Annual Report 2010 Nordea Bank S.A.

Transcription

1 Annual Report 2010 Nordea Bank S.A.

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3 Nordea Bank S.A. is a part of the leading financial services group in the Nordic and Baltic Sea regions. The group has 11 million clients and 34,000 employees. Being the leading Nordic pan- European banking entity in Luxembourg and Switzerland, Nordea Bank S.A. focuses on international Private Banking, Fund Distribution and Fund Management services. Our 400 employees serve a wide spectrum of international clients in many countries worldwide. Contents Consolidated management report 3 Consolidated statement of comprehensive income 4 Consolidated balance sheet 5 Consolidated statement of changes in equity 6 Consolidated cash flow statement 7 Notes to the consolidated financial statements 8-35 Directors 36 Auditor s report 37 Nordea Bank S.A. Consolidated Financial Statements

4 Consolidated management report During 2010 financial markets continued to recover from the financial crisis and both Private Banking and in particular Fund Distribution generated strong net inflows. Together these elements lead to a sizeable increase of assets under management. Combined with an increased earnings margin and strict cost control the financial results improved during Private Banking In Private Banking, new clients, net inflow and positive investment performance all contributed to increase assets under management. The International team and the new team for Ultra High Net Worth individuals established in 2009 were further strengthened during 2010 and both contributed considerably to increase our private banking activities and to grow assets under management. A similar positive trend occurred in the Swiss branch in Zürich. Client s activity levels improved during 2010 but are still below the level from before the financial crisis. The low interest rate environment and the intensified competition for funding within the financial service industry both contributed to subdue the development. Consequently the earnings margin only grew slightly. The main contributor to the improved financial results was the growth in assets under management. In order to support the bank s growth strategy the wealth planning capabilities were developed even further during 2010 including the possibility to offer tax reporting facilities to the clients. The Bank has during 2010 sold its trust company located on the Isle of Man, including two fully owned subsidiaries to West Corporation Limited Isle of Man. Following the transaction, the Bank entered into a service agreement with West Corporation Limited for provision of future trustee services to clients of the Bank. Fund Distribution Fund Distribution continued to generate significant inflows from various European markets into a variety of funds within our multi boutique fund palette. In particular bond funds were investors favourites during 2010 but we also saw sizeable inflows into equity funds such as e.g. the Emerging Consumer Fund. The positive development was due to the combination of a strong investment performance and the fact that the product palette contains a broad range of innovative products in all major asset classes managed by best of class internal and external investment managers. During spring 2010 a new Italian fund distribution company named NorVega was formed together with six Italian retail banks. NorVega started to distribute Nordea funds to the Italian market during the second half of 2010 via the branch network of the Italian joint venture partners and others. Financial Position No events have occurred after the balance sheet date which will materially affect the financial position of the Bank as at 31 December The Bank remains financially strong with capital and reserves amounting to EUR 288 million at the end of The profit for the year before depreciation, provisions and tax amounted to EUR 59.6 million. After deprecation and provisions, pre-tax profit amounted to EUR 54.0 million and net profit for the year to EUR 38.4 million. Risk Management Nordea has clearly defined policies and instructions for risk management. Risks in Nordea are measured and reported according to common principles and policies approved by the main Board and the relevant local Boards. The aim of risk management within the Bank is to: Identify risks Measure risks Monitor and control risks, risk lines and limits Report risks and risk limit utilisations Market risks are measured on the Bank s entire portfolio. There are Value-at-Risk (VaR) limits for equity risk, foreign exchange risk and interest rate risk. The VaR measures are supplemented with other risk measures such as sensitivity and stress test measures. Liquidity risk is measured on a future daily funding gap basis. The Bank s granting of credit lines which are a credit risk to the Bank are based on individual but consolidated assessments of clients financial situations. Other risk types are followed closely as well such as operational risk and counterparty risk. In 2010 the Bank s risk management has been further strengthened through continued cooperation with the Nordea Group with projects covering, for example, liquidity risk and capital adequacy. Further details on the Bank s risk management policies are provided in Note 35 to the consolidated financial statements. The Bank will continue to focus solely on Private Banking, Fund Management and Fund Distribution and expects increased growth in its business activities in Dividend At the Annual General Meeting the Board of Directors will propose a dividend of EUR 36 million. The members of the Board of Directors are listed on page 36. The Board of Directors wishes to express its sincerest thanks to clients and business associates for their cooperation in 2010 and to the staff for their dedicated and committed efforts. The Board of Directors 3 Nordea Bank S.A. Consolidated Financial Statements 2010

5 Consolidated statement of comprehensive income For the year ended 31 December 2010 (EUR 000) notes Operating income Interest income 4 70,931 85,529 Interest expense 4 (39,207) (44,491) Net interest income 31,724 41,038 Fee and commission income 5 169, ,584 Fee and commission expense 5 (85,237) (54,413) Net fee and commission income 84,564 59,171 Net gains on items at fair value 6 25,196 25,318 Dividends 97 - Share of loss on joint-venture 17 (252) - Other operating income Total operating income 141, ,342 Operating expenses General administrative expenses: Staff costs 8 (54,574) (52,275) Other administrative expenses 9 (27,553) (25,973) Other expenses 10 (9) (1,026) Depreciation and amortisation of tangible and intangible assets 19, 20 (4,817) (4,724) Total operating expenses (86,953) (83,998) Litigation provision 26 (358) (1,523) Net loan losses 13 (264) (223) Operating profit 54,143 40,598 Net loss for assets and liabilities held for sale 18 (166) (50) Income tax expense 11 (15,625) (11,467) Profit for the year 38,352 29,081 Total comprehensive income for the year 38,352 29,081 The accompanying notes form an integral part of these consolidated financial statements. Nordea Bank S.A. Consolidated Financial Statements

6 Consolidated balance sheet As of 31 December 2010 Assets & liabilities (EUR 000) notes 31 Dec Dec 2009 Assets Cash and balances with central banks 12 64,132 64,609 Loans and receivables to credit institutions 13 1,281,608 1,463,295 Loans and receivables to the public 13 1,763,067 1,656,346 Interest-bearing securities 14 63,657 60,209 Shares 15 30,568 24,934 Derivatives ,999 91,801 Investment in joint-venture 17 4,148 - Assets held for sale Intangible assets 19 7,447 7,629 Property and equipment 20 9,751 12,835 Other assets 21 7,684 7,739 Prepaid expenses and accrued income 22 56,199 23,008 Total assets 3,543,260 3,412,514 Liabilities Deposits from credit institutions , ,632 Deposits and borrowings from the public 23 2,708,365 2,569,862 Derivatives ,836 59,839 Liabilities held for sale Current tax liabilities - 6,278 Other liabilities 24 27,440 15,026 Accrued expenses and prepaid income 25 45,308 33,832 Deferred tax liabilities 11 15,694 15,394 Litigation provisions 26 1,861 1,523 Subordinated liabilities 27 51,624 51,662 Total liabilities 3,254,982 3,135,191 Equity Share capital 28 25,000 25,000 Share premium 28 12,246 12,246 Reserves 28 35,629 34,946 Retained earnings 215, ,131 Total equity 288, ,323 Total liabilities and equity 3,543,260 3,412,514 Off-balance sheet items Contingent liabilities Guarantees and assets pledged as collateral security 46,013 42,049 Commitments Unutilized confirmed credits 3,678,633 3,830,282 Fiduciary operations 83,792 85,411 Total off-balance sheet items 3,808,438 3,957,742 The accompanying notes form an integral part of these consolidated financial statements. 5 Nordea Bank S.A. Consolidated Financial Statements 2010

7 Consolidated statement of changes in equity As of 31 December 2010 Share Share retained Changes in equity (EUR 000) capital premium Reserves earnings Total At 31 December ,000 12,246 33, , ,047 Profit for the year ,081 29,081 Translation differences - - (4) - (4) Distributions to equity holders (24,000) (24,000) Shareholders contributions Appropriations of profit: Transfer to reserve (845) - At 31 December ,000 12,246 34, , ,323 Profit for the year ,352 38,352 Distributions to equity holders (28,000) (28,000) Shareholders contributions Disposal of subsidiary Appropriations of profit: Transfer to reserve (225) - At 31 December ,000 12,246 35, , ,278 The accompanying notes form an integral part of these consolidated financial statements. Nordea Bank S.A. Consolidated Financial Statements

8 Consolidated cash flow statement For the year ended 31 December 2010 Cash flow (EUR 000) note Operating activities Operating profit 54,143 40,598 Adjustments for: Depreciation/amortisation 4,817 4,724 Loan losses Litigation provision 358 1,523 Unrealized gains/(losses) on shares and derivatives 721 (13,529) Translation difference - (54) Loss from company accounted for under equity method Loss on disposals of property and equipment 9 87 Change in accruals and provisions (1,426) (4,692) Income taxes paid (41,912) (42,664) Cash inflow from operating activities before changes in operating assets and liabilities 17,226 (13,784) Changes in operating assets Change in deposit to central banks 636 (16,611) Change in loans and receivables to credit institutions 528,763 25,007 Change in loans to the public (106,985) (159,760) Change in shares (5,786) 31,194 Change in derivatives, net (50,770) (39,564) Change in other assets Changes in operating liabilities Change in deposits by credit institutions (149,816) 144,841 Change in deposits and borrowings from the public 138, ,478 Change in other liabilities 12,414 3,705 Cash inflow from operating activities 384,240 85,551 Investing activities Purchase of interest bearing securities (3,448) (50,096) Acquisition of property and equipment, own use (179) (1,229) Sale of property and equipment Acquisitions of intangible assets (1,954) (4,420) Change in assets and liabilities held for sale (200) 34 Investment in joint venture (4,400) - Cash outflow from investing activities (9,463) (55,214) Financing activities Shareholders contribution Dividend paid (28,000) (24,000) Cash outflow from financing activities (27,542) (23,801) Net increase in cash and cash equivalents 347,235 6,536 Cash and cash equivalents at the beginning of year 853, ,381 Cash and cash equivalents at the end of year 34 1,201, ,917 The accompanying notes form an integral part of these consolidated financial statements. 7 Nordea Bank S.A. Consolidated Financial Statements 2010

9 Notes to the Consolidated Financial Statements For the year ended 31 December 2010 Note 1 general Corporate matters Nordea Bank S.A. ( the Bank ) was incorporated in Luxembourg on 30 September 1976 as a société anonyme. The registered office of the Bank is located in 562, Rue de Neudorf, L-2220 Luxembourg. The Bank is a majority-owned subsidiary of Nordea Bank AB (publ) ( The Parent Company ), a company incorporated under the laws of Sweden. The members of the Board of Directors are senior executives of companies forming part of the Nordea Group. The business policy and valuation principles, unless prescribed by Luxembourg rules and regulations, are determined and monitored by the Board of Directors in accordance with those applied in the Nordea Group. The Bank operates both from its Luxembourg head office and from a branch located in Zürich (Switzerland). The consolidated accounts of Nordea Bank AB (publ) may be obtained from Nordea, Investor relations, SE Stockholm. The consolidated financial statements of the Bank as at and for the year ended 31 December 2010 comprise the Bank and its subsidiaries Nordea Investment Funds S.A. with registered address 562, rue de Neudorf, L-2220 Luxembourg (ownership interest 99.99%), Dantrust Management Guernsey Limited with registered address Trafalgar Court, Admiral Park, St Peter Port, Guernsey (ownership interest 93%), Nordea Fonds Services GmbH (Germany) with registered address Bonner Strasse 323, D-50968, Koln (ownership interest 100%) and the Bank s interests in the joint-venture NorVega SGR S.p.A. with registered address Largo Donegani n. 2 angolo Via Moscova n.3, Milano (ownership interest 40% through Nordea Investment Funds S.A.). Nordea Bank S.A. and its subsidiaries and joint-venture interest are hereafter referred to as the Bank. Nature of the Bank s business The statutory objective of the Bank is to undertake all banking and financial operations whatsoever. Consolidated financial statements These consolidated financial statements are presented in EUR considering that is the currency of the primary economic environment in which the Bank operates and currency in which the capital is expressed. The Bank s financial year is the calendar year. These consolidated financial statements have been approved for issue by the Board of Directors on 23 February Note 2 Summary of significant accounting policies The accounting policies adopted in respect of the items that are considered material for the results and the financial position of the Bank are stated below. 2.1 Basis of preparation and statement of compliance The consolidated financial statements of the Bank have been prepared in accordance with the International Financial Reporting Standards (IFRSs) as adopted by the European Union ( EU ). Additional information is included in the accompanying consolidated financial statements in order to comply with Luxembourg legal requirements. 2.2 Accounting convention The consolidated financial statements have been prepared under the historical cost convention except for the revaluation of certain financial instruments, in accordance with accounting principles which conform, in all material respects with IFRSs as adopted by the EU. The significant accounting policies are described below. 2.3 Basis of consolidation The consolidated financial statements incorporate the financial statements of the Bank and its subsidiaries. Control is achieved where the Bank has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Nordea Bank S.A. Consolidated Financial Statements

10 The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiary to bring their accounting policies into line with those used by the Bank. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Investments in associated undertakings and jointly controlled entity (equity-accounted investees) Associates are those entities in which the Bank has significant influence, but not control, over the financial and operating policies. Significant influence is deemed to exist when the Bank holds between 20 and 50 percent of the voting power of another entity. Joint ventures are those entities in which the Bank has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. Investments in associates and jointly controlled entities are accounted for using the equity method (equity-accounted investees) and are recognized initially at cost. The cost of the investment includes transaction costs. The consolidated financial statements include the Bank s share of profit or loss, after adjustments to align the accounting policies with those of the Bank, from the date that significant influence or joint control commences until the date that significant control or joint control ceases. When the Bank s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest including any long term investments is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Bank has an obligation or has made payments on behalf of the investee. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and an impairment loss on such an investment is not allocated to any asset, including goodwill, that forms part of the carrying amount of the equity accounted investee. 2.4 Foreign currency translation The consolidated financial statements are expressed in Euro (EUR 000), which is the functional and presentation currency of the Bank. For the purpose of preparation of the consolidated financial statements, the assets and liabilities of the Bank s subsidiaries having different functional and presentation currency than the Bank, are expressed in Euro using exchange rates prevailing at the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising are classified in equity. Foreign currency transactions are recorded in the consolidated financial statements at rates of exchange ruling at the date of transactions or at contracted rates, where appropriate. Monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange ruling at the balance sheet date. Gains and losses on exchange are dealt with through the consolidated statement of comprehensive income. Exchange differences arising on the settlement of transactions at rates different from those at the date of the transaction, and unrealised translation differences on unsettled foreign currency monetary assets and liabilities, are recognised in the consolidated statement of comprehensive income in the item Net gains/losses on items at fair value. 2.5 Use of estimates and judgments The preparation of consolidated financial statements in conformity with IFRSs as adopted by the EU requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Bank s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note Interest income and expense Interest income and expense are recognized on an accrual basis. Interest income and expense are calculated and recognised based on the effective interest rate method. 2.7 Fee and commission income and expense The Bank earns commission income from different services provided to its customers. The recognition of commission income depends on the purpose for which the fees are received. Fees are either recognised as revenue when services are provided or in connection to the execution of a significant act. Fees received in connection with performed services are recognised as income in the period these services are provided. Commission expenses are transaction based and recognised in the period when the services are received. Commission fees mainly include asset management commissions, custody fees and commissions from trading activities. 9 Nordea Bank S.A. Consolidated Financial Statements 2010

11 2.8 Net gains/losses on items at fair value Realised and unrealised gains and losses on financial instruments measured at fair value are recognised in the item Net gains/losses on items at fair value. Realised and unrealised gains and losses mainly derive from shares and share related instruments, interest-related instruments, currency-related instruments and foreign exchange gains/losses. 2.9 Impairment of non financial assets Impairment on investments in associated companies/joint ventures are classified as Impairment of non financial assets in the consolidated statement of comprehensive income. Investments in associated companies/joint ventures are assessed for impairment annually. For goodwill, the recoverable amount is estimated each year at the same time. If observable indicators (loss events) indicate that an associated company/joint venture is impaired, an impairment test is performed to assess whether there is objective evidence of impairment. The carrying amount of the investment in the associate/joint venture is compared with the recoverable amount (higher of value in use and fair value less cost to sell) and the carrying amount is written down to the recoverable amount if required. Impairment losses are reversed if the recoverable amount increases. The carrying amount is then increased to the recoverable amount, but can not exceed the carrying amount that would have been determined had no impairment loss been recognised. An impairment loss in respect of goodwill is not reversed Employee Benefits Defined contribution plan The Bank has pension obligations from a defined contribution plan. The Bank s defined contribution plan is the main pension scheme and covers all employees of the Bank in Luxembourg and branch in Switzerland. Defined contribution plans are not reflected on the balance sheet. A defined contribution plan is a post-employment benefit plan under which the Bank pays fixed contributions into separate entity and will have no legal or constructive obligation to pay further amounts. Obligation for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit and loss when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available. Defined benefit plan Contributions to defined benefit retirement plans are recognised as an expense when employees have rendered service entitling them to the contributions. Calculations on defined benefit retirement plans are performed by external actuaries and are based on the actuarial assumptions fixed for the Bank s pension plan. The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses and unrecognised past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to unrecognised actuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to the plan Share-based payment Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The Bank s Parent Company has granted the right to its equity instruments directly to the employees of the Bank. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group s estimate of equity instruments that will eventually vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss over the remaining vesting period, with a corresponding adjustment to shareholders contributions. Equity-settled share-based payment transactions with other parties are measured at the fair value of the goods or services received, except where the fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service Taxation Income tax expense represents the sum of the current tax and deferred tax. Current tax Corporation tax is charged on the annual taxable profit on the basis of tax legislation and tax rates which are applicable in the Grand Duchy of Luxembourg. Corporation tax for the Bank s branch is calculated based on the tax legislation and tax rates applicable in Switzerland. Nordea Bank S.A. Consolidated Financial Statements

12 The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are exempt or non-deductible as in accordance with the tax legislation applicable in the Grand Duchy of Luxembourg. The Bank s liability for current tax is calculated using the tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax assets arising from deductible temporary differences are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Bank expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities Cash and cash equivalents Cash and cash equivalents consist of cash on hand and loans on demand with banks Financial assets and financial liabilities Investments are recognized and derecognized on trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value. Financial assets are classified into the following specified categories: financial assets at fair value through profit or loss, held to maturity investments and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Financial liabilities are classified as either financial liabilities at fair value through profit and loss or other financial liabilities. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period. Income is recognised on an effective interest basis for debt instruments other than those financial assets designated as at fair value through profit and loss. Financial assets and financial liabilities at fair value through profit and loss Financial assets and financial liabilities are classified as at fair value through profit and loss where the financial asset/financial liability is either held for trading or it is designated as at fair value through profit and loss. A financial asset/financial liability is classified as held for trading if: it has been acquired principally for the purpose of selling in the near future; or it is a part of an identified portfolio of financial instruments that the Bank manages together and has a recent actual pattern of short-term profit-taking; or it is a derivative that is not designated and effective as a hedging instrument. A financial asset/financial liability other than a financial asset/financial liability held for trading may be designated as at fair value through profit and loss upon initial recognition if: such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its per- 11 Nordea Bank S.A. Consolidated Financial Statements 2010

13 formance is evaluated on a fair value basis, in accordance with the Bank s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at fair value through profit and loss. Financial assets and financial liabilities at fair value through profit and loss are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset. Held to maturity investments Bonds with fixed maturity dates that the Bank has the positive intent and ability to hold to maturity are classified as held to maturity investments. Held to maturity investments are recorded at amortised cost using the effective interest method less any impairment, with revenue recognised on an effective yield basis. Loans and receivables Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate. Other financial liabilities Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. Impairment of financial assets Financial assets, other than those at fair value through profit and loss, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. Objective evidence of impairment could include: Significant financial difficulty of the issuer or counterparty; or Default or delinquency in interest or principal payments; or It becoming probable that the borrower will enter bankruptcy or financial re-organisation. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the financial asset s original effective interest rate. The amount of impairment loss is recognized in profit and loss. If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. Impairment on loans If the carrying amount of the loans is higher than the sum of the net present value of the estimated cash flows including the fair value of the collaterals and other credit enhancements, the difference is the impairment loss. If the impairment loss is not regarded as final, the impairment loss is accounted for on an allowance account representing the accumulated impairment losses. Changes in the credit risk and accumulated impairment losses will be recorded as changes in the allowance account and as Net loan losses in the consolidated statement of comprehensive income. If the impairment loss is regarded as final, it is reported as a realized loss. A realized loss is recognized and the value of the loan and the related allowance for impairment loss are derecognised with a corresponding loss recognized in the line item Net loan losses in the consolidated statement of comprehensive income. An impairment loss is regarded as final when the obligor is filed for bankruptcy procedure, or when the Bank forgives its claims either through a legal based or voluntary reconstruction or when the Bank, for other reasons, deem it unlikely that the claim will be recovered. Discount rate The discount rate used to measure impairment is the original effective interest rate for loans attached to an individual customer. Nordea Bank S.A. Consolidated Financial Statements

14 Derecognition of financial assets and financial liabilities The Bank derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. The Bank derecognises financial liabilities when, and only when, the Bank s obligations are discharged, cancelled or they expire Non-current assets held for sale Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-current asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. When the Bank is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Bank will retain a non-controlling interest in its former subsidiary after the sale. Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell Derivatives All derivatives are recognised on the balance sheet and measured at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. Derivatives with a positive fair value including any accrued interest are recognised as assets in the item Derivatives. Derivatives with a negative fair value, including any accrued interest, are recognised as liabilities in the item Derivatives. Realised and unrealised gains and losses from derivatives are recognised in the consolidated statement of comprehensive income in the item Net gains/(losses) on items at fair value Determination of fair value of financial instruments Financial assets and liabilities classified as financial assets/liabilities at fair value through profit or loss and derivative instruments are recorded at fair value on the balance sheet with changes in fair value recognised in the consolidated statement of comprehensive income in the item Net gains/losses on items at fair value. Fair value is defined by IAS 32 and IAS 39 as the amount for which an asset could be exchanged, or a liability settled, between know ledgeable, willing parties in an arm s length transaction. The existence of published price quotations in an active market is the best evidence of fair value and when they exist they are used to measure financial assets and financial liabilities. The Bank is using published price quotations to establish fair value for items disclosed under the following balance sheet items: Shares; Derivatives (listed derivatives). Fair value of non listed derivatives is determined by using valuation techniques. Fair value is estimated to be equal to the book value (amortised cost) as its reasonable approximation for loans and receivables, held to maturity investments and deposits and borrowings Property and equipment and intangible assets Property and equipment and intangible assets are stated at cost net of accumulated depreciation/amortisation and are depreciated according to the straight line method over their estimated useful lives using the following rates: Leasehold improvements 2.5%-20% Motor vehicles 20% Furniture and equipment 20% Fixture and fittings 20% Computer software and hardware 20% When the carrying amounts of property and equipment and intangible assets exceed their recoverable values, assets are written down, and impairment losses are recorded in the consolidated statement of comprehensive income. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis. The gain or loss arising on the disposal or retirement of an item of property and equipment and intangible assets is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. All intangible assets are internally developed. 13 Nordea Bank S.A. Consolidated Financial Statements 2010

15 2.19 Impairment of property and equipment and intangible assets At each balance sheet date, the Bank reviews the carrying amounts of its property and equipment and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized immediately in profit and loss Provisions Provisions are recognized when the Bank has a present obligation (legal or constructive) as a result of a past event, it is probable that the Bank will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably Standards and interpretations not yet adopted In the current year, the Bank has adopted each of the new and revised Standards and Interpretations adopted by the EU that are relevant to its operations and effective for annual reporting years beginning on 1 January The adoption of these new and revised Standards and Interpretations has not resulted in significant changes to the Bank s accounting policies. The Bank has furthermore chosen to adopt the improvements to IFRS 7 Financial instruments: Disclosures, which is a part of Improvements to IFRSs 2010 already in 2010, although only effective for the Bank as from 1 January The adopted improvements to IFRS 7 have not, in the year of initial application, had a significant impact on the Bank nor is it expected to in subsequent years. Forthcoming changes in IFRS IFRS 9 Financial instruments (Phase 1) In 2009 IASB published a new standard on financial instruments. The standard is the first step in the replacement of IAS 39 Financial instruments: Recognition and Measurement and this first phase covers classification and measurement of financial assets. The effective date for Nordea is as from 1 January 2013, but earlier application is permitted. The EU commission has not endorsed this standard. Nordea has, due to the fact that the standard is not yet endorsed by the EU commission, not finalised the investigation of the impact in the year of initial application or on subsequent years and can therefore neither express an opinion on the impact on the capital adequacy. Other forthcoming changes in IFRSs The IASB has amended IAS 32 Financial instruments: Presentation, with respect to classification of rights issues, IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, revised IAS 24 Related Party Disclosures and published IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments. Nordea has chosen not to early adopt these changes. The amended, revised and published standards and interpretations will be applied retroactively as from 1 January The adoption of these standards is not expected to have a significant impact on the Bank. The amendment of IAS 32 may affect future rights issues involving different currencies, whilst the revised IAS 24, amended IFRIC 14 and the published IFRIC 19 are not expected to have a significant impact in subsequent years. The IASB has published Improvements to IFRSs (2010). These improvements are effective for Nordea as from 1 January 2011, but early application is allowed. Nordea has, chosen to early adopt the improvements to IFRS 7 Financial instruments: Disclosures. The other improvements not yet adopted are not expected to have a significant impact in the year of initial application or in subsequent years. Nordea Bank S.A. Consolidated Financial Statements

16 In addition, IFRS 7 Financial instruments: Disclosures has been amended by the IASB in order to increase the transparency in the reporting of transferred assets ( Disclosures Transfers of Financial Assets ). Nordea has chosen not to early adopt these changes. The amended standard is effective for Nordea as from 1 January The amended standard will lead to an increased level of disclosures in the year of initial application and in subsequent years. Note 3 Critical accounting judgments and key sources of estimation uncertainty The preparations of consolidated financial statements in conformity with IFRS as adopted by the EU requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of off-balance sheet items at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The estimates are based on past experience and assumptions that management believes are fair and reasonable. Actual results may differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. These critical judgments and estimates are in particular associated with: (a) the fair value measurement of certain financial instruments (non listed derivatives) Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. All models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practical, models use only observable data; however, areas such as credit risk (both own counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect reported fair value of financial instruments. (b) the impairment tests of loans and receivables The Bank reviews its loan portfolios to assess impairment on quarterly basis. In determining whether an impairment loss should be recorded in the consolidated statement of comprehensive income, the Bank makes judgments as to whether there is any observable data indicating that there is a decrease in the estimated future cash flows from a loan. Elements considered as evidence of impairment are disclosed in note 13. (c) useful lives of property and equipment and intangible assets The Bank reviews the estimated useful lives of property, plant and equipment at the end of each annual reporting period in order to determine the depreciation rates. (d) Provision for claims All litigation provisions for claims that the Bank is involved in are analysed at each reporting date and adjusted to reflect the current best estimate. When necessary, legal advice is sought and provisions are recorded. (e) Income taxes The Bank is subject to income tax in Luxembourg and countries where it has subsidiaries. Estimates are required in determining the provision for income taxes. There are transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Bank recognises tax liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. 15 Nordea Bank S.A. Consolidated Financial Statements 2010

17 Note 4 net interest income (EUR 000) Interest income Loans and receivables to credit institutions 12,540 30,546 Loans and receivables to the public 27,542 29,634 Interest-bearing securities (held to maturity) Interest-bearing securities (at fair value through profit and loss) Other interest income 30,215 24,252 70,931 85,529 Interest expense Deposits from credit institutions (2,447) (3,269) Deposits and borrowings from the public (9,846) (21,727) Subordinated liabilities (1,042) (1,608) Other interest expense (25,872) (17,887) (39,207) (44,491) Net interest income 31,724 41,038 Interest income from financial instruments not measured at fair value through profit and loss amounts to EUR 70,493 thousand (2009: EUR 84,609 thousand). All interest expense derives from financial instruments not measured at fair value through profit and loss. Interest income on impaired loans for the year ended 2010 amounts to EUR 261 thousand (2009: EUR 543 thousand). Other interest income and expense are mainly related to derivative instruments. Note 5 Net fee and commission income (EUR 000) Fee and commission income Asset management commissions 27,012 14,211 Custody fees 11,974 9,302 Trading activities 48,634 39,065 Investment management and distribution fees 80,300 47,643 Guarantees Other commission income 1,816 3, , ,584 Fee and commission expense Trading activities (16,286) (11,245) Payment expense (529) (669) Advisory fees (26,966) (13,914) Trailer fees (34,721) (18,425) Other fee and commission expense (6,735) (10,160) (85,237) (54,413) Net fee and commission income 84,564 59,171 Fee and commission income/expense for categories of financial instruments: (EUR 000) Financial instruments at fair value through profit and loss 5,470 4,611 Other 79,094 54,560 Net fee and commission income 84,564 59,171 Other commission income includes transfer of cash fees, fiduciary deposit fees and other. Other fee and commission expense mainly include agent fees. Nordea Bank S.A. Consolidated Financial Statements

18 Note 6 Net gains on items at fair value Shares and other share-related instruments (EUR 000) Realised gains / (losses) 6,598 (1,827) Unrealised gains /(losses) (152) 13,565 Interest-related instruments (EUR 000) Realised (losses) (493) (235) Unrealised (losses) (569) (36) Currency related instruments 6,957 4,016 Unrealised foreign exchange gains 12,855 9,835 25,196 25,318 Net gains/(losses) arising from investments held for trading amount to EUR 5,846 thousand (2009: EUR (3,745) thousand). Note 7 Other operating income (EUR 000) AGDL refund Other Note 8 Staff costs Staff costs (EUR 000) Wages and salaries 48,315 46,182 Pension costs Social insurance contributions 4,471 4,557 Other staff costs ,574 52,275 Executives include Head of International Private Banking and Funds, Chief Operating Officer, Head of Private Banking, Head of Fund Distribution and Managing Directors of NIF S.A., Executives amount to 6 individuals and middle management amounts to 23 individuals. Remuneration of EUR 8,257 thousand has been paid to the Executives and middle management (29 persons) in respect of the year ended 31 December 2010 (2009: EUR 7,017 thousand). At 31 December 2010, loans and advances totalling EUR 11 thousand have been granted to the members of the senior and middle management (2009: EUR 12 thousand). No remuneration was paid to the Board of Directors in the year ended 31 December 2010 and At 31 December 2010, no loans and advances have been granted to members of the Board of Directors (2009: EUR nil). As at 31 December 2010, the Bank did not have a commitment relating to pension on behalf of senior and middle management nor on behalf of Board of Directors members (2009: EUR nil). However, the amount related to share based payment programme included in the reserves relates to one member of the Board of Directors and members of Senior Management. Average number of employees Senior management / Executives 6 5 Middle management Employees Non-clerical staff Nordea Bank S.A. Consolidated Financial Statements 2010

19 Note 9 Other administrative expenses Other administrative expenses (EUR 000) Information technology 12,012 11,608 Marketing and representation 2,921 1,991 Postage, telephone and office expenses 1,107 1,099 Rents, premises and real estate 5,439 5,297 Consulting fees 922 1,005 Travel expenses 2,133 1,827 Other 3,019 3,146 27,553 25,973 Information technology expenses relate to IT operations, service expenses and consultant fees for the Bank. Other expenses include fees and remuneration to auditors distributed as follows: Auditor s expenses: (EUR 000) KPMG Audit S.à r.l., Luxembourg Auditing assignments Other assignments including audit-related services KPMG Advisory S.à r.l./kpmg Tax S.à r.l. Other fees Note 10 Other expenses Other expenses (EUR 000) AGDL fees Other ,026 In accordance with the law of 5 April 1993, as amended, the sole object of the AGDL ( Association pour la Garantie des Dépôts, Luxembourg ) is the establishment of a mutual guarantee scheme covering deposits made by customers of member credit institutions ( the Guarantee ). The customers covered by the Guarantee include all depositors who are physical persons, whatever their nationality or country of residence. Also covered by the Guarantee are small companies constituted under the law of a Member State of the European Union, whose size is such that they would be permitted to draw up abbreviated accounts pursuant to Article 215 of the law of 10 August 1915 on commercial companies, as amended. With respect to each member, the Guarantee is limited to a maximum amount per customer of EUR 100 thousand or its foreign currency equivalent. No depositor can receive more than this sum, regardless of the number of accounts or deposits held in the sole or joint name of the depositor with the same credit institution. The Bank must also belong to an investment guarantee scheme to cover the aggregate investment business of each investor, regardless of the number of accounts, the currency in which they are denominated and their location within the European Union, up to a value equivalent to 20 thousand euros. During 2010 the Bank has made no AGDL payments and has received AGDL refunds in total amount of EUR 328 thousand as disclosed in note 7. Nordea Bank S.A. Consolidated Financial Statements

20 Note 11 Income tax expense Income tax expense (EUR 000) Current tax 14,558 9,318 Deferred tax 300 1,815 Other direct taxes ,625 11,467 The reconciliation between the tax expense and the accounting profit based on the applicable tax rates is set out below: (EUR 000) Profit before tax 53,977 40,548 Tax calculated at a tax rate of 21.84% 11,789 9,550 Municipal business tax at a tax rate of 6.75% 3,643 2,833 Effect of different tax rates in other countries (464) (175) Other direct taxes 1, Tax-exempt income (490) (1,075) Income tax expense 15,625 11,467 Deferred tax Deferred tax expense (EUR 000) Deferred tax due to temporary differences 300 1, ,815 Deferred tax liabilities (EUR 000) Deferred tax liabilities due to temporary differences 15,694 15,394 15,694 15,394 Deferred tax liabilities (EUR 000) Derecognition of non-qualifying intangible assets - (50) Recognition of qualifying intangible assets 47 - Recognition of qualifying tangible assets Securities measured at fair value Derivatives measured at fair value Operating lease not recognized in accordance with IAS Derecognition of provisions 10,291 9,677 Release of special items with reserve quota portion 4,109 4,079 15,694 15,394 Applicable corporate income tax rate will increase from 1 January 2011 from 21.84% to 22.05%. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities. Note 12 Cash and balances with central banks (EUR 000) 31 Dec Dec 2009 Mandatory reserve deposit with central banks 62,592 63,228 Cash in hand 1,540 1,381 64,132 64,609 Deposits placed with the central bank in amount of EUR 62,592 thousand represent minimum restricted reserves that approximate to 2% of the Bank s deposits and debt certificates maturing within two years. Compliance with the reserve requirement is determined on the basis of the institutions average daily reserve holdings over the maintenance period, thus reserves of credit institutions can vary from one day to another following their treasury management, the money market or their expectations of interest rates. 19 Nordea Bank S.A. Consolidated Financial Statements 2010

21 Note 13 Loans and receivables Loans and receivables (EUR 000) 31 Dec Dec 2009 To credit institutions Repayable on demand 1,199, ,536 Repayable on non demand 81, ,759 1,281,608 1,463,295 To public Repayable on demand 473, ,203 Repayable on non demand 1,289,082 1,356,143 1,763,067 1,656,346 3,044,675 3,119,641 Loans and receivables, not impaired (EUR 000) 31 Dec Dec 2009 Loans and receivables, not impaired 3,038,265 3,114,844 Out of which: past due loans 14,909 15,531 Impaired loans and receivables performing 9,428 7,572 Loans and receivables before allowances and write offs 3,047,693 3,122,416 Allowances and write offs for individually assessed impaired loans performing (3,018) (2,775) Allowances and write offs (3,018) (2,775) Loans and receivables, carrying amount 3,044,675 3,119,641 Included in the Bank s loans and receivables are loans with the carrying amount of EUR 14,909 thousand (2009: EUR 15,531 thousand) which are past due at the reporting date but not impaired as there has not been a significant change in credit quality and the amounts are still considered recoverable. Reconciliation of allowance and write off accounts for impaired loans (EUR 000) 31 Dec Dec 2009 Allowance balance at 1 January 2,754 2,552 Provisions 929 1,635 Reversals (756) (1,433) Allowance balance at 31 December 2,927 2,754 Loans written off Closing balance at 31 December 3,018 2,775 Loans and receivables to the public (EUR 000) 31 Dec Dec 2009 Secured 1,629,238 1,553,468 Unsecured 133, ,878 1,763,067 1,656,346 In determining the recoverability of loans and receivables, the Bank considers any change in the credit quality of the loans and receivables from the date credit was initially granted up to the reporting date. Included in the allowance for impaired loans are individually impaired loans and receivables with a balance of EUR 2,927 thousand (2009: EUR 2,754 thousand) which represent overdrawn current accounts, investment loans and mortgage loans. The impairment recognised represents the difference between the carrying amount of these loans and receivables and the present value of the expected future cash flows. Maturity information of past due but not impaired loans Public Maturity information (EUR 000) 31 Dec Dec 2009 Remaining maturity (book value) 1-5 years 2,645 - More than 5 years 12,264 15,531 Total 14,909 15,531 Nordea Bank S.A. Consolidated Financial Statements

22 Note 14 Interest-bearing securities (EUR 000) 31 Dec Dec 2009 Held to maturity investment 18,207 18,207 Designated at fair value through profit and loss 45,450 42,002 63,657 60,209 Held to maturity investment comprises two bonds. Security in amount of EUR 10,103 thousand (nominal amount of EUR 10,100 thousand) represents a bond issued by Nordea Bank AB (publ). The bond bears floating rate of 3 month EURIBOR plus 10 basis points and matures on 20 June Security in amount of EUR 8,104 thousand (nominal amount of EUR 8,100 thousand) represents a bond issued by Nordea Bank AB (publ). This bond bears floating rate of 3 month EURIBOR plus 60 basis points and matures on 16 June Both bonds are stated at amortised cost. Security in amount of EUR 45,450 thousand (nominal amount of EUR 45,000 thousand) represents bond issued by Nykredit. The bond bears interest rate of 1% p.a. and matures on 1 January The bond is purchased for the purpose of replacing the current cash deposit at Swiss National Bank with the securities to be placed in custody with Zurich Cantonal Bank. The same type of bond will be repurchased on yearly basis with the value depending on the asset requirement for the Guaranteed Deposit Scheme. Note 15 Shares (EUR 000) 31 Dec Dec 2009 Shares designated at fair value through profit and loss 30,568 24,934 30,568 24,934 (EUR 000) 31 Dec Dec 2009 Listed shares 29,090 23,548 Unlisted shares 1,478 1,386 30,568 24,934 The investments included above represent investments in securities to seeding funds. The Bank subscribes the seed money to allow the fund to have a minimum capital base at the launch. After a period of time, the fund receives net inflows enough to redeem the seed money to the Bank. These securities have no fixed maturity or coupon rate. The fair values of listed securities are based on quoted market prices. Note 16 Derivatives 31 December 2010 Fair value Derivatives held for trading (EUR 000) Positive Negative Total nominal amount Interest rate derivatives Futures 1,883 1,883 2,822,584 Swaps ,354 Options ,304 Total 2,423 3,022 2,873,242 Equity derivatives Futures 4,228 4, ,234 Options 14,035 14,035 1,355,597 Total 18,263 18,263 2,006,831 Foreign exchange derivatives Currency forwards 229, ,701 18,000,111 Options 3,642 2, ,875 Other 1,239 4, ,180 Total 234, ,551 19,669,166 Total derivatives held for trading 254, ,836 24,549, Nordea Bank S.A. Consolidated Financial Statements 2010

23 31 December 2009 Fair value Derivatives held for trading (EUR 000) Positive Negative Total nominal amount Interest rate derivatives Futures 1,544 1,656 2,193,897 Swaps ,359 Options 2,185 2,185 30,989 Total 3,950 3,841 2,228,245 Equity derivatives Futures 2,886 2, ,989 Options 16,830 16,830 1,022,761 Total 19,716 19,716 1,362,750 Foreign exchange derivatives Currency forwards 64,649 33,063 7,541,751 Options 2,967 1, ,456 Other 519 1, ,302 Total 68,135 36,282 8,782,509 Total derivatives held for trading 91,801 59,839 12,373,504 Note 17 Investments in joint venture In April 2010 the subsidiary Nordea Investment Funds S.A. entered into a strategic partnership with an Italian asset manager named Vegagest SGR. A joint operation in the form of a new Italian asset management and fund distribution company was formed under the name NorVega SGR. S.p.A. Nordea Investment Funds and Vegagest both supported NorVega with employees and business activities. Subsequently Nordea Investment Funds closed its representative office in Milan. NorVega offers Italian investors from both client bases a collective product range being investment funds. Details of the Bank s equity-accounted investee are as follows: Name of company Reporting date Place of incorporation Proportion of ownership Principal activity and operation NorVega SGR 31 December Italy 40% Investment funds Summarized financial information in respect of the Bank s equity-accounted investee is set out below: EUR Total assets 4,770 Total liabilities (3,371) Net assets 1,399 Income 3,081 Expenses 3,711 Loss for the period (April 2010 December 2010) (630) Share of equity accounted investee s loss for the period (252) Value at beginning of year - Acquired during the year 4,400 Share of equity accounted investee s loss (252) Value at year end 4,148 Nordea Bank S.A. Consolidated Financial Statements

24 Note 18 Assets and liabilities held for sale In 2009, Nordea Bank SA owned a trust company at Isle of Man, which had two fully owned subsidiaries, being: Nordea Trust Company (Isle of Man) Limited NTC Nordea Nominees (Isle of Man) Limited subsidiary to NTC Nordea Secretarial Services (Isle of Man) Ltd subsidiary to NTC Established in 1991, they together provided trustee and company services for clients of the Bank. Over recent years, the demand for trusts and corporate structures by clients of the Bank had not grown significantly. Equally important, the complexity of trustee and company administration has increased in recent years, resulting in NTC having outsourced parts of its administration in recent years. Going forward, Nordea Bank S.A. had therefore decided to sell NTC and its subsidiaries to a larger scale trustee provider at Isle of Man and enter into a service agreement for future provision of these services to clients of the Bank. The process to sell NTC and its subsidiaries was initiated during Q The transaction was closed during Q through a share purchase agreement by which the acquirer took over 100% of the share capital of NTC and its subsidiaries resulting in a realised loss amounting to EUR 166 thousand for the Bank. Note 19 Intangible assets (EUR 000) 31 Dec 2010 Acquisition Cost At 1 January ,898 Additions 1,954 At 31 December ,852 Amortisation At 1 January ,269 Charge for the year 2,136 At 31 December ,405 Net book values 31 December , December ,629 Note 20 Property and equipment Leasehold Computer Motor (EUR 000) improvements hardware vehicles Fixtures Total Cost At 1 January ,309 5,608 4, ,274 Additions Disposals (841) (86) (956) (285) (2,168) At 31 December ,468 5,655 3, ,285 Depreciation At 1 January ,903 4,158 2, ,439 Charge for the year 1, ,681 Disposals (445) (86) (770) (285) (1,586) At 31 December ,756 4,747 2, ,534 Net book values 31 December , , , December ,406 1,450 1, , Nordea Bank S.A. Consolidated Financial Statements 2010

25 Note 21 Other assets (EUR 000) 31 Dec Dec 2009 Receivables on securities settlement 242 1,500 Retirement benefit assets - 37 Cash items in the process of collection 6,085 3,707 Other 1,357 2,495 7,684 7,739 Retirement benefit (EUR 000) 31 Dec Dec 2009 Present value of the obligation (350) (271) Fair value of plan Retirement benefit (liability) / asset (9) 37 Retirement benefit result from a defined benefit plan that was pre-existing pension scheme transferred to the Bank during the merger between the Bank and MeritaNordbanken Luxembourg S.A. on 22 June As of 31 December 2010, the number of people belonging to the scheme is 3 (2009: 3). The total net pension cost related to defined benefit plan recognised in the Bank s consolidated statement of comprehensive income for the year is EUR 35 thousand (2009: EUR 35 thousand). Note 22 Prepaid expenses and accrued income (EUR 000) 31 Dec Dec 2009 Accrued interest income on swaps Prepaid interest expenses Other accrued income 28,780 17,044 Prepaid tax assets 23,046 2,737 Prepaid expenses 3,961 2,346 56,199 23,008 Note 23 Deposits and borrowings Deposits and borrowings (EUR 000) 31 Dec Dec 2009 From credit institutions Repayable on demand 19,656 85,046 Repayable on non demand 212, , , ,632 From public Repayable on demand 2,028,481 1,941,451 Repayable on non demand 679, ,411 2,708,365 2,569,862 2,940,219 2,951,494 Note 24 Other liabilities (EUR 000) 31 Dec Dec 2009 Liabilities on securities settlement proceeds 13, Other tax liabilities 10,229 9,499 Accounts payable 2,042 3,063 Retirement benefit liability 9 - Other 2,098 2,057 27,440 15,026 Nordea Bank S.A. Consolidated Financial Statements

26 Note 25 Accrued expenses and prepaid income (EUR 000) 31 Dec Dec 2009 Accrued interest payable on swaps Other accrued expenses 44,688 33,797 45,308 33,832 Note 26 Litigation provisions (EUR 000) 31 Dec Dec 2009 At beginning of year 1,523 - New provisions made 470 1,523 Provisions utilized (20) - Reversals (112) - 1,861 1,523 Litigation provisions are analyzed at each reporting date and adjusted to reflect the current best estimate. When necessary, legal advice is sought and provisions are recorded. Note 27 Subordinated liabilities The Bank has incurred charges of EUR 1,042 thousand (2009: EUR 1,608 thousand) during the year, corresponding to 6 months LIBOR + 1% p.a., with respect to its subordinated liability amounting to EUR 51,129 thousand issued on 15 July The subordinated liability is for an indefinite period. This liability is towards Nordea Bank AB. The subordinated liability will be repaid only with prior notice of five (5) years and one (1) day, in one lump sum with all interest accrued to the date of repayment. Note 28 Equity a) Share capital and share premium As at 31 December 2010, the Bank s subscribed and paid up capital amounts to EUR 25,000 thousand (2009: EUR 25,000 thousand), represented by 1,000,000 shares of EUR 25 each. At 31 December 2010 the Bank s share premium amounts to EUR 12,246 thousand (2009: EUR 12,246 thousand). b) Reserves In accordance with Luxembourg law, the Bank appropriated to reserves an amount equivalent to at least 5% of the annual net profit until such reserve equals 10% of the share capital ( Statement of changes in equity ). Distribution of the reserve is restricted by Luxembourg Law. As at 31 December 2010, the total amount of this reserve included in reserves is EUR 2,500 thousand (2009: EUR 2,500 thousand). Included in reserves at 31 December 2010 is an amount of EUR 6,160 thousand which relates to the creation of a non distributable reserve equal to five times the 2009 net worth tax. An amount of EUR 5,935 thousand became available for distribution as related to the year 2004 for net worth tax reserve. If the amount of the reserve is not maintained (for a reason other than a change in capital) for a five year period, the Bank s lia bility to income tax will be increased by one-fifth of the amount of the reduction for the year in which the reduction took place. As at 31 December 2010, the total amount of net worth tax reserve included in reserves is EUR 32,230 thousand (2009: EUR 32,005 thousand). The Bank has a Long Term Incentive Plan ( LTIP ) for Senior management. Shares granted under the LTIP are equity-settled. Participation in the Long-Term Incentive Programmes (LTIPs) requires that the participants take direct ownership by investing in Nordea shares. For each ordinary share the participants lock in to the LTIPs, they are granted a conditional A-right/ Matching Share to acquire or receive ordinary shares based on continued employment. The share rights have a vesting period of 36 months (LTIP 2010) and 24 months (LTIP 2009, 2008 and 2007). As at 31 December 2010, the number of A-rights/ Matching Shares outstanding was 13, 646 and 38,307 corresponding to the LTIP 2008 and LTIP 2009 respectively. At the same 25 Nordea Bank S.A. Consolidated Financial Statements 2010

27 date, the number of A-rights/Matching Shares outstanding was 20,933 corresponding to the LTIP The exercise price of A-right/Matching Share is EUR 0 and the fair value per share of the A-rights/Matching Share at grant date is EUR The amount expensed during the year was EUR 458 thousand (2009: EUR 199 thousand). The expense is offset by a contribution from the Parent for the same amount and is recorded directly in equity. The accumulated cost for the year in respect of the LTIP of EUR 903 thousand (2009: EUR 445 thousand) has been recognized in equity. The translation reserve comprises all foreign exchange differences arising from the translation of consolidated financial statements of foreign operations in amount of EUR (4) thousand (2009: EUR (4) thousand). Note 29 Related party transactions The Bank entered into transactions with the Parent Company, affiliated entities, and the key management personnel within the normal banking practice. The balance sheet includes the following amounts resulting from the transactions with related parties: Parent Company Affiliated entities (EUR 000) 31 Dec Dec Dec Dec 2009 Assets Loans and receivables 119, ,508 1,084,308 1,102,013 Interest-bearing securities 18,207 18, Derivatives ,065 39,718 Other assets Total assets 137, ,971 1,234,178 1,142,580 Liabilities Deposits 2, , ,245 Subordinated liabilities 51,624 51, Derivatives 2,187 4,093 85,890 16,610 Other liabilities Total liabilities 56,381 55, , ,937 Key management personnel have loans and receivables in amount of EUR 11 thousand outstanding as of 31 December 2010 (2009: EUR 12 thousand). Parent Company Affiliated entities Income and expense (EUR 000) Interest income 2,163 3,282 9,743 25,290 Interest expense (1,118) (1,617) (1,907) (3,262) Commission income - - 1, Net gains/(losses) on items at fair value ,266 (23,475) Other income ,105 Other expenses - - (492) (488) Net income and expense 1,045 1,665 69, There were no income or expense generated in relation to balances of key management personnel as of 31 December 2010 (2009: nil). Compensation to key management personnel are specified in Note 8. The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have been made for doubtful debts in respect of the amounts owed by related parties. Remuneration of key management personnel The remuneration of the key management personnel of the Bank, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. (EUR 000) 31 Dec Dec 2009 Short-term employee benefits 2,308 2,059 Post-employment benefits ,580 2,179 Nordea Bank S.A. Consolidated Financial Statements

28 Note 30 Classification of financial instruments A = Loans and receivables B = Held to maturity C = Held for trading D = Designated at fair value through profit and loss E = Non-financial assets F = Other financial liabilities G = Non-financial liabilities Assets, 31 December 2010 (EUR 000) A B C D E Total Cash and balances with central banks 64, ,132 Loans and receivables to credit institutions 1,281, ,281,608 Loans and receivables to the public 1,763, ,763,067 Interest-bearing securities - 18,207-45,450-63,657 Shares ,568-30,568 Derivatives , ,999 Investments in joint-venture ,148 4,148 Intangible assets ,447 7,447 Property and equipment ,751 9,751 Other assets 7, ,684 Prepaid expenses and accrued income 4, ,826 56,199 Total 3,120,864 18, ,999 76,018 73,172 3,543,260 Liabilities, 31 December 2010 (EUR 000) C F G Total Deposits from credit institutions - 231, ,854 Deposits and borrowings from the public - 2,708,365-2,708,365 Derivatives 172, ,836 Other liabilities - 27,440-27,440 Accrued expenses and prepaid income ,688 45,308 Deferred tax liabilities ,694 15,694 Provisions - - 1,861 1,861 Subordinated liabilities - 51,624-51,624 Total 172,836 3,019,903 62,243 3,254,982 Assets, 31 December 2009 (EUR 000) A B C D E Total Cash and balances with central banks 64, ,609 Loans and receivables to credit institutions 1,463, ,463,295 Loans and receivables to the public 1,656, ,656,346 Interest-bearing securities - 18,207-42,002-60,209 Shares ,934-24,934 Derivatives , ,801 Assets held for sale Intangible assets ,629 7,629 Property and equipment ,835 12,835 Other assets 7, ,739 Prepaid expenses and accrued income 3, ,781 23,008 Total 3,195,179 18,207 91,801 66,936 40,391 3,412,514 Liabilities, 31 December 2009 (EUR 000) C F G Total Deposits from credit institutions - 381, ,632 Deposits and borrowings from the public - 2,569,862-2,569,862 Derivatives 59, ,839 Liabilities held for sale Current tax liabilities - - 6,278 6,278 Other liabilities - 15,026-15,026 Accrued expenses and prepaid income ,797 33,832 Deferred tax liabilities ,394 15,394 Provisions - - 1,523 1,523 Subordinated liabilities - 51,662-51,662 Total 59,839 3,018,217 57,135 3,135, Nordea Bank S.A. Consolidated Financial Statements 2010

29 Note 31 Assets and liabilities at fair value 31 Dec Dec 2010 Assets (EUR 000) Book value Fair value Book value Fair value Cash and balances with central banks 64,132 64,132 64,609 64,609 Loans and receivables to credit institutions 1,281,608 1,281,608 1,463,295 1,463,295 Loans and receivables to the public 1,763,067 1,763,149 1,656,346 1,656,575 Interest-bearing securities 63,657 63,657 60,209 60,209 Shares 30,568 30,568 24,934 24,934 Derivatives 254, ,999 91,801 91,801 Assets held for sale ,458,031 3,458,113 3,361,303 3,361,532 Liabilities (EUR 000) Book value Fair value Book value Fair value Deposits from credit institutions 231, , , ,632 Deposits and borrowings from the public 2,708,365 2,708,365 2,569,862 2,569,862 Derivatives 172, ,836 59,839 59,839 Liabilities held for sale Subordinated liabilities 51,624 51,624 51,662 51,662 3,164,679 3,164,679 3,063,138 3,063,138 Estimation of fair value for assets and liabilities Financial assets and financial liabilities in the balance sheet are generally measured at fair value, with the exception of loans and receivables, held to maturity investments and deposits and borrowings. Fair value is estimated to be equal to the book value (amortised cost) as its reasonable approximation for loans and receivables, held to maturity investments and deposits and borrowings. Loans and receivables mainly consist of investment loans whose rollover period is up to 3 months and mortgage loans with rollover period of one year. Fair value of investment loans is considered to approximate its book value due to short maturity and low volatility in interest rates. Fair value of mortgage loans differs to its book value due to longer period of rollover and higher volatility in interest rates. Fair value is estimated to be equal to the carrying amount for short-term financial assets and financial liabilities including cash and balances with central banks. The carrying amount is a reasonable approximation of fair value due to limited credit risk and short time to maturity. Determination of fair value from quoted market prices or valuation techniques The following table presents the valuation methods used to determine fair values of financial instruments carried at fair value. A = Instruments with quoted prices B = Valuation technique using observable data C = Valuation technique using non-observable data A B C 31 December 2010 (EUR 000) (Level 1) (Level 2) (Level 3) Total Assets Interest bearing securities 45, ,450 Shares 29,090 1,478-30,568 Derivatives 14, , ,999 Liabilities Derivatives 15, , ,836 Level 1 consists of financial assets and financial liabilities valued using unadjusted quoted prices in active markets for identical assets or liabilities. This category includes listed equity shares, exchange-traded derivatives and listed securities. Level 2 consists of financial assets and financial liabilities which do not have quoted market prices directly available from an active market, and where fair values are estimated using valuation techniques or models, based wherever possible on assumptions supported by observable market prices or rates prevailing at the balance sheet date. The Bank s OTC derivatives and unlisted shares fall within this category. Nordea Bank S.A. Consolidated Financial Statements

30 Note 32 Foreign currency risk The management of the Bank, within the framework of the approved investment policy, sets the limits on all currency positions at the Bank. These positions are monitored daily through the Investment and Currency department which reports matters to upper management to ensure maintaining positions within the approved limits. The following are the net position of major currencies at the Bank: (EUR 000) 31 December 2010 EUR SEK DKK NOK USD Other Total Assets Cash, loans and receivables to credit institutions 316, , ,514 21,914 3,903 52,149 1,345,740 Loans and receivables to the public 948, , ,981 18,727 71, ,948 1,763,067 Interest-bearing securities 63, ,657 Other assets 249,326 10,077 2, ,661 10, ,796 Total assets 1,578, , ,222 41, , ,546 3,543,260 Liabilities and equity Deposits from credit institutions 731 2, , ,803 10, ,854 Deposits and borrowings from the public 1,028, , , , , ,687 2,708,365 Subordinated liabilities 51, ,624 Other liabilities and equity 400,116 71,524 7,105 7,347 21,874 43, ,417 Total liabilities and equity 1,481, , , , , ,454 3,543,260 Net position, currencies 96,920 (356,137) 630,864 (95,212) (507,527) 231, December 2009 EUR SEK DKK NOK USD Other Total Assets Cash, loans and receivables to credit institutions 117, , ,302 1,142 4, ,614 1,527,904 Loans and receivables to the public 661,628 94,187 45,260 11,545 62, ,440 1,656,346 Interest-bearing securities 60, ,209 Other assets 133,645 2,233 1,440 3,915 14,902 11, ,055 Total assets 973, , ,002 16,602 81, ,974 3,412,514 Liabilities and equity Deposits from credit institutions 62,913 2, , ,899 22, ,632 Deposits and borrowings from the public 955, , , , , ,926 2,569,862 Subordinated liabilities 51, ,662 Other liabilities and equity 374, ,496 2,133 11,315 11, ,358 Total liabilities and equity 1,444, , , , , ,349 3,412,514 Net position, currencies (471,226) (237,034) 727,288 (186,268) (497,385) 664, Nordea Bank S.A. Consolidated Financial Statements 2010

31 Note 33 maturity analysis for assets and liabilities 31 December 2010 (EUR 000) Payable on demand Maximum 3 months 3-12 months 1-5 years More than 5 years Total Cash and balances with central banks 64, ,132 Loans and receivables to credit institutions 1,199,612 68,486 13, ,281,608 Loans and receivables to the public 473,985 1,155, ,206 12,306 1,763,067 Interest-bearing securities - 45,449-18,208 63,657 Derivatives - 223,762 28,357 2, ,999 Total assets with fixed maturities 1,737,729 1,493, ,073 33,394 3,427,463 Deposits from credit institutions 19, , ,854 Deposits and borrowings from the public 2,028, ,099 59,430 3,355-2,708,365 Derivatives - 155,817 13,540 3, ,836 Subordinated liabilities ,624 51,624 Total liabilities with fixed maturities 2,048, ,114 72,970 6,834 51,624 3,164, December 2009 (EUR 000) Payable on demand Maximum 3 months 3-12 months 1-5 years More than 5 years Total Cash and balances with central banks 64, ,609 Loans and receivables to credit institutions 852, ,228 1, ,463,295 Loans and receivables to the public 300, ,303 51,309 35, ,230 1,656,346 Interest-bearing securities ,103 8,104 60,209 Derivatives - 66,200 20,713 4,888-91,801 Total assets with fixed maturities 1,217,348 1,710,733 73,553 50, ,334 3,336,260 Deposits from credit institutions 85, , ,632 Deposits and borrowings from the public 1,941, ,731 95,319 3,361-2,569,862 Derivatives - 41,923 13,248 4,668-59,839 Subordinated liabilities ,662 51,662 Total liabilities with fixed maturities 2,026, , ,567 8,029 51,662 3,062,995 Note 34 Cash and cash equivalents Cash and cash equivalents included in the cash flow statement comprise of the following balance sheet amounts. Cash and cash equivalents (EUR 000) Cash in hand 1,540 1,381 Loans and receivables on demand to credit institutions (note 13) 1,199, ,536 Total cash and cash equivalents 1,201, ,917 Note 35 Financial risk management During the normal course of business, the Bank is exposed to market risk (interest rate risk, equity risk, and foreign exchange risk), liquidity risk, credit risk (counterparty risk, settlement risk) and operational risk. These risks are monitored and managed through internal risk reports which analyse exposure by degree and magnitude of risks. The aim of risk management within the Bank is to identify and measure, to monitor and control risks and follow closely risk lines and limits, report risks and follow up on risks. a) Market risk The market risk is the risk of loss in market value of Nordea s positions with market risk exposure as a result of movements in market factors related to interest rates, equity prices and foreign exchange rates. The Bank s consolidated market risks are assessed from a Euro based currency perspective. Value at Risk ( VaR ) is the main measure of market risk in Nordea for normal market conditions. VaR estimates the loss in market value that could be expected in rare events in a normal market environment for deep and liquid financial markets. The VaR models in place as of 31 December 2010 are based on historical changes in market prices and rates over the last 500 days, a holding period of six Banking days and a probability of 99%. Nordea uses historical simulation based on the so-called expected tail loss approach, using the average of the three (or a lower number) most adverse simulation results as an estimate of VaR, and therefore label it tvar (tail VaR). Nordea Bank S.A. Consolidated Financial Statements

32 tvar figures are calculated for each type of risk and as total tvar (across risk categories) for the Bank. The purpose of the implemented market risk control is to ensure that risks the Bank is exposed to be effectively monitored. The control is carried out by Risk Management on a business daily basis according to the Bank s risk policy. The Group has set up the systems and models needed for calculating the market risk. The Bank s end-of-day transactions and positions bearing market risk are sent electronically to the Group s market risk system at night. Market risk figures are calculated and results are returned to the Bank the following morning. Risk figures are calculated on the basis of Group models, parameters, prices. Risk Management has access to an intranet reporting interface. Any risk figures received daily from the Group s system are controlled, validated and approved against the actual limits granted to the Bank via the Bank s overall market risk instructions. In case of any limit being exceeded Risk Management will investigate and explanation reports are established jointly with the responsible front office department. Any line excess is reported to the head of Unit, and corrective measures are taken. Exchange rate risk The exchange rate risk is the risk that the value of the financial assets will fluctuate as a result of foreign exchange rate movements. This risk is controlled by adhering to approved currency risk limits, (VaR and FX option risk limits), covered through the Bank s market risk system ( MARS ) and the daily controls performed by the Risk Management. Foreign exchange VaR limit: EUR 1,200 thousand (2009: EUR 1,200 thousand) for the timeframe of up to 2 weeks Foreign exchange risk (VaR): EUR 367 thousand (2009: EUR 955 thousand) The Bank implemented a soft limit of EUR 500 thousand on maximum losses on currency options, which is based on reporting from the Bank s internal system used for trading currency-option, and controlled by Risk Management. Interest rate risk Interest rate risk is the potential impact on the Bank s earnings and net asset values arising from changes in interest rates. Interest rate risk arises, when the Bank s principal and interest cash flows (including final maturity), both on- and off-balance sheet, have mismatched re-pricing dates or there is a mismatch of floating versus fixed interests. The Bank has a measurement system for interest rate risk which incorporates each of these risk items. The system for linear risk is based on VaR on the interest rate risk ladders from all interest bearing items and does cover the usual yield curve and basic risk. The non-linear risk stemming from options is based on scenario simulation. Interest rate VaR limit: EUR 2,000 thousand (2009: EUR 1,500 thousand) Interest rate risk (VaR): EUR 470 thousand (2009: EUR 723 thousand) The interest sensitivity ladder is calculated for a given currency by choosing a number of predefined ladder points on the yield curve (1M, 2M etc., usually 12 points up to 10Y) and calculating the sensitivity to that yield curve point. A 1 % increase or decrease is used when reporting interest rate risk internally to executive management and represents the basis for management s assessment of the reasonably possible change in interest rates. Interest rate sensitivity (1% parallel shift): EUR 468 thousand (2009: EUR 26 thousand) Equity risk The equity risk is the risk that the value of the financial assets will fluctuate as a result of equity market movements. The Bank has an approved VaR limit to control the risk attached to investments in securities, covered through the Bank s market risk system ( MARS ). Equity risk VaR limit: EUR 8,000 thousand (2009: EUR 7,800 thousand) Equity risk (VaR): EUR 2,055 thousand (2009: EUR 4,990 thousand) A report on all positions in the Bank s investment portfolio (mainly shares in Nordea s investment funds as part of a seeding investment at launch) is monitored daily in Risk Management. The report does also show non-equity positions (fixed-income securities) that are booked as part of the Bank s investment portfolio. The market risk of such position is monitored as part of the interest rate positions and FX positions. b) Credit risk Credit risk arises when the inability of the contractual parties to settle their obligation could result in the decrease of the amount of future cash inflows from receivables at the date of the balance sheet. The credit risks in the Bank stem mainly from various forms of lending to the public (mainly personal customers) and also from guarantees. Furthermore, credit risk includes counterparty risk, transfer risk and settlement risk. The credit risk from guarantees arises from the potential claims on customers, for which the Bank issued guarantees. At the request of the Bank, the CSSF approved the full exemption of risks taken within Nordea Group in relation to the large exposure limits, in accordance with Part XVI, point 24 of the circular 06/273 as subsequently modified. 31 Nordea Bank S.A. Consolidated Financial Statements 2010

33 Management of credit risk The Board of Directors has, with an exception for Financial Institutions, delegated responsibility for the oversight of the credit risk to the Bank s credit committee. Credit department, reporting to the credit committee is responsible for the management of the Bank s credit risk including: following credit policy and guidelines; establishing the authorisation for the approval and renewal; reviewing and assessing credit risk; monitoring concentration and exposure to counterparties. The general monitoring of credits is done through a risk exposure system inherent to the core banking system. The potential overdraft and/or insufficient excess cover of any exposure is followed continuously by the account managers. The responsibility for the management of the Bank s credit risk on Financial Institutions and similar counterparties is delegated to Risk Management. Credit risk exposure (EUR 000) (Excluding cash in hand and balances with central banks) 31 Dec Dec 2009 Loans and receivables to credit institutions 1,281,608 1,462,719 Loans and receivables to the public 1,763,067 1,656,346 Derivatives 254,999 91,801 Unutilized confirmed credits 3,678,633 3,830,282 Guarantees 46,013 42,049 Loans and receivables to the public (EUR 000) 31 Dec Dec 2009 Guaranteed loans 139, ,116 Investment loans 763, ,178 Mortgage loans 386, ,821 Other 473, ,231 The Bank has loan agreements most of which are entered with private individuals. 1,763,067 1,656,346 The collateral for the above presented credit exposures mainly consists of pledged deposits, pledged securities and guarantees issued from third parties, and mortgage interests over properties. Geographical risk Mortgage loans The Bank grants mortgage loans for residential purposes to Private Banking clients with residential properties situated mainly in the United Kingdom, France, and Spain. A mortgage loan program is established for retail clients from Nordea branches in Denmark, Finland, Norway and Sweden. Further, mortgage loans can bear a currency risk as loans might be granted under different currencies. (EUR 000) France 109, ,124 Spain 173,274 97,814 United Kingdom 96,215 88,992 Other 7,664 5, , ,821 Guaranteed loans The Bank grants from time to time loans to companies and private customers, whereby the risk on these loans is limited due to the guarantees received from international banks and insurance companies. Given the structure of such loans, they do not bear a direct geographical risk. Investment loans Under this scheme, clients may take up a loan of up to 5 times their initial net asset value deposited with the Bank, depending upon the Bank s assessment of the quality of assets concerned. The assets, including the assets acquired by the loan proceeds, are deposited with the Bank and are pledged as collateral for the loan. Given the structure of the product, investment loans do not bear a direct geographical risk. Nordea Bank S.A. Consolidated Financial Statements

34 Warning signals for investment loans To ensure a proper follow-up on credit exposures, limits are set ( intervention limit and realization limit ). If the intervention limit (collateral cover ratio below 50%) is breached, the Bank is entitled to demand additional collateral to re-establish the requested collateral margin. If the realization limit (cover ratio below 25%) is breached the Bank is entitled, but not obliged, to sell all or part of the securities pledged and to reduce the exposure by the sales proceeds and/or to close any open positions of derivatives. Both of these limits are stipulated in agreements with the customer, these agreements being the facility letter and security agreement, which have to be signed before any drawings can be made under the facility. Past due but not impaired loans and investment debt securities Past due but not impaired loans and investment debt securities, other than those carried at fair value though profit and loss, are those for which contractual interest or principal payments are past due but the Bank believes that impairment is not appropriate on the basis of the level of security/collateral available and/or stage of collection of amounts owed to the Bank. Collateral permitted to be sold or repledged in the absence of default by the owner of the collateral: EUR Dec Dec 2009 Bonds 2,295,098 2,642,989 Shares 2,402,314 3,044,480 Other assets 2,775,676 1,808,468 7,473,088 7,495,937 Assets in the amount of EUR 7,473,088 thousand (2009: EUR 7,495,937 thousand) are held as collateral for protection of facilities granted to customers. These facilities represent investment facilities granted to customers to invest in securities and derivatives. Under the terms of the facility agreement, should the security margin fall to or below 50% and 25%, subject to written notice to the customer of 5 days and 3 days respectively, the Bank is entitled to sell all or part of the pledged assets sufficient to restore the collateral margin to 100%. During the year the Bank did not force sale on any pledged securities (2009: EUR nil). Allowances for impairment The Bank establishes an allowance for impairment losses on assets carried at amortized cost that represents its estimate of incurred losses in its loan and investment debt security portfolio. The main component of this allowance is a specific loss component that relates to individually significant exposures. Assets carried at fair value through profit and loss are not subject to impairment testing as the measure of fair value reflects the credit quality of each asset. Write-off policy The Bank writes off a loan or advances, and any related allowances for impairment losses, when the Bank s Credit Committee determines that the loan or advance is uncollectible. This determination is reached after considering information such as the occurrence of significant changes in the borrower s financial position such that the borrower can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balance standardised loans, write-off decisions generally are based on a product specific past due status. c) Liquidity risk The liquidity risk relates to losses the Bank may suffer from the possible weakness to fulfil its obligations mainly in regards to the repayment of deposits and the granting of advances. To deal with the liquidity risk, the Bank is closely monitoring the origin of deposits and their expiry date and complies with the liquidity regulations of the Central Bank of Luxembourg. A daily report giving the overall liquidity gap (Liquidity Gap per day) for each day in the following month and a monthly analysis for the following 6 months is produced. The Liquidity-Gap per day report is reviewed on a daily basis by Risk Management to ensure that the limit is respected. The liquidity gap is also reported business-daily to Nordea Group Treasury which aggregates liquidity risk information for Nordea Group. Liquidity gap limit: Liquidity gap utilisation: EUR 1,200 million (2009: EUR 1,200 million) for the timeframe of up to 2 weeks EUR 809 million (2009: EUR 1,022 million) The Bank s liquidity is monitored and controlled by use of the above mentioned report and the report on individual currency mismatch positions. 33 Nordea Bank S.A. Consolidated Financial Statements 2010

35 d) Operational risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Bank s processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risk arises from each of the Bank s operations. The Bank s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Bank s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity. The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management. This responsibility is supported by the development of overall Bank s policies for the management of operational risk in the following areas: - requirements for appropriate segregation of duties, including the independent authorisation of transactions; - requirements for the reconciliation and monitoring of transactions; - compliance with regulatory and other legal requirements; - documentation of controls and procedures; - requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified; - requirements for the reporting of operational losses and proposed remedial action; - development of contingency plans; - training and professional development; - ethical and business standards; - risk mitigation, including insurance where this is effective. Compliance with Bank s policies is supported by a program of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with the management of the business unit to which they relate. Litigation risk Litigation risk is the risk of financial loss, interruption of the Bank s operations or any other under sizable situation that arises from the possibility of non-execution or violation of legal contracts and consequentially of lawsuits. The risk is restricted through the contracts used by the Bank to execute its operations. Reputation risk The risk of loss of reputation arising from the negative publicity relating to the Bank s operations (whether true or false) may affect the client basis and result in a reduction in revenue and legal cases against the Bank. The Bank applies procedures to minimise this risk through training and professional development of its employees, by initiating marketing activities directed to maintain positive reputation of the Bank and publishing the positive performance and financial position of the Bank. Other risks The general economic environment prevailing internationally may affect the Bank s operations to a certain extent. Concepts such as inflation, unemployment, and development of the gross domestic product are directly linked to the economic course of every country and any variation in these and the economic environment in general may create chain reactions in all areas hence affecting the Bank. Nordea Bank S.A. Consolidated Financial Statements

36 Note 36 Capital Management The Bank performs an Internal Capital Adequacy Assessment Process (ICAAP) to ensure that it maintains sufficient available capital for Nordea Bank S.A. and its subsidiaries to cover all the risks taken over a foreseeable future. The ICAAP provides an overview of Nordea s approach to capital and risk management. It represents the Bank s contribution to the Supervisory Review and Evaluation Process (SREP), Pillar II of the Capital Requirements Directive (CRD), a dialogue between banks and supervisors to determine each bank s adequate capital level, based on Circular CSSF 07/301 (as amended by CSSF Circular 08/338 and 09/403), issued by the Commission de Surveillance du Secteur Financier (CSSF). Nordea actively manages regulatory capital requirements as outlined in the CRD. The Bank s general policy is to accumulate all available free equity at the Parent Company. To allocate excess capital to the Parent Company enables Nordea to use its capital more efficiently. In conformity with the CSSF Circular 06/273, representing provisions of Basel II, as from 1 January 2008 the Bank is required to maintain eligible own funds at least equal to the amount of its overall capital requirements. In this respect the Bank is required to calculate a capital adequacy ratio designed to ensure that banks set aside sufficient own funds to cover their exposures to credit risk, dilution risk, operational risk, foreign exchange risk, commodity risk and risk related to trading book activities. The capital adequacy ratio compares eligible own funds to the overall capital requirement for the risks concerned. Credit institutions are required at all times to possess sufficient own funds to meet their overall capital requirement on a standalone and, where applicable, on a consolidated basis. Eligible own funds, constituting the numerator of the ratio, include original own funds, additional own funds and super-additional own funds. The minimum required level of this ratio is 8%. As of 31 December 2010 the consolidated solvency ratio was 12.50% (2009: 15.18%). The Bank has complied with capital requirements throughout the whole financial year. Note 37 Subsequent events There have been no material post balance sheet events which require disclosures or adjustments to the consolidated financial statements as at 31 December Nordea Bank S.A. Consolidated Financial Statements 2010

37 Directors At 31 December 2010 Gunn Wærsted Head of Shipping, Private Banking & Savings Products Nordea Bank AB Oslo Branch Country Senior Executive in Norway Member of Nordea Group Executive Management Jhon Mortensen Head of International Private Banking & Funds Nordea Bank S.A. Chief Executive Officer in Luxembourg Ove Hygum Head of Business Support and HR in Nordea Shipping, Nordea Investment Management AB Denmark, Private Banking & Savings Products Branch of Nordea Investment Management AB, Sweden Henrik Priergaard Head of Group Human Resources and CEO Office Nordea Bank AB Copenhagen Branch Allan Polack Head of Savings Products & Asset Management Nordea Investment Management AB Denmark, Branch of Nordea Investment Management AB, Sweden Johan Sidenmark Head of Nordea Life & Pensions Nordea Livförsäkring Sverige AB Jeroen van der Molen Legal Counsel Nordea Bank S.A. Nordea Bank S.A. Consolidated Financial Statements

38 Auditor s report To the Board of Directors Nordea Bank S.A. 562, rue de Neudorf L-2220 Findel Luxembourg REPORT OF THE REVISEUR D ENTREPRISES AGREE Report on the consolidated financial statements We have audited the accompanying consolidated financial statements of Nordea Bank S.A., which comprise the consolidated balance sheet as at December 31, 2010 and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Board of Directors responsibility for the consolidated financial statements The Board of Directors is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Responsibility of the Réviseur d Entreprises agréé Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted for Luxembourg by the Commission de Surveillance du Secteur Financier. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the judgement of the Réviseur d Entreprises agréé, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the Réviseur d Entreprises agréé considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of Nordea Bank S.A. as of December 31, 2010, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union. Report on other legal and regulatory requirements The consolidated management report, which is the responsibility of the Board of Directors, is consistent with the consolidated financial statements. Luxembourg, February 23, 2011 KPMG Audit S.à r.l. Cabinet de révision agréé E. Dollé D.Wallace 37 Nordea Bank S.A. Consolidated Financial Statements 2010

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40 Nordea Bank S.A. R.C.S. Luxembourg no. B Luxembourg Nordea Bank S.A. 562, rue de Neudorf P.O. Box 562 L-2015 Luxembourg Tel Fax nordea@nordea.lu Switzerland Nordea Bank S.A. Luxemburg, ZweigniederlaSSung ZUrich MainauSTraSSe PoSTfach ch-8034 ZUrich Tel Fax nordea@nordea.ch