Swedbank
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Interim report January-September 2011 Page 1 of 46
Third quarter 2011
Compared with the second quarter 2011
The result for the quarter amounted to SEK 3 475m (3 452)
Earnings per share before dilution amounted to SEK 3.12* (3.02) andearnings per share after dilution amounted to SEK 3.11* (3.01)
The return on equity was 14.4 per cent (14.4)
The cost/income ratio was 0.53 (0.52)
Net interest income was SEK 4 857m (4 740)
Profit before impairments decreased by 4 per cent to SEK 3 859m (4 010)
Swedbank reported net recoveries of SEK 441m (324)
The core Tier 1 capital ratio was 15.1 per cent according to Basel 2 (13.9per cent on 31 December 2010) and 9.9 per cent (10.1) according totransition rules. The Tier 1 capital ratio according to Basel 2 increased to16.6 per cent (15.2). According to transition rules, the Tier 1 capital ratiowas 10.9 per cent (11.0).
January-September 2011
Compared with January-September 2010
The result for the period amounted to SEK 10 779m (4 694)
Earnings per share before dilution amounted to SEK 8.59* (4.05) andearnings per share after dilution amounted to SEK 8.58* (4.05)
The return on equity was 15.0 per cent (6.9)
The cost/income ratio was 0.52 (0.57)
Net interest income increased by 20 per cent to SEK 14 124m (11 802)
Profit before impairments increased by 19 per cent to SEK 11 937m(10 034)
Swedbank reported net recoveries of SEK 1 737m (credit impairments of3 293).
* The calculation of earnings per share is specified on page 41.
0500100015002000250030003500400045005000Q3-2010Q4-2010Q1-2011Q2-2011Q3-2011SEKm
Profit for the quarter
0,00,51,01,52,02,53,03,54,0Q3-2010Q4-2010Q1-2011*Q2-2011*Q3-2011*SEK
Earnings per share before dilution
0,02,04,06,08,010,012,014,016,018,020,0Q3-2010Q4-2010Q1-2011Q2-2011Q3-2011%
Return on equity
0,02,04,06,08,010,012,014,016,0Q3-2010Q4-2010Q1-2011Q2-2011Q3-2011%
Core Tier 1 capital ratio
Swedbank
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Interim report January-September 2011 Page 2 of 46
CEO Comment
During the third quarter we demonstrated a stableearnings capacity. Net interest income increased for thefifth consecutive quarter and credit quality continued toimprove, resulting in credit recoveries. At the same timethe economic picture has clearly worsened.
Intensified focus on costs as a result of lowereconomic growth
During the third quarter, macro risks increased and theeconomic outlook, primarily in Europe, clearlyworsened. This affects Swedbank directly and indirectly.For example, asset prices and interest rates have bothfallen. In addition, economic activity is expected tofurther slow and interest rates are expected to decline.
This reduces Swedbank’s earnings potential
in the nearterm. We have taken action by strengthening our focuson costs, an effort which will be further intensified in themonths ahead. The ambition is that expenses for 2012will be lower than for 2011 (excluding variableremuneration and Ektornet). Moreover, we have beenworking for some time to extend the average maturity onour funding and increase our liquidity reserves. This,coupled with our strong capitalisation, makes us well-prepared in the current market. We are equipped toadapt to changes in our operating environment.
Pause in share repurchases
After a comprehensive assessment we decided to makea pause in our share buyback as of 14 September. Thepurpose of the repurchases is to calibrate our core Tier1 capital ratio at a level of 13 per cent. Swedbank willmaintain a strong capitalization long-term, yet not beover-capitalized since it means increased costs for thebank as well as for our customers.
Balanced volume growth
Mortgage lending growth in Sweden continued todecline during the third quarter. This is a desirabledevelopment in line with our expectations. Slowermortgage growth will make Sweden even morefinancially stable.
Swedbank’s
corporate lending inSweden has increased within both Retail and LargeCorporates & Institutions. Despite increased uncertainty,the lending volumes for large and medium-sizedcorporates are likely to continue to grow in the nearfuture. Lending in Estonia, Latvia and Lithuania havecontinued to decline to both individuals and businessesdespite that their domestic economies have continued torecover. In the wake of the severe recession people areless willing to go into debt and instead are focused moreon repaying their loans. As a result of the deterioratingeconomic outlook in Europe, the point at which lendingis expected to begin to grow again has therefore beenpushed further into the future.
Swedish banks strong in funding market
Sweden is regarded by debt investors as a country withvery low risks thanks to its limited government debt andbalanced budget. The banking system is consideredwell-capitalised and access to liquidity is good. Swedishbanks have been able to capitalise on this position. Forits part, Swedbank continued to secure large volumes oflong-term funding during the quarter. So far this year wehave issued SEK 210bn in long-term funding, comparedwith about SEK 180bn in maturing funding in all of 2011.The surplus has been used to extend the maturity of thefunding as well as to increase liquidity reserves, in partto be well prepared for maturing state-guaranteedfunding in the next three quarters. As of midyear 2012
Swedbank’s annual funding needs will decline
significantly, and with it the supply of the bank's bonds.
Award-winning reporting
The efforts to improve transparency in our risk reporting
continue. I am proud that we received Ernst & Young’s
Risk Transparency Award on 14 October. This is aconfirmation that we are moving in the right directionand gives us a boost as we work to make our reportingeven better. On 7 September Swedbank was namedEstonia's most customer friendly company, according toa survey by TNS Emor, a proof that our efforts toimprove customer satisfaction are beginning to bearfruit.
Outlook
Uncertainties have increased significantly during the lastquarter due to the huge fiscal challenges facing severalEuropean countries. The macroeconomic outcome, andits impact on the banks, will depend greatly on how thecrisis is resolved. In general, the leverage will decreaseamong governments, banks, companies and individuals.We have begun to see the contours of regulatorychanges which will significantly impact the bankingindustry for years to come. Increased costs to providebanking services will affect all our stakeholders insociety. Swedbank is strongly positioned under thecircumstances. Although external conditions affectingour ability to reach our financial goals have worsened,our position of strength will enable us to adapt andcontinue in the right direction.Michael WolfPresident and Chief Executive Officer
Swedbank
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Interim report January-September 2011 Page 3 of 46
Table of contents
Page
Financial summary 4Overview 5
Market 5Important events during the quarter 5
Third quarter 2011 compared with the second quarter 2011 5
Result 5
January-September 2011 compared with January-September 2010 6
Result 6Credit and asset quality 7Funding and liquidity 9Capital and capital adequacy 9Market risk 11Operational risks 11Other events 11Rating events during the period 12
Business areas
Retail 13Large Corporates & Institutions 15Baltic Banking 17Asset Management 19Russia & Ukraine 20Ektornet 21Group Functions 22Eliminations 22
Financial informationGroup
Income statement, condensed 24Other comprehensive income, condensed 24Balance sheet, condensed 25Statement of changes in equity, condensed 26Cash flow statement, condensed 27Notes 28
Parent company 42Signatures of the Board of Directors and the President 45Review report 45Contact information 46
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