Interim Report January-September, 1999

Interim Report January-September, 1999 Total result well up on last year's level * The total result*) of the SEB Group, excluding the non-life insurance operations that were sold on 14 October and settled on 31 August, 1999, amounted to SEK 4,859 M (SEK 2,505 M). The operating result, excluding non-life insurance, amounted to SEK 3,792 M (SEK 1,775 M). The increase is explained by the fact that the lending losses in 1998, a little over SEK 2 billion, turned into recoveries of SEK 231 M this year. * Including non-life insurance operations, the total result increased by 11 per cent, to SEK 4,862 M (SEK 4,369 M) while the operating result, including non-life insurance, rose by 4 per cent, to SEK 3,795 M (SEK 3,639 M). * Return on equity was 14.5 per cent (13.4 per cent)*. * The total result per share after tax was SEK 6.05 (SEK 5.18). * On 30 September, assets under management totalled SEK 608 billion (SEK 411 billion). Market conditions and business trends The upward trend in long-term interest rates accelerated during the third quarter. During the first nine months of 1999 long-term rates rose by 1.6 percentage units. Short-term rates, which, earlier in the year had remained lower than last year's rates, rose during the third quarter. The rise in interest rates led to a deterioration in the situation for both SEB's interest-bearing investment portfolios and trading activities. The negative effect of rising interest rates is, however, instantaneous - in the long run, high interest rates are favourable for the development of the Group's net interest earnings, for example. The savings and corporate markets are areas of top priority for SEB. The asset management and savings market has kept growing and SEB now manages total funds of close to SEK 610 billion, of which a little over 20 per cent emanates from countries other than Sweden. Consequently, developments so far are in line with the Group's ambitions as regards savings and asset management. SEB has a very strong position in the corporate market in Sweden and the rest of the Nordic area. During 1999, SEB established a solid footing in the growing corporate bond market, chiefly as regards the euro. In the field of cash management, SEB has improved its position and has, among other things, signed 70 Euro Cash Pooling contracts. During the first three quarters of 1999, the Group consolidated its position as the biggest player on the Stockholm Stock Exchange, with a share of 10.7 per cent (9.2 per cent). Priority areas developed well The best contributions to the result during the first nine months of 1999 were delivered by Merchant Banking and Retail Distribution. Enskilda Securities, SEB Trygg Liv and Asset Management reported the greatest improvements, while Financial Services and Enskilda Securities showed the highest profitability. *) Operating result including changes in surplus values in life insurance operations plus pension provision. Retail Distribution - continued rationalisation Income dropped by 2 per cent, to SEK 3,896 M, primarily due to continued pressure on deposit margins. Net interest earnings from lending increased as a result of continued volume increases for housing loans in the private market. Commission income remained largely unchanged. Costs totalled SEK 2,988 M. The cost increase was limited to 2 per cent. Compared with 1998, the average number of posts dropped by 313, to 4,254. Lending losses amounted to SEK 88 M, or 8 per cent lower than during the corresponding period last year. The total result amounted to SEK 820 M (SEK 959 M) and return on allocated capital was 11.5 per cent, calculated on a twelve-month moving average basis. Retail Distribution's market shares remained largely unchanged, with deposits more or less the same, an increase of about 8 per cent in lending volumes and an increase of approximately 20 per cent in mutual fund and custody volumes. During the third quarter, a new rationalisation programme was initiated to the effect that all back-office functions were assembled in one unit. Fully implemented, this change is expected to result in savings corresponding to a staff reduction of 200 additional posts. This reduction will be carried out without lay-offs. Financial Services - high earning capacity Financial Services comprises the following units: SEB Finans, SEB Kort, SEB Securities Services and SEB Företagsinvest. Income was up 13 per cent compared with the corresponding period in 1998. Both net interest earnings and net commission income increased. Costs rose by 14 per cent, chiefly due to investments in new computer systems within SEB Kort and SEB Securities Services. The total result amounted to SEK 695 M (SEK 660 M) and return on allocated capital was 56 per cent, calculated on a twelve-month moving average basis. SEB Finans' portfolio of outstanding loans totalled SEK 17.5 billion, an increase of 15 per cent compared with the situation on 30 September 1998. Card turnover within SEB Kort increased by 13 per cent, to SEK 81 billion. This strong development continues. On 30 September the total custodial account value of SEB Securities Services was SEK 1,762 billion, an increase of 30 per cent compared with 1998 (SEK 1,357 billion). All three units have high and stable market shares within their respective areas. SEB Företagsinvest, the venture capital unit, has so far used SEK 212 M of its allocated line of SEK 500 M (raised from an original SEK 200 M). At the end of September, SEB Företagsinvest had portfolio investments in 14 companies. Three new investments were made during the third quarter and one company was sold. Asset Management - increased volumes under management Income was up by 19 per cent, primarily due to an increase in the volume of assets under management, the acquisition of ABB Investment Management in late autumn 1998 and higher brokerage commissions from private banking in Sweden and Luxembourg. Costs increased by 32 per cent. This is mainly explained by an increase in the number of analysts and asset managers, the acquisition of ABB Investment Management, continued investments in Norway/Finland and new investments in Denmark and England. The total result amounted to SEK 703 M (SEK 698 M). The third-quarter result was 33 per cent higher than the average for the first two quarters of 1999. In addition to regular income, Asset Management also has "performance-related" income, which is only taken up as income during the last quarter of the year. Return on allocated capital, including attributable goodwill of SEK 3,750 M, was 19 per cent, calculated on a twelve-month moving average basis. On 30 September 1999, SEB Asset Management had SEK 608 billion (SEK 411 billion) in total funds under management. This figure includes managed funds of SEK 5 billion in Codan Bank, acquired in September 1999. Furthermore, Asset Management has been given the task of managing SEK 64 billion for account of the Codan group. Otherwise, portfolio management accounted for SEK 220 billion, the Group's traditional life insurance for SEK 165 billion, mutual funds for SEK 110 billion and unit-linked insurance for SEK 44 billion. Funds under management on average during the first nine months of 1999 totalled SEK 544 billion, compared with SEK 435 billion during the corresponding period in 1998. SEB Enskilda Banken's private banking activities developed well during the period. During 1999, funds under management rose from SEK 150 billion to SEK 170 billion. Enskilda Banken has also noted an increased inflow of clients. SEB Trygg Liv - increased sales The total result, which comprises the change in surplus values, i.e. the present value of estimated future income from signed insurance contracts, doubled, to SEK 545 M (SEK 274 M). This improvement resulted primarily from strongly increased sales in combination with a positive development of the capital market, which led to a satisfactory growth in managed assets. Compared with the corresponding period in 1998, third-quarter developments were relatively stable despite rising interest rates, which led to a more even development in the total result. Return on allocated capital after standard tax was 18.7 per cent, calculated on a twelve-month moving average basis, compared with 12.7 per cent for the full year of 1998. For a full account of SEB Trygg Liv, see Appendix on page 10. Merchant Banking - positive development of customer-related income Income from customer-related operations increased by 7 per cent, to SEK 3,063 M (SEK 2,874 M). Trading and capital market activities developed positively, whereas corporate banking income dropped following the strong reduction of the exposure on emerging markets. During the third quarter, the rise in interest rates had a negative impact on both market risk-related earnings from trading operations and income from Proprietary Trading and Treasury Operations. Income from Proprietary Trading and Treasury Operations amounted to SEK 463 M (SEK 694 M). The total result increased, from SEK-291 M last year to SEK 1,634 M. The increase may be explained by the fact that the lending losses in 1998, a little over SEK 2 billion, turned into recoveries of SEK 231 M this year. Return on allocated capital, which has been reduced from SEK 10.4 billion to SEK 10 billion since year-end, was 15.1 per cent, calculated on a twelve-month moving average basis. Much work has been spent on risk reduction over the last twelve months. This has, for example, meant that the total risk level of Merchant Banking according to the Capital at Risk method has been reduced by 14 per cent. As a result Merchant Banking has, with good margin, achieved the goal of SEK 10,400 M - set at the beginning of the year - as regards utilisation of capital. The following are examples of measures taken: * Exposure on emerging markets reduced from SEK 28.5 billion to SEK 13.5 billion, gross. * Proprietary Trading activities in London and New York closed. * Market risk limits reduced. * Reduction of volume of low-yielding loans. During the autumn, Merchant Banking expanded its range of Internet services for companies, offering real time interest and futures trading via its Trading Station. About 700 companies, with 1,400 users, are already using Trading Station for their foreign exchange trading. During the year Merchant Banking has gained 70 Euro Cash Pooling contracts. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/10/25/19991025BIT00030/bit0001.doc The full report http://www.bit.se/bitonline/1999/10/25/19991025BIT00030/bit0002.pdf The full report