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Interim Report January-June 2000

Effects of restructuring and efficiency measures now visible:
  • Branch office closures in Sweden completed and income growth is strong
  • Restructuring of BfG ahead of plan - negotiations with the unions completed
  • Concentration of Merchant Banking´s international network activities giving lower costs
  • Reduced capital employment by different outsourcing and securitisation measures
  • Divestment of SEB´s shares in Svensk Exportkredit - increasing income by SEK 500 M

    Growth in Europe and e-banking continues:
  • The total number of e-banking customers now approximately 620,000
  • Strong influx of e-banking customers in Germany
  • Launch in Denmark of SEB e-banking well received
  • Filing for approval to acquire about 30 per cent of the shares in the Polish bank BOS

    As of the first quarter of 2000, SEB is following the Swedish Financial Supervisory Authority's guidelines
    and recommendations that become effective in 2001 and is presenting a profit and loss account in which
    results from the banking and insurance operations are reported separately. In addition, SEB is presenting
    an operational profit and loss account.


    "The transformation process of SEB is now showing results. The increased profits are partly due to income increases in our growth areas but also to improved capital- and cost efficiency measures taken in most areas", says Lars H. Thunell, President and Group Chief Executive.

    "The positive income increases from the first quarter continued in the second quarter, in spite of the negative development on the stock markets. The division of the Group into four main areas, with different strategies, has involved stronger focus in each group with a number of efficiency measures carried out that is beginning to be reflected in the figures.

    Within Nordic Banking focus has been on cost- and capital efficiency. A great number of different efficiency measures has been carried out that is mirrored in lower cost levels, reduced risk and shrinking capital allocated. I find it specifically interesting to note that this has been accomplished while activity level has been high and income in most areas has been growing rapidly.

    Within Asset Management & Life focus has continued to be on growth - but more profitable. Assets under management have grown by 68 per cent, based on the general growth of savings. It is also pleasing to see the strong inflow of new customers to our Private Banking activities. Change in surplus value in the life insurance operations remained at the same level as last year due to the development on the stock market in the second quarter.

    In BfG the priorities since the takeover have been cost- and capital efficiency as well as growth within e-banking and asset management. The extensive restructuring program has now resulted in increased cost savings targets. We will thereby arrive at 15 per cent return on equity in 2004, i.e. one year ahead of plan.
    An agreement has been made with BfG´s Workers´ council that- together with sales and closures of subsidiaries - makes it possible to decrease the number of employees by 800. It is satisfactory to note that
    this has been accomplished in parallel with a strong influx of e-banking customers.

    Also in our investment bank arm, Enskilda Securities, the reshaping program that was initiated last year has resulted in a strong profit increase. Enskilda is now number one in Nordic investment banking.

    Within the e-banking activities the launch in Denmark has been well received and will be followed later this year by startup in the UK and launch of an Internet brokerage service in Germany. Our launches in these countries will follow the same pattern as Denmark, i. e. soft launches that we build gradually without too big marketing expenses.

    In the Baltic countries there has been a further reduction of branches and personnel, while the number of Internet users is increasing. And the former gap in our hold around the Baltic Sea will now be filled, as we finally had the opportunity to invest into a polish bank, BOS."

    "When I summarize the first half of 2000 I see a strong proof that SEB is on the right track with stable profitability in the Nordic Banking area, higher efficiency and reduced risk. SEB is well positioned to become the leading e-centric, customer-driven provider of financial services in Europe."


    Nordic Banking - increased volumes and lower costs
    The total result for the Nordic Banking operations (Retail Distribution, Merchant Banking, and SEB Securities Services) increased by 15 per cent. Income was up by 11 per cent as a result of sharply increased income in Retail Distribution and SEB Securities Services.

    Costs declined by 1 per cent, due in part to the fact that the number of employees was reduced by 150. The income/cost ratio, before credit losses, improved to 1.85 (1.65). As a result, the objective of holding costs in Nordic Banking at the same level as in 1999 was achieved during the first half of the year.

    During the summer SEB and the other three large Swedish commercial banks formed Svenska Girot, which is taking over the banks' holdings in Bankgirot and Privatgirot and acquiring Postgirot.

    SEB´s market share of total deposits from the general public (households, companies etc) in Sweden increased to 21.8 per cent compared with 20.4 per cent last year. SEB´s share of the household deposits was 14,3 per cent (13.7 per cent).

    The Group´s share of lending to the general public in Sweden amounted to 14.6 per cent (15.1 per cent). On the household market, the market share was 11.9 per cent (11.8 per cent).

    Retail Distribution - strong revenue trend
    The business area achieved an improvement of 86 per cent in results. This was attributable to a strong increase (25 per cent) in income combined with effective cost control.

    Income was higher, due primarily to increased net interest income from deposits as a result of larger volumes and improved margins, as well as sharply higher commission income in the securities sector. The marginal increase in costs was due mainly to higher data processing costs, which are largely related to the sharp increase in commercial activity and the expansive trend of Internet operations.

    The decision, announced earlier, to close 50 offices has been implemented without major problems. Service and business acquisition is taking place via the Internet, through visits, and through nearby offices. The expected improvement in efficiency, equal to 150 full-time positions will be realised during the year.

    In the third quarter 2000 SEB will open three new offices - specialising on growth companies - in Stockholm, Göteborg and Lund.

    SEB and the Bank of Sweden's subsidiary, Pengar i Sverige AB (PSAB) have concluded a long-term agreement pertaining to SEB's cash handling. Initially, PSAB is taking over SEB's cash processing centres in Stockholm, Göteborg and Malmö. The number of full-time positions will thereby be reduced by approximately 70, beginning in 2001.

    To improve efficiency, as well as to streamline and concentrate operations, SEB has decided to liquidate the so-called post write-off debt collection. A loan portfolio representing claims of SEK 2.2 billion has accordingly been sold to Hoist Kredit AB, with payment to be made on October 1, 2000. The transaction is resulting in a capital gain of approximately SEK 300 M, which is being booked during the second half of the year.

    During the second quarter housing loans amounting to SEK 8.3 billion, EUR 1 billion, were securitised, with the result that the Bank released capital and is able to utilise its capital base more efficiently. The sale was made to Osprey Mortgage Securities Limited by issuing bonds in the amount of EUR 1 billion, with housing loans as collateral. The transaction resulted in a capital gain of SEK 45 M on Group level.

    Merchant Banking - lower risks and continued growth in customer related income
    The stable growth of customer-related income continued, SEK 2,290 M compared with an average of SEK 2,043 M for the first half of 1999. The more volatile income decreased as a result of the reduced level of market risk and the closure of the Proprietary Trading unit in March this year. In spite of the increased customer-related income, total income did not fully match last year's level, due to the fact that the Bank then had a substantial income in connection with the introduction of the euro and the declining interest rates.

    The growth in customer-related income is a result of deliberate efforts in a number of areas. Growing customer segments such as financial institutions and growth industries like telecommunications and information technology constitute one such area. Other examples include programs in the growing European capital debt market, structured financing and the continuing growth of Internet-based customer solutions. Customers will shortly be offered additional Internet services, such as Prime Brokerage and Securities Lending, as well as increased cash-management services. In the annual survey conducted by Euromoney, Trading Station was ranked second in the world among Internet-based marketplaces for currencies, up from third place last year.

    These programs are being financed through improvements in efficiency in mature segments and industries, and in the international network which is made possible by the new Internet technology and joint-venture agreements with international banks. To improve efficiency and strengthen its operations in Asia, Merchant Banking has decided to transfer the activities in Tokyo and Hong Kong to Singapore. In Hong Kong, an agreement has been reached with the Bank of Nova Scotia, which will provide local service to SEB's customers there. During the first quarter an agreement was reached with the Bank of New York with respect to co-operation in servicing Nordic customers in the United States. The objective is to improve the range of products being offered to customers and to rationalise the Bank's operations. During the second quarter it was also decided to render the operations in Helsinki more effective.

    Reduced exposure in emerging markets, a smaller loan portfolio, lower market risks and reduced operational risks have led to a continuous reduction of the amount of capital allocated during the period.

    The risk capital unit SEB Företagsinvest, which has been part of Merchant Banking as of the first quarter of 2000, has in the first half of 2000 realised some of their investments, for example by quoting Pyrosequencing on the Stockholm Stock Exchange with a good financial result.

    SEB Securities Services - Strong increase in volumes
    SEB Securities Services provides securities management and custodial services in Stockholm, Copenhagen, Helsinki and Oslo under its own name and has sub-suppliers in another 55 countries. For the first half of 2000 the result increased by 57 per cent as a consequence of sharply rising volumes and lower costs.

    The strong growth in volume of business continued during the first half of the year. The volume of transactions rose by 69 per cent, to 1.7 million, while the volume of securities under custody increased by
    35 per cent, to SEK 2,570 billion.

    During 2000 SEB Securities Services, with market shares ranging from 30 to 90 per cent in different business and customer areas, was ranked as number four in Europe by Global Investor magazine.
    Asset Management & Life - strong and profitable growth

    The total result for this main group, which accounts for the lion's share of savings in the SEB Group, increased by 76 per cent. Since June 2000 the unit has been divided into three business areas: SEB Invest & Funds, Private Banking (which formerly jointly constituted the Asset Management business area), and SEB Trygg Liv. The group's income, including changes in surplus value in the life insurance operations, increased by 42 per cent, due in part to the rise in stock market values and strong sales of new life insurance policies.

    Despite the rapid growth in income, the increase in costs was limited to 22 per cent. The increase was attributable to expansion in the Nordic Region and UK, increased staff costs and rising result-related bonuses. The average number of employees was 1,960, an increase of 16 per cent compared with the first half of 1999.

    The income/cost ratio improved substantially, to 1.84 (1.58).

    As of June 30, 2000, the SEB Group had assets amounting to SEK 918 billion under management, of which Asset Management & Life managed SEK 806 billion (SEK 549 billion). Portfolio management accounted for SEK 347 billion (SEK 221 billion) of this amount, traditional life insurance for SEK 245 billion
    (SEK 172 billion), mutual funds for SEK 149 billion (SEK 112 billion), and unit-linked insurance for SEK 65 billion (SEK 44 billion). Assets under management have increased by 15 per cent since year-end 1999. The remaining SEK 112 billion are managed by BfG.

    During the period it was decided that SEB will begin to sell approximately 30 foreign funds from ten external fund managers.

    SEB Invest & Funds and Private Banking - profitable growth
    Income of Invest & Funds and Private Banking (Asset Management) rose a total of 58 per cent.

    The improvement in the SEB Invest & Funds business area was attributable primarily to the upturn in the stock market, but also to the fact that investments made earlier in the Nordic Region are now contributing a substantial part of the increase in income. In Private Banking, which consists of SEB Enskilda Banken and International Private Banking, the increase was due mainly to an increase in commissions resulting from customer activities. The business area acquired 3,000 new customers during the first half of the year.
    Costs rose by a total of 22 per cent, due to rising transaction costs, new ventures in Denmark and UK and
    increased result-related bonuses.

    SEB's share of new sales of mutual funds in Sweden accounted for 14.7 per cent (14.6 per cent) whilst the share of outstanding volume of managed funds in Sweden was 21.5 per cent (22.2 per cent). SEB Private Bank in Geneva was opened during the summer, in line with SEB's objective to grow in the asset-management field in Europe. SEB has also international private banks in London and Luxembourg.

    SEB Trygg Liv - strong growth
    SEB Trygg Liv reported strong growth in sales despite some weakening during the second quarter. The market for single-premium endowment assurance in the form of unit-linked continued to be strong. Sales increased by 55 per cent, to SEK 7,455 M, and premium income (paid premiums) rose by 40 per cent, to SEK 10,422 M, compared with the corresponding period last year.

    New sales in SEB Trygg Liv increased by 31 per cent, while total new sales in Sweden rose by 40 per cent. The company's share of the total life insurance market (single-premiums plus ten times current premiums) amounted to 15.4 per cent (18.5 per cent). The decrease comes mainly from the traditional insurance segment, which is not the main priority area due to low margins.

    SEB Trygg Liv's share of unit-linked insurance amounted to 20.2 per cent (23.0 per cent) of new issues and 29.0 per cent (31.8 per cent) of stocks. Activities have been taken to regain market share in group insurance, which will yield result next year.

    Total assets under management increased by 16 per cent, to SEK 251 billion. The increase for unit-linked insurance was 48 per cent. (See appendix 1.)

    BfG - restructuring ahead of plan
    The subsidiary, BfG Bank in Germany, whose name is being changed to SEB this coming winter, reported a total result of SEK 481 M, including SEK 119 M in one-off items from the first quarter. (For comparison with January-June 1999 in euro see appendix 2)

    BfG has since the takeover by SEB increased its focus on e-banking and asset management. Since the end of the first quarter this year the number of e-banking customers has grown with almost 50,000 to approximately 115,000 today. This autumn BfG will launch a brokerage channel based on SEB´s pan-European Internet model, and thereby expect to well exceed the e-banking target of 130,000 e-banking customers by the year-end.

    The first half of 2000 was the best six months-period ever in terms of net inflow, EUR 503 M (SEK
    4,2 billion) in BfG Invest, the mutual fund subsidiary. These figures include two mutual funds from SEB.
    In BfG Immo-Invest the inflow of EUR 57 M resulted in a increased market share for real estate funds, from
    4,0 to 4.3 per cent. As of June 30, 2000, BfG had approximately the equivalent of SEK 112 billion under management.

    During 2000, BfG has divested three subsidiaries involved in leasing, real-estate agency and management consulting, as well as started the closure of the subsidiary bank, Deutsche Handelsbank in Berlin.

    The restructuring program has been negotiated with the Workers council. The program aims at increasing BfG`s focus on e-banking, investment advice and asset management as well as reducing costs, i.e. by reducing staff. The total reduction concerns 800 employees - including 230 in connection with sales and closures of subsidiaries. Simultaneously, risk-weighted assets have been reduced by EUR 1,500 M.

    The target for annual reduction in costs has now been defined to EUR 100 M (SEK 840 M) compared to the earlier target EUR 80-100 M. As a result, it is expected that the objective of a 15 per cent return will be achieved in 2004, a year ahead of plan.

    In 2000, BfG has qualified as one of nine finalists in the European Quality Award.

    Other activities
    This group includes the Enskilda Securities, SEB Kort and Baltic business areas. The latter comprises two majority-owned banks, Eesti Ühispank and Latvijas Unibanka, as well as Vilniaus Bankas, which is partly owned.

    Eesti Ühispank and Latvijas Unibanka are consolidated in SEB's accounts. In the first half of 1999, only the shares of results in these banks were included.

    Enskilda Securities - continuing strong improvement in results
    During the first half of 2000 the stock market was characterised by a continuing high turnover of shares and substantial interest in IT and telecom stocks, although some weakening was noted in the second quarter. The favourable market conditions made possible a large number of market introductions, of which the largest was Telia, in which Enskilda Securities had a leading role.

    Enskilda Securities has strengthened its positions in the Nordic stock markets during 2000. On the Stockholm Exchange the company is continuous the largest player with a market share of 10.1 per cent. In Oslo, Orkla Enskilda Securities is in second place, with a 12.5 per cent share. In Helsinki and Copenhagen the market shares amount to 7.8 and 6.2 per cent respectively, compared with 6.8 and 5.3 per cent during the first half of 1999.

    Enskilda Securities strengthened its position in equity analysis during the first half of 2000. In the Swedish financial daily paper Finanstidningen's annual ranking of equity analysts, Enskilda Securities shared first place as the best analyst firm in Sweden.

    During the period Enskilda Securities and Orkla Finans (Fondsmegling) ASA were merged. Enskilda Securities assumed the ownership of Orkla Finans (Fondsmegling) - whose name was changed to Orkla Enskilda Securities ASA - and Orkla Finans ASA acquired 22.5 per cent of the capital in Enskilda Securities. SEB is thus retaining a 77.5 per cent interest. The transaction gave rise to a capital gain of SEK 373 M, which was included in the Group's result already for the first quarter.

    Income increased by 77 per cent as a result of much higher secondary commission income, favourable trading results and higher income from Initial Public offerings (IPO). The income from mergers and acquisitions was higher than last year. Enskilda Securities' equity trading turnover increased by 120 per cent compared with the first half of 1999. Underlying this increase was, primarily, the very strong interest in IT and telecom shares.

    The 68 per cent increase in costs included additional costs for the acquisitions in the first six months. Excluding the effects of these items, costs increased by 41 per cent, which reflects the increased provision for bonuses to employees due to the favourable trend of results. The underlying cost increase is 11 per cent.

    Enskilda Securities´new office in Silicon Valley will begin operations early in the autumn. The company will close its office in Moscow.

    SEB Kort - increased efficiency
    All business units within SEB Kort contributed to the 27 per cent increase in results. Turnover of the Swedish business units, covering both card issuing - Diners Club, Eurocard and bank products - and acquiring operations, developed favourably. Sales from the subsidiaries also increased, compared with sales a year ago, and contributed to the improvement in net commissions.

    Interest income developed favourably as a result of larger volumes, e.g. from introducing Mastercard outside Sweden. The Mastercard card is being introduced in Finland during the autumn and will then be available in all the Nordic countries.

    During the summer SEB Kort introduced a new service for financing via Internet. This service, Select
    e-finans, makes it possible for web-stores to provide simple, secure and beneficial financing of their customers' purchases.

    In 2000, SEB Kort Norge has won first prize in a customer-service competition: the Teleperformance Grand Prix Customer Service Awards. The competition comprised more than a hundred Norwegian companies. SEB Kort Danmark won an award for the best call centre in the financial sector for the third year in a row.

    Baltic Region - focus on Internet and cost efficiency
    The result for the Baltic Region business area in the first half of 2000 amounted to SEK 125 M. During the comparable period last year the three partly owned banks in the Baltic Region, which at that time did not constitute a separate business area, contributed SEK 44 M. Eesti Ühispank in Estonia, and Latvijas Unibanka in Latvia were consolidated in the SEB Group during the second half of 1999. Vilniaus Bankas in Lithuania, in which SEB has a 41 per cent holding, is still reported in accordance with the equity method.

    The number of Internet customers in Eesti Ühispank is increasing steadily and now amounts to 55,000. Latvijas Unibanka's new Internet service had nearly 11,000 users. Internet service will be introduced in Vilniaus Bankas in September.

    In Eesti Ühispank the cost cutting and divesting program continued. The number of branches decreased from 80 to 72 and will be reduced further to 62 by year-end.

    During the second quarter, Eesti Ühispank formed an IT company jointly with SEB. This company, SEB IT Partner Estonia, which is owned 65 per cent by SEB and 35 per cent by Eesti Ühispank, will develop IT services for the entire SEB Group.

    In June, Latvijas Unibanka became the first bank in Latvia to open an automated customer service centre.

    The merger of Vilniaus Bankas and Bankas Hermis has now been completed. The number of employees in the merged bank has been reduced by 231 to 1,658. The full effect of the reduction will appear in the second half of 2000.

    SEB and Vilniaus Bankas have signed an agreement with the Lithuanian Government regarding exemption from tax 1999-2004.

    SEB e-banking - gaining ground
    SEB e-banking (formerly SEB Internet) became a separate business area in the summer of 1999.
    Income from - and costs of - the current operations in Sweden, Germany and Denmark are reported in the business areas where customers use the services, mainly in Retail Distribution and BfG.

    Costs for developing SEB e-banking amounted to SEK 280 M in the first half of 2000. All development
    costs are expensed and carried by the Group.

    During the year the overall number of e-banking customers increased to approximately 620,000 of which 438,000 in Sweden, 120,000 in BfG and 65,000 in Estonia and Latvia. The number of transactions has also risen. In Sweden, the e-customers made 23,000 share transactions in June 2000, compared to 10,000 in June 1999. Over the same period, the number of payments via Internet rose from 0.8 to 1.2 million.

    SEB has set a strech goal of having five million e-banking customers by the end of 2004.

    Based on the new pan-European e-banking platform, SEB launched its e-banking services in Denmark in April. By August, 4,000 customers were acquired. This autumn an Internet brokerage-service, SEB Direkt, will be launched in Germany. There are also plans to launch e-banking services in the UK in the fourth quarter this year.

    In Sweden, SEB has updated its existing Internet service for private individuals and companies.

    Next natural step in the e-banking expansion will be the mobile e-services that are planned to be launched in a number of SEB's Internet-markets during the fourth quarter this year.

    In addition to the financial services offered to private individuals and companies, the Group provides e-banking services for companies within special areas such as currency and interest trading (Trading Station), liquidity planning (WebForecast) and import/export letters of credits etc (SEB Trade Finance).

    Group activities in the e-sector have also been broadened. The newly formed SEB e-invest has to date invested more than SEK 500 M in five companies. The largest investment is in b-business partners, a venture capital company for investments in companies that conduct business-to-business (B2B) commerce via the Internet.
    In June SEB, Ericsson and b-business partners invested SEK 130 M in a new market place for B2B on the net, Nordic Commerce Exchange.

    In connection with the listing of SelfTrade, the French Internet broker in which SEB owns 34 per cent of the voting rights and 20.4 per cent of the capital, the company issued new shares. SEB subscribed for its portion and as of June 30, 2000, the market value of SEB's holding amounted to approximately SEK 650 M (book value: SEK 300 M).

    In August, SelfTrade, which has approximately 30,000 customers and offices in Paris, Milan, Madrid and London, signed an agreement with Casino, one of France's largest retail chains, which has 11.5 million customers. The agreement provides that SelfTrade can demonstrate its services in department stores and help store customers to open accounts.

    Total income rose by more than 70 per cent to SEK 17.4 billion. For comparable entities the increase was over 25 per cent, mainly due to a strong rise in commission income.

    During the summer SEB signed an agreement covering the sale of its 18 per cent holding in Svensk Exportkredit (SEK) to ABB. The sale involves an impact of approximately SEK 500 M on SEB's result, including a capital gain of SEK 60 M and an extra dividend of SEK 440 M.

    Capital gains and other one-off items in the first six months of the year thereby totalled SEK 1,597 M
    (SEK 754 M), of which SEK 912 M in the first quarter. This includes a capital gain of SEK 420 M before tax from the sale of the Bank's building on Kungsträdgårdsgatan and SEK 373 M from the transaction with Orkla Finans. The securitisation of housing loans in the second quarter resulted in a capital gain of SEK
    45 M. The realisation of venture capital funds resulted in capital gains of SEK 90 M.

    As at 30 June 2000, a change of one percentage point in the Group's combined positions in SEK and other currencies means that the market value of the Group's interest-sensitive positions would increase/decrease by SEK 1.2 billion (SEK 0.7 billion in the first half of 1999).

    Total assets of SEB´s pension funds amounted to SEK 26,0 billion in the end of June 2000 (compared to SEK 25,2 billion by year-end), while the pension commitments totalled SEK 7,6 billion (SEK 7,1 billion). Thus, the surplus value has grown from SEK 18.1 billion to SEK 18,4 since year-end.

    Total costs rose by 56 per cent to SEK 10.7 billion. For comparable entities the increase was 9 per cent.
    A refund of SEK 50 M from SPP has been booked as a cost deduction.

    As of June 30, 2000, SEK 1,873 M - including SEK 174 in the current year - of the restructuring reserve of
    SEK 2,255 M established in the accounts for 1997, had been utilised.

    The acquisition of BfG in January 2000 has resulted in a difference between purchase price and equity of SEK 3.4 billion to be accounted for in the closing of the books in the year of 2000. The restructuring costs for BfG will be fully covered, to some extent by restructuring reserves established by BfG in 1999 and for the remainder from a part of the above mentioned difference. The results of SEB will thus not be affected by the restructuring costs.

    The Group's lending losses, including changes in the value of assets taken over, amounted to SEK 531 M, net, of which SEK 427 M pertained to BfG. The level of lending losses was thus 0,15 per cent.

    As of June 30, 2000, SEB's exposure in emerging markets amounted to SEK 14 654 M, net, a decrease by more than SEK 2 billion or 12.5 per cent from the first quarter. The reduction mainly concerns BfG´s portfolio, especially Russia.

    Stockholm, August 22, 2000
    Lars H Thunell
    President and Chief Executive Officer

    The interim report for January-September 2000 will be published on October 27, 2000. SEB Group interim reports are available on the Internet

    (www.seb.se; www.seb.net).
  • Additional information is available from:
    Gunilla Wikman, Group Communications Manager, +46 8  763 81 25
    Lotta Treschow, Investor Relations Manager, +46 8 763 95 59
    This report has been reviewed by the auditors of the Bank.

    The full report including tables can be downloaded from the following link: