Handelsbanken Pär Boman, CEO Merrill Lynch Banking & Insurance CEO Conference 2009 September 30, 2009
Handelsbanken a decentralised universal bank Handelsbanken s share was first listed in 1873 the oldest listed share on the Stockholm stock exchange. 706 branches The Branch is the Bank Better return on equity for 37 years running More satisfied customers Higher cost-effectiveness than in comparable banks Stable finances 2
Return on shareholder s equity, 1973 2009:H1 Handelsbanken s goal is to have higher return on equity after standard tax than the average for banks in the Nordic countries and Great Britain. % 30 Handelsbanken Other comparable banks* 25 20 15 10 5 0-5 1973 1979 1985 1991 1997 2003 2009 H1 3 Return on shareholder's equity after standard tax. * Since 2003 the comparable banks are: SEB, Nordea, Swedbank, Danske Bank samt DnB NOR.
Method to achieve the goal The Bank aims to achieve its profitability goal by having: More satisfied clients Lower costs than peers 4
Improved service and availability Everyday service at 706 branches Online service Phone service Handelsbanken Direct (free of charge and open 24/7) Card services 5
Branch operations in Sweden Active customers Private customers, thousands 2 000 Corporate customers, thousands 170 1 900 160 150 1 800 140 1 700 130 1 600 2004 2005 2006 2007 2008 2009 120 2004 2005 2006 2007 2008 2009 6 All values as of June 30 in the respective year.
1,0 2,0 Cost-effectiveness, European universal banks Comparison of listed European universal banks with total assets > EUR 125 bn. Costs including loan losses Jan-Dec 2008. Cost/ Total loans* % Danske Bank CommerzbankBank of Ireland SEB Swedbank DnB Nor Nordea Handelsbanken 3,0 4,0 Allied Irish Banks MPS Erste Banco Santander Unicredit Intesa SanPaolo Lloyds TSB BBVA Standard Chartered Barclays 5,0 Deutsche Bank BNP Paribas KBC Société Générale Royal Bank of Scotland 7 6,0 UBS CS Group HSBC C/I-ratio % 100 80 60 40 Source: Deutsche Bank: European Banks - Running the Numbers, March-09/Spring-edition. * Refers to loans to the public or deposits if deposits > lending
Branch operations in Sweden increased productivity The average working hours spent on talking to customers has increased by 51% since 2006 Index 2006 = 100 150 +51% 151 The goal of increasing the time spent with customers by 50% between 2006 and 2010 was already achieved in 2009 There is potential for even more improvement 100 50 0 100 2006 2009 8
Business model Decentralisation Nonnegotiable The branch is the bank No bonus Credit policy Business control system Responsibility and Accountability Customer No central marketing No budget 9
Credit policy Credit responsibility always at branch level Credit Responsibility Customer and credit responsibility closely related The branch holds full economic responsibility for granting the credit If necessary, the branch obtains support from the regional head office and the central credit department Basic Guidelines The assessment always starts with the borrower s repayment capacity Weak repayment capacity can never be offset by collateral or high margins Quality requirements must never be neglected in favour of large volume Credits must normally be adequately secured The credit policy is the same in all markets and remains unchanged over the business cycle 10
Our experiences of loan losses As little as 30% of loan losses are related to the initial credit decision A majority, all as much as 70%, of loan losses are related to how you manage and monitor the credits over time Staying close to the customer is crucial 11
Loan losses as a percentage of lending Handelsbanken Other Swedish banks* % 1.75 1.50 1.25 1.00 0.75 Handelsbanken Other Swedish banks* Stadshypotek acquired in 1997 Loan loss ratio, average 1997-2009:H1 Handelsbanken 0.04% Other Swedish banks 0.22% 0.50 0.25 0.00-0.25 1994 1997 2000 2003 2006 2009: H1 6.0 % 5.0 4.0 3.0 2.0 Handelsbanken Other Swedish banks Loan loss ratio, average 1989-1998 Handelsbanken 0.87% Other Swedish banks 1.72% 1.0 0.0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 12 * Average of SEB, Nordea and Swedbank.
Net interest income after deduction of loan losses Handelsbanken Peers * SEK m 5 000 SEK m 40 000 4 000 35 000 30 000 3 000 25 000 20 000 2 000 15 000 10 000 1 000 5 000 0 Q2 06 Q4 06 Q2 07 Q4 07 Q2 08 Q4 08 Q2 09 0 Q2 06 Q4 06 Q2 07 Q4 07 Q2 08 Q4 08 ** Q2 09 13 * SEB, Nordea, Swedbank, Danske Bank and DnB NOR ** Q2 09: Danske Bank is included with figures for Q1 2009
Financial strength Handelsbanken has not participated in any government or central bank aid programmes Assets Liabilities Rating Long-term Short-term Moody s Aa2 P-1 S&P AA- A-1+ Fitch AA- F1+ Liquidity reserve >450 SEK bn Lending etc. Senior funding, deposits etc. Capital base 18.4% 14
Capital ratio and Tier 1 ratio, June 30 2009 2008 Change Capital ratio, Basel II 18.4% 16.1% + 2.3 Tier I ratio, Basel II 12.6% 10.6% + 2.0 Capital base, SEK m 122 105 + 17 Tier I capital, SEK m 83 69 + 14 Shareholders equity, SEK m 77 70 + 7 15
High RoE is needed to grow the business An example: Mortgage loan Syndicated loan before the crisis Loan 1 000 1 000 Margin (assumption) 0.65% 0.30% Net interest income 6.50 3.00 Operating profit (C/I=45%) 3.58 1.65 Profit after tax 2.63 1.22 Dividend to shareholders (40%) -1.05-0.49 Retained earnings (New equity) 1.58 0.73 Average Pillar I risk weight 5.7% 45% Capital requirement (10.0%) 5.7 45.0 No. of years to build-up enough equity to support a new loan 3.6 61.6 Sustainable growth rate 26% 1.3% Return on equity, Pillar I 46% 3% 16
Not a mass market bank Customer segment Demand complex and tailor-made solutions Handelsbanken s target: Better cash flow than average 40% Don t generate much profit - income i medel 220.000,- kr per år - Hushållen äger 20% sin bostad - Customer profitability max + SEK 2,000/yr Generate more costs than income for their bank 40% 17
Growth strategy a repetitive business model 1. Existing branch Covers our segment 2.Existing branch Moves into other segments NO! Increased credit risk 1. Existing branch Covers our segment 2. New branch in other location Financed by profitable branches 3. New branch in other location Covers our segment Surplus from profitable business Surplus from profitable business 18
Total income per segment 2009:H1 2006 Branch office operations outside Sweden Capital Markets 19% Branch office operations Branch office operations outside Sweden Capital Markets 14% in Sweden 27% 21% Branch office operations in Sweden 53% 59% Total income (annualized): SEK 33.2bn Total income: SEK 26.3bn 19
Branch office operations, January June 2009 Branch office operations in Sweden Operating profit, SEK 4,516m RoE 17.5% C/I-ratio 36.1% Branch office operations outside Sweden Operating profit, SEK 1,583m RoE 8.6% - excl. operating deficit 10.3% C/I-ratio 54.0% 20
Branch office operations outside Sweden January June 2009 Operating profit SEK 1,583m RoE 8.6% - excl. operating deficit 10.3% Total income increased by 31% Net interest income increased by 40% C/I ratio 54.0% Number of branch offices 245 Average number of employees 3,013 Average volumes, SEK bn Loans 516 Deposits 171 Handelsbanken has a branch office in Brighton.. and in 61 other locations in Great Britain 21
Net interest income outside Sweden, quarterly SEK m 2 000 1 800 1 600 1 400 1 200 1 000 800 600 400 200 0 No 210 200 190 180 170 160 150 140 130 120 110 100 Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 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 Branch offices outside Sweden Number of branch offices within regional banks outside Sweden 22 * Lokalbanken s 14 branch offices are included from October 21 2008.
An organic growth model branch by branch Handelsbanken Group - Regional banks in Denmark, Finland, Norway and Great Britain Income and expense trend 153 branches opened 1995-2009 SEK, m* 40 35 30 25 20 15 10 5 Stable earnings growth No. of branch offices, June 2009 40 35 30 25 20 15 10 5 0 Y 0 ** Y 1 Y 2 Y 3 Y 4 Y 5 Y 6 Y 7 Y 8 Y 9 Y 10 Y 11 Y 12 Y 13 Branches by age No. of branch offices Income/branch, avg. Expenses/branch, avg. 0 23 * Refers to figures for 2000 2008 / ** Refers to the period January June 2009
Handelsbanken had 62 branches in Great Britain January June 2009 Net interest income rose by 24% (Q2/Q1 +25%) Lending volumes rose by 18% Loan loss ratio: 0.12% 24 1988 London 1988 London 1989 Manchester 1989 Manchester 1994 Birmingham 1994 Birmingham 2000 Nottingham 2000 Nottingham 2001 Leeds 2001 Reading Leeds Reading 2002 Bristol 2002 Newcastle Bristol upon Tyne Newcastle upon Tyne 2003 Cardiff 2003 Southampton Cardiff Southampton 2004 Norwich 2004 Guildford Norwich Chelmsford Guildford Stoke Chelmsford Hull Stoke Hull 2005 Liverpool 2005 Bournemouth Liverpool Plymouth Bournemouth Maidstone Plymouth Cambridge Maidstone Cambridge 2006 Slough 2006 Sheffield Slough Wolverhampton Sheffield Oxford Wolverhampton Leicester Oxford Swindon Leicester Swindon 2007 Doncaster 2007 Brighton Doncaster Preston Brighton Bath Preston Tees Bath Valley Croydon Tees Valley Portsmouth Croydon London Portsmouth West End Milton London Keynes West End Northampton Milton Keynes Wakefield Northampton Enfield Wakefield Coventry Enfield Basingstoke Coventry Carlisle Basingstoke Chester Carlisle Chester 2008 Exeter 2008 Swansea Exeter St Swansea Albans Crawley St Albans Bradford Crawley Grimsby Bradford Dartford Grimsby Kingston Dartford Shrewsbury Kingston Harrogate Shrewsbury Lincoln Harrogate Scarborough Lincoln Stockport Scarborough Tunbridge Stockport Wells Tunbridge Wells 2009 Derby 2009 Huddersfield Derby Warrington Huddersfield Harrow Warrington Glasgow Harrow Edinburgh Glasgow Edinburgh
Summary January - June 2009 compared with January June 2008 Operating profit increased by 14% till SEK 7,251m (6,352) Return on shareholders equity increased to 13.1% (12.9) Net interest income rose by 24% to SEK 11,031m (8,893) The C/I ratio improved to 45.3% (49.0) The average volume of loans increased by 13% Household deposits rose by 21% The capital ratio increased to 18.4% (16.1) Tier 1 capital according to Basel II went up to 12.6% (10.6) The liquidity reserve exceeded SEK 450bn 25