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RNS Number:9235I Skandinaviska Enskilda Banken 23 August 2001 PART 1 Stockholm, 23 August 2001 Interim Report January-June 2001 Lower result due to weaker market conditions - Operating result* amounted to SEK 4 245 M (5 919). - Net interest income rose by 6 per cent to SEK 6 234 M (5 869). - Net commission income decreased by 14 per cent, to SEK 5 958 M (6 939). - Return on equity was 13.4 per cent (22.1). - Staff costs decreased by 1 per cent, to SEK 6 236 M (6 298). - Lending losses were down 53 per cent, to SEK 248 M (SEK 531 M) - The Baltic's result was up 42 per cent on a comparable basis. - SEB had one million e-banking customers in mid-August. - The European Commission decided to initiate an in-depth investigation of the proposed merger with Foreningssparbanken. The integration planning proceeds well. * Operating result includes pension settlements/provisions. PRESIDENT'S STATEMENT The first half of 2001 was characterised by a marked weakening in the global economy. Development in the US, Japanese and the European economies was weak. Industrial production has fallen in several countries, but consumption and the services sector have prevented a sharper decrease. The financial markets have been characterised by unrest, with falling stock markets during the first quarter, while a certain recovery was noted in the second quarter. Interest rates have been falling in most countries lately due to the weak economies. Economic conditions in Sweden, Germany and the Baltic countries are important factors for SEB. Growth in the Baltic countries remained strong and stable. In Germany, however, the economy was weaker than anticipated, particularly with respect to private consumption, where price increases have undermined purchasing power. During the first quarter 2001 the Stockholm Stock Exchange fell sharply, but a recovery of 6 per cent in the second quarter limited the decline to 17 per cent for the half-year. Household savings in Sweden and Germany have increased somewhat, but from low levels, as a consequence of increasing caution of the households as a result of falling stock markets and uncertainty in the labour market. For SEB, the first six months of the year were weak, compared with the exceptionally strong results noted during the first half of 2000. However, the result for Corporate & Institutions remains very strong, in spite of the halved result in Enskilda Securities. It is also pleasing to see how our three subsidiary banks in the Baltic countries are growing in both sales and earnings. The weakening of economic conditions became increasingly pronounced, particularly in Europe. Thus far, the positive trend noted on the stock markets during the second quarter does not appear to be lasting. For SEB, this means that further measures are being implemented to reduce costs over both the short and the long term. The in-depth investigation into the merger has now started. The integration planning work is proceeding well. THE GROUP Summary of operating result per division and business area January - June January - June Change 2001 2000 per cent Personal Banking Sweden 888 1 154 -23 Personal Banking International 0 214 -100 Corporate and Institutions 2 697 2 880 -6 Merchant Banking 1 528 1 232 24 Enskilda Securities 305 630 -52 Mid Corporate 597 684 -13 SEB Securities Services 285 344 -17 SEB Germany 543 435 25 Investment Management & Life 199 320 -38 The Baltic 253 125 102 Total all divisions 4 580 5 128 -11 Joint Group incl. capital gains and elimination. -335 791 Operating result 4 245 5 919 -28 Changes in surplus values 113 427 -74 Total result SEB Group 4 358 6 346 -31 Income Total income in January-June 2001 decreased by 9 per cent to SEK 15 377 M (16 932). The comparison with the preceding year was affected by exchange rate effects, the consolidation of Vilniaus Bankas and one-off items. Adjusted for these items affecting comparability, income decreased by 7 per cent. This decline is chiefly explained by lower commission income due to stock market related development. Net interest income rose by 6 per cent to SEK 6 234 M (5 869). Adjusted for the items affecting comparability described above, net interest income declined by 1 per cent. The cost for the governmental deposit guarantee decreased by SEK 103 M. Net commission income decreased by 14 per cent to SEK 5 958 M (6 939), compared with the first half of 2000. Adjusted for items affecting comparability, net commission income declined by 17 per cent. The income varied between different product areas and parts of the Group. The most significant decrease concerns net commission income from securities, which fell by 20 per cent in comparison with the first half of 2000. (Full disclosure is provided in note.) Net result of financial transactions increased by 3 per cent to SEK 1 509 M (1 472), due to favourable results from trading in shares, bonds and derivatives. Adjusted for items affecting comparability, the increase was 2 per cent. The second quarter was significantly weaker than the first. (See further note.) Other income amounted to SEK 1 676 M (2 652). Of this, capital gains and one off items accounted for SEK 743 M (1 428). Adjusted for these items and for exchange rate changes, income was unchanged. Costs Total costs increased by 4 per cent to SEK 11 143 M (10 667). Adjusted for items affecting comparability, including exchange rate changes, costs decreased by 2 per cent. Staff costs, gross, decreased by 1 per cent to SEK 6 236 M (6 298). Adjusted for exchange rate effects and other items affecting comparability, staff costs declined by 7 per cent through a combination of efficiency improvement measures and staff reductions, primarily within Personal Banking Sweden, Merchant Banking and SEB Germany, and a decrease in calculated income-related compensation (SEK 280 M less, compared with the first half of 2000). As of 30 June 2001 the number of employees amounted to 20 950 (19 770). Adjusted for Vilniaus Bankas, which was not consolidated during the first half of last year, the number of employees declined by 430. Staff costs, net, declined by 2 per cent to SEK 5 707 M (5 808). Adjusted for items affecting comparability, the decrease was 8 per cent. The compensation for the pension costs included in the gross costs increased to SEK 529 M (490), including the pension insurance scheme that has replaced the earlier profit-sharing system. At the end of June 2001, total assets in the pension funds amounted to SEK 21 billion (23.2 at year-end 2000), while commitments were SEK 9.1 billion (8.0). Accordingly the surplus value as per 30 June 2001 amounted to SEK 11.9 billion. Total costs for IT (including calculated cost for own personnel etc.) amounted to SEK 2.5 billion, to be compared with SEK 2.2 billion for the first half of 2000. Of this, external IT costs represented SEK 1 129 M (1 064). As of 30 June, preparatory merger and integration work accounted for costs of SEK 70 M. Depreciation amounted to SEK 916 M (846), of which goodwill accounted for SEK 357 M (326). The remaining restructuring reserve for the acquisition of Trygg Hansa in 1997 was SEK 256 M at the beginning of 2001. Of this, SEK 152 M has been utilised during the first half of the year (of which SEK 85 M during the second quarter). The acquisition of BfG in January 2000 resulted in a difference between equity and purchase price. The allocation and utilisation of the negative goodwill is described in Appendix 1. Lending losses and doubtful claims The Group's lending losses, including changes in the value of assets taken over and write-downs, amounted to SEK 248 M, net (531), of which SEK 212 M, net (439), in SEB Germany. The level of lending losses was 0.06 per cent (0.15). Doubtful claims, net, i.e. after provisions of possible lending losses, remained at a stable level. The increase in Swedish currency to SEK 8 631 M (8 365 at year-end 2000) is explained by exchange rate changes. Approximately half of the doubtful claims, net, are performing. The volume of pledges taken over declined to SEK 142 M (213 at year-end). Non-life insurance business Operating result for non-life insurance operations, mainly run-off, amounted to SEK 243 M (133). The increase was mainly due to capital gains of SEK 126 M from sales in the bond portfolio in the first quarter. One-off items Total one-off items in the first half of 2001 amounted to SEK 869 M (1 706), of which the entire amount for 2001 is attributable to the first quarter. Operating result Operating result declined 28 per cent to SEK 4 245 M (5 919). Adjusted for exchange rate effects and other items affecting comparability, operating result fell by 12 per cent. The result for the second quarter was lower than for the first, mainly due to one-off effects during the first quarter and lower net financial transactions during the second quarter. Change in surplus in life insurance operations The change in surplus in life insurance operations was influenced by the negative financial effects due to the decline in the stock market and amounted to SEK 113 M (427). See further in Appendix 3. Total result The Group's total result declined by 31 per cent to SEK 4 358 M (6 346). Adjusted for items affecting comparability, the decrease in total result was 16 per cent. Deposits and lending As of 30 June 2001, SEB's deposits from the Swedish public (households, companies, etc.) amounted to SEK 245.2 billion (221.5). This corresponded to a market share of 21.8 per cent (unchanged compared with 30 June 2000). Deposits from the household sector were SEK 59.1 billion (59.6), corresponding to a market share of 13.8 per cent (14.2). The Group's lending to the public in Sweden increased to SEK 327 billion (304), which corresponded to a market share of 13.7 per cent (14.3) on 30 June. In the household market SEB's lending increased to SEK 99.6 billion (91.1), giving a market share of 11.1 per cent (11.0). In Germany, deposits from the public increased by 3 per cent to SEK 286 billion, while lending rose by 5 per cent to SEK 236 billion. SEB has a market share of approximately 1 per cent. In the Baltic countries, SEB's three subsidiary banks increased their total deposits by 19 per cent to approximately SEK 20 billion and their lending by 19 per cent to SEK 17 billion. The three banks have approximately one third of the Baltic market for both lending and deposits. Assets under management On 30 June 2001, the SEB Group had assets totalling SEK 892 M (912) under management, of which SEK 579 M (578) were managed by SEB Invest and SEK 107 M (112) by SEB Germany. Credit portfolio SEB's total credit portfolio increased during the first half of the year by SEK 35 billion, to SEK 961 billion (926). The main part of the increase is attributable to the Swedish corporate sector. Lending to the Swedish household sector has also increased, but at a somewhat lower growth rate compared to the previous year. Development within the bank sector and municipalities continues to be stable. The German subsidiary SEB AG contributed by SEK 353 billion (351 at year-end) to the total credit portfolio and now represents a share of approximately 37 per cent (38). SEB's credit classification system has also been applied to the German portfolio for some time now. SEB' exposure within the telecommunication industry (operators and manufacturing companies) has been kept at a stable level during the second quarter and amounts to approximately SEK 14 billion. The telecommunication industry represents approximately 1.5 per cent (1.2) of the credit portfolio. The increase is attributable to short term exposure on existing clients, consisting mainly of foreign exchange risk hedging within normal daily operations. Exposure on the IT sector also increased somewhat during the first half of the year and now totals approximately SEK 5 billion. The net exposure on emerging markets as per 30 June amounted to SEK 10 707 billion, a decrease of almost 7 per cent since year-end (11 483). The continued decline is mainly due to reduced exposures in Eastern and Central Europe as well as in Latin America. See further Appendix 2. Risk management Excluding Germany, the Group's risk taking through trading operations, or daily value at risk, averaged SEK 64 M during the first half of 2001, meaning that the Group could expect with 99 per cent certainty to lose no more than SEK 64 M during a single trading day. During the year, this risk varied between SEK 25 M and SEK 107 M. Following table shows how this risk was distributed by type of risk (SEK M). Min Max Average 30 June -01 31 Dec -00 Interest risk 30 109 59 80 35 Foreign exchange risk 4 29 9 7 6 Stock market risk 2 37 11 6 9 Diversification - - -15 -13 -19 Total 25 107 64 80 31 In SEB Germany's markets, the corresponding daily value at risk was SEK 12 M. During the year, SEB Germany's value at risk varied between SEK 12 M and SEK 17 M, with an average value of SEK 15 M. Sensitivity analysis An increase of market interest rates by one percentage point as per 30 June 2001, would result in a reduction in the market value of the Group's all interest-bearing assets and liabilities, including derivatives, by SEK 2 300 M. Capital base and capital adequacy On the 30 June 2001, the capital base for the financial group of undertakings (excluding the insurance companies) amounted to SEK 54.2 billion (53.3 at year-end). Core capital was SEK 37.6 billion (36.5), of which SEK 1.8 billion constituted core capital contribution. (For calculation of the capital base see Appendix 4). The risk-weighted assets amounted to SEK 519.4 billion (495.6). The core capital ratio amounted to 7.24 per cent (7.37 per cent at year-end 2000) and the total capital ratio to 10.43 per cent (10.76). The Group's goal is to maintain a core capital ratio of at least 7 per cent and a total capital ratio of not less than 10.5 per cent. SEB now the largest shareholder in BOS During the second quarter of 2001, SEB increased its ownership in the Polish Bank Ochrony Srodowiska (BOS) from 38 to 46 per cent. BOS is active in both the corporate and private segments. The bank has 52 branches and 1 600 employees. Changes in ownership In June, Investor became the largest owner in SEB through an exchange of shares within the Wallenberg sphere. By acquiring most of Knut and Alice Wallenberg Foundation's shareholding, Investor increased its share of the share capital in SEB from 10.0 to 19.2 per cent. Investor's share of the voting rights in SEB increased from 10.5 to 20.0 per cent. The proposed merger with ForeningsSparbanken In June, ForeningsSparbanken and SEB filed the notification regarding the proposed merger between the two banks with the Commission of the European Communities. In July, the Commission decided to initiate an in-depth investigation. A final decision can be expected in mid-November. In order to provide the shareholders with best possible background documentation prior to taking a position with regard to the merger, both banks have decided to postpone the Extraordinary General Meetings until the fourth quarter. Stockholm, 23 August, 2001 Lars H. Thunell President and Group Chief Executive The interim report for January-September 2001 will be published on 25 October 2001. SEB's reports are available on the Internet (www.seb.net). Additional information is available from: Gunilla Wikman, Head of Group Communications, +46 8 763 81 25, mobile +46 70 763 8125 Lotta Treschow, Head of Investor Relations, +46 8 763 95 59, mobile +46 70 763 9559 This Interim Report has been reviewed by the auditors of the Bank. THE DIVISIONS AND BUSINESS AREAS As of 2001, SEB's operations are organised into six divisions: Personal Banking Sweden, Personal Banking International, Corporate & Institutions, SEB Germany (former BfG less merchant banking operations). Investment Management & Life and The Baltic & Poland. Personal Banking Sweden - focus on competence and advisory service The division is responsible for SEB's activities towards private individuals and small enterprises in Sweden. The division consists of SEB'S retail banking business including the branch office network, the telephone bank, Swedish Internet banking services and the private bank SEB Enskilda Banken. Changes implemented during this spring included a concentration of all advisory services to private individuals to Enskilda Banken and a centralisation of customer- and profitability responsibility for the retail segment. Personal Banking Sweden's result for the first six months of this year amounted to SEK M 888 (1 154). Underlying this result was a continued positive development in savings as well as in lending. The division's net interest earnings the first two quarters was 9 per cent higher than the corresponding period in 2000. The improvement was due to increased volumes and margins in savings, but also the mortgage-area showed continued growth both in volumes and market share. A substantial part of the Division's operations focus on private customers who are active on the stock market. Accordingly, the second quarter was also affected to a large degree by the situation on the stock market. In total, commission income for the first half year declined by 35 per cent. However, a small improvement in brokerage and sales of mutual funds was evident in May and June, due to, among other things, an increased level of customer activities within Enskilda Banken. The private bank also has acquired 1 200 new customers so far this year, an increase of 5 per cent. An example of SEB's focus on competence and advisory services is the new official license for Swedish equity advisors. So far this year, SEB has received 560 licenses, more than any other competitor on the Swedish market. The total number of e-banking customers was nearly 622 000 as of 30 June. On the corporate market, the division now has 43 000 Internet-customers. A new portal for corporate customers was launched this spring. Personal Banking Sweden's costs January-June were 3 per cent lower than in the same period last year. The number of employees decreased by 79. Credit losses remained on a low level, SEK 33 M, a decrease of SEK M 64 compared with the first two quarters in 2000. Personal Banking International The activities of Personal Banking International include SEB Kort, Private Banking in Luxembourg (including BfG's former private banking business in Luxembourg), the UK, Switzerland, Norway and Denmark as well as e-banking in Luxembourg, Norway and Denmark. The operating result for the division was SEK 0 M (214). Personal Banking International excluding SEB Kort - close-down of e-banking in the UK Private Banking International consists of two different parts: * The fundamentally profitable private banking business in Luxembourg, the UK, Switzerland and Norway, now negatively effected by the low activity level on the financial markets. * e-banking activities in Luxembourg, Norway, Denmark and the UK. In Denmark the total number of e-banking customers is approximately 11 000. In Norway there has been a soft launch of SEB's e-banking service in order to support existing Private Banking in the end of the second quarter. The launch will be carried out gradually step by step, just as in Denmark, without any large-scale marketing launch. The e-banking concept has also been launched in Luxembourg during the second quarter. This launch was very well received by existing private banking customers. Last winter SEB made a decision to suspend the launch of an e-banking service in the British market. Due to the prevailing market conditions, SEB has now decided to discontinue e-banking operations in the UK entirely. The closing-down involves a limited non-recurring expense, which will be reported in the third quarter. Most of the start-up costs for the development of SEB's e-banking activities in Luxembourg, Denmark and Norway have now been accounted for. The units within Personal Banking International excluding SEB Kort showed a combined result of SEK -206 M(13). SEB Kort - increased card sales SEB Kort reported a strong second quarter, meaning that the result for the first six months was better than during the same period last year, SEK 206 M (201). Despite some weakening in June, card sales increased by 5 per cent. Income increased by 6 per cent. Net interest income was on par with the preceding year, despite rising interest rates and greater financing requirements, primarily due to the increased number of credit cards. Net commissions improved as a result of increased card revenues. Volumes increased outside the Nordic region, which had a positive effect on the exchange rate premium. The increased number of cards also meant that revenues in the form of annual fees were higher than previously. Costs increased by 5 per cent. During the first months of the year, a number of IT projects were implemented, which resulted in high costs during the first quarter. Data processing costs are now in line with the preceding year. Other operating costs rose as a result of increased volumes. Credit losses continued to increase. The trend with respect to unauthorised purchases, however, was not as dramatic during the second quarter as during the first months of the year. Several international airlines has expressed interest in SEB Kort's Central Acquiring service since it was presented in Brussels in mid-May. This service, which is under development, has functioned well so far. However, a decline in the travel market was noted due to prevailing economic conditions and cost saving measures among corporate customers. In June, Diners Club Denmark won first prize in the Teleperformance Grand Prix 2001 for the best call centre in Denmark. Diners Club Denmark has participated in this competition during the past four years and on all occasions was one of the leading companies. Corporate & Institutions The Corporate & Institutions division is focused on medium sized and large corporate and financial institutions. The division consists of the Merchant Banking, Mid Corporate, Enskilda Securities and Securities Services (custody) business areas. The division's operating result for January-June 2001 was SEK 2 697 (SEK 2 880 M) despite the prevailing financial market climate. Merchant Banking continued to report very good results, due in part to good performance within the Fixed income and Futures product areas. Although Enskilda Securities was most negatively affected by the market conditions, it continued to strengthen its position in the Nordic stock markets. Great efforts are being made to increase customer penetration in the Mid Corporate segment. The division further increased its focus on the use of capital and is working with the aim of maintaining costs on a competitive level. Merchant Banking - strong performance for customer related business Merchant Banking showed a strong performance for the seventh consecutive quarter within the customer driven business, and the positive income development continued, up 12 per cent compared to the same period the previous year. Total income increased by 8 per cent, while total costs increased by 4 per cent, resulting in a cost/income-ratio of 0.54 (0.55). The half year operating result amounted to SEK 1 528 M, an increase of 24 per cent. The growing customer related income was partly attributable to good performance within the Debt Capital Markets, Securities Finance, Fixed Income and Futures areas. Cash Management, as well as Structured Finance, also reported strong half year results, despite a very weak telecom sector. The growth in customer income is not only attributable to increased business within the Tier 1 segment, but also from Tier 2 customers, as well as from increased business development in international financial institutions. Rising interest rates during the second quarter had a negative impact on Treasury Operations, especially in relation to the very good result in the first quarter. Recently published league tables continue to rank Merchant Banking very high in a number of areas. For example, in Euromoney's annual customer survey of foreign exchange markets, SEB was considered to be the best dealer in the world on SEK and was also ranked highest among all Nordic players in the category "key relationship banks". Investments within Merchant Banking's growth areas are funded by efficiency measures in mature areas. The underlying cost level, costs excluding performance related remuneration and exchange rate effects, were 3 per cent lower than in the corresponding period in the preceding year. This was achieved despite increased investments in new tailor-made internet applications for Merchant Banking's customers, and the most successful Trading Station is now being taken one step further and developed for other products and client segments. Lending losses before recoveries remained at a low level, and the net after recoveries was positive for the first six months this year. The long-term strategy to lower Merchant Banking's overall utilised capital, as well as reallocate capital from mature areas to growth areas, continued. The risk weighted assets within Merchant Banking's corporate lending portfolio (excluding structured products) had decreased by 3 per cent compared to a year ago despite the strengthened US dollar. During January-June 2001 the average daily Value at Risk was SEK 70 M, which was an increase by 34 per cent compared to the very low level during the previous year. The increase was related to the higher volatility in the markets this year. Mid Corporate - focusing on tailor-made solutions The result for the Mid-Corporate business area, including SEB Finans, amounted to SEK 597 M for the first six months of 2001, which was 13 percent below the result for the first half of 2000. Net interest income showed a stable trend, while commission revenues showed some decline compared with last year. The result for Mid Corporate (excluding SEB Finans), which comprises small and medium sized companies, amounted to SEK 507 M for the first six months, a decline of 3 per cent. The effect of specialisation on the SME-market began to show a positive result despite negative market forces, which lead to lower commission revenues. SEB Finans' result for the first half year amounted to SEK 90 M (160). The decline was largely due to a sole major lending loss that contributed to SEB Finans' lending losses totalling SEK 35 M. Net commission income for SEB Finans was also lower, compared with the preceding year. Nonetheless, SEB Finans strengthened its position in its areas of operations, and a number of major deals are near conclusion. Sales during the first six months were higher than during the corresponding period in 2000. Costs were somewhat higher than last year (+9 percent). The cost increase is attributable to investments that will enable SEB Finans to meet customer requirements for tailor-made solutions. Enskilda Securities - halved result in an unfavourable market During the first quarter stock market activity as well as market capitalisation decreased significantly compared with the first quarter in 2000. This situation continued during the second quarter with falling stock prices and periodically declining volatility. Turnover fell on the exchanges in Stockholm and Helsinki, while the exchanges in Oslo and Copenhagen showed higher turnover. Despite the unfavourable market conditions, Enskilda Securities continued to strengthen its positions in the Nordic markets, especially in Norway, Finland and Denmark. In all of these countries, Enskilda Securities has a market share well above 10 per cent. Enskilda Securities' equity trading turnover was somewhat lower in the second quarter than in the first but at the same time 19 per cent higher compared with the first six months in 2000. During recent years, Enskilda Securities has invested in personnel and systems within Equity Research. The soundness of these investments is shown in several independent analyst rankings, in which Enskilda Securities further improved its position this year. These rankings are both Nordic and international. Enskilda Securities' total income decreased by 30 per cent. Revenues from IPOs, new issues and equity trading were primarily affected by the less favourable conditions, while income from mergers and acquisitions reached the same level as last year after a strong second quarter. Also the secondary commission income, which is the single most important source of income, was on a high level due to large volumes and increased market shares. Total costs fell by 19 per cent, which was primarily an effect of reduced provisions for bonus payments to employees due to lower earnings. Pre-bonus costs increased by 14 per cent, due primarily to higher IT costs. The operating result for the second quarter was SEK 155 M, to be compared with SEK 150 M for the first quarter this year. SEB Securities Services - assets under custody decreased The result for SEB's custody service unit decreased by 17 per cent to SEK 285 M. Income remained at the same level as last year, SEK 510 M, mainly due to increased volumes. The number of transactions rose by 11 per cent to 1 900 000 billion, while assets under custody fell by 25 per cent to SEK 1 900 billion. Total costs increased by 33 per cent to SEK 225 M as a result of major investments during the first six months, primarily regarding IT-development. In addition, rising transaction volumes resulted in increased costs. The market shares of the various segments remained stable, ranging between 30 and 75 per cent within the different segments. SEB Germany - successful rebranding On 2 April, SEB's operations in Germany, comprising BfG Bank AG with subsidiaries, changed their name to SEB. The nation-wide marketing campaign was very successful, and by June, 22 per cent of the Group's target customers in Germany recognised the SEB brand, meaning that more Germans than Swedes now recognise the SEB name. It has been decided that BfG Hypothekenbank will also change its name to SEB. SEB Germany's result amounted to SEK 543 M (435). The weakened Swedish krona had a positive effect on the result. Total income for SEB Germany fell by 10 per cent in EUR and by 3 per cent in SEK. Total cost declined by 10 per cent in EUR and by 2 per cent in SEK. Net interest income showed a relatively stable result amounting to SEK 1 990 M. However, the reduction in risk weighted assets made it possible to reduce allocated shareholders' equity by EUR 500 M, which in turn reduced net interest income on equity by about SEK 110 M. Commission income fell 18 per cent to SEK 693 M as a result of market trends. During the first quarter, SEB AG sold its shares in Deutsche Borse, which resulted in a capital gain of EUR 26 M (about SEK 240 M). The SEB Invest and SEB ImmoInvest funds continued to generate positive net inflows amounting to SEK 2 230 M during the first six months, which corresponded to unchanged market shares. Due to market trends, managed assets nonetheless were virtually at the same level as last year, SEK 107 M (112). Since SEB's acquisition, risk-weighted assets have been reduced by nearly SEK 57 billion (down 25 per cent). During 2001, the reduction amounts to SEK 11 billion. The number of e-banking customers continued to increase during the first six months with an additional 23 000 customers bringing the total to 169 500 by June. The migration of affluent private customers from branch offices to Advisory Centres was ahead of schedule. During the first six months, some 10 000 additional customers were attracted, bringing the total migration into the Advisory Centres to 38 000 to date. Activity among Internet customers also increased. Today, 15 per cent of all payments and share transactions as well as 35 per cent of account inquiries take place over the Internet. Reconstruction work continued according to plan and resulted in the cost reduction noted above. Under the prevailing market conditions, the focus in restructuring work remains on continued cost reductions. The number of full time employees is already below the target for the end of the current year. The previous SEB unit in Germany, Skandinaviska Enskilda Banken AG, will be merged with SEB AG during the autumn. (This unit is included in the Merchant Banking division of SEB AG and is thus not reported as part of the SEB Germany division.) In conjunction with this merger, additional restructuring will take place intended to further reduce SEB's costs in Germany. The SEB Germany division does not include those units (corporate customers, trading and the old Skandinaviska Enskilda Banken AG) that are internally included in the Merchant Banking division. Appendix 1 therefore provides supplementary information consisting of the entire SEB AG Group's accounts stated in EUR. The figures for 2000, as for SEB Germany above, were adjusted for internal purchases and sales by Skandinaviska Enskilda Banken in Germany and BfG in Luxemburg. Adjustment was not made, however, for the external company sales completed by SEB AG during 2000. Investment Management & Life - negatively affected by weak stock markets The division comprises the business areas SEB Invest (former SEB Invest & Funds) and SEB Trygg Liv and accounts for the SEB Group's business within mutual funds, institutional portfolio management and life insurance products. The division was affected by the downward trend on the stock markets with respect to both demand for savings products and the effect of the so-called surplus values in the life insurance business. The operating result amounted to SEK 199 M (320). Total result, including change in surplus values in the life insurance business, was SEK 312 M (747). This constituted a recovery during the second quarter, compared with the first quarter for which the total result was a loss of SEK -133 M. For the period as a whole, the financial effects on the change in surplus values resulting from the negative stock market trend had a negative impact of SEK -485 M (+7). The division's revenues decreased somewhat to SEK 1 513 M (1 556). Costs increased by 6 per cent to SEK 1 306 M (1 230). As per 30 June 2001, total assets managed by SEB Invest on behalf of the entire division amounted to SEK 579 billion (578). Of this total, portfolio management accounted for SEK 145 billion (119), traditional life insurance for SEK 245 billion (245) and mutual funds & unit linked insurance for SEK 189 billion (214). Since year-end total assets under management had decreased by 2 per cent. SEB Invest SEB Invest showed an operating result of SEK 287 M (312), a decrease of 8 per cent. Revenues increased by 1 per cent to SEK 783 M (776). Lower costs for distribution of mutual funds compensated for the drop in stock prices. Net sales increased from SEK 6 billion to SEK 9 billion, above all due to an increase in institutional mandates. Costs rose by 7 per cent to SEK 496 M (464), mainly due to recruitment within asset allocation, hedge products and the mutual fund sales organisation. The cost increase mainly related to the first quarter. Of the net flow to mutual fund companies in Sweden, SEB accounted for 9.8 per cent (14.6). Corresponding market share for the whole of 2000 was 8.9 per cent. The share of outstanding fund assets in the Swedish market was 18.5 per cent (21.5). In June, SEB Invest and Schroders, a leading international asset management group, decided to enter into an advisory agreement. The agreement means that Schroders will become an advisor in the management of SEB's Asian, Japan and Emerging Markets funds. The co-operation gives SEB Invest's customers first-class investment management in these areas. It also frees SEB Invest's own resources, allowing them to be more sharply focused on maintaining a leading position in the Nordic region, Europe and North America, as well as in such areas as technology, pharmaceuticals, private equity and hedge funds. In April, SEB Invest launched its second hedge fund, which is an interest hedge fund. As per 30 June, the capital managed by the fund amounted to SEK 675 M. SEB Trygg Liv Sales, i.e. new premiums and extra payments under existing insurance policies, amounted to SEK 5 290 M (7,574), a decrease of 30 per cent. 70 per cent of the decrease refers to the second quarter and derives mainly from single premium endowment assurance, which is sensitive to the prevailing market conditions. However, sales of running insurance policies, mainly occupational pensions, increased and contributed to increasing the current value of new sales for the period, compared with last year. Sales of occupational pensions rose by 31 per cent. Premium income (total premiums paid) declined by 18 per cent to SEK 8 560 M (10 422). Total income decreased by 6 per cent, mainly as a result of lower asset values. The downward trend in the beginning of the year was broken during the last two months. Total costs, after deducting the change in deferred acquisition cost, rose by 6 per cent. However, the actual increase in costs during the twelve-month period was less than 1 per cent. Operating result totalled SEK -88 M (8) as a result of lower income and a lower amount of capitalised acquisition costs. Total result, excluding financial effects on changes in surplus values, rose to SEK 510 M (428), due to the increased sales of regular premiums insurance. Including financial effects on the surplus values, total result amounted to SEK 25 M (435). See further Appendix 3 on SEB Trygg Liv. SEB Trygg Liv's share of the Swedish life insurance market was 12.7 per cent (15.4) during the second quarter of 2001. This decline was primarily due to the deregulation of the occupational pension insurance market now in progress in which competition for newly generated volumes thus far largely favours companies that previously had a monopoly position and large volumes of redemptions of pension liabilities (due to early-retirement pension) for which SEB Trygg Liv in consideration of profitability elects not to compete. The market statistics do not include sales of the IPS pension product, which is being given priority over private pension insurance, or the Portfolio Bond endowment insurance, which is sold in the Swedish market by SEB Trygg Life in Ireland. During the first six months several major companies selected SEB Trygg Liv as one of the suppliers of occupational pensions. SEB Trygg Liv's ambition is to continue to develop the business within occupational pension and other life insurance services and products paid by the employer, and to strengthen its strong position in the private market. The main sales focus is on unit linked insurance, which represents the absolute majority of the sales. In the first half of 2001 the selection of funds offered as unit linked insurance was extended by 17 funds from external fund managers. In total, there are now some 70 funds in the range of unit linked insurance. The Baltic & Poland - steady advances The positive earnings trend continued for SEB's wholly owned banks in the Baltic region - Eesti Uhispank, Latvijas Unibanka and Vilniaus Bankas. The result for the first six months amounted to SEK 253 M, an increase of 102 per cent, compared with the preceding year, during which Vilniaus Bankas was not consolidated in SEB and only included as a share in profits. Pro forma, with full consolidation of Vilniaus Bankas, earnings increased by 42 per cent. The reduction in growth in Europe has not affected the Baltic countries. The contribution of domestic demand to the countries' growth is increasingly great, at the same time as it also stimulates both domestic and foreign investment. This year, GDP is expected to increase by 5 to 6 per cent in Estonia and Latvia and by 4.5 per cent in Lithuania. During the spring, Eesti Uhispank sold its Latvian subsidiary Saules Banka. Customer growth in the three banks is high. The number of private customer has increased by 27 per cent and the number of corporate customers by 8 per cent over the last twelve months. The positive earnings trend for the banks is due primarily to increased deposit volumes (up 42 per cent), increased lending volumes (up 39 per cent) and the fact that costs are increasing more slowly than revenues. Use of the banks' Internet services is growing rapidly. Together, the three banks had 159,000 e-banking customers in June, which was an increase of nearly 50,000 since 1 January. In June, SEB increased its ownership in the Polish Bank Ochrony Srodowiska (BOS) from 39 to 46 per cent. Through its minority ownership, SEB has contributed expertise primarily in international banking and given BOS customers access to the Group's international network. A unit for serving Scandinavian customers was established within BOS during the second quarter. The SEB Group Operational Profit and Loss Account SEK M January-June January-June Change Full year 2001 2000 per cent 2000 Net interest income 6 234 5 869 6 11 616 Net commission income 5 958 6 939 -14 13 846 Net result of financial 1 509 1 472 3 3 552 transactions Other operating income 1 676 2 652 -37 3 644 Total income 15 377 16 932 -9 32 658 Staff costs -6 236 -6 298 -1 -12 761 Pension compensation 529 490 8 943 Other operating costs -4 520 -4 013 13 -8 751 Depreciation -916 -846 8 -1 763 Total costs -11 143 -10 667 4 -22 332 Net credit losses etc -248 -531 -53 -890 Net result from associated companies 16 52 -69 95 Operating profit from non-life insurance operations 243 133 83 212 Operating result 4 245 5 919 -28 9 743 Change in surplus value in life insurance operations 113 427 -74 337 Total result 4 358 6 346 -31 10 080 Taxes -1 365 -1 524 -10 -2 856 Taxes on change in surplus values -32 -120 -73 -94 Minority interests -67 -145 -54 -245 Total result after tax 2 894 4 557 -36 6 885 Key figures January-June January-June Full year 2001 2000 2000 Return on equity, % 13,4 22,1 16,9 Return including change in surplus values, % 13,0 22,3 16,5 Return on equity, 12 months moving average, % 12,4 17,0 16,9 Return including change in surplus values, 12 months moving average, % 11,8 18,6 16,5 Earnings per share, SEK 3,99 6,03 9,43 Earnings per share (Total result after tax), SEK 4,11 6,47 9,77 Income/cost ratio, SEB Group 1,38 1,59 1,46 Income/cost ratio, banking operations 1,34 1,54 1,42 Cost/income ratio, SEB Group 0,72 0,63 0,68 Cost/income ratio, banking operations 0,74 0,65 0,70 Lending loss level, % 0,06 0,15 0,12 Provision ratio for doubtful claims, % 46,6 54,0 49,1 Level of doubtful claims, % 1,38 1,15 1,35 Total capital ratio, % 10,43 10,96 10,76 Core capital ratio, % 7,24 7,60 7,37 Operational Profit & Loss Account, quarterly performance for the Group SEK M 2001:2 2001:1 2000:4 2000:3 2000:2 Net interest income 3 164 3 070 2 898 2 849 2 986 Net commission income 1) 2 965 2 993 3 507 3 400 3 237 Net result of financial transactions 1) 534 975 1 294 786 572 Other operating income 521 1 155 598 394 1 367 Total income 7 184 8 193 8 297 7 429 8 162 Staff costs -3 200 -3 036 -3 391 -3 072 -3 087 Pension compensation 231 298 227 226 319 Other operating costs -2 251 -2 269 -2 847 -1 891 -2 095 Depreciation -461 -455 -508 -409 -419 Total costs -5 681 -5 462 -6 519 -5 146 -5 282 Net credit losses etc -66 -182 -112 -247 -250 Net result from associated companies 17 -1 20 23 22 Operating profit from non-life insurance 2 241 43 36 81 operations Operating result 1 456 2 789 1 729 2 095 2 733 Change in surplus value in life insurance operations 364 -251 -269 179 -46 Total result 1 820 2 538 1 460 2 274 2 687 Taxes -565 -800 -613 -719 -886 Taxes on change in surplus value -102 70 76 -50 12 Minority interests -38 -29 -36 -64 -21 Total result after tax 1 115 1 779 887 1 441 1 792 1) A reclassification of Q1 has been done between Net commission income SEK +60 M and Net result of financial transactions SEK-60 M. Net commission income SEK M 2001:2 2001:1 2000:4 2000:3 2000:2 Payments 259 283 286 296 276 Cards 479 445 426 375 401 Issue of securities 83 49 114 195 156 Custody and mutual fund 853 931 1 170 1 028 1 013 Courtage shares 541 662 659 724 679 Courtage other 34 47 47 36 52 Lending 116 105 116 166 129 Deposits 17 16 1 11 27 Guarantees 40 31 35 29 33 Advisory 254 89 241 199 211 Derivatives 10 79 32 46 66 Other 1) 71 166 91 74 40 SEB AG and The Baltic 658 602 756 595 556 Commission income 3 415 3 505 3 974 3 774 3 639 Payments -233 -246 -209 -226 -221 Securities -26 -102 -59 -66 -39 Other -88 -58 -69 -16 -45 SEB AG and The Baltic -103 -106 -130 -66 -97 Commission costs -450 -512 -467 -374 -402 Payments 505 482 503 445 456 Securities 1 485 1 587 1 931 1 917 1 861 Other 420 428 447 509 461 SEB AG and The Baltic 555 496 626 529 459 Net commission income 2 965 2 993 3 507 3 400 3 237 1 A reclassification of Q1 has been done by SEK +60 M. Net result financial transactions SEK M 2001:2 2001:1 2000:4 2000:3 2000:2 Skandinaviska Enskilda Banken 1) 83 419 621 288 198 Enskilda Securities 2) 32 121 145 159 67 SEB AG 19 49 64 61 44 Other 9 37 12 1 13 Realised and unrealised 143 626 842 509 322 Exchange rate fluctuations 391 349 448 291 262 Redemption of bonds 4 -14 -12 Net result financial transactions 534 975 1 294 786 572 1) Dividend on shares in the trading portfolio amounts to SEK 1 098 M in 2001:2 and SEK 193 M in 2001:1 and is included above. In 2000:2 the corresponding amount of SEK 134 M was reported as dividend and is not included above. 2) A reclassification of Q1 has been done by SEK -60 M. MORE TO FOLLOW IR KGGZRRFRGMZG
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