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Swedbank's Year-end Report 2012

Swedbank's Year-end Report 2012

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Published by Swedbank AB (publ)
Swedbank presens its Year-end Report for 2012.
Swedbank presens its Year-end Report for 2012.

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Categories:Types, Business/Law
Published by: Swedbank AB (publ) on Jan 30, 2013
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02/23/2014

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Income statement

Q4

Q3

Q4

Full-yearFull-year

SEKm

2012

2012

%

2011

%

2012

2011

%

Net interest income

485

208

-221

842

-714

Net commissions

-31

-14

-14

-115

2

Net gains and losses on financial items at fair value

213

101

193

10

318

392

-19

Share of profit or loss of associates

1

2

-50

1

0

3

3

0

Other income

559

506

10

562

-1

2 129

1 861

14

Total income

1 227

803

53

521

3 177

1 544

Staff costs

801

714

12

920

-13

3 036

3 308

-8

Variable staff costs

33

50

-34

6

131

72

82

Other expenses

-390

-503

-22

-233

67

-1 338

-1 013

-32

Depreciation/amortisation

139

131

6

190

-27

570

689

-17

Total expenses

583

392

49

883

-34

2 399

3 056

-21

Profit before impairments

644

411

57

-362

778

-1 512

Impairment of intangible assets

0

-1

0

-1

0

Impairment of tangible assets

191

97

97

149

28

451

140

Credit impairments

86

188

-54

-277

892

-1 055

Operating profit

367

127

-234

-564

-597

-6

Tax expense

-13

170

-94

-86

-17

-353

-95

Profit for the period from continuing operations

380

-43

-140

-547

-244

Profit for the period from discontinued operations, after tax

4

-17

4

0

-13

4

Profit for the period

384

-60

-136

-560

-240

Profit for the period attributable to the shareholders of
Swedbank AB

383

-57

-136

-558

-240

Non-controlling interests

1

-3

0

-2

0

Full-time employees

4 620

5 098

-9

5 722

-19

4 620

5 722

-19

Development January-December

Group Functions & Other comprises the bank's group
functions (including Group Business Support), the
banking operations in Russia and Ukraine, and
Ektornet.

Income for Group Functions & Other consists of net
interest income, which mainly comes from Group
Treasury, the banking operations in Russia and Ukraine,
and net gains and losses on financial items at fair value
from Group Treasury. Other income primarily consists of
revenue from the savings banks as well as sales gains
from Ektornet. Income amounted to SEK 3 177m
(1 544).

Expenses for Group Functions & Other decreased by 21
per cent compared with the previous year to SEK
2 399m (3 056). Excluding the net of services
purchased and sold internally, expenses fell by 12 per
cent to SEK 6 705m (7 613). The decrease was mainly
due to lower costs for staff, IT and consultants.

Group Business Support

Group Business Support (GBS) currently consists of just
over 2 800 employees in Sweden, Estonia, Latvia and

Lithuania. GBS comprises Swedbank’s business

support units, including the IT organisation, most of

Swedbank’s product units and units responsible for
facilities, procurement and training. GBS’s strategy is to

improve the bank's productivity by reducing complexity,
cutting lead times, capitalising on economies of scale
and better utilising available competence.

In GBS’s revenue and expense model, revenue from
Swedbank’s customers is posted by each business area

and GBS receives compensation to cover its expenses.

GBS’s external revenue comes largely from the savings
banks, primarily for IT services.

Expenses for 2012 (excluding internally sold services)
amounted to SEK 4 102m (4 628). The decrease was
mainly due to lower costs for personnel and consultants.

Group IT manages Swedbank’s IT operations. In 2012
there was a temporary reduction in IT development,
along with more long-term cost cuts through efficiency
improvements in the Group IT systems. Investments will
be made in the next few years to further develop the
digital channels. In addition, investment is needed to
meet changes in regulatory requirements and replace
older systems.

During the year GBS worked on the preparations for the

move of Swedbank’s head office to Sundbyberg and
began a consolidation of the Group’s loan management,

which is expected to reduce costs over time.

The product units are responsible for large parts of

Swedbank’s product areas, including insurance, cards,

payments and lending. During the year an analysis of
the product range was conducted, based on which
measures to simplify and reduce the number of products
will be intensified in 2013. The product areas for cards
and insurance are described in more detail on page 23.

Group Treasury

Group Treasury is responsible for the bank’s funding,

liquidity and capital planning, including internal control

and pricing. The Group’s equity is allocated to each

business area on the basis of capital adequacy rules
and how much capital will be needed according to the
bank's Internal Capital Adequacy Assessment Process
(ICAAP).

Swedbank – Year-end report 2012

Page 21 of 50

Group Treasury prices funding and liquidity in an
internal pricing system, where the most important
parameters for setting internal rates are maturity,
interest fixing period, currency and the need for liquidity
reserves. Swedbank is conducting a project to further
refine internal rate setting in 2013.

Group Treasury’s result over time shall be nearly nil,

with the exception of earnings that may arise in debt
and liquidity management within the given risk mandate.
The fee paid to the Swedish National Debt Office for the
state guaranteed funding is charged against Group
Treasury. Risk hedging by Group Treasury is generally
achieved with financial derivatives. The volatility in
results over time is largely due to accounting-based
fluctuations in these hedges.

Net interest income amounted to SEK 675m in 2012,
compared with SEK -1 145m in 2011. Of the change of
SEK 1 820m, SEK 776m is due to lower fees for the
state guaranteed funding. The remainder is due to a
better result within liquidity management, lower funding
costs, and because the bank’s funding costs are more
accurately reflected in the internal rate charged to the
business areas. In addition, a one-time correction
related to the buyback of covered bonds affected net
interest income positively by SEK 78m during the fourth
quarter 2012. The correction also affected net gains and
losses on financial items at fair value negatively by SEK
68m. Treasury’s net interest income has been
temporarily strengthened by positions that have
benefited from lower market rates and to a certain
extent by credit and basis swap spreads. Consequently,
net interest income is likely to trend lower in 2013, as
position extensions are made at lower interest rates and
spreads.

Net gains and losses on financial items at fair value
amounted to SEK 316m in 2012, compared with SEK
187m in the previous year. Profit for the year is
attributable to a positive performance in liquidity
management as well as repurchases of subordinated
loans, while other valuation effects and one-time effects
contributed negatively by around SEK 350m. During the
year SEK 351m of net gains and losses on financial
items at fair value were attributable to management of
the bank’s liquidity portfolio. The liquidity portfolio has a
remaining maturity of nearly two years. During the fourth
quarter Swedbank repurchased subordinated debt
instruments with a nominal value of SEK 1.6bn, which
produced a positive effect on net gains and losses on
financial items of approximately SEK 319m.

Russia and Ukraine

The process of exiting the retail operations in Russia
and Ukraine is progressing according to plan. During the
fourth quarter the last 10 branches in Ukraine were
closed.

The result in Russia amounted to SEK 50m (568). Net
interest income decreased by 39 per cent during the
year to SEK 183m, mainly due to amortisations of the
performing part of the loan portfolio and the sale of the
private portfolio. Since the beginning of the year the
Russian loan portfolio has decreased by 44 per cent in
local currency.

Total expenses in Russia decreased by SEK 48m.
During the fourth quarter 2012 redeployment expenses
totalled SEK 24m. The number of full-time positions in

Russia was reduced from 174 at the beginning of the
year to 114.

Credit quality was stable. Net recoveries of SEK 43m
(512) were the result of recoveries from a few previously
impaired loans. Impaired loans, gross, decreased by 68
per cent from the beginning of the year.

The result in Ukraine amounted to SEK -1 013m (470)
for 2012. Net interest income was SEK 151m (267). The
decrease was mainly due to amortisations in the
performing part of the loan portfolio and the sale of
private portfolios. From the beginning of the year the
Ukrainian loan portfolio decreased by 64 per cent in
local currency.

Total expenses in Ukraine amounted to SEK 266m
(425). During the fourth quarter 2012 redeployment
expenses totalled SEK 20m. The previous year included
an expense of SEK 100m for the transformation of the
Ukrainian operations. The number of full-time positions
in Ukraine was reduced from 1 037 at the beginning of
the year to 249.

Credit impairments amounted to SEK 915m (-526). The
increase related mainly to sales of portions of the
private portfolio as well as additional provisions in the
remaining portfolio. Impaired loans, gross, decreased by
52 percent from the beginning of the year.

Ektornet

Ektornet manages and develops Swedbank’s

repossessed assets to recover as much value as
possible.

The value of repossessed assets decreased during the
period to SEK 4 606m.

Assets taken over

31 dec

31 dec

SEKm

2012

2011

Sweden

374

305

Norway

0

102

Finland

281

709

Estonia

304

569

Latvia

1 665

1 721

Lithuania

351

448

USA

1 217

1 415

Ukraine

364

443

Total properties

4 556

5 712

Shares

50

107

Total

4 606

5 819

In 2012 properties were acquired for SEK 1 006m (the
majority in Latvia and Lithuania), at the same time
properties with a book value of SEK 1 655m (the
majority in Latvia and Lithuania) were sold for an
aggregate capital gain of SEK 212m. During the fourth
quarter properties with a book value of SEK 720m were
sold, generating a capital gain of SEK 64m.

Ektornet’s result amounted to SEK -406m (-118) for
2012. A large share of the properties has negative cash
flows because they do not generate rental revenue.
Depreciation according to plan amounted to SEK 103m
(122). Property values were written down by SEK 392m
for the full-year (126).

Property acquisitions are expected only in exceptional
cases going forward. At the same time sales work is
intensifying. This means that other revenue, including

Swedbank – Year-end report 2012

Page 22 of 50

sales gains, will increase and that impairment losses on
tangible assets (properties) may continue. All in all, the
volume of repossessed assets is expected to decrease

significantly next year. It is estimated at present that
there are surplus values in the property portfolio.

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