Interim Report, January - March 2000

STRONG RESULTS AND HIGH ACTIVITY

 

 

        Group's total result SEK 3,659 M (SEK 2,306 M).

        Group's return on equity: 27.2 per cent (18.2 per cent)

        Return on equity, 12 months moving average: 17.1 per cent (13.5 per cent)

        Total result excluding one off items: SEK 2,747 M (SEK 1,766 M)

        Group's operating result: SEK 3,015 M (SEK 1,643 M)

        Commission income increased by 104 per cent to SEK 3,702M (SEK 1,812M)

        Assets under management amounted to SEK 930 billion (SEK 510 billion) and Assets under custody rose to SEK 2,559 billion (SEK 1,801 billion)

 

 

        Consolidation and restructuring of BfG

        Sales of real estate (SEK 420 M in capital gain before tax)

        IPO of SelfTrade

        Enskilda Securities' merger with Orkla Finans Fondsmegling

(capital gain SEK 373M before tax)

        Formation of venture capital unit SEB e-invest, which invested in b-business partners

        Announcement of closure of 50 branches in Sweden

        E-banking and e-brokerage in 8 European countries with 570,000 customers including SelfTrade.

 

 

 

Through the acquisition of BfG Bank and consolidation of two of the three partly owned Baltic banks, the SEB Group has grown dramatically compared with the first quarter of 1999. Income has increased by 70 per cent and costs have increased by 56 per cent. After these acquisitions the SEB Group now employs half of its staff outside Sweden.

 

The new e-centric SEB Group was at the end of 1999 organised into four main areas; Nordic Banking, which mainly operates in mature markets, Asset Management & Life, targeting growing markets in Europe, the newly acquired BfG and Other activities. The varying market conditions for the different areas create diverse priorities. This means for example that cost- and capital efficiency measures have high priority in the Nordic Banking area whereas Asset Management & Life is aiming to profitable growth within the savings area in Europe, which affects both income and costs.

 

 

CEO:S COMMENT

 

 

 

 

 

 

 

RESULT BY MAIN GROUP

 

The total result for the Nordic Banking operations (Retail Distribution and Merchant Banking business areas as well as SEB Securities Services) rose 10 per cent to SEK 1,456 M. Income was up 4 per cent as a result of sharply increased income in Retail Distribution and SEB Securities Services. The cost increase, net after compensation from the pension funds, was 4 per cent. The income/cost ratio was, in principle, unchanged at 1.83 (1.82). The goal in 2000 is that the cost level in Nordic Banking shall be unchanged compared with 1999.  

 

Capital rationalisation, particularly within Merchant Banking, continued to be a prioritised area for Nordic Banking. During the first quarter, allocated capital was reduced by SEK 566 M to SEK 17.921 M. Return on allocated capital improved somewhat.

 

Profit and loss account - Nordic Banking

*12 MMA = 12 months moving average

 

 

The business area achieved a result improvement of 78 per cent. This was attributable to a strong income trend, particularly from interest, net from deposits and commission income from primarily securities, insurance and payments. The cost increase of 6 per cent is due mainly to Internet expansion and higher business-related computer costs.

 

As of the first quarter of 2000, SEB Finans is included in Retail Distribution. Compared with the first quarter of 1999, the result for SEB Finans nearly doubled.

 

 

 

Merchant Banking - reduced risk and enhancement of efficiency

Customer-related income showed a continued positive trend, SEK 1,199, compared with an average per quarter of SEK 1,021 M in 1999. The decline in income compared with the first quarter of 1999 is explained by the fact that the bank then had larger income from own position-taking in conjunction with the introduction of the Euro and declining interest rates.

 

In March, Merchant Banking closed the Proprietary Trading unit as a step in the ambition to further reduce income swings and concentrate capital utilisation to prioritised growth areas. The latter includes the emerging common European debt capital market for companies and the growing sector for financial institutions within asset management. The continued focus on Internet-based services has been successful: for example, during March clients carried out one fourth of their Foreign Exchange transactions via Trading Station compared with a 15 per cent monthly average in 1999. The market leader position that SEB Merchant Banking claims within the foreign exchange area has also in recent years been confirmed by foreign exchange surveys by the independent research institute Greenwich Associates.

 

Merchant Banking's exposure to emerging markets remains at a low level. However, a cautious increased exposure has occurred since year-end as a result of the clearly improved economic climate in many of these markets, which resulted in increased financial activity among Merchant Banking's customers (See page 10). In order to enhance efficiency while maintaining and increasing our global reach, an agreement has been signed with Bank of New York to cooperate in serving our Nordic corporates in the US.

 

As of the first quarter of 2000, the venture-capital unit SEB Företaginvest is included in Merchant Banking.

 

 

SEB Securities Services - strongly increased volumes

SEB Securities Services provides securities management and custodial services in Stockholm, Copenhagen, Helsinki and Oslo under its own name and have sub-suppliers in about another 55 countries.

 

The sharp growth in business volume continued during the first quarter of 2000. The daily institutional transaction volume rose 64 per cent to slightly more than 13,200 transactions and the value of assets under custody increased 42 per cent to SEK 2,559 billion.

 

 

 

 

The total result for this main group - which includes Asset Management and SEB Trygg Liv, that is the main portion of the saving activities within the SEB Group - more than doubled. Income, including changes in the surplus value in the life insurance operations, rose 66 per cent, due to the rise in the stock market values and favourable new sales of life insurance, among other factors.

 

Costs rose 27 per cent, due partly to increased bonus-related remuneration and new ventures in the Nordic region and Great Britain. The average number of employees was 1,960, an increase of 16 per cent compared with the first quarter a year earlier.

 

The income/cost ratio improved dramatically to 2.15 (1.65).

 

As of 31 March 1999, the SEB Group had assets under management amounting to SEK 930 billion, of which Asset Management and Life managed SEK 815 billion (SEK 510 billion). Portfolio management accounted for SEK 353 billion (SEK 212 billion) of this amount, traditional life insurance for SEK 246 billion (SEK 154 billion), Mutual funds for SEK 152 billion (SEK 104 billion) and unit-linked insurance for SEK 64 billion (SEK 40 billion). Since year-end, assets under management rose 16 per cent.

 

- Profit and loss account - Asset Management and Life

 

* Including attributable goodwill

 

Income rose 69 per cent mainly as a result of the increase in stock market value, higher income from equity trading, which contributed to results for the Private Bank; SEB Enskilda Banken more than doubled, and new ventures in Denmark. Costs rose 27 per cent as a result of increased bonus-related remuneration, rising transaction costs and the ventures in Denmark and Great Britain.

 

 

 

SEB Trygg Liv - enhanced growth

SEB Trygg Liv reports a strong sales growth for the first quarter. The high demand for primarily single-premium endowment assurance in the form of unit-linked rose further. Sales were up 70 per cent to SEK 4,290 M (SEK 2,527 M) and premium income (premium paid) increased 50 per cent to SEK 5,747 M (3,825 M) compared with the year-earlier period. Sales outside Sweden succeeded well.

 

The change in surplus values was 76 per cent greater that in the corresponding period in 1999. Of the change for the first quarter, SE 473 M, SEK 386 M is from new contracts (See appendix 1).

 

 

German BfG Bank, which was consolidated in the SEB Group on 3 January 2000, reported a total result of SEK 312 M, whereof 119 was a one off item. Income was sustained due to improved net commission income, mainly in mutual fund sales. Costs declined due mainly to a reduction in the number of employees. Lending losses increased compared to 1999.

 

Since the purchase price and thereby the acquisition cost for BfG was lower than the real value of the identified net assets, a negative difference occurred, called negative goodwill. This negative difference has in connection to the acquisition been calculated to SEK 3,400 M and will be accounted for as a provision. The main part of this provision corresponds to costs for measures which now have started and are planned for the coming years with the aim to reach an acceptable profitability in BfG and where costs for these measures do not correspond to reservations made at the time of the takeover. The provision will be resolved in the pace with costs for these identified measures being incurred. In the case that the provision can not be referred to specific measures the remaining negative goodwill will be resolved according to Swedish accounting recommendations. In total, the negative goodwill is expected to be resolved during the coming 4-5 years.

 

 The restructuring efforts announced for BfG are proceeding as planned. During the first quarter co-operation was established between BfG and SEB Investment Management and SEB Fonder and the first joint mutual fund - BfG Concept Teletech - was launched successfully on the German market. Co-ordination with SEB Private Bank in Luxembourg was started. The decided closing of the subsidiary bank Deutsche Handelsbank in Berlin with 75 employees was started. A smaller subsidiary in real estate brokerage was divested.

 

The decided reduction in the number of employees, previously announced as at least 500 positions was increased during the spring to about 700 during the next two years.

 

In the end of March BfG had assets under management amounting to approximately SEK 116 billion.

BfG, which during the spring will present a new version of its own Internet bank, has initiated close collaboration with SEB e-banking prior to the launch of a pan-European model during the third quarter. At the end of March 2000, BfG had 85,000 e-banking customers.

 

 

This group includes the Enskilda Securities, SEB Kort and the Baltic banks. The last-mentioned business area comprises two majority owned banks, Eesti Ühispank and Latvijas Unibanka, and the partly owned Vilniaus Bankas.

 

 

 

During the first quarter of 2000, Eesti Ühispank and Latvijas Unibanka were consolidated within SEB. In the corresponding period of 1999 these banks were only include as result from associated companies.

 

Enskilda Securities - continued strong result improvement

The favourable market conditions from they beginning of 1999 were reinforced further during the first three months of 2000. The volume of trading on the OM Stockholm Exchange rose 115 per cent and activity within IPOs was high - due largely to the strong interest in IT, telecom and technology shares.

 

Enskilda Securities income in the secondary market during the first quarter was the highest ever, rising 122 per cent compared with the same period in 1999. Income was affected positively by a number of IPOs. Both the equities and derivative markets and Corporate Finance posted highly favourable earnings. In particular, share commission, results from derivative trading and income from placements and IPOs improved compared with the first quarter of 1999. IT, telecom and technology share transactions accounted for nearly half of fee revenues. In order to come close to this market, Enskilda Securities have decided to open an office in Silicon Valley.

 

An agreement was signed covering a merger of Enskilda Securities AB and Orkla Finans (Fondsmegling) ASA for the purpose, among others, of strengthening the company's position in the Norwegian market. The agreement is made through an exchange of assets in kind. Enskilda Securities assumes ownership of Orkla Finans (Fondsmegling) in return for Orkla Finans ASA owning 22.5 per cent of the capital in Enskilda Securities AB, while SEB retains 77.5 per cent. Through this transaction a capital gain is incurred in SEB, which is accounted for on group level ( SEK 373 M) which is simultaneously reflected in an increase in goodwill.

 

In total, Enskilda Securities increased revenues during the first quarter of 2000 by 141 per cent, including Orkla Finans (Fondsmegling), and 105 per cent excluding.

 

Costs rose 119 per cent including - 88 percent excluding - Orkla Finans (Fondsmegling) as an effect of result-related bonuses, recruitment of a number of key personnel and costs related to the merger. In addition to these factors, the strong volume trend and the related new recruitment contributed to the underlying cost increase of 19 per cent.

 

Results tripled when Orkla Finans (Fondsmegling) is included. Excluding Orkla, results improved 160 per cent.

 

 

 

SEB Kort - increased efficiency

Sales of SEB Kort, which includes Diners Club Nordic and Eurocard, rose 14 per cent compared with the year-earlier period. At the same time, operating result improved 37 per cent. Costs increased marginally, which indicated that SEB Kort has increased its earnings capacity and its efficiency.

 

 

SEB Kort

 

Baltic Region

The result for the business area amounted to SEK 72 M for the first quarter of 2000. During the comparable period last year, the three partly owned banks in the Baltic, which then were not a separate business area, contributed SEK 31 M. During the second half of 1999 Eesti Ühispank, Estonia, and Latvijas Unibanka, Latvia, were consolidated in the SEB Group. Vilniaus Bankas, Lithuania, in which SEB owns 42 per cent, is still reported as a result from associated companies.

 

After Vilniaus Bankas' acquisition of Bankas Hermis at the end of 1999, the number of employees in the merged bank was reduced from slightly more than 2,000 to 1,750. Efficiency enhancement measures continue.

 

 

 

 

 

SEB Internet, which was renamed in the spring to SEB e-banking, is an independent unit in the Group since the summer of 1999. However, income from and costs of the Swedish and German e-banking operations are reported in the business areas, where the customers use the services, that is, mainly in Retail Distribution and BfG.

 

Costs for investments in e-banking during the first quarter of 2000 amounted to SEK 94M. The investments are now accelerating. In mid-April, the new model was launched in Denmark. Germany is next during the third quarter.

 

During the first quarter of 2000 the number of e-banking customers rose to 570,000, of which slightly more than 410,000 in Sweden. Activity among these customers continued to grow at a high rate. The number of share transactions was, for example, 50.000 in March 2000 compared with 10,000 in the same period of 1999. The number of payments on Internet has increased to 1.3 million per month (820.000)

 

The e-activities within the Group now comprise a wider span. The newly formed SEB e-invest has already made its first investment. SEK 415 M has been invested in b-business partners, a venture capital company to invest in B2B Internet trading.

 

During the first quarter of 2000 the French e-stockbroker SelfTrade, where SEB holds 34 per cent of the votes and 20,4 per cent of the shares, was listed on Nouveau Marché in Paris. In conjunction with the listing a new issue was made in which SEB participated with its share. On the first day of trading the market value of SEB's shares in SelfTrade amounted to SEK 1.2 billion, while the book value on SEB's share was about SEK 300 M. As of april, 27:th the value to SEB amounted to approximately SEK 700 M. This implies an unrealised capital gain which is not accounted for.

 

SelfTrade is one of the leading e-brokers in the French market and its goal is to be the leader on a European basis when it comes to financial services on Internet. SelfTrade have about 26,000 customers in France and has also opened operations in Milan.

 

 

At 31 March 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 1.9 billion in the first quarter of 1999).

 

The nonrecurring items amount to SEK 912 M ( SEK 270 M). The sale of the bank's property on Kungsträdgårdsgatan resulted in a capital gain of about SEK 420 M before taxes. A capital gain arose on the settlement with Orkla Finans of SEK 373 M. This amount is offset by higher goodwill. SEK 119 M of the result in BfG is attributable to nonrecurring items.

 

Of the total restructuring reserve in the 1997 year-end accounts of SEK 2,255 M, SEK 1,724 M, of which SEK 645 M in 1999, was utilised as of 31 March 2000.

 

The Group's lending losses, including value changes in assets taken over, amounted to SEK 281 M, of which BfG accounts for SEK 312 M. Accordingly, the lending loss level was 0.16 per cent (0.14 per cent).

 

SEB's exposure on emerging markets at 31 March 2000 was SEK 16.758 M, net, of which SEK 5,209 M was added through the acquisition of BfG. Accordingly, compared with year-end exposure, excluding BfG, increased by SEK 1.144 M. This is due, among other factors, to increases in exposures to Hong Kong, Argentina and South Korea.

 

 

Doubtful claims, net, increased because of BfG to SEK 7,434 M (SEK 2,703 M), while the volume of assets taken over decreased by SEK 875 M to SEK 610 M.

 

The capital base for the financial company group (which does not include the insurance company) amounted at 31 March 2000 to SEK 50.6 billion (SEK 46.5 billion at year-end 1999), of which SEK 34.3 billion (SEK 34.4 billion) was core capital. At the same time, the risk-weighted assets rose to SEK 510 billion (SEK 318 billion at year-end 1999).

 

If the result in the quarter was included in the capital base and capital adequacy, the total capital ratio would be 10.23 per cent (14.6 per cent at year-end 1999) and the core capital ratio 7.06 per cent (10.8 per  cent). Excluding the results in the quarter, the total capital ratio was 9.9 per cent and the core capital ratio 6.73 per cent.

 

At this year's Annual General Meeting on 11 April, two new members were elected to the Board: Penny Hughes, a member of the Board of Trinity Mirror and Vodafone Airtouch, Great Britain, and Hans-Joachim Körber, President of Metro AG, Germany. The dividend was set at SEK 3.50 per share.

 

Stockholm, 28 April

Lars H Thunell

CEO

 

The interim report for January-June 2000 will be published on 22 August 2000. SEB's interim reports are available on the Internet (www.seb.se; www.seb.net).

 

Additional information is available from

 

Gunilla Wikman, head of Group Communications, +46 8 763 81 25

Lotta Treschow, head of Investor Relations, +46 8 763 95 59