Handelsbanken 3 May 2011
Summary January March 2011 Operating profit went up by 4 per cent compared to Q1-10 and by 3 per cent quarter-on-quarter Net interest income increased 3 per cent compared to Q4-10 adjusted for items affecting comparability The loan loss ratio was halved to 0.06 per cent compared to last year Return on equity after tax was 13.2 per cent The Tier 1 ratio increased to 17.2 per cent Continued to pre-fund, all bond maturities until April 2012 already refunded Liquidity reserve continued to increase and exceeded SEK 600 billion 2
Annual growth in equity including dividends Accumulated dividends in past 5 years Adjusted equity per share SEK/share 225 200 175 150 125 100 75 50 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 1 0 Q3 1 Q4 1 Q1 1 0 0 1 3
Change in net interest income due to items affecting comparability SEK m Compared with Q1 2010 SEK m Compared with Q4 2010 Net interest income Q1 2011 5,507 Net interest income Q1 2011 5,507 Change 4% Change -2% Increased mandatory fees 83 Increased mandatory fees 117 Benchmark effect 107 Benchmark effect 42 Exchange rate movements 158 Exchange rate movements 39 Fewer interest days - Fewer interest days 29 Pre-funding 120 Pre-funding 30 Adjusted d net interest t income 5,975 Adjusted d net interest t income 5,764 Net interest income Q1 2010 5,316 Net interest income Q4 2010 5,612 Underlying change 12% Underlying change 3% 4
Income statement, January March SEK m Jan-Mar 2011 Jan-Mar 2010 Change Net interest income 5,507 5,316 4% Net fee and commission i income 1944 1,944 1983 1,983-2% Net gains/losses on financial items at fair value 361 500-28% Risk result - insurance 81 37 119% Other income 45 173-74% Total income 7,938 8,009-1% Staff costs -2,457-2,356 4% Other expenses -1,307-1,310 0% Total expenses -3,764-3,666 3% Profit before loan losses 4,174 4,343-4% Net loan losses -244-551 -56% Disposal tangible / intangible assets 0 0 Operating profit 3,930 3,792 4% Minskade inlånings marginaler -420 mnkr Kreditförlustnivå minskar från 0,23% till 0,12% 5
Income statement, quarterly change SEK m Q1 2011 Q4 2010 Change Net interest income 5,507 5,612-2% Net fee and commission i income 1,944 2127 2,127-9% Net gains/losses on financial items at fair value 361 276 31% Risk result - insurance 81 67 21% Other income 45 46-2% Total income 7,938 8,128-2% Staff costs -2,457-2,466 0% Other expenses -1,307-1,531-15% Total expenses -3,764-3,997-6% Profit before loan losses 4,174 4,131 1% Net loan losses -244-293 -17% Disposal tangible / intangible assets 0-5 Operating profit 3,930 3,833 3% 6
Financial strength Assets Lending etc. Liabilities Senior funding, deposits etc. Key ratios, 2011 2010 Capital situation Mar Mar Change Capital ratio, Basel II, % 20.4 19.6 + 0.6 Tier I ratio, Basel II, % 17.2 14.6 +23 2.3 Tier I capital, SEK bn 89 86 + 3 Equity, SEK bn 85 85 - Liquidity reserve SEK >600 bn Rating Long- term Short- term Moody s Aa2 P-1 S&P AA- A-1+ Fitch AA- F1+ Capital base 20.4% DBRS AA (low) 7
Quarterly results, during the financial crisis, after losses and tax SEK m 6 000 5 000 4 000 3 000 Sale of VPC (NCSD) USD arbitrage 2 000 1 000 0 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 8
Expense trend SEK m Jan-Mar 2011 Jan-Mar 2010 Change Q1-11/ Q4-10 Q4-10/ Q4-09 Staff costs -2,457-2,356 4% Other administrative expenses -1,189-1,195-1% Depreciation and amortisation -118-115 3% Total expenses -3,764-3,666 3% -6% -2% 9
Branch office operations in Sweden Jan Mar 2011 Operating profit SEK 3,222m RoE 18.8% 8% C/I ratio before loan losses 36.3% Number of branch offices 461 Average number of employees 4,395 Average volumes, SEK bn Loans 1,017 Deposits 347 10
Earning capacity Deposits and loans for Swedish branch operations SEKm % 3000 6,0 2500 5,0 2000 4,0 1500 3,0 1000 2,0 500 1,0 0 00 0,0 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Deposits Loans 1M STIBOR Forecast 1M STIBOR* Reference rate until 30 June 2008, 1M STIBOR and subsequently 3M STIBOR for variable deposits and loans * Source: Bloomberg 11
Branch office operations outside Sweden Jan Mar 2011 Operating profit SEK 641m RoE 76% 7.6% C/I ratio before loan losses 54.8% Number of branch offices 273 Average number of employees 3,062 Average volumes, SEK bn Loans 442 Deposits 142 12
Branch operations in the UK 97 branches (incl. recruited managers) 7 new branches opened during the first quarter of 2011 (On average, a new branch is opened every tenth banking day) 90 branches, 24 of them opened in past 12 months Managers recruited for 7 future branches A 3rd British regional bank was started, based in Birmingham Joint management organisation in London 13
CDS levels 250 200 195 187 179 212 157 bps 150 100 50 56 58 70 70 76 79 83 88 89 89 94 137 130 119 123 100 104 104 104 107 5y Senior CDS 0 1600 1514 1400 1200 bps 1000 800 600 571 674 677 Sovereign 5y CDS 400 200 0 18 27 30 35 37 43 45 45 51 58 64 71 75 76 79 108 150 158 253 Source: Reuters April 27, 2011
Itraxx Senior Financial 5Y and Handelsbanken s s 5Y CDS spread Basis points 250 Handelsbanken ITRAXX Financials 200 Lehman-level 150 100 0,86% 50 0 Source: Ecowin, Bloomberg
Funding in Q1 2011 Market, SEK bn Jan-Mar 2011 53% Senior funding Euro market 10 Sweden/Nordic 3 36 SEK bn 32 SEK bn 47% USA 23 Covered bonds Senior funding Covered bonds Sweden 32 Covered bonds Stadshypotek Covered bonds Europe Covered bonds USA Total 68 0 0 Benchmark senior issues - Q1 2011 USD 2.65 bn 6 y Extendible Note FRN CNY 170 mio 2 y Fixed EUR 1 bn 5 y Fixed
Funding and maturity profile as of March 31, 2011 250 200 150 SEK bn Maturing volume 100 Prefunded from 80 prev year 60 50 Covered, issued 40 Senior, issued 20 0 0 2010 2011 2012 200 180 160 140 120 100 SEK bn 2011 2012 2013 2014 2015 2016 2017 Subordinated loans Senior Covered Bond issues in 2010 correspond to SEK 75 bn more than maturing volume in 2010 Handelsbanken is now prefunded until Q1 2012 Issues in 2011: - SEK 32 bn in covered bonds - SEK 36 bn in senior bonds - Maturities of 3-10 years NSFR only a tactical issue and not a problem 12% 5% 13% 14% 22% Of the Handelsbanken Group s funding 36% consists of bonds, including covered bonds. Covered bonds by themselves constitutes approximately 22% of the total funding ( 19% of total assets) of the Group and more than 85% of these are issued in the Swedish market 34% Bonds Covered bonds Deposits CD CP Credit Institutions 17
Funding and the structure of the Swedish domestic savings market 20% of Swedish households financial assets consists of deposits Pension savings and mutual funds accounts for slightly less than 60% Pension funds, mutual funds and insurance companies managing these savings are large buyers of covered bonds Household savings are thus being recycled into covered bonds Mortgages are funded on the banks balance sheets through covered bonds Source: Statistics Sweden 13% 5% 12% 56% 22% 34% 14% Bonds CD CP Credit Institutions Covered bonds Deposits
Stadshypotek and covered bonds
Stadshypotek an overview Founded in 1865 A wholly-owned owned subsidiary of Svenska Handelsbanken AB (publ) since 1997 Credit market company supervised by the Swedish Financial Supervisory Authority ( SFSA ) Total loan portfolio of SEK 773 bn (Eur 86.5 bn) as of March 31, 2011 One of the two largest Swedish mortgage g lenders with app. 25 % of the market Loan origination and service through Handelsbanken s branch network Residential mortgages accounts for more than 90 % Aaa rating by Moody s for Stadshypotek covered bonds Stadshypotek Funding Structure March 31, 2011 39% 2% 7% International Covered Bonds Domestic Covered Bonds Loans from Parent Company ECP 52% 20
Loans to the public, March 31, 2011 Stadshypotek Stadshypotek represents slightly more than 50% of total lending to the public in Handelsbanken Group 21
Stadshypotek - Key characteristics of the cover pool as of March 31, 2011 Current available pool size SEK 649bn (Eur 72.6bn) LTV distribution Assets utilized SEK 498bn (Eur 55.7bn) Asset types Loans secured by mortgages. Loans to or guaranteed by public sector Asset distribution 95% Residential, 3% Public, 1% Agricultural, 1% Commercial, No Substitute Assets Geographical distribution ib ti Throughout h Sweden with a concentration to urban areas Average loan size SEK 605,200 (Eur 67,700) WA Max-LTV 48.4% Voluntary O/C Yes, 10% 35% 30% 25% 20% 15% 10% 5% 0% 0-10% 10-20% 20-30% 30-40% 40-50% 50-60% 60-70% 70-75% Low LTV reflects a seasoned loan portfolio Prudent valuation Interest tindex distribution ib ti Floating rate 52 % Fixed rate 48 % Pool type Loans originated by Dynamic, new pool daily Handelsbanken s branch network Outstanding issues of covered bonds (as of March 31, 2011) Swedish domestic market SEK 341bn (Eur 38.1bn) International issuance SEK 85bn (Eur 9.5bn) Published on www.handelsbanken.se/ireng, section Debt investors/cover pool data. Cover pool data refers to Assets utilized 22
Private market, choice of maturity for new or renegotiated loans - Sweden 1% 1% 0% 0% 1% 1% 1% 1% 1% 0% 3% 2% 3% 2% 2% 3% 4% 3% 5% 3% 6% 7% 5% 5% 5% 6% 13% 11% 6% 8% 5% 5% 10% 14% 1% 2% 9% 13% 4% 2% 1% 8% 9% 16% 17% 5% 7% 19% 0% 2% 7% 100% Bundet Fixed > >5 5 år y 90% Bundet Fixed 5 år y 80% Bundet Fixed 3 år y 70% Bundet Fixed 2 år y 60% 50% 40% 30% 20% 10% 4% 12% 12% 11% 4% 20% 36% 83% 82% 78% 80% 70% 69% 3% 62% 2% 44% 36% 25% Bundet Fixed 1 år y Räntetak Capped loan (ST) 3 mån months RLVariable rate 0% 1% 0% 0% 0% 0% 0% 0% 0% 0% 0% Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011
Key characteristics ti of Swedish residential market Loan loss levels are very low for Swedish mortgages due to several factors The borrower can not get out of debt by transferring the collateral to the bank, full recourse Personal bankruptcy does not mean that debt is written off A negative credit history of the borrower will be reported to the independent credit agency (UC-Upplysningscentralen), which impairs the borrower s access to additional credit Swedish welfare system protects people substantially when unemployed Buying homes to let is rare, as it is legally restricted in order to protect the tenant. No tax incentives either to own more homes than you occupy. Regulation of rents for the rental housing market has diminished speculative building. As a result, housing prices and prices for tenant-owned units have been supported by an increasing demand vs. a limited supply 24
Loan losses for Swedish residential mortgages have been low even during the severe banking crisis of the 1990 s Loan loss ratio for Stadshypotek s private market Swedish 1990 s crisis was severe for households 0.40% 0.30% 0.20% 0.10% 0.00% -0.10% Handelsbanken acquired Stadshypotek GDP negative for three years (1991-1993) Unemployment increased from 2% to 11% (1990-1994) House prices fell with on average 20 % over an extended time period (prices were not back at 1991 s peak level until 1998) and almost 30 % in big cities A fixed exchange rate meant that interest rates were hiked in the crisis rather than lowered, as they would be with today s monetary policy regime Subsidies to housing associations were abolished in the 1990 s, making the financial position of apartment owners worse Lending standards in Stadshypotek was lower before the acquisition by Handelsbanken in 1997 still losses were at comparatively low levels 25
Swedish covered bond legislation Swedish Covered Bonds (Säkerställda Obligationer) Specialist banking principle No, issuance of covered bonds is subject to a licence Subsitute collateral Max. 20% of total cover pool (up to 30% within limited period with special approval from the SFSA) Eligible cover assets Mortgage loans (max. 10% commercial), public sector loans Legally anchored preferential claim in bankruptcy Yes (cover assets) including claims of derivatives counterparties Derivatives allowed as cover assets Yes Matching principle Issuer must ensure nominal coverage, net present value and cash flow matching. Regional constraint on collateral assets Mortgage: EEA Public: OECD Mandatory overcollateralization (OC) No Mortgage loan-to-value limits Residential 75 % Agricultural 70 % Commercial 60 % Stress tests Yes, NPV cover must hold even after a 1% upward and downward shift in the yield curve and a 10% change in the currency Valuation Market value (excluding speculative and temporary circumstances) Supervisory body Swedish Financial Supervisory Authority (Finansinspektionen), SFSA Mark to market of collateral No formal requirement to revalue properties. The issuer should monitor property prices and revalue in case of significant drop (generally interpreted as 15% drop) Direct supervision / Independent trustee Yes Cover register Yes, but no segregation between public and mortgage. Only one single register (mainly mortgage) Art. 22(4) UCITS directive / CRD fulfilled Yes => 10% risk weighting in most European jurisdictions Cover assets Remain on the balance sheet Expected Ratings Aaa 26 Asset segregation in case of bankruptcy In case of insolvency, the registered cover assets, the covered bonds and derivative contracts are segregated from the general bankruptcy estate. If the proceeds are insufficient to repay all liabilities on covered bonds, covered bond holders and derivatives counterparties would have a claim against the general estate ranking pari passu with joint seniority in relation to the assets outside the cover pool For more details on Swedish Covered Bonds please look at the webpage of The Association of Swedish Covered Bond Issuers, www.ascb.se se
Appendix
Income statement, five quarters SEK m Q1 2011 Q4 2010 Q3 2010 Q2 2010 Q1 2010 Net interest income 5,507 5,612 5,327 5,082 5,316 Net fee and commission income 1,944 2127 2,127 1,924 1,988 1983 1,983 Net gains/losses on financial items at fair value 361 276 177 424 500 Risk result - insurance 81 67 42 59 37 Other income 45 46 36 100 173 Total income 7,938 8,128 7,506 7,653 8,009 Staff costs -2,457-2,466-2,330-2,352-2,356 Other expenses -1,307-1,531-1,280-1,393-1,310 Total expenses -3,764-3,997-3,610-3,745-3,666 Profit before loan losses 4,174 4,131 3,896 3,908 4,343 Net loan losses -244-293 -294-369 -551 Disposal tangible / intangible assets 0-5 4 0 0 Operating profit 3,930 3,833 3,606 3,539 3,792 Operating profit discontinued operations 63 65 47 55 42 Total operating profit 3,993 3,898 3,653 3,594 3,834 28
Change in net interest income SEK m Net interest income Q4 2010 5,612 Deposits, branch offices in Sweden margins 193 - volumes 20 Lending, branch offices in Sweden margins -44 -volumes 27 Deposits & lending, branch offices outside Sweden -60 Mandatory government fees (deposit insurance, stabilisation fund -117 etc) Exchange rate movements -39 Other -43 Benchmark effect -42 Change in net interest income -105 Net interest income Q1 2011 5,507-2% 3M STIBOR reference.rate 29
FeetotheStabilisation the Fund, January March SEK bn 2011 Total liabilities and equity 2,507 Reduction for total equity, untaxed reserves and subordinated loans -186 Reduction for intercompany liabilities -317 Basis for calculation lation of fee* 2,004 SEK m Fee 0.036% 721 No reduction from 2011 Total fee 2010 180 30 * Applies to credit institutions within the Group affected by the new Stabilisation Fund law.