Handelsbanken s interim report

Transcription

1 PRESS RELEASE 17 AUGUST 2004 Handelsbanken s interim report JANUARY JUNE 2004 Summary Operating profit increased by 11% to SEK 6.6bn (5.9) Profits after tax increased by 13% to SEK 4.7bn (4.2) Return on equity was 15.9% (15.7) Income increased by 6% to SEK 12.0bn (11.3) while costs, excluding performance-related remuneration, remained unchanged Loan losses were very low recoveries exceeded loan losses in the second quarter Earnings per share rose to SEK 6.90 (6.04) The Bank decided to apply for a banking license in Shanghai SPP s policyholders voted by an overwhelming majority in favour of demutualisation of the life insurance company

2 The Group Operating profits increased by 11% Handelsbanken s profits were SEK 6,609m (5,937), an increase of 11%. Income increased by 6%. Return on shareholders equity was 15.9% (15.7). When calculating the return on equity for the year, SEK 2.0bn has been added to the shareholders equity as a consequence of new accounting standards. These state that the surplus value in the Bank s pension foundation, after deferred tax, must be added to the shareholders equity. Return on equity for the whole of 2003 was 14.9%. The cost/income ratio before loan losses was 44.7% (46.5) and after loan losses 44.8% (47.4). Earnings per share were SEK 6.90 (6.04) and as a 12-month moving total SEK (10.90). Profits for the second quarter alone were SEK 3,162m compared with SEK 3,080m for the same period in the previous year. Income increased by 6% - costs, excluding performance-related remuneration, unchanged Income rose by 6% to SEK 11,976m (11,284). Net interest income fell slightly but this was compensated by higher net commission and trading income, which increased by 23% and 18% respectively. Net trading income was mainly boosted by higher profits in equity-related trading. The commission categories which increased most were equity-market related, lending and insurance. Expenses increased by 2% to SEK 5,349m (5,245), which was almost entirely due to higher performancerelated remuneration. The number of employees was 9,086 (9,192). Compared to the year-end, the number of employees has increased by 29. Business volumes increased Lending to the general public increased to SEK 854bn (831). Since the beginning of the year, lending has increased by SEK 31bn, corresponding to annual growth of just over 7%. Average volumes rose to SEK 845bn (826). Branch office lending volumes outside Sweden increased more quickly than in Sweden. In the four non-swedish domestic markets, average lending rose by 13% to SEK 146bn (129), of which lending to households by 18% and to companies by 10%. Deposits from the general public rose by 5% to SEK 305bn (291). The rate of increase was higher outside Sweden. Deposits from households outside Sweden increased by 36% to SEK 24bn (18). In Sweden, deposits went up by 5%. The Bank s share of new savings in the Swedish mutual fund market was 16.2% (14.9), which was much higher than the Bank s share of the total volume of mutual fund savings in Sweden. Loan losses fall even more Loan losses for the period were SEK 18m (102). The loan loss ratio was 0.00% (0.02). The share of bad debts in relation to lending was 0.23% (0.28). In the second quarter, the Bank reported net recoveries, that is to say, recoveries were larger than loan losses for the period. Capital ratio, buy-backs, cancellation of shares and rating The capital ratio was 9.9% (9.6) and the Tier 1 ratio 7.1% (6.6). At the annual general meeting in 2004, the board of the Bank was authorised to repurchase a maximum of 40 million shares during the period until the next annual general meeting. The board resolved that SEK 5bn is the maximum amount for which shares can be repurchased. In the first six months, the Bank repurchased 23.7 million shares for a total of SEK 3.4bn. Of the repurchased shares, 7.2 million were purchased with the mandate given to the board by the annual general meeting in 2003 and 16.5 million shares with the support of the mandate from the AGM in April The annual general meeting in 2004 resolved that the 21.4 million shares repurchased during 2000 and 2001 would be cancelled through reduction of the share capital. In connection with the cancellation, a bonus issue was performed whereby the nominal value of the share increased from SEK 4.00 to SEK These changes were registered on 5 July 2004, after which the number of shares in the Bank is million. After the repurchase described above, the number of outstanding shares is million. Handelsbanken s rating in the second quarter was unchanged with all the agencies which rate the Bank: Moody s, Standard & Poor s and Fitch. Overwhelming majority in favour of demutualising life insurance company SPP In May and June, SPP carried out a vote among the policyholders as to whether SPP should become a demutualised life insurance company. Almost 62% of those who were entitled to vote participated. Of these, an overwhelming majority - 89% - voted in favour of demutualisation. According to plan, SPP will be demutualised on 1 January The Bank applies for banking license in Shanghai Handelsbanken has been represented in China since 1983 through its Beijing representative office. Two years ago, a representative office was opened in Shanghai and it is there that the Bank has applied for a banking license to open a branch. 2 Svenska Handelsbanken

3 The branch will focus on companies with Nordic and British links. When the Shanghai branch is established, the Bank will have banking operations in three locations in Asia, apart from Shanghai, also in Singapore and Hong Kong. The Bank also has representative offices in Taipei and Beijing. This means that Handelsbanken has by far the broadest presence in Asia of all the Nordic banks. Handelsbanken Liv acquired SPP Liv Fondförsäkring AB On 1 July 2004, Handelsbanken Liv acquired SPP s unit-linked company. The purchase price was SEK 1.1bn. Since the company was owned by SPP, which is run on mutual principles, the proceeds of the purchase go to the policyholders in SPP. The purchase price was based on independent valuations. To finance the acquisition, Handelsbanken Liv issued a subordinated loan for SEK 900m to Handelsbanken. Handelsbanken Liv also received a shareholder contribution of SEK 300m. Handelsbanken Fonder acquired XACT Fonder AB In the middle of June an agreement was made for the Bank to acquire XACT Fonder AB from OMHEX. The transfer took place as at 30 June. XACT is the only fund management company in Sweden which issues ETFs - Exchange Traded Funds. Unlike normal mutual funds, these can be traded in realtime. XACT Fonder has sole right to issue ETFs based on OM/HEX indexes. The Bank envisages great potential in developing the market for ETFs as such and also products where ETFs are an important component. Lars O Grönstedt President and Group Chief Executive For further information please contact: Lars O Grönstedt, Group Chief Executive phone: , lagr03@handelsbanken.se Lars Lindmark, Head of Corporate Communications phone: , lali12@handelsbanken.se Lennart Francke, Head of Control and Accounting phone: , lefr01@handelsbanken.se Bengt Ragnå, Head of Investor Relations phone: , bera02@handelsbanken.se Svenska Handelsbanken 3

4 Profit and loss account Svenska Handelsbanken Group The profit and loss account that is presented after the business area accounts has been prepared in accordance with Finansinspektionen s directives. In order to illustrate the development of operations more clearly, the profit and loss account is shown below with the various income categories, excluding that which is generated in the trading operation. The Net result on financial operations (equity-, interest rate- and currency-related) and trading-related income from other income categories are reported under "Trading, net". Performance-related staff costs are reported separately. The result of insurance operations has been allocated to the respective income/expense categories as shown in note 5. Participations in associated companies results are reported under "Other income". Profit and loss account Net interest income 7,286 7, ,598 3, ,642 Commission, net Note 1a 3,047 2, ,471 1, ,224 Trading, net 1,302 1, ,222 Other income Total income 11,976 11, ,814 6, ,292 Staff costs excl. performance-related -3,054-3, ,536-1, ,171 Performance-related staff costs Other expenses -2,125-2, ,084-1, ,093 Total expenses -5,349-5, ,679-2, ,449 Profit before loan losses 6,627 6, ,135 3, ,843 Loan losses incl. change in value of repossessed property Write-downs/reversed write-downs of financial fixed assets Operating profit 6,609 5, ,162 3, ,550 Pension settlement Taxes -1,878-1, ,345 Profit for the period 4,731 4, ,265 2, ,116 Note 1a Commission, net Brokerage Mutual funds and custody ,004 Insurance Payments ,532 Lending and deposits ,346 Other ,198 Commission income 3,597 2, ,758 1, ,274 Commission expense ,050 Commission, net 3,047 2, ,471 1, ,224 Other information Goodwill and intangible assets Jan-Jun Jan-Jun Q 2 Q 1 Full year SEK m Opening residual value 8,489 9,183 8,395 8,489 9,183 Additional during the period Amortisation for the period Foreign exchange effect Closing residual value 8,237 8,783 8,237 8,395 8,489 4 Svenska Handelsbanken

5 Quarterly performance of Svenska Handelsbanken Group Q 2 Q 1 Q 4 Q 3 Q 2 SEK m Net interest income 3,598 3,688 3,585 3,613 3,746 Commission, net 1,471 1,576 1,430 1,313 1,230 Trading, net Other income Total income 5,814 6,162 5,472 5,536 5,777 Staff costs, excl. performance-related -1,536-1,518-1,536-1,523-1,530 Performance-related staff costs Other expenses -1,084-1,041-1, ,056 Total expenses -2,679-2,670-2,652-2,552-2,626 Profit before loan losses 3,135 3,492 2,820 2,984 3,151 Loan losses incl. change in value of repossessed property Write-downs/reversed write-downs of financial fixed assets Operating profit 3,162 3,447 2,824 2,789 3,080 Pension settlement Taxes Profit for the period 2,265 2,466 1,974 1,951 2,188 Net earnings per share, SEK Key figures for the Group Jan-Jun Jan-Jun Q 2 Q 1 Full year Return on shareholders' equity 15.9% 15.7% 15.2% 16.5% 14.9% Return on shareholders' equity, operating profit after standard tax 16.0% 16.0% 15.3% 16.6% 15.3% Cost/Income (C/I ratio) - before loan losses 44.7% 46.5% 46.1% 43.3% 46.9% - after loan losses 44.8% 47.4% 45.6% 44.1% 49.1% Earnings per share, SEK month moving total Dividend per share, SEK 5.25 Adjusted equity per share, SEK Number of shares, end of period 669,641, ,387, ,641, ,179, ,387,415 Number of repurchased shares, end of period 45,105,478 21,359,525 45,105,478 28,567,525 21,359,525 Average number of outstanding shares 686,035, ,387, ,394, ,677, ,387,415 Tier 1 capital, SEK m 46,833 43,691 46,833 47,046 45,846 Risk-weighted volume, SEK m 657, , , , ,767 Capital ratio 9.9% 9.6% 9.9% 10.3% 10.2% Tier 1 ratio 7.1% 6.6% 7.1% 7.5% 7.3% Average number of employees 8,997 9,273 9,038 8,957 9,258 Number of branches in Nordic countries and Great Britain, end of period Svenska Handelsbanken 5

6 Business areas Profit and loss account by business area - Group Branch Markets Asset Pension & Other Elimina- Jan-Jun Jan-Jun SEK m offices Mgmt Insurance operations tions Net interest income 7, ,511 9,569 Commission, net 1, ,953 2,391 Net result on financial operations ,256 Other income ,863-1, Total income 9,578 1, ,755-1,947 11,976 11,284 Total expenses -3,989-1, ,646 1,947-5,349-5,245 Profit before loan losses 5, ,627 6,039 Loan losses incl. change in value of repossessed property Operating profit 5, ,609 5,937 Return on equity, % Average number of employees 5,773 1, ,683 8,997 9,273 Internal income and expenses are included in the respective item on the profit and loss account. Internal income consists of payment for services rendered according to the cost price principle. Expenses also include the distribution of costs made internally within the Group for services from business support operations. Handelsbanken Liv is included in the Pension and Insurance business area. The Other operations business area includes Treasury and the Central Head Office departments. It also includes capital gains/losses, dividends, and income and expenses that are not attributable to a specific business area. Return on shareholders' equity for the business areas is computed after standard tax while for the whole Group, it is computed after full tax, and for 2003, also after settlement of pensions. The shareholders' equity, on which calculation of return on equity is based, meets the requirements of the Capital Adequacy Act. The results of insurance operations and associated companies are reported as explained on page 4. The business area comparative figures for 2003 have not been restated as a consequence of the new accounting principles for employee benefits. 6 Svenska Handelsbanken

7 Branch office operations Branch office operations comprise eleven regional banks, Handelsbanken Finans and Stadshypotek Bank. Seven of the regional banks are in Sweden and the remaining four are located in Great Britain, Denmark, Finland and Norway. At Handelsbanken, the branches are the base of all operations. This is where services for all customers, including major corporations, are co-ordinated. The regional banks are responsible for their own profits and pursue the same goals to deliver universal banking services with a higher service level and at lower cost than other banks in the Nordic area. Handelsbanken Finans offers a full range of finance company services in the four Nordic countries and is currently expanding its operations in Great Britain. Handelsbanken Finans works through the Bank s branches and in financing collaborations with retailers and vendors. Stadshypotek Bank is one of Sweden s leading Internet and telephone banks. It operates under its own brand name and has a separate range of products. Profit and loss account Net interest income 7,523 7, ,692 3, ,467 Commission, net 1,832 1, ,166 Net result on financial operations Other income Total income 9,578 9, ,744 4, ,242 Total expenses -3,989-3, ,029-1, ,809 Profit before loan losses 5,589 5, ,715 2, ,433 Loan losses incl. change in value of repossessed property Operating profit 5,546 5, ,741 2, ,938 Return on equity, % Average number of employees 5,773 6, ,793 5, ,019 Performance Operating profit increased by 11% to SEK 5,546m (5,019). Income increased by 6% and expenses by 2%. Net interest income fell, while net commission income showed strong growth, rising by 26%. The net result on financial transactions also rose. Euromoney praises Handelsbanken again For the fourth consecutive year, Handelsbanken received the Best bank in the Nordic/Baltic region and Best bank in Sweden awards. Motivating its decision, Euromoney commented that the Bank has continued its very good performance and still has the most satisfied customers. Reference was also made to Moody s, who upgraded the Bank s rating earlier in the year. The Bank s efficiency, its low C/I ratio and the quality of the Bank s customer base were given special mention. Branch office operations in Sweden Swedish branch office operations comprise the results of 453 branches (453), organised into seven regional banks. Operating profit rose to SEK 4,925m (4,587), an increase of 7%. Net recov-eries exceeded new loan losses for the period. Deposit margins deteriorated, whereas lending margins on the whole remained unchanged. Downward pressure on prices continued to affect mortgage loans to households. Newly-priced loans to households fell by 0.13 percentage points in relation to the preceding quarter, while newly-priced loans to companies fell by 0.01 percentage points. The average volume of lending to the general public increased by just over 1% to SEK 677bn (669). The volume of mortgage loans increased by 5.7%, while other lending fell by 4.6%. Lending to companies averaged SEK 379bn (385), down 1.6%. The corresponding figure for lending to households was SEK 298bn (285), an increase of 4.6%. A comparison of the first and second quarters of this year presents a rather different picture. Average volumes rose by 1.3%, with both mortgage lending and bank lending increasing, by 1.6% and 0.9% respectively. Lending to companies rose by 1.7% between quarters, while lending to households rose by 0.8%. Lending in the Bank to households fell during the quarter by SEK 2.3bn, to SEK 45.0bn. The average volume of deposits from the general public amounted to SEK 210bn (201), an increase of 4.4%, with private deposits rising by 4.9%. Branch office operations in Sweden Jan-Jun Jan-Jun Change Full year SEK m % 2003 Income 7,501 7, ,332 Expenses -2,676-2, ,117 Loan losses Operating profit 4,925 4, ,064 Svenska Handelsbanken 7

8 Branch office operations outside Sweden Handelsbanken conducts universal bank operations in Great Britain, Denmark, Finland and Norway. The number of branch offices in these countries was 13, 35, 33 and 28 respectively. Three new branch offices opened during the second quarter, thereby raising the number of branches operated by the Bank outside Sweden to a total of 109. The number of branch offices has thus risen by 11 compared with the corresponding period last year and by 8 compared with the beginning of this year. Operating profit increased by 13% to SEK 639m (568). Net interest income rose as a result of the sharp growth in volumes and despite the pressure on margins noted in many markets. Branch office operations outside Sweden Jan-Jun Jan-Jun Change Full year SEK m % 2003 Income 1,587 1, ,984 Expenses ,669 Loan losses Operating profit Branch office operations in Great Britain The work continued of setting up five new branch offices during the year. During the second quarter, a new branch office was opened in Guildford, situated to the southwest of London. Managers have also been recruited to new branches in Chelmsford and Stoke-on-Trent. Chelmsford, which is the administrative centre of Essex, is situated to the northeast of London, while Stoke-on-Trent is situated between Birmingham and Manchester. These branch offices will open for business during the second half of the year. Handelsbanken will then have 15 branch offices in Great Britain. Handelsbanken s venture made the pages of the Swedish business magazine Affärsvärlden, which in its June issue described it as a successful internationalisation strategy. The article, which ran the heading Conquer the world using the right method, was about the export ventures of Swedish companies. The average volume of lending to companies in local currency rose by nearly 7%, while deposits rose by just over 8%. Lending in Great Britain was GBP 1,087m (1,018), with private lending amounting to GBP 179m (109), an increase of 64%. Private deposits rose to GBP 106m (79), an increase of 34%. Overall, deposits from the general public amounted to GBP 619m (572). Branch office operations in Denmark Operating profit showed strong growth and the C/I ratio fell for the seventh consecutive quarter. Two new branch offices opened during the first quarter and by the end of the period, the Bank had 35 branches in Denmark. The branch in Fredericia is to open during the third quarter. Business volumes rose sharply, in respect of both deposits and lending. The Danish market was characterised by continued strong demand for mortgage loans and strong competition for customers. Lending rose by 21% to DKK 21.0bn (17.4). Private lending rose by almost 50% to DKK 6.6bn, while corporate lending rose by 12%. This totalled DKK 14.4bn (12.9). Private deposits rose by 24% to DKK 4.7bn (3.8). Overall, deposits amounted to DKK 13.7bn (12.6). Branch office operations in Finland In Finland, development was stable. A sharp growth in business volumes coupled with a 4% increase in net interest income achieved despite downward pressure on margins and higher commission income enabled Finland to report its best ever halfyearly results. A new branch opened in Imatra and it was also decided to open a branch in Kerava. As a result, the Bank has a total of 33 branches in Finland. The average volume of lending rose by 17% to EUR 6.1bn (5.2), while deposits rose by 19% to EUR 1.9bn (1.6). Private lending rose by 25% and amounted to EUR 1.5bn (1.2), whereas private deposits rose by 37% to EUR 0.92bn (0.67). Branch office operations in Norway The performance in Norway has been driven by the strong growth in business volumes. Loan losses were low and recoveries exceeded new loan losses. As previously reported, there are plans to open seven new branches during the year, and six of these now have a branch manager, recruited both internally and externally. During the third quarter, operations are due to start at the branches in Sandvika, Arendal, Skien and Majorstuen (Oslo). The Norwegian bank market continued to be characterised by historically very low interest rates which exerted downward pressure on margins. Credit demand from households, particularly for mortgage loans, remained buoyant. The demand for credit from companies remained weak. The Bank s average volume of lending to the general public, excluding the shipping portfolio acquired from former Bergensbanken, totalled NOK 53.2bn (45.6). This represents an increase of 17%, outstripping the total growth of the Norwegian market. Household lending rose by 21% and corporate lending rose by 14%. Deposits from households increased by 11% to NOK 5.2bn and corporate deposits by 27%, to NOK 16.3bn. Handelsbanken Finans Profits were SEK 263m (218), an increase of 21%. Income rose by 5% to SEK 495m (473), while expenses fell by 5% to SEK 235m (247). Net recoveries exceeded loan losses for the period and totalled SEK 3m (-8). This performance can primarily be attributed to successes in the Retail Financial Services Business Area. Average credit volumes rose by 8% to SEK 36.2bn. A number of new agreements were reached and extensions of existing agreements, within the framework of the operations of Retail Financial Services, were negotiated in all Nordic countries. This has laid the foundations for the continued positive 8 Svenska Handelsbanken

9 growth of Handelsbanken Finans. Sales from the general purpose debit and credit card Köpkort rose by around 25%. Within Factoring Services, new sales remained high, due in part to developments in the range of services offered. Handelsbanken Finans Jan-Jun Jan-Jun Change Full year SEK m % 2003 Income Expenses Loan losses Operating profit Stadshypotek Bank Profits rose to SEK 11m (10). Income decreased somewhat while expenses fell. Second-quarter profits were, however, slightly lower than profits for the previous quarter, and totalled SEK 5m (6). The decline in earnings can be attributed to a somewhat lower volume of deposits and higher commission expenses, which were in part offset by lower expenses in other parts of the business. During the first six months of the year, several new products and services were introduced, including equity-linked bonds, new equity baskets, a new Internet banking service and bonus on Internet payments. All of these offerings are aimed at further reinforcing the bank s core values: availability, simplicity and customer care. Stadshypotek Bank Jan-Jun Jan-Jun Change Full year SEK m % 2003 Income Expenses Loan losses Operating profit Svenska Handelsbanken 9

10 Handelsbanken Markets Handelsbanken Markets operations are organised into two business areas: Handelsbanken Capital Markets and Handelsbanken Markets International. Capital Markets comprises Corporate Finance including Debt Capital Markets, equities trading, foreign exchange and fixed income trading and structured products. It also includes support to the branch office operations for products in these areas. Markets International comprises banking operations outside the Nordic countries and Great Britain, Trade Finance and Financial Institutions. There are over 1,000 employees in 16 countries. Apart from these two business areas, there are also back office, middle office and administrative departments. Profit and loss account Net interest income 917 1, ,667 Commission, net Net result on financial operations ,124 Other income Total income 1,765 1, ,196 Total expenses -1,179-1, ,189 Profit before loan losses ,007 Loan losses incl. change in value of repossessed property Operating profit ,009 Return on equity, % Average number of employees 1,056 1, ,059 1, ,063 Performance Operating profit was SEK 611m (535), a rise of 14%. Income increased by 9% and expenses by 8%. The cost increase was due to higher performance-related remuneration and increased development costs. The profit after loan losses for the first quarter was affected by a reversed provision for probable loan losses. Handelsbanken Capital Markets Since 2003, operations in equity, fixed income and foreign exchange trading, and also research and Corporate Finance have been placed in one business area Handelsbanken Capital Markets. Handelsbanken is thus the only Nordic player to have formed an investment bank with the same product range as the international investment banks. Customers should perceive Handelsbanken Capital Markets as the best provider of financial solutions for Nordic requirements. Handelsbanken Capital Markets Jan-Jun Jan-Jun Change Full year SEK m % 2003 Income 1,280 1, ,167 Expenses ,602 Loan losses Operating profit Capital Markets profits were SEK 413m (290), which was an increase of 42%. Lower activity in fixed income and foreign exchange trading and a poorer stock market made the second quarter weaker than the first. At Corporate Finance, however, a recovery could be discerned after some weak years, in line with the improved business trend. The number of employees at Capital Markets was 479 (500). The equity-related result increased in the first half of the year which was primarily due to the Bank s improved market position. Handelsbanken has a particularly strong position in the field of structured products, that is tailor-made financial solutions adapted to the customer such as share buybacks, equity swaps, guaranteed products, incentive programs and securitisation. Access to the Bank s branch network and solid capital base is a significant competitive edge. In fixed income and foreign exchange trading, the result decreased. This was an effect of the slightly lower market activity but also a deteriorated outcome on the Bank s own positions. The market for Corporate Finance improved in the first half of the year. Handelsbanken Capital Markets participated in the first mergers in Sweden for many years. Handelsbanken is also advisor for a number of bids in progress in the property sector and at the end of the period the bank was assigned as advisor to a major supermarket chain in connection with changes in its ownership structure. 10 Svenska Handelsbanken

11 Handelsbanken Markets International This business area is responsible for the branch offices outside the Nordic region and Great Britain, as well as clearing services for foreign banks, export documentary credits, export finance and project finance. Profits for the business area were SEK 89m (76), an increase of 17%. The result for the banking operations outside the Nordic region and Great Britain went up, which was due to a recovery of loan losses in the first quarter. Asia and Poland reported improved operating results while the opposite was true for Mid- Europe and the US. In the US the decrease was entirely due to exchange rate changes. The Bank decided to establish a branch in Shanghai. Work on starting a subsidiary bank in Russia proceeded according to plan. Lower income from clearing and higher commissions for export documentary credits created an unchanged result for the operations in Sweden. Handelsbanken Markets International Jan-Jun Jan-Jun Change Full year SEK m % 2003 Income Expenses Loan losses Operating profit Svenska Handelsbanken 11

12 Handelsbanken Asset Management Handelsbanken Asset Management comprises Fund Management, Discretionary Management and Institutional Custody Services. Apart from services aimed at companies, institutions and private individuals, Asset Management provides support to the branch offices regarding investments, portfolio systems and accounting for foundations. Operations are conducted in four Nordic countries and also in Luxembourg, Switzerland, France and Spain. Profit and loss account Net interest income Commission, net Net result on financial operations Other income Total income Total expenses Profit before loan losses Loan losses incl. change in value of repossessed property Operating profit Return on equity % Average number of employees Performance Operating profits were SEK 275m, an increase of 32%. Income grew by 16%, mainly due to higher share prices. Expenses rose by 2%. The result for the second quarter was SEK 130m, a decrease of 10% compared to the previous quarter. The total volume of assets under management by the Group was SEK 313bn (267), of which Asset Management managed SEK 267bn (229). Mutual fund management At the end of the first six months, the Bank's mutual fund management company managed 83 (83) mutual funds with a total value of SEK 131bn (99). This higher value is due to rising share prices, increased new savings and the acquisition of XACT Fonder AB. The higher volume had a positive impact on income at the same times as expenses continued to fall. Of the assets under management, 46% (43) were invested in equity funds, 27% (31) in fixed income funds, 2% (3) in hedge funds and 25% (23) in mixed funds. Net new savings in the Group s funds on the Swedish mutual fund market were SEK 7.1bn (6.4). This means that Handelsbanken had a market share of 16.2% (14.9) of the total net inflow to the Swedish mutual fund market including new savings in the premium pension system. The Prospera customer satisfaction survey for mutual fund savings, showed that Handelsbanken Fonder was the most popular mutual fund company on the market. The Bank is top-rated in terms of customer service, availability, information and confidence-inspiring behaviour. Handelsbanken is also considered to have the greatest experience, better international competence, superior advisory services and a better Internet service. In May, two fund-in-funds were started. These are funds which invest in other mutual funds. In addition to access to all of Handelsbanken s mutual funds, these funds can also invest in a large number of funds managed by selected international fund management companies. Stock markets performed well during the first half of 2004 and most of the equity funds reported positive returns. The managers of fixed income funds successfully parried the rise in interest rates in the spring. Discretionary management Assets under discretionary management increased in the second quarter to SEK 149bn (135). SEK 22bn of the managed assets were invested in Handelsbanken s mutual funds. Twenty-three new customers were acquired during the first six months of the year. In June, Handelsbanken acquired XACT Fonder AB from OM Hex AB. XACT is the only fund management company in Sweden which issues ETFs - Exchange Traded Funds. XACT has sole right to issue ETFs based on OM/HEX indexes. There are currently two ETFs in Sweden, XACT OMX which is an index fund based on the OMX index and XACT SBX, based on the broader SBX index. One advantage with ETFs compared to normal index funds is that they are traded on exchanges in real time. Handelsbanken plans to develop the market for ETFs and the goal is to be the leading player in the Nordic countries. The Bank will continue to create attractive ETFs and also other products where ETFs are an essential component. This will give 12 Svenska Handelsbanken

13 customers extra alternatives so that their portfolios can be managed even more professionally. Asset management outside the Nordic countries and Great Britain Outside the Nordic countries and Great Britain, Asset Management is conducted in the Bank s subsidiary in Luxembourg, which has a branch in Zurich. The units in Marbella and Côte d'azur are representative offices whose main task is to support asset management in Luxembourg. Assets managed were SEK 9bn (7). Nordic custody services In its annual survey of custodian banks, the American periodical Global Finance acclaimed Handelsbanken the custodian bank in Sweden which is best at providing custody services to global custodian banks. This service is normally known as sub-custody. The survey was based on factors such as client relations, service quality, pricing, problem management, technical solutions, and knowledge of market practice and local regulations. Svenska Handelsbanken 13

14 Handelsbanken Pension and Insurance The Handelsbanken Pension and Insurance business area comprises Handelsbanken Liv and SPP. Together these companies are one of the market leaders, with a complete range of life insurance products for occupational and private pensions, and asset protection schemes for companies, organisations and private individuals. The companies sell their services via Handelsbanken s branch offices, direct sales and independent brokers. The traditional life insurance operations of Handelsbanken Liv are demutualised and the company conducts its unit-linked operations and insurance with guaranteed return within the same company. The insurance operations in SPP are run on mutual principles and are thus not included in the Handelsbanken Group s consolidated accounts. Profit and loss account The profit and loss account refers to Handelsbanken Liv only Net interest income Commission, net Net result on financial operations Other income Total income Total expenses Profit before loan losses Loan losses incl. change in value of repossessed property Operating profit Return on equity, % Average number of employees Handelsbanken Liv Profits were SEK 68m (52). Increased interest in Handelsbanken Liv s demutualised model contributed to a 30% increase in new policies. Higher income was the main reason for the improved administration result which was SEK 24m (0).The financial result, where the main item is the sharing of return between the Bank and the policyholders, was SEK 57m (59). Total return on funds managed for policies with a guaranteed interest rate was 2.97% for the first six months. This means that Handelsbanken Liv received SEK 54m (54) as its share of the return. Premiums written increased by just over 30% and totalled SEK 3.4bn (2.5). Policies with a guaranteed interest rate represented SEK 1.8bn (1.4) and unit-linked insurance SEK 1.6bn (1.1). Assets managed rose by 18% compared to the same period in the previous year and were SEK 39bn (33), of which guaranteed rate policies made up SEK 20bn (19), The available solvency margin, which consists of equity and subordinated loans, was SEK 1,689m. This should be related to the required solvency margin which was SEK 1,189m. The solvency ratio was thus On 1 July, SPP Liv Fondförsäkrings AB was acquired for SEK 1.1bn. In connection with the purchase, Handelsbanken Liv issued a subordinated loan to Handelsbanken for SEK 900m. Handelsbanken Liv simultaneously received a shareholder contribution of SEK 300m. The available solvency margin thus increased by SEK 1.2bn. Handelsbanken Liv, investment assets Jan-Jun Jan-Jun Full year Average exposure % Equities Fixed income assets Property Other Total Handelsbanken Liv, breakdown of results and key figures Jan-Jun Jan-Jun Full year Administration result, SEK m Risk result, SEK m Financial result, SEK m Return on equity, SEK Total return, % Assets managed, SEK bn, end of period Solvency ratio, end of period Svenska Handelsbanken

15 SPP SPP is a life insurance company run on mutual principles, thus its results do not have an impact on the Handelsbanken Group s results. The policyholders alone share the deficits and surpluses and thus bear all the risks. Profits were SEK 245m (960), a decrease of 74% compared with the corresponding period in the previous year. Most of the change SEK 520m comprises changed assumptions when calculating provisions for life insurance. Total return on investment assets in the traditional life insurance operations was 2.57% (2.62) or SEK 1,945m. A strained solvency situation and thus limited risk tolerance resulted in a short-term investment horizon with low risk. The proportion of equities was on average 18%. At the end of the period the proportion of equities was 15%. Operating expenses decreased by 23% to SEK 481m (628). The decrease is mainly due to lower IT costs, an effect of SPP s continued integration of its IT operations with Handelsbanken, and also lower staff and consultant costs. The number of employees decreased by 91 compared to the same period in Premiums written were SEK 4.4bn (5.1), a decrease of 15%. Traditional insurance represented SEK 2.6bn (3.3) and unitlinked insurance SEK 1.8bn (1.8). The fall in premiums written was mainly due to lower premiums for one-off early retirement pensions. Premiums written for collective agreement occupational pensions increased by 8% to SEK 1.3bn. The assets managed totalled SEK 90bn (83), of which traditional insurance accounted for SEK 76bn (74) and unit-linked insurance for SEK 14bn (9). SPP s available solvency margin, which mainly comprises share capital, subordinated loans, the solvency reserve and surpluses in subsidiaries, exceeded the required solvency margin and was SEK 3,796m, which corresponded to a solvency ratio of 1.24 (1.25). The required solvency margin was SEK 3,059m. SPP s collective consolidation ratio, that is the market value of the company s assets in relation to guaranteed and nonguaranteed commitments, was 100% (99). As a step in the conversion of SPP Livförsäkring AB into a demutualised company, SPP Liv Fondförsäkring AB was sold to Handelsbanken Liv on 1 July SPP, key figures Jan-Jun Jan-Jun Full year Total return, % Assets managed, SEK bn, end of period Solvency ratio, end of period Collective consolidation ratio, % end of period Yes to SPP as a demutualised company During the period 3 May-24 June, SPP s customers were able to vote on whether the company should continue to be run on mutual principles or whether it should be demutualised. The result of the poll showed that 88.9% of those who voted were in favour of demutualisation. Of the total number of those entitled to vote, 6.8% voted no. This means that the voting requirements have been fulfilled by a wide margin. The participation level was high, with 62% of those entitled to vote taking part. The next step in the demutualisation process is for the Finansinspektionen (the Financial Supervisory Authority) to examine in detail the whole of the model for how to demutualise SPP. Following approval by the Authority, the central board of Handelsbanken will consider the question of a possible capital injection to enable SPP to assume the risks and deficits which only the policyholders share at present. According to plan, everything should be ready for demutualisation on 1 January SPP, investment assets Jan-Jun Jan-Jun Full year Average exposure % Equities Fixed income assets Property Other Total Svenska Handelsbanken 15

16 Profit and loss account Svenska Handelsbanken Group In accordance with Finansinspektionen s directives Interest income 21,393 24, ,539 10, ,837 Interest expense -12,895-15, ,342-6, ,492 Net interest income 8,498 9, ,197 4, ,345 Dividends received Commission income 3,320 2, ,618 1, ,800 Commission expense ,093 Commission, net Note 1 2,760 2, ,324 1, ,707 Net result on financial operations Note , ,827 Other operating income Total income 11,666 11, ,677 5, ,959 General administrative expenses - Staff costs -3,154-3, ,560-1, ,216 - Other expenses Note 3-1,480-1, ,855 Depreciation and write-downs in value of tangible and intangible fixed assets Total expenses -5,052-4, ,530-2, ,878 Profit before loan losses 6,614 6, ,147 3, ,081 Net loan losses Note Change in value of repossessed property Reversed write-downs of financial fixed assets Participations in result of associated companies Result of banking operations 6,616 5, ,190 3, ,817 Result of insurance operations Note Operating profit 6,609 5, ,162 3, ,550 Pension settlement Taxes -1,878-1, ,345 Profit for the period 4,731 4, ,265 2, ,116 Net earnings per share, SEK Notes to profit and loss account in accordance with Finansinspektionen s directives Note 1 Commission, net Payments ,532 Lending Deposits Guarantees Securities 1, ,719 Other ,204 Commission income 3,320 2, ,618 1, ,800 Commission expense ,093 Commission, net 2,760 2, ,324 1, , Svenska Handelsbanken

17 Notes to profit and loss account in accordance with Finansinspektionen s directives (cont.) Note 2 Net result on financial operations Shares and participations Interest-bearing securities Realised profit Shares and participations Interest-bearing securities 258 1, Unrealised changes in value 107 1, Changes in exchange rates , ,193 Net result on financial operations , ,827 Note 3 Other administrative expenses Property and premises External IT costs Communication Travel and marketing Purchased services Supplies Other expenses Other administrative expenses -1,480-1, ,855 Svenska Handelsbanken 17

18 Notes to profit and loss account in accordance with Finansinspektionen s directives (cont.) Note 4 Loan losses A. Specific provision for individually assessed loan receivables: The period's write-off for actual loan losses ,269 Writeback of previous provisions for probable loan losses reported as actual losses in the period's accounts ,097 The period's provision for probable loan losses ,278 Paid in from actual losses in previous years Writeback of provisions for probable loan losses which are no longer necessary General provision for probable but non-identified loan losses Net expense for the period for individually assessed loan receivables B. Provision by group for individually assessed loan receivables: Allocation to/dissolution of provision by group C. Collectively assessed homogenous groups of loan receivables with limited value and similar credit risk: The period's write-off for actual loan losses Paid in from actual losses in previous years Allocation to/dissolution of provision for loan losses Net expense for the period for collectively assessed homogenous loan receivables D. Transfer risk: Allocation to/dissolution of provision for transfer risks Net expense for the period for loan losses (A+B+C+D) According to Finansinspektionen s accounting directives, receivables which individually have been assessed as being posted at the correct value must also be assessed as to whether there may be a requirement for making a provision for probable loan losses for these receivables valued as a group. Over and above the risk assessment of individual loan receivables made quarterly by all units with customer and credit responsibility in the Handelsbanken Group, no such requirement for provision for the receivables as a group has been identified. 18 Svenska Handelsbanken

19 Notes to profit and loss account in accordance with Finansinspektionen s directives (cont.) Note 5 Result of insurance operations Net interest income Dividends received Commission, net Net result on financial operations Other operating income Total income Staff costs Other expenses Depreciation and write-down in value of tangible and intangible fixed assets Total expenses Participation in result of associated company Result of insurance operations Result of insurance operations in accordance with the Swedish Annual Accounts Act for Insurance Companies Jan-Jun Jan-Jun Full year SEK m Technical account - insurance operations Premiums written 3,357 2,540 4,934 Investment income transferred from financial operations Investment income ,468 Unrealised gains on investments Change in value of investment assets for which the policyholder bears the investment risk ,801 Other technical income Insurance claims -1,796-1,707-3,214 Change in insurance provisions -2,572-1,546-4,461 Operating expenses Investment charges Unrealised losses on investments Change in value of investments where the policyholder bears the investment risk 0-0 Participation in result of associated company Other technical expenses Investment income transferred to financial operations Result on technical account - insurance operations Non-technical account Investment income Unrealised gains on investments Investment income transferred from insurance operations Investment charges Unrealised losses on investments Investment income transferred to the technical account Yield tax Profit before company taxes Taxes Profit for the period Svenska Handelsbanken 19

20 Balance sheet Svenska Handelsbanken Group 30 Jun 31 Mar 31 Dec 30 Jun SEK m Lending to the general public Note 1 853, , , ,982 Lending to credit institutions 110, , , ,993 Interest-bearing securities - Financial fixed assets 509 7,828 7,675 7,676 - Financial current assets 159, , , ,098 Other assets 197, , , ,005 Total assets 1,322,151 1,315,896 1,260,454 1,294,754 Deposits and funding from the general public 312, , , ,875 Liabilities to credit institutions 206, , , ,842 Issued securities etc 507, , , ,577 Subordinated liabilities 27,072 27,616 26,732 27,812 Other liabilities 211, , , ,675 Shareholders' equity Note 2 56,543 60,367 56,835 52,973 Total liabilities and shareholders' equity 1,322,151 1,315,896 1,260,454 1,294,754 Notes to the balance sheet Note 1 Lending to the general public 30 Jun 31 Mar 31 Dec 30 Jun SEK m SEK lending - to households 302, , , ,541 - to companies etc * 347, , , , , , , ,782 Foreign currency lending - to households 53,192 50,915 47,345 42,582 - to companies etc * 152, , , , , , , ,117 Provision for probable loan losses -2,483-2,626-2,649-2,917 Total lending to the general public 853, , , ,982 * of which National Debt Office 3,309 2, ,831 Lending to the general public by sector Lending before Provisions for Lending after deduction probable deduction SEK m of provisions loan losses of provisions Swedish counterparties Private individuals 305, ,834 - Of which mortgage loans 257, ,559 Property management 266, ,823 - Of which mortgage loans 142, ,007 Construction 8, ,900 Trade, hotels and restaurants 23, ,389 Manufacturing 24, ,013 Transport, communication 7, ,674 Municipalities 4,750-4,750 Other 30, ,254 Total Swedish counterparties 671,199-1, ,637 Foreign counterparties 185, ,295 Total lending to the general public 856,415-2, , Svenska Handelsbanken