High revenues generate operating profit of SEK 3.7bn

A continued strong business climate, upbeat equity markets and high activity levels contributed to a strong result for SEB.

Our business mix with a broad focus on advisory services and a well-diversified platform in the expanding region around the Baltic rim continued to benefit from the positive economic climate. Revenues increased in all areas. Each division reported profit growth of more than 25 per cent compared with last year.

 

Revenue growth was particularly strong within capital market related areas. Merchant Banking - the Group's division catering for large corporate clients and financial institutions - reached another record quarter. Also Eastern European Banking and our life insurance operations, Trygg Liv, reported record results. In Germany, new sales initiatives within Retail with more cross-selling activities are showing early signs of a positive outcome. However, further profit improvement is necessary.

 

Despite a strong result, we are not satisfied. We have not reached our long-term goals. Even though higher costs can be explained by strong business activity, there is a need for improving cost efficiency and productivity in order to establish a long-term sustainable cost base.

 

Going forward, the aim is to be leading in customer satisfaction and financial performance in terms of return on equity and profitable growth. We also aim to strengthen our capital base and to reach a higher credit rating.

 

Thus, the increased integration and co-ordination within the Group in order to fully realise the potential of the SEB platform continues. We have now also launched a programme to improve operational excellence. The introduction of this programme - the SEB Way - is running according to plan. So far, more than 1,000 employees are involved in these activities. However, it will take time before the effects of these efforts will materialise in the profit and loss accounts.

All in all, the strong quarterly result based on high customer activity indicates that we are moving towards our long-term targets.

 

SEB's operating profit for the first quarter amounted to SEK 3,670m (2,689), an increase of 36 per cent compared with the corresponding quarter of 2005. Excluding one-off charges in the previous quarter operating profit increased by 7 per cent. Net profit increased by 41 per cent, to SEK 2,827m (2,004). Profit growth in the divisions varied between 27 and 65 per cent.

 

Total operating income amounted to SEK 9,610m (7,929), up by 21 per cent compared with the corresponding quarter of last year and slightly higher than the strong fourth quarter of 2005.

 

Net interest income was SEK 3,596m (3,536), exceeding all previous quarters except the fourth quarter of 2005. Higher short-term interest rate levels had a negative impact on net interest income. IFRS accounting principles, introduced in 2005, make it even more important to evaluate net interest income development in combination with other income items, especially net financial income and net other income.

Volume growth was strong within all areas. Underlying deposit volumes grew by 5 per cent during the quarter. Lending to the public rose by 2 per cent during the quarter and was 17 per cent higher than 12 months ago. Margins are still under pressure, but have been relatively stable over the past quarters.

 

Net fee and commission income rose to SEK 3,993m (2,944), an increase of 36 per cent from the corresponding quarter last year and 3 per cent higher than the previous quarter. All commission income categories increased significantly compared with last year. Asset management-related fees and equity brokerage income were particularly strong.

 

Net financial income rose to SEK 979m (754). The improvement was an effect of high customer-driven business within the trading and capital markets area. See also the above-mentioned IFRS-impact.

 

Net life insurance income increased to SEK 583m (532) as a result of higher unit-linked values. A complete description of SEB Trygg Liv's operations, including changes in surplus values, is found in "Additional information" on www.sebgroup.com.

 

Net other income increased to SEK 459m (163), including a positive one-off effect of SEK 65m from the sale of real estate within the associated company BankGiroCentralen and exits within SEB's venture capital arm, "Företagsinvest". See also the above-mentioned IFRS-impact.

 

Costs impacted by strong business climate

Total operating expenses amounted to SEK 5,770m (5,047), an increase of 14 per cent compared with the corresponding quarter of last year and in line with the previous quarter. The increase was mainly an effect of high business and customer activities leading to increased operating costs including higher performance related remuneration.

 

SEB's efforts to reach operational excellence are running according to plan, now involving more than 1,000 employees. These efforts will successively improve cost efficiency and productivity over the next years. This will among other things be reached through standardisation and simplification of processes.

 

Staff costs were in line with the previous quarter, but rose compared with the corresponding quarter of last year, totalling SEK 3,722m (3,113). This was mainly due to performance-related remuneration. Excluding this increase of more than SEK 400m, staff costs rose by 6 per cent compared with last year. The average number of full time equivalents in the first quarter of 2006 increased to 19,471 (18,655) as an effect of SEB's investments in growth areas, particularly in Eastern Europe.

 

Other expenses amounted to SEK 1,999m (1,814). The cost-level was, however, lower than the previous quarter, which was negatively impacted by one-off charges of SEK 890m for unutilised office space taken in order to accelerate the integration of SEB. Excluding these charges, other expenses were stable between the quarters.

External IT-costs amounted to SEK 446m (427). Total IT-costs (defined as a calculated cost for all IT-related activities including costs for own personnel) were SEK 1.1bn (1.0).

 

The Group's net credit losses, including changes in the value of assets taken over, amounted to SEK 198m (197). The credit loss level was 0.09 per cent (0.10). Asset quality remained stable.

 

Total tax amounted to SEK 843m (685). The total tax rate was 23 per cent. The reduced tax rate was mainly due to increased results within business operations where the tax rate is lower.

 

As of 31 March 2006, assets under management reached SEK 1,176bn, an increase of 5 per cent compared with year-end 2005. Net inflow during the quarter was the highest so far at SEK 22bn (14), while the change in value was SEK 36bn (48). The dominating part of the net inflow emanated from Sweden and Finland.

Assets under custody amounted to SEK 4,541bn, an increase of 9 per cent since year-end 2005.

 

Total assets continued to grow. The Group's total balance sheet of SEK 2,032bn as per 31 March represented an increase of 8 per cent since year-end 2005, due to growing lending and trading volumes.

 

Total credit exposure, including contingent liabilities and derivatives contracts, was SEK 1,343bn (1,328 at year-end 2005), of which loans and leasing excluding repos amounted to SEK 978bn (930). Growth was mainly related to lending to the Nordic corporate sector and to households. The Baltic banks continued to show strong growth.

The volume of assets taken over was SEK 148m (165).

 

The Group's risk-taking in trading operations is measured in a Value at Risk model (VaR). During the first quarter of 2006, VaR averaged SEK 84m (64). This means that the Group, on average, with 99 per cent probability, should not expect to lose more than this amount during a ten-day period.

 

As of 31 March 2006, the capital base was SEK 77.4bn (76.3 at year-end 2005). Core capital was SEK 54.2bn (53.1), of which SEK 8.1bn (8.0) constituted core capital contribution.

Total risk-weighted assets (RWA) amounted to SEK 741bn (705). The increase of SEK 36bn reflects generally increased business volumes during the first quarter. The core capital ratio was 7.3 per cent (7.5) and the total capital ratio 10.4 per cent (10.8). Capital ratios have initially been negatively affected by changes in accounting principles. The effect will be levelled off during the year.

 

Share capital and holdings of own shares

Share capital amounts to SEK 6,872m and the total number of shares to 687.2 million (of which 663.0 million Class A-shares and 24.2 million Class C-shares). SEB held 15.9 million own Class A-shares for hedging of the Bank's long-term incentive programmes.

 

Events after the reporting period

 

SEB has completed the acquisition of PetroEnergoBank - one of the minor Russian banks based in St. Petersburg. The acquisition strengthens SEB's presence in Russia, currently including a representative office in Moscow and SEB Russian Leasing in St. Petersburg.

 

The Annual General Meeting on 4 April 2006 decided on remuneration principles for the President and the other members of the Group Executive Committee and on a long-term incentive programme, identical with last year's programme and based on performance shares, for approximately 500 senior officers.

It was furthermore decided to provide the Board of Directors with mandates to repurchase own shares in order to create an efficient hedging arrangement for the long-term incentive programme and to create a flexible tool for an efficient capital structure and for the securities business.

All Board Directors were re-elected. Marcus Wallenberg was re-elected Chairman of the Board.

The dividend was raised to SEK 4.75 (4.35).

 

 

 

The Interim Report has been prepared in accordance with International Financial Reporting Standards IFRS/IAS, endorsed by the European Commission. Therefore, the interim report complies with IAS 34 Interim Financial Reporting. The accounting regulations of the Swedish Financial Supervisory Authority require some additional disclosures.

The same accounting policies and methods of computation are followed in the interim financial statements as those applied to the most recent annual financial statements.

The full report includes information on Skandinaviska Enskilda Banken AB (publ) and SEB Trygg Liv, presented in "Additional information". All information is found at www.sebgroup.com.

 

A tax rate of 28 per cent has previously been used for return calculation for all divisions. However, from the beginning of 2006 an estimated tax rate, better reflecting a division's actual tax rate, is used. Comparative figures have been adjusted accordingly.

 

The German real estate fund ImmoInvest within the German Retail & Mortgage Banking division was integrated with the Asset Management division at the beginning of the year. Comparative figures have been adjusted accordingly.