MeritaNordbanken Group - Nordea Group€¦ · 01.01.1999 · MeritaNordbanken Group 2 Annual...

MeritaNordbanken Group

Annual Report 1999Nordic Baltic Holding

This annual report covers Nordic Baltic Holding(NBH) AB (publ) and pertains to the operationsof the MeritaNordbanken Group, which com-prises the Nordic Baltic Holding Group, whoselegal structure is presented on page 7. TheGroup consists of the parent company, NordicBaltic Holding (NBH) AB (publ), which directly(and indirectly through Merita Plc) ownsMeritaNordbanken Plc, parent company of thesubgroup consisting primarily of Merita Bank Plcand Nordbanken AB (publ).

The Nordic Baltic Holding Group was establishedthrough a merger of the former ownershipcompanies in the MeritaNordbanken Group,Merita Plc and Nordbanken AB (publ). In anexchange offering, the shareholders in Merita Plcwere invited to exchange their shares for newlyissued shares in Nordbanken Holding AB (publ),the name of which was changed in conjunctionwith the exchange offering to Nordic BalticHolding (NBH) AB (publ). The name is aninterim designation, and the company plans toregister a permanent name during year 2000.

Concepts and definitionsThe terms MeritaNordbanken Group, Merita-Nordbanken and “the Bank” are used jointly todesignate the operations conducted by theNordic Baltic Holding Group. The term Merita-Nordbanken is also used to designate the NordicBaltic Holding Group per se and its businessconcept. The significance in individual cases isshown by the context. Nordic Baltic Holding

(NBH) AB (publ) is also referred to as NordicBaltic Holding, NBH and “the Group”. Merita Plcis also referred to as Merita, and NordbankenHolding AB (publ) as Nordbanken Holding AB, or Nordbanken Holding.

This is a translation of the original Swedishannual report. Printed versions of the report arealso available in Swedish and Finnish.

Most of the illustrations were taken from theGroup’s marketing and advertising materials andpresent typical, though not actual, situations.

All reports and press releases are available onthe Internet at: www.meritanordbanken.com. Theannual reports of Merita Bank and Nordbankencan also be ordered online. The annual reportand other financial reports published by theNordic Baltic Holding Group may be ordered

via SwedenE-mail: [email protected]: +46 8 614 78 51Fax: +46 8 614 87 10Mail: Investor Relations

SE-105 71 STOCKHOLM

via FinlandE-mail: [email protected]: +358 9 165 42 651Fax: +358 9 165 42 654Mail: Investor Relations

FIN-00020 MERITA

Annual report 1999


Annual Report 1999 1

PageThe year in brief 2

This is MeritaNordbanken 2

Chief Executive Officer’s comments 3

The share 7

Mission, focus and goals A new growth region emerges 11Strategy to create value 12Operative goals 14Integration continues 16Financial solutions in partnership with customers 18Europe’s leader in network services 20Expertise – a success factor 22

Result by business area 25Retail 29Corporate 37Markets 40Asset Management 43Real Estate 46

Treasury 48

Personnel 50

Information technology 54

Environment 55

Risk Management 57Credit risks 58Market risks 60Operational risks 63RAPM 64

Annual General Meeting

Nordic Baltic Holding (NBH) AB (publ)

The Annual General Meeting of Nordic Baltic Holding (NBH)AB (publ) will be held on Tuesday, April 11, 2000 at 2:00 p.m.Swedish time in the Annex, Globen, Stockholm, with thepossibility to participate in Helsinki at 3:00 p.m. Finnish timevia video simulcast at the Helsinki Fair Centre, Rautatieläisen-katu 3, Helsinki. (See also page 99.)

PageFinancial structure 66

Assets 67Liabilities and shareholders’ equity 70Off-balance-sheet commitments 70Capital adequacy 71

Legal proceedings 72

Profit and profitability 74

Profit and financial positionIncome statements 78Balance sheet 79Cash flow analysis 80Accounting principles 81Notes to the financial statements 83Nordic Baltic Holding, the parent company 97Auditors’ report 107Merita Plc 109

Board of Directors, Management, AuditorsBoard of Directors 121Group Management 124Senior Executives 126Auditors 127

Definitions and addressesDefinitions and glossary 128Major subsidiaries of the banks 129Addresses 130

An interview with resigning Board Chairman Jacob Palmstierna is presented between pages 39–40.

Contents

Financial reports, 2000

MeritaNordbanken Groupwill publish the followingreports during 2000:

January-March April 28

January-June August 23

January-September October 24

Reporting currenciesIn this annual report, theMeritaNordbanken Grouppresents income statementsand other financial dataquoted in euro. Certain dataare also given in Swedishkronor.


Annual Report 19992

MeritaNordbanken is one ofthe leading banking groupsin the Nordic and Baltic Sea

region. MeritaNordbanken createsvalue for shareholders, customersand employees as the result of itsclearly focused business strategy.

The Group develops andmarkets a broad range of financialproducts and services. The custom-er base comprises more than 6.5million private individuals and400,000 companies, institutionsand public authorities. The Group’shome market comprises Sweden,Finland and the other Nordiccountries, Estonia, Latvia, Lithuaniaand Poland.

MeritaNordbanken has a full-coverage distribution network inSweden and Finland, offering a high

degree of accessibility via almost700 branches and efficient Internetand telephone banking services. Morethan one million customers utilizethe Group’s electronic services.

The brands and products havebeen coordinated into a brandfamily that includes Merita, Nord-banken, Solo, Livia and Postbanken,in addition to international opera-tions in the MeritaNordbankenGroup. All these brands have aspecific identity for each market,although they share a com-mon Group designation –MeritaNordbanken.

In order to provide a high level of customer serviceat competitive prices, Merita-Nordbanken is organized infive major operating units,

with decentralized customer, loanand profit responsibilities. TheGroup is represented in 23 coun-tries, has approximately 19,000employees, of whom some 18,000are engaged in actual banking opera-tions.

Nordic Baltic Holding (NBH)AB (publ), MeritaNordbanken’sholding company, is listed on theStockholm and Helsinki stockexchanges.

The year in brief

This is MeritaNordbanken

Billion Euro SEK

Total assets 104.0 890.3Lending 68.2 584.1Deposits 42.1 360.3Shareholders’ equity 5.5 47.3Operating profit 1.4 12.2

Favorable profit trend, increaseddividend proposed

• Operating profit amounted toEUR 1,386 M (SEK 12.2 bn).

• Operating profit, excludingitems affecting comparability,rose 10% to EUR 1,272 M (SEK11.2 bn).

• Return on equity was 20.9%(20.6% excluding items affectingcomparability).

• Earnings per share amounted toEUR 0.53 (SEK 4.64).

• Dividend of SEK 1.75 per shareproposed.

Further steps towards a leadingNordic financial group

• New structure completed.• Cash offer of NOK 24.3 bn to

shareholders of Christiania Bankog Kreditkasse.

• Acquisitions and continuedexpansion in the Baltic countriesand Poland.

• Streamlining of operationscontinues/Aleksia real estatecompany divested.

• Acquisition of Maizels, Wester-berg & Co and merger.

Positive effects of the merger reinforced

• MeritaNordbanken is one of theworld leaders in Internet banking;the number of Internet custom-ers exceeds one million.

• Internet expansion is expectedto provide possibilities for annualearnings growth of some EUR250-300 M within three years.

• Sharp growth for mutual funds,life insurance and mortgageloans.

• Cross-border products andservices launched continuously.

• Net commissions rose 14% toEUR 822 M, corresponding to46% of net interest items.

• Costs declined to EUR 1,714 M.• Historically low loan losses.



Growth and rising interest rates

MeritaNordbanken’s domesticmarkets in Finland and Swedenwere characterized by a high levelof activity and growth during 1999,and inflation amounted to less than

2%. The stock markets in bothHelsinki and Stockholm showedstrong growth. Interest rates rose,however, with average long-terminterest rates increasing 1.4% inSweden and 0.9% in Finland.

Accordingly, conditions for theBank’s operations varied. Economic

growth generated volume andcontributed to low loan losses,while rising interest rates createdproblems in the bond portfolio.

Net interest income wasvirtually unchanged at EUR 1,798M, while net commission incomeimproved to EUR 822 M. The net

Nordic region’s most profitable financial group

MeritaNordbanken creating values in a new reality

MeritaNordbanken was established a little more than two years agoin reponse to an emerging new reality. As borders between countries,currencies and industries disappear in today’s IT and skills-orientedsociety, it is now possible for a bank to offer individual financialsolutions whenever and wherever, regardless of national borders.Commercial trade within the Nordic and Baltic Sea region is expan-ding, and growth in the area is dynamic.

The 1999 Annual Report shows that our departure fromthe traditions of a national bank was necessary and cor-rect. MeritaNordbanken is a leader in electronic bankingproducts and the Group is intensifying its relations withmillions of customers. The Bank is also taking part in thestructural development of its new domestic market regionand remains the Nordic region’s most profitable financialgroup.

During 1999, we focused successfully on:• Growth through the bid for Christiania Bank og Kredit-

kasse, continued penetration in the Baltic States and Poland and increased market shares for funds and mortgage loans.

• Conditions for continued growth through simplification of our legal structure.

• Broadening of network banking operations – more than one million customers now use our Internet services.

• Cost control – comparably, costs were reduced by 1%.Hans Dalborg


Annual Report 19994

result of financial operations,excluding items affecting compara-bility was negative. Loan losseswere extremely low. Despite sub-stantial investments, costs re-mained largely unchanged.

Profit goals achieved– increased dividend

Operating profit rose to EUR1,386 M in 1999, an increase ofEUR 16 M compared with 1998.Return on equity exceeded 20%again in 1999.

The Board of Directors hasproposed an increase in the dividendto shareholders in Nordic BalticHolding to SEK 1.75 per share. Theproposal amounts to total dividendsof EUR 427 M, corresponding to44% of profit for the year aftertaxes.

The Group’s profit is one ofthe highest operating profits repor-ted by all Nordic companies. Only afew companies reported higherearnings in 1999. Profitability is“top of the class” among compar-able banks in the Nordic region.Profit, profitability and dividend,consequently, are in line with theambitious goals established by theBoard of Directors during the year.

Favorable developmentin all business areas

Retail operations, which serveprivate customers, small and midsizecompanies as well as institutions,account for three-quarters ofMeritaNordbanken’s volume.Operations yielded highly favorableearnings again in 1999, and returnon equity was 26%.

Operations were also expand-ed in 1999. The introduction ofSolo in Sweden and passing the onemillion Internet customer milestonewere the dominant features ofbroader bank operations. In toughcompetition, the Bank also entereda cooperation agreement with i.a.the Swedish government and theChurch of Sweden. Coordinatedkey account responsibility was alsoestablished for corporate customerswith operations in both Finland andSweden. Furthermore, the intro-duction in Finland of several Swed-ish customer concepts was highlysuccessful.

Challenges in the futureinclude continued focus on theGroup’s substantial investments inelectronic services and efforts tostrengthen the Bank’s advisoryservice capacity. Preparations are

also being made for the takeover ofservices for Postbanken’s customerswhen Sweden Post terminates itsfinancial-service operations in theyear 2001.

Customer satisfaction will beincreased in all areas, includingalleviating the problem of long linesin Finnish branch offices.

Corporate Division reportedfavorable earnings in 1999, andreturn on equity rose to 14%.MeritaNordbanken defended itsdominant position in the Finnishmarket and strengthened its posi-tion in Sweden. The establishmentof MNB Maizels Investment Bank-ing reflects the strategic importanceof investment banking to overallGroup operations. Internationaloperations also reported improvedearnings, compared with 1998.

Markets reported somewhatweaker profits. Trading volumeswere down slightly more than 25%as a result of the introduction ofEMU and the termination of trad-ing in Finnish markka as an inde-pendent currency. Efforts were alsomade to improve and develop stra-tegically motivated skills and capac-ity within Nordbanken EquityTrading in Sweden, among otherunits.



Asset Management/Life Insur-ance, a priority area of Groupoperations, reported highly favor-able volume growth that generatedincreased market shares. Profitfrom asset management operationsrose sharply, 51%, to EUR 166 M.Increased costs reflect determinedefforts to create stronger growth.

Real estate is not included inthe Group’s core operations. Pro-perty divestments continued in1999 and, in January 2000, a de-cision was made to sell Aleksia, theGroup’s large real estate company.Due to current market conditions,particularly for securities in proper-ty management companies andforeign properties, provisions andwrite-downs totaling EUR 145 Mwere made in the 1999 financialaccounts.

Weak price trends forNordic bank securities

During the years 1996-1998, sharesin Merita and Nordbanken wereamong the best performing sharesin their respective stock markets.During 1999, however, markettrends for Nordic bank securitieswere weak. The price of Nordbank-en Holding shares was down 3.8%,and Merita shares rose 8.0%.

The stronger performance ofMerita’s shares, in relation to sharesin Nordbanken Holding, was aresult of the decision to formNordic Baltic Holding AB throughthe merger of Nordbanken HoldingAB and Merita Plc.

Increased liquidity in the sharesand intensive efforts to achievegrowth in the Group are intendedto strengthen future trends in theshare price.

More satisfied customers

Investments in customer concepts,product development and Internetservices in 1999 generated higherbusiness volumes from the Bank’score customers. Core customers are

the Bank’s most satisfied custom-ers, especially those who frequentlyuse our Internet services.

MeritaNordbanken improvedits customer satisfaction ratings in1999 according to surveys in Fin-land and Sweden. Greater emphasisis now being placed on further im-proving accessibility, service andadvisory capacity.

Full profit-share to employees

I have used other informationchannels to thank our employees onbehalf of the Board of Directorsand management for their workefforts in 1999, and I would like toreiterate my appreciation in this

forum. Based on our strong earningsin 1999, we have allocated fullshares to the employees’ profit-sharing fund, a total of SEK 18,200,or EUR 2,065 per employee.

A survey of employee opinionsof the Group and our operationsshowed a level of positive reactionand a rising trend.

Simplified legal structure

A decision was made last autumnto establish a simplified legalstructure.

The proposal to Merita’sshareholders for a share exchange inthe ratio of one Merita share for1.02 shares in Nordbanken Holding

to create Nordic Baltic Holding hasbeen implemented. The exchangeoffer was accepted by almost 96%of Merita’s shareholders. Themerger provides the Group with amore effective legal structure, abetter capital structure, greaterdevelopment potential and increa-sed liquidity of the share.

Focused strategy yields results

The emerging new reality that in1997 prompted MeritaNordbankento develop a joint vision has startedto take shape.

Structural changes in thefinance sector are leading to fewerregional and global players andmore players with niche strategies.To protect their interests, the Nor-dic banks need to establish strongand effective structures.

The following strategies forcreating value are MeritaNordbank-en’s answer to the substantialchanges in the financial community:

1. MeritaNordbanken shall be the leading financial player in the Nordic and Baltic Sea regions.

On September 20, 1999, a proposalfor a merger with Christiania Bankog Kreditkasse in Norway wasannounced.

The offer to shareholders inChristiania Bank, in which theNorwegian government owns one-third of the shares, was a cash offerof NOK 44 per share. When theoffer was made, a resolution byStortinget (the Norwegian Parlia-ment) existed which prevented thegovernment from accepting theoffer. We realized the decision-making process could take time.Christiania Bank’s Board of Direc-tors and employees support theoffer as commercially prudent,beneficial for shareholders, custo-mers and employees and financiallyequitable. In the autumn, Stortingetwas more receptive to a possiblesale of the Bank. The offer has been


Annual Report 19996

extended, and I am hopeful thatChristiania Bank will become part ofour Nordic group during the year2000.

In the autumn of 1999, theBaltic and Poland regional bank wasestablished within Retail. Opera-tions in Estonia, Latvia, Lithuaniaand Poland are an integral part ofour domestic market. The strategyis based on establishing a bridge-head in each of the four countriesand expanding our operations withstrong risk control, supported bymodern products and distributionconcepts. In terms of volume, thenew regional bank’s operations aremodest, but in 1999 lending dou-bled and deposits quadrupled.Thenumber of Nordic corporate cus-tomers and private customers in thedomestic markets increased sharply.

2. MeritaNordbanken shall be a partner for customers, offering customized financial solutions for their life projects.

We will create value for customersand, based on the region’s largecustomer base, establish morepartnerships with core customerswho use advisory, product packageand electronic services.

Our offer to every core andcorporate customer shall be betterthan corresponding offers by ourcompetitors. With a Nordic struc-ture, we will concentrate resourcesand skills to develop products andelectronic services with highervalues and lower production costs.

The results of our strategy areevident. One million private cus-tomers in Finland have chosen tobecome Key or Preferred cus-tomers. We expect the same volumegrowth from them that we achievedwith Plus and Benefit customers inSweden. New products were intro-duced continuously during 1999.

Determined efforts are beingmade to meet the growing demandsof corporate customers for efficientcash management and competitivemoney market products. Volumes

within Corporate in Sweden in-creased during the past year.

3. MeritaNordbanken shall be one of Europe’s leading suppliers of Internet bank solutions and electronic services.

Utilization of the Internet for bank-ing transactions and commerceincreased sharply during 1999. Allforecasts are predicting continuedrapid growth in electronic servicesand e-commerce, with particularemphasis on business-to-businesstraffic.

It is extremely important,therefore, that MeritaNordbankenhas captured a leading position here.The introduction of the Bank’s Soloconcept in Sweden during theautumn demonstrates the value ofcross-border operations.

Our target level of one millionInternet contracts was reached inmid-December. This year, the ser-vice content of Internet banking ap-plications will be increased.Our newtarget level is five million trans-actions a month by December 2000and two million Internet customersin the first quarter of 2001.

Based on MeritaNordbanken’sestimates, our investments in elec-tronic services will create potentialfor improved earnings of approxi-mately EUR 250-300 M annuallywithin a three-year perspective.

4. We shall develop world-class skills as success factors

MeritaNordbanken’s employeesmake determined efforts to servecustomers and keep costs at aminimum. They also play activeroles in the shift to electronicbanking operations in the face ofincreasingly intense internationalcompetition.

The Group’s vision is rootedfirmly in our personnel. At culturalseminars held in 1999, today’s andtomorrow’s management personnelshowed significant enthusiasm toimplement the strategies we have

chosen, despite rapid changes andheavy workloads.

Our rapid development andthe new demands the Bank is nowfacing have placed increasedemphasis on raising proficiencylevels. There is a fundamental needto maintain the highest standards,since there is no other guarantee forprofitability, growth and employ-ment in today’s world of toughinternational competition.

Enhancement of personalskills, equal career opportunities formen and women and recruitmentof superior skills and expertise aresome of the programs that wecontinued to pursue during 1999.

The year 2000 – a year of expansion

I am optimistic that, a year fromnow, we will report that we havetaken further steps toward theestablishment of a more significantpresence in the Nordic countries,as well as continued strong growthin the Baltic countries and Poland.

Our focus on understandingcustomer needs, the rapid introduc-tion of cross-border products andskills development programs for ouremployees will create improvedpotential for higher business vol-umes and unchanged or highermarket shares in priority areas. Theaction plan for electronic serviceswill strengthen our leadershipposition in this area.

With continued strategic focusand determined efforts to controlcosts we believe that, once again inthe year 2000, MeritaNordbankenwill generate growth and profit-ability unsurpassed by other Nordicbanks.

Helsinki/Stockholm February 16, 2000

Hans Dalborg



The merger of the Bank’s twoowner companies has elimi-nated the share quotation

difference caused by the previousstructure. Acquisition of new sharecapital and structural transactionshave also been facilitated. A singleshare will facilitate analyses by thefinancial market, increase liquidityin trading and enhance the impor-tance of the share in several indexes.

The simplified structure willalso enable the Group to reduce itsexposure to legal risks, while reduc-

ing tied-up capital. Capital can beoptimized, through, for example,faster dividend payments fromoperating subsidiaries to share-holders in Nordic Baltic Holding.

Simplified legal structure

One of the objectives of the 1997agreement to merge Merita andNordbanken AB (publ) was to sim-plify the Group’s legal structure.Accordingly, on September 20,

1999 a new agreement was reachedto simplify the ownership structureof the MeritaNordbanken Group.Ownership in MeritaNordbankenPlc was concentrated in Nordbank-en Holding, which became theparent company of the Nordicfinancial group.

To implement the simplifica-tion of ownership, NordbankenHolding made a public offer toacquire all shares in Merita Plc, andall convertible bonds issued byMerita Plc, against payment in the

The share

New structure – single owner company

The Group’s two owner companies have merged and, as from January 1, 2000, the Group has a single owner company – Nordic Baltic Holding (NBH) AB (publ) – with listings on the OM Stockholm and Helsinki Exchanges.

With ownership concentrated in a single owner company, the potential to develop a strong Nordic financial group has beenimproved. Single ownership will also strengthen the Group’s position for additional structural changes.

MeritaNordbanken Plc

Shareholders

Merita Bank Plc Nordbanken AB (publ)

Nordic Baltic Holding(NBH) AB (publ)

Other operationsincl. real estate

As the result of a new merger agreement on September 20, 1999, Merita and Nordbanken Holding took the next steptoward realizing the Nordic financial group envisaged when MeritaNordbanken Group was formed. Nordbanken Holdingwas transformed into a Nordic holding company, Nordic Baltic Holding, which is the parent company in a Nordic financial group.

Main legal structure after the exchange of shares


Annual Report 19998

Share trend Nordic Baltic Holding Merita Nordbanken Holding

150

130

110

90

70

50

Dec 30 Mar Jun Sep Dec Mar Jun Sep Dec 1997 1998 1999 Jan 28

2000

Nordbanken Holding

Scandinavia-DS Banks150

130

110

90

70

50

Dec 30 Mar Jun Sep Dec Mar Jun Sep Dec 1997 1998 1999 Jan 21

2000

Merita

Scandinavia-DS Banks

00

00

00

00

00

00

00

00

00

00

00

00

00

105

103

101

99

97

95

Nordic Baltic Holding

Scandinavia-DS Banks

Jan 31 Feb 2 Feb 4 Feb 8 Feb 10 Feb 14 Feb 162000

form of a new issue of shares inNordbanken Holding, and a newissue of convertible bonds byNordbanken Holding.

Shareholders were offered1.02 shares in Nordbanken Holdingfor each share in Merita. Holders ofconvertible bonds issued by Meritawere offered convertible bonds inNordbanken Holding, with corres-ponding financial terms.

The merger agreement wasapproved by Extraordinary GeneralMeetings of Nordbanken Holdingand Merita on November 19, 1999and November 23, 1999 respec-tively. A new share issue, an issue ofconvertible bonds and a reductionof the share capital and the premi-um fund were also approved by theGeneral Meeting of shareholders inNordbanken Holding. The newshare issue restored the sharecapital and premium fund to theirformer levels. In addition, theGeneral Meetings approved amend-ments to the Articles of Associ-ation of both companies pursuantto the offer to exchange shares andbonds and the merger agreement.

Acceptance by a high proportion of shareholders When the exchange period expiredon January 20, 2000, shareholdersrepresenting 95.9% of all shares inMerita had accepted the offer to

exchange shares and debentures.The Board of Directors of Nord-banken Holding initiated redemp-tion proceedings on January 21 forthe remaining shares in Merita. Onthe same date, holders of convert-ible bonds representing 91.2% ofthe total outstanding loan amounthad accepted the offer regarding anexchange for new debentures.Acceptance of the exchange offerfor shares also eliminated the needfor provisions to reduce the sharecapital and premium fund in Nord-banken Holding.

Nordbanken Holding issued atotal of 815,800,287 new shares asa result of the exchange procedure.Accordingly, the total number ofshares in Nordbanken Holding nowamounts to 2,091,067,728 beforeconversion. A maximum of23,232,168 new shares will beissued pursuant to conversion.

New nameOn January 27, 2000, NordbankenHolding registered its change ofname to Nordic Baltic Holding(NBH) AB (publ).

The share

Nordic Baltic Holding is listed onthe Stockholm and Helsinki stockexchanges. On the Helsinki Exchan-ges, the shares are traded in the

form of “Finnish DepositoryReceipts” FDRs. Immediately afterimplementation of the share ex-change, the FDR volume coveredapproximately 40% of the totalnumber of shares.

The share is quoted on theOM Stockholm Stock Exchange inSwedish kronor and, since October1999, also in euro.

Share price trend during 1999The NBH share dropped 3.8% in1999. During the same period, theBank and Insurance Index of theStockholm Stock Exchange rose17.1%. The highest quotation forNBH shares, SEK 61, was noted onJanuary 20 and the lowest quo-tation, SEK 42.30, on October 18.The share price on the last tradingday of the year was SEK 50.

TurnoverTrading in NBH shares amountedto EUR 38,303 M, correspondingto 766 million shares. Based onthese figures, NBH ranked 15th interms of share turnover on theStockholm Stock Exchange in 1999.

The NBH share has also beengiven a higher weighting in certainSwedish, Nordic and global indexes.

At February 16, 2000, themarket capitalization of NordicBaltic Holding amounted to EUR11.8 billion.

000131=100 1) 971230=100 1) 971230=100 1)

1) Datastream Banks Retail Scandinavia Index is based on 14 Nordic banks.

Earnings and shareholders’ equity per shareProfit for the year amounted toEUR 1,098 M (SEK 9,676 M),corresponding to EUR 0.53 pershare. Shareholders’ equity pershare after full conversion amoun-ted to EUR 2.68 (SEK 22.93) atyear-end 1999.

DividendThe Board of Directors of NordicBaltic Holding proposes a dividendof SEK 1.75 per share. The totaldividend payout at closing date1999 translation rate is EUR 427 M,or 44% of profit after tax. The pro-posed record date is April 14, 2000.Dividend payments are scheduledto be made on April 25, 2000.

ShareholdersAt January 1, 2000, Nordic BalticHolding had some 325,000 share-holders.



1999 1998

Total capital ratio, % 12.0 9.9Core capital ratio, % 8.3 7.3

Net interest income/average total assets, % 1.8 1.9

Operating profit/ average total assets, % 1.4 1.4

Return on equity, % 20.9 14.3– excl. items affecting comparability 20.6 18.7

Cost/income ratio, %– before loan losses 55 55– after loan losses 56 59

Loan loss level, % 0.04 0.2

Nonperforming loans ratio, % 1.2 1.7

Number of employees 18 896 19 741– of whom employed in banking

operations 18 032 18 346

Key ratios

Market capitalization of Nordic banks, February 2000, EUR billion

MeritaNordbanken

Handelsbanken

FöreningsSparbanken

SEB

Den Danske Bank

Unidanmark

Den norske Bank

Christiania

Kapital Holding

0 2 4 6 8 10 12

Shareholder structure – Nordic Baltic Holding, January 31, 2000

(20 largest known shareholders)

Shareholder: %

Swedish Government 25.92

SPP 2.54

Solidium Oy 2.08

Nordbanken’s mutual funds 1.95

AMF Pensionförsäkring AB 1.58

Fourth AP fund 1.53

SEB´s mutual funds 1.22

Skandia 1.22

SHB´s mutual funds 1.17

Nordbanken´s Profit-sharing Foundation 0.92

AMF Insurance 0.80

Suomi Mutual Life Assurance Company 0.63

Länsförsäkringar Wasa 0.53

Varma-Sampo Mutual Pension Insurance Company 0.52

Ilmarinen Mutual Pension Insurance Company 0.52

Merita Plc Pension Foundation 0.47

T Rowe Price funds 0.45

Fifth AP fund 0.43

Meiji Life Insurance Company 0.42

Pohjola Insurance Company 0.40

Source: Finnish Central Securities Depository Ltd, the SwedishSecurities Register Center (VPC AB) and DN Ägarservice AB.

Upgraded ratings

In June 1999 Merita Bank’s long-term rating was upgraded from A2to A1 by Moody’s Investor Servicesand from A to A+ by Fitch IBCA.Subsequently, Nordbanken and

Merita Bank have the same ratings.All rating institutions confirm-

ed their ratings after the announc-ement of the bid for ChristianiaBank og Kreditkasse in September1999. Moody’s Investor Serviceshas awarded Aa3 rating to long-

term loans issued by NordbankenHypotek AB. This gives the com-pany good possibilities for raisinginternational funding on competitiveterms.


Annual Report 199910

Ratings, February 2000

Moody´s S & P Fitch IBCA Thomson BankwatchShort Long Short Long Short Long Short Longterm term term term term term term term

Merita Bank P-1 A1 A-1 A F1 A+ TBW-1 AA-

Nordbanken P-1 A1 A-1 A F1 A+ TBW-1 AA-NordbankenHypotek P-1 Aa3 A-1

Shareholders in Nordic BalticHolding, at January 31, 2000

Swedishinstitutions21%

Finnishinstitutions9%

Shareholdersin othercountries29%

Swedish public 3%

Finnishpublic10%

Swedishgovernment26%

Finnishgovernment2%

Share data 1)

1999 1998

Shares outstanding at end of period, millionNordic Baltic Holding 2 091.1 2 123.9– after full conversion 2 114.3 2 151.0

Earnings per shareNordic Baltic Holding EUR 0.53 EUR 0.33– excl. items affecting comparability EUR 0.51 EUR 0.42

Shareholders’ equity per share after full conversionNordic Baltic Holding EUR 2.68 EUR 2.29

Share price at end of periodNordic Baltic Holding SEK 50.00 SEK 52.00Merita EUR 5.85 EUR 5.42

DividendNordic Baltic Holding SEK 1.75 2) SEK 1.64Merita – EUR 0.18

P/E-ratioNordic Baltic Holding 11.0 17.8– excl. items affecting comparability 11.3 13.9

1) After 95.94% acceptance by shareholders in Merita and a new convertible loan in Nordic Baltic Holding.2) Board proposal.



The economies of the Nordiccountries have undergonevarious phases of reconstruc-

tion. As the new millennium begins,economic growth is generallystrong. Poland is the fastest growingmarket among the former EasternBloc countries. However, the Balticcountries also have good potentialfor rapid growth and, with Poland,have all set their sights on EU mem-bership.

The Nordic countries aretaking part in the ongoing integra-tion of Europe, albeit under diffe-rent terms and conditions. Barriersthat formerly blocked trading ingoods and services and capitaltransactions between countrieshave been reduced significantly.

Strengths

Overall, the region has substantialstrengths ranging from Norway’s oilto the global leadership positionsheld by Finland and Sweden in tele-com and IT. The Nordic countriesare European leaders in terms ofmobile telephones and the Internetwith nearly half of the populationas users. Nordic markets are alsoattracting considerable internationalattention and leading global compa-nies are seeking partnerships andmaking investments in the region.

With cultural affinities, similarlegal systems and consumer values,the Nordic countries constitute anatural market for growing numbersof Nordic-based, and not least,international companies.

Business growth in the Nordiccountries and neighboring nationsaround the Baltic Sea is moving ra-pidly toward increased intraregionaltrade and greater integration.

Growing trade

Integration is creating good potentialfor Nordic export growth, as well asincreased trade between countriesin the region. At the same time, thestructure of trade has changed.Trade between Finland and Swedenhas increased.

Nordic investments in theBaltic countries have also increased.Three quarters of direct invest-ments in Estonia, for example, aremade by Nordic companies.

Bank market with growth potential

The Nordic and Baltic Sea region,accordingly, offers interestingopportunities for financial institu-tions to expand and increase the

efficiency of their operations.Individually, all the countries in theregion are relatively small. As acomposite unit, however, they offera broad base. The total populationof the region, 70 million inhabitants,is approximately equal to the pop-ulation of France or the U.K. Themarkets are not equally homogenous,but the ongoing process of integra-tion is reducing the differences.

Growing trade and directinvestments are creating demandfor cross-border banking services inthe Nordic countries and the Balticregion. Over the next few years, thebanking sector in the Baltic coun-tries is expected to grow twice asfast as that in the Nordic countries.Poland’s banking market could,with time, reach the size of thecombined Nordic banking market.

Thanks to a broad customerbase, the region can offer betterservice to growing and more inter-nationalized Nordic companies.

Unrestricted capital move-ments within the region have alsocreated greater demand for foreigninvestment services. Investors andinvestment funds can diversify theirinvestments in the various Nordiccountries as well as in internationalinstruments. Equity trading andsecurities brokerage represent thestrongest growth area for Nordicbanks.

The Baltic Sea has become a sea of unification in a region characterized by strong growth, particularly in telecom, other IT-sectors and biotechnology. This region is MeritaNordbanken’sdomestic market.

Mission, focus and goals

A new growth region emerges



MeritaNordbanken’s missionis to create value for itsshareholders, customers and

employees. The Bank maximizes thevalue of shareholder investmentsthrough the application of businessconcepts focused on financial solu-tions. The Bank’s value appreciationperformance should be among thehighest for publicly listed banks inthe Nordic region.

This will be achieved by apply-ing the following strategies.

1. Strategic focus

MeritaNordbanken will be theleading financial partner in theNordic and Baltic Sea region.

Leader in the Nordic and Baltic Sea regionMeritaNordbanken has chosen theNordic and Baltic Sea region as itsdomestic market. In Finland andSweden, the Bank is already one ofthe leading financial groups, offer-ing a full range of services in itschosen business areas. In Poland,

Lithuania, Latvia and Estonia, theBank’s goal is to create a strong pre-sence with a broad range of servicesfor Nordic players and innovativeconcepts for the local markets.

MeritaNordbanken shall havethe region’s largest customer base,be the first choice of companiescultivating various markets thereand offer local and global solutionsfor the largest companies in theregion.

MeritaNordbanken’s strategicgoal is to establish its position as aleading player in all the Nordic coun-tries as well as a strong presence inother countries in the Baltic region.

Financial solutions in partnershipwith customersThe Bank aims to establish full-service relationships with privateindividuals, companies and institu-

tions. Skills in understanding thespecific needs of customer groupsand individual customers are funda-mental elements in the Bank’soperations. The Bank will developtarget-oriented customer and pro-duct concepts as well as customer-specific solutions. Service will becharacterized by high accessibility.Account managers will offer pro-ducts and services superior to thoseoffered by competitors.

Based on a commerciallysound business approach, theBank’s strategic goal is increasedvolumes among existing customers,and an annual increase in the num-ber of core customers. MeritaNord-banken’s core customers shallreflect a degree of customer satis-faction at least equal to levels ofcustomer satisfaction in comparablebanks.

Overall and long-term objectives

ShareholdersIncrease value

and dividends

EmployeesBe the most

attractive employer in the region

CustomersAchieve highest level ofcustomer satisfactionamong priority customers

Management

BoardLenders

ValuePayments

Investments Dividends

Customers

Account managers

Businessareas

Customerconcept andproducts

Staff unitsand internalbank

Shareholders

Customer’s lifetime projectsand business ideas

Account managers’financial solutionsconsisting of severalproducts

Strategy to create value

MeritaNordbanken’s business strategies are based on customer neeeds. An integrated organization supports account managers with products which are packaged into individual financial solutions.



European leader in Internet servicesThe comprehensive change in theproduction and distribution ofInternet-based financial services iscreating potential for higher value,lower costs and new alternatives.Moreover, this provides greateraccessibility. Internet links amongthe Group’s customers are beingestablished and will eventuallycreate intensified business relations.Supported by electronic solutions,the Bank shall also attract newcustomers.

One of MeritaNordbanken’sstrategic goals is to secure its posi-tion as Europe’s leading supplier offinancial solutions via the Internetand electronic services.

Competitive skills National, regional and global banksare competing with each other forleadership in the region and withinelectronic services. MeritaNord-banken aims to develop unique skillsand to constantly upgrade its workmethods.

The level of personnel moti-vation shall be high in relation tocomparable banks.

Another strategic goal is todevelop first-class skills and workmethods. Where appropriate, thebenchmark will relate to the world’sleading banks.

2. Operational efficiency

Common valuesMeritaNordbanken shall maintain astrong internal culture comprisingcommon values based on renewaland dynamics, managed riskassumptions and high standards ofethics and responsibility.

MeritaNordbanken aims tocontrol risks and credit marginsthrough risk-based pricing. Newproducts and instruments will beintroduced only after thorough risk management analysis.

The need to demonstrate a

sense of responsibility and ethicsincreases with the Group’s import-ance in the societies in which itconducts banking business. TheGroup provides open and honestinformation and seeks businesssolutions that support sustainedgrowth.

Integrated organization and a common identityMeritaNordbanken’s focus onconsolidating different services toform individual customer solutionsnecessitates an integrated structurein which all units work to promotecustomer value. The organizationshall, therefore, be characterized bya common identity that creates the“right” expectations among custo-mers and the “right” working atmos-phere within the organization.

Cost awarenessAll costs are monitored and ques-tioned regularly. Cost control mustnot, however, consitute an obstacleto profitable new investments.

One share – one group – one bankMeritaNordbanken will expandregionally within a coordinatedgroup structure and with uniformbank solutions. The Group willhave a clearly defined and function-al management structure thatreflects the Bank’s strategic focusand sends unequivocal signalsthroughout the organization.

3. Optimal financial structure

No more capital than required byoperationsCapital invested by shareholderswill be used effectively in an opti-mal capital structure with therequired amounts of risk capital foradequate risk coverage and cost-effective funding. The Group’sexcess capital will be repaid toshareholders in the form of divi-

dend, for example, and share buy-back programs.

4. Reliable earnings growth

Regional dominance The integration of Nordic econo-mies and companies continues.Estonia, Latvia, Lithuania andPoland also offer substantial growthpotential. A new growth region isemerging in Europe as a homogen-eous market for growing numbersof companies.

Far-reaching changes, such asglobalization, financial sector de-regulation, information technologyand changes in demographics,welfare systems and values arecreating new customer needs.Growing demands on financialsolutions and increased pressure toreduce costs are major forces intoday’s structural transformationtoward broader regional and globalfinancial institutions and nicheplayers.

Ongoing trends in the financialsector are providing new opportu-nities for major players to creategrowth with high profitability.

Creating value

As part of its efforts to implementthe Group’s strategy, the Board ofDirectors established a number ofoperative goals in 1999.



Earnings per shareIn terms of earnings per share, Me-ritaNordbanken shall remain one ofthe most prominent publicly listedbanks in the Nordic countries.*

ProfitabilityMeritaNordbanken aims for aleading position among Nordicbanks in terms of profitability.

– Return on visible equity, how-ever, should always correspond toa minimum of average zero-riskinterest in Finland and Sweden,plus 8 percentage points.

Core capitalMeritaNordbanken will not usemore capital than is required todevelop sound business operations.However, the amount of corecapital employed should be suffi-cient to secure good ratings andcost-efficient funding.

– To meet Group requirements,the core capital ratio should be at least 6.5%.

DividendMeritaNordbanken strives for ahigh dividend payout. The dividendlevel in any given year is deter-mined by market demand and corecapital requirements for continueddevelopment of Group operations.

– The target level for dividends is40-60% of net profit for the year.

Other key goals

IncomeStable and diversified income growthwill be achieved by a higher share ofincome from commissions.

– In the long-term perspective, netcommission income shouldamount to 50% of net interestincome.

CostsMeritaNordbanken’s goal is tomaintain high cost efficiency,particularly in relation to otherNordic banks.

– The cost/income ratio in theBank’s core operations, beforeloan losses, should not exceed55%.

Risk levelsThe Group’s risk exposure will belimited and controlled. Withinacceptable risk levels, the Bank willpursue every opportunity with po-tential for stronger earnings growthand a higher return on equity.Stringent quality demands areimposed on lending operations.

– Loan losses shall not exceed 0.4%of total loans, expressed as arolling five-year average.

– Market risks may not lead to adecrease of more than 4 percen-tage points in return on equity.

– Operative (administrative, legaland technical) risks are keptwithin manageable levels underreasonable costs.

CustomersMeritaNordbanken creates valueadded through good customer rela-tions. In turn, the Bank’s customersare afforded opportunities to evalu-ate service standards, products,prices and accessibility.

– Customers shall show a high levelof satisfaction attributable to theBank’s efforts to meet theirdemands and expectations.

EmployeesSuccess is created by skilledemployees. MeritaNordbanken’semployees must be motivated,knowledgeable and highly skilled.Recruitment of new employees andpersonnel training programs there-fore focus constantly on increasingskills and service standards.

Incentive programs promotingprofitability and profit-sharing sys-tems increase the commitment ofemployees to produce excellentresults.

– MeritaNordbanken seeks highratings in evaluations of personnelskills and job motivation.

InformationMeritaNordbanken shall maintain aposition of leadership among majorNordic banking groups in providingopen, unambiguous and timelyinformation to owners, customersand employees.

*The term “publicly listed banks in theNordic countries” refers to: MeritaNord-banken, Svenska Handelsbanken, SEB,FöreningsSparbanken, Den Danske Bank,Unidanmark, Kapital Holding, Den norskeBank and Christiania Bank og Kreditkasse.

Through sustained growth in share value and dividends, MeritaNordbanken shall create value added for shareholders that ranks high in relation to other publicly listed Nordic banks.*

Operative goals

Financing settled the deal. Pirjo can relax.



The first year was highlightedby implementation of themerger. Financial control and

capital allocations were coordinated,and uniform financial reportingroutines were introduced. Opera-tions in loan processing, IT-develop-ment, treasury functions and inter-national operations were integrated,and new cross-border productsintroduced.

During the second year, 1999,coordination and integration pro-grams were continued and intensifi-ed. More new, uniform products

were also launched and integrationintroduced in new areas of opera-tions.

The third year, 2000, is expect-ed to generate additional synergygains, particularly through wide-spread application of best practice.As a result, MeritaNordbanken istaking the next major step towardfull integration.

Synergy effects

Anticipated synergies were present-

ed when the merger agreement wasannounced in 1997. Within threeyears, synergy gains were expectedto reach EUR 120 M annuallythrough reduced costs.

Reduced costsResults during the first two yearshave met and surpassed originalexpectations.

• Personnel cutbacks are continuingaccording to plan. Since themerger, the number of employeesin bank operations, calculated as a

Integration continues

During the past two years, MeritaNordbanken has shown that mergers of banks in different Nordic countries can create share-holder value.

MeritaNordbanken’s goal is to continue to create value by intensifying the ongoing process of integration.

•

•••••••••••••••

Euro Midi Money market fund

WAP-telephone banking

Solo-concept launched in the entire region

Medica Life Science Fund

Customer comcept for retail customers to Finland

Internet services to Sweden

Private banking concept to Sweden

Joint Euroland Fund

Customer concept for large and medium-sized companies in Sweden

Monthly mutual fund savings to Finland

Insurance products to Sweden

Joint Nordic Nordic Small Cap Fund

Long-term housing loans to Finland

East European Fund to Finland

One-day payment transmission between Finland, Sweden and Baltic countries

Free Visa-card withdrawals from ATMs

Jan 1, 2000

Jan 1, 1999

Jan 1, 1998

New products every month



gross amount, has been reducedby 1,500 persons.

Growth in earningsExchanges of concepts and productsbetween Finland and Sweden, andrapid development of new products,have created better potential fornew financial solutions.

• The Bank has attracted newcorporate customers, with opera-tions in both Finland and Swe-den. MeritaNordbanken’s abilityto manage payment routinesbetween the two countries hasbeen a strong argument in effortsto attract new customers.

• MeritaNordbanken’s share of pay-ment contracts between Swedenand Finland has increased steadilysince the merger, reaching 44% atyear-end 1999.

• Five joint Swedish-Finnish mutualfunds have so far been launched.At year-end 1999, these fundshad attracted more than 91,000customers and reached volumesof nearly EUR 500 M.

• The Swedish concept of monthlysavings in mutual funds was in-troduced in Finland. At year-end1999, 40,000 private customersin Finland were making regular

deposits in this new savingsprogram.

• The number of Internet custom-ers is growing rapidly, and theSolo concept was introduced inSweden in the autumn of 1999.Corporate and private customersin Sweden and Finland are nowable to execute secured-paymente-commerce transactions via theSolo mall.

Proposed merger with Christiania Bank

Christiania Bank og Kreditkas-se ASA is the second largestbanking group in Norway,

with a nationwide network of 160offices in Norway and branches in New York, London, Singaporeand Stockholm. Christiania Bankhad total assets as per September30, 1999 of slightly more thanNOK 200 billion and about 4,000employees.

With the aim of creating astrong Nordic banking group,MeritaNordbanken Plc has tendereda cash offer for all the shares inChristiania Bank. MeritaNordbank-en’s Nordic vision has met withfavorable reception in Norway, and

the Board of the Directors, manage-ment and employees of ChristianiaBank support a merger with Merita-Nordbanken.

On September 20, 1999,MeritaNordbanken submitted acash offer of NOK 44 per share toall shareholders in Christiania Bank.Under the terms of the offer,Christiania Bank is valued at NOK24.3 billion. When the offer wastendered, the premium price was29%. The duration of the offer hasbeen extended several times.

On October 19, 1999, Christi-ania Bank’s Board of Directorsrecommended that shareholdersaccept MeritaNordbanken’s offer.

The Board declared its opinion thatMeritaNordbanken’s offer wasfinancially equitable and industrial-ly sound, and emphasized thefavorable effects of a merger withMeritaNordbanken for customers,employees and shareholders.

35% of the shares in Christi-ania Bank are owned by the Norwe-gian government. Since autumn1999 a political dicussion has takenplace as to how governmentownership in Norwegian banks willbe structured.

Since making its offer, Merita-Nordbanken has acquired 9.99% ofChristiania Bank’s shares.



In a world characterized byincreasing complexity, businessalternatives that are difficult to

forecast and growing competition,customers’ needs for advisoryservices and guidance are alsoincreasing. In its relations withcustomers, the Bank is more than aprovider of services; it is also afinancial advisor.

Customer-specific financialsolutions are made possible by theBank’s ability to understand the

requirements of customer groupsand individual customers, and tomeet these requirements witheffectively produced and purchasedproducts that generate value added.

Customers also want to carryout their banking business, pay-ments, stock purchases and exporttransactions – when and where theychoose, safely, cheaply and comfor-tably, and to a growing extent viathe Internet. Options to selectways of executing transactions on

their own terms allow customersgreater freedom, and the mostfrequent users of electronic servicesare also its most satisfied customers.

MeritaNordbanken’s customershave a large number of contactchoices: the Internet, for example,telephones, cash and credit cardsand branches. Network bankingservices via the Internet are becom-ing an increasingly common contactchannel. Branch offices are assum-ing a more streamlined role as

Financial solutions inpartnerships with customers

Customer relations are the foundation of MeritaNordbanken’s business operations. The Group develops long-term relations basedon individual financial solutions to meet a broad range of require-ments and create high customer satisfaction.

Corporate customers

Large companies

Large and mid-sizedcompanies withspecially appointedaccount managers

Standard concept forsmall companies, such as Företag Direkt

Sales strategy and customer concept

Private customers

Private-bank customers/Prioritycustomers/Key customers

Plus customers/Core customers

MeritaNordbanken’s customer base comprises more than 6.5million private individuals and 400,000 corporate customersand organizations.

Core

Intermediate

Small



providers of qualified advisoryservices.

The Bank should provide solutions

The bank’s goal to provide indivi-dual solutions for each financialrequirement of every customer issupported by special service options.These include Private Banking,personal banker concepts, productpackages adapted to the needs oflarge customer groups and a broadrange of competitively priced specialservices. This base enables personaladvisors with individualized tools toprovide a unique total solution forevery customer.

The Bank works in partnershipwith corporate customers andorganizations, offering financial ex-pertise and a broad capacity to helpdevelop the customer’s business.Resources, advice and reliability areimportant to customers, but will-ingness to share a risk or help acustomer’s customer is also a keyelement.

Structure and organization forfunctionality and efficiency

The organization’s objective is todevelop products based on experi-ence gained in customer relationsand to provide services to bankunits that deal directly with custom-

ers. The business areas and stafffunctions shall operate in the faceof outside competition, wherebyquality, delivery reliability andpricing will be constantly comparedagainst those of other market players.

MeritaNordbanken’s goal is tobecome a customer-oriented salesorganization with higher skills andaccessibility, lower costs and greaterpersonal commitment than anyother bank in the region.

The merger between Meritaand Nordbanken was implemented,among other reasons, to providecustomers with a broader range offinancial solutions and concepts. Thefollowing concepts have alreadybeen introduced:

• The Swedish customer conceptfor private individuals was intro-duced in Finland during the yearand met with favorable marketreception. At year-end 1999,nearly one million Finnish privatecustomers had enrolled in variousprograms designed to generatefinancial benefits. In Sweden,where the concept was introducedseveral years ago, more than onemillion customers participate inthe bank’s loyalty program.

• The sale of Finnish unit-linkedinsurance was introduced inSweden as early as 1998. Newpremium volumes increased byEUR 0.4 billion in 1999, and themarket share for unit-linked

insurance doubled from 7.0% to15.0%.

• The Swedish concept for longhousing loans with fixed interestrates was introduced in Finlandduring 1999 and attracted wide-spread interest among customers.

• Private Banking, a tried and test-ed and highly successful conceptin Finland, was launched inSweden at the beginning of 1999.The number of Private Bankingcustomers rose to 25,000 duringthe year.

Solo for new business

MeritaNordbanken’s private custom-ers have user-friendly access toSolo, a ”mall” where the Bank’scorporate customers can displaytheir products and where trans-actions can be concluded. Paymentis easy, secure and in real time,since the payment transaction isconducted over the buyer’s andseller’s accounts in MeritaNord-banken. At year-end 1999, Solo hadmore than 300 participating shopsfrom Finland and Sweden. Inaddition, another 500 companieshad e-commerce contracts.



Rapid development of IT-basedbank operations is creatingcompletely new opportunities

to offer improved financial servicesfeaturing 24-hour availability andsharply reduced production costs.Network banking services will thusplay a critical role in the bank’s ex-pansion, profitability and share value.

Finland and Sweden are lead-ers in terms of access to PCs, theInternet and continued expansionwithin mobile telephone operations.Companies in the region commandglobal leadership positions in tele-communications, Internet consult-ing and e-commerce as well aselectronic financial services.

One of the major strengths ofNordic banks lies in the number ofcustomers who are already accus-tomed to using conventional bankingservices via the Internet. This facili-tates the rapid development of newbanking services as well as thelaunch of completely new e-servicesthat create value added for corpor-ate customers and their customers.

Internet has no limits

The pace of change is dynamic,constantly creating new challengesfor the entire financial sector. Newopportunities are emerging through

creations of new revenue sources,the potential to intensify customerrelations and higher productionefficiency. Today’s marketplace,however, also contains threats inthe shape of rapid changes in thestructure of competition, newplayers and new consumer patterns.

More than one million privateand corporate customers alreadyuse MeritaNordbanken’s Internetservices, and the number continuesto rise. In December 1999, thenumber of Solo log-ons per monthrose to 3 million, with the numberof monthly payments rising to 3.7million. The Bank’s current goal isto increase its Internet customerbase to more than 2 million by thefirst quarter of the year 2001.

MeritaNordbanken sees strongpotential to benefit from the

expanded possibilities. It has thelargest customer base in the Nordicregion, with more than 6.5 millionprivate customers and 400,000corporate customers. On thestrength of this customer base, andits clearly defined goal to increasethe total number of customersthrough continued expansion in theNordic region, the Baltic countriesand Poland, the Bank sees soundgrowth potential. The Internet iscreating a wide range of new oppor-tunities for sophisticated customerservice and customer value, withfree access across national frontiers.

Number of Internet customers

The growth in the number ofcustomers linked to Internet ser-vices is dramatic. During 1999, the

Europe’s leader in network services

Today’s financial solutions are based increasingly on electronic services. Internet solutions provide customers with the freedom todecide when, where and how they conduct their banking business.

MeritaNordbanken has sophisticated technical solutions forbanking services via telephones and the Internet, and is now concentrating its strategic focus on the Solo concept.

Internet expansion is expected to generate potential for annualearnings growth in the range of EUR 250-300 M in a three-yearperspective.

MeritaNordbanken Internet customers 1996–1999

1 200

1 000

800

600

400

200

0Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec

1996 1997 1998 1999

000s



number increased by 500,000, with200,000 new Internet customers inFinland and 300,000 in Sweden.The increase has continued duringthe year 2000.

Internet customers are theBank’s most satisfied customers.Customer surveys in both Finlandand Sweden have shown clearlypositive results.

Solo mall – the growing e-commerce site

The potential for expanding theSolo mall into a leading e-commercesite in the Nordic region is consider-ed highly promising. As a universalbank with large private and corpor-ate customer bases, MeritaNord-banken is an acknowledged leaderin new development, and the bankis strongly positioned to createbusiness opportunities betweenmillions of bank customers.

New technologies emerging

Supported by WAP, “WirelessApplication Protocol”, and EMPS,“Electronic Mobile Payment Ser-vices”, the mobile telephone isbecoming a bank terminal andpayment tool.

MeritaNordbanken is devel-oping new services like these incooperation with Nokia and VISA,partly to promote greater utilizationof Bluetooth, a technology that usesradio waves to transmit variousforms of information.

Internet investments growing

The development of network bank-ing services over the past few years,particularly in Finland, has facilitatedthe gradual adaptation of underlyingIT-systems at relatively low cost.

Future investment needs willbe determined by new trends intechnological development. Newtechnologies, acquisition opportu-nities and expansion opportunities inthe Nordic and Baltic countries willplay major roles in the Bank’s devel-opment.

Reduced costs via the Internet

Experience shows that Internetbanking operations lead to a steadydecline in costs for virtually all typesof transactions and banking services.Analyses of changes in various formsof payments, bank and post giroservices, loans and loan applica-tions, equity trading, currency ord-ers, credit/debit card transactions,bank card issues, cash transfers andcurrent account statements all pointin the same direction – a potentialfor substantial cost savings.

The same applies to the effectsof changes in various business pro-cesses. In this area, the Internet isstrengthening ongoing developmenttoward a reduction in routine workoperations and more qualified on-line advisory services and new formsof branch office operations.

Income can be strengthened

New sources of commission incomeare being created through valuablenew services, such as subscriberagreements, e-payments, e-identi-fication and e-signatures. Paymentcommissions from e-commerce andincome from distribution servicesfor external products are also seenas new sources of income. Higherincome is also forecast from in-creased volumes of consumer credits,student loans, equity trading, mu-tual fund unit purchases and im-proved cross-border sales.

Internet generates favorableeffects on earnings

Analyses of the impact of Internetbusiness on MeritaNordbanken’s in-come and expenses in future yearsare naturally difficult to quantify.The rate of new development isdynamic, and many of the factorsinvolved are difficult to evaluate.Based on a rough estimate, however,anticipations of positive effects onprofits over the next three years inthe range of EUR 250-300 Mannually appear realistic.

In the long-term perspective,successful Internet banking opera-tions will go beyond the question ofprofitability, and become a pre-requisite for survival.

Internet/Solo

Highest volume during one month in Finland:

• 61% of equity transactions

• 30% of payments

• 11% of customer creditapplications

• 11% of purchases and sales of mutual fund units

Solo customers No. of log-ons per hour and day

10

8

6

4

2

0

Time1 3 5 7 9 11 13 15 17 19 21 23

000s

At end of month

WeekdayWeekend

E-banking

Mobiletelephoneservices

Cardservices

Exponentially growing value processes



Expertise – a success factor

MeritaNordbanken shall have leading skills and expertise intwo areas:

• Knowledge of customer requirements and solutions supported by salesmanship.

• Knowledge of techniques for financial services supported by entrepreneurial ability to rapidly commercialize new technologies.

Skills development is a basic prerequisite in the Group, andemployee skills are nurtured carefully and systematically. Personnel development programs are based on requirements,evaluations and efforts to support skills and expertise throughindividual goals and other tools.

Competition in global financialmarkets is increasing. Nation-al and regional banks and

other financial service companiesare developing new products andconcepts. The Internet explosion iscreating new opportunities to pene-trate the market. Large companiesare recruiting personnel with great-er financial skills and becoming lessdependent on services providedfrom their domestic market base.

Skilled employees have satisfied customers

In this situation, employee skills area critical competitive factor. Pro-duction is the most difficult factorto emulate. Skills comprise know-ledge, commitment and talent.Only the very best skills are goodenough when the goal is to be theregion’s leading financial institution.

Satisfied customers influenceGroup earnings

All skills development programs areinvestments to improve customersatisfaction and profitability. Moti-vated and skilled employees influ-ence the Group’s development andearnings.

The Bank strives to evaluatechanges in behavioral patterns andthe economic effects of invest-ments in skills development. It isimportant for employees them-selves to monitor and control theirown skills development. Skills andknowledge can be developedthrough the exchange of goodexperience and work methods withother employees and groups. Everyemployee should have individualdevelopment goals that are moni-tored and updated at regular inter-vals to ensure that developmentinvestments are generating improvedperformance standards.

Individual requirements

Required individual skills mean thatall employees are familiar with theGroup’s business focus, strategiesand goals, and that Group employ-ees plan and perform their jobassignments with these consider-ations in mind. Skills also includeperformance standards, wherebyservices rendered are characterizedby high quality standards and soundbusiness ethics that create custom-er value and contribute to theachievement of Group goals.

Personal skills of MeritaNord-banken employees include thefollowing requirements:

• An entrepreneurial spirit definedas the ability to accommodatecustomers, generate profitabilityand a holistic approach to busi-ness ethics and quality.

• A clear understanding of share-holder value and how each



employee can influence values inbanking operations.

• Customer focus, which is definedas the knowledge of the custom-er’s operations, of the way thecustomer solves problems, otherfactors influencing businessdevelopment and relations be-tween customers and their cus-tomers.

• Shared values with managementand colleagues regarding workmethods and goals.

• Internet skills and a multi-cul-tural approach – the ability tocreate and maintain cross-borderrelations with customers andcolleagues.

• The ability to learn about newdevelopments and recognizeopportunities created by change.

Professional requirements

Professional skills and expertise areperishable commodities. Rapiddevelopment in the banking indus-try and changes in customer re-quirements must be met andmatched constantly by the Bank’semployees. Customer expectationson performance standards mustcorrespond with employee skillsand knowledge, requirements andobjectives.

By defining skills requirementsfor every job category, the bank isable to establish exact requirementsand implement measures to securecompliance. It is also importantthat employees are willing to acceptnew job assignments and be pre-pared to meet the expectations anddemands of the customer and theBank.

Professional skills are deve-loped and kept up-to-date throughvarious means:

• Development and training cur-rent employees to solve new jobassignments within and outsidethe Bank.

• External recruitment to provideskills that may be lacking and togain access to ideas and experi-ence from other areas of business.

• Use of external suppliers foractivities that might attract skillsneeded by the Bank in the long-term perspective.

• Retention of the best internaltalent by providing individualdevelopment plans, challengingjob assignments and incentiveprograms.

Arne handles the company’s currency management and payment flows through Nordbanken’s international branches.



Decentralized profit responsi-bility essentially means thatthe Group’s total business

relations with customers are report-ed in the customer unit’s incomestatement and balance sheet. Share-holders’ equity is distributed amongthe customer units, and each unit'sperformance is evaluated in relationto its individual return on allocatedcapital target. Among the businessareas, with the exception of RealEstate, shareholders’ equity is dis-tributed in accordance with currentcapital adequacy regulations.

During 1999, a model pro-

viding more accurate estimates thanBIS regulations was developed tocalculate capital requirements, withregard to each business unit's actualrisk exposure. The model takes intoconsideration credit risks, marketrisk and other risks, and optimizesutilization and distribution of capitalbetween the different business areas.

In addition to customer re-sponsibility, Asset Management/Life Insurance and, to some extent,the other operating business areas,also assume product responsibility,which means that each customerunit must have access to a competi-

tive and profitable product range.Business units with product respon-sibility are monitored throughevaluations of individual productearnings, which cover all incomeand expenses attributable to theproduct, including marketingexpenses within Regional Bankoperations.

The redistribution of capitalamong the Group's business units isalso shown in the presentation here.Most earnings reported by AssetManagement/Life Insurance, forexample, are redistributed to cust-omer units in Retail and Corporate.

Results by business area

Decentralized profit centers with focus on profitability

MeritaNordbanken's operations are grouped in five business areas:Retail, Corporate, Markets, Asset Management/Life Insurance andReal Estate. These operate as decentralized profit centers. The Bank’s financial management operations are conducted byTreasury and Other.

CEO

Executive Board

Retail

Group Staffs

Corporate

Service units

Markets

Asset Management/Life Insurance

Real Estate

Board of DirectorsCustomers

Owners

Operative organization in MeritaNordbanken



Increased earnings and highprofitability in Retail

Retail accounts forthebulk of Merita-Nordbanken's business operations,and earnings in 1999 amounted toEUR 830 M, an increase of EUR 85 M compared with the precedingyear. Lower interest rates duringthe year led to a modest decline inmargins from bank deposits, whilegrowing business volumes, particu-larly in financing operations forprivate housing, long-term savingsand short-term payments had afavourable impact on revenues.Overall revenues declined somewhat,compared with the preceding year.

As a result of continued effortsto improve operating efficiency,costs were lower than in the preced-

ing year, while substantial recov-eries contributed to a decline in netloan losses, which fell to a histor-ically low level in 1999.

Return on allocated capitalamounted to 26%, and the costs-to-income ratio before loan losses was 59%.

Corporate earnings also rose

Earnings by the Corporate businessarea in 1999 amounted to EUR278 M, an improvement of EUR221 M compared with the prece-ding year. Earnings in 1998 wereaffected by low-yield assets, whichwere excluded in 1999. The preced-ing year’s earnings were also chargedwith a provision of EUR 84 M to

cover the Bank’s internationalcredit exposure. Revenues rose by55%, as a result of continued growthin business volumes, particularly inthe beginning of the year, stablemargins and capital gains.

Cost increases were limited to17% due, among other factors, tothe addition of resources in Corpor-ate Finance. Provisions made in1998 to cover losses from inter-national credit exposure are consid-ered adequate for continued cover-age of the remaining credit risks.Loan losses, net, were positive.

Return on allocated capitalamounted to 14%, and the costs-to-income ratio before loan losses was 37%.

Earnings by business area, 1999

Assetmanagement/

EUR million Retail 1) Corporate Markets Life Insurance Real Estate Treasury Other Total

Income 2 153 425 152 270 113 108 -196 3 025Expenses -1 280 -157 -100 -49 -175 -21 68 -1 714Loan losses -43 10 – – – – 11 -22Profits from companies accounted for under the equity method – – – – 6 – 91 97

Operating profit/loss 830 278 52 221 -56 87 -26 1 386of which, reallocated 193 3 -23 -173

Write-downs on real estate -145Loss for the year -201

Operating profit/lossQ4, 1999 228 78 28 66 -22 23 -66 335Q3, 1999 216 62 -2 48 -11 10 -41 282Q2, 1999 189 85 -3 60 -12 -17 -22 280Q1, 1999 197 53 29 47 -11 71 103 48912 months 1998 745 57 36 160 -114 296 190 1 370

Product earningsIncome 270Administrative expenses -49Sales and distribution expenses -55

Product earnings 166

Product earningsQ4, 1999 50Q3, 1999 34Q2, 1999 48Q1, 1999 3412 months 1998 110

1) Includes all units in Retail. In prior reporting, the results for Regional bank operations were reported solely in Retail. Historically, Retail and “Other” have been adjusted.



Weaker earnings by Markets

Market’s operating profit amountedto EUR 52 M. Adjusted for lossprovisions totaling EUR 33 M in1998 to cover unauthorized equitytrading, profit for the year declinedby EUR 17 M. The decline was duemainly to weak earnings from trad-ing in interest-bearing securities,while profitability on currency trad-ing remained strong, despite lowertrading volumes caused by theintroduction of the euro. Increasedstock market activity contributedto higher earnings from equitytrading.

Operating costs declined duemainly to lower costs for systemsdevelopment.

Strong growth in mutual fund savings

Product earnings reported by AssetManagement/Life Insurance, whichinclude all income and expenses formanagement, sales and distribution,rose 51% to EUR 166 M. Growinginterest among private individualsin long-term savings and active

funds management by companiesled to highly favorable sales duringthe year. In Sweden market sharecontinued to rise in 1999. Combin-ed with a sharp increase in values ofmutual funds-related savings,particularly toward year-end 1999,total volumes under managementrose 60% to EUR 33.0 bn. Earningsincreased 34% to EUR 270 M, be-fore sales and distribution expensesin the branch network. Manage-ment costs rose 19%, due mainly toan expanded range of products.Operating profit amounted to EUR221 M (160).

Phase out of Real Estate continues

Real Estate reported a loss, beforedepreciation of EUR 145 M,amounting to EUR 56 M, comparedwith a loss of EUR 114 M a yearearlier. The reduction in the losswas attributable to lower interestrates and continued divestments ofthe non-core property portfolio.Also see Real Estate, on page 46,concerning the sale of the Aleksiareal estate company.

Rising interest rates affectedTreasury's earnings

Earnings within Treasury amountedto EUR 87 M, a decline of EUR209 M compared with 1998.During the second quarter of 1999,a reversal was noted in the earlierdownward trend for market interestrates in both Finland and Sweden,which had a negative impact on thevalue trend of interest-relatedportfolios under management byTreasury which are marked tomarket (current assets). The unit'sinterest risk was gradually reducedduring the year.

Other

In addition to Group adjustments,Other includes income and expen-ses that are not directly attributableto the business units. Includedamong earnings is the capital gainfrom the sale of shares in thePohjola Insurance Company andadjustments of redistributed incomeand expenses among the businessareas.

e-asier!

www.nb.se

www.merita.fi



With a customer base of 6.5million private individuals,MeritaNordbanken is the

Nordic region's largest retail bank.Retail customers also include morethan 400,000 companies and insti-tutions as well as large sections ofthe public sector. The total businessvolume in regional banking opera-tions (lending/guarantees andsavings/investments) amounted toEUR 111 M at year-end 1999.

Retail had 14,000 employeesat year-end.

Regional banks

Retail operations are conductedthrough nine regional banks indefined geographical areas and aspecial Private Banking unit, whichfocuses on customers who demandqualified investment services.

The branch offices and regionsof all regional banks assume fullresponsibility for the results andrisks of their customers. Businessdecisions are decentralized, andstandardized work methods, pro-cesses and customer concepts areapplied to ensure quality and costeffectiveness.

Baltic countries and Poland– a new domestic market

The Baltic countries and Poland arebecoming increasingly important tothe foreign trade activities of Swe-den and Finland. Growing numbersof Nordic companies are establish-ing operations in these countries.To meet their banking needs, andexpand its own domestic market,MeritaNordbanken established anew regional bank for the Balticcountries and Poland in 1999. As aresult, these countries are now alsoconsidered part of MeritaNord-banken's domestic market, with asimilar organizational structure andproduct range.

The Bank conducts operationsin Estonia, Latvia, Lithuania andPoland. In the beginning of the year2000, MeritaNordbanken acquired

the operations of Société Généralein Riga and Vilnius. The acquisitioncomplements the focus on expan-sion through organic growth, whichprovides minimal risks and moreeffective cost control.

Investments in IT and productdevelopment will provide custom-ers with a wider range of improvedservices already in the year 2000.

Private Banking

Private Banking offers investmentadvisory services to MeritaNord-banken’s high net worth customerswith access to a minimum ofapproximately EUR 125,000 forprivate investments. Three Finnishunits also offer discretionary equitymanagement services.

Retail

Largest retail bank in the Nordic region

Units within the Retail business area are responsible for the development, marketing and distribution of a complete portfolio of financial products and services for a broad range of individuals,companies and institutions, as well as the public sector.

Regionbanker

Produktbolag

RetailverksamhetenChef Lars G NordströmChef Lars G Nordström

Stabs- ochservicefunktioner

Regionbanker

Privatbanken

Produkter ochmarknader

Regionbanker

Product companies

RetailLars G Nordström

Staff and servicefunctions

Regional banks

Private Banking

Products andmarkets



MeritaNordbanken's regionalbanks have 39 private banking units,with 27 in Finland and 12 in Swe-den. The Swedish units becameoperational in 1999, and customerreception was favorable.

MeritaNordbanken PrivateWealth Management in Helsinkiand its subsidiary MeritaNordban-ken Luxembourg S.A. are indepen-dent operating units. Both unitsoffer a complete range of privatebanking services.

At year-end 1999, assets undermanagement by Private Banking onbehalf of 25,000 customers amount-ed to just over EUR 15 bn. Opera-tions in 1999 were characterized bystrong growth, in terms of bothcustomers and business volumes.

One organization for all Retail operations

Retail's product and marketingorganization develops and offerseasy-to-use, standardized products

Volumes in EUR millionData as per December 31, 1999

Central & Eastern & BalticHelsinki Western Northern Southern Western Central Northern countries

& Uusimaa Finland Finland Sweden Sweden Stockholm Sweden Sweden & Poland Total

Lending 5 796 4 864 5 717 6 156 5 948 9 027 6 156 4 211 252 48 127Guarantees 275 243 230 207 116 123 133 129 34 1 490

Total 6 071 5 107 5 947 6 363 6 064 9 150 6 289 4 340 286 49 617

Deposits 8 276 5 745 6 146 2 437 2 799 6 821 3 592 2 054 204 38 074Mutual funds 827 513 536 2 614 2 887 5 237 3 563 2 351 18 528Insurance 1 010 761 733 303 335 618 408 281 4 449

Total 10 113 7 019 7 415 5 354 6 021 12 676 7 563 4 686 204 61 051

No. of employees 2 198 1 989 2 554 677 903 928 923 584 144 10 900No. of branches 119 151 203 53 53 47 70 32 14 742

Distribution of income

1999 1998

Net interest income 68% 74%Commissions, etc. 32% 26%

Eastern &Northern Finlandand Ostrobothnia

Central &WesternFinland

Helsinki &Uusimaa

SouthernSweden

WesternSweden

Central Sweden

NorthernSweden

Stockholm

Balticcountries& Poland

Retail

EUR million 1999 1998

Income 2 153 2 211Expenses -1 280 -1 353Loan losses -43 -113Operating profit 830 745

MeritaNordbanken has nine geographically distributed regional banks.



to meet customer needs and pro-vide broad-based, efficient distribu-tion. The organization is also struc-tured to offer customized solutionsvia, for example, Private Banking, orcorporate service units.

The organization comprises thefollowing units:

• Corporate and FinancingThe unit develops service con-cepts for corporate customersand deposit products for theprivate and corporate markets.

• Personal Customers and DepositsThe unit is responsible for cus-tomer concepts and housing loansfor private individuals and loanproducts for both private indivi-duals and corporate customers.

• Asset Management, Life Insurance and Private BankingThe organisation is responsiblefor long-term savings in mutualfunds, insurance and securities,for example, and for the develop-ment of high net worth customerservice concepts.

• Payments and Network Banking ServicesThe unit offers all types ofdomestic and cross-border pay-ment services. The unit alsodevelops new network servicesfor transactions via the Internet,telephones and other media.

• Market SupportThe group is responsible for theBank’s market communications,direct mail advertising, tele-marketing and graphic design aswell as market analyses andcustomer segmentation.

• Distribution and Service NetworksThe unit develops distributionstrategies, including organizationof office networks, and coordi-nates the Bank’s range of servicesand distribution channels. It isalso responsible for relations withbusiness partners.

• Production and ProductivityThe unit has overall responsibilityfor product development andsupervises several joint back-office functions.

Product companies

Retail also includes a large numberof specialized product companiesthat develop and offer products tosupplement the Bank’s portfolio.Products include leasing, factoring,mortgage loans and other servicesto meet customers’ financial requi-rements. The products are marke-ted primarily through the branchnetwork, but also through otherchannels. See page 35.

Unified approach – best practice

During 1998, all staff units, servicefunctions and product areas withinRetail were integrated to providethe units with functional responsi-bility for markets in both Finlandand Sweden. Consequently, onlyone manager is responsible for eachcustomer group or product catego-ry. All marketing activities in Fin-land and Sweden have been coordi-nated since the spring of 1998.

New products and conceptshave been launched in Finland andSweden. The best products fromMerita have been introduced withinNordbanken, and vice versa. “Bestpractice” also applies in back-officeand central production functions.

News in 1999

Funds and savingsThe concept of “multi-currency”funds was developed further duringthe year. Three funds based on themulti-currency concept have beenlaunched in Sweden and Finland.

Monthly savings in mutualfunds, a concept introduced inFinland in 1998, showed strong

expansion during 1999. The num-ber of monthly savings clients inFinland tripled during the year.

FondDirekt is a new conceptintended to increase accessibilityand raise the level of services tocustomers in fund savings andmutual funds. FondDirekt wasintroduced in Sweden during 1999and received a favorable reception.

FinancingIn Sweden the market share forhousing loans continues to increaseas a result of determined efforts bybranch personnel working in coope-ration with real estate brokers. TheBank signed a central cooperationagreement with Mäklarsamfundet(Association of Swedish Real EstateBrokers) two years ago. For thesecond consecutive year, specialHousing Days were held in Swedenand Finland, with branches in bothcountries remaining open on Satur-days. The Housing Days attractednearly 45,000 customers.

Housing loans via the Internetwere introduced for Solo customerstoward the end of October. In theautumn, student loans via theInternet were also introduced inthe Finnish market.

Long-term mortgage loans(long housing loans) based on theSwedish model were successfullyintroduced in the Finnish market.Mortgages formerly offered forperiods of 10-12 years, the normfor housing loans in the past, arenow offered with maturities of 15-20 years. Demand for housingloans in Finland increased again in1999.

In September, TelephoneLoans were launched in Sweden.The service is targeted to customerswho require fast responses andloans. The concept competes prim-arily with more expensive telephoneloans offered by various financecompanies.

“Cross-border credits” werealso introduced in 1999, wherebycustomers residing in Sweden are



offered loans for the purchase ofproperties or home improvementprojects secured by collateral onobjects in Finland.

Sales strategy and customer concept

Corporate marketThe structure and operating meth-ods of MeritaNordbanken’s branchoffices have been further adaptedto meet the specific needs of large,midsize and small companies. Forcorporate customers with opera-tions in both Finland and Sweden,account managers have beenappointed to manage these custom-er relations in both countries.

Customized skills develop-ment programs designed to enhancethe ability of branch office employ-ees to actively offer advisory andother high-quality services havestrengthened the business concept.

Private marketCustomer concepts introduced forthe private market in Finland havebeen successful and attractedwidespread appreciation amongcustomers. Since the concept waslaunched in March 1999, nearly onemillion Key and Preferred custom-ers have subscribed to the service.Key and Preferred customer con-

cepts offer several benefits forcustomers who choose to concen-trate their banking business inMeritaNordbanken. The servicesare similar to Benefit and PLUSconcepts offered to customers inSweden.

A large number of PersonalBank Advisors have been trained tooffer greater skills and expertise inseveral areas of the private market.Personal Bank Advisors act asfinancial advisors to a number ofKey customers and their families.

Customer service

An important aspect of Merita-Nordbanken’s strategy is to exploit

the potential for added sales in theBank’s present customer base and,using various customer conceptsand pricing alternatives, inducecustomers to centralize most oftheir transactions in the Bank.Long-term relations and high cus-tomer satisfaction also contribute tosustained and strong profitability.

The Bank regularly conductsopinion surveys among both cus-tomers and employees. The surveysare conducted at branch office level,and the results are used in formulat-ing and developing local businessplans. During 1999, the Bank im-proved its position in relation to itsmain competitors.

dec -99

259 655

55 495

10 320

325 470

Market shares, households, December 31, 1999

Finland

Insur-ance1)

Mutualfunds

Deposits

Housingloans

Totallending

Sweden

Insur-ance1)

Mutualfunds

Deposits

Housingloans

Totallending

0 10 20 30 40% 0 10 20 30%

DepositsFinland

DepositsSweden

LendingFinland

LendingSweden

Market shares, Corporate, December 31, 1999

0 10 20 30 40 50%

Core customers

Intermediatecustomers

Small customers

Total

Private marketCustomer structure, Dec 1999 compared with Dec 1998.

541769

765797

2 177 067

3 484 633

1) As per September 1999.

+60 575

+522

-162 772

-101 675

+51 199

+48

-974

+50 273

Change innumber

Changes in the customer base are monitored at bankand branch level. The diagram shows an example ofmonitoring in a section of the customer base.

Change in operatingvolume, SEK M



Accessibility

MeritaNordbanken aims to beaccessible whenever and wherevercustomers need banking services.All Retail customers are affiliatedwith a branch office. Branch mana-gers, in turn, are responsible for allRetail customers, regardless of thechannel used to access the services.

On December 31, 1999, theMeritaNordbanken Group had atotal of 742 branches. In addition,products and services are availableat approximately 1,000 post officesin Sweden – a service that will beterminated on April 1, 2001 – aswell as at 1,400 Solo ATMs andmore than 2,000 cash dispensers inFinland. In Sweden, the Bank has620 wholly-owned ATMs and 2,400cash dispensers available to custom-ers through agreements with otherbanks.

The Bank’s international net-work comprises full-service branchesin London, New York and Singapo-re, 12 representative offices/agentsas well as contacts with a largenumber of banks around the world.

Technology assists customers

MeritaNordbanken’s contacts withcustomers, and the Bank's approachto product sales and distribution,are changing rapidly. MeritaNord-

banken has concluded Internet ortelephone banking agreements withover one million customers. TheBank's development work andchanges in customer behaviourpatterns are constantly promotingincreased utilization of these accesschannels.

New concepts introduced in 1999 included:

• Solo – electronic banking servicesvia Internet and telephone, aswell as e-commerce in Sweden.

• WAP, Wireless ApplicationProtocol – telephone bankingservices in Finland.

• Telephone Loans – fast loan service available seven days aweek for small unsecured loans in Sweden.

The new services mean that custom-ers no longer need to adjust tobanking hours, and that there is lessrisk of waiting in line for service.

In Finland, a large number ofprivate individuals pay their billsthrough ATMs. In 1999, however,payments via the Internet increasedslightly more than 33%. Internetpayments have also led to a declinein post and bank giro payments inSweden.

Lines at bank branches inFinland attracted media attention in1999. Because of its large branchnetwork, MeritaNordbanken was

the target of particularly harshcriticism since a large number ofcustomers from other banks usedMeritaNordbanken branches forvarious payment services, especiallyin metropolitan areas. A compre-hensive action program is nowunder way to improve conditions.More cash offices are being estab-lished in the Helsinki area, forexample, at the same time as effortsto increase utilization of automatedservices are being intensified.

Increased use of payment cards

Debit and credit cards are graduallytaking over as a common paymentmethod, while check payments are becoming increasingly rare. InSweden, cash cards have gained afirm foothold in the market, withmore than 36,000 sales outlets andmore than 500,000 active cards.The number of cash card purchasesincreased in 1999 to about 500,000per month.

Payment card purchases in-creased more than 30% in 1999.Despite the sharp increase, cashwithdrawals from ATMs also in-creased in Sweden during the year.

In May 1999, Merita issuedthe Bank’s first credit cards –MasterCard and MasterCard Gold.

MasterCard Platinum, a third

Location of operations

800

600

400

200

0

Number

Finland Sweden Poland and TotalBaltic region

1998

1999

Total change -37

MeritaNordbanken, log-ons Per month 1996-1999

3500

3000

2500

2000

1500

1000

500

0

Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec1996 1997 1998 1999

Net inflow 1999

3500

3000

2500

2000

1500

1000

500

0

Thousands

Cards and ATMs

Other transactions

Manual transactions

Solo transactions

1997 1998 1999

Thousands



new credit card, was also introducedin 1999. The new card is intendedexclusively for Private Bankingcustomers.

First Card, a corporate creditcard affiliated with MasterCard, wasacquired in January. The producthas a 35% share of the Swedishcorporate card market and salescontinue to be successful.

Test operations with VisaPurchase cards were started in May1999 in cooperation with Luotto-kunta.

More than one million customers on the Internet

MeritaNordbanken consolidated itsleading position in the emergingInternet banking sector in 1999.Serving more than one millionInternet customers in Finland andSweden, MeritaNordbanken offersnetwork services under one name,Solo. The name is strong in Finlandand was gradually introduced inSweden during 1999. Solo providesleading Internet services that arealso available through a growingnumber of channels, such as WAP,GSM and telephones. The numberof monthly log-ons in Decemberrose to 3 million.

From branch office to conference site

Technological development isaffecting the traditional branch,which is rapidly being transformedfrom a transaction facility to avenue for meetings and advisoryservices. The number of traditionalbranch offices has declined steadily

during recent years, in parallel withthe establishment of new mannedfacilities, such as Bank-in-Store.Eight new outlets were establishedin 1999, and MeritaNordbankennow has 49 Bank-in-Store facilitiesin large shopping malls in Finlandand Sweden.

MeritaNordbanken is alsoexpanding accessibility throughcall-centers to process customercontacts via telephone and Internet,with the latter accounting for thestrongest growth rate. Customersuse call-centers to conduct a broadrange of bank transactions. The call-centers also work actively withtelephone sales and bookings ofcustomer appointments. To providefor more effective coordination oftelephone services and e-mail, acommon CTI computer system hasbeen placed in operation. The Bankhas five call-centers in Sweden andone in Finland.

Swedish government authoritiesand the Church of Sweden

Following official public tender, anagreement was reached with theSwedish government on governmentpayments. The framework agree-ment includes payments by the gen-eral public to and from governmentauthorities as well as payments ofwages, salaries and pension benefitsto government employees. Underthe terms of the agreement, Merita-Nordbanken is the government'sexclusive bank for payments ofwages, salaries and pension bene-fits. The term is at least two yearsas from January 1, 2000, with aGovernment extension option oftwo years.

In a decision announcedtoward year-end 1999, the CentralBoard of the Church of Swedenappointed MeritaNordbanken as itsfinancial partner. The agreement,which represented one of the mostcomprehensive ever reached inSweden, was concluded in strongcompetition with other major banks.The contract pertains primarily tothe management and processing ofchurch levies, effective January 1,2000, when church and state wereofficially separated in Sweden.

Cooperation with Sweden Post

Nordbanken has cooperated formany years with the Swedish postalauthority, Sweden Post. In the au-tumn of 1999, Sweden Post an-nounced its decision to terminatethe cooperation agreement, effectiveApril 1, 2001. The cooperation pro-gram has been important to Nord-banken for many years, but withtechnological development andincreased utilization of automatedservices, its significance has declined.

Since notice of terminationwas served by Sweden Post, theBank has studied various alternativesto replace traditional services avail-able through Swedish post offices.The Bank plans to establish newbranches and service outlets in aboutsome 200 communities throughoutSweden.

Customer services offeredsince the autumn of 1996 underthe Postbanken brand name will becontinued in a revised form. In thefuture, customers will be offered afull range of replacement servicesthrough existing and newly develo-ped distribution channels.



Nordbanken Hypotek AB (publ)

The company is one of Sweden’smajor home mortgage institutions.In order to satisfy customers needsfor secure and long-term planningof their loan structure, a qualifiedand competitive range of long-termproperty financing solutions isoffered through the Bank’s branchnetwork to private, corporate andpublic sector customers. Nordbank-en Hypotek has been given a long-term rating of Aa3 by Moody’sInvestor Service, which provides asolid base for raising internationalfunding on competitive terms.

Nordbanken Kommunlån ABwas merged with NordbankenHypotek in November 1999.

Nordbanken Industrikredit AB(publ)

Nordbanken Industrikredit con-centrates on long-term funding,primarily for small and midsizecompanies.

Coordination of operationswith Nordbanken Hypotek, whichwas initiated in 1998, continued in1999. In accordance with an earlierdecision, the company will bemerged with Nordbanken in theyear 2000.

Nordbanken Finans AB (publ)

The company is responsible forfinance-company products inSweden, Norway and Denmark.The principal products are leasing,installment plans, factoring, con-tract financing, credit cards andconsumer credits. The products aremarketed primarily through theBank's branch network, but also bysuppliers and retailers that offersales financing.

Merita Finance Ltd

Merita Finance is the Group’sfinance company in Finland. It isalso responsible for markets in theBaltic countries and Poland. Itsprincipal products are leasing,installment plans, factoring andcontract financing. The productsare marketed through the Bank’sbranch network and via Internet,but also by suppliers and retailersoffering sales financing. MeritaFinance has two subsidiaries inFinland: Tukirahoitus Oy and M-Rent Oy. Merita Finance also con-ducts finance-company operationsin Estonia, Latvia and Lithuaniathrough Estonian Industrial LeasingLtd., MeritaNordbanken FinanceLatvia Ltd. and MeritaNordbankenFinance Lit Ltd., respectively.

Merita Customer Finance Ltd

The company markets and managessome of the Bank’s consumer loansin Finland. The operations may beclassified into three different areas:sales financing cooperation withretailers, consumer loan administra-tion and direct sales of unsecuredloans to private individuals.

Merita Capital Ltd

The company conducts risk-capitalinvestment activities and managesthe Profita Fund I Kb capital fund.Merita Bank owns 42% of thefund’s capital. Other investors inthe fund consist primarily of insur-ance companies.

Huoneistokeskus Oy

The company offers real estatebrokerage services relating topurchases, sales and leasing con-tracts. In cooperation with MeritaBank, Huoneistokeskus also offers a complete range of services tocustomers changing residence.

Product companies within Retail

MeritaNordbanken Loans to Shareholders’ Operating NumberMajor subsidiaries (EUR M) Total assets the public equity profit of positions

Nordbanken Hypotek 18 219 17 527 781 130 54Nordbanken Industrikredit 2 585 2 490 311 27 7Nordbanken Finans 3 055 2 792 516 41 281Merita Finance 2 394 2 313 212 60 298Merita Customer Finance 981 965 50 37 240Merita Capital 8 1 4 0 6Huoneistokeskus 21 13 2 10 517

Group life insurance gives the family security at low cost.



The Corporate business areaworks mainly with corporatecustomers. Separate Corpor-

ate Divisions have key account re-sponsibility for the Group’s largestcorporate customers and shippingcustomers. Other units offer prod-ucts and services supporting theinternational operations of Merita-Nordbanken’s corporate customersand international financial institu-tions and foreign companies. Speci-al product units are concentrated inHelsinki and Stockholm. Merita-Nordbanken has branch offices andrepresentative offices supplement-ed by a comprehensive internationalnetwork to provide local services asrequired. Corporate has 1,200employees, including 250 outsidethe Bank’s domestic markets.

Corporate’s operations focusmainly on demanding corporatecustomers, government authoritiesand international financial institu-tions, placing stringent require-ments on specialized financial skillsand in-depth understanding of thebusiness operations of its customers.

MeritaNordbanken is the clearleader among banks serving largecorporate customers in Finland andstrengthened its position amongcorporate customers in Sweden inseveral areas during 1999.

Improved profit

Corporate is organized in a func-tional structure with cross-borderareas of responsibility. Measures areimplemented continuously to en-able all parts of the organization tocapitalize on the best products, IT-systems and modes of operations indifferent countries.

Corporate operations in 1999 werecharacterized by:

• Strong income growth and im-proved operating profit.

• Continued leading positionamong banks serving large cor-porate customers in Finland and a stronger position in Swedenthrough growing business vol-umes and new customers.

• Determined efforts to consolidateinvestment banking operationsthrough the acquisition of Mai-zels, Westerberg and Co.

Efforts will continue in year 2000to use MeritaNordbanken’s broadcustomer base in Corporate andRetail to create new business in theBank’s international network andCorporate units working withspecialized financial services. Highpriority will also be given to expand-ing the Bank’s market presence andimproving its product range in allparts of the Nordic and Baltic Searegions.

Corporate

Stronger position as corporate bank

Corporate is responsible for MeritaNordbanken's operations in the areas of large corporate customers, investment banking, international network, international financial institutions and international products.

Distribution of income

1999 1998

Net interest income 51 % 55 %Commissions, etc. 49 % 45 %

Corporate


Income 425 274Expenses -157 -134Loan losses 10 -83Operating profit 278 57

CorporateMarkku Pohjola

MNB Maizels International International ProductsCorporate Division



Corporate Division

Corporate Division is the unit withcustomer responsibility for Merita-Nordbanken’s most demandingcorporate customers and all of theBank’s shipping customers in theNordic and Baltic regions. The busi-ness unit is represented in Helsinki,Stockholm and Gothenburg, andShipping services in Turku andLondon.

The business unit was able todefend its strong market position inFinland during 1999. In Sweden,Corporate Division continued toimprove its position through in-creased business volumes and effortsto assume a more prominent role insales of financial services to corpor-ate customers. At year-end 1999,lending amounted to EUR 13.9billion, an increase of 31%. Withthe exception of shipping opera-tions, provisions for loan lossesremained low.

Nordic and European cashmanagement solutions are increas-ingly in demand among large corpor-ate customers. To meet the growingdemands, MeritaNordbanken isallocating substantial resources toproviding high-quality services inthe Nordic and Baltic regions, andthroughout the euro area.

The capital market is becom-ing increasingly important to largecorporate customers. Introductionof the euro has created a strongincrease in competition from inter-national players. With domesticmarkets in both euro and Swedishkronor, MeritaNordbanken is a stepahead of other Nordic banks.

ShippingMeritaNordbanken maintained itsposition as the leading bank forshipping companies in Finland andSweden during 1999. The marketwas characterized by weak trends inthe maritime industry.

Despite loan loss provisions ofEUR 38 M for Alandia TankerCompany, shipping-related opera-tions generated favorable earnings.

MNB Maizels Investment Bank

MeritaNordbanken’s investmentbanking operations were strength-ened considerably by the merger inDecember 1999 with Maizels,Westerberg & Co, a company withcomprehensive expertise andexperience in M & A advisoryservices. The company comple-ments MeritaNordbanken’s, Struc-tured & Corporate Finance unit(including Merita Corporate Fin-ance), which has strong positions insuch areas as share issues, utilityindustry transactions and struc-tured finance.

Following the merger, invest-ment banking operations are con-ducted in a separate unit calledMNB Maizels. Special expertiseand the Group’s broad network ofcontacts provide good potential forstrong growth in the operations ofMNB Maizels.

MNB Maizels offers a widerange of services to companies andtheir owners, institutions, centraland local government authoritiesand private investors, primarily inthe Nordic and Baltic regions.Operations are conducted in Stock-holm, Helsinki and London. Ser-vices include the following:

• Procurements of risk capitalthrough widespread shareownership in companies, with orwithout stock market listings,subsidiary spin-offs and other

share-related transactions, sup-ported by advisory services.

• Advisory services for mergers,acquisitions and privatizations aswell as corporate capital structureissues.

• Procurement of loan capital foracquisitions and projects,supported by advisory services.

To protect the interests of Groupcustomers, MNB Maizels offersadvisory and other services inde-pendently of MeritaNordbankenand its units.

Major transactions by Merita-Nordbanken during 1999 includedNordic management of the secondpublic offering of Sonera shares.The issue amounted to EUR 3.4 bn,the largest-ever issue of shares inthe Nordic region. In the energysector, the investment banking unitacted as advisor in several largepower industry transactions, i.e. onbehalf of the Municipality of Norr-köping for the sale of NorrköpingMiljö och Energi to Sydkraft. Othertransactions included sales of sharesin Sanitec, Biohit and DeutscheTelecom, Danza’s acquisition ofASG and Graninge’s purchase ofshares in Graningeverken. The unitalso provided advisory services toraise financing for corporate acqui-sitions with a total value of EUR1.4 bn.

Maizels, Westerberg & Coacted as financial advisor in morethan 20 transactions during the year.

A selection oftransactions inwhich MNBMaizels wasadvisor in 1999.

Sale of

Norrköping Energi & Miljö AB (49%)

to

SydkraftAB

1999

Advi ser tothe City ofNorrköping Nordic Lead M anagerRetail Lead Ma nager

SECONDARY OFFERING

of

144,000,000 Shares

1999

Arranger and agent

Acquisition of

1999

Arranger

PUBLIC TENDER OFFER

to Cultor shareholders

of

all Cultor Shares

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Tender offer and acquisition ofGraningeverkens AB (publ)

Listing of Graninge AB onOM Stockholm Stock Exchange

Nord icLead ManagerRetail Lead Manager

1999 1999

Arranger

Acquisition of

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■ NEW YORK

■ SÃO PAULO ■ PRETORIA

■ CAIRO

■ TEHRAN

MUMBAI■

■ MOSCOW

SINGAPORE ■

■ HONGKONG

SYDNEY ■

BEIJING ■■ TOKYO

PARIS ■LONDON ■

■LUXEMBOURG

■

STOCKHOLMOSLO

COPENHAGENHAMBURG

■■ ■

■■ ■■■

■

WARSAW

HELSINKITALLINNVILNIUS

RIGA

International

International is a business unit re-sponsible for MeritaNordbanken’soperations outside Finland, Sweden,the Baltic countries and Poland.

MeritaNordbanken is repre-sented in 23 countries, of whichInternational’s organization servescustomers in 17 countries outsidedomestic markets through fivebranches and 12 representativeoffices and agents. It also has con-tacts with banks and other financialinstitutions in all parts of the world.

A primary responsibility of theInternational business unit is to sup-port the Group’s overall competi-tiveness by providing customers inthe domestic markets with financialservices for their international busi-ness. This role is becoming increas-ingly important in view of theglobalization of private industry.

MeritaNordbanken has success-fully conducted full-service opera-tions in New York, London and Singa-pore for many years. The Bank nowhas 225 employees in these branches.Branches were opened in Copen-hagen and Oslo in 1998 and 1999and operations were focused initiallyonsecuring payment flowsforMerita-Nordbanken’s customers. During2000, the Bank plans to introduce abroader range of products andservices offered by both branches.

MeritaNordbanken has beenpart owner of the InternationalMoscow Bank (IMB) in Russia for10 years. At year-end 1999, Merita-Nordbanken increased its ownershipin IMB, which will expand its rangeof services for Nordic companiesoperating in the Russian market.

MeritaNordbanken has steppedup efforts to increase customerawareness of the wide range ofservices offered abroad throughbranch offices as well as the Bank'snetwork of business partners. Pro-gress has been made, but scope forimprovement remains.

The introduction of the euroled to major changes in paymentroutines throughout Europe. Thesignificance of traditional corres-pondent bank operations has de-clined. MeritaNordbanken’s imple-mentation of the changes thisnecessitated was highly successful.

Economic recovery after the1998 financial crises in Asia andRussia, combined with reducedexposure in certain countries withlow ratings, has enabled Merita-Nordbanken to recover provisionsfor high-risk countries amounting toEUR 20 M.

As a result of determinedefforts to deal with certain problemexposures, substantial recoveries ofpast provisions to cover commercialrisks were also possible.

International products

International Products is responsiblefor products and services support-ing the international operations ofMeritaNordbanken's customers.The unit providing risk coveragefinancing for export/import com-panies and products for holders ofdomestic and international securities.

Following a weak start, demandfor documentary products (lettersof credit, documentary collections,guarantees, etc.) increased. Merita-Nordbanken’s market share inFinland remained very high, and theBank has now established a leadingposition in Sweden for document-ary transactions and other short-term trade finance.

Export and project finance forexport operations showed highlysatisfactory growth in 1999. Marketpositions were strengthened by anincreased commitment to organizeand manage bank syndicates tofinance export operations.

Strong demand characterizedthe market for custody services in1999 as a result of increased tradingin domestic and internationalsecurities. Securities lending, a newproduct with significant growthpotential, was introduced towardthe end of 1999.

As you look back, what is leadership?

A skilled leader must be able to span a broadregister. He or she must be able to deal withwhat I call the Paradoxes. A leader must havea strong will, but cannot dominate his or herenvironment so completely that employees donot grow. A leader must be both humanlyunderstanding and consistent to the point ofruthlessness, be businesslike and imaginativelyflexible – but must also adhere steadfastly tostrategic guidelines – in part to maintain thecompany’s credibility in the market. He or she must be able to motivate people, and bewarmly interested in them, but also coldlycalculating and very firm. Ultimately, it is theBank/the Company that counts, never one’sown special interests or those of colleagues.A leader must have the ability to delve into themost minute detail of a contract or a creditproposal, for example, but at the same timenever lose the feeling for the big picture. It isuncommon to find both of these characteristicsin one person.

What are the characteristics of a good leader?

Leaders display elements of egocentricity –which become stronger over the years. Theirpresence is noticed when they enter a room.But at the same time they should be able to beboth unpretentious and generous. This is not asimple combination.

Name a few good leaders.

I have worked closely with a number ofsuccessful leaders in Swedish industry duringthe past 40 years. To name a few examples:Marcus Wallenberg and Hans Werthén, HansRausing and Pehr Gyllenhammar. They are allvery different – but one characteristic that theyshare is their command of a broad range ofsubjects. Their particular versatility enables

them to rise to the occasion when circum-stances demand.

What is the most essential leadershipcharacteristic?

It is the ability to select employees. It is amatter of putting together a team so that it isactually a team, but with players who havedifferent characteristics and abilities. And thenit is a matter of getting them to work towardthe common objective. Now and then you haveto change team members and a leader alwayshas to be concerned about generating newgrowth. Individuals have limited mandateperiods, but companies operate a long, longtime.

The fate of a company over the long term isdetermined by how well management is ableto take advantage of the opportunities that areoffered. Nothing is automatic. It is the combi-nation of motivation and ability among peoplethat determines how things develop.

What is most important to a bank?

Bad loans can lead to a bank’s downfall. Thiswas the case at Nordbanken during 1990 –1992, when Sweden underwent a deepfinancial crisis. We also saw this at KOP andUBF in Finland in the early 1990s. Loan lossesare a consequence of both an inadequateinternal credit process and difficult externalcircumstances – and it is possible to do some-thing about both.

What is your view of the credit process?

A credit process consists of a combination ofknowledge, attitudes and experience. It is amatter of creating and developing a creditculture. Many of our employees are involved incredit programs – approximately 90% of allloans are approved by branches. Naturally it is

important to know how to analyze accountsand to understand customers, both privateindividuals and companies.

What should a good credit officer do?

Over time, you accumulate experience.Thecustomer reveals how he deals with problemsand successes. Companies are made up ofpeople. A lender has to be able to evaluatemanagement’s ability to balance betweendriving ahead and holding back. Branch officeBoards, if correctly used, help with invaluableinformation – particularly in smaller com-munities.

It is always easiest to say no to a loanapplication, but a bank has a responsible roleand an important function to perform in theeconomy. Ultimately, a loan is a matter ofconfidence. How do I think that this particularcustomer will be able to cope when thingsaren’t going the way his forecasts indicate? Of course, you should have collateral – if it isavailable. But every time the Bank has toforeclose on collateral, it has failed in its creditevaluation!

What is most important in a loan process?

The credit process is largely a matter ofdiscipline. Analyses should be available, figuresshould be up-to-date, review presentationsshould be concise and concentrate on essenti-als. And the presenter should have an opinionas to the quality of the management and Boardof Directors, as well as the risk associated withthe industry.

How have you been actively involved in theloan process?

Since I joined the bank in January 1991, Ihave served as chairman of the Credit Commit-tee. We have met every Tuesday at 4:00 p.m.,

Board Chairman Jacob Palm-stierna is to resign in connectionwith MeritaNordbanken’s AnnualGeneral Meeting in April. He canthen reflect on a 40-year careerin the banking industry. In aconversation with Riitta Pyhälä,Jacob Palmstierna shared hisviews based on his extensiveexperience.

Nestor in the bankingworld

usually for two to three hours – but in the early1990s sometimes for four or five hours. Andthere was no dinner until we had completedthe day’s agenda.

I have had a forum in which I was able toexert some influence – by raising questions andmaking demands. Sometimes I have been nit-picking and questioning, but as the quality ofthe loans has improved over the years, I havebeen able to be more appreciative. We nowhave a solid loan portfolio and, not least, aprocess that is conducted by many skilledemployees.

The second dimension in lending is knownas business analysis. Handelsbanken saw moreclearly than Nordbanken that the real estatemarket was a “bubble,” and that many financecompanies were built on loose sand at the endof the 1980s. It is a matter of looking aheadand evaluating what you think about foreignexchange movements, interest rates and thetrend of asset valuation. The individual cus-tomer lives in the economic environment ofhis/her country and the world. The bank hasan overview and assumes a responsibility toeither say “yes” or “no” to a loan application.

What do you mean by the bank’sresponsibility in lending?

The bank’s judgment determines whether ornot a corporation or a homeowner can take thenext step. It is up to the bank to decide in sucha way that the customer does not incur unnec-essary risk. Sometimes we are perhaps toocautious, and then it’s good that there areother banks – that competition prevails.The truly difficult loan decisions involve existingloans at a time when a customer is havingproblems. Should we go a step further? Shouldwe not only grant an extension of the existingloan but perhaps also lend additional funds, tosave the borrower’s company – and safeguardour claim? If the bank decides that it is only amatter of a temporary decline in liquidity, itshould not “choke” the company. The difficultylies in determining whether a liquidity gap hasto be bridged or whether the problem is moreserious. And then we generally refer back toour evaluation of the customer’s qualities – asa corporate manager or private individual.

What characteristics do you associate with theterm “businesslike?”

A combination of imagination and flexibility onthe one hand and a gift for figures. A sort ofrestlessness as part of continuous searching.But, at the same time, a down-to-earth focuson what is possible.

What is the role of the Board of Directors?

Role number one is to ensure that manage-ment – and indeed the president – is the rightperson. The demands on the president changeduring the variable lifetime of a company.Then, it is up to the president to compose histeam. This is perhaps his most important task!The Board should also monitor the company’soperations through active involvement, in orderto be able to evaluate management’s perform-ance. It is not enough just to read documentsand be attentive at Board meetings. Boardmembers also have to follow what is happen-ing in the economy and in politics generally –

and in the industry specifically – to be able toraise questions and take positions at shortnotice on issues involving major changes.

Who decides what?

The Board decides on certain major issues, butit is important to maintain the boundariesbetween line management and the morestrategically-oriented and monitoring Board. AtMeritaNordbanken we have chosen to havepart of the Board’s work take place in targetedcommittees. This makes it possible to handleBoard work in greater depth.

One should also keep in mind the Board’srole as a source of enthusiastic support formanagement. A Board should be demandingbut it should also be inspiring.

Mergers are resulting in fewer and largerbanks. Is this a good thing?

There are a number changes under way inEurope’s banking world at the present time.Barriers are being removed, capital is movingfreely. We are in the process of obtaining asingle currency for all of Europe. We have totake advantage of the opportunities so that wewill not be bypassed.

The IT revolution is making banks increas-ingly accessible to customers, and is reducingcosts and creating opportunities for newproducts. Customers are the big winners. Wemust be at the leading edge of developments ininformation technology. This costs a great dealof money and accordingly requires largevolumes of business.

Corporate customers are also growing in size.We are reading about large new corporatemergers every week. This trend is imposingdemands for banks with ever-stronger capitalstructures. The stock market also wants to seebanks with larger capitalization and goodliquidity in their shares. All signs point in thesame direction. We must ensure that we areone of the banks in the winners’ group in theNordic Region. We have to do this for the sakeof our customers, our shareholders and ouremployees.

But aren’t mergers difficult – especially thoseacross national borders?

Well, they have to have favorable conditions inwhich to operate, and they have to be well-planned and well-accepted. I was pleasedwhen the Financial Times recently noted thatMeritaNordbanken was to date the onlyexample of a successful transnational bankmerger in Europe.

Conditions in the Nordic Region are condu-cive to bank mergers. We have a commonhistory, strong linguistic and cultural ties. And,notably in the case of Finland and Sweden, asimilar industrial structure.

Even before we began the negotiations be-tween Merita and Nordbanken, we attemptedto create a common perspective – a basis forhow we both regarded the Nordic Bank Vision.Management has since done a fine job – sup-ported by many positive forces in both banks –in not permitting rivalry between nations butin regarding differences as sources of strength.

But aren’t transnational mergers more difficultthan staying in the domestic market?

Perhaps. But take the Merita example. Meritahad such large market shares in Finland that,to become larger, there was only one way togo: westward. And we at Nordbanken saw thisas a great opportunity, one that we are happy tobe able to take mutual advantage of.

And the next step? Norway and Denmark?

Well, our bid for CBK remains firm. We havehigh hopes that there will be a decision duringthe spring. As for Denmark, it is a matter ofpositioning ourselves so that we are perceivedas the ideal joint-venture partner in the NordicRegion.

Is that, then, the final move?

There is never a final move. But if we achieveour objective, which is to become the NordicChampion, I think that we can offer ourcustomers a solid financial partnership and anexciting future for our employees, as well as anattractive deal for our shareholders. One shouldalways be concerned about the future perspec-tive. It is essential to position oneself so thatone stands out as the most attractive partner.



In Finland, the volume of Trad-ing’s standard products declined25-30% following the Finnish

markka's loss of its former status asan independent currency. In theSwedish market, trading in standardproducts remained strong. In bothFinland and Sweden, Trading opera-tions reported a growing number ofinternational customers.

Currency markets were char-acterized by volatility in 1999. Theeuro weakened, while SEK, USDand JPY gained strength. Robusteconomic growth in the U.S. andEurope, led to a sharp increase inlong market interest rates. Creditmargins on government bonds andcorporate debentures fluctuatedsharply during the year, coupledwith rising stock prices in Finlandand Sweden.

Despite lower volumes due tothe euro, currency trading opera-tions reported strong earnings,although slightly lower than in1998. Profitability from interesttrading was weak, with the excep-tion of the Bank’s own positions.

Earnings from equity tradingin Finland increased sharply, while

in Sweden institutional equitytrading showed a marginal profit.

During the year all areas ofMarkets were focused on upgradinginternal controls for business proce-dures, instructions and ethics. Amajor systems development projectwas started to strengthen businessand administrative routines withparticular emphasis on equitytrading in Sweden.

In January 1999, a case ofunauthorized equity trading wasdiscovered within NordbankenAktier, which resulted in a lossprovision being made in the 1998accounts.

As a result of this case, theBank conducted a comprehensiveinternal audit. The case also promp-ted an audit by the Financial Super-visory Authority, which criticizedNordbanken Aktier. The Bankimplemented several measuresduring the year to strengtheninternal control routines withinNordbanken Aktier.

Efforts continued in 1999 toshift the focus of Trading opera-tions in London, New York andSingapore toward greater concen-

tration on services offered to theBank’s Nordic and local customers.

New organization

In May 1999, a new organizationalstructure was established for Mar-kets. The business area was dividedinto separate units for Sweden,Finland and International.

Most operations conducted byMarkets are concentrated in Helsin-ki and Stockholm. Offices in bothcities focus on market-making, risk-taking, analysis and sales. The

Markets

Reduced currency trading

Markets is responsible for MeritaNordbanken’s currency, interest, deri-vative, money market and equity trading operations. Markets’ opera-tions were strongly influenced in 1999 by the introduction of the euro.

MarketsJussi Laitinen

Markets Sweden Securities serviceMarkets Finland Markets International

Markets

EUR bn 1999 1998

Income 152 157Expenses -100 -121Loan losses – –Operating profit 52 36

Income distribution, Markets

Currencyproducts33%

Shares26%

Capitalmarket

4%

Interestproducts17%

Derivativeproducts15%

Other5%



business area also has operations inMalmö, Gothenburg, Sundsvall,London, New York and Singapore,with special concentration on salesand local sales support. In Sweden,the organization also includesSecurities Service (VPS), a central-ized, earnings-neutral processingunit, for trading and equity tradingin Sweden.

Equity trading is conductedwith product and operationalresponsibility for institutionalequity trading and product respon-sibility for regional equity trading.Currency, interest, derivatives andmoney market operations, as well asoperations in emerging markets, areconducted with product and busi-ness responsibility.

Greater coordination has beenachieved in market-making, risk-taking, product development andmarketing within the three productareas conducting global operations,which comprise currency and bondtrading as well as money marketoperations. Efforts are being madeto coordinate operations in financialanalysis, international sales andemerging markets. Global coordi-nation of risk-evaluation and risk-monitoring elements of financialrisks and credit risks has beencompleted. IT-investments inFinland and Sweden are also beingcoordinated to create maximumuniformity in the business area’s IT-structure.

Coordination of equity tradingoperations in Finland and Sweden

was continued in 1999, with strongemphasis on coordinating analyticaloperations and customer relations.

Expanded operations

The introduction of the euro hasinfluenced the focus and structureof Markets. The changes are reflect-ed in lower income from traditionalcurrency and interest trading, buthigher volumes and income frommoney market and equity tradingactivities. Special priority has beenplaced on cost discipline and coor-dinated development in currencyand interest trading. Customerservice has been decentralized,while assumptions of risks andadministrative routines are becom-ing increasingly centralized. Merita-Nordbanken has strong positions inboth Finland and Sweden as atraditional trading bank for largecompanies and institutions.

Markets also defended itsposition as Finland’s leading sourcefor syndicated-loan and moneymarket programs. During 1999, theGroup was an active member of thedealer group for all internationalloan programs for Finnish corporatecustomers. Money market opera-tions in Sweden have been charac-terized by dynamic growth duringrecent years. Strong loan-syndi-cation operations have been supple-mented by substantial activity inSweden’s Medium-Term Note

(MTN) and Commercial Papermarkets. MeritaNordbanken wasthe first bank in Sweden to offercustomers a combined SEK/EURMTN program. Efforts have contin-ued in Finland and Sweden toestablish leadership positions fornew share issues and investments inmoney market instruments.

In terms of the number oftransactions, MeritaNordbankenwas the largest player in the Finnishstock market in 1999, with a mar-ket share of 19%. It was the secondlargest player in terms of turnover,with a market share of 12%. Morethan 50% of all private customers’share transactions in Finland arehandled through Solo. In Sweden,MeritaNordbanken’s market shareof trading on the OM Stockholmwas 5% and only 1.5% measured byturnover. The lower volume per-centage is largely due to the Bankpursuing a low-risk profile com-pared with other Swedish bankswith regard to trading on its ownaccount.

Emphasis on quality service forcustomers of the Bank’s branchnetwork in Sweden was continued,supported by stronger focus ontrading by institutional customers.Stock market research has beensuccessful in both Finland andSweden, achieving strong ratings inseveral different comparisons withcompeting banks and financialinstitutions. Equity trading is agrowth area for MeritaNordbanken.

5 500

5 250

5 000

4 750

4 500

4 250

4 000

3 750

3 500

3 250

20 000

17 500

15 000

12 500

10 000

7 500

5 000

2 500

Turnover A-List

Daily volume

General Index

Trend on the OM Stockholm Exchange, 1999

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

16 000

14 000

12 000

10 000

8 000

6 000

4 000

2 000

0

25 000

18 000

16 000

14 000

12 000

10 000

8 000

6 000

4 000

2 000

0

Trend on the Helsinki Exchanges, 1999

Turnover

Monthly volume

Hex Index

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

SEK million EUR millionIndex Index

Long-term saving is a way to generate capital for your children.



MeritaNordbanken is one ofthe Nordic region’s largestplayers in long-term

savings, with total assets undermanagement of EUR 33 bn. Opera-tions in 1999 were characterized bystrong volume growth and capitalreturn. Efforts to strengthen theBank's organization, marketing andadvisory services, which werestarted in conjunction with themerger of Merita and Nordbanken,have produced results.

Integration has continued withthe Group’s joint managementunit, MeritaNordbanken Invest-ment Management, as perhaps themost obvious example. The Bankhas also developed and unified itsmutual fund products and achievedcontinued success in the unit-linkedinsurance market. The PrivateBanking concept has been success-fully launched in Sweden, gene-rating new customers and assetsunder management.

The total number of employ-ees increased by 30 in 1999 to 269.

Asset Management

Asset Management is the umbrelladesignation for all Group companiesthat manage funds and portfolios forprivate individuals and institutions.Asset Management is the Group’sexpertise center for asset manage-ment. It offers a well-balanced rangeof products through Retail’s distri-bution channels. Its skills and expert-ise enable MNB AM to structureportfolios adapted to the specificrequests and requirements of allcustomers.

Integration of the asset man-agement organizations of Merita andNordbanken was completed in 1999.Reinforcements and investmentshave been made in the Bank’s

international asset management andresearch as well as risk and perfor-mance analysis. Special focus hasalso been directed toward productdevelopment, marketing, investmentadvisory services and sales support.Special skills and expertise have alsobeen developed in Internet-bankingto support and benefit from Groupinvestments in the Solo concept.

Mutual fundsMeritaNordbanken captured 20.5%of net capital inflows into theSwedish mutual funds market in1999, and its share of the totalmarket for mutual funds at year-end 1999 was 18.2%. The Bank'sstrong sales performance wasattributed primarily to higher

Asset Management/Life Insurance

Strong volume growth and return

Result

Mutual Portfolio Total TotalEUR million funds management Insurance 1999 1998

Income 189 21 60 270 202Expenses -75 -5 -24 -104 -92Operating profit 114 16 36 166 110Volumes, EUR bn 1) 20.1 7.9 5.0 33.0 21.41) Unit-linked insurance EUR 1.5 bn, reported under Insurance.

Asset Management/Life InsuranceKarl-Olof Hammarkvist

Private BankingAsset Management Insurance

Yield and risk 1999

100

80

60

40

20

0

Yieldpercent

Growth company fund

Spektra

Europe FundOptima

Futura

0 5 10 15 20 25Risk, percent



priority on sales of mutual funds inRetail operations, the launch of newproducts such as Medica and theIT-fund, and stronger support forfinancial advisors and personalbankers in branch offices. Sales ofmutual funds to corporate custom-ers increased steadily during 1999.Unit-linked insurance accounts fora substantial percentage of the netcapital inflow.

In the Finnish market, Merita-Nordbanken captured 30.6% of thenet inflow and its market share ofthe total savings volume at year-endamounted to 28.6%.

The number of fund saversincreased sharply in 1999, totaling1.4 million at year-end. Efforts tobroaden savings in mutual fundshave continued, and the number ofmonthly savings customers nowamounts to approximately 800,000.

MeritaNordbanken's mutualfunds generated a very strongoverall return during the year,

exceeding its asset managementgoal in relation to comparisonindex.

Institutional market

Growth in the Swedish market forinstitutional assignments is increas-ing in the segment immediatelybelow large customers. To meet thisdemand, in 1999 MeritaNordbank-en successfully launched four fundstargeted to the investment needs ofmidsize companies and institutions.The new funds contributed tostrong growth during the year.Cooperation with the Bank’s branchoffices has been further intensifiedto provide cost-efficient customerservices in this market segment.

In Finland, operations in theinstitutional market were concen-trated primarily on establishing asolid foundation for future expan-sion. Demand for discretionarymanagement has started to in-crease, generating greater interestamong other players to enter themarket.

During the year, MeritaNord-banken increased its assets undermanagement for institutional

customers in Sweden by 37% toEUR 4.4 bn and in Finland by 57%to EUR 3.5 bn. Return was general-ly strong and, in most cases, exceed-ed comparative bank portfolioindexes.

Life insurance/IPS

Demand for capital and pensioninsurance products was strong inboth markets. The expansion ofsales support to branch officeoperations and strong efforts by thebank's local offices and the Selektaexperts yielded higher sales vol-umes.

Merita Life strengthened itsposition as Finland’s leading lifeinsurance company by increasing itsmarket share of total premiumincome to 29.5% (27.7). Thecompany's total premium incomerose to EUR 1,214 M (736). Atthe end of June, Merita Life intro-duced a new customer-orientedstructure to further enhance opera-ting efficiency and create a base forfuture expansion.

Livia increased its premiumincome by 12% to EUR 140 M.

Distribution of mutualfunds in Nordic countriesAssets under management, December 31, 1999EUR bn

120

100

80

60

40

20

0

Sweden Finland Norway Denmark

Sources: Helsinki Exchanges, InvesteringsFöreningsRådet, Sweden Fondstatistik AB and Verdipapirenes Forening.

Distribution of assets under management

Portfoliomanagement 27%

Equity funds44%

Mixed funds18%

Money market andbond funds 11%

MeritaNordbanken, Household Savings

EUR bn

35

30

25

20

15

10

5

0

95 96 97 98 99 95 96 97 98 99Finland Sweden

Deposits

Mutual FundsNational publicsavings

Insurance

Retail bonds

Equity indexbonds



Employment pensions accountedfor about 11% of premium incomeduring the year, and 2,500 newagreements were signed in thisincreasingly attractive marketsector. In its capacity as an agent forMerita Life, the company captured15% of the market for unit-linkedinsurance in 1999, calculated as apercentage of new subscriptionvolume.

Sales of IPS (Individual Pen-sion Savings) rose 79% in 1999.Part of the increase came at theexpense of Livia's traditional retire-ment pension products, whichdeclined marginally in terms ofsales volume. Higher IPS volumesin 1999 were attributable to in-creased customer interest in fundsavings and strong stock marketperformance.

Outlook

Markets for mutual funds and lifeinsurance continue to show stronggrowth. Strong value-added growthcoinciding with substantial capitalinflows are driving volumes up.Demographic factors and changes in

pension systems, as well as greaterinterest and increased knowledgeamong customers, are other impor-tant elements behind substantialinflows of capital into both mar-kets.

During the year 2000, marketsfor mutual funds and life insurancein Finland are likely to benefit fromchanges in tax regulations governinginterest on deposit accounts. InSweden, the first appointment ofan asset manager will take place thisautumn within the framework ofPPS, the premium pension system,which has accumulated capitaltotaling SEK 54 bn. As a result, PPSwill probably also stimulate increas-ed savings.

The Finnish market is expect-ed to show stronger growth thanSweden, due to its limited startingvolume, ongoing transfers of savingsto equity funds, higher savings and,by international standards, thecountry's low level of wealth amongprivate households.

Continued strong growth andintensive competition for large-sized companies characterize insti-tutional markets in both Finlandand Sweden. The negative price

trend of previous years appears tohave been reversed but price levelsfor large portfolios are still generallylow, since many players, both newand old, are trying to expand theirvolumes. Asset management willcontinue to be characterized byinternational diversification andincreased investments in mutualfunds.

MeritaNordbanken will retainits position in the year 2000 as themarket’s best bank for savings.Cornerstones of the Bank’s strategyinclude:

• increased market shares in themutual funds sector throughmarket-oriented product deve-lopment, high-quality advisoryservices for customers and goodaccessibility,

• expansion of fund savings inFinland through focus on in-creased monthly saving,

• stronger focus on the corporatesegment of the life insurancemarket,

• profit-oriented expansion in theinstitutional market,

• asset management income andcapital yield in the highest quar-tile, compared with major com-petitors,

• increased focus on the Solo mall as a sales channel for mutual funds and insuranceproducts.

MeritaNordbanken, Asset Management and Life InsuranceManaged assets

EUR bn35

30

25

20

15

10

5

0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q41998 1999

Unit-linked insurance

Insurance (excl. Unit-linked)

Institutional management

Mutual funds (excl. Unit-linked)



Adecision was made inDecember 1998 to divideand divest the Group’s

property portfolio in Finland at amore rapid pace than previouslyplanned. The decision is in line withthe strategy MeritaNordbankenestablished in 1997, which aims atfocusing on and expanding bankingoperations.

During 1999, portfolio assetswere reduced by EUR 0.2 bn.

The Finnish market for sharesin real estate companies weakened in1999, despite a continued improve-ment in the rental market. In thelight of this, there was a marketadjustment in the Bank’s portfolio ofreal estate shares in the amount ofEUR 145 M. Of the total write-down, EUR 21 M pertained toshares in Citycon, since these sharesare now considered current assets,and EUR 90 M comprises a reservefor eventual losses from the sale ofshares in Aleksia.

Appraisals of the Bank’s pro-perty holdings outside the Nordicarea in conjunction with the formu-lation of a program of measures andactions revealed the need for write-downs of EUR 34 M to EUR 110 M.

Aleksia Ltd

In the beginning of 1999, MeritaReal Estate’s property portfolio was

transferred to Aleksia, a new realestate company. The portfolioconsists of 172 high-quality proper-ties situated in growth areas –primarily in and around Helsinki.The book value is listed as EUR 1.3bn. In view of the decline in themarket for property securities andcompeting offerings of real estateshares in Finland, a decision wasreached in late autumn 1999 topostpone Aleksia's stock listinguntil the year 2000.

On January 31, 2000, Merita-Nordbanken decided to sell Aleksiaand list the company’s shares onthe stock market. After a pre-marketing period, and in consul-tation with the Bank’s advisors, ananticipated price range was estab-lished for shares in Aleksia, corres-ponding to a total value of EUR370 – 450 M. The average value,EUR 410 M, is EUR 90 M lowerthan MeritaNordbanken’s bookvalue for Aleksia.

Real Estate

Divestment continues

MeritaNordbanken's real estate portfolio contains properties withsubstantial values, most of which are situated in Finland. Real estateoperations are not part of the Group’s core business. Accordingly,planned divestment of properties not used in the bank’s operations is now in progress.

Aleksia sold

On February 22, 2000,MeritaNordbanken andIlmarinen Mutual PensionInsurance Company reachedan agreement on the cashtransfer of the shares inAleksia for about EUR370 M. Moreover, Ilmarinenwill take over Aleksia’s debtin the Bank after MeritaNord-banken has repurchased 14properties from Aleksia forEUR 145 M and completedcertain development projects.As a result of the cash transferthe sale of shares and listingon the Helsinki Exchangeswas cancelled. The sale ofAleksia will generate an addi-tional capital loss of aboutEUR 40 M during the year2000.

MeritaNordbanken, EUR billion

Book value of real estate holdings, Dec 31 1999 1998

Aleksia 1.4 1.3Shares in real estate companies 1) 0.2 0.3Other properties 0.7 0.9Bank premises 0.8 0.8

Total 3.1 3.3

1) Citycon, Sponda, Dividum and others.



Hotel properties

Toward year-end 1998, Merita RealEstate transferred 16 wholly-ownedand 2 partly-owned hotel proper-ties to Kansalliset LiikekiinteistötOy, which was restructured as ahotel-investment company, and itsname was changed to Dividum Oy.

In January 2000 Dividumacquired five attractive hotels inHelsinki and its ownership struc-ture was broadened, reducingMeritaNordbanken’s holding to47.2%. Dividum's assets increasedto nearly EUR 0.2 bn.

As a result, Dividum is nowfully structured for a transfer tonew ownership as soon as marketconditions are considered favorable.

Shopping malls and business centers

In June 1999, shares in nine shop-ping malls were transferred to City-con, a publicly listed company.

The purchase price amountedto EUR 135.7 M, of which EUR89.8 M was paid in cash and EUR18.3 M was settled in the form ofshares (plus a capital loan of EUR

17.6 M). As a result of this trans-action and other property acquisi-tions, Citycon has strengthened itsmarket position. The acquisitionsalmost doubled the value of City-con’s assets to EUR 0.8 bn.

MeritaNordbanken’s holding,which after recently completedtransactions amounts to 42.7%, willbe sold to new owners when busi-ness conditions are consideredfavorable.

Merita Real Estate Ltd

Three-quarters of Merita RealEstate’s property portfolio consistsof office and rental properties,residential and foreign properties,with one-quarter comprising landand development projects.

After divestments of proper-ties in 1999 valued at EUR 286 M,and write-downs totaling EUR34 M, the remaining portfolio has abook value of EUR 1.1 bn. Exclud-ing land and development projects,the portfolio generates a capitalyield of about 4.7%.

The book value of propertiesused in actual bank operations inFinland and the U.K. (London)

amounts to EUR 0.5 bn. The prop-erties provide a yield of 4.9%.

Nordbanken Fastigheter AB andFastighets AB Stämjärnet

Nordbanken Fastigheter owns theGroup’s properties in Sweden,where the Bank is the dominanttenant. The portfolio is beinggradually concentrated to largerproperties in Stockholm, Gothen-burg and Malmö as well as otherresidential areas.

Market value is estimated atEUR 565 M, and the book value isEUR 350 M. Nordbanken Fastig-heter manages a total of 249,000square meters, of which 155,000square meters are occupied by theBank. The year-end vacancy ratewas 3.9%. Total rental revenues in1999 amounted to EUR 42 M, withinternal tenants accounting for EUR32 M. The company had 41employees, who also manage Stäm-järnet’s properties.

Fastighets AB Stämjärnet isresponsible for management anddisposal of properties taken over asprotection of claims. Followingdivestments in 1999 of 35 proper-ties the portfolio comprises 10properties with a total book valueof EUR 29 M, including fourforeign properties. The Bank hopesto sell all remaining propertiesduring the year 2000.

AleksiaAleksia

DividumHotel properties

CityconShopping malls

Real estate holdings

Plan 1998 Today

Real estate shares

Other properties

Banking premises

To be divested

For sale

For sale

To be soldseparately

Real estate shares

Other properties

Banking premises



The global economy recoveredquickly after the financialcrises that characterized

international economic trendsduring the second half of 1998 andthe beginning of 1999. Stockmarkets performed very stronglyand oil prices climbed to theirhighest levels since the Kuwaitcrisis. Major upward revisions weremade in respect of private con-sumption and energy prices. Thissubsequently led to sharply risinginterest rates during the year(slightly more than 1.5 percentagepoints), which had a negativeimpact on earnings from financialmanagement operations. A sharpreduction of interest-rate risk wasinitiated during the second quarter.The increase in short-term rateswas less than corresponding hikes inlong-term rates. Through a greaterportion of housing bonds in theportfolio, a higher total return wasachieved. Combined with relativelyshort maturities in the portfolio,this cushioned the impact of thecontinued interest rate increase onearnings. All portfolios showedpositive net interest, in excess ofthe negative changes in value.

Organization

Treasury conducts operations inHelsinki, Stockholm, London andNew York. Operations in Londonand New York are conducted aspart of the internal bank. Efforts tocoordinate units and establish auniform structure and directionwere completed during the year.Asset management activities wereexpanded through a transfer ofequity portfolios to Treasury.

The Bank also reorganized itsstructure for central risk control,which was transferred to Creditand Risk. Greater focus is nowbeing placed on Treasury analysis ofthe total balance sheet compositionand development.

Internal bank

The internal bank is a Group ser-vice unit that manages interest andliquidity risks arising in the normaloperations of both banks. Thisresponsibility involves ensuring thatin all markets and all currencies theGroup obtains funding in the mostcost-efficient manner that, i.a. itsrating permits. At the end of 1999,priority was given to securing a highlevel of liquidity readiness in themajor currencies to cope with anydisturbances related to the millen-nium shift. In addition, open posi-tions with a time interval of up toone year were closed, therebylimiting the net interest-rate risk of the entire balance sheet.

Treasury

Higher interest rates – lower interest-rate risk

Treasury is responsible for MeritaNordbanken’s financial analysis(ALM), Group funding, debt management, the internal bank andcash management of bond and equity portfolio investments.

Treasury Jakob Grinbaum

Internal bank Asset and LiabilityManagement

Portfoliomanagement



The internal bank unit isresponsible for the Group’s variousfunding programs and debentureissues. It is also responsible forclearing operations and cash de-posits in the various central banks,clearing institutions and othercounterparties.

Portfolio management

Portfolio management is dividedinto three units: Fixed Asset Port-folio and Current Portfolio forfixed-income securities and theEquities Portfolio. The Fixed AssetPortfolio has a long-term horizonand is aimed at creating sustained,stable and high return. The CurrentPortfolio is aimed at active manage-ment to achieve a return on capitalthat exceeds market interest forpassive management. Thefixed–income portfolios carryinterest-rate risks but have lowcredit risk. Moreover, they repre-sent a liquidity reserve, since hold-ings can either be mortgaged orsold. The fixed-income portfoliosare measured against index based

on the OMRX interest-rate index.The equity portfolio repre-

sents a diversification within theinvestment framework and includesa Public Equity portion and aPrivate Equity portion. The equityportfolios are measured againstindexes based on HEX and OMX.

The unit is also responsible forensuring access to adequate vol-umes of securities that can be usedas collateral for, i.a. securing pay-ments in the respective country’spayment system.

ALM

Asset and Liability Management(ALM) is responsible for consoli-dating, simulating and analyzing theGroup’s and the Bank’s net inter-est-risk. ALM reviews and preparesreports and analyses that are dealtwith in the Asset and LiabilityCommittee (ALCO). ALM deve-lops risk measurement methods forstrategic risks and balance sheettechniques and simulations.

ALM measures the statisticaland dynamic interest-rate risks in

the balance sheet. Statistical inter-est-rate risks are the interest risksthat arise when taking into accountthe contractual fixed-interest duedates of customers. Dynamicinterest-rate risk are those that takeinto account the customer’s be-havior and that certain assets andliabilities do not directly reflectchanges in market rates.

Liquidity risks are measuredpartly on the exposure banks havedaily in order to deal with cash in respective currencies, and partlyon 14 and 30-day projections. Liq-uidity risks are measured in each currency separately in order todetermine the exposure in thecurrency and as a weighted risk thatshows how banks are exposed forshort-term borrowing.

ALM provides analyticalbackground information for de-cision-making that the operatingunits can use to increase or limitrisks in the balance sheet and itscomposition. During the year,activity focused on the implemen-tation of a new analytical tool forbalance sheet analysis.

1.225

1.200

1.175

1.150

1.125

1.100

1.075

1.050

1.025

1.000

Interest rate and currency trend 1998–1999

Apr Jul Oct 1999 Apr Jul Oct

6.5

6.0

5.5

5.0

4.5

4.0

3.5

3.0

2.5

Swedish 10-year interest rateEUR/USD

Swedish 3-month interest rate

% Rate



Knowledge, skills and thecommitment of Merita-Nordbanken’s employees

are becoming increasingly impor-tant elements for the Group’scompetitiveness. The competitiveclimate is becoming more intensewith the emergence of new players,growing globalization and thedistribution of more banking ser-vices via Internet and other chan-nels. Accordingly, the Group’sexplicit objective to establish aleading position in the region is

supported by a consistent personnelstrategy that includes goals andactions for basic training, skillsdevelopment, work environmentconsiderations, employer attitudesand bonus systems.

Number of employees and personnel skills

The number of employees workingin traditional bank operations isdeclining steadily. The trend is

attributed to the increase in thenumber of customers who are han-dling payments and other bankingtransactions with the support ofnew technologies, concurrently withapplications of the same technolo-gies to coordinate and streamlinethe management of internal adminis-trative routines.

In other areas, however, thenumber of Group employees isincreasing. They consist primarily ofasset management operations,electronic banking services,

Personnel

Raised level of IT- and advisory skills

In many respects, MeritaNordbanken is becoming an expertise-oriented company. As a result, the everyday work routines of Groupemployees are creating most of the value added for customers and,consequently, the Bank’s shareholders.

Age distributionDecember 31, 1999

–24

25–29

30–34

35–39

40–44

45–49

50–54

55–59

60–

Women Men

3500 3000 2500 2000 1500 1000 500 0 500 1000

Number of full-time positions and employees in MeritaNordbanken

Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec1997 1998 1999

22

20

18

16

14

12

0

1,000s

Employees

Positions



insurance and expansion in theBaltic countries and Poland.Growth in these areas is also cre-ating a need to amend and realignthe skills and expertise of manyemployees.

To achieve continued and suc-cessful growth in priority businessareas, the Bank needs committedemployees as well as IT and advi-sory skills and expertise. As a result,the Group requires employees, incooperation with their immediatesupervisors, to assume responsibi-lity for their own skills developmentand to devote their own time andcommitment to meeting customerexpectations. In return, the Groupsupports their efforts and ambitionsby offering attractive employmentconditions and allocating resourcesfor career development and ad-vanced training. When recruitingnew employees, the Group general-ly requires that most persons wish-ing to work for MeritaNordbankenshould have basic academic educa-tion, preferably supplemented byprofessional experience.

Ability to attract and retain good employees

The labor markets in Finland andSweden are undergoing majortransformations. Competition forhighly qualified young men andwomen is increasing and assuming agreater element of internationalmobility. The ability to attract thebest talent is contingent upon theGroup’s opportunities to offer:

• Challenging assignments andopportunities to apply acquiredknowledge.

• Open dialogues between employ-ees and management personnel.

• Good cooperation climate amongemployees.

• Career and skills development.

• Competitive salaries and otherforms of performance-basedremuneration.

The Group’s attraction value inthese areas is monitored by internaland external opinion surveys.

A survey conducted in 1999 todetermine the attitudes and opin-ions of all employees with respectto their work situations revealedvery positive general ratings. InSweden, a marked improvementwas noted from an already highlevel. In Finland, where surveys ofemployee opinions are a relativelynew concept, the results werebetter, or as good as, the results inSweden. Alongside the internalsurvey, a study was also conductedto examine customer satisfaction.

During the year 2000, a newGroup-wide trainee program willbe introduced to meet long-termGroup requirements for manage-ment and expertise resources.

MeritaNordbanken’s profit-sharing system is designed toreward all employees when theGroup’s profit exceeds a fixed long-term profitability goal. This goal isbased on zero-risk interest, plus riskpremium.

Accrued assets in Nord-banken’s profit-sharing fundamounted to EUR 100 M, and the

Managers in MeritaNordbanken – distribution of men and women December 31, 1999

Men Women

1 200

1 000

800

600

400

200

0

Senior executives

Department andbranch managers

Team managers

MeritaNordbanken’s educational profile December 31, 1999

Men Women

7 000

6 000

5 000

4 000

3 000

2 000

1 000

0

Junior High

High School

College/university



accrued value of Merita Bank’spersonnel fund totaled EUR 10 M.The assets are invested primarily inNordic Baltic Holding shares.

Allocations based on earningsin 1999 to the personnel fund inFinland and the profit-sharing fundin Sweden amounted to EUR 35 M.

MeritaNordbanken Incentive isa Group-wide bonus system estab-lished in 1999 for managementpersonnel and specialists. Thesystem rewards fulfillment of threecategories of goals: profit, operativequality and skills development. Thegoals were established in discus-sions between management person-nel and Group employees.

Activities

Management’s approach to person-nel operations, present conditionsand future requirements, wasaddressed in a project called “Focuson people.” The project was intend-ed as a basis for a well-foundeddevelopment program enabling theGroup to compete successfully forpersonnel resources in its domesticgeographic markets. A preliminarystudy was also conducted to estab-lish the requirements of a newpersonnel administration system.This will support the Group’spersonnel strategy and enhance theeffectiveness of comprehensive

administrative routines needed formonitoring and reporting.

Work was conducted at alloffices and work sites to developand strengthen corporate values,thereby promoting the develop-ment of a uniform corporate cul-ture, as part of operational planningin preparation for the year 2000.

Discussions and cooperationwith the trade unions representingthe employees continue to develop,in the Group Council and otherforums.

Systematic efforts to promoteequality between men and womencontinued as planned. A specialmanagement development programin Sweden arranged exclusively forwomen is a recurring activity.

A program for systematicevaluation of performance stand-ards and management potential willbe introduced this year.

About 320 managers andspecialists have participated incorporate culture seminars todevelop various forms of coopera-tion, identify success factors andtarget areas for strategic invest-ments. The seminars have resultedin individual contracts specifyingpersonal responsibility for theGroup’s continued development.

The introduction and refine-ment of the Group’s customerconcept has affected formulationsof training programs for personal

bankers/bank advisors, key accountmanagers for corporate customersas well as private banking advisors.However, most future skills deve-lopment will tend to concentrateon everyday work routines.

Focus of future efforts

The Group’s continued develop-ment places strong demands on allemployees. The ability of manage-ment to direct the Bank’s opera-tions is particularly important. It isessential for management to sup-port new schools of thought, chan-ges and measures designed toachieve business growth. TheGroup’s strategy is contingent onmanagement’s ability to deal withcultural differences in the region.

The performance standards ofindividual employees will continueto be key elements for successfulGroup operations. Special priority,therefore, is placed on measuresthat contribute to:

• Improved earnings.

• Increased customer satisfaction.

• Change and skills development.

• Exchanges of experience toimprove process and products.

• Open, honest two-way communi-cation.

• Internal mobility to support diver-sification and broader experience.

Marita is thinking about expanding her business. A million customers are waiting for her in the Solo market-place.



Information technology

Higher transaction volumes

The large, multi-year projects conducted prior to the introduction ofthe euro and the new millennium have been completed. Commonplatforms can now be built gradually to accommodate future IT-development phases. A new and major challenge is the rapidincrease in Internet Customers, which places strong demands on the reliability and accessibility of computer systems.

Accessibility and production

Transaction volumes increased inFinland and Sweden, particularly interms of Internet-based services.On days with unusually heavytraffic, the number of Internet bankcustomers was twice as high in 1999as in 1998.

To secure satisfactory qualitystandards, the Bank’s central pro-duction capacity, including reservecapacity for the millennium shift,was increased by one-third and incertain particularly critical areas,capacity was doubled. To meetperformance demands and securequality standards in customerservice at branch offices, 4,500 PCswere replaced in Finland during thepast year, and an additional 3,500will be replaced this year.

In relation to the high rate ofchange, system accessibility hasremained good. As a result ofmeticulous planning, no significantproblems were noted in conjunc-tion with the millennium shift.

Systems development

The conversion to the euro, theBank’s new currency, was com-pleted without problems during thefirst quarter of 1999. Substantialinvestments have been made in newsystems to support the Group’sequity trading and lending opera-tions. An electronic mailbox used

by the Group’s banks in both coun-tries was developed for transfers ofelectronic information between theBank and its customers. Some ofthe largest investments during 1999were also focused on further deve-lopment of network banking services,with particularly strong emphasison Internet and telephone services.

The acquisition of a newsystem for business operations inthe Baltic countries and Poland wascompleted in December.

Technology, systems integration

Due to continued systems integra-tion between Finland and Swedenand demands for increasingly fastersystems deliveries, MeritaNord-banken is now introducing a new sys-tems architecture using component-based technology. Through coordi-nated development intended toestablish the same solutions inFinland and Sweden, the newarchitecture is designed to increaseproductivity and, consequently,reduce costs and time for futuredevelopment.

A common platform for PCwork stations is under constructionto simplify cross-border work byemployees in all banking areas. Thenew platform will also reduce costsand increase utilization of unifiedapplications.

To improve customer servicesin telephone banking, a common

technology and infrastructure havebeen established in Finland andSweden. The technology is used incustomer service units and regionalcall centers. A high-speed networklink will facilitate the integration ofdata, audio and video as well asjoint communication solutions withexternal companies. Preparationsare now being made in Finland forconversion to the euro cash andeuro accounting, which will becompleted in midyear 2002.

Remaining competitive

The number of employees in Datarose by 10 in 1999 to 1,175 per-sons. The increase was attributableto instaling new systems, cutbacksin consultant services and recruit-ment of key persons to minimizereliance on outside consultants.Investments were also made inskills development to derive greaterbenefits from new technologyapplications.

Data production 1999

Direct customer links viaInternet/telephone 1) 2 360 000Intra-bank workstations 19 000Servers in networks 1 560Transaction value, millions 2 000Printouts, millions of pages 163Enclosed mailings, millions 78Data capacity, MIPS 3 380Computer storage capacity, GB 15 3001) Via Internet 1,050,000.



Banking operations have fewerdirect effects on the environ-ment than many other sectors

of industry. Nevertheless, environ-mental issues are extremely impor-tant to MeritaNordbanken. TheBank accepts its environmentalresponsibility and contributes tolong-term ecological developmentin compliance with the wishes andexpectations of its customers andemployees. Its environmental workis designed to increase MeritaNord-banken’s value as a financial partner.

Determined efforts focused onthe environment continued in1999. Besides ongoing environmen-tal investments within the Group,comprehensive environmentaltraining courses were conducted forbank employees in Finland. Thetraining program established a com-mon platform for continued en-vironmental improvements throughemployee incentives and commit-ment, thereby creating good poten-tial to realize the Group’s environ-mental plans for the year 2000.

Environment work in the entireorganization

In the financing sector, environ-mental analyses have been a com-pulsory part of credit appraisal for

many years. To support furtherimprovements in appraisals of credi-tor payment risks related to environ-mental effects, risk-analysis instruct-ions and checklists were formulatedand expanded during the year.

In the payments sector, oppor-tunities to work in a more environ-mentally compatible and effectivemanner, both for customers andwithin the Bank, were increasedthrough applications of modern IT-tools. Payment and other bankingservices via Internet save energyand reduce environmental effects.

The market has been informedabout the Group’s environmentalwork through advertising cam-paigns, articles in various publi-cations as well as through Merita-Nordbanken’s participation inseminars and conferences.

Environmental considerationsare taken into account in all pur-chases, and the Group prioritizespurchases of environmentallyfriendly products.

MeritaNordbanken hasexpressly declared its intention toreduce consumption of electricityand other forms of energy. TheBank buys green energy as recom-mended for environmental reasons.

Environmentally hazardouswaste is separated on-site anddisposed of with due consideration

for environmental concerns. Inaddition, virtually all materials thatcan be recycled are separated at allworkplaces.

To reduce business travel, theGroup has more than 40 videoconference facilities at differentlocations in Finland and Sweden.Utilization of these facilities hasincreased sharply with the increas-ing accessibility of new technologiesand improvements in audio andpicture quality.

Common environmental policy

MeritaNordbanken stepped up itsenvironmental efforts in 1999 byestablishing a Group environmentalpolicy and appointing a corporateenvironmental council to coordi-nate environmental work in Finlandand Sweden. Operational plans forthe year 2000 include the formu-lation of a corporate environmentalplan constituting a platform for localenvironmental plans prepared by allGroup units. Environmental counse-lors have also been appointed withinthe Group to support local environ-mental efforts. “MeritaNordbanken’sEnvironmental Guide,” whichcomprises information and trainingmaterials for the entire Group, waspublished during the year.

Environment

Environmental gains and cost savings

Although bank operations are not readily associated with environmental effects, MeritaNordbanken consumes both energyand a variety of raw materials and uses a broad range of electronicequipment. Consistent, long-term improvement efforts will generate environmental gains and cost savings. In its lending operations,MeritaNordbanken is trying to direct greater customer attentiontoward various environmental considerations.

An entrepreneur can decide for himself when he wants to do his banking business.



Accordingly, MeritaNord-banken has developed andimplemented a comprehen-

sive regulatory system to handlerisk management within the Group.

Risk management is based onthe principle that each unit isprimarily responsible for the risksassociated with its operations. Keyfactors in this process are the earlyidentification and measurement ofall types of risk.

The focal point of risk manage-ment is the maintenance of stableearnings. At no time may the Group’s continuity be jeopardizedby risk.

The Board has ultimateresponsibility for limiting andmonitoring the Group’s risk expo-sure. The Group’s overall goals forreturn on equity, loan losses andcapital coverage constitute thestarting point for MeritaNord-banken’s risk limits.

The Group goal is that loanlosses shall be less than 0.4% oflending over a business cycle, areduction compared with thepreceding year.

Market risks in current assetsare limited to a level that corres-ponds to 4% of core capital andinterest-rate risk is limited to 3% ofcore capital. Corresponding figuresfor risk in long-term shareholdingsis 2%. At a 10% price decline in theproperty holdings, core capitalwould be affected by 6%.

Operating and legal risks are

kept within manageable levels atreasonable costs.

Organization and structure

The Board exercises its overallresponsibility and control in plenarysittings and through a Treasury andRisk Committee and a CreditCommittee. The Board establishesthe risk limits. It is the task of theTreasury and Risk Committee toreport prior to Board meetings ontreasury and risk-related issues, andalso to monitor limit utilization andthe general risk position of theGroup.

In addition, Group ExecutiveManagement has appointed anAsset and Liability Committee(ALCO) and a Risk Committee.The Group’s Chief ExecutiveOfficer is Chairman of ALCO andthe head of the Credit and Risk

function is Chairman of the RiskCommittee. ALCO is responsiblefor establishing principles for moni-toring, checking and measuring theGroup’s financial risks. The RiskCommittee monitors risk trendsand supports the development ofrisk management operations.

Since 1999, there are threeunits within Group Credit andRisk: Credit Risks, Market Risksand Operating Risks. These depart-ments collate, control, analyze andreport in a uniform manner to therelevant decision-making bodies.The heads of Group Credit andRisk and Group Credit units aremembers of the Group ExecutiveManagement and report directly tothe Group’s Chief Executive Officer.

In addition, each business unitcontains a risk management organi-zation that is responsible for thedaily monitoring of operating risksand results.

Risk management

Identification and measurement of risks

Treasury andRisk Committee

CreditCommittee

Group Executive

ALCO Risk Committee

Board of Directors

Management

MeritaNordbanken’s business operations contain a number of risks.Our earnings and generation of shareholder value are dependent onour ability to manage these risks successfully.



Credit risk is defined as the riskthat parties with whom the Bankhas entered into agreements do notfulfill their obligations to the Bank,and that any collateral depositeddoes not cover the Bank’s recei-vable claims. Credit risks arise inmany of MeritaNordbanken’sbusiness operations. Most of theBank’s credit risks arise throughvarious forms of lending activity.Other credit risks can arise throughfinancial-instrument trading, prima-rily derivatives. The risk is that thecounterparty is unable to fulfil itscommitment, referred to as counter-party or default risk.

The primary risk managementfactor is to ensure that the creditprocess itself is handled withquality and discipline. This requireswell-defined rules and instructionsas well as business expertise.

Risk management and control

Credit risks are limited within theGroup’s decision-making process.For customers with commitments

involving significant exposures forthe Bank, a limit is decided, whichalso stipulates the conditions forgranting credit. Within the limit,decisions are taken in respect ofindividual credits in accordancewith the terms set out in the limitdecision. For smaller credits, de-cisions are made in casu.

The Board has delegated theright of decision on customer limitsprimarily to three decision-makinglevels outside the Board and itscommittees. Right of decision oncustomer limits is restricted foreach decision-making body. Thediagram below shows the decision-making structure.

Each customer, or counter-party, having a credit commitmentwith the Group is assigned to acustomer-responsible unit. This unitensures that the customer/counter-party is granted a limit/credit adapt-ed to its repayment capacity, whichis assessed on an ongoing basis.

An assessment of macro- andmicroeconomic factors is an import-ant component in this work andinvolves technological develop-

ments in certain industries, busi-ness cycles, and interest rate andexchange rate contingencies thataffect customer’s direct repaymentabilities and collateral value.

This same unit is also respons-ible for handling individual creditcommitments should they becomeproblem commitments. The custo-mer-responsible unit identifies andreports customer commitmentswhich carry an increased credit lossrisk. These exposures can be grouped in two categories: RiskClass 1 and Risk Class 2.

Customer commitments,which through neglect or othercircumstances cause uncertainty asto repayment of the claim, areplaced in Risk Class 1. An assess-ment is made of the potential lossrisk, for which a provision is thenmade. The customer-responsibleunit drafts an action plan outlininghow to handle the situation in orderto avoid or minimize a definitivecredit loss.

Commitments that continueto be serviced but for which thecustomer’s repayment capacity is

MNB Credit Committee

CreditmanagementRetail

Board of Directors

Executive committee

CreditmanagementCorporate

Regional banksdecision-makingbodies

Branchdecision-makingbodies

SubsidiaryBoardsof Directors

Corporatedecision-makingbodies



Credit risks



assessed to have been significantlyimpaired – because of weak profit-ability, lack of funds and/or the riskof a considerably weakened finan-cial position – are placed in RiskClass 2. Although no provisions aremade for commitments in this riskclass, an action plan is formulatedto cover such exposures.

Credit-monitoring units existfor regional banks, Large Com-panies, International units andcredit-granting subsidiaries. Theseunits monitor and suggest qualityimprovements in the work con-ducted by the customer-responsibleunits. Among other factors, assess-ments of the quality of credit workare based on how the customer-responsible unit addresses problemssuch as overdrafts and unpaid loans,how risk management is conducted,and the quality of both customer-classification and the credit port-folio. These units report new andincreased risks to the Credit Riskunit within Group Credit and Risk.

This unit is in turn responsiblefor ensuring that efforts to developand improve the quality of creditwork are conducted in accordancewith established principles and thedirection required by the respectiverisk level. The unit ensures thatprovisions are made for risk-classi-fied commitments in accordancewith uniform principles, that actionplans are formulated for risk expo-sures and that the measures calledfor in the plans are implemented.

Measurement methods

The main method used for measur-ing credit risk is exposure, which interms of lending operations isequivalent to the nominal amountof the loan, or credit facility, etc.In the case of off-balance sheetinstruments traded in the financialmarkets (for example, derivativefinancial instruments), the positivemarket value is mainly a measure-ment of actual exposure. Since theexposure varies with changes in themarket price, a potential creditexposure is also calculated based onthe remaining life of the derivativecontract. This exposure is calcu-lated on the basis of various percen-tages, “add-ons”, which are depen-dent on the type and duration ofthe contract and which are thenmultiplied by the underlying nomi-nal amount.

Exposure says nothing aboutthe credit-worthiness of a custom-er. Credit-worthiness is taken intoaccount through setting creditlimits in line with the customer’srepayment ability.

In recent years, MeritaNord-banken has worked to expand thequantification of credit risks that gobeyond exposure. A highly impor-tant factor in the quantification ofcredit risks is the internal ratingmodels developed within theGroup. At present, there are twotypes of classification systems, onefor financial institutions and one forcompanies. The Group’s classifi-

cation system for financial insti-tutions is based on the same prin-ciples used by external ratinginstitutions. The classificationsystem for companies is morespecific for MeritaNordbanken.

The Group has used a com-mon rating model for its corporatecustomers since 1998. The model is applied to the Group’s entirecorporate volume, with the excep-tion of the smallest undertakings.The customer class constitutes asummarized assessment of thecustomer’s repayment capacity andlevel of collateral, with the empha-sis on repayment capacity. Classifi-cations are conducted based on amodel that measures financial andnon-financial factors. Evaluationand development were prioritizedduring 1999 and will remain thefocus in coming years. The develop-ment of the Group’s own historicalbase will be used as the basis forfuture work in credit-risk modelingand to measure changes in thecomposition of the loan portfolio.

Work on rating models and thequantification of credit risks arevital components of credit riskmanagement used in calculatingcredit risk in the Group and inareas such as credit assessment,portfolio analysis and pricing.



Market risks derive from the riskthat a value shift will occur as aresult of changes in rates and pricesin financial markets. Market risks inMeritaNordbanken are divided intointerest-rate, exchange rate, equityand commodity risks.


The main rule for limiting marketrisk is that assets and liabilities arematched to the greatest reasonableextent. This applies in terms ofcurrencies and interest-rate periods.However, it is inherent in theBank’s operations to assume marketrisks within well-considered limits.Within MeritaNordbanken, thisrisk-taking occurs mainly withinTreasury and Markets.

The Board determines the risklevel and sets overall limits, whileALCO decides on the allocation oflimits and risk-measurement meth-ods to risk-taking units. WithinGroup Credit and Risk, the MarketRisk unit has primary responsibilityfor monitoring and for ensuringcompliance with risk limits, analy-zing and reporting consolidatedrisk-taking and upgrading risk-management within the Group.This unit regularly presents reportson the trend in risk to the Board,

the Treasury and Risk Committee,Group Executive Management,ALCO and the Risk Committee.The controllers in each risk-takingunit are responsible for identifying,calculating and controlling marketrisks within the unit and for sub-mitting daily reports to the MarketRisk unit.

Measurement methods

It is crucial to measure and analyzemarket risks using several methods,since there is no single measure ofrisk that can be relied on as the solemeans of measuring future risk.Market risks in MeritaNordbankenare measured, for example, usingValue at Risk, standardized sensiti-vity measures, different combinedscenario simulations, which takeinto account the non-linear charac-ter of options, as well as stresstests.

Value at Risk (VaR) is a statis-tical measure that estimates themaximum loss which, with a cer-tain probability, will arise over agiven time interval under normalmarket conditions. MeritaNord-banken limits interest-rate, curren-cy and equity risks by using a VaRmodel based on two years’ histori-cal data, a 99% degree of proba-

bility and a 10-day close-out period.Analysis of VaR with other para-meters and changed correlations ismade on a continual basis. Themeasurement used for commodityrisk limits is a 20% change in mar-ket value. Combined scenariosimulations are used especially tomeasure non-linear risk, meaningthe risk that arises in options-related instruments. The simulationconsists of a gradual change invarious market parameters, inwhich the worst outcome of thesimulation expresses the risk in-volved in these positions.

Stress tests, which consist ofsubjectively selected scenarios andthe simulation of historical pro-cesses in current time, are of majorimportance in estimating marketrisks in the event of extreme mar-ket circumstances.

Interest-rate risk and limits

Interest-rate risk is defined inMeritaNordbanken as the risk ofchanges in market interest ratesleading to capital losses or lower netinterest income. The type of riskthat can lead to capital losses isreferred to as interest-rate risk, andthat which may lead to a deteri-oration in net interest income asinterest-net-risk. The overall limitsfor interest-rate risk are based onVaR for linear risks and simulationof non-linear-risk scenarios.

The net interest risk reflectsthe mismatch that arises in balancesheets when interest-rate periodsbetween the liabilities and assetssides do not correspond exactly.The net interest risk in Merita-Nordbanken is measured on theentire balance sheet. In the analysisof the net interest risk for theGroup, an exception was made forthose positions included in theGroup’s trading portfolio. In the

Market risks in MeritaNordbanken 1999

Board Highest LowestEUR million Measurement limit risk risk Average

Interest-rate risk VaR 100.2 51.2 14.9 31.2

Interest-rate option risk Simulation 18.9 5.0 0.2 2.3

Currency risk VaR 26.5 7.4 1.3 3.8

Currency option risk Simuation 23.6 5.2 1.0 2.4

Equity risk, Markets(as of Dec 15, 1999) VaR weighted 14.2 5.0 3.6 4.3

Equity option risk, Markets (as of Dec 15, 1999) Simulation 4.7 0.6 0.3 0.4

Equity risk, long-term portfolio 10 % 99.2 70.6 39.4 49.1

Commodity risk 20 % 2.4 0.2 0.0 0.0

Market risks



analysis, the trading portfolio isdefined as holdings that have beenin the portfolio for a maximum ofthree months. During 1999, the netinterest risk was reduced as a resultof determined efforts to reduce thenumber of open positions in a 12-month interval. The net interestrisk limit is decided by the Boardand was EUR 141.8 M on Decem-ber 31, 1999.

The table below shows theinterest-rate positions on Decem-ber 31, 1999. The table merelyindicates the Group’s position on acertain day. The reported interest-rate positions generally show, usinga standard calculation, that an in-crease in market rates of onepercentage point reduces net inter-est income for the next 12-monthperiod by EUR 5.3 M (cumulativeexposure of EUR 531 M times 1%).In this calculation it is assumed thatno market transactions occurredduring the period.

Currency risk and limits

Currency risk is defined as the riskfor shifts in value as a result ofchanges in currency exchange rates.

Currency exposure is reducedthrough the matching of assets andliabilities. The overall limits forcurrency risk are based on VaR forlinear risks and scenario simulationfor non-linear risks. Internal curren-cy risk limits have been establishedwithin the framework of theinstructions from the Swedish andFinnish Financial SupervisoryAuthorities.

Equity risk and limits

Equity risk is defined as the risk ofchanges in the market value ofstocks or stock-related instrumentsas a result of changes in stockprices. MeritaNordbanken’s equityrisk can be divided into long-terminvestment holdings and tradedstocks including stock-derivatives,which are traded. The Group’slong-term holdings are managed byTreasury and other stock tradingrisks by Markets. During 1999, VaRwas implemented as the primaryrisk-measurement method forlinear equity risks and simulationfor non-linear risks in Markets,while the long-term stock holdingsare measured and limited to a 10%

change in the market value of theholdings. As a complement to VaR,specific risks per stock are alsolimited.

Commodity risk and limits

Commodity risk is defined as therisk of changes in market value ofcommodity-related instruments asa result of changes in commodityprices. The overall limit for com-modity risk is based on sensitivitymeasurements.

Liquidity risk

The purpose of MeritaNord-banken’s liquidity management is to ensure that sufficient funds areavailable to the Bank to fulfill itscommitments to customers andcounterparties. These can involverepayment of financing on maturi-ty, disbursement of new loans orpayments for day-to-day operations.

Short-term liquidity risks aremeasured and limited using cash-flow forecasts in different curren-cies over a time period of 14 and 30 days. Liquidity risk limits aredecided by the Board.

Repricing distribution

Fixed-interest-rate periods Balance Less than Non-December 31, 1999, EUR million sheet 3 mos. 3 to 6 mos. 6 to 12 mos. 1 to 2 years 2 to 5 years >5 years repricing

AssetsInterest-bearing assets 86 985 50 183 10 226 6 227 9 941 8 746 1 662Trading 4 580 4 580Off-balance-sheet items 1) 108 187 9 867 3 816 1 184 1 556 834Non-interest-bearing assets 12 412 12 412

Total assets 103 977 162 950 20 093 10 043 11 125 10 302 2 496 12 412

Liabilities and shareholders’ equityInterest-bearing liabilities 89 546 64 886 6 358 4 302 7 943 4 689 1 368Off-balance-sheet items 1) 103 355 10 142 4 574 3 710 2 726 937Non-interest-bearing liabilities 2) 14 431 14 431

Total liabilities and shareholders’ equity 103 977 168 241 16 500 8 876 11 653 7 415 2 305 14 431

Exposure -5 291 3 593 1 167 -528 2 887 191 -2 019Cumulative exposure -5 291 -1 698 -531 -1 059 1 828 2 019 0

1) Off-balance-sheet items consist of derivative instruments that are used by theGroup to hedge items in the balance sheet or to change them in a syntheticmanner. Amounts do not include derivative instruments in the Bank’s tradingportfolio, except currency forwards. Derivative instruments traded between the

Trading unit and Treasury are treated as if they were external transactions. Thepurpose is to show the impact of these trades on the Group’s overall interest-rateexposure.

2) Includes Group shareholders’ equity amounting to EUR 5,526 million.

Home shopping. Lotta shops around in the Solo mall whenever she feels like it.



MeritaNordbanken has definedoperational risk as the risk of losses,including damage to its reputation,caused by shortcomings in theBank’s internal operations (employ-ees, organization, processes andtechnology) and external events andcircumstances that affect theBank’s business. The Bank’s opera-tions are constantly exposed toattempted internal and externalcriminal acts. Solid internal controlsare the best way of protectingoperations against such attemptedcrimes. Important factors for goodinternal controls consist of leader-ship, education, recruitment andwell-defined regulations andinstructions.

The physical safety of theBank’s employees and customers is highly prioritized. Thankfully, theincidence of robberies and attempted robberies has declined.


Each business area is primarilyresponsible for the handling andcontainment of its own operationalrisks. Part of the limitation processis to develop an optimal insurancecover through non-life and liabilityinsurance programs. Group Creditand Risk has overall responsibilityfor controlling operating risks. Thisis carried out in close cooperationwith internal auditing functions.

Measurement methods

Group Credit and Risk is respon-sible for developing the Group’soverall system for the identifi-cation, measurement and limitationof risk. Both existing and newproducts are assessed on the basisof models developed by the centralunit.

Today, the models can identifythe risk profile in different pro-cesses. The objective is also to beable to quantify risks more precise-ly, which is beneficial in capitalallocation activities.

Operational risk



During 1999, MeritaNordbankenintensified its efforts to develop amodel for risk-based managementand results measurement. Thismodel takes into account creditrisk, market risk and operationalrisks. The objective is to obtain abetter method of calculating theGroup’s risk capital requirements,thereby optimizing the utilizationand distribution of capital betweendifferent business units. It alsoenables better comparisons to bemade between the different Groupunits in terms of risk and return.

The model is scheduled to betaken into use during the year.

Risk-Adjusted Capital (financial capital)

Risk-adjusted capital is an expres-sion of how much capital will berequired by each business operationto cover the unforeseen losses thatcan affect a unit. In the model thathas been prepared, a risk-adjustedcapital sum (financial capital) iscalculated for each business unit, inregard to its credit, market andoperational risk.

The calculation of risk-adjusted capital in accordance withthe model is made with the help ofstatistical methods based on histo-rical data. Preliminary calculations

show that credit risk requires themost risk capital by far, approxi-mately 70% of total financial capi-tal, while market and operationalrisk require approximately 15%each.

The difference between totalfinancial capital for the Group andcapital consumption calculated inaccordance with prevailing capitalcover regulations, which have beenused to date for allocating share-holders’ equity, is relatively small,whereas differences occur for thevarious business units.

Credit riskCalculation of the financial capitalneeded to cover unforeseen creditlosses is based on the Group’sinternal system for classification ofcounterparties. In a matrix wherethe internal ratings are shown onone axis and maturity periods onthe other, so-called capital factorshave been calculated for the respec-tive combinations of rating andmaturity periods. The size of thecapital factors depends on theestimated probability of a failureand the size of the loss. Calculationof the financial capital is then madeby multiplying the credit-riskexposure of each combination ofrating and maturity period by thecalculated capital factor.

Market riskCalculation of the financial capitalneeded to cover unforeseen lossesdue to market risks is based pri-marily on the Group’s Value at Risk(VaR) model, which is used tocalculate market risk.

Operational risksOperational risks are defined in themodel as the risks which remainwhen credit and market risks havebeen taken into account. Opera-tional risks are calculated, takinginto account the historical volatilityin earnings (excluding the effects ofcredit and market risk) and usingthis to calculate the capital factorsfor operational risk at product level.By studying historical fluctuationsin earnings, statistical methods canbe used to calculate the size offuture operational losses and thusthe amount of risk capital required.

Return on Capital at Risk(RoCaR)

With a calculated risk capital re-quirement for each business unit,a risk-adjusted return (RoCaR) canbe calculated. During the year2000, RoCaR will be calculated forthe various business units parallel tothe existing internal return ratio,Return on Equity (RoE).

Risk-Adjusted Performance Measurement (RAPM)

Jarmo and Päivi were quickly able to finance their dream home, thanks to the bank confirming their loan.



The year 1999 saw the continu-ation of the divestment ofproperty holdings and earlier

strategic shareholdings, which hadbeen announced when the Groupwas established. At the same time,the lending portion of the Group’scombined assets continued to risedespite a tendency on the part oflarger companies, to increasinglysecure the funding needed throughdirect loans in the capital and moneymarkets. Holdings of interest-bear-ing securities reported as financial

current assets, which in relativeterms act primarily as a liquiditybalancing factor, decreased duringthe year.

On the funding side, depositsfrom households are facing growingcompetition for customer savingsfrom various forms of equity invest-ments. Nevertheless, these depositsaccounted for 60% of total depositsfrom the public and were theGroup’s largest single source offunding.

Maintaining capital adequacy

at an appropriate level is a prerequi-site for the Group’s stated growthstrategy within the Nordic andBaltic regions. Accordingly, a goodreturn on capital is a fundamentalrequirement. During 1999, in orderto further strengthen the capitalbase, the Group issued hybridcapital loans which are included inthe core capital.

Financial structure

Streamlining continues

MeritaNordbanken Group – Balance sheet structure

Percent of balance sheet at the end of the year

1999 1998 1997

Assets

Loans to the public 65.6 62.3 58.3Loans to credit institutions 8.8 11.6 13.7Interest-bearing securities

Current assets 8.1 10.4 10.5Financial fixed assets 5.6 3.9 5.0

Real estate holdings 2.6 3.1 3.9Shares, investments and trading 0.6 0.5 0.8Other 8.7 8.2 7.8

Total 100.0 100.0 100.0

Liabilities and shareholders’ equity

Deposits from the public 40.5 40.1 40.0Other borrowing from the public 1.8 2.1 2.7Due to credit institutions 12.8 18.2 18.3Bonds and other debt instruments 27.0 23.6 22.9Subordinated debt including capital loans 3.9 2.7 4.1Other liabilities 8.7 8.3 7.2Shareholders’ equity 5.3 5.0 4.8

Total 100.0 100.0 100.0

MeritaNordbanken works continuously to create added value forshareholders through increased focus on core operations and byoptimizing both the Group’s financial structure and shareholders’equity.

Deposits

Corporatecustomers40%

Privatecustomers60%

Lending

Corporate customers61%

Privatecustomers39%



Loans

Loans to the publicLoans to the public rose by 14% in 1999 and totaled EUR 68.2 bn.The upward trend was somewhatstronger for the household sectorthan for the business sector.

Borrowers outside the domes-tic markets in Sweden and Finlandaccounted for 9% of lending withthe following geographical distri-bution:

EUR million

- Other Nordic countries 446 - Baltic region and Poland 245- Other OECD countries 4 007- Other countries 1 493

A considerable portion of lendingoutside the Nordic region wasrelated to loans for projects orforeign establishment in which ourFinnish or Swedish customers areinvolved.

CompaniesCorporate loans increased by 12%during the year. Distribution amongindustries was largely unchanged. Asubstantial percentage of loans toproperty management companies,which account for the single largestportion, were to governmental andmunicipal companies. This indus-try accounted for the largest vol-ume increase during the year. Ofthe increase of EUR 1.2 bn underthe heading, Other Companies, for-eign customers accounted for EUR0.6 bn and repos for EUR 0.5 bn.

HouseholdsLoans to the household sectorincreased by 16%. Housing creditsincreased by 18% and this increaseconstitutes 85% of the increase inhousehold lending. At year-end,housing credit’s share was 75% (73)of household lending.

Public sectorLoans to Swedish municipalitiesincreased by 16% to EUR 1.6 bn.The increased lending to otherpublic institutions was dominatedby loans to Swedish County Coun-

cils. Loans to Finnish municipalitiesdecreased by 24% to EUR 0.2 bn.

Loans to credit institutionsLoans to credit institutionsamounted to EUR 9.1 bn at the

Assets MeritaNordbankenCustomer structure of loans portfolio

Dec 31, EUR bn 1999 % 1998 % 1997 %

Companies 39.6 58.1 35.2 58.9 33.3 58.2Households 26.4 38.6 22.8 38.1 22.1 38.7Public sector 2.2 3.3 1.8 3.0 1.8 3.1

Total 68.2 100.0 59.8 100.0 57.2 100.0

MeritaNordbankenDistribution of lending to corporate customers, by industry

Dec 31, EUR bn 1999 % 1998 % 1997 %

Real estate management 11.0 27.8 9.6 27.1 8.9 26.8Construction 2.6 6.4 2.8 7.9 2.6 7.7Transport 3.0 7.6 2.9 8.2 2.9 8.7Trade & services 3.7 9.4 3.4 9.7 3.5 10.4Manufacturing 6.4 16.2 5.3 15.1 4.9 14.8Financial operations 0.4 1.1 1.1 3.2 1.1 3.2Renting, consulting and

other company services 4.7 11.9 3.6 10.3 3.3 9.9Other companies 7.8 19.6 6.5 18.5 6.1 18.5

Total 39.6 100.0 35.2 100.0 33.3 100.0

MeritaNordbankenLending to households

Dec 31, EUR bn 1999 1998 1997

Mortgage loans 19.7 16.7 16.2Consumer loans 6.0 5.4 5.2Student loans guaranteed by the

Finnish government 0.7 0.7 0.7

Total 26.4 22.8 22.1

MeritaNordbankenLending to the public sector

Dec 31, EUR bn 1999 1998 1997

Municipalities 1.8 1.7 1.7Finnish and Swedish governments 0.0 0.0 0.0Other public institutions 0.4 0.1 0.1

Total 2.2 1.8 1.8



end of 1999 (EUR 11.2 bn). Themajority of lending to foreign bankswas to banks within the OECDarea.

Risk-classified commitmentsIn 1999, the volume of risk-classifi-ed commitments decreased by 15%and totaled EUR 3.3 bn at year-end.

The largest decrease was inRisk Class I, where a number ofcommitments were liquidatedduring the year. This contributed tothe substantial reduction in thevolume of unsecured receivables.The reduction occurred in allindustries except the manufacturingindustry. The latter reflects in-creased risks within the Swedishsawmill industry.

Problem loansProblem loans declined by 21% in1999 to EUR 0.8 bn at year-end.

Unsecured gross receivablesamounted to EUR 2.3 bn, a drop of29% from the previous year. Of thisamount, EUR 1.8 bn. was attri-butable to corporate loans and EUR0.5 bn to household loans. Reservesfor possible losses totaled EUR 1.5 bn,which corresponds to a provisionratio of 65%. Unsecured net receiv-ables were EUR 0.8 bn, equivalentto 1.2% of lending (1.7%).

Special country-risk provisionLending to other countries involvesrisk factors that are specific to eachcountry. Factors such as changes inthe economic and political climateaffect the repayment ability of

many of the countries’ banks andcompanies.

MeritaNordbanken makesprovisions for credit risks that arisein specific countries due to changesin their economic and politicalenvironment.

To assess these risks, Merita-Nordbanken uses a model that isapplied to countries outside theOECD, as well as to some coun-tries within the OECD where theBank considers this motivated inview of the country’s economic andpolitical situation. The assessmentis based on the EIU (EconomistIntelligence Unit, London) country-risk assessment.

MeritaNordbanken allocates aprovision for these risks based onoutstanding net receivables, com-bined with the risk level for everycountry. Net receivables refer toreceivables, excluding guaranteesfrom organizations such as EKN andFinnvera, the respective Swedishand Finnish export credit boards,and similar institutions. The size ofthe provision varies depending onchanges in outstanding volumes andchanges in the assessed risk level ofthe countries.

In 1999, the provision require-ments associated with these risksdecreased by EUR 20 M. As of thebalance sheet date, special country-risk provisions totaled EUR 158 M.

Interest-bearing securitiesInterest-bearing securities totaledEUR 14.3 bn, distributed amongfinancial current assets (EUR 8.5bn) and financial fixed assets (EUR5.8 bn). In order to satisfy custom-ers’ liquidity requirements, as well as its own flows, a volume ofapprox-imately EUR 5 bn in pled-ged securities is required.

Financial current assetsFinancial current assets are handledby Trading and Treasury. Tradingmanages very flexible positions toutilize short-term fluctuations ininterest rates. Within Treasury,positions are divided into manage-ment portfolios with mainly medi-um-term investment horizons. Themajority of the guidelines for inter-est-rate risks, which were estab-lished by the Board, are dividedamong these two units. At the endof 1999, the duration of financialcurrent assets was 1.6 years. Thecombined interst-rate risk was EUR17.9 M, measured as VaR, whichtakes into account portfolio effectsand actual volatilities.

Fixed assets

Financial fixed assets are reportedholdings of interest-bearing securi-ties intended to be held to maturityand thus to provide a good return

MeritaNordbankenRisk-classified commitments

Dec 31, EUR bn 1999 % 1998 %

Class 1 2 100 64 2 610 68Class 2 1 185 36 1 245 32

Total 3 285 100 3 855 100

MeritaNordbankenDistribution of Class 1 and 2 risks, corporate customers by industry

% of lending % of lendingDec 31, EUR million 1999 to the industry 1998 to the industry

Real estate management 624 5.7 752 7.9Construction 271 10.7 383 13.8Transport 364 12.1 372 12.9Trade & services 495 13.3 706 20.6Manufacturing 739 11.5 459 8.6Financial operations 70 15.9 107 9.5Renting, consulting and

other company services 464 9.8 584 16.1Other companies 1) 258 3.3 492 7.5

Total 3 285 8.3 3 855 10.91) Other companies include some household loans.



over the term. The Portfolio con-tains mainly listed governmentbonds and mortgage bonds. Hold-ings amounted to EUR 5.8 bn. Theaverage maturity was 2.4 years withan average duration of 2.1 years.Yield (effective annual yield) total-ed 4.8%. 1999 was characterized

by volatile interest rates with risingrates during the year. The marketvalue largely matched the bookvalue at year-end. The undervaluewas EUR 17 M at year-end, com-pared with an overvalue of EUR121 M in 1998.

Shares and participations

The Group’s shareholdings in acti-vely managed portfolios had a mar-ket value of EUR 0.1 bn at year-end.Other shares, reported as financialcurrent assets and valued accordingto the lowest value principle, totaledEUR 0.5 bn, which was a decreaseof EUR 0.1 bn from December 31,1998. The downturn is largelyattributable to the divestment ofshares in the Pohjola InsuranceCompany. The surplus value of theremaining holdings, excluding hold-ings in Christiana Bank, totaledEUR 0.2 bn at year-end.

The Group also has shares andparticipations in subsidiaries andassociated companies of EUR 0.7 bn.This refers to the subsidiariesMerita Invest, Huoneistokeskus andMerita Life Insurance as well asassociated companies accounted forunder the equity method.

Properties

The book value of property hold-ings totaled EUR 2.8 bn, a decreaseof EUR 0.2 bn for 1999. The down-turn was partly due to value adjust-ments of EUR 145 M, on theGroup’s real-estate related assets.

Other assets

Other assets totaled EUR 5.2 bn,and primarily involved positivevaluation items relating to deriva-tives, EUR 3.0 bn, as well as accru-ed income of EUR 1.3 bn.

MeritaNordbankenNonperforming loans, households

% of lending % of lendingwithin respective within respective

Dec 31, EUR million 1999 segment 1998 segment

Mortgage loans 30.5 0.2 41.9 0.3Consumer loans 60.8 1.0 71.2 1.3Student loans guaranteed bythe Finnish government 6.5 1.0 7.3 1.0

Total 97.8 0.4 120.4 0.5

MeritaNordbankenNet nonperforming corporate loans, by industry

% of lending to % of lending toDec 31, EUR million 1999 the industry 1998 the industry

Real estate management 136 1.2 93 1.0Construction 17 0.7 153 5.5Transport 7 0.2 8 0.3Trade & services 89 2.4 151 4.4Manufacturing 49 0.8 53 1.0Financial operations 1 0.2 4 0.3Renting, consulting and

other company services 125 2.7 89 2.5Other companies 173 2.2 200 3.1

Total 597 1.5 751 2.1

MeritaNordbankenProblem loans and property taken over

Dec 31, EUR million 1999 1998

Nonperforming loans, gross 2 252 3 185Loan loss provisions -1 460 -2 181

Nonperforming loans, net 792 1 004Loans with interest deferments 13 17

Total problem loans 805 1 021

Loan loss provisions as percentage of nonperforming loans, gross 64.8 68.5

Net nonperforming loans as percentage of lending 1.2 1.7

Assets taken over for protection of claims 60 99

Borrowing

Dec 31, EUR bn 1999 1998

Loans from credit institutions and central banks 13.4 17.4

Borrowing fromthe public 1.9 2.1

Debt securities 15.6 12.8Bonds 12.5 9.8Subordinated debt 4.1 2.5

Total 47.5 44.6



Deposits from the public

Deposits from the public constituteMeritaNordbanken’s most impor-tant funding source and represented40% of total liabilities at year-end.During the year, deposits rose by9% to EUR 42.1 bn.

Growth occurred mainly incorporate deposits, while householdvolumes were stable. The marketshare in Finland declined some-what. Market share rose in Swedenin the corporate market, whiledeclining in the private market.

Borrowing

The borrowing that is required inaddition to deposits and sharehold-er’s equity is undertaken primarilyin the form of loans from creditinstitutions and through issues ofmoney market instruments, bondsand subordinated debenture loans.MeritaNordbanken has a number ofloan programs.

As a result of increasing issuevolumes during recent years and itsAa3 long-term rating from Moody’sInvestor Services, NordbankenHypotek’s prerequisites for betterpricing and distribution of its bonds

have improved. In consequence,cooperation with MBB (MortgageBenchmark Bonds) was discontin-ued in 1999.

The value of dated subordi-nated debentures outstanding wasequivalent to EUR 2.3 bn. In addi-tion, the Group had perpetual andhybrid loans in the amount of EUR1.8 bn. This amount includes a loanof EUR 0.4 bn, taken last year.

Other liabilities

Other liabilities totaled EUR 8.9 bn.The major items comprised negati-ve valuation items of EUR 2.8 bnrelated to derivatives and accruedcosts of EUR 1.4 bn.

Shareholders’ equity

As of January 1, 1999, MeritaNord-banken Group’s shareholders'equity totaled EUR 4.8 bn. Of thisamount, EUR 0.4 bn was utilizedfor payment of the dividend ap-proved at the Annual General Meet-ing in 1999. Profit for the yearincreased shareholder’s equity byEUR 1.1 bn. During the year, thestrengthening krona resulted in a

positive translation difference ofEUR 0.2 bn. In addition to that arereserves for ongoing share redemp-tion of shares in Merita Plc, whichreduced shareholders’ equity byEUR 0.2 bn. At year-end, share-holders’ equity totaled EUR 5.5 bnor SEK 47.3 bn.

In connection with the shareexchange/new issue, the Extraordi-nary General Meeting of NBHdecided to transfer EUR 0.7 bn(SEK 6.2 bn) from restricted share-holders’ equity to a non-restrictedfund. At year-end, non-restrictedshareholders’ equity amounted toEUR 2.8 bn or SEK 24.1 bn.

Pension Foundation/Fund

Nordbanken’s pension commitmentsare mainly secured through allocationsto the Nordbanken Pension Founda-tion. Its net asset value amounted tothe equivalent of EUR 899 M, coveringpension commitments of EUR 605 M.

Merita Plc’s Pension Fund andPension Foundation are responsible forthe personnel’s supplementary pensioncover in the Finnish companies. At theend of the year the fair value of theassets of the Pension Fund and PensionFoundation totaled EUR 696 M,covering a pension commitment ofEUR 496 M.

Liabilities and shareholders’ equity

Off-balance-sheet commitmentsAs a part of its commercial opera-tions, the Bank has substantial off-balance-sheet commitments. Theypertain in part to commercialproducts such as guarantees, lettersof credit, credit commitments andthe like, and in part to financialcommitments in the form of deriva-tive instruments. The latter pertainprimarily to contracts to exchangecurrencies at a future date (curren-cy forwards), contracts to purchaseand sell interest-bearing securities

at a future date (interest-rate for-wards), and contracts to exchangeinterest-rate payments (SWAPS,FRAs). They are used partly to limitspecific risks, but are also used bycustomers wherein the Bank is acounterparty.

The table below shows thenominal amounts. These amountsare not comparable and do not inany way constitute a quantificationof the credit or market risks associ-ated with the Bank’s off-balance-

sheet commitments. As of Decem-ber 31, 1999, total exposure tocredit risks (counterparty risks),expressed as a risk-weighed amountand calculated in accordance withregulations applicable to capitaladequacy, was EUR 1.4 bn.

Derivative instruments

Derivatives have a wide area ofapplication, partially for taking



speculative positions and partiallyfor hedging purposes. The majorportion of MeritaNordbanken’sderivative business originates astransactions and market-makingactivities, the purpose of which isto reduce market risk.

The most common type ofderivative instrument is a forwardcontract on foreign exchange rates.This product is offered to a widerange of customers to hedge foreignexchange risks. However, FRAs areincluded in the nominal amountand SWAP transactions are substan-tially larger. Option volumes arerelatively small.

The majority of outstandingderivative contracts are marked tomarket on a continual basis in theBank’s balance sheet and, therefore,affect the reported result. Otherderivative contracts are included inthe hedging reports at the acquisi-tion value.

Consequently, derivativesaffect the Bank’s exposure to marketrisk and credit risk. Credit risk inderivative instruments is often re-ferred to as counterparty risk.These risks are limited and meas-ured according to the principlesestablished within the respectiveareas outlined under Risk Manage-ment. The impact of derivativeinstruments on market risk isalways measured and limited withother spot instruments, as theyconstitute the overall market risk.The credit risk that arises in deriva-tive instruments traded over-the-counter (OTC), is limited in ac-cordance with the Bank’s normalcredit procedures, i.e., the neces-sary limit requirement to the deri-vative counterparty.

CapitaladequacyCapital adequacy regulations areintended primarily to ensure thefinancial stability of the bankingsystems by requiring a minimumlevel of shareholders’ equity in relation to credit and market risksin both assets and off-balance sheetitems. These regulations make upthe core of the banking controlsystem applied in different coun-tries. Based largely on an inter-national agreement, similar regula-tions are applied throughout theentire industrialized world. Theminimum level for capital adequacyratio, meaning the capital base inrelation to risk-weighted assets, hasbeen set at 8%.

At year-end, MeritaNord-banken’s capital adequacy ratio was12.0% (9.9) and the core capitalratio 8.3% (7.3).

In addition to net profits afterthe proposed dividend, factorsaffecting the change in the corecapital ratio included hybrid capitaland the provision for the redemp-tion of shares in Merita Plc.

Off-balance-sheet commitments

Nominal amountsDec 31, EUR bn 1999 1998

Guarantees 5 5Credit commitments 7 5Unutilized

credit facilities 8 5Other contingent

liabilities 2 1Derivative instruments 364 371

Total 386 387

Derivative instruments

Dec 31, 1999, EUR million Nominal amounts

Total Contracts made for Otherhedging purposes

Interest-rate related contractsFutures and FRAs 150 695 2 630 148 065Options purchased 847 5 842Options written 4 427 – 4 427Interest rate swaps 128 118 15 622 112 496

Total 284 087 18 257 265 830 (Dec 31, 1998) 292 790 3 494 289 296

Currency-related contractsFutures and forwards 66 161 4 389 61 772Options purchased 2 167 – 2 167Options written 2 135 – 2 135Currency interest-rate swaps 8 631 4 020 4 611

Total 79 094 8 409 70 685 (Dec 31, 1998) 78 000 31 620 46 380

Equity-related contracts 717 631 86(Dec 31, 1998) 584 404 180

Other derivative contracts 113 – 113(Dec 31, 1998) 32 – 32

Total 364 011 27 297 336 714 (Dec 31, 1998) 371 406 35 518 335 888

Capital adequacy

Dec 31, EUR bn 1999 1998

Capital base 8.2 6.3of which, core capital 5.7 4.6

Risk-weighted amount 68.5 63.7Total capital ratio, % 12.0 9.9Core capital ratio, % 8.3 7.3



Nordic Baltic Holding (NBH) AB(publ)

Nordic Baltic Holding (NBH) AB(publ) is not the subject of any legalproceedings.

Merita Plc

The criminal case against PerttiVoutilainen, President of MeritaBank and previously CEO andChairman of the Board of Directorsof what was formerly Kansallis-Osake-Pankki, relates to an in-fringement of the Securities MarketAct in connection with the market-ing of the Kansallis share issue inautumn 1994. After HelsinkiDistrict Court rejected the lawsuitin December 1996, the Court ofAppeal in Helsinki passed a judg-ment in August 1998 overturning

the District Court’s ruling andremitted the case to the DistrictCourt for a retrial. The basis for theCourt of Appeal’s decision was thatthose who had appealed the Dis-trict Court’s ruling ought, by law,to have been granted the plaintiff’sright to plead before the court.Pertti Voutilainen, President ofMerita Bank, petitioned the Su-preme Court for leave to appeal.The Supreme Court granted per-mission in June 1999.

A total of 59 private sharehold-ers in Kansallis-Osake-Pankki haveinstituted a civil suit against MeritaPlc on the basis of allegations ofmisleading information in connec-tion with the above-mentionedshare issue in 1994. In March 1997,Helsinki District Court rejected alldamage claims. Following an appeal,the case is now pending in theCourt of Appeal in Helsinki.

MeritaNordbanken Plc

MeritaNordbanken Plc is not thesubject of any legal proceedings.Within the framework of the banks’normal business operations, how-ever, the subsidiaries NordbankenAB (publ) and Merita Bank Plc facea number of claims in lawsuits andother legal disputes, most of whichinvolve relatively small amounts.None of these disputes is consid-ered likely to have any significantadverse effect on the banks or theirfinancial positions.

In the suit between YggdrasilAB and Nordbanken, described indetail in previous Annual Reports,the Stockholm District Courtdismissed Yggdrasil’s claim in aruling given on September 1, 1998.Yggdrasil appealed the DistrictCourt decision to the Court ofAppeal.

Legal proceedings

Pelle usually pays his bills after watching the evening news.



Profit and profitability

Stable income development

MeritaNordbanken Group’soperating profit amountedto EUR 1,386 M (1,370).

Excluding items affecting compara-bility, operating profit amounted toEUR 1,272 M, up 10%.

Return on equity was 20.9%(14.3). Excluding items affectingcomparability, return on equityamounted to 20.6% (18.7).

Items affecting comparability

During MeritaNordbanken’s initialyears, coordination and streamliningof operations had a substantialimpact on the earnings trend. Toillustrate the trend in the Group’soperating profit – without theeffects of these measures – thetable shows operating profit, exclud-ing items affecting comparability.(Quarterly trends are shown onpage 76.)

The 1999 income statementincludes a capital gain on the sale ofa shareholding in Pohjola InsuranceCompany of EUR 114 M. In addi-tion, earnings for the year wereaffected by a drawing of EUR 65 M(152) from the Swedish pensionfoundation and writedowns relatedto real estate of EUR 145 M (617).

In 1998, items affecting com-parability consisting mainly ofcapital gains from the disposal ofshareholdings and restructuringcosts were included, which had an

aggregate impact of EUR 211 M on profit. These items were capitalgains on divestment of sharehold-ings, slightly more than EUR300 M, including Sampo InsuranceCompany and Nokia, as well asrestructuring expenses of nearlyEUR 100 M.

Profit for the year and earnings per share

Excluding items affecting compara-bility, profit for the year was EUR1,098 M, up 56% compared with ayear earlier. Earnings per share wasEUR 0.53.

MeritaNordbanken posted a stable earnings trend and a continuedhigher return on equity. Percentage of commission income increase,in line with the Group’s goals. Costs lower than a year earlier. Loanlosses very limited.

Income statement, excluding items affecting comparability*

SEK MEUR M 1999 1998 Change, % 1999

Net interest income 1 798 1 835 -2 15 848Net commission income 822 722 14 7 243Net result from financial operations -9 138 -74Other income 300 291 3 2 647

Total income 2 911 2 986 -3 25 664

Personnel expenses -787 -818 -4 -6 938Other expenses -927 -906 2 -8 173

Total expenses -1 714 -1 724 -1 -15 111

Profit before loan losses 1 197 1 262 -5 10 553Loan losses, net -22 -139 -84 -195Profit from companies accountedfor under the equity method 97 36 863

Operating profit 1 272 1 159 10 11 221

*Items affecting comparability

Net interest income -17Net result from financial operations 114 307 1 000Other income 75Personnel expenses -63Other expenses -66Profit from companies accountedfor under the equity method -25

Total 114 211

Operating profit, including items affecting comparability 1 386 1 370 12 221



Income

Total income amounted to EUR3,025 M, a decline of 10%. Exclud-ing items affecting comparability,income was EUR 2,911 M, down3%, mainly due to lower net earn-ings from financial transactions.

Net interest income amountedto EUR 1,798 M, down 1% from1998. Compared with the preced-ing year, the trend was affected bylower average short-term interestrates, resulting in lower margins ondeposits and lower return on share-holders’ equity. The steady de-crease in interest risk exposure andincreased liquidity contingenciesprior to the millennium shift alsooffset the effect of larger volumes.

Net commission income increas-ed 14% to EUR 822 M. Buoyantfund sales, combined with a sharpvalue appreciation, meant that fundcommissions increased by a full26%. Income from securities trad-ing, custody activities and corporatefinance also developed favorably.Gross commission income rose13% while provision expenses wereup only 4%.

Net result from financialoperations amounted to EUR 105 M.Excluding items affecting compara-bility, the result represented a lossof EUR 9 M compared with a profitof EUR 138 M in the previous year.The deterioration was due tochanges in market interest rates;during the second quarter in parti-cular, both medium and long-terminterest rates rose steeply and thetrend subsequently continuedupward during the remainder of theyear but with considerable volatil-ity. A rise in interest rates leads toan immediate decline in marketvalue, although this graduallyrecovers during the remainingmaturity of the security.

The impact of rising interestrates on profit was, however, allevi-ated through the steady reductionof the Group’s interest rate riskduring the year. At year-end theduration for financial current assets

was 1.6 years. The interest-rate riskin current assets amounted to EUR17.9 M, measured as VaR. VaRtakes into account portfolio effectsand actual volatility.

Other income fell 18% to EUR300 M. This was due primarily tothe fact that a large contribution toearnings from Nordisk Renting wasreceived during 1998. Adjusted foritems affecting comparability, Otherincome rose somewhat comparedwith a year earlier.

Lower expenses

Total expenses were cut 7% to EUR1,714 M. Adjusted for items affect-ing comparability, expenses de-clined 1%. The reduction reflects

continuing favorable cost control,combined with increased product-ivity and efficiency enhancement.

Personnel expenses amountedto EUR 787 M, representing areduction of 11%. Excluding itemsaffecting comparability, the declinewas 4%.

The number of employeescontinues to decrease as planned.Since the merger, the gross reduc-tion in the workforce has been1,500 employees. The increase inpersonnel by 500 employees hasresulted from such factors as expan-sion in the Baltic area and astrengthening of resources in AssetManagement/Life Insurance and IT.

Overall, the number ofemployees in banking operationsamounted to about 18,000 atDecember 31, 1999.

Net interest income and net commissions,EUR million

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q41998 1999

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q41998 1999

500

400

300

200

100

0

Net interest income

Net commissions

Net result from financialoperations, EUR million

300

200

100

0

-100

Items affecting comparability

Interest-rate related

Currency-related

Equity-related

Expenses, EUR million

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q41998 1999

600

500

400

300

200

100

0

Items affecting comparabilityOtherPersonnel expenses

Loan losses, net, EUR million

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q41998 1999

Loan lossesLoan loss

level, %50

40

30

20

10

0

0.5

0.4

0.3

0.2

0.1

0.0



Other expenses totaled EUR 927 M (972), down 5%.Excluding items affecting compara-bility, expenses increased 2%.

Reduction in loan losses

Continuing favorable economicconditions in primary markets –Sweden and Finland – combinedwith effective credit control helped

to keep loan losses, net after recov-eries, at EUR 22 M (139).

The loan loss level fell to ahistorically low level of 0.04% (0.2).

Items reported after operatingprofit

A special review of the Group’s realestate holdings outside Finland andSweden (and excluding Aleksia)resulted in a value adjustment ofEUR 34 M. Also, the holding in theCitycon real estate company wasreclassified as a current asset andthus valued at market which result-ed in charges against earnings ofEUR 21 M. In addition, a reserve ofEUR 90 M was created to covereventual losses arising from the saleof Aleksia.

Against the background of the surplus values built up in the Group’s pension foundations andpension funds, an extra drawing ofEUR 65 M was made from theSwedish pension foundation.

Taxes

Tax expenses for the year amountedto EUR 205 M, representing a taxburden of 17%.

The relatively low tax rate isattributable to loss carry-forwardsthat arose in conjunction with valueadjustments on real estate andrestructuring. In addition, there is arequested as yet unapproved losscarryforward deduction that, forconservative reasons, is not recog-nized in the accounts.

Note 1: Net commission income

Q 4 Q 3 Q 2 Q 1 EUR M 1999 1999 1999 1999

Commission incomeSecurities 136 91 95 79Payment transmission 61 53 54 51Lending 46 44 42 44Guarantees 8 7 8 8Deposits 9 7 7 5Other commission income 22 14 13 14

Total commission income 282 216 219 201Commission expenses 25 26 25 20

Net commission income 257 190 194 181

Note 2: Net result from financial operations

Q 4 Q 3 Q 2 Q 1 EUR M 1999 1999 1999 1999

Equity-related itemsRealized gains/losses 6 29 17 0Unrealized gains/losses 1 -15 6 0

7 14 23 0Interest-rate-related itemsDebt redemption – – – –Other realized gains/lossses -46 1 14 55

Unrealized gains/losses 40 -41 -109 -38

-6 -40 -95 17Other securities transactions – – – –

Foreign exchange gains/losses 16 19 19 17

Total 17 -7 -53 34

Quarterly income statement, excluding items affecting comparability

Q 4 Q 3 Q 2 Q 1 EUR million 1999 1999 1999 1999

Net interest income 457 439 454 448Net commission income, Note 1 257 190 194 181Net result from financial operations, Note 2 17 -7 -53 34

Other income, Note 3 57 60 91 92

Total operating income 788 682 686 755

Personnel expenses -200 -195 -196 -196Other expenses, Note 4 -281 -210 -229 -207

Total expenses -481 -405 -425 -403

Profit before loan losses 307 277 261 352Loan losses, net -2 0 0 -20Profit from companies accountedfor under the equity method 30 5 19 43

Operating profit 335 282 280 375

Note 3: Other income

Q 4 Q 3 Q 2 Q 1 EUR M 1999 1999 1999 1999

Dividends received 2 0 18 7Real estate income 42 41 44 44Divestment of shares 2 12 20 0Sundry income 11 7 9 41

Total other income 57 60 91 92

Note 4: Other expenses

Q 4 Q 3 Q 2 Q 1 EUR M 1999 1999 1999 1999

Administrative expenses 169 123 139 117

Depreciation 46 38 36 36Real estate expenses 28 21 23 23Sundry expenses 38 28 31 31

Total other expenses 281 210 229 207

Erik was able to organize his expenses using First Card. All travel, representation and minor expenses on one invoice.



Income statementsEUR million SEK million

Note 1999 1998 1999

Interest income 1 4 734 5 099 41 734Interest expenses 1 -2 936 -3 281 -25 886

Net interest income 1 1 798 1 818 15 848

Dividends received 27 83 240Net commission income 2 822 722 7 243Net result from financial operations 3 105 445 926Other income 4 273 283 2 407

Total income 3 025 3 351 26 664

Personnel expenses 5 -787 -881 -6 938Other expenses 6 -771 -803 -6 799Depreciation and write-downs ontangible and intangible assets 7 -156 -169 -1 374

Total expenses -1 714 -1 853 -15 111

Profit before loan losses 1 311 1 498 11 553

Loan losses, net 8 -22 -139 -195Profit from companies accounted forunder the equity method 97 11 863

Operating profit 1 386 1 370 12 221

Writedowns on real estate holdings 7 -145 -617 -1 283Refund of the surplus in the Pension Foundation/Fund 65 152 573Taxes 9 -205 -198 -1 804Minority interest -3 -3 -31

Net profit for the year 1 098 704 9 676



Balance sheetEUR million SEK million

Note 1999 1998 1999

AssetsLiquid assets 10 2 693 996 23 056Debt securities eligible for refinancing with central banks 11 4 931 7 775 42 220Loans to credit institutions 12 9 095 11 162 77 879Loans to the public 13 68 210 59 828 584 050Interest-bearing securities 17 9 329 5 920 79 877Shares and participations 19 658 517 5 631Shares and participations in Group and associated companies 20 666 620 5 699Intangible assets 21 142 104 1 212Tangible assets

Real estate holdings 22 2 761 2 991 23 642Other tangible assets 272 276 2 326

Other assets 24 3 688 4 294 31 590Prepaid expenses and accrued income 25 1 338 1 546 11 458Deferred tax receivables 194 5 1 664

Total assets 103 977 96 034 890 304

Liabilities and shareholders’ equityDue to credit institutions and central banks 26 13 354 17 433 114 345Deposits from the public 27 42 074 38 472 360 263Other borrowing from the public 1 924 2 052 16 473Debt instruments outstanding 29 28 094 22 687 240 557Other liabilities 30 6 756 6 312 57 834Accrued expenses and prepaid income 31 1 427 1 218 12 222Provisions 32 234 186 2 005Subordinated debt 33 4 099 2 546 35 103Deferred tax liabilities 438 292 3 747Minority interest 51 65 440

Total liabilities 98 451 91 263 842 989

Shareholders’ equity 34Share capital 1 099 2 340 9 410Premium reserve 983 320 8 417Restricted reserves 629 474 5 385Non-restricted reserves 1 717 933 14 427Profit for the year 1 098 704 9 676

Total shareholders’ equity 5 526 4 771 47 315

Total liabilities and shareholders’ equity 103 977 96 034 890 304

Off-balance-sheet commitments 40Commitments on behalf of customers in favour of third parties

Guarantees 5 115 4 946 43 801Other commitments 595 517 5 096

Irrevocable commitments in favour of customersSecurities repurchase commitments 20 17 174Other commitments 16 826 10 229 144 072

22 556 15 709 193 143

Other notesNonperforming loans 14Property taken over for protection of claims 15Subordinated receivables 16Total holdings of interest-bearing securities 18Change in shares held as financial fixed assets

and tangible assets 23Difference between nominal value and book value of liabilities 28

Capital adequacy 35Maturity breakdown of receivables and liabilities 36Pledged assets 37Assets and liabilities in foreign currencies 38Pension commitments 39Derivative instruments 41Subsidiaries and associated companies 42



Cash flow analysis1999

EUR SEKmillion million

Ordinary businessOperating profit 1 386 12 221Adjustments for items not included in cash flow 687 6 056Refund of the surplus in the Pension Foundation 65 573Taxes -205 -1 807

Cash flow from ordinary business before changes in ordinary business assets and liabilities 1 933 17 043

Changes in ordinary business assets -4 478 -39 474

Changes in ordinary business liabilities -161 -1 419

Cash flow from ordinary business -2 706 -23 850

Investment operationsChange in shares and participations in subsidiariesand associated companies -46 -405Change in other financial fixed assets -2 095 -18 467Net increase in tangible and intangible assets -105 -926

Cash flow from investment operations -2 246 -19 798

Financial operationsChange in securities issued etc 5 407 47 662Change in subordinated debt and capital loans 1 553 13 690Dividends -367 -3 235Other 7 62Translation difference -2 1872)

Cash flow from financial operations 6 600 55 992

Cash flow for the year 1 648 12 344

Liquid assets at the beginning of the year 1 904 18 064

Liquid assets at the end of the year 3 552 30 408

Additional informationLiquid assets include million Dec 31, 1999 Dec 31, 1998

Cash in hand 1) EUR 2 693 996SEK 23 056 9 449

Loans to credit institutions, repayable on demand (Note 12) EUR 859 908

SEK 7 352 8 615

Total EUR 3 552 1 904SEK 30 408 18 064

1) Cash and receivables repayable on demand from the Bank of Finland and Riksbanken.

Interest payments and dividends EUR million SEK million

Interest income received 4 875 42 973Interest expenses paid 2 937 25 890

Dividends received 27 240Dividends paid 367 3 235

Significant transactions with no impact on cash flowAs presented in the specification of changes in the Group’s equity capital on page 71, the reserve made in connection with the on-going share redemption decreased the equity capital by EUR 0.2 billion. This transaction had no impact on the cash flow for the year.

1) The translation difference derives mainly from the fact that the cash flow analysis is compiled in euro as no SEK-denominated balance sheet was compiled for the Group as per December 31, 1998. The line-by-line figures have been translated into SEK using the average exchange rate, whereas liquid assets have been translated using the exchange rate on the last day of the year 1998 and 1999, respectively.



The Annual Report for the MeritaNordbankenGroup (Nordic Baltic Holding Group) hasbeen prepared in accordance with Finnishand Swedish accounting laws and the reg-ulations issued by the relevant supervisoryauthorities. The differences that exist be-tween the two sets of regulations are of nomaterial significance. In all essential aspects,it has proved possible to coordinate theaccounting principles applied in Group com-panies. Remaining adjustments have beenmade in the consolidated accounts. Thesepertain to reclassifications and have noeffect on the Group’s earnings or financialposition.

The financial statements of the parentcompany have been compiled in accord-ance with the Swedish Annual AccountsAct (ÅRL). The consolidated financial state-ments meet in all essential aspects therequirements set by the Swedish Act onAnnual Accounts of Credit Institutions andSecurities Companies (ÅRLK).

To illustrate the development of Merita-Nordbanken Group’s performance, the figures for 1998 and 1999 are presentedin euro. Since the Group is newly establish-ed, the income statement and balancesheet are presented in Swedish krona onlyfor the year 1999.

Writedowns on real estate are reportedas a separate item after operating profit(see page 76). This reporting is in accord-ance with the practice established whenthe MeritaNordbaneken Group was formed.This more clearly illustrates the effects ofthe decision in December 1998 to divestthe Group’s Finnish property portfolio at amore rapid pace. Also the refund of thesurplus in the Pension Foundation/ Fund isreported as a separate item after operatingprofit (see page 82). The accounting princi-ple can be interpreted as an exception fromthe RR4 recommendation of the SwedishFinancial Accounting Standards Council.

Consolidated accountsThe MeritaNordbanken Group includesNordic Baltic Holding (NBH) AB (publ) andits subsidiaries. The Group accounts wereprepared in accordance with the poolingmethod. This means in principle that themerging companies’ assets and liabilities,as well as their revenues and expenses, arecombined at their book value.

The Group has used the acquisitionmethod to prepare the consolidated accounts for subgroups.

The equity method of accounting isused in the case of subsidiaries that arenot credit institutions or securities com-panies, or whose operations are not linkedto a company in one of these categories,and in the case of associated companies,where the share of voting rights is between20% and 50%.

Companies taken over for the protectionof claims, holdings in Finnish associated

companies that constitute mutual propertycompanies with separate property holdingsand Livförsäkringsaktiebolaget Livia, whichoperates according to mutual principles,are not included in the consolidatedaccounts.

Lists of subsidiaries and associatedcompanies are given in the specifications of the respective balance sheet items.

The earnings of acquired and divestedcompanies are included in the incomestatements only for that portion of the yearduring which each of the companies be-longed to the Group.

The Group’s accounting currency is theeuro and for legal reasons the SEK. Thecurrent method is used when translatingthe financial statements of subsidiaries.This means that the assets and liabilities offoreign subsidiaries have been translated atthe year-end exchange rate and that itemsin the income statement are translated atthe average exchange rate for the year.Translation differences are charged or credited directly to shareholders’ equity.(See also page 82.)

Reporting of business transactionsBusiness transactions are reported at thetime that risks and rights are transferredbetween parties. This means that tradingdate accounting is applied for transactionsin the money and bond market, stock market and currency market.

Deposit and lending transactions, in-cluding repurchase agreements, are report-ed on the settlement date.

Assets and liabilities are reported ingross amounts in most cases. Netting ofassets and liabilities is used, however, if astatutory right to offset the commitmentsexists and settlement occurs simultaneously.

Receivables and payables arising fromthe sale and purchase of securities are alsoreported net in those cases where the trans-action is settled through a clearing house.

LeasingMeritaNordbanken’s leasing operationsmainly comprise financial leasing. In re-porting financial leasing transactions, theleasing item is reported as lending to thelessee. Lease payments net of depreciationare reported as interest income.

Repos and other repurchasing agreementsA genuine repurchase transaction is definedas an agreement covering both the sale ofan asset, usually interest-bearing securities,and the subsequent repurchase of the assetat an agreed price. Such agreements arereported as loan transactions rather thaninfluencing securities holdings. The assetsare reported in the balance sheet of thetransferring party and the purchase pricereceived is posted as a liability (repo). Thereceiving party reports the payment as a

receivable due from the transferring party(reverse repo). The difference between thepurchase consideration in the spot marketand futures market is annualized over theterm of the agreement.

Assets transferred in repurchase trans-actions are reported under “Assets pledgedfor own liabilities.”

Financial fixed assets/current assetsLoan receivables and securities holdings forwhich there is an intent and ability to holduntil maturity constitute financial fixed assets. All of MeritaNordbanken’s loanreceivables are in this category. They arereported in the balance sheet at their acquisition value after deduction for in-curred and possible loan losses and pro-vision for country risks. See also the sec-tion on problem loans and loan losses.

Securities which are classified asfinancial fixed assets include shares heldfor strategic business purposes, as well ascertain interest-bearing securities which arespecified from the date of acquisition andmanaged in a separate portfolio. Thesesecurities are carried at acquisition value/amortized cost after consideration for anypermanent declines in fair value. Reclassifi-cation of securities between financial fixedassets and current financial assets is allow-ed only under limited circumstances. If anysuch reclassifications are made, the effecton earnings must be disclosed in the notesto the financial statements.

Other securities are reported as financialcurrent assets. All securities and derivativeswhich are actively managed are valued atfair value, with the exception of financialinstruments which have been accounted foras a hedge. (See “Hedge accounting”below.) This category includes almost allinterest-bearing securities, as well as equitysecurities included in trading operations.Otherwise, financial current assets arevalued at the lower of acquisition value/fairvalue.

The acquisition value of interest-rate-related instruments is calculated as thepresent value of future payment flows discounted based on the effective acquisi-tion rate, that is, the interest rate at whichthe instrument was acquired. The accrued acquisition value changes successively sothat it is equal to the instrument’s nominalvalue on the maturity date. For couponinstruments this means that any premiumor discount is amortized or accreted intointerest income over the remaining term.The acquisition value of outstanding debtinstruments is calculated in the same manner.

Interest income and interest expense related to interest-rate swaps not account-ed for as hedges are reported in “Net resultfrom financial operations.”

Derivative instruments with positive fairvalue are reported in the balance sheet as

Accounting principles



“Other assets”, while derivatives with nega-tive fair value are reported as “Other liabilities”. Accrued interest income andexpeses pertaining to interest-rate swapswhich are accounted for as hedges are alsoreported as other assets or liabilities.

Immediate profit/loss recognition in con-nection with early debt extinguishmentMeritaNordbanken applies immediate re-cognition of income gains and losses in con-junction with early extinguishment of debt,that is, purchase of its own securities.These realized income items – the differen-ce between replacement cost and the bookvalue of the debt redemption – reflect pricechanges that have already occurred in themarket. The results are reported separatelyin “Net result from financial operations.”

Subsequent sale of acquired bonds istreated as though the bonds had been newlyissued. The immediate income recognitionhas the effect of eliminating future amorti-zation in net interest income of the differ-ence between the nominal and acquisitionvalue of the asset and liability items inquestion.

Hedge accountingDeferral hedge accounting with acquisitionvaluation is applied to hedging holdings offinancial instruments which are not valuedat fair value.

The hedging and hedged positions arereported without taking into account chang-es in value provided that changes in fairvalue for the hedging and the hedge posi-tions essentially cancel each other out interms of the amounts involved. If additionalunrealized losses arise, they are reportedimmediately in the balance sheet and in-come statements.

Hedge accounting with acquisitionvaluation does not cover the currency riskto which the Group is exposed through thehedge instrument or through the underlyingassets and/or liabilities.

Translation of assets and liabilities in foreign currenciesAssets and liabilities denominated in foreigncurrencies are translated at the year-endexchange rate, corresponding to the averageof official buying and selling rates. Cash inforeign currencies are treated as receivablesin foreign currencies.

Forward positions in foreign currenciesare valued at the current rate for forwardcontracts with the equivalent remainingmaturity.

When currency-related derivative instru-ments are used for currency hedging, thecurrency hedging and the correspondingprotected item are translated at the year-end rate.

Reporting of problem loans and propertytaken over to protect claimsThe Notes to the Balance Sheet provide anoverview of the extent of “problem loans”,that is, loans with interest deferments,non-performing loans and assets taken overfor the protection of claims. The followingparagraphs define these concepts and state

what special accounting rules apply ineach case.

Loans with interest deferments refer to those cases where interest rates havebeen lowered after renegotiation to enable borrowers in temporary payment difficultiesto improve their situation. Concessions arenormally granted on the condition that theborrower will repay the deferred amount ata later date. The reported volumes refer toloans of at least SEK 1 million on whichthe interest rate has been lowered to lessthan the market level, which in this contextmeans equal to or lower than the prevailingcost of financing. Loans with negotiatedinterest deferments are not classified asnon-performing.

A receivable is classified as non-perform-ing if the interest, principal or utilized over-draft is more than 60 days past due or ifother circumstances give reason for un-certainty as to repayment of the receivable,and if at the same time the value of thecollateral does not cover, by an adequatemargin, the amount of the principal andaccrued interest.

When a receivable is classified as non-performing, it is transferred to cash-basedinterest accounting. Accrued interest in-come is thus no longer reported in theaccounts, and any amounts relating to theearlier portion of the year are reversed.

Information about property taken overto protect claims is provided in a note tothe balance sheet, and is divided into shares, real estate and other assets. Theseassets are valued at acquisition value orfair value, whichever is lower. In the caseof real estate that has been taken over, thefair value consists of a conservativelyappraised market value, less selling costs.

Loan lossesReceivables are reported in the balancesheet after subtracting incurred losses,write-downs for possible losses and pro-vision for country risks.

Incurred losses (charge-offs) are thoselosses whose amount is regarded as finallyestablished or highly probable because abankruptcy administrator has provided anestimate of the percentage of assets to bedistributed, creditors have accepted a com-position proposal, or claims have otherwisebeen moderated.

Write-down for a possible loan loss ismade if the value of the collateral does notcover the loan amount on a non-performingreceivable, and the repayment capacity ofthe borrower is not expected to improvesufficiently within two years. The receivableis written down to the amount that theBank is expected to recover, consideringthe value of the collateral. If the collateralis an asset with a market quotation, valua-tion is based on the quoted value, other-wise on the estimated market value. If thecollateral consists of property mortgages,the underlying property value is appraisedusing the same methods as for propertiestaken over for the protection of claims.

For a portion of consumer loans, thenecessary loss provision is calculated inaccordance with a collective valuation

based on historical loss trends for variouscategories of loans (home mortgage loans,other secured loans, salary account loansand other unsecured loans).

Provisions for loan losses related tocountry risks are made based on countryrisk estimates presented by EIU (TheEconomist Intelligence Unit, London) andthe Group’s outstanding net claim againstcounter parties in each country.

Provisions for loss risks on loan guarantees outstanding are reported under“Provisions” in the balance sheet. In estimating the costs to redeem extendedguarantees, the value of existing recourserights is taken into account.

Tangible and intangible fixed assetsFixed assets are reported at their acquisi-tion value less depreciation according toplan. If it is deemed likely that the fairvalue will consistently be less than thebook value, the value is written down asrequired.

Depreciation of furniture, fixtures and equipmentExpenses for software are normally expens-ed immediately. In the case of major invest-ments, straight-line depreciation over aperiod of not more than five years may beapplied. Investments in PC equipment aredepreciated straight-line over three years,while the depreciation period for other equipment is five years.

Depreciation of buildingsStraight-line depreciation is applied to buildings, with the depreciation periodvarying between 25 and 60 years. Depre-ciation of excess values (in the consolidatedaccounts) of buildings is calculated at vary-ing percentage rates, based on the remain-ing depreciation period for the property holding in question.

Pension costsReporting of the Group’s pension costsincludes pension insurance premiums(including premiums for publicly regulatedpensions in Finland), pensions payable(mainly Swedish companies), and pro-visions/charges paid to pension funds, withreductions for any applicable compensationfor pension costs. Drawings on surplusfunds in excess of the reported costs forcompany pensions are reported in the con-solidated accounts as a separate item afteroperating profit.

Exchange rates used in translation1 EUR = FIM 5.94573 (fixed rate)

1 EUR = SEK 1999 1998

Income statement rate 8.8150 8.8202(average)

Balance sheet rate (at end of each period) 8.5625 9.4874



Note 1: Interest income and expenses

EUR million SEK million

1999 1998 1999

Interest incomeLoans to credit institutions 530 586 4 673Loans to the public 3 536 3 706 31 168Interest-bearing securities 652 774 5 747Other interest-bearing assets 16 33 146

Total interest income 4 734 5 099 41 734

of which: net income on leasing operations 49 48 435

Interest expensesDue to credit institutions 716 815 6 312Deposits and other borrowing from the public 699 904 6 160Debt instruments outstanding 1 315 1 307 11 590Subordinated debt 171 207 1 510Capital loans 20 22 177Other interest-bearing liabilities 15 26 137

Total interest expenses 2 936 3 281 25 886

Net interest income 1 798 1 818 15 848

Note 2: Net commission income


1999 1998 1999

Commission incomeSecurities 401 319 3 532Payment transmission 219 193 1 930Lending 176 175 1 548Guarantees 31 40 276Deposits 28 29 246Other commission income 63 58 557

Total commission income 918 814 8 089

Commission expensesPayment transmission 70 70 613Securities 13 15 116Other commission expenses 13 7 117

Total commission expenses 96 92 846

Net commission income 822 722 7 243

Note 3: Net result from financial operations


1999 1998 1999

Equity-related itemsRealized gains/losses 166 396 1 457Unrealized gains/losses -8 -84 -68

158 312 1 389Interest-rate-related itemsDebt redemption – -35 –Other realized gains/losses 24 120 210Unrealized gains/losses -148 -28 -1 301

-124 57 -1 091

Other 0 -1 3

Foreign exchange gains/losses 71 77 625

Net result from financial operations 105 445 926

Notes to the financial statements



Note 4: Other income

EUR million SEK million1999 1998 1999

Sale of shares and participations 18 14 157Sale of shares and participations, Group companies 16 17 140Sale of real estate (net) – -2 –Net operating result from properties taken over for protection of claims 2 4 14Real estate income 169 171 1 494Sundry income 68 79 602

Total other income 273 283 2 407

Note 5: Personnel expenses


Salaries and fees (specification below) 575 628 5 073Pension expenses 59 57 521Social insurance contributions 112 132 983Allocation to profit-sharing foundations 35 22 309Other personnel expenses 6 42 52

Total personnel expenses 787 881 6 938

Salaries and feesTo Boards of Directors and senior executives 5 4 40

To other employees 570 624 5 033

575 628 5 073

Average number of employees 1999 1998

Merita Bank Group 11 730 12 598Nordbanken Group 6 753 6 858Other companies 819 1 020

Total 19 302 20 476Of whom: part-time 2 163 2 297

Information of the geographic distribution of employees is available in the Group Financial Control and Accounting.

The total pension costs for the year withregard to Board members and Groupmanagement amounted to EUR 3.7 million.Total pension obligations regarding theabove amount to EUR 10.8 million.

Remuneration to Board of Directors The main Board work regarding Merita Plc,Nordic Baltic Holding (NBH) AB (publ) andMeritaNordbanken Plc is conducted in thelast-named company. Accordingly, Boardfees are only paid in this company.

The Chairman of the Board JakobPalmstierna received a fixed fee of EUR117,732. In addition, Jacob Palmstiernawas compensated for the reduction in thepension paid by SEB which is a result ofhis serving as a member of the Board ofMeritaNordbanken. Compensation for thiswas paid to and including April 1999 andamounted to EUR 31.505. The ViceChairman Vesa Vainio received a fixed feeof EUR 117,732. In addition, in his func-tion as President of Merita Plc Vesa Vainioreceived compensation of EUR 468,303,of which EUR 168,609 is performance-based salary from 1998. Moreover, Vesa Vainio had car and housing benefits.In respect of his former function as CEO of Merita, there is a pension obligation. He is entitled to pension amounting to

60% of salary for his lifetime. Other Board members not employed

by MeritaNordbanken each received EUR21,864 in fixed fee and a fee for Boardand Committee meetings. Total remunera-tion to Board members was EUR 514,773.A separate payment was made to theBoard Chairman in Merita Plc of EUR8,409 and to the President of Nordic BalticHolding (NBH) AB (publ) of EUR 11,344.

There are no commitments for severan-ce pay, pensions or similar compensationto the members of the Board who are notemployed by MeritaNordbanken.

Remuneration to Group Management The salary terms for the CEO are determin-ed by the Compensation Committee andapproved by the Board of Directors. Thesalary terms for other members of GroupManagement are determined by the CEOand approved by the Board of Directors.

The CEO (President of MeritaNord-banken Plc) was paid a salary of EUR667,591, of which EUR 157,005 was per-formance-based salary pertaining to 1998.The CEO also had car and housing benefits.

Salaries totaling EUR 3.3 million, ofwhich EUR 0.7 million was performance-based salary pertaining to 1998, were paidto the other members of Group

Management. These executives had carand, in some cases, housing benefits.

In accordance with the employmentcontracts for these executives, salaryduring the notice period before terminationand with regard to severance pay may nottotal more than 24 months’ salary andmust be reduced by the salary amount thatthe executive receives as a result of anyother employment during the last 18months of payment.

These executives are entitled to retirewith a pension at age 60. For the CEOthrough age 65, a pension equal to 75%of salary is paid and, thereafter, a maxi-mum of 65% of compensation up to 130base amounts (in Sweden), and 32.5% ofthe rest. For the other Swedish members ofGroup Management, pension is paid to age65 at 70% of salary. Thereafter pension ispaid in accordance with occupational pen-sion plans. The Finnish Group Managementmembers receive 60% of salary for life.

Loans to Board members and senior executives Loans to Group Management and Boardmembers amounted at the end of the yearto EUR 2.2 million, of which EUR 0 to theCEO and EUR 0.1 million to other Boardmembers.



Note 6: Other expenses


1999 1998 1999

Information technology 1) 139 127 1 222Marketing 66 62 578Postage and telephone 74 73 655Other administrative expenses 189 188 1 666Compensation to Sweden Post 80 86 709Rents 89 120 783Real estate expenses 95 101 838Sundry expenses 39 46 348

Total other expenses 771 803 6 7991) EDP use, service, and maintenance expenses and consulting fees.

Note 7: Depreciation and write-downs on tangible and intangible assets


1999 1998 1999

Depreciation according to planTangible assets 126 143 1 110Goodwill 27 19 237Other intangible assets 3 7 27

Total 156 169 1 374

Writedowns on real estate holdings of EUR 145 million (EUR 617 million) are shown separately after operating profit.

Note 8: Loan losses, net


1999 1998 1999

Actual loan losses during the year 838 395 7 381Previous loan loss provisions utilized during the year -795 -259 -7 006Recoveries of loan losses incurred in previous years -69 -49 -605Specific loan loss provisions made during the year 224 282 1 974Reversal of previous provisions -176 -230 -1 549

Total loan losses 22 139 195

Of which: country risks -20 29 176

1999 1998Loan losses, Loan losses,

EUR million gross1) Reversal2) gross1) Reversal2)

Breakdown by balance sheet itemLoans to credit institutions 0 0 54 0Loans to the public 258 241 355 278Guarantees and other contingent liabilities 1 1 0 1Property taken over for protection of claims 7 2 9 –

Total loan losses 266 244 418 279

Total in SEK million 2 345 2 1501) Actual loan losses, net, and new provisions.2) Incl. items recovered.



Note 9: Taxes


1999 1998 1999

Income taxes 282 205 2 479Deferred taxes -77 -7 -675

Total taxes 205 198 1 804

Note 10: Liquid assets

The item includes cash in hand and claims on the Bank of Finland and the Central Bank of Sweden repayable on demand.

Note 11: Debt securities eligible for refinancing with central banks


1999 1998 1999

Government securities 4 079 6 369 34 923Certificates of deposit

– Bank of Finland – 690 –– other 852 667 7 297

Other eligible securities – 49 –

Total 4 931 7 775 42 220

Note 12: Loans to credit institutions


1999 1998 1999

Central banks 12 3 104Other credit institutions

– repayable on demand 859 908 7 352– other funds 8 224 10 251 70 423

Total 9 095 11 162 77 879

Note 13: Loans to the public


1999 1998 1999

Corporate 39 643 35 257 339 441Public sector 2 218 1 806 18 994Households 26 349 22 765 225 615

Total 68 210 59 828 584 050

Note 14: Nonperforming loans


1999 1998 1999

Nonperforming loans, gross 2 252 3 185 19 287Loan loss provisions -1 460 -2 181 -12 503

Nonperforming loans, net 792 1 004 6 784

Nonperforming loans, net/lending, % 1.2 1.7



Note 15: Property taken over for protection of claims


1999 1998 1999

Book value of property taken over for protection of claimsReal estate and shares in real estate companies 33 68 284Other shares 5 8 44Other property taken over for restructuring of customers’business operations 22 23 183

Total 60 99 511

Note 16: Subordinated receivables


1999 1998 1999

Loans to the public 64 40 547Interest-bearing securities 283 363 2 426

Total 347 403 2 973

Note 17: Interest-bearing securities


1999 1998 1999

Issued by the public sector 1 167 219 9 991Issued by other borrowers 8 162 5 701 69 886

Total 9 329 5 920 79 877

Note 18: Total holdings of interest-bearing securities, Notes 11 and 17

1999 1998Publicly Publicly

EUR million listed Other listed Other

Current assets 8 469 – 9 987 11Financial fixed assets 5 603 188 3 110 587

Total 14 072 188 13 097 598

Total in SEK million 120 485 1 612

Difference between market value and book value,financial fixed assets in EUR million -17 – 121 –


1999 1998 1999

Difference between nominal value and book value,financial fixed assetsHigher nominal value 63 131 539Lower nominal value 150 28 1 283

Interest-bearing securities by issuerFinnish and Swedish issuers– government 4 046 6 284 34 647– municipalities 104 81 893– banks 1 439 1 443 12 324– housing companies 3 998 3 150 34 237– other 3 761 1 907 32 187Other issuers– foreign governments 33 85 283– other 879 745 7 526

Total book value 14 260 13 695 122 097



Note 19: Shares and participations

1999 1998Publicly Publicly

EUR million listed Other listed Other

Current assets 519 79 388 71Financial fixed assets 36 24 33 25

Total 555 103 421 96

Total in SEK million 4 756 875

Difference between the market value and a lower book value, publicly listed shares– current assets 131 – 186 –– financial fixed assets 25 – – –

Total 156 – 186 –

Total in SEK million 1 338 –

At the end of the period the MeritaNordbanken Group had borrowed shares in the amount of EUR 178 million (EUR 22 million) and lent shares in the amount of EUR 0.4 million (–), both with an average loan period of 1.5 months (1 month).

Note 20: Shares and participations in Group and associated companies


1999 1998 1999

Shares and participations in subsidiariesOther than credit institutions 335 355 2 866

Total 355 355 2 866

Shares and participations in associated companiesCredit institutions 39 24 334Other 292 241 2 499

Total 331 265 2 833

Note 21: Intangible assets


1999 1998 1999

Goodwill 1) 137 96 1 169Other 5 8 43

Total 142 104 1 212

1) In addition, goodwill of EUR 13 million (EUR 25 million) exists as a result of subsidiaries consolidated in accordance with the equity method. The amount is included in Shares and participations in Group and associated companies.

Note 22: Real estate and shares in real estate companies


1999 1998 1999

Land and buildingsOwner-occupied 655 714 5 610Other 1 765 1 847 15 116Shares in real estate companiesOwner-occupied 56 37 477Other 285 393 2 439

Total 2 761 2 991 23 642



Note 23: Change in shares held as financial fixed assets and tangible assets


1999 1998 1999

Shares, excluding real estate companies 1)

Acquisition value at the beginning of the year 712 642 6 092+ Increase during the year 79 95 682– Decrease during the year -40 -33 -344+/– Transfer between asset items – -1 –+/– Write-downs and reversal of write-downs made during the year – -21 –– Accumulated write-downs at the beginning of the year -25 -4 -210

Book value at the end of the year 726 678 6 220

Buildings, land and real estate companies 1)

Acquisition value at the beginning of the year 4 379 4 088 37 492+ Acquisitions during the year 314 618 2 688– Sales during the year -425 -388 -3 648+/– Transfer between asset items -74 15 -622– Depreciation according to plan for the year -51 -57 -433+/– Write-downs and reversal of write-downs made during the year -30 -590 -259+ Accumulated depreciation/write-downs on real estate sold/disposed of during the year 48 74 414– Accumulated depreciation according to plan at the beginning of the year -567 -496 -4 851– Accumulated write-downs at the beginning of the year -844 -278 -7 230+ Accumulated revaluations at the beginning of the year 11 9 95– Reversed revaluations 0 -4 -4

Book value at the end of the year 2 761 2 991 23 642

Other tangible assetsAcquisition value at the beginning of the year 655 559 5 607+ Acquisitions during the year 222 187 1 901– Sales during the year -91 -20 -780+/– Transfer between asset items -73 -95 -627

– Depreciation according to plan for the year -77 -90 -663+/– Write-downs and reversal of write-downs made during the year 0 -1 1+ Accumulated depreciation/write-downs on items sold/disposed of during the year 9 9 76– Accumulated depreciation according to plan at the beginning of the year -373 -273 -3 189

Book value at the end of the year 272 276 2 326

1) Includes real estate taken over for protection of claims.

Note 24: Other assets


1999 1998 1999

Clearing claims 99 91 851Claims on securities settlement proceeds 280 583 2 400Guarantee claims 91 113 782Derivative instruments 3 003 3 169 25 715Other claims 215 338 1 842

Total 3 688 4 294 31 590

Note 25: Prepaid expenses and accrued income


1999 1998 1999

Accrued interest income 1 007 1 148 8 620Other accrued income 309 395 2 648Prepaid expenses 22 3 190

Total 1 338 1 546 11 458



Note 26: Due to credit institutions and central banks


1999 1998 1999

Central banks 4 666 32Other credit institutions– repayable on demand 1 135 678 9 725– other 12 215 16 089 104 588

Total 13 354 17 433 114 345

Note 27: Deposits from the public


1999 1998 1999

Repayable on demand 33 451 30 685 286 428Other 8 623 7 787 73 835

Total 42 074 38 472 360 263

Note 28: Difference between nominal value and book value of liabilities


1999 1998 1999

Nominal value higher than book value 222 212 1 903Nominal value lower than book value 172 106 1 469

Note 29: Debt instruments outstanding


1999 1998 1999

Certificates of deposit 14 025 12 070 120 085Bonds 12 521 9 843 107 212Other instruments 1 548 774 13 260

Total 28 094 22 687 240 557

Note 30: Other liabilities


1999 1998 1999

Clearing liabilities 939 756 8 043Liabilities on securities settlement proceeds 241 378 2 068Derivative instruments 2 824 2 877 24 180Sundry liabilities 2 752 2 301 23 543

Total 6 756 6 312 57 834

Not 31: Accrued expenses and prepaid income


1999 1998 1999

Accrued interest expenses 766 767 6 560Other accrued expenses 517 419 4 428Prepaid income 144 32 1 234

Total 1 427 1 218 12 222

Note 32: Provisions


1999 1998 1999

Pensions 18 19 154Guarantees 44 45 379Restructuring measures 33 79 282Rental liabilities 17 24 149Other provisions 122 19 1 041

Total 234 186 2 005



Note 33: Subordinated debt


Dated subordinated debenture loans 2 286 1 342 19 574Undated subordinated debenture loans 1 124 853 9 627Capital loans 689 299 5 902Other subordinated debt – 52 –

Total 4 099 2 546 35 103

Note 34: Shareholders’ equity

Restricted Non-restrictedEUR million Share capital reserves reserves Total

Shareholders’ equity at the beginning of the year 2 340 794 1 637 4 771Dividends paid – – -367 -367New issue 3 6 – 9Exchange of shares incl. reserve for share redemption -1 346 581 522 -243Exchange rate changes 102 83 73 258Transfers between restricted and non-restricted equity during the year – 148 -148 –Profit for the year – – 1 098 1 098

Shareholders’ equity at the end of the year 1 099 1 612 2 815 5 526

Shareholders’ equity at the end of the year, SEK million 9 410 13 802 24 103 47 315

Note 35: Capital adequacy


Capital base 8 208 6 290 70 279Risk-weighted amount 68 452 63 732 586 122Total capital ratio, % 12.0 9.9Core capital ratio, % 8.3 7.3

Note 36: Maturity breakdown of receivables and liabilities

Remaining maturity, Dec 31, 1999Less than

EUR million 3 months 3-12 months 1-5 years Over 5 years

ReceivablesDebt securities eligible for refinancing with central banks 786 1 857 1 892 396Loans to credit institutions 7 533 884 255 423Loans to the public 18 376 12 235 23 721 13 878Interest-bearing securities 1 114 2 180 5 631 404

LiabilitiesLiabilities to credit institutions and central banks 10 195 2 745 146 268Deposits and other borrowing from the public 38 270 2 223 3 365 140Debt instruments outstanding 14 795 4 235 8 884 180

Note 37: Pledged assets


Assets pledged for own liabilitiesProperty mortgages 190 91 1 631Leasing contracts 273 253 2 334Securities, etc. 6 028 6 090 51 614

Total 6 491 6 434 55 579

The above pledges pertain to the following liability items:Due to credit institutions and central banks 5 551 3 731 47 531Deposits from the public 613 405 5 247Debt securities outstanding 147 185 1 261Other debts and commitments 20 3 172

Total 6 331 4 324 54 211

Other pledged assets 81 51 694



Note 38: Assets and liabilities in foreign currencies

EURO currencies SEK USD Other

AssetsLoans to credit institutions 2 273 4 488 1 101 1 234Loans to the public 24 092 37 062 5 068 1 989Interest-bearing securities 5 408 7 360 1 295 197Other assets 1) 12 410

Total assets 31 773 48 910 7 464 15 830

Total assets in SEK million 272 050 418 794 63 903 135 555

LiabilitiesDue to credit institutions 2 744 8 859 83 1 668Deposits and other borrowing from the public 23 091 18 747 1 361 800Debt securities outstanding 8 342 13 220 8 266 2 365Other liabilities 1) 8 905

Total liabilities 34 177 40 826 9 710 13 738

Total liabilities in SEK million 292 645 349 568 83 139 117 635

1) Other assets and liabilities are not specified by currency.

Note 39: Pension commitments

Statutory pensions for employees of Finnish Group companies are arranged through insurance. The premiums are paid by the companies. Supplementary pensions for employees are arranged through the pension foundations and fund. A minor part of the pension commitments is carried on respective companies’ balance sheets as a provision under liabilities. In Swedish Group companies, pension liabilities are mainly borne by the companies themselves, but are fully covered through the affiliated pension foundation. A minor part of the pension commitments is arranged through insurance and liabilities arising from certain individual old commitments are carried on respective companies’ balance sheets under liabilities.

At the end of the year, the fair value of the assets of Group pension foundations and fund was EUR 1,594 million (EUR 1,264 million), which exceeds the amount of liabilities by EUR 494 million (EUR 261 million). Pension liabilities carried in Group companies’ accounts amounted to EUR 18 million (EUR 19 million).

Note 40: Off-balance-sheet commitments (excl. derivative instruments)


1999 1998 1999

Guarantees 5 115 4 946 43 801Stand-by facilities 7 200 4 683 61 653Credit lines 8 304 5 200 71 102Other commitments 1 937 880 16 587

Total 22 556 15 709 193 143

Of which on behalf of Group and associated companies

1999 1998Group Associated Group Associated

EUR million companies companies companies companies

Guarantees – 29 – 2Other – 17 – 13

Total – 46 – 15

Total assets in SEK million – 390



Not 41: Derivate instruments

1999 1998Contracts made Contarcts made

for hedging for hedgingEUR million purposes Other purposes Other

Nominal valueInterest-rate-relatedFutures and forwards 2 630 148 065 – 187 118Options

Purchased 5 842 – 1 545Written – 4 427 – 1 987

Interest rate swap agreements 15 622 112 496 3 494 98 646

Currency-relatedFutures and forwards 4 389 61 772 29 762 40 364Options

Purchased – 2 167 – 1 685Written – 2 135 – 1 668

Interest rate swap and currency agreements 4 020 4 611 1 858 2 663

Equity-relatedFutures and forwards – 56 – 146Options

Purchased 418 21 236 19Written 213 9 168 15

Other derivative instruments – 113 – 32

Total derivative instruments 27 297 336 714 35 518 335 888

Total derivate instruments in SEK million 233 724 2 883 119

Credit equivalentsInterest-rate-related instruments 1 923 2 695Currency-related instruments 2 169 2 318

Note 42: Subsidiaries and participating interests

Percent Book valueDomicile of votes EUR million SEK million

Subsidiaries included in the consolidation financial statements

FinnishMerita Plc Helsinki 100 1 661 14 219MeritaNordbanken Plc Helsinki 100 3 216 27 541

Subsidiaries owned by MeritaNordbanken Plc

FinnishAleksia Ltd Helsinki 100 482 4 126Contant Oy 1) Turku 100 6 49Huoneistokeskus Oy 2) Helsinki 100 18 155Merita Bank Plc Helsinki 100 1 491 12 764MNB Maizels Oy Helsinki 100 7 58(previously Merita Corporate Finance Ltd)Merita Life Assurance Ltd 2) Espoo 100 91 781Merita Real Estate Ltd 3) Helsinki 100 245 2 094Partita Ltd Helsinki 100 213 1 822Unitas Congress Center Ltd 2) Helsinki 100 0 1

SwedishNordbanken AB Stockholm 100 1 413 12 097

1) The Merita Bank Group’s percentage of votes is 77 % and the book value EUR 4 million.2) Book value in owner company. Consolidated under the equity method; share of profit/loss to be taken into account.3) The Merita Bank Group’s percentage of votes in Merita Real Estate Ltd is 49.75 %.




Subsidiaries owned by Nordbanken AB

SwedishFastighets AB Stämjärnet Stockholm 100 12 100Livförsäkrings AB Livia 1) Stockholm 100 9 80MNB Maizels AB Stockholm 100 13 115Nordbanken Fastigheter AB Stockholm 100 105 897Nordbanken Finans AB Stockholm 100 120 1 024Nordbanken Hypotek AB Stockholm 100 781 6 684Nordbanken Industrikredit AB Stockholm 100 199 1 703Nordbanken Kapitalförvaltning AB Stockholm 100 10 82

InternationalMNB Maizels Ltd London 100 13 112Nordbanken North America Inc. Delaware 100 0 0Nordbanken Reinsurance S.A. Luxembourg 100 1 11

Subsidiaries owned by Merita Bank Plc

FinnishFidenta Oy 2) Espoo 40 0 1Helsingin Pantti-Osakeyhtiö Helsinki 100 6 50Investa-Raha Oy Helsinki 100 1 6Merita Asset Management Ltd Helsinki 100 3 28Merita Capital Ltd Helsinki 100 4 37Merita Delta Ltd Helsinki 100 8 72Merita Finance Ltd Espoo 100 210 1 800Merita Fund Management Ltd Helsinki 100 4 35Merita Securities Ltd Helsinki 75 4 32Merita Invest Ltd Helsinki 100 241 2 063Merita Customer Finace Ltd Espoo 100 47 403Merita Systems Oy Helsinki 60 0 0M-Rent Oy 2) Vantaa 100 0 0Tukirahoitus Oy Oulu 100 5 40VKR-Kiinteistöt Oy Vantaa 60 1 9

InternationalAmerican Scandinavian Banking Corp. New York 100 11 96Estonian Industrial Leasing Ltd Tallinn 80 4 32Hirewhiz Limited London 100 0 3Merita Finance (U.K.) Ltd. London 100 0 1Merita Holdings (U.K.) Ltd London 100 2 21MeritaNordbanken Finance Latvia Ltd Riga 100 2 14MeritaNordbanken Finance Lit Ltd Vilnius 100 1 5MeritaNordbanken Latvia Ltd Riga 100 13 112Merita Nordbanken Luxembourg S.A. Luxembourg 100 17 148MeritaNordbanken Merchant Bank Singapore Ltd Singapore 100 21 179Merita North America Inc. Delaware 100 0 0

1) Non-consolidated subsidiary.

2) Book value in owner company. Consolidated under the equity method; share of profit/loss to be taken into account.




Participating interests included in the consolidated financial statements

Participating interests owned by MeritaNordbanken Plc 1)

FinnishDividum Oy Helsinki 48 55 469Kiinteistösijoitus Oyj Citicon Helsinki 43 51 436Realinvest Oy Helsinki 49 71 610Suomen Suorakauppa Oy 2) Helsinki 50 0 1

SwedishBankgirocentralen BGC AB Stockholm 27 0 1Värdepapperscentralen AB Stockholm 25 27 231Nordisk Renting AB Stockholm 40 48 415

InternationalBank Komunalny Gdynia 50 11 98

Participating interests owned by Merita Bank Plc 1)

FinnishATM Automatia Ltd Helsinki 33 5 43Eurocard Oy Helsinki 31 2 20Luottokunta Helsinki 27 9 76Securus Oy Helsinki 35 0 0Suomen Asiakastieto Oy Helsinki 32 0 0Toimiraha Oy Helsinki 33 2 18

InternationalFreja Finance S.A. Luxembourg 33 0 0

Statutory information on corporate registration numbers and shareholders’ equity is available at the Group Financial Control and Accounting Department.

1) Book value in owner company. Consolidated under the equity method; share of profit/loss to be taken into account.2) The Merita Bank Group’s percentage of votes is 25 % and the book value EUR 0.05 million.

The Persson family’s new kitchen. Financing through the Bank.


Annual report 1999 97

Nordbanken Holding AB(publ), whose name waschanged in January 2000 to

Nordic Baltic Holding (NBH) AB(publ), and Merita Plc (Merita)were the sole owners in 1999 ofMeritaNordbanken Plc, the parentcompany of the MeritaNordbankenPlc Group. The MeritaNordbankenPlc Group and the two holdingcompanies form the MeritaNord-banken Group.

As a result of the exchangeoffer dated November 14, 1999(see below) submitted by NBH 1) toshareholders in Merita and holdersof convertible bonds issued byMerita, shareholders representing95.9 percent of the shares andvoting rights had accepted the offerby January 20, 2000. NBH’s Boardof Directors therefore decided tocomplete the offer and initiatedredemption procedure for theremaining shares.

With the exchange of shares,NBH became the direct and indi-rect owner of more than 90 percentof the shares of MeritaNordbankenPlc, which as before is the parentcompany of the MeritaNordbankenPlc Group. Merita became a sub-sidiary of NBH. As a consequence,NBH is reported as of December31, 1999 as the parent company ofthe new NBH Group.

Significant events

Through an offer in November 1997to shareholders of Nordbanken AB,NBH became the owner of 99.7percent of the shares in that compa-ny. NBH thus became entitled toimplement compulsory redemptionof the remaining shares of Nord-banken. The compulsory redemp-tion procedure is still in progress. InFebruary 1998, NBH offered share-holders the possibility to sell theirshares at a fixed price (SEK 306),instead of participating in the com-pulsory redemption procedure.This offer has been accepted by alarge number of shareholders.

The NBH share is listed on theStockholm Stock Exchange. As ofOctober 1999, it is listed in bothSEK and EUR.

In accordance with the goalsestablished in the merger agreementbetween Merita and NBH in 1997,Merita and NBH concluded a newmerger agreement on September20, 1999, intended to simplify theMeritaNordbanken Group’s legalstructure. Based on this agreement,the Board of Directors of NBHapproved an exchange offer to theshareholders in Merita and holdersof convertible bonds issued byMerita.

At Extraordinary GeneralMeetings of NBH and Merita on

November 19 and November 23,1999, respectively, the decisionsrequired by the exchange offerwere taken.

At NBH’s ExtraordinaryGeneral Meeting, decisions werethus taken on a change in the com-pany’s name and a change in thecompany’s capital structure. It wasaccordingly decided

that the company’s name would beNordic Baltic Holding (NBH) AB(publ),

to implement a reduction of theshare capital by SEK3,188,168,602.50 by lowering thenominal value of the share fromSEK 7.00 to SEK 4.50.

to reduce the company’s premiumreserve by SEK 3,036,297,483.

In both cases, the sums for thereductions were allocated to unre-stricted reserves to be used inaccordance with decisions taken bythe Annual General Meeting. Theshare capital and the premiumreserve were re-established throughnew issues (see below). One Meritashare carried subscription rights to1.02 newly issued shares in NBH.

At NBH’s ExtraordinaryGeneral Meeting on November 19,1999, a proposal was also approvedthat the company would issue con-vertible bonds with an aggregate

Nordic Baltic Holding (NBH) AB

(publ) * 1999

Board of Directors’ Report 1999

* Parent company of the MeritaNordbanken Group, previously Nordbanken Holding AB (publ).

Corporate registration number: 5556547-0977. The registered office of the company is in Stockholm.

1) NBH refers to Nordbanken Holding AB (publ), and Nordic Baltic Holding (NBH) AB (publ). The meaning is apparent from the context.


Annual report 199998

nominal value of maximum EUR151,920,857. Each holder ofconvertible bonds issued by Meritais entitled to exchange these forconvertible bonds issued by NBH.For each convertible bond issued byMerita with nominal value of FIM10,000, the holder is entitled to aconvertible bond issued by NBHwith a nominal value of EUR1,681.88.

The exchange offer was subjectto conditions, of which the most im-portant was that the ExtraordinaryGeneral Meetings of shareholdersin Merita and NBH approve thenecessary decisions relating to theexchange offer (see above), thatshareholders of Merita representingmore than 90 percent of the outstand-ing shares and voting rights acceptthe exchange offer and that thenecessary approvals were obtained.

The exchange offer prospectusand the stock exchange prospectusdated November 14, 1999 werepublished on November 19, 1999.The exchange period started onNovember 24, 1999 and was sche-duled to end on December 15,1999, but was extended untilJanuary 20, 2000.

As of December 31, 1999,shareholders representing 90.8 per-cent of the shares and voting rightshad accepted the offer.

Significant events after December 31, 1999

On January 21, 2000, it was an-nounced that NBH would completethe exchange offer presented onNovember 19, 1999 to shareholdersin Merita Plc and holders of con-vertible debentures issued by Meri-ta Plc. At the end of the registrationperiod, shareholders representing95.9 percent of the shares andvoting rights and holders of Merita’sconvertible bonds representing 91.2percent of the aggregate value ofconvertible bonds outstanding hadaccepted the offer.

The new non-cash share issuethat was implemented to finance

the exchange increased the sharecapital and the premium reserve bySEK 3,671,101,291.50 and SEK8,417,126,504.50, respectively.

Completion of the exchangeoffer and the obligation to redeemthe outstanding shares in Merita Plcand convertible bonds issued byMerita Plc is reflected in the 1999accounts.

The new share issue and theconvertible bond loan were register-ed at the Swedish Patent and Regi-stration Office on January 28, 2000.

Trading in NBH subscriptionrights begun on the Helsinki Ex-changes pre-list on January 24,2000, but ceased on January 31,2000, when trading of NBH sharesin the form of Finnish DepositoryReceipts (FDR) began.

To complete the exchangeoffer, NBH submitted a redemp-tion offer on January 27, 2000 inaccordance with the Finnish Securi-ties Market Act and at the sametime issued a redemption request inaccordance with the Finnish Com-panies Act for shares that had notbeen exchanged. The redemptionprice is EUR 5.77 per share. If ashareholder does not accept theredemption request, the redemp-tion price will be determined byarbitration in accordance with theFinnish Companies Act.

At the same time, NBH sub-mitted an exchange offer for theconvertible bonds that had notbeen exchanged. The redemptionprice is 104.2 percent of the nomi-nal value, FIM 10,000 (EUR1,681.88). As a result of the plan-ned merger of Merita Plc withMeritaNordbanken Plc, the right toconvert the bonds to shares in Meri-ta Plc does not apply.

The redemption period is fromFebruary 1 to 29, 2000. NBH reser-ves the right to extend the redemp-tion period by a maximum of threemonths.

Personnel

Nordbanken Holding had one

employee – its President and CEO– during the fiscal year 1999. Nofees were paid to the company’sBoard of Directors.

Earnings and financial position

NBH’s profit for the year amountedto SEK 1,485 million, comparedwith SEK 42 million for 1998.

In consideration of the profitfor the year and decisions taken atthe Extraordinary General Meetingon November 19, 1999 regardingchanges in the share capital andpremium reserve in conjunctionwith a new share issue (see above),the company’s equity capitalamounted to SEK 26,508 million atthe year-end.

Share capital and number of shares

After the approved changes, theshare capital in NBH amounts toSEK 9,410 million, represented by 2,091,067,728 shares, nominalvalue SEK 4.50. All shares carryequal rights to the company’s assetsand profits. Each shareholder eligi-ble to vote at a General Meeting ofShareholders may vote the fullnumber of shares held, withoutrestrictions. There are no knownshareholder agreements.

Share price trend, trading volumeand market capitalization

The price of the company’s sharedeclined by 3.8% during 1999. Thetotal return, including dividend ofSEK 1.64 per share, amounted to–0.7%. The highest price paid wasSEK 61.00 (January 20) and thelowest SEK 42.30 (October 18).Beginning on October 4, the sharewas also listed in euro, with a highof EUR 6.25 (November 18) and alow of EUR 4.50 (October 20).

During the same period theStockholm Stock Exchange Bankingand Insurance Index rose by 17.1%,and the General Index by 66.4%.



NBH’s shares were the fif-teenth most actively traded on theStockholm Stock Exchange. Thetotal volume of trading amountedto SEK 38,303 million, equal to766 million shares. NordbankenHolding thereby accounted for1.5% of the total turnover on theExchange.

Within the MeritaNordbankenGroup, the Boards of Directors ofMerita Plc and Nordic Baltic Holding(NBH) AB (publ) decided to followthe recommendations of the Helsin-ki Exchanges’ insider rulings whenthey take effect on March 1, 2000.

Before the new share issue,market capitalization of NBH’sshares at December 31, 1999 wasSEK 63,763 million, equal to 1.7%of the total value of all shares trad-ed on the Exchange. The total mar-ket capitalization of the NBH shareand the Merita share at December31, 1999 amounted to 221% of theGroup’s shareholders’ equity.

Trading in derivatives

Nordbanken Holding’s shares canalso be traded in the form of putand call options and futures con-tracts and share loans in the Stock-holm options market (OM Stock-holm AB). Warburg Dillon Readalso issues long-term warrants inNBH that are traded on the OMStockholm Exchange.

Shareholders

At year-end 1999, NordbankenHolding had slightly more than92,000 shareholders, before the ad-dition of new shareholders as a re-sult of the new issue. This meansthat the number of shareholders de-clined by nearly 10,000 during theyear. The new issue means that thenumber of shareholders increasedby about 234,000. Of shares out-standing at January 31, 2000, Finn-ish and Swedish private individualsowned about 13.1%, Finnish andSwedish institutions 29.7% and

foreign owners about 29.2%. Theremaining shares after the mergerare owned by the Swedish govern-ment, about 25.9%, and the Finnishgovernment, about 2.1%.

Convertible bonds

Each convertible bond in the con-vertible bond loan that NBH has is-sued entitles the holder to requestconversion of the claim to new sha-res in NBH at a conversion price ofEUR 5.60.

Conversion may take placeuntil August 17, 2042, which is thedue date for the loan. However,NBH has the right as of August 17,2002 and at any time thereafter torepay the loan in full or in part at30 days notice.

Convertible bonds subject toexchange may be redeemed inaccordance with the redemptionoffer made on January 27, 2000.

Through conversion, the num-ber of shares may increase by amaximum of 23,232,168.

Dividend

The Board of Directors of NordicBaltic Holding (NBH) AB (publ)proposes that a dividend of SEK 1.75per share be paid for the year 1999.


The Annual General Meeting ofNordic Baltic Holding (NBH) AB(publ) will be held Tuesday, April11, 2000, at 2:00 p.m. Swedishtime in the Annex of Globen, inStockholm, Sweden, with the rightfor shareholders to participatesimultaneously at 3:00 p.m. Finnishtime at the Helsinki Fair Centre,which will be linked to Stockholmvia satellite.

Notification

Shareholders who wish to partici-pate in the Meeting1. must be recorded in the share

register maintained by Värdepap-

perscentralen VPC AB (SwedishSecurities Register Center) notlater than Friday, March 31, 2000.

a. Shareholders in Sweden whoseshares are registered in the nameof a trustee must temporarily re-register the shares in their ownname. Such reregistration mustbe effected at VPC AB by Mon-day, March 31, 2000. According-ly, shareholders must advise trus-tees in ample time prior to thatdate.

b. Shareholders whose shares are inthe form of NBH Finnish Depos-itary Receipts must temporarilyre-register these in their ownname. Such reregistration mustbe effected in ample time and notlater than March 30, 2000 withMerita Bank Plc, according to 2b.

2. must notify Nordic Baltic Hold-ing (NBH) AB (publ) not laterthan Wednesday, April 5, 2000,1:00 p.m. Swedish time, and2:00 p.m. Finnish time.

a. by notice addressed to NordicBaltic Holding (NBH) AB (publ),Group Legal Department, H-50,SE-105 71, Stockholm, Sweden,by telephone, +46-8 614 97 10,by telefax, +46-8 614 87 70,via the Internet: www.meritanordbanken.com, or

b. by notice addressed to NordicBaltic Holding (NBH) AB (publ),Mertia Bank Plc, 2590 Issue Services, FIN-00020 Merita, bytelephone +358 9 165 88229,by telefax +358 9 637 256,via the Internet: www.meritanordbanken.com,

Shareholders are requested to indi-cate on the notice at which of the twolocations they intend to participate.

Dividend and record dateThe Board of Directors proposesthat a dividend of SEK 1.75 pershare be paid for 1999 and thatApril 14, 1999 be the record datefor the dividend. If the AnnualGeneral Meeting approves theBoard’s proposal, it is expected thatthe dividend will be distributed byVPC on April 25, 1999.



Largest known shareholders in Norbanken Holding on December 31, 1999Before the new issue linked to the exchange offer to shareholders in Merita Plc

Percentage of capitalNumber of shares and voting rights

Swedish Government 512 015 102 42.5SPP 46 837 296 3.7AMF Pensionförsäkring AB 39 500 000 3.1Nordbanken’s mutual funds 38 009 316 3.0SHB’s mutual funds 27 095 300 2.1Skandia 26 311 563 2.1SEB’s mutual funds 21 463 560 1.7Fourth AP fund 19 380 000 1.5Nordbanken’sProfit-sharing Foundation 19 186 300 1.5AMF Insurance 17 919 000 1.4

Source: DN Ägarservice AB and Swedish Securities Register Center (VPC) AB.

Nordic Baltic Holding’s shareholder structure as of January 31, 2000, that is, after the new issue, is shown on page 7.

Distribution of shares on December 31, 1999Before the new issue linked to the exchange offer to shareholders in Merita Plc

Number of Number of Number of Number of shares/shares shareholders Percent shares Percent shareholder

1 – 1 000 79 922 86.4 47 309 792 3.7 5921 001 – 5 000 10 130 11.0 21 508 766 1.7 2 1235 001 – 50 000 1 892 2.0 27 586 970 2.2 14 581

50 001 – 100 000 149 0.2 10 698 126 0.8 71 800100 001 – 1 000 000 259 0.3 89 092 309 7.0 343 986

1 000 001 – 91 0.1 1 079 071 478 84.6 11 857 928

Total 92 443 100.0 1 275 267 441 100.0

Source: Swedish Securities Register Center (VPC) AB.



SEK million Note 1999 1998

Operating income

Operating expensesPersonnel expenses 2 -0 -0Other operating expenses 3, 4 -26 -12

Operating loss -26 -12

Net result from financial investmentsDividend 3 1 473 –Interest income 3 69 78Interest expenses 3 -26 -8

Profit after financial items 1 490 58

Profit before tax 1 490 58Tax for the year -5 -16

Net profit for the year 1 485 42

Income statements



SEK million Note 1999 1998

Assets

Fixed assets

Financial fixed assetsShares in subsidiaries 5 27 465 –Shares in associated companies 5 – 13 242Long-term receivables 6 1 114 –

Total fixed assets 28 579 13 242

Current assetsShort-term receivables 6 48 7Short-term investments 6 1 000 1 800Bank deposits 407 239

Total current assets 1 455 2 046

Total assets 30 034 15 288

Shareholders’ equity and liabilities

Shareholders’ equity 7Restricted shareholders’ equityShare capital 1) 9 410 8 927Premium reserve 8 417 3 036Non-restricted shareholders’ equityNon-restricted reserves 1) 6 224 –Retained earnings 972 3 021Profit for the year 1 485 42

Total shareholders’ equity 26 508 15 026

LiabilitiesSubordinated debt 8 1 114 –Short-term liabilities 9 2 412 262

Total liabilities 3 526 262

Total shareholders’ equity and liabilities 30 034 15 288

Memorandum itemsCollateral pledged (bank funds) in connectionwith compulsory redemption proceedings 214 207Contingent liabilities 9 8Other commitments (redemption offer, convertible bonds in Merita Plc) 115 –

1) An approved increase in equity through a new issue of SEK 3 671 million and the associated transfer to non-restricted reserves was registered on January 28, 2000.

Balance sheets



SEK million 1999 1998

Ordinary businessProfit after financial items 1 490 58Adjustment for items not included in cash flow 2 117 -46Adjustment for items included in cash flow for financing operations -1 473 –Income taxes paid -16 -12

Cash flow from ordinary business before changesin ordinary business assets and liabilities 2 118 0

Change in ordinary business assets 778 -94Change in ordinary business liabilities 18 246

Cash flow from ordinary business 2 914 152

Cash flow from investment operations -1 776 1 792

Cash flow from financial operations -977 -1 913

Cash flow for the year 161 31

Liquid assets at the beginning of the year 32 1Liquid assets at the end of the year 193 32

Additional informationIn comparison with the cash flow analyses that were presented in the interim reports during 1999, an adjustment has been made in thepresentation of the cash flow analysis used in the rest of the Group. This means that an indirect method is applied with a break downinto ordinary business, investment operations and financial operations and that the definition of liquid assets is more stringent that thatapplied in the interim reports during 1999.

Liquid assets include bank deposits (excluding funds in restricted accounts) Dec 31, 1999 Dec 31, 1998 Dec 31, 1997

193 32 1

Pledged bank deposits in restricted accounts representing collateralas a result of compulsory redemption Dec 31, 1999 Dec 31, 1998 Dec 31, 1997

214 207 –

Interest received 1999 1998

Interest received 51 72Interest paid 14 1

Dividends received 1 473 4 9341)

Dividends paid 2 091 1 913

1) Dividends received in 1998 did not affect liquid assets, according to the definition used.

Significant transactions that did not entail paymentsAs indicated by the Administration Report, the financial accounts for 1999 reflect both significant changes in the Company’s capital structure and a new issue of convertible bonds that were used in exchange for convertible bonds issued by Merita Plc. None of these transactions have affected the Company’s cash flow in 1999.

Cash flow analysis



Note 1: Accounting principles

The accounts for the year have been prepared in accordance with the Swedish Annual Accounts Act.

Costs arising in connection with the acquisition of shares in Nordbanken in 1998 and the compulsory redemption procedure in 1998and 1999 have been capitalized. These costs amounted to SEK 189 million in 1998 and SEK 3 million in 1999. Costs arising in con-junction with the exchange offer of 1999 were also capitalized, as were the expected costs for the acquisition and redemption of theremaining shares in Merita Plc totaling SEK 2,131 million. An estimation of future costs for the redemption of convertible bonds issuedby Merita Plc is reported as a memorandum item, since the amount is uncertain.

Note 2: Personnel

The Company had one employee, the President. The amount paid in salary was SEK 100,000 per year. Social security charges amounted to SEK 24,000. No fees were paid to the Board of Directors.

There are no commitments pertaining to severance payments, pensions or similar compensation for the President of members of theBoard of Directors. There are no loans outstanding to the President or members of the Board of Directors.

Note 3: Intra-Group transactions

In 1999, when the Company became the parent company in the Nordic Baltic Holding Group, interest income, interest expenses andreceived dividends pertained to transactions with Group companies, with the exception of accrued interest expenses on the convertibledebenture loan (SEK 18.1 million) and interest expenses on the tax account (SEK 0.4 million).

In 1999, SEK 3.1 million of other operating expenses pertained to intra-Group transactions.

Note 4: Auditing expenses

During the 1999 fiscal year, remuneration, including reserves, to the Company’s auditors amounted to SEK 1.4 million (0.4).

Note 5: Shares

Number Book value VotingDecember 31, 1999 of shares Nominal value SEK million Market value rights, % 1)

Fixed assetsMerita Nordbanken Plc 2)

Common shares 560 000 000 FIM 5 600 million 13 246

– 50.(40)Preferred shares 280 000 000 FIM 2 800 million – 0.(20)

Merita Plc 2) 799 804 203 EUR 1 345 million 14 219 – 95,9 .3)

1) Difference in percentage of capital is shown in parenthesis.2) MeritaNordbanken Plc, whose registered office is in Helsinki, Finland, has registration number 725 985. Merita Plc, whose registered office

is in Helsinki, Finland, has registration number 40 495.

3) Before ongoing share redemption.

Notes to the Financial Statements



Note 6: Receivables

December 31, SEK million 1999 1998

Financial fixed assetsDebenture loan Merita Plc 1 114 –

Current assetsShort-term investment with Nordbanken AB 1 000 1 800Tax receivable 6 –Other current receivables 16 0Prepaid expenses and accrued interest 26 7

Total 2 162 1 807

Note 7: Change in shareholders’ equity

Share Premium Non-restrictedSEK million capital 1) reserve equity Total

At the beginning of the year 8 927 3 036 3 063 15 026Reduction of share capital 2) -3 188 3 188 –Reduction of premium reserve -3 036 3 036 –New issue 2) 3 671 8 417 12 088Dividend -2 091 -2 091Profit for the year 1 485 1 485

At the end of the year 9 410 8 417 8 681 26 508

1) The Company’s share capital on December 31, 1999 was SEK 9 409 804 776 (2 091 067 728 shares with a nominal value of SEK 4.50).2) Registered at the Swedish Patent and Registration Office on Janaury 28, 2000.

Note 8: Subordinated debt


Convertible bond loan 1 114 –77,354 bonds with nominal value of EUR 1 681.88 each = EUR 130 100 145.52

The loan is due on August 17, 2042 unless conversion to shares has taken place before that date. The Company has the right as ofAugust 17, 2002 and at any time after that date, following a 30-day notice, to repay the loan in part or in full plus accrued interest. The conversion rate is EUR 5.60.

Note 9: Current liabilities


Current liabilities to subsidiaries 222 –Current liabilities to associated companies – 203Tax liabilities – 5Other current liabilities 43 43Accrued expenses 2 147 11

Total 2 412 262



Proposed Distribution of Earnings

According to the Company’s balance sheet, the follow-ing amount is at the disposal of the Annual GeneralMeeting of Shareholders:

SEK million

Non-restricted reserves 6 224Profit carried forward 972Net profit for the year 1 485

Total 8 681

The Board of Directors and the President propose thatthese earnings be distributed as follows:

SEK million

Dividends paid to shareholders, SEK 1.75 per share 3 659To be carried forward 5 022

Total 8 681

February 16, 2000

Jacob Palmstierna, Chairman Edward Andersson Bernt Magnusson

Vesa Vainio, Vice Chairman Rune Brandinger Juha Niemelä

Dan Andersson Mikko Kivimäki Timo Peltola

Hans Dalborg

The Group’s disposable earnings amount to SEK 24,103 million. Of this amount, SEK 4 million will be transferred to restricted reserves.After the proposed distribution of earnings, the Group’s non-restricted shareholders’ equity amounts to SEK 20,440 million.



We have audited the finan-cial statements, the accounts and the admin-

istration of the Board of Directorsand the President of Nordic BalticHolding (NBH) AB (publ) for 1999.These accounts and the administra-tion of the company are the respon-sibility of the Board of Directorsand the President. Our responsibi-lity is to express an opinion on thefinancial statements and the admin-istration based on our audit.

We conducted our audit inaccordance with Generally AcceptedAuditing Standards in Sweden.These Standards require that weplan and perform the audit toobtain reasonable assurance thatthe financial statements are free ofmaterial misstatement. An auditincludes examining, on a test basis,evidence supporting the amountsand disclosures in the financialstatements. An audit also includes

assessing the accounting principlesused and their application by theBoard of Directors and the Presi-dent, as well as evaluating the over-all presentation of information inthe financial statements. We exam-ined significant decisions, actionstaken and circumstances of theCompany in order to determine thepossible liability to the Company of any Board Member or the Presi-dent or whether they have in someother way acted in contravention ofthe Companies Act, the Annual Accounts Act or the Articles ofAssociation. We believe that ouraudit provides a reasonable basis forour opinion set out below.

The annual report and thefinancial statements have been pre-pared in accordance with the Annu-al Accounts Act and thus provide afair representation of the Com-pany’s and the Group’s earning andfinancial position in accordance

with Generally Accepted AuditingStandards in Sweden.

We recommend to the AnnualGeneral Meeting that the the in-come statements and the balancesheets for the Parent Company andthe Group be adopted, that the profit in the Parent Company bedealt with in accordance with theproposal in the Board of Directors’Report and that the members ofthe Board of Directors and thePresident be discharged from liabil-ity for the fiscal year.

Stockholm, February 18, 2000

KPMG

Caj NackstadAuthorized Public Accountant

Auditors’ Report

To the Annual General Meeting of Nordic Baltic Holding (NBH) AB(publ), corporate registration no. 556547-0977.

Eva and Lars summer of 1999. 4000 km, nine countries, nine currencies. One credit card.

Merita Plc


In 1999, Merita Plc (Merita) andNordbanken Holding AB (publ),which in January was renamed

Nordic Baltic Holding (NBH) AB(publ), were the owners of Merita-Nordbanken Plc, the parent com-pany of the MeritaNordbanken PlcGroup. Together, the MeritaNord-banken Plc Group and the twoowner companies form the Merita-Nordbanken Group.

As a result of the exchangeoffer dated November 14, 1999(see below) that NBH 1) submittedto the shareholders in Merita Plcand holders of convertible bondsissued by Merita Plc shareholdersrepresenting 95.9 percent of theshares and voting rights had accept-ed the offer by January 20, 2000.NBH’s Board of Directors thereforedecided to complete the offer andinitiated the redemption procedurefor the remaining shares.

With the exchange of shares,NBH became the direct and indi-rect owner of more than 90 percentof the shares of MeritaNordbankenPlc, which as before is the parentcompany of the MeritaNordbankenPlc Group. Merita became a subsid-iary of NBH. As a consequence,NBH is reported as of December31, 1999 as the parent company ofthe new NBH Group.

In order to illustrate Merita’sfinancial development and positionstrictly from the company’s view-point, the following income state-ments and balance sheets are pre-sented for the company Merita Plc, including and excluding theassociated company MeritaNord-banken. However, the MeritaNord-banken Group’s annual accounts are

an essential part of Merita’s annualreport.

Significant events

In accordance with the objectivesstated in the merger agreementbetween Merita and NBH in 1997,on September 20, 1999 Merita andNBH entered into a new mergeragreement, the purpose of whichwas to simplify the MeritaNord-banken Group’s legal structure.Based on this merger agreement,the NBH Board decided to make anexchange offer to shareholders inMerita and holders of convertiblebonds issued by Merita.

At the Extraordinary GeneralMeetings of Merita and NBH onNovember 23 and 19, 1999, re-spectively, the approvals requiredin respect of the exchange offerwere obtained.

One Merita share entitles theholder to 1.02 newly issued sharesin NBH.

At the NBH ExtraordinaryGeneral Meeting on November 19,1999, a decision was also taken thatthe company would issue a convert-ible bond loan in a nominal maxi-mum amount of EUR 151,920,857.Each holder of convertible bondsissued by Merita became entitled toexchange these bonds for convert-ible bonds issued by NBH. For eachconvertible bond issued by Meritawith a nominal amount of FIM10,000, a holder receives oneconvertible bond issued by NBHwith a nominal amount of EUR1,681.88.

The most important conditionspertaining to the exchange offer

were that the Merita and NBHExtraordinary General Meetingstook the necessary decisions relat-ing to the exchange offer (seeabove), that Merita shareholders,representing more than 90% of theshares and votes outstanding,accepted the exchange offer andthat the necessary permits/approv-als were obtained.

The prospectus relating to theexchange offer and the stock ex-change prospectus dated November14, 1999 were published onNovember 19, 1999. The applica-tion period commenced on Novem-ber 24, 1999 and was initially dueto close on December 15, 1999.However, the application periodwas subsequently extended toJanuary 20, 2000.

As at December 31, 1999,shareholders representing 90.8% ofthe shares and voting rights hadaccepted the offer.

Significant events after December 31, 1999

On January 21, 2000, it was an-nounced that NBH would completethe exchange offer presented toshareholders in Merita Plc andholders of convertible bonds issuedby Merita Plc on November 14,1999. At the end of the exchangeperiod, shareholders representing95.9% of the shares and votingrights had accepted the offer. Hold-ers of Merita’s convertible bondsaccepting the offer represented91.2% of the total nominal capitalof the outstanding convertiblebonds.

In order to complete the

Merita Plc* 1999Board of Directors’ Report

* Corporate registration number 40,495. The company is based in Helsinki, Finland.

1) NBH refers to Nordbanken Holding AB (publ), and Nordic Baltic Holding (NBH) AB (publ). The meaning is apparent from the context.

Merita Plc


exchange offer, NBH submitted a re-demption offer on January 27, 2000in accordance with the FinnishSecurities Market Act and concur-rently requested a redemptionruling in accordance with the Finn-ish Companies Act pertaining toshares which were not exchanged.The redemption price is EUR 5.77per share. If a shareholder does notaccept the redemption ruling, theredemption price is determined byarbitration in accordance with theFinnish Companies Act.

At the same time, NBH pre-sented a redemption offer for theconvertible bonds that had notbeen exchanged. The redemptionprice is 104.2% of the nominalvalue of the convertible bond, whichis FIM 10,000 (EUR 1,681.88). Asa result of the planned merger ofMerita Plc with Merita-NordbankenPlc, the possibility to convert thebonds to shares in Merita Plc doesnot apply. The redemption offerextends between February 1–29,1999. NBH retains the right toextend the redemption period by amaximum of three months.

Trading in NBH’s subscriptionrights started on the HelsinkiExchanges prelist on January 24,2000, but was terminated onJanuary 31, 2000, when trading inNBH shares in the form of FinnishDepository Receipts (FDRs) com-menced on the Helsinki Exchangesmain list.

Earnings and financial position

Net profit for the year for theMeritaNordbanken Group amount-ed to EUR 1,098 M, comparedwith EUR 704 M in 1998. This re-sult includes withdrawals (reversal)from the pension foundation andfunds of SEK 65 M (152), andwrite-downs of real estate of EUR145 M (617). Return on equityamounted to 20.9% and earningsper share to EUR 0.53.

Merita Plc’s share (40%) of theMeritaNordbanken Group result is

shown among participations in asso-ciated companies, including a de-duction of EUR 13 M (80) in accord-ance with the original cooperationagreement. The result also includespayment of 40% of the withdrawal(reversal) from the pension foun-dation and funds of EUR 26 M (61)and is charged with 40% of the realestate write-downs of EUR 58 M(247). Thereafter, the result corres-ponds to 40% of the total result ofthe MeritaNordbanken Group andamounted to SEK 439 M (281).Profit for the year for Merita Plcexcluding associated companiesamounted to EUR 134 M (137).

Excluding associated com-panies, the company shareholders’equity at year-end 1999 amountedto EUR 1,828 M. With the additionof the share in earnings of associatedcompanies and after adjustment dueto the original cooperation agree-ment, Merita’s shareholders’ equityat the same date corresponded to40% of the total shareholders’ equityof the MeritaNordbanken Group,EUR 2,210 M, or EUR 2.68 pershare.

Dividend

The Board of Directors of MeritaPlc proposes that no ordinary divi-dend be paid. The Board’s proposalfor the distribution of profits inNBH is presented on page 106.


As a result of the share redemptionprocess, NBH will be the soleowner of Merita, while formershareholders in Merita own sharesin the parent company NordicBaltic Holding (NHB) AB (publ).

The Annual General Meetingof Nordic Baltic Holding (NBH)AB (publ) will be held on Tuesday,April 11, 2000, at 2:00 p.m. Swed-ish time in the Annex of Globen, inStockholm, Sweden, with the rightfor shareholders to participatesimultaneously at 3:00 p.m. Finnish

time at the Helsinki Fair Centre,which will be linked to Stockholmvia satellite.

Shareholders who wish to partici-pate in the Meeting

1. must be recorded in the shareregister maintained by Värde-papperscentralen VPC AB(Swedish Securities RegisterCenter) not later than Friday,March 31, 2000.

a. Shareholders in Sweden whoseshares are registered in the nameof a trustee must temporarilyre-register the shares in theirown name. Such reregistrationmust be effected at VPC AB byMonday, March 31, 2000.Accordingly, shareholders mustadvise trustees in ample timeprior to that date.

b. Shareholders whose shares arein the form of NBH Finnish De-positary Receipts must tempo-rarily re-register these shares intheir own name. Such re-regis-tration must be effected inample time and not later thanMarch 30, 2000 with MeritaBank Plc – according to 2b below.

2. must notify Nordic BalticHolding (NBH) AB (publ) notlater than 1:00 p.m. Swedishtime, and 2:00 p.m. Finnishtime on Wednesday, April 5,2000.

a. by notice addressed to NordicBaltic Holding (NBH) AB(publ), Group Legal Department, H-50, SE-105 71,Stockholm, Sweden,by telephone, +46-8 614 97 10,by telefax, +46-8 614 87 70,via the Internet: www.meritanordbanken.com, or

b. by notice addressed to NordicBaltic Holding (NBH) AB(publ), Mertia Bank Plc, 2590Issue Services, FIN-00020Merita, by telephone +358 9 165 88229, by telefax+358 9 637 256, via the Internet:www.meritanordbanken.com,

Merita Plc


Shareholders are requested toindicate at which of the twolocations they intend to participate.

Share capital and outstandingshares

At the end of 1999, Merita Plc’sshare capital amounted to EUR1,402,120,419.19. In accordancewith the Articles of Association,the minimum number of shares is400,000,000 and the maximumnumber is 1,600,000,000, whichare the limits within which sharecapital can be increased or decreas-ed without amending the Articlesof Association. The computed valueof the share at the end of 1999 wasEUR 1.68 and the number of sharesoutstanding was 833,662,944.

During the year, the numberof shares increased by a total of1,642,200 due to the conversion ofconvertible bonds from 1992.

The Board has no authorizationto decide on an increase of the sharecapital.

Convertible bond loan 1992

In 1992, Merita Plc issued a con-vertible bond loan of FIM 906 M(EUR 152 M). Each bond has anominal value of FIM 10,000 (EUR1,681.88) and may be converted to300 shares. Conversion can be car-ried out annually between January2 and November 30, however, notlater than August 17, 2042. Thecompany has retained the right torepay the loan capital in its entiretyor in instalments on August 17,2002, or at any time thereafter.

As of December 31, 1999, theloan amount outstanding was EUR142 M, of which EUR 130 M wasowned by NBH following thecompletion of the exchange offer.

Share price trend, turnover andmarket capitalization

The Merita share is listed on theHelsinki Exchanges. During 1999,the share price rose by 8%, whilethe Helsinki General Index rose by162%. The highest price paid for

the share was EUR 6.32 on January20 and the lowest was EUR 4.80 onOctober 15.

During 1999, Merita was thefifth most actively traded share onthe Helsinki Exchanges.

Within the MeritaNordbankenGroup, the Boards of Merita Plcand Nordic Baltic Holding (NBH)AB (publ) decided to follow therecommendations of the HelsinkiExchanges in regard to insiderrulings when these come into forceon March 1, 2000.

Shareholders

In accordance with Finnish law,Merita will become a wholly-ownedsubsidiary of NBH as a result of theredemption offer in accordancewith the Finnish Companies Act.

Increase in Merita Plc’s share capital 1996–1999

Issue Subscription ratio Subscription Number of Dividend Increase in share New share cap-type or subscriber price, EUR new shares rights capital, EUR million ital, EUR million

Direct issue 1 new share in Merita Plc forDec 29, 1995 3 shares in Kansallis-Yhtymä Oy 1.68 346 457 170 1/1 1995 583 1 397

Subscriptions withwarrants (warrant personnelfinancing 1990)–1997 4.87 2 457 1/1 1997 0 1 397–1998 4.87 1 483 438 1/1 1998 2 1 399

Conversion by con- 300 new shares against a vertible bonds 1992 convertible bond (nominal

value of EUR 1,661.88)–1998 5.61 83 400 1/1 1999 0 1 399–1999 5.61 1 642 200 1/1 2000 3 1 402

Distribution of shares before the exchange offer of Nordic Baltic Holding (NBH) AB (publ)

Number of Shareholders Number of Number of Number of sharesNumbers of shares shareholders % shares shares, % per shareholder

1–1 000 205 278 79.0 54 728 104 6.6 2671 001–10 000 51 662 19.9 132 618 730 15.9 2 567

10 001–100 000 2 683 1.0 57 088 537 6.8 21 278100 001–1 000 000 145 0.1 43 462 252 5.2 299 740

1 000 001– 30 0.0 170 055 876 20.4 5 668 529Held in trust 17 0.0 374 898 930 45.0 22 052 878In collective book-entry account 810 515 0.1

Total 259 815 100.0 833 662 944 100.0

Merita Plc


Largest shareholders (known) in Merita Plc before the exchange offer from Nordic Baltic Holding (NBH) AB (publ)

Share capitalDecember 31, 1999 No. of shares and votes, %

Solidium Oy 42 622 222 5.1Suomi Mutual Life Assurance Company 13 000 001 1.6Varma-Sampo Mutual Pension Insurance Company 10 660 000 1.3Ilmarinen Mutual Pension Insurance Company 10 620 000 1.3Merita Plc Pension Foundation 9 734 028 1.2Meiji Life Insurance Company 8 538 666 1.0Pohjola Insurance Company 8 135 438 1.0Onninen Investment Ltd 7 900 600 0.9Kuntien Eläkevakuutus 7 274 500 0.9Merita Plc Pension Fund 7 070 173 0.8

Merita Plc shares/per-share data

1999 1998 1997 1996 1995

Combined share seriesAverage number of shares, million 832 832 830 830 744Number of shares December 31, million 834 832 830 830 830Market value, December 31, EUR million 4 877 4 506 4 150 2 027 1 535Earnings per share (EPS), EUR 0.53 0.33 0.50 0.43 0.08Shareholders’ equity/share 2.68 2.29 2.26 2.28 1.93Dividend/profit, % – 53.5 33.7 21.6 –Market value/shareholders’ equity 2.2 2.4 2.2 0.2 0.2

Merita (Series A shares)Average price, EUR 5.51 5.36 3.51 1.90 2.15Lowest price, EUR 4.80 3.58 2.37 1.53 1.72Highest price, EUR 6.32 6.68 5.05 2.56 2.54Volume of trading, 1,000s 475 466 468 374 387 495 294 667 129 141Volume of trading in % of shares 57.1 61.3 50.8 38.6 16.9Average number of shares, million 832 764 763 763 677Number of shares, December 31, million 834 832 763 763 763Market value, December 31, EUR million 4 877 4 506 3 825 1 849 1 412Dividend per share, EUR – 0.18 0.17 0.03 –Effective dividend yield, % – 3.3 3.4 1.4 –Price/earnings ratio (P/E ratio) 11.0 16.4 10.0 5.6 22.4

Series B-shares 2)

Average price, EUR – 5.07 3.56 2.03 2.17Lowest price, EUR – 3.53 2.64 1.68 1.73Highest price, EUR – 6.32 4.88 2.78 2.52Volume of trading, 1,000s – 18 738 24 681 10 506 12 622Volume of trading in % of shares – 27.9 36.7 15.6 18.8Average number of shares, million – 67 67 67 67Number of shares, December 31, million – – 67 67 67Market value, December 31, EUR million – – 324 179 123Dividend per share, EUR – – 0.15 0.27 –Effective dividend yield, % – – 3.1 10.1 –Price/earnings ratio (P/E ratio) – – 9.7 6.1 22.2

1) Share-issue-adjusted, calculated in accordance with regulations set forth by the Finnish Financial Supervision Authority.2) Series B shares were combined with Series A shares on November 5, 1998.

Merita Plc


Merita Plc incl. the associated company Merita Plc

EUR million Note 1999 1998 1999 1998

Interest income 14 25 14 25Interest expenses -7 -18 -7 -18

Net interest income 7 7 7 7

Income from equity investmentsParticipating interests – – 154 1Other companies 0 0 0 0

Commission expenses -0 -0 -0 -0Net result from financial operations – 133 – 133Other operating income 0 7 8 7

7 147 169 148

Administrative expensesPersonnel expenses

Salaries and fees -1 -1 -1 -1Staff-related costs

Pension costs -1 -3 -1 -3Other staff-related costs -0 -0 -0 -0

Other administrative expenses -2 -11 -2 -11Depreciation and write-downs on tangible and intangible assets – -0 – -0Other operating expenses -1 -1 -1 -1

-5 -16 -5 -16

Profit from the company accounted for under the equity method 470 404 – –Adjustment in accordance with the Cooperation Agreement -13 -80 – –

Operating profit 459 455 164 132

Refund from the Pension Foundation/Fund 1) 10 26 61 – 4Write-downs on real estate holdings 1) -58 -247 – -11

Profit before taxes 427 269 164 125

Income taxes 2) 9 12 12 -30 12

Net profit for the financial year 439 281 134 137

1) 40% of the refund from the Pension Foundation/Fund of the MeritaNordbanken Group and 40% of the Group’s write-downs on real estate holdings have been included in the income statement.

2) Income taxes include only Merita Plc’s taxes. Merita Plc’s share of the MeritaNordbanken Group’s other taxes is reported under “Profit from companies accounted for under the equity method” and amounted to EUR 94 million (EUR 91 million).

Income statement

Merita Plc


Merita Plc incl. the associated company Merita Plc

EUR million Note 1999 1998 1999 1998

AssetsDebt securities eligible for refinancing with central banks 172 158 172 158Loans to credit institutions repayable on demand 6 36 6 36Other debt securities 152 152 152 152Shares and participations 2 0 0 0 0Participating interests 2 2 032 1 727 1 650 1 650Other assets 0 1 0 1Prepaid expenses and accrued income 10 13 10 13

Total assets 2 372 2 087 1 990 2 010

Liabilities and shareholders’ equityLiabilitiesOther liabilities 12 12 12 12Accrued expenses and prepaid income 6 14 6 14Provisions 3

Pension provisions 2 1 2 1Other provisions – – – –

Subordinated liabilities 4 142 152 142 152

Liabilities 162 179 162 179

Shareholders’ equity 5Share capital 1 402 1 399 1 402 1 399Share premium reserve 11 5 11 5Ordinary reserve 36 36 36 36Retained earnings 322 187 245 254Profit for the year 439 281 134 137

Shareholders’ equity 2 210 1 908 1 828 1 831

Total liabilities and shareholder’s equity 2 372 2 087 1 990 2 010

Off-balance-sheet commitmentsCommitment on behalf of customers in favour of third parties

Guarantees and pledges 2 1 2 1

Balance Sheet

Merita Plc


The annual report and accounts havebeen prepared in accordance with theCredit Institutions’ Act, the AccountingAct and other statutes and regulationsgoverning financial statements. In thisprinted version of the annual report, onlythose Notes to the Financial Statementsthat are of critical importance to an as-sessment of the company’s earnings andfinancial position have been included. Theoriginal documents signed by the Board of

Directors include all of the prescribedfinancial statements’ notes. Copies of theoriginal documentation can be obtainedfrom the Group Financial Control andAccounting Department.

Consolidated accounts have not beenprepared since the company’s votingrights in MeritaNordbanken amount to50%. The equity method has beenapplied when reporting participations inthe MeritaNordbanken Group.

Liabilities and receivables are taken upin the balance sheet in the amounts thatwere paid, or received, as they arise. Reporting of permanently held securities relates to shares held in MeritaNord-banken Plc, and holdings of interest-bearing securities. These security holdingsare reported at acquisition value. Othersecurities are reported as current assetsand are valued at the lower of acquisitionvalue or market value.

Accounting principles

Merita Plc


Note 1: Subordinated receivables


Debt securities 152 152of which to the associated company 152 152

Total 152 152

Note 2: Shares and participations

1999 1998Publicy Other Publicy Other

EUR million listed listed

Book value Current assets – – – –Financial fixed assets – 0 – 0

Total – 0 – 0

Difference between the market value and a lower book value, publicly listed shares 1)

Current assets – –

Total – –

At the end of the year the company had neither borrowed nor lent securities.1) Excluding participating interests and shares in subsidiaries.

Merita Plc does not have any own shares issued by itself.

Book value of shares in subsidiaries and associated companies

Merita Plc Merita Plcincl. the associated company

EUR million 1999 1998 1999 1998

SubsidiariesCredit institutions – – – –Other – – – –

Total – – – –

Associated companiesOther than credit institutions 2 032 1 727 1 650 1 650

Total 2 032 1 727 1 650 1 650

Shareholding Voting Book valueParticipating interests, Dec 31, 1999, associated company Domicile % rights, % EUR million

MeritaNordbanken Plc Helsinki 40.0 50.0 1 650

Note 3: Provisions


Pension provisions 2 1Other – –

Total 2 1

Note 4: Subordinated liabilities


Liabilities with a book valueexceeding 10% of all subordinated liabilities 1) 142 152

Total 142 152– of which, perpetual bonds 142 1521) Convertible bonds, see page 111.

Merita Plc


Note 5: Shareholders’ equity

Share Restricted RetainedEUR million capital reserves earnings Total

At the beginning of the year 1 399 41 468 1 908Dividend – – -147 -147Conversion of bonds 3 6 – 9Other changes – – 1 1Profit for the year – – 439 439

At the end of the year 1 402 47 761 2 210Merita Plc excluding the associated company 1 402 47 379 1 828Of which, distributable 379 379

Dec 31, 1999 Dec 31, 1998

Equity capital excluding the associated company 1 828 1 831Share of equity capital in the associated company 449 111Adjustment in accordance with the Cooperation Agreement -67 -34

Equity capital including the associated company 2 210 1 908

Note 6: Merita Plc shares

See pages 111–112.

Note 7: Shareholders

Largest shareholders according to the share register, see page 112.

Note 8: Assets and liabilities in domestic and foreign currency

All assets and liabilities are in Finnish markka or in euro.

Note 9: Income taxes


Deferred tax receivables – –Tax on income from ordinary operations 30 -12Tax on extraordinary items – –

Total 30 -12

After recovery of EUR 1.8 million (EUR 25 million) pertaining to previously expensed taxes.

Note 10: Pension commitments

Employees’ pension protection and pension liabilitiesThe statutory pension protection for Merita Plc’s employees is covered through insurance. The employees’ supplementary pension planis covered by Merita Plc Pension Fund and Foundation and Merita Life Assurance Ltd.

The pension institutions charged no contributions for the year 1999. Pension liabilities are fully covered.

A provision of EUR 2 million was booked due to a direct pension liability.

Note 11

No decision was made during the year to issue shares, equity warrants or convertible bonds. The General Meeting has given no authorization for issuance of shares, equity warrants or convertible bonds.

Merita Plc


Note 12: Personnel and information on members of administrative and controlling boards 1999 1998

Average number of employees during the year 5 6Change since preceding year, persons -1 -5

percent -21 -45

Full-time 5 4Change since preceding year, persons 1 -7

Part-time – –Change since preceding year, persons – –

Remuneration of EUR 468,303 was paid to the President of Merita Plc. Of this amount EUR 168,609 consisted of performance-based salary from 1998. Furthermore, the President had car and housing benefits. He is entitled to a pension of 60% of the salarythroughout pensionable age. The Chairman of the Board received a remuneration of EUR 8,409.

Note 13

Merita’s registered office is in Helsinki. MeritaNordbanken Plc is Merita Plc’s associated company.

Note 14: Intra-group items

Financial income received from and financial expenses paid to Group and associated companies 1999 1998

Group Associated Group AssociatedEUR million companies companies companies companies

Interest income – 13 – 14Interest expenses – 0 – 7Income from equity investments – 154 – 1

Receivables from and liabilities to Group and associated companies 1999 1998Group Associated Group Associated

EUR million companies companies companies companies

ReceivablesDebt securities eligible for refinancing with central banks – 172 – 158Loans to credit institutions – 6 – 36Debt securities – 152 – 152Other receivables – – – 0Prepaid expenses and accrued income – 2 – 3

Total – 332 – 349

LiabilitiesOther liabilities – 11 – 11Accrued expenses and prepaid income – – – 0

Total – 11 – 11

Merita Plc


Board of Directors’ proposal to the Annual General Meeting

Earnings for the financial year and their disposal.

The company’s distributable shareholders’ equity as at December 31, 1999 amounted to EUR 378 636 543.22and, including the associated company, to EUR 761 million. The company’s net profit for 1999 was EUR133 998 248.82.

We propose that,– to be carried forward: EUR 378 636 543.22

February 16, 2000

Timo Peltola Jacob Palmstierna Vesa Vainio

Dan Andersson Edward Andersson Rune Brandinger

Hans Dalborg Mikko Kivimäki Bernt Magnusson

Juha Niemelä

Merita Plc


Auditors’ report

to the Annual General Meeting of Shareholders of Merita Plc

We have audited the accountingrecords and the financial statementsas well as the administration by theBoard of Directors and the ChiefExecutive of Merita Plc for thefinancial year 1999. The financialstatements, which include thereport of the Board of Directors ofthe parent company, the incomestatements, balance sheets andnotes to the financial statements ofthe parent company including theassociated company and the parentcompany, have been prepared bythe Board of Directors and theChief Executive. The financialinformation of the MeritaNord-banken Group is included in thefinancial statements. Based on ouraudit, we express our opinion onthese financial statements and thecompany’s administration.

We have conducted our auditin accordance with generally accept-ed auditing standards in Finland.These standards require that we

plan and perform the audit in orderto obtain reasonable assurance as towhether the financial statementsare free of material misstatement.An audit includes the examinationon a test basis of evidence support-ing the amounts and disclosures inthe financial statements, an assess-ment of the accounting principlesused and significant estimates madeby the management as well as theevaluation of the overall presenta-tion of the financial statements.The purpose of our audit of theadministration has been to see thatthe Board of Directors and the ChiefExecutive have complied with therules of the Finnish Companies Actand Credit Institutions Act.

In our opinion, the financialstatements have been prepared inaccordance with the Finnish CreditInstitutions Act, the AccountingAct and other rules and regulationsgoverning the preparation of finan-cial statements in Finland. The

financial statements together withthe financial information of Merita-Nordbanken Group give a true andfair view, as defined in the Account-ing Act, of the company’s result ofoperations for the financial periodunder audit as well as of the finan-cial position at the year end. Theincome statements and balancesheets of Merita Plc including theassociated company and of MeritaPlc may be adopted and the Chair-man and Vice Chairman of theBoard of Directors and other mem-bers of the Board of Directors aswell as the Chief Executive of theparent company may be dischargedfrom liability for the financial yearaudited by us.

The proposal submitted by theBoard of Directors to the AnnualGeneral Meeting of Shareholdersregarding the distribution of retain-ed earnings is in compliance withthe Finnish Companies Act.

Helsinki, February 16, 2000

Eric Haglund Mauri PalviAuthorized Public Accountant Authorized Public Accountant



Most work by the Board ofDirectors was conductedon behalf of Merita Nord-

banken Plc. The Board held 15meetings during the year. Boardmatters are prepared by a PresidingCommittee consisting of the Chair-man, Vice Chairman and the ChiefExecutive Officer. The PresidingCommittee meets every secondweek.

The Board of Directors ofMeritaNordbanken Plc comprisesfour committees:

Credit Committee: Thecommittee handles lending com-mitments that exceed certain limitsestablished by the Boards of thetwo banks. Before decisions can bemade by the Boards of Directors insuch matters, the financial commit-ment must be approved by thecommittee. During 1999, theCredit Committee comprised Boardmembers Jacob Palmstierna (Chair-man), Vesa Vainio, Rune Branding-er, Hans Dalborg, Casimir Ehrnrooth(until 1999 Annual General Meeting)and Edward Andersson (from 1999Annual General Meeting).

Treasury Committee: Thecommittee oversees the Group’sfinancial operations and liquiditysituation, prepares certain materialsfor consideration at Board meetingsand makes decisions in these areaswith the authorization of the Boardof Directors. During 1999, theTreasury Committee comprised, inaddition to certain key executives,Board members Vesa Vainio (Chair-

man), Jacob Palmstierna, DanAndersson and Timo Peltola.

Audit Committee: The com-mittee oversees the Group’s inter-nal audit function and preparesaudit-related matters for consid-eration by the Board of Directors.During 1999, the Audit Committeecomprised Board members JuhaNiemelä (Chairman), RuneBrandinger and Hans Dalborg.

Remuneration Committee:The committee has presented pro-posals to the Board of Directorsregarding the CEO’s terms ofemployment. The CEO also con-sults with the committee regardingthe terms of employment of GroupManagement and other seniorexecutives. During 1999, theRemuneration Committee com-prised Board members Vesa Vainio(Chairman), Jacob Palmstierna andHans Dalborg. The CEO does notparticipate in deliberations on hisown terms of employment. Thecommittee meets as necessary inconjunction with meetings of thePresiding Committee.

Within the new Group structure

Within the new Group structurecreated by the merger of Merita Plcand Nordbanken Holding AB (publ),now Nordic Baltic Holding (NBH)AB (publ), Board work on behalf ofthe Group will be conducted withinNordic Baltic Holding. The Boardof Directors comprises a minimum

of six and maximum of 15 memb-ers elected by shareholders at theAnnual General Meeting. Themandate extends over a period oftwo years, with half the membersof the Board being elected eachyear. At the Annual General Meet-ing in the year 2000, accordingly,half of the members of the Board ofDirectors will be elected for aperiod of one year, and the otherhalf for two years. Elections ofBoard members shall focus onpersons with required skills, experi-ence in Board work and knowledgeof social, commercial and culturalconditions in the regions andmarket areas where the Groupconducts its core business. TheBoard of Directors shall meet everyyear immediately following theAnnual General Meeting to esta-blish a special agenda for Boardwork during the coming year.

In the future, the Board willretain its present structure com-prising four committees: a CreditCommittee, Treasury and RiskCommittee, Audit Committee andRemuneration Committee.

The former Treasury Com-mittee has been restructured as aTreasury and Risk Committee,which, within the framework ofparameters established by theBoard, oversees the Group’s finan-cial operations, liquidity situationand exposure to financial andoperative risks.

Board of DirectorsIn accordance with the cooperation agreement dated October 13,1997 between Merita Plc and Nordbanken Holding AB (publ) – now Nordic Baltic Holding (NBH) AB (publ) – the Boards ofDirectors of these companies and MeritaNordbanken Plc had thesame members in 1999. In MeritaNordbanken Plc, there are alsotwo Board members who represent the employees.



Members of the Board of Directors of Nordic Baltic Holding(NBH) AB (publ), Merita Plc and MeritaNordbanken Plc

Dan AnderssonBorn 1948. Undersecretary, Ministry ofIndustry and Commerce.Shareholding: 0

Jacob PalmstiernaBorn 1934. Hon. Ph.D. (Econ). BoardChairman of Nordic Baltic Holding andMeritaNordbanken Plc. Vice Chairman ofMerita. Board Chairman of Bilia AB andSiemens Elema AB. Board member ofNCC AB, Nordstjernan AB and AvestaSheffield AB.Shareholding: 22,400 Nordic BalticHolding

Edward AnderssonBorn 1933. Professor Emeritus. Boardmember of Nokia Group, Helvar MercaCorporation and Suomi Pension InsuranceCompany. Chairman of Grankulla CityCouncil, Sigrid Juselius Foundation, Ellaand Georg Ehrnrooths Foundation andFöreningen Konstsamfundet.Shareholding: 28,917 Nordic BalticHolding

Vesa VainioBorn 1942. Vice Chairman of NordicBaltic Holding and MeritaNordbanken Plcand President of Merita. Board Chairmanof the Finnish Central Chamber ofCommerce and Vice Chairman of MetraCorporation. Board member of NokiaGroup and UPM-Kymmene Corporation.Shareholding: 4,162 Nordic Baltic Holding

Rune BrandingerBorn 1931. Former president of SödraSkogsägarna. Board Chairman of VasakronanAB, Civitas AB, Elektronikgruppen AB, ABTrätek and SwIT Yrkesutbildning. Boardmember of Atle Karolin Verkstads AB, ABSvenska Miljöstyrningsrådet, Cepro AB andthe Federation of Swedish Industries.Shareholding: 10,000 Nordic Baltic Holding

Hans DalborgBorn 1941. Ph.D. (Econ). President andCEO of Nordic Baltic Holding andMeritaNordbanken and Chairman of theBoard of Management of Merita Bank andBoard Chairman of Nordbanken. BoardChairman of the Royal Opera in Stock-holm. Board member of the StockholmConcert Hall Foundation, the EastEconomics Institute and AB Svenska Spel.Member of the Swedish Academy ofEngineering Sciences (IVA).Shareholding: 40,760 Nordic BalticHolding



Timo PeltolaBorn 1946. Board Chairman and ChiefExecutive Officer of Huhtamäki Van LeerPlc. Board Chairman of Merita. ViceChairman of the Supervisory Board ofIlmarinen Mutual Pension InsuranceCompany. Member of the SupervisoryBoard of the Finnish Cultural Foundationand member of the Supervisory Board ofthe Finnish Fair Corporation.Shareholding: 5,187 Nordic Baltic Holding

Mikko KivimäkiBorn 1939. Chief Executive Officer andBoard Chairman of Rautaruukki Plc.Board member of the Federation ofFinnish Metal, Engineering and Electro-technical Industries. Vice Chairman ofMetso Plc, Varma-Sampo Mutual PensionInsurance Company and IndustrialInsurance Company Ltd. Member of theSupervisory Board of YIT Corporation.Board member of the Executive Commit-tee of the Confederation of FinnishIndustry and Employers. Board Chairmanof the Finnish National Maritime Admini-stration.Shareholding: 3,607 Nordic BalticHolding

Other members of the Board of Directors ofMeritaNordbanken Plc

Bernt MagnussonBorn 1941. Board Chairman of AssiDomänAB and Swedish Match AB. Vice Chair-man of Avesta Sheffield AB and NetInsight AB. Board member of Volvo CarsAB, Burmah Castrol plc, Höganäs AB,Emtunga International AB, the Federationof Swedish Industries and the StockholmChamber of Commerce. Advisor to theEuropean Bank for Reconstruction andDevelopment.Shareholding: 2,400 Nordic Baltic Holding

Juha NiemeläBorn 1946. Chief Executive Officer ofUPM-Kymmene Corporation. BoardChairman of the Confederation of Euro-pean Paper Industries CEPI. Boardmember of the Finnish Forest IndustryFederation and the Confederation ofFinnish Industry and Employers. Boardmember of Oy Metsä-Botnia Ab and OyMetsä-Rauma Ab.Shareholding: 3,162 Nordic Baltic Holding

Kaija Roukala-HyvärinenBorn 1953. Chief staff representativeShareholding: 135 Nordic Baltic Holding

Bertel FinskasBorn 1948. Bank manager.Shareholding: 1,400 Nordic BalticHolding

Shareholding also includes shares held by familymembers.



Group Management

Group Management focuses on issues of an overall and strategicnature. Since October 1999, daily management issues are handledby an Executive Committee.

Hans Dalborg 1), born 1941President and Chief Executive OfficerEmployee since 1991Shareholding: 40,760 Nordic Baltic Holding

Magnus Falk, born 1942Stockholm Regional Bank Employee since 1986Shareholding: 0 Nordic Baltic Holding

Carl-Johan Granvik 1), born 1949Credit and Risk Employee since 1974Shareholding: 2,175 Nordic Baltic Holding

Jakob Grinbaum, born 1949TreasuryEmployee since 1976Shareholding: 1,400 Nordic Baltic Holding

Karl-Olof Hammarkvist, born 1945Asset Management/Life InsuranceEmployee since 1991Shareholding: 2,100 Nordic Baltic Holding

Bo Harald, born 1948Payments and Internet Banking ServicesEmployee since 1974Shareholding: 22,402 Nordic BalticHolding

1) Member of Executive Committee.



Kari Jordan, born 1956Helsinki and Uusimaa Regional Bank Employee since 1994Shareholding: 1,017 Nordic Baltic Holding

Kalevi Kontinen, born 1941IT and Strategic AnalysisEmployee since 1984Member of Group Management untilMarch 31, 2000Shareholding: 5,100 Nordic Baltic Holding

Jussi Laitinen, born 1956MarketsEmployee since 1993Shareholding: 12,096 Nordic BalticHolding

Arne Liljedahl 1), born 1950Finance and ControlEmployee since 1983Shareholding: 6,100 Nordic BalticHolding

Lars G. Nordström 1), born 1943Retail(President, Nordbanken AB)Employee since 1993Shareholding: 7,000 Nordic Baltic Holding

Markku Pohjola 1), born 1948CorporateEmployee since 1971Shareholding: 4,080 Nordic Baltic Holding

Pertti Voutilainen 1), born 1940Other Group Staffs, Real Estate (President, Merita Bank Plc)Employee since 1992Shareholding: 10,293 Nordic Baltic Holding

Other Group Staffs:

Lars Thalén, born 1944Corporate Identity and CommunicationsEmployee since 1999Shareholding: 700 Nordic Baltic Holding

Secretary:

Peter Forsblad, born 1946Group Management SecretariatEmployee since 1992Shareholding: 2,800 Nordic Baltic Holding

Shareholding also includes shares held by familymembers.

1) Member of Management Committee.



President and CEOHans Dalborg

RetailLars G Nordström

Regional banksHelsinki/UusimaaKari JordanCentral and Western FinlandPekka OjalaEastern and Northern Finlandand OstrobothniaHarri SailasNorthern SwedenHans JacobsonCentral SwedenJohan SylvénStockholmMagnus FalkWestern SwedenSten LindbladSouthern SwedenArne BernrothPoland and Baltic Sea countriesThomas NeckmarPrivate BankingEira Palin-Lehtinen

Products and marketsCorporate and FinancingChrister FurustedtPersonal Customers and DepositsRoland OlssonJorma Sonninen, deputyNetwork Banking andPaymentsBo HaraldKurt Gustavsson, deputy

Staff and service functionsMarket SupportMaj StjernfeldtThomas Björklund, deputyDistribution andService NetworkJukka Perttula Pentti Tirkkonen, deputyProduction and ProductivitySofie WakterTimo Linnavuori, deputy

CorporateMarkku Pohjola

MNB MaizelsInvestment BankingBjörn CarlssonCorporate DivisionJorma LaakonenCorporate Division SwedenHolger OtterheimCorporate Division FinlandPentti MansukoskiInternationalClaes ÖstbergInternational ProductsKari Kangas

MarketsJussi Laitinen

TradingJussi LaitinenChrister SerenhovEquity TradingAnders OscarssonReijo KnuutinenSecurities ServiceLars Jonasson

AssetManagement/LifeInsuranceKarl-Olov Hammarkvist

Asset ManagementStaffan Grefbäck

Fund OperationsThomas ErikssonJari SundströmInvestment ManagementInga-Lill CarlbergInstitutional CustomersPontus BergekransLife InsuranceSeppo IlvessaloGunnar Andersson

Real Estate Pertti Voutilainen

Aleksia PlcHeikki HyppönenMerita Real EstateJuha OlkinuoraNB Fastigheterand Stämjärnet Jan Lilja

Group StaffsFinancial Control and AccountingArne LiljedahlJarmo Laiho, deputy

ControlErik ÖhmanGroup AccountingBo Ranhamn

TreasuryJakob Grinbaum

Internal bankFanny BorgströmALMGunilla Domeij-HallrosPortfolio ManagementStaffan HörnellPer Rostedt

Credit and RiskCarl-Johan Granvik

Group CreditsGöran Pettersson

Credit ControlLars-Erik BjörklundJari KrooksMarket Risk/ManagementLouise LindgrenOperational Risk ManagementErik PalménInternal AuditingKari AhonenGöran KarlssonCorporate Identityand CommunicationsLars ThalénClaes HolmbergInvestor RelationsBjörn WestbergManagement SecretariatPeter ForsbladEconomic ResearchJuha AhtolaOlle DjerfLegal and Tax IssuesTord ArnerupKari SuominenTaxes in SwedenMargareta LeijonhuvudSkills Development andManagement RecruitmentSven KarlssonPersonnel Administrationand Administrative CoordinationAri LaaksoSecurityJouko VarjonenLeif LarssonNordic ProjectSiv Svensson

Service unitsMNB DataBengt-Åke Eriksson

Thomas BoströmUrban ClaessonEsa NiskanenKristian Stockmann

Internal ServiceMarkku MikkolaKjell Oldén

Senior Executives



The Annual General Meetings ofNordic Baltic Holding (NBH) AB(publ), the former NordbankenHolding AB (publ) and the formerholding company, Merita Plc, haveappointed the authorized publicaccountants specified below toexamine the companies’ financial

statements and administrations inaccordance with Finnish and Swe-dish law respectively. To facilitatefull coordination of the externalaudits throughout the Group, theAnnual General Meetings of thetwo companies have also decidedthat one of the auditors appointed

to each company has the right toparticipate in the auditing of theother company. This will ensurethat the operations of the NordicBaltic Holding Group are audited in a coordinated manner.

Auditors

Merita Plc MeritaNordbanken PlcEric Haglund, Authorized Public Accountant Eric Haglund, Authorized Public AccountantMauri Palvi, Authorized Public Accountant, Mauri Palvi, Authorized Public Accountant

both from KPMG Wideri Oy Ab

Caj Nackstad, Authorized Public Accountant,participates in the auditing of Merita

and the Merita Nordbanken Plc Group.

Merita Bank Plc Nordbanken AB (publ)Eric Haglund, Authorized Public Accountant KPMG Bohlins ABMauri Palvi, Authorized Public Accountant Caj Nackstad, Authorized Public Accountant,

primary responsibilityOlle Gunnarsson, Authorized Public Accountant,

appointed by the Swedish Financial Supervisory Authority

Nordic Baltic Holding (NBH) AB (publ)KPMG Bohlins AB

Caj Nackstad, Authorized Public Accountant, primary responsibilityKPMG Wideri Oy Ab is entitled

to participate in the audit



Capital baseThe capital base is the numerator incalculating the total capital ratio. Itconsists of the sum of core capital (seeseparate definition) and supplementarycapital (consisting of subordinateddebenture loans), after deduction of theownership in companies that conductinsurance or finance operations requiringa license.

Core capitalThat portion of the capital base (seeseparate definition); which includes thepercentage of equity in untaxed reserves,reduced by goodwill. Subsequent to theapproval of the supervisory authorities,core capital also includes qualified formsof subordinated loans (core capitalcontributions, hybrid loan capital).

Core capital ratioCore capital as a percentage of risk-weighted assets.

Cost/income ratio before loan lossesOperating expenses in relation tooperating income and share of profit/loss from companies accounted forunder the equity method.

Cost/income ratio after loan lossesOperating expenses plus loan losses inrelation to operating income and shareof profit/loss from companies accountedfor under the equity method.

Credit scoringA statistical method used to determinecreditworthiness, which takes intoaccount the loan applicant’s behaviorand financial resources.

Currency optionA contract between the writer of anoption and a counterparty covering theright but not the obligation to exchangecurrencies at a set exchange rate at afuture date. The buyer of the optionpays a premium for the right to conductthe transaction.

DurationThe average weighted maturity offuture payment flows expressed as thenumber of years.

Earnings per shareNet profit divided by the number ofoutstanding shares.

Effective dividend yield per shareDividend as a percentage of the shareprice at December 30.

Forward transactionA contract to purchase or sell which isintended to be implemented on apredetermined future date at a pricedetermined when the contract is made.

FRA“Forward Rate Agreement.” An agree-ment between two parties on a rate ofinterest on borrowing or lending trans-actions in the future; for example, alending transaction covering six monthsand taking effect three months from thedate of the agreement. The agreed rateis locked in at the beginning of theperiod and the difference between theagreed rate and actual market rateconstitutes the resultant profit or loss.

Interest rate optionA contract between the writer of anoption and a counterparty covering theright but not the obligation to buy orsell a bond at a predetermined price at afuture date. The buyer of the optionpays a premium for the right to conductthe transaction.

Interest rate riskRefer to page 60, for definition ofinterest rate risk (interest rate risk/netinterest risk).

Interest rate swapAn agreement whereby two partiesexchange interest payment flowswithout affecting the principal amount.

Investment marginNet interest income as a percentage ofaverage total assets.

Loan loss levelLoan losses as a percentage of theopening balance of loans to the public.

Nonperforming loans ratioNet nonperforming loans as a percentageof total loans to the public.

Price/Earnings (P/E) ratioThe share price at December 30relative to operating profit per share.

Repo“Repurchase Agreement.” A financingarrangement involving the sale ofinterest-bearing securities linked with afuture repurchase at a predeterminedinterest rate/price.

Reserve ratio for nonperforming loansReserve for possible loan losses as apercentage of gross nonperformingloans.

Return on shareholders’ equityNet profit as a percentage of averageshareholders’ equity. Average share-holders’ equity is adjusted for new shareissues and dividends, and includesminority interest in earnings.

Risk-weighted assetsTotal assets as shown in balance sheetand off-balance-sheet items valued onthe basis of credit and market risks inaccordance with regulations governingcapital adequacy.

Shareholders’ equity per shareShareholders’ equity as shown in thebalance sheet divided by the number ofshares outstanding after full conversion.

Total capital ratioCapital base as a percentage of risk-weighted assets.

VaR (Value-at-Risk)A risk measure for market risks. VaR isthe most probable expected loss fromunfavorable market movements over aspecified time period.

Definitions and glossary



CEOMeritaNordbanken Asset Management

Nordbanken Kapitalförvaltning AB Staffan GrefbäckNordbanken Fonder och Allemansfonder Thomas EricssonMNB Investment Management Ingalill CarlbergMerita Fund Management Ltd, Helsinki Jari SundströmMerita Asset Management Ltd, Helsinki Timo Ronkainen

MeritaNordbanken Life Insurance Livia AB Gunnar AnderssonMerita Life Assurance Ltd Seppo Ilvessalo

MNB MaizelsMNB Maizels AB Claes MagnussonMNB Maizels Oy Björn CarlssonMNB Maizels Ltd Mark Florman

Nordbanken Hypotek AB (publ) Eva Andersson

MeritaNordbanken finance companiesNordbanken Finans AB (publ) Stefan KällströmMerita Finance Ltd Jukka SalonenMerita Customer Finance Ltd Matti Willamo

MeritaNordbanken real estate companiesMerita Real Estate Ltd Juha OlkinuoraAleksia Ltd Heikki HyppönenNordbanken Fastigheter AB Jan LiljaFastighets AB Stämjärnet Jan Lilja

Merita Capital Ltd Jouko Helomaa

Huoneistokeskus Oy Matti Tossavainen

Major subsidiaries of the banks

Addresses

MeritaNordbanken MeritaNordbanken Hamngatan 10 Alexanterinkatu 36SE-105 71 Stockholm FIN-00020 MERITATelephone: +46 8 614 70 00 Telephone: +358 9 1651Telefax: +46 8 10 50 69 Telefax: +358 9 165 428 38www.nb.se www.merita.fiwww.meritanordbanken.com www.meritanordbanken.com

Investor Relations

Björn Westberg MeritaNordbankenSE-105 71 Stockholm FIN-00020 MERITATelephone: 46 8 614 78 50 Telephone: +358 9 165 42651Telefax: +46 8 614 87 10 Telefax: +358 9 165 42654E-mail: [email protected]: [email protected]



The Annual Report is printed on TCF(Totally Chlorine Free) permanent paper.

Production: Nordbanken Grafisk Service, n3prenörPhoto: Labe Allwin, Dan Coleman, Heikki Savolainen,Ari Talusen, Esko Koivisto and Tommy Selin.Printing: Color Print

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