Handelsbanken interim report

Transcription

1 PRESS RELEASE 23 AUGUST 2005 Handelsbanken interim report January June 2005 Summary Operating profit rose by 4% to SEK 7.1bn (6.8) Profits after tax totalled SEK 5.1bn (4.9) Return on equity was 16.6% (16.7) Operating profit for the second quarter was 15% higher than the corresponding quarter in the previous year Branch office lending volumes increased by 6% in Sweden and 15% outside Sweden Income rose by 5% to SEK 12.5bn (12.0) Earnings per share rose to SEK 7.68 (7.21) Operating profit from insurance operations went up to SEK 289m (77) The Moscow branch opened Handelsbanken received a banking license for its Shanghai branch Handelsbanken will open a branch in Tallinn

2 The Group Strong second quarter led to higher profits for the period Handelsbanken increased its operating profit by 4% to SEK 7,080m (6,821). The increase in profits during the second quarter was 15% compared to the same period in the previous year. Increased business volumes and considerably higher income in the insurance operations contributed to income rising by 5% to SEK 12.5bn (12.0). Return on shareholders equity was 16.6% (16.7) and earnings per share rose to SEK 7.68 (7.21). As a moving 12-month total, earnings per share were SEK Business volumes increased life insurance operations reported their best ever results Net interest income rose by 1% to SEK 7,475m (7,384). Increased business volumes compensated for lower deposit margins and lower margins for mortgage loans to households. The average volume of lending in Sweden increased by 6% and in the other Nordic countries and Great Britain by 15%. Correspondingly, deposits rose by 13% and 16% respectively. The average volume of corporate lending in Sweden increased by 3%. However, it was 7% larger at 30 June 2005 compared to the start of the year. Both net commission income and income from net gains/losses on items at fair value rose. A major contributory reason was increased income at Handelsbanken Liv. Net commission income increased by 13% to SEK 3,356m (2,983). Commission generated at Handelsbanken Liv increased to SEK 413m (245). SPP Liv Fondförsäkring AB, which has been part of Handelsbanken Liv since 1 July 2004, represented SEK 88m of this. Net gains/losses on items at fair value rose by 6% to SEK 1,319m (1,241), which was due to a better risk result at Handelsbanken Liv. Cost increase due to expansion Expenses were SEK 5,401m (5,118), an increase of 6%. Staff costs were mainly unchanged, while other costs increased by 13% to SEK 2,149m (1,894). The majority of this cost increase was due to the expansion outside Sweden and the consolidation of SPP Liv Fondförsäkring. These costs represented SEK 166m of the total cost increase of SEK 283m. Without these, the cost increase was 2% and mainly comprised higher costs for system development. Low loan losses Loan losses remained very low and amounted to SEK 28m (18). The loan loss ratio was 0.01% (0.00). The share of bad debts in relation to lending was 0.13% (0.23). The annual general meeting in 2005 resolved that the 23.7 million shares repurchased during 2004 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 4.15 to SEK These changes were registered on 24 May 2005, after which the number of outstanding shares in the Bank was million. Handelsbanken's rating was unchanged with all three rating agencies which rate the Bank. Handelsbanken Liv boosted its profits significantly Handelsbanken Liv increased its operating profit from SEK 77m to SEK 289m, a rise of 275%. The administration result, risk result and financial result increased. The return on policyholders assets was 6.08% and Handelsbanken s share of the return was SEK 131m (53). The risk result mainly increased because the number of new health insurance cases fell and the provisions could therefore be reduced. Total premiums written at Handelsbanken Liv were SEK 5.8bn (3.4), of which unit-linked insurance represented SEK 3.9bn (1.6). The volume of assets managed was SEK 65bn (39), of which SEK 40bn (19) was invested in unit-linked insurance. Handelsbanken received banking licence in Shanghai and started business in Moscow The Bank has had representative offices in Russia and China for a long time. During the year, Handelsbanken expanded its operations in Russia and started regular banking operations for Nordic and British corporate customers by opening a branch in Moscow in May. The branch is run in the form of a subsidiary and operations are in full swing with around 30 employees. A representative office will soon be opened in St. Petersburg, and this will eventually be converted into a normal bank branch offering the same service as in Moscow. During the summer, the Bank received the license for its Shanghai branch. This means that also in China, Handelsbanken is the first Nordic bank to start regular banking operations and which can thus offer Nordic and British companies local banking services. Handelsbanken to open a branch in Tallinn During the first half of 2006, the Bank will start a branch in Tallinn, Estonia. The branch will be part of Regional Bank Finland, and will offer services to both companies and private individuals. Capital ratio, cancellation of shares and rating The capital ratio was 10.0% (9.9) and the Tier 1 ratio was 7.0% (7.1). Lars O Grönstedt President and Group Chief Executive For further information please contact: Lars O Grönstedt, Group Chief Executive phone: , lagr03@handelsbanken.se Elisa Saarinen, Head of Corporate Communications phone: , elsa03@handelsbanken.se Lennart Francke, Head of Control and Accounting phone: , lefr01@handelsbanken.se Bengt Ragnå, Head of Investor Relations phone: , bera02@handelsbanken.se 2 Svenska Handelsbanken

3 Key figures for the Group Jan-Jun Jan-Jun Q 2 Q 2 Full year Profit before loan losses, SEK m 7,104 6,837 3,734 3,232 13,718 Loan losses, SEK m Operating profit, SEK m 7,080 6,821 3,740 3,263 13,553 Profit for the period, SEK m 5,141 4,946 2,743 2,369 9,860 Total assets, SEK m 1,500,694 1,295,248 1,500,694 1,295,248 1,316,842 Return on shareholders' equity 16.6% 16.7% 17.5% 15.9% 16.6% Return on shareholders' equity, operating profit after standard tax 16.5% 16.5% 17.2% 15.8% 16.4% Cost/Income (C/I ratio) 43.2% 42.8% 42.3% 44.2% 42.8% Earnings per share, SEK month moving total Dividend per share, SEK 6.00 Adjusted equity per share, SEK Number of shares, end of period 669,641, ,641, ,641, ,641, ,641,462 Number of repurchased shares, end of period - 45,105,478-45,105,478 23,745,953 Average number of outstanding shares 669,641, ,035, ,641, ,394, ,793,928 Tier 1 capital, SEK m 51,746 46,833 51,746 46,833 49,872 Risk-weighted volume, SEK m 734, , , , ,708 Capital ratio 10.0% 9.9% 10.0% 9.9% 10.0% Tier 1 ratio 7.0% 7.1% 7.0% 7.1% 7.6% Average number of employees 9,277 8,997 9,292 9,038 9,150 Number of branches in Nordic countries and Great Britain, end of period When calculating return on equity, shareholders equity is adjusted for the impact of unrealised changes in the value of financial assets classified as Available for Sale and for cash flow hedges. When calculating equity per share, shareholders equity is adjusted for the impact of cash flow hedges. Svenska Handelsbanken 3

4 Income statement Svenska Handelsbanken Group Income statement Jan-Jun Jan-Jun Change Q 2 Q 2 Change Full year SEK m % % 2004 Net interest income 7,475 7, ,699 3, ,687 Net commission income Note 1 3,356 2, ,747 1, ,000 Net gains/losses on items at fair value Note 2 1,319 1, ,555 Other dividend income Share of profits of associates Other operating income Total income 12,505 11, ,473 5, ,963 Staff costs -3,252-3, ,615-1, ,380 Other administrative expenses Note 3-1,855-1, ,364 Depreciation and write-downs in value of tangible and intangible assets Total expenses -5,401-5, ,739-2, ,245 Profit before loan losses 7,104 6, ,734 3, ,718 Loan losses Note Disposal of tangible and intangible assets Result of banking operations 7,080 6, ,740 3, ,553 Taxes -1,939-1, ,693 Profit for the period 5,141 4, ,743 2, ,860 Of which belonging to Shareholders 5,141 4, ,743 2, ,860 Minority owners Net earnings per share, SEK Note 1 Net commission income Jan-Jun Jan-Jun Change Q 2 Q 2 Change Full year SEK m % % 2004 Brokerage ,100 Mutual funds and custody ,445 Insurance Payments ,660 Lending and deposits ,215 Other Commission income 3,891 3, ,029 1, ,965 Commission expense Net commission income 3,356 2, ,747 1, ,000 4 Svenska Handelsbanken

5 Note 2 Net gains/losses on items at fair value Jan-Jun Jan-Jun Change Q 2 Q 2 Change Full year SEK m % % 2004 Insurance Available for sale, realised Hedge accounting Fair value option Other 1,189 1, ,493 Net gains/losses on items at fair value 1,319 1, ,555 Net gains/losses on items at fair value shows the earnings related to the items which are wholly or partly dependent on changes in market value. Insurance here the impact on earnings is recognised for insurance contracts which, according to IFRS, are categorised as insurance contracts in that part where premiums received are intended to cover the insurance risk. The impact on profits relating to financial assets and liabilities in the insurance operations is reported under the other sub-items within Net gains/losses on items at fair value. At present this means that most of the impact on earnings for these instruments is recognised under the sub-item Other within Net gains/losses on items at fair value. Available for sale, realised this includes the realised earnings from disposal of financial assets categorised as Available for sale. Hedge accounting this includes the net result of unrealised and realised market value changes on financial assets and liabilities which are part of hedging packages. Interest income and interest expense for these instruments are recognised under net interest income. Fair value option starting on 1 January 2005, it is possible to optionally categorise assets to be recognised at fair value. The Handelsbanken Group has at present chosen this alternative for a small number of lending portfolios outside Sweden, which are small in terms of volume. The change in fair value for these lending portfolios normally corresponds to equally sized opposite changes in value on other financial instruments which are reported under Other within Net gains/losses on items at fair value. Interest income is reported under net interest income. Other - contains unrealised and realised changes in value of other financial assets and liabilities, including unrealised and realised market value changes in securities operations. Note 3 Other administrative expenses Jan-Jun Jan-Jun Change Q 2 Q 2 Change Full year SEK m % % 2004 Property and premises External IT costs Communication Travel and marketing Purchased services Supplies Other expenses Other administrative expenses -1,855-1, ,364 Svenska Handelsbanken 5

6 Note 4 Loan losses Jan-Jun Jan-Jun Change Q 2 Q 2 Change Full year SEK m % % 2004 A. Specific provision for individually assessed loan receivables: The period's write-off for actual loan losses Writeback of previous provisions for probable loan losses reported as actual losses in the period's accounts The period's provision for probable loan losses 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) Change in value of repossessed property Loan losses Svenska Handelsbanken

7 Quarterly performance of Svenska Handelsbanken Group Q 2 Q 1 Q 4 Q 3 Q 2 SEK m Net interest income 3,699 3,776 3,647 3,656 3,651 Net commission income 1,747 1,609 1,661 1,356 1,410 Net gains/losses on items at fair value Other dividend income Share of profits of associates Other income Total income 6,473 6,032 6,211 5,797 5,795 Staff costs -1,615-1,637-1,588-1,568-1,595 Other administrative expenses Depreciation and write-downs of tangible and intangible assets Total expenses -2,739-2,662-2,625-2,502-2,563 Profit before loan losses 3,734 3,370 3,586 3,295 3,232 Loan losses Disposal of tangible and intangible assets Operating profit 3,740 3,340 3,411 3,321 3,263 Taxes Profit for the period 2,743 2,398 2,524 2,390 2,369 Net earnings per share, SEK Svenska Handelsbanken 7

8 Business areas Income statement by business area - Group Branch Asset Pension & Other Elimina- Jan-Jun Jan-Jun SEK m offices Markets Mgmt Insurance operations tions Net interest income 7, ,475 7,384 Net commission income 1, ,356 2,983 Net gains/losses on items at fair value ,319 1,241 Other income ,809-1, Total income 9,898 1, ,790-1,991 12,505 11,955 Total expenses -4,004-1, ,608 1,991-5,401-5,118 Profit before loan losses 5, ,104 6,837 Loan losses Disposal of tangible and intangible assets Operating profit 5, ,080 6,821 Return on equity, % Average number of employees 5,940 1, ,743 9,277 8,997 Internal income and expenses are included in the respective item on the income statement. 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. 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. The shareholders' equity on which calculation of return on equity is based, meets the requirements of the Capital Adequacy Act. 8 Svenska Handelsbanken

9 Branch office operations Branch office operations comprise eleven regional banks and Handelsbanken Finans. 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, even the very largest corporations, are co-ordinated. The regional banks are responsible for profitability and pursue the same goals everywhere to deliver universal banking services with a higher service level and at lower cost than comparable banks. 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. Income statement Jan-Jun Jan-Jun Change Q 2 Q 2 Change Full year SEK m % % 2004 Net interest income 7,302 7, ,624 3, ,350 Net commission income 1,881 1, ,460 Net gains/losses on items at fair value Other income Total income 9,898 9, ,957 4, ,943 Total expenses -4,004-3, ,020-1, ,645 Profit before loan losses 5,894 5, ,937 2, ,298 Loan losses Disposal of tangible and intangible assets Operating profit 5,868 5, ,943 2, ,108 Return on equity, % Average number of employees 5,940 5, ,943 5, ,895 Performance Branch office operations increased their operating profits by 2% to SEK 5,868m (5,738). Income increased but so did expenses. Income and profit figures were better in branch office operations outside Sweden than in Sweden. Loan losses were low. Branch office operations in Sweden Branch office operations in Sweden comprise seven regional banks with a total of 453 branches. New branches were opened in Mölnlycke and Torslanda. The profits from Swedish branch office operations decreased by 2% to SEK 4,828m (4,925). Income increased by 2% and expenses by 4%. The main difference compared to the previous year was loan losses which were marginally negative this year, while there were recoveries on loan losses in the previous year. The Swedish market was characterised by growth in business volumes. In lending, this mainly referred to mortgage loans to households, but corporate loans also performed well. The margins on mortgage lending to households continued to decrease. The lowering of the repo rate at the end of the second quarter had a negative impact on the deposit margin. The average volume of lending in Sweden grew by 6% to SEK 712bn (674), of which corporate lending was SEK 388bn (376) and household lending SEK 324bn (298). The average volume for mortgage lending was SEK 419bn (392) and for other lending SEK 293bn (282). Lending was 6% higher at the end of the first six months compared to the year-end and totalled SEK 732bn (690), of which corporate lending increased 7% to SEK 399bn (372) and household lending by 5% to SEK 333bn (318). The average deposit volume increased to SEK 237bn (210), a rise of 13%. Household deposits increased by 5% to SEK 90bn (85). Since the year-end, the Bank has won market share in the household deposits market. Branch office operations in Sweden Jan-Jun Jan-Jun Change Full year SEK m % 2004 Income 7,632 7, ,774 Expenses -2,770-2, ,338 Loan losses Operating profit 4,828 4, ,420 Branch office operations outside Sweden Profits increased by 30% to SEK 829m (639). Income increased by 11% and expenses by 9%. Cost increases, particularly in Norway and Great Britain, were mainly due to the greater number of branches. During the period, four new branches were opened while two branches in Herning (Denmark) were merged. The number of branches outside Sweden was 123 (109). Svenska Handelsbanken 9

10 Branch office operations outside Sweden Jan-Jun Jan-Jun Change Full year SEK m % 2004 Income 1,761 1, ,203 Expenses ,784 Loan losses Operating profit ,193 Handelsbanken s turbo-warrants were launched and the mutual funds offered continued to increase. A total of ten new mutual funds were started, two of them Fund-in-Funds. A new branch office was opened in Tammisaari, bringing the number of branches in Finland to 36. During the first half of 2006, a new branch will be opened in Tallinn, Estonia. It will be part of Regional Bank Finland and operations will be aimed at private individuals and companies. Great Britain Profits increased despite a rise in the number of employees by just over 20%. Average lending increased by 41% to GBP 1,531m (1,087), of which corporate lending represented GBP 1,253m (908). Lending to private individuals rose by 56%. Deposits grew by 50% to GBP 933m (619), with deposits from individuals increasing by almost 90%. One new branch was opened in the second quarter in Bournemouth, bringing the number of branches to 17. In the second half of the year, three more branches will be opened, in Plymouth, Maidstone and Cambridge. Denmark Income grew as a consequence of increased business volumes and a high level of activity, particularly in the securities area. This compensated for slightly lower lending margins. Costs remained at an unchanged level, meaning that the C/I ratio improved, as did the underlying profitability. Average lending increased by 4% to DKK 21bn, of which household lending represented DKK 9bn (8). During the second quarter the rate of increase was higher and the average lending volume rose by 7% compared to the first quarter this year. As part of the preparations for the implementation of new capital adequacy rules (Basel II), some loans which had been classified as corporate loans are now booked as loans to households. One reason for the growth in household lending was the continued development of and strong demand for priority loans (prioritetslån), Handelsbanken s property loans in the Danish market. Credit volumes in Leasing grew by 30% with new volumes doubling. In Denmark, a large proportion of corporate vehicle fleets are financed by means of operating leases. Handelsbanken successfully introduced this product during the period. The average volume of deposits from households increased by 10% to DKK 5bn, and total deposits rose to DKK 14bn. This spring, two branches in Herning were merged, and thus the number of branches was 35. No branches have been opened during the period, but the conditions for opening more branches are still considered to be good, particularly in the Copenhagen area. Finland The extra long mortgage loan" launched at the beginning of the year was still very much in demand. Since it was launched in February, this loan has represented some 35% of new lending to households. The average volume of lending increased by 7% to EUR 6.5bn (6.1) Household lending rose by 22% to EUR 1.8bn. Deposits decreased and were EUR 1.7bn (1.9). Norway The market continued to be strong in Norway. Norges Bank s credit indicator reported a more than 10% increase in lending volumes in the last 12-month period, with lending to households increasing most. During the same period, Handelsbanken increased its lending by 18% to NOK 64bn (54). Household lending increased by 28% and corporate lending by 12% to NOK 37bn (33). The pace of increase indicated that Handelsbanken has continued to gain shares in the Norwegian bank lending market. Deposits increased by 21% to NOK 26bn (22) of which household deposits were NOK 6bn (5). The Bank opened a new branch in Larvik after which the number of branches was 35. Branches will be opened in Drammen and Hamar in the third quarter. Handelsbanken Finans From the beginning of this year, the operations at Handelsbanken Finans and Stadshypotek Bank have been integrated. Simultaneously, Factoring services were integrated with Cash Management operations at the Bank while the full results from services and products sold through the branches also were accounted for at the branch offices. This means that Handelsbanken Finans profits include directly sold banking services, cards, retail financial services in the consumer and corporate sectors and debt collection operations. Operating profit was SEK 233m (290), a decrease of 20%. Adjusted for the changes described above, profits rose by 9%. New sales increased by 13% to SEK 9.5bn (8.4). There was a 49% increase in sales of Leasing and Conditional Sales products in the branch office operations. In all countries outside Sweden, there was two-figure growth in new sales. By focusing on the development of the Allkort card and Corporate card in Sweden, there was a considerable increase in the number of cards sold compared to the previous year. Both the Allkort and Corporate cards were improved, for example by considerably extended insurance protection and the bonus system which was launched for the Allkort during autumn Apart from the healthy increase in the number of cards sold, turnover on the Allkort increased by 60%. The trend is the same in card operations in Finland where the number of cards increased by 21% and now exceeds 200,000. Handelsbanken Finans Jan-Jun Jan-Jun Change Full year SEK m % 2004 Income ,233 Expenses Loan losses Operating profit Svenska Handelsbanken

11 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, and Trade Finance. There are just over 1,100 employees in 16 countries. Apart from these two business areas, there are also back office, risk control and administrative departments. Income statement Jan-Jun Jan-Jun Change Q 2 Q 2 Change Full year SEK m % % 2004 Net interest income Net commission income ,157 Net gains/losses on items at fair value ,467 Other income Total income 1,615 1, ,546 Total expenses -1,157-1, ,341 Profit before loan losses ,205 Loan losses Disposal of tangible and intangible assets Operating profit ,235 Return on equity, % Average number of employees 1,093 1, ,097 1, ,062 Performance Operating profit was SEK 461m (609). Expenses were lower, mainly due to lower administrative costs. Profit for the second quarter was SEK 225m, an increase of 2% compared with the corresponding quarter in the previous year. Handelsbanken Capital Markets Profits were SEK 309m (413), a decrease of 25%. A strong first quarter last year coupled with a weak first quarter this year, meant that income fell by 11%. The poorer results were mainly due to somewhat worse market conditions for structured products and a lower result from proprietary trading. However, profits for the second quarter were higher than the corresponding period last year and totalled SEK 162m (143), an increase of 13%. In the second quarter, income increased by 7% and expenses by 5%. Equity trading continued to perform well and Handelsbanken gained market share for institutional customers. Sales to European and British institutions progressed particularly well. The Bank has a strong position in foreign exchange trading and according to international journal Euromoney, Handelsbanken was the 25th largest FX bank. For a long time, the Bank has also had a strong position in the field of structured products and although market conditions have deteriorated somewhat, the Bank was still the leading player in this market. During the period two Multi Asset Bonds were launched. These are bonds that are linked to baskets with different distributions of assets: equities, bonds and commodities. The Multi Asset Bond is what is known as a capital-protected product. Corporate Finance and Debt Capital Markets increased its income by 43%. This unit has gradually reinforced its market position in the past few years. In recognition of this, the Bank received an award from Euromoney as "Best M&A Bank in Sweden Handelsbanken Capital Markets Jan-Jun Jan-Jun Change Full year SEK m % 2004 Income 1,133 1, ,617 Expenses ,704 Loan losses Operating profit Handelsbanken Markets International Markets International 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 before loan losses increased by 17% for both banking operations outside the Nordic countries and Great Britain and for the Swedish operations. The greatest increase in profits was seen in Germany and Poland, while the trend in Luxembourg was somewhat weaker. In Sweden, profits rose, mainly as a result of increased clearing income. The Bank s subsidiary in Moscow was opened, making Handelsbanken the first Nordic bank with wholly-owned bank- Svenska Handelsbanken 11

12 ing operations in Russia. A representative office in St. Petersburg will be opened in the second half of the year. This will later be converted into a branch with the same range of services as in Moscow. During the summer, the Bank received the license for its Shanghai branch. Handelsbanken is also in China the first Nordic bank to start banking operations and which can thus offer Nordic and British companies local banking services in Shanghai. The Bank had just under 15 employees in Shanghai and Beijing. In France, the Bank offers Nordic and British customers mortgage loans for property financing. Demand is increasing and volumes are growing quickly. As at 30 June, volumes were some SEK 130m. A mortgage loan product has also been developed in Poland and the first loans were disbursed during the second quarter. Handelsbanken Markets International Jan-Jun Jan-Jun Change Full year SEK m % 2004 Income Expenses Loan losses Operating profit Svenska Handelsbanken

13 Handelsbanken Asset Management Handelsbanken Asset Management comprises Fund Management, Discretionary Management and Nordic 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, Spain and Singapore. Income statement Jan-Jun Jan-Jun Change Q 2 Q 2 Change Full year SEK m % % 2004 Net interest income Net commission income Net gains/losses on items at fair value Other income Total income ,064 Total expenses Profit before loan losses Loan losses Disposal of tangible and intangible assets Operating profit Return on equity % Average number of employees Performance Operating profits rose by 2% to SEK 281m (275). Net commission income, the largest income item, increased by 13% due to higher stock market values, coupled with new sales. Expenses rose by 12% as a result of investments in the form of new mutual funds, a strengthening of the fund management organisation and the acquisition of Xact Fonder AB. The volume of assets managed by Handelsbanken Asset Management was SEK 300bn (267). The total volume of assets under management by the Group was SEK 352bn (313). Mutual fund management At the end of the first six months, the Bank's mutual fund management company managed 97 (83) mutual funds with a total value of SEK 157bn (131). Some 47% (46) of the assets under management were invested in equity funds, 26% (27) in fixed income funds, 1% (2) in hedge funds and 26% (25) in mixed funds. Net new savings in the Group s funds on the Swedish mutual fund market were SEK 4.9bn (7.1), equivalent to a market share of 11.2% (16.2) of the Swedish mutual fund market, including new savings in the premium pension system. To meet the demand for savings products which provide protection against falling asset prices, three new products were launched during the year: Handelsbanken Klick Sverige 90, Handelsbanken Europa Protect and Handelsbanken Klick Europa 90 (the latter two are offered via Handelsbanken s Finnish branches). Three equity funds were started in May which are managed using the quality concept which has been successful in the Bank s management of discretionary portfolios. Two Fund-in- Funds were launched in Sweden in 2004 and during the period, four similar funds were started in Norway and Finland. In June, a Swedish equity fund with an ethical focus was started. It is called Handelsbanken Sverige Index Etisk and its benchmark index contains companies which meet stringent ethical requirements. Since autumn 2004, the return on the Bank s mutual funds has been very competitive, both compared to other fund managers and compared to the funds' benchmark indexes. This has resulted in increasingly high ratings for Handelsbanken s funds in Sweden, Finland and Norway from the independent rating agency Morningstar. In June, Handelsbanken's Swedish equity funds had the second highest rating of the major players and the Bank was top-rated for fixed income funds. In both Finland and Norway, the rating was significantly improved. The volume in Xact Fonder has risen by 31% since the beginning of the year and new customers were acquired. Average trading per day increased between the two quarters from SEK 53m to SEK 268m and assets managed were SEK 8.6bn. Together with Handelsbanken Fonder, the company launched Xact OBX in Norway. Discretionary management Assets under discretionary management were SEK 160bn (149), of which 32% (28) were exposed to equity markets and the rest to fixed income markets. SEK 26bn (22) of the managed assets were invested in Handelsbanken s mutual funds. Svenska Handelsbanken 13

14 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. There are representative offices on the Côte d Azur (France) and the Costa del Sol (Spain), as well as in Singapore. Assets under management were just over SEK 9bn (9). Nordic institutional custody services During the first six months, custody holdings increased by 26% to SEK 675bn. The number of securities transactions rose slightly. The trend of international custodian banks showing an increasing interest in the Nordic region is continuing, mainly due to the merger of the depositary and clearing organisations in Finland and Sweden and the expansion of the OMX group in northern Europe. In the spring, a leading European custodian bank acclaimed Handelsbanken as best custodian bank. In an evaluation of all its global providers, Handelsbanken s institutional custody services in Sweden were ranked number one. Handelsbanken s institutional custody services in Finland came in second place. 14 Svenska Handelsbanken

15 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, independent brokers, workplaces at corporate customers and via direct marketing. Handelsbanken Liv has demutualised its traditional life insurance operations and conducts its unit-linked operations and insurance with guaranteed return within the same company. SPP Livförsäkring AB is run according to mutual principles and is thus not included in the Handelsbanken Group s consolidated accounts. Income statement The income statement comprises the business operations units in the Handelsbanken Liv Group. Jan-Jun Jan-Jun Change Q 2 Q 2 Change Full year SEK m % % 2004 Net interest income Net commission income Net gains/losses on items at fair value Other income Total income Total expenses Profit before loan losses Loan losses Disposal of tangible and intangible assets Operating profit Return on equity, % Average number of employees Handelsbanken Liv Profits were SEK 289m (77). The administration result, which gives a picture of how cost-effective the company is, increased to SEK 26m (24). The financial result is reported under net commission income and was SEK 146m (53). Total return on policyholders funds was 6.08% (2.97). Since the return exceeded the guaranteed rate of interest, the company received 10% of the total return. Handelsbanken Liv s share of the return was SEK 131m (53). Since the second half of 2004, the risk result has been positive and was SEK 108m (-23). The improvement was mainly due to the number of new health insurance cases falling and thus provisions could be reduced. Insurance disbursements reported in accordance with IFRS4 were SEK 246m. Premiums written rose to SEK 5.8bn (3.4) of which unit-linked income represented SEK 3.9bn (1.6). The improvement was due to an increase in sales of just over 20% and also the acquisition of SPP Liv Fondförsäkring AB in July Premiums written, reported in accordance with IFRS4, were SEK 333m. Assets managed were SEK 65bn (39), of which SEK 40bn (19) was invested in unit-linked insurance. SPP Liv Fondförsäkring managed SEK 19bn, of which SEK 14bn was added at the time of the acquisition. Since the year-end, managed assets have increased by 15%. The large increase is due to high returns coupled with a strong net inflow, in other words the company s premiums written reduced by disbursements. The available solvency margin, including profits generated during the period, was SEK 2,199m. This should be related to the required solvency margin which was SEK 1,592m, implying a solvency ratio of Handelsbanken Liv s target solvency ratio is 1.3. Handelsbanken Liv, investment assets Jan-Jun Jan-Jun Full year Average exposure % Equities Fixed income assets Property Other Total Svenska Handelsbanken 15

16 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 Other, SEK m Operating profit, SEK m Total return, % Assets managed, SEK bn, end of period Solvency ratio, end of period SPP SPP is run on mutual principles and is therefore not included in the Handelsbanken Group s consolidated accounts. SPP s profits increased to SEK 2,301m (245). This change was mainly due to significantly higher investment income where international equities performed well and falling interest rates in Sweden increased the value of the bond portfolio. Total return in the first six months was 4.38% (2.57). Changes in life insurance provisions of a one-off nature had a positive impact on profits of SEK 95m (-250). Operating expenses fell to SEK 425m (481). Premiums written totalled SEK 2.3bn (4.4), all of which is traditional insurance. The decrease is mainly because SPP Liv Fondförsäkring AB is now part of Handelsbanken Liv. Assets managed were SEK 82bn (90), all of which was traditional insurance. The figures for the corresponding period in the previous year were SEK 76bn for traditional life insurance and SEK 14bn for unit-linked insurance. As at 30 June, 19% of the assets were placed in shares, of which 5% in Swedish shares and 14% in foreign shares. The available solvency margin, including profits generated during the period, increased to SEK 6,418m (3,796) and was thus SEK 3,295m more than the required solvency margin. The solvency ratio improved to 2.06 (1.24). The collective consolidation ratio, that is the market value of SPP s assets in relation to guaranteed and non-guaranteed commitments to policyholders, amounted to 104% (100). The ratio for the defined-benefit portfolio was 112% (110) and for the defined-contribution portfolio, it was 98% (92). The Finansinspektionen (Swedish Financial Supervisory Authority) has resolved to lower the highest interest rate on old insurance agreements from 3.50% to 3.25% starting from 30 September. The highest interest rate is the maximum discount rate which may be used to calculate the value of the insurance commitments on the balance sheet. For SPP, the decrease will have a negative impact on profits of some SEK 2bn. The reduction will not affect customers. SPP, investment assets Jan-Jun Jan-Jun Full year Average exposure % Equities Fixed income assets Property Other Total SPP, key figures Jan-Jun Jan-Jun Full year Profit, SEK m 2, ,130 Total return, % Assets managed, SEK bn, end of period Solvency ratio, end of period Collective consolidation ratio, % end of period Svenska Handelsbanken

17 Balance sheet Svenska Handelsbanken Group 30 Jun 31 Mar 31 Dec 30 Jun SEK m Loans to the public Note 1 939, , , ,949 Loans to credit institutions 159, , , ,751 Interest-bearing securities 153, , , ,728 Other assets 249, , , ,820 Total assets 1,500,694 1,365,222 1,316,842 1,295,248 Deposits and borrowing from the public 386, , , ,520 Due to credit institutions 285, , , ,919 Issued securities etc 493, , , ,816 Subordinated liabilities 32,078 30,605 25,182 27,072 Other liabilities 241, , , ,285 Shareholders' equity 62,346 63,330 61,372 56,636 Total liabilities and shareholders' equity 1,500,694 1,365,222 1,316,842 1,295,248 Note 1 Loans to the public 30 Jun 31 Mar 31 Dec 30 Jun SEK m SEK loans - to households 331, , , ,867 - to companies etc * 364, , , , , , , ,758 Foreign currency loans - to households 73,408 65,561 58,665 53,192 - to companies etc * 173, , , , , , , ,674 Provision for probable loan losses -2,645-2,740-2,223-2,483 Total loans to the public 939, , , ,949 * of which National Debt Office 5,789 1,537 1,592 3,309 Loans to the public by sector Lending before Provisions for Lending after deduction of probable deduction of SEK m provisions loan losses provisions Private individuals 404, ,425 - Of which mortgage loans 285, ,568 Property management 324, ,496 - Of which mortgage loans 141, ,424 Construction 12, ,861 Retail, hotels and restaurants 40, ,638 Manufacturing 40, ,603 Transport, communication 14, ,831 Municipalities 8, ,628 Other 94, ,375 Total loans to the public, before taking into consideration collective provisions 942,005-2, ,857 Collective provisions -497 Total loans to the public 939,360 Svenska Handelsbanken 17

18 Change in shareholders equity Jan-Jun Jan-Jun Full year SEK m Opening shareholders equity 61,372 58,801 58,801 Impact of changeover to IFRS Component depreciation own property Allocation of fees Insurance operations Net impact of changeover to measuring at fair value according to IAS Provision by group for individually assessed receivables -360 Adjusted opening equity 60,671 58,679 58,679 Other changes - insurance operations -116 Financial instruments available for sale 149 Financial instruments for cash flow hedges 13 Change of translation difference Total changes in equity not reported in the income statement Profit for the period 5,141 4,946 9,860 Dividends -4,018-3,602-3,602 Buyback of own shares - -3,426-3,426 Closing shareholders equity 62,346 56,636 61,372 Cash flow statement Jan-Jun Jan-Jun Full year SEK m Cash flow on operating activities -3,388 2,872 8,592 Cash flow on investing activities ,314 Cash flow on financing activities 2,877-6,690-8,576 Cash flow for the period ,840-1,298 Liquid funds at beginning of period 6,396 7,640 7,640 Cash flow for the period ,840-1,298 Exchange rate difference on liquid funds Liquid funds at end of period 5,782 3,873 6,396 Other disclosures The accounts comply with the IASB accounting standards adopted by the EU. In addition to these standards, the Finansinspektionen (Swedish Financial Supervisory Authority) establishes accounting regulations and the provisions in the Annual Accounts Act for Credit Institutions and Securities Companies (ÅRKL) make additional disclosure requirements. The interim report is also adapted to these. The annual report for 2004 includes a description of the new accounting standards and how they differ from the accounting standards applied in preparing the annual report for The impact on shareholders equity is described in the annual report for It also contains the recalculated balance sheet and income statement for This information is shown on pages Work is ongoing within the EU to adopt further accounting standards. In addition, work is in progress within the IASB to adapt IAS 39 (classification and measurement principles for financial assets and liabilities), partly to make it possible for the EU to approve the recommendation in its entirety. It is still unclear when this harmonisation work will be completed, and when further accounting standards will be adopted by the EU. It is also unclear which transitional rules will be applied in the cases where further accounting standards are adopted by the EU during Thus the expected effects on opening shareholders equity in 2005 are preliminary, as are the interim figures. Therefore, minor adjustments may be made before the annual accounts for 2005 are adopted. IAS 39 is applied forwards, meaning that the figures for 2004 have not been restated. The changeover to IAS 39 is not assessed to have led to any major impact on results. However it is not possible to give an exact estimation of the impact on results of the changeover to IAS 39. Nor would such information be entirely correct since the outstanding portfolios of financial assets and liabilities were gradually adapted in 2004 with the intention of reducing the impact on results caused by the change of accounting standards. For example, the structure of hedge packages has been changed. Impairment tests (IAS 36 Impairment of assets) have been performed and there is no indication of impairment. 18 Svenska Handelsbanken

19 Recalculations relating to transition to IFRS, SEK m Primary income statement Jan - Jun 2004 in accordance with Recalculations in accordance with IFRS Primary income statement Jan - Jun 2004 previous accounting principles Insurance Goodwill Reclassified Other Recalculated in accordance with IFRS Net interest income 8, , ,384 Net interest income Dividends Net commission income 2, ,983 Net commission income Net result on Net gains/losses on items financial operations ,546 1,241 at fair value Other dividend income Share of profits of associates Other operating income Other income Total operating income 11, ,955 Total income Staff costs -3, ,224 Staff costs Other administrative Other administrative expenses -1, ,615 expenses Depreciation and write-downs Depreciation and write-downs of tangible and intangible of tangible and intangible assets assets Total expenses -5, ,118 Total expenses Profit before loan losses 6, ,837 Profit before loan losses Net loan losses Loan losses Disposal of tangible 2 2 and intangible assets Share of profits of associates Result of banking operations 6,616 Result of insurance operations -7 7 Operating profit 6, ,821 Operating profit Taxes -1, ,875 Taxes Minority share - Profit for the period 4, ,946 Profit for the period Insurance operations were previously reported as a unit on one line. They are now consolidated in their entirety according to the acquisition accounting method. The insurance operations have also been affected by the new accounting standards for insurance contracts. Svenska Handelsbanken 19