Handelsbanken
Pär Boman, CEO
Merrill Lynch Banking & Insurance CEO Conference 2009September 30, 2009
2
Handelsbanken – a decentralised universal bank
Handelsbanken’s share was first listed in 1873 – the oldest listed share on the Stockholm stock exchange.
706 branches – The Branch is the Bank
Better return on equity for 37 years running
More satisfied customers
Higher cost-effectiveness than in comparable banks
Stable finances
3
-5
0
5
10
15
20
25
30
1973 1979 1985 1991 1997 2003 2009 H1
Handelsbanken Other comparable banks*%
Return on shareholder's equity after standard tax.* Since 2003 the comparable banks are: SEB, Nordea, Swedbank, Danske Bank samt DnB NOR.
Handelsbanken Group
Return on shareholder’s equity, 1973 – 2009:H1Handelsbanken’s goal is to have higher return on equity after standard tax
than the average for banks in the Nordic countries and Great Britain.
4
Handelsbanken Group
Method to achieve the goal
The Bank aims to achieve its profitability goal by having:
More satisfied clients
Lower costs than peers
5
Handelsbanken Group
Improved service and availability
Everyday service at 706 branches
Online service
Phone service – Handelsbanken Direct (free of charge and open 24/7)
Card services
6
Handelsbanken Group
Branch operations in Sweden – Active customers
1 600
1 700
1 800
1 900
2 000
2004 2005 2006 2007 2008 2009
All values as of June 30 in the respective year.
Private customers, thousands Corporate customers, thousands
120
130
140
150
160
170
2004 2005 2006 2007 2008 2009
7
1,0
2,0
3,0
4,0
5,0
6,0100 80 60 40
C/I-ratio %
Danske Bank
UBS
Société Générale
SEB
BNP Paribas
Swedbank
Deutsche Bank
DnB Nor
Commerzbank
Nordea
Intesa SanPaolo BBVA
CS Group
Lloyds TSB
HSBC
Unicredit
Barclays
Standard Chartered
Royal Bank of Scotland
Banco SantanderAllied Irish Banks
Bank of Ireland
KBC
Erste
Handels-banken
MPS
Cost-effectiveness, European universal banksComparison of listed European universal banks with total assets > EUR 125 bn.Costs including loan losses Jan-Dec 2008.
Cost/ Total loans* %
Source: Deutsche Bank: European Banks - Running the Numbers, March-09/Spring-edition.* Refers to loans to the public or deposits if deposits > lending
8
Handelsbanken Group
Branch operations in Sweden – increased productivity
The average working hours spent on talking to customers has increased by 51% since 2006
The goal of increasing the time spent with customers by 50% between 2006 and 2010 was already achieved in 2009
There is potential for even more improvement
100
151
0
50
100
150
2006 2009
Index2006 = 100
+51%
9
Credit policy
Business control system
Responsibility and Accountability
Handelsbanken Group
Business model
Decentralisation Nonnegotiable
No central marketing
The branch is the bank
No budget
No bonus
Customer
10
Credit Responsibility
Basic Guidelines
Handelsbanken Group
Credit policy
The assessment always starts with the borrower’s repayment capacity
Weak repayment capacity can never be offset by collateral or high margins
Quality requirements must never be neglected in favour of large volume
Credits must normally be adequately secured
Credit responsibility always at branch level
Customer and credit responsibility closely related
The branch holds full economic responsibility for granting the credit
If necessary, the branch obtains support from the regional head office and the central credit department
The credit policy is the same in all markets and remains unchanged over the business cycle
11
As little as 30% of loan losses are related to the initial credit decision
A majority, all as much as 70%, of loan losses are related to how you manage and monitor the credits over time
Handelsbanken Group
Our experiences of loan losses
Staying close to the customer is crucial
12
-0.25
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
1994 1997 2000 2003 2006 2009
Handelsbanken Other Swedish banks*
%
Handelsbanken Group
Loan losses as a percentage of lending
: H1
0.0
1.0
2.0
3.0
4.0
5.0
6.0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Handelsbanken
Other Swedish banks*
Handelsbanken
Other Swedish banks
%
* Average of SEB, Nordea and Swedbank.
Stadshypotek acquired in 1997Loan loss ratio, average 1997-2009:H1Handelsbanken 0.04%Other Swedish banks 0.22%
Loan loss ratio, average 1989-1998Handelsbanken 0.87%Other Swedish banks 1.72%
13
Handelsbanken Group
Net interest income after deduction of loan losses
0
1 000
2 000
3 000
4 000
5 000Q
2 06
Q4
06
Q2
07
Q4
07
Q2
08
Q4
08
Q2
09
* SEB, Nordea, Swedbank, Danske Bank and DnB NOR** Q2 09: Danske Bank is included with figures for Q1 2009
0
5 000
10 000
15 000
20 000
25 000
30 000
35 000
40 000
Q2
06
Q4
06
Q2
07
Q4
07
Q2
08
Q4
08
** Q
2 09
SEK m SEK m
Handelsbanken Peers *
14
Handelsbanken Group
Financial strength
Senior funding,deposits etc.
Lending etc.
Capital base 18.4%
Liquidity reserve >450 SEK bn
Assets LiabilitiesLong-term Short-term
Moody’s Aa2 P-1
S&P AA- A-1+
Fitch AA- F1+
Rating
Handelsbanken has not participated in any governmentor central bank aid programmes
15
Handelsbanken Group
Capital ratio and Tier 1 ratio, June 30
2009 2008 Change
Capital ratio, Basel II 18.4% 16.1% + 2.3
Tier I ratio, Basel II 12.6% 10.6% + 2.0
Capital base, SEK m 122 105 + 17
Tier I capital, SEK m 83 69 + 14
Shareholders’ equity, SEK m 77 70 + 7
16
Mortgage
loanSyndicated loan before the crisis
Loan 1 000 1 000
Margin (assumption) 0.65% 0.30%
Net interest income 6.50 3.00
Operating profit (C/I=45%) 3.58 1.65
Profit after tax 2.63 1.22
Dividend to shareholders (40%) -1.05 -0.49
Retained earnings (New equity) 1.58 0.73
Average Pillar I risk weight 5.7% 45%
Capital requirement (10.0%) 5.7 45.0No. of years to build-up enough equity to support a new loan 3.6 61.6
Sustainable growth rate 26% 1.3%
Return on equity, Pillar I 46% 3%
Handelsbanken Group
High RoE is needed to grow the businessAn example:
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Handelsbanken Group
Not a mass market bank
- income i medel 220.000,- kr per år- Hushållen äger sin bostad - Customer profitability max + SEK 2,000/yr
Generate more costs than income for their bank
Don’t generate much profit
Handelsbanken’s target:Better cash flow than average
Customer segment
Demand complex and tailor-made solutions
40%
20%
40%
18
Growth strategy – a repetitive business model
Surplus from profitable business
1. Existing branchCovers our segment
2.Existing branchMoves into other segments
1. Existing branchCovers our segment
2. New branch in other locationFinanced by profitable branches
NO! Increased credit risk
3. ”New” branch in other locationCovers our segment
Surplus from profitable business
19
Branch office
operations outside Sweden
Branch office
operations outside Sweden
2009:H1 2006
Handelsbanken Group
Total income per segment
27% 21%
Branch office
operations in Sweden
Branch office
operations in Sweden
Capital Markets
19%
Total income (annualized): SEK 33.2bn Total income: SEK 26.3bn
53% 59%
Capital Markets
14%
20
Operating profit, SEK 4,516m
RoE 17.5%
C/I-ratio 36.1%
Operating profit, SEK 1,583m
RoE 8.6%
- excl. operating deficit 10.3%
C/I-ratio 54.0%
Branch office operations in Sweden
Handelsbanken Group
Branch office operations, January – June 2009
Branch office operations outside Sweden
21
Operating profit SEK 1,583m
RoE 8.6%
- excl. operating deficit 10.3%
Total income increased by 31%
Net interest income increased by 40%
C/I ratio 54.0%
Number of branch offices 245
Average number of employees 3,013
Average volumes, SEK bn
Loans 516
Deposits 171
January – June 2009
Handelsbanken Group
Branch office operations outside Sweden
Handelsbanken has a branch
office in Brighton…..
…and in 61 other locationsin Great Britain
22
0
200
400
600
800
1 000
1 200
1 400
1 600
1 800
2 000Q
1 04
Q2
04
Q3
04
Q4
04
Q1
05
Q2
05
Q3
05
Q4
05
Q1
06
Q2
06
Q3
06
Q4
06
Q1
07
Q2
07
Q3
07
Q4
07
Q1
08
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
100
110
120
130
140
150
160
170
180
190
200
210
Branch offices outside Sweden Number of branch offices within regional banks outside Sweden
SEK m
Handelsbanken Group
Net interest income outside Sweden, quarterly
No
* Lokalbanken’s 14 branch offices are included from October 21 2008.
23
0
5
10
15
20
25
30
35
40
Y 0 Y 1 Y 2 Y 3 Y 4 Y 5 Y 6 Y 7 Y 8 Y 9 Y 10 Y 11 Y 12 Y 130
5
10
15
20
25
30
35
40
No. of branch offices Income/branch, avg. Expenses/branch, avg.
No. of branch offices, June 2009
SEK, m*
* Refers to figures for 2000 – 2008 / ** Refers to the period January – June 2009
**
An organic growth model – branch by branchHandelsbanken Group - Regional banks in Denmark, Finland, Norway and Great Britain
Income and expense trend – 153 branches opened 1995-2009
Branches by age
Stable earnings growth
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1988London
1989Manchester
1994Birmingham
2000Nottingham
2001LeedsReading
2002BristolNewcastle upon Tyne
2003CardiffSouthampton
2004NorwichGuildfordChelmsfordStokeHull
1988London
1989Manchester
1994Birmingham
2000Nottingham
2001LeedsReading
2002BristolNewcastle upon Tyne
2003CardiffSouthampton
2004NorwichGuildfordChelmsfordStokeHull
2005LiverpoolBournemouthPlymouthMaidstoneCambridge
2006SloughSheffieldWolverhamptonOxford Leicester Swindon
2007DoncasterBrightonPrestonBathTees ValleyCroydonPortsmouthLondon West EndMilton KeynesNorthamptonWakefieldEnfieldCoventryBasingstokeCarlisleChester
2005LiverpoolBournemouthPlymouthMaidstoneCambridge
2006SloughSheffieldWolverhamptonOxford Leicester Swindon
2007DoncasterBrightonPrestonBathTees ValleyCroydonPortsmouthLondon West EndMilton KeynesNorthamptonWakefieldEnfieldCoventryBasingstokeCarlisleChester
2008ExeterSwanseaSt AlbansCrawleyBradfordGrimsbyDartfordKingstonShrewsburyHarrogateLincolnScarboroughStockportTunbridge Wells
2009DerbyHuddersfieldWarringtonHarrowGlasgowEdinburgh
2008ExeterSwanseaSt AlbansCrawleyBradfordGrimsbyDartfordKingstonShrewsburyHarrogateLincolnScarboroughStockportTunbridge Wells
2009DerbyHuddersfieldWarringtonHarrowGlasgowEdinburgh
Handelsbanken had 62 branches in Great Britain
Net interest income rose by 24% (Q2/Q1 +25%) Lending volumes rose by 18% Loan loss ratio: 0.12%
January – June 2009
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Handelsbanken Group
Summary
January - June 2009 compared with January – June 2008
Operating profit increased by 14% till SEK 7,251m (6,352)
Return on shareholders’ equity increased to 13.1% (12.9)
Net interest income rose by 24% to SEK 11,031m (8,893)
The C/I ratio improved to 45.3% (49.0)
The average volume of loans increased by 13%
Household deposits rose by 21%
The capital ratio increased to 18.4% (16.1)
Tier 1 capital according to Basel II went up to 12.6% (10.6)
The liquidity reserve exceeded SEK 450bn