Revenue growth generates record profit, SEK 3bn
Operating profit for the second quarter isolated amounted to SEK 3,007m, an increase of 26 per cent compared with the corresponding quarter of 2004 and of 12 per cent compared with the previous quarter. Net profit for the quarter rose to SEK 2,269m.
Operating profit for January-June amounted to SEK 5,696m, an increase of 13 per cent compared with the corresponding period of 2004. Net profit rose to SEK 4,273m.
54 per cent of the operating profit was generated outside Sweden.
Total operating income for the first half of 2005 improved by 9 per cent. Loan and leasing volumes increased by 5 per cent during the first half of the year. Assets under management were record high, at SEK 1,012bn.
Total operating expenses rose by 7 per cent compared with the first half of 2004, largely due to acquisitions and increased investments in future growth, mainly outside Sweden, and performance-related remuneration. Excluding these effects, costs increased by 1 per cent.
Net credit losses remained stable at a low level.
Return on equity for January-June amounted to 16.5 per cent (14.7) and earnings per share increased by 20 per cent, to SEK 6.39 (5.33). Return on equity for the second quarter isolated was 17.5 per cent.
Strong volume and revenue growth contributed to another strong quarter for SEB. The second quarter 2005 was indeed the best operating profit ever, supported by a stronger economic development even though competition remained fierce. SEB's home-markets outside Sweden account for the overall improvement in results. SEB's strategy to focus on customer satisfaction, cross-servicing activities and cost efficiency, i.e. the 3C-programme, continues to yield results. Customers appreciate the cross-servicing efforts to deliver SEB's full product range, bringing together our solid local knowledge and broad international competence. Client activities have increased within many areas, particularly in the corporate segment. SEB has been awarded several top ratings. Another example of the strong support for the One SEB perspective is the well received re-branding of our three Baltic banks.
SEB Merchant Banking delivered a strong pick-up in revenues, as a result of growth investments outside Sweden. The decision to increase the co-ordination of investment banking activities within the division should further enhance SEB's position as the leading Nordic investment bank. Within the Nordic Retail & Private Banking division sales activities increased, reflecting strong equity markets and continued high demand for loans. Through the acquisition of Privatbanken, SEB is now also entering retail banking in Norway. In Germany, SEB's overall operating result improved due to strong development within Merchant Banking. However, efforts to increase sales within German Retail have not yet yielded result. SEB Asset Management's result was strong. Market shares have increased and investment performance rating improved. Eastern European Banking, just as SEB Trygg Liv, delivered another quarter with record results. Through the acquisition of Balta Life in Latvia, SEB can now offer a full bancassurance concept in all three Baltic countries.
SEB is well positioned for future profit growth. We will continue to invest in our well diversified platform, further strengthening the position in our home-markets.
Second quarter isolated
SEB's operating profit for the second quarter rose by 26 per cent compared with the corresponding quarter in 2004, to SEK 3,007m (2,390). In comparison with the previous quarter, the result increased by 12 per cent.
Net profit was SEK 2,269m (1,715), an increase of 32 per cent compared with the corresponding quarter of 2004 and of 13 per cent compared with the previous quarter.
Total operating income rose by 14 per cent, to SEK 8,483m (7,411), due to increased sales and customer activity levels. Volume growth was strong in all areas; lending increased by 5 per cent during the quarter, deposits by 11 per cent and assets under management by 7 per cent. Compared with the previous quarter operating income was up by 7 per cent.
Total operating expenses increased by 8 per cent, to SEK 5,284m (4,886), mainly due to acquisitions and growth outside Sweden. In comparison with the previous quarter, total expenses rose by 5 per cent.
Net credit losses remained low.
Improved operating profit
The accumulated operating profit for January-June amounted to SEK 5,696m (5,049), an increase of 13 per cent compared with the corresponding period in 2004. 54 per cent of the result was generated outside Sweden.
Net profit rose by 16 per cent, to SEK 4,273m (3,675).
Income up by 9 per cent
Total operating income increased by 9 per cent to SEK 16,412m (15,059). Excluding last year's acquisitions in Denmark and Ukraine, income rose by 5 per cent.
The introduction of new accounting principles as of 2005 (particularly IAS 39) has led to increased volatility on various income items. Therefore Net interest income, Net financial income and Net other income need to a larger extent be considered jointly.
Net interest income rose to SEK 6,971m (6,827). Increased volumes, particularly of mortgage and corporate lending and deposits, more than compensated for squeezed margins. The item was negatively affected by approximately SEK 80m, fully compensated in other areas of the profit and loss account.
Net fee and commission income rose by 6 per cent, to SEK 6,248 (5,914). Equity brokerage income as well as custody and fund management fees increased by 8 per cent. Fees from card operations rose by 17 per cent.
Net financial income increased to SEK 1,914m (1,260), following a continued positive development of customer activities. Falling interest rates in Sweden and Germany contributed to the increase as well. The high level of Net financial income has to some extent been achieved at the expense of lower Net interest income and Net other income.
Net life insurance income almost doubled, to SEK 1,114m (566). This was a combined effect of improved sales and the acquisition of Codan Pension in Denmark, which was consolidated with SEB Trygg Liv in October 2004. A complete description of SEB Trygg Liv's operations, including changes in surplus values, is reported in "Additional information" on www.sebgroup.com.
Net other income totalled SEK 165m (492). The result for the second quarter of 2004 comprised a capital gain of SEK 175m from the sales of SEB's holding in the Danish Amagerbanken. The introduction of hedge accounting (IAS 39) as from January 2005 had a negative impact on the item Net other income.
Investments in growth affected costs
Total operating expenses increased by 7 per cent, to SEK 10,331m (9,667). Excluding the above-mentioned acquisitions, costs rose by 3 per cent.
Staff costs rose by 10 per cent, to SEK 6,356m (5,772), mainly due to the acquisitions and Merchant Banking's growth strategy outside Sweden. Raised variable salaries due to increased profit, particularly within Enskilda Securities, accounted for approximately SEK 200m of the increase.
The average number of full time equivalents in January-June 2005 increased to 18,760 (17,670) as a result of the above-mentioned acquisitions and growth ambitions. Approximately 900 full time equivalents are attributable to the acquisitions and more than 300 to growth within SEB Merchant Banking and Eastern European Banking. Efficiency measures decreased the number of full time equivalents by approximately 200.
Other expenses increased by 4 per cent, to SEK 3,767m (3,614). External IT-costs amounted to SEK 885m (899). Total IT-costs (defined as a calculated cost for all IT-related activities including costs for own personnel) were SEK 2.1bn (1.8), SEB Trygg Liv fully consolidated.
Stable credit loss level
The Group's net credit losses including changes in the value of assets taken over remained low, at SEK 393m (347). The credit loss level was 0.10 per cent (0.10). Asset quality remained stable.
Total tax amounted to SEK 1,423m (1,374). The total tax rate was 25.0 per cent (27.2). The lower tax rate was partly due to increased result in Eastern Europe, where the tax rate is low.
Record high assets under management
As of 30 June 2005, assets under management amounted to a record high SEK 1,012bn, an increase of 14 per cent compared with year-end 2004. Net inflow during the first six months was SEK 22bn (23), while the change in value was SEK 104bn (24), partly an effect of exchange rate fluctuations. The dominating part of the net inflow emanated from Sweden and the other Nordic countries.
Balance sheet increase
The balance sheet continued to grow. The Group's total balance of SEK 1,800bn as per 30 June represented an increase of 12 per cent or SEK 194bn since year-end 2004. SEK 65bn of the increase was due to exchange rate fluctuations and the remainder mainly to growing lending and trading volumes.
Total credit exposure, including contingent liabilities and derivatives contracts, amounted to SEK 1,296bn (1,134 at year-end 2004), of which loans and leasing excluding repos amounted to SEK 909bn (825). Credit volumes grew in all sectors and home markets, with particularly strong growth in the Nordic corporate sector and the Baltic countries. This was partly a result of the weakening of the Swedish krona, particularly against the U.S. dollar. The strong volume growth to the Nordic corporate sector was to a large extent related to SEB's major clients.
On 30 June, impaired loans, gross, amounted to SEK 9,434m (8,831 at year-end 2004), of which SEK 8,628m (8,086) were non-performing (loans where interest and amortisation are not paid) and SEK 806m (745) performing loans. The increase was mainly due to the weakening of the Swedish krona. The reserve ratio was 76 per cent (79 pro forma).
The volume of assets taken over was SEK 155m (146).
The Group's risk-taking in trading operations is measured in a Value at Risk model (VaR). During the first two quarters of 2005, VaR averaged SEK 55m. This means that the Group, on average, with 99 per cent probability could not expect to lose more than this amount during a ten-day period. Average VaR during the previous year amounted to SEK 64m; the decrease reflects lower market volatility - especially in the first five months of this year.
Capital base and capital adequacy
Including the first six month-result, the capital base for the financial group of undertakings amounted to SEK 64.2bn as of 30 June 2005 (58.7 at year-end). Core capital was SEK 51.0bn (44.3), of which SEK 7.7bn (3.3) constituted so-called core capital contribution.
Risk-weighted assets rose to SEK 648bn (570) due to increased lending volumes, mainly within the SEB Merchant Banking and Eastern European Banking divisions. Partly, the increase was also a currency effect. As of 30 June 2005, the core capital ratio was 7.9 per cent (7.8) and the total capital ratio 9.9 per cent (10.3).
Repurchases of own shares
The Annual General Meeting on 13 April 2005 resolved that 17.4 million shares, repurchased for effective capital management, shall be cancelled. SEB's request to cancel these shares is being processed legally, according to regulations.
The cancellation of shares will leave room for a decided new general repurchase programme of a maximum of 20 million shares or SEK 2.8bn.
Further, SEB has repurchased 19.4 million Class A-shares in order to hedge long-term incentive programmes from previous years. To hedge the 2005 programme, the AGM decided to re-designate one million shares repurchased for capital management purposes, and to allow for a repurchase of a maximum of 1.4 million Class A-shares, if required.
So far, the Bank has not acted upon the repurchasing mandates from the AGM. The total number of outstanding shares, after cancellation and excluding repurchased shares, remains 667.6 million, of which 643.4 million Class A-shares.
Acquisition of Norwegian Privatbanken
In the second quarter SEB acquired 6.8 million shares, representing 9.95 per cent of the outstanding shares, in Privatbanken ASA, an independent Norwegian bank focused on affluent private customers.
SEB has received acceptance from owners who together with SEB's own shares in Privatbanken represent more than 98 per cent of the shares on a fully diluted basis. The precondition for an acceptance level of at least 90 per cent is thereby fulfilled. The acquisition is subject to approval from Norwegian authorities. If the conditions are fulfilled before 31 October 2005, SEB will place a mandatory bid for the remaining shares.
The investment, at a total value of NOK 1.3bn, is in line with SEB's ambitions to strengthen its position further in Northern Europe.
Acquisition of Balta Life in Latvia
In June, SEB's subsidiary SEB Latvijas Unibanka acquired 100 per cent of the shares in Latvian life insurance company Balta Life from Codan's non-life subsidiary Balta.
The acquisition enables SEB to fulfil its strategy to offer a full product range in all home markets. The total investment amounts to EUR 7.7m. The acquisition is subject to the approval of the Latvian financial services regulator and competition authority.
Balta Life is a market leader in the Latvian market with a market share of more than 30 per cent of written insurance premiums, excluding health and accident insurance. Balta Life has a staff of 68 employees and 52 regional agents.
Increased distribution capacity
Over the past year SEB has increased its distribution capacity. 45 branch offices have been added, mainly in Eastern Europe. In addition, the acquisition of Codan Pension has added 100 sales agents and alliances with brokers.
SEB plans to increase its life insurance sales agents by approximately 100 and to establish 40 new branches during the next year, mainly in Eastern Europe, but also in the Nordic countries. The experience from previously established branches during the last year is encouraging. As one example, a new branch established in Sweden in 2004 (Haninge) reached break-even already within ten months of operations.
Strengthening of the investment banking operations
SEB has decided to strengthen its investment banking operations within SEB Merchant Banking (previously Corporate & Institutions) in order to meet its customers' needs for integrated financial solutions better.
Together with other equity-related business in the division, Equities and Research within Enskilda Securities will form a new unit - SEB Enskilda Equities - within the Trading & Capital Markets business area. SEB Enskilda Corporate Finance will form a separate business area within SEB Merchant Banking.
Basel II application
The SEB Group has completed the self-assessment and submitted its application for approval of the internal rating based (IRB) method.
SEB's well-established foundation for advanced methods for credit risk management and further progress made through investments and project work over the last two years, enable the Group to cover more than 75 per cent of its exposures in the initial application.
All significant entities of SEB form part of the initial application and effectively 100 per cent of all exposure will migrate into the advanced IRB-method within the three year transitional period.
Changes within Senior Management
Fleming Carlborg has left his positions as Executive Vice President and Head of Nordic Retail & Private Banking due to health reasons. Pending the appointment of a new Head, Annika Falkengren, SEB's Deputy Chief Executive Officer, has taken over as acting Head of Nordic Retail & Private Banking.
Peter Buschbeck, previously member of Vorstand at Citibank Privatkunden AG, has been appointed as the new Head of Retail Germany. He will assume his position on 1 August, 2005.
Stockholm, 26 July 2005
Lars H Thunell
President and Chief Executive Officer
This Interim Report is set up in accordance with IAS 34.
The full report includes information on Skandinaviska Enskilda Banken (publ) AB and SEB Trygg Liv, presented in "Additional information", as well as "The SEB Group's accounts according to new accounting standards IFRS", presented in "Financial statistics". All information is found on www.sebgroup.com.
More detailed information is presented on www.sebgroup.com "Additional information" including:
Appendix 2 Credit exposure
Appendix 3 Capital base
Appendix 4 Market risk
Appendix 5 Accounts by quarter
Appendix 6 Skandinaviska Enskilda Banken
Financial information in 2005
9 February Annual Accounts for 2004
13 April Annual General Meeting
3 May Interim Report January-March
26 July Interim Report January-June
28 October Interim Report January-September
Further information is available from:
Nils-Fredrik Nyblaeus, CFO and Chief of Staff,
+46 8 763 81 10, +46 70 637 06 08
Per Anders Fasth, Head of Communications & IR,
+ 46 8 763 95 66, +46 70 573 45 50
Viveka Hirdman-Ryrberg, Deputy Head of Communications & IR, + 46 763 85 77, + 46 70 550 35 00
Annika Halldin, Financial Information Officer,
+46 8 763 85 60, +46 70 379 00 60
Skandinaviska Enskilda Banken AB (publ)
SE-106 40 Stockholm, Sweden
Telephone: +46 8 763 80 00
Corporate organisation number: 502032-9081
The full report including tables can be downloaded from the following link.