Pohjola Group Performance for January-June 2011

Pohjola Bank plc
Company Release, 4 August 2011, 8.00 am
Release category: Interim Report

Pohjola Group Performance for January-June 2011
- Consolidated earnings before tax improved to EUR 197 million (139). Earnings before tax at fair value were EUR 166 million (108) and return on equity at fair value stood at 10.5% (7.1).
- Banking earnings before tax rose to EUR 92 million (55). These earnings included EUR 36 million (62) in impairment charges on receivables. The loan portfolio increased by 5% from its level on 31 December 2010 and by 6% in the year to June.
- Within Non-life Insurance, insurance premium revenue rose by 7% and profitability was good. Excluding amortisation on intangible assets arising from company acquisition, the operating combined ratio stood at 91.6% (91.6). Within Non-life Insurance, return on investments at fair value was 1.0% (2.6).
- Asset Management increased its earnings before tax by 13% to EUR 13.5 million (11,9) and assets under management amounted to EUR 33.9 billion (35).
- The Group Functions reported earnings of EUR 24 million (30) before tax.
- Outlook: Consolidated earnings before tax for 2011 are expected to be higher than in 2010. It is estimated that the Non-life Insurance operating combined ratio will vary between 89% and 93% (previous estimate: 89-94%). For more detailed information on outlook, see "Outlook towards the year end" below.

April-June 2011
- Consolidated earnings before tax improved to EUR 103 million (80). Earnings before tax at fair value amounted to EUR 92 million (-11).
- Earnings of EUR 39 million (29) before tax posted by Banking included EUR 20 million (29) in impairment charges on receivables.
- Within non-life Insurance, the operating combined ratio stood at 83.3% (88) and the return on investments at fair value was 0.6% (-0.6).
- Earnings before tax recorded by Asset Management improved by 15% to EUR 7 million (6) and the cost/income ratio stood at 48% (52).
- The Group Functions' earnings of EUR 7 million (8) before tax were at somewhat the same level as the year before.

Earnings before tax, EUR million	H1/ 2011	H1/ 2010	Change, %	Q2/ 2011	Q2/ 2010	Change, %	2010
Banking	92	55	69	39	29	36	133
Non-life Insurance	68	42	61	49	37	35	83
Asset Management	13	12	13	7	6	15	31
Group Functions	24	30	-21	7	8	-14	61
Total	197	139	42	103	80	28	308
Change in fair value reserve	-32	-31		-11	-92		-17
Earnings/loss before tax at fair value	166	108	54	92	-11		291
Earnings per share, EUR	0.46	0.32		0.23	0.19		0.72
Earnings per share at fair value, EUR	0.39	0.25		0.21	-0.03		0.68
Equity per share, EUR	7.43	7.01					7.44
Average personnel	3,083	2,999		3,141	3,007		3,005

 

Financial targets	H1/ 2011	H1/ 2010	Q2/ 2011	Q2/ 2010	2010	Target
Return on equity at fair value, %	10.5	7.1	11.4	-1.6	9.3	13.0
Tier 1 ratio, %	12.2	12.0			12.5	>9.5
Operating cost/income ratio by Banking, %	36	35	38	36	35	<40
Operating combined ratio, %	91.6	91.6	83.3	88.0	89.7	92.0
Operating expense ratio, %	21.5	22.0	21.1	22.2	21.3	<20
Solvency ratio, %	86	91			86	70
Operating cost/income ratio by Asset Management, %	49	53	48	52	53	<50
AA rating affirmed by at least two credit rating agencies	3	3			3	>2
Dividend payout ratio a minimum of 50%, provided that Tier 1 > 9.5%					55	>50

President and CEO Mikael Silvennoinen:

Our first-half consolidated earnings before tax were record high, amounting to almost EUR 200 million. Our second-quarter earnings were also good, showing a year-on-year improvement.

All of our business segments improved their first-half financial performance from that reported a year earlier. Total income and total expenses increased by 9% and 3%, respectively. Furthermore, impairment charges decreased considerably. The European sovereign debt crisis cast uncertainty over economic growth, weakened stock markets, raised interest rates and widened credit spreads. As a result, our earnings before tax at fair value were EUR 166 million (108).

The loan portfolio held by Banking grew by 5% from its 2010-end level and showed growth of 6% in the year to June. Within Corporate Banking, growth in net interest income has levelled off due to smaller lending margins and higher financing costs. The Markets division posted good financial performance in both client trading and trading business.

Insurance premium revenue continued to grow and developments in claims normalised after the first quarter.

Our second-quarter balance on technical account was excellent. In the first half, it was at the same good level as the year before.

Asset Management showed improved earnings year on year although assets under management decreased from their 2010-end level. The cost/income ratio was better than targeted.

The results of the EU-wide forward-looking stress test published in July proved that OP-Pohjola Group has a strong capital base and will also withstand a possible deterioration in the operating environment. Pohjola's test results are included in those of OP-Pohjola Group. This strong capital base will provide good opportunities for growth based on our strategy. During the first half, we continued to strengthen our customer service resources in order to be able to better meet the needs of a growing number of customers.

Outlook towards the year end

The economic recovery has been reflected in demand for corporate loans, with the result that the corporate loan portfolio has begun to grow. The average corporate loan margin has turned down and tougher competition is expected to send the margin on new loans down. With continued economic growth, impairment charges for 2011 are expected to be lower than the year before. The greatest uncertainties related to Banking's financial performance in 2011 are associated with future impairment charges on the loan portfolio.

Insurance premium revenue is expected to continue to increase at an above-the-market-average rate among private customers. Insurance premium revenue from corporate customers has rebounded. In Non-life Insurance, the operating combined ratio is estimated to vary between 89% and 93% (previous estimate: 89-94%) in 2011 if the number of large claims is not much higher than in 2010. Expected long-term returns on investment within Non-life Insurance stand at 5.1%. Returns will largely depend on developments in the investment environment. The most significant uncertainties related to Non-life Insurance's financial performance in 2011 pertain to the investment environment and the effect of large claims on claims expenditure.

Within Asset Management, assets under management are expected to increase during the rest of the year, their amounts being affected by market developments and the net inflow of assets. The greatest uncertainties related to Asset Management's financial performance in 2011 are associated with the actual performance-based commissions and fees tied to the success of investments and the amount of assets under management.

The key determinants affecting the Group Functions' financial performance include net interest income arising from assets in the liquidity portfolio, any capital gains or losses on notes and bonds and any impairment charges recognised on notes and bonds in the income statement. Capital gains on notes and bonds are expected to decrease in 2011.

Consolidated earnings before tax in 2011 are expected to be higher than in 2010.

There is still great uncertainty about economic outlook and the operating environment.  A major risk that may undermine this outlook is the exacerbation of the fiscal crisis in certain euro countries and any repercussions on the entire financial sector may be rapid and significant.  

All forward-looking statements in this report expressing the management's expectations, beliefs, estimates, forecasts, projections and assumptions are based on the current view of the future development in the operating environment and the future financial performance of Pohjola Group and its various functions, and actual results may differ materially from those expressed in the forward-looking statements.

Helsinki, 3 August 2011
Pohjola Bank plc
Board of Directors

This Interim Report is available at www.pohjola.fi > Media > Releases, where background information on the release can also be found.

Analyst meeting, conference call and live webcast

Pohjola will hold a briefing in English for analysts and investors on 3 August starting at 3.00 pm Finnish time, EET (2.00 pm CET, 1.00 pm UK time, 8am US EST). The briefing is a combined analyst meeting, conference call and live webcast.

Analysts and investors may attend the briefing in one of the following two ways:

1) By viewing the briefing as live webcast via the internet. The link will be available on the IR website before the briefing begins. Questions on the internet are welcome via a question button available in the webcast window. An on-demand webcast of the briefing can be viewed via the IR website afterwards.

2) By dialling one of the regional conference call numbers shown below. Questions are welcome by telephone in the Q&A session according to instructions. To participate via a conference call, please dial in 5-10 minutes before the beginning of the event:

UK, International +44 203 043 24 36
US +1 866 458 40 87
FIN +358 923 101 527
Password: Pohjola

Press conference

Mikael Silvennoinen, Pohjola Bank plc's President and CEO, will present the interim results in a press conference on OP-Pohjola Group's premises (Teollisuuskatu 1b, Vallila, Helsinki), on 3 August, starting at noon.

Financial reporting in 2011:

Schedule for Interim Reports in 2011:
Interim Report Q1-3/2011:2 November 2011

Distribution

NASDAQ OMX Helsinki Ltd
London Stock Exchange
SIX Swiss Exchange
Major media
www.pohjola.fi, www.op.fi

For additional information, please contact

Mikael Silvennoinen, President and CEO, tel. +358 (0)10 252 2549
Vesa Aho, CFO, tel. +358 (0)10 252 2336
Tarja Ollilainen, Senior Vice President, Investor Relations, tel. +358 (0)10 252 4494