Interim Report January-June 2001

Interim Report January-June 2001 Lower result due to weaker market conditions · Operating result* amounted to SEK 4 245 M (5 919). · Net interest income rose by 6 per cent to SEK 6 234 M (5 869). · Net commission income decreased by 14 per cent, to SEK 5 958 M (6 939). · Return on equity was 13.4 per cent (22.1). · Staff costs decreased by 1 per cent, to SEK 6 236 M (6 298). · Lending losses were down 53 per cent, to SEK 248 M (SEK 531 M) · The Baltic´s result was up 42 per cent on a comparable basis. · SEB had one million e-banking customers in mid-August. · The European Commission decided to initiate an in-depth investigation of the proposed merger with FöreningsSparbanken. The integration planning proceeds well. * Operating result includes pension settlements/provisions. PRESIDENT´S STATEMENT The first half of 2001 was characterised by a marked weakening in the global economy. Development in the US, Japanese and the European economies was weak. Industrial production has fallen in several countries, but consumption and the services sector have prevented a sharper decrease. The financial markets have been characterised by unrest, with falling stock markets during the first quarter, while a certain recovery was noted in the second quarter. Interest rates have been falling in most countries lately due to the weak economies. Economic conditions in Sweden, Germany and the Baltic countries are important factors for SEB. Growth in the Baltic countries remained strong and stable. In Germany, however, the economy was weaker than anticipated, particularly with respect to private consumption, where price increases have undermined purchasing power. During the first quarter 2001 the Stockholm Stock Exchange fell sharply, but a recovery of 6 per cent in the second quarter limited the decline to 17 per cent for the half-year. Household savings in Sweden and Germany have increased somewhat, but from low levels, as a consequence of increasing caution of the households as a result of falling stock markets and uncertainty in the labour market. For SEB, the first six months of the year were weak, compared with the exceptionally strong results noted during the first half of 2000. However, the result for Corporate & Institutions remains very strong, in spite of the halved result in Enskilda Securities. It is also pleasing to see how our three subsidiary banks in the Baltic countries are growing in both sales and earnings. The weakening of economic conditions became increasingly pronounced, particularly in Europe. Thus far, the positive trend noted on the stock markets during the second quarter does not appear to be lasting. For SEB, this means that further measures are being implemented to reduce costs over both the short and the long term. The in-depth investigation into the merger has now started. The integration planning work is proceeding well. THE GROUP Summary of operating result per division and business area January- JJanuary- Change SEK M June June per 2001 2000 cent Personal Banking Sweden 888 1 154 - 23 Personal Banking 0 214 - 100 International Corporate and 2 697 2 880 - 6 Institutions Merchant Banking 1 528 1 232 24 Enskilda Securities 305 630 - 52 Mid Corporate 597 684 - 13 SEB Securities Services 285 344 - 17 SEB Germany 543 435 25 Investment Management & 199 320 - 38 Life The Baltic 253 125 102 Total all divisions 4 580 5 128 - 11 Joint Group incl. capital - 335 791 gains and elimination. Operating result 4 245 5 919 - 28 Changes in surplus values 113 427 - 74 Total result SEB Group 4 358 6 346 - 31 Income Total income in January-June 2001 decreased by 9 per cent to SEK 15 377 M (16 932). The comparison with the preceding year was affected by exchange rate effects, the consolidation of Vilniaus Bankas and one-off items. Adjusted for these items affecting comparability, income decreased by 7 per cent. This decline is chiefly explained by lower commission income due to stock market related development. Net interest income rose by 6 per cent to SEK 6 234 M (5 869). Adjusted for the items affecting comparability described above, net interest income declined by 1 per cent. The cost for the governmental deposit guarantee decreased by SEK 103 M. Net commission income decreased by 14 per cent to SEK 5 958 M (6 939), compared with the first half of 2000. Adjusted for items affecting comparability, net commission income declined by 17 per cent. The income varied between different product areas and parts of the Group. The most significant decrease concerns net commission income from securities, which fell by 20 per cent in comparison with the first half of 2000. (Full disclosure is provided in note.) Net result of financial transactions increased by 3 per cent to SEK 1 509 M (1 472), due to favourable results from trading in shares, bonds and derivatives. Adjusted for items affecting comparability, the increase was 2 per cent. The second quarter was significantly weaker than the first. (See further note.) Other income amounted to SEK 1 676 M (2 652). Of this, capital gains and one off items accounted for SEK 743 M (1 428). Adjusted for these items and for exchange rate changes, income was unchanged. Costs Total costs increased by 4 per cent to SEK 11 143 M (10 667). Adjusted for items affecting comparability, including exchange rate changes, costs decreased by 2 per cent. Staff costs, gross, decreased by 1 per cent to SEK 6 236 M (6 298). Adjusted for exchange rate effects and other items affecting comparability, staff costs declined by 7 per cent through a combination of efficiency improvement measures and staff reductions, primarily within Personal Banking Sweden, Merchant Banking and SEB Germany, and a decrease in calculated income-related compensation (SEK 280 M less, compared with the first half of 2000). As of 30 June 2001 the number of employees amounted to 20 950 (19 770). Adjusted for Vilniaus Bankas, which was not consolidated during the first half of last year, the number of employees declined by 430. Staff costs, net, declined by 2 per cent to SEK 5 707 M (5 808). Adjusted for items affecting comparability, the decrease was 8 per cent. The compensation for the pension costs included in the gross costs increased to SEK 529 M (490), including the pension insurance scheme that has replaced the earlier profit-sharing system. At the end of June 2001, total assets in the pension funds amounted to SEK 21 billion (23.2 at year-end 2000), while commitments were SEK 9.1 billion (8.0). Accordingly the surplus value as per 30 June 2001 amounted to SEK 11.9 billion. Total costs for IT (including calculated cost for own personnel etc.) amounted to SEK 2.5 billion, to be compared with SEK 2.2 billion for the first half of 2000. Of this, external IT costs represented SEK 1 129 M (1 064). As of 30 June, preparatory merger and integration work accounted for costs of SEK 70 M. Depreciation amounted to SEK 916 M (846), of which goodwill accounted for SEK 357 M (326). The remaining restructuring reserve for the acquisition of Trygg Hansa in 1997 was SEK 256 M at the beginning of 2001. Of this, SEK 152 M has been utilised during the first half of the year (of which SEK 85 M during the second quarter). The acquisition of BfG in January 2000 resulted in a difference between equity and purchase price. The allocation and utilisation of the negative goodwill is described in Appendix 1. Lending losses and doubtful claims The Group's lending losses, including changes in the value of assets taken over and write-downs, amounted to SEK 248 M, net (531), of which SEK 212 M, net (439), in SEB Germany. The level of lending losses was 0.06 per cent (0.15). Doubtful claims, net, i.e. after provisions of possible lending losses, remained at a stable level. The increase in Swedish currency to SEK 8 631 M (8 365 at year-end 2000) is explained by exchange rate changes. Approximately half of the doubtful claims, net, are performing. The volume of pledges taken over declined to SEK 142 M (213 at year- end). Non-life insurance business Operating result for non-life insurance operations, mainly run-off, amounted to SEK 243 M (133). The increase was mainly due to capital gains of SEK 126 M from sales in the bond portfolio in the first quarter. One-off items Total one-off items in the first half of 2001 amounted to SEK 869 M (1 706), of which the entire amount for 2001 is attributable to the first quarter. Operating result Operating result declined 28 per cent to SEK 4 245 M (5 919). Adjusted for exchange rate effects and other items affecting comparability, operating result fell by 12 per cent. The result for the second quarter was lower than for the first, mainly due to one-off effects during the first quarter and lower net financial transactions during the second quarter. Change in surplus in life insurance operations The change in surplus in life insurance operations was influenced by the negative financial effects due to the decline in the stock market and amounted to SEK 113 M (427). See further in Appendix 3. Total result The Group's total result declined by 31 per cent to SEK 4 358 M (6 346). Adjusted for items affecting comparability, the decrease in total result was 16 per cent. Deposits and lending As of 30 June 2001, SEB's deposits from the Swedish public (households, companies, etc.) amounted to SEK 245.2 billion (221.5). This corresponded to a market share of 21.8 per cent (unchanged compared with 30 June 2000). Deposits from the household sector were SEK 59.1 billion (59.6), corresponding to a market share of 13.8 per cent (14.2). The Group's lending to the public in Sweden increased to SEK 327 billion (304), which corresponded to a market share of 13.7 per cent (14.3) on 30 June. In the household market SEB´s lending increased to SEK 99.6 billion (91.1), giving a market share of 11.1 per cent (11.0). In Germany, deposits from the public increased by 3 per cent to SEK 286 billion, while lending rose by 5 per cent to SEK 236 billion. SEB has a market share of approximately 1 per cent. In the Baltic countries, SEB´s three subsidiary banks increased their total deposits by 19 per cent to approximately SEK 20 billion and their lending by 19 per cent to SEK 17 billion. The three banks have approximately one third of the Baltic market for both lending and deposits. Assets under management On 30 June 2001, the SEB Group had assets totalling SEK 892 M (912) under management, of which SEK 579 M (578) were managed by SEB Invest and SEK 107 M (112) by SEB Germany. Credit portfolio SEB's total credit portfolio increased during the first half of the year by SEK 35 billion, to SEK 961 billion (926). The main part of the increase is attributable to the Swedish corporate sector. Lending to the Swedish household sector has also increased, but at a somewhat lower growth rate compared to the previous year. Development within the bank sector and municipalities continues to be stable. The German subsidiary SEB AG contributed by SEK 353 billion (351 at year-end) to the total credit portfolio and now represents a share of approximately 37 per cent (38). SEB's credit classification system has also been applied to the German portfolio for some time now. SEB' exposure within the telecommunication industry (operators and manufacturing companies) has been kept at a stable level during the second quarter and amounts to approximately SEK 14 billion. The telecommunication industry represents approximately 1.5 per cent (1.2) of the credit portfolio. The increase is attributable to short term exposure on existing clients, consisting mainly of foreign exchange risk hedging within normal daily operations. Exposure on the IT sector also increased somewhat during the first half of the year and now totals approximately SEK 5 billion. The net exposure on emerging markets as per 30 June amounted to SEK 10 707 billion, a decrease of almost 7 per cent since year-end (11 483). The continued decline is mainly due to reduced exposures in Eastern and Central Europe as well as in Latin America. See further Appendix 2. Risk management Excluding Germany, the Group's risk taking through trading operations, or daily value at risk, averaged SEK 64 M during the first half of 2001, meaning that the Group could expect with 99 per cent certainty to lose no more than SEK 64 M during a single trading day. During the year, this risk varied between SEK 25 M and SEK 107 M. Following table shows how this risk was distributed by type of risk (SEK M). Min Max Average 30 June -01 31 Dec -00 Interest risk 30 109 59 80 35 Foreign exchange risk 4 29 9 7 6 Stock market risk 2 37 11 6 9 Diversification - - -15 -13 -19 Total 25 107 64 80 31 In SEB Germany's markets, the corresponding daily value at risk was SEK 12 M. During the year, SEB Germany's value at risk varied between SEK 12 M and SEK 17 M, with an average value of SEK 15 M. Sensitivity analysis An increase of market interest rates by one percentage point as per 30 June 2001, would result in a reduction in the market value of the Group's all interest-bearing assets and liabilities, including derivatives, by SEK 2 300 M. Capital base and capital adequacy On the 30 June 2001, the capital base for the financial group of undertakings (excluding the insurance companies) amounted to SEK 54.2 billion (53.3 at year-end). Core capital was SEK 37.6 billion (36.5), of which SEK 1.8 billion constituted core capital contribution. (For calculation of the capital base see Appendix 4). The risk-weighted assets amounted to SEK 519.4 billion (495.6). The core capital ratio amounted to 7.24 per cent (7.37 per cent at year- end 2000) and the total capital ratio to 10.43 per cent (10.76). The Group's goal is to maintain a core capital ratio of at least 7 per cent and a total capital ratio of not less than 10.5 per cent. SEB now the largest shareholder in BOS During the second quarter of 2001, SEB increased its ownership in the Polish Bank Ochrony Srodowiska (BOS) from 38 to 46 per cent. BOS is active in both the corporate and private segments. The bank has 52 branches and 1 600 employees. Changes in ownership In June, Investor became the largest owner in SEB through an exchange of shares within the Wallenberg sphere. By acquiring most of Knut and Alice Wallenberg Foundation's shareholding, Investor increased its share of the share capital in SEB from 10.0 to 19.2 per cent. Investor's share of the voting rights in SEB increased from 10.5 to 20.0 per cent. The proposed merger with FöreningsSparbanken In June, FöreningsSparbanken and SEB filed the notification regarding the proposed merger between the two banks with the Commission of the European Communities. In July, the Commission decided to initiate an in- depth investigation. A final decision can be expected in mid-November. In order to provide the shareholders with best possible background documentation prior to taking a position with regard to the merger, both banks have decided to postpone the Extraordinary General Meetings until the fourth quarter. Stockholm, 23 August, 2001 Lars H. Thunell President and Group Chief Executive The interim report for January-September 2001 will be published on 25 October 2001. SEB´s reports are available on the Internet (www.seb.net). Additional information is available from: Gunilla Wikman, Head of Group Communications, +46 8 763 81 25, mobile +46 70 763 8125 Lotta Treschow, Head of Investor Relations, +46 8 763 95 59, mobile +46 70 763 9559 This Interim Report has been reviewed by the auditors of the Bank. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/08/23/20010823BIT00090/bit0001.doc The full report http://www.waymaker.net/bitonline/2001/08/23/20010823BIT00090/bit0001.pdf The full report