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Report 2001

  • Stronger income in the fourth quarter
  • Cost efficiency measures started yielding results
  • Activities to reach our Cost efficiency targets now fully committed
  • Operating result* decreased by 10 per cent on comparable basis to SEK 7,153 M.
  • Total costs decreased 7 per cent on comparable basis to SEK 22, 679 M.
  • Net interest income rose 5 per cent on comparable basis to SEK 13,053 M.
  • Net commission income decreased by 20 per cent on comparable basis to SEK 11,576 M.
  • Credit losses amounted to SEK 547 M (815).
  • Return on equity was 11.9 per cent (16.9).
  • Earnings per share amounted to SEK 7.17 (9.43).
  • A dividend of SEK 4:00 (4:00) is proposed.
  • Operating result in the fourth quarter, excl. restructuring costs, was SEK 1,860 M (1,694 in the third quarter 2001 and 1,729 in the fourth quarter of 2000).
2001 was a turbulent year. The stock markets were weak and the economies in most countries experienced a sharp downturn reinforced by the terror attacks of September 11.
SEB has a strong position in equity related products. The sharp downturn in equity markets thus affected SEB more than many of its competitors.
In February last year we announced a proposed merger with FöreningsSparbanken with the idea of creating a Nordic bank that could actively participate in the restructuring of the European financial industry. However, EU Merger Task Force put such demands on us that we in September mutually decided to withdraw our application.
We therefore decided to realise our own potential by launching a restart programme implying
  • a renewal of our management team
  • a cost efficiency program to reduce costs by SEK 2.5 billion, net, over the next 18 months
  • a culture change programme called "3 C", which stands for Customer satisfaction, Cross-servicing and Cost efficiency.
The "3 C" programme is a change process being initiated in the entire group to ensure long term profitability. Customer satisfaction is key to long-term success. In many parts of the Group customer satisfaction is high compared to our peers, for example in SEB Germany and in Merchant Banking.
*Operating result includes pension settlements/provisions. Excluding pension provisions of SEK 1,002 M (943), the statutory operating result amounted to SEK 6,151 M (8,800).
However, external studies have shown that customer satisfaction has decreased amongst our retail customers in Sweden. This is an area that we now address, partly by focusing on our local branches, reinforcing their customer responsibility.
Cross-servicing offers an important potential to enhance our revenues, by increasing our market share with existing customers. Further strengthening the co-operation between the units within the Group will achieve this target and improve service to our customers at the same time.
The Cost-efficiency projects that are now under way in most parts of the bank reflect the need for adapting to weaker markets but also for creating a long term cost efficiency culture in the Group. The total cost reduction programme, which focuses on support and administrative functions, amounts to SEK 3 billion, gross, and will give an annual net effect of SEK 2.5 billion as from the first quarter of 2003 - all other things equal.
We have already made decisions that will achieve annual cost savings of SEK 1 billion. Furthermore, we have identified, in specified projects, another SEK 2 billion in annual cost savings. Our business units are firmly committed to these projects which are well reflected in their own plans.
The fourth quarter result was better than that of previous quarters in 2001, partly due to stronger stock markets. The improvement was due to lower operating costs and a stronger equity market. However, we have chosen to take an up-front restructuring charge for the initial costs of the change programme. Most of the charge has been taken in 2001 but some will also be affecting 2002.
A large contribution was made from Corporate & Institutions where Merchant Banking reported strong income due to good performance in customer-driven business. Enskilda Securities' result was weaker, as for most investment banks, and cost reduction measures have been taken.
SEB Germany´s income decreased due to the weak German economy. However, this was to a large extent offset by further cost savings in the restructuring programme.
The Baltic banks continue to grow, showing strong results.
Nordic Retail & Private Banking was affected by the declining stock markets but managed to keep costs under control. In the international part of private banking some major steps were taken to reduce costs and adapt to the market environment.
The number of e-banking customers totalled 1,128,000 at year-end (800,000). The increases continued both in Sweden, Germany and in the Baltic countries.
Our credit volumes remained at stable levels overall. We saw expansion in the Nordic corporate segment, the Baltic and in mortgage lending to Swedish households. Credit losses were at a low level and doubtful claims, gross, declined somewhat. However, a number of companies have been downgraded by the rating institutes and it is not unreasonable to expect an increase in the general credit loss level in the banking industry.
All in all, in terms of result, we can conclude that 2001 was a tough year. However under the circumstances I feel comfortable given the measures now under way.
Since stock markets and the general economy still do not show any clear signs of a forthcoming recovery, our cost efficiency programmes are of utmost importance for our future. These programmes have top priority within all parts of the group!

Profit and loss account, SEK M 2001 2000 Change, per cent Change on comparable basis, per cent
Net interest income 13,053 11,616 12 5
Net commission income 11,576 13,846 -16 -20
Net result of financial transactions 2,964 3,552 -17 -16
Other operating income 2,627 3,644 -28 4
Total income 30,220 32,658 -7 -8
Staff costs -12,353 -12,761 -3 -8
Pension compensation 1,002 943 6 6
Other operating costs -8,763 -8,751 0 -4
Merger and restructuring costs -716 0    
Depreciation -1,849 -1,763 +5 +1
Total costs -22,679 -22,332 2 -7
Net credit losses and write-downs -616 -890 -31 -51
Net result from associated companies -29 95 -131  
Non-life insurance 257 212 21  
Operating result 7,153 9,743 -27 -10
Fourth quarter results

Total income in the fourth quarter was SEK 7,701 M, 8 per cent higher than in the third quarter of 2001 but lower than in the last quarter of 2000.
Costs in the fourth quarter, excluding restructuring costs, amounted to SEK 5,559 M compared with SEK 5,331 M in the third quarter, SEK 5,611 M in the second quarter and SEK 6,519 M in the fourth quarter of 2000. The last two quarters show a positive trend in terms of cost-savings.
Total merger and restructuring costs in the fourth quarter amounted to 413 M.
Credit losses, net, were SEK 181 M compared with SEK 112 M in the last quarter of 2000.
The result for the fourth quarter before restructuring costs was SEK 1,860 M, which was better than for the second and third quarters 2001 and even better than for the fourth quarter of 2000. After restructuring costs the operating result totalled SEK 1,447 M.
Full year results
Comparisons with the preceding year have been affected by one-off items and the consolidation of Vilniaus Bankas in the fourth quarter of 2000. Furthermore, comparisons have been affected by the currency translation difference due to the weak Swedish krona as well as merger and restructuring costs.
Total income for the full year 2001 decreased by 7 per cent to SEK 30,220 M (32,658). Adjusted for items affecting comparability, total income dropped by 8 per cent.
Net interest income showed a steady increase quarter by quarter and rose by 12 per cent to SEK 13,053 M (11,616) for the full year. The cost for the governmental deposit guarantee declined by SEK 207 M. Adjusted for item affecting comparability, net interest income increased by 5 per cent, mainly due to increased volumes and higher margins.
Net commission income decreased by 16 per cent to SEK 11,576 M (13,846), despite a recovery during the fourth quarter. Commission income from credit and charge cards rose by 17 per cent, while equity related commission income fell by 23 per cent compared with 2000. Adjusted for items affecting comparability, net commission income for the full year 2001 declined by 20 per cent. Net commission income is strongly related to stock market trends both in terms of value and business activity. (See further Note on page 20.)
Net result of financial transactions was down 17 per cent to SEK 2,964 M (3,552). Adjusted for items affecting comparability, net result of financial transactions decreased by 16 per cent.
(See further Note on page 20.)
Other income amounted to SEK 2,627 M (3,644), of which capital gains and one-off items accounted for SEK 1,024 M (1,277). Of the capital gains, SEK 512 M referred to the sale of OM shares and SEK 248 M to the sales of shares in Deutsche Börse - both regarded as one-off items in the first quarter of 2001. Remaining capital gains are regarded as part of normal business activity. Adjusted for one-off items, exchange rate fluctuations and other items affecting comparability Other income was up 4 per cent.
Costs including restructuring costs of SEK 716 M, amounted to SEK 22,679 M (22,332). Adjusted for restructuring costs and other items affecting comparability, including exchange rate changes, total costs decreased by 7 per cent.
Staff costs, gross, dropped by 3 per cent to SEK 12,353 M (12,761). Staff costs, net, decreased by 4 per cent to SEK 11,351 M (11,818). Compensation for the pension costs, which is included in the staff costs, gross, increased to SEK 1,002 M (943), including the pension insurance scheme that has replaced the earlier profit-sharing system.
Adjusted for items affecting comparability, staff costs declined by 8 per cent. This was achieved through efficiency improvement measures, primarily within Nordic Retail & Private Banking and SEB Germany, which have also offset the general pay cost increase. In addition, decreased income has led to lower performance-related compensation (SEK 646 M less compared with 2000).
As of 31 December 2001 the number of employees decreased by 584 to 20,696.
At year-end 2001, total assets in the pension funds amounted to SEK 18.5 billion (23.2), while commitments were SEK 9.1 billion (8.0). Accordingly the surplus value at year-end 2001 amounted to SEK 9.4 billion (15.2).
In line with the promise in the annual report for 2000 total IT costs were kept level with 2000: SEK
4.7 billion (4.8). IT costs are here defined as a calculated cost for all IT-related activities including
costs for own personnel etc. Of these calculated costs SEK 2,221 M (2,338) represented external costs.
Depreciation amounted to SEK 1,849 M (1,763), of which goodwill accounted for SEK 733 M (671).
Merger and restructuring costs
Total merger and restructuring costs amounted to SEK 716 M. Of the total, SEK 225 M was attributable to costs for integration planning work in connection with the planned and discontinued merger with FöreningsSparbanken (Swedbank). SEK 491 M was restructuring costs and thereof SEK 358 M is a reserve for actions taking place during 2002.
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 200 M, which will be accounted for in 2002.
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.
Of the restructuring reserve for the acquisition of Trygg Hansa in 1997, SEK 29 M was left at year-end after having used SEK 227 M during 2001.
Credit losses and doubtful claims
The Group's credit losses, including changes in the value of assets taken over, amounted to SEK 547 M, net (815), of which SEK 480 M, net (781), in SEB Germany. The improvement was mainly due to lower credit losses and to some extent higher recoveries during 2001.The level of credit losses was 0.09 per cent (0.12).
The Estonian subsidiary bank Eesti Ühispank made write-downs of SEK 69 M in its investment portfolio.
Doubtful claims, gross, amounted to SEK 15,822 M, (16,437). SEK 8, 161 M (9,368) of the doubtful claims are non-performing loans and SEK 7,661 M (7,069) are performing loans (loans where interest and amortisation are current). Doubtful claims net after deducting general reserves amounted to SEK 7,769 M (7,280). The provision ratio for doubtful claims including general reserves was 50.9 per cent (55.7). The provision ratio for non-performing loans was 54.7 per cent and for performing loans 33.7 per cent (see further page 37). The level of doubtful claims, net, was 1.37 (1.35).
The volume of pledges taken over amounted to SEK 265 M (213).
Non-life insurance and run-off
Operating result for non-life insurance, mainly run-off, amounted to SEK 257 M (212). The increase was mainly due to capital gains of SEK 126 M from bond portfolio sales 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 2001 amounted to SEK 886 M. Non-recurring costs for merger and restructuring amounted to SEK 716 M, of which SEK 413 M refers to the fourth quarter.
The net effect of one-off items was thus a gain of SEK 170 M. In 2000, the result was positively affected by a total of SEK 2,306 M of a non-recurring nature.
Operating result
Operating result decreased by 27 per cent to SEK 7,153 M (9,743). Adjusted for items affecting comparability, mainly the above one-off items, the
operating result fell by 10 per cent.
Changes in surplus value of the life insurance operations are not included in the operational and statutory accounts. Life insurance operations should be evaluated based on the value created by the ongoing operations and its future long-term implications. Thus, a detailed report on SEB Trygg Liv´s operations, including changes in surplus values, is stated in Appendix 2.)
The Group´s operating result before tax was SEK 7,153 M (9,743). The tax on the profit for 2001 was SEK 1,990 M (2,710). Of this, SEK 1,161 M (1,730) represented taxes paid and SEK 829 M (980) deferred tax. The weighted tax rate is 27,8 per cent (27.8), taxes paid represents a tax rate of 16,2 per cent (17,8 per cent).
Furthermore, the result is charged with taxes of SEK 68 M (146) for previous years.
Assets under management
At year-end 2001, the SEB Group´s assets under management totalled SEK 871 billion (910).
The rise in stock market values during the fourth quarter explains the increase of 7 per cent from the third quarter. Of this, SEK 567 billion (591) are managed by SEB Asset Management, SEK 113 billion (110) by SEB Germany and the rest by Private Banking.
Credit portfolio
As per 31 December 2001, SEB´s loan and leasing volume, excluding repos, amounted to SEK 718 billion (690).
total credit portfolio also includes contingent liabilities, such as letters of credits, guarantees and credit commitments, as well as credit exposures related to derivatives contracts. The total credit portfolio increased by approximately SEK 29 billion during 2001 and amounted to SEK 955 billion (926) at year-end. A significant factor for the increased credit exposure has been the deterioration of the Swedish krona during the year. From a sector perspective the portfolio has been stable. Within the household sector Swedish mortgage lending accounts for the majority of the increase. Corporate credit volumes have also increased somewhat, particularly within Merchant Banking.
SEB AG´s credit exposure, measured in euro, declined by approximately EUR 1.5 billion, while it increased by approximately SEK 4 billion measured in SEK. The three Baltic subsidiary banks have increased their credit exposure to SEK 30 billion (24) during the year, of which the major part was related to the corporate sector.
Exposure on the telecommunication industry (operators and manufacturing companies) increased somewhat during the year, totalling approximately SEK 15 billion, 1.5 per cent of the Group´s total portfolio. Exposure on the IT sector declined somewhat during the year, totalling approximately SEK 4 billion.
The net exposure on emerging markets at the year-end amounted to SEK 9. 7 billion (11.5) after deduction of provisions for possible lending losses. (See further in Appendix 3.)
Risk and capital management
In order to ensure the best possible use of the capital of the Group and to evaluate profitability in the various business areas with more precision SEB uses a control model that is based upon economic capital, Capital at Risk (CAR). CAR represents an assessment of the risk for unexpected losses that the operations of the Group imply at each given point in time. It is based upon statistical probability calculations of the Bank's various types of risk; i.e. credit, market, insurance, operational and business risks. CAR is well in line with the forthcoming changes of the capital adequacy rules. When allocating capital to the divisions, CAR, like the capital requirement for risk-weighted assets, are important parameters. When calculating the return on capital of the divisions their respective results, after an assumed tax rate of 28 per cent, are put in relation to the allocated capital.
The risk level for each type of risk, without considering diversification effects, as well as the Group´s total CAR, are summarised in the following table (SEK billion):

  31 Dec. 2001 31 Dec. 2000
Market risk 5 3
Credit risk 34 32
Insurance risk 6 5
Operational and business risk 8 9
Diversification -14 -13
Total CAR 39 36
The Group's risk taking in trading operations (so-called value at risk, VaR) averaged SEK 133 M during 2001. This means that the Group, with 99 per cent certainty, could not expect to lose more
than a maximum of SEK 133 M during a ten-day period. During the year this risk varied between
SEK 80 M and SEK 165 M. Following table shows the risk by risk type (SEK M).

  Min Max Average 31 Dec 2001 31 Dec 2000
Interest risk 66 168 126 146 98
Currency risk 12 58 26 14 19
Equity risk 4 24 15 12 30
Diversification     -34 -29 -61
Total 80 165 133 143 86
An increase of market interest rates by one percentage point as per 31 December 2001, would result in a reduction in the market value of the Group's all interest-bearing assets and liabilities, including derivatives, by SEK 2,200 M (1,600).
Capital base and capital adequacy
On the 31 December 2001, the capital base for the financial group of undertakings (excluding the insurance companies) amounted to SEK 54.4 billion (53.3). Core capital was SEK 38.7 billion (36.5), of which SEK 1.9 billion constituted so-called core capital contribution. (For calculation of the capital base see Appendix 4). The risk-weighted assets amounted to SEK 501 billion (496).
The rise in risk-weighted assets due to increased lending and a weaker Swedish krona have been counteracted with continued capital rationalisation, particularly within SEB Germany. In addition, the Financial Supervisory Authority's approval of SEB's internal Value-at-Risk model last December has contributed to reducing risk-weighted assets by a little more than SEK 5 billion.
The core capital ratio was 7.71 per cent (7.37) and the total capital ratio was 10.84 per cent (10.76). The Group's long-term goals 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 have thus been met.
During the year SEB has taken an active part in the work evaluating and responding to the proposed new capital adequacy rules of the Basle Committee and the EU commission. The Bank participated in the two Quantitative Impact Studies that the Basle Committee carried out for the purpose of evaluating the effects of the new rules. This work has provided good insight into the changes that can be expected. The Group will continue to monitor the development of the new rules on a regular basis and will as part of this consider the Group´s capital situation in order to be prepared when the new rules become effective.
SEB's credit ratings are unchanged. The long-term rating with Moody´s is A2, with Standard & Poor´s A- and with Fitch A+. SEB´s mortgage subsidiary's (SEB BoLån) debt issues were given a long-term rating of A+ by Fitch in December 2001.
Employee stock options programme
The Board of Directors approved an incentive programme based on a maximum of 7,000,000 employee stock options, under similar terms and conditions as the preceding year's programme, for approximately 1,000 senior officers and key individuals. At allotment, the Management Committee will receive 1,500,000 options, approximately 400 other senior officers will receive 3,700,000 options and about 600 key personnel and experts 1,800,000 employee stock options. Each option carries entitlement to the acquisition of one Series A share at a price corresponding to 110 per cent of the average of the price at the close of the Stock Exchange during the period February 21 - March 6, 2002. The employee stock options may be exercised between three and seven years following allotment.
Including this year's approved options programme, the number of outstanding employee stock options (1999-2002) totals approximately 19 million, corresponding to 2.6 per cent of the number of shares outstanding.
Existing employee stock options programmes are hedged through swap agreements for both the options price increase and the accompanying social cost component. It is proposed that the employee stock options programme for 2002 is initially hedged in the same manner. The cost of the hedging arrangement for both the employee stock options and the social costs are calculated as the difference between the dividend level of the SEB share and the current financing cost for the number of underlying shares. If the price of the SEB share increases by SEK 10, the social costs will amount to approximately SEK 15 M. The hedging arrangement means that shareholders' equity will be fully compensated and remain intact.
Repurchase of own shares
The Board of SEB has decided to propose that the Annual General Meeting authorise the Board to decide on the repurchase of the Company's shares via the Stock Exchange during the period prior to the Annual General Meeting of shareholders in 2003 in order to protect the bank against the cost of the 2002 employee stock options programme. The repurchased shares will replace the swap contract for the price increase in the employee stock options approved by the Board. This authorisation comprises the acquisition of a maximum of seven million Series A shares, corresponding to approximately 1 per cent of the total number of shares in the Bank. It is proposed that the Annual General Meeting's decision also include the possibility to transfer the repurchased shares to the employee stock options holders under the 2002 programme, in accordance with the terms and conditions of the programme and a mandate for the Board to transfer the repurchased shares that are not used for delivery to the options holders via the Stock Exchange prior to the 2003 Annual General Meeting. The acquisition and transfer of shares via the Stock Exchange can only be effected at a price within the registered price interval at any given time on the Stockholm Exchange, which means the interval between the highest bid price and the lowest ask price.
In addition, the Board decided, as in prior years and in accordance with Ch. 4 §5 of the Securities Business Act (1991:981), to propose to the Annual General Meeting that, during the time prior to the next Annual General Meeting, it be permitted to acquire within its own securities business the Group's own Series A and Series C shares in a number that at any time means that the holding of such shares does not exceed 5 per cent of the total number of shares in the Bank. The price of the acquired shares must correspond to the applicable market price at the time.
The proposals for the repurchase of the Group's own shares falls within the maximum 10 per cent of outstanding share volume permitted by applicable legislation.
The size of the dividend in SEB is determined by the financial position and growth possibilities of the Group. SEB strives to achieve long-term growth based upon a capital base for the financial group of undertakings that must not be inferior to a core capital ratio of 7 per cent. The dividend per share shall, over a business cycle, correspond to around 40 per cent of earnings per share, calculated on the basis of operating result after tax.
Earnings per share was SEK 7.17 (9.43). The Board of Directors proposes a dividend of SEK 4.00 (SEK 4.00) per Series A and Series C shares. This proposal corresponds to 56 per cent (40.9) of earnings per share. The total dividend amounts to SEK 2,818 M (2,818). The SEB share will be traded ex dividend as from 11 April 2002.
Stockholm, 21 February, 2002
Lars H. Thunell
President and Group Chief Executive
Financial information during 2002

7 May Interim report January-March
22 August Interim report January-June
7November Interim report January-September
The Annual General Meeting will be held on Wednesday 10 April, 2002 at 12.30 p.m. (Swedish time) at Cirkus, Djurgårdsslätten, Stockholm.
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