Svenska Handelsbanken

Transcription

1 27 October 1998 Press release Handelsbanken's interim report January September 1998 In the comparative figures for 1997, Stadshypotek is included in the Handelsbanken Group from 26 February Summary The Handelsbanken Group's profits increased by 5 % to SEK 6.1bn Return on shareholders' equity was 20.5 % Net interest income in branch office operations rose by 11 % Net commission income rose by 9 % Loan losses still at low level Low exposure to risk areas Result continues to be strong Although the third quarter has been very much affected by turbulence on the financial markets with falling share prices and high volatility on fixed income and foreign exchange markets, the impact on the Handelsbanken Group has been limited. The Handelsbanken Group's profits for January September 1998 increased by 5 % to SEK 6 100m. Return on shareholders' equity was 20.5 % (20.6). Earnings per share rose to SEK (18.95) and as a 12-month moving total to SEK (25.69). Income and expenses Total income increased by 10 %. Net interest income rose by 3 %. This includes both the net interest income pertaining to branch office operations and to Markets' trading operations and also the yield on the bond portfolio. Net interest income in branch office operations rose by 11 %. There are two reasons for this rise: firstly the average volume of mortgage loans went up by 9 % due to the acquisition of Stadshypotek and secondly the average volume of bank loans increased by 20 %. The branch office operations' net interest income includes the fee of SEK 215m (232) to the Swedish government for the deposit protection guarantee. Net interest income in the bond portfolio has decreased due to a narrower spread between short and long-term interest rates and also a smaller bond portfolio. Net interest income from trading has also declined. There are indications that the interest spread in the Handelsbanken Group is stabilising after decreasing for a long period. 1

2 Net commission income increased by 9 % to SEK 2 554m. This change is mainly due to rising commission on payments and to commission from Corporate Finance and securities trading. The increase in commission relating to the last-mentioned activities occurred mainly in the first six months of the period. Expenses rose by 15 % of which 3 percentage points are attributable to the acquisition of Stadshypotek. The remainder of the increase is mainly due to a sharp increase in the Bank's IT expenses and continued expansion in the Nordic countries. IT expenses are expected to amount to approximately SEK 2.5bn in 1998, after which they will gradually decrease over the next few years. IT costs include operations, development and communication within the IT area and also depreciation of hardware. No development costs are treated as assets, instead they are reported as expenses directly. IT expenses will culminate during the year, as mandatory preparations and adaptations for EMU and the new millennium coincide with other major system changes for the purpose of enhancing competitiveness. Examples of this type of investment are: A new business system for foreign exchange and money market dealing, a completely new PC-based infrastructure for the Swedish branch office organisation and a new joint system platform for the Nordic countries. Loan losses still at low level Loan losses, including changes in value for property taken over amounted to SEK 211m or 0.04 % of lending (0.04). The proportion of bad debts was 0.4 % (1.0) of lending. The volume of collateral taken over was SEK 262m (7 300). This decrease is related to the distribution of Fastighets AB Balder. The Bank's exposure to the problem countries in South-East Asia (The Philippines, Indonesia, Malaysia, South Korea and Thailand) is SEK 1.8bn as at mid-october. At the same date, exposure to Japan was SEK 4.5bn, to Russia SEK 0.1bn and to Latin America SEK 1.1bn, including SEK 0.4bn to Brazil. In relation to Handelsbanken's size, the Bank's exposure in these countries is small and the necessary provisions have been made. Low sensitivity to market turbulence In spite of its large international presence, Handelsbanken has been making a conscious effort to limit its sensitivity to market turbulence of various types. Small sensitivity to emerging markets Also outside the Nordic countries, Handelsbanken's operations focus on the Bank's Nordic customer base, thus the risk exposure to Asia, Russia and Latin America is low. Business outside the Nordic countries with the exception of outright trading operations should have a Nordic connection. Small sensitivity to turbulence on equity markets. Handelsbanken's limited holdings of listed shares and the fact that it does not have property insurance operations, mean that is has a low degree of sensitivity to turbulence on equity markets. 2

3 Low interest rate sensitivity In connection with the purchase of Stadshypotek, Handelsbanken sold most of its investment bond portfolio. This has reduced the Group's interest rate sensitivity. The distribution of the property companies, Balder and Näckebro to the Handelsbanken Group's shareholders has also reduced interest rate sensitivity. In terms of interest rate sensitivity, real estate holdings are equivalent to holding fixed rate bonds. Handelsbanken's traditional low risk profile in trading also contributes to reducing sensitivity to fluctuations on the interest-rate related market. Capital ratio and rating The Handelsbanken Group's capital ratio is 9.7 % (9.5). The Tier 1 capital ratio was 6.2 % (5.9). Handelsbanken continues to have the highest rating of the Swedish banks. Preparations for EMU on schedule Development and adaptation of the Bank's products and computer systems in preparation for the launch of EMU on 1 January 1999 is running to plan. Preparations in the countries which will be participating in EMU from 1999 (Germany, Luxembourg and Finland) differ from those in the countries which will not be participating from the start (Sweden, Denmark and the UK). In the latter group of countries, Handelsbanken will, however, be able to offer right from the beginning of 1999 various financial services in euro to customers in the areas of payments, investments and financing. It is expected that the euro will also be used by the Bank's customers in these countries. Adaptations for year 2000 running to plan The review of the Group's computer systems to make them year 2000 compliant is going according to plan. Almost all these systems have been adapted, tested and launched. Further tests will now be made on the interfaces between various systems within the Group and on external interfaces. All this work is expected to be ready by June 1999 at the latest. Stockholm, 27 October 1998 Arne Mårtensson President and Group Chief Executive For further information please contact Arne Mårtensson, Group Chief Executive or Sven Grevelius, Head of Accounting and Control tel: Lars Lindmark, Head of Corporate Communications tel: Gustaf Elmstedt, Head of Investor Relations tel: Highlights of the annual report for 1998 will be published on 23 February Handelsbanken's interim reports and other publications are also available on the Internet ( 3

4 Profit and loss account - Group January - September Full year Change 1997 SEK m SEK m % SEK m Interest income Interest expense Net interest income Dividends received Commission income Commission expense Net commission income Note Net result on financial operations Note Other operating income Total income General administrative expenses - Staff costs Other Note Depreciation and write-down in value of tangible and intangible fixed assets Total expenses Profit before loan losses Net loan losses Note Change in value of property taken over Operating profit Minority interests Appropriations - Pension provisions Taxes Net profit for the period Note 1 Commission January - September Full year SEK m SEK m SEK m Payments Lending Deposits Guarantees Securities Other Commission income Commission expense Net commission income

5 Note 2 Net result on financial operations January - September Full year SEK m SEK m SEK m Shares and participations Interest-bearing securities Realised profit Shares and participations Interest-bearing securities Unrealised changes in value Changes in exchange rates Net result on financial operations Note 3 Other administrative expenses Property and premises External computer costs Communication Travel and marketing Purchased services Supplies Other expenses Other administrative expenses Note 4 Loan losses A. Individually valued claims: The period s write-down for actual loan losses Write-back of previous provisions for possible loan losses which are reported as actual loan losses in the period s accounts The period s write-down relating to possible loan losses Recovered from actual losses in previous years Write-back of provisions for possible losses which are no longer necessary Net expense for the period for individually valued loan losses B. Claims valued as a group: The period s write-down for actual loan losses Recovered from actual losses in previous years Allocation to/dissolution of reserve for loan losses Net expense for the period for loan losses valued as a group C. Provisions to general reserve for country risks Total loan losses (A+B+C)

6 Quarterly performance of Svenska Handelsbanken Group, SEK m 1998:3 1998:2 1998:1 1997:4 1997:3 Net interest income Commission, net Net result on financial operations Other Total income Staff costs Other administrative expenses Depreciation and write-downs Total expenses Profit before loan losses Loan losses Operating profit Minority interests Pension provisions Taxes Net result for the period Balance sheet - Group Sep 30 Sep 31 Dec SEK m SEK m SEK m Lending to the general public Note Lending to credit institutions Interest-bearing securities - Financial fixed assets Note Financial current assets Other assets Total assets Deposits and funding from the general public Liabilities to credit institutions Issued securities etc Subordinated liabilities Other liabilities Shareholders equity Total liabilities and shareholders equity Note 1 Lending to the general public SEK lending - to households N.A to companies etc *) N.A Foreign currency lending - to households N.A to companies etc N.A Reserve for possible loan losses Total lending *) Of which National Debt Office

7 Note 2 Financial fixed assets The Group's surplus liquidity has been invested as a financial fixed asset (investment portfolio). Following the acquisition of Stadshypotek the Group no longer has surplus liquidity. That part of the investment portfolio which originated from previous surplus liquidity has therefore been re-classified as a current asset and disposed of. The portfolio value was SEK 891m and there was a positive effect on the result of SEK 9m. Financial ratios for the Svenska Handelsbanken Group January - September Full year Return on shareholders equity 20.5% 20.6% 20.1% Income/expenses (I/E ratio) - before loan losses after loan losses Earnings per ordinary share, SEK October 1997-Sept October 1996-Sept No. of ordinary shares Adjusted equity per share, SEK Number of employees at 30 Sept Number of branches in Nordic countries, 30 Sept Other information Capital base and requirement SEK m SEK m SEK m Tier 1 capital Total capital base Risk-weighted volume Capital ratio 9.7% 9.5% 10.4% Tier 1 ratio 6.2% 5.9% 6.2% Bad debts SEK m SEK m SEK m Bad debts Reserve for possible loan losses Bad debts, net Reduced rate loans without a provision for possible loan losses Total problem losses 60.7% 55.0% 52.6% Bad debt reserve ratio 0.4% 1.0% 0.6% Proportion of bad debts Problem loans before write-down for possible loan losses 0.04% 0.04% 0.05% Loan loss ratio Non-performing loans for which interest is accrued Collateral taken over: - Buildings and land Shares and Other participations Other Total collateral taken over

8 Derivatives 30 September 1998, SEK m Interest-rate related Currency-related Equity-related Market value Book value Market value Book value Market value Book Value Positive values Negative values The above table is compiled in accordance with the Swedish Financial Supervisory Authority s regulations and includes all derivative instruments in the Group. For derivative instruments which are part of trading operations, the book value is the same as the market value. The differences between market value and book value reported in the table correspond to the reversed differences between market value and book value in that part of the Group s operations which is subject to hedge accounting. Value-at-Risk During the period l October September 1998, Handelsbanken Markets exposure to interest rate and exchange rate risk (incl. option risk), measured as Value-at Risk (VaR) was on average SEK 29m. During the period, this risk varied between SEK 18m and SEK 51m. Here no account has been taken of the links between the interest rate related and foreign exchange markets. During the same period, Handelsbanken Markets exposure to equity price risks, measured as VaR, was on average SEK 8m. This risk varied between SEK 4m and SEK 14m. 8

9 Business area reporting The Group s results and return on equity reported by business area January-September 1998, SEKm Branch office operations Handelsbanken Markets Handelsbanken Asset Management Handelsbanken Finans Handelsbanken Other Total Liv 1) Income Expenses Result before internal commission Internal commission Result before loan losses Loan losses Operating profit Return on equity % Return on equity Jan-Jun % 8.1 % 45.0 % 20.8 % 1.9 % 20.5 % 21.6 % 10.6 % 43.8 % 20.5 % 8.9 % 22.0 % Handelsbanken Liv Försäkrings AB 1) Premium income Investment income 975 Insurance claims -631 Change in life insurance provisions -685 Bonuses -76 Operating expenses -133 Result on life insurance business 762 Return on shareholders' equity for the business areas is computed after standard tax while it is reported after appropriations and full tax for the whole Group. Income and expenses also include the distribution of costs made internally within the Group for services rendered. These services are paid at cost price. Internal sales commission is credited to the unit which is responsible for a customer. Commission is intended to cover expenses and also to distribute the profit arising on market terms. The shareholders' equity, on which calculation of return on equity is based, is mainly distributed in accordance with the requirements of the Act on Capital Adequacy. "Other" includes capital gains, amortisation of goodwill and Group adjustments. 1) Handelsbanken Liv Försäkrings AB is a mutual life insurance company and is not consolidated. Handelsbanken Liv Fondförsäkrings AB (unit-linked) and commission income from the mutual company are included under the business area "Handelsbanken Liv". Total premium income for both companies was SEK 3.9bn (2.4) for the first nine months of the year. Most of the increase comes from unit-linked insurance. Total assets were SEK 20bn (16) as at 30 September

10 Branch office operations Handelsbanken is a Nordic universal bank with a strongly decentralised organisation. The heart of the Bank is its large branch office network. The branches are responsible for all customers within their geographic area - including the largest companies. The branch office co-ordinates all services for each and every customer. Where necessary this is done in close co-operation with the Bank's subsidiaries and with specialists at regional and central level. Handelsbanken conducts complete universal banking operations in the whole of the Nordic area. Branch office operations consist of ten regional banks - seven in Sweden and one each in Norway, Finland and Denmark. Stadshypotek Bank, a telephone bank, is also included in branch office operations. Handelsbanken has 480 branches in Sweden, 15 in Norway, 15 Finland and 3 in Denmark. Operations in Sweden and the other Nordic countries are run using the same concept to deliver universal banking services with a higher service level and at lower cost than competitors do. It is on this base that the Bank will be able to grow in the whole of the Nordic area. Handelsbanken is already the largest bank in the Nordic countries and locally is the fourth largest commercial bank in Finland and fifth in Norway. During the period, net interest income in the branch office operations has increased by 11 % compared to the corresponding period last year. This is due to a substantial increase in volume during the period. Bank lending increased by 20 % and mortgage loans by 9 %, the latter mainly due to the acquisition of Stadshypotek. Compared to the equivalent period in 1997, costs have also increased, mainly because of investments in the area of information technology but also as a result of the Stadshypotek acquisition. Despite the recent turbulence in the financial markets, the Bank's branch office operations continue to have strong earnings capacity. Operating profit from branch office operations amounted to SEK 1 664m in the third quarter, which is an increase compared with previous quarters when operating profit was SEK 1 652m (second quarter) and SEK 1 648m (first quarter). Capped Rate Loan a secure form of finance during periods of turbulence During the spring, a completely new mortgage loan product was introduced Stadshypotek Capped Rate Loan. A capped rate loan combines the advantages of a floating interest rate with the security of a fixed rate loan. During a five-year period, the loan will follow the short rate but never exceed a pre-determined maximum interest rate. Demand for capped rate loans was very good during the spring and summer, and increased sharply in connection with the turbulence in the financial markets during the third quarter. 10

11 Handelsbanken Markets Handelsbanken Markets is responsible for corporate finance, trading in the equity, money and foreign exchange markets, debt capital financing, correspondent banking and trade finance. It also includes the Bank's unit for economic research and banking operations outside the Nordic countries. Operations are conducted in nineteen countries and are organised in four main areas: Investment Banking, Trading, Trade Finance and Financial Institutions, and Banking operations outside the Nordic countries Operations are focused on the Bank's Nordic customer base. The Bank also offers services to Nordic companies with operations abroad and non-nordic companies with operations in the Nordic countries. During the third quarter, the turbulence on the financial markets spread from Asia to the rest of the world. Since the second half of July, share prices have fallen sharply, the Swedish krona has weakened and volatility in the interest-rate related markets has increased. Against this background, operations have given a satisfactory result. Investment Banking Due to the financial turbulence, customer activity in the markets has decreased, and this has had a negative effect on income. The result was considerably lower compared with the previous quarter. The unit will persevere in its long-term effort to further strengthen its market position in the Corporate Finance and equity areas. Trading The unit has maintained its strong position in Nordic currencies and interest-rate related products. The result for the third quarter was on a par with the previous quarter and is still not satisfactory. For some time, the unit has been engaged in extensive efforts to focus and improve efficiency in its interbank operations and further strengthen marketing operations. These efforts will also lead to considerable cost savings as from the end of the year. Trade Finance and Financial Institutions Operations have developed in a stable manner and the unit enjoys a strong market position. The financial situation in Asia and Russia had a negative impact on income, and thus the result was lower for the third quarter than for the previous quarter. Banking operations outside the Nordic countries Thanks to a continued rise in commission income and stable volumes, the result was higher than for the previous quarter. 11

12 Handelsbanken Asset Management Handelsbanken Asset Management comprises Fund Management, Discretionary Management and Custody Services. Discretionary management services and custody services are produced and sold by Handelsbanken Asset Management. The Bank's mutual funds are sold principally via the branch office network. Operations are conducted in the four Nordic countries and in Luxembourg and the UK. On 1 September, investment operations were re-organised. The previously separate management functions within Handelsbanken Mutual Funds and within Discretionary Management were co-ordinated under joint management. The objective of the re-organisation was to improve efficiency by increasing the degree of specialisation and the focus on general allocation decisions. At the Swedish regional banks, special fund advisors have been appointed to support the branch offices in their sales work. The volume of assets managed by Handelsbanken Asset Management as at 30 September 1998 fell to SEK 85bn due to the large decrease in market value in stock exchanges around the world. Overall and in relative terms portfolio results were good. This is a result of the reduction of risk levels which was started in June. Fund management New saving in the Bank's mutual funds amounted to SEK 2.5bn during the first nine months of the year. The increase was noted principally in long-term saving in unit-linked insurance. Managed assets as at 30 September increased by 4 % and amounted to SEK 47bn. The Bank's market share is approximately 10 %. Net deposits during the third quarter amounted to SEK 0.3bn. During the same period, the number of customers saving in mutual funds increased by some to a total of Of these, around have monthly savings averaging SEK 800 per month. In terms of return, the funds have performed well in relation to benchmark indexes. Discretionary management Assets totalling SEK 32bn are subject to discretionary management by Handelsbanken. The net addition of managed funds was SEK 2.3bn. Management performance was good compared to benchmark indexes. Custody services At present, Handelsbanken is the only bank which offers its own institutional custody services in all the Nordic countries. The operation in Sweden reports good profitability. Operations in Finland which started at the beginning of 1998, made a positive contribution to results during the third quarter. The number of custody accounts continues to rise and now totals approximately The total value of funds in custody amounts to around SEK 420bn. 12

13 Handelsbanken Finans Handelsbanken Finans offers a full range of financing services in all the Nordic countries. These services are mainly intended to complement the banking services of the branch offices. Total income rose by 7% on the previous year due to a continued increase in new sales and consequently to an increase in volumes in all areas of operation. The interest spread has stabilised during the year. The business area which includes leasing and conditional sales for companies, has improved its result by 7% compared to the previous year due to strong new sales in car financing and traditional leasing. Retail Financial Services, which provides financing via retailers for private individuals' purchases of capital goods, continues to show good profitability. An increase in the private consumption of capital goods, partly financed by selective cards and conditional sales, has led to a total increase in credit volumes of 22% compared with the previous year. The business area which comprises operations in the Nordic units is dominated by Handelsbanken Rahoitus Oy, which is the fourth largest finance company in Finland. The operation reports good profitability and a sharp increase in volumes. The business area for factoring services and debt collection services for companies, has improved its result for factoring services by 25% compared to The new factoring with finance service has been well received. Total turnover at the debt collection services unit has doubled compared with the previous year. 13

14 Handelsbanken Liv A complete range of life insurance products are marketed under the name Handelsbanken Liv via Handelsbanken's branch office network. These products include occupational and personal pensions, asset protection and employee pension insurance, for companies, private customers and organisations. The insured parties can be responsible for their own insurance savings in unit-linked savings plans, or invest in traditional life assurance via the insurer. In both cases, the assets are managed according to agreement by Handelsbanken via Handelsbanken Mutual Funds or Handelsbanken Asset Management. For legal reasons, the traditional life insurance operations in Handelsbanken Liv Försäkrings AB are run on mutual principles where the whole surplus on operations goes back to policy-holders in the form of bonuses. Traditional life insurance Handelsbanken Liv Försäkrings AB's operation includes capital and pension insurance as well as group life, health and accident insurance. Premium income for the first three quarters was SEK 1.3bn (1.3) and the managed assets amounted to SEK 14.4bn (13.1) at the end of the third quarter. At the end of the second quarter, managed assets amounted to SEK 16.3bn. Unit-linked insurance Unlike traditional life insurance, operations in Handelsbanken Liv Fondförsäkrings AB distribute profits. They include both pension and capital insurance. The operation performed well during the year. Premium income for the first three quarters was SEK 2.6bn (1.1) and the value of funds amounted to SEK 5.1bn (2.4) at the end of the third quarter. At the end of the second quarter, the fund value was SEK 5.5bn. Other This heading covers mainly capital gains and dividends as well as amortisation of goodwill. In contrast with the first and second quarters, no capital gains were reported and no dividends were received during the third quarter. 14

15 Handelsbanken's shares The substantial turbulence on the financial markets led among other things to falling share prices during the third quarter of The decreased in the first nine months measured in the Affärsvärlden general index (AGFX) was 4 %. During the same period, the Bank's ordinary shares (SHB A) increased by 6 %. Handelsbanken's market capitalisation thus increased to SEK 69bn from SEK 65bn at the end of September December 1997 Share price ordinary class A, SEK Market capitalis-ation, SEK bn Kursutveckling t.o.m. 30 september 1998 Index Handelsbanken Stam Generalindex Bankindex exkl. SHB Handelsbanken's rating as at 30 September 1998 Financial strength Short-term Long-term Moody s B P-1 Aa3 S&P A-1 A+ Fitch IBCA B F1+ AA- Bankwatch B TBW-1 15

16 Auditors' report I have carried out a summary examination of this interim report, and in so doing have followed the recommendation of the Swedish Institute of Authorised Public Accountants (FAR). A summary examination is considerably limited in comparison with a full audit. There is nothing to indicate that the interim report does not fulfil the regulations of the Act governing Securities Exchanges and Clearing Operations and the Annual Accounts Act for Credit Institutions and Securities Companies. Stockholm, 27 October 1998 Sigvard Heurlin Authorised Public Accountant 16