Doing business in a world of zero

interest rates & currency volatility

Mark PayneCFO, SEB Baltic Division

Riga, March 10, 2015

Globally: Central banks are “buying debt”Central banks’ balance sheet. Per cent of GDP

2

Conclusions

oUnique situation

oCBs have no limits

oRisk concentration

oBuying time…

3

Quantitative Easing: The theory

Globally: Continued squeeze on L-T yieldsGovernment bond yields. Per cent

4

More QE

FX appreciation

Deflation

expectations

Fear

Low policy rates

Continued expansionary monetary policy from

Central Banks

5

SEB´s forecast Today Dec 2015 Dec 2016

Federal Reserve 0.25% 0.75% 1.75%

The European

Central Bank0.05% 0.05% 0.05%

Bank of England 0.50% 0.50% 1.25%

Bank of Japan 0.10% 0.10% 0.10%

Riksbanken

(Sweden)-0.10% -0.10% 0.50%

Norges Bank 1.25% 1.00% 1.25%

Greece: Shaking up the euro zone again

Chicken race – high stakes

but some negotiating room

Scenario Debt relief from the Troika

Scenario Substantial debt write-down

Scenario Grexit and “bankruptcy”

High risk of secondary

effects

6

Oth

loa

ns

3%

Euro zone

Greek

banks 3%

Other

bonds

15%

Banks 1%

Grk CB 1%

52 3 41

”To save the euro, we need a federation of

nation states” (July 2012)

7

Denmark & Switzerland: Capital inflows push

central banks into drastic decisions

8

Negative rates Currency shockBond freeze

Globally: Oil prices being pushed to low levels

Oil price 2013 2014 2015 2016

USD/barrel 109 99 60 70

9

Oil prices and USD interactReasons

Supply 70%Potential substitutions,

increased extraction,

“chicken-race” politics

Demand 30%Slower EM growth, more

efficient consumption

Impact

World growth

CPI inflation

Geopolitics (?)

Globally: Oil’s fall – winners & losers

10

1/3 of current production

uneconomical below $ 60

Source: Bank of CanadaSource: IMF/IEA

Winners & losers

Russia/Ukraine: The crisis is lowering growth

and generating widespread turbulence

GDP 2014 2015 2016

Russia 0.5% -5.5% -1.0%

Ukraine -6.5% -5.0% 0.0%

Oil collapse reveals Russia’s

economic weakness

Rouble collapse pushing up

inflation to 15-20% (H1-2015).

Currency defence. Large financial

reserves

China expanding strategic

global role, with help from the

Kremlin

Ukraine is increasingly a pawn

in a risky Great Power political

game

11

Banks can help to reduce volatility

12

Market Risk Focus

Foreign ExchangeEUR/USD, EUR/SEK, EUR/NOK, EUR/DDK, EUR/GBP

Forwards, Swaps, Options and Option strategies

Interest Rates

3m Euribor vs 5 year swap – 0.30%*

3m Euribor vs 7 year swap – 0.45%*

3m Euribor vs 10 year swap – 0.75%*

Commodities

Mainly energy swaps and options, but many more

commodities would be possible to hedge

Hedging

alternatives

FORWARDS

SWAPS

OPTIONS

OPTION

STRATEGIES

*As of 05.03.2015

Bank pays 3M Euribor

to client

3M

Eu

rib

or

(3M

, act/360)

marg

in

+

Interest rate hedging, swap

Loan

BankCompany

Company pays FIX

0,30%* to the bank

13

*As of 05.03.2015

Commodities hedging, swap

14

Price of fuel (USD/ton)

Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

2015 /16

USD/ton

If average market price

during a month is above

the “ fixed level $650 ton,

SEB will compensate the

company by paying the

difference between the

$650 and the average

market price

Start End

If average market price

during a month is above

the fixed level,

bank will compensate the

Company by paying the

difference between the

fixed and the average

market price.

Average fixed price for Company.

If average market price during a

month is below the fixed price level,

the Company will compensate bank.