Board of Directors’ Report for 2008 - SpareBank 1 Gruppen

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Board of Directors’ Report for 2008
SpareBank 1 Gruppen AS

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Board of Directors’ Report for 2008 - SpareBank 1 Gruppen

  1. 1. 1 Board of Directors’ Report for 2008 SpareBank 1 Gruppen
  2. 2. 2 SpareBank 1 Gruppen
  3. 3. 3 Board of Directors’ Report for 2008 SpareBank 1 Gruppen AS OPERATIONS IN 2008 and its head office is located in Oslo. In 2008 SpareBank 1 Gruppen SpareBank 1 Gruppen AS is a holding company that produces, AS entered into an agreement with SpareBank 1 Nord-Norge to provides and distributes products in the fields of life and general acquire the bank’s factoring activities. In the first half of 2009, these insurance, fund management, securities brokering, factoring and activities will be merged with SpareBank 1 Factoring AS – formerly debt collection services through its subsidiaries. The company also Glitnir Factoring, which is based in Ålesund. SpareBank 1 Gruppen has subsidiaries that engage in banking and real estate services in AS acquired 10% of Actor Fordringsforvaltning from Sparebanken Oslo and Akershus. SpareBank 1 Gruppen AS owns in addition Sør effective 1 January 2009 and now owns 100% of the company. 24.5% of First Securities AS. SpareBank 1 Gruppen AS is owned In 2008 the savings banks in the SpareBank 1 Alliance acquired by SpareBank 1 Nord-Norge (19.89%), SpareBank 1 SMN all the shares in Glitnir Bank ASA and changed the name of the (19.89%), SpareBank 1 SR-Bank (19.89%), Samarbeidende bank to BNbank ASA. Sparebanker AS (19.89%), Sparebanken Hedmark (11.14%) and the Norwegian Confederation of Trade Unions and affiliated In 2008 the SpareBank 1 Group introduced a new management trade unions (9.29%). system based on principles taken from «Beyond Budgeting». The new management system is called Dynamic Management in the In this Directors’ Report, SpareBank 1 Gruppen AS refers to the SpareBank 1 Group. This means, for example, that the Group holding company, and the SpareBank 1 Group refers to the group has discontinued the traditional budgetary process and imple- consisting of SpareBank 1 Gruppen AS and its subsidiaries. mented rolling forecasts. Ambitious, relative targets and extended use of comparisons (benchmarks), which tell us how good we are The SpareBank 1 Group reported a pre-tax loss of NOK 731.6 in relation to the market and our competitors, are important million for 2008, compared with a profit of NOK 1,168 million in elements of Dynamic Management. The Group’s bonus and 2007. The profit gave a return on equity after tax of minus 16.2%, profit-sharing systems will be modified in accordance with the compared with 26% in 2007. The poor earnings in 2008 are principles of this management philosophy. attributed primarily to unrealised losses on securities portfolios, as well as the termination of a major IT project and the associated In 2008 SpareBank 1 Skadeforsikring AS and SpareBank 1 Livs- write-off of NOK 415 million in SpareBank 1 Livsforsikring AS. forsikring AS introduced the FRISK Forsikring brand and concept. The claims ratios were still low in 2008. The SpareBank 1 Group’s The companies entered into an agreement with 15 major sports total assets were NOK 56.3 billion as of 31 December 2008. This federations with a total of 230,000 members in 2008. In 2009 an represents growth of 3.7% over 2007. In addition, ODIN’s securities agreement was entered into with the Football Association of funds had NOK 19.2 billion in assets under management as of 31 Norway, which has 375,000 members. The FRISK Forsikring December 2008, which is a decline of NOK 18.6 billion from concept and brand will give SpareBank 1 Livsforsikring AS and 2007. Capital adequacy ratio was 12.3% as of 31 December 2008, SpareBank 1 Skadeforsikring AS a good foundation for the direct while the core capital adequacy ratio was 9.2%. The capital distribution of insurance products to over a half million sports situation of the SpareBank 1 Group is considered satisfactory. federation members. In 2008 SpareBank 1 Gruppen AS purchased 75% of the shares in After the completion of an extensive process at SpareBank 1 Livs- Argo Securities AS. The company is engaged in securities activities, forsikring, a decision was made in 2005 to renew the core systems,
  4. 4. 4 SpareBank 1 Gruppen customer solutions, internal administrative systems, and a number work for the alliance cooperation. The company is owned by the of support systems. Development of the system has been very alliance banks and SpareBank 1 Gruppen AS. SpareBank 1 Gruppen demanding, and the project was plagued by major cost overruns AS has an ownership interest of 17.74%. SpareBank 1 Utvikling and delays. Development of a new administrative system has DA handles financing and the ownership of applications, concepts, been halted. The contract with the supplier has been terminated, contracts and brands on behalf of the alliance partners. and we are negotiating compensation from the supplier. The system has been written down by NOK 415 million. The Board of SpareBank 1 Gruppen AS plays an important role in the efforts to the life insurance company has taken the initiative to have an realise the alliance’s strategic goals. SpareBank 1 Gruppen AS’s internal and external evaluation conducted. operations are based on creating value for its customers and owners. In January 2009 Chief Executive Eldar Mathisen received a serious medical diagnosis. Kirsten Idebøen, the company’s Chief Financial SpareBank 1 Gruppen AS’s main functions in the SpareBank 1 Officer became the acting Chief Executive from this point in time. Alliance are two-fold: • Manage and develop the financial group with respect to the SPAREBANK 1 ALLIANCE production and delivery of competitive products and services The SpareBank 1 Alliance consists of 20 savings banks, a com- for distribution through the alliance banks, its own bank in mercial bank and the product companies owned by SpareBank 1 Oslo and Akershus, as well as other banks that have a distri- Gruppen AS. The alliance represents one of the largest providers bution agreement with companies in the SpareBank 1 Group. of financial products and services in the Norwegian market. The • Manage and develop the alliance cooperation with respect member banks in the SpareBank 1 Alliance distribute the to common management, development and execution of SpareBank 1 Group’s products and collaborate in key areas such activities that provide economies of scale and competitive as brands, work processes, skills development, IT operations, advantages. systems development and purchasing. The SpareBank 1 Alliance has entered into strategic agreements with the Norwegian Federation The SpareBank 1 Group’s vision states that «The customer must of Trade Unions (LO) and affiliated trade unions. experience security, proximity and a simpler everyday life». This customer-focused vision supports the alliance's vision, which The SpareBank 1 Alliance’s main goal is to ensure each bank’s states that «SpareBank 1 shall be the recommended bank where independence and regional affiliation through strong competi- customers are reminded of their local roots, meet staff who are tiveness, profitability and financial soundness. At the same time, experts at what they do, and experience a simpler everyday life». the SpareBank 1 Alliance represents a complete competitive banking alternative at the national level. To achieve common goals, the The core values of SpareBank 1 Gruppen AS are «to be an expert banks in the alliance have established a national marketing profile and close to you». This means that employees should be friendly and developed a common strategy for brand building and com- and helpful, take the initiative, and provide customers with relevant munication. This strategic marketing platform also forms the advice. In accordance with the core values, the employees should basis for joint development of products and concepts. The product be customer-focused and have solid professional competence, companies established under SpareBank 1 Gruppen AS and the good skills and clear attitudes. Advice and sales transactions alliance banks have developed a common technology platform. should be based on high ethical standards. The marketing efforts Experience sharing and the transfer of expertise within the alliance, are aimed primarily at the private market, small and medium-sized based on best practices, are key elements in the alliance’s develop- enterprises, and trade unions affiliated with the Norwegian ment. As an element of these efforts, competence centres have been Federation of Trade Unions (LO). established for Credit Management in Stavanger, Payments in Trondheim, and Training in Tromsø. CORPORATE GOVERNANCE The shares in SpareBank 1 Gruppen AS are not publicly traded, The SpareBank 1 Alliance had assets of around NOK 585 billion but the company does have a listed bond loan and a listed sub- under management at the end of 2008. This is an increase from ordinated loan. The company has a concentrated shareholder around NOK 440 billion in 2007. Some of this increase is attributed structure, with all shareholder groups either directly or indirectly to the fact that BNbank ASA is included in the figures for 2008. represented on the Board. There is good, ongoing contact with all The SpareBank 1 Alliance consists of 352 offices and branches the owner groups. The Board of SpareBank 1 Gruppen AS has dis- throughout Norway that distribute the SpareBank 1 Group’s cussed the «Norwegian Code of Practice for Corporate Governance» products. and adopted this wherever the guidelines applied and were relevant SpareBank 1 Utvikling DA represents the administrative frame- for a company that does not have shares listed on the stock exchange.
  5. 5. 5 The company is managed in accordance with the objectives, strategies and ethical guidelines drawn up by the Board. The company attaches great importance to compliance with the require- ments that the stock exchange and market places on the company. The SpareBank 1 Group’s In 2007 the Board adopted a new dividend policy for the company. This means that the company’s owners will be paid a larger portion vision states that «The of the Group’s profit as a dividend compared with earlier practice. In determining the dividend for the SpareBank 1 Group AS, customer must experience importance shall be attached to the fact that the Group shall have a satisfactory core and capital adequacy ratio in relation to the security, proximity and a planned growth and risk associated with the operations. The financial situation must also be deemed satisfactory in other respects. simpler everyday life». In 2008 the Board established an audit committee and a com- This customer-focused pensation committee. The duties and functions of these commit- tees are described in instructions stipulated by the Board. vision supports the The SpareBank 1 Group has two management teams: Group Management, which is responsible for managing and developing alliance's vision, which the financial group, and Alliance Management, which is responsible for managing and developing the alliance cooperation. Group states that «SpareBank 1 Management consists of the Chief Executive of the holding company and the Chief Executives of the largest product companies and the bank in the Group, as well as Group Managers for relevant staff shall be the recommended functions. Alliance Management consists of the Chief Executive of SpareBank 1 Utvikling DA and Group Managers with special bank where customers are responsibility for support functions in the alliance cooperation. Information on the remuneration of the Chief Executive, Group Management, Board of Directors, Supervisory Board, Audit reminded of their local Committee and Auditor may be found in the notes to the accounts. The corporate governance of the SpareBank 1 Gruppen AS is roots, meet staff who are also discussed elsewhere in this annual report. experts at what they do, SPAREBANK 1 GROUP – RESULTS AND KEY FIGURES In accordance with Section 3-9 of the Norwegian Accounting Act, SpareBank 1 Gruppen AS reports the annual accounts for the and experience a simpler Group and holding company in accordance with IFRS (Internati- onal Financial Reporting Standards). The accounts and analyses everyday life». described below have been prepared based on the consolidated accounts under IFRS. The accounts of Bank 1 Oslo are reported in accordance with IFRS. The accounts of SpareBank 1 Skadefor- sikring AS and SpareBank 1 Livsforsikring AS are reported in accordance with the ”Regulations relating to Annual Accounts etc. for Life Insurance Companies”, as laid down by the Ministry of Finance on 16 December 1998 and amended most recently on 30 January 2009, as well as the generally accepted accounting prin- ciples. Pursuant to the Financial Reporting Regulations, the company accounts have been prepared in accordance with the International Accounting Standard Regulations unless otherwise
  6. 6. 6 SpareBank 1 Gruppen prescribed by the regulations. There are provisions herein stating compared with 12.5% at the end of last year. The solvency margin that the international accounting standards can be departed from capital was 192% of the solvency margin requirement, compared in accordance with the provisions of the Regulations of 21 January with 244% for the previous year. At the end of 2008, the require- 2008 relating to the Simplified Application of International ment was NOK 848 million, compared with NOK 735 million Accounting Standards. in 2007. The increase in the requirement is due in part to the discontinuation of a reinsurance agreement. The buffer capital In the consolidated accounts the accounts of all the companies represented 5.8% of the technical insurance reserves at the end of have been incorporated in accordance with IFRS principles. The 2008, compared with 9.3% in 2007. Of the company’s supplementary principles applied are described under accounting policies. The provisions, NOK 345 million was used to cover the interest rate consolidated capital adequacy statement (COREP) is based on commitments at the end of 2008. The remaining supplementary Bank 1 Oslo’s IRB statement, and it includes capital requirements provisions totalled NOK 172 million. The securities adjustment for the other companies in the Group. reserve was NOK 0 at the end of the year due to the fact that the market value of the financial assets was lower than the cost price. The SpareBank 1 Group reported a loss after tax of NOK 857.7 million in 2008, compared with a profit of NOK 1,210 million for SpareBank 1 Gruppen AS injected equity of NOK 734 million in the previous year. The pre-tax loss was NOK 731.6 million. This the life insurance company in 2008. The SpareBank 1 Group showed is NOK 1,899.6 million less than in 2007. The tax exemption by this that it was willing and able to inject equity in a scope that model has resulted in major changes in the tax calculations for the enables the company to carry out appropriate investment strategies. life insurance company, and this has entailed an overall tax charge of NOK 126.2 million for the Group as a whole, compared with an SpareBank 1 Skadeforsikring AS reported a pre-tax profit of NOK income of NOK 42.5 million for the previous year. 217.7 million for 2008, which corresponds to a reduction of NOK 241.3 million, compared with 2007. The technical result impro- SpareBank 1 Livsforsikring AS reported a pre-tax loss of NOK 993 ved in relation to 2007, primarily due to the normalisation of million for 2008. The pre-tax profit was NOK 380 million in 2007. new major losses. The risk result improved significantly in 2008, while the admi- The financial income was significantly weaker in 2008, compared nistrative result and interest result were significantly poorer than with 2007. The income was reduced by 333.4 million, compared in 2007. The underlying operations generated good results in with 2007. The poorer result is also attributed to an 88.2% reduc- 2008, and, after adjustment for non-recurring effects, the operating tion in the financial income, compared with 2007. The investment profit before financial items for the insurance operations was portfolio has, nevertheless, proven to be robust throughout 2008. NOK 68 million. The corresponding figure for 2007 was NOK 32 The financial return was positive 0.5% in spite of the crisis in the million. financial markets. SpareBank 1 Livsforsikring has decided to hold out through the The capital adequacy ratio was 29.2% at the end of 2008, which financial crisis without any significant sell-off of shares. This corresponds to a coverage of NOK 846 million in relation to the has had an impact on the return achieved by the company in 2008. minimum requirements set by the authorities. The capital adequacy At the end of the year, shares and other equity investments repre- ratio increased by 1.3 percentage points in 2008. sented 12.4% of the total financial assets in the group portfolio. The company’s value adjusted return on assets in the group port- The combined ratio for own account was 93.7% in 2008, which folio as a whole was minus 4.9% in 2008, while the booked was 0.6 percentage points lower than in 2007. The premium return on assets was minus 2.8%. The return on assets in the com- income for own account totalled NOK 3.7 billion in 2008, which pany portfolio was 0.4%. In 2007 the company reported an over- corresponds to an increase of NOK 161 million, or 4.6%, compared all value adjusted return of 6.4%, while the booked return was with 2007. The company’s market share declined from 2007 to 8.9%. 2008 and was measured at 9.8% in relation to the premiums written. The development of a new administrative system for the insurance portfolio has been halted, and the system has been written down The gross claims ratio was 71.1% in 2008, which corresponds to by NOK 415 million. The residual value of NOK 50 million is a reduction by 3.9 percentage points compared with 2007. The attributed to the reuse value of what has been developed. company experienced fewer new major losses in the corporate market in 2008, compared with 2007, and just one major loss was The capital adequacy ratio was 14.3% as of 31 December 2008, of great significance to the claims ratio.
  7. 7. 7 In addition to good profitability, the company’s long- term strategy of high customer satisfaction has given good results. In 2008 independent surveys showed, for the third year in a row, that the company has the most satisfied customers among the largest companies in the Norwegian general insurance market. The company continued to develop and implement the company’s After three years of net income recognition due to loan loss corporate market strategy throughout 2008. The goal is to increase provisions, the Group had to recognise losses on loans totalling earnings by adding new products that make full-range of services NOK 65.1 million in 2008. The loan losses are attributed primarily possible, as well as implementing best practices in the banks for to certain loans in the corporate market, as well as an increase the sale of corporate market insurance. of NOK 16.3 million in the group write-downs. The loss ratio (recognised loss as a percentage of gross lending) was 0.31% in In addition to good profitability, the company’s long-term strategy 2008, compared with -0.05% in 2007. of high customer satisfaction has given good results. In 2008 independent surveys showed, for the third year in a row, that the The group write-downs as of 31 December 2008 totalled NOK 73.3 company has the most satisfied customers among the largest com- million, or 0.35% of the combined gross loans, which is an panies in the Norwegian general insurance market. increase of NOK 16.3 million from 31 December 2007. The Bank 1 Oslo Group reported a pre-tax profit of NOK 3.1 In April 2008, the bank received approval from the Financial million in 2008, which is NOK 127.8 million less than the profit Supervisory Authority of Norway to use internal credit models (the in 2007. This decline is attributed to the write-down of goodwill, IRB approach) for calculating capital adequacy requirements shares and bonds, as well as higher losses on loans. The year 2008 according to the new regulations. The IRB approval has raised the was marked by financial unrest, and this has also impacted the bank’s level of quality with regard to the development of credit bank’s accounts. In 2008 the Group reported unrealised losses on systems and skills development. The risk management system has securities of NOK 73.4 million, where the write-down of shares also improved, with special emphasis on the registration, represented NOK 22.8 million, and the write-down of goodwill and measurement and reporting of credit risk. other intangible assets in EiendomsMegler 1 Oslo og Akershus represented NOK 21.0 million and NOK 5.0 million, respectively. At the end of 2008, the capital adequacy ratio was 8.00% (10.71%) In addition, losses on loans increased by NOK 74.9 million, com- and the core capital adequacy ratio was 7.93% (9.95%). The pared with 2007. The parent bank showed an improvement of transition scheme for IRB banks entails an improvement in the 28.3% in the underlying banking operations due to the strong bank’s capital and core capital adequacy ratios by one percentage growth in deposits and lending, and an increase in commission point as of 1 January 2009. The bank’s target is a capital adequacy income. ratio of 11%, and it will raise a non-perpetual subordinated loan in the first quarter of 2009 to reach this target. In 2008, the Group achieved total growth of 19.8% in retail and corporate lending. This includes home mortgage loans (NOK 1.0 The bank has 16 local branch offices, nine of which are in Oslo and billion) transferred to SpareBank 1 Boligkreditt AS. Growth in the seven in Akershus. During the period from 2006 to 2007, the retail market was 23.5%, and in the corporate market it was bank opened six new local branches as part of its planned expansion 11.6%. strategy.
  8. 8. 8 SpareBank 1 Gruppen Bank1 Oslo has a good deposit-loan ratio and is less dependent legal debt collection services. Actor has offices in Hamar and than many other banks on funding from the money and capital Gjøvik. In the first quarter of 2009, SpareBank 1 Gruppen AS markets. In addition, Bank 1 Oslo’s funding has a relatively long acquired the remaining 10% of the shares in the company. maturity profile. Bank 1 Oslo’s funding situation has therefore been satisfactory throughout 2008. In addition to shares in subsidiaries, the holding company's assets consist of bank deposits and minor assets. SpareBank 1 Gruppen ODIN Forvaltning AS reported an operating profit of NOK 84.2 AS sold its shares in Alka Forsikring in 2008. The holding million for 2008, compared with a profit of NOK 283.6 million for company had liquidity reserves of NOK 1,152 million as of 31 2007. The lower profit is attributed primarily to a sharp fall in total December 2008, and unutilised credit facilities accounted for assets due to the falling stock markets. NOK 400 million of this amount. The liquidity reserves increased by around NOK 769 million, compared with 2007. The Group's ODIN’s value-oriented investment philosophy entails that the cash and cash equivalents increased by NOK 787.2 million in 2008. annual return yielded by ODIN’s equity funds varies from year to Net cash flow from the Group's operations was negative NOK year. The year 2008 was a difficult year for everyone in the equity 1,515.6 million. Loans to customers increased by NOK 2,445, markets, and nine of ODIN’s eleven self-managed equity funds security holdings declined by NOK 748 million and the real showed a poorer return than the market in which they were estate portfolio increased by NOK 144 million. Other financing invested. The equity funds show, however, a good long-term activities increased cash flow by NOK 4,297.1 million in 2008. return. Liabilities arising from the issuance of securities increased by NOK 1,891.8 million, and deposits and liabilities to customers and At the end of 2008, ODIN managed a total of NOK 19.2 billion, credit institutions increased by NOK 1,931.3 million. The owners which is a reduction of NOK 18.6 billion, compared with 2007. made a contribution by injecting NOK 924 million in new The company had more than 280,000 unit holders in 17 equity equity. A dividend of NOK 450 million was paid in 2008. funds and six fixed income funds at the end of 2008. The level of both equity fund subscriptions and redemptions was lower in 2008 The equity consists of share capital, share premium reserve and than in 2007, and ODIN saw net equity fund redemptions of NOK other reserves. The share capital in the holding company was NOK 3 billion. The combination of poor absolute and relative returns 1,747.2 million as of 31 December 2008, while the Group’s and the net redemption of equity funds resulted in ODIN’s mar- combined equity was NOK 5,054 million at the end of the year. ket share for equity funds falling from 15.9% at the beginning of SpareBank 1 Gruppen AS received NOK 924 million in new 2008 to 13.8% at the end of the year. The total market share fell equity in 2008. In accordance with an interpretation of IFRS, from 9.2% to 6.6%. At the end of 2008 the company was still various insurance funds from SpareBank 1 Skadeforsikring AS Norway’s second largest manager of equity funds. have been transferred to equity in the amount of NOK 937.9 in the consolidated accounts. The parent company’s combined equity In October 2008 SpareBank 1 Gruppen AS acquired 75% of the was NOK 4,109 at the end of the year. Recognised goodwill in the shares in Argo Securities AS for NOK 165 million. Argo Securities Group totalled NOK 704 million as of 31 December 2008. AS is an investment firm, and it has ambitions of becoming a leading Norwegian brokerage house with activities in corporate The Group’s capital adequacy ratio was 12.3% as of 31 December finance, stock broking, and debt capital, as well as derivatives of 2008 on a consolidated basis, compared with 13.1% in 2007. The shares and interest rates. The company was established by former Group's core capital adequacy ratio was 9.2% as of 31 December employees of Kaupthing Bank’s Norwegian brokering activities. 2008, compared with 9.6% for the previous year. For the holding company in isolation, the capital adequacy ratio was 74%, com- SpareBank 1 Gruppen AS owns 24.5% of the shares in First pared with 74.9% in 2007, and the core capital adequacy ratio was Securities ASA. This holding is considered a financial investment 61.7% in 2008 and 59.6% in 2007, respectively. The holding after SpareBank 1 Gruppen AS acquired the brokerage firm Argo company had distributable equity of NOK 1,376 million at the end Securities AS. of the year, before the proposed dividend. SpareBank 1 Gruppen AS owned 90% of the shares in the debt The annual accounts have been presented on the assumption collection company Actor Fordringsforvaltning AS at the end of that the company will continue as a going concern. The Board the year. Actor reported a pre-tax profit of NOK 15.3 million, finds that the prerequisites for the going concern assumption which is an improvement of NOK 1.5 million, compared with have been met by the annual accounts for 2008 and the earnings 2007. The company has over 35 years of experience in debt forecast for 2009–2011. collection and provides, for example, receivables management and
  9. 9. 9 Beyond matters mentioned in this report, no circumstances have The aim of risk management in the SpareBank 1 Group is to arisen after the end of the accounting year that would be of mate- ensure capital adequacy and the fulfilment of statutory capital rial significance to the company's position and results. requirements. This shall be achieved through a moderate risk profile characterised by: DIVIDEND • a strong risk culture with a high level of risk management The Board proposes that a dividend of NOK 624 million be awareness, distributed for 2008 from SpareBank 1 Gruppen AS’s profit of NOK • striving towards an optimal application of capital within the 897.8 million. Most owner banks changed their accounting adopted business strategy, policies for the treatment of their investment in the joint venture, • exploitation of synergy and diversification effects, and SpareBank 1 Gruppen AS, from the equity method to the cost • having adequate core capital in accordance with the chosen method in connection with the transition to IFRS. When the equity risk profile. method was employed, the profit from SpareBank1 Gruppen AS was recognised as income. This is no longer possible in accordance Internal control within the Group is defined as a line responsibility. with the cost method. When the cost method is used, only dividend In accordance with the «Regulations relating to Risk Management received can be recognised as income. Seen in isolation, this and Internal Control» and the Group’s own guidelines, risk factors accounting policy change entails a greater interest on the part of in the operations are reviewed annually and action plans are pre- the primary capital certificate banks to increase the size of the pared in all units, which are reported to the respective company dividend. SpareBank 1 Gruppen AS received NOK 924 million in boards. In addition, the Group also conducts surveys across the new equity in the fourth quarter of 2008 with a view to this. The group with regard to internal control, Personal Data Act, and Board considers the Group’s capital situation and the parent security matters. SpareBank 1 Gruppen AS has outsourced inter- company’s liquidity situation to be compatible with the size of the nal auditing to Ernst & Young. The Group has acquired added dividend for 2008. expertise as a result of this. The internal auditing operations also encompass the subsidiaries. Performance of risk management in 2008 PROPOSED ALLOCATION OF THE PROFIT FOR THE YEAR Overarching governing documents have been prepared for risk AND PAYMENT OF DIVIDEND management, compliance, capital management and liquidity Transferred to other equity NOK 897.8 million management. A separate compliance function for the holding Proposed payment of dividend NOK 624 million company has also been established in 2008. There is also an active effort to develop reporting systems for continuous calculation of risk-adjusted profitability at both the overarching level and at the segment level. RISK FACTORS The operations of SpareBank 1 Gruppen AS are organised into The year 2008 has demonstrated in earnest what risk in the capital different business areas through subsidiaries. There are major market entails. The year was marked by a decline in the major differences in the risk structure of the individual subsidiaries. The markets that we have to go as far back as the depression in the most important risk categories impacting the Group are related to 1930s to find one that was as severe. The unrest in the financial market risk, credit risk, liquidity risk, insurance risk, operational markets started in the credit market, particularly US home risk and concentration risk, as well as strategic and commercial mortgage loans in the high risk segment (subprime). The situation risk. that arose in the credit market quickly spread to the equity and commodity markets. As a result of this, the Norwegian stock Responsibility for risk management and control market fell 54.1% in 2008 (Oslo Børs Benchmark Index), while Responsibility for the Group’s risk management lies with SpareBank equity markets outside Norway represented by the Morgan 1 Gruppen AS. The company boards are responsible for overall risk Stanley World Index showed a decline of 40.9%. The turbulence management in their own companies. The individual companies we have experienced in the commodity markets can be illustrated have their own risk managers. Responsibility for the overall risk well by looking at the development of the price of oil (Brent management within the organisation lies with the Group Manager Blend), which was USD 93.9 per barrel at the start of 2008, rose of Strategy, Analysis and Risk Management in the holding company. to USD 146.1 per barrel in July, and then fell to USD 45.6 per bar- This position reports directly to the Chief Executive of SpareBank rel at the end of the year. 1 Gruppen AS. The severe market fluctuations have put the SpareBank 1 Group’s
  10. 10. 10 SpareBank 1 Gruppen risk management to the test. This has resulted, for example, in the subsidiaries in the Group manage and also monitor their own risk implementation of contingency plans that were prepared to con- exposure in accordance with their own models and routines. trol the Group’s risk. It has entailed frequent reporting of the company’s financial status, as well as a need to ensure that the The SpareBank 1 Group was impacted significantly by the finan- Group has both adequate risk capital and liquidity to withstand cial crisis. This applies in particular to SpareBank 1 Livsforsikring, the financial risk to which the operations are exposed. This has which has been affected by a substantial fall in prices in both its been necessary in light of a situation where we have had relatively equities portfolio and interest rate portfolio. The value adjusted high exposure to equities in SpareBank 1 Livsforsikring and did not return on assets in the customer portfolio in the life insurance desire to sell these equities off at very low prices. To accomplish company was a weak minus 4.9%, and the booked return was such a strategy, a total of NOK 735 million has been injected into minus 2.8%. SpareBank 1 Livsforsikring’s securities adjustment the life insurance company through group contributions and a reserve was reduced from NOK 401.3 million to NOK 0 during the capital increase. The capital increase in SpareBank 1 Livsforsikring year; NOK 65.2 million of this reduction attributed to the company of NOK 300 million was completed towards the end of 2008, and portfolio was reclassified as equity in accordance with the new the SpareBank 1 Group has furnished an additional guarantee for accounting regulations for life insurance. In addition, the life up to NOK 300 million, which will remain in effect until 1 April 2009. insurance company allocated supplementary provisions of NOK 345.1 million in 2008 to fulfil the interest rate guarantee. The SpareBank 1 Gruppen AS has raised NOK 924 million from a remaining supplementary provisions totalled NOK 172.3 million private offering to its owners, and the owners have furnished an as of 31 December 2008. SpareBank 1 Livsforsikring still has a additional guarantee of up to NOK 400 million as a capital satisfactory capital and solvency margin situation. At the start of injection from the company’s owners. This guarantee is valid 2009, however, the company is far more vulnerable to fluctuations until 1 April 2009. in the financial market. As a result of this the buffer capital utili- sation in SpareBank 1 Livsforsikring is followed up daily with a SpareBank 1 Livsforsikring has adapted its operations to new view to monitoring the Group’s risk exposure. In its customer port- legislation, where separate investment strategies have been folio at the end of the year the life insurance company had 12% formulated, for example, for the company and group portfolios. of its investments in the equities market and 23% of its invest- The company has also implemented a new balance sheet manage- ments in the real estate market (excluding the company portfolio ment model. This will be refined on a continuous basis until the and assets linked to insurance with investment options). The implementation of the Solvency II rules. company did not adjust the market value of its properties in 2008. The running return on SpareBank 1 Livsforsikring’s real A new risk model that quantifies the need for risk capital at the estate portfolio was 6.75% at the start of 2009. company and group level was developed and implemented in 2008. The model allows, for example, the Group to link balance In spite of the fact that SpareBank 1 Skadeforsikring AS has a con- sheet management to the capitalisation objectives and the actual servative investment profile, the company’s financial return was capitalisation situation through simulation of detailed trading impacted quite negatively by the unrest in the financial markets. rules in the various portfolios of the life insurance company. The equity exposure corresponds to 5.1% of the company’s finan- cial assets at the end of 2008. The percentage of the investment RISK CATEGORIES portfolio invested in hedge funds was 4.5%. The company’s fixed The Group’s risk exposure is related primarily to market risk, income investments have a very short maturity. At the end of the owner risk, credit risk, concentration risk, insurance risk, year, 15.7% of the company’s investment portfolio was invested operational risk and liquidity risk, as well as strategic and in real estate. The market risk with respect to the company’s commercial risk. financial investments is considered medium high. Market risk Bank 1 Oslo acquired primary capital certificates valued at NOK Market risk is defined as the risk of loss due to changes in 94 million in connection with a non-performing commitment. The observable market variables, such as interest rates, currency bank does not have any equities trading portfolio beyond this. The exchange rates, security prices or real estate. bank’s interest rate and currency exchange risk is considered to be low. The Group’s consolidated market risk is measured and reported quarterly to the Board of SpareBank 1 Gruppen AS. The calcula- Owner risk tions are based on a Value at Risk (VaR) model. A corresponding Owner risk is defined as the risk that arises as a result of being an model is used for the follow-up of each individual company. The owner of a company. SpareBank 1 Gruppen AS’s owner risk in
  11. 11. 11 subsidiaries is related to the risk that the individual product the form of periodic reporting of the status of defined parameters companies assume in their operations, as well as the risk of a need in comparison to set limits. Important parameters in this regard are for the injection of fresh capital into one or more of these com- the likelihood of default, expected losses, unexpected losses and panies. As the result of an established strategy in 2008, SpareBank risk-adjusted return. 1 Livsforsikring has maintained a higher share of equities than most of its important competitors. Due to the plummeting finan- Credit risk in the life and general insurance companies relates to cial markets, the company has required an injection of capital from investments in money market instruments and bonds. SpareBank its parent company. The parent company has for its part completed 1 Livsforsikring is directly and indirectly exposed to so-called a private offering to its largest owner banks and obtained a guarantee CDOs in its portfolios. CDOs are fixed income papers with a for the injection of additional capital as required. return that is dependent on the development of the credit quality of a number of underlying counterparties. The development of Owner risk related to interests in SpareBank 1 Gruppen Finans the CDO market in 2008 was very unfavourable, and SpareBank 1 Holding AS (100%), Argo Securities AS (75%) and First Securities Livsforsikring had to write off NOK 138 million as of 31 December AS (24.5%), as well as certain smaller share holdings, has been 2008. The remaining CDO positions in the life insurance companies included in the Group’s risk calculations as equity risk under have a book value of NOK 308 million. The risk related to the other market risk. fixed income investments is limited to companies that have a high credit rating. The credit risk in this portion of the portfolio is con- The holding company’s financial position is regarded as satis- sidered to be low to moderate. The insurance companies are also factory overall, given the current risk exposure. exposed to a credit risk associated with various reinsurers. Their rating is monitored closely, and the risk is considered to be low. Credit risk In the real estate portfolio there is risk associated with the servicing Credit risk is the risk that the company’s borrowers, intermediaries of rental agreements. The risk in this category is also considered and reinsurers cannot manage or do not desire to fulfil their to be limited. obligations to the SpareBank 1 Group. This also includes the risk of changes in the general credit prices, the so-called spread risk, Concentration risk and the reinsurance risk in the insurance companies. Concentration risk is associated with major commitments, industry concentration and geographic concentration in credit or investment The Group’s credit risk is largely associated with Bank 1 Oslo AS, portfolios. and it represents the most significant risk component in the bank. The bank’s retail market portfolio grew 23.5%. Growth in the There is concentration risk in SpareBank 1 Gruppen, particularly corporate market was 11.9%. The corporate market’s share of the on the credit side in Bank 1 Oslo. Concentration risk in Bank 1 combined loans was 29.0% as of 31 December 2008, compared Oslo means a risk for losses as a result of concentration in major with 31.4% as of 31 December 2007. individual commitments, individual industries or geographic areas. A concentration risk arises when many commitments are Non-performing loans in the bank increased in 2008, compared exposed to the same risk factors, and these factors move more or with 2007. This applies to both the retail and corporate markets. less in the same direction. The bank manages concentration risk Total non-performing and impaired loans in Bank 1 Oslo totalled through, for example, setting limits for the maximum size of indi- NOK 422 million as of 31 December 2008, which is 1.9% of the vidual commitments, number of large commitments, and exposure bank’s gross loan portfolio, compared with 0.9% as of 31 December to each individual industry, and quantifying this in connection 2007. with the ICAAP process. Bank 1 Oslo AS uses the SpareBank 1 Alliance’s system solutions In both the life and general insurance companies there is assumed for credit approval in both the retail and corporate markets. The to be a concentration risk on the investment side, particularly related system solutions include decision-support tools (scoring models), to investments in bonds issued by financial institutions. The value assessment models for security, and a model for risk pricing. capital needs for this risk have not been calculated as of The credit models are adapted to the requirements under the 31 December 2008. The general insurance company has a certain Basel II rules and classify customers based on the expected pro- concentration risk associated with reinsurers. bability of default in 11 risk classes. Credit risk in individual commitments is constantly monitored by means of continuous Insurance risk migration and default reporting, overdraft lists, and close contact Risk associated with uncertainty concerning the frequency and cost with customers. At the portfolio level, credit risk is monitored in of future insurance claims, and the risk of extreme events (disasters).
  12. 12. 12 SpareBank 1 Gruppen Insurance risk is an inherent part of life insurance and general insurance company operations. Loss in the general insurance company can arise as a result of fluctuations in the year’s loss ratio At the start of 2009, and prior-year losses. For the SpareBank 1 Livsforsikring, insurance risk is mainly associated with non-profit-sharing risk products. Bank 1 Oslo had an Both the life and general insurance companies reduce risk through reinsurance, partly by the reinsurers taking over portions of the risk adequate liquidity within individual business segments and partly by limiting the own account share for individual claims through reinsurance. situation. The reinsurance also covers cumulative claims and disasters. The risk associated with the reinsurers’ creditworthiness is placed The liquidity risk is under credit risk. Control of the insurance risk in both the life and general insurance regarded to be low to companies is considered to be satisfactory. moderate. Bank 1 Oslo Operational risk Risk that is due to inadequate or failing internal processes, failures by humans, or failures in systems or external events. The definition has a very high deposit also encompasses legal risk. coverage ratio, and this Operational risk in the subsidiaries is currently documented in connection with work relating to compliance with the «Regulations was 77 % at the end relating to Risk Management and Internal Control». This work normally requires the management group of a particular subsidiary and staff area in the holding company to identify the main cate- of 2008. gory of operational risk before and after the implementation of measures. This effort did not identify any serious risk factors in the Group in 2008. In connection with the implementation of the Group’s ICAAP calculations, models were put in place for calculating necessary capital needs for operational risk. Reference is made to the Third Pillar report for a more detailed description of these calculations. In connection with the coming into force of the new «Regulations relating to Risk Management and Internal Control», including Section 6 (last paragraph) of these regulations, which clarifies the overlap with the «Capital Adequacy Regulations», all the frame- work and management documents in the Group have been updated to clarify the boundaries between the risk processes that are encompassed by the internal control work and those that are encompassed by the ICAAP work. Compliance with statutory risk processes and an efficient implementation of these are ensured through this work. A major IT project in SpareBank 1 Livsforsikring has been halted, and this will entail a write-down of NOK 415 million. A thorough evaluation of the project will be made, but this can serve as an illustration of substantial operational risk in the Group.
  13. 13. 13 Liquidity risk will continue to focus on the establishment of quantitative models Liquidity risk is the risk of not managing to refinance obligations with a view to estimating the capital needs for the strategic and or to finance any increased financing needs without substantial commercial risks in the Group. added cost. CHANGES IN THE REGULATIONS Management of the Group’s financial structure is based on an The SpareBank 1 Group continued its efforts in 2008 to adapt to overall liquidity strategy that is assessed and approved by the the new regulations for risk management and new capital adequacy Board at least annually. The liquidity risk is reduced by the diver- requirements in accordance with the international Basel II rules. sification of loans in different markets, funding sources, instru- Bank 1 Oslo received approval by the Financial Supervisory ments and maturity periods. The liquidity risk of the SpareBank Authority of Norway in the first quarter to report capital adequacy 1 Group is mainly associated with the parent company and Bank for credit risk in accordance with internal measurement 1 Oslo AS, and the risk is considered to be low. methods, so-called IRB approval. The Capital Adequacy Regulations contain transitional rules with defined «floors» for capital At the start of 2009, Bank 1 Oslo had an adequate liquidity situ- adequacy for IRB banks up until 2010. For 2009 the floor for the ation. The liquidity risk is regarded to be low to moderate. Bank bank’s capital adequacy is at least 80% in relation to the old 1 Oslo has a very high deposit coverage ratio, and this was 77% capital adequacy regulations. The bank has not estimated the at the end of 2008. Depositors associated with trade unions repre- effects with regard to capital adequacy of using the IRB method in sented 47% of the combined deposits at the end of 2008. relation to the standard method, which is used by most Norwegian banks. The bank’s ambitions with the IRB approval are to The liquidity risk has been reduced throughout the year measured professionalise the credit operations and risk management in the in relation to the limits the Board has set, such as the net refinancing credit area. need, liquidity indicator and results of the bank’s stress tests in the area. At the start of 2009 all the target figures were well within the As the owner of a bank, SpareBank 1 Gruppen AS is subject to the limits set by the bank’s Board. In 2008 the bank established all the new capital adequacy rules for banks and other financial institutions necessary processes for the transfer of home mortgage loans to (Basel II). The Second Pillar stipulates that the institution must SpareBank 1 Boligkreditt. This gives the bank access to the have a separate process for measuring capital requirements based exchange scheme that Norges Bank has established for bonds on a separate risk profile. The SpareBank 1 Group has submitted with pre-emptive rights to government securities. As of 31 December its own ICAAP documentation to the Financial Supervisory 2008 the bank has substantial liquidity reserves ready for transfer Authority of Norway from 2007. Work to identify the Group’s over- to SpareBank 1 Boligkreditt. When the overall liquidity risk is con- all risk situation is under continuous development, and updated sidered nevertheless to have increased somewhat, this is associ- ICAAP calculations will be prepared quarterly for the Board. ated with the general development of the funding markets over the From 2009, the SpareBank 1 Group will publish a quarterly Third last year, where there has been an unfortunate development in both Pillar report, which will cover the requirements stipulated in the the price and supply of securitised funding. capital adequacy regulations with regard to market discipline and the publication of financial information. Strategic and commercial risk Strategic and commercial risk is the risk for losses resulting from THIRD PILLAR changes in external circumstances beyond the control of the Reference is made to a separate Third Pillar report prepared in company, such as regulatory matters, or inadequate earnings or accordance with the requirements stipulated in Part IX, Chapters supply of capital due to a lack of confidence and the company’s 45 and 46, of the Capital Adequacy Regulations. The report has reputation in the market, i.e. with customers, counterparties, also been prepared to meet the market’s increased demand for shareholders and the authorities (reputation risk). transparency and openness with regard to risk in general and a more detailed review of the company’s capital and risk situation. The SpareBank 1 Group has established a contingency plan for handling reputation-sensitive issues. Work on specific matters ORGANISATION AND WORKING ENVIRONMENT AT will be initiated and managed by the Group Manager for Infor- SPAREBANK 1 GRUPPEN AS mation and Public Relations, and it will be a dynamic part of the Organisation department’s planning. The contingency plan’s agenda will be At the end of 2008, SpareBank 1 Gruppen AS had 207 employees reviewed and updated every quarter. and 201 full-time equivalents. In the SpareBank 1 Group with subsidiaries there was a total of 1,381 employees and 1,345 full- Together with the Alliance’s Risk Management Forum, the Group time equivalents. The corresponding figures for 2007 were 1,214
  14. 14. 14 SpareBank 1 Gruppen and 1,202, respectively. The increase in the workforce is related 2008, a decision was made to implement measures to increase the primarily to ventures in new business areas through the acquisition actual retirement age in the Group. This is based both on a financial of companies and growth in the savings and pension area in perspective, by reducing the need for recruitment, and an exper- SpareBank 1 Livsforsikring. tise perspective, by benefiting longer from valuable expertise. A total of 117 employees resigned from their positions in 2008. The The remuneration policy is another key area of the HR strategy. total turnover in 2008 was 9.4%. The corresponding figure for 2007 Regular analyses are conducted to ensure that the Group offers was 8.6%. Adjusted for early retirement pensions, old age pensions competitive terms without being a leader. The incentive scheme and disability pensions, the Group’s turnover was 6.5%. In a and profit sharing at the group level and bonus scheme at the com- labour market that was an employees’ market for most of 2008, this pany level was continued in 2008. The actual results in relation must be regarded as a satisfactory level. to the budget and achievement of goals in relation to defined criteria form the basis for any payments. No bonuses were paid to The business areas are organised in separate subsidiaries. The the Group’s employees under this scheme in 2008. managers for these areas, as well as the managers for the two staff areas, Finance and Strategy and Business Development, are Working environment and sickness absence members of the Group Management for the SpareBank 1 Group. The company’s working environment is considered to be very The Chief Executive of SpareBank 1 Utvikling DA leads the good. Annual work climate surveys are conducted, and they are alliance cooperation, which encompasses Marketing, IT, HR, followed up through systematic activities in the organisation to Information and Public Relations and Alliance Cooperation improve any weaknesses that are identified in the surveys. functions. The SpareBank 1 Group continued the agreement on an Inclusive HR strategy Workplace and has set a target for reducing sickness absence by The SpareBank 1 Group’s HR strategy is based on the company’s 20% during the period of the agreement, which runs from 1 January vision, values, goals and success factors. The main goal of the HR 2007 to the end of 2009. Sickness absence in 2008 was 4.4%, com- strategy is to ensure that SpareBank 1 Gruppen: pared with 4.5% in 2007, and these rates are among the lowest in the industry. Training in various HSE disciplines was provided for • Attracts the right employees by focusing on the values «to be managers and safety coordinators, respectively, in 2008. This was an expert and close to you». carried out in consultation with the individual working environ- • Retains the best employees by giving them responsibilities, ment committees. communicating with them and rewarding them for good performance. The SpareBank 1 Group has its own company working environ- • Develops employees by involving them, giving them clear ment committee. This ensures an optimum way of identifying objectives and following them up. challenges in the working environment and establishes a body that has the authority to resolve them. The safety personnel in our The HR strategy follows the employment cycle of an employee and companies make an active contribution. A central Workplace contains frameworks and guidelines for how we as an employer Anti-Alcoholism and Drug Addiction Dependency Committee should manage and develop its employees. Key areas of the HR has been appointed, and employee training of managers and strategy include: skills development, career opportunities, remu- employees has been arranged in cooperation with the police with neration and rewards, equal opportunities, fitness programme a view to preventive activities in this area. Collaboration with the (HSE) and a trainee scheme. employee organisations has been constructive and had a positive impact on the operations and results for 2008. The trainee scheme, which was introduced in 2006, was continued in 2007 and 2008. The first group of eight trainees completed their The SpareBank 1 Group’s ethical guidelines specify rules for trainee period in 2008 and now have central positions in the how the employees and representatives shall give notice if they Group. The SpareBank 1 Group has seven trainees now and will become aware of matters that are in violation of laws, regulations recruit a new group of trainees in 2009. The purpose of the trainee or the Group’s internal rules. A separate notification routine has programme is to recruit future managers and technical specialists also been established. who, during a two-year period, will acquire wide-ranging expertise in our various business areas. SpareBank 1 Gruppen AS’s operations do not pollute the external environment. In connection with an audit of the company’s life phase policy in
  15. 15. 15 Expertise Attractive employer Common skills development work in the alliance is organised in The SpareBank 1 Group experienced increased interest by young a Skills Committee, which is chaired by SpareBank 1 Gruppen employees in 2008. This is a result of the fact that the Group has AS’s Group Manager of Organisation & Human Resources. The a strong brand in the SpareBank 1 name and the activities that Skills Committee is to work to realise synergies on the basis of the are carried to market the Group as an attractive employer at expertise found in the alliance’s various units, enhancing the universities and colleges. alliance’s overall performance. A large portion of the committee’s work is associated with the training model in the SpareBank 1 The SpareBank 1 Group recruited 170 new employees in 2008 and Alliance. Through this model, training is offered in the specialist experienced a good response to advertised positions in this areas of investment, insurance, financing and payment transfers. connection. In connection with the training model, an internal certification scheme has been developed for customer advisors, and a large Efforts to emerge as an attractive employer with exciting career number of advisors has already been certified. A separate skills opportunities and competitive terms will continue in 2009. strategy has been formulated to support the development of a culture of continuous learning. A common competence centre has been established in Tromsø, which will contribute to essential OUTLOOK skills enhancement throughout the alliance. 2The year 2008 was marked by substantial market turbulence. The Board’s ongoing work will focus a great deal on risk manage- Technical and professional training and other skills-enhancement ment in 2009, as it did in 2008. A focus on risk management is measures are initiated and run primarily in the individual particularly important during periods of considerable market subsidiary as needed. Management development programmes turbulence. It is the Board’s assessment that SpareBank 1 Gruppen have also been established, and these are managed jointly by AS is financially well equipped to tolerate the fluctuations that we SpareBank 1 Gruppen AS on behalf of the companies. are experiencing now in credit and equities markets and that the necessary risk management systems have been established to Equal opportunities continuously monitor the SpareBank 1 Group’s overall risk Of the Group’s employees, 47% are women and 53% are men. exposure. A total of 15% of all female employees work on a part-time basis, compared with 2% of the male employees. In the Group The SpareBank 1 Group showed poor earnings last year, due, for Management, one out of seven members is a woman, and in example, to falling stock exchanges and unrest in the financial Alliance Management, four out of seven are women. The central markets. The world economy experienced a substantial economic management groups in the parent company and subsidiaries have downturn in 2008, and the impact of the weak global economy was 19% female representation overall. There were two women among also felt in a small, open economy like the Norwegian. The out- the eight members of the Group Board at the end of the year, look for 2009 is very uncertain, but there is reason to assume that while female representation on the largest subsidiary boards was also this year will be demanding, where, for example, the per- 36% overall. formance of the equities markets and the level of losses on loans will be decisive to the Group’s earnings. The Group’s Life Phase Committee ensures that the company complies with the Norwegian Gender Equality Act. The committee The Board believes that the SpareBank 1 Group has established also focuses on how the SpareBank 1 Group can be an attractive financial robustness in all the companies, so that the expected employer for employees in various life phases. The Life Phase volatility in the financial markets can be handled well in 2009. The Committee is a sub-committee of the Group’s Works Council. Board assumes that the SpareBank 1 Group will deliver signifi- cantly better results as soon as the conditions in the financial In connection with the development of our remuneration and markets normalise. reward system, an objective assessment was made of the Group’s various roles/positions. This was to ensure equal pay for work of Competition will escalate in the financial markets as customers equal value. become choosier, and ever more professional players arrive on the scene. Companies will find themselves competing for the best As a member of the Norwegian Financial Services Association, employees and will come under increasing pressure to provide the SpareBank 1 Gruppen AS has participated in the FUTURA pro- most competitive products and services. Skills development, as well gramme. This is a development programme that aims to increase as innovation and execution capability, is therefore among the key the share of women in the recruitment basis for leading positions. factors of success in the further development of our operations.
  16. 16. 16 SpareBank 1 Gruppen The SpareBank 1 Group and its owners have shown through the Group. An important part of this programme will be to achieve a acquisition of new companies in 2008 that they area able and reduction in the Group’s cost base. This will also entail a review willing to be offensive even though the economic situation has of the existing portfolio of business areas and products. been demanding. SpareBank 1 Gruppen AS has strengthened its overall economic situation and financial manoeuvrability in A WORD OF GRATITUDE recent years, which means that it has also strengthened its ability The employees have shown strong commitment in 2008. Colla- to control its structural choices in the future. boration with the employee organisations has been close and productive. The Board would like to extend thanks to all the A decision has been made to implement an extensive profitability employees of the SpareBank 1 Group for their excellent efforts in programme during the next five quarters, which will give a a demanding year. permanent improvement in the profitability of the SpareBank 1 Oslo, 24 March 2009 Knut Oscar Fleten Harry Konterud Hans Olav Karde CHAIRMAN OF THE BOARD DEPUTY CHAIRMAN Terje Vareberg Finn Haugan Bente N. Halvorsen Knut Bekkevold Venche Johnsen Kirsten Idebøen ACTING CHIEF EXECUTIVE

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