Swedbank Mortgage AB (publ);

Transcription

1 SUPPLEMENT DATED AUGUST 23, 2011 TO THE PROSPECTUS DATED MARCH 11, 2011 Swedbank Mortgage AB (publ) (Incorporated with limited liability in the Kingdom of Sweden) U.S.$15,000,000,000 Programme for the Issuance of S.O. Bonds guaranteed by Swedbank AB (publ) This Supplement (the Supplement ) constitutes a supplementary prospectus for the purposes of Section 87G of the Financial Services and Markets Act 2000 (the FSMA ) and is prepared in connection with the U.S.$15,000,000,000 Programme for the Issuance of S.O. Bonds (the Programme ) established by Swedbank Mortgage AB (publ) (the Company ) and guaranteed by Swedbank AB (publ) (the Guarantor ). This Supplement is supplemental to, and should be read in conjunction with, the prospectus (the Prospectus ) dated March 11, 2011 relating to the Programme which comprises a base prospectus for the purposes of Article 5.4 of Directive 2003/71/EC (the Prospectus Directive ). Terms defined in the Prospectus have the same meaning when used in this Supplement. Each of the Company and the Guarantor accepts responsibility for the information contained in this Supplement. To the best of the knowledge of the Company and the Guarantor (each having taken all reasonable care to ensure that such is the case) the information contained in this Supplement is in accordance with the facts and does not omit anything likely to affect the import of such information. On July 21, 2011, each of the Company and the Guarantor published its interim report containing the condensed consolidated unaudited interim financial information as at and for the six month period ended June 30, 2011 (the Company Interim Report and the Guarantor Interim Report, respectively). A copy of each of the Company Interim Report and the Guarantor Interim Report has been filed with the Financial Services Authority and, by virtue of this Supplement, the Company Interim Report and the Guarantor Interim Report are incorporated in, and form part of, the Prospectus. Copies of all documents incorporated by reference in the Prospectus can be obtained, upon request and free of charge, from the registered office of the Company and from the specified office of the Fiscal Agent in London and will be available for viewing on the website of the Company at as described on page XI of the Prospectus. In addition, the Company and the Guarantor wish to update the following sections of the Prospectus in order to provide updated information to potential investors with respect to (i) the business, results of operations and financial condition of each of the Company and the Guarantor following the publication of the Company Interim Report and the Guarantor Interim Report, (ii) risk factors describing current economic and market conditions that may affect the Company s ability to fulfill its obligations under S.O. Bonds issued under the Programme and/or the Guarantor s ability to fulfill its obligations under the Guarantee and (iii) the management of the Company and the Guarantor: (i) (ii) (iii) (iv) (v) Exchange Rates; Presentation of Certain Financial and Other Information; Overview of the Company and the Guarantor; Risk Factors; Swedbank Mortgage AB (publ);

2 (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) Swedbank AB (publ); Selected Financial Information; Management s Discussion and Analysis; Capitalisation and Indebtedness; Selected Statistical and Other Information; Risk Management; Management; and General Information. If documents which are incorporated by reference themselves incorporate any information or other documents therein, either expressly or implicitly, such information or other documents will not form part of this Supplement for the purposes of the Prospectus Directive except where such information or other documents are specifically incorporated by reference or attached to this Supplement. To the extent that there is any inconsistency between (a) any statement in this Supplement or any statement incorporated by reference into the Prospectus by this Supplement and (b) any other statement in, or incorporated by reference into, the Prospectus, the statements in (a) above will prevail. Save as disclosed in this Supplement, there has been no other significant new factor, material mistake or inaccuracy relating to information included in the Prospectus since the publication of the Prospectus. Investors should be aware of their rights under Section 87(Q)4 of the FSMA. 2

3 Amendments to Exchange Rates The section Exchange Rates as set out in the Prospectus shall with effect from the date hereof be amended as follows: The table setting forth, for the periods and dates indicated, certain information concerning the exchange rate for Swedish Krona per U.S. dollar on page VI shall be amended by the insertion of the following rows in place of the row March 1, 2011 to March 10, 2011 : Period end Average 1 High 2 Low 2 SEK SEK SEK SEK March April May June July August 1, 2011 to August 19, The following sentence shall be inserted immediately following the sentence On March 10, 2011, the exchange rate was SEK per U.S. dollar. : On August 19, 2011, the exchange rate was SEK per U.S. dollar. The amendments described above should be read in conjunction with the section Exchange Rates on page VI of the Prospectus. 3

4 Amendments to Presentation of Certain Financial and Other Information The section Presentation of Certain Financial and Other Information as set out in the Prospectus shall with effect from the date hereof be amended as follows: The following text shall be inserted immediately following the word States. in line 7 of the third paragraph of the section on page VII: Certain financial information set out herein has been derived from the Company Interim Report and the Guarantor Interim Report. These Interim Reports have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting ( IAS 34 ). The following sentence shall be inserted immediately following the word Bloomberg. in line 12 of the fourth paragraph of the section on page VII: Unless otherwise noted, all translations of SEK amounts into U.S. dollars for the period ended June 30, 2011 have been at the rate of SEK = U.S.$1.00, being the representative market rate prevailing in Stockholm (the Representative Market Rate ) on June 30, 2011, as reported by Bloomberg. The amendments described above should be read in conjunction with the section Presentation of Certain Financial and Other Information as set out in the Prospectus. 4

5 Amendments to Overview of the Company and the Guarantor The section Overview of the Company and the Guarantor as set out in the Prospectus shall with effect from the date hereof be amended as follows: The section A. Swedbank Mortgage AB (publ) The Company on page 7 shall be amended by the insertion of the following sentence immediately following the word bonds. in line 8 of the first paragraph: On June 30, 2011, its total assets amounted to approximately SEK 762 billion including assets of approximately SEK 650 billion placed in the Company s cover pool and forming the basis as underlying collateral for the Company s issuance of covered bonds. The section B. Swedbank AB (publ) The Guarantor beginning on page 7 shall be amended by the insertion of the following text at the end of the first paragraph on page 8: As of June, 2011, the Group s loans to the public amounted to SEK 1,147 billion (excluding repurchase agreements and loans to credit institutions) excluding loans to the Swedish National Debt Office (Sw: Riksgälden), which amounted to SEK 231 billion as of June 30, The Group recorded SEK 8,078 million in profit before impairments for the six month period ended June 30, Credit impairments for the six month period ended June 30, 2011 amounted to SEK (1,296) million. Net profit attributable to the shareholders of the Guarantor for the six month period ended June 30, 2011 amounted to SEK 7,304 million. The table in the section B. Swedbank AB (publ) The Guarantor on page 9 shall be amended by the insertion of the following column: As of and for the six month period ended June 30, 2011 Private customers (millions) Corporate customers ,000 Full-time employees... 17,008 Total income ()... 16,807 Profit before impairments ()... 8,078 Credit impairments ()... (1,296) Profit for the period attributable to the shareholders of Swedbank AB ()... 7,304 The following paragraph shall be inserted immediately after the table in the section B. Swedbank AB (publ) The Guarantor on page 9: The operating segments have been changed during the first quarter of 2011 to coincide with the organisational changes implemented in the Group's business area organisation. The internal bank and the internal bank operations within the New York branch office were moved from Large Corporates & Institutions to Group Treasury in Group Functions. The Baltic treasury operations were moved from Baltic Banking to Group Treasury. The amendments described above should be read in conjunction with the section Overview of the Company and the Guarantor as set out in the Prospectus. 5

6 Amendments to Risk Factors The section Risk Factors as set out in the Prospectus shall with effect from the date hereof be amended as follows: The section Risks Relating to the Group The Group s business, financial condition and results of operations have been and may continue to be adversely affected by the recent conditions in the global financial markets on page 12 shall be amended by replacing the second paragraph with the following three paragraphs: Although, the level of market disruption and volatility caused by the global financial crisis have abated, global markets and economic conditions have been negatively impacted in 2010 and 2011 by market perceptions regarding the ability of certain European Union ( EU ) member states to service their sovereign debt obligations, including in Greece, Spain, Ireland, Italy and Portugal. The continued uncertainty over the outcome of the EU governments financial support programs and the possibility that other EU member states may experience similar financial troubles could further disrupt global markets. In particular, it has and could in the future disrupt equity markets and result in volatile bond yields on the sovereign debt of EU members. These conditions have also been exacerbated as a result of market perceptions regarding the level of sovereign debt in the United States. On August 5, 2011, Standard & Poor's lowered the long-term sovereign credit rating of U.S. Government debt obligations from AAA to AA+. On August 8, 2011, S&P also downgraded the long-term credit ratings of U.S. government-sponsored enterprises. These actions initially had an adverse effect on financial markets and although the longer-term impact on global financial and credit markets and the participants therein are difficult to predict and may not be immediately apparent, such impact might be material and adverse This downgrade could have material adverse impacts on financial markets and economic conditions throughout the world and, in turn, the market s anticipation of these impacts could have a material adverse effect on the Group s business, financial condition and liquidity. In particular, it could disrupt payment systems, money markets, long-term or short-term fixed income markets, foreign exchange markets, commodities markets and equity markets and adversely affect the cost and availability of funding. Certain impacts, such as increased spreads in money market and other short term rates, have already been experienced as a result of market expectations regarding the downgrade. In the event of continued or increasing market disruptions and volatility, the Group may experience reductions in business activity, increased funding costs, decreased liquidity, decreased asset values, additional credit impairment losses and lower profitability and revenues. Any of the foregoing factors could have a material adverse effect on the Group s business, financial condition and results of operations. The section Risks Relating to the Group Recent economic and market conditions caused substantial credit impairments. Further credit impairments could have a material adverse impact on the Group's financial condition and results of operations on page 13 shall be amended by the insertion of the following sentences at the end of the first paragraph: The Group s credit impairments amounted to SEK (1,296) million (net recovery), corresponding to an annualised credit impairment ratio of (0.19) per cent, for the six month period ended June 30, Impairment losses on loans and other credit risk provisions within Baltic Banking amounted to SEK (524) million (net recovery), corresponding to an annualised credit impairment ratio of (0.80) per cent, for the six month period ended June 30, The section Risks Relating to the Group Recent economic and market conditions caused substantial credit impairments. Further credit impairments could have a material adverse impact on the Group's financial 6

7 condition and results of operations on page 13 shall be amended by replacing the last two sentences in the second paragraph with the following sentences: Although 2010 showed improvement and an increase in GDP, corresponding to annual growth of 4.21 per cent compared to 2009 (according to the State Statistics Committee of Ukraine, the situation has not normalised and there are no assurances that the positive trend will continue. Credit impairments within Ukrainian Banking amounted to SEK (588) million (net recovery) corresponding to a credit impairment ratio of (11.77) per cent for the year ended December 31, 2010, compared to SEK 6,456 million corresponding to a credit impairment ratio of per cent for the year ended December 31, Credit impairments within Ukrainian Banking amounted to SEK (475) million (net recovery) corresponding to an annualised credit impairment ratio of (13.26) per cent for the six month period ended June 30, The section Risks Relating to the Group Recent economic and market conditions caused substantial credit impairments. Further credit impairments could have a material adverse impact on the Group's financial condition and results of operations on page 13 shall be amended by the insertion of the following sentence at the end of the third paragraph: The annualised credit impairment ratio for Swedish Retail for the six month period ended June 30, 2011 was 0.00 per cent. The section Risks Relating to the Group Recent economic and market conditions caused substantial credit impairments. Further credit impairments could have a material adverse impact on the Group's financial condition and results of operations on page 13 shall be amended by replacing the words any of the Baltic countries and any of the currencies in the Baltic countries with the words any of the local currencies of Latvia and Lithuania. The section Risks Relating to the Group Any further impairment of goodwill and other intangible assets would have a negative effect on the Group s results of operations beginning on page 14 shall be amended by replacing the last two sentences with the following sentences: Outstanding goodwill related to Baltic investment totalled SEK 11.1 billion, and intangible assets related to the customer base for the Baltic investment measured SEK 0.3 billion as of June 30, 2011, the date as of which the Guarantor determined that there was no need for an impairment charge to be recorded. Should the economic conditions worsen beyond what the Group expected as of June 30, 2011, either in any of the Group s home markets or in general, an impairment charge may need to be recognised, which may have a material adverse effect on the Group s financial position and results of operations. The section Risks Relating to the Group The Group is financially exposed to Portugal, Italy, Ireland, Greece and Spain and further developments adversely affecting these countries or other similar developments to other Euro Zone countries could have a material adverse effect on the Group's financial position, results of operations and business on page 15 shall be amended by replacing the opening two sentences with the following sentences: As of June 30, 2011 the Group had total credit exposures of SEK 1,207 million against Portugal, Italy, Ireland, Greece and Spain. SEK 322 million related to states or public sector entities and SEK 885 million of these exposures related to credit institutions or other non-public sector entities. Exposure to Greece is SEK 67 million in total, of which sovereign bonds are SEK 51 million and the other SEK 16 million are trade finance and mortgage loans. The following table shall be inserted immediately following this section: 7

8 As of June 30, 2011 Greece Ireland Italy Portugal Spain Total Bonds of which soveriegn of which held to maturity Loans (money market and certificates) Loans (committed credit facilities) Derivatives net Other Total ,207 1 Actual market values are below the carrying amounts by approximately SEK 51 million. 2 Derivatives at market value taking into account netting and collateral agreements. Considering the bank's internal risk add-ons for counterparty risk at potential future change in prices, the derivative exposures amount to: Greece SEK 72 million, Italy SEK 437 million and Spain SEK 196 million. Total SEK 705 million. 3 Trade finance and mortgage loans. The section Risks Relating to the Group The Group is exposed to foreign exchange risk, and a devaluation or depreciation of any of the currencies in the Baltic countries, Ukraine or Russia could have an adverse effect on the Group's assets, including its loan portfolio, and its results of operations on page 15 shall be amended by replacing the words any of the national currencies in the Baltic countries in the first paragraph and local currencies in the Baltic countries in the last paragraph with the words and any of the local currencies of Latvia and Lithuania. The section Risks Relating to the Group The Guarantor or its financial institution subsidiaries may need additional capital in the future to maintain capital adequacy ratios or for other reasons, which may be difficult to obtain on page 17 shall be amended by the insertion of the following sentence at the end of the first paragraph: Moreover, if developments of the regulatory framework cause reductions of the Group s capital adequacy ratios and solvency levels or if the applicable minimum capital requirements increase, the Group may need to obtain additional capital in the future and may not be able to obtain debt financing on attractive terms, or at all. The amendments described above should be read in conjunction with the section Risk Factors as set out in the Prospectus. 8

9 Amendments to Swedbank Mortgage AB (publ) The section Swedbank Mortgage AB (publ) as set out in the Prospectus shall with effect from the date hereof be amended as follows: The table setting out the total loans (broken down by collateral) of the Company for the periods indicated on page 72 shall be amended by the insertion of the following column: SEK billion As of June 30, 2011 Single-family homes Tenant-owner rights Agriculture and Forestry Multi-family houses, including tenant-owner associations Municipalities, including guarantees from municipalities and the government Commercial Properties... 1 Total The table setting out the Company s lending volume distribution throughout Sweden on page 73 shall be amended by the insertion of the following column: As of June 30, 2011 South (including Malmoe)... 24% West (including Gothenburg)... 21% East... 16% Middle (including Stockholm)... 32% North... 7% Total % The table setting out the arrears history (loans in arrears as a percentage of the total mortgage loan portfolio) on page 77 shall be amended by the insertion of the following columns: As of As of March June 31, , days % 0.20% days % 0.03% >90 days % 0.06% The amendments described above should be read in conjunction with the section Swedbank Mortgage AB (publ) as set out in the Prospectus. 9

10 Amendments to Swedbank AB (publ) The section Swedbank AB (publ) as set out in the Prospectus shall with effect from the date hereof be amended as follows: The section Overview on page 79 shall be amended by the insertion of the following text at the end of the second paragraph: As of June 30, 2011, the Group s loans to the public amounted to SEK 1,147 billion (excluding repurchase agreements) and for the six month period ended June 30, 2011, the Group recorded SEK 8,078 million in profit before impairments. Credit impairments for the six month period ended June 30, 2011 amounted to SEK (1,296) million. Net profit attributable to the shareholders of the Guarantor for the six month period ended June 30, 2011, amounted to SEK 7,304 million. As of June 30, 2011, the Group had 17,008 full-time employees. The section Overview on page 79 shall be amended by the insertion of the following text at the end of the section: During the second quarter of 2011, the Guarantor began repurchasing its shares in accordance with the mandate of the Annual General Meeting ( AGM ) in March By June 30, million shares or about 2.9 per cent of the outstanding shares had been repurchased by the Guarantor. The repurchases are being made to calibrate the core Tier 1 capital ratio to 13 per cent. As of June 30, 2011 the ratio was 14.8 per cent, so the bank intends to continue buying back shares until the next AGM. The section Business Areas Retail beginning on page 81 shall be amended by the insertion of the following sentence immediately following the word Sweden. in line 3: As of June 30, 2011, Retail is the Group s largest business area, offering a broad range of financial products and services to private customers as well as small and medium-sized companies through 579 (597 as of December 31, 2010) branches as well as the Telephone Bank and Internet Bank in Sweden. The section Business Areas Retail beginning on page 81 shall be amended by the insertion of the following sentence at the end of the first paragraph of the section at the top of page 82: Customer loans in Retail represented approximately 77 per cent (76 per cent as of December 31, 2010) of the Group s total customer loans outstanding as of June 30, The section Business Areas Large Corporates & Institutions on page 82 shall be amended by the insertion of the following sentence at the end of the paragraph: Customer loans in Large Corporates & Institutions represented approximately 11 per cent (11 per cent as of December 31, 2010) of the Group s total customer loans outstanding as of June 30, The section Business Areas Baltic Banking on page 82 shall be amended by the insertion of the following sentence at the end of the second paragraph: Customer loans in Baltic Banking represented approximately 11 per cent (11 per cent as of December 31, 2010) of the Group s total customer loans outstanding as of June 30, The section Products and Services Mortgages Lending Products on page 83 shall be amended by the insertion of the following sentence immediately following the word customers. in line 4 of the second paragraph of the section: 10

11 As of June 30, 2011, the Company s outstanding Swedish mortgage loan portfolio amounted to SEK 705 billion, of which 594 billion derived from private customers. The section Products and Services Payment Services on page 84 shall be amended by the insertion of the following sentence at the end of the first paragraph: As of June 30, 2011, the Group had 7.5 million bank cards in circulation. The amendments described above should be read in conjunction with the section Swedbank AB (publ) as set out in the Prospectus. 11

12 Amendments to Selected Financial Information The section Selected Financial Information as set out in the Prospectus shall with effect from the date hereof be amended as follows: The tables setting out selected income statement data, balance sheet data, cash flow statement data and key ratios of the Company on pages 87 and 88 shall be amended by the insertion of the following columns, preceded by the following sentence: The selected financial data for June 2011 and 2010 provided below has been derived from the unaudited consolidated financial statements of the Company and the Guarantor, which were prepared in accordance with IAS 34 as of and for the six month periods ended June 30, 2011 and The data set forth below should be read in conjunction with Management s Discussion and Analysis and with the audited consolidated financial statements incorporated by reference into this Prospectus. With respect to the six month period ended June 30, 2011: A. The Company For the six month period ended June INCOME STATEMENT DATA Net interest income... 1,888 2,011 Net commissions... (291) (234) Net gains and losses on financial items at fair value... (62) 65 Other income Total income... 1,539 1,846 Staff costs Other expenses Total expenses Profit before impairments... 1,539 1,846 Credit impairments Operating profit... 1,505 1,672 Tax expense Profit for the period... 1,109 1,232 As of June 30 As of Dec BALANCE SHEET DATA Assets* Treasury bills and other bills eligible for refinancing with central banks etc Loans to credit institutions... 39,253 36,493 Loans to the public , ,299 Shares and participating interests Derivatives... 7,234 6,931 Intangible fixed assets Tangible assets Current tax assets Other assets... 10,836 3,858 Total assets , ,581 Liabilities and equity Liabilities** Amounts owed to credit institutions , ,177 Debt securities in issue , ,328 Derivatives... 14,075 15,565 Other liabilities... 8,160 16,831 Total liabilities , ,901 Equity Equity attributable to the shareholders of the parent company (Guarantor)... 32,104 31,680 Total equity... 32,104 31,680 12

13 Total liabilities and equity , ,581 *The Treasury bills and other bills eligible for refinancing with central banks etc. and Prepaid expenses and accrued income line items which appear in the equivalent table in the Base Prospectus in respect of the years 2010, 2009 and 2008 have not been included here because these line items are only determined on an annual basis. ** The Current tax liabilities, Deferred tax liabilities and Accrued expenses and prepaid income line items which appear in the equivalent table in the Base Prospectus in respect of the years 2010, 2009 and 2008 have not been included here because these line items are only determined on an annual basis. For the six month period ended June CASH FLOW STATEMENT Cash and equivalents at beginning of the year... 15,481 60,079 Cash flow from operating activities... (83,943) (52,448) Cash flow from investing activities Cash flow from financing activities... 92,715 29,207 Cash flow for the period... 8,772 (23,241) Cash and equivalents at end of the period... 24,253 36,838 As of and for the six month period ended June KEY RATIOS* Profit Investment margin % 0.55% Return on equity % 8.0% Earnings per share, SEK Capital Capital base,... 31,884 31,309 Capital quotient Capital adequacy ratio, Basel II % 9.8% Tier 1 capital ratio, Basel II % 9.8% Equity per share, SEK... 1, , Credit quality Credit impairment ratio, net % 0.05% Total provision ratio for impaired loans % 38.4% Share of impaired loans, net % 0.02% *See section Definitions. The tables setting out selected income statement data, balance sheet data, cash flow statement data and key ratios of the Group on pages 89 and 90 shall be amended by the insertion of the following columns, preceded by the following sentence: The selected data for the six month periods ending June 30, 2011 and June 30, 2010 provided below have been derived from the unaudited consolidated financial statements of the Company and the Guarantor, which were prepared in accordance with International Financial Reporting Standards as endorsed by the IFRS as of and for the year ended December 31, B. The Group For the six month period ended June INCOME STATEMENT DATA Net interest income... 9,267 7,822 Net commissions... 4,545 4,677 Net gains and losses on financial items at fair value ,469 Other income... 2,229 1,471 Total income... 16,807 15,439 Staff costs... (4,857) (4,798) Other expenses... (3,872) (4,016) Total expenses... (8,729) (8,814) Profit before impairments... 8,078 6,625 Impairment of intangible assets Impairments of tangible assets Credit impairments (1,296) 164 3,173 Operating profit (loss)... 9,357 3,274 Tax expense... 2,045 1,141 13

14 Profit (loss) for the period... Non-controlling interests... 7, , As of June 30 As of Dec BALANCE SHEET DATA Assets* Cash and balances with central banks... 11,954 17,109 Loans to credit institutions , ,417 Loans to the public... 1,174,938 1,187,226 Bonds and other interest-bearing securities , ,576 Financial assets for which customers bears the investment risk , ,628 Shares and participating interests... 2,878 6,181 Investments in associates... 3,019 2,710 Derivatives... 60,371 65,051 Intangible fixed assets... 15,980 15,794 of which goodwill... 13,933 13,733 Tangible assets... 6,739 5,679 Current tax assets... 1,682 1,156 Deferred tax assets... 1,023 1,218 Other assets... 15,579 8,611 Prepaid expenses and accrued income... 8,136 6,325 Total assets... 1,757,517 1,715,681 Liabilities and equity Liabilities** Amounts owed to credit institutions , ,766 Deposits and borrowings from the public , ,237 Financial liabilities for which customers bear the investment risk , ,988 Debt securities in issue , ,517 Short positions securities ,342 34,179 Derivatives... 60,901 65,935 Current tax liabilities Deferred tax liabilities... 1,857 1,734 Provisions... 4,131 4,087 Other liabilities... 15,770 13,625 Accrued expenses and prepaid income... 8,206 15,074 Subordinated liabilities... 20,811 27,187 Total liabilities... 1,661,459 1,620,646 Equity Non-controlling interests Equity attributable to the shareholders of the parent company (Guarantor)... 95,923 94,897 Total equity... 96,058 95,035 Total liabilities and equity... 1,757,517 1,715,681 * The Treasury bills and other bills eligible for refinancing with central banks etc. line item which appears in the equivalent table in the Base Prospectus in respect of the years 2010, 2009 and 2008 has not been included here because this line item is only determined on an annual basis. **The Provisions and Other liabilities line items which appear here but not in the Base Prospectus are the equivalent of the Pension provisions, Insurance provisions and Other liabilities and provisions line items which appear in the table in the Base Prospectus in respect of the years 2010, 2009 and 2008, which have not been included here because these line items are only determined on an annual basis. As of and for the six month period ended June CASH FLOW STATEMENT Cash and equivalents at beginning of the year... 17,109 37,879 Cash flow from operating activities... (58,134) (26,763) Cash flow from investing activities ,358 Cash flow from financing activities... 52,640 9,852 Cash flow for the period... (5,274) (15,553) Exchange rate differences on cash and cash equivalents (2,493) Cash and equivalents at end of the period... 11,954 19,833 As of and for the six month period ended June KEY RATIOS* Return on equity % 4.7% Earnings per share, SEK Cost/income ratio Equity per share, SEK Capital quotient excluding complement** Tier 1 capital ratio, excluding complement** % 14.0% Capital adequacy ratio, excluding complement** % 17.9% 14

15 Tier 1 capital ratio, transition rules**, % % 10.5% Capital adequacy ratio** % 13.4% Credit impairment ratio, net... (0.19)% 0.46% Share of impaired loans, gross % 2.90% Risk-weighted assets, new rules**, SEK billion Risk-weighted assets, transition rules**, SEK billion Full time employees... 17,008 17,529 * See section Definitions. ** Risk-weighted assets are defined by the capital adequacy rules in Sweden and represent a measure of the Group s credit risk-taking. The capital adequacy rules changed in 2007, and accordingly, the Group is required to present its risk-weighted assets in accordance with the old rules, new rules and transition rules. The capital adequacy rules also define the computations for capital quotient, Tier 1 capital ratio and the capital adequacy ratio. See Management s Discussion and Analysis Capital Adequacy for further information, including the timing and implications of the risk-weighted asset rules. All tier 1 capital contributions are based on transition rules according to FFFS 2010:10. The section Ratings on page 90 shall be amended by the insertion of the following paragraph: On June 8, 2011, Moody s upgraded the Group s stand alone bank financial strength rating one notch to 'C-' mapping to a BCA stand alone rating of Baa2 and raised the junior subordinated debt and Tier 1 hybrid securities one notch to Baa3 and Ba2, respectively, with a positive outlook. The A2 long-term debt and deposit rating and A3 subordinated debt rating were affirmed with stable outlook. The upgrade reflects Moody s view of the stabilisation of asset quality in the Baltic operations and the Group's improving financial strength and good capital and liquidity metrics. Moody s have a positive outlook for the Group's Baa2 standalone credit rating. The amendments described above should be read in conjunction with the section Selected Financial Information as set out in the Prospectus. 15

16 Amendments to Management s Discussion and Analysis The section Management s Discussion and Analysis as set out in the Prospectus shall with effect from the date hereof be amended as follows: The section A. Company s Management Discussion and Analysis on page 91 shall be amended by the insertion of the following section immediately following the graph on page 103: Review of Company s Interim Report January June 2011 The following discussion on the financial condition and result of operations of the Company should be read in conjunction with the unaudited condensed consolidated financial information of the Company as of and for the six month period ended June 30, 2011 and 2010 incorporated by reference in this Prospectus, as well as with the information presented under Selected Financial Information and Selected Statistical and Other Information. Overview As of June 30, 2011, more than 90 per cent of the Company s total lending volume of SEK 705 billion (more than 90 per cent of the Company s total lending volume of SEK 697 billion as of December 31, 2010) was represented by loans to the residential sector. Stability of the Real Estate Market From July 2010 to July 2011 the Riksbank has gradually increased the repo rate from 0.25 per cent to the current rate of 2.00 per cent. The increase of interest rates together with the LTV-cap of 85 per cent (from October 1, 2010 from the Swedish FSA's) have cooled off the housing market during The house price change for tenant owner rights has increased by 3 per cent compared to the same period last year and the corresponding house price change for single-family housing is 0 per cent. 1 New Portfolio Provision Model Affected the Year s Credit Impairments For the first six months of 2011 credit impairments resulted in a charge of SEK 34 million as compared to SEK 174 million for the corresponding period in The largest part of this decrease in credit impairment profit reduction is primarily due to the change in the portfolio valuation model that reduced profit by SEK 153 million as of June 30, As of June 30, 2011, established credit impairments amounted to SEK 21 million (SEK 21 million as of June 30, 2010), utilisation of previous provisions amounted to SEK 3 million (SEK 5 million as of June 30, 2010), while recoveries from previous years impairments totalled SEK 1 million (SEK 0 million as of June 30, 2010). Provisions for credit impairments amounted to SEK 17 million during the six months ended June 30, 2011, compared to SEK 158 million for the corresponding period of Income Statement For the six month period ended June INCOME STATEMENT DATA Net interest income... 1,888 2,011 Net commissions... (291) (234) Net gains and losses on financial items at fair value... (62) 65 Other income Total income... 1,539 1,846 Staff costs... Other expenses Mäklarstatistik April-June 2011, 16

17 Total expenses Profit before impairments... 1,539 1,846 Credit impairments Operating profit... 1,505 1,672 Tax expense Profit for the year... 1,109 1,232 Interest Income and Expense Net Interest Income Net interest income decreased by 6 per cent to SEK 1,888 million for the first six months of 2011, compared to SEK 2,011 million for the corresponding period in The decrease is mostly due to higher funding costs. Interest Income Interest income increased by SEK 3,324 million or 35 per cent for the first six months of 2011 compared to the corresponding period in 2010 as a result of higher interest rates. The average volume of loans to credit institutions has been lower during 2011, both cash balance and other types of lending to the parent company. Even though interest rates have increased, the lower volume reduces the increase of interest income to SEK 102 million. Interest income from loans to the public increased by SEK 3,222 million or 34 per cent for the six month period ended June 30, 2011 relative to the same period in The main reason is higher average interest rates on the loan portfolio. The components of interest income are set out below: For the six month period ended June Loans to credit institutions Loans to the public... 12,668 9,446 Interest-bearing securities Total... 12,933 9,609 Interest Expenses Interest expenses increased by SEK 3,447 million or 45 per cent for the six months ended June 30, 2011 compared to the same period of 2010, mostly as a consequence of higher market interest rates. Also due to the longer average maturity of liabilities relative to assets, interest expenses have increased more than interest income. The components of interest expense are set out below: For the six month period ended June Amounts owed to credit institutions... (2,467) (1,455) Debt securities in issue... (8,484) (6,097) of which derivatives... (315) 2,027 of which commission for state guarantee Subordinated liabilities Other... of which fee state stabilisation fund... (94) (89) (46) (38) Total... (11,045) (7,598) 17

18 Net Commission For the six month period ended June Payment processing Total commission income Commission to savings banks... (311) (253) BKN fees*... (1) (2) Market maker fees... (2) (2) Other commissions... (1) - Total commission expense... (315) (257) Total net commission... (291) (234) * Bostadskreditnämnden, BKN, is a government authority to which the company pays a mandatory guarantee fee. Net commission expense amounted to SEK (315) million for the six months ended June 30, 2011, an increase of 23 per cent compared to the same period in Commission costs to the savings banks increased by SEK 58 million for the first six months in 2011 compared to the same period in Part of the change is due to changes in the co-operation agreement between the Company and the savings banks effective as of the end of 2010 but also larger volumes and higher margins have contributed to a higher commission cost. Net Gains and Losses on Financial Items at Fair Value For the six month period ended June 30 Valuation category, fair value through profit or loss Trading and derivatives of which Interest-bearing securities... 4,027 (7,593) Other of which Interest-bearing securities... (4,075) 7,608 Hedge accounting at fair value Hedging instruments... (257) 3,192 Hedged item (3,202) Total... (30) (10) Financial liabilities at amortised cost... (26) - Valuation category, loans and receivables Total net gains and losses on financial items at fair value... (62) 65 Net losses on financial items at fair value amounted to SEK (62) million for the first six months of 2011, compared to net gains of SEK 65 million for the same period in The variation in net gains and losses is partly a result of open interest rate risk positions from items for which the fair value option is applied. Net Credit Impairments In the six month period ended June 30, 2011 net credit impairments were SEK 34 million compared to SEK 174 million for the corresponding period in In 2010, net credit impairments were negatively affected by the change in valuation model for portfolio provisions by SEK 153 million. See New Portfolio Provision Model Affected the Previous Year s Credit Impairments above. Assets Total assets increased 2 per cent to SEK 762,174 million as of June 30, 2011 compared to SEK 744,581 million as of December 31, 2010, based on changes in book value. Lending to the public increased by SEK 7.5 billion to SEK 704,851 million as of June 30, 2011 compared to December 31, 2010 (including change in market value). The amount meeting the criteria was SEK 655,716 18

19 million (nominal and accrued interest) as of June 30, 2011, an increase of SEK 16 billion compared to one year earlier. Positive book values on derivatives increased by SEK 0.3 billion and were offset by negative book values on derivatives, liabilities, and also with debt securities in issue as derivatives and issued securities are offsetting changes in market value and changes in foreign exchange rates. As of June 30 As of Dec. 31 BALANCE SHEET DATA Treasury bills and other bills eligible for refinancing with central banks, etc Loans to credit institutions... 39,253 36,493 Loans to the public , ,299 Shares and participating interests Derivatives... 7,234 6,931 Intangible fixed assets Tangible assets Current tax assets Other assets... 10,836 3,858 Total assets , ,581 *The Prepaid expenses and accrued income line item which appears in the equivalent table in the Base Prospectus in respect of the years 2010, 2009 and 2008 has not been included here because this line item is only determined on an annual basis. Household loans past due by more than 60 days as a share of the total loan portfolio remain at around 0.10 per cent (0.07 per cent as of December 31, 2010). The corresponding figure is 0.02 per cent (0.02 per cent as of December 31, 2010) for commercial loans and 0.06 per cent (0.07 per cent as of December 31, 2010) for agricultural and forestry loans. The portfolio s impaired loans, after deducting provisions of SEK 66 million (SEK 202 million as of December 31, 2010), amounted to SEK 98 million (SEK 86 million as of December 31, 2010) as of June 30, 2011, corresponding to 0.01 per cent (0.01 per cent as of December 31, 2010) of the total loan portfolio. Liabilities Total liabilities increased 2 per cent to SEK 730,070 million as of June 30, 2011 from SEK 712,901 million as of December 31, 2010, based on changes in book value. Amounts owed to credit institutions increased by SEK 29,339 million while debt securities in issue increased by SEK 56,669 million as of June 30, 2011 compared to December 31, The average maturity of debt securities in issue has been continuously extended during 2010 and Negative book values on derivatives decreased between December 31, 2010 and June 30, 2011, and are offset by the positive book value on derivatives and issued securities. All derivatives are made with the Guarantor. As of June 30 As of Dec BALANCE SHEET DATA* Amounts owed to credit institutions , ,177 Debt securities in issue , ,328 Derivatives... 14,075 15,565 Other liabilities ,423 Accrued expenses and prepaid income... 7,966 13,408 Total liabilities , ,901 *The Current tax liabilities and Deferred tax liabilities line items which appear in the equivalent table in the Base Prospectus in respect of the years 2010, 2009 and 2008 have not been included here because these line items are 19

20 only determined on an annual basis. Loan Portfolio During the first six months of 2011 total lending to the public increased by 1 per cent. Almost all of this increase in lending has been in the private residential sector. Lending to the commercial sector, which largely consists of tenant-owner associations, with relatively low loan-to-value ratios, fell by SEK 2.6 billion to SEK 116 billion. The increase in lending slowed down in the first six months of 2011 compared to the previous year. This was mainly driven by three factors. Firstly, the economy continued to improve and employment levels rose. Moreover, the increase of the Swedish Central Bank base rate was initiated during the year, which led to increases in mortgage interest rates. According to the internal risk classification model the loan portfolio has a high credit quality with low risks, with 85 per cent of the exposure in the risk classification having been assigned investment grade risk class as of June 30, Basel II The transition rules have been extended to 2015, meaning that the 80 per cent floor still applied during the first six months of Funding During the first six months of 2011 the demand from the Swedish market for covered bonds was high and issues were done on a regular basis in the existing Swedish covered bond programs. During the period, the Company also put in place a global funding program for covered bonds. During the first quarter of 2011, the Company issued USD 2 billion under this new program comprising a three-year USD 1 billion bond with floating rate and a five-year USD 1 billion bond with fixed rate. During the six month period ended June 30, 2011, the Company also issued bonds denominated in EUR and CHF on the international market. In total, the Company has during the first six months of 2011 completed eleven benchmark issues in the international market, of which two are in EUR, seven in CHF and two in USD. The total nominal amount that has been issued during the first six months of 2011 is SEK 84 billion on the Swedish market and SEK 53 billion on the international market. During the second half of 2010 the Company began a structural change of the maturity structure of its Swedish covered bonds. Going forward its bond loans are structured to mature at nine-month intervals, compared with about 12 months before. The expectation is that this will create a closer match between assets and liabilities and better spread out maturities over time. The Company As of June 30, 2011, notional amounts Amount owed to credit institutions ,838 Debt securities in issue etc, short-term Debt securities in issue etc, long-term ,226 of which Domestic covered bonds ,262 Total ,835 20

21 Covered Bonds As of June 30, 2011 the Company s cover pool consisted of loans with collateral in Swedish property with a weighted average loan-to-value ratio of 57 per cent (compared to 60 per cent for the Company s entire loan portfolio). During the first six months of 2011, the Company issued covered bonds amounting to SEK 137 billion to investors in the Swedish and in the international markets. As of June 30, 2011, the Company had SEK 494 billion of covered bonds outstanding placed to end-investors (excluding intra-group issuance). Out of the total outstanding volume, approximately SEK 320 billion were issued in the Swedish domestic covered bond market with typical tenors of two to five years, approximately SEK 148 billion were denominated in non-sek currencies, primarily Euro and Swiss Francs, with typical tenors of three to seven years and approximately SEK 26 billion were issued with maturities longer than seven years. 21

22 The section B. Guarantor s Management Discussion and Analysis on page 104 shall be amended by the insertion of the following section immediately following the paragraph Cash and Cash Equivalents on page 128: Review of Guarantor s Interim Report January June 2011 The following discussion on the financial condition and result of operations of the Group should be read in conjunction with the unaudited condensed consolidated financial information of the Group as of and for the six month period ended June 30, 2011 and 2010 incorporated by reference in this Prospectus, as well as with the information presented under Selected Financial Information and Selected Statistical and Other Information. Overview As of June 30, 2011, the Group s loans to the public amounted to SEK 1,147 billion (excluding repurchase agreements, loans to credit institutions and loans to the Swedish National Debt Office). For the six month period ended June 30, 2011, the Group recorded SEK 8,078 million in profit before impairments and provisions. Market Share 1 Market share, Sweden As of May 31, 2011 Private market Deposits... 24% Lending... 25% of which mortgage lending... 27% Corporate market Deposits... 16% Lending... 16% Market share, Estonia As of May 31, 2011 Private market Deposits... 55% Lending... 47% of which mortgage lending... 47% Corporate market Deposits... 41% Lending... 37% Market share, Latvia As of May 31, 2011 Private market Deposits... 24% Lending... 27% of which mortgage lending... 27% Corporate market Deposits... 9% 1 Statistics Sweden, Estonian Central Bank, Association of Commercial Banks of Latvia, The Financial and Capital Market Commission (Latvia), Association of Lithuanian Banks, public interim reports and Swedbank estimates 22