Swedbank’s second quarter 2011 results

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Slides from the Q2 2011 presentation at Swedbank, Stockholm, Sweden.

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Swedbank’s second quarter 2011 results

  1. 1. Swedbank’s second quarter 2011 resultsMichael Wolf, CEO WolfErkki Raasuke, CFOGöran Bronner, CRO
  2. 2. Continued underlying trends y g• Net profit of SEK 3 452m• Core Tier 1 capital ratio of 14.8 per cent after buy-backs• Return on equity of 14 4 per cent in Q2 14.4 Profit performance Profit before impairments Lehman contribution Profit for the period Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 2
  3. 3. Business area highlights g g SEKm RetailRetail 2 500 2 000 1 500 - Improved result driven by higher NII 1 000 500 - Cost/income ratio 0.49 0 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11Large Corporates & Institutions SEKm 2 000 Large Corporate & Institutions 1 500 - Good development in corporate 1 000 lending 500 0 - Slow trading quarter Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 SEKm Baltic BankingBaltic Banking 1 500 1 000 500 - Solid operating profit 0 - Lower lending volumes -500 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Prof it bef ore impairments Prof it f or the period 3
  4. 4. Delivering on our 2011 priorities g p• Quality and efficiency• Robust and low-risk balance sheet• Customer focus• Growth in selected segments 4
  5. 5. Net interest incomePositive NII trend• Higher Stibor and Euribor rates, increased margins• Trading result recorded mostly in NII• Maturing government guaranteed funding LC&I Baltic Russia, Treasury, Retail Banking 4 740 Ukraine Other 4 527 101 34 20 118 128 4 527 -60 1 017 3 799 3 980 884 3 026(SEKm) ) -315 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 5
  6. 6. Net commission incomeUnderlying commissions stable y g• Increased payment commissions• Changed accruals in LC&I decreased l di and guarantees b SEK 136 Ch d l i d d lending d t by 136mSEKm1 2001 000 800 600 400 200 0 Payment Asset Life insurance Brokerage and Corporate finance Lending and Deposits Other commission p processing g management g other securities g guarantees income Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 6
  7. 7. Net gains/losses on financial items, fair valueValuation effects turnaround in Q2• Positive valuation effects in Group Treasury – Basis swaps – Fair valued lending & funding – Benchmark effect• Low NGL f L from t di trading 822 574 511 Treasury & 357 Other Russia & 255 Ukraine Baltic Banking (SEKm) LC&I Retail Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 7
  8. 8. ExpensesOn target with flat costs g• Lower number of employees• Bank B k accounting principles i Ekt ti i i l in Ektornet i t increase expenses 0.57 0.58 0.55 0.52 0.52 4 423 4 590 4 238 4 384 4 345 Total expenses Cost-income ratio (SEKm) Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 8
  9. 9. Second quarter 2011 resultsVolume development p• YTD stable lending and deposit volumes• Lending in L di i LC&I t i t growth turning to th• Continued de-leveraging in Baltic Banking Lending Deposits SEKbn Q2 Q/Q Δ YTD Δ Q2 Q/Q Δ YTD Δ Retail private 584 4 6 347 9 0 Retail corporate 297 0 2 LC&I 126 5 -4 57 -11 -17 Baltic Banking B lti B ki 125 -1 1 -5 5 95 6 2 Group 1 147 6 1 519 17 2 9
  10. 10. Liquidity & FundingTerm funding issuance according to plan• Majority of issuance in the domestic Issuance H1 2011 & maturities FY 2011 (nominal SEKbn) covered bond market 60• Average maturity of wholesale funding, 40 including short-term funding, 34 months 20 (42 months for covered bonds) 0 -20• H2 maturities of nominal SEK 80bn, -40 of which government guaranteed debt -60 SEK 46bn -80• Liquidity reserves further increased -100 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec y g 10
  11. 11. Second quarter 2011 resultsIncome statementSEKm Q2 11 Q1 11 Δ Q2 10Net interest income 4 740 4 527 213 3 799Net commission income 2 244 2 301 -57 2 395Net gains/losses 511 255 154 822Other 860 1 369 -509 509 756Total income 8 355 8 452 -97 7 772Total expenses 4 345 4 384 -39 4 423Profit before impairments 4 010 4 068 -58 3 349Total impairments - 309 - 970 661 1 091Operating profit 4 319 5 038 -719 2 258Tax expense 863 1 182 -319 672Profit attributable to shareholders 3 452 3 852 - 400 1 567Return on equity, % 14.4 16.1 7.0 11
  12. 12. Risk highlightsAsset quality improvement – increased macro risk q y p• Asset quality – Decreasing impaired loans – Continued recoveries – Positive rating migration• Macro economic uncertainty – European debt crisis – World economy slowing• S db k’ resilience strong Swedbank’s ili t – Capitalisation – Stress tests – Strong funding position 12
  13. 13. Asset qualityNet recoveries of SEK 324m in Q2 Credit impairments, SEKm • Stable CEE development 963 – One-offs Estonia One offs – Adjustment in Latvia • Solid Swedish performance 120 324 -324 -483 -972 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Retail LC&I Baltic Banking Russia & Ukraine Other 13
  14. 14. Funding riskWell positioned p• Board of Directors risk tolerance limit – Liquidity survival horizon – Liquidity portfolio – Over-collateralisation requirement Over collateralisation• Liquidity reserve increased to SEK 203bn• Covered bond availability increasing• USD f di d funding dependence l d low 14
  15. 15. Capital managementStrong capitalisation g p • As of 30 June the excess capital amounted to SEK 9bn 14.8% Excess capital (SEK 9.2bn) • 2.86 per cent of total shares Extra buffer 13.0% repurchased i Q2 h d in due to prevailing circumstances (SEK 15.3bn) • Stress tests 10.0% Risk appetite – ICAAP 2011 (ICAAP buffer, SEK 15.3bn) – EBA 7.0% • Continued focus on capital Minimum efficiency requirement (SEK 35.7bn) 15
  16. 16. Appendix 16
  17. 17. ICAAP 2011 – adverse scenarioScenario: “Eastern slowdown – Western standstill” Triggers Outcome Sweden S d• Chinese housing market collapses • Negative GDP for three consecutive years, 2012-• The export led recovery in the US halts as 2014 (a drop of 7% relative 2011) Asian demand dries up • Unemployment rate rises from 8 4% in 2010 to 8.4%• US protectionism and US economic 16.9% in 2014 pessimism turns world growth negative • Residential real estate price drop of 33% until 2014• US enters into a “Japanese” scenario • Swedish krona strengthens 31% against the USD g g• A weak EU is severely hit by falling demand in China and the US • Interest rates remain low (treasury bill rate of 0.3%) Adverse scenario 2011 - GDP development Baltic countries 120 • 30% devaluation in Latvia and Lithuania early 2012, 2010=100) 115 110 Sweden, base case Estonia affected by contraction of external demand Sweden, adverse 105 • Negative GDP growth in all three countries during US, base case ,GDP index (2 100 US, adverse 2011-2014 (drops of 9%-11% relative 2010) 95 EU-27, base case 90 • Unemployment rates peak in 2013-2014: EE 19.5%, EU-27, adverse 85 LV 21.5%, LT 20.0% 80 • Residential real estate price drops Trough in 2014 drops. 2010 2011 2012 2013 2014 2015 2016 EE -24%, LV -15%, LT -21% 17
  18. 18. ICAAP 2011 – adverse scenarioScenario model results TotalIncome statement (SEKm) 2010F 2011F 2012F 2013F 2014F 2015F 2016F 2011-2016Profit before impairments p 12 485 13 233 13 766 7 666 7 287 7 150 7 610 56 712Credit impairments 3 005 5 972 19 318 15 359 10 231 6 734 4 290 61 904Profit for the year 7 084 5 033 -5 696 -7 694 -2 944 146 1 971 -9 184(SEKm) 2010F 2011F 2012F 2013F 2014F 2015F 2016FRisk-weighted assets, 541 327 519 839 524 279 464 569 434 894 413 542 399 855full Basel 2Core Tier 1 capital 75 470 77 815 69 084 55 936 52 981 53 069 54 043Core Tier 1 capital ratio, % 13.94 14.97 13.18 12.04 12.18 12.83 13.52• Core Tier 1 capital ratio troughs in 2013• Low interest rates combined with lending volume decline during the scenario period decrease NII and risk-weighted assetsNB: Not adjusted for the buy-back programme or any additional regulatory changes. 18
  19. 19. ICAAP 2011 – base scenario and adverse scenarioMacroeconomic assumptions p Sweden Baltic countries GDP growth GDP growth 120 140 130 110 120 100 110 100 90 90 80 80 2010 2011 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 2016 Unemployment Unemployment 20% 20% 15% 15% 10% 5% 10% 0% 5% 2010 2011 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 2016 Real estate price index Real estate price index 110 150 100 140 130 90 120 80 110 100 70 90 60 80 70 2010 2011 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 2016 Sweden, base case Sweden, adverse Estonia, base case Estonia, adverse Latvia, base case Latvia, adverse Lithuania, base case Lithuania, adverse 19
  20. 20. Impaired loans decreasing p g• Excl. FX effect down SEK 1.6bn in Q2• Underlying decreases in all business areas in Q2SEKm45 000 42 719 40 132 40 32840 000 -4 088 4 362 196 2 391 35 770 -3 853 Impaired loans as % 38 63135 000 of gross lending 6 113 34 778 -3 031 29 657 -1 07830 000 Ukraine 66% 31 747 6 240 30 66925 000 Russia 21% 1 407 Lithuania 17%20 000 6 383 Latvia 24%15 000 29 657 9 80210 000 5 000 Estonia 8.3% 4 836 446 LC&I 0.17% 1 555 Retail 0 17% 0.17% 0 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q2 11 20
  21. 21. -50 0 100 150 200 250 -150 -100 50 EURm Q Q2 10 Q Q3 10 Q Q4 10 p Q Q1 11 Estonia Q Q2 11 Q Q2 10 Q Q3 10 Q Q4 10 Q Q1 11 Latvia Q Q2 11 y p Q Q2 10 Q Q3 10 Q Q4 10 Q Q1 11 Lithuania Q Q2 11 Q Q2 10 Q Q3 10 Q Q4 10 Loans past due 60 days – performance Q/Q Ukraine Q Q1 11 Q Q2 11 Q Q2 10 Q Q3 10 Q Q4 10 Russia Q Q1 11 Q Q2 1121
  22. 22. Asset qualityProvisions – well provided for p• Individual provisioning rates maintained• Work-out portfolios slowly declining• Positive rating migrationsSEKm30 000 63.5% Provision ratios, % Q2 11 63.9%25 000 4 104 Retail 92 62.7% 3 606 LC&I 125 61.0%20 000 3 297 60.0% Baltic Banking 55 2 769 2 436 Russia 6515 000 Ukraine 64 23 02810 000 21 068 16 598 15 952 Group 60 18 494 6 306 5 204 5 000 4 373 1 449 2 099 0 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Individual provisions Portf olio provisions Write-of f s, gross, cum f rom 2010 Provision ratio 22
  23. 23. Asset qualityRepossessed assets pSEKm6 0005 0004 0003 0002 0001 000 0 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Real Estate Residential Real Estate Commercial Passenger & Commercial Transport Shares Other 23
  24. 24. Credit impairments by category p y g ySEKm2 000 9631 5001 000 120 500 0 - 500 - 324-1 000 - 483 - 972-1 500 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Portfolio provisions Individual provisions Recoveries Write-offs net 24
  25. 25. Real estate prices p Tallinn Riga1 800 2 000 1 616 1 7621 600 1 8001 400 1 6001 200 1 400 915 1 2001 000 1 000 800 601 800 600 600 400 400 200 200 0 0 May-05 May-06 May-07 May-08 May-09 May-10 May-11 Mar-06 May-07 Feb-09 Apr-10 Jan-05 Sep-05 Jan-06 Sep-06 Jan-07 Sep-07 Jan-08 Sep-08 Jan-09 Sep-09 Jan-10 Sep-10 Jan-11 Jan-05 Aug-05 Dec-07 Jul-08 Sep-09 Nov-10 Jun-11 Oct-06 Nr.of deals EUR/m2 Nr.of deals EUR/m2Source: Swedbank, Estonian Land Board Source: Swedbank Vilnius2 0001 800 1 7311 6001 4001 200 1 0741 000 800 600 400 200 0 Mar-06 May-07 Feb-09 Apr-10 Jan-05 Aug-05 Dec-07 Jul-08 Sep-09 Nov-10 Oct-06 Nr.of deals EUR/m2Source: Swedbank, State Enterprise Centre of Registers 25
  26. 26. Liquidity & FundingLong-term funding g g• Continued focus on covered bonds with Q2 issuance of SEK 43bn• SEK 6bn in senior unsecured issuance during Q2• Term funding issuance in the first half of 2011 totalled SEK 153bn, with maturities of SEK 79bn during the same period• Maturities for the remainder of 2011 amount to nominal SEK 80bnLong-term funding maturity profile, SEKbn200 200150 Covered bonds 150 Senior unsecured Guaranteed bonds100 100 50 50 0 0 2011 2012 2013 2014 2015 2016 2016- 2011 2012 2013 2014 2015 2016- 26
  27. 27. Liquidity & FundingRemaining government guaranteed debt gg g• Exited the programme on 30 April 2010• No issuance under the programme since summer 2009 p g• SEK 33bn of government guaranteed debt matured during the first six months of 2011• Maturities of SEK 46bn for the remainder of 2011Maturity p y profile as p Q2 2011, SEKbn per ,6040 USD SEK EUR CHF20 HKD JPY 0 2011 2012 2013 2014 27
  28. 28. Liquidity & FundingLimited unsecured funding need gLending to the public, less deposits, covered bondpool and retail bondsSEKbn200150100 50 0 -50-100 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 28
  29. 29. Liquidity reserve* q y SEKm SEKCash and holdings in central banks and deposits in other banks available overnight 90 723Securities issued or guaranteed by sovereigns central banks or multilateral development banks sovereigns, 57 327Securities issued or guaranteed by municipalities or Public sector entitiesCovered bonds 53 711 - Issued by other institutions 53 711 - Own issuedSecurities issued by non-financial corporatesSecurities issued by financial corporates (excl. covered bonds) 1 089OtherTotal 202 850* As defined by the Swedish FSALiquid assets outside Group Treasury organisation 65 000Total 267 850 29

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