower than for the corresponding period last year. The reduction is primarily a result of particularly high investment earnings last year. Christiania Bank (CBK), which was acquired in December 2000, is not included in the figures for 2000. Adjusted for CBK the operating profit fell 10%. Income increased by 22% compared to last year. Expenses increased by 19%. Adjusted for CBK income and expenses increased 9% and 3%, respectively. For the first half-year net profit amounted to EUR 880m, corresponding to EUR 0.29 per share (EUR 0.58 for the full year 2000). Operating profit excluding investment earnings for the first half of 2001 increased by 20% to EUR 1,174m. Adjusted for CBK the increase was 14%. In addition to the contribution from CBK, the improvement is the result of well-maintained customer focus, despite high level of activity related to integration issues, and continued realisation of merger synergies. Investment earnings Investment earnings totalled EUR 110m in the second quarter, an increase of EUR 89m compared to the first quarter. Although equity markets were relatively turbulent during the quarter, stock exchange indexes were somewhat higher at 30 June 2001 than at the end of the preceding quarter, leading to equity gains. This more than outweighed losses on the fixed-income portfolios following interest rate increases for key currencies. Nordea sold its shares in the Swedish company Atle in May. The profit from the sale represents a gain of EUR 57m in the second quarter. Final settlement for the sale of Finnish real estate company Aleksia was achieved during the second quarter, resulting in a gain of EUR 5m. In addition to the final settlement an agreement with the Finnish insurance company Ilmarinen was reached regarding future gains from development projects and sale of real estate. This agreement resulted in a gain of EUR 35m. Tax dispute CBK The Norwegian Supreme Court in June 2001 pronounced judgement in the tax action brought by CBK against the Norwegian government regarding the tax treatment of the preference capital the Bank received in 1991. The Court found that the disputed amount of EUR 340m should not be counted as taxable income. As a result goodwill related to the acquisition of CBK has been adjusted by EUR 95m. Credit quality The overall quality of the loan portfolio is in essence unchanged compared to previous quarters, although net loan losses were somewhat higher than in the first quarter of this year. The composition of the portfolio with respect to customer groups is stable compared to the end of 2000. Approximately 63% of the loans are to companies and 37% to households. The distribution by industry shows only minor changes, and within the household sector 75% of the loans are mortgages. Total exposure to the telecommunication sector is stable, and slightly below EUR 8bn. The credit quality of the customers within this sector is considered to be good. Nordea's exposure to the newly started Internet- related companies is very low as this sector traditionally has been equity financed. The loan losses experienced over the first six months are related to a limited number of commitments and do not reflect a general trend of reduced debt servicing ability across the customer base as a whole. This is also evidenced by the fact that doubtful loans gross at EUR 3,040m is slightly below the corresponding figure for the year-end and end of the first quarter. Nordea has implemented a uniform credit policy and an integrated credit- granting process throughout the Group. Going forward special emphasis will be put on correct pricing of credit risk. Nordea expects lending margins to widen to reflect the changing credit quality in a possible downward trend. Acquisition of Postgirot Bank On 31 July 2001 Nordea and Swedish Post announced an agreement for Nordea's acquisition of Postgirot Bank. Nordea will, through this transaction, strengthen its competitiveness in important growth areas such as payments and cash management, and consolidate its position as the leading financial services group in the Nordic and Baltic Sea area. The acquisition provides excellent opportunities for cross-selling to Postgirot Bank's 1.3 million customers, of whom approximately 70% is not Nordea customers today. The agreed purchase price is EUR 440m (SEK 4.1bn) plus the net profit generated from 1 January 2001 until completion of the transaction. The acquisition is subject to approvals from the Swedish Financial Supervisory Authority and the EU Commission. Closing of the transaction is expected within 6 months. Integration progress The business areas Asset Management and Corporate and Institutional Banking adopted the Nordea brand early this year. Investment Banking changed its name from ArosMaizels to Nordea Securities in May this year. Nordea announced in June that all banking operations will change name to Nordea in December this year. Unibank in Denmark, Merita Bank in Finland, K-Bank in Norway, and Nordbanken in Sweden will consequently change their names. The decision to apply unified Nordea branding is based on careful commercial analyses. The analyses confirmed that integration is progressing ahead of schedule. Other integration achievements and initiatives during the quarter include: · The Polish life insurance company was renamed Nordea Zycie. · General insurance products were made available through the Solo service in Finland. · Decision was made to align the legal structure to the business structure, thereby enhancing transparency and strategic flexibility. At the end of the second quarter accumulated realised synergies from the integration of Unidanmark and Christiania Bank had increased to approximately EUR 75m. At the end of 2001, Nordea expects that synergies amounting to EUR 145m out of total announced annual pre-tax synergies of EUR 360m will have been realised. IT integration About one third of IT investments this year will be related to integrating IT systems. A strategy of full integration for truly Nordic activities such as Asset Management and Corporate and Institutional Banking has been chosen, whereas a step by step strategy is implemented for retail oriented activities. The common cross-border technical infrastructure is based on a middle- layer architecture, utilising proven technology mainly in the form of software solutions. Consequently the IT integration does not involve decisions likely to give rise to large new investments or complex new structures and systems exposing the Group to increased operational risk. Integration projects have been initiated for all business areas, and completion is expected within 18 months. Annual General Meeting The Annual General Meeting of Shareholders was held on 10 April 2001. Kjell Aamot was elected new Board member for a period of one year, and Harald Arnkværn was elected new Board member for a period of two years. The General Meeting decided, based on certain conditions, to authorise the Board of Directors to acquire Nordea's own shares limited to a total holding of 10% of all shares. The AGM confirmed the proposed dividend of SEK 2 per share corresponding to a total dividend of EUR 675m. Shareholders' equity & capital ratio Shareholders' equity amounted to EUR 11.1bn at the end of June. The fair value of assets in the Group's pension foundations and pension fund exceeded pension commitments by EUR 0.2bn. No refund of surplus was made during the quarter. Following the authorisation of the Annual General Meeting in April 2001 the Board of Directors of Nordea on 25 April 2001 decided to purchase shares in the company for the purpose of achieving a hedge regarding the Group's share-related incentive programme. The intended purpose was accomplished by repurchasing a total amount of 17,000,000 shares on the Stockholm Stock Exchange. The shares were purchased on 25 and 26 April at an average price of SEK 63.48 per share. As per 30 June 2001 Nordea's Tier 1 capital ratio was 7.0% and the Total capital ratio was 9.6%. The calculation includes the net profit for the first six months of 2001, less dividend calculated based on Nordea's stated dividend policy.The Nordea share The share prices for Nordic financial institutions have been largely unchanged during the second quarter 2001. The Nordea share traded at SEK 58.00 on 20 August 2001, which corresponds to a reduction of 18.9% compared to year-end 2000. Rating CBK, comprising Nordea's Norwegian banking operations, was upgraded by Moody's in July, and now holds a Aa3 long-term rating, which is the same rating held by the other bank entities in the Group. Moody's stated that the upgrade was based on the significant degree of post-merger integration of CBK. In August Fitch upgraded all banks in the Nordea Group. Long-term and short-term ratings were upgraded to AA- and F1+, respectively. According to Fitch the upgrades reflect the steady progress of Nordea's pan-Nordic strategy. Outlook Macroeconomic prospects are more uncertain than previously, with recent reductions in growth expectations and relatively turbulent equity markets. Still, there is currently an expectation of growth in all four Nordic economies, and the demand for credit continues to be at a relatively high level. The outlook for growth in the business volume for Nordea's main products and services is therefore considered satisfactory within an acceptable risk and profitability profile. Increasing volumes and continuous work on risk management request more resources but a sharp focus will be maintained on cost development. Operating profit excluding investment earnings for the two upcoming quarters is expected to be in line with the two previous quarters. Investments earnings will in principle follow the market development. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/08/22/20010822BIT00440/bit0002.doc The full report http://www.waymaker.net/bitonline/2001/08/22/20010822BIT00440/bit0002.pdf The full report