1st Quarter Results - Part 3
09 Mai 2001 - 9:01AM
UK Regulatory
RNS Number:2300D
Skandinaviska Enskilda Banken
4 May 2001
PART 3
Appendix 1 BfG in the SEB Group - Income Statement and Disposition of negative
goodwill.
BfG Income Statement (adapted to Swedish Accounting Principles)
EUR M
Full Normal
Q1 Q1 Q2 Q3 Q4 year quarter
2001 2000 2000 2000 2000 2000 2000
Interest net 127 128 142 126 120 516 129
commissions 41 66 48 54 58 226 56
Net financial
transactions 7 2 -4 10 10 18 5
Other income 9 13 7 14 5 39 10
Total income 184 209 193 204 193 799 199
Staff cost -82 -84 -87 -85 -77 -333 -83
Other costs -65 -70 -80 -69 -81 -300 -75
Total costs -147 -154 -167 -154 -158 -633 -158
Credit losses -10 -36 -15 -18 -18 -87 -22
Associated
companies 2 2
"Normal" Profit 27 19 11 32 19 81 20
One off items 27 18 9 27
"External" Profit 54 37 20 32 19 108
Allocation of negative goodwill and other reserves
The acquisition of BfG on January 3, 2000 has given rise to a negative goodwill
as the acquisition price was lower than the acquired equity capital. The reason
for the existence of the negative goodwill is the expectations that the return
of the acquired company is insufficient. Thus, actions will have to be taken to
restore the long-term earnings capacity.
The negative goodwill is EUR 382 M. In addition to that, there is a general
reserve for bad debt of EUR 111 M and a general reserve for restructuring of EUR
83 M established by BfG before the acquisition. Thus, total reserves to be
allocated are EUR 576 M.
During 2000, measures have also been taken in order to restructure the balance
sheet, i.e. by selling out subsidiaries, fixed assets and closing certain
positions.
Available reserves at time of purchase EUR M
Unallocated negative goodwill - opening balance 382
General reserve for credit-losses - opening balance 111
General restructuring reserves - opening balance 83
Total reserves to be allocated 576
Allocation and
utilisation Opening Utilised Opening Utilised in Closing
of reserves balance 2000 balance Q1 2001 balance
2000 2001
Re-evaluation and
restructuring of 13.9 -3.9 10, 0 10,0
balance-sheet items
General reserve for credit 142.7 -30.4 112,3 0 112,3
losses
Social Plan 90.1 -23.0 67.1 -23.4 43,7
Reserve for restructuring 329.3 -55.2 274.1 -26.7 247,4
Total 576 -112.5 463.5 -50.1 413,4
The reserve for restructuring will cover the cost of a large number of projects
identified during the strategic review of SEB AG:
These projects have been estimated to generate the following expenses (EUR M)
Restructuring of the retail segment 90
Brand name change 80
IT-structure and MIS 60
Relocation costs 40
Restructuring of subsidiaries 20
Other projects 40
330
Of the EUR 330 M, EUR 55 M was utilised during 2000. Of the remaining EUR 275 M,
EUR 27 M has been utilised during the first quarter of 2001. Thus EUR 248 M
remains.
Appendix 2 Exposure on emerging markets, geographical distribution
SEK M
Total Of which SEB
AG
Asia (1) 4 517 458
Hong Kong 933 78
China 941 229
Other Specified Countries (2) 2 018 56
Latin America (3) 3 887 409
Brazil 1 949 20
Eastern and Central Europe (4) 1 916 982
Russia 1 071 369
Africa and Middle East (5) 2 549 248
Turkey 1 002 31
Total 12 869 2 097
Provision 2 386 1015
Total, Net 10 483 1 082
1. Includes Hong Kong, China, India, Pakistan, Taiwan and Macao and Note 2
2. Including the Philippines, Malaysia, Thailand, Korea and Indonesia
3. Including Brazil, Argentina, Mexico and Peru
4. Including Russia, Estonia, Latvia, Lithuania, Poland and Czech Republic
Slovakia, Rumania, Hungary, Slovenia, Croatia, Kazakhstan and Ukraine
5. Includes Turkey, Iran, Saudi Arabia, Egypt, Israel, South Africa, Ethiopia
and Algeria
Appendix 3 SEB Trygg Liv
SEB Trygg Liv focuses on the sale and administration of unit-linked insurance
products as well as their equivalent for account of the traditional mutual life
insurance business. From an accounting point of view, the life insurance
business is separate from the traditional banking activities. SEB Trygg Liv's
accounts are presented in this Appendix according to generally accepted
accounting standards within the insurance business.
SEB Trygg Liv reported a decline in sales of -36 per cent (+70 per cent) during
the first quarter. It is primarily single-premium endowment assurance for the
private market which accounts for the decline, SEK 1 476 M (3 181). Most sales,
83 per cent (93) pertain to unit-linked insurance, of which 15 per cent (13) is
attributable to sales through the subsidiary SEB Trygg Life (Ireland), primarily
the investment product Life Assurance Portfolio Bond for the Swedish market.
Sales, i.e. new premiums and extra payments under existing insurance contracts,
decreased by SEK 1 582 M, or 36 per cent, to SEK 2 786 M (4 368). The share of
insurance contracts with regular premiums was 24,9 per cent (16.7) including
foreign sales. Premium income (premiums paid) decreased by 24 per cent to SEK 4
357 M (5 748). In total, the value of assets under management decreased by SEK
23 billion or 9 per cent to SEK 229 billion (252) during the twelve- month
period. The decrease for unit-linked insurance was 14 per cent.
Total income decreased by 7 percent to SEK 364 M (391), primarily as an effect
of the lower asset values compared to last year. Operating costs and other
costs, after deducting the change in deferred acquisition cost of SEK 59 M (69),
rose by 1 per cent to SEK 413 M (408). The operating result, before current
period change in surplus values, totalled SEK -49 M (-17).
The surplus value in life insurance operations is the present value of expected
future profits from signed insurance contracts. The surplus value comprises
unit-linked operations as well as commissioning agreements with traditional life
insurance companies.
When determining the surplus value in the insurance portfolio an annual unit
fund growth of 6 percent, i. e. 1.5 per cent per quarter is assumed. A higher or
lower growth rate than assumed will result in positive or negative financial
effects when computing the current year change. During the first quarter of
2001, the overall growth in unit funds was -12 per cent (+6 per cent), thus
resulting in negative financial effects of SEK -644 M (294).
Total result from operations improved by SEK 182 M or 112 per cent to SEK 344 M
(162). Total result less current period financial effects was SEK -300 M (456).
Volumes, SEK M 2001-03 2000-03
Sales volume
Traditional life insurance, regular premium 27 (24) % 472 305
Unit-linked insurance, regular premium 17 (17) % 2 314 4 063
2 786 4 368
Premium income
Traditional life insurance 1 292 1 098
Unit-linked insurance 3 065 4 650
4 357 5 748
Savings stock March 31 March 31
Traditional life insurance 173 100 187 700
Unit-linked insurance 55 500 64 500
228 600 252 200
Profit and loss account, SEK M
Administration agreements, traditional life insurance 91 80
Unit-linked insurance 242 271
Risk operations and other 31 40
Total income 364 391
Operating expenses -442 -441
Capitalisation of acquisition costs 59 69
Goodwill and other -30 -36
Total costs -413 -408
Operating result -49 -17
Change in surplus values (1) -251 473
Total result -300 456
Total result excl financial effects included
in net surplus value change 344 162
Expense ratio per cent (2) 10.0 8.9
Return on allocated capital after tax, per cent (3)
Excluding financial effects in surplus value change 19.8 11.9
Including financial effects -5.9 30.0
Notes
(1) After deduction for change in capitalised acquisition costs
(2) Annual basis. Operating expenses as percentage of premiums earned
(3) Annual basis. Allocated capital SEK 4,900 M (3,900)
Calculation of surplus value and changes in surplus value
Surplus value in life insurance operations is calculated on the basis of
assumptions regarding the future development of signed insurance contracts and a
risk-adjusted discount rate. The most important assumptions are the following:
Discount rate 11 %
Return on capital, nominal assets 4 %
Return on capital, real assets 8 %
Surrender of contracts 5 %
Surrender of current premiums 5 %
Administrative expenses (Sweden only) SEK 250/contract per year
6 %
Mortality According to industry experience
Surplus value accounting
Deferred acquisition costs are capitalised in the accounts and depreciated
according to plan. The reported change in surplus values is therefore adjusted
by the net result of the capitalisation and depreciation during the period.
Balance of surplus value
(after deduction of capitalised
acquisition costs) 0103 0012 0009 0006 0003
Opening balance 3 479 3 748 3569 3 615 3 142
Present values of new sales (1) 311 391 229 301 386
Return on existing policies 155 143 173 129 129
Realised surplus value in existing
policies -161 -188 -188 -187 -166
305 346 214 243 349
Change in assumptions 0 2 0 33 -115
Actual outcome compared to
assumptions (2) 147 160 92 88 14
Investment return in excess of
assumptions (3) -644 -700 -75 -333 294
-497 -538 17 -212 193
Total change in surplus values before
deduction of capitalised acquisition
costs -192 -192 231 31 542
Capitalisation of acquisition cost
for the period -164 -155 -128 -155 -146
Amortisation of capitalised acquisition
cost 105 78 76 78 77
Total change in surplus values (4) -251 -269 179 -46 473
Closing balance (5) 3 228 3 479 3 748 3 569 3 615
(1) Sales defined as new contracts and extra premiums on existing contracts
(2) The reported actual outcome of contracts signed can be placed in relation to
the operative assumptions that were made. Thus, the value of the deviations can
be estimated. The most important components consist of extensions of contracts
as well as cancellations. Also included is the estimated cost of solvency, which
increases with growth in fund values. However, the actual income and
administrative expenses are included in full in the operating result.
(3) Assumed unit growth is 6 per cent, i. e. 1,5 per cent per quarter. Actual
for the first quarter of 2001 is - 12 per cent compared to plus 6 per cent in
2000 resulting in the negative financial effects of SEK -644 M (294).
(4) Prepaid acquisition costs are capitalised in the accounts and amortised over
5 years. Accordingly, the reported change in surplus values is adjusted by the
net effect in the period.
(5) Estimated surplus value according to the above is not included in the
statutory balance sheet.
Appendix 4 Capital base for the SEB Financial Group of Undertakings
March
2001
Shareholders' equity in the balance sheet 43 745
./. Result for the year and translation difference -2 136 (1)
./. Proposed dividend to be decided by the Annual General Meeting -2 818
./. Deductions from the financial group of undertakings -1 219 (2)
= Shareholders' equity in the capital adequacy 37 572
Core capital contribution 1 827
Minority interest 1 395
./. Goodwill -4 377 (3)
= Core capital (tier 1) 36 417
Dated subordinated debt 11 392
./. Deductions for remaining maturity -2 243
Perpetual subordinated debt 16 631
= Supplementary capital (tier 2) 25 781
./. Deductions for investments in insurance companies -8 772 (4)
./. Deductions for other investments outside the financial group
of undertakings -542
= Capital base 52 883
To note:
Minority interest and goodwill is different between the balance sheet and the
capital base due to the inclusion of companies in the capital adequacy
calculation that are not consolidated in the Group's balance sheet, e.g. BOS
S.A.
Result for the year and change in the translation difference compared to year
end are not included in the core capital and the capital base since the accounts
have not been verified by external auditors (1).
The deduction (2) from shareholders equity in the consolidated balance sheet
consists mainly of non-restricted equity in subsidiaries that are not
consolidated in the financial group of undertakings (insurance companies).
Goodwill in (3) includes only goodwill from acquisitions of companies in the
financial group of undertakings, i.e. not insurance companies. Goodwill from
acquisitions of insurance companies is deducted from the capital base (4).
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