President's comments
The year has started positively for SEB. Results were better than last year's corresponding period within all divisions.
Volumes, market shares and income continued to increase in many areas.
A strong stock market trend has of course favoured many of our business areas, while others have gained from decreasing interest rates and higher volatility.
Corporate & Institutions continues to yield the highest result, accounting for half of the Group's profit. It is still a strong trend within Trading & Capital Markets but also encouraging to see that Enskilda Securities has picked up. SEB is the leading bank within equity-related business and has benefited from the improved markets.
In Nordic Retail & Private Banking market shares keep increasing in the mortgage area; private banking is picking up with the stock market and the card operation is steadily growing.
In Germany, our business shows improved profitability, even though the profit was affected by the ongoing improvement programme in the Retail division, reducing staff by more than 400 positions.
In our Baltic operations, which have been a growth area for several years, profits keep on rising, even if the first quarter generally is weaker than the fourth.
SEB Asset Management's efficiency programme has been successful, rebuilding profits and increasing net inflow.
Last but not least it is indeed promising that SEB Trygg Liv continued to increase its sales and result and that the underlying value now clearly starts to show in the profit and loss accounts.
Our overall profit has now reached a higher level and our costs are stable in spite of increased income. We continue relentlessly with our 3 C programme to further improve customer satisfaction, cost efficiency and cross-servicing all through the different parts of our Group.
We are well positioned for the future.
The Group
Improved result
SEB's operating result for the first quarter of 2004 increased by 37 per cent, to SEK 2,463m (1,792). Compared with the previous quarter the increase was 12 per cent.
Net profit (after tax) improved by 40 per cent, to SEK 1,768m (1,260). The increase from the last quarter of 2003 was 6 per cent.
Increased income
Total income
rose by 11 per cent to SEK 7,303m (6,579). The increase compared with the previous quarter was 3 per cent. The improvement was an effect of higher net commission income and increased net result of financial transactions.
Net interest income
improved by 2 per cent, to SEK 3,442m (3,377) compared with the corresponding period of 2003, while it decreased by 2 per cent compared with the previous quarter. The outcome was a combined effect of increased volumes, particularly of mortgage and corporate lending and deposits, and the current generally low level of interest rates.
On 1 April the Swedish central bank lowered its interest rate by another 50 basis points, to 2.0 per cent.
Net commission income
amounted to SEK 2,852m (2,440), an increase of 17 per cent compared with the corresponding quarter of 2003. The improvement was an effect of increased equity market-related revenues. Equity brokerage income increased by more than 50 per cent and fund management fees by approximately 30 per cent, compared with the first quarter of 2003. SEB's investment bank Enskilda Securities participated in five IPO's, including the first one in Sweden since June 2002.
Net financial transactions
amounted to SEK 830m, which was significantly higher than in both previous quarter and the corresponding quarter of 2003. The strong increase was an effect of lower interest rates, high volatility and good performance within foreign exchange.
Other income
, SEK 179m, decreased both compared with the first and the last quarter of last year.
Costs affected by new rules
Total costs
, SEK 4,695m (4,551), were negatively affected by SEK 55m due to new accounting principles and restructuring costs of SEK 75m in Germany. Excluding these items, costs were in line with the corresponding period last year and 2 per cent lower than in the previous quarter.
Staff
costs rose by 3 per cent to SEK 2,741m (2,665). The increase is mainly explained by the above mentioned SEK 55m in higher pension costs. Staff costs were also negatively affected by higher performance-related remuneration.
The average number of full time equivalents in March 2004 was 17,623, a decrease of 706 compared with March 2003 and approximately 2,370 fewer than in June 2001, which was the basis for SEB's cost reduction programme.
Other operating costs
increased somewhat, to SEK 1,540m (1,519) due to investments in new systems for Basel II etc. Compared with the previous quarter other costs decreased by 7 per cent. External IT-costs amounted to SEK 448m (374). Total IT-costs (defined as a calculated cost for all IT-related activities including costs for own personnel) were SEK 0.8bn (0.8).
Profit improvement programme in Germany
In spite of significant improvements during the past years and even though SEB has performed better than its German competitors, the result of the German Retail & Mortgage Banking division is still unsatisfactory. In December 2003, the division therefore launched a profit improvement programme, which includes a staff reduction of 400 employees. So far 300 out of the 400 have been contracted to leave. The programme will lead to restructuring costs of about SEK 300m mainly during 2004, of which SEK 75m in the first quarter. Full profit impact will be reached in 2005.
Stable credit losses
The Group's net credit losses including changes in the value of assets taken over amounted to SEK 212m, in line with the corresponding period last year (214) and a decrease of 36 per cent from the previous quarter. The credit loss level was 0.12 per cent (0.12). Asset quality remained stable.
Improved result from life insurance operations
SEB Trygg Liv's operating result increased to SEK 78m (8). This was the division's best result so far and has been included in the Group's result.
SEB Trygg Liv's result from ongoing business (including change in surplus values but excluding financial effects of market fluctuations) was SEK 417m (252).
Results including surplus value changes are not consolidated with the SEB Group's result. A complete description of SEB Trygg Liv's operations, including changes in surplus values, is reported in "Additional information" on www.sebgroup.com.
The result of the SEB Group's total insurance opera-tions, - non-life (run-off only) and life including goodwill amortisation of SEK 37m (37) - amounted to SEK 68m (-18).
Increased assets under management
As of 31 March 2004, assets under management amounted to SEK 875bn, an increase of 6 per cent compared to year-end 2003 and 19 per cent higher than a year earlier. Net inflow during the first three months was SEK 12bn (11) while the change in value was SEK 41bn (-18). The dominating part of the net inflow emanated from Sweden and the other Nordic countries.
Balance sheet increase
The balance sheet increased by SEK 184bn during the first quarter of 2004 to SEK 1,463bn. The strong growth was due to high customer activities within securities lending and repo market as well as to increased trading volumes in general. Lending to the public as well as deposits and borrowing from the public continued to increase in line with earlier quarters.
Due to new accounting rules for pension liabilities, assets and commitments in the Group's pension obligations have been consolidated in the balance sheet. As of 31 March 2004, book equity due to the consolidation has increased by SEK 1.4bn, which is included in core capital.
Market risk
The increased business activities were not matched by an increase in market risk levels. The Group's risk-taking in trading operations (measured by so called Value at Risk, VaR) averaged SEK 76m in the first quarter of 2004. This means that the Group, with a 99 per cent probability, cannot be expected to lose more than a maximum of SEK 76m during a ten-day period. VaR was slightly higher compared to year-end 2003 due to higher market volatility.
Credit portfolio
During the first quarter there was an overall growth in the credit portfolio. Total credit exposure, including contingent liabilities and derivatives contracts, amounted to SEK 1,116bn (1,040), of which loans and leasing excluding repos amounted to SEK 817bn (776). Volume growth continued within Swedish household mortgage lending, the German public sector and the Baltic subsidiary banks. Lending volumes also increased within the property management and Nordic corporate sectors. In addition, fluctuating banking sector volumes contributed to the increase.
The geographical distribution of the credit portfolio remained stable, with credit volumes concentrated in SEB's home markets: the Nordic area (45 per cent), Germany (34 per cent) and the Baltic countries (4 per cent).
On 31 March, doubtful loans, gross, amounted to SEK 9,887m (10,877 at year-end 2003), of which SEK 8,693m (8,632) were non-performing loans (loans where interest and amortisation are not paid) and SEK 1,194m (2,245) performing loans. The reserve ratio was 72 per cent (66). The increase was an effect of a lower level of doubtful loans.
The volume of assets taken over was SEK 119m (117).
Capital base and capital adequacy
As of 31 March 2004, the capital base of the financial group of undertakings (i.e. excluding insurance companies) amounted to SEK 60.0bn (54.7 at year-end 2003) including the first quarter result. Core capital was SEK 47.4bn (42,6), of which SEK 5.6bn (1.8) constituted so-called core capital contribution. The increase in core capital contribution was due to the Bank's successful issue of USD 500m in the U.S. market. The issue was made for refinancing purposes to create a more favourable and matched capital structure of the Group.
Total risk-weighted assets amounted to SEK 558bn (535). The increase of SEK 23bn was mainly due to increased business volumes in lending and trading. As of 31 March 2004, the core capital ratio was 8.5 per cent (8.0) and the total capital ratio 10.8 per cent (10.2).
Following a regulatory change as from 2004, deferred tax assets and all intangible assets (not only goodwill as before) shall be excluded from the capital base. In consequence, the capital ratios have been calculated excluding SEB's holding of SEK 1.8bn in such assets.
Rating
In February 2004, Moody's upgraded its long-term rating for SEB to Aa3 from A1.
Events since the end of the quarter
In accordance with a resolution by the Annual General Meeting on 1 April 2004, SEB has repurchased 6,200,000 series A shares on the Stockholm Stock Exchange in order to hedge against potential costs of the employee stock option programme for 2004. The repurchase was done at a price of SEK 108.50 per share. After this, the Bank's holding of Series A shares amounts to 19,400,000. The value of these shares will be deducted from equity.
The AGM also decided on a mandate for a general repurchase of maximum 20 million own shares to facilitate an effective management of the Group's capital position.
In May 2004, SEB sold the majority of its shares in Amagerbanken, Denmark. The sale implies a capital gain of approximately SEK 170m.The remaining amount hold by SEB is now less than 5 per cent of the shares in Amagerbanken.
Stockholm, 6 May 2004
Lars H Thunell
President and Group Chief Executive
The report has not been reviewed by the Bank's Auditors.
More detailed information is presented on www.sebgroup.com "Additional information" includes:
Appendix 1 SEB Trygg Liv
Appendix 2 Credit exposure
Appendix 3 Capital base
Appendix 4 Market risk
Profit & Loss Account quarterly performance, nine quarters
- The SEB Group
- The divisions and business areas
- Revenue split
Financial information in 2004:
13 February Annual Accounts for 2003
1 April Annual General Meeting
6 May Interim Report January-March
27 July Interim Report January-June
20 October Interim Report January-September
Further information is available from:
Lars Lundquist, CFO, +46 8 763 95 68, +46 70 525 41 30
Gunilla Wikman, Head of Group Communications,
+ 46 8 763 81 25, +46 70 763 81 25
Per Anders Fasth, Head of Group Investor Relations,
+ 46 8 763 95 66, +46 70 573 45 50
Annika Halldin, Responsible for financial information,
+46 8 763 85 60, +46 70 379 00 60
The full report including tables can be downloaded from the following link.
Additional Information
