Interim Report JANUARY - SEPTEMBER Operating profit rose by 10% to SEK 12.1bn (11.0) Profits after tax increased by 18% to SEK 9.5bn (8.

Transcription

1 Interim Report JANUARY - SEPTEMBER 2006 Operating profit rose by 10% to SEK 12.1bn (11.0) Profits after tax increased by 18% to SEK 9.5bn (8.0) Earnings per share went up by 22% to SEK (12.00) Return on equity was 20.2% (17.1) Income rose by 12% to SEK 21.2bn (18.9) Net gains/losses on financial items at fair value fell by SEK 1.3bn from Q2 to Q3 Business volumes increased - lending by 13% and deposits by 15% Handelsbanken has the most satisfied bank customers in the Nordic countries

2 The Group Operating profit increased by 10% to SEK 12,132m (11,041) Operating profit was SEK 12,132m (11,041), an increase of 10%. Income rose by 12% to SEK 21,212m (18,911), and expenses went up by 13% to SEK 9,191m (8,098). Return on shareholders equity was 20.2% (17.1). Earnings per share were SEK (12.00), and as a 12-month moving total SEK The cost/income ratio was 43.3% (42.8). Profits for the third quarter fell and were SEK 3,002m, compared to SEK 4,114m in the second quarter. Higher business volumes and income Business volumes continued to increase both in Sweden and in the operations outside Sweden. The average volume of lending to the public was SEK 1,034bn (917), up 13%. In Sweden, the increase was almost 10% and in the branch office operations outside Sweden it was 27%. Deposits from households went up by over 11%, both in Sweden and abroad. Net interest income was SEK 11,246m (11,297). Increases in volume and higher deposit margins compensated for the decline in lending margins. Third-quarter net interest income was SEK 3,696m, compared with SEK 3,766m in the second quarter. Net fee and commission income rose by 28% to SEK 6,483m (5,076). The increase was mainly due to higher insurance commission, brokerage fees and commission from mutual fund and custody operations. Net fee and commission income in the third quarter was SEK 2,072m, compared with SEK 2,069m in the second quarter. Insurance and payment commissions increased the most. Net gains/losses on financial items at fair value fell by just over SEK 1.3bn from Q2 to Q3 Net gains/losses on financial items at fair value were SEK 2,654m (1,942), an increase of 37%. For the third quarter, this item was SEK -247m, a decrease of SEK 1,311m from the previous quarter. The decrease stemmed mainly from the allocation of the impact on profits of holdings in the Bank s own bonds, provisions in the insurance operations and a decline in net trading income. Both Handelsbanken Markets and the Bank s Treasury function invest in the Group s own securities, mainly bonds issued by Stadshypotek. This is part of normal business operations. In the consolidated accounts, the impact on profits of the Bank s holdings of its own bonds is allocated over time. This had a negative impact on the profits of SEK 693m between the second and third quarters. These effects have been unusually large and action has therefore been taken so that they will be substantially less in the future. Over the nine-month period, the overall effect is SEK 6m. When SPP was demutualised, some of its insurance contracts were underfunded. These were capitalised through the capital contribution made by the Bank when the demutualisation took place. When calculating the insurance liabilities, a long-term market yield is used as the discount rate. This fell by 43 bp during the year, which increased the need for provisions for the insurance contracts that were underfunded at the time of the demutualisation. The increase in the deferred capital contribution and other items in the insurance operations had a negative effect on net gains/losses on financial items at fair value of SEK 233m. The amount would have been higher, had the Bank not hedged itself against changes in the long-term yield. The intention is to further reduce the financial risks in SPP. Finally, the Bank s trading operations showed lower income of SEK 194m. This was a decrease from the high levels recorded in the first and second quarters. Moreover, in seasonal terms, the third quarter is normally somewhat weaker for trading income. Expenses fell between the second and third quarters Expenses dropped by 22% from the second to the third quarter, to a figure of SEK 2,609m (3,330). At the end of each quarter, the Bank assesses the size of a possible allocation to its profitsharing plan, the Oktogonen Foundation. After the lower profit for the third quarter, this assessment was revised which led to the Bank reversing parts of the previous provision for a possible allocation to the profit-sharing plan. The reversal totalled SEK 272m, and the change from the previous quarter was SEK 478m. Both staff costs and administrative costs decreased from the second quarter to the third. Expenses for the ninemonth period increased to SEK 9,191m (8,098), a rise of 13.5%. Of the total increase, the consolidation of SPP represented 7.3 percentage points, an increase in performance-related remuneration 1.9 percentage points, and the rebuilding of premises and exchange rate changes 1.2 percentage points. The remainder of the increase 3.1 percentage points was chiefly due to the larger number of employees and salary rises. Recoveries exceeded loan losses Recoveries exceeded loan losses for the period; total net recoveries were SEK 110m (224). The loan loss level was -0.01% (-0.03). Net bad debts were SEK 1,071m (1,423), equivalent to 0.09% (0.14) of lending. Third-quarter loan losses amounted to SEK 22m. Capital ratio, buy-back of shares and rating The capital ratio was 9.7% (9.9) and the Tier 1 ratio 6.8% (7.4). At the 2006 AGM, the Bank s board received a mandate to repurchase 40 million shares during the period until the 2007 AGM. During the second and third quarters, the Bank utilised the mandate and repurchased a total of 14.8 million shares. The total number of shares is million, and thus the number of outstanding shares at the end of the third quarter was million. Handelsbanken's rating was unchanged with all three rating agencies which rate the Bank. Moody s rating for the Bank was Aa1, and from Fitch and Standard & Poor s AA-. 2 Svenska Handelsbanken

3 Satisfied customers do more business Satisfaction among bank customers, both private and corporate, is now measured in a uniform manner in Sweden, Denmark, Finland and Norway. The results of this year s surveys were presented in early October, and all in all, the Bank has the most satisfied customers in the Nordic region corporate as well as private. In all four countries, the Bank s results are well above those of its major competitors. Satisfied customers are also leading to record volumes in several business areas. The Bank has never sold as many cards as it does now, has never had so many and such large volumes of standing orders to mutual funds as it has now, and has never issued such large sums of structured products as it does now. Furthermore, the Bank s share of the mortgage market is growing, and its share of net new sales in the Swedish mutual fund market has also increased this year. Six new branches opened During the third quarter, the Bank opened branches on the island of Sotra outside Bergen in Norway, in Oxford, Swindon and Leicester in Great Britain, in Poznan in Poland, and in Mumbai, India. Pär Boman President and Group Chief Executive Svenska Handelsbanken 3

4 Key figures for the Group Q 3 Q 2 Q 3 Jan-Sep Jan-Sep Full year Profit before loan losses, SEK m 3,024 4,060 3,716 12,021 10,813 15,385 Loan losses/recoveries, SEK m Operating profit, SEK m 3,002 4,114 3,968 12,132 11,041 15,650 Profit for the period, SEK m 2,115 3,210 2,899 9,454 8,034 11,354 Total assets, SEK m 1,764,159 1,712,431 1,487,240 1,764,159 1,487,240 1,580,733 Shareholders' equity, SEK m 62,903 62,217 65,805 62,903 65,805 65,758 Return on shareholders' equity, after actual tax % 20.3% 18.2% 20.2% 17.1% 17.9% Return on shareholders' equity, after standard tax 13.9% 18.7% 17.9% 18.7% 16.9% 17.8% C/I ratio 46.3% 45.1% 42.1% 43.3% 42.8% 41.6% Earnings per share, SEK month moving total Dividend per share, SEK 7.00 Adjusted equity per share, SEK Number of shares, end of period 634,209, ,989, ,641, ,209, ,641, ,471,162 Number of repurchased shares, end of period 14,822,800 5,042,800-14,822,800-13,170,300 Average number of outstanding shares 639,091, ,904, ,641, ,342, ,641, ,573,671 Tier 1 capital, SEK m 3 57,507 58,157 52,001 57,507 52,001 58,424 Tier 1 capital, SEK m 4 58,543 58,157 53,586 58,543 53,586 58,424 Risk-weighted volume, SEK m 855, , , , , ,239 Capital ratio 3 9.5% 9.6% 9.7% 9.5% 9.7% 11.6% Tier 1 ratio 3 6.7% 7.1% 7.1% 6.7% 7.1% 7.6% Capital ratio 4 9.7% 9.6% 9.9% 9.7% 9.9% 11.6% Tier 1 ratio 4 6.8% 7.1% 7.4% 6.8% 7.4% 7.6% Average number of employees 10,422 10,005 9,631 10,127 9,395 9,395 Number of branches in Nordic countries and Great Britain, end of period When calculating return on equity, shareholders' equity is adjusted for the impact of unrealised changes in the value of financial assets classified as "Available for Sale" and for cash flow hedges. When calculating equity per share, shareholders' equity is adjusted for the impact of cash flow hedges. 2 No dilution. 3 Excluding profit generated during the quarter. 4 Including profit generated during the quarter. 4 Svenska Handelsbanken

5 Income statement Svenska Handelsbanken Group Income statement Q 3 Q 2 Change Q 3 Change Jan-Sep Jan-Sep Change Full year SEK m % 2005 % % 2005 Net interest income Note 2 3,696 3, , ,246 11, ,090 Net fee and commission income Note 1 2,072 2, , ,483 5, ,055 Net gains/losses on financial items at fair value Note , ,654 1, ,459 Risk result - insurance Other dividend income Share of profits of associated companies Other income Total income 5,633 7, , ,212 18, ,323 Staff costs -1,543-2, , ,726-4, ,678 Other administrative expenses Note , ,049-2, ,747 Depreciation, amortisation and writedowns of property and equipment and intangible assets Total expenses -2,609-3, , ,191-8, ,938 Profit before loan losses 3,024 4, , ,021 10, ,385 Loan losses/recoveries Note Gains/losses on disposal of property and equipment and intangible assets Operating profit 3,002 4, , ,132 11, ,650 Taxes , ,678-3, ,296 Profit for the period 2,115 3, , ,454 8, ,354 Attributable to Holders of ordinary shares 2,115 3, , ,454 8, ,354 Minority owners Earnings per share, SEK * * No dilution. Note 1 Net fee and commission income Q 3 Q 2 Change Q 3 Change Jan-Sep Jan-Sep Change Full year SEK m % 2005 % % 2005 Brokerage , ,383 Mutual funds and custody ,552 1, ,660 Insurance , Payments ,457 1, ,875 Lending and deposits Guarantees Other ,104 Commission income 2,417 2, , ,448 5, ,182 Commission expense ,127 Net fee and commission income 2,072 2, , ,483 5, ,055 To achieve gross reporting of net fee and commission income there has been a change of method relating to custody income (refers to SPP). Net fee and commission income is unchanged but the method change affects the income category Mutual funds and custody and the expense category Commission expense. This change was effective as of 1 January The changed accounting means that Mutual funds and custody and Commission expense increase by SEK 55m in the first quarter of 2006 and by SEK 57m in the second quarter of Svenska Handelsbanken 5

6 Note 2 Net gains/losses on financial items at fair value Q 3 Q 2 Change Q 3 Change Jan-Sep Jan-Sep Change Full year SEK m % 2005 % % 2005 Available for sale, realised Hedge accounting Fair value hedges Instruments at fair value Loan receivables, valued at cost Financial liabilities, valued at cost Gains/losses on unbundled insurance contracts Trading ,791 1, ,202 Total , ,654 1, ,459 Net gains/losses on financial items at fair value shows the earnings related to the items which are wholly or partly dependent on changes in market value. Available for sale, realised, corresponds to the realised earnings from disposal of financial assets categorised as Available for sale. Fair value hedges include the net result of unrealised and realised market value changes on financial assets and liabilities which are part of hedging packages. Interest income and interest expense for these instruments are recognised under net interest income. Instruments at fair value contain the fair value for a small number of lending portfolios outside Sweden. The change in fair value for these lending portfolios normally corresponds to equally-sized opposite changes in value on other financial instruments which are reported under Trading. Interest income is reported under net interest income. Loan receivables, valued at cost, consist of the gain/loss arising on loans which are redeemed ahead of time. Financial liabilities, valued at cost, contain the gain/loss generated when repurchasing the Bank s own issued securities. Gains/losses on unbundled insurance contracts mainly correspond to the result arising in the revaluation of the liability to policyholders due to changes in the valuation interest rate. This sub-item also includes the negative share of return due to the yield on financial assets in the insurance business being less than the guaranteed indexed debt. Trading contains share dividends, unrealised and realised changes in market value of derivative instruments which are not used as hedges, and changes in market value of other financial assets and liabilities at fair value. A minor adjustment has been made during the year retroactively for the first and second quarter. The adjustment refers to amounts incorrectly categorised between net interest income and net gains/losses on items at fair value. The impact of this is that net interest income has decreased. There was no corresponding incorrect categorisation in Note 3 Other administrative expenses Q 3 Q 2 Change Q 3 Change Jan-Sep Jan-Sep Change Full year SEK m % 2005 % % 2005 Property and premises External IT costs Communication Travel and marketing Purchased services Supplies Other expenses Other administrative expenses , ,049-2, ,747 6 Svenska Handelsbanken

7 Note 4 Loan losses/recoveries Q 3 Q 2 Change Q 3 Change Jan-Sep Jan-Sep Change Full year SEK m % 2005 % % 2005 A. Specific provision for individually assessed loan receivables: The period's write-off for actual loan losses Writeback of previous provisions for probable loan losses reported as actual losses in the period's accounts The period's provision for probable loan losses Writeback of actual losses in previous years Writeback of provisions for probable loan losses which are no longer necessary Net expense for the period for individually assessed loan receivables B. Provision by group for individually assessed loan receivables: Allocation to/dissolution of provision by group C. Collectively assessed homogenous groups of loan receivables with limited value and similar credit risk: The period's write-off for actual loan losses Paid in from actual losses in previous years Allocation to/dissolution of provision for loan losses Net expense for the period for collectively assessed homogenous loan receivables D. Transfer risk: Allocation to/dissolution of provision for transfer risks Net expense for the period for loan losses (A+B+C+D) Change in value of repossessed property Loan losses/recoveries Svenska Handelsbanken 7

8 Quarterly performance of Svenska Handelsbanken Group Q 3 Q 2 Q 1 Q 4 Q 3 SEK m Net interest income 3,696 3,766 3,784 3,793 3,762 Net fee and commission income 2,072 2,069 2,342 1,979 1,710 Net gains/losses on financial items at fair value ,064 1,837 1, Risk result - insurance Other dividend income Share of profits of associated companies Other income Total income 5,633 7,390 8,189 7,412 6,413 Staff costs -1,543-2,142-2,041-1,775-1,651 Other administrative expenses ,052-1, Depreciation, amortisation and write-downs of property and equipment and intangible assets Total expenses -2,609-3,330-3,252-2,840-2,697 Profit before loan losses 3,024 4,060 4,937 4,572 3,716 Loan losses/recoveries Gains/losses on disposal of property and equipment and intangible assets Operating profit 3,002 4,114 5,016 4,609 3,968 Taxes ,289-1,069 Profit for the period 2,115 3,210 4,129 3,320 2,899 Earnings per share, SEK * * No dilution. 8 Svenska Handelsbanken

9 Segment information Branch Asset Pensions & Other Elimina- Jan-Sep Jan-Sep SEK m offices Markets Mgmt Insurance operations tions Net interest income 10, ,246 11,297 Net fee and commission income 3,051 1, , ,483 5,076 Net gains/losses on financial items at fair value 881 1, ,654 1,942 Risk result - insurance Other income ,585-3, Total income 14,973 3,337 1,111 2,785 2,250-3,244 21,212 18,911 Total expenses -6,102-2, ,145-2,324 3,244-9,191-8,098 Profit before loan losses 8, , ,021 10,813 Loan losses/recoveries Gains/losses on disposal of property and equipment and intangible assets Operating profit 8, , ,132 11,041 Return on equity, % Average number of employees 6,142 1, ,753 10,127 9,395 Internal income and expenses are included in the respective item on the income statement. Internal income consists of payment for services rendered according to the cost price principle. Expenses also include the distribution of costs made internally within the Group for services from business support operations. The Other operations business segment includes Treasury and the Central Head Office departments. It also includes capital gains/losses, dividends, and income and expenses that are not attributable to a specific business segment. Return on shareholders' equity for the business segments is computed after standard tax while for the whole Group and for Pensions & Insurance, it is computed after actual tax. The shareholders' equity, on which calculation of return on equity is based, corresponds to the assessment of the Group s overall capital requirement. Svenska Handelsbanken 9

10 Branch office operations Branch office operations comprise eleven regional banks and Handelsbanken Finans. Seven of the regional banks are in Sweden and the remaining four are located in Great Britain, Denmark, Finland and Norway. At Handelsbanken, the branches are the base of all operations and they co-ordinate services for all customers, including major corporations. The regional banks are responsible for their own profits and pursue the same goals everywhere to deliver universal banking services with a higher service level and at lower cost than comparable banks. Handelsbanken Finans offers a full range of finance company services in the four Nordic countries and Great Britain. Handelsbanken Finans works through the Bank s branches and in financing collaborations with retailers and vendors. Income statement Q 3 Q 2 Change Q 3 Change Jan-Sep Jan-Sep Change Full year SEK m % 2005 % % 2005 Net interest income 3,550 3, , ,728 11, ,655 Net fee and commission income 917 1, ,051 2, ,803 Net gains/losses on financial items at fair value ,261 Other income Total income 4,728 5, , ,973 15, ,088 Total expenses -1,873-2, , ,102-5, ,935 Profit before loan losses 2,855 3, , ,871 9, ,153 Loan losses/recoveries Gains/losses on disposal of property and equipment and intangible assets Operating profit 2,833 3, , ,979 9, ,416 Return on equity, % Average number of employees 6,364 6, , ,142 6, ,018 Performance Operating profits from branch office operations decreased by 3% to SEK 8,979m (9,278). Net commission income rose by 10%, but total income was unchanged. Costs increased by 3% to SEK 6,102m (5,949). This was mainly due to the continuing investment in branch office operations outside Sweden where the cost increase was SEK 223m. Branch office operations showed net loan losses during the third quarter for the first time in 18 months. Return on shareholders' equity was 18.7% (16.8). Branch office operations in Sweden Branch office operations in Sweden comprise seven regional banks with a total of 456 branches. Profits decreased by 5% to SEK 7,493m (7,913). Income was down by 3%, while expenses were unchanged. Business volumes continued to grow. The average volume of loans to the public, excluding loans to the National Debt Office, increased by just under 10% to SEK 788bn (719). Lending to households grew by 11% to SEK 364bn (328), while corporate lending increased by just over 8% to SEK 424bn (391). Total mortgage lending amounted to SEK 456bn (422); SEK 314bn (280) of this figure was to households. The increase in volumes between the last two quarters indicates a more or less unchanged growth rate compared to the figure for the last 12 months. The average volume of deposits rose by over 12% to SEK 273bn (243), with household deposits accounting for SEK 102bn (92) of this. Household deposits showed particularly strong growth in the third quarter compared to the previous quarter, and the increase was just over 6%. Deposit margins rose, but there was still pressure on lending margins. The average mortgage margin for loans to the private market was 75.0 bp during the third quarter compared to the previous quarter, when the figure was 79.5 bp. Improved deposit margins could, however, offset the decline in lending margins during the third quarter. This was not the case for the period as a whole, however. New sales at Handelsbanken Finans (included under branch office operations) increased by just over 15% to SEK 15bn (13). The increase in new sales was even greater within leasing and conditional sales products and in the retail financial services area. Total credit volumes were SEK 46bn, an increase of 13%. Handelsbanken Direct was launched on 1 October, with the aim of increasing availability for the Bank s existing and prospective customers. By utilising and developing the Bank s online services, more business will be generated over the internet, supplemented by personal service by telephone. Svenskt Kvalitetsindex (SKI) presented its annual survey of how satisfied bank customers are. This survey has been carried out since 1989, when only the four major Swedish banks were included. Among these four, Handelsbanken has always come 10 Svenska Handelsbanken

11 out on top, among both private and corporate customers. This was the case again in this year s survey. Branch office operations in Sweden Jan-Sep Jan-Sep Change Full year SEK m % 2005 Income 11,915 12, ,354 Expenses -4,532-4, ,959 Loan losses Disposal prop./equip. intangible assets Operating profit 7,493 7, ,583 Branch office operations outside Sweden Great Britain Operating profit decreased by 12% to SEK 110m (125), chiefly due to a provision for a probable loan loss. Profits before loan losses increased despite the rapid expansion, which saw the number of employees rise by 23%. Business volumes continued to grow, both for newly opened branches and existing ones. The average volume of lending rose by 44% to GBP 2.3bn (1.6), of which GBP 0.4bn (0.3) to households, and GBP 1.9bn (1.3) to companies. Average deposit volumes were up by 33%. For the past couple of years, Handelsbanken Finans has had operations in Great Britain. The number of transactions and the business volumes grew, with the rise in business volumes being rapid. During the third quarter, branches were opened in Oxford, Leicester and Swindon. This brought the total number of branches in Great Britain to 25, five of which have been opened this year. A branch in Wolverhampton will be opened during the fourth quarter. Branch office operations in Great Britain Jan-Sep Jan-Sep Change Full year SEK m % 2005 Income Expenses Loan losses Operating profit Denmark Operating profits increased to SEK 314m (313). Continuing margin pressure was offset by greater volumes of business. Net commission income was adversely affected by lower activity levels in securities trading, although an improvement was noted towards the end of the quarter. Income rose by 5%, while expenses went up by 11%. The average volume of lending to the public increased by 20% to DKK 25.9bn (21.6), of which DKK 11.3bn (9.3) was household lending and DKK 14.6bn (12.3) corporate lending. Deposits rose by 22% to DKK 19.3bn (15.8). In Denmark, Dansk KundeIndex is responsible for the coordinated Nordic survey on satisfaction among bank customers. The Bank retained its strong position among private customers, with an unchanged index figure for customer satisfaction compared to last year a figure which was well above the weighted average for the market, and significantly better than for the major banks as a whole. For the first time, satisfaction among corporate clients was also measured in Denmark, and here Handelsbanken achieved a joint second place. At the end of the period, Handelsbanken had 37 branch offices in Denmark. Branch office operations in Denmark Jan-Sep Jan-Sep Change Full year SEK m % 2005 Income Expenses Loan losses Disposal prop./equip. intangible assets Operating profit Finland Operating profit increased by 20% to SEK 340m (283). Greater volumes of business led to an increase in net interest income, while commission income from mutual fund and asset management also rose. Income went up by 17%. The 11% increase in expenses was mainly attributable to an investment in a new IT system for banking. Average lending volumes to the public were up by 9% to EUR 7.2bn (6.6) Lending to households increased considerably more than corporate lending. Lending to households rose by 21% to EUR 2.3bn (1.9), and corporate lending by 4% to EUR 4.9bn (4.7). During the quarter, Handelsbanken's proposal was accepted to be the main lender in a transaction for financing local trains, at a value of EUR m. It is Handelsbanken s largest leasing transaction in Finland so far. A capital-protected index bond was issued. In Finland, EPSI is responsible for the customer satisfaction survey. This year, as in previous years, Handelsbanken was the bank which had the most satisfied customers, both private and corporate. A new branch will be opened in Mikkeli, which should be able to start welcoming customers in early No new branch offices were opened during the third quarter, and at the end of the period the Bank had 36 branches in Finland. Branch office operations in Finland Jan-Sep Jan-Sep Change Full year SEK m % 2005 Income ,011 Expenses Loan losses Operating profit Svenska Handelsbanken 11

12 Norway Operating profits grew by 15% to SEK 717m, partly as a result of larger business volumes; margins, however were still under great pressure. Other operating income, especially in asset management, increased. Income rose by 18%, while expenses went up by 15%. The increase in expenses was largely due to the establishing of new branches; the underlying cost growth was moderate. Operating profit was also affected by loan losses. The average volume of lending rose by 32% to NOK 87.0bn. Lending to households increased by 23% to NOK 34.2bn (27.9), and to companies by 39% to NOK 52.8bn (38.0). Credit growth on the Norwegian market was approximately 15% on an annual basis, which means that Handelsbanken continued to gain market share. Deposits were up 28% to NOK 33.6bn, of which household deposits were NOK 7.3bn (6.0). In Norway, as in Finland, EPSI is responsible for the customer satisfaction survey. The summary of the survey makes it clear that Handelsbanken is the clear winner as regards the corporate market. Corporate customers in Norway have become more satisfied in general, and Handelsbanken s customers have become even more satisfied. As the survey states: Handelsbanken plays in a different league in terms of customer loyalty. On the private market, overall customer satisfaction went down slightly, but among Handelsbanken s customers it increased. Handelsbanken retained its position as the clear No.2 on the Norwegian market well above the average. Above all, Handelsbanken had considerably more satisfied customers than the two largest players on the Norwegian market. During the third quarter, a new branch was opened on the island of Sotra, outside Bergen. Thus the Bank s branches in Norway had reached a total of 41. A new branch in Molde is in the process of being established. Branch office operations in Norway Jan-Sep Jan-Sep Change Full year SEK m % 2005 Income 1,342 1, ,563 Expenses Loan losses Operating profit Svenska Handelsbanken

13 Handelsbanken Markets Handelsbanken Markets operations are organised into four business areas: Capital Markets, Markets International, Financial Institutions and Payments and Cash Management. Capital Marketsis Handelsbanken s investment bank and comprises corporate finance including debt capital markets; equities, fixed income, commodities and foreign exchange trading; structured products and research. It also includes support to the branch office operations for products in these areas. Markets International comprises banking operations outside the Nordic countries and Great Britain, trade finance, export and project finance. Financial Institutions is responsible for international markets, banks and other financial institutions. Payments and Cash Management is the Bank s central function for development and sales support for payment products. Handelsbanken Markets had just over 1,300 employees in 16 countries. Income statement Q 3 Q 2 Change Q 3 Change Jan-Sep Jan-Sep Change Full year SEK m % 2005 % % 2005 Net interest income Net fee and commission income ,213 1, ,523 Net gains/losses on financial items at fair value , ,010 Other income Total income 915 1, ,337 2, ,536 Total expenses ,368-1, ,570 Profit before loan losses Loan losses/recoveries Gains/losses on disposal of property and equipment and intangible assets Operating profit Return on equity, % Average number of employees 1,332 1, , ,219 1, ,102 Performance Operating profit was SEK 971m (671), an increase of 45%. Income rose by 34% to SEK 3,337m (2,496) and expenses increased by 30% to SEK 2,368m (1 828). The increase in expenses was mainly due to higher performance-related remuneration and a slight increase in the number of staff. The third quarter profit was somewhat higher than the corresponding quarter of the previous year, but lower than the second quarter of this year. Handelsbanken Capital Markets Profits increased by 54%, to SEK 699m (453). Income rose by 31% to SEK 2,323m (1,774) and expenses increased by 23% to SEK 1,624m (1,321). Most business areas increased their profits. Fixed income and foreign exchange trading as well as structured products reported sharply increased income. However, profits in the trading operation decreased in the third quarter compared with the previous quarter. Profit decreased from a high level and normally, the third quarter is seasonally lower than the previous quarter. Equity trading performed well and equityrelated commission income increased by 40%. Income decreased somewhat for corporate finance and for the units in New York and Singapore. In September, the Bank took over the operations of Svenska Metallbörsen, the leading commodities broker in the Nordic region. Prior to the takeover, the Bank had already arranged investments in commodities for over SEK 3bn. It is now Sweden's largest commodity broker. Handelsbanken Capital Markets Jan-Sep Jan-Sep Change Full year SEK m % 2005 Income 2,323 1, ,572 Expenses -1,624-1, ,886 Loan losses Operating profit Svenska Handelsbanken 13

14 Handelsbanken Markets International Income rose by 7% to SEK 407m (382), primarily due to larger business volumes. However, expenses increased by 16% due to starting new units and the development of operations in the relatively new units in Moscow and Shanghai. Overall, operating profits decreased by 27% to SEK 62m. During the third quarter, a branch was opened in Poznan, which is the Bank s third branch in Poland. In addition, a representative office was opened in Mumbai (Bombay), India. The representative office in St. Petersburg is expected to be converted to a branch during the first quarter of In Poland, the Bank has begun offering leasing services; and in Russia, it is offering online card transactions. Handelsbanken Markets International Jan-Sep Jan-Sep Change Full year SEK m % 2005 Income Expenses Loan losses Operating profit Svenska Handelsbanken

15 Handelsbanken Asset Management Handelsbanken Asset Management comprises fund management, discretionary management and Nordic custody services. Apart from services aimed at companies, institutions and private individuals, Asset Management provides support to the branch offices regarding investments, portfolio systems and accounting for foundations. Operations are conducted in the four Nordic countries and also in Luxembourg, Switzerland, France, Spain and Singapore. Income statement Q 3 Q 2 Change Q 3 Change Jan-Sep Jan-Sep Change Full year SEK m % 2005 % % 2005 Net interest income Net fee and commission income Net gains/losses on financial items at fair value Other income Total income , ,209 Total expenses Profit before loan losses Loan losses/recoveries Gains/losses on disposal of property and equipment and intangible assets Operating profit Return on equity % Average number of employees Performance Operating profits rose by 39% to SEK 615m (441). Income increased by 25%, due to higher stock market values, an increased number of transactions and new sales. Expenses rose by 11%, mainly as a result of the improved asset management process and the introduction of new mutual funds. The volume of assets managed by Handelsbanken Asset Management grew to SEK 344bn (311). The total volume of assets under management by the Group was SEK 407bn (368). Mutual fund management The Bank's mutual fund management company managed 105 (103) mutual funds with a total value of SEK 201bn (193). Some 50% (49) of the assets under management were invested in equity funds, 24% (25) in fixed income funds, 24% (24) in mixed funds and just under 2% (2) in hedge funds. The average volume of assets under management, on which commission income is based, rose by 29% to SEK 195bn (151). Sweden New savings in Handelsbanken s mutual funds in Sweden were SEK 9bn (9), corresponding to a market share of 17.4% (11). Some 34% (44) of new savings were in fixed income funds. In equity and mixed funds, new savings had been negative due to the stock market fall in May; but in the third quarter, they returned to levels reached prior to the fall. Handelsbanken retained the position it achieved in March as Sweden s third largest fund manager, with a market share of 13.8% of the total mutual fund volume. In early June, Handelsbanken launched its Garantifond Plus fund, the first mutual fund of its kind in Sweden. The fund has a daily guarantee of 80% of the highest price ever achieved for a unit in the fund. At the end of the quarter, the fund had nearly 14,000 customers and managed some SEK 800m in assets. Independent rating agency Morningstar s rating of Handelsbanken s equity funds remained stable during the period. Handelsbanken s average rating was second best among the major banks for both equity and fixed income funds. Norway and Finland Net savings in Handelsbanken s mutual funds in Finland were EUR 60m. Assets under management in Finland increased by 28% since the start of the year to EUR 344m (269). In Norway, net savings were negative and the outflow was NOK -663m (+304). Assets under management in Handelsbanken s mutual funds in Norway totalled NOK 1.5bn (2.2). Exchange-traded funds Managed assets in XACT Fonder rose to SEK 18.4bn (9.4), an increase of 28% since year-end and a rise of 96% compared to the same period last year. The average daily turnover was SEK 175m (200). The decrease is explained by the exceptionally Svenska Handelsbanken 15

16 high turnover in the OMXSB fund in the third quarter of 2005, when the managed funds increased substantially. For other exchange-traded funds, the daily turnover increased compared with the third quarter of In September, a new exchange-traded European fund was launched. It tracks the new FTSE RAFI Eurozone index, based on fundamental key figures. This is the first exchange-traded fund in Europe that tracks this index. Discretionary management Assets under discretionary management were SEK 167bn (160), of which 39% (33) were exposed to equity markets and the rest to fixed income markets. SEK 36bn (28) of the managed assets were invested in Handelsbanken s mutual funds. New sales added SEK 4bn to the managed volume. Nordic custody services Custody holdings were SEK 913bn, an increase of 25%, and the number of securities transactions went up by 70%. The number of customers rose by 11% during the year. Asset management outside the Nordic countries and Great Britain Private Banking outside the Nordic countries and Great Britain is conducted through Svenska Handelsbanken S.A. in Luxembourg, with a branch in Zurich, a representative in Singapore, and representative offices in Marbella (Costa del Sol), La Nucia (Costa Blanca) and Nice (Côte d Azur). The representative offices market private banking services to Nordic expats. Assets under management outside the Nordic region and Great Britain were SEK 12bn (11), an increase of 6%. 16 Svenska Handelsbanken

17 Handelsbanken Pensions & Insurance Handelsbanken Pensions & Insurance comprises Handelsbanken Liv and SPP. Together these companies are one of the market leaders, with a complete range of life insurance products for occupational and private pensions, and asset protection schemes for companies, organisations and private individuals. The companies sell their services via Handelsbanken s branch offices, their own sales organisations, insurance brokers, workplaces at corporate customers and via direct marketing. Income statement Q 3 Q 2 Change Q 3 Change Jan-Sep Jan-Sep Change Full year SEK m % 2005 % % 2005 Net interest income Net fee and commission income , Net gains/losses on financial items at fair value Risk result - insurance Other income Total income , ,223 Total expenses , Profit before loan losses , Loan losses/recoveries Gains/losses on disposal of property and equipment and intangible assets Operating profit , Return on equity, % Average number of employees Performance for Pensions & Insurance Operating profits were SEK 1,640m (416). Since 1 January 2006, SPP is included in Handelsbanken s consolidated accounts. The result for the third quarter was negative at SEK -54m and was negatively impacted by falling yields which increased the need for provisions for SPP s insurance contracts which were underfunded prior to the demutualisation of the company. During the period, sales increased, mainly of endowment pensions and occupational pensions, which contributed to an increase in paid premiums by 7% to SEK12bn. Assets under management continued to increase and were SEK 163bn (150). On 1 January 2006, Handelsbanken Liv sold SPP Liv Fondförsäkring AB to SPP. To make comparison easier, the unitlinked company s volumes for the comparative period are reported under SPP. Euroben, which is a subsidiary of Handelsbanken Liv, distributes occupational pension plans via SPP. The volume figures for these products are reported under SPP. Apart from Handelsbanken Liv and SPP, the Pensions & Insurance business segment also includes the SPP brand name, which is in a separate company. Handelsbanken Liv Profits were SEK 336m (416). The administration result, which is the difference between the fees charged on the insurance contracts to cover administration and the company s actual expenses, increased to SEK 70m (56). The increase was due to rising income as a result of higher business volumes. Paid-in premiums rose by 14% to SEK 5.9bn. Premium revenue, reported in accordance with IFRS 4, was SEK 599m (516). The financial result was SEK 53m (193). Total return on policyholders funds was 3.41% (8.14). Some 40% of the assets managed have a guaranteed annual return of 3%. Since the return was higher than the guaranteed rate, the company was allocated SEK 39m as its share of the return on these assets. Other contracts have a guaranteed rate of 5%. However, there was already a surplus on these to a large extent. The company's provision for meeting the guarantee was therefore only SEK 1m, which has been charged to the net gains/losses on financial transactions. The risk result, which is the difference between the fees the company charges to cover the insurance risks (mortality, longevity, incapacity and accident) and the actual cost of these, has been positive since 2004 and was SEK 164m (156). Insurance claims reported in accordance with IFRS 4 were SEK 309m (353). Svenska Handelsbanken 17

18 Assets managed rose by 17% to SEK 55bn (47), of which SEK 29bn (23) was invested in unit-linked insurance. The increase was mainly due to a continued positive net inflow, but also to a positive change in the value of the assets. The available solvency margin, including profits generated during the period, was SEK 3,781m. This should be related to the required solvency margin which was SEK 1,571m, implying a solvency ratio of 2.41 (1.42). At the end of the quarter, 39% of the assets were placed in equities, of which 11 percentage points in Swedish equities and 28 percentage points in foreign equities. Handelsbanken Liv, investment assets Jan-Sep Jan-Sep Full year Average exposure % Equities Fixed income assets Property Other Total Handelsbanken Liv, breakdown of results and key figures Jan-Sep Jan-Sep Full year Administration result, SEK m Risk result, SEK m Financial result, SEK m Other, SEK m Operating profit, SEK m Total return, % Assets managed, SEK bn, end of period Solvency ratio, end of period meant that the value of the insurance liabilities for previouslyunderfunded contracts was lower than at the year-end, which had a positive impact on the financial result of SEK 911m. The discount rate was, however, lower at the end of the third quarter than at the beginning of the quarter which was the main reason that the provisioning requirement for these insurance contracts increased during the quarter and thus had a negative impact on the financial result of SEK 562m. The company has, however, partly hedged itself against the impact on the results of changes in bond yields. Thus the net impact on the operating profit was less than the above-mentioned amount. The sub-result Other, which mainly comprises return on the company s equity and interest expense, totalled SEK 52m. Amortisation of intangible assets and interest expenses reduced the result by SEK 161m. Premium revenue was SEK 6.1bn (6.1), of which unit-linked insurance represented SEK 2.4m (2.4). New sales rose by 19%, mainly in the area of occupational pensions. Premiums revenue, reported in accordance with IFRS 4, was SEK 339m. Assets managed were SEK 108bn (103), of which SEK 25bn (21) was invested in unit-linked insurance, an increase of 5%. The available solvency margin, including profits for the quarter, was SEK 10.1bn. This should be related to the required solvency margin which was SEK 3.4bn, implying a solvency ratio of 3.03 (1.50). At the end of the quarter, 41% of the assets were placed in equities, of which 13 percentage points in Swedish equities and 28 percentage points in foreign equities. SPP, investment assets SPP SPP s profits were SEK 1,427m. The administration result was SEK 24m. This was a significant improvement compared to the previous year and was mainly due to lower costs. Operating expenses decreased by 30% to SEK 615m. The risk result was SEK 220m. Insurance claims reported in accordance with IFRS 4 were SEK 204m. The financial result was SEK 1,131m. Total return was 2.97% (5.73). Over 70% of the assets managed have a guaranteed annual return of 3.50% or lower. The return was thus higher than the guaranteed rate and SPP received SEK 188m as its share of the return on these contracts. Prior to the demutualisation, at the end of 2005, some of SPP s insurance portfolios were underfunded. On the basis of prevailing interest rates, the shortfall was then estimated at SEK 3.6bn. When calculating the insurance liabilities, a longterm market yield is used as the discount rate. At the end of the period, the rate was 41bp higher than at the year-end. This Jan-Sep Jan-Sep Full year Average exposure % Equities Fixed income assets Property Other Total SPP, breakdown of results and key figures Jan-Sep Jan-Sep Full year Administration result, SEK m 24 (-318)* (-498)* Risk result, SEK m 220 Financial result, SEK m 1,131 Other, SEK m 52 Operating profit, SEK m 1,427 Total return, % Assets managed, SEK bn, end of period of which unit-linked Solvency ratio, end of period * The administration result for SPP 2005 is calculated proforma. 18 Svenska Handelsbanken

19 Balance sheet Svenska Handelsbanken Group 30 Sep 30 Jun 31 Dec 30 Sep SEK m Loans to the public Note 1 1,076,314 1,047, , ,092 Loans to credit institutions 205, , , ,381 Interest-bearing securities 234, , , ,075 Other assets 247, , , ,692 Total assets 1,764,159 1,712,431 1,580,733 1,487,240 Deposits and borrowing from the public 516, , , ,289 Due to credit institutions 350, , , ,946 Issued securities etc 564, , , ,442 Subordinated liabilities 53,417 48,906 46,795 28,674 Other liabilities 215, , , ,084 Shareholders' equity 62,903 62,217 65,758 65,805 Total liabilities and shareholders' equity 1,764,159 1,712,431 1,580,733 1,487,240 Note 1 Loans to the public 30 Sep 30 Jun 31 Dec 30 Sep SEK m SEK loans - to households 379, , , ,021 - to companies etc * 392, , , , , , , ,630 Foreign currency loans - to households 90,757 87,756 81,539 76,829 - to companies etc * 215, , , , , , , ,042 Provision for probable loan losses -2,038-2,243-2,432-2,580 Total loans to the public 1,076,314 1,047, , ,092 * of which National Debt Office 4,895 1,761 6,198 7,546 Loans to the public by sector Lending before Provisions for Lending after deduction of probable deduction of SEK m provisions loan losses provisions Private individuals 470, ,299 - Of which mortgage loans 327, ,264 Property management 361, ,465 - Of which mortgage loans 142, ,219 Manufacturing 42, ,839 Retail 37, ,609 Transport and communication 16, ,798 Construction 13, ,231 Municipalities 8, ,001 Agriculture, hunting and forestry 6, ,611 Hotels and restaurants 5, ,629 Other 116, ,184 Total loans to the public, before taking into consideration collective provisions 1,078,352-1,686 1,076,666 Collective provisions -352 Total loans to the public 1,076,314 Svenska Handelsbanken 19