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8/8/2019 Roadshow, Frankfurt, Johannes Rudbeck
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SEB Enskilda
Investment Ideas in Scandinavia12 September 2008Johannes Rudbeck
Head of IR
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Continued solid results in Q2
Continued solid results in allbusiness areas
Net profit for the period Jan-Junincreased by 8 percent toSEK 6 504m (6 022)
Conversion to covered bonds on
21 April decreased spreads,increased liquidity and facilitatedfunding
New capital adequacy objective
for full Basel 2 Tier 1 capitalratio is to be 8.5-9.0 percent
Credit quality remains good and inline with expectations
The macro environment in theBaltic states has deterioratedcompared with expectations inQ1, affected by a weaker
European economy
Net gains and losses on financialitems were positively affected byunrealized valuation effects
valuation volatility expected todecrease as from Q3 2008.
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H1 2008 best half-year so far
0
50
100
150
200
250300
350
400
450
Q2
06
Q3
06
Q4
06
Q1
07
Q2
07
Q3
07
Q4
07
Q1
08
Q2
08
Prof it for the per iod of which Fi rst Securities
SEKm
Swedish Banking Baltic Banking International Banking Swedbank Markets
500
1,000
1,500
2,000
Q1
07
Q2
07
Q3
07
Q4
07
Q1
08
Q2
08
Profit for the period
SEKmSEKm
900
950
1 000
1 050
1 100
1 150
1 200
1 250
1 300
Q1
07
Q2
07
Q3
07
Q4
07
Q1
08
Q2
08
Profit for the period
SEKm
25
50
75
100
125
150
Q1
07
Q2
07
Q3
07
Q4
07
Q1
08
Q2
08
Profit for the period
SEKm
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Initiatives in line with our strategy
Ukraine and RussiaBalticsSweden
Stable baseGrowth andexperience
Future growth andprofitability
Structural initiatives operation and branches
Channel management Corporate market andmetropolitan areas
Private banking, life and
pension, environmentallyfriendly products and services
Build-up of critical functionsand growth management
Grow distribution network -ATMs, branches and agencynetwork
Broaden product range
Re-branding completed Capture future growth
Productivity improvement Cross-border capabilities IT management and
development Corporate sector leverage on
pan-Baltic position
Broaden customer offerings Re-branding starting in autumn
Share of lending: 80 % Share of lending: 16 % Share of lending: 2 %
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The Swedish economy is slowing
Real GDP growth
1.0%
1.5%
2.0%
2.5%
3.0%
2007 2008F 2009F
Sweden Euro-zone
CPI growth
0.0%
1.0%
2.0%
3.0%
4.0%
2007 2008F 2009F
Sweden Euro-zone
The Swedish economy has performed better than the EU average. However, GDP growth,CPI and other indicators show that the Swedish economy will grow more slowly in the next fewquarters
Higher inflation, rising interest rates and weaker disposable income for households areexpected to lead to weakening household consumption and credit growth.
Source: Swedbank, Economic Secretariat
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Baltic macro development
Baltic growth decelerates
Less favourable global situation, e.g. weaker
export demand, more expensive borrowing
Imbalances built up during the times of rapidcredit growth weigh heavy on the economies
Need of restructuring evident
To return to a sustainable growth path, a moveaway from non-tradables and towards tradablesis necessary: restructuring is costly and takes
time There are signs of restructuring underway, but it
is far from complete
The deepest slowing likely to be seen in LV
where imbalances have been largest
Real GDP growth, % YoY
-5
0
5
10
15
Q1 02 Q1 03 Q1 04 Q1 05 Q1 06 Q1 07 Q1 08
%
Estonia
Latvia
Lithuania
Domestic Credit and Housing Loans, % of GDP
0
25
50
75
100
Q1 02 Q1 03 Q1 04 Q1 05 Q1 06 Q1 07 Q1 08
%
EE Domestic
creditEE Housing
loansLV DomesticcreditLV Housing
loansLT Domestic
creditLT Housing
loans
Average Labour Productivity growth, % YoY
-5
0
5
10
15
Q1 02 Q1 03 Q1 04 Q1 05 Q1 06 Q1 07 Q1 08
%
Estonia
Latvia
Lithuania
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Baltic macro outlook
Fall in activity will be shallower and recovery faster than benchmarks (busts inindustrial countries)
Less institutional rigidities Fiscal and monetary policies likely to be less pro-cyclical, support from EU funds
Low actual level of leverage in the economy
Household consumption will contract
Investment will contract
Imports will contract due to shrinking consumption and investment Recovery in late 20092010 depends on global recovery in H2 2009 Export
development outlook
Producer price inflation of exported goods has swiftly decreased
By 2009 energy prices will have converged to the levels of western Europe
Companies are increasingly investing to improve their productivity thus improving theirresistance to negative shocks
Real estate market will lag behind overall recovery as consumers will be unsureabout the start of recovery and will try to rebuild their depleted savings first
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Summary economy and banking sector
Baltic economies have strong long term growth potential, e.g.
Average labour productivity being at 60-70% of the EU 27 average providesample opportunities for productivity convergence
EU funds are expected to amount to ca 2% of annual GDP till 2013, providingsupport to real convergence
Only 15-25% of households have mortgages
Good institutional framework, e.g. in the World Banks Doing Business 2008index Latvia ranked 22nd among 175 countries
Significant restructuring of the economies and the banking sector is
expected - different risk assessment, different pricing and labour lay-offs Successful return to sustainable growth path and stability achieved only if
successful structural reforms are implemented to boost productivity
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Credit quality, Group
*Loan losses, net = write-offs +provisions - recoveries + change inproperty taken over
Loan losses, net
Loan loss ratio
-200-100
0100200300400500600
Q1
-03
Q2
-03
Q3
-03
Q4
-03
Q1
-04
Q2
-04
Q3
-04
Q4
-04
Q1
-05
Q2
-05
Q3
-05
Q4
-05
Q1
-06
Q2
-06
Q3
-06
Q4
-06
Q1
-07
Q2
-07
Q3
-07
Q4
-07
Q1
-08
Q2
-08 -0.20
-0.100.000.100.200.300.400.500.60
SEKm %
Impaired loans
Share of impaired loans
0
1,000
2,000
3,0004,000
5,000
6,000
Q3-03
Q4-03
Q1-04
Q2-04
Q3-04
Q4-04
Q1-05
Q2-05
Q3-05
Q4-05
Q1-06
Q2-06
Q3-06
Q4-06
Q1-07
Q2-07
Q3-07
Q4-07
Q1-08
Q2-08
0.000.050.100.150.200.250.300.350.400.450.50
SEKm %
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Credit quality, Baltic Banking
0.54%
0.30%
0.73%0.55%
Q2 08
0.39%
0.25%
0.53%0.38%
Q1 08
0.47%
0.28%
0.64%0.48%
H1 08
-0.18%Group level provision adjustment
0.28%Baltic Banking
0.10%Lithuania
0.63%Latvia0.58%Estonia
Q4 07
*Loan loss ratio, net = (changes in provisions + net write-offs) /credit portfolio at the beginning of the period
Loan loss ratio, net*
Overdue ratio (more than 60 days)*
0.86%
0.92%
0.79%Q1 08
1.20%
1.11%
1.24%Q2 08
0.71%Baltic Banking
0.75%Private
0.65%CorporateQ4 07
*Overdue ratio (more than 60 days) = volume of loans morethan 60 days overdue /12 month-old credit portfolio
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Baltic banking overdues vs market
Estonia - overdue over 60 days / current
portfolio
0.0%
0.5%
1.0%
1.5%2.0%
31.1
2.0
5
30.0
6.0
6
31.1
2.0
6
30.0
6.0
7
31.1
2.0
7
30.0
4.0
8
Rest of the market HB Bank
Estonia - overdue over 30 days / current
portfolio
0.0%0.5%1.0%1.5%2.0%2.5%3.0%
31.1
2.0
5
30.0
6.0
6
31.1
2.0
6
30.0
6.0
7
31.1
2.0
7
30.0
4.0
8
Rest of the market HB Bank
Latvia - overdue over 30 days / current portfolio
0%
1%
2%3%
4%
5%
31.1
2.0
4
30.0
6.0
5
31.1
2.0
5
30.0
6.0
6
31.1
2.0
6
30.0
6.0
7
31.1
2.0
7
Rest of the market HBA Bank
Latvia - overdue over 90 days / current portfolio
0,0%
0,5%
1,0%
1,5%2,0%
2,5%
3,0%
31.1
2.0
4
30.0
6.0
5
31.1
2.0
5
30.0
6.0
6
31.1
2.0
6
30.0
6.0
7
31.1
2.0
7
Rest of the market HBA Bank
Source: Swedbank, Bank of Estonia, and Financial and Capital Market Commission (Latvia)
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Observations so far during Q3
Baltic macro development continue to be weak no surprises incredit quality
Signs of declining lending growth in Sweden foremost in privatesector but also towards corporates
Tight funding markets with increasing spreads for all players
The funding market is expected to remain tough throughout 2008
Trading, especially equities, continues to be slow
Internal risk rating, risk profile, watch list and loan losses hasremained stable in Sweden
Swedish macro development is slowing isolated customers insegments such as capital goods and retail trade are getting morestressed
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Swedbank lending and funding
Swedbank Treasury (excluding Mortgage)
Large deposits
Liquidity reserves
Net lender in the interbank market
Liquidity limits conservative view
Swedbank Mortgage
constitutes a larger part of
Swedbank Groups balance
sheet than other financial
institutions
Distribution of Net Funding Need
Swedbank Mortgage
Lending to the public, SEK 1,169bn
SwedbankGroup, excl.SwedbankMortgageSEK 596bn
SwedbankMortgageSEK 573bn- Exclusively Swedishmortgage lending
Funding
12%
Equity
8%
Deposits
80%
Covered Bonds
73%
Equity
5%
Commercial
Papers
22%
Ukraine1%
Russia1%
Lithuania5%
Latvia5%
Estonia7%
SwedbankMortgage
49%
Sweden30%
Nordic; 3%
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Maturity profile Swedbank long-term funding
Swedbank Mortgage - Long term funding, maturity profile
June 30 2008
0
20
40
60
80
100
120
2008 2009 2010 2011 2012 2013 2014-
SEK bn
Covered
Swedbank AB - Long term funding, maturity profile
June 30 2008
0
20
40
60
80
2008 2009 2010 2011 2012 2013 2014-
SEK bn
Senior Subordinated
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New capital adequacy target mid-term
New target:The capital ratios will at least meet the level that at any given time is
considered appropriate to maintain sustainable financial stability anddevelop operations. Considering full effect of Basel 2, the Tier 1 capital ratiois to be 8.5-9.0%.
Swedbank is currently well capitalized given the current risk profile and the
risk development under an adverse scenario Swedbank is currently capitalized in line with European peers in full Basel 2
In relative terms Swedbank has a low risk business model with apredominance of Swedish mortgage business and low counterparty risks,
which indicates a lower than average Tier 1 capital ratio. Growing presencein Eastern Europe indicates higher Tier 1 capital ratio
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Summary
Swedbank offers a strong and stable banking operation with highprofitability across several geographical areas
Baltics is continuing to slow down, need for further restructuring, stronglong-term growth potential intact
Signs off a gradual slow down of lending growth in Sweden, credit qualityremains strong
Focus on efficiency to secure continued profitable growth
Solid results in H1 2008