Interim report January-June 2002

Interim report January-June 2002 Change programme is yielding results ·Operating result* for the first six months: SEK 3,986 M (4,245 corresponding period last year) ·Operating result for the second quarter, isolated: SEK 1,970 M, compared to SEK 2 016 M in the first quarter. ·Total costs down by 10 per cent on a comparable basis ·Stable quarterly income level ·Credit losses at low levels ·Return on equity for the first six months: 12.3 per cent (13.4). * Includes pension compensation of SEK 567 M (529). Statutory operating profit (excluding pension compensation) amounted to SEK 3,419 M (3,716). President's statement Compared with the first quarter, market conditions have deteriorated in several respects. Stock markets plunged during the second quarter due to rising uncertainty about economic recovery and weakened confidence after the accounting scandals in the US. The foreign exchange markets were also affected by a weaker dollar and an appreciating Swedish krona. In the fixed income market, however, interest rates remained at a low level. Considering that the Stockholm stock market dropped 22 per cent during the second quarter, the level of income held comparably well. The main decline in volumes took place in the latter part of the second quarter; hence the negative impact on income level did not have full effect during this period. The business areas that have a high dependency on the stock market, Enskilda Securities, Private Banking and SEB Asset Management in particular, were affected by lower commission income. Our change programme "3 C "(Customer satisfaction, Cross-servicing and Cost efficiency) is yielding results. Intensive work in order to provide our customers with such alternate investments as the corporate bond funds, stock index bonds and new deposit accounts has been successful. These efforts in combination with increased activity towards our customers have helped to moderate the downturn in income. Our cost efficiency programme is progressing according to plan and all divisions have actively contributed resulting in total costs decreasing by 10 percent. Asset quality remains stable. Credit losses stayed at a low level in spite of the weak economic environment. Non-performing loans continued to decrease. The stock markets have deteriorated further since 30 June and global economic recovery seems even farther away. We will continue to focus on our cost efficiency programme, adjusting our cost level to the current economic climate, and support our customers through this difficult time. Second quarter isolated Result in line with previous quarter Operating result for the second quarter isolated amounted to SEK 1,970 M (1,456 corresponding period last year). On a comparable basis this was 29 per cent above the level of 2001 and 7 per cent better than in first quarter 2002. Total income, SEK 6,994 M, was on the same level as that of the previous quarter as well as that of the corresponding quarter last year. Total costs, SEK 4,815 M, were virtually unchanged compared to the first quarter, but 11 per cent lower than the second quarter last year on a comparable basis. Staff costs and particularly other operating costs have been reduced. Net credit losses, SEK 180 M, were in line with the previous quarter. Second quarter last year showed a higher degree of recoveries. Half-year results Operating result: SEK 4 billion Operating result, including pension compensation, for the period January- June 2002 amounted to SEK 3,986 M (4,245). The comparison with the corresponding period 2001 was affected by one-off items, restructuring costs and currency translation differences. Adjusted for these items affecting comparability, the operating result increased by 10 per cent, in spite of the falling stock markets resulting in lower net commission income. Net profit (after tax) for January-June amounted to SEK 2,725 M (2,813). Stable income level Total income during January-June amounted to SEK 14,042 M (14,897). Adjusted for one-off items and currency translation differences, income decreased by 4 per cent. Net interest income amounted to SEK 6,771 M (6,213), an increase of 8 per cent on a comparable basis. The improvement was due to slightly increased volumes and somewhat decreased costs for funding. Net interest income has been at the same level over the past four quarters. Net commission income decreased by 10 per cent to SEK 5,183 M (5,768), mainly due to the weak stock market development. Net result of financial transactions amounted to SEK 1,306 M (1,527). Other income was SEK 782 M (1,389). Capital gains, consisting of a number of minor transactions, totalled SEK 322 M (776). Adjusted for these and other items affecting comparability, other income was down 25 per cent. There were no one-off income items in the first half of 2002. Continuously reduced costs Total costs during January-June decreased by 8 per cent to SEK 9,626 M (10,480). On a comparable basis, total costs decreased by 10 per cent. Staff costs, gross, decreased by 3 per cent to SEK 5,764 M (5,963). Lower performance-related compensation accounted for two thirds of the decrease. The reduction implies that the efficiency improvement measures have more than offset the general salary increase. Staff costs, gross, do not comprise compensation for pension costs of SEK 567 M (529). Staff costs, net, were SEK 5,197 M (5,434). The average number of full time equivalents was 19,358 (19,852) during the first half of 2002. The average in June was 19,151 (19,988). Total IT-costs (here defined as a calculated cost for all IT-related activities including costs for own personnel) were reduced to SEK 1.9 billion (2.4). Of these calculated costs SEK 872 M (1,073) represented external costs. In addition to the restructuring costs incurred during 2001, another SEK 200 M was charged during the first half of 2002. Credit losses at low level The Group's net credit losses, including changes in the value of assets taken over, amounted to SEK 369 M (200), of which SEK 196 M (212), in SEB Germany. The credit loss level was about the same as in the first quarter, 0.11 per cent. Last year the credit loss level was 0.06. Credit losses, gross, i.e. before recoveries, decreased to SEK 750 M (857). Insurance operations The result of total insurance operations (non-life, life and goodwill amortisation) is accounted on one line and shows a loss of SEK 44 M (gain: 52). SEB Trygg Liv's result from ongoing business (excluding financial effects of short-term market fluctuations) was SEK 666 M (522). This result is not consolidated with the SEB Group. The division's operating result, a gain of SEK 31 M (loss: 76), is included in the Group's result. The capital base of Nya Livförsäkringsaktiebolaget SEB Trygg Liv has been expanded by SEK 330 M, of which SEK 100 M in increased share capital and SEK 230 M in the form of subordinated debt. The purpose of this increase is to continue to develop the occupational pension business, in which traditional insurance forms an important part of the product offerings. The company has grown strongly as a result of the increased demand for traditional life insurance due to the prevailing market situation. The strengthened capital base will support future growth of the company. The operating result for non-life insurance, mainly run-off, amounted to SEK 1 M (243). Capital gains of SEK 126 M from bond portfolio sales were included in the first quarter 2001. Excess value in pension funds As of 30 June 2002, total assets in SEB's pension funds amounted to SEK 15.4 billion, while commitments were SEK 9.9 billion. Accordingly the excess value amounted to SEK 5.5 billion. Approximately 60 per cent of the pension funds are invested in equities and 40 per cent in interest- related securities and other investments. Assets under management On 30 June, the SEB Group's assets under management totalled SEK 786 billion (892). Assets of SEK 513 billion (579) were managed by SEB Asset Management, SEK 108 billion (107) by SEB Germany and SEK 216 M (263) by Private Banking. Credit portfolio The overall development of the total credit portfolio has been stable during the first half of the year. Total credit exposure, including contingent liabilities and derivative contracts, amounted to SEK 969 billion (955 at year-end), of which loans and leasing, excluding repos, accounted for SEK 704 billion (718). The public administration sector accounts for the largest increase in credit exposure, primarily in Germany. Exposure on the corporate sector declined somewhat during first half of the year. Exposure on the telecom industry (operators and manufacturing companies) amounted to approximately SEK 13 billion (15), corresponding to 1.4 per cent (1.5) of the total credit portfolio. Within the IT-sector, the exposure totalled approximately SEK 3 billion (4). The geographical distribution of the credit portfolio remained unchanged during the first half of the year. Sweden and the other Nordic countries accounted for almost 45 per cent, followed by Germany with 35 per cent. The three Baltic subsidiary banks' credit volumes continued to grow and totalled SEK 33 billion (30). Exposure on emerging markets continued to decline during first half of the year and amounted to SEK 9.0 billion (9.7) net after deduction for provision for possible credit losses. As per 30 June, doubtful claims, gross, amounted to SEK 14,808 M (15,822 at year-end 2001), of which SEK 7,585 M (8,161) in non-performing loans (loans where interest and amortisation are not paid) and SEK 7,223 M (7,661) in performing loans. The level of non-performing loans in relation to lending was 0.55 per cent (0.58) and the total level of doubtful claims, net, in relation to lending, was 1.32 per cent (1.37). The volume of pledges taken over amounted to SEK 240 M (265). Capital base and capital adequacy The capital base for the financial group of undertakings (i.e. excluding the insurance companies) amounted to SEK 55.2 billion as of 30 June 2002, (54.4 by the end of 2001). Core capital was SEK 39.3 billion (38.7), of which SEK 1.8 billion constituted so-called core capital contribution. Risk-weighted assets amounted to SEK 479 billion (501). The decline was due to the strengthening of the Swedish krona and to effects from the capital rationalisation programme within Merchant Banking. As of 30 June 2002, the core capital ratio was 8.2 per cent (7.7) and the total capital ratio was 11.5 per cent (10.8). The Group's long-term goals 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 have thus been met. In accordance with the decision made by the Board of Directors on May 6, SEB has acquired 7 million of its own shares for hedging of the employee stock options programme as decided by the Annual General Meeting on April 10, 2002. Accordingly, as required by regulations, the value of the acquired shares has been eliminated against shareholders' equity. In August, the rating institute Moody's changed its outlook on SEB's rating from Stable to Positive. Stockholm, 22 August 2002 Lars H. Thunell President and Group Chief Executive More detailed information is presented on the Internet (www.seb.net): Appendix 1 SEB Trygg Liv Appendix 2 SEB AG in the SEB Group Appendix 3 Credit exposure by industry sector and geographical area Appendix 4 Capital base for the SEB Financial Group of Undertakings Appendix 5 Risk and capital management Operational Profit & Loss Account quarterly performance six quarters - The SEB Group - The Divisions and business areas - Bridge between new and previous accounting principles - Revenue split - One-off items - Statutory Profit & Loss Account - The SEB Group - Skandinaviska Enskilda Banken Additional information is available from: Gunilla Wikman, Head of Group Communications, +46 8 763 81 25 Per Anders Fasth, Head of Group Investor Relations, +46 8 763 95 66 Annika Halldin, Responsible for Financial Information, +46 8 763 85 60 ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/08/22/20020822BIT00060/wkr0001.doc The full report http://www.waymaker.net/bitonline/2002/08/22/20020822BIT00060/wkr0002.pdf The full report http://www.waymaker.net/bitonline/2002/08/22/20020822BIT00060/wkr0003.pdf Additional information