Summary January - March 2008, compared with January - March 2007 * Operating profits were SEK 2,919m (3,714) and the period's profits after tax were SEK 2,288m (2,831) * Return on shareholders' equity for the total operations was 12.3% (17.1) * Earnings per share for the total operations were SEK 3.68 (4.48) * Net interest income rose by 17% to SEK 4,399m (3,763) and the average volume of loans to the public by 16% to SEK 1,310bn (1,129) * Total income was SEK 6,055m (6,535) * Realised and unrealised losses in the Bank's liquidity portfolio had a negative impact on income and operating profits by SEK 962m (-7) * Profits from a property sale were SEK 272m * The Swedish Financial Supervisory Authority's examination of the Bank's internal capital adequacy assessment process (ICAAP) was completed without objections Summary of Q1 2008, compared with Q4 2007 * Operating profits were SEK 2,919m (3,101). Excluding the impact from the liquidity portfolio and property sale, profits rose by 11% * Net interest income rose by 10% to SEK 4,399m (4,010) * Expenses decreased by 1% to SEK 3,301m (3,349) * The Swedish branch office operations increased their profits by 4% to SEK 2,401m (2,314) * The branch office operations outside Sweden increased their profits by 13% to SEK 563m (497) * The Bank opened five new branches during the quarter and 18 branch managers have been appointed for further new branches * All the comments and figures in the interim report refer to continuing operations, unless otherwise stated. THE GROUP JANUARY-MARCH 2008 COMPARED WITH JANUARY-MARCH 2007 Operating profits fell to SEK 2,919m (3,714). As previously announced, at the end of March, the Bank sold its exposure to US asset-backed securities, secured by credit card receivables which had a negative impact on profits of SEK 767m. The total realised and unrealised value change in the liquidity portfolio was SEK -1,321m (-7), of which SEK -962m (-7) through profit/loss and SEK -359m (0) through equity. Excluding the impact on earnings in the liquidity portfolio, income rose by 7%. A property sale increased profits by SEK 272m. Return on equity for total operations after actual tax was 12.3% (17.1). The C/I ratio was 54.5% and 46.9% excluding the above-mentioned effects in the liquidity portfolio. Earnings per share were SEK 3.61 (4.26). The net profit from discontinued operations was SEK 44m (137) and the period's profit for total operations was SEK 2,288m (2,831). Net interest income rose by 17% Net interest income rose by 17% to SEK 4,399m (3,763). Branch office operations outside Sweden increased their net interest income by 27%, corresponding to 7 percentage points of the total increase. The Swedish branch operations boosted their net interest income by 9% which represented 6 percentage points of the total increase in the Group. The average volume of lending to the public grew by 16% to SEK 1,310bn (1,129), while deposits increased by 12% to SEK 494bn (440). Branch operations outside Sweden increased their lending by 29% to SEK 387m (299) and in Sweden, household deposits rose by 22% to SEK 135bn (111). Net fee and commission income fell by 6% or SEK 105m, to SEK 1,739m (1,844). This was mainly due to a fall in brokerage income of 20% or SEK 111m due to lower turnover on the stock market. Falling share prices also contributed to a decrease in mutual fund commissions by 7%. Asset management commission in discontinued operations was SEK 77m. Net fee and commission income related to the equity market fell by SEK 125m to 813m (938). Payment commissions were SEK 553m and increased by 8% mainly due to continued positive trends for card commissions. Insurance commissions decreased to SEK 136m (162), which was due to the yield split being SEK 0 (SEK 36m). Net gains/losses on financial items at fair value went down to SEK -177m (754). The main reason for this was the reported earnings impact on the Bank's liquidity portfolio of SEK -962m. Expenses The Bank's international expansion continued and operations outside Sweden made up some two thirds of the Group's total increase in expenses. Total Group expenses rose to SEK 3,301m (2,892). Staff costs were SEK 1,983m (1,710). Here too operations outside Sweden represented more than 60% of the increase. The number of employees outside Sweden was 2,988 (2,510). The positive effect of recognition to the appropriate period of actuarial gains/losses (IAS 19) was SEK 39m lower than in the corresponding period in the previous year and was SEK 11m (50). The provision for performance-related remuneration was SEK 29m. Loan losses Loan losses were SEK 107m (net recoveries 70). Net loan losses as a proportion of lending were 0.03% (-0.02). Bad debts increased, the net amount being SEK 1,330m (937). The proportion of bad debts was 0.09% (0.07) of lending. Q1 2008 COMPARED WITH Q4 2007 Operating profits were SEK 2,919m (3,101). The quarterly figures contain realised and unrealised losses in the liquidity portfolio totalling SEK -962m (-152) and a capital gain on the sale of property totalling SEK 272m. Excluding these effects, the operating profit was 11% higher. Net profits from discontinued operations were SEK 44m (4,154). Return on shareholders' equity for the continuing operations was 12.0% (13.1) and earnings per share were SEK 3.61 (3.61). Net interest income continued to increase Net interest income increased by 10% to SEK 4,399m (4,010). Business volumes continued to grow. Average lending volumes rose by 4%, while deposits grew by 4%. Lending margins improved in the Swedish branch operations and made a positive contribution to net interest income. The margin for mortgages in Sweden where the rate is newly set, or reset, showed a clear improvement during the quarter from having been stable during the second half of 2007. The average margin for the whole mortgage loan portfolio was unchanged at 50bp. The total deposit margin fell slightly during the quarter. Net fee and commission income decreased by 11%. Mutual fund and custody commissions were SEK 102m lower, of which SEK 39m is due to a change of cut-off date in the fourth quarter. Adjusted for this, mutual fund and custody commissions fell by 12%. Turnover on the equity market also fell, which caused brokerage income to decrease by 17%. In total, net fee and commission income related to the equity market fell by 25% to SEK 813m (1,079). Net gains/losses on financial items at fair value decreased by SEK 700m to SEK -177m (523). Value changes and realised losses in the Bank's liquidity portfolio had a negative impact on earnings of SEK 962m (-152). Expenses fell by 1% to SEK 3,301m (3,349). Staff costs were 1% lower at SEK 1,983m (1,995). Performance-related remuneration was lower at SEK 29m. Other administrative expenses fell by SEK 58m or 5% to SEK 1,221m (1,279). Loan losses Loan losses remained low and were SEK 107m (166). Net loan losses as a proportion of lending were 0.03% (0.05). Bad debts increased, the net amount being SEK 1,330m (624). The proportion of bad debts was 0.09% (0.05) of lending. TRENDS IN THE BUSINESS SEGMENTS (Q1 2008 compared with Q4 2007) Branch office operations in Sweden Operating profit increased by 4% to SEK 2,401m (2,314). Net interest income went up by 5% to SEK 3,058m (2,905) mainly due to larger business volumes, but the lending margins also improved and made a positive contribution to the net interest income. Average lending volumes were up by 3%. The average volume of household deposits rose by 4%. Expenses fell by 3%. Branch office operations outside Sweden Operating profit increased by 13% to SEK 563m (497). Income rose by 4% to SEK 1,729m (1,659) Net interest income went up by 8% to SEK 1,220m (1,134). The average volume of lending increased by 8% to SEK 387bn (360). Expenses were generally unchanged between the two quarters. During the first quarter of the year, five new branches were opened, of which four in Great Britain and one in the Netherlands. Handelsbanken Capital Markets Operating profits were SEK -533m (66), due to realised and unrealised value changes in the liquidity portfolio amounting to SEK -962m (-152). Excluding these portfolio effects, profits increased to SEK 429m. Handelsbanken Asset Management Operating profits were SEK 46m (207), of which SEK 49m (58) from Handelsbanken Liv. Falling stock market values resulted in lower mutual fund commissions. Expenses were SEK 374m (332). Due to lower total yield, Handelsbanken Liv did not receive any yield split (0). Discontinued operations Discontinued operations for the comparative period include the activities which the Bank sold to Storebrand ASA and the net amount of the compensation which Handelsbanken received for asset management assignments carried out for SPP/Storebrand. For the current year, discontinued operations also include the income and expenses Handelsbanken has for the services the Bank still sells to SPP. The net profit was SEK 44m as compared to SEK 4,154m (of which the capital gain from the sale of SPP amounted to SEK 4,082m) during the fourth quarter. HIGHER GROWTH OUTSIDE SWEDEN An increasingly large proportion of the Group's growth and earnings are attributable to the expansion outside Sweden. Including investments in new branches for SEK 73m, operating profits in branch operations outside Sweden rose in the first quarter by 13% compared with the same period in the previous year, and made up 19% (18) of the Group's profits. Net interest income increased by 27% and these operations were the largest contributor to the increase in the Group's net interest income during the quarter. The non-Swedish branch operations' share of lending to the public grew by 30% (26). During the period 2001 to 2007, the Bank expanded its branch office network in the Nordic countries and Great Britain by 116 branches, of which 92 are through organic growth by means of new branches, of which 55 in 2006 and 2007. As previously announced, in 2008, the Bank plans to open 35-45 new branches outside Sweden. Five branches were opened during the first quarter and 18 branch managers have been appointed for further new branches. EQUITY, FUNDING AND LIQUIDITY As previously, during the first quarter, the Bank was able to fund its day-to-day operations in the normal way. Various types of funding instruments have been issued on a regular basis. Every day during the quarter, the Bank was a net lender in Swedish kronor in the Swedish interbank market. The total market value of the Bank's liquidity portfolio was SEK 66bn, of which 38% was available for sale (AFS). As at the year-end, the market value was SEK 88bn. The portfolio comprises bonds that are eligible as collateral with central banks in order to create immediate liquidity. The changes in market value and sales in the part of the liquidity portfolio that was invested in AFS affected the Bank's equity by SEK -359m during the quarter. CAPITAL Starting on 1 February 2007, the Bank reports the capital requirement and capital base in accordance with the Basel II rules. The changed capital requirements have a gradual impact since the transitional rules allow for an adaptation over a period of three years. In 2008, the Bank is allowed to include a maximum of 10% as a reduction. Tier 1 capital increased to SEK 64,556m (59,426). SEK 6.8bn of the Tier 1 capital was Tier 1 hybrid capital. Calculated according to the transitional rules, the Bank's capital ratio (including the period's profits and after the proposed dividend) was 10.5%, while the Tier 1 capital ratio was 6.8%. The corresponding figures, excluding the transitional regulations, were 16.2% and 10.5% respectively. If no transitional rules had applied, the statutory capital requirement under Basel II would have been reduced by 43% compared to the requirement in accordance with Basel I. Under what is known as Pillar 2 in Basel II, the Bank has designed a model for its internal capital adequacy assessment process (ICAAP). The Swedish Financial Supervisory Authority's examination of the Bank's internal capital adequacy assessment process was completed during the quarter without objections. ISSUE OF SUBORDINATED CONVERTIBLE LOAN The board is proposing that the annual general meeting resolves on the implementation of a convertible bond programme aimed at employees of the Group. The programme implies that Handelsbanken will raise a subordinated convertible loan in the nominal amount of not more than SEK 2.3bn through an issue of convertible bonds. The issue will be on market terms and is expected to be completed before the end of the second quarter. More information is available on the Bank's website: www.handelsbanken.se/ireng. RATING Handelsbanken's rating was unchanged with all three rating agencies which rate the Bank. Moody's rating for the Bank was Aa1, and from Fitch and Standard & Poor's AA-. All three agencies consider the Bank's outlook to be stable. For further information please contact: Pär Boman, President and group chief executive phone: +46 (0)8 - 22 92 20, pabo01@handelsbanken.se Ulf Riese, CFO phone: +46 (0)8 - 22 92 20, ulri02@handelsbanken.se Mikael Hallåker, Head of Investor Relations phone: +46 (0)8 - 701 2995, miha11@handelsbanken.se The full report including tables can be downloaded from the following link.
Handelsbanken's Interim Report January - March 2008*
| Source: Svenska Handelsbanken AB
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