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Interim Report January-September 2001

The result of the third quarter remained stable in spite of our main markets - Sweden and Germany - showing poor growth during the third quarter. In both countries, the industrial cycle has been declining this year, and consumer confidence has fallen. Stock markets have been weak.The weaker markets have had a negative effect on SEB's earnings - especially regarding equity-related commission income. But the third quarter result is on the same level as in the second quarter. Costs have come down and credit losses are low.

The result in the Merchant Banking area is strong, on the income side due to good performance for customer-driven business. Cost efficiency measures continue to yield a decreasing underlying cost base.
In SEB Germany the restructuring measures continues according to plan. In Enskilda Securities result is weaker, as in most investment banks, and cost reduction measures have been taken. The Baltic banks continue to expand with strong results.

The withdrawal of the notification to the European Commission concerning the planned merger between SEB and FöreningsSparbanken was a disappointment to us all. I regret that we were not given the opportunity to create a large European bank from a Swedish base. The reasons behind the merger are still valid; i.e. the need for cost efficiency and a larger base to be able to participate in the consolidation of the European market.

Our strategy basically remains the same - to develop business with our customers in our existing markets. We have a strong base in our relations to Nordic corporate customers and the demanding private customers in Sweden and we are a leading Nordic Asset Manager. Weaker markets, however, calls for adaption of the strategy in relation to our previous ambitions. Our priorities now to realise the potential of our current businesses, including the acquisitions we have made in Germany and the Baltics.

We need to strengthen customer focus all through our organisation. External studies have shown that customer satisfaction has decreased in Sweden amongst retail customers. This is an area we are now

addressing, partly by increased focus on our local branches, where we are reinforcing their role. We will continue to develop our internet services, since they are important channels to many of our customers.

One of our more interesting potentials not fully utilised is the cross-selling opportunity. This will require an increase of co-ordination between different parts of our group.

We are adapting our costs to the weaker markets in order to create a long term cost efficiency culture in the group. An efficiency programme started this summer with decisions made that will reduce costs on a yearly basis of SEK 1.5 billion. This programme is now being enlarged to be able to cut costs further. The first phase of cost reductions is already on its way and effects will be seen during 2002. The total cost reduction programme which focuses on support and administrative functions amounts to SEK 3 billion and will give a net effect - after increases in growth areas - of SEK 2.5 billion on a yearly basis from the beginning of 2003.

To sum up, our strategy basically remains to focus on our strong customer relations on the corporate side as well as with the demanding private customers in our markets in Northern Europe. The renewed management team is strongly committed to this strategy and to the actions needed to increase customer satisfaction, especially on the retail side, to better co-ordinate the different parts of the group. Even though markets may improve we have to plan for a prolonged weak economy and increase cost efficiency both in the short and long term.


Total income in January-September 2001 decreased by 8 per cent to SEK 22 519 M (24 361). The comparison with the preceding year was affected by one-off items and the consolidation of Vilniaus Bankas. Furthermore, the weak Swedish krona creates a currency translation difference that also affects comparison with last year. This decline was attributable mainly to lower commission income due to stock market developments but also to a decrease in the line item Other income due to one-off income items last year. Adjusted for items affecting comparability, total income decreased by 9 per cent.

Net interest income rose by 9 per cent to SEK 9 546 M (8 718). The third quarter was stronger than the first two quarters of the year. The cost for the governmental deposit guarantee declined by SEK 155 M.
Adjusted for the items affecting comparability described above, net interest income increased by 1 per cent.

Net commission income decreased by 17 per cent to SEK 8 580 M (10 339). The third quarter was weaker than the first two quarters of the year. The income varied between different product areas and parts of the Group. Commission income from cards rose by 19 per cent, while equity related commission income fell by 27 per cent in comparison with the first nine months of 2000. Adjusted for items affecting comparability, net commission income declined by 21 per cent. (Full disclosure is provided in note on page 15.)

Net result of financial transactions was virtually unchanged, SEK 2 271 M (2 258). A good performance in Merchant Banking more than offset the decrease in Enskilda Securities. Adjusted for items affecting comparability, net result of financial transactions was unchanged. (See further note page 15.)

Other income amounted to SEK 2 122 M (3 046). Of this, capital gains and other items affecting comparability accounted for SEK 929 M (1 857). Adjusted for these items and for exchange rate movements, income was down 3 per cent.

Total costs increased by 6 per cent to SEK 16 707 M (15 813). 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 9 257 M (9 370). Adjusted for exchange rate effects and other items affecting comparability, staff costs declined by 7 per cent. This was achieved 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 580 M less, compared with January-September 2000). As of 30 September 2001 the number of employees amounted to 20 811 (19 596). Adjusted for Vilniaus Bankas, which was not consolidated during the first nine months of 2000, the number of employees declined by 386.

Staff costs, net, decreased by 2 per cent to SEK 8 491 M (8 654). Adjusted for items affecting compar-ability, the decrease was 8 per cent. The compensation for the pension costs included in the gross costs increased to SEK 766 M (716), including the pension insurance scheme that has replaced the earlier profit-sharing system.

At the end of September 2001, total assets in the pension funds amounted to SEK 17.5 billion (23.2 at year-end 2000), while commitments were SEK 9.1 billion (8.0). Accordingly the surplus value as per 30 September 2001 amounted to SEK 8.4 billion (15.2).

Total costs for IT (including calculated cost for own personnel etc.) amounted to SEK 3.6 billion (3.1). Of this, external IT costs represented SEK 1 647 M (1 571).

Depreciation amounted to SEK 1 383 M (1 255), of which goodwill accounted for SEK 537 M (487).

The remaining restructuring reserve for the acquisition of Trygg Hansa in 1997 was SEK 256 M at the beginning of 2001. Of this, SEK 177 M has been utilised during the first nine months of the year (of which SEK 25 M during the third 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.

Merger and restructuring costs
Costs for the planned and discontinued merger with FöreningsSparbanken and integration work amounted to SEK 200 M, of which SEK 130 M in the third quarter.

Furthermore, decisions have been taken to close down e-banking operations in the UK and reduce activities in Private Banking Norway, SEB Invest Norway and within Enskilda Securities. This has resulted in a restructuring charge of SEK 103 M in the third quarter.

Further actions have been and will be decided upon in order to create an extensive cost cutting programme. The restructuring charge for this programme is estimated to amount to an additional SEK 600 M and will be accounted for in the fourth quarter of 2001 and the beginning of 2002.

Credit losses and doubtful claims
The Group's credit losses, including changes in the value of assets taken over and write-downs, amounted to SEK 390 M, net (778), of which SEK 348 M, net (599), in SEB Germany. The improvement depends mainly of lower credit losses and to some extent higher recoveries during 2001.The level of credit losses was 0.07 per cent (0.15).

Doubtful claims, gross amounted to SEK 15 875 M, (16 437). SEK 8 984 M of the doubtful claims are non-performing loans and SEK 6 891 M are performing loans (loans where interest and amortisation are current). Doubtful claims net after deducting general reserves amounted to SEK 7 209 M (7 280). The provision ratio for doubtful claims including general reserves was 54.6 per cent (55.7). The provision ratio for non-performing loans was 58.0 per cent and for performing loans 35.2 (see further page 26). The level of doubtful claims, net, has declined from 1.35 to 1.24.

The volume of pledges taken over was unchanged: SEK 215 M (213 at year-end).

Non-life insurance and run-off
Operating result for non-life insurance, mainly run-off, amounted to SEK 279 M (169). The increase was mainly due to capital gains of SEK 126 M from sales in the bond portfolio in the first quarter. SEB´s non-life insurance operations were not affected by the terror attacks in September.

One-off items
Total one-off income items in the first nine months of 2001 amounted to SEK 929 M (1 656), of which the entire amount for 2001 is attributable to the first quarter. Non-recurring costs for merger and restruct-uring amounted to SEK 303 M (50), of which SEK 233 M (0) refers to the third quarter.

Operating result
Operating result decreased by 29 per cent to SEK 5 706 M (8 014). Adjusted for exchange rate effects and other items affecting comparability, operating result fell by 17 per cent. The result for the third quarter was somewhat better than for the second, mainly due to lower costs.

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 -367 M (606). See further in Appendix 2.

Total result
The Group's total result, that is, operating result with the addition of change in surplus in life insurance operations, declined by 38 per cent to SEK 5 339 M (8 620). Adjusted for items affecting comparability, the decrease in total result was 28 per cent.
Assets under management

On 30 September 2001, the SEB Group had assets under management totalling SEK 816 billion (930). Of this, SEK 535 billion (601) are managed by SEB Invest and SEK 107 billion (114) by SEB Germany.

Credit portfolio
As per 30 September 2001, SEB´s lending volume amounted to SEK 714 billion.

The total credit portfolio also includes contingent liabilities, such as letters of credits, guarantees and credit commitments as well as exposure due to derivative contracts. SEB's total credit portfolio increased by approximately SEK 48 billion to SEK 974 billion from year-end (926). A significant factor for the increase has been the currency translation due to the weakening of the Swedish krona. Some of the increase is attributable to the corporate sector. Lending to the Swedish household sector has also continued its stable growth since year-end. SEB AG´s credit exposure amounts to SEK 374 billion (351) and represents a share of approximately 38 per cent (38) of the total portfolio.

Exposure within the telecommunications industry (operators and manufacturing companies) was continuously stable, totalled approximately SEK 14 billion. Exposure on the IT sector amounted to almost SEK 5 billion. Exposure on airlines, hotels, travel and tourism, cruises, ferries and non-life insurance amounted to SEK 13 billion.

The net exposure on emerging markets as per 30 September amounted to SEK 9.6 billion, a decrease of 16 per cent since year-end (11.5). The continued decline is mainly due to reduced exposures in Asia and Latin America. See further Appendix 3.

Risk management
Excluding Germany, the Group's risk taking through trading operations, or daily value at risk, averaged SEK 68 M during the first nine months of 2001, meaning that the Group could expect with 99 per cent certainty to lose no more than SEK 68 M during a single trading day. During the year, this risk varied between SEK 35 M and SEK 110 M. Following table shows how this risk was distributed by type of risk (SEK M).

In SEB Germany's markets, the corresponding daily value at risk was SEK 9 M. During the first nine months of the year, SEB Germany's value at risk varied between SEK 4 M and SEK 36 M, with an average value of SEK 19 M.

Sensitivity analysis
An increase of market interest rates by one percentage point as per 30 September 2001, would result in a reduction in the market value of the Group's all interest-bearing assets and liabilities, including derivatives, by SEK 2 000 M.

Capital base and capital adequacy
On the 30 September 2001, the capital base for the financial group of undertakings (excluding the insurance companies) amounted to SEK 53.7 billion (53.3 at year-end). Core capital was SEK 37.5 billion
(36.5), of which SEK 1.9 billion constituted core capital contribution. (For calculation of the capital base see Appendix 4). The risk-weighted assets amounted to SEK 515.5 billion (495.6).

The core capital ratio amounted to 7.27 per cent (7.37 per cent at year-end 2000) and the total capital ratio to 10.41 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.
Discontinuation of the merger with FöreningsSparbanken
On 19 September FöreningsSparbanken and SEB withdrew the notification to the European Commission concerning the planned merger between the banks. The reason is that an approval of the planned merger by the European Commission implies such extensive concessions that the value of the merger would be lost, among other reasons, through a lack of synergies.

Stockholm, 25 October, 2001

Lars H. Thunell
President and Group Chief Executive

Financial information during 2002
21 February, Publication of year-end accounts
10 April, Annual General Meeting
7 May, Interim report January-March
22 August, Interim report January-June
7 November, Interim report January-September

SEB´s reports are available on the Internet (www.seb.net).

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