MeritaNordbanken Group

Annual Report 1999 Nordic Baltic Holding Annual report 1999

This annual report covers Nordic Baltic Holding (NBH) AB (publ) is also referred to as Nordic (NBH) AB (publ) and pertains to the operations Baltic Holding, NBH and “the Group”. Merita Plc of the MeritaNordbanken Group, which com- is also referred to as Merita, and Nordbanken prises the Nordic Baltic Holding Group, whose Holding AB (publ) as Nordbanken Holding AB, legal structure is presented on page 7. The or Nordbanken Holding. Group consists of the parent company, Nordic Baltic Holding (NBH) AB (publ), which directly This is a translation of the original Swedish (and indirectly through Merita Plc) owns annual report. Printed versions of the report are MeritaNordbanken Plc, parent company of the also available in Swedish and Finnish. subgroup consisting primarily of Merita Bank Plc and Nordbanken AB (publ). Most of the illustrations were taken from the Group’s marketing and advertising materials and The Nordic Baltic Holding Group was established present typical, though not actual, situations. through a merger of the former ownership companies in the MeritaNordbanken Group, All reports and press releases are available on Merita Plc and Nordbanken AB (publ). In an the Internet at: www.meritanordbanken.com. The exchange offering, the shareholders in Merita Plc annual reports of Merita Bank and Nordbanken were invited to exchange their shares for newly can also be ordered online. The annual report issued shares in Nordbanken Holding AB (publ), and other financial reports published by the the name of which was changed in conjunction Nordic Baltic Holding Group may be ordered with the exchange offering to Nordic Baltic Holding (NBH) AB (publ). The name is an via Sweden interim designation, and the company plans to E-mail: [email protected] register a permanent name during year 2000. Tel: +46 8 614 78 51 Fax: +46 8 614 87 10 Concepts and definitions Mail: Investor Relations The terms MeritaNordbanken Group, Merita- SE-105 71 STOCKHOLM Nordbanken and “the Bank” are used jointly to designate the operations conducted by the via Finland Nordic Baltic Holding Group. The term Merita- E-mail: [email protected] Nordbanken is also used to designate the Nordic Tel: +358 9 165 42 651 Baltic Holding Group per se and its business Fax: +358 9 165 42 654 concept. The significance in individual cases is Mail: Investor Relations shown by the context. Nordic Baltic Holding FIN-00020 MERITA MeritaNordbanken Group 1 Annual Report 1999

Contents

Page Page The year in brief 2 Financial structure 66 Assets 67 This is MeritaNordbanken 2 Liabilities and shareholders’ equity 70 Chief Executive Officer’s comments 3 Off-balance-sheet commitments 70 The share 7 Capital adequacy 71 Legal proceedings 72 Mission, focus and goals A new growth region emerges 11 Profit and profitability 74 Strategy to create value 12 Profit and financial position Operative goals 14 Income statements 78 Integration continues 16 Balance sheet 79 Financial solutions in partnership Cash flow analysis 80 with customers 18 Accounting principles 81 Europe’s leader in network services 20 Notes to the financial statements 83 Expertise – a success factor 22 Nordic Baltic Holding, the parent company 97 Result by business area 25 Auditors’ report 107 Retail 29 Merita Plc 109 Corporate 37 Board of Directors, Management, Auditors Markets 40 Board of Directors 121 Asset Management 43 Group Management 124 Real Estate 46 Senior Executives 126 Treasury 48 Auditors 127 Personnel 50 Definitions and addresses Definitions and glossary 128 Information technology 54 Major subsidiaries of the banks 129 Environment 55 Addresses 130 Risk Management 57 An interview with resigning Board Chairman Credit risks 58 Jacob Palmstierna is presented between Market risks 60 pages 39–40. Operational risks 63 RAPM 64

Annual General Meeting Financial reports, 2000 Reporting currencies In this annual report, the Nordic Baltic Holding (NBH) AB (publ) MeritaNordbanken Group MeritaNordbanken Group presents income statements The Annual General Meeting of Nordic Baltic Holding (NBH) will publish the following and other financial data AB (publ) will be held on Tuesday, April 11, 2000 at 2:00 p.m. reports during 2000: quoted in euro. Certain data Swedish time in the Annex, Globen, Stockholm, with the January-March April 28 are also given in Swedish possibility to participate in Helsinki at 3:00 p.m. Finnish time January-June August 23 kronor. via video simulcast at the Helsinki Fair Centre, Rautatieläisen- katu 3, Helsinki. (See also page 99.) January- September October 24 2 MeritaNordbanken Group Annual Report 1999

The year in brief

Favorable profit trend, increased Further steps towards a leading Positive effects of dividend proposed Nordic financial group the merger reinforced

• Operating profit amounted to • New structure completed. • MeritaNordbanken is one of the EUR 1,386 M (SEK 12.2 bn). • Cash offer of NOK 24.3 bn to world leaders in Internet banking; • Operating profit, excluding shareholders of Christiania Bank the number of Internet custom- items affecting comparability, og Kreditkasse. ers exceeds one million. rose 10% to EUR 1,272 M (SEK • Acquisitions and continued • Internet expansion is expected 11.2 bn). expansion in the Baltic countries to provide possibilities for annual • Return on equity was 20.9% and Poland. earnings growth of some EUR (20.6% excluding items affecting • Streamlining of operations 250-300 M within three years. comparability). continues/Aleksia real estate • Sharp growth for mutual funds, • Earnings per share amounted to company divested. life insurance and mortgage EUR 0.53 (SEK 4.64). • Acquisition of Maizels, Wester- loans. • Dividend of SEK 1.75 per share berg & Co and merger. • Cross-border products and proposed. services launched continuously. • Net commissions rose 14% to EUR 822 M, corresponding to 46% of net interest items. • Costs declined to EUR 1,714 M. • Historically low loan losses.

This is MeritaNordbanken

eritaNordbanken is one of degree of accessibility via almost with decentralized customer, loan the leading banking groups 700 branches and efficient Internet and profit responsibilities. The Min the Nordic and Baltic Sea and telephone banking services. More Group is represented in 23 coun- region. MeritaNordbanken creates than one million customers utilize tries, has approximately 19,000 value for shareholders, customers the Group’s electronic services. employees, of whom some 18,000 and employees as the result of its The brands and products have are engaged in actual banking opera- clearly focused business strategy. been coordinated into a brand tions. The Group develops and family that includes Merita, Nord- Nordic Baltic Holding (NBH) markets a broad range of financial banken, Solo, Livia and Postbanken, AB (publ), MeritaNordbanken’s products and services. The custom- in addition to international opera- holding company, is listed on the er base comprises more than 6.5 tions in the MeritaNordbanken Stockholm and Helsinki stock million private individuals and Group. All these brands have a exchanges. 400,000 companies, institutions specific identity for each market, and public authorities. The Group’s although they share a com- home market comprises Sweden, mon Group designation – Billion Euro SEK Finland and the other Nordic MeritaNordbanken. countries, Estonia, Latvia, Lithuania In order to provide a Total assets 104.0 890.3 and Poland. high level of customer service Lending 68.2 584.1 MeritaNordbanken has a full- at competitive prices, Merita- Deposits 42.1 360.3 Shareholders’ equity 5.5 47.3 coverage distribution network in Nordbanken is organized in Operating profit 1.4 12.2 Sweden and Finland, offering a high five major operating units, MeritaNordbanken Group 3 Annual Report 1999

Nordic region’s most profitable financial group MeritaNordbanken creating values in a new reality

MeritaNordbanken was established a little more than two years ago in reponse to an emerging new reality. As borders between countries, currencies and industries disappear in today’s IT and skills-oriented society, it is now possible for a bank to offer individual financial solutions 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 from the traditions of a national bank was necessary and cor- rect. MeritaNordbanken is a leader in electronic banking products and the Group is intensifying its relations with millions of customers. The Bank is also taking part in the structural development of its new domestic market region and remains the Nordic region’s most profitable financial group. 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

Growth and rising 2%. The stock markets in both growth generated volume and interest rates Helsinki and Stockholm showed contributed to low loan losses, strong growth. Interest rates rose, while rising interest rates created MeritaNordbanken’s domestic however, with average long-term problems in the bond portfolio. markets in Finland and Sweden interest rates increasing 1.4% in Net interest income was were characterized by a high level Sweden and 0.9% in Finland. virtually unchanged at EUR 1,798 of activity and growth during 1999, Accordingly, conditions for the M, while net commission income and inflation amounted to less than Bank’s operations varied. Economic improved to EUR 822 M. The net 4 MeritaNordbanken Group Annual Report 1999

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

Profit goals achieved – increased dividend

Operating profit rose to EUR 1,386 M in 1999, an increase of EUR 16 M compared with 1998. Return on equity exceeded 20% again in 1999. The Board of Directors has proposed an increase in the dividend to shareholders in Nordic Baltic Holding to SEK 1.75 per share. The proposal amounts to total dividends of EUR 427 M, corresponding to Favorable development also being made for the takeover of 44% of profit for the year after in all business areas services for Postbanken’s customers taxes. when Sweden Post terminates its The Group’s profit is one of Retail operations, which serve financial-service operations in the the highest operating profits repor- private customers, small and midsize year 2001. ted by all Nordic companies. Only a companies as well as institutions, Customer satisfaction will be few companies reported higher account for three-quarters of increased in all areas, including earnings in 1999. Profitability is MeritaNordbanken’s volume. alleviating the problem of long lines “top of the class” among compar- Operations yielded highly favorable in Finnish branch offices. able banks in the Nordic region. earnings again in 1999, and return Corporate Division reported Profit, profitability and dividend, on equity was 26%. favorable earnings in 1999, and consequently, are in line with the Operations were also expand- return on equity rose to 14%. ambitious goals established by the ed in 1999. The introduction of MeritaNordbanken defended its Board of Directors during the year. Solo in Sweden and passing the one dominant position in the Finnish million Internet customer milestone market and strengthened its posi- were the dominant features of tion in Sweden. The establishment broader bank operations. In tough of MNB Maizels Investment Bank- competition, the Bank also entered ing reflects the strategic importance a cooperation agreement with i.a. of investment banking to overall the Swedish government and the Group operations. International Church of Sweden. Coordinated operations also reported improved key account responsibility was also earnings, compared with 1998. established for corporate customers Markets reported somewhat with operations in both Finland and weaker profits. Trading volumes Sweden. Furthermore, the intro- were down slightly more than 25% duction in Finland of several Swed- as a result of the introduction of ish customer concepts was highly EMU and the termination of trad- successful. ing in Finnish markka as an inde- Challenges in the future pendent currency. Efforts were also include continued focus on the made to improve and develop stra- Group’s substantial investments in tegically motivated skills and capac- electronic services and efforts to ity within Nordbanken Equity strengthen the Bank’s advisory Trading in Sweden, among other service capacity. Preparations are units. MeritaNordbanken Group 5 Annual Report 1999

Asset Management/Life Insur- the Bank’s most satisfied custom- to create Nordic Baltic Holding has ance, a priority area of Group ers, especially those who frequently been implemented. The exchange operations, reported highly favor- use our Internet services. offer was accepted by almost 96% able volume growth that generated MeritaNordbanken improved of Merita’s shareholders. The increased market shares. Profit its customer satisfaction ratings in merger provides the Group with a from asset management operations 1999 according to surveys in Fin- more effective legal structure, a rose sharply, 51%, to EUR 166 M. land and Sweden. Greater emphasis better capital structure, greater Increased costs reflect determined is now being placed on further im- development potential and increa- efforts to create stronger growth. proving accessibility, service and sed liquidity of the share. Real estate is not included in advisory capacity. the Group’s core operations. Pro- perty divestments continued in Focused strategy yields results 1999 and, in January 2000, a de- Full profit-share to employees cision was made to sell Aleksia, the The emerging new reality that in Group’s large real estate company. I have used other information 1997 prompted MeritaNordbanken Due to current market conditions, channels to thank our employees on to develop a joint vision has started particularly for securities in proper- behalf of the Board of Directors to take shape. ty management companies and and management for their work Structural changes in the foreign properties, provisions and efforts in 1999, and I would like to finance sector are leading to fewer write-downs totaling EUR 145 M reiterate my appreciation in this regional and global players and were made in the 1999 financial more players with niche strategies. accounts. To protect their interests, the Nor- dic banks need to establish strong and effective structures. Weak price trends for The following strategies for Nordic bank securities creating value are MeritaNordbank- en’s answer to the substantial During the years 1996-1998, shares changes in the financial community: in Merita and Nordbanken were among the best performing shares 1.MeritaNordbanken shall be the in their respective stock markets. During 1999, however, market leading financial player in the trends for Nordic bank securities Nordic and Baltic Sea regions. were weak. The price of Nordbank- On September 20, 1999, a proposal en Holding shares was down 3.8%, for a merger with Christiania Bank and Merita shares rose 8.0%. og Kreditkasse in Norway was The stronger performance of announced. Merita’s shares, in relation to shares forum. Based on our strong earnings The offer to shareholders in in Nordbanken Holding, was a in 1999, we have allocated full Christiania Bank, in which the result of the decision to form shares to the employees’ profit- Norwegian government owns one- Nordic Baltic Holding AB through sharing fund, a total of SEK 18,200, third of the shares, was a cash offer the merger of Nordbanken Holding or EUR 2,065 per employee. of NOK 44 per share. When the AB and Merita Plc. A survey of employee opinions offer was made, a resolution by Increased liquidity in the shares of the Group and our operations Stortinget (the Norwegian Parlia- and intensive efforts to achieve showed a level of positive reaction ment) existed which prevented the growth in the Group are intended and a rising trend. government from accepting the to strengthen future trends in the offer. We realized the decision- share price. Simplified legal structure making process could take time. Christiania Bank’s Board of Direc- More satisfied customers A decision was made last autumn tors and employees support the to establish a simplified legal offer as commercially prudent, Investments in customer concepts, structure. beneficial for shareholders, custo- product development and Internet The proposal to Merita’s mers and employees and financially services in 1999 generated higher shareholders for a share exchange in equitable. In the autumn, Stortinget business volumes from the Bank’s the ratio of one Merita share for was more receptive to a possible core customers. Core customers are 1.02 shares in Nordbanken Holding sale of the Bank. The offer has been 6 MeritaNordbanken Group Annual Report 1999

extended, and I am hopeful that within Corporate in Sweden in- chosen, despite rapid changes and Christiania Bank will become part of creased during the past year. heavy workloads. our Nordic group during the year Our rapid development and 2000. 3.MeritaNordbanken shall be one the new demands the Bank is now In the autumn of 1999, the of Europe’s leading suppliers of facing have placed increased Baltic and Poland regional bank was Internet bank solutions and emphasis on raising proficiency established within Retail. Opera- electronic services. levels. There is a fundamental need tions in Estonia, Latvia, Lithuania to maintain the highest standards, and Poland are an integral part of Utilization of the Internet for bank- since there is no other guarantee for our domestic market. The strategy ing transactions and commerce profitability, growth and employ- is based on establishing a bridge- increased sharply during 1999. All ment in today’s world of tough head in each of the four countries forecasts are predicting continued international competition. and expanding our operations with rapid growth in electronic services Enhancement of personal strong risk control, supported by and e-commerce, with particular skills, equal career opportunities for modern products and distribution emphasis on business-to-business men and women and recruitment concepts. In terms of volume, the traffic. of superior skills and expertise are new regional bank’s operations are It is extremely important, some of the programs that we modest, but in 1999 lending dou- therefore, that MeritaNordbanken continued to pursue during 1999. bled and deposits quadrupled.The has captured a leading position here. number of Nordic corporate cus- The introduction of the Bank’s Solo The year 2000 tomers and private customers in the concept in Sweden during the – a year of expansion autumn demonstrates the value of domestic markets increased sharply. I am optimistic that, a year from cross-border operations. now, we will report that we have Our target level of one million 2.MeritaNordbanken shall be a taken further steps toward the Internet contracts was reached in partner for customers, offering establishment of a more significant mid-December. This year, the ser- customized financial solutions presence in the Nordic countries, vice content of Internet banking ap- for their life projects. as well as continued strong growth plications will be increased. Our new We will create value for customers in the Baltic countries and Poland. target level is five million trans- and, based on the region’s large Our focus on understanding actions a month by December 2000 customer base, establish more customer needs, the rapid introduc- and two million Internet customers partnerships with core customers tion of cross-border products and in the first quarter of 2001. who use advisory, product package skills development programs for our Based on MeritaNordbanken’s and electronic services. employees will create improved estimates, our investments in elec- Our offer to every core and potential for higher business vol- tronic services will create potential corporate customer shall be better umes and unchanged or higher for improved earnings of approxi- than corresponding offers by our market shares in priority areas. The mately EUR 250-300 M annually competitors. With a Nordic struc- action plan for electronic services within a three-year perspective. ture, we will concentrate resources will strengthen our leadership and skills to develop products and position in this area. electronic services with higher 4.We shall develop world-class With continued strategic focus values and lower production costs. skills as success factors and determined efforts to control The results of our strategy are MeritaNordbanken’s employees costs we believe that, once again in evident. One million private cus- make determined efforts to serve the year 2000, MeritaNordbanken tomers in Finland have chosen to customers and keep costs at a will generate growth and profit- become Key or Preferred cus- minimum. They also play active ability unsurpassed by other Nordic tomers. We expect the same volume roles in the shift to electronic banks. growth from them that we achieved banking operations in the face of with Plus and Benefit customers in increasingly intense international Helsinki/Stockholm Sweden. New products were intro- competition. February 16, 2000 duced continuously during 1999. The Group’s vision is rooted Determined efforts are being firmly in our personnel. At cultural made to meet the growing demands seminars held in 1999, today’s and of corporate customers for efficient tomorrow’s management personnel cash management and competitive showed significant enthusiasm to money market products. Volumes implement the strategies we have Hans Dalborg MeritaNordbanken Group 7 Annual Report 1999

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 been improved. Single ownership will also strengthen the Group’s position for additional structural changes.

he merger of the Bank’s two ing tied-up capital. Capital can be 1999 a new agreement was reached owner companies has elimi- optimized, through, for example, to simplify the ownership structure Tnated the share quotation faster dividend payments from of the MeritaNordbanken Group. difference caused by the previous operating subsidiaries to share- Ownership in MeritaNordbanken structure. Acquisition of new share holders in Nordic Baltic Holding. Plc was concentrated in Nordbank- capital and structural transactions en Holding, which became the have also been facilitated. A single parent company of the Nordic share will facilitate analyses by the Simplified legal structure financial group. financial market, increase liquidity To implement the simplifica- in trading and enhance the impor- One of the objectives of the 1997 tion of ownership, Nordbanken tance of the share in several indexes. agreement to merge Merita and Holding made a public offer to The simplified structure will Nordbanken AB (publ) was to sim- acquire all shares in Merita Plc, and also enable the Group to reduce its plify the Group’s legal structure. all convertible bonds issued by exposure to legal risks, while reduc- Accordingly, on September 20, Merita Plc, against payment in the

Main legal structure after the exchange of shares

Shareholders

Nordic Baltic Holding (NBH) AB (publ)

MeritaNordbanken Plc

Nordbanken AB (publ) Other operations Merita Bank Plc incl. real estate

As the result of a new merger agreement on September 20, 1999, Merita and Nordbanken Holding took the next step toward realizing the Nordic financial group envisaged when MeritaNordbanken Group was formed. Nordbanken Holding was transformed into a Nordic holding company, Nordic Baltic Holding, which is the parent company in a Nordic financial group. 8 MeritaNordbanken Group Annual Report 1999

form of a new issue of shares in exchange shares and debentures. form of “Finnish Depository Nordbanken Holding, and a new The Board of Directors of Nord- Receipts” FDRs. Immediately after issue of convertible bonds by banken Holding initiated redemp- implementation of the share ex- Nordbanken Holding. tion proceedings on January 21 for change, the FDR volume covered Shareholders were offered the remaining shares in Merita. On approximately 40% of the total 1.02 shares in Nordbanken Holding the same date, holders of convert- number of shares. for each share in Merita. Holders of ible bonds representing 91.2% of The share is quoted on the convertible bonds issued by Merita the total outstanding loan amount OM Stockholm Stock Exchange in were offered convertible bonds in had accepted the offer regarding an Swedish kronor and, since October Nordbanken Holding, with corres- exchange for new debentures. 1999, also in euro. ponding financial terms. Acceptance of the exchange offer The merger agreement was for shares also eliminated the need Share price trend during 1999 approved by Extraordinary General for provisions to reduce the share The NBH share dropped 3.8% in Meetings of Nordbanken Holding capital and premium fund in Nord- 1999. During the same period, the and Merita on November 19, 1999 banken Holding. Bank and Insurance Index of the and November 23, 1999 respec- Nordbanken Holding issued a Stockholm Stock Exchange rose tively. A new share issue, an issue of total of 815,800,287 new shares as 17.1%. The highest quotation for convertible bonds and a reduction a result of the exchange procedure. NBH shares, SEK 61, was noted on of the share capital and the premi- Accordingly, the total number of January 20 and the lowest quo- um fund were also approved by the shares in Nordbanken Holding now tation, SEK 42.30, on October 18. General Meeting of shareholders in amounts to 2,091,067,728 before The share price on the last trading Nordbanken Holding. The new conversion. A maximum of day of the year was SEK 50. share issue restored the share 23,232,168 new shares will be capital and premium fund to their issued pursuant to conversion. Turnover Trading in NBH shares amounted former levels. In addition, the New name General Meetings approved amend- to EUR 38,303 M, corresponding ments to the Articles of Associ- On January 27, 2000, Nordbanken to 766 million shares. Based on ation of both companies pursuant Holding registered its change of these figures, NBH ranked 15th in to the offer to exchange shares and name to Nordic Baltic Holding terms of share turnover on the bonds and the merger agreement. (NBH) AB (publ). Stockholm Stock Exchange in 1999. The NBH share has also been Acceptance by a high proportion The share given a higher weighting in certain of shareholders Swedish, Nordic and global indexes. When the exchange period expired Nordic Baltic Holding is listed on At February 16, 2000, the on January 20, 2000, shareholders the Stockholm and Helsinki stock market capitalization of Nordic representing 95.9% of all shares in exchanges. On the Helsinki Exchan- Baltic Holding amounted to EUR Merita had accepted the offer to ges, the shares are traded in the 11.8 billion.

Share trend Nordic Baltic Holding Merita Nordbanken Holding

Nordic Baltic Holding Merita Nordbanken Holding 1) 1) 1) 000131=100 Scandinavia-DS Banks 971230=100 Scandinavia-DS Banks 971230=100 Scandinavia-DS Banks 105 150 150

103 130 130

101 110 110

99 90 90

97 70 70

95 50 50 00 00 00 00 00 00 00 Jan 3100 Feb 2 Feb 4 Feb 8 Feb00 10 00 Feb00 14 00 Feb00 16 Dec 30 Mar Jun Sep Dec Mar Jun Sep Dec Dec 30 Mar Jun Sep Dec Mar Jun Sep Dec 2000 1997 1998 1999 Jan 21 1997 1998 1999 Jan 28 2000 2000 1) Datastream Banks Retail Scandinavia Index is based on 14 Nordic banks. MeritaNordbanken Group 9 Annual Report 1999

Earnings and shareholders’ equity per share Key ratios Profit for the year amounted to 1999 1998 EUR 1,098 M (SEK 9,676 M), corresponding to EUR 0.53 per Total capital ratio, % 12.0 9.9 share. Shareholders’ equity per Core capital ratio, % 8.3 7.3 share after full conversion amoun- Net interest income/ ted to EUR 2.68 (SEK 22.93) at average total assets, % 1.8 1.9 year-end 1999. Operating profit/ average total assets, % 1.4 1.4 Dividend Return on equity, % 20.9 14.3 The Board of Directors of Nordic – excl. items affecting comparability 20.6 18.7 Baltic Holding proposes a dividend Cost/income ratio, % of SEK 1.75 per share. The total – before loan losses 55 55 dividend payout at closing date – after loan losses 56 59 1999 translation rate is EUR 427 M, Loan loss level, % 0.04 0.2 or 44% of profit after tax. The pro- posed record date is April 14, 2000. Nonperforming loans ratio, % 1.2 1.7 Dividend payments are scheduled Number of employees 18 896 19 741 to be made on April 25, 2000. – of whom employed in banking operations 18 032 18 346 Shareholders At January 1, 2000, Nordic Baltic Holding had some 325,000 share- holders.

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 10 MeritaNordbanken Group Annual Report 1999

Upgraded ratings Merita Bank have the same ratings. term loans issued by Nordbanken All rating institutions confirm- Hypotek AB. This gives the com- In June 1999 Merita Bank’s long- ed their ratings after the announc- pany good possibilities for raising term rating was upgraded from A2 ement of the bid for Christiania international funding on competitive to A1 by Moody’s Investor Services Bank og Kreditkasse in September terms. and from A to A+ by Fitch IBCA. 1999. Moody’s Investor Services Subsequently, Nordbanken and has awarded Aa3 rating to long-

Shareholders in Nordic Baltic Holding, at January 31, 2000

Swedish government Swedish 26% institutions 21% Finnish public Swedish 10% public Shareholders 3% Finnish in other institutions countries 9% 29% Finnish government 2%

1) Shareholder structure – Nordic Share data

Baltic Holding, January 31, 2000 1999 1998

(20 largest known shareholders) Shares outstanding at end of period, million Nordic Baltic Holding 2 091.1 2 123.9 Shareholder: % – after full conversion 2 114.3 2 151.0 Swedish Government 25.92 Earnings per share SPP 2.54 Nordic Baltic Holding EUR 0.53 EUR 0.33 Solidium Oy 2.08 – excl. items affecting comparability EUR 0.51 EUR 0.42 Nordbanken’s mutual funds 1.95 Shareholders’ equity per share after full conversion AMF Pensionförsäkring AB 1.58 Nordic Baltic Holding EUR 2.68 EUR 2.29 Fourth AP fund 1.53 Share price at end of period SEB´s mutual funds 1.22 Nordic Baltic Holding SEK 50.00 SEK 52.00 Skandia 1.22 Merita EUR 5.85 EUR 5.42 SHB´s mutual funds 1.17 Nordbanken´s Profit-sharing Dividend 2) Foundation 0.92 Nordic Baltic Holding SEK 1.75 SEK 1.64 Merita – EUR 0.18 AMF Insurance 0.80 Suomi Mutual Life Assurance P/E-ratio Company 0.63 Nordic Baltic Holding 11.0 17.8 Länsförsäkringar Wasa 0.53 – excl. items affecting comparability 11.3 13.9

Varma-Sampo Mutual Pension 1) After 95.94% acceptance by shareholders in Merita and a new convertible loan in Nordic Baltic Holding. Insurance Company 0.52 2) Board proposal. Ilmarinen Mutual Pension Insurance Company 0.52 Merita Plc Pension Foundation 0.47 Ratings, February 2000 T Rowe Price funds 0.45 Fifth AP fund 0.43 Moody´s S & P Fitch IBCA Thomson Bankwatch Short Long Short Long Short Long Short Long Meiji Life Insurance Company 0.42 term term term term term term term term Pohjola Insurance Company 0.40 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- Source: Finnish Central Securities Depository Ltd, the Swedish Securities Register Center (VPC AB) and DN Ägarservice AB. Nordbanken Hypotek P-1 Aa3 A-1 MeritaNordbanken Group 11 Annual Report 1999

Mission, focus and goals A new growth region emerges

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’s domestic market.

he economies of the Nordic With cultural affinities, similar efficiency of their operations. countries have undergone legal systems and consumer values, Individually, all the countries in the Tvarious phases of reconstruc- the Nordic countries constitute a region are relatively small. As a tion. As the new millennium begins, natural market for growing numbers composite unit, however, they offer economic growth is generally of Nordic-based, and not least, a broad base. The total population strong. Poland is the fastest growing international companies. of the region, 70 million inhabitants, market among the former Eastern Business growth in the Nordic is approximately equal to the pop- Bloc countries. However, the Baltic countries and neighboring nations ulation of France or the U.K. The countries also have good potential around the Baltic Sea is moving ra- markets are not equally homogenous, for rapid growth and, with Poland, pidly toward increased intraregional but the ongoing process of integra- have all set their sights on EU mem- trade and greater integration. tion is reducing the differences. bership. Growing trade and direct The Nordic countries are investments are creating demand taking part in the ongoing integra- for cross-border banking services in tion of Europe, albeit under diffe- Growing trade the Nordic countries and the Baltic rent terms and conditions. Barriers region. Over the next few years, the Integration is creating good potential that formerly blocked trading in banking sector in the Baltic coun- for Nordic export growth, as well as goods and services and capital tries is expected to grow twice as increased trade between countries transactions between countries fast as that in the Nordic countries. in the region. At the same time, the have been reduced significantly. Poland’s banking market could, structure of trade has changed. with time, reach the size of the Trade between Finland and Sweden has increased. combined Nordic banking market. Strengths Nordic investments in the Thanks to a broad customer Baltic countries have also increased. base, the region can offer better Overall, the region has substantial Three quarters of direct invest- service to growing and more inter- strengths ranging from Norway’s oil ments in Estonia, for example, are nationalized Nordic companies. to the global leadership positions made by Nordic companies. Unrestricted capital move- held by Finland and Sweden in tele- ments within the region have also com and IT. The Nordic countries created greater demand for foreign are European leaders in terms of investment services. Investors and mobile telephones and the Internet Bank market with investment funds can diversify their with nearly half of the population growth potential investments in the various Nordic as users. Nordic markets are also countries as well as in international attracting considerable international The Nordic and Baltic Sea region, instruments. Equity trading and attention and leading global compa- accordingly, offers interesting securities brokerage represent the nies are seeking partnerships and opportunities for financial institu- strongest growth area for Nordic making investments in the region. tions to expand and increase the banks. 12 MeritaNordbanken Group Annual Report 1999

Strategy to create value

eritaNordbanken’s mission MeritaNordbanken’s business strategies are based on customer neeeds. is to create value for its An integrated organization supports account managers with products which Mshareholders, customers and are packaged into individual financial solutions. employees. The Bank maximizes the value of shareholder investments through the application of business concepts focused on financial solu-

tions. The Bank’s value appreciation Account managers’ performance should be among the financial solutions consisting of several Customer’s lifetime projects highest for publicly listed banks in products and business ideas

the Nordic region. Value This will be achieved by apply- Customers Payments ing the following strategies. Account managers

Business areas

Customer 1. Strategic focus concept and products Staff units MeritaNordbanken will be the and internal leading financial partner in the bank Nordic and Baltic Sea region. Investments Management Dividends Lenders Board

Leader in the Nordic and Shareholders Baltic Sea region MeritaNordbanken has chosen the Nordic and Baltic Sea region as its domestic market. In Finland and Sweden, the Bank is already one of Lithuania, Latvia and Estonia, the tions. Skills in understanding the the leading financial groups, offer- Bank’s goal is to create a strong pre- specific needs of customer groups ing a full range of services in its sence with a broad range of services and individual customers are funda- chosen business areas. In Poland, for Nordic players and innovative mental elements in the Bank’s concepts for the local markets. operations. The Bank will develop MeritaNordbanken shall have target-oriented customer and pro- Overall and long-term objectives the region’s largest customer base, duct concepts as well as customer- be the first choice of companies specific solutions. Service will be Shareholders cultivating various markets there characterized by high accessibility. Increase value and dividends and offer local and global solutions Account managers will offer pro- for the largest companies in the ducts and services superior to those region. offered by competitors. MeritaNordbanken’s strategic Based on a commercially goal is to establish its position as a sound business approach, the leading player in all the Nordic coun- Bank’s strategic goal is increased tries as well as a strong presence in volumes among existing customers, other countries in the Baltic region. and an annual increase in the num- ber of core customers. MeritaNord- Financial solutions in partnership Customers Employees banken’s core customers shall with customers Achieve highest level of Be the most reflect a degree of customer satis- customer satisfaction attractive employer among priority customers in the region The Bank aims to establish full- faction at least equal to levels of service relationships with private customer satisfaction in comparable individuals, companies and institu- banks. MeritaNordbanken Group 13 Annual Report 1999

European leader in Internet services sense of responsibility and ethics dend, for example, and share buy- The comprehensive change in the increases with the Group’s import- back programs. production and distribution of ance in the societies in which it Internet-based financial services is conducts banking business. The Group provides open and honest creating potential for higher value, 4. Reliable earnings growth lower costs and new alternatives. information and seeks business Moreover, this provides greater solutions that support sustained accessibility. Internet links among growth. Regional dominance the Group’s customers are being The integration of Nordic econo- established and will eventually Integrated organization and mies and companies continues. create intensified business relations. a common identity Estonia, Latvia, Lithuania and Supported by electronic solutions, MeritaNordbanken’s focus on Poland also offer substantial growth the Bank shall also attract new consolidating different services to potential. A new growth region is customers. form individual customer solutions emerging in Europe as a homogen- One of MeritaNordbanken’s necessitates an integrated structure eous market for growing numbers strategic goals is to secure its posi- in which all units work to promote of companies. tion as Europe’s leading supplier of customer value. The organization Far-reaching changes, such as financial solutions via the Internet shall, therefore, be characterized by globalization, financial sector de- and electronic services. a common identity that creates the regulation, information technology “right” expectations among custo- and changes in demographics, Competitive skills mers and the “right” working atmos- welfare systems and values are creating new customer needs. National, regional and global banks phere within the organization. Growing demands on financial are competing with each other for solutions and increased pressure to leadership in the region and within Cost awareness reduce costs are major forces in electronic services. MeritaNord- All costs are monitored and ques- today’s structural transformation banken aims to develop unique skills tioned regularly. Cost control must toward broader regional and global and to constantly upgrade its work not, however, consitute an obstacle financial institutions and niche methods. to profitable new investments. players. The level of personnel moti- Ongoing trends in the financial vation shall be high in relation to sector are providing new opportu- comparable banks. One share – one group – one bank nities for major players to create Another strategic goal is to MeritaNordbanken will expand growth with high profitability. develop first-class skills and work regionally within a coordinated methods. Where appropriate, the group structure and with uniform benchmark will relate to the world’s bank solutions. The Group will Creating value leading banks. have a clearly defined and function- As part of its efforts to implement al management structure that the Group’s strategy, the Board of reflects the Bank’s strategic focus Directors established a number of 2. Operational efficiency and sends unequivocal signals operative goals in 1999. throughout the organization. Common values MeritaNordbanken shall maintain a 3. Optimal financial structure strong internal culture comprising common values based on renewal and dynamics, managed risk No more capital than required by assumptions and high standards of operations ethics and responsibility. Capital invested by shareholders MeritaNordbanken aims to will be used effectively in an opti- control risks and credit margins mal capital structure with the through risk-based pricing. New required amounts of risk capital for products and instruments will be adequate risk coverage and cost- introduced only after thorough effective funding. The Group’s risk management analysis. excess capital will be repaid to The need to demonstrate a shareholders in the form of divi- 14 MeritaNordbanken Group Annual Report 1999

Operative goals

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.*

Earnings per share Other key goals Customers In terms of earnings per share, Me- MeritaNordbanken creates value ritaNordbanken shall remain one of Income added through good customer rela- the most prominent publicly listed Stable and diversified income growth tions. In turn, the Bank’s customers banks in the Nordic countries.* will be achieved by a higher share of are afforded opportunities to evalu- income from commissions. ate service standards, products, – In the long-term perspective, net prices and accessibility. Profitability commission income should – Customers shall show a high level MeritaNordbanken aims for a amount to 50% of net interest of satisfaction attributable to the leading position among Nordic income. Bank’s efforts to meet their banks in terms of profitability. demands and expectations. Costs – Return on visible equity, how- Employees MeritaNordbanken’s goal is to ever, should always correspond to Success is created by skilled maintain high cost efficiency, a minimum of average zero-risk employees. MeritaNordbanken’s particularly in relation to other interest in Finland and Sweden, employees must be motivated, Nordic banks. plus 8 percentage points. knowledgeable and highly skilled. – The cost/income ratio in the Recruitment of new employees and Bank’s core operations, before personnel training programs there- Core capital loan losses, should not exceed fore focus constantly on increasing MeritaNordbanken will not use 55%. skills and service standards. more capital than is required to Incentive programs promoting develop sound business operations. Risk levels profitability and profit-sharing sys- However, the amount of core The Group’s risk exposure will be tems increase the commitment of capital employed should be suffi- limited and controlled. Within employees to produce excellent cient to secure good ratings and acceptable risk levels, the Bank will results. cost-efficient funding. pursue every opportunity with po- – MeritaNordbanken seeks high – To meet Group requirements, tential for stronger earnings growth ratings in evaluations of personnel the core capital ratio should be and a higher return on equity. skills and job motivation. at least 6.5%. Stringent quality demands are imposed on lending operations. Information MeritaNordbanken shall maintain a – Loan losses shall not exceed 0.4% position of leadership among major Dividend of total loans, expressed as a Nordic banking groups in providing MeritaNordbanken strives for a rolling five-year average. open, unambiguous and timely high dividend payout. The dividend – Market risks may not lead to a information to owners, customers level in any given year is deter- decrease of more than 4 percen- and employees. mined by market demand and core tage points in return on equity. capital requirements for continued *The term “publicly listed banks in the – Operative (administrative, legal Nordic countries” refers to: MeritaNord- development of Group operations. and technical) risks are kept banken, Svenska Handelsbanken, SEB, FöreningsSparbanken, Den Danske Bank, – The target level for dividends is within manageable levels under Unidanmark, Kapital Holding, Den norske 40-60% of net profit for the year. reasonable costs. Bank and Christiania Bank og Kreditkasse. Financing settled the deal. Pirjo can relax. 16 MeritaNordbanken Group Annual Report 1999

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.

he first year was highlighted were also launched and integration ed when the merger agreement was by implementation of the introduced in new areas of opera- announced in 1997. Within three Tmerger. Financial control and tions. years, synergy gains were expected capital allocations were coordinated, The third year, 2000, is expect- to reach EUR 120 M annually and uniform financial reporting ed to generate additional synergy through reduced costs. routines were introduced. Opera- gains, particularly through wide- tions in loan processing, IT-develop- spread application of best practice. Reduced costs ment, treasury functions and inter- As a result, MeritaNordbanken is Results during the first two years national operations were integrated, taking the next major step toward have met and surpassed original and new cross-border products full integration. expectations. introduced. During the second year, 1999, • Personnel cutbacks are continuing coordination and integration pro- Synergy effects according to plan. Since the grams were continued and intensifi- merger, the number of employees ed. More new, uniform products Anticipated synergies were present- in bank operations, calculated as a

New products every month Jan 1, 2000 • 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 Jan 1, 1999 • •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 Jan 1, 1998 •East European Fund to Finland •One-day payment transmission between Finland, Sweden and Baltic countries •Free Visa-card withdrawals from ATMs MeritaNordbanken Group 17 Annual Report 1999

gross amount, has been reduced • MeritaNordbanken’s share of pay- deposits in this new savings by 1,500 persons. ment contracts between Sweden program. and Finland has increased steadily • The number of Internet custom- Growth in earnings since the merger, reaching 44% at year-end 1999. ers is growing rapidly, and the Exchanges of concepts and products Solo concept was introduced in between Finland and Sweden, and Sweden in the autumn of 1999. rapid development of new products, • Five joint Swedish-Finnish mutual Corporate and private customers have created better potential for funds have so far been launched. in Sweden and Finland are now new financial solutions. At year-end 1999, these funds able to execute secured-payment had attracted more than 91,000 e-commerce transactions via the • The Bank has attracted new customers and reached volumes Solo mall. corporate customers, with opera- of nearly EUR 500 M. tions in both Finland and Swe- den. MeritaNordbanken’s ability • The Swedish concept of monthly to manage payment routines savings in mutual funds was in- between the two countries has troduced in Finland. At year-end been a strong argument in efforts 1999, 40,000 private customers to attract new customers. in Finland were making regular

Proposed merger with Christiania Bank

hristiania Bank og Kreditkas- the Board of the Directors, manage- The Board declared its opinion that se ASA is the second largest ment and employees of Christiania MeritaNordbanken’s offer was Cbanking group in Norway, Bank support a merger with Merita- financially equitable and industrial- with a nationwide network of 160 Nordbanken. ly sound, and emphasized the offices in Norway and branches On September 20, 1999, favorable effects of a merger with in New York, London, Singapore MeritaNordbanken submitted a MeritaNordbanken for customers, and Stockholm. Christiania Bank cash offer of NOK 44 per share to employees and shareholders. had total assets as per September all shareholders in Christiania Bank. 35% of the shares in Christi- 30, 1999 of slightly more than Under the terms of the offer, ania Bank are owned by the Norwe- NOK 200 billion and about 4,000 Christiania Bank is valued at NOK gian government. Since autumn employees. 24.3 billion. When the offer was 1999 a political dicussion has taken With the aim of creating a tendered, the premium price was place as to how government strong Nordic banking group, 29%. The duration of the offer has ownership in Norwegian banks will MeritaNordbanken Plc has tendered been extended several times. be structured. a cash offer for all the shares in On October 19, 1999, Christi- Since making its offer, Merita- Christiania Bank. MeritaNordbank- ania Bank’s Board of Directors Nordbanken has acquired 9.99% of en’s Nordic vision has met with recommended that shareholders Christiania Bank’s shares. favorable reception in Norway, and accept MeritaNordbanken’s offer. 18 MeritaNordbanken Group Annual Report 1999

Financial solutions in partnerships with customers

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

n a world characterized by requirements of customer groups their own terms allow customers increasing complexity, business and individual customers, and to greater freedom, and the most Ialternatives that are difficult to meet these requirements with frequent users of electronic services forecast and growing competition, effectively produced and purchased are also its most satisfied customers. customers’ needs for advisory products that generate value added. MeritaNordbanken’s customers services and guidance are also Customers also want to carry have a large number of contact increasing. In its relations with out their banking business, pay- choices: the Internet, for example, customers, the Bank is more than a ments, stock purchases and export telephones, cash and credit cards provider of services; it is also a transactions – when and where they and branches. Network banking financial advisor. choose, safely, cheaply and comfor- services via the Internet are becom- Customer-specific financial tably, and to a growing extent via ing an increasingly common contact solutions are made possible by the the Internet. Options to select channel. Branch offices are assum- Bank’s ability to understand the ways of executing transactions on ing a more streamlined role as

Sales strategy and customer concept

Corporate customers Private customers

Large companies Private-bank customers/Priority Core customers/Key customers

Large and mid-sized companies with Plus customers/Core customers specially appointed Intermediate account managers

Standard concept for small companies, such as Small Företag Direkt

MeritaNordbanken’s customer base comprises more than 6.5 million private individuals and 400,000 corporate customers and organizations. MeritaNordbanken Group 19 Annual Report 1999

providers of qualified advisory ers. The business areas and staff insurance doubled from 7.0% to services. functions shall operate in the face 15.0%. of outside competition, whereby • The Swedish concept for long quality, delivery reliability and housing loans with fixed interest pricing will be constantly compared The Bank should provide solutions rates was introduced in Finland against those of other market players. during 1999 and attracted wide- The bank’s goal to provide indivi- MeritaNordbanken’s goal is to spread interest among customers. dual solutions for each financial become a customer-oriented sales requirement of every customer is organization with higher skills and • Private Banking, a tried and test- supported by special service options. accessibility, lower costs and greater ed and highly successful concept These include Private Banking, personal commitment than any in Finland, was launched in personal banker concepts, product other bank in the region. Sweden at the beginning of 1999. packages adapted to the needs of The merger between Merita The number of Private Banking large customer groups and a broad and Nordbanken was implemented, customers rose to 25,000 during range of competitively priced special among other reasons, to provide the year. services. This base enables personal customers with a broader range of advisors with individualized tools to financial solutions and concepts. The provide a unique total solution for following concepts have already Solo for new business every customer. been introduced: The Bank works in partnership • The Swedish customer concept MeritaNordbanken’s private custom- with corporate customers and for private individuals was intro- ers have user-friendly access to organizations, offering financial ex- duced in Finland during the year Solo, a ”mall” where the Bank’s pertise and a broad capacity to help and met with favorable market corporate customers can display develop the customer’s business. reception. At year-end 1999, their products and where trans- Resources, advice and reliability are nearly one million Finnish private actions can be concluded. Payment important to customers, but will- customers had enrolled in various is easy, secure and in real time, ingness to share a risk or help a programs designed to generate since the payment transaction is customer’s customer is also a key financial benefits. In Sweden, conducted over the buyer’s and element. where the concept was introduced seller’s accounts in MeritaNord- several years ago, more than one banken. At year-end 1999, Solo had million customers participate in more than 300 participating shops Structure and organization for the bank’s loyalty program. from Finland and Sweden. In functionality and efficiency addition, another 500 companies • The sale of Finnish unit-linked had e-commerce contracts. The organization’s objective is to insurance was introduced in develop products based on experi- Sweden as early as 1998. New ence gained in customer relations premium volumes increased by and to provide services to bank EUR 0.4 billion in 1999, and the units that deal directly with custom- market share for unit-linked 20 MeritaNordbanken Group Annual Report 1999

Europe’s leader in network services

Today’s financial solutions are based increasingly on electronic services. Internet solutions provide customers with the freedom to decide when, where and how they conduct their banking business. MeritaNordbanken has sophisticated technical solutions for banking 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 annual earnings growth in the range of EUR 250-300 M in a three-year perspective.

apid development of IT-based creations of new revenue sources, expanded possibilities. It has the bank operations is creating the potential to intensify customer largest customer base in the Nordic Rcompletely new opportunities relations and higher production region, with more than 6.5 million to offer improved financial services efficiency. Today’s marketplace, private customers and 400,000 featuring 24-hour availability and however, also contains threats in corporate customers. On the sharply reduced production costs. the shape of rapid changes in the strength of this customer base, and Network banking services will thus structure of competition, new its clearly defined goal to increase play a critical role in the bank’s ex- players and new consumer patterns. the total number of customers pansion, profitability and share value. More than one million private through continued expansion in the Finland and Sweden are lead- and corporate customers already Nordic region, the Baltic countries ers in terms of access to PCs, the use MeritaNordbanken’s Internet and Poland, the Bank sees sound Internet and continued expansion services, and the number continues growth potential. The Internet is within mobile telephone operations. to rise. In December 1999, the creating a wide range of new oppor- Companies in the region command number of Solo log-ons per month tunities for sophisticated customer global leadership positions in tele- rose to 3 million, with the number service and customer value, with communications, Internet consult- of monthly payments rising to 3.7 free access across national frontiers. ing and e-commerce as well as million. The Bank’s current goal is electronic financial services. to increase its Internet customer Number of Internet customers One of the major strengths of base to more than 2 million by the Nordic banks lies in the number of first quarter of the year 2001. The growth in the number of customers who are already accus- MeritaNordbanken sees strong customers linked to Internet ser- tomed to using conventional banking potential to benefit from the vices is dramatic. During 1999, the services via the Internet. This facili- tates the rapid development of new MeritaNordbanken 000s banking services as well as the Internet customers 1 200 launch of completely new e-services 1996–1999 1 000 that create value added for corpor- ate customers and their customers. 800

600

Internet has no limits 400

The pace of change is dynamic, 200 constantly creating new challenges 0 for the entire financial sector. New Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec opportunities are emerging through 1996 1997 1998 1999 MeritaNordbanken Group 21 Annual Report 1999

number increased by 500,000, with Internet investments Exponentially growing value processes 200,000 new Internet customers in growing Finland and 300,000 in Sweden. The increase has continued during The development of network bank- the year 2000. ing services over the past few years, Internet customers are the particularly in Finland, has facilitated the gradual adaptation of underlying E- Bank’s most satisfied customers. banking Customer surveys in both Finland IT-systems at relatively low cost. and Sweden have shown clearly Future investment needs will positive results. be determined by new trends in technological development. New Mobile technologies, acquisition opportu- telephone Card Solo mall – the growing nities and expansion opportunities in services services e-commerce site the Nordic and Baltic countries will play major roles in the Bank’s devel- The potential for expanding the opment. Solo mall into a leading e-commerce site in the Nordic region is consider- ed highly promising. As a universal Income can be strengthened bank with large private and corpor- Reduced costs via ate customer bases, MeritaNord- the Internet New sources of commission income banken is an acknowledged leader are being created through valuable in new development, and the bank Experience shows that Internet new services, such as subscriber is strongly positioned to create banking operations lead to a steady agreements, e-payments, e-identi- business opportunities between decline in costs for virtually all types fication and e-signatures. Payment millions of bank customers. of transactions and banking services. commissions from e-commerce and Analyses of changes in various forms income from distribution services of payments, bank and post giro for external products are also seen New technologies emerging services, loans and loan applica- as new sources of income. Higher tions, equity trading, currency ord- income is also forecast from in- Supported by WAP, “Wireless ers, credit/debit card transactions, creased volumes of consumer credits, Application Protocol”, and EMPS, bank card issues, cash transfers and student loans, equity trading, mu- “Electronic Mobile Payment Ser- current account statements all point tual fund unit purchases and im- vices”, the mobile telephone is in the same direction – a potential proved cross-border sales. becoming a bank terminal and for substantial cost savings. payment tool. The same applies to the effects MeritaNordbanken is devel- of changes in various business pro- Internet generates favorable oping new services like these in cesses. In this area, the Internet is effects on earnings cooperation with Nokia and VISA, strengthening ongoing development partly to promote greater utilization toward a reduction in routine work Analyses of the impact of Internet of Bluetooth, a technology that uses operations and more qualified on- business on MeritaNordbanken’s in- radio waves to transmit various line advisory services and new forms come and expenses in future years forms of information. of branch office operations. are naturally difficult to quantify. The rate of new development is dynamic, and many of the factors Solo customers involved are difficult to evaluate. Internet/Solo No. of log-ons per hour and day Based on a rough estimate, however, At end of month Highest volume during one month in Finland: anticipations of positive effects on 000s Weekday profits over the next three years in Weekend • 61% of equity transactions 10 the range of EUR 250-300 M • 30% of payments 8 annually appear realistic. 6 • 11% of customer credit applications In the long-term perspective, 4 successful Internet banking opera- 2 • 11% of purchases and sales of mutual fund units tions will go beyond the question of 0 profitability, and become a pre- Time1 3 5 7 9 11 13 15 17 19 21 23 requisite for survival. 22 MeritaNordbanken Group Annual Report 1999

Expertise – a success factor

MeritaNordbanken shall have leading skills and expertise in two 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, and employee skills are nurtured carefully and systematically. Personnel development programs are based on requirements, evaluations and efforts to support skills and expertise through individual goals and other tools.

ompetition in global financial Satisfied customers influence Individual requirements markets is increasing. Nation- Group earnings Cal and regional banks and Required individual skills mean that other financial service companies All skills development programs are all employees are familiar with the are developing new products and investments to improve customer Group’s business focus, strategies concepts. The Internet explosion is satisfaction and profitability. Moti- and goals, and that Group employ- creating new opportunities to pene- vated and skilled employees influ- ees plan and perform their job trate the market. Large companies ence the Group’s development and assignments with these consider- are recruiting personnel with great- earnings. ations in mind. Skills also include er financial skills and becoming less The Bank strives to evaluate performance standards, whereby dependent on services provided changes in behavioral patterns and services rendered are characterized from their domestic market base. the economic effects of invest- by high quality standards and sound ments in skills development. It is business ethics that create custom- important for employees them- er value and contribute to the selves to monitor and control their achievement of Group goals. Skilled employees have own skills development. Skills and Personal skills of MeritaNord- satisfied customers knowledge can be developed banken employees include the through the exchange of good following requirements: In this situation, employee skills are experience and work methods with a critical competitive factor. Pro- other employees and groups. Every • An entrepreneurial spirit defined duction is the most difficult factor employee should have individual as the ability to accommodate to emulate. Skills comprise know- development goals that are moni- customers, generate profitability ledge, commitment and talent. tored and updated at regular inter- and a holistic approach to busi- Only the very best skills are good vals to ensure that development ness ethics and quality. enough when the goal is to be the investments are generating improved • A clear understanding of share- region’s leading financial institution. performance standards. holder value and how each MeritaNordbanken Group 23 Annual Report 1999

employee can influence values in Professional requirements Professional skills are deve- banking operations. loped and kept up-to-date through Professional skills and expertise are various means: • Customer focus, which is defined perishable commodities. Rapid as the knowledge of the custom- development in the banking indus- • Development and training cur- er’s operations, of the way the try and changes in customer re- rent employees to solve new job customer solves problems, other quirements must be met and assignments within and outside factors influencing business matched constantly by the Bank’s the Bank. development and relations be- employees. Customer expectations • External recruitment to provide tween customers and their cus- on performance standards must skills that may be lacking and to tomers. correspond with employee skills gain access to ideas and experi- • Shared values with management and knowledge, requirements and ence from other areas of business. and colleagues regarding work objectives. • Use of external suppliers for methods and goals. By defining skills requirements activities that might attract skills for every job category, the bank is • Internet skills and a multi-cul- needed by the Bank in the long- able to establish exact requirements tural approach – the ability to term perspective. and implement measures to secure create and maintain cross-border compliance. It is also important • Retention of the best internal relations with customers and that employees are willing to accept talent by providing individual colleagues. new job assignments and be pre- development plans, challenging • The ability to learn about new pared to meet the expectations and job assignments and incentive developments and recognize demands of the customer and the programs. opportunities created by change. Bank. Arne handles the company’s currency management and payment flows through Nordbanken’s international branches. MeritaNordbanken Group 25 Annual Report 1999

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 and Real Estate. These operate as decentralized profit centers. The Bank’s financial management operations are conducted by Treasury and Other.

ecentralized profit responsi- viding more accurate estimates than tive and profitable product range. bility essentially means that BIS regulations was developed to Business units with product respon- Dthe Group’s total business calculate capital requirements, with sibility are monitored through relations with customers are report- regard to each business unit's actual evaluations of individual product ed in the customer unit’s income risk exposure. The model takes into earnings, which cover all income statement and balance sheet. Share- consideration credit risks, market and expenses attributable to the holders’ equity is distributed among risk and other risks, and optimizes product, including marketing the customer units, and each unit's utilization and distribution of capital expenses within Regional Bank performance is evaluated in relation between the different business areas. operations. to its individual return on allocated In addition to customer re- The redistribution of capital capital target. Among the business sponsibility, Asset Management/ among the Group's business units is areas, with the exception of Real Life Insurance and, to some extent, also shown in the presentation here. Estate, shareholders’ equity is dis- the other operating business areas, Most earnings reported by Asset tributed in accordance with current also assume product responsibility, Management/Life Insurance, for capital adequacy regulations. which means that each customer example, are redistributed to cust- During 1999, a model pro- unit must have access to a competi- omer units in Retail and Corporate.

Retail

Corporate Board of Directors Owners Customers CEO

Markets Executive Board

Asset Management/ Group Staffs Life Insurance

Real Estate Service units

Operative organization in MeritaNordbanken 26 MeritaNordbanken Group Annual Report 1999

Increased earnings and high ing year, while substantial recov- cover the Bank’s international profitability in Retail eries contributed to a decline in net credit exposure. Revenues rose by loan losses, which fell to a histor- 55%, as a result of continued growth Retail accounts for the bulk of Merita- ically low level in 1999. in business volumes, particularly in Nordbanken's business operations, Return on allocated capital the beginning of the year, stable and earnings in 1999 amounted to amounted to 26%, and the costs-to- margins and capital gains. EUR 830 M, an increase of EUR income ratio before loan losses Cost increases were limited to 85 M compared with the preceding was 59%. 17% due, among other factors, to year. Lower interest rates during the addition of resources in Corpor- the year led to a modest decline in ate Finance. Provisions made in margins from bank deposits, while Corporate earnings also rose 1998 to cover losses from inter- growing business volumes, particu- national credit exposure are consid- larly in financing operations for Earnings by the Corporate business ered adequate for continued cover- private housing, long-term savings area in 1999 amounted to EUR age of the remaining credit risks. and short-term payments had a 278 M, an improvement of EUR Loan losses, net, were positive. favourable impact on revenues. 221 M compared with the prece- Return on allocated capital Overall revenues declined somewhat, ding year. Earnings in 1998 were amounted to 14%, and the costs-to- compared with the preceding year. affected by low-yield assets, which income ratio before loan losses As a result of continued efforts were excluded in 1999. The preced- was 37%. to improve operating efficiency, ing year’s earnings were also charged costs were lower than in the preced- with a provision of EUR 84 M to

Earnings by business area, 1999

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

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

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

Write-downs on real estate -145 Loss for the year -201 Operating profit/loss Q4, 1999 228 78 28 66 -22 23 -66 335 Q3, 1999 216 62 -2 48 -11 10 -41 282 Q2, 1999 189 85 -3 60 -12 -17 -22 280 Q1, 1999 197 53 29 47 -11 71 103 489 12 months 1998 745 57 36 160 -114 296 190 1 370

Product earnings Income 270 Administrative expenses -49 Sales and distribution expenses -55

Product earnings 166 Product earnings Q4, 1999 50 Q3, 1999 34 Q2, 1999 48 Q1, 1999 34 12 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. MeritaNordbanken Group 27 Annual Report 1999

Weaker earnings by Markets funds management by companies Rising interest rates affected led to highly favorable sales during Treasury's earnings Market’s operating profit amounted the year. In Sweden market share to EUR 52 M. Adjusted for loss continued to rise in 1999. Combin- Earnings within Treasury amounted provisions totaling EUR 33 M in ed with a sharp increase in values of to EUR 87 M, a decline of EUR 1998 to cover unauthorized equity mutual funds-related savings, 209 M compared with 1998. trading, profit for the year declined particularly toward year-end 1999, During the second quarter of 1999, by EUR 17 M. The decline was due total volumes under management a reversal was noted in the earlier mainly to weak earnings from trad- rose 60% to EUR 33.0 bn. Earnings downward trend for market interest ing in interest-bearing securities, increased 34% to EUR 270 M, be- rates in both Finland and Sweden, while profitability on currency trad- fore sales and distribution expenses which had a negative impact on the ing remained strong, despite lower in the branch network. Manage- value trend of interest-related trading volumes caused by the ment costs rose 19%, due mainly to portfolios under management by introduction of the euro. Increased an expanded range of products. Treasury which are marked to stock market activity contributed Operating profit amounted to EUR market (current assets). The unit's to higher earnings from equity 221 M (160). interest risk was gradually reduced trading. during the year. Operating costs declined due mainly to lower costs for systems development. Phase out of Real Estate continues Other Real Estate reported a loss, before Strong growth in mutual depreciation of EUR 145 M, In addition to Group adjustments, fund savings amounting to EUR 56 M, compared Other includes income and expen- with a loss of EUR 114 M a year ses that are not directly attributable Product earnings reported by Asset earlier. The reduction in the loss to the business units. Included Management/Life Insurance, which was attributable to lower interest among earnings is the capital gain include all income and expenses for rates and continued divestments of from the sale of shares in the management, sales and distribution, the non-core property portfolio. Pohjola Insurance Company and rose 51% to EUR 166 M. Growing Also see Real Estate, on page 46, adjustments of redistributed income interest among private individuals concerning the sale of the Aleksia and expenses among the business in long-term savings and active real estate company. areas. www.merita.fi e-asier!

www.nb.se MeritaNordbanken Group 29 Annual Report 1999

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.

ith a customer base of 6.5 Baltic countries and Poland the operations of Société Générale million private individuals, – a new domestic market in Riga and Vilnius. The acquisition WMeritaNordbanken is the complements the focus on expan- Nordic region's largest retail bank. The Baltic countries and Poland are sion through organic growth, which Retail customers also include more becoming increasingly important to provides minimal risks and more than 400,000 companies and insti- the foreign trade activities of Swe- effective cost control. tutions as well as large sections of den and Finland. Growing numbers Investments in IT and product the public sector. The total business of Nordic companies are establish- development will provide custom- volume in regional banking opera- ing operations in these countries. ers with a wider range of improved tions (lending/guarantees and To meet their banking needs, and services already in the year 2000. savings/investments) amounted to expand its own domestic market, EUR 111 M at year-end 1999. MeritaNordbanken established a Retail had 14,000 employees new regional bank for the Baltic Private Banking at year-end. countries and Poland in 1999. As a result, these countries are now also Private Banking offers investment considered part of MeritaNord- advisory services to MeritaNord- Regional banks banken's domestic market, with a banken’s high net worth customers similar organizational structure and with access to a minimum of Retail operations are conducted product range. approximately EUR 125,000 for through nine regional banks in The Bank conducts operations private investments. Three Finnish defined geographical areas and a in Estonia, Latvia, Lithuania and units also offer discretionary equity special Private Banking unit, which Poland. In the beginning of the year management services. focuses on customers who demand 2000, MeritaNordbanken acquired qualified investment services. The branch offices and regions of all regional banks assume full responsibility for the results and Retail risks of their customers. Business Lars G NordströmRetailverksamheten decisions are decentralized, and Chef Lars G Nordström standardized work methods, pro- Products and cesses and customer concepts are markets Produkter och marknader Staff and service applied to ensure quality and cost functionsStabs- och effectiveness. Product companies servicefunktioner Produktbolag

RegionalRegionbanker banks RegionbankRegionbankerer

PrivatePrivatbank Bankingen 30 MeritaNordbanken Group Annual Report 1999

MeritaNordbanken's regional Retail banks have 39 private banking units, with 27 in Finland and 12 in Swe- EUR million 1999 1998 den. The Swedish units became Income 2 153 2 211 operational in 1999, and customer Expenses -1 280 -1 353 reception was favorable. Loan losses -43 -113 MeritaNordbanken Private Operating profit 830 745 Wealth Management in Helsinki and its subsidiary MeritaNordban- ken Luxembourg S.A. are indepen- dent operating units. Both units Northern offer a complete range of private Sweden banking services. At year-end 1999, assets under management by Private Banking on Eastern & Northern Finland behalf of 25,000 customers amount- and Ostrobothnia ed to just over EUR 15 bn. Opera- Central Sweden tions in 1999 were characterized by strong growth, in terms of both Central & customers and business volumes. Western Finland

Stockholm Helsinki & One organization for all Uusimaa Retail operations

Western Retail's product and marketing Sweden Baltic organization develops and offers Southern countries easy-to-use, standardized products Sweden & Poland

Distribution of income

1999 1998

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

MeritaNordbanken has nine geographically distributed regional banks.

Volumes in EUR million Data as per December 31, 1999

Central & Eastern & Baltic Helsinki 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 48 127 Guarantees 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 38 074 Mutual funds 827 513 536 2 614 2 887 5 237 3 563 2 351 18 528 Insurance 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 10 900 No. of branches 119 151 203 53 53 47 70 32 14 742 MeritaNordbanken Group 31 Annual Report 1999

to meet customer needs and pro- • Production and Productivity expansion during 1999. The num- vide broad-based, efficient distribu- The unit has overall responsibility ber of monthly savings clients in tion. The organization is also struc- for product development and Finland tripled during the year. tured to offer customized solutions supervises several joint back- FondDirekt is a new concept via, for example, Private Banking, or office functions. intended to increase accessibility corporate service units. and raise the level of services to customers in fund savings and The organization comprises the mutual funds. FondDirekt was following units: Product companies introduced in Sweden during 1999 • Corporate and Financing Retail also includes a large number and received a favorable reception. The unit develops service con- of specialized product companies cepts for corporate customers that develop and offer products to Financing and deposit products for the supplement the Bank’s portfolio. private and corporate markets. Products include leasing, factoring, In Sweden the market share for mortgage loans and other services housing loans continues to increase • Personal Customers and to meet customers’ financial requi- as a result of determined efforts by Deposits rements. The products are marke- branch personnel working in coope- The unit is responsible for cus- ted primarily through the branch ration with real estate brokers. The tomer concepts and housing loans network, but also through other Bank signed a central cooperation for private individuals and loan channels. See page 35. agreement with Mäklarsamfundet products for both private indivi- (Association of Swedish Real Estate duals and corporate customers. Brokers) two years ago. For the second consecutive year, special • Asset Management, Life Unified approach – best practice Insurance and Private Banking Housing Days were held in Sweden and Finland, with branches in both The organisation is responsible During 1998, all staff units, service countries remaining open on Satur- for long-term savings in mutual functions and product areas within days. The Housing Days attracted funds, insurance and securities, Retail were integrated to provide nearly 45,000 customers. for example, and for the develop- the units with functional responsi- Housing loans via the Internet ment of high net worth customer bility for markets in both Finland were introduced for Solo customers service concepts. and Sweden. Consequently, only toward the end of October. In the one manager is responsible for each • Payments and Network autumn, student loans via the customer group or product catego- Banking Services Internet were also introduced in ry. All marketing activities in Fin- The unit offers all types of the Finnish market. land and Sweden have been coordi- domestic and cross-border pay- Long-term mortgage loans nated since the spring of 1998. ment services. The unit also (long housing loans) based on the New products and concepts develops new network services Swedish model were successfully have been launched in Finland and for transactions via the Internet, introduced in the Finnish market. Sweden. The best products from telephones and other media. Mortgages formerly offered for Merita have been introduced within periods of 10-12 years, the norm • Market Support Nordbanken, and vice versa. “Best for housing loans in the past, are The group is responsible for the practice” also applies in back-office now offered with maturities of Bank’s market communications, and central production functions. 15-20 years. Demand for housing direct mail advertising, tele- loans in Finland increased again in marketing and graphic design as 1999. well as market analyses and News in 1999 In September, Telephone customer segmentation. Loans were launched in Sweden. • Distribution and Funds and savings The service is targeted to customers Service Networks The concept of “multi-currency” who require fast responses and The unit develops distribution funds was developed further during loans. The concept competes prim- strategies, including organization the year. Three funds based on the arily with more expensive telephone of office networks, and coordi- multi-currency concept have been loans offered by various finance nates the Bank’s range of services launched in Sweden and Finland. companies. and distribution channels. It is Monthly savings in mutual “Cross-border credits” were also responsible for relations with funds, a concept introduced in also introduced in 1999, whereby business partners. Finland in 1998, showed strong customers residing in Sweden are 32 MeritaNordbanken Group Annual Report 1999

offered loans for the purchase of Changes in the customer base are monitored at bank properties or home improvement and branch level. The diagram shows an example of projects secured by collateral on monitoring in a section of the customer base. objects in Finland. Change in Change in operating number volume,dec -99 SEK M Sales strategy and Core customers 541 769 +60 575 +51259 655199 customer concept

Intermediate 765 797 +522 55 +48495 Corporate market customers The structure and operating meth- ods of MeritaNordbanken’s branch 2 177 067 Small -162 772 10-974 320 offices have been further adapted customers to meet the specific needs of large, Total 3 484 633 midsize and small companies. For -101 675 +50325 470273 corporate customers with opera- Private market tions in both Finland and Sweden, Customer structure, Dec 1999 compared with Dec 1998. account managers have been appointed to manage these custom- cepts offer several benefits for the potential for added sales in the er relations in both countries. customers who choose to concen- Bank’s present customer base and, Customized skills develop- trate their banking business in using various customer concepts ment programs designed to enhance MeritaNordbanken. The services and pricing alternatives, induce the ability of branch office employ- are similar to Benefit and PLUS customers to centralize most of ees to actively offer advisory and concepts offered to customers in their transactions in the Bank. other high-quality services have Sweden. Long-term relations and high cus- strengthened the business concept. A large number of Personal tomer satisfaction also contribute to Bank Advisors have been trained to sustained and strong profitability. Private market offer greater skills and expertise in The Bank regularly conducts Customer concepts introduced for several areas of the private market. opinion surveys among both cus- the private market in Finland have Personal Bank Advisors act as tomers and employees. The surveys been successful and attracted financial advisors to a number of are conducted at branch office level, widespread appreciation among Key customers and their families. and the results are used in formulat- customers. Since the concept was ing and developing local business launched in March 1999, nearly one Customer service plans. During 1999, the Bank im- million Key and Preferred custom- proved its position in relation to its ers have subscribed to the service. An important aspect of Merita- main competitors. Key and Preferred customer con- Nordbanken’s strategy is to exploit

Market shares, households, December 31, 1999 Market shares, Corporate, December 31, 1999 Finland Sweden Insur- Insur- ance1) ance1)

Mutual Mutual Deposits funds funds Finland

Deposits Deposits Deposits Sweden

Housing Housing Lending loans loans Finland

Total Total Lending lending lending Sweden

0 10 20 30 40% 0 10 20 30% 0 10 20 30 40 50% 1) As per September 1999. MeritaNordbanken Group 33 Annual Report 1999

Accessibility banken has concluded Internet or the target of particularly harsh telephone banking agreements with criticism since a large number of MeritaNordbanken aims to be over one million customers. The customers from other banks used accessible whenever and wherever Bank's development work and MeritaNordbanken branches for customers need banking services. changes in customer behaviour various payment services, especially All Retail customers are affiliated patterns are constantly promoting in metropolitan areas. A compre- with a branch office. Branch mana- increased utilization of these access hensive action program is now gers, in turn, are responsible for all channels. under way to improve conditions. Retail customers, regardless of the New concepts introduced in More cash offices are being estab- channel used to access the services. 1999 included: lished in the Helsinki area, for On December 31, 1999, the example, at the same time as efforts MeritaNordbanken Group had a • Solo – electronic banking services to increase utilization of automated total of 742 branches. In addition, via Internet and telephone, as services are being intensified. products and services are available well as e-commerce in Sweden. at approximately 1,000 post offices • WAP, Wireless Application in Sweden – a service that will be Protocol – telephone banking terminated on April 1, 2001 – as services in Finland. Increased use of payment cards well as at 1,400 Solo ATMs and • Telephone Loans – fast loan Debit and credit cards are gradually more than 2,000 cash dispensers in service available seven days a taking over as a common payment Finland. In Sweden, the Bank has week for small unsecured loans method, while check payments 620 wholly-owned ATMs and 2,400 in Sweden. cash dispensers available to custom- are becoming increasingly rare. In ers through agreements with other The new services mean that custom- Sweden, cash cards have gained a banks. ers no longer need to adjust to firm foothold in the market, with The Bank’s international net- banking hours, and that there is less more than 36,000 sales outlets and work comprises full-service branches risk of waiting in line for service. more than 500,000 active cards. in London, New York and Singapo- In Finland, a large number of The number of cash card purchases re, 12 representative offices/agents private individuals pay their bills increased in 1999 to about 500,000 as well as contacts with a large through ATMs. In 1999, however, per month. number of banks around the world. payments via the Internet increased Payment card purchases in- slightly more than 33%. Internet creased more than 30% in 1999. payments have also led to a decline Despite the sharp increase, cash Technology assists customers in post and bank giro payments in withdrawals from ATMs also in- Sweden. creased in Sweden during the year. MeritaNordbanken’s contacts with Lines at bank branches in In May 1999, Merita issued customers, and the Bank's approach Finland attracted media attention in the Bank’s first credit cards – to product sales and distribution, 1999. Because of its large branch MasterCard and MasterCard Gold. are changing rapidly. MeritaNord- network, MeritaNordbanken was MasterCard Platinum, a third

MeritaNordbanken, log-ons Net inflow 1999 Location of operations Per month 1996-1999 Cards and ATMs Other transactions 1998 Manual transactions Thousands Thousands Number Solo transactions 1999 3500 3 500 800

3000 3 000 Total change -37 600 2500 2 500

2000 2 000 400 1500 1 500

1000 1 000 200 500 500

0 0 0 Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec 1997 1998 1999 Finland Sweden Poland and Total 1996 1997 1998 1999 Baltic region 34 MeritaNordbanken Group Annual Report 1999

new credit card, was also introduced during recent years, in parallel with In a decision announced in 1999. The new card is intended the establishment of new manned toward year-end 1999, the Central exclusively for Private Banking facilities, such as Bank-in-Store. Board of the Church of Sweden customers. Eight new outlets were established appointed MeritaNordbanken as its First Card, a corporate credit in 1999, and MeritaNordbanken financial partner. The agreement, card affiliated with MasterCard, was now has 49 Bank-in-Store facilities which represented one of the most acquired in January. The product in large shopping malls in Finland comprehensive ever reached in has a 35% share of the Swedish and Sweden. Sweden, was concluded in strong corporate card market and sales MeritaNordbanken is also competition with other major banks. continue to be successful. expanding accessibility through The contract pertains primarily to Test operations with Visa call-centers to process customer the management and processing of Purchase cards were started in May contacts via telephone and Internet, church levies, effective January 1, 1999 in cooperation with Luotto- with the latter accounting for the 2000, when church and state were kunta. strongest growth rate. Customers officially separated in Sweden. use call-centers to conduct a broad range of bank transactions. The call- centers also work actively with Cooperation with More than one million telephone sales and bookings of Sweden Post customers on the Internet customer appointments. To provide Nordbanken has cooperated for MeritaNordbanken consolidated its for more effective coordination of telephone services and e-mail, a many years with the Swedish postal leading position in the emerging authority, Sweden Post. In the au- Internet banking sector in 1999. common CTI computer system has been placed in operation. The Bank tumn of 1999, Sweden Post an- Serving more than one million nounced its decision to terminate Internet customers in Finland and has five call-centers in Sweden and one in Finland. the cooperation agreement, effective Sweden, MeritaNordbanken offers April 1, 2001. The cooperation pro- network services under one name, gram has been important to Nord- Solo. The name is strong in Finland banken for many years, but with and was gradually introduced in Swedish government authorities technological development and Sweden during 1999. Solo provides and the Church of Sweden increased utilization of automated leading Internet services that are services, its significance has declined. also available through a growing Following official public tender, an Since notice of termination number of channels, such as WAP, agreement was reached with the was served by Sweden Post, the GSM and telephones. The number Swedish government on government Bank has studied various alternatives of monthly log-ons in December payments. The framework agree- to replace traditional services avail- rose to 3 million. ment includes payments by the gen- able through Swedish post offices. eral public to and from government The Bank plans to establish new authorities as well as payments of branches and service outlets in about From branch office to wages, salaries and pension benefits some 200 communities throughout conference site to government employees. Under Sweden. the terms of the agreement, Merita- Customer services offered Technological development is Nordbanken is the government's since the autumn of 1996 under affecting the traditional branch, exclusive bank for payments of the Postbanken brand name will be which is rapidly being transformed wages, salaries and pension bene- continued in a revised form. In the from a transaction facility to a fits. The term is at least two years future, customers will be offered a venue for meetings and advisory as from January 1, 2000, with a full range of replacement services services. The number of traditional Government extension option of through existing and newly develo- branch offices has declined steadily two years. ped distribution channels. MeritaNordbanken Group 35 Annual Report 1999

Product companies within Retail

Nordbanken Nordbanken Finans AB (publ) Merita Customer Hypotek AB (publ) Finance Ltd The company is responsible for The company is one of Sweden’s finance-company products in The company markets and manages major home mortgage institutions. Sweden, Norway and Denmark. some of the Bank’s consumer loans In order to satisfy customers needs The principal products are leasing, in Finland. The operations may be for secure and long-term planning installment plans, factoring, con- classified into three different areas: of their loan structure, a qualified tract financing, credit cards and sales financing cooperation with and competitive range of long-term consumer credits. The products are retailers, consumer loan administra- property financing solutions is marketed primarily through the tion and direct sales of unsecured offered through the Bank’s branch Bank's branch network, but also by loans to private individuals. network to private, corporate and suppliers and retailers that offer public sector customers. Nordbank- sales financing. en Hypotek has been given a long- term rating of Aa3 by Moody’s Merita Capital Ltd Investor Service, which provides a Merita Finance Ltd solid base for raising international The company conducts risk-capital investment activities and manages funding on competitive terms. Merita Finance is the Group’s Nordbanken Kommunlån AB the Profita Fund I Kb capital fund. finance company in Finland. It is Merita Bank owns 42% of the was merged with Nordbanken also responsible for markets in the Hypotek in November 1999. fund’s capital. Other investors in Baltic countries and Poland. Its the fund consist primarily of insur- principal products are leasing, ance companies. installment plans, factoring and Nordbanken Industrikredit AB contract financing. The products (publ) are marketed through the Bank’s branch network and via Internet, Huoneistokeskus Oy Nordbanken Industrikredit con- but also by suppliers and retailers centrates on long-term funding, offering sales financing. Merita The company offers real estate primarily for small and midsize Finance has two subsidiaries in brokerage services relating to companies. Finland: Tukirahoitus Oy and M- purchases, sales and leasing con- Coordination of operations Rent Oy. Merita Finance also con- tracts. In cooperation with Merita with Nordbanken Hypotek, which ducts finance-company operations Bank, Huoneistokeskus also offers was initiated in 1998, continued in in Estonia, Latvia and Lithuania a complete range of services to 1999. In accordance with an earlier through Estonian Industrial Leasing customers changing residence. decision, the company will be Ltd., MeritaNordbanken Finance merged with Nordbanken in the Latvia Ltd. and MeritaNordbanken year 2000. Finance Lit Ltd., respectively.

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

Nordbanken Hypotek 18 219 17 527 781 130 54 Nordbanken Industrikredit 2 585 2 490 311 27 7 Nordbanken Finans 3 055 2 792 516 41 281 Merita Finance 2 394 2 313 212 60 298 Merita Customer Finance 981 965 50 37 240 Merita Capital 8 1 4 0 6 Huoneistokeskus 21 13 2 10 517 Group life insurance gives the family security at low cost. MeritaNordbanken Group 37 Annual Report 1999

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.

he Corporate business area works mainly with corporate Corporate Tcustomers. Separate Corpor- Markku Pohjola ate Divisions have key account re- sponsibility for the Group’s largest corporate customers and shipping customers. Other units offer prod- Corporate Division MNB Maizels International International Products ucts and services supporting the international operations of Merita- Nordbanken’s corporate customers and international financial institu- MeritaNordbanken is the clear Corporate operations in 1999 were tions and foreign companies. Speci- leader among banks serving large characterized by: al product units are concentrated in corporate customers in Finland and Helsinki and Stockholm. Merita- • Strong income growth and im- strengthened its position among Nordbanken has branch offices and proved operating profit. corporate customers in Sweden in representative offices supplement- several areas during 1999. • Continued leading position ed by a comprehensive international among banks serving large cor- network to provide local services as porate customers in Finland and required. Corporate has 1,200 a stronger position in Sweden employees, including 250 outside Improved profit through growing business vol- the Bank’s domestic markets. umes and new customers. Corporate’s operations focus Corporate is organized in a func- mainly on demanding corporate tional structure with cross-border • Determined efforts to consolidate customers, government authorities areas of responsibility. Measures are investment banking operations and international financial institu- implemented continuously to en- through the acquisition of Mai- tions, placing stringent require- able all parts of the organization to zels, Westerberg and Co. ments on specialized financial skills capitalize on the best products, IT- Efforts will continue in year 2000 and in-depth understanding of the systems and modes of operations in to use MeritaNordbanken’s broad business operations of its customers. different countries. customer base in Corporate and Retail to create new business in the Bank’s international network and Corporate Distribution of income Corporate units working with specialized financial services. High EUR million 1999 1998 1999 1998 priority will also be given to expand- Income 425 274 Net interest income 51 % 55 % ing the Bank’s market presence and Expenses -157 -134 Commissions, etc. 49 % 45 % improving its product range in all Loan losses 10 -83 parts of the Nordic and Baltic Sea Operating profit 278 57 regions. 38 MeritaNordbanken Group Annual Report 1999

Corporate Division MNB Maizels share-related transactions, sup- Investment Bank ported by advisory services. Corporate Division is the unit with customer responsibility for Merita- MeritaNordbanken’s investment • Advisory services for mergers, Nordbanken’s most demanding banking operations were strength- acquisitions and privatizations as corporate customers and all of the ened considerably by the merger in well as corporate capital structure Bank’s shipping customers in the December 1999 with Maizels, issues. Nordic and Baltic regions. The busi- Westerberg & Co, a company with • Procurement of loan capital for ness unit is represented in Helsinki, comprehensive expertise and acquisitions and projects, Stockholm and Gothenburg, and experience in M & A advisory supported by advisory services. Shipping services in Turku and services. The company comple- London. ments MeritaNordbanken’s, Struc- To protect the interests of Group The business unit was able to tured & Corporate Finance unit customers, MNB Maizels offers defend its strong market position in (including Merita Corporate Fin- advisory and other services inde- Finland during 1999. In Sweden, ance), which has strong positions in pendently of MeritaNordbanken Corporate Division continued to such areas as share issues, utility and its units. improve its position through in- industry transactions and struc- Major transactions by Merita- creased business volumes and efforts tured finance. Nordbanken during 1999 included to assume a more prominent role in Following the merger, invest- Nordic management of the second sales of financial services to corpor- ment banking operations are con- public offering of Sonera shares. ate customers. At year-end 1999, ducted in a separate unit called The issue amounted to EUR 3.4 bn, lending amounted to EUR 13.9 MNB Maizels. Special expertise the largest-ever issue of shares in billion, an increase of 31%. With and the Group’s broad network of the Nordic region. In the energy the exception of shipping opera- contacts provide good potential for sector, the investment banking unit tions, provisions for loan losses strong growth in the operations of acted as advisor in several large remained low. MNB Maizels. power industry transactions, i.e. on Nordic and European cash MNB Maizels offers a wide behalf of the Municipality of Norr- management solutions are increas- range of services to companies and köping for the sale of Norrköping ingly in demand among large corpor- their owners, institutions, central Miljö och Energi to Sydkraft. Other ate customers. To meet the growing and local government authorities transactions included sales of shares demands, MeritaNordbanken is and private investors, primarily in in Sanitec, Biohit and Deutsche allocating substantial resources to the Nordic and Baltic regions. Telecom, Danza’s acquisition of providing high-quality services in Operations are conducted in Stock- ASG and Graninge’s purchase of the Nordic and Baltic regions, and holm, Helsinki and London. Ser- shares in Graningeverken. The unit throughout the euro area. vices include the following: also provided advisory services to The capital market is becom- raise financing for corporate acqui- ing increasingly important to large • Procurements of risk capital sitions with a total value of EUR corporate customers. Introduction through widespread share 1.4 bn. of the euro has created a strong ownership in companies, with or Maizels, Westerberg & Co increase in competition from inter- without stock market listings, acted as financial advisor in more national players. With domestic subsidiary spin-offs and other than 20 transactions during the year. markets in both euro and Swedish kronor, MeritaNordbanken is a step A selection of ahead of other Nordic banks. transactions in SECONDARY OFFERING Acquisitionof Sale of which MNB Norrköping Energi &Miljö AB (49%) of to Shipping 144,000,000 Shares Maizels was Sydkraft A B MeritaNordbanken maintained its advisor in 1999. Advi ser to the City ofNorr köping Nordic Lead M anager Arranger and agent position as the leading bank for RetailLead Ma nager 1999 1999

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was characterized by weak trends in PUBLIC TENDER OFFER Tender offer and acquisition of Acquisitionof the maritime industry. to Cultor shareholders Graningeverkens AB (publ ) of Listingof Graninge AB on OM Stockholm Stock Exchange Despite loan loss provisions of allCultor Shares EUR 38 M for Alandia Tanker Nord icLead Manager Arranger Arranger Company, shipping-related opera- RetailLead Manager 1999 1999 1999 tions generated favorable earnings. MeritaNordbanken Group 39 Annual Report 1999

International MeritaNordbanken has been International products part owner of the International International is a business unit re- Moscow Bank (IMB) in Russia for International Products is responsible sponsible for MeritaNordbanken’s 10 years. At year-end 1999, Merita- for products and services support- operations outside Finland, Sweden, Nordbanken increased its ownership ing the international operations of the Baltic countries and Poland. in IMB, which will expand its range MeritaNordbanken's customers. MeritaNordbanken is repre- of services for Nordic companies The unit providing risk coverage sented in 23 countries, of which operating in the Russian market. financing for export/import com- International’s organization serves MeritaNordbanken has stepped panies and products for holders of customers in 17 countries outside up efforts to increase customer domestic and international securities. domestic markets through five awareness of the wide range of Following a weak start, demand branches and 12 representative services offered abroad through for documentary products (letters offices and agents. It also has con- branch offices as well as the Bank's of credit, documentary collections, tacts with banks and other financial network of business partners. Pro- guarantees, etc.) increased. Merita- institutions in all parts of the world. gress has been made, but scope for Nordbanken’s market share in A primary responsibility of the improvement remains. Finland remained very high, and the International business unit is to sup- The introduction of the euro Bank has now established a leading port the Group’s overall competi- led to major changes in payment position in Sweden for document- tiveness by providing customers in routines throughout Europe. The ary transactions and other short- the domestic markets with financial significance of traditional corres- term trade finance. services for their international busi- pondent bank operations has de- Export and project finance for ness. This role is becoming increas- clined. MeritaNordbanken’s imple- export operations showed highly ingly important in view of the mentation of the changes this satisfactory growth in 1999. Market globalization of private industry. necessitated was highly successful. positions were strengthened by an MeritaNordbanken has success- Economic recovery after the increased commitment to organize fully conducted full-service opera- 1998 financial crises in Asia and and manage bank syndicates to tions in New York, London and Singa- Russia, combined with reduced finance export operations. pore for many years. The Bank now exposure in certain countries with Strong demand characterized has 225 employees in these branches. low ratings, has enabled Merita- the market for custody services in Branches were opened in Copen- Nordbanken to recover provisions 1999 as a result of increased trading hagen and Oslo in 1998 and 1999 for high-risk countries amounting to in domestic and international and operations were focused initially EUR 20 M. securities. Securities lending, a new on securing payment flows for Merita- As a result of determined product with significant growth Nordbanken’s customers. During efforts to deal with certain problem potential, was introduced toward 2000, the Bank plans to introduce a exposures, substantial recoveries of the end of 1999. broader range of products and past provisions to cover commercial services offered by both branches. risks were also possible.

STOCKHOLM RIGA OSLO HELSINKI COPENHAGEN TALLINN VILNIUS HAMBURG MOSCOW LONDON PARIS WARSAW LUXEMBOURG NEW YORK TEHRAN BEIJING TOKYO CAIRO HONGKONG MUMBAI

SINGAPORE

SÃO PAULO PRETORIA

SYDNEY Nestor in the banking world

Board Chairman Jacob Palm- stierna is to resign in connection with MeritaNordbanken’s Annual General Meeting in April. He can then reflect on a 40-year career in the banking industry. In a conversation with Riitta Pyhälä, Jacob Palmstierna shared his views based on his extensive experience.

As you look back, what is leadership? them to rise to the occasion when circum- important to know how to analyze accounts A skilled leader must be able to span a broad stances demand. and to understand customers, both private register. He or she must be able to deal with individuals and companies. what I call the Paradoxes. A leader must have What is the most essential leadership a strong will, but cannot dominate his or her characteristic? What should a good credit officer do? environment so completely that employees do It is the ability to select employees. It is a Over time, you accumulate experience.The not grow. A leader must be both humanly matter of putting together a team so that it is customer reveals how he deals with problems understanding and consistent to the point of actually a team, but with players who have and successes. Companies are made up of ruthlessness, be businesslike and imaginatively different characteristics and abilities. And then people. A lender has to be able to evaluate flexible – but must also adhere steadfastly to it is a matter of getting them to work toward management’s ability to balance between strategic guidelines – in part to maintain the the common objective. Now and then you have driving ahead and holding back. Branch office company’s credibility in the market. He or to change team members and a leader always Boards, if correctly used, help with invaluable she must be able to motivate people, and be has to be concerned about generating new information – particularly in smaller com- warmly interested in them, but also coldly growth. Individuals have limited mandate munities. calculating and very firm. Ultimately, it is the periods, but companies operate a long, long It is always easiest to say no to a loan Bank/the Company that counts, never one’s time. application, but a bank has a responsible role own special interests or those of colleagues. The fate of a company over the long term is and an important function to perform in the A leader must have the ability to delve into the determined by how well management is able economy. Ultimately, a loan is a matter of most minute detail of a contract or a credit to take advantage of the opportunities that are confidence. How do I think that this particular proposal, for example, but at the same time offered. Nothing is automatic. It is the combi- customer will be able to cope when things never lose the feeling for the big picture. It is nation of motivation and ability among people aren’t going the way his forecasts indicate? uncommon to find both of these characteristics that determines how things develop. Of course, you should have collateral – if it is in one person. available. But every time the Bank has to What is most important to a bank? foreclose on collateral, it has failed in its credit What are the characteristics of a good leader? Bad loans can lead to a bank’s downfall. This evaluation! Leaders display elements of egocentricity – was the case at Nordbanken during 1990 – which become stronger over the years. Their 1992, when Sweden underwent a deep What is most important in a loan process? presence is noticed when they enter a room. financial crisis. We also saw this at KOP and The credit process is largely a matter of But at the same time they should be able to be UBF in Finland in the early 1990s. Loan losses discipline. Analyses should be available, figures both unpretentious and generous. This is not a are a consequence of both an inadequate should be up-to-date, review presentations simple combination. internal credit process and difficult external should be concise and concentrate on essenti- circumstances – and it is possible to do some- als. And the presenter should have an opinion Name a few good leaders. thing about both. as to the quality of the management and Board I have worked closely with a number of of Directors, as well as the risk associated with successful leaders in Swedish industry during What is your view of the credit process? the industry. the past 40 years. To name a few examples: A credit process consists of a combination of Marcus Wallenberg and Hans Werthén, Hans knowledge, attitudes and experience. It is a How have you been actively involved in the Rausing and Pehr Gyllenhammar. They are all matter of creating and developing a credit loan process? very different – but one characteristic that they culture. Many of our employees are involved in Since I joined the bank in January 1991, I share is their command of a broad range of credit programs – approximately 90% of all have served as chairman of the Credit Commit- subjects. Their particular versatility enables loans are approved by branches. Naturally it is tee. We have met every Tuesday at 4:00 p.m., usually for two to three hours – but in the early and in the industry specifically – to be able to 1990s sometimes for four or five hours. And raise questions and take positions at short there was no dinner until we had completed notice on issues involving major changes. the day’s agenda. I have had a forum in which I was able to Who decides what? exert some influence – by raising questions and making demands. Sometimes I have been nit- The Board decides on certain major issues, but picking and questioning, but as the quality of it is important to maintain the boundaries the loans has improved over the years, I have between line management and the more been able to be more appreciative. We now strategically-oriented and monitoring Board. At have a solid loan portfolio and, not least, a MeritaNordbanken we have chosen to have process that is conducted by many skilled part of the Board’s work take place in targeted employees. committees. This makes it possible to handle The second dimension in lending is known Board work in greater depth. as business analysis. Handelsbanken saw more One should also keep in mind the Board’s clearly than Nordbanken that the real estate role as a source of enthusiastic support for market was a “bubble,” and that many finance management. A Board should be demanding companies were built on loose sand at the end but it should also be inspiring. of the 1980s. It is a matter of looking ahead and evaluating what you think about foreign Mergers are resulting in fewer and larger exchange movements, interest rates and the banks. Is this a good thing? trend of asset valuation. The individual cus- There are a number changes under way in tomer lives in the economic environment of Europe’s banking world at the present time. But aren’t mergers difficult – especially those his/her country and the world. The bank has Barriers are being removed, capital is moving across national borders? an overview and assumes a responsibility to freely. We are in the process of obtaining a either say “yes” or “no” to a loan application. Well, they have to have favorable conditions in single currency for all of Europe. We have to which to operate, and they have to be take advantage of the opportunities so that we well-planned and well-accepted. I was pleased What do you mean by the bank’s will not be bypassed. when the Financial Times recently noted that responsibility in lending? The IT revolution is making banks increas- MeritaNordbanken was to date the only ingly accessible to customers, and is reducing The bank’s judgment determines whether or example of a successful transnational bank costs and creating opportunities for new not a corporation or a homeowner can take the merger in Europe. products. Customers are the big winners. We next step. It is up to the bank to decide in such Conditions in the Nordic Region are condu- must be at the leading edge of developments in a way that the customer does not incur unnec- cive to bank mergers. We have a common information technology. This costs a great deal essary risk. Sometimes we are perhaps too history, strong linguistic and cultural ties. And, of money and accordingly requires large cautious, and then it’s good that there are notably in the case of Finland and Sweden, a volumes of business. other banks – that competition prevails. similar industrial structure. The truly difficult loan decisions involve existing Even before we began the negotiations be- loans at a time when a customer is having tween Merita and Nordbanken, we attempted problems. Should we go a step further? Should to create a common perspective – a basis for we not only grant an extension of the existing how we both regarded the Nordic Bank Vision. loan but perhaps also lend additional funds, to Management has since done a fine job – sup- save the borrower’s company – and safeguard ported by many positive forces in both banks – our claim? If the bank decides that it is only a in not permitting rivalry between nations but matter of a temporary decline in liquidity, it in regarding differences as sources of strength. should not “choke” the company. The difficulty lies in determining whether a liquidity gap has But aren’t transnational mergers more difficult to be bridged or whether the problem is more than staying in the domestic market? serious. And then we generally refer back to our evaluation of the customer’s qualities – as Perhaps. But take the Merita example. Merita a corporate manager or private individual. had such large market shares in Finland that, to become larger, there was only one way to go: westward. And we at Nordbanken saw this What characteristics do you associate with the as a great opportunity, one that we are happy to term “businesslike?” be able to take mutual advantage of. A combination of imagination and flexibility on the one hand and a gift for figures. A sort of And the next step? Norway and Denmark? restlessness as part of continuous searching. Well, our bid for CBK remains firm. We have But, at the same time, a down-to-earth focus high hopes that there will be a decision during on what is possible. the spring. As for Denmark, it is a matter of positioning ourselves so that we are perceived What is the role of the Board of Directors? as the ideal joint-venture partner in the Nordic Role number one is to ensure that manage- Region. ment – and indeed the president – is the right Corporate customers are also growing in size. Is that, then, the final move? person. The demands on the president change We are reading about large new corporate during the variable lifetime of a company. mergers every week. This trend is imposing There is never a final move. But if we achieve Then, it is up to the president to compose his demands for banks with ever-stronger capital our objective, which is to become the Nordic team. This is perhaps his most important task! structures. The stock market also wants to see Champion, I think that we can offer our The Board should also monitor the company’s banks with larger capitalization and good customers a solid financial partnership and an operations through active involvement, in order liquidity in their shares. All signs point in the exciting future for our employees, as well as an to be able to evaluate management’s perform- same direction. We must ensure that we are attractive deal for our shareholders. One should ance. It is not enough just to read documents one of the banks in the winners’ group in the always be concerned about the future perspec- and be attentive at Board meetings. Board Nordic Region. We have to do this for the sake tive. It is essential to position oneself so that members also have to follow what is happen- of our customers, our shareholders and our one stands out as the most attractive partner. ing in the economy and in politics generally – employees. 40 MeritaNordbanken Group Annual Report 1999

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.

Markets Markets Jussi Laitinen

EUR bn 1999 1998

Income 152 157 Expenses -100 -121 Loan losses –– Markets Sweden Markets Finland Markets International Securities service Operating profit 52 36

n Finland, the volume of Trad- in Sweden institutional equity tration on services offered to the ing’s standard products declined trading showed a marginal profit. Bank’s Nordic and local customers. I25-30% following the Finnish During the year all areas of markka's loss of its former status as Markets were focused on upgrading an independent currency. In the internal controls for business proce- New organization Swedish market, trading in standard dures, instructions and ethics. A products remained strong. In both major systems development project In May 1999, a new organizational Finland and Sweden, Trading opera- was started to strengthen business structure was established for Mar- tions reported a growing number of and administrative routines with kets. The business area was divided international customers. particular emphasis on equity into separate units for Sweden, Currency markets were char- trading in Sweden. Finland and International. acterized by volatility in 1999. The In January 1999, a case of Most operations conducted by euro weakened, while SEK, USD unauthorized equity trading was Markets are concentrated in Helsin- and JPY gained strength. Robust discovered within Nordbanken ki and Stockholm. Offices in both economic growth in the U.S. and Aktier, which resulted in a loss cities focus on market-making, risk- Europe, led to a sharp increase in provision being made in the 1998 taking, analysis and sales. The long market interest rates. Credit accounts. margins on government bonds and As a result of this case, the corporate debentures fluctuated Bank conducted a comprehensive Income distribution, Markets sharply during the year, coupled internal audit. The case also promp- with rising stock prices in Finland ted an audit by the Financial Super-

and Sweden. visory Authority, which criticized Shares Despite lower volumes due to Nordbanken Aktier. The Bank 26% the euro, currency trading opera- implemented several measures Interest products tions reported strong earnings, during the year to strengthen 17% although slightly lower than in internal control routines within Currency products Derivative 1998. Profitability from interest Nordbanken Aktier. 33% products trading was weak, with the excep- Efforts continued in 1999 to 15% tion of the Bank’s own positions. shift the focus of Trading opera- Earnings from equity trading tions in London, New York and Capital Other market in Finland increased sharply, while Singapore toward greater concen- 5% 4% MeritaNordbanken Group 41 Annual Report 1999

business area also has operations in was continued in 1999, with strong (MTN) and Commercial Paper Malmö, Gothenburg, Sundsvall, emphasis on coordinating analytical markets. MeritaNordbanken was London, New York and Singapore, operations and customer relations. the first bank in Sweden to offer with special concentration on sales customers a combined SEK/EUR and local sales support. In Sweden, MTN program. Efforts have contin- the organization also includes ued in Finland and Sweden to Securities Service (VPS), a central- Expanded operations establish leadership positions for ized, earnings-neutral processing new share issues and investments in unit, for trading and equity trading The introduction of the euro has money market instruments. in Sweden. influenced the focus and structure In terms of the number of Equity trading is conducted of Markets. The changes are reflect- transactions, MeritaNordbanken with product and operational ed in lower income from traditional was the largest player in the Finnish responsibility for institutional currency and interest trading, but stock market in 1999, with a mar- equity trading and product respon- higher volumes and income from ket share of 19%. It was the second sibility for regional equity trading. money market and equity trading largest player in terms of turnover, Currency, interest, derivatives and activities. Special priority has been with a market share of 12%. More money market operations, as well as placed on cost discipline and coor- than 50% of all private customers’ operations in emerging markets, are dinated development in currency share transactions in Finland are conducted with product and busi- and interest trading. Customer handled through Solo. In Sweden, ness responsibility. service has been decentralized, MeritaNordbanken’s market share Greater coordination has been while assumptions of risks and of trading on the OM Stockholm achieved in market-making, risk- administrative routines are becom- was 5% and only 1.5% measured by taking, product development and ing increasingly centralized. Merita- turnover. The lower volume per- marketing within the three product Nordbanken has strong positions in centage is largely due to the Bank areas conducting global operations, both Finland and Sweden as a pursuing a low-risk profile com- which comprise currency and bond traditional trading bank for large pared with other Swedish banks trading as well as money market companies and institutions. with regard to trading on its own operations. Efforts are being made Markets also defended its account. to coordinate operations in financial position as Finland’s leading source Emphasis on quality service for analysis, international sales and for syndicated-loan and money customers of the Bank’s branch emerging markets. Global coordi- market programs. During 1999, the network in Sweden was continued, nation of risk-evaluation and risk- Group was an active member of the supported by stronger focus on monitoring elements of financial dealer group for all international trading by institutional customers. risks and credit risks has been loan programs for Finnish corporate Stock market research has been completed. IT-investments in customers. Money market opera- successful in both Finland and Finland and Sweden are also being tions in Sweden have been charac- Sweden, achieving strong ratings in coordinated to create maximum terized by dynamic growth during several different comparisons with uniformity in the business area’s recent years. Strong loan-syndi- competing banks and financial IT-structure. cation operations have been supple- institutions. Equity trading is a Coordination of equity trading mented by substantial activity in growth area for MeritaNordbanken. operations in Finland and Sweden Sweden’s Medium-Term Note

Trend on the OM Stockholm Exchange, 1999 Trend on the Helsinki Exchanges, 1999 SEK million Index EUR million Index 20 000 25 000 16 000 5 500 General Index 18 000 Hex Index 17 500 5 250 14 000 16 000 15 000 5 000 14 000 12 000 Turnover 12 500 Turnover A-List 4 750 12 000 10 000 10 000 Monthly volume Daily volume 4 500 8 000 10 000 4 250 8 000 6 000 7 500 4 000 6 000 4 000 4 000 5 000 3 750 2 000 2 000 3 500 2 500 0 0 3 250 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Long-term saving is a way to generate capital for your children. MeritaNordbanken Group 43 Annual Report 1999

Asset Management/Life Insurance Strong volume growth and return

eritaNordbanken is one of the Nordic region’s largest Asset Management/ Life Insurance players in long-term M Karl-Olof Hammarkvist savings, with total assets under management of EUR 33 bn. Opera- tions in 1999 were characterized by strong volume growth and capital return. Efforts to strengthen the Asset Management Insurance Private Banking Bank's organization, marketing and advisory services, which were started in conjunction with the merger of Merita and Nordbanken, have produced results. Asset Management international asset management and Integration has continued with research as well as risk and perfor- the Group’s joint management Asset Management is the umbrella mance analysis. Special focus has unit, MeritaNordbanken Invest- designation for all Group companies also been directed toward product ment Management, as perhaps the that manage funds and portfolios for development, marketing, investment most obvious example. The Bank private individuals and institutions. advisory services and sales support. has also developed and unified its Asset Management is the Group’s Special skills and expertise have also mutual fund products and achieved expertise center for asset manage- been developed in Internet-banking continued success in the unit-linked ment. It offers a well-balanced range to support and benefit from Group insurance market. The Private of products through Retail’s distri- investments in the Solo concept. Banking concept has been success- bution channels. Its skills and expert- fully launched in Sweden, gene- ise enable MNB AM to structure Mutual funds rating new customers and assets portfolios adapted to the specific MeritaNordbanken captured 20.5% under management. requests and requirements of all of net capital inflows into the The total number of employ- customers. Swedish mutual funds market in ees increased by 30 in 1999 to 269. Integration of the asset man- 1999, and its share of the total agement organizations of Merita and market for mutual funds at year- Nordbanken was completed in 1999. end 1999 was 18.2%. The Bank's Yield and risk 1999 Reinforcements and investments strong sales performance was Yield have been made in the Bank’s attributed primarily to higher percent 100

80 Growth company fund Result 60 Mutual Portfolio Total Total Spektra EUR million funds management Insurance 1999 1998 40 Optima Income 189 21 60 270 202 Futura Europe Fund Expenses -75 -5 -24 -104 -92 20 Operating profit 114 16 36 166 110 Volumes, EUR bn 1) 20.1 7.9 5.0 33.0 21.4 0 0 5 10 15 20 25 1) Unit-linked insurance EUR 1.5 bn, reported under Insurance. Risk, percent 44 MeritaNordbanken Group Annual Report 1999

Distribution of assets under exceeding its asset management customers in Sweden by 37% to management goal in relation to comparison EUR 4.4 bn and in Finland by 57% index. to EUR 3.5 bn. Return was general- ly strong and, in most cases, exceed- Portfolio ed comparative bank portfolio management 27% Institutional market Equity funds indexes. 44% Growth in the Swedish market for Mixed funds institutional assignments is increas- 18% ing in the segment immediately Life insurance/IPS below large customers. To meet this Demand for capital and pension Money market and demand, in 1999 MeritaNordbank- bond funds 11% en successfully launched four funds insurance products was strong in targeted to the investment needs of both markets. The expansion of priority on sales of mutual funds in midsize companies and institutions. sales support to branch office Retail operations, the launch of new The new funds contributed to operations and strong efforts by the products such as Medica and the strong growth during the year. bank's local offices and the Selekta IT-fund, and stronger support for Cooperation with the Bank’s branch experts yielded higher sales vol- financial advisors and personal offices has been further intensified umes. bankers in branch offices. Sales of to provide cost-efficient customer Merita Life strengthened its mutual funds to corporate custom- services in this market segment. position as Finland’s leading life ers increased steadily during 1999. In Finland, operations in the insurance company by increasing its Unit-linked insurance accounts for institutional market were concen- market share of total premium a substantial percentage of the net trated primarily on establishing a income to 29.5% (27.7). The capital inflow. solid foundation for future expan- company's total premium income In the Finnish market, Merita- sion. Demand for discretionary rose to EUR 1,214 M (736). At Nordbanken captured 30.6% of the management has started to in- the end of June, Merita Life intro- net inflow and its market share of crease, generating greater interest duced a new customer-oriented the total savings volume at year-end among other players to enter the structure to further enhance opera- amounted to 28.6%. market. ting efficiency and create a base for The number of fund savers During the year, MeritaNord- future expansion. increased sharply in 1999, totaling banken increased its assets under Livia increased its premium 1.4 million at year-end. Efforts to management for institutional income by 12% to EUR 140 M. broaden savings in mutual funds have continued, and the number of MeritaNordbanken, monthly savings customers now Household Savings amounts to approximately 800,000. Insurance MeritaNordbanken's mutual Deposits funds generated a very strong Mutual Funds Retail bonds EUR bn National public Equity index overall return during the year, savings bonds Distribution of mutual 35 funds in Nordic countries Assets under management, December 31, 1999 30 EUR bn

25 120

20 100

80 15 60 10 40

5 20

0 0 95 96 97 98 99 95 96 97 98 99 Sweden Finland Norway Denmark

Finland Sweden Sources: Helsinki Exchanges, InvesteringsFöreningsRådet, Sweden Fondstatistik AB and Verdipapirenes Forening. MeritaNordbanken Group 45 Annual Report 1999

Employment pensions accounted pension systems, as well as greater trend of previous years appears to for about 11% of premium income interest and increased knowledge have been reversed but price levels during the year, and 2,500 new among customers, are other impor- for large portfolios are still generally agreements were signed in this tant elements behind substantial low, since many players, both new increasingly attractive market inflows of capital into both mar- and old, are trying to expand their sector. In its capacity as an agent for kets. volumes. Asset management will Merita Life, the company captured During the year 2000, markets continue to be characterized by 15% of the market for unit-linked for mutual funds and life insurance international diversification and insurance in 1999, calculated as a in Finland are likely to benefit from increased investments in mutual percentage of new subscription changes in tax regulations governing funds. volume. interest on deposit accounts. In MeritaNordbanken will retain Sales of IPS (Individual Pen- Sweden, the first appointment of its position in the year 2000 as the sion Savings) rose 79% in 1999. an asset manager will take place this market’s best bank for savings. Part of the increase came at the autumn within the framework of Cornerstones of the Bank’s strategy expense of Livia's traditional retire- PPS, the premium pension system, include: ment pension products, which which has accumulated capital declined marginally in terms of totaling SEK 54 bn. As a result, PPS • increased market shares in the sales volume. Higher IPS volumes will probably also stimulate increas- mutual funds sector through in 1999 were attributable to in- ed savings. market-oriented product deve- lopment, high-quality advisory creased customer interest in fund The Finnish market is expect- services for customers and good savings and strong stock market ed to show stronger growth than accessibility, performance. Sweden, due to its limited starting volume, ongoing transfers of savings • expansion of fund savings in to equity funds, higher savings and, Finland through focus on in- Outlook by international standards, the creased monthly saving, country's low level of wealth among • stronger focus on the corporate Markets for mutual funds and life private households. segment of the life insurance insurance continue to show strong Continued strong growth and market, growth. Strong value-added growth intensive competition for large- • profit-oriented expansion in the coinciding with substantial capital sized companies characterize insti- institutional market, inflows are driving volumes up. tutional markets in both Finland Demographic factors and changes in and Sweden. The negative price • asset management income and capital 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 insurance MeritaNordbanken, Asset Management and Life Insurance products. Managed assets

Unit-linked insurance Insurance (excl. Unit-linked) Institutional management EUR bn Mutual funds (excl. Unit-linked) 35

30

25

20

15

10

5

0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1998 1999 46 MeritaNordbanken Group Annual Report 1999

Real Estate Divestment continues

MeritaNordbanken's real estate portfolio contains properties with substantial values, most of which are situated in Finland. Real estate operations 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.

decision was made in transferred to Aleksia, a new real December 1998 to divide estate company. The portfolio Aleksia sold Aand divest the Group’s consists of 172 high-quality proper- property portfolio in Finland at a ties situated in growth areas – On February 22, 2000, more rapid pace than previously primarily in and around Helsinki. MeritaNordbanken and planned. The decision is in line with The book value is listed as EUR 1.3 Ilmarinen Mutual Pension the strategy MeritaNordbanken bn. In view of the decline in the Insurance Company reached established in 1997, which aims at market for property securities and an agreement on the cash focusing on and expanding banking competing offerings of real estate transfer of the shares in operations. shares in Finland, a decision was Aleksia for about EUR During 1999, portfolio assets reached in late autumn 1999 to 370 M. Moreover, Ilmarinen were reduced by EUR 0.2 bn. postpone Aleksia's stock listing will take over Aleksia’s debt The Finnish market for shares until the year 2000. in the Bank after MeritaNord- in real estate companies weakened in On January 31, 2000, Merita- banken has repurchased 14 1999, despite a continued improve- Nordbanken decided to sell Aleksia properties from Aleksia for ment in the rental market. In the and list the company’s shares on EUR 145 M and completed light of this, there was a market the stock market. After a pre- certain development projects. adjustment in the Bank’s portfolio of marketing period, and in consul- As a result of the cash transfer real estate shares in the amount of tation with the Bank’s advisors, an the sale of shares and listing EUR 145 M. Of the total write- anticipated price range was estab- on the Helsinki Exchanges down, EUR 21 M pertained to lished for shares in Aleksia, corres- was cancelled. The sale of shares in Citycon, since these shares ponding to a total value of EUR Aleksia will generate an addi- are now considered current assets, 370 – 450 M. The average value, tional capital loss of about and EUR 90 M comprises a reserve EUR 410 M, is EUR 90 M lower EUR 40 M during the year for eventual losses from the sale of than MeritaNordbanken’s book 2000. shares in Aleksia. value for Aleksia. Appraisals of the Bank’s pro- perty holdings outside the Nordic area in conjunction with the formu- MeritaNordbanken, EUR billion lation of a program of measures and Book value of real estate holdings, Dec 31 1999 1998 actions revealed the need for write- downs of EUR 34 M to EUR 110 M. Aleksia 1.4 1.3 Shares in real estate companies 1) 0.2 0.3 Other properties 0.7 0.9 Bank premises 0.8 0.8

Aleksia Ltd Total 3.1 3.3 In the beginning of 1999, Merita 1) Citycon, Sponda, Dividum and others. Real Estate’s property portfolio was MeritaNordbanken Group 47 Annual Report 1999

Hotel properties 17.6 M). As a result of this trans- amounts to EUR 0.5 bn. The prop- action and other property acquisi- erties provide a yield of 4.9%. Toward year-end 1998, Merita Real tions, Citycon has strengthened its Estate transferred 16 wholly-owned market position. The acquisitions and 2 partly-owned hotel proper- almost doubled the value of City- Nordbanken Fastigheter AB and ties to Kansalliset Liikekiinteistöt con’s assets to EUR 0.8 bn. Fastighets AB Stämjärnet Oy, which was restructured as a MeritaNordbanken’s holding, hotel-investment company, and its which after recently completed Nordbanken Fastigheter owns the name was changed to Dividum Oy. transactions amounts to 42.7%, will Group’s properties in Sweden, In January 2000 Dividum be sold to new owners when busi- where the Bank is the dominant acquired five attractive hotels in ness conditions are considered tenant. The portfolio is being Helsinki and its ownership struc- favorable. gradually concentrated to larger ture was broadened, reducing properties in Stockholm, Gothen- MeritaNordbanken’s holding to burg and Malmö as well as other 47.2%. Dividum's assets increased residential areas. to nearly EUR 0.2 bn. Merita Real Estate Ltd Market value is estimated at As a result, Dividum is now Three-quarters of Merita Real EUR 565 M, and the book value is fully structured for a transfer to Estate’s property portfolio consists EUR 350 M. Nordbanken Fastig- new ownership as soon as market of office and rental properties, heter manages a total of 249,000 conditions are considered favorable. residential and foreign properties, square meters, of which 155,000 with one-quarter comprising land square meters are occupied by the and development projects. Bank. The year-end vacancy rate Shopping malls and After divestments of proper- was 3.9%. Total rental revenues in business centers ties in 1999 valued at EUR 286 M, 1999 amounted to EUR 42 M, with and write-downs totaling EUR internal tenants accounting for EUR In June 1999, shares in nine shop- 34 M, the remaining portfolio has a 32 M. The company had 41 ping malls were transferred to City- book value of EUR 1.1 bn. Exclud- employees, who also manage Stäm- con, a publicly listed company. ing land and development projects, järnet’s properties. The purchase price amounted the portfolio generates a capital Fastighets AB Stämjärnet is to EUR 135.7 M, of which EUR yield of about 4.7%. responsible for management and 89.8 M was paid in cash and EUR The book value of properties disposal of properties taken over as 18.3 M was settled in the form of used in actual bank operations in protection of claims. Following shares (plus a capital loan of EUR Finland and the U.K. (London) divestments in 1999 of 35 proper- ties the portfolio comprises 10 properties with a total book value of EUR 29 M, including four foreign properties. The Bank hopes to sell all remaining properties during the year 2000.

Plan 1998 Today

Aleksia Aleksia To be divested

Hotel properties Dividum For sale

Shopping malls Citycon For sale

Real estate holdings

Real estate shares Real estate shares To be sold Other properties Other properties separately

Banking premises Banking premises 48 MeritaNordbanken Group Annual Report 1999

Treasury Higher interest rates – lower interest-rate risk

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

he global economy recovered quickly after the financial Tcrises that characterized international economic trends Treasury during the second half of 1998 and Jakob Grinbaum the beginning of 1999. Stock markets performed very strongly and oil prices climbed to their Internal bank Asset and Liability Portfolio highest levels since the Kuwait Management management crisis. Major upward revisions were made in respect of private con- sumption and energy prices. This subsequently led to sharply rising Organization Internal bank interest rates during the year (slightly more than 1.5 percentage Treasury conducts operations in The internal bank is a Group ser- points), which had a negative Helsinki, Stockholm, London and vice unit that manages interest and impact on earnings from financial New York. Operations in London liquidity risks arising in the normal management operations. A sharp and New York are conducted as operations of both banks. This reduction of interest-rate risk was part of the internal bank. Efforts to responsibility involves ensuring that initiated during the second quarter. coordinate units and establish a in all markets and all currencies the The increase in short-term rates uniform structure and direction Group obtains funding in the most was less than corresponding hikes in were completed during the year. cost-efficient manner that, i.a. its long-term rates. Through a greater Asset management activities were rating permits. At the end of 1999, portion of housing bonds in the expanded through a transfer of priority was given to securing a high portfolio, a higher total return was equity portfolios to Treasury. level of liquidity readiness in the achieved. Combined with relatively The Bank also reorganized its major currencies to cope with any short maturities in the portfolio, structure for central risk control, disturbances related to the millen- this cushioned the impact of the which was transferred to Credit nium shift. In addition, open posi- continued interest rate increase on and Risk. Greater focus is now tions with a time interval of up to earnings. All portfolios showed being placed on Treasury analysis of one year were closed, thereby positive net interest, in excess of the total balance sheet composition limiting the net interest-rate risk the negative changes in value. and development. of the entire balance sheet. MeritaNordbanken Group 49 Annual Report 1999

The internal bank unit is on the OMRX interest-rate index. the balance sheet. Statistical inter- responsible for the Group’s various The equity portfolio repre- est-rate risks are the interest risks funding programs and debenture sents a diversification within the that arise when taking into account issues. It is also responsible for investment framework and includes the contractual fixed-interest due clearing operations and cash de- a Public Equity portion and a dates of customers. Dynamic posits in the various central banks, Private Equity portion. The equity interest-rate risk are those that take clearing institutions and other portfolios are measured against into account the customer’s be- counterparties. indexes based on HEX and OMX. havior and that certain assets and The unit is also responsible for liabilities do not directly reflect ensuring access to adequate vol- changes in market rates. Portfolio management umes of securities that can be used Liquidity risks are measured as collateral for, i.a. securing pay- partly on the exposure banks have Portfolio management is divided ments in the respective country’s daily in order to deal with cash into three units: Fixed Asset Port- payment system. in respective currencies, and partly folio and Current Portfolio for on 14 and 30-day projections. Liq- fixed-income securities and the uidity risks are measured in each Equities Portfolio. The Fixed Asset ALM currency separately in order to Portfolio has a long-term horizon determine the exposure in the and is aimed at creating sustained, Asset and Liability Management currency and as a weighted risk that stable and high return. The Current (ALM) is responsible for consoli- shows how banks are exposed for Portfolio is aimed at active manage- dating, simulating and analyzing the short-term borrowing. ment to achieve a return on capital Group’s and the Bank’s net inter- ALM provides analytical that exceeds market interest for est-risk. ALM reviews and prepares background information for de- passive management. The reports and analyses that are dealt cision-making that the operating fixed–income portfolios carry with in the Asset and Liability units can use to increase or limit interest-rate risks but have low Committee (ALCO). ALM deve- risks in the balance sheet and its credit risk. Moreover, they repre- lops risk measurement methods for composition. During the year, sent a liquidity reserve, since hold- strategic risks and balance sheet activity focused on the implemen- ings can either be mortgaged or techniques and simulations. tation of a new analytical tool for sold. The fixed-income portfolios ALM measures the statistical balance sheet analysis. are measured against index based and dynamic interest-rate risks in

Interest rate and currency trend 1998–1999

% Rate 6.5 1.225 EUR/USD Swedish 10-year interest rate 6.0 1.200

5.5 1.175

5.0 1.150

4.5 1.125

1.100 4.0 1.075 3.5 1.050 Swedish 3-month interest rate 3.0 1.025 2.5 1.000 Apr Jul Oct 1999 Apr Jul Oct 50 MeritaNordbanken Group Annual Report 1999

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 Group employees are creating most of the value added for customers and, consequently, the Bank’s shareholders.

nowledge, skills and the supported by a consistent personnel attributed to the increase in the commitment of Merita- strategy that includes goals and number of customers who are han- K Nordbanken’s employees actions for basic training, skills dling payments and other banking are becoming increasingly impor- development, work environment transactions with the support of tant elements for the Group’s considerations, employer attitudes new technologies, concurrently with competitiveness. The competitive and bonus systems. applications of the same technolo- climate is becoming more intense gies to coordinate and streamline with the emergence of new players, the management of internal adminis- growing globalization and the Number of employees trative routines. distribution of more banking ser- and personnel skills In other areas, however, the vices via Internet and other chan- number of Group employees is nels. Accordingly, the Group’s The number of employees working increasing. They consist primarily of explicit objective to establish a in traditional bank operations is asset management operations, leading position in the region is declining steadily. The trend is electronic banking services,

Number of full-time positions and employees in MeritaNordbanken

Employees

1,000s Positions 22 Age distribution 20 December 31, 1999

–24 Women Men 18 25–29 30–34 16 35–39

14 40–44 45–49

12 50–54 55–59

0 60–

Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec 3 500 3 000 2 500 2 000 1 500 1 000 500 0 500 1 000 1997 1998 1999 MeritaNordbanken Group 51 Annual Report 1999

insurance and expansion in the Ability to attract and A survey conducted in 1999 to Baltic countries and Poland. retain good employees determine the attitudes and opin- Growth in these areas is also cre- ions of all employees with respect ating a need to amend and realign The labor markets in Finland and to their work situations revealed the skills and expertise of many Sweden are undergoing major very positive general ratings. In employees. transformations. Competition for Sweden, a marked improvement To achieve continued and suc- highly qualified young men and was noted from an already high cessful growth in priority business women is increasing and assuming a level. In Finland, where surveys of areas, the Bank needs committed greater element of international employee opinions are a relatively employees as well as IT and advi- mobility. The ability to attract the new concept, the results were sory skills and expertise. As a result, best talent is contingent upon the better, or as good as, the results in the Group requires employees, in Group’s opportunities to offer: Sweden. Alongside the internal cooperation with their immediate survey, a study was also conducted • Challenging assignments and supervisors, to assume responsibi- to examine customer satisfaction. opportunities to apply acquired lity for their own skills development During the year 2000, a new knowledge. and to devote their own time and Group-wide trainee program will commitment to meeting customer • Open dialogues between employ- be introduced to meet long-term expectations. In return, the Group ees and management personnel. Group requirements for manage- supports their efforts and ambitions • Good cooperation climate among ment and expertise resources. by offering attractive employment employees. MeritaNordbanken’s profit- conditions and allocating resources sharing system is designed to for career development and ad- • Career and skills development. reward all employees when the vanced training. When recruiting • Competitive salaries and other Group’s profit exceeds a fixed long- new employees, the Group general- forms of performance-based term profitability goal. This goal is ly requires that most persons wish- remuneration. based on zero-risk interest, plus risk ing to work for MeritaNordbanken premium. should have basic academic educa- The Group’s attraction value in Accrued assets in Nord- tion, preferably supplemented by these areas is monitored by internal banken’s profit-sharing fund professional experience. and external opinion surveys. amounted to EUR 100 M, and the

Managers in MeritaNordbanken MeritaNordbanken’s – distribution of men and women educational profile December 31, 1999 December 31, 1999

Senior executives Junior High Department and branch managers High School Team managers 1 200 College/university 7 000

1 000 6 000

5 000 800

4 000 600 3 000

400 2 000

200 1 000

0 0 Men Women Men Women 52 MeritaNordbanken Group Annual Report 1999

accrued value of Merita Bank’s administrative routines needed for bankers/bank advisors, key account personnel fund totaled EUR 10 M. monitoring and reporting. managers for corporate customers The assets are invested primarily in Work was conducted at all as well as private banking advisors. Nordic Baltic Holding shares. offices and work sites to develop However, most future skills deve- Allocations based on earnings and strengthen corporate values, lopment will tend to concentrate in 1999 to the personnel fund in thereby promoting the develop- on everyday work routines. Finland and the profit-sharing fund ment of a uniform corporate cul- in Sweden amounted to EUR 35 M. ture, as part of operational planning MeritaNordbanken Incentive is in preparation for the year 2000. Focus of future efforts a Group-wide bonus system estab- Discussions and cooperation The Group’s continued develop- lished in 1999 for management with the trade unions representing ment places strong demands on all personnel and specialists. The the employees continue to develop, employees. The ability of manage- system rewards fulfillment of three in the Group Council and other ment to direct the Bank’s opera- categories of goals: profit, operative forums. tions is particularly important. It is quality and skills development. The Systematic efforts to promote essential for management to sup- goals were established in discus- equality between men and women port new schools of thought, chan- sions between management person- continued as planned. A special ges and measures designed to nel and Group employees. management development program achieve business growth. The in Sweden arranged exclusively for Group’s strategy is contingent on women is a recurring activity. management’s ability to deal with A program for systematic Activities cultural differences in the region. evaluation of performance stand- The performance standards of Management’s approach to person- ards and management potential will individual employees will continue nel operations, present conditions be introduced this year. to be key elements for successful and future requirements, was About 320 managers and Group operations. Special priority, addressed in a project called “Focus specialists have participated in therefore, is placed on measures on people.” The project was intend- corporate culture seminars to that contribute to: ed as a basis for a well-founded develop various forms of coopera- development program enabling the tion, identify success factors and • Improved earnings. Group to compete successfully for target areas for strategic invest- • Increased customer satisfaction. personnel resources in its domestic ments. The seminars have resulted • Change and skills development. geographic markets. A preliminary in individual contracts specifying • Exchanges of experience to study was also conducted to estab- personal responsibility for the improve process and products. lish the requirements of a new Group’s continued development. personnel administration system. The introduction and refine- • Open, honest two-way communi- This will support the Group’s ment of the Group’s customer cation. personnel strategy and enhance the concept has affected formulations • Internal mobility to support diver- effectiveness of comprehensive of training programs for personal sification and broader experience. Marita is thinking about expanding her business. A million customers are waiting for her in the Solo market-place. 54 MeritaNordbanken Group Annual Report 1999

Information technology Higher transaction volumes

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

Accessibility and production by the Group’s banks in both coun- technology and infrastructure have tries was developed for transfers of been established in Finland and Transaction volumes increased in electronic information between the Sweden. The technology is used in Finland and Sweden, particularly in Bank and its customers. Some of customer service units and regional terms of Internet-based services. the largest investments during 1999 call centers. A high-speed network On days with unusually heavy were also focused on further deve- link will facilitate the integration of traffic, the number of Internet bank lopment of network banking services, data, audio and video as well as customers was twice as high in 1999 with particularly strong emphasis joint communication solutions with as in 1998. on Internet and telephone services. external companies. Preparations To secure satisfactory quality The acquisition of a new are now being made in Finland for standards, the Bank’s central pro- system for business operations in conversion to the euro cash and duction capacity, including reserve the Baltic countries and Poland was euro accounting, which will be capacity for the millennium shift, completed in December. completed in midyear 2002. was increased by one-third and in certain particularly critical areas, Technology, systems integration Remaining competitive capacity was doubled. To meet performance demands and secure Due to continued systems integra- The number of employees in Data quality standards in customer tion between Finland and Sweden rose by 10 in 1999 to 1,175 per- service at branch offices, 4,500 PCs and demands for increasingly faster sons. The increase was attributable were replaced in Finland during the systems deliveries, MeritaNord- to instaling new systems, cutbacks past year, and an additional 3,500 banken is now introducing a new sys- in consultant services and recruit- will be replaced this year. tems architecture using component- ment of key persons to minimize In relation to the high rate of based technology. Through coordi- reliance on outside consultants. change, system accessibility has nated development intended to Investments were also made in remained good. As a result of establish the same solutions in skills development to derive greater meticulous planning, no significant Finland and Sweden, the new benefits from new technology problems were noted in conjunc- architecture is designed to increase applications. tion with the millennium shift. productivity and, consequently, reduce costs and time for future Data production 1999 Systems development development. A common platform for PC Direct customer links via Internet/telephone 1) 2 360 000 The conversion to the euro, the work stations is under construction Intra-bank workstations 19 000 Bank’s new currency, was com- to simplify cross-border work by Servers in networks 1 560 pleted without problems during the employees in all banking areas. The Transaction value, millions 2 000 first quarter of 1999. Substantial new platform will also reduce costs Printouts, millions of pages 163 Enclosed mailings, millions 78 investments have been made in new and increase utilization of unified Data capacity, MIPS 3 380 systems to support the Group’s applications. Computer storage capacity, GB 15 300 equity trading and lending opera- To improve customer services 1) Via Internet 1,050,000. tions. An electronic mailbox used in telephone banking, a common MeritaNordbanken Group 55 Annual Report 1999

Environment Environmental gains and cost savings

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

anking operations have fewer many years. To support further for environmental concerns. In direct effects on the environ- improvements in appraisals of credi- addition, virtually all materials that Bment than many other sectors tor payment risks related to environ- can be recycled are separated at all of industry. Nevertheless, environ- mental effects, risk-analysis instruct- workplaces. mental issues are extremely impor- ions and checklists were formulated To reduce business travel, the tant to MeritaNordbanken. The and expanded during the year. Group has more than 40 video Bank accepts its environmental In the payments sector, oppor- conference facilities at different responsibility and contributes to tunities to work in a more environ- locations in Finland and Sweden. long-term ecological development mentally compatible and effective Utilization of these facilities has in compliance with the wishes and manner, both for customers and increased sharply with the increas- expectations of its customers and within the Bank, were increased ing accessibility of new technologies employees. Its environmental work through applications of modern IT- and improvements in audio and is designed to increase MeritaNord- tools. Payment and other banking picture quality. banken’s value as a financial partner. services via Internet save energy Determined efforts focused on and reduce environmental effects. the environment continued in The market has been informed Common environmental policy 1999. Besides ongoing environmen- about the Group’s environmental tal investments within the Group, work through advertising cam- MeritaNordbanken stepped up its comprehensive environmental paigns, articles in various publi- environmental efforts in 1999 by training courses were conducted for cations as well as through Merita- establishing a Group environmental bank employees in Finland. The Nordbanken’s participation in policy and appointing a corporate training program established a com- seminars and conferences. environmental council to coordi- mon platform for continued en- Environmental considerations nate environmental work in Finland vironmental improvements through are taken into account in all pur- and Sweden. Operational plans for employee incentives and commit- chases, and the Group prioritizes the year 2000 include the formu- ment, thereby creating good poten- purchases of environmentally lation of a corporate environmental tial to realize the Group’s environ- friendly products. plan constituting a platform for local mental plans for the year 2000. MeritaNordbanken has environmental plans prepared by all expressly declared its intention to Group units. Environmental counse- reduce consumption of electricity lors have also been appointed within Environment work in the entire and other forms of energy. The the Group to support local environ- organization Bank buys green energy as recom- mental efforts. “MeritaNordbanken’s mended for environmental reasons. Environmental Guide,” which In the financing sector, environ- Environmentally hazardous comprises information and training mental analyses have been a com- waste is separated on-site and materials for the entire Group, was pulsory part of credit appraisal for disposed of with due consideration published during the year. An entrepreneur can decide for himself when he wants to do his banking business. MeritaNordbanken Group 57 Annual Report 1999

Risk management Identification and measurement of risks

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

ccordingly, MeritaNord- kept within manageable levels at function is Chairman of the Risk banken has developed and reasonable costs. Committee. ALCO is responsible Aimplemented a comprehen- for establishing principles for moni- sive regulatory system to handle toring, checking and measuring the risk management within the Group. Organization and structure Group’s financial risks. The Risk Risk management is based on Committee monitors risk trends the principle that each unit is The Board exercises its overall and supports the development of primarily responsible for the risks responsibility and control in plenary risk management operations. associated with its operations. Key sittings and through a Treasury and Since 1999, there are three factors in this process are the early Risk Committee and a Credit units within Group Credit and identification and measurement of Committee. The Board establishes Risk: Credit Risks, Market Risks all types of risk. the risk limits. It is the task of the and Operating Risks. These depart- The focal point of risk manage- Treasury and Risk Committee to ments collate, control, analyze and ment is the maintenance of stable report prior to Board meetings on report in a uniform manner to the earnings. At no time may the treasury and risk-related issues, and relevant decision-making bodies. Group’s continuity be jeopardized also to monitor limit utilization and The heads of Group Credit and by risk. the general risk position of the Risk and Group Credit units are The Board has ultimate Group. members of the Group Executive responsibility for limiting and In addition, Group Executive Management and report directly to monitoring the Group’s risk expo- Management has appointed an the Group’s Chief Executive Officer. sure. The Group’s overall goals for Asset and Liability Committee In addition, each business unit return on equity, loan losses and (ALCO) and a Risk Committee. contains a risk management organi- capital coverage constitute the The Group’s Chief Executive zation that is responsible for the starting point for MeritaNord- Officer is Chairman of ALCO and daily monitoring of operating risks banken’s risk limits. the head of the Credit and Risk and results. The Group goal is that loan losses shall be less than 0.4% of lending over a business cycle, a reduction compared with the preceding year. Market risks in current assets are limited to a level that corres- Board of Directors ponds to 4% of core capital and Credit Treasury and interest-rate risk is limited to 3% of Committee Risk Committee core capital. Corresponding figures for risk in long-term shareholdings Group Executive is 2%. At a 10% price decline in the Management property holdings, core capital would be affected by 6%. ALCO Risk Committee Operating and legal risks are 58 MeritaNordbanken Group Annual Report 1999

Credit risks

Credit risk is defined as the risk involving significant exposures for ments in certain industries, busi- that parties with whom the Bank the Bank, a limit is decided, which ness cycles, and interest rate and has entered into agreements do not also stipulates the conditions for exchange rate contingencies that fulfill their obligations to the Bank, granting credit. Within the limit, affect customer’s direct repayment and that any collateral deposited decisions are taken in respect of abilities and collateral value. does not cover the Bank’s recei- individual credits in accordance This same unit is also respons- vable claims. Credit risks arise in with the terms set out in the limit ible for handling individual credit many of MeritaNordbanken’s decision. For smaller credits, de- commitments should they become business operations. Most of the cisions are made in casu. problem commitments. The custo- Bank’s credit risks arise through The Board has delegated the mer-responsible unit identifies and various forms of lending activity. right of decision on customer limits reports customer commitments Other credit risks can arise through primarily to three decision-making which carry an increased credit loss financial-instrument trading, prima- levels outside the Board and its risk. These exposures can be rily derivatives. The risk is that the committees. Right of decision on grouped in two categories: Risk counterparty is unable to fulfil its customer limits is restricted for Class 1 and Risk Class 2. commitment, referred to as counter- each decision-making body. The Customer commitments, party or default risk. diagram below shows the decision- which through neglect or other The primary risk management making structure. circumstances cause uncertainty as factor is to ensure that the credit Each customer, or counter- to repayment of the claim, are process itself is handled with party, having a credit commitment placed in Risk Class 1. An assess- quality and discipline. This requires with the Group is assigned to a ment is made of the potential loss well-defined rules and instructions customer-responsible unit. This unit risk, for which a provision is then as well as business expertise. ensures that the customer/counter- made. The customer-responsible party is granted a limit/credit adapt- unit drafts an action plan outlining ed to its repayment capacity, which how to handle the situation in order Risk management and control is assessed on an ongoing basis. to avoid or minimize a definitive An assessment of macro- and credit loss. Credit risks are limited within the microeconomic factors is an import- Commitments that continue Group’s decision-making process. ant component in this work and to be serviced but for which the For customers with commitments involves technological develop- customer’s repayment capacity is

Subsidiary Board of Directors Boards of Directors

Executive committee

MNB Credit Committee

Credit Credit management management Retail Corporate

Regional banks Corporate decision-making decision-making bodies bodies

Branch Branch Branch decision-making decision-making decision-making bodies bodies bodies MeritaNordbanken Group 59 Annual Report 1999

assessed to have been significantly Measurement methods cation system for financial insti- impaired – because of weak profit- tutions is based on the same prin- ability, lack of funds and/or the risk The main method used for measur- ciples used by external rating of a considerably weakened finan- ing credit risk is exposure, which in institutions. The classification cial position – are placed in Risk terms of lending operations is system for companies is more Class 2. Although no provisions are equivalent to the nominal amount specific for MeritaNordbanken. made for commitments in this risk of the loan, or credit facility, etc. The Group has used a com- class, an action plan is formulated In the case of off-balance sheet mon rating model for its corporate to cover such exposures. instruments traded in the financial customers since 1998. The model Credit-monitoring units exist markets (for example, derivative is applied to the Group’s entire for regional banks, Large Com- financial instruments), the positive corporate volume, with the excep- panies, International units and market value is mainly a measure- tion of the smallest undertakings. credit-granting subsidiaries. These ment of actual exposure. Since the The customer class constitutes a units monitor and suggest quality exposure varies with changes in the summarized assessment of the improvements in the work con- market price, a potential credit customer’s repayment capacity and exposure is also calculated based on ducted by the customer-responsible level of collateral, with the empha- the remaining life of the derivative units. Among other factors, assess- sis on repayment capacity. Classifi- contract. This exposure is calcu- ments of the quality of credit work cations are conducted based on a lated on the basis of various percen- are based on how the customer- model that measures financial and tages, “add-ons”, which are depen- responsible unit addresses problems non-financial factors. Evaluation dent on the type and duration of such as overdrafts and unpaid loans, and development were prioritized the contract and which are then how risk management is conducted, during 1999 and will remain the multiplied by the underlying nomi- and the quality of both customer- nal amount. focus in coming years. The develop- classification and the credit port- Exposure says nothing about ment of the Group’s own historical folio. These units report new and the credit-worthiness of a custom- base will be used as the basis for increased risks to the Credit Risk er. Credit-worthiness is taken into future work in credit-risk modeling unit within Group Credit and Risk. account through setting credit and to measure changes in the This unit is in turn responsible limits in line with the customer’s composition of the loan portfolio. for ensuring that efforts to develop repayment ability. Work on rating models and the and improve the quality of credit In recent years, MeritaNord- quantification of credit risks are work are conducted in accordance banken has worked to expand the vital components of credit risk with established principles and the quantification of credit risks that go management used in calculating direction required by the respective beyond exposure. A highly impor- credit risk in the Group and in risk level. The unit ensures that tant factor in the quantification of areas such as credit assessment, provisions are made for risk-classi- credit risks is the internal rating portfolio analysis and pricing. fied commitments in accordance models developed within the with uniform principles, that action Group. At present, there are two plans are formulated for risk expo- types of classification systems, one sures and that the measures called for financial institutions and one for for in the plans are implemented. companies. The Group’s classifi- 60 MeritaNordbanken Group Annual Report 1999

Market risks

Market risks derive from the risk the Treasury and Risk Committee, bility and a 10-day close-out period. that a value shift will occur as a Group Executive Management, Analysis of VaR with other para- result of changes in rates and prices ALCO and the Risk Committee. meters and changed correlations is in financial markets. Market risks in The controllers in each risk-taking made on a continual basis. The MeritaNordbanken are divided into unit are responsible for identifying, measurement used for commodity interest-rate, exchange rate, equity calculating and controlling market risk limits is a 20% change in mar- and commodity risks. risks within the unit and for sub- ket value. Combined scenario mitting daily reports to the Market simulations are used especially to Risk unit. measure non-linear risk, meaning Risk management and control the risk that arises in options- related instruments. The simulation The main rule for limiting market Measurement methods risk is that assets and liabilities are consists of a gradual change in matched to the greatest reasonable It is crucial to measure and analyze various market parameters, in extent. This applies in terms of market risks using several methods, which the worst outcome of the currencies and interest-rate periods. since there is no single measure of simulation expresses the risk in- However, it is inherent in the risk that can be relied on as the sole volved in these positions. Bank’s operations to assume market means of measuring future risk. Stress tests, which consist of risks within well-considered limits. Market risks in MeritaNordbanken subjectively selected scenarios and Within MeritaNordbanken, this are measured, for example, using the simulation of historical pro- risk-taking occurs mainly within Value at Risk, standardized sensiti- cesses in current time, are of major Treasury and Markets. vity measures, different combined importance in estimating market The Board determines the risk scenario simulations, which take risks in the event of extreme mar- level and sets overall limits, while into account the non-linear charac- ket circumstances. ALCO decides on the allocation of ter of options, as well as stress limits and risk-measurement meth- tests. ods to risk-taking units. Within Value at Risk (VaR) is a statis- Interest-rate risk and limits Group Credit and Risk, the Market tical measure that estimates the Interest-rate risk is defined in Risk unit has primary responsibility maximum loss which, with a cer- MeritaNordbanken as the risk of for monitoring and for ensuring tain probability, will arise over a changes in market interest rates compliance with risk limits, analy- given time interval under normal leading to capital losses or lower net zing and reporting consolidated market conditions. MeritaNord- interest income. The type of risk risk-taking and upgrading risk- banken limits interest-rate, curren- that can lead to capital losses is management within the Group. cy and equity risks by using a VaR referred to as interest-rate risk, and This unit regularly presents reports model based on two years’ histori- that which may lead to a deteri- on the trend in risk to the Board, cal data, a 99% degree of proba- oration in net interest income as interest-net-risk. The overall limits for interest-rate risk are based on Market risks in MeritaNordbanken 1999 VaR for linear risks and simulation Board Highest Lowest of non-linear-risk scenarios. EUR million Measurement limit risk risk Average The net interest risk reflects Interest-rate risk VaR 100.2 51.2 14.9 31.2 the mismatch that arises in balance Interest-rate option risk Simulation 18.9 5.0 0.2 2.3 sheets when interest-rate periods Currency risk VaR 26.5 7.4 1.3 3.8 between the liabilities and assets Currency option risk Simuation 23.6 5.2 1.0 2.4 sides do not correspond exactly. Equity risk, Markets The net interest risk in Merita- (as of Dec 15, 1999) VaR weighted 14.2 5.0 3.6 4.3 Nordbanken is measured on the Equity option risk, Markets entire balance sheet. In the analysis (as of Dec 15, 1999) Simulation 4.7 0.6 0.3 0.4 of the net interest risk for the Equity risk, long-term portfolio 10 % 99.2 70.6 39.4 49.1 Group, an exception was made for Commodity risk 20 % 2.4 0.2 0.0 0.0 those positions included in the Group’s trading portfolio. In the MeritaNordbanken Group 61 Annual Report 1999

analysis, the trading portfolio is Currency exposure is reduced change in the market value of the defined as holdings that have been through the matching of assets and holdings. As a complement to VaR, in the portfolio for a maximum of liabilities. The overall limits for specific risks per stock are also three months. During 1999, the net currency risk are based on VaR for limited. interest risk was reduced as a result linear risks and scenario simulation of determined efforts to reduce the for non-linear risks. Internal curren- Commodity risk and limits number of open positions in a cy risk limits have been established 12-month interval. The net interest within the framework of the Commodity risk is defined as the risk limit is decided by the Board instructions from the Swedish and risk of changes in market value of and was EUR 141.8 M on Decem- Finnish Financial Supervisory commodity-related instruments as ber 31, 1999. Authorities. a result of changes in commodity The table below shows the prices. The overall limit for com- interest-rate positions on Decem- Equity risk and limits modity risk is based on sensitivity ber 31, 1999. The table merely measurements. indicates the Group’s position on a Equity risk is defined as the risk of certain day. The reported interest- changes in the market value of Liquidity risk rate positions generally show, using stocks or stock-related instruments a standard calculation, that an in- as a result of changes in stock The purpose of MeritaNord- crease in market rates of one prices. MeritaNordbanken’s equity banken’s liquidity management is percentage point reduces net inter- risk can be divided into long-term to ensure that sufficient funds are est income for the next 12-month investment holdings and traded available to the Bank to fulfill its period by EUR 5.3 M (cumulative stocks including stock-derivatives, commitments to customers and exposure of EUR 531 M times 1%). which are traded. The Group’s counterparties. These can involve In this calculation it is assumed that long-term holdings are managed by repayment of financing on maturi- no market transactions occurred Treasury and other stock trading ty, disbursement of new loans or during the period. risks by Markets. During 1999, VaR payments for day-to-day operations. was implemented as the primary Short-term liquidity risks are Currency risk and limits risk-measurement method for measured and limited using cash- linear equity risks and simulation flow forecasts in different curren- Currency risk is defined as the risk for non-linear risks in Markets, cies over a time period of 14 and for shifts in value as a result of while the long-term stock holdings 30 days. Liquidity risk limits are changes in currency exchange rates. are measured and limited to a 10% decided 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

Assets Interest-bearing assets 86 985 50 183 10 226 6 227 9 941 8 746 1 662 Trading 4 580 4 580 Off-balance-sheet items 1) 108 187 9 867 3 816 1 184 1 556 834 Non-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’ equity Interest-bearing liabilities 89 546 64 886 6 358 4 302 7 943 4 689 1 368 Off-balance-sheet items 1) 103 355 10 142 4 574 3 710 2 726 937 Non-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 -2 019 Cumulative 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 the Trading unit and Treasury are treated as if they were external transactions. The Group to hedge items in the balance sheet or to change them in a synthetic purpose is to show the impact of these trades on the Group’s overall interest-rate manner. Amounts do not include derivative instruments in the Bank’s trading exposure. portfolio, except currency forwards. Derivative instruments traded between the 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 Group 63 Annual Report 1999

Operational risk

MeritaNordbanken has defined The physical safety of the Measurement methods operational risk as the risk of losses, Bank’s employees and customers including damage to its reputation, is highly prioritized. Thankfully, the Group Credit and Risk is respon- caused by shortcomings in the incidence of robberies and sible for developing the Group’s Bank’s internal operations (employ- attempted robberies has declined. overall system for the identifi- ees, organization, processes and cation, measurement and limitation technology) and external events and of risk. Both existing and new circumstances that affect the Risk management and control products are assessed on the basis Bank’s business. The Bank’s opera- of models developed by the central tions are constantly exposed to Each business area is primarily unit. attempted internal and external responsible for the handling and Today, the models can identify criminal acts. Solid internal controls containment of its own operational the risk profile in different pro- are the best way of protecting risks. Part of the limitation process cesses. The objective is also to be operations against such attempted is to develop an optimal insurance able to quantify risks more precise- crimes. Important factors for good cover through non-life and liability ly, which is beneficial in capital internal controls consist of leader- insurance programs. Group Credit allocation activities. ship, education, recruitment and and Risk has overall responsibility well-defined regulations and for controlling operating risks. This instructions. is carried out in close cooperation with internal auditing functions. 64 MeritaNordbanken Group Annual Report 1999

Risk-Adjusted Performance Measurement (RAPM)

During 1999, MeritaNordbanken show that credit risk requires the Market risk intensified its efforts to develop a most risk capital by far, approxi- Calculation of the financial capital model for risk-based management mately 70% of total financial capi- needed to cover unforeseen losses and results measurement. This tal, while market and operational due to market risks is based pri- model takes into account credit risk require approximately 15% marily on the Group’s Value at Risk risk, market risk and operational each. (VaR) model, which is used to risks. The objective is to obtain a The difference between total calculate market risk. better method of calculating the financial capital for the Group and Group’s risk capital requirements, capital consumption calculated in thereby optimizing the utilization accordance with prevailing capital Operational risks and distribution of capital between cover regulations, which have been Operational risks are defined in the different business units. It also used to date for allocating share- model as the risks which remain enables better comparisons to be holders’ equity, is relatively small, when credit and market risks have made between the different Group whereas differences occur for the been taken into account. Opera- units in terms of risk and return. various business units. tional risks are calculated, taking The model is scheduled to be into account the historical volatility in earnings (excluding the effects of taken into use during the year. Credit risk credit and market risk) and using Calculation of the financial capital this to calculate the capital factors Risk-Adjusted Capital needed to cover unforeseen credit for operational risk at product level. (financial capital) losses is based on the Group’s By studying historical fluctuations internal system for classification of in earnings, statistical methods can Risk-adjusted capital is an expres- counterparties. In a matrix where be used to calculate the size of sion of how much capital will be the internal ratings are shown on future operational losses and thus required by each business operation one axis and maturity periods on the amount of risk capital required. to cover the unforeseen losses that the other, so-called capital factors can affect a unit. In the model that have been calculated for the respec- has been prepared, a risk-adjusted tive combinations of rating and Return on Capital at Risk capital sum (financial capital) is maturity periods. The size of the (RoCaR) calculated for each business unit, in capital factors depends on the With a calculated risk capital re- regard to its credit, market and estimated probability of a failure quirement for each business unit, operational risk. and the size of the loss. Calculation a risk-adjusted return (RoCaR) can The calculation of risk- of the financial capital is then made be calculated. During the year adjusted capital in accordance with by multiplying the credit-risk 2000, RoCaR will be calculated for the model is made with the help of exposure of each combination of the various business units parallel to statistical methods based on histo- rating and maturity period by the the existing internal return ratio, rical data. Preliminary calculations calculated capital factor. Return on Equity (RoE). Jarmo and Päivi were quickly able to finance their dream home, thanks to the bank confirming their loan. 66 MeritaNordbanken Group Annual Report 1999

Financial structure Streamlining continues

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

he year 1999 saw the continu- current assets, which in relative at an appropriate level is a prerequi- ation of the divestment of terms act primarily as a liquidity site for the Group’s stated growth Tproperty holdings and earlier balancing factor, decreased during strategy within the Nordic and strategic shareholdings, which had the year. Baltic regions. Accordingly, a good been announced when the Group On the funding side, deposits return on capital is a fundamental was established. At the same time, from households are facing growing requirement. During 1999, in order the lending portion of the Group’s competition for customer savings to further strengthen the capital combined assets continued to rise from various forms of equity invest- base, the Group issued hybrid despite a tendency on the part of ments. Nevertheless, these deposits capital loans which are included in larger companies, to increasingly accounted for 60% of total deposits the core capital. secure the funding needed through from the public and were the direct loans in the capital and money Group’s largest single source of markets. Holdings of interest-bear- funding. ing securities reported as financial Maintaining capital adequacy

MeritaNordbanken Group – Balance sheet structure Deposits Percent of balance sheet at the end of the year 1999 1998 1997 Private Assets customers 60% Loans to the public 65.6 62.3 58.3 Loans to credit institutions 8.8 11.6 13.7 Interest-bearing securities Corporate Current assets 8.1 10.4 10.5 customers Financial fixed assets 5.6 3.9 5.0 40% Real estate holdings 2.6 3.1 3.9 Shares, investments and trading 0.6 0.5 0.8 Other 8.7 8.2 7.8 Total 100.0 100.0 100.0 Lending

Liabilities and shareholders’ equity

Deposits from the public 40.5 40.1 40.0 Private Other borrowing from the public 1.8 2.1 2.7 customers Due to credit institutions 12.8 18.2 18.3 39% Bonds and other debt instruments 27.0 23.6 22.9 Subordinated debt including capital loans 3.9 2.7 4.1 Corporate Other liabilities 8.7 8.3 7.2 customers Shareholders’ equity 5.3 5.0 4.8 61%

Total 100.0 100.0 100.0 MeritaNordbanken Group 67 Annual Report 1999

MeritaNordbanken Assets Customer structure of loans portfolio

Loans Dec 31, EUR bn 1999 % 1998 % 1997 % Companies 39.6 58.1 35.2 58.9 33.3 58.2 Households 26.4 38.6 22.8 38.1 22.1 38.7 Loans to the public Public sector 2.2 3.3 1.8 3.0 1.8 3.1

Loans to the public rose by 14% Total 68.2 100.0 59.8 100.0 57.2 100.0 in 1999 and totaled EUR 68.2 bn. The upward trend was somewhat stronger for the household sector MeritaNordbanken than for the business sector. Distribution of lending to corporate customers, by industry Borrowers outside the domes- tic markets in Sweden and Finland Dec 31, EUR bn 1999 % 1998 % 1997 % accounted for 9% of lending with Real estate management 11.0 27.8 9.6 27.1 8.9 26.8 the following geographical distri- Construction 2.6 6.4 2.8 7.9 2.6 7.7 bution: Transport 3.0 7.6 2.9 8.2 2.9 8.7 Trade & services 3.7 9.4 3.4 9.7 3.5 10.4 EUR million Manufacturing 6.4 16.2 5.3 15.1 4.9 14.8 Financial operations 0.4 1.1 1.1 3.2 1.1 3.2 - Other Nordic countries 446 Renting, consulting and - Baltic region and Poland 245 other company services 4.7 11.9 3.6 10.3 3.3 9.9 - Other OECD countries 4 007 Other companies 7.8 19.6 6.5 18.5 6.1 18.5 - Other countries 1 493 Total 39.6 100.0 35.2 100.0 33.3 100.0 A considerable portion of lending outside the Nordic region was MeritaNordbanken related to loans for projects or Lending to households foreign establishment in which our

Finnish or Swedish customers are Dec 31, EUR bn 1999 1998 1997 involved. Mortgage loans 19.7 16.7 16.2 Companies Consumer loans 6.0 5.4 5.2 Student loans guaranteed by the Corporate loans increased by 12% Finnish government 0.7 0.7 0.7 during the year. Distribution among industries was largely unchanged. A Total 26.4 22.8 22.1 substantial percentage of loans to property management companies, which account for the single largest MeritaNordbanken Lending to the public sector portion, were to governmental and municipal companies. This indus- Dec 31, EUR bn 1999 1998 1997 try accounted for the largest vol- ume increase during the year. Of Municipalities 1.8 1.7 1.7 Finnish and Swedish governments 0.0 0.0 0.0 the increase of EUR 1.2 bn under Other public institutions 0.4 0.1 0.1 the heading, Other Companies, for- eign customers accounted for EUR Total 2.2 1.8 1.8 0.6 bn and repos for EUR 0.5 bn.

Households Loans to the household sector increased by 16%. Housing credits Public sector cils. Loans to Finnish municipalities increased by 18% and this increase Loans to Swedish municipalities decreased by 24% to EUR 0.2 bn. constitutes 85% of the increase in increased by 16% to EUR 1.6 bn. household lending. At year-end, The increased lending to other Loans to credit institutions housing credit’s share was 75% (73) public institutions was dominated Loans to credit institutions of household lending. by loans to Swedish County Coun- amounted to EUR 9.1 bn at the 68 MeritaNordbanken Group Annual Report 1999

end of 1999 (EUR 11.2 bn). The many of the countries’ banks and Interest-bearing securities majority of lending to foreign banks companies. Interest-bearing securities totaled was to banks within the OECD MeritaNordbanken makes EUR 14.3 bn, distributed among area. provisions for credit risks that arise financial current assets (EUR 8.5 in specific countries due to changes bn) and financial fixed assets (EUR Risk-classified commitments in their economic and political 5.8 bn). In order to satisfy custom- environment. In 1999, the volume of risk-classifi- ers’ liquidity requirements, as To assess these risks, Merita- ed commitments decreased by 15% well as its own flows, a volume of Nordbanken uses a model that is and totaled EUR 3.3 bn at year-end. approx-imately EUR 5 bn in pled- applied to countries outside the The largest decrease was in ged securities is required. OECD, as well as to some coun- Risk Class I, where a number of tries within the OECD where the commitments were liquidated Financial current assets Bank considers this motivated in during the year. This contributed to Financial current assets are handled view of the country’s economic and the substantial reduction in the by Trading and Treasury. Trading political situation. The assessment volume of unsecured receivables. manages very flexible positions to is based on the EIU (Economist The reduction occurred in all utilize short-term fluctuations in Intelligence Unit, London) country- industries except the manufacturing interest rates. Within Treasury, risk assessment. industry. The latter reflects in- positions are divided into manage- MeritaNordbanken allocates a creased risks within the Swedish ment portfolios with mainly medi- provision for these risks based on sawmill industry. um-term investment horizons. The outstanding net receivables, com- majority of the guidelines for inter- bined with the risk level for every est-rate risks, which were estab- Problem loans country. Net receivables refer to lished by the Board, are divided Problem loans declined by 21% in receivables, excluding guarantees among these two units. At the end 1999 to EUR 0.8 bn at year-end. from organizations such as EKN and of 1999, the duration of financial Unsecured gross receivables Finnvera, the respective Swedish current assets was 1.6 years. The amounted to EUR 2.3 bn, a drop of and Finnish export credit boards, combined interst-rate risk was EUR 29% from the previous year. Of this and similar institutions. The size of 17.9 M, measured as VaR, which amount, EUR 1.8 bn. was attri- the provision varies depending on takes into account portfolio effects butable to corporate loans and EUR changes in outstanding volumes and and actual volatilities. 0.5 bn to household loans. Reserves changes in the assessed risk level of for possible losses totaled EUR 1.5 bn, the countries. Fixed assets which corresponds to a provision In 1999, the provision require- ratio of 65%. Unsecured net receiv- ments associated with these risks Financial fixed assets are reported ables were EUR 0.8 bn, equivalent decreased by EUR 20 M. As of the holdings of interest-bearing securi- to 1.2% of lending (1.7%). balance sheet date, special country- ties intended to be held to maturity risk provisions totaled EUR 158 M. and thus to provide a good return Special country-risk provision Lending to other countries involves risk factors that are specific to each MeritaNordbanken country. Factors such as changes in Distribution of Class 1 and 2 risks, corporate customers by industry the economic and political climate affect the repayment ability of % of lending % of lending Dec 31, EUR million 1999 to the industry 1998 to the industry

Real estate management 624 5.7 752 7.9 Construction 271 10.7 383 13.8 MeritaNordbanken Transport 364 12.1 372 12.9 Risk-classified commitments Trade & services 495 13.3 706 20.6 Dec 31, Manufacturing 739 11.5 459 8.6 EUR bn 1999 % 1998 % Financial operations 70 15.9 107 9.5 Renting, consulting and Class 1 2 100 64 2 610 68 other company services 464 9.8 584 16.1 Class 2 1 185 36 1 245 32 Other companies 1) 258 3.3 492 7.5

Total 3 285 100 3 855 100 Total 3 285 8.3 3 855 10.9

1) Other companies include some household loans. MeritaNordbanken Group 69 Annual Report 1999

over the term. The Portfolio con- by volatile interest rates with rising Shares and participations tains mainly listed government rates during the year. The market bonds and mortgage bonds. Hold- value largely matched the book The Group’s shareholdings in acti- ings amounted to EUR 5.8 bn. The value at year-end. The undervalue vely managed portfolios had a mar- average maturity was 2.4 years with was EUR 17 M at year-end, com- ket value of EUR 0.1 bn at year-end. an average duration of 2.1 years. pared with an overvalue of EUR Other shares, reported as financial Yield (effective annual yield) total- 121 M in 1998. current assets and valued according ed 4.8%. 1999 was characterized to the lowest value principle, totaled EUR 0.5 bn, which was a decrease of EUR 0.1 bn from December 31, MeritaNordbanken 1998. The downturn is largely Problem loans and property taken over attributable to the divestment of shares in the Pohjola Insurance Dec 31, EUR million 1999 1998 Company. The surplus value of the Nonperforming loans, gross 2 252 3 185 remaining holdings, excluding hold- Loan loss provisions -1 460 -2 181 ings in Christiana Bank, totaled EUR 0.2 bn at year-end. Nonperforming loans, net 792 1 004 The Group also has shares and Loans with interest deferments 13 17 participations in subsidiaries and Total problem loans 805 1 021 associated companies of EUR 0.7 bn. Loan loss provisions as percentage of This refers to the subsidiaries nonperforming loans, gross 64.8 68.5 Merita Invest, Huoneistokeskus and Merita Life Insurance as well as Net nonperforming loans as percentage of lending 1.2 1.7 associated companies accounted for under the equity method. Assets taken over for protection of claims 60 99 Properties

The book value of property hold- MeritaNordbanken Nonperforming loans, households ings totaled EUR 2.8 bn, a decrease of EUR 0.2 bn for 1999. The down- % of lending % of lending turn was partly due to value adjust- within respective within respective Dec 31, EUR million 1999 segment 1998 segment ments of EUR 145 M, on the Group’s real-estate related assets. Mortgage loans 30.5 0.2 41.9 0.3 Consumer loans 60.8 1.0 71.2 1.3 Student loans guaranteed by Other assets the Finnish government 6.5 1.0 7.3 1.0 Total 97.8 0.4 120.4 0.5 Other assets totaled EUR 5.2 bn, and primarily involved positive valuation items relating to deriva- MeritaNordbanken tives, EUR 3.0 bn, as well as accru- Net nonperforming corporate loans, by industry ed income of EUR 1.3 bn.

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

Real estate management 136 1.2 93 1.0 Borrowing Construction 17 0.7 153 5.5 Dec 31, EUR bn 1999 1998 Transport 7 0.2 8 0.3 Trade & services 89 2.4 151 4.4 Loans from credit institu- Manufacturing 49 0.8 53 1.0 tions and central banks 13.4 17.4 Financial operations 1 0.2 4 0.3 Borrowing from Renting, consulting and the public 1.9 2.1 other company services 125 2.7 89 2.5 Debt securities 15.6 12.8 Other companies 173 2.2 200 3.1 Bonds 12.5 9.8 Subordinated debt 4.1 2.5 Total 597 1.5 751 2.1 Total 47.5 44.6 70 MeritaNordbanken Group Annual Report 1999

Liabilities and shareholders’ equity

Deposits from the public have improved. In consequence, cooperation with MBB (Mortgage Pension Foundation/Fund Deposits from the public constitute Benchmark Bonds) was discontin- Nordbanken’s pension commitments MeritaNordbanken’s most impor- ued in 1999. are mainly secured through allocations tant funding source and represented to the Nordbanken Pension Founda- The value of dated subordi- tion. Its net asset value amounted to 40% of total liabilities at year-end. nated debentures outstanding was the equivalent of EUR 899 M, covering During the year, deposits rose by equivalent to EUR 2.3 bn. In addi- pension commitments of EUR 605 M. 9% to EUR 42.1 bn. tion, the Group had perpetual and Merita Plc’s Pension Fund and Pension Foundation are responsible for Growth occurred mainly in hybrid loans in the amount of EUR the personnel’s supplementary pension corporate deposits, while household 1.8 bn. This amount includes a loan cover in the Finnish companies. At the volumes were stable. The market of EUR 0.4 bn, taken last year. end of the year the fair value of the share in Finland declined some- assets of the Pension Fund and Pension Foundation totaled EUR 696 M, what. Market share rose in Sweden covering a pension commitment of in the corporate market, while Other liabilities EUR 496 M. declining in the private market. Other liabilities totaled EUR 8.9 bn. The major items comprised negati- positive translation difference of Borrowing ve valuation items of EUR 2.8 bn EUR 0.2 bn. In addition to that are related to derivatives and accrued The borrowing that is required in reserves for ongoing share redemp- costs of EUR 1.4 bn. addition to deposits and sharehold- tion of shares in Merita Plc, which er’s equity is undertaken primarily reduced shareholders’ equity by in the form of loans from credit Shareholders’ equity EUR 0.2 bn. At year-end, share- institutions and through issues of holders’ equity totaled EUR 5.5 bn money market instruments, bonds As of January 1, 1999, MeritaNord- or SEK 47.3 bn. and subordinated debenture loans. banken Group’s shareholders' In connection with the share MeritaNordbanken has a number of equity totaled EUR 4.8 bn. Of this exchange/new issue, the Extraordi- loan programs. amount, EUR 0.4 bn was utilized nary General Meeting of NBH As a result of increasing issue for payment of the dividend ap- decided to transfer EUR 0.7 bn volumes during recent years and its proved at the Annual General Meet- (SEK 6.2 bn) from restricted share- Aa3 long-term rating from Moody’s ing in 1999. Profit for the year holders’ equity to a non-restricted Investor Services, Nordbanken increased shareholder’s equity by fund. At year-end, non-restricted Hypotek’s prerequisites for better EUR 1.1 bn. During the year, the shareholders’ equity amounted to pricing and distribution of its bonds strengthening krona resulted in a EUR 2.8 bn or SEK 24.1 bn.

Off-balance-sheet commitments

As a part of its commercial opera- at a future date (interest-rate for- sheet commitments. As of Decem- tions, the Bank has substantial off- wards), and contracts to exchange ber 31, 1999, total exposure to balance-sheet commitments. They interest-rate payments (SWAPS, credit risks (counterparty risks), pertain in part to commercial FRAs). They are used partly to limit expressed as a risk-weighed amount products such as guarantees, letters specific risks, but are also used by and calculated in accordance with of credit, credit commitments and customers wherein the Bank is a regulations applicable to capital the like, and in part to financial counterparty. adequacy, was EUR 1.4 bn. commitments in the form of deriva- The table below shows the tive instruments. The latter pertain nominal amounts. These amounts primarily to contracts to exchange are not comparable and do not in Derivative instruments currencies at a future date (curren- any way constitute a quantification cy forwards), contracts to purchase of the credit or market risks associ- Derivatives have a wide area of and sell interest-bearing securities ated with the Bank’s off-balance- application, partially for taking MeritaNordbanken Group 71 Annual Report 1999

The majority of outstanding Off-balance-sheet commitments derivative contracts are marked to Capital Nominal amounts market on a continual basis in the Dec 31, EUR bn 1999 1998 Bank’s balance sheet and, therefore, Guarantees 5 5 affect the reported result. Other adequacy Credit commitments 7 5 derivative contracts are included in Unutilized the hedging reports at the acquisi- credit facilities 8 5 Capital adequacy regulations are tion value. Other contingent intended primarily to ensure the liabilities 2 1 Consequently, derivatives financial stability of the banking Derivative instruments 364 371 affect the Bank’s exposure to market systems by requiring a minimum risk and credit risk. Credit risk in Total 386 387 level of shareholders’ equity in derivative instruments is often re- relation to credit and market risks speculative positions and partially ferred to as counterparty risk. in both assets and off-balance sheet for hedging purposes. The major These risks are limited and meas- items. These regulations make up portion of MeritaNordbanken’s ured according to the principles the core of the banking control derivative business originates as established within the respective system applied in different coun- transactions and market-making areas outlined under Risk Manage- tries. Based largely on an inter- activities, the purpose of which is ment. The impact of derivative national agreement, similar regula- to reduce market risk. instruments on market risk is tions are applied throughout the The most common type of always measured and limited with entire industrialized world. The derivative instrument is a forward other spot instruments, as they minimum level for capital adequacy contract on foreign exchange rates. constitute the overall market risk. ratio, meaning the capital base in This product is offered to a wide The credit risk that arises in deriva- relation to risk-weighted assets, has range of customers to hedge foreign tive instruments traded over-the- been set at 8%. exchange risks. However, FRAs are counter (OTC), is limited in ac- At year-end, MeritaNord- included in the nominal amount cordance with the Bank’s normal banken’s capital adequacy ratio was and SWAP transactions are substan- credit procedures, i.e., the neces- 12.0% (9.9) and the core capital tially larger. Option volumes are sary limit requirement to the deri- ratio 8.3% (7.3). relatively small. vative counterparty. In addition to net profits after the proposed dividend, factors affecting the change in the core Derivative instruments capital ratio included hybrid capital

Dec 31, 1999, EUR million Nominal amounts and the provision for the redemp- Total Contracts made for Other tion of shares in Merita Plc. hedging purposes Interest-rate related contracts Futures and FRAs 150 695 2 630 148 065 Capital adequacy Options purchased 847 5 842 Options written 4 427 – 4 427 Dec 31, EUR bn 1999 1998 Interest rate swaps 128 118 15 622 112 496 Capital base 8.2 6.3 Total 284 087 18 257 265 830 of which, core capital 5.7 4.6 (Dec 31, 1998) 292 790 3 494 289 296 Risk-weighted amount 68.5 63.7 Total capital ratio, % 12.0 9.9 Currency-related contracts Core capital ratio, % 8.3 7.3 Futures and forwards 66 161 4 389 61 772 Options purchased 2 167 – 2 167 Options written 2 135 – 2 135 Currency 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 72 MeritaNordbanken Group Annual Report 1999

Legal proceedings

Nordic Baltic Holding (NBH) AB the District Court’s ruling and MeritaNordbanken Plc (publ) remitted the case to the District Court for a retrial. The basis for the MeritaNordbanken Plc is not the Nordic Baltic Holding (NBH) AB Court of Appeal’s decision was that subject of any legal proceedings. (publ) is not the subject of any legal those who had appealed the Dis- Within the framework of the banks’ proceedings. trict Court’s ruling ought, by law, normal business operations, how- to have been granted the plaintiff’s ever, the subsidiaries Nordbanken right to plead before the court. AB (publ) and Merita Bank Plc face Merita Plc Pertti Voutilainen, President of a number of claims in lawsuits and Merita Bank, petitioned the Su- other legal disputes, most of which The criminal case against Pertti preme Court for leave to appeal. involve relatively small amounts. Voutilainen, President of Merita The Supreme Court granted per- None of these disputes is consid- Bank and previously CEO and mission in June 1999. ered likely to have any significant Chairman of the Board of Directors A total of 59 private sharehold- adverse effect on the banks or their of what was formerly Kansallis- ers in Kansallis-Osake-Pankki have financial positions. Osake-Pankki, relates to an in- instituted a civil suit against Merita In the suit between Yggdrasil fringement of the Securities Market Plc on the basis of allegations of AB and Nordbanken, described in Act in connection with the market- misleading information in connec- detail in previous Annual Reports, ing of the Kansallis share issue in tion with the above-mentioned the Stockholm District Court autumn 1994. After Helsinki share issue in 1994. In March 1997, dismissed Yggdrasil’s claim in a District Court rejected the lawsuit Helsinki District Court rejected all ruling given on September 1, 1998. in December 1996, the Court of damage claims. Following an appeal, Yggdrasil appealed the District Appeal in Helsinki passed a judg- the case is now pending in the Court decision to the Court of ment in August 1998 overturning Court of Appeal in Helsinki. Appeal. Pelle usually pays his bills after watching the evening news. 74 MeritaNordbanken Group Annual Report 1999

Profit and profitability Stable income development

MeritaNordbanken posted a stable earnings trend and a continued higher return on equity. Percentage of commission income increase, in line with the Group’s goals. Costs lower than a year earlier. Loan losses very limited.

eritaNordbanken Group’s aggregate impact of EUR 211 M Profit for the year and operating profit amounted on profit. These items were capital earnings per share Mto EUR 1,386 M (1,370). gains on divestment of sharehold- Excluding items affecting compara- ings, slightly more than EUR Excluding items affecting compara- bility, operating profit amounted to 300 M, including Sampo Insurance bility, profit for the year was EUR EUR 1,272 M, up 10%. Company and Nokia, as well as 1,098 M, up 56% compared with a Return on equity was 20.9% restructuring expenses of nearly year earlier. Earnings per share was (14.3). Excluding items affecting EUR 100 M. EUR 0.53. comparability, return on equity amounted to 20.6% (18.7). Income statement, excluding items affecting comparability*

SEK M Items affecting comparability EUR M 1999 1998 Change, % 1999 Net interest income 1 798 1 835 -2 15 848 During MeritaNordbanken’s initial Net commission income 822 722 14 7 243 years, coordination and streamlining Net result from financial operations -9 138 -74 of operations had a substantial Other income 300 291 3 2 647 impact on the earnings trend. To Total income 2 911 2 986 -3 25 664 illustrate the trend in the Group’s Personnel expenses -787 -818 -4 -6 938 operating profit – without the Other expenses -927 -906 2 -8 173 effects of these measures – the table shows operating profit, exclud- Total expenses -1 714 -1 724 -1 -15 111 ing items affecting comparability. Profit before loan losses 1 197 1 262 -5 10 553 (Quarterly trends are shown on Loan losses, net -22 -139 -84 -195 page 76.) Profit from companies accounted The 1999 income statement for under the equity method 97 36 863 includes a capital gain on the sale of Operating profit 1 272 1 159 10 11 221 a shareholding in Pohjola Insurance Company of EUR 114 M. In addi- *Items affecting comparability

tion, earnings for the year were Net interest income -17 affected by a drawing of EUR 65 M Net result from financial operations 114 307 1 000 (152) from the Swedish pension Other income 75 Personnel expenses -63 foundation and writedowns related Other expenses -66 to real estate of EUR 145 M (617). Profit from companies accounted for under the equity method -25 In 1998, items affecting com- parability consisting mainly of Total 114 211 capital gains from the disposal of Operating profit, including items shareholdings and restructuring affecting comparability 1 386 1 370 12 221 costs were included, which had an MeritaNordbanken Group 75 Annual Report 1999

Income was 1.6 years. The interest-rate risk continuing favorable cost control, in current assets amounted to EUR combined with increased product- Total income amounted to EUR 17.9 M, measured as VaR. VaR ivity and efficiency enhancement. 3,025 M, a decline of 10%. Exclud- takes into account portfolio effects Personnel expenses amounted ing items affecting comparability, and actual volatility. to EUR 787 M, representing a income was EUR 2,911 M, down Other income fell 18% to EUR reduction of 11%. Excluding items 3%, mainly due to lower net earn- 300 M. This was due primarily to affecting comparability, the decline ings from financial transactions. the fact that a large contribution to was 4%. Net interest income amounted earnings from Nordisk Renting was The number of employees to EUR 1,798 M, down 1% from received during 1998. Adjusted for continues to decrease as planned. 1998. Compared with the preced- items affecting comparability, Other Since the merger, the gross reduc- ing year, the trend was affected by income rose somewhat compared tion in the workforce has been lower average short-term interest with a year earlier. 1,500 employees. The increase in rates, resulting in lower margins on personnel by 500 employees has deposits and lower return on share- resulted from such factors as expan- holders’ equity. The steady de- sion in the Baltic area and a crease in interest risk exposure and Lower expenses strengthening of resources in Asset increased liquidity contingencies Management/Life Insurance and IT. prior to the millennium shift also Total expenses were cut 7% to EUR Overall, the number of offset the effect of larger volumes. 1,714 M. Adjusted for items affect- employees in banking operations Net commission income increas- ing comparability, expenses de- amounted to about 18,000 at ed 14% to EUR 822 M. Buoyant clined 1%. The reduction reflects December 31, 1999. fund sales, combined with a sharp value appreciation, meant that fund commissions increased by a full 26%. Income from securities trad- Net interest income and Expenses, EUR million ing, custody activities and corporate net commissions, Net interest income Items affecting comparability finance also developed favorably. EUR million Other Net commissions Gross commission income rose Personnel expenses 500 600 13% while provision expenses were up only 4%. 400 500 Net result from financial 400 operations amounted to EUR 105 M. 300 Excluding items affecting compara- 300 bility, the result represented a loss 200 200 of EUR 9 M compared with a profit 100 of EUR 138 M in the previous year. 100 The deterioration was due to 0 0 changes in market interest rates; Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 during the second quarter in parti- 1998 1999 1998 1999 cular, both medium and long-term interest rates rose steeply and the Net result from financial Loan losses, net, trend subsequently continued operations, EUR million EUR million upward during the remainder of the Items affecting comparability Interest-rate related year but with considerable volatil- Loan loss Currency-related Loan losses level, % ity. A rise in interest rates leads to Equity-related 50 0.5 an immediate decline in market 300 value, although this gradually 40 0.4 200 recovers during the remaining 30 0.3 maturity of the security. 100 The impact of rising interest 20 0.2 rates on profit was, however, allevi- 0 10 0.1 ated through the steady reduction of the Group’s interest rate risk -100 0 0.0 during the year. At year-end the Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 duration for financial current assets 1998 1999 1998 1999 76 MeritaNordbanken Group Annual Report 1999

Other expenses totaled Reduction in loan losses to keep loan losses, net after recov- EUR 927 M (972), down 5%. eries, at EUR 22 M (139). Excluding items affecting compara- Continuing favorable economic The loan loss level fell to a bility, expenses increased 2%. conditions in primary markets – historically low level of 0.04% (0.2). Sweden and Finland – combined with effective credit control helped Items reported after operating Quarterly income statement, profit excluding items affecting comparability A special review of the Group’s real Q 4 Q 3 Q 2 Q 1 EUR million 1999 1999 1999 1999 estate holdings outside Finland and Sweden (and excluding Aleksia) Net interest income 457 439 454 448 Net commission income, Note 1 257 190 194 181 resulted in a value adjustment of Net result from financial EUR 34 M. Also, the holding in the operations, Note 2 17 -7 -53 34 Citycon real estate company was Other income, Note 3 57 60 91 92 reclassified as a current asset and Total operating income 788 682 686 755 thus valued at market which result- ed in charges against earnings of Personnel expenses -200 -195 -196 -196 EUR 21 M. In addition, a reserve of Other expenses, Note 4 -281 -210 -229 -207 EUR 90 M was created to cover Total expenses -481 -405 -425 -403 eventual losses arising from the sale of Aleksia. Profit before loan losses 307 277 261 352 Against the background of Loan losses, net -2 0 0 -20 Profit from companies accounted the surplus values built up in the for under the equity method 30 5 19 43 Group’s pension foundations and pension funds, an extra drawing of Operating profit 335 282 280 375 EUR 65 M was made from the Swedish pension foundation. Note 1: Net commission income Note 3: Other income

Q 4 Q 3 Q 2 Q 1 Q 4 Q 3 Q 2 Q 1 EUR M 1999 1999 1999 1999 EUR M 1999 1999 1999 1999 Commission income Dividends received 2 0 18 7 Taxes Securities 136 91 95 79 Real estate income 42 41 44 44 Payment transmission 61 53 54 51 Divestment of shares 2 12 20 0 Tax expenses for the year amounted Lending 46 44 42 44 Sundry income 11 7 9 41 Guarantees 8 7 8 8 to EUR 205 M, representing a tax Deposits 9 7 7 5 Total other income 57 60 91 92 Other commission income 22 14 13 14 burden of 17%. The relatively low tax rate is Total commission income 282 216 219 201 Commission expenses 25 26 25 20 attributable to loss carry-forwards

Net commission income 257 190 194 181 that arose in conjunction with value adjustments on real estate and Note 4: Other expenses Note 2: Net result from financial operations restructuring. In addition, there is a Q 4 Q 3 Q 2 Q 1 Q 4 Q 3 Q 2 Q 1 EUR M 1999 1999 1999 1999 requested as yet unapproved loss EUR M 1999 1999 1999 1999 Administrative carryforward deduction that, for Equity-related items expenses 169 123 139 117 conservative reasons, is not recog- Realized gains/losses 6 29 17 0 Depreciation 46 38 36 36 Unrealized gains/losses 1 -15 6 0 Real estate expenses 28 21 23 23 nized in the accounts. Sundry expenses 38 28 31 31 714230 Interest-rate-related items Total other Debt redemption –– –– expenses 281 210 229 207 Other realized gains/lossses -46 1 14 55 Unrealized gains/losses 40 -41 -109 -38

-6 -40 -95 17 Other securities transactions –– –– Foreign exchange gains/losses 16 19 19 17

Total 17 -7 -53 34 Erik was able to organize his expenses using First Card. All travel, representation and minor expenses on one invoice. 78 MeritaNordbanken Group Annual Report 1999

Income statements

EUR million SEK million Note 1999 1998 1999 Interest income 1 4 734 5 099 41 734 Interest expenses 1 -2 936 -3 281 -25 886 Net interest income 1 1 798 1 818 15 848

Dividends received 27 83 240 Net commission income 2 822 722 7 243 Net result from financial operations 3 105 445 926 Other income 4 273 283 2 407 Total income 3 025 3 351 26 664

Personnel expenses 5 -787 -881 -6 938 Other expenses 6 -771 -803 -6 799 Depreciation and write-downs on tangible 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 -195 Profit from companies accounted for under the equity method 97 11 863 Operating profit 1 386 1 370 12 221

Writedowns on real estate holdings 7 -145 -617 -1 283 Refund of the surplus in the Pension Foundation/Fund 65 152 573 Taxes 9 -205 -198 -1 804 Minority interest -3 -3 -31 Net profit for the year 1 098 704 9 676 MeritaNordbanken Group 79 Annual Report 1999

Balance sheet

EUR million SEK million Note 1999 1998 1999 Assets Liquid assets 10 2 693 996 23 056 Debt securities eligible for refinancing with central banks 11 4 931 7 775 42 220 Loans to credit institutions 12 9 095 11 162 77 879 Loans to the public 13 68 210 59 828 584 050 Interest-bearing securities 17 9 329 5 920 79 877 Shares and participations 19 658 517 5 631 Shares and participations in Group and associated companies 20 666 620 5 699 Intangible assets 21 142 104 1 212 Tangible assets Real estate holdings 22 2 761 2 991 23 642 Other tangible assets 272 276 2 326 Other assets 24 3 688 4 294 31 590 Prepaid expenses and accrued income 25 1 338 1 546 11 458 Deferred tax receivables 194 5 1 664 Total assets 103 977 96 034 890 304 Liabilities and shareholders’ equity Due to credit institutions and central banks 26 13 354 17 433 114 345 Deposits from the public 27 42 074 38 472 360 263 Other borrowing from the public 1 924 2 052 16 473 Debt instruments outstanding 29 28 094 22 687 240 557 Other liabilities 30 6 756 6 312 57 834 Accrued expenses and prepaid income 31 1 427 1 218 12 222 Provisions 32 234 186 2 005 Subordinated debt 33 4 099 2 546 35 103 Deferred tax liabilities 438 292 3 747 Minority interest 51 65 440 Total liabilities 98 451 91 263 842 989 Shareholders’ equity 34 Share capital 1 099 2 340 9 410 Premium reserve 983 320 8 417 Restricted reserves 629 474 5 385 Non-restricted reserves 1 717 933 14 427 Profit 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 40 Commitments on behalf of customers in favour of third parties Guarantees 5 115 4 946 43 801 Other commitments 595 517 5 096 Irrevocable commitments in favour of customers Securities repurchase commitments 20 17 174 Other commitments 16 826 10 229 144 072 22 556 15 709 193 143

Other notes Nonperforming loans 14 Capital adequacy 35 Property taken over for protection of claims 15 Maturity breakdown of receivables and liabilities 36 Subordinated receivables 16 Pledged assets 37 Total holdings of interest-bearing securities 18 Assets and liabilities in foreign currencies 38 Change in shares held as financial fixed assets Pension commitments 39 and tangible assets 23 Derivative instruments 41 Difference between nominal value and book value of liabilities 28 Subsidiaries and associated companies 42 80 MeritaNordbanken Group Annual Report 1999

Cash flow analysis

1999 EUR SEK million million Ordinary business Operating profit 1 386 12 221 Adjustments for items not included in cash flow 687 6 056 Refund of the surplus in the Pension Foundation 65 573 Taxes -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 operations Change in shares and participations in subsidiaries and associated companies -46 -405 Change in other financial fixed assets -2 095 -18 467 Net increase in tangible and intangible assets -105 -926 Cash flow from investment operations -2 246 -19 798 Financial operations Change in securities issued etc 5 407 47 662 Change in subordinated debt and capital loans 1 553 13 690 Dividends -367 -3 235 Other 762 Translation 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 information Liquid assets include million Dec 31, 1999 Dec 31, 1998 Cash in hand 1) EUR 2 693 996 SEK 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 1 904 SEK 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 42 973 Interest expenses paid 2 937 25 890 Dividends received 27 240 Dividends paid 367 3 235

Significant transactions with no impact on cash flow As 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. MeritaNordbanken Group 81 Annual Report 1999

Accounting principles

The Annual Report for the MeritaNordbanken companies that constitute mutual property receivable due from the transferring party Group (Nordic Baltic Holding Group) has companies with separate property holdings (reverse repo). The difference between the been prepared in accordance with Finnish and Livförsäkringsaktiebolaget Livia, which purchase consideration in the spot market and Swedish accounting laws and the reg- operates according to mutual principles, and futures market is annualized over the ulations issued by the relevant supervisory are not included in the consolidated term of the agreement. authorities. The differences that exist be- accounts. Assets transferred in repurchase trans- tween the two sets of regulations are of no Lists of subsidiaries and associated actions are reported under “Assets pledged material significance. In all essential aspects, companies are given in the specifications for own liabilities.” it has proved possible to coordinate the of the respective balance sheet items. accounting principles applied in Group com- The earnings of acquired and divested Financial fixed assets/current assets panies. Remaining adjustments have been companies are included in the income Loan receivables and securities holdings for made in the consolidated accounts. These statements only for that portion of the year which there is an intent and ability to hold pertain to reclassifications and have no during which each of the companies be- until maturity constitute financial fixed effect on the Group’s earnings or financial longed to the Group. assets. All of MeritaNordbanken’s loan position. The Group’s accounting currency is the receivables are in this category. They are The financial statements of the parent euro and for legal reasons the SEK. The reported in the balance sheet at their company have been compiled in accord- current method is used when translating acquisition value after deduction for in- ance with the Swedish Annual Accounts the financial statements of subsidiaries. curred and possible loan losses and pro- Act (ÅRL). The consolidated financial state- This means that the assets and liabilities of vision for country risks. See also the sec- ments meet in all essential aspects the foreign subsidiaries have been translated at tion on problem loans and loan losses. requirements set by the Swedish Act on the year-end exchange rate and that items Securities which are classified as Annual Accounts of Credit Institutions and in the income statement are translated at financial fixed assets include shares held Securities Companies (ÅRLK). the average exchange rate for the year. for strategic business purposes, as well as To illustrate the development of Merita- Translation differences are charged or certain interest-bearing securities which are Nordbanken Group’s performance, the credited directly to shareholders’ equity. specified from the date of acquisition and figures for 1998 and 1999 are presented (See also page 82.) managed in a separate portfolio. These in euro. Since the Group is newly establish- securities are carried at acquisition value/ ed, the income statement and balance Reporting of business transactions amortized cost after consideration for any sheet are presented in Swedish krona only Business transactions are reported at the permanent declines in fair value. Reclassifi- for the year 1999. time that risks and rights are transferred cation of securities between financial fixed Writedowns on real estate are reported between parties. This means that trading assets and current financial assets is allow- as a separate item after operating profit date accounting is applied for transactions ed only under limited circumstances. If any (see page 76). This reporting is in accord- in the money and bond market, stock such reclassifications are made, the effect ance with the practice established when market and currency market. on earnings must be disclosed in the notes the MeritaNordbaneken Group was formed. Deposit and lending transactions, in- to the financial statements. This more clearly illustrates the effects of cluding repurchase agreements, are report- Other securities are reported as financial the decision in December 1998 to divest ed on the settlement date. current assets. All securities and derivatives the Group’s Finnish property portfolio at a Assets and liabilities are reported in which are actively managed are valued at more rapid pace. Also the refund of the gross amounts in most cases. Netting of fair value, with the exception of financial surplus in the Pension Foundation/ Fund is assets and liabilities is used, however, if a instruments which have been accounted for reported as a separate item after operating statutory right to offset the commitments as a hedge. (See “Hedge accounting” profit (see page 82). The accounting princi- exists and settlement occurs simultaneously. below.) This category includes almost all ple can be interpreted as an exception from Receivables and payables arising from interest-bearing securities, as well as equity the RR4 recommendation of the Swedish the sale and purchase of securities are also securities included in trading operations. Financial Accounting Standards Council. reported net in those cases where the trans- Otherwise, financial current assets are action is settled through a clearing house. valued at the lower of acquisition value/fair Consolidated accounts value. The MeritaNordbanken Group includes The acquisition value of interest-rate- Nordic Baltic Holding (NBH) AB (publ) and Leasing related instruments is calculated as the its subsidiaries. The Group accounts were MeritaNordbanken’s leasing operations present value of future payment flows prepared in accordance with the pooling mainly comprise financial leasing. In re- discounted based on the effective acquisi- method. This means in principle that the porting financial leasing transactions, the tion rate, that is, the interest rate at which merging companies’ assets and liabilities, leasing item is reported as lending to the the instrument was acquired. The accrued as well as their revenues and expenses, are lessee. Lease payments net of depreciation acquisition value changes successively so combined at their book value. are reported as interest income. that it is equal to the instrument’s nominal The Group has used the acquisition value on the maturity date. For coupon method to prepare the consolidated Repos and other repurchasing agreements instruments this means that any premium accounts for subgroups. A genuine repurchase transaction is defined or discount is amortized or accreted into The equity method of accounting is as an agreement covering both the sale of interest income over the remaining term. used in the case of subsidiaries that are an asset, usually interest-bearing securities, The acquisition value of outstanding debt not credit institutions or securities com- and the subsequent repurchase of the asset instruments is calculated in the same panies, or whose operations are not linked at an agreed price. Such agreements are manner. to a company in one of these categories, reported as loan transactions rather than Interest income and interest expense and in the case of associated companies, influencing securities holdings. The assets related to interest-rate swaps not account- where the share of voting rights is between are reported in the balance sheet of the ed for as hedges are reported in “Net result 20% and 50%. transferring party and the purchase price from financial operations.” Companies taken over for the protection received is posted as a liability (repo). The Derivative instruments with positive fair of claims, holdings in Finnish associated receiving party reports the payment as a value are reported in the balance sheet as 82 MeritaNordbanken Group Annual Report 1999

“Other assets”, while derivatives with nega- what special accounting rules apply in based on historical loss trends for various tive fair value are reported as “Other each case. categories of loans (home mortgage loans, liabilities”. Accrued interest income and Loans with interest deferments refer other secured loans, salary account loans expeses pertaining to interest-rate swaps to those cases where interest rates have and other unsecured loans). which are accounted for as hedges are also been lowered after renegotiation to enable Provisions for loan losses related to reported as other assets or liabilities. borrowers in temporary payment difficulties country risks are made based on country to improve their situation. Concessions are risk estimates presented by EIU (The Immediate profit/loss recognition in con- normally granted on the condition that the Economist Intelligence Unit, London) and nection with early debt extinguishment borrower will repay the deferred amount at the Group’s outstanding net claim against MeritaNordbanken applies immediate re- a later date. The reported volumes refer to counter parties in each country. cognition of income gains and losses in con- loans of at least SEK 1 million on which Provisions for loss risks on loan junction with early extinguishment of debt, the interest rate has been lowered to less guarantees outstanding are reported under that is, purchase of its own securities. than the market level, which in this context “Provisions” in the balance sheet. In These realized income items – the differen- means equal to or lower than the prevailing estimating the costs to redeem extended ce between replacement cost and the book cost of financing. Loans with negotiated guarantees, the value of existing recourse value of the debt redemption – reflect price interest deferments are not classified as rights is taken into account. changes that have already occurred in the non-performing. market. The results are reported separately A receivable is classified as non-perform- Tangible and intangible fixed assets in “Net result from financial operations.” ing if the interest, principal or utilized over- Fixed assets are reported at their acquisi- Subsequent sale of acquired bonds is draft is more than 60 days past due or if tion value less depreciation according to treated as though the bonds had been newly other circumstances give reason for un- plan. If it is deemed likely that the fair issued. The immediate income recognition certainty as to repayment of the receivable, value will consistently be less than the has the effect of eliminating future amorti- and if at the same time the value of the book value, the value is written down as zation in net interest income of the differ- collateral does not cover, by an adequate required. ence between the nominal and acquisition margin, the amount of the principal and value of the asset and liability items in accrued interest. Depreciation of furniture, fixtures question. When a receivable is classified as non- and equipment performing, it is transferred to cash-based Expenses for software are normally expens- Hedge accounting interest accounting. Accrued interest in- ed immediately. In the case of major invest- Deferral hedge accounting with acquisition come is thus no longer reported in the ments, straight-line depreciation over a valuation is applied to hedging holdings of accounts, and any amounts relating to the period of not more than five years may be financial instruments which are not valued earlier portion of the year are reversed. applied. Investments in PC equipment are at fair value. Information about property taken over depreciated straight-line over three years, The hedging and hedged positions are to protect claims is provided in a note to while the depreciation period for other reported without taking into account chang- the balance sheet, and is divided into equipment is five years. es in value provided that changes in fair shares, real estate and other assets. These value for the hedging and the hedge posi- assets are valued at acquisition value or Depreciation of buildings tions essentially cancel each other out in fair value, whichever is lower. In the case Straight-line depreciation is applied to terms of the amounts involved. If additional of real estate that has been taken over, the buildings, with the depreciation period unrealized losses arise, they are reported fair value consists of a conservatively varying between 25 and 60 years. Depre- immediately in the balance sheet and in- appraised market value, less selling costs. ciation of excess values (in the consolidated come statements. accounts) of buildings is calculated at vary- Hedge accounting with acquisition Loan losses ing percentage rates, based on the remain- valuation does not cover the currency risk Receivables are reported in the balance ing depreciation period for the property to which the Group is exposed through the sheet after subtracting incurred losses, holding in question. hedge instrument or through the underlying write-downs for possible losses and pro- assets and/or liabilities. vision for country risks. Pension costs Incurred losses (charge-offs) are those Reporting of the Group’s pension costs Translation of assets and liabilities losses whose amount is regarded as finally includes pension insurance premiums in foreign currencies established or highly probable because a (including premiums for publicly regulated Assets and liabilities denominated in foreign bankruptcy administrator has provided an pensions in Finland), pensions payable currencies are translated at the year-end estimate of the percentage of assets to be (mainly Swedish companies), and pro- exchange rate, corresponding to the average distributed, creditors have accepted a com- visions/charges paid to pension funds, with of official buying and selling rates. Cash in position proposal, or claims have otherwise reductions for any applicable compensation foreign currencies are treated as receivables been moderated. for pension costs. Drawings on surplus in foreign currencies. Write-down for a possible loan loss is funds in excess of the reported costs for Forward positions in foreign currencies made if the value of the collateral does not company pensions are reported in the con- are valued at the current rate for forward cover the loan amount on a non-performing solidated accounts as a separate item after contracts with the equivalent remaining receivable, and the repayment capacity of operating profit. maturity. the borrower is not expected to improve When currency-related derivative instru- sufficiently within two years. The receivable ments are used for currency hedging, the is written down to the amount that the currency hedging and the corresponding Bank is expected to recover, considering protected item are translated at the year- the value of the collateral. If the collateral Exchange rates used in translation end rate. is an asset with a market quotation, valua- 1 EUR = FIM 5.94573 (fixed rate) tion is based on the quoted value, other- Reporting of problem loans and property wise on the estimated market value. If the 1 EUR = SEK 1999 1998 taken over to protect claims collateral consists of property mortgages, The Notes to the Balance Sheet provide an the underlying property value is appraised Income statement rate 8.8150 8.8202 overview of the extent of “problem loans”, using the same methods as for properties (average) that is, loans with interest deferments, taken over for the protection of claims. non-performing loans and assets taken over For a portion of consumer loans, the Balance sheet rate for the protection of claims. The following necessary loss provision is calculated in (at end of each period) 8.5625 9.4874 paragraphs define these concepts and state accordance with a collective valuation MeritaNordbanken Group 83 Annual Report 1999

Notes to the financial statements

Note 1: Interest income and expenses EUR million SEK million 1999 1998 1999 Interest income Loans to credit institutions 530 586 4 673 Loans to the public 3 536 3 706 31 168 Interest-bearing securities 652 774 5 747 Other 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 expenses Due to credit institutions 716 815 6 312 Deposits and other borrowing from the public 699 904 6 160 Debt instruments outstanding 1 315 1 307 11 590 Subordinated debt 171 207 1 510 Capital loans 20 22 177 Other 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 EUR million SEK million 1999 1998 1999 Commission income Securities 401 319 3 532 Payment transmission 219 193 1 930 Lending 176 175 1 548 Guarantees 31 40 276 Deposits 28 29 246 Other commission income 63 58 557 Total commission income 918 814 8 089 Commission expenses Payment transmission 70 70 613 Securities 13 15 116 Other 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 EUR million SEK million 1999 1998 1999 Equity-related items Realized gains/losses 166 396 1 457 Unrealized gains/losses -8 -84 -68 158 312 1 389 Interest-rate-related items Debt redemption – -35 – Other realized gains/losses 24 120 210 Unrealized gains/losses -148 -28 -1 301 -124 57 -1 091 Other 0-13 Foreign exchange gains/losses 71 77 625 Net result from financial operations 105 445 926 84 MeritaNordbanken Group Annual Report 1999

Note 4: Other income EUR million SEK million 1999 1998 1999 Sale of shares and participations 18 14 157 Sale of shares and participations, Group companies 16 17 140 Sale of real estate (net) – -2 – Net operating result from properties taken over for protection of claims 2 4 14 Real estate income 169 171 1 494 Sundry income 68 79 602 Total other income 273 283 2 407

Note 5: Personnel expenses EUR million SEK million 1999 1998 1999 Salaries and fees (specification below) 575 628 5 073 Pension expenses 59 57 521 Social insurance contributions 112 132 983 Allocation to profit-sharing foundations 35 22 309 Other personnel expenses 6 42 52 Total personnel expenses 787 881 6 938 Salaries and fees To 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 12 598 Nordbanken Group 6 753 6 858 Other companies 819 1 020 Total 19 302 20 476 Of 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 with 60% of salary for his lifetime. Management. These executives had car regard to Board members and Group Other Board members not employed and, in some cases, housing benefits. management amounted to EUR 3.7 million. by MeritaNordbanken each received EUR In accordance with the employment Total pension obligations regarding the 21,864 in fixed fee and a fee for Board contracts for these executives, salary above amount to EUR 10.8 million. and Committee meetings. Total remunera- during the notice period before termination tion to Board members was EUR 514,773. and with regard to severance pay may not Remuneration to Board of Directors A separate payment was made to the total more than 24 months’ salary and The main Board work regarding Merita Plc, Board Chairman in Merita Plc of EUR must be reduced by the salary amount that Nordic Baltic Holding (NBH) AB (publ) and 8,409 and to the President of Nordic Baltic the executive receives as a result of any MeritaNordbanken Plc is conducted in the Holding (NBH) AB (publ) of EUR 11,344. other employment during the last 18 last-named company. Accordingly, Board There are no commitments for severan- months of payment. fees are only paid in this company. ce pay, pensions or similar compensation These executives are entitled to retire The Chairman of the Board Jakob to the members of the Board who are not with a pension at age 60. For the CEO Palmstierna received a fixed fee of EUR employed by MeritaNordbanken. through age 65, a pension equal to 75% 117,732. In addition, Jacob Palmstierna of salary is paid and, thereafter, a maxi- was compensated for the reduction in the Remuneration to Group Management mum of 65% of compensation up to 130 pension paid by SEB which is a result of The salary terms for the CEO are determin- base amounts (in Sweden), and 32.5% of his serving as a member of the Board of ed by the Compensation Committee and the rest. For the other Swedish members of MeritaNordbanken. Compensation for this approved by the Board of Directors. The Group Management, pension is paid to age was paid to and including April 1999 and salary terms for other members of Group 65 at 70% of salary. Thereafter pension is amounted to EUR 31.505. The Vice Management are determined by the CEO paid in accordance with occupational pen- Chairman Vesa Vainio received a fixed fee and approved by the Board of Directors. sion plans. The Finnish Group Management of EUR 117,732. In addition, in his func- The CEO (President of MeritaNord- members receive 60% of salary for life. tion as President of Merita Plc Vesa Vainio banken Plc) was paid a salary of EUR received compensation of EUR 468,303, 667,591, of which EUR 157,005 was per- Loans to Board members of which EUR 168,609 is performance- formance-based salary pertaining to 1998. and senior executives based salary from 1998. Moreover, The CEO also had car and housing benefits. Loans to Group Management and Board Vesa Vainio had car and housing benefits. Salaries totaling EUR 3.3 million, of members amounted at the end of the year In respect of his former function as CEO which EUR 0.7 million was performance- to EUR 2.2 million, of which EUR 0 to the of Merita, there is a pension obligation. based salary pertaining to 1998, were paid CEO and EUR 0.1 million to other Board He is entitled to pension amounting to to the other members of Group members. MeritaNordbanken Group 85 Annual Report 1999

Note 6: Other expenses EUR million SEK million 1999 1998 1999 Information technology 1) 139 127 1 222 Marketing 66 62 578 Postage and telephone 74 73 655 Other administrative expenses 189 188 1 666 Compensation to Sweden Post 80 86 709 Rents 89 120 783 Real estate expenses 95 101 838 Sundry expenses 39 46 348 Total other expenses 771 803 6 799

1) EDP use, service, and maintenance expenses and consulting fees.

Note 7: Depreciation and write-downs on tangible and intangible assets EUR million SEK million 1999 1998 1999 Depreciation according to plan Tangible assets 126 143 1 110 Goodwill 27 19 237 Other 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 EUR million SEK million 1999 1998 1999 Actual loan losses during the year 838 395 7 381 Previous loan loss provisions utilized during the year -795 -259 -7 006 Recoveries of loan losses incurred in previous years -69 -49 -605 Specific loan loss provisions made during the year 224 282 1 974 Reversal of previous provisions -176 -230 -1 549 Total loan losses 22 139 195

Of which: country risks -20 29 176

1999 1998 Loan losses, Loan losses, EUR million gross1) Reversal 2) gross1) Reversal2) Breakdown by balance sheet item Loans to credit institutions 0 0 54 0 Loans to the public 258 241 355 278 Guarantees and other contingent liabilities 1 1 0 1 Property taken over for protection of claims 7 2 9 – Total loan losses 266 244 418 279

Total in SEK million 2 345 2 150

1) Actual loan losses, net, and new provisions. 2) Incl. items recovered. 86 MeritaNordbanken Group Annual Report 1999

Note 9: Taxes EUR million SEK million 1999 1998 1999 Income taxes 282 205 2 479 Deferred 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 EUR million SEK million 1999 1998 1999 Government securities 4 079 6 369 34 923 Certificates 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 EUR million SEK million 1999 1998 1999 Central banks 12 3 104 Other 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 EUR million SEK million 1999 1998 1999 Corporate 39 643 35 257 339 441 Public sector 2 218 1 806 18 994 Households 26 349 22 765 225 615 Total 68 210 59 828 584 050

Note 14: Nonperforming loans EUR million SEK million 1999 1998 1999 Nonperforming loans, gross 2 252 3 185 19 287 Loan loss provisions -1 460 -2 181 -12 503 Nonperforming loans, net 792 1 004 6 784

Nonperforming loans, net/lending, % 1.2 1.7 MeritaNordbanken Group 87 Annual Report 1999

Note 15: Property taken over for protection of claims EUR million SEK million 1999 1998 1999 Book value of property taken over for protection of claims Real estate and shares in real estate companies 33 68 284 Other shares 5 8 44 Other property taken over for restructuring of customers’ business operations 22 23 183 Total 60 99 511

Note 16: Subordinated receivables EUR million SEK million 1999 1998 1999 Loans to the public 64 40 547 Interest-bearing securities 283 363 2 426 Total 347 403 2 973

Note 17: Interest-bearing securities EUR million SEK million 1999 1998 1999 Issued by the public sector 1 167 219 9 991 Issued 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 1998 Publicly Publicly EUR million listed Other listed Other Current assets 8 469 – 9 987 11 Financial 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 –

EUR million SEK million 1999 1998 1999 Difference between nominal value and book value, financial fixed assets Higher nominal value 63 131 539 Lower nominal value 150 28 1 283

Interest-bearing securities by issuer Finnish 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 32 187 Other issuers – foreign governments 33 85 283 – other 879 745 7 526 Total book value 14 260 13 695 122 097 88 MeritaNordbanken Group Annual Report 1999

Note 19: Shares and participations 1999 1998 Publicly Publicly EUR million listed Other listed Other Current assets 519 79 388 71 Financial 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 EUR million SEK million 1999 1998 1999 Shares and participations in subsidiaries Other than credit institutions 335 355 2 866 Total 355 355 2 866

Shares and participations in associated companies Credit institutions 39 24 334 Other 292 241 2 499 Total 331 265 2 833

Note 21: Intangible assets EUR million SEK million 1999 1998 1999 Goodwill 1) 137 96 1 169 Other 58 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 EUR million SEK million 1999 1998 1999 Land and buildings Owner-occupied 655 714 5 610 Other 1 765 1 847 15 116 Shares in real estate companies Owner-occupied 56 37 477 Other 285 393 2 439 Total 2 761 2 991 23 642 MeritaNordbanken Group 89 Annual Report 1999

Note 23: Change in shares held as financial fixed assets and tangible assets EUR million SEK million 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 assets Acquisition 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 EUR million SEK million 1999 1998 1999 Clearing claims 99 91 851 Claims on securities settlement proceeds 280 583 2 400 Guarantee claims 91 113 782 Derivative instruments 3 003 3 169 25 715 Other claims 215 338 1 842 Total 3 688 4 294 31 590

Note 25: Prepaid expenses and accrued income EUR million SEK million 1999 1998 1999 Accrued interest income 1 007 1 148 8 620 Other accrued income 309 395 2 648 Prepaid expenses 22 3 190 Total 1 338 1 546 11 458 90 MeritaNordbanken Group Annual Report 1999

Note 26: Due to credit institutions and central banks EUR million SEK million 1999 1998 1999 Central banks 4 666 32 Other 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 EUR million SEK million 1999 1998 1999 Repayable on demand 33 451 30 685 286 428 Other 8 623 7 787 73 835 Total 42 074 38 472 360 263

Note 28: Difference between nominal value and book value of liabilities EUR million SEK million 1999 1998 1999 Nominal value higher than book value 222 212 1 903 Nominal value lower than book value 172 106 1 469

Note 29: Debt instruments outstanding EUR million SEK million 1999 1998 1999 Certificates of deposit 14 025 12 070 120 085 Bonds 12 521 9 843 107 212 Other instruments 1 548 774 13 260 Total 28 094 22 687 240 557

Note 30: Other liabilities EUR million SEK million 1999 1998 1999 Clearing liabilities 939 756 8 043 Liabilities on securities settlement proceeds 241 378 2 068 Derivative instruments 2 824 2 877 24 180 Sundry liabilities 2 752 2 301 23 543 Total 6 756 6 312 57 834

Not 31: Accrued expenses and prepaid income EUR million SEK million 1999 1998 1999 Accrued interest expenses 766 767 6 560 Other accrued expenses 517 419 4 428 Prepaid income 144 32 1 234 Total 1 427 1 218 12 222

Note 32: Provisions EUR million SEK million 1999 1998 1999 Pensions 18 19 154 Guarantees 44 45 379 Restructuring measures 33 79 282 Rental liabilities 17 24 149 Other provisions 122 19 1 041 Total 234 186 2 005 MeritaNordbanken Group 91 Annual Report 1999

Note 33: Subordinated debt EUR million SEK million 1999 1998 1999 Dated subordinated debenture loans 2 286 1 342 19 574 Undated subordinated debenture loans 1 124 853 9 627 Capital loans 689 299 5 902 Other subordinated debt – 52 – Total 4 099 2 546 35 103

Note 34: Shareholders’ equity Restricted Non-restricted EUR million Share capital reserves reserves Total Shareholders’ equity at the beginning of the year 2 340 794 1 637 4 771 Dividends paid ––-367 -367 New issue 3 6 – 9 Exchange of shares incl. reserve for share redemption -1 346 581 522 -243 Exchange rate changes 102 83 73 258 Transfers 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 EUR million SEK million 1999 1998 1999 Capital base 8 208 6 290 70 279 Risk-weighted amount 68 452 63 732 586 122 Total capital ratio, % 12.0 9.9 Core capital ratio, % 8.3 7.3

Note 36: Maturity breakdown of receivables and liabilities Remaining maturity, Dec 31, 1999 Less than EUR million 3 months 3-12 months 1-5 years Over 5 years Receivables Debt securities eligible for refinancing with central banks 786 1 857 1 892 396 Loans to credit institutions 7 533 884 255 423 Loans to the public 18 376 12 235 23 721 13 878 Interest-bearing securities 1 114 2 180 5 631 404 Liabilities Liabilities to credit institutions and central banks 10 195 2 745 146 268 Deposits and other borrowing from the public 38 270 2 223 3 365 140 Debt instruments outstanding 14 795 4 235 8 884 180

Note 37: Pledged assets EUR million SEK million 1999 1998 1999 Assets pledged for own liabilities Property mortgages 190 91 1 631 Leasing contracts 273 253 2 334 Securities, 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 47 531 Deposits from the public 613 405 5 247 Debt securities outstanding 147 185 1 261 Other debts and commitments 20 3 172 Total 6 331 4 324 54 211 Other pledged assets 81 51 694 92 MeritaNordbanken Group Annual Report 1999

Note 38: Assets and liabilities in foreign currencies EURO currencies SEK USD Other Assets Loans to credit institutions 2 273 4 488 1 101 1 234 Loans to the public 24 092 37 062 5 068 1 989 Interest-bearing securities 5 408 7 360 1 295 197 Other 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

Liabilities Due to credit institutions 2 744 8 859 83 1 668 Deposits and other borrowing from the public 23 091 18 747 1 361 800 Debt securities outstanding 8 342 13 220 8 266 2 365 Other 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) EUR million SEK million 1999 1998 1999 Guarantees 5 115 4 946 43 801 Stand-by facilities 7 200 4 683 61 653 Credit lines 8 304 5 200 71 102 Other commitments 1 937 880 16 587 Total 22 556 15 709 193 143

Of which on behalf of Group and associated companies 1999 1998 Group Associated Group Associated EUR million companies companies companies companies Guarantees – 29 – 2 Other – 17 – 13 Total – 46 – 15 Total assets in SEK million – 390 MeritaNordbanken Group 93 Annual Report 1999

Not 41: Derivate instruments 1999 1998 Contracts made Contarcts made for hedging for hedging EUR million purposes Other purposes Other Nominal value Interest-rate-related Futures and forwards 2 630 148 065 – 187 118 Options Purchased 5 842 – 1 545 Written – 4 427 – 1 987 Interest rate swap agreements 15 622 112 496 3 494 98 646 Currency-related Futures and forwards 4 389 61 772 29 762 40 364 Options Purchased – 2 167 – 1 685 Written – 2 135 – 1 668 Interest rate swap and currency agreements 4 020 4 611 1 858 2 663 Equity-related Futures and forwards – 56 – 146 Options Purchased 418 21 236 19 Written 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 equivalents Interest-rate-related instruments 1 923 2 695 Currency-related instruments 2 169 2 318

Note 42: Subsidiaries and participating interests Percent Book value Domicile of votes EUR million SEK million

Subsidiaries included in the consolidation financial statements

Finnish Merita Plc Helsinki 100 1 661 14 219 MeritaNordbanken Plc Helsinki 100 3 216 27 541

Subsidiaries owned by MeritaNordbanken Plc

Finnish Aleksia Ltd Helsinki 100 482 4 126 Contant Oy 1) Turku 100 6 49 Huoneistokeskus Oy 2) Helsinki 100 18 155 Merita Bank Plc Helsinki 100 1 491 12 764 MNB Maizels Oy Helsinki 100 7 58 (previously Merita Corporate Finance Ltd) Merita Life Assurance Ltd 2) Espoo 100 91 781 Merita Real Estate Ltd 3) Helsinki 100 245 2 094 Partita Ltd Helsinki 100 213 1 822 Unitas Congress Center Ltd 2) Helsinki 100 0 1

Swedish Nordbanken 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 %. 94 MeritaNordbanken Group Annual Report 1999

Percent Book value Domicile of votes EUR million SEK million

Subsidiaries owned by Nordbanken AB

Swedish Fastighets AB Stämjärnet Stockholm 100 12 100 Livförsäkrings AB Livia 1) Stockholm 100 9 80 MNB Maizels AB Stockholm 100 13 115 Nordbanken Fastigheter AB Stockholm 100 105 897 Nordbanken Finans AB Stockholm 100 120 1 024 Nordbanken Hypotek AB Stockholm 100 781 6 684 Nordbanken Industrikredit AB Stockholm 100 199 1 703 Nordbanken Kapitalförvaltning AB Stockholm 100 10 82

International MNB Maizels Ltd London 100 13 112 Nordbanken North America Inc. Delaware 100 0 0 Nordbanken Reinsurance S.A. Luxembourg 100 1 11

Subsidiaries owned by Merita Bank Plc

Finnish Fidenta Oy 2) Espoo 40 0 1 Helsingin Pantti-Osakeyhtiö Helsinki 100 6 50 Investa-Raha Oy Helsinki 100 1 6 Merita Asset Management Ltd Helsinki 100 3 28 Merita Capital Ltd Helsinki 100 4 37 Merita Delta Ltd Helsinki 100 8 72 Merita Finance Ltd Espoo 100 210 1 800 Merita Fund Management Ltd Helsinki 100 4 35 Merita Securities Ltd Helsinki 75 4 32 Merita Invest Ltd Helsinki 100 241 2 063 Merita Customer Finace Ltd Espoo 100 47 403 Merita Systems Oy Helsinki 60 0 0 M-Rent Oy 2) Vantaa 100 0 0 Tukirahoitus Oy Oulu 100 5 40 VKR-Kiinteistöt Oy Vantaa 60 1 9

International American Scandinavian Banking Corp. New York 100 11 96 Estonian Industrial Leasing Ltd Tallinn 80 4 32 Hirewhiz Limited London 100 0 3 Merita Finance (U.K.) Ltd. London 100 0 1 Merita Holdings (U.K.) Ltd London 100 2 21 MeritaNordbanken Finance Latvia Ltd Riga 100 2 14 MeritaNordbanken Finance Lit Ltd Vilnius 100 1 5 MeritaNordbanken Latvia Ltd Riga 100 13 112 Merita Nordbanken Luxembourg S.A. Luxembourg 100 17 148 MeritaNordbanken Merchant Bank Singapore Ltd Singapore 100 21 179 Merita 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. MeritaNordbanken Group 95 Annual Report 1999

Percent Book value Domicile of votes EUR million SEK million

Participating interests included in the consolidated financial statements

Participating interests owned by MeritaNordbanken Plc 1)

Finnish Dividum Oy Helsinki 48 55 469 Kiinteistösijoitus Oyj Citicon Helsinki 43 51 436 Realinvest Oy Helsinki 49 71 610 Suomen Suorakauppa Oy 2) Helsinki 50 0 1

Swedish Bankgirocentralen BGC AB Stockholm 27 0 1 Värdepapperscentralen AB Stockholm 25 27 231 Nordisk Renting AB Stockholm 40 48 415

International Bank Komunalny Gdynia 50 11 98

Participating interests owned by Merita Bank Plc 1)

Finnish ATM Automatia Ltd Helsinki 33 5 43 Eurocard Oy Helsinki 31 2 20 Luottokunta Helsinki 27 9 76 Securus Oy Helsinki 35 0 0 Suomen Asiakastieto Oy Helsinki 32 0 0 Toimiraha Oy Helsinki 33 2 18

International Freja 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. Nordic Baltic Holding 97 Annual report 1999

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.

ordbanken Holding AB Significant events November 19 and November 23, (publ), whose name was 1999, respectively, the decisions Through an offer in November 1997 changed in January 2000 to required by the exchange offer N to shareholders of Nordbanken AB, Nordic Baltic Holding (NBH) AB were taken. NBH became the owner of 99.7 (publ), and Merita Plc (Merita) At NBH’s Extraordinary percent of the shares in that compa- were the sole owners in 1999 of General Meeting, decisions were ny. NBH thus became entitled to MeritaNordbanken Plc, the parent thus taken on a change in the com- implement compulsory redemption company of the MeritaNordbanken pany’s name and a change in the of the remaining shares of Nord- Plc Group. The MeritaNordbanken company’s capital structure. It was banken. The compulsory redemp- Plc Group and the two holding accordingly decided tion procedure is still in progress. In companies form the MeritaNord- February 1998, NBH offered share- that the company’s name would be banken Group. holders the possibility to sell their Nordic Baltic Holding (NBH) AB As a result of the exchange shares at a fixed price (SEK 306), (publ), offer dated November 14, 1999 instead of participating in the com- to implement a reduction of the (see below) submitted by NBH 1) to pulsory redemption procedure. share capital by SEK shareholders in Merita and holders This offer has been accepted by a 3,188,168,602.50 by lowering the of convertible bonds issued by large number of shareholders. nominal value of the share from Merita, shareholders representing The NBH share is listed on the SEK 7.00 to SEK 4.50. 95.9 percent of the shares and Stockholm Stock Exchange. As of to reduce the company’s premium voting rights had accepted the offer October 1999, it is listed in both reserve by SEK 3,036,297,483. by January 20, 2000. NBH’s Board SEK and EUR. of Directors therefore decided to In accordance with the goals In both cases, the sums for the complete the offer and initiated established in the merger agreement reductions were allocated to unre- redemption procedure for the between Merita and NBH in 1997, stricted reserves to be used in remaining shares. Merita and NBH concluded a new accordance with decisions taken by With the exchange of shares, merger agreement on September the Annual General Meeting. The NBH became the direct and indi- 20, 1999, intended to simplify the share capital and the premium rect owner of more than 90 percent MeritaNordbanken Group’s legal reserve were re-established through of the shares of MeritaNordbanken structure. Based on this agreement, new issues (see below). One Merita Plc, which as before is the parent the Board of Directors of NBH share carried subscription rights to company of the MeritaNordbanken approved an exchange offer to the 1.02 newly issued shares in NBH. Plc Group. Merita became a sub- shareholders in Merita and holders At NBH’s Extraordinary sidiary of NBH. As a consequence, of convertible bonds issued by General Meeting on November 19, NBH is reported as of December Merita. 1999, a proposal was also approved 31, 1999 as the parent company of At Extraordinary General that the company would issue con- the new NBH Group. Meetings of NBH and Merita on vertible bonds with an aggregate

1) NBH refers to Nordbanken Holding AB (publ), and Nordic Baltic Holding (NBH) AB (publ). The meaning is apparent from the context. 98 Nordic Baltic Holding Annual report 1999

nominal value of maximum EUR the exchange increased the share employee – its President and CEO 151,920,857. Each holder of capital and the premium reserve by – during the fiscal year 1999. No convertible bonds issued by Merita SEK 3,671,101,291.50 and SEK fees were paid to the company’s is entitled to exchange these for 8,417,126,504.50, respectively. Board of Directors. convertible bonds issued by NBH. Completion of the exchange For each convertible bond issued by offer and the obligation to redeem Earnings and financial position Merita with nominal value of FIM the outstanding shares in Merita Plc 10,000, the holder is entitled to a and convertible bonds issued by NBH’s profit for the year amounted convertible bond issued by NBH Merita Plc is reflected in the 1999 to SEK 1,485 million, compared with a nominal value of EUR accounts. with SEK 42 million for 1998. 1,681.88. The new share issue and the In consideration of the profit The exchange offer was subject convertible bond loan were register- for the year and decisions taken at to conditions, of which the most im- ed at the Swedish Patent and Regi- the Extraordinary General Meeting portant was that the Extraordinary stration Office on January 28, 2000. on November 19, 1999 regarding General Meetings of shareholders Trading in NBH subscription changes in the share capital and in Merita and NBH approve the rights begun on the Helsinki Ex- premium reserve in conjunction necessary decisions relating to the changes pre-list on January 24, with a new share issue (see above), exchange offer (see above), that 2000, but ceased on January 31, the company’s equity capital shareholders of Merita representing 2000, when trading of NBH shares amounted to SEK 26,508 million at more than 90 percent of the outstand- in the form of Finnish Depository the year-end. ing shares and voting rights accept Receipts (FDR) began. the exchange offer and that the To complete the exchange necessary approvals were obtained. offer, NBH submitted a redemp- Share capital and number The exchange offer prospectus tion offer on January 27, 2000 in of shares and the stock exchange prospectus accordance with the Finnish Securi- dated November 14, 1999 were ties Market Act and at the same After the approved changes, the published on November 19, 1999. time issued a redemption request in share capital in NBH amounts to The exchange period started on accordance with the Finnish Com- SEK 9,410 million, represented November 24, 1999 and was sche- panies Act for shares that had not by 2,091,067,728 shares, nominal duled to end on December 15, been exchanged. The redemption value SEK 4.50. All shares carry 1999, but was extended until price is EUR 5.77 per share. If a equal rights to the company’s assets January 20, 2000. shareholder does not accept the and profits. Each shareholder eligi- As of December 31, 1999, redemption request, the redemp- ble to vote at a General Meeting of shareholders representing 90.8 per- tion price will be determined by Shareholders may vote the full cent of the shares and voting rights arbitration in accordance with the number of shares held, without had accepted the offer. Finnish Companies Act. restrictions. There are no known At the same time, NBH sub- shareholder agreements. Significant events after mitted an exchange offer for the December 31, 1999 convertible bonds that had not Share price trend, trading volume been exchanged. The redemption and market capitalization On January 21, 2000, it was an- price is 104.2 percent of the nomi- nounced that NBH would complete nal value, FIM 10,000 (EUR The price of the company’s share the exchange offer presented on 1,681.88). As a result of the plan- declined by 3.8% during 1999. The November 19, 1999 to shareholders ned merger of Merita Plc with total return, including dividend of in Merita Plc and holders of con- MeritaNordbanken Plc, the right to SEK 1.64 per share, amounted to vertible debentures issued by Meri- convert the bonds to shares in Meri- –0.7%. The highest price paid was ta Plc. At the end of the registration ta Plc does not apply. SEK 61.00 (January 20) and the period, shareholders representing The redemption period is from lowest SEK 42.30 (October 18). 95.9 percent of the shares and February 1 to 29, 2000. NBH reser- Beginning on October 4, the share voting rights and holders of Merita’s ves the right to extend the redemp- was also listed in euro, with a high convertible bonds representing 91.2 tion period by a maximum of three of EUR 6.25 (November 18) and a percent of the aggregate value of months. low of EUR 4.50 (October 20). convertible bonds outstanding had During the same period the accepted the offer. Personnel Stockholm Stock Exchange Banking The new non-cash share issue and Insurance Index rose by 17.1%, that was implemented to finance Nordbanken Holding had one and the General Index by 66.4%. Nordic Baltic Holding 99 Annual report 1999

NBH’s shares were the fif- foreign owners about 29.2%. The perscentralen VPC AB (Swedish teenth most actively traded on the remaining shares after the merger Securities Register Center) not Stockholm Stock Exchange. The are owned by the Swedish govern- later than Friday, March 31, 2000. total volume of trading amounted ment, about 25.9%, and the Finnish a. Shareholders in Sweden whose to SEK 38,303 million, equal to government, about 2.1%. shares are registered in the name 766 million shares. Nordbanken of a trustee must temporarily re- Holding thereby accounted for Convertible bonds register the shares in their own 1.5% of the total turnover on the name. Such reregistration must Exchange. Each convertible bond in the con- be effected at VPC AB by Mon- Within the MeritaNordbanken vertible bond loan that NBH has is- day, March 31, 2000. According- Group, the Boards of Directors of sued entitles the holder to request ly, shareholders must advise trus- Merita Plc and Nordic Baltic Holding conversion of the claim to new sha- tees in ample time prior to that (NBH) AB (publ) decided to follow res in NBH at a conversion price of date. the recommendations of the Helsin- EUR 5.60. b. Shareholders whose shares are in ki Exchanges’ insider rulings when Conversion may take place the form of NBH Finnish Depos- they take effect on March 1, 2000. until August 17, 2042, which is the itary Receipts must temporarily Before the new share issue, due date for the loan. However, re-register these in their own market capitalization of NBH’s NBH has the right as of August 17, name. Such reregistration must shares at December 31, 1999 was 2002 and at any time thereafter to be effected in ample time and not SEK 63,763 million, equal to 1.7% repay the loan in full or in part at later than March 30, 2000 with of the total value of all shares trad- 30 days notice. Merita Bank Plc, according to 2b. ed on the Exchange. The total mar- Convertible bonds subject to 2. must notify Nordic Baltic Hold- ket capitalization of the NBH share exchange may be redeemed in ing (NBH) AB (publ) not later and the Merita share at December accordance with the redemption than Wednesday, April 5, 2000, 31, 1999 amounted to 221% of the offer made on January 27, 2000. 1:00 p.m. Swedish time, and Group’s shareholders’ equity. Through conversion, the num- 2:00 p.m. Finnish time. ber of shares may increase by a a. by notice addressed to Nordic maximum of 23,232,168. Trading in derivatives Baltic Holding (NBH) AB (publ), Group Legal Department, H-50, Nordbanken Holding’s shares can Dividend SE-105 71, Stockholm, Sweden, also be traded in the form of put by telephone, +46-8 614 97 10, The Board of Directors of Nordic and call options and futures con- by telefax, +46-8 614 87 70, Baltic Holding (NBH) AB (publ) tracts and share loans in the Stock- via the Internet: proposes that a dividend of SEK 1.75 holm options market (OM Stock- www.meritanordbanken.com, or per share be paid for the year 1999. holm AB). Warburg Dillon Read b. by notice addressed to Nordic also issues long-term warrants in Baltic Holding (NBH) AB (publ), NBH that are traded on the OM Annual General Meeting Mertia Bank Plc, 2590 Issue Stockholm Exchange. Services, FIN-00020 Merita, by The Annual General Meeting of telephone +358 9 165 88229, Nordic Baltic Holding (NBH) AB by telefax +358 9 637 256, Shareholders (publ) will be held Tuesday, April via the Internet: 11, 2000, at 2:00 p.m. Swedish www.meritanordbanken.com, At year-end 1999, Nordbanken time in the Annex of Globen, in Shareholders are requested to indi- Holding had slightly more than Stockholm, Sweden, with the right cate on the notice at which of the two 92,000 shareholders, before the ad- for shareholders to participate locations they intend to participate. dition of new shareholders as a re- simultaneously at 3:00 p.m. Finnish sult of the new issue. This means time at the Helsinki Fair Centre, Dividend and record date that the number of shareholders de- which will be linked to Stockholm The Board of Directors proposes clined by nearly 10,000 during the via satellite. that a dividend of SEK 1.75 per year. The new issue means that the share be paid for 1999 and that number of shareholders increased Notification April 14, 1999 be the record date by about 234,000. Of shares out- for the dividend. If the Annual standing at January 31, 2000, Finn- Shareholders who wish to partici- General Meeting approves the ish and Swedish private individuals pate in the Meeting Board’s proposal, it is expected that owned about 13.1%, Finnish and 1. must be recorded in the share the dividend will be distributed by Swedish institutions 29.7% and register maintained by Värdepap- VPC on April 25, 1999. 100 Nordic Baltic Holding Annual report 1999

Largest known shareholders in Norbanken Holding on December 31, 1999 Before the new issue linked to the exchange offer to shareholders in Merita Plc Percentage of capital Number of shares and voting rights Swedish Government 512 015 102 42.5 SPP 46 837 296 3.7 AMF Pensionförsäkring AB 39 500 000 3.1 Nordbanken’s mutual funds 38 009 316 3.0 SHB’s mutual funds 27 095 300 2.1 Skandia 26 311 563 2.1 SEB’s mutual funds 21 463 560 1.7 Fourth AP fund 19 380 000 1.5 Nordbanken’s Profit-sharing Foundation 19 186 300 1.5 AMF 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, 1999 Before 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 3.7 592 1 001 – 5 000 10 130 11.0 21 508 766 1.7 2 123 5 001 – 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 71 800 100 001 – 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. Nordic Baltic Holding 101 Annual report 1999

Income statements

SEK million Note 1999 1998 Operating income

Operating expenses Personnel expenses 2 -0 -0 Other operating expenses 3, 4 -26 -12 Operating loss -26 -12

Net result from financial investments Dividend 3 1 473 – Interest income 3 69 78 Interest expenses 3 -26 -8 Profit after financial items 1 490 58

Profit before tax 1 490 58 Tax for the year -5 -16 Net profit for the year 1 485 42 102 Nordic Baltic Holding Annual report 1999

Balance sheets

SEK million Note 1999 1998 Assets Fixed assets Financial fixed assets Shares in subsidiaries 5 27 465 – Shares in associated companies 5 – 13 242 Long-term receivables 6 1 114 – Total fixed assets 28 579 13 242

Current assets Short-term receivables 6 48 7 Short-term investments 6 1 000 1 800 Bank deposits 407 239

Total current assets 1 455 2 046 Total assets 30 034 15 288

Shareholders’ equity and liabilities Shareholders’ equity 7 Restricted shareholders’ equity Share capital 1) 9 410 8 927 Premium reserve 8 417 3 036 Non-restricted shareholders’ equity Non-restricted reserves 1) 6 224 – Retained earnings 972 3 021 Profit for the year 1 485 42 Total shareholders’ equity 26 508 15 026

Liabilities Subordinated 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 items Collateral pledged (bank funds) in connection with compulsory redemption proceedings 214 207 Contingent liabilities 98 Other 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. Nordic Baltic Holding 103 Annual report 1999

Cash flow analysis

SEK million 1999 1998 Ordinary business Profit after financial items 1 490 58 Adjustment for items not included in cash flow 2 117 -46 Adjustment for items included in cash flow for financing operations -1 473 – Income taxes paid -16 -12 Cash flow from ordinary business before changes in ordinary business assets and liabilities 2 118 0

Change in ordinary business assets 778 -94 Change 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 1 Liquid assets at the end of the year 193 32

Additional information In comparison with the cash flow analyses that were presented in the interim reports during 1999, an adjustment has been made in the presentation of the cash flow analysis used in the rest of the Group. This means that an indirect method is applied with a break down into ordinary business, investment operations and financial operations and that the definition of liquid assets is more stringent that that applied 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 collateral as a result of compulsory redemption Dec 31, 1999 Dec 31, 1998 Dec 31, 1997 214 207 –

Interest received 1999 1998 Interest received 51 72 Interest paid 14 1

Dividends received 1 473 4 934 1) 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 payments As 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. 104 Nordic Baltic Holding Annual report 1999

Notes to the Financial Statements

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 1998 and 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 the remaining shares in Merita Plc totaling SEK 2,131 million. An estimation of future costs for the redemption of convertible bonds issued by 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 the Board 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 and received dividends pertained to transactions with Group companies, with the exception of accrued interest expenses on the convertible debenture 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 Voting December 31, 1999 of shares Nominal value SEK million Market value rights, % 1) Fixed assets Merita Nordbanken Plc 2) Common shares 560 000 000 FIM 5 600 million – 50.(40) 13 246 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. Nordic Baltic Holding 105 Annual report 1999

Note 6: Receivables December 31, SEK million 1999 1998 Financial fixed assets Debenture loan Merita Plc 1 114 –

Current assets Short-term investment with Nordbanken AB 1 000 1 800 Tax receivable 6 – Other current receivables 16 0 Prepaid expenses and accrued interest 26 7 Total 2 162 1 807

Note 7: Change in shareholders’ equity Share Premium Non-restricted SEK million capital 1) reserve equity Total At the beginning of the year 8 927 3 036 3 063 15 026 Reduction of share capital 2) -3 188 3 188 – Reduction of premium reserve -3 036 3 036 – New issue 2) 3 671 8 417 12 088 Dividend -2 091 -2 091 Profit 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 December 31, SEK million 1999 1998 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 of August 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 December 31, SEK million 1999 1998 Current liabilities to subsidiaries 222 – Current liabilities to associated companies – 203 Tax liabilities – 5 Other current liabilities 43 43 Accrued expenses 2 147 11

Total 2 412 262 106 Nordic Baltic Holding Annual report 1999

Proposed Distribution of Earnings

According to the Company’s balance sheet, the follow- The Board of Directors and the President propose that ing amount is at the disposal of the Annual General these earnings be distributed as follows: Meeting of Shareholders:

SEK million SEK million Non-restricted reserves 6 224 Dividends paid to shareholders, Profit carried forward 972 SEK 1.75 per share 3 659 Net profit for the year 1 485 To be carried forward 5 022

Total 8 681 Total 8 681

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.

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 Nordic Baltic Holding 107 Annual report 1999

Auditors’ Report

To the Annual General Meeting of Nordic Baltic Holding (NBH) AB (publ), corporate registration no. 556547-0977.

e have audited the finan- assessing the accounting principles with Generally Accepted Auditing cial statements, the used and their application by the Standards in Sweden. Waccounts and the admin- Board of Directors and the Presi- We recommend to the Annual istration of the Board of Directors dent, as well as evaluating the over- General Meeting that the the in- and the President of Nordic Baltic all presentation of information in come statements and the balance Holding (NBH) AB (publ) for 1999. the financial statements. We exam- sheets for the Parent Company and These accounts and the administra- ined significant decisions, actions the Group be adopted, that the tion of the company are the respon- taken and circumstances of the profit in the Parent Company be sibility of the Board of Directors Company in order to determine the dealt with in accordance with the and the President. Our responsibi- possible liability to the Company proposal in the Board of Directors’ lity is to express an opinion on the of any Board Member or the Presi- Report and that the members of financial statements and the admin- dent or whether they have in some the Board of Directors and the istration based on our audit. other way acted in contravention of President be discharged from liabil- We conducted our audit in the Companies Act, the Annual ity for the fiscal year. accordance with Generally Accepted Accounts Act or the Articles of Auditing Standards in Sweden. Association. We believe that our These Standards require that we audit provides a reasonable basis for Stockholm, February 18, 2000 plan and perform the audit to our opinion set out below. obtain reasonable assurance that The annual report and the KPMG the financial statements are free of financial statements have been pre- material misstatement. An audit pared in accordance with the Annu- includes examining, on a test basis, al Accounts Act and thus provide a evidence supporting the amounts fair representation of the Com- and disclosures in the financial pany’s and the Group’s earning and Caj Nackstad statements. An audit also includes financial position in accordance Authorized Public Accountant Eva and Lars summer of 1999. 4000 km, nine countries, nine currencies. One credit card. Merita Plc 109 Annual Report 1999

Merita Plc* 1999

Board of Directors’ Report

* Corporate registration number 40,495. The company is based in Helsinki, Finland.

n 1999, Merita Plc (Merita) and an essential part of Merita’s annual were that the Merita and NBH Nordbanken Holding AB (publ), report. Extraordinary General Meetings Iwhich in January was renamed took the necessary decisions relat- Nordic Baltic Holding (NBH) AB Significant events ing to the exchange offer (see (publ), were the owners of Merita- above), that Merita shareholders, Nordbanken Plc, the parent com- In accordance with the objectives representing more than 90% of the pany of the MeritaNordbanken Plc stated in the merger agreement shares and votes outstanding, Group. Together, the MeritaNord- between Merita and NBH in 1997, accepted the exchange offer and banken Plc Group and the two on September 20, 1999 Merita and that the necessary permits/approv- owner companies form the Merita- NBH entered into a new merger als were obtained. Nordbanken Group. agreement, the purpose of which The prospectus relating to the As a result of the exchange was to simplify the MeritaNord- exchange offer and the stock ex- offer dated November 14, 1999 banken Group’s legal structure. change prospectus dated November (see below) that NBH 1) submitted Based on this merger agreement, 14, 1999 were published on to the shareholders in Merita Plc the NBH Board decided to make an November 19, 1999. The applica- and holders of convertible bonds exchange offer to shareholders in tion period commenced on Novem- issued by Merita Plc shareholders Merita and holders of convertible ber 24, 1999 and was initially due representing 95.9 percent of the bonds issued by Merita. to close on December 15, 1999. shares and voting rights had accept- At the Extraordinary General However, the application period ed the offer by January 20, 2000. Meetings of Merita and NBH on was subsequently extended to NBH’s Board of Directors therefore November 23 and 19, 1999, re- January 20, 2000. decided to complete the offer and spectively, the approvals required As at December 31, 1999, initiated the redemption procedure in respect of the exchange offer shareholders representing 90.8% of for the remaining shares. were obtained. the shares and voting rights had With the exchange of shares, One Merita share entitles the accepted the offer. NBH became the direct and indi- holder to 1.02 newly issued shares rect owner of more than 90 percent in NBH. Significant events after of the shares of MeritaNordbanken At the NBH Extraordinary December 31, 1999 Plc, which as before is the parent General Meeting on November 19, company of the MeritaNordbanken 1999, a decision was also taken that On January 21, 2000, it was an- Plc Group. Merita became a subsid- the company would issue a convert- nounced that NBH would complete iary of NBH. As a consequence, ible bond loan in a nominal maxi- the exchange offer presented to NBH is reported as of December mum amount of EUR 151,920,857. shareholders in Merita Plc and 31, 1999 as the parent company of Each holder of convertible bonds holders of convertible bonds issued the new NBH Group. issued by Merita became entitled to by Merita Plc on November 14, In order to illustrate Merita’s exchange these bonds for convert- 1999. At the end of the exchange financial development and position ible bonds issued by NBH. For each period, shareholders representing strictly from the company’s view- convertible bond issued by Merita 95.9% of the shares and voting point, the following income state- with a nominal amount of FIM rights had accepted the offer. Hold- ments and balance sheets are pre- 10,000, a holder receives one ers of Merita’s convertible bonds sented for the company Merita convertible bond issued by NBH accepting the offer represented Plc, including and excluding the with a nominal amount of EUR 91.2% of the total nominal capital associated company MeritaNord- 1,681.88. of the outstanding convertible banken. However, the MeritaNord- The most important conditions bonds. banken Group’s annual accounts are pertaining to the exchange offer In order to complete the

1) NBH refers to Nordbanken Holding AB (publ), and Nordic Baltic Holding (NBH) AB (publ). The meaning is apparent from the context. 110 Merita Plc Annual Report 1999

exchange offer, NBH submitted a re- shown among participations in asso- time at the Helsinki Fair Centre, demption offer on January 27, 2000 ciated companies, including a de- which will be linked to Stockholm in accordance with the Finnish duction of EUR 13 M (80) in accord- via satellite. Securities Market Act and concur- ance with the original cooperation rently requested a redemption agreement. The result also includes Shareholders who wish to partici- ruling in accordance with the Finn- payment of 40% of the withdrawal pate in the Meeting ish Companies Act pertaining to (reversal) from the pension foun- 1. must be recorded in the share shares which were not exchanged. dation and funds of EUR 26 M (61) register maintained by Värde- The redemption price is EUR 5.77 and is charged with 40% of the real papperscentralen VPC AB per share. If a shareholder does not estate write-downs of EUR 58 M (Swedish Securities Register accept the redemption ruling, the (247). Thereafter, the result corres- Center) not later than Friday, redemption price is determined by ponds to 40% of the total result of March 31, 2000. arbitration in accordance with the the MeritaNordbanken Group and a. Shareholders in Sweden whose Finnish Companies Act. amounted to SEK 439 M (281). shares are registered in the name At the same time, NBH pre- Profit for the year for Merita Plc of a trustee must temporarily sented a redemption offer for the excluding associated companies re-register the shares in their convertible bonds that had not amounted to EUR 134 M (137). own name. Such reregistration been exchanged. The redemption Excluding associated com- must be effected at VPC AB by price is 104.2% of the nominal panies, the company shareholders’ Monday, March 31, 2000. value of the convertible bond, which equity at year-end 1999 amounted Accordingly, shareholders must is FIM 10,000 (EUR 1,681.88). As to EUR 1,828 M. With the addition advise trustees in ample time a result of the planned merger of of the share in earnings of associated prior to that date. Merita Plc with Merita-Nordbanken companies and after adjustment due Plc, the possibility to convert the to the original cooperation agree- b. Shareholders whose shares are bonds to shares in Merita Plc does ment, Merita’s shareholders’ equity in the form of NBH Finnish De- not apply. The redemption offer at the same date corresponded to positary Receipts must tempo- extends between February 1–29, 40% of the total shareholders’ equity rarily re-register these shares in 1999. NBH retains the right to of the MeritaNordbanken Group, their own name. Such re-regis- extend the redemption period by a EUR 2,210 M, or EUR 2.68 per tration must be effected in maximum of three months. share. ample time and not later than Trading in NBH’s subscription March 30, 2000 with Merita rights started on the Helsinki Bank Plc – according to 2b below. Dividend Exchanges prelist on January 24, 2. must notify Nordic Baltic 2000, but was terminated on The Board of Directors of Merita Holding (NBH) AB (publ) not January 31, 2000, when trading in Plc proposes that no ordinary divi- later than 1:00 p.m. Swedish NBH shares in the form of Finnish dend be paid. The Board’s proposal time, and 2:00 p.m. Finnish Depository Receipts (FDRs) com- for the distribution of profits in time on Wednesday, April 5, menced on the Helsinki Exchanges NBH is presented on page 106. 2000. main list. a. by notice addressed to Nordic Baltic Holding (NBH) AB Annual General Meeting (publ), Group Legal Earnings and financial position As a result of the share redemption Department, H-50, SE-105 71, Net profit for the year for the process, NBH will be the sole Stockholm, Sweden, MeritaNordbanken Group amount- owner of Merita, while former by telephone, +46-8 614 97 10, ed to EUR 1,098 M, compared shareholders in Merita own shares by telefax, +46-8 614 87 70, with EUR 704 M in 1998. This re- in the parent company Nordic via the Internet: sult includes withdrawals (reversal) Baltic Holding (NHB) AB (publ). www.meritanordbanken.com, or from the pension foundation and The Annual General Meeting b. by notice addressed to Nordic funds of SEK 65 M (152), and of Nordic Baltic Holding (NBH) Baltic Holding (NBH) AB write-downs of real estate of EUR AB (publ) will be held on Tuesday, (publ), Mertia Bank Plc, 2590 145 M (617). Return on equity April 11, 2000, at 2:00 p.m. Swed- Issue Services, FIN-00020 amounted to 20.9% and earnings ish time in the Annex of Globen, in Merita, by telephone per share to EUR 0.53. Stockholm, Sweden, with the right +358 9 165 88229, by telefax Merita Plc’s share (40%) of the for shareholders to participate +358 9 637 256, via the Internet: MeritaNordbanken Group result is simultaneously at 3:00 p.m. Finnish www.meritanordbanken.com, Merita Plc 111 Annual Report 1999

Shareholders are requested to Convertible bond loan 1992 the share was EUR 6.32 on January indicate at which of the two 20 and the lowest was EUR 4.80 on locations they intend to participate. In 1992, Merita Plc issued a con- October 15. vertible bond loan of FIM 906 M During 1999, Merita was the (EUR 152 M). Each bond has a fifth most actively traded share on Share capital and outstanding nominal value of FIM 10,000 (EUR the Helsinki Exchanges. shares 1,681.88) and may be converted to Within the MeritaNordbanken 300 shares. Conversion can be car- Group, the Boards of Merita Plc At the end of 1999, Merita Plc’s ried out annually between January and Nordic Baltic Holding (NBH) share capital amounted to EUR 2 and November 30, however, not AB (publ) decided to follow the 1,402,120,419.19. In accordance later than August 17, 2042. The recommendations of the Helsinki with the Articles of Association, company has retained the right to Exchanges in regard to insider the minimum number of shares is repay the loan capital in its entirety rulings when these come into force 400,000,000 and the maximum or in instalments on August 17, on March 1, 2000. number is 1,600,000,000, which 2002, or at any time thereafter. are the limits within which share As of December 31, 1999, the capital can be increased or decreas- loan amount outstanding was EUR ed without amending the Articles 142 M, of which EUR 130 M was Shareholders of Association. The computed value owned by NBH following the of the share at the end of 1999 was completion of the exchange offer. In accordance with Finnish law, EUR 1.68 and the number of shares Merita will become a wholly-owned outstanding was 833,662,944. subsidiary of NBH as a result of the During the year, the number Share price trend, turnover and redemption offer in accordance of shares increased by a total of market capitalization with the Finnish Companies Act. 1,642,200 due to the conversion of convertible bonds from 1992. The Merita share is listed on the The Board has no authorization Helsinki Exchanges. During 1999, to decide on an increase of the share the share price rose by 8%, while capital. the Helsinki General Index rose by 162%. The highest price paid for

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 for Dec 29, 1995 3 shares in Kansallis-Yhtymä Oy 1.68 346 457 170 1/1 1995 583 1 397 Subscriptions with warrants (warrant personnel financing 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 shares Numbers of shares shareholders % shares shares, % per shareholder 1–1 000 205 278 79.0 54 728 104 6.6 267 1 001–10 000 51 662 19.9 132 618 730 15.9 2 567 10 001–100 000 2 683 1.0 57 088 537 6.8 21 278 100 001–1 000 000 145 0.1 43 462 252 5.2 299 740 1 000 001– 30 0.0 170 055 876 20.4 5 668 529 Held in trust 17 0.0 374 898 930 45.0 22 052 878 In collective book-entry account 810 515 0.1 Total 259 815 100.0 833 662 944 100.0 112 Merita Plc Annual Report 1999

Largest shareholders (known) in Merita Plc before the exchange offer from Nordic Baltic Holding (NBH) AB (publ) Share capital December 31, 1999 No. of shares and votes, % Solidium Oy 42 622 222 5.1 Suomi Mutual Life Assurance Company 13 000 001 1.6 Varma-Sampo Mutual Pension Insurance Company 10 660 000 1.3 Ilmarinen Mutual Pension Insurance Company 10 620 000 1.3 Merita Plc Pension Foundation 9 734 028 1.2 Meiji Life Insurance Company 8 538 666 1.0 Pohjola Insurance Company 8 135 438 1.0 Onninen Investment Ltd 7 900 600 0.9 Kuntien Eläkevakuutus 7 274 500 0.9 Merita Plc Pension Fund 7 070 173 0.8

Merita Plc shares/per-share data 1999 1998 1997 1996 1995

Combined share series Average number of shares, million 832 832 830 830 744 Number of shares December 31, million 834 832 830 830 830 Market value, December 31, EUR million 4 877 4 506 4 150 2 027 1 535 Earnings per share (EPS), EUR 0.53 0.33 0.50 0.43 0.08 Shareholders’ equity/share 2.68 2.29 2.26 2.28 1.93 Dividend/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 2.15 Lowest price, EUR 4.80 3.58 2.37 1.53 1.72 Highest price, EUR 6.32 6.68 5.05 2.56 2.54 Volume of trading, 1,000s 475 466 468 374 387 495 294 667 129 141 Volume of trading in % of shares 57.1 61.3 50.8 38.6 16.9 Average number of shares, million 832 764 763 763 677 Number of shares, December 31, million 834 832 763 763 763 Market value, December 31, EUR million 4 877 4 506 3 825 1 849 1 412 Dividend 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 2.17 Lowest price, EUR – 3.53 2.64 1.68 1.73 Highest price, EUR – 6.32 4.88 2.78 2.52 Volume of trading, 1,000s – 18 738 24 681 10 506 12 622 Volume of trading in % of shares – 27.9 36.7 15.6 18.8 Average number of shares, million – 67 67 67 67 Number of shares, December 31, million ––67 67 67 Market value, December 31, EUR million ––324 179 123 Dividend 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 113 Annual Report 1999

Income statement

Merita Plc incl. the associated company Merita Plc EUR million Note 1999 1998 1999 1998 Interest income 14 25 14 25 Interest expenses -7 -18 -7 -18 Net interest income 7 7 7 7

Income from equity investments Participating interests ––154 1 Other companies 0 0 0 0 Commission expenses -0 -0 -0 -0 Net result from financial operations – 133 – 133 Other operating income 0 7 8 7 7 147 169 148

Administrative expenses Personnel expenses Salaries and fees -1 -1 -1 -1 Staff-related costs Pension costs -1 -3 -1 -3 Other staff-related costs -0 -0 -0 -0 Other administrative expenses -2 -11 -2 -11 Depreciation and write-downs on tangible and intangible assets – -0 – -0 Other 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 – 4 Write-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). 114 Merita Plc Annual Report 1999

Balance Sheet

Merita Plc incl. the associated company Merita Plc EUR million Note 1999 1998 1999 1998 Assets Debt securities eligible for refinancing with central banks 172 158 172 158 Loans to credit institutions repayable on demand 6 36 6 36 Other debt securities 152 152 152 152 Shares and participations 2 0 0 0 0 Participating interests 2 2 032 1 727 1 650 1 650 Other assets 0 1 0 1 Prepaid expenses and accrued income 10 13 10 13 Total assets 2 372 2 087 1 990 2 010

Liabilities and shareholders’ equity Liabilities Other liabilities 12 12 12 12 Accrued expenses and prepaid income 6 14 6 14 Provisions 3 Pension provisions 2 1 2 1 Other provisions –– –– Subordinated liabilities 4 142 152 142 152 Liabilities 162 179 162 179

Shareholders’ equity 5 Share capital 1 402 1 399 1 402 1 399 Share premium reserve 11 5 11 5 Ordinary reserve 36 36 36 36 Retained earnings 322 187 245 254 Profit 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 commitments Commitment on behalf of customers in favour of third parties Guarantees and pledges 2 1 2 1 Merita Plc 115 Annual Report 1999

Accounting principles

The annual report and accounts have Directors include all of the prescribed Liabilities and receivables are taken up been prepared in accordance with the financial statements’ notes. Copies of the in the balance sheet in the amounts that Credit Institutions’ Act, the Accounting original documentation can be obtained were paid, or received, as they arise. Act and other statutes and regulations from the Group Financial Control and Reporting of permanently held securities governing financial statements. In this Accounting Department. relates to shares held in MeritaNord- printed version of the annual report, only Consolidated accounts have not been banken Plc, and holdings of interest- those Notes to the Financial Statements prepared since the company’s voting bearing securities. These security holdings that are of critical importance to an as- rights in MeritaNordbanken amount to are reported at acquisition value. Other sessment of the company’s earnings and 50%. The equity method has been securities are reported as current assets financial position have been included. The applied when reporting participations in and are valued at the lower of acquisition original documents signed by the Board of the MeritaNordbanken Group. value or market value. 116 Merita Plc Annual Report 1999

Note 1: Subordinated receivables EUR million 1999 1998 Debt securities 152 152 of which to the associated company 152 152 Total 152 152

Note 2: Shares and participations 1999 1998 Publicy 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 Plc incl. the associated company EUR million 1999 1998 1999 1998 Subsidiaries Credit institutions –––– Other –––– Total ––––

Associated companies Other than credit institutions 2 032 1 727 1 650 1 650 Total 2 032 1 727 1 650 1 650

Shareholding Voting Book value Participating interests, Dec 31, 1999, associated company Domicile % rights, % EUR million MeritaNordbanken Plc Helsinki 40.0 50.0 1 650

Note 3: Provisions EUR million 1999 1998 Pension provisions 21 Other –– Total 21

Note 4: Subordinated liabilities EUR million 1999 1998 Liabilities with a book value exceeding 10% of all subordinated liabilities 1) 142 152 Total 142 152 – of which, perpetual bonds 142 152

1) Convertible bonds, see page 111. Merita Plc 117 Annual Report 1999

Note 5: Shareholders’ equity Share Restricted Retained EUR million capital reserves earnings Total At the beginning of the year 1 399 41 468 1 908 Dividend ––-147 -147 Conversion of bonds 3 6 – 9 Other changes ––11 Profit for the year ––439 439 At the end of the year 1 402 47 761 2 210 Merita Plc excluding the associated company 1 402 47 379 1 828 Of which, distributable 379 379

Dec 31, 1999 Dec 31, 1998 Equity capital excluding the associated company 1 828 1 831 Share of equity capital in the associated company 449 111 Adjustment 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 EUR million 1999 1998 Deferred tax receivables –– Tax on income from ordinary operations 30 -12 Tax 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 liabilities The statutory pension protection for Merita Plc’s employees is covered through insurance. The employees’ supplementary pension plan is 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. 118 Merita Plc Annual Report 1999

Note 12: Personnel and information on members of administrative and controlling boards 1999 1998 Average number of employees during the year 5 6 Change since preceding year, persons -1 -5 percent -21 -45 Full-time 54 Change 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 salary throughout 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 Associated EUR million companies companies companies companies Interest income – 13 – 14 Interest expenses – 0 – 7 Income from equity investments – 154 – 1

Receivables from and liabilities to Group and associated companies 1999 1998 Group Associated Group Associated EUR million companies companies companies companies Receivables Debt securities eligible for refinancing with central banks – 172 – 158 Loans to credit institutions – 6 – 36 Debt securities – 152 – 152 Other receivables –––0 Prepaid expenses and accrued income – 2 – 3 Total – 332 – 349

Liabilities Other liabilities – 11 – 11 Accrued expenses and prepaid income –––0 Total – 11 – 11 Merita Plc 119 Annual Report 1999

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 378 636 543.22 and, including the associated company, to EUR 761 million. The company’s net profit for 1999 was EUR 133 998 248.82.

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 120 Merita Plc Annual Report 1999

Auditors’ report

to the Annual General Meeting of Shareholders of Merita Plc

We have audited the accounting plan and perform the audit in order financial statements together with records and the financial statements to obtain reasonable assurance as to the financial information of Merita- as well as the administration by the whether the financial statements Nordbanken Group give a true and Board of Directors and the Chief are free of material misstatement. fair view, as defined in the Account- Executive of Merita Plc for the An audit includes the examination ing Act, of the company’s result of financial year 1999. The financial on a test basis of evidence support- operations for the financial period statements, which include the ing the amounts and disclosures in under audit as well as of the finan- report of the Board of Directors of the financial statements, an assess- cial position at the year end. The the parent company, the income ment of the accounting principles income statements and balance statements, balance sheets and used and significant estimates made sheets of Merita Plc including the notes to the financial statements of by the management as well as the associated company and of Merita the parent company including the evaluation of the overall presenta- Plc may be adopted and the Chair- associated company and the parent tion of the financial statements. man and Vice Chairman of the company, have been prepared by The purpose of our audit of the Board of Directors and other mem- the Board of Directors and the administration has been to see that bers of the Board of Directors as Chief Executive. The financial the Board of Directors and the Chief well as the Chief Executive of the information of the MeritaNord- Executive have complied with the parent company may be discharged banken Group is included in the rules of the Finnish Companies Act from liability for the financial year financial statements. Based on our and Credit Institutions Act. audited by us. audit, we express our opinion on In our opinion, the financial The proposal submitted by the these financial statements and the statements have been prepared in Board of Directors to the Annual company’s administration. accordance with the Finnish Credit General Meeting of Shareholders We have conducted our audit Institutions Act, the Accounting regarding the distribution of retain- in accordance with generally accept- Act and other rules and regulations ed earnings is in compliance with ed auditing standards in Finland. governing the preparation of finan- the Finnish Companies Act. These standards require that we cial statements in Finland. The

Helsinki, February 16, 2000

Eric Haglund Mauri Palvi Authorized Public Accountant Authorized Public Accountant MeritaNordbanken Group 121 Annual Report 1999

Board of Directors

In 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 of Directors of these companies and MeritaNordbanken Plc had the same members in 1999. In MeritaNordbanken Plc, there are also two Board members who represent the employees.

ost work by the Board of man), Jacob Palmstierna, Dan of six and maximum of 15 memb- Directors was conducted Andersson and Timo Peltola. ers elected by shareholders at the Mon behalf of Merita Nord- Audit Committee: The com- Annual General Meeting. The banken Plc. The Board held 15 mittee oversees the Group’s inter- mandate extends over a period of meetings during the year. Board nal audit function and prepares two years, with half the members matters are prepared by a Presiding audit-related matters for consid- of the Board being elected each Committee consisting of the Chair- eration by the Board of Directors. year. At the Annual General Meet- man, Vice Chairman and the Chief During 1999, the Audit Committee ing in the year 2000, accordingly, Executive Officer. The Presiding comprised Board members Juha half of the members of the Board of Committee meets every second Niemelä (Chairman), Rune Directors will be elected for a week. Brandinger and Hans Dalborg. period of one year, and the other The Board of Directors of Remuneration Committee: half for two years. Elections of MeritaNordbanken Plc comprises The committee has presented pro- Board members shall focus on four committees: posals to the Board of Directors persons with required skills, experi- Credit Committee: The regarding the CEO’s terms of ence in Board work and knowledge committee handles lending com- employment. The CEO also con- of social, commercial and cultural mitments that exceed certain limits sults with the committee regarding conditions in the regions and established by the Boards of the the terms of employment of Group market areas where the Group two banks. Before decisions can be Management and other senior conducts its core business. The made by the Boards of Directors in executives. During 1999, the Board of Directors shall meet every such matters, the financial commit- Remuneration Committee com- year immediately following the ment must be approved by the prised Board members Vesa Vainio Annual General Meeting to esta- committee. During 1999, the (Chairman), Jacob Palmstierna and blish a special agenda for Board Credit Committee comprised Board Hans Dalborg. The CEO does not work during the coming year. members Jacob Palmstierna (Chair- participate in deliberations on his In the future, the Board will man), Vesa Vainio, Rune Branding- own terms of employment. The retain its present structure com- er, Hans Dalborg, Casimir Ehrnrooth committee meets as necessary in prising four committees: a Credit (until 1999 Annual General Meeting) conjunction with meetings of the Committee, Treasury and Risk and Edward Andersson (from 1999 Presiding Committee. Committee, Audit Committee and Annual General Meeting). Remuneration Committee. Treasury Committee: The The former Treasury Com- committee oversees the Group’s Within the new Group structure mittee has been restructured as a financial operations and liquidity Treasury and Risk Committee, situation, prepares certain materials Within the new Group structure which, within the framework of for consideration at Board meetings created by the merger of Merita Plc parameters established by the and makes decisions in these areas and Nordbanken Holding AB (publ), Board, oversees the Group’s finan- with the authorization of the Board now Nordic Baltic Holding (NBH) cial operations, liquidity situation of Directors. During 1999, the AB (publ), Board work on behalf of and exposure to financial and Treasury Committee comprised, in the Group will be conducted within operative risks. addition to certain key executives, Nordic Baltic Holding. The Board Board members Vesa Vainio (Chair- of Directors comprises a minimum 122 MeritaNordbanken Group Annual Report 1999

Members of the Board of Directors of Nordic Baltic Holding (NBH) AB (publ), Merita Plc and MeritaNordbanken Plc

Jacob Palmstierna Vesa Vainio Hans Dalborg Born 1934. Hon. Ph.D. (Econ). Board Born 1942. Vice Chairman of Nordic Born 1941. Ph.D. (Econ). President and Chairman of Nordic Baltic Holding and Baltic Holding and MeritaNordbanken Plc CEO of Nordic Baltic Holding and MeritaNordbanken Plc. Vice Chairman of and President of Merita. Board Chairman MeritaNordbanken and Chairman of the Merita. Board Chairman of Bilia AB and of the Finnish Central Chamber of Board of Management of Merita Bank and Siemens Elema AB. Board member of Commerce and Vice Chairman of Metra Board Chairman of Nordbanken. Board NCC AB, Nordstjernan AB and Avesta Corporation. Board member of Nokia Chairman of the Royal Opera in Stock- Sheffield AB. Group and UPM-Kymmene Corporation. holm. Board member of the Stockholm Shareholding: 22,400 Nordic Baltic Shareholding: 4,162 Nordic Baltic Holding Concert Hall Foundation, the East Holding Economics Institute and AB Svenska Spel. Member of the Swedish Academy of Engineering Sciences (IVA). Shareholding: 40,760 Nordic Baltic Holding

Dan Andersson Edward Andersson Rune Brandinger Born 1948. Undersecretary, Ministry of Born 1933. Professor Emeritus. Board Born 1931. Former president of Södra Industry and Commerce. member of Nokia Group, Helvar Merca Skogsägarna. Board Chairman of Vasakronan Shareholding: 0 Corporation and Suomi Pension Insurance AB, Civitas AB, Elektronikgruppen AB, AB Company. Chairman of Grankulla City Trätek and SwIT Yrkesutbildning. Board Council, Sigrid Juselius Foundation, Ella member of Atle Karolin Verkstads AB, AB and Georg Ehrnrooths Foundation and Svenska Miljöstyrningsrådet, Cepro AB and Föreningen Konstsamfundet. the Federation of Swedish Industries. Shareholding: 28,917 Nordic Baltic Shareholding: 10,000 Nordic Baltic Holding Holding MeritaNordbanken Group 123 Annual Report 1999

Mikko Kivimäki Bernt Magnusson Juha Niemelä Born 1939. Chief Executive Officer and Born 1941. Board Chairman of AssiDomän Born 1946. Chief Executive Officer of Board Chairman of Rautaruukki Plc. AB and Swedish Match AB. Vice Chair- UPM-Kymmene Corporation. Board Board member of the Federation of man of Avesta Sheffield AB and Net Chairman of the Confederation of Euro- Finnish Metal, Engineering and Electro- Insight AB. Board member of Volvo Cars pean Paper Industries CEPI. Board technical Industries. Vice Chairman of AB, Burmah Castrol plc, Höganäs AB, member of the Finnish Forest Industry Metso Plc, Varma-Sampo Mutual Pension Emtunga International AB, the Federation Federation and the Confederation of Insurance Company and Industrial of Swedish Industries and the Stockholm Finnish Industry and Employers. Board Insurance Company Ltd. Member of the Chamber of Commerce. Advisor to the member of Oy Metsä-Botnia Ab and Oy Supervisory Board of YIT Corporation. European Bank for Reconstruction and Metsä-Rauma Ab. Board member of the Executive Commit- Development. Shareholding: 3,162 Nordic Baltic Holding tee of the Confederation of Finnish Shareholding: 2,400 Nordic Baltic Holding Industry and Employers. Board Chairman of the Finnish National Maritime Admini- stration. Shareholding: 3,607 Nordic Baltic Holding Other members of the Board of Directors of MeritaNordbanken Plc

Timo Peltola Bertel Finskas Kaija Roukala-Hyvärinen Born 1946. Board Chairman and Chief Born 1948. Bank manager. Born 1953. Chief staff representative Executive Officer of Huhtamäki Van Leer Shareholding: 1,400 Nordic Baltic Shareholding: 135 Nordic Baltic Holding Plc. Board Chairman of Merita. Vice Holding Chairman of the Supervisory Board of Ilmarinen Mutual Pension Insurance Company. Member of the Supervisory Board of the Finnish Cultural Foundation and member of the Supervisory Board of the Finnish Fair Corporation. Shareholding also includes shares held by family Shareholding: 5,187 Nordic Baltic Holding members. 124 MeritaNordbanken Group Annual Report 1999

Group Management

Group Management focuses on issues of an overall and strategic nature. Since October 1999, daily management issues are handled by an Executive Committee.

Hans Dalborg 1), born 1941 Magnus Falk, born 1942 Carl-Johan Granvik 1), born 1949 President and Chief Executive Officer Stockholm Regional Bank Credit and Risk Employee since 1991 Employee since 1986 Employee since 1974 Shareholding: 40,760 Nordic Baltic Holding Shareholding: 0 Nordic Baltic Holding Shareholding: 2,175 Nordic Baltic Holding

Jakob Grinbaum, born 1949 Karl-Olof Hammarkvist, born 1945 Bo Harald, born 1948 Treasury Asset Management/Life Insurance Payments and Internet Banking Services Employee since 1976 Employee since 1991 Employee since 1974 Shareholding: 1,400 Nordic Baltic Holding Shareholding: 2,100 Nordic Baltic Holding Shareholding: 22,402 Nordic Baltic Holding

1) Member of Executive Committee. MeritaNordbanken Group 125 Annual Report 1999

Kari Jordan, born 1956 Kalevi Kontinen, born 1941 Jussi Laitinen, born 1956 Helsinki and Uusimaa Regional Bank IT and Strategic Analysis Markets Employee since 1994 Employee since 1984 Employee since 1993 Shareholding: 1,017 Nordic Baltic Holding Member of Group Management until Shareholding: 12,096 Nordic Baltic March 31, 2000 Holding Shareholding: 5,100 Nordic Baltic Holding

Arne Liljedahl 1), born 1950 Lars G. Nordström 1), born 1943 Markku Pohjola 1), born 1948 Finance and Control Retail Corporate Employee since 1983 (President, Nordbanken AB) Employee since 1971 Shareholding: 6,100 Nordic Baltic Employee since 1993 Shareholding: 4,080 Nordic Baltic Holding Holding Shareholding: 7,000 Nordic Baltic Holding

Other Group Staffs: Secretary:

Lars Thalén, born 1944 Peter Forsblad, born 1946 Corporate Identity and Communications Group Management Secretariat Employee since 1999 Employee since 1992 Shareholding: 700 Nordic Baltic Holding Shareholding: 2,800 Nordic Baltic Holding

Pertti Voutilainen 1), born 1940 Other Group Staffs, Real Estate (President, Merita Bank Plc) Shareholding also includes shares held by family Employee since 1992 members.

Shareholding: 10,293 Nordic Baltic Holding 1) Member of Management Committee. 126 MeritaNordbanken Group Annual Report 1999

Senior Executives

President Staff and service Asset Credit Control and CEO functions Management/Life Lars-Erik Björklund Hans Dalborg Market Support Insurance Jari Krooks Maj Stjernfeldt Karl-Olov Hammarkvist Market Risk/Management Thomas Björklund, deputy Louise Lindgren Retail Asset Management Lars G Nordström Distribution and Staffan Grefbäck Operational Risk Service Network Management Regional banks Fund Operations Jukka Perttula Erik Palmén Helsinki/Uusimaa Thomas Eriksson Pentti Tirkkonen, deputy Kari Jordan Jari Sundström Internal Auditing Production and Kari Ahonen Central and Investment Management Productivity Göran Karlsson Western Finland Inga-Lill Carlberg Sofie Wakter Corporate Identity Pekka Ojala Institutional Customers Timo Linnavuori, deputy and Communications Eastern and Pontus Bergekrans Lars Thalén Northern Finland Life Insurance Claes Holmberg and Ostrobothnia Corporate Seppo Ilvessalo Investor Relations Harri Sailas Markku Pohjola Gunnar Andersson Björn Westberg Northern Sweden MNB Maizels Hans Jacobson Investment Banking Management Secretariat Real Estate Peter Forsblad Central Sweden Björn Carlsson Pertti Voutilainen Johan Sylvén Corporate Division Economic Research Aleksia Plc Juha Ahtola Stockholm Jorma Laakonen Heikki Hyppönen Olle Djerf Magnus Falk Corporate Division Merita Real Estate Legal and Tax Issues Western Sweden Sweden Juha Olkinuora To rd Ar n e r u p Sten Lindblad Holger Otterheim NB Fastigheter Kari Suominen Southern Sweden Corporate Division and Stämjärnet Taxes in Sweden Arne Bernroth Finland Pentti Mansukoski Jan Lilja Margareta Leijonhuvud Poland and Baltic Skills Development and Sea countries International Management Recruitment Thomas Neckmar Claes Östberg Group Staffs Sven Karlsson Private Banking International Products Financial Control Personnel Administration Eira Palin-Lehtinen Kari Kangas and Accounting Arne Liljedahl and Administrative Jarmo Laiho, deputy Coordination Markets Products and markets Control Ari Laakso Corporate and Financing Jussi Laitinen Erik Öhman Security Christer Furustedt Trading Group Accounting Jouko Varjonen Personal Customers Jussi Laitinen Bo Ranhamn Leif Larsson Christer Serenhov and Deposits Treasury Nordic Project Roland Olsson Equity Trading Jakob Grinbaum Siv Svensson Jorma Sonninen, deputy Anders Oscarsson Internal bank Reijo Knuutinen Network Banking and Fanny Borgström Service units Payments Securities Service ALM MNB Data Bo Harald Lars Jonasson Gunilla Domeij-Hallros Bengt-Åke Eriksson Kurt Gustavsson, deputy Portfolio Management Thomas Boström Staffan Hörnell Urban Claesson Per Rostedt Esa Niskanen Kristian Stockmann Credit and Risk Carl-Johan Granvik Internal Service Markku Mikkola Group Credits Kjell Oldén Göran Pettersson MeritaNordbanken Group 127 Annual Report 1999

Auditors

The Annual General Meetings of statements and administrations in to each company has the right to Nordic Baltic Holding (NBH) AB accordance with Finnish and Swe- participate in the auditing of the (publ), the former Nordbanken dish law respectively. To facilitate other company. This will ensure Holding AB (publ) and the former full coordination of the external that the operations of the Nordic holding company, Merita Plc, have audits throughout the Group, the Baltic Holding Group are audited appointed the authorized public Annual General Meetings of the in a coordinated manner. accountants specified below to two companies have also decided examine the companies’ financial that one of the auditors appointed

Nordic Baltic Holding (NBH) AB (publ) KPMG Bohlins AB Caj Nackstad, Authorized Public Accountant, primary responsibility KPMG Wideri Oy Ab is entitled to participate in the audit

Merita Plc MeritaNordbanken Plc Eric Haglund, Authorized Public Accountant Eric Haglund, Authorized Public Accountant Mauri 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 AB Mauri Palvi, Authorized Public Accountant Caj Nackstad, Authorized Public Accountant, primary responsibility Olle Gunnarsson, Authorized Public Accountant, appointed by the Swedish Financial Supervisory Authority 128 MeritaNordbanken Group Annual Report 1999

Definitions and glossary

Capital base Duration Loan loss level The capital base is the numerator in The average weighted maturity of Loan losses as a percentage of the calculating the total capital ratio. It future payment flows expressed as the opening balance of loans to the public. consists of the sum of core capital (see number of years. separate definition) and supplementary Nonperforming loans ratio capital (consisting of subordinated Earnings per share Net nonperforming loans as a percentage debenture loans), after deduction of the Net profit divided by the number of of total loans to the public. ownership in companies that conduct outstanding shares. insurance or finance operations requiring Price/Earnings (P/E) ratio Effective dividend yield per share a license. The share price at December 30 Dividend as a percentage of the share relative to operating profit per share. price at December 30. Core capital That portion of the capital base (see Forward transaction Repo separate definition); which includes the A contract to purchase or sell which is “Repurchase Agreement.” A financing percentage of equity in untaxed reserves, intended to be implemented on a arrangement involving the sale of reduced by goodwill. Subsequent to the predetermined future date at a price interest-bearing securities linked with a approval of the supervisory authorities, determined when the contract is made. future repurchase at a predetermined core capital also includes qualified forms interest rate/price. of subordinated loans (core capital FRA contributions, hybrid loan capital). “Forward Rate Agreement.” An agree- Reserve ratio for nonperforming loans ment between two parties on a rate of Reserve for possible loan losses as a Core capital ratio interest on borrowing or lending trans- percentage of gross nonperforming Core capital as a percentage of risk- actions in the future; for example, a loans. weighted assets. lending transaction covering six months and taking effect three months from the Return on shareholders’ equity date of the agreement. The agreed rate Net profit as a percentage of average Cost/income ratio before loan losses is locked in at the beginning of the shareholders’ equity. Average share- Operating expenses in relation to period and the difference between the holders’ equity is adjusted for new share operating income and share of profit/ agreed rate and actual market rate issues and dividends, and includes loss from companies accounted for constitutes the resultant profit or loss. minority interest in earnings. under the equity method. Interest rate option Risk-weighted assets Cost/income ratio after loan losses A contract between the writer of an Total assets as shown in balance sheet Operating expenses plus loan losses in option and a counterparty covering the and off-balance-sheet items valued on relation to operating income and share right but not the obligation to buy or the basis of credit and market risks in of profit/loss from companies accounted sell a bond at a predetermined price at a accordance with regulations governing for under the equity method. future date. The buyer of the option capital adequacy. pays a premium for the right to conduct Credit scoring the transaction. Shareholders’ equity per share A statistical method used to determine Shareholders’ equity as shown in the Interest rate risk creditworthiness, which takes into balance sheet divided by the number of Refer to page 60, for definition of account the loan applicant’s behavior shares outstanding after full conversion. interest rate risk (interest rate risk/net and financial resources. interest risk). Total capital ratio Currency option Interest rate swap Capital base as a percentage of risk- A contract between the writer of an An agreement whereby two parties weighted assets. option and a counterparty covering the exchange interest payment flows right but not the obligation to exchange without affecting the principal amount. VaR (Value-at-Risk) currencies at a set exchange rate at a A risk measure for market risks. VaR is future date. The buyer of the option Investment margin the most probable expected loss from pays a premium for the right to conduct Net interest income as a percentage of unfavorable market movements over a the transaction. average total assets. specified time period. MeritaNordbanken Group 129 Annual Report 1999

Major subsidiaries of the banks

CEO MeritaNordbanken Asset Management Nordbanken Kapitalförvaltning AB Staffan Grefbäck Nordbanken Fonder och Allemansfonder Thomas Ericsson MNB Investment Management Ingalill Carlberg Merita Fund Management Ltd, Helsinki Jari Sundström Merita Asset Management Ltd, Helsinki Timo Ronkainen

MeritaNordbanken Life Insurance Livia AB Gunnar Andersson Merita Life Assurance Ltd Seppo Ilvessalo

MNB Maizels MNB Maizels AB Claes Magnusson MNB Maizels Oy Björn Carlsson MNB Maizels Ltd Mark Florman

Nordbanken Hypotek AB (publ) Eva Andersson

MeritaNordbanken finance companies Nordbanken Finans AB (publ) Stefan Källström Merita Finance Ltd Jukka Salonen Merita Customer Finance Ltd Matti Willamo

MeritaNordbanken real estate companies Merita Real Estate Ltd Juha Olkinuora Aleksia Ltd Heikki Hyppönen Nordbanken Fastigheter AB Jan Lilja Fastighets AB Stämjärnet Jan Lilja

Merita Capital Ltd Jouko Helomaa

Huoneistokeskus Oy Matti Tossavainen 130 MeritaNordbanken Group Annual Report 1999

Addresses

MeritaNordbanken MeritaNordbanken Hamngatan 10 Alexanterinkatu 36 SE-105 71 Stockholm FIN-00020 MERITA Telephone: +46 8 614 70 00 Telephone: +358 9 1651 Telefax: +46 8 10 50 69 Telefax: +358 9 165 428 38 www.nb.se www.merita.fi www.meritanordbanken.com www.meritanordbanken.com

Investor Relations Björn Westberg MeritaNordbanken SE-105 71 Stockholm FIN-00020 MERITA Telephone: 46 8 614 78 50 Telephone: +358 9 165 42651 Telefax: +46 8 614 87 10 Telefax: +358 9 165 42654 E-mail: [email protected] E-mail: [email protected]

The Annual Report is printed on TCF (Totally Chlorine Free) permanent paper.

Production: Nordbanken Grafisk Service, n3prenör Photo: Labe Allwin, Dan Coleman, Heikki Savolainen, Ari Talusen, Esko Koivisto and Tommy Selin. Printing: Color Print www.meritanordbanken.com

95933 MSI 213