Interim Report, January - March 2000

Interim Report, January - March 2000 STRONG RESULTS AND HIGH ACTIVITY Strong results in most areas: * Group's total result: SEK 3,659 M (SEK 2,306 M). * Group's return on equity: 27.2 per cent (18.2 per cent) * Return on equity, 12 months moving average: 17.1 per cent (13.5 per cent) * Total result excluding one off items: SEK 2,747 M (SEK 1,766 M) * Group's operating result: SEK 3,015 M (SEK 1,643 M) * Commission income increased by 104 per cent to SEK 3,702M (SEK 1,812M) * Assets under management amounted to SEK 930 billion (SEK 510 billion) and Assets under custody rose to SEK 2,559 billion (SEK 1,801 billion) High activity during the first months of the year: * Consolidation and restructuring of BfG * Sales of real estate (SEK 420 M in capital gain before tax) * IPO of SelfTrade * Enskilda Securities' merger with Orkla Finans Fondsmegling (capital gain SEK 373M before tax) * Formation of venture capital unit SEB e-invest, which invested in b- business partners * Announcement of closure of 50 branches in Sweden * E-banking and e-brokerage in 8 European countries with 570,000 customers including SelfTrade. GROUP PERFORMANCE Through the acquisition of BfG Bank and consolidation of two of the three partly owned Baltic banks, the SEB Group has grown dramatically compared with the first quarter of 1999. Income has increased by 70 per cent and costs have increased by 56 per cent. After these acquisitions the SEB Group now employs half of its staff outside Sweden. The new e-centric SEB Group was at the end of 1999 organised into four main areas; Nordic Banking, which mainly operates in mature markets, Asset Management & Life, targeting growing markets in Europe, the newly acquired BfG and Other activities. The varying market conditions for the different areas create diverse priorities. This means for example that cost- and capital efficiency measures have high priority in the Nordic Banking area whereas Asset Management & Life is aiming to profitable growth within the savings area in Europe, which affects both income and costs. CEO:S COMMENT "The highly favourable market conditions that prevailed at the end of 1999 were strengthened further during the first three months of 2000. Stock market volumes have been high. It is pleasing to note that our efforts in the Asset Management area are paying off so well," says Lars H Thunell, President and Chief Executive Officer. "Our focus on Asset Management and Life, which have been a centre of attention within SEB since 1997, is now, in addition to yielding sharp income increases, also providing a significant boost to profitability. The changed focus of the Group is now obvious with respect to the composition of income; Commission income has increased by 104 per cent and now constitutes 40 per cent of Group income as compared to 33 per cent last years first quarter. We continue to be optimistic about the private savings area against the background of continued strong growth in demand in Europe. * The Group's total result comprises operating result, change in surplus values in the life insurance operations and compensation from pension fund. As of the first quarter of 2000, SEB is following the Swedish Financial Supervisory Authority's guidelines and recommendations valid from 2001 and is presenting a profit and loss account, in which results from the banking and the insurance operations are reported separately. In addition, SEB is presenting an operational profit and loss account. "We believe that major changes will continue to impact the financial- services industry. When it comes to e-banking, we are, therefore, enhancing our investments even further. We are investing in Denmark and Germany and in our pan-European platform that has been developed and is now being tested. Moreover, many new versions and applications will be launched in Sweden, for example, in the areas of stock brokerage and corporate e-services. However, we are also investing in areas outside our main banking area in the form of venture capital activities, such as SEB e-invest, whose first investment was in b-business partners, as well as the French Internet broker SelfTrade." "Concurrently, we are seeing how our efficiency enhancement measures within the Nordic Banking operations are beginning to yield results. However, we cannot relax our resolve. A number of extensive measures are now being taken. This includes the reduction in branch offices and merging of two of Retail Distributions three regions, and improving the efficiency of our foreign branch offices through partnerships with other banks. All these measures will provide further effects on the cost side without significant adverse consequences on revenues." "Restructuring of BfG is proceeding as planned. The efficiency enhancement potential is greater than we originally assessed." "On the corporate side, we are focusing within several business areas on growth companies, which constitute an increasingly important client group. Special growth centres are being established within Retail Distribution to offer these customers advisory service with specific expertise. Enskilda Securities is opening up an office in Silicon Valley. We are continuing to reduce risk-taking within Merchant Banking, and one of the measures have been to discontinue Proprietary Trading. However, with regard to the Emerging Markets segment, we are increasing activity somewhat, but fully in line with our goal to serve our Nordic corporate clients and we experience that there are attractive business possibilities with limited risks. It is also positive to note how Trading and Capital Markets are posting steadily increasing revenues." RESULT BY MAIN GROUP Nordic Banking The total result for the Nordic Banking operations (Retail Distribution and Merchant Banking business areas as well as SEB Securities Services) rose 10 per cent to SEK 1,456 M. Income was up 4 per cent as a result of sharply increased income in Retail Distribution and SEB Securities Services. The cost increase, net after compensation from the pension funds, was 4 per cent. The income/cost ratio was, in principle, unchanged at 1.83 (1.82). The goal in 2000 is that the cost level in Nordic Banking shall be unchanged compared with 1999. Capital rationalisation, particularly within Merchant Banking, continued to be a prioritised area for Nordic Banking. During the first quarter, allocated capital was reduced by SEK 566 M to SEK 17.921 M. Return on allocated capital improved somewhat. Profit and loss account - Nordic Banking SEK M Jan-March Jan- March Change Full year 2000 1999 per cent 1999 Net interest 1,771 1,782 -1 7,061 earnings Net commission 1,031 712 45 2,958 income Net result of -31 financial 405 588 1,049 transactions Other operating 106 89 19 336 income Total operating 3,313 3,171 4 11,414 income Staff costs -1,028 -952 8 -3,956 Compensation from Pension 107 65 65 459 Foundations Other costs -862 -824 5 -3,383 Depreciation and write-downs -29 -33 -12 -135 Total costs -1,812 -1,744 4 -7,015 Lending losses and provisions, -45 -107 -58 255 net Total result 1,456 1,320 10 4,644 Allocated 17,921 18,487 17,587 capital Return, 12 MMA*, 19.2 10.5 19.0 % *12 MMA = 12 months moving average Retail Distribution - strong revenue trend The business area achieved a result improvement of 78 per cent. This was attributable to a strong income trend, particularly from interest, net from deposits and commission income from primarily securities, insurance and payments. The cost increase of 6 per cent is due mainly to Internet expansion and higher business-related computer costs. As of the first quarter of 2000, SEB Finans is included in Retail Distribution. Compared with the first quarter of 1999, the result for SEB Finans nearly doubled. Retail Distribution incl. SEB Finans SEK M Jan-March 2000 Jan-March 1999 Full year 1999 Income 1,729 1,376 5,831 Costs -1,020 -958 -3,944 Lending -57 -51 -186 losses Total result 652 367 1,701 Merchant Banking - reduced risk and enhancement of efficiency Customer-related income showed a continued positive trend, SEK 1,199, compared with an average per quarter of SEK 1,021 M in 1999. The decline in income compared with the first quarter of 1999 is explained by the fact that the bank then had larger income from own position-taking in conjunction with the introduction of the Euro and declining interest rates. In March, Merchant Banking closed the Proprietary Trading unit as a step in the ambition to further reduce income swings and concentrate capital utilisation to prioritised growth areas. The latter includes the emerging common European debt capital market for companies and the growing sector for financial institutions within asset management. The continued focus on Internet-based services has been successful: for example, during March clients carried out one fourth of their Foreign Exchange transactions via Trading Station compared with a 15 per cent monthly average in 1999. The market leader position that SEB Merchant Banking claims within the foreign exchange area has also in recent years been confirmed by foreign exchange surveys by the independent research institute Greenwich Associates. Merchant Banking's exposure to emerging markets remains at a low level. However, a cautious increased exposure has occurred since year-end as a result of the clearly improved economic climate in many of these markets, which resulted in increased financial activity among Merchant Banking's customers (See page 10). In order to enhance efficiency while maintaining and increasing our global reach, an agreement has been signed with Bank of New York to cooperate in serving our Nordic corporates in the US. As of the first quarter of 2000, the venture-capital unit SEB Företaginvest is included in Merchant Banking. Merchant Banking incl. SEB Företagsinvest SEK M Jan-March Jan-March Full year 2000 1999 1999 Income 1,376 1,645 4,924 Costs -755 -735 -2,895 Lending 13 -56 441 losses Total result 634 854 2,470 SEB Securities Services - strongly increased volumes SEB Securities Services provides securities management and custodial services in Stockholm, Copenhagen, Helsinki and Oslo under its own name and have sub-suppliers in about another 55 countries. The sharp growth in business volume continued during the first quarter of 2000. The daily institutional transaction volume rose 64 per cent to slightly more than 13,200 transactions and the value of assets under custody increased 42 per cent to SEK 2,559 billion. SEB Securities Services SEK M Jan-March Jan-March Full year 2000 1999 1999 Income 253 190 822 Costs -79 -86 -336 Total result 174 104 486 Asset Management and Life - strong and profitable growth The total result for this main group - which includes Asset Management and SEB Trygg Liv, that is the main portion of the saving activities within the SEB Group - more than doubled. Income, including changes in the surplus value in the life insurance operations, rose 66 per cent, due to the rise in the stock market values and favourable new sales of life insurance, among other factors. Costs rose 27 per cent, due partly to increased bonus-related remuneration and new ventures in the Nordic region and Great Britain. The average number of employees was 1,960, an increase of 16 per cent compared with the first quarter a year earlier. The income/cost ratio improved dramatically to 2.15 (1.65). As of 31 March 1999, the SEB Group had assets under management amounting to SEK 930 billion, of which Asset Management and Life managed SEK 815 billion (SEK 510 billion). Portfolio management accounted for SEK 353 billion (SEK 212 billion) of this amount, traditional life insurance for SEK 246 billion (SEK 154 billion), Mutual funds for SEK 152 billion (SEK 104 billion) and unit-linked insurance for SEK 64 billion (SEK 40 billion). Since year-end, assets under management rose 16 per cent. Profit and loss account - Asset Management and Life SEK M Jan-March Jan- March Change Whole 2000 1999 per cent year 1999 Net interest 104 68 53 315 earnings Net commission 1,073 614 75 3,054 income Net result of -11 financial 25 28 81 transactions Other operating 210 157 34 710 income Change in surplus values in life 473 268 76 1,502 insurance operations Total operating 1,885 1,135 66 5,662 income Staff costs -408 -331 23 -1,547 Compensation from Pension 20 13 54 88 Foundations Other costs -467 -348 34 -1,506 Depreciation and -23 -23 0 -92 write-downs Total costs -878 -689 27 -3,057 Lending losses 0 0 -1 and provisions, net Result, -2 0 -7 associated company Total result 1,005 446 125 2,597 Allocated capital 8,000 7,000 7,000 Return, 12 MMA, % 28.4 16.4 26.7 * Including attributable goodwill Asset Management - profitable growth Income rose 69 per cent mainly as a result of the increase in stock market value, higher income from equity trading, which contributed to results for the Private Bank; SEB Enskilda Banken more than doubled, and new ventures in Denmark. Costs rose 27 per cent as a result of increased bonus-related remuneration, rising transaction costs and the ventures in Denmark and Great Britain. Asset Management SEK M Jan-March Jan-March Whole year 2000 1999 1999 Income 1,050 623 3,035 Costs -499 -394 -1,823 Lending 0 0 -1 losses Total result 551 229 1,211 SEB Trygg Liv - enhanced growth SEB Trygg Liv reports a strong sales growth for the first quarter. The high demand for primarily single-premium endowment assurance in the form of unit-linked rose further. Sales were up 70 per cent to SEK 4,290 M (SEK 2,527 M) and premium income (premium paid) increased 50 per cent to SEK 5,747 M (3,825 M) compared with the year-earlier period. Sales outside Sweden succeeded well. The change in surplus values was 76 per cent greater that in the corresponding period in 1999. Of the change for the first quarter, SE 473 M, SEK 386 M is from new contracts (See appendix 1). SEB Trygg Liv SEK M Jan-March Jan-March Whole year 2000 1999 1999 Income 857 527 2,686 Costs -401 -310 -1,293 Result, associated 0 0 -7 company Total result 454 217 1,386 BfG - developing according to plan German BfG Bank, which was consolidated in the SEB Group on 3 January 2000, reported a total result of SEK 312 M, whereof 119 was a one off item. Income was sustained due to improved net commission income, mainly in mutual fund sales. Costs declined due mainly to a reduction in the number of employees. Lending losses increased compared to 1999. Since the purchase price and thereby the acquisition cost for BfG was lower than the real value of the identified net assets, a negative difference occurred, called negative goodwill. This negative difference has in connection to the acquisition been calculated to SEK 3,400 M and will be accounted for as a provision. The main part of this provision corresponds to costs for measures which now have started and are planned for the coming years with the aim to reach an acceptable profitability in BfG and where costs for these measures do not correspond to reservations made at the time of the takeover. The provision will be resolved in the pace with costs for these identified measures being incurred. In the case that the provision can not be referred to specific measures the remaining negative goodwill will be resolved according to Swedish accounting recommendations. In total, the negative goodwill is expected to be resolved during the coming 4-5 years. The restructuring efforts announced for BfG are proceeding as planned. During the first quarter co-operation was established between BfG and SEB Investment Management and SEB Fonder and the first joint mutual fund - BfG Concept Teletech - was launched successfully on the German market. Co- ordination with SEB Private Bank in Luxembourg was started. The decided closing of the subsidiary bank Deutsche Handelsbank in Berlin with 75 employees was started. A smaller subsidiary in real estate brokerage was divested. The decided reduction in the number of employees, previously announced as at least 500 positions was increased during the spring to about 700 during the next two years. In the end of March BfG had assets under management amounting to approximately SEK 116 billion. BfG, which during the spring will present a new version of its own Internet bank, has initiated close collaboration with SEB e-banking prior to the launch of a pan-European model during the third quarter. At the end of March 2000, BfG had 85,000 e-banking customers. Profit and loss account - BfG SEK M Jan-March 2000 Net interest earnings 1,086 Net commission income 564 Net result of financial 172 transactions Other operating income 109 Total operating income 1,931 Staff costs -717 Other costs -501 Depreciation and write- -91 downs Total costs -1,309 Lending losses and -312 provisions, net Result, associated 2 company Total result 312 Allocated capital 14 000 Return, 12 MMA, % 6,4 Other activities This group includes the Enskilda Securities, SEB Kort and the Baltic banks. The last-mentioned business area comprises two majority owned banks, Eesti Ühispank and Latvijas Unibanka, and the partly owned Vilniaus Bankas. Profit and loss account - Other activities SEK M Jan-March Jan- Change Whole year 2000 March1999 per cent 1999 Net interest 127 21 505 284 earnings Net commission 1,163 564 106 2,853 income Net result of financial 336 155 117 571 transactions Other operating 41 12 242 296 income Total operating 1,667 752 122 4,004 income Staff costs -739 -325 127 -1,695 Compensation from Pension 8 5 60 34 Foundations Other costs -300 -200 50 -1,006 Depreciation and -72 -18 300 -139 write-downs Total costs -1,103 -538 105 -2,866 Lending losses and provisions, -3 -11 -73 -101 net Result, 18 41 -56 110 associated company Total result 579 244 137 1,147 Allocated capital 3,179 1,943 Return, 12 MMA, % 33.6 23.6 42.5 During the first quarter of 2000, Eesti Ühispank and Latvijas Unibanka were consolidated within SEB. In the corresponding period of 1999 these banks were only include as result from associated companies. Enskilda Securities - continued strong result improvement The favourable market conditions from they beginning of 1999 were reinforced further during the first three months of 2000. The volume of trading on the OM Stockholm Exchange rose 115 per cent and activity within IPOs was high - due largely to the strong interest in IT, telecom and technology shares. Enskilda Securities income in the secondary market during the first quarter was the highest ever, rising 122 per cent compared with the same period in 1999. Income was affected positively by a number of IPOs. Both the equities and derivative markets and Corporate Finance posted highly favourable earnings. In particular, share commission, results from derivative trading and income from placements and IPOs improved compared with the first quarter of 1999. IT, telecom and technology share transactions accounted for nearly half of fee revenues. In order to come close to this market, Enskilda Securities have decided to open an office in Silicon Valley. An agreement was signed covering a merger of Enskilda Securities AB and Orkla Finans (Fondsmegling) ASA for the purpose, among others, of strengthening the company's position in the Norwegian market. The agreement is made through an exchange of assets in kind. Enskilda Securities assumes ownership of Orkla Finans (Fondsmegling) in return for Orkla Finans ASA owning 22.5 per cent of the capital in Enskilda Securities AB, while SEB retains 77.5 per cent. Through this transaction a capital gain is incurred in SEB, which is accounted for on group level ( SEK 373 M) which is simultaneously reflected in an increase in goodwill. In total, Enskilda Securities increased revenues during the first quarter of 2000 by 141 per cent, including Orkla Finans (Fondsmegling), and 105 per cent excluding. Costs rose 119 per cent including - 88 percent excluding - Orkla Finans (Fondsmegling) as an effect of result-related bonuses, recruitment of a number of key personnel and costs related to the merger. In addition to these factors, the strong volume trend and the related new recruitment contributed to the underlying cost increase of 19 per cent. Results tripled when Orkla Finans (Fondsmegling) is included. Excluding Orkla, results improved 160 per cent. Enskilda Securities SEK M Jan-March Jan-March Whole year 2000 1999 1999 Income 1 108 459 2,279 Costs -724 -330 -1,694 Lending -8 0 7 losses Total result 392 129 592 SEB Kort - increased efficiency Sales of SEB Kort, which includes Diners Club Nordic and Eurocard, rose 14 per cent compared with the year-earlier period. At the same time, operating result improved 37 per cent. Costs increased marginally, which indicated that SEB Kort has increased its earnings capacity and its efficiency. SEB Kort SEK M Jan March Jan March Whole year 2000 1999 1999 Income 335 302 1329 Costs -210 -207 -868 Lending -10 -11 -56 losses Total result 115 84 385 Baltic Region The result for the business area amounted to SEK 72 M for the first quarter of 2000. During the comparable period last year, the three partly owned banks in the Baltic, which then were not a separate business area, contributed SEK 31 M. During the second half of 1999 Eesti Ühispank, Estonia, and Latvijas Unibanka, Latvia, were consolidated in the SEB Group. Vilniaus Bankas, Lithuania, in which SEB owns 42 per cent, is still reported as a result from associated companies. After Vilniaus Bankas' acquisition of Bankas Hermis at the end of 1999, the number of employees in the merged bank was reduced from slightly more than 2,000 to 1,750. Efficiency enhancement measures continue. Baltic Region SEK M Jan-March Jan-March Whole year 2000 1999 1999 Income 231 396 Costs -169 -284 Lending losses -1 -52 Result, 11 110 associated company Total result 72 31 170 e-BANKING SEB Internet, which was renamed in the spring to SEB e-banking, is an independent unit in the Group since the summer of 1999. However, income from and costs of the Swedish and German e-banking operations are reported in the business areas, where the customers use the services, that is, mainly in Retail Distribution and BfG. Costs for investments in e-banking during the first quarter of 2000 amounted to SEK 94M. The investments are now accelerating. In mid-April, the new model was launched in Denmark. Germany is next during the third quarter. During the first quarter of 2000 the number of e-banking customers rose to 570,000, of which slightly more than 410,000 in Sweden. Activity among these customers continued to grow at a high rate. The number of share transactions was, for example, 50.000 in March 2000 compared with 10,000 in the same period of 1999. The number of payments on Internet has increased to 1.3 million per month (820.000) The e-activities within the Group now comprise a wider span. The newly formed SEB e-invest has already made its first investment. SEK 415 M has been invested in b-business partners, a venture capital company to invest in B2B Internet trading. During the first quarter of 2000 the French e-stockbroker SelfTrade, where SEB holds 34 per cent of the votes and 20,4 per cent of the shares, was listed on Nouveau Marché in Paris. In conjunction with the listing a new issue was made in which SEB participated with its share. On the first day of trading the market value of SEB's shares in SelfTrade amounted to SEK 1.2 billion, while the book value on SEB's share was about SEK 300 M. As of april, 27:th the value to SEB amounted to approximately SEK 700 M. This implies an unrealised capital gain which is not accounted for. SelfTrade is one of the leading e-brokers in the French market and its goal is to be the leader on a European basis when it comes to financial services on Internet. SelfTrade have about 26,000 customers in France and has also opened operations in Milan. GROUP ACCOUNTS At 31 March 2000, a change of one percentage point in the Group's combined positions in SEK and other currencies means that the market value of the Group's interest-sensitive positions would increase/decrease by SEK 1.2 billion (SEK 1.9 billion in the first quarter of 1999). The nonrecurring items amount to SEK 912 M ( SEK 270 M). The sale of the bank's property on Kungsträdgårdsgatan resulted in a capital gain of about SEK 420 M before taxes. A capital gain arose on the settlement with Orkla Finans of SEK 373 M. This amount is offset by higher goodwill. SEK 119 M of the result in BfG is attributable to nonrecurring items. Of the total restructuring reserve in the 1997 year-end accounts of SEK 2,255 M, SEK 1,724 M, of which SEK 645 M in 1999, was utilised as of 31 March 2000. The Group's lending losses, including value changes in assets taken over, amounted to SEK 281 M, of which BfG accounts for SEK 312 M. Accordingly, the lending loss level was 0.16 per cent (0.14 per cent). SEB's exposure on emerging markets at 31 March 2000 was SEK 16.758 M, net, of which SEK 5,209 M was added through the acquisition of BfG. Accordingly, compared with year-end exposure, excluding BfG, increased by SEK 1.144 M. This is due, among other factors, to increases in exposures to Hong Kong, Argentina and South Korea. Exposure, geographical distribution, SEK M Total From which 1 Asia 7,251 1,555 Hong Kong 2,476 469 China 981 163 Other specified 2,243 152 2 countries 3 Latin America 4,435 805 Brazil 1,481 59 Eastern and Central 5,563 4,138 4 Europe Russia 3,695 2,683 5 Africa and Middle East 3,914 1,388 Israel 1,186 1,029 Turkey 937 81 Total 21,163 7,886 Provision 4,405 2,677 Total net 16,758 5,209 1. Includes Hong Kong, China, India, Pakistan, Taiwan, Macao 2. Includes the Philippines, Malaysia, Thailand, Korea and Indonesia 3. Includes Brazil, Argentina, Mexico and Peru 4. Includes Russia, Israel, Estonia, Latvia Lithuania, Poland, the Czech Republic, Slovakia, Rumania, Hungary, Slovenia, Croatia, Kazakhstan and the Ukraine 5. Includes Turkey, Iran, Saudi Arabia, Egypt, South Africa, Ethiopia and Algeria Doubtful claims, net, increased because of BfG to SEK 7,434 M (SEK 2,703 M), while the volume of assets taken over decreased by SEK 875 M to SEK 610 M. Capital adequacy The capital base for the financial company group (which does not include the insurance company) amounted at 31 March 2000 to SEK 50.6 billion (SEK 46.5 billion at year-end 1999), of which SEK 34.3 billion (SEK 34.4 billion) was core capital. At the same time, the risk-weighted assets rose to SEK 510 billion (SEK 318 billion at year-end 1999). If the result in the quarter was included in the capital base and capital adequacy, the total capital ratio would be 10.23 per cent (14.6 per cent at year-end 1999) and the core capital ratio 7.06 per cent (10.8 per cent). Excluding the results in the quarter, the total capital ratio was 9.9 per cent and the core capital ratio 6.73 per cent. Decisions at the Annual General Meeting At this year's Annual General Meeting on 11 April, two new members were elected to the Board: Penny Hughes, a member of the Board of Trinity Mirror and Vodafone Airtouch, Great Britain, and Hans-Joachim Körber, President of Metro AG, Germany. The dividend was set at SEK 3.50 per share. Stockholm, 28 April Lars H Thunell CEO The interim report for January-June 2000 will be published on 22 August 2000. SEB's interim reports are available on the Internet (www.seb.se; www.seb.net). Additional information is available from Gunilla Wikman, head of Group Communications, +46 8 763 81 25 Lotta Treschow, head of Investor Relations, +46 8 763 95 59 This report is unaudited. SEB Group Operational Profit & Loss Accounts Jan-Mar Jan-Mar Change Full year SEK M 2000 1999 per cent 1999 Net interest earnings 2,883 1,689 71 6,858 Net commission income 3,702 1,812 104 8,317 Net result of financial 900 842 7 2,034 transactions Other operating income 1,285 812 58 2,327 Change in surplus value in 473 268 76 1,502 life insurance operations Total income 9,243 5,423 70 21,038 Staff costs -3,211 -1,907 68 -8,419 Pension compensation 171 125 37 873 Other operating costs -1,918 -1,388 38 -5,743 Depreciations -427 -292 46 -1,175 Total costs -5,385 -3,462 56 -14,464 Lending losses etc -281 -124 127 289 Net result from associated 30 42 -29 116 companies Result from non-life 52 157 -67 518 insurance operations Total result 3,659 2,036 80 7,497 Taxes -638 -485 32 -1,355 Taxes on change in surplus -132 -75 76 -421 values Minority interests -124 -2 -56 Total result after tax 2,765 1,474 88 5 665 Key figures for the SEB Group Jan-Mar Jan-Mar Full year 2000 1999 1999 Return on equity, % 25.3 16.5 14.6 Return incl. change in surplus 27.2 18.2 17.2 values, % Return on equity, 12 months 15.0 12.3 14.6 moving average, % Return on equity, incl. change in 17.1 13.5 17.2 surplus values, 12 months moving average, % 1) Earnings per share, SEK 3.44 1.95 6.96 Total result after tax per share, 3.92 2.25 8.60 1) SEK Income/cost ratio, banking 1.72 1.57 1.45 operations Income/cost ratio, SEB Group 1.60 1.48 1.30 Cost/Income ratio, banking 0.58 0.64 0.69 operations Cost/Income ratio, SEB Group 0.62 0.67 0.77 Lending loss level, % 0.16 0.14 -0.09 Provision ratio for doubtful 51.7 59.0 59.6 claims, % Level of doubtful claims, % 1.09 0.78 0.82 Total capital ratio, % 9.90 10.76 14.62 Core capital ratio, % 6.73 8.00 10,80 Profit & Loss Accounts per main group January-March 2000, Nordic Asset Bfg Other Joint SEB SEK M BankingManagemen ActiviGroup Group t & Life ties Activiti es & eliminat ions Net interest 1,771 104 1,086 127 -205 2,883 earnings Net commission 1,031 1,073 564 1,163 -129 3,702 income Net result of financial 405 25 172 336 -38 900 transactions Other income 106 210 109 41 819 1,285 Change in surplus values in life insurance operations 473 473 Total income 3,313 1,885 1,931 1,667 447 9,243 Staff costs -1,028 -408 -717 -739 -319 -3,211 Pension 107 20 8 36 171 compensation Other costs -862 -467 -501 -300 212 -1,918 Depreciation -29 -23 -91 -72 -212 -427 Total costs -1,812 -878 -1,309 -1,103-283 -5,385 Lending losses etc -45 -312 -3 79 -281 Net result from associated -2 2 18 12 30 companies Result from non- 52 52 life insurance operations Total result 1,456 1,005 312 579 307 3,659 SEB Group's quarterly performance Operational Profit & Loss Accounts SEK M 2000:1 1999:4 1999:3 1999:2 1999:1 Net interest earnings 2,883 1,769 1,735 1,665 1,689 Net commission income 3,702 2,562 1,940 2,003 1,812 Net result of financial 900 865 100 227 842 transactions Other operating income 1,285 517 310 688 812 Change in surplus values in life 473 856 210 168 268 insurance operations Total income 9,243 6,569 4,295 4,751 5,423 Staff costs -3,211 -2,599 -1,956 -1,957 -1,907 Pension compensation 171 452 141 155 125 Other costs -1,918 -1,578 -1,478 -1,299 -1,388 Depreciation -427 -332 -288 -263 -292 Total costs -5,385 -4,057 -3,581 -3,364 -3,462 Lending losses, etc. -281 58 13 342 -124 Net result from associated30 33 29 12 42 companies Result from non-life 52 32 633 -304 157 insurance operations Total result 3,659 2,635 1,389 1,437 2,036 Taxes -638 -259 -364 -247 -485 Taxes on change in surplus-132 -240 -59 -47 -75 values Minority interests -124 -32 -19 -3 -2 Total result after tax 2,765 2,104 947 1,140 1,474 Balance sheet of the SEB Group (abbreviated) 31 March 31 March 31 December SEK M 2000 1999 1999 Lending to credit institutions 197,250 89,631 103,521 Lending to the general public 582,512 342,672 342,907 Interest-bearing securities 133,716 99,194 93,769 - Financial fixed assets 7,705 3,857 3,396 - Financial current assets 126,011 95,337 90,373 Shares and participations 21,700 5,310 9,303 Assets in insurance operations 74,669 64,548 66,111 Other assets 130,706 119,266 94,644 Total assets 1,140,553 720,621 710,255 Liabilities to credit 229,938 145,564 117,774 institutions Deposits and funding from the 407,093 208,640 229,534 general public Securities issued, etc. 205,685 122,471 122,143 Liabilities in insurance 71,133 58,560 63,271 operations Other liabilities and 155,526 130,092 118,645 provisions Subordinated liabilities 31,682 23,579 25,882 Shareholders' equity 39,496 31,715 33,006 Total liabilities and 1,140,553 720,621 710,255 shareholders' equity Problem loans and assets taken over for the protection of claims 31 March 31 March 31 December SEK M 2000 1999 1998 Doubtful claims 15,398 6,586 6,988 Provision for possible -7,964 -3,883 -4,164 lending losses Doubtful claims, net 7,434 2,703 2,824 Claims subject to interest 321 1,243 352 reduction Total volume of problem 7,755 3,946 3,176 loans Level of doubtful claims 1,09 0,78 0,82 (Doubtful claims (net) in relation to lending and leasing (net) at end of period, per cent) Provision ratio for 51,7 59,0 59,6 doubtful claims Reserve for possible lending losses in relation to doubtful claims (gross), per cent) Pledges taken over Buildings and land 94 149 82 Shares and participations 516 1,336 544 Total volume of pledges 610 1,485 626 taken over The soft loans of the Group are included among claims subject to interest reduction. The shortfall in income due to interest deferments was SEK 2 M (SEK 13 M), while unpaid interest on non-performing loans amounted to SEK 129 M (SEK 61 M). On 31 March 2000, the Group had SEK 169 M (SEK 439 M) in non- performing loans in Sweden on which interest income was reported. These loans are not included among the problem loans, since the corresponding collateral covers both interest and principal. Derivatives contracts 31 March Contracts on the asset Contracts on the 1999 side liability side SEK M Book value Market value Book value Market value Interest- 16,204 16,204 17,160 17,160 related Currency- 29,688 31,493 24,072 27,091 related Equity- 2,432 2,432 2,968 2,968 related Other 30 30 29 29 Total 48,354 50,159 44,229 47,248 On 31 March 2000 the notional value of the Group's derivatives contracts amounted to SEK 3,878 billion (SEK 3,691 billion on 31 December 1999). The book value of derivatives instruments forming part of trading operations is identical with the market value. Those deviations between actual and book values that are reported in the above table are matched by opposite deviations between market and book values in the part of the Group's operations that is subject to hedge accounting. Cash flow analysis Jan-Mar Jan-Mar Full year SEK M 2000 1999 1999 Cash flow, current operations 3,819 4,606 4,711 Changes in assets, current -55,276 -43,561 -35,495 operations Changes in liabilities, current 68,292 40,526 37,385 operations Cash flow, current operations 16,835 1,571 6,601 Cash flow, investment activities -1,540 8,325 8,161 Cash flow, financing activities -8,516 -11,011 -10,326 Cash flow 6,779 -1,115 4,436 Liquid funds at beginning of year 9,074 4,638 4,638 Cash flow 6,779 -1,115 4,436 Liquid fund at end of year 15,853 3,523 9,074 The acquisition of BfG Bank increased liquid funds by SEK 3,165 M. In addition, adjustment has been made for BfG's balance sheet items. The SEB Group Profit and loss accounts Statutory Profit & Loss Accounts Jan-Mar Jan-Mar Change Full year SEK M 2000 1999 per cent1999 Income Interest receivable 12,350 6,957 78 26,124 Interest payable -9,482 -5,271 80 -19,299 Net interest earnings 2,868 1,686 70 6,825 Dividends received 18 11 64 211 Commission receivable 4,066 1,973 106 9,283 Commission payable -426 -251 70 -1,208 1) Net commission income 3,640 1,722 111 8,075 Net result of financial 895 825 8 2,025 2) transactions Other operating income 1,145 740 55 1,662 Income from banking operations8,566 4,984 72 18,798 Costs Staff costs -3,092 -1,801 72 -7,969 Other administrative costs -1,390 -940 48 -3,913 Depreciation and write-downs -412 -278 48 -1,120 of tangible and intangible fixed assets Other operating costs -445 -341 30 -1,487 Costs from banking operations -5,339 -3,360 59 -14,489 Result from banking operations before lending losses 3,227 1,624 99 4,309 Lending losses and provisions,-332 -131 153 207 3) net Change in value of assets 54 7 111 taken over Write-down of financial fixed -3 -29 assets Net result from associated 32 42 -24 116 companies Operating result from banking 2,978 1,542 93 4,714 operations Result from insurance 37 101 -63 408 4) operations Operating result 3,015 1,643 84 5,122 Pension compensation 171 125 37 873 Taxes -638 -485 32 -1,355 Minority interests -124 -2 -56 Result for the period 2,424 1,281 89 4,584 1) Net commission income Jan-Mar Jan-Mar Change Full year 2000 1999 per cent1999 Payment commissions 493 431 14 1,863 Securities commissions 1,968 1,100 79 5,066 Other commissions 1,179 191 1,146 Total 3,640 1,722 111 8,075 2) Net result of financial transactions Shares/participations 420 218 93 963 Interest-bearing securities 190 30 -276 Other financial instruments 216 -153 819 Realised result 826 95 1,506 Jan-Mar Jan-Mar Change Full year 2000 1999 per cent1999 Shares/participations -72 4 291 Interest-bearing securities -123 182 -168 142 Other financial instruments -96 167 -157 -1,039 Unrealised value changes -291 353 -182 -606 Exchange rate fluctuations 363 382 -5 1,130 Redemption of bonds, SEB BoLån-3 -5 -40 -5 Total 895 825 8 2,025 3) Lending losses and provisions, net A. Individually appraised receivables: Reported write-down, incurred -217 -80 171 -448 losses Reversal of previous 67 69 -3 339 provisions for possible losses, reported as incurred losses in current period's accounts Reported provision for -426 -159 168 -854 possible losses Recovered from losses incurred83 29 186 200 in previous years Reversal of previous 131 31 483 provisions for possible losses Reported net cost for -362 -110 -280 individually appraised receivables B. Receivables appraised by category: Reported write-down, incurred -18 -19 -5 -86 losses Reported provision for -1 -9 -89 -31 possible losses Recovered from losses incurred9 11 -18 35 in previous years Withdrawal from reserve for 12 -100 31 lending losses Reported net cost for -10 -5 100 -51 receivables appraised by category C. Allocation to/withdrawal 61 3 440 from reserve for political risks abroad D. Contingent liabilities -21 -19 11 98 Total -332 -131 153 207 4) Result insurance operations Non-life operations 52 157 -67 518 Life operations -15 -56 -73 -110 Total income 37 101 -63 408 SEB Group - Bridge between Statutory and operational accounts Statutory Profit & Loss Operational Profit Accounts & Loss Accounts Interna Jan- SEB l Recla Jan- SEK M Mar Trygtrans- s- Mar SEK M 2000 g actionssific 2000 Liv bank- ation insuran ce Net interest earnings 2,868 15 2,883Net interest earnings Dividends received 18 -18 Net commission income 3,640 62 3,702Net commission income Net result of financial 5 Net result Transactions 895 900 of financial transactions Other operating income 1,145 356 -234 18 1,285Other operating income 473 Change in 473 surplus value in life insurance operations Income from banking 8,566 376 -172 473 9,243Total income operations Staff costs - -1234 - Staff costs 3,092 3,211 171 171 Pension compensation Other administrative - -202 1,592 costs 1,390 Depreciation and write- -14 -1 -427 Depreciation downs s Of tangible and -412 intangible fixed assets Other operating costs -445 -50 169 - - Other 1,592 1,918operating costs Costs from banking - -389172 171 - Total costs Operations 5,339 5,385 Result from banking 3,227 operations before Lending Losses Lending losses and -332 51 -281 Lending Provisions, net losses etc Change in value of 54 -54 Assets taken over Write-down of financial-3 3 Fixed assets Net result from 32 -2 30 Net result associated from Companies associated companies Operating result from 2,978 Banking operations Result from insurance 37 15 52 Result from Operations non-life insurance operations Operating result 3,015 0 0 644 3,659Total result Pension compensation 171 -171 Taxes -638 -638 Taxes -132 -132 Taxes on change in surplus values Minority interests -124 -124 Minority interests Result for the period 2,424 0 0 341 2,765Total result after tax Profit and Loss Account, Parent company Jan-MarJan-MarChange Full year SEK M 2000 1999 per 1999 cent Income Interest receivable 6,066 5,329 14 19,791 Leasing income 110 59 86 254 Interest payable -4,922 -4,118 20 -15,016 1) Net interest earnings Dividends received 22 42 -48 4,241 Commission receivable 1,874 1,327 41 5,752 Commission payable -256 -230 11 -987 2) Net commission income 1,618 1,097 47 4,765 Net result of financial 373 768 -51 1,343 3) transactions Other operating income 838 705 19 1,541 Total income 4,105 3,882 6 16,919 Costs Staff costs -1,544 -1,396 11 -5,875 Other administrative expenses -924 -1,015 -9 -4,384 Depreciation and write-downs of -75 -65 15 -266 tangible and intangible fixed assets Other operating costs -235 -290 -19 -1,487 Total costs -2,778 -2,766 0 -12,012 Result before lending losses 1,327 1,116 19 4,907 Lending losses and provisions, 31 -77 -140 415 4) net Change in value of assets taken -10 over Write-down of financial fixed -3,057 assets Operating result 1,358 1,039 31 2,255 Pension provision 171 125 37 873 *) Other appropriations -539 -294 83 -1,863 *) Tax on result for the year -162 -147 10 -68 Result for the year 828 723 15 1,197 *) Group contributions reported directly against equity 1) Net interest Jan-MarJan-MarChange Full year SEK M 2000 1999 per 1999 cent Interest receivable 6,066 5,329 14 19,791 Leasing income 110 59 86 254 Interest payable -4,922 -4,118 20 -15,016 Leasing depreciation -33 -19 74 -94 Total 1,221 1,251 -2 4,935 2) Net commission income Payment commissions 356 323 10 1,332 Securities commissions 1,009 600 68 2,695 Other commissions 253 174 45 738 Total 1,618 1,097 47 4,765 3) Net result of financial transactions Jan-MarJan-MarChange Full year 2000 1999 per 1999 cent Shares/participations 179 -100 4 Interest-bearing securities 74 14 -256 Other financial instruments 186 -148 1,009 Realised result 260 45 757 Shares/participations -106 -2 -23 Interest-bearing securities -77 189 -141 105 Other financial instruments -4 169 -102 -539 Unrealised value changes -187 356 -153 -457 Exchange rate fluctuations 300 367 -18 1,043 Redemption of bonds Total 373 768 -51 1,343 4) Lending losses and provisions, net A. Individually appraised receivables Reported write-down, incurred -42 -56 -25 -289 losses Reversal of previous provisions 34 52 -35 257 for possible losses reported as incurred losses in current period's accounts Reported provision for possible -138 -101 37 -577 losses Recovered from losses incurred in36 26 38 116 previous years Reversal of previous provisions 83 20 394 for possible losses Reported net cost for -27 -59 -54 -99 individually appraised receivables B. Receivables appraised by category Reported write-down, incurred -8 -11 -27 -52 losses Reported provision for possible -2 -100 -12 losses Recovered from losses incurred in6 7 -14 26 previous years Withdrawal from provision for 4 -100 14 lending losses Reported net cost for receivables-2 -2 -24 appraised by category C. Allocation to/withdrawal from 60 3 440 reserve for political risks abroad D. Contingent liabilities -19 -100 98 Total 31 -77 -140 415 Appendix 1 SEB Trygg Liv SEB Trygg Liv focuses on the sale and administration of unit-linked insurance products and their equivalent for account of the traditional mutual life insurance business. From an accounting point of view, its activities are separate from traditional banking activities. SEB Trygg Liv's accounts are presented in this Appendix according to generally accepted accounting standards within the insurance business. SEB Trygg Liv reported a strong sales growth during the first quarter, attributable primarily to single-premium endowment assurance, mostly unit- linked. Sales, i.e. new premiums and extra payments under existing insurance contracts, increased by SEK 1,763 M, or 70 per cent, to SEK 4,290 M (SEK 2,527 M). The share of insurance contracts with current premiums was 14.5 per cent (16.3 per cent). Premium income (premiums paid) rose 50 per cent to SEK 5,747 M (SEK 3,835 M). In total, assets under management increased by SEK 54 billion or 27 per cent to SEK 252 billion (SEK 198 billion) during the twelve-month period, whereas the corresponding increase for unit-linked insurance was 60 per cent. Revenues increased by 49 per cent, primarily as a result of a higher premium volume and favorable growth in assets under management within unit-linked insurance. Operating costs and other costs increased by SEK 110 M or 30 per cent, of which most, SEK 74 M, was attributable to volume-related sales costs. The operating loss improved by 67 per cent, to SEK 19 M (SEK 511 M). The total result, which includes the change in surplus values, increased by 109 per cent to SEK 454 M (SEK 217 M) compared with the year-earlier period. This improvement was mainly due to strongly increased sales combined with a positive development on the capital market. The surplus value in life insurance operations is the present value of expected future gains from signed insurance contracts. The surplus values comprise unit-linked operations as well as commissioning agreements with traditional life insurance companies. Volumes, SEK M March 2000 March 1999 Sales volume Traditional life insurance, current 280 383 share 24 (28) % Unit-linked insurance, current share 4,010 2,144 13 (14) % 4,290 2,527 Premium income Traditional life insurance 1,097 1,136 Unit-linked insurance 4,650 2,689 5,747 3,825 Savings stock 31 March 31 March Traditional life insurance 187,700 158,300 Unit-linked insurance 64,000 40,000 Profit and loss account, Jan-March, March 2000 March 1999 SEK M Commissioning agreements, traditional 80 76 life insurance Unit-linked insurance 271 159 Risk operations and other 34 24 Total income 385 259 Operating expenses -437 -322 Capitalisation of acquisition costs 69 53 Goodwill and other - 36 - 41 Total costs -404 -310 Operating result - 19 - 51 1) Change in surplus values 473 268 Total result 454 217 Return on allocated capital, per cent 30.0% 12.7% 2) 3) Expense ratio per cent 7.6 % 8.4 % 1) Notes After deduction for change in capitalised acquisition costs 2) Annual basis. Allocated capital 3,900 respective 3,250 3) Operating expenses expressed as percentage of premiums earned Calculation of surplus values and changes in surplus values Surplus values in life insurance operations are calculated on the basis of assumptions regarding the future development of signed insurance contracts and a risk-adjusted discount rate. The most important assumptions are the following: Discount rate 11 % Return on capital, nominal 4 % assets Return on capital, real 8 % assets Cancellations of contracts 5 % Cancellations of current 5 % premiums administrative expenses SEK 250/contract per year Mortality According to trade experience Surplus accounting Deferred acquisition costs are capitalized in the accounts and depreciated according to plan. The reported change in surplus values is therefore adjusted by the net result of the capitalisation and depreciation during the period. Result Change in surplus values 542 Deferred acquisition costs -146 Depreciation + 77 - 69 Reported change in surplus 473 values Balance Surplus value at 1 January 2000 3,142 Current change of surplus values consists of present values of new contracts 386 1) +Return on existing contracts 129 -Realised surplus value in -165 existing contracts =Change in present value of contracts signed - 36 before the current period Actual outcome compared with operative 12 2) assumptions made 3 Change in operative assumptions -115 ) Capital return in excess of 295 undertakings 4 Total change in surplus values 542 ) Capitalised acquisition cost for -146 the period Depreciation of capitalised 77 acquisition cost for the period Total reported change in surplus 473 values 5 ) Closing balance 31 March 2000 4,551 1) Sales defined as new contracts and extra premiums on existing contracts 2) The reported actual outcome of contracts signed can be placed in relation to the operative assumptions that were made. Thus, the value of the deviations can be estimated. The most important components consist of growth in underlying assets, increased sales, particularly in the form of extra premiums and extensions of contracts as well as cancellations. However, the actual result of income and administrative expenses is included in full in the operating result. 3) Subsidiary SEB Trygg Life (UK) is closed for new contracts and is being divested as planned. The cancellation undertaking has been changed from 5 to 7.5 per cent, with a nonrecurring negative effect of SEK 115 M. 4) Before deduction for capitalised acquisition cost of SEK 248 M. See above. 5) Estimated surplus value according to the above is not included in the published balance sheet. Appendix 2 BfG adapted to Swedish Swedish accounting principles Jan- Jan- 1999* March March 2000 1999* MEUR MEUR MEUR Profit and loss account Net interest earnings 128 154 579 Dividend 1 3 5 Net commission income 66 43 186 Net result of financial transactions 20 8 42 Other operating income 12 1 48 Total operating income 227 209 860 General administration - - - expenses 130 147 643 Depreciation - - - 11 16 56 Other operating costs - - 13 2 - Total costs - - - 154 165 699 - Lending losses - - - 26 23 101 TOTAL RESULT 47 21 60 *9906/2 *Normal ised ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/2000/04/28/20000428BIT00850/bit0001.doc http://www.bit.se/bitonline/2000/04/28/20000428BIT00850/bit0002.pdf