Swedbank’s year-end 2011 results

Michael Wolf, CEO

Göran Bronner, CFO

Håkan Berg, CRO

Delivered according to last years prospects

• Net profit of SEK 11.7bn for 2011

• Core Tier 1 capital ratio of 15.7 per cent

• Return on equity of 12.2 per cent for 2011

• Proposed dividend of SEK 5.30 per share

2

All stakeholders affected by new environment

• Shareholders

– Two share issues totalling SEK 27bn

– Buy-back programme halted

– Goodwill write-downs

– Harder to reach ROE target

• Staff

– Number of employees down by about 6 000 since end of 2007

– Overhaul of remuneration systems will reduce variable pay

• Customers

– Increased cost of money

3

Continued stable development

• Goodwill write-down in Latvia

SEK 1913m

• SEK 330m restructuring

charge

• Increased capital markets

income and positive valuation

effects

• Cost reduction 2012: SEK 1bn

• Continued focus on capital

efficiency

4

Group results

SEKm FY

2010

FY

2011 Q3 11 Q4 11

Net interest income 16 329 19 118 4 857 4 994

Net commission income 9 525 8 963 2 292 2 126

Net gains and losses 2 400 1 584 259 559

Other income 2 790 3 850 782 839

Total income 31 044 33 515 8 190 8 518

Total expenses 17 642 17 869 4 331 4 809

Profit before

impairments 13 402 15 646 3 859 3 709

* Basel 2

CT1 ratio, %* 13.9 15.7

Return on equity, % 8.1 12.2

0

20

40

60

80

Q1

20

10

Q2

20

10

Q3

20

10

Q4

20

10

Q1

20

11

Q2

20

11

Q3

20

11

Q4

20

11

Q1

20

12

Q2

20

12

Q3

20

12

Q4

20

12

Q1

20

13

Q2

20

13

Q3

20

13

Q4

20

13

Q1

20

14

Q2

20

14

Q3

20

14

Q4

20

14

SEKbn

Significantly lower issuance volumes going forward

5

• SEK 44bn of long-term debt issued in Q4 (incl. SEK 7bn of senior unsecured)

• Over-collateralisation in covered-bond pool increased to 29% (25%)

• Continued strong liquidity reserves

Term funding issuance

Liquidity and funding

Average term funding issuance

Maturities 2012

Average term funding need

Swedbank regulatory compliant – transition completed

• Transformation of:

– Maturity structure liabilities

– Liquidity reserve

– Capital buffer

• Significantly reduced risk in balance sheet

• Cost for regulatory compliance taken

6

Ratio Swedbank Expected requirements

CT1-ratio, Basel 3 14.7% 10% (2013) 12% (2015)

Liquidity coverage ratio 139% 100% (2015) EUR/USD

Net stable funding ratio 94% 100% (2018)

Capital management

• Current capitalisation targets withdrawn

• Dividend policy of 50%

• Other capital repatriation on hold

• Proposal to issue convertible debt instruments

• Return target of 15%

7

Net recoveries of SEK 174m in Q4

• Credit impairments in Sweden

still low

– Known problems

– Limited inflow of watch list

and problem loans

• Collective provisions mortgage

loans in Latvia and Ukraine

8

Risk highlights

-483

-972

-324

-441

-174

Q4 10 Q1 11 Q2 11 Q3 11 Q4 11

Credit impairments, SEKm

Retail LC&I Baltic Banking Russia & Ukraine Other

Focus on risk-weighted assets

Risk highlights

9

• Significant achievements 2011

– Full organisational involvement

– Credit volumes

– Customer quality

– Market risks

• Focus areas 2012

– Review of small and mid-sized

corporates Sweden

– Retail mortgage risk-weights 541.3

4.4

-22.3

-21.2

-7.4

-2.6

492.3

480

490

500

510

520

530

540

550

2010 Q4 Volume (EAD)

Migrations Othercredit

Marketrisk

Operationalrisk

2011 Q4

SEKbn

RWA development

Increase Decrease

Many factors impacting outlook

• Challenging economic situation in Europe

• Real estate Sweden: Risk picture is going down

• Positive outlook in Baltic countries

10

Risk highlights

Increased focus on operational efficiency

• Improve customer satisfaction

• Increase decision-making close to our customers

• Improve quality and cost effectiveness

11

Priorities going forward

Q & A

Appendix

13

Mortgage loans gross margin (3-months)

Should cover:

Liquidy costs

Cost of adminis-

tration

Credit Impairments

Profit

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Q1 03

Q2 03

Q3 03

Q4 03

Q1 04

Q2 04

Q3 04

Q4 04

Q1 05

Q2 05

Q3 05

Q4 05

Q1 06

Q2 06

Q3 06

Q4 06

Q1 07

Q2 07

Q3 07

Q4 07

Q1 08

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Q3 10

Q4 10

Q1 11

Q2 11

Q3 11

Q4 11

Percent

Swedbanks price towards customer (3 months)Swedbank's funding cost

Stibor 3 months

Swedish Riksbanks reporate

Development of ROE and net interest margin

15

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

-15

-10

-5

0

5

10

15

20

25

30

2 004 2 005 2 006 2 007 2 008 2 009 2 010 2 011

NIM %ROE %

ROE (left hand scale) NIM (right hand scale)

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

Domestic CB Euro CB Other CB Senior unsecured

0

10 000

20 000

30 000

40 000

50 000

60 000

Domestic CP

ECP/CD USCP Yankee CD

Finnish CD

French CD

Q3 11

Q4 11

Funding development Q4

16

Long-term debt issued in Q4

• SEK 44bn of long-term debt issued in Q4 (mainly domestic covered bonds

and senior unsecured private placements)

• Demand for Swedbank short-term paper continued

• USD funding need covered for more than 12 months

Liquidity and funding

Outstanding short-term debt

Q4 11

SEKm SEKm

0

20 000

40 000

60 000

80 000

100 000

120 000

140 000

160 000

Domestic CB

Euro CB USD CB (144A)

Other CB Senior unsecured

0

10 000

20 000

30 000

40 000

50 000

Domestic CP

ECP/CD USCP Yankee CD

Finnish CD

French CD

2010

2011

Funding development FY 2011

17

Issued long-term debt

• SEK 254bn of long-term debt issued and SEK 180bn of maturities

at beginning of 2011

• Good demand for Swedbank short-term paper

Liquidity and funding

Outstanding short-term debt

2011

SEKm SEKm

18

Long-term funding maturity profile

• Maturities for 2012 amount to nominal SEK 86bn

18

Liquidity and funding

Long-term funding maturity profile

0

50

100

150

200

2012 2013 2014 2015 2016 2017-

Government guaranteed debt

Senior unsecured debt

Covered bonds

SEKbn

19

Remaining government guaranteed debt

• Exited the programme on 30 April 2010

• No issuance under the programme since summer 2009

• SEK 37bn of government guaranteed debt matures in April 2012

19

Liquidity and funding

Maturity profile as of Q4 2011

0

20

40

2012 2013 2014

USD

SEK

EUR

CHF

HKD

JPY

SEKbn

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

OC

House price sensitivity of the cover pool

20

Swedbank’s cover pool

Over-

collateralisation

House price drop

House price sensitivity of the cover pool

Liquidity reserve

21

Liquidity and funding

SEKm

1 96% of the securities in the liquidity reserve as of Q4 2011 are rated AAA

According to the template defined by the Swedish Bankers' Association1

Cash and holdings in central banks 163 215

Deposits in other banks available overnight

Securities issued or guaranteed by sovereigns, central banks or multilateral development banks 27 880

Securities issued or guaranteed by municipalities or Public sector entities

Covered bonds 54 132

- Issued by other institutions 54 132

- Own issued

Securities issued by non-financial corporates

Securities issued by financial corporates (excl. covered bonds) 1 715

Other

Total 246 942

Additional liquid assets, Group 62 082

Other, over-collateralisation in the cover pool 149 500

Total 458 524

2 80% of the additional liquid assets fulfill the Liquidity Reserve definition by the Swedish Bankers’ Association except

from that they are held outside Group Treasury.

2

Impaired loans decreasing

• Excluding FX effect down SEK 3.4bn in Q4

• Corporate portfolio quality improvements

22

Asset quality

Share of

impaired

loans, gross

29 657

6 113

4 362 196

2 391 -4 088

-3 853

-3 031-1 078

-1 926

-3 938

29 657

35 770

40 132 40 32842 719 38 631

34 778

31 747

30 66928 743

24 805

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

45 000

Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11

SEKm

1 731 319

3 620

7 696

4 792

1 281

5 366

Q4 11

Ukraine 61%

Russia 20%

Lithuania 13%

Latvia 21%

Estonia 6.6%

LCI 0.13% Retail 0.19%

Loans past due 60 days – performance Q/Q

23

Asset quality

-150

-130

-110

-90

-70

-50

-30

-10

10

30

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

EURm

Estonia Latvia Lithuania RussiaUkraine

Provisions – well provided for

• Individual provisioning rates maintained

• Additional portfolio provisions in Latvian and Ukrainian mortgages

• Positive rating migrations

24

Asset quality

Provision ratios, % Q4 11

Retail 90

LC&I 135

Baltic Banking 55

Russia 46

Ukraine 72

Group 62

18 494

16 598 15 95214 782

12 821

3 297

2 7692 436

2 409

2 435

4 3735 204

6 306

8 206 9 255

62.7%

61.0%

60.0% 59.8% 61.5%

0

5 000

10 000

15 000

20 000

25 000

30 000

Q4 10 Q1 11 Q2 11 Q3 11 Q4 11

SEKm

Individual provisions Portfolio provisions Write-of fs, gross, cum from 2010 Provision ratio

Repossessed assets

25

Asset quality

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

Q4 10 Q1 11 Q2 11 Q3 11 Q4 11

SEKm

Real Estate Residential Real Estate Commercial Passenger & Commercial Transport Shares Other

Credit impairments by category

26

Asset quality

- 483- 972

- 324

- 441

- 174

-1 500

-1 000

- 500

0

500

1 000

Q4 10 Q1 11 Q2 11 Q3 11 Q4 11

SEKm

Portfolio provisions Individual provisions Recoveries Write-offs net

27

• Lending exposure to the shipping and

offshore sector is SEK 22.7bn plus

unutilised commitments of SEK 6.1bn

– Portfolio duration 4-5y

– Average fleet age 7y

– Other represents dry bulk (4%),

ro/ro/car (7%), container (5%)

– Strong employment profiles

Shipping and offshore

Credit portfolio – Large Corporates & Institutions

Tanker26%

Other16%

Offshore58%

Shipping and offshore portfolio

Note: Portfolio breakdown based on total exposure (lending + unutilised commitments).

Real estate prices – Sweden 2011

28

Swedish housing and mortgage market

Single-family homes1 Tenant owner rights2 Combined3

12M Δ 12M Δ 12M Δ

Jan 0% 8% 2%

Feb 2% 7% 3%

Mar 2% 6% 3%

Apr 1% 6% 3%

May 0% 6% 2%

Jun 0% 5% 2%

Jul 0% 6% 2%

Aug -2% 3% -1%

Sep -3% 1% -2%

Oct -4% -1% -3%

Nov -5% -4% -5%

Dec -7% -4% -6%

Source: Valuegard www.valuegard.se (Based on data from Mäklarstatistik), 1 HOXHOUSESWE, 2 HOXFLATSWE, 3 HOXSWE

29

Real estate prices – Baltic countries

Source: Swedbank, Estonian Land Board

Source: Swedbank, State Enterprise Centre of Registers

Source: Swedbank

1 616

976

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

Ja

n-0

5

Ma

y-0

5

Se

p-0

5

Ja

n-0

6

Ma

y-0

6

Se

p-0

6

Ja

n-0

7

Ma

y-0

7

Se

p-0

7

Ja

n-0

8

Ma

y-0

8

Se

p-0

8

Ja

n-0

9

Ma

y-0

9

Se

p-0

9

Ja

n-1

0

Ma

y-1

0

Se

p-1

0

Ja

n-1

1

Ma

y-1

1

Se

p-1

1

Tallinn

Nr.of deals EUR/m2

1 762

590

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2 000

Ja

n-0

5

Au

g-0

5

Ma

r-0

6

Oct-

06

Ma

y-0

7

De

c-0

7

Ju

l-0

8

Fe

b-0

9

Se

p-0

9

Ap

r-1

0

No

v-1

0

Ju

n-1

1

Riga

Nr.of deals EUR/m2

1 731

1 103

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2 000

Ja

n-0

5

Au

g-0

5

Ma

r-0

6

Oct-

06

Ma

y-0

7

De

c-0

7

Ju

l-0

8

Fe

b-0

9

Se

p-0

9

Ap

r-1

0

No

v-1

0

Ju

n-1

1

Vilnius

Nr.of deals EUR/m2

New private lending in Sweden

• Internal LTV limit of 75% having a clear impact on average LTV levels

of new origination

30

Swedish housing market

62

64

66

68

70

72

74

76

78

2009 2010 2011

Weighted average LTV on new lending

Tenant owner rights Single-family houses Total1

1 Total of Tenant owner rights and Single-family houses