Swedbank's Interim Report Q3 2014

Swedbank's Interim Report for the third quarter 2014.
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    Swedbank  –  Interim report January-September 2014 Page 1 of 61 Third quarter 2014 Compared with second quarter 2014    The result for continuing operations amounted to SEK 4 562m (4 369)    Earnings per share for continuing operations amounted to SEK 4.14 (3.96) before dilution and SEK 4.10 (3.94) after dilution    The return on equity for continuing operations was 16.6 per cent (16.6)    The cost/income ratio was 0.41 (0.47)    Net interest income amounted to SEK 5 829m (5 521)    Profit before impairments increased by 8 per cent to SEK 5 986m (5 536)    Swedbank reported credit impairments of SEK 235m (30)    The Common Equity Tier 1 ratio was 20.7 per cent (20.9 and 18.3 as of 31 December 2013) January-September 2014 Compared with January-September 2013    The result for the period for continuing operations amounted to SEK 12 911m (11 581)    Earnings per share for continuing operations amounted to SEK 11.72 (10.55) before dilution and SEK 11.63 (10.48) after dilution 1)      The return on equity for continuing operations was 15.9 per cent (15.2)    The cost/income ratio was 0.44 (0.45)    Net interest income amounted to SEK 16 833m (16 403)    Profit before impairments increased by 10 per cent to SEK 16 616m (15 122)    Swedbank ’s  credit impairments amounted to SEK 165m (92) 1)  Including deduction of preference share dividend, earnings per share for Jan-Sep 2013 were SEK 6.84 for total operations after dilution. The calculations are specified on page 53. 05001 0001 5002 000 2 5003 0003 5004 0004 5005 000Q3-2013Q4-2013Q1-2014Q2-2014Q3-2014 SEKm Profit for the quarter, continuing operations 0,0 0,51,0 1,52,02,53,0 3,54,0 4,55,0 Q3-2013Q4-2013Q1-2014Q2-2014Q3-2014 SEK Earnings per share after dilution, continuing operations 0,0 2,0 4,0 6,0 8,0 10,0 12,0 14,0 16,0 18,020,0Q3-2013Q4-2013Q1-2014Q2-2014Q3-2014 % Return on equity, continuing operations 14,015,0 16,0 17,018,019,0 20,021,0 22,0Q3-2013Q4-2013Q1-2014Q2-2014Q3-2014% Common Equity Tier 1 capital ratio, %, Basel 3      Swedbank  –  Interim report January-September 2014 Page 2 of 61 CEO Comment Market The global recovery is out of step. The US economy continues to grow, while weaker growth in parts of Europe is creating uncertainty about the eurozone ’s recovery. Sweden’s economy is relatively strong, but low inflation is raising pressure on the Riksbank to further reduce interest rates. Although we have not yet seen any financial effects on our Baltic operations from the turmoil in Russia and Ukraine, the fragile global economy could affect growth in our four home markets. Strong result The real estate market in Sweden continues to grow. In our Swedish operations this is reflected in lending growth, especially in major urban areas. Our lending business has strengthened among large corporates as well. This raised net interest income during the quarter, whilst coming under pressure from falling interest rates. Net commission income was stable. In our Baltic operations the service model and multi-channel strategy have paved the way for new business. In the Swedish operations seasonally higher card commissions contributed to the result at the same time that we are seeing margin pressure on new sales in the savings area. Expenses decreased, mainly as a result of lower one-off expenses, but also due to lower staff costs within central functions. As a whole, our result for the third quarter was strong. Customers are our most important driving force The strong result gives us good opportunities, but we have to continue to work with internal efficiencies. The banking sector is undergoing major change, not least due to rapid technological development. Furthermore, new regulations are opening up parts of the financial market to new players and strengthening consumer power by making it easier to compare and choose between competing offers. More customers are realising the value of managing their finances through digital channels and appreciate services that make their lives simpler. Babs Micro and Swish for businesses are examples of services that simplify payment flows for small businesses. Swish, which has attracted 3 600 business customers of Swedbank and the savings banks since its launch in June, provides a comprehensive overview of their customers and can help them to grow their businesses. To provide our 8 million private customers and 600 000 corporate customers with broad-based access to competitively priced services, we have to create room for more and better designed customer solutions. This, coupled with the low inflation rate and low interest rate environment, means we have to cut our costs. Our intention is to lower total expenses for 2016 towards SEK 16bn. Savings will be achieved through cost synergies from the integration of Sparbanken Öresund and lower expenses due to digitisation and changing distribution forms, as well as through staff reductions. During the next two years 600-800 employees will leave the bank mainly through attrition. Outside recruitments will only be made in exceptional circumstances, which will put significant demands on internal mobility and flexibility. We will therefore focus on competence building and further development for our employees. This will improve the opportunities for career development in the bank. These competence-building measures and our employees’ experience from various parts of the bank will help us to develop smart and effective solutions  –  and make us even better at meeting customer expectations. We want to give our customers more in the form of freedom of choice and greater transparency, through the potential offered by technology, to make it easier for them to compare our products and services with those of others. Our customers should feel confident that they receive competitive offers from Swedbank  –  from both a Swedish and international perspective. Housing issue remains important The high debt levels of Swedish households remain an important topic of debate among politicians and authorities as well as banks. Further measures were taken during the third quarter to ease the growing debt problem by requiring mortgage borrowers to amortise and raising the risk weight floor on mortgages. However, addressing the underlying problem of a housing shortage will require further action. Michael Wolf President and CEO      Swedbank  –  Interim report January-September 2014 Page 3 of 61 Table of contents Page Financial summary 4 Overview 5 Market 5 Important to note 5 Third quarter 2014 compared with second quarter 2014 5 Result 5 January-September 2014 compared with January-September 2013 6 Result 6 Credit and asset quality 7 Funding and liquidity 8 Ratings 8 Capital and capital adequacy 8 Operational risks 10 Other events 10 Events after 30 September 2014 10 Business segments Swedish Banking 11 Large Corporates & Institutions 13 Baltic Banking 15 Group Functions & Other 17 Eliminations 19 Product areas 20 Financial information Group Income statement, condensed 25 Statement of comprehensive income, condensed 26 Key ratios 27 Balance sheet, condensed 28 Statement of changes in equity, condensed 29 Cash flow statement, condensed 30 Notes 30 Parent company 55 Signatures of the Board of Directors and the President 60 Review report 60 Contact information 61 More detailed information can be found in Swedbank’s fact book,, under Financial information and publications.    Swedbank  –  Interim report January-September 2014 Page 4 of 61 Financial summary Income statementQ3Q2Q3Jan-SepJan-SepSEKm20142014%2013%20142013% Net interest income 5 8295 52165 641316 83316 4033Net commission income2 8162 81302 520128 3227 43312Net gains and losses on financial items at fair value 7997733170 1 9171 02387Other income7061 348-48894-212 8532 42718 Total income10 15010 455-39 2251029 92527 28610 Staff costs 2 4692 901-152 32867 8077 07710Other expenses1 6952 018-161 66725 5025 0878 Total expenses4 1644 919-153 995413 30912 1649Profit before impairments5 9865 53685 2301416 61615 12210 Impairment of intangible assets01 0 1170-99 Impairment of tangible assets1969-7295-80223382-42Credit impairments23530 -56 1659279 Operating profit5 7325 43655 1911016 22714 47812 Tax expense1 1641 06310998173 3012 88714 Profit for the period from continuing operations4 5684 37344 193912 92611 59112 Profit for the period from discontinued operations, after tax-2-230-99-15-87-259-2 292-89Profit for the period4 5664 143104 178912 6679 29936 Profit for the period attributable to the shareholders of Swedbank AB4 5604 139104 172912 6529 28936   Q3Q2Q3Jan-SepJan-Sepey ratos an ata per sare20142014201320142013 Return on equity, continuing operations, %16.616.616.215.915.2Return on equity, total operations, %16.615.816.115.612.2Earnings per share before dilution,continuing operations, SEK 1) 4.143.963.8211.7210.55Earnings per share after dilution,continuing operations, SEK 1) 4.103.943.7911.6310.48Cost/income ratio0.410.470.430.440.45Loan/deposit ratio, %193189202193202Common Equity Tier 1 capital ratio, %, Basel 3 2) 20.720.918.020.718.0Tier 1 capital ratio, %, Basel 3 21.922.119.321.919.3Total capital ratio, %, Basel 3 2) 24.925.320.424.920.4Credit impairment ratio, %0.070.01- of impaired loans, gross, %0.470.440.690.470.69Total provision ratio for impaired loans, %5556535553   Balance sheet data30 Sep31 Dec30 Sepn20142013%2013% Loans to the public1 3411 26561 2487Deposits and borrowings from the public6866211162410Shareholders' equity11111021065Total assets2 0781 824141 83613Risk exposure amount, Basel 3 2) 410441-7446-8   1)  Including deduction of the preference share dividend, earnings per share for January-September 2013 were SEK 6.84 for total operations after dilution. The calculations are specified on page 53. 2)  The capital ratios for 2013 are based on Swedbank ’s  knowledge of the new regulations at that point in time. The key ratios are based on profit and shareholders’ equity attributable to shareholders of Swedbank.   Key ratios and text comments regarding lending and deposits relate to volumes excluding Swedish National Debt Office and repos.  
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