Once again, SEB delivers its best quarterly result to date. Almost all divisions present their best summer quarter ever. Robust financial markets, strong sales and volume growth have contributed to a result exceeding SEK 3 billion. Competition remains fierce, even though margins have stabilised.
Step by step, we have invested in building a platform around the Baltic rim as well as in the 3 C-programme, focusing on customer satisfaction, cross-servicing activities and cost efficiency. These investments continue to bear fruit. More than half of the operating profit is generated outside Sweden.
SEB's position as a leading corporate bank in Northern Europe has again led to several top international rankings, including best cash-management bank and best commercial real estate bank in the Nordic region and ranked among the top 25 global custodian banks. Actions taken to deliver the Group's full service, competence and products, i.e. One SEB, to our customers have led to increased customer satisfaction and higher volumes.
The improved business climate is clearly reflected in SEB Merchant Banking's strong overall revenue growth. Improved sales activities, strong volume growth and sturdy equity markets contributed to three divisions presenting their best operating results ever - Nordic Retail & Private Banking, Eastern European Banking and Trygg Liv. Loan demand remains high within the Nordic countries and Eastern Europe.
In Sweden, SEB has been ranked as the top institutional asset manager and the Morningstar fund rating has improved to a lead position. SEB is today ranked in the top quartile of the large mutual fund managers in Europe. In Germany, a pick-up in sales activities has improved the underlying result. The acquisition of the Norwegian Privatbanken has been finalised and in Denmark life operations are re-branded SEB Pension. These activities provide SEB with the necessary bridge-heads to also establish retail banking operations in these countries.
Eight years ago we initiated the transformation from a Swedish to a leading North-European bank. The diversified platform poses attractive business opportunities and challenges for SEB with the new CEO Annika Falkengren.
I would like to thank our competent and dedicated staff for their strong contribution and the Board for the opportunity to lead this great organisation.
The Group
Third quarter isolated
Best quarter to date
SEB's operating profit for the third quarter rose by 32 per cent compared with the corresponding quarter in 2004, to SEK 3,019m (2,283). In comparison with the previous quarter, the result was slightly higher.
Net profit was SEK 2,228m (1,754), an increase of 27 per cent compared with the corresponding quarter of 2004, but down by 2 per cent compared with the previous quarter.
Total operating income rose by 18 per cent, to SEK 8,300m (7,036) compared with last year.
Compared with the previous quarter operating income was slightly lower. Net interest income improved, in spite of lower short term interest rates, which affected the Swedish operations negatively. Net fee and commission income was strong, mainly due to increased value-based management fees and non capital market-related fees. However, Net financial income decreased, which is a normal pattern for the third quarter due to seasonal effects, mainly within FX trading.
Lending volumes and assets under management showed a solid growth during the quarter.
Total operating expenses amounted to SEK 5,089m (4,597), an increase of 11 per cent mainly due to acquisitions and growth outside Sweden. However, in comparison with the previous quarter, total expenses decreased by 4 per cent.
Net credit losses remained low.
Results for the first three quarters
Improved operating profit
The accumulated operating profit for January-September amounted to SEK 8,715m (7,332), an increase of 19 per cent compared with the corresponding period in 2004. 56 per cent of the result was generated outside Sweden.
Net profit rose by 20 per cent, to SEK 6,501m (5,429).
Income up by 12 per cent
Total operating income increased by 12 per cent to SEK 24,712m (22,095). Excluding last year's acquisitions in Denmark and Ukraine, income rose by 8 per cent.
Net interest income rose to SEK 10,479m (10,183). Margins have been reduced since last summer, but have stabilised this year. Squeezed margins have been more than offset by increased volumes, particularly of mortgage and corporate lending and deposits.
Net fee and commission income rose by 12 per cent, to SEK 9,664 (8,645). Equity brokerage income increased by 24 per cent, custody and fund management fees rose by 15 per cent. Fees from card operations also rose by 15 per cent.
Net financial income increased by 52 per cent, to SEK 2,502m (1,644), following a continued positive development of customer activities. Falling interest rates contributed to the increase as well.
Net life insurance income more than doubled, to SEK 1,708m (844). This was a combined effect of higher unit-linked values due to strong sales and favourable market conditions as well as the acquisition of Codan Pension in Denmark (renamed SEB Pension effective 1 October 2005), 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 359m (779), due to limited capital gains in 2005 compared with last year.
Volume growth was strong within all areas. Lending increased by 12 per cent, deposits by 5 per cent and assets under management by 20 per cent compared with year-end 2004.
Investments in growth affected costs
Total operating expenses increased by 8 per cent, to SEK 15,420m (14,264). Excluding the above acquisitions and performance-related remuneration, costs rose by 1 per cent.
Staff costs rose by 11 per cent, to SEK 9,576m (8,594), mainly due to acquisitions and SEB Merchant Banking's growth strategy outside Sweden. Raised variable salaries due to increased profit accounted for approximately SEK 400m of the increase.
The average number of full time equivalents in January-September 2005 increased to 18,876 (17,702) as a result of acquisitions and growth ambitions. 900 full time equivalents are attributable to the acquisitions and more than 300 to growth within SEB Merchant Banking and Eastern European Banking
Other expenses increased by 4 per cent, to SEK 5,479m (5,254). External IT-costs amounted to SEK 1,278m (1,216). Total IT-costs (defined as a calculated cost for all IT-related activities including costs for own personnel) were SEK 3.1bn (2.8). The increased IT-costs are due to above-mentioned acquisitions, primarily Codan Pension.
Stable credit loss level
The Group's net credit losses including changes in the value of assets taken over remained low, at SEK 583m (513). The credit loss level was 0.10 per cent (0.10). Asset quality remained stable.
Tax costs
Total tax amounted to SEK 2,214m (1,903). The total tax rate was 25.4 per cent (26.0). The lower tax rate was partly due to increased results in Eastern Europe, where the tax rate is low.
Record high assets under management
As of 30 September 2005, assets under management amounted to a record high SEK 1,062bn, an increase of 20 per cent compared with year-end 2004. Net inflow during the first nine months was SEK 36bn (33), while the change in value was SEK 141bn (13), partly an effect of exchange rate fluctuations. The dominating part of the net inflow emanated from Sweden. While total sales of mutual funds in the Swedish market increased by 30 per cent SEB more than doubled its sales, bringing SEB to a number one position with a market share of 16.3 per cent (9.3).
Assets under custody amounted to SEK 3,993bn, an increase of 40 per cent since year-end 2004.
Balance sheet increase
Total assets continued to grow. The Group's total balance of SEK 1,829bn as per 30 September represented an increase of 14 per cent or SEK 222bn since year-end 2004. SEK 52bn of the increase was due to exchange rate fluctuations and the remainder mainly to growing lending and trading volumes.
Credit portfolio
Total credit exposure, including contingent liabilities and derivatives contracts, amounted to SEK 1,279bn (1,134 at year-end 2004), of which loans and leasing excluding repos amounted to SEK 922bn (825). Credit volumes have grown within all sectors and home markets and were also affected in the third quarter by the acquisition of Privatbanken (SEK 9bn). The volume growth within the Nordic corporate sector was to a large extent related to SEB's major clients. The Baltic banks' credit expansion continued within all sectors. Fluctuating banking sector volumes affected total volumes for the quarter significantly.
On 30 September, impaired loans, gross, amounted to SEK 8,830m (8,831), of which SEK 8,064m (8,086) were non-performing (loans where interest and amortisation are not paid) and SEK 766m (745) performing loans. The increase was mainly due to the weakening of the Swedish krona. The reserve ratio was 81 per cent (79 pro forma December 2004).
The volume of assets taken over was SEK 161m (146).
Market risk
The Group's risk-taking in trading operations is measured in a Value at Risk model (VaR). During the first three quarters of 2005, VaR averaged SEK 57m. 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 change reflects lower market volatility as concerns interest-related instruments.
Capital base and capital adequacy
During the third quarter SEB successfully issued a EUR 500m subordinated debt transaction.
Including the first nine months result, the capital base for the financial group of undertakings was SEK 68.8bn as of 30 September 2005 (58.7 at year-end). Core capital was SEK 52.8bn (44.3), of which SEK 7.9bn (3.3) constituted so-called core capital contribution.
Risk-weighted assets rose to SEK 679bn (570) due to increased business activities and the consolidation of recently acquired Privatbanken (SEK 7bn). As of 30 September 2005, the core capital ratio was 7.8 per cent (7.8) and the total capital ratio 10.1 per cent (10.3).
During the quarter, SEB has filed an application to the Swedish Financial Supervisory Authority for approval to use the Internal Ratings-Based reporting approach under forthcoming (Basel II) capital adequacy regulation.
SEB will take part in regulators' world-wide quantitative impact study ("QIS") based on 30 September business volumes.
In October, Standard & Poor's upgraded its outlook for SEB from 'stable' to 'positive'.
Offer for all shares in BOS at PLN 73 per share
In September, SEB announced an offer for the remaining 52.7 per cent of the shares in Bank Ochrony Srodowiska (BOS). The offer price was PLN 73 in cash for each share, representing a premium of 35 per cent over the average closing price in the three months preceding the bid. The offer values the BOS share capital at PLN 964m.
When the offering period expired, the other major shareholder - with links to the Polish state - had not accepted the offer. At present SEB will not prolong the bid, but wait for the political development after the recent presidential election - and thereafter evaluate the different options.
SEB's operations in Poland presently include its 47 per cent ownership in BOS, the wholly-owned fund management company SEB TFI with a 5 per cent market share and a leasing company.
Mandatory bid for remaining shares in Privatbanken
In September, the Norwegian Ministry of Finance approved SEB's acquisition of Privatbanken. Thus, all terms and conditions related to SEB's voluntary offer from May 2005 were fulfilled. After the acquisitions SEB owns 67,663,704 shares in Privatbanken, equivalent to 98.4 per cent of the outstanding share capital.
In accordance with Norwegian law SEB has submitted a mandatory bid for the remainder and initiated a compulsory purchase process of any outstanding shares.
Acquisition of Balta Life in Latvia completed
The acquisition of the insurance company Balta Life in Latvia was completed in August and the company is now re-branded SEB Life Insurance.
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.
Changes within the Group Executive Committee
SEB's President and Chief Executive Officer, Lars H Thunell, has been nominated Executive Vice President of the International Finance Corporation (IFC) and member of the Group Management of the World Bank. Accordingly, the Board of Directors has appointed Annika Falkengren as new President and CEO from 10 November 2005 instead of 1 January, 2006, as previously communicated.
Lars Thunell resigns as Board member on 28 October. Annika Falkengren will become member of the Board as from 1 January 2006, as decided by the Annual General Meeting in April 2005. Falkengren will remain as an additional member of the Board until year-end.
Bo Magnusson has been appointed as Executive Vice President of SEB, new Head of the Nordic Retail & Private Banking division and member of the Group Executive Committee (GEC). Magnusson, formerly Deputy Head of SEB Merchant Banking, took up his new position on 1 October.
Fredrik Boheman has been appointed as Executive Vice President of SEB and member of the Group Executive Committee as from 1 November, 2005. Boheman is today Head of SEB's operations in Germany.
Stockholm, 28 October 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 1 SEB Trygg Liv
Appendix 2 Credit exposure
Appendix 3 Capital base
Appendix 4 Market risk
Appendix 5 Quarterly accounts
Appendix 6 Skandinaviska Enskilda Banken (parent company)
Details regarding the remuneration of the incoming Chief Executive Officer Annika Falkengren can be found on page 6 of this report.
Financial information in 2006
8 February Annual Accounts for 2005
4 April Annual General Meeting in Stockholm
26 April Interim Report January-March
21 July Interim Report January-June
27 October Interim Report January-September
Further information is available from:
Nils-Fredrik Nyblaeus, CFO and Chief of Staff,
Tel. +46 8 763 81 10, +46 70 637 06 08
Per Anders Fasth, Head of Communications & IR,
Tel. + 46 8 763 95 66, +46 70 573 45 50
Annika Halldin, Financial Information Officer,
Tel. +46 8 763 85 60, +46 70 379 00 60
Skandinaviska Enskilda Banken AB (publ)
SE-106 40 Stockholm, Sweden
Telephone: +46 771 62 10 00
Corporate organisation number: 502032-9081
The full report can be downloaded from the following link:
Additional Information can be downloaded from the following link: