1
Pohjola August 2008 2 OP-Pohjola Group & Pohjola Bank in brief
• The leading financial services company in Finland - with a strong diversified presence in • Retail and corporate banking • Insurance • Mutual Funds and Asset Management
• Market position 1. or 2. in all key areas
• One of the highest rated banks in Europe (AA-/Aa1/AA-; all stable)
• Characterised by • a strong capital position • stable earnings • strong liquidity • low loan loss provisions • no SIV exposure, low risk exposure in bond portfolios
• OP Bank Group has changed name to OP-Pohjola Group, and OKO Bank to Pohjola Bank 3
Finnish Economy 4 Change in GDP volume
8 %
6 United States 4
2
0
-2 Eurozone -4 Finland -6
-8 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08f 09f
Source: Reuters EcoWin 5 Trade balance and current account in Finland 12-month moving total
20 EUR billion
15 Trade balance
10
5 Current account
0
-5 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08f 09f
Source: Bank of Finland 6 Harmonized index* of consumer prices annual change
6 % * except United States 5 United States 4
3
2
1 Eurozone Finland 0
-1 97 98 99 00 01 02 03 04 05 06 07 08
Source: Reuters EcoWin 7 Unemployment rate in Finland 25 %
20
15
10
5
0 9293949596979899000102030405060708
Source: Statistics Finland 8
Average House Prices
Average House Prices Average House Prices
300 Index 450 Index 1996=100 1996=100 Sweden 400 250 Ireland 350
200 300 Netherlands Great Britain Spain 250 United States 150 Finland 200 Finland 150 100 France 100
50 50 96 97 98 99 00 01 02 03 04 05 06 07 08 96 97 98 99 00 01 02 03 04 05 06 07 08 Source: Reuters EcoWin Sources: Reuters EcoWin, Statistics Sweden n 9
Finnish Financial Industry 10 OP-Pohjola Group's market share of households' housing loans 36 %
35
34
33
32
31
30 3/05 9/05 3/06 9/06 3/07 9/07 3/08 9/08 11
Market shares 31.12.2007
Deposits Loans
40 % 40 % 35 35 30 30 25 25 20 20 15 15 10 10 5 5 0 0 Nordea OP Pohjola Danske Savings Local Aktia Other Nordea OP Pohjola Danske Handels- Savings Aktia Other Group Bank Banks Cooper. Savings Group Bank banken Banks Savings Banks Bank Bank
Sources: Bank of Finland, banks' interim reports, estimations 12 Mutual fund companies´ market shares 1998 - 2007 35 %
30
25
20
15
10
5
0 Nordea OP- Danske SEB Evli Glitnir Others Pohjola Bank Gyllenberg Group Source: Finnish Association of Mutual Funds 13 Market shares in life insurance Gross premiums written 2007 35 % 30,7 30
25 23,4 21,7 20
15 9,8 10 7,2 7,2 5
0 OP-Pohjola Nordea Sampo* Skandia Tapiola Others Group * Sampo Life and Kaleva 14 Market shares of non-life insurance premiums written 2007 Domestic direct insurance 35 %
30 27,3 26,5 25 20,8 20
15 10,5 10 8,6 6,3 5
0 OP-Pohjola If Tapiola** Fennia Local Other Group* Insurance*** Source: Federation of * Pohjola Non-Life, A-Insurance, Eurooppalainen and OVY ** incl. Turva *** incl. Palonvara Finnish Financial Services 15
OP-Pohjola Group
Structure, strategies and financial performance 16
The Structure of OP-Pohjola Group and Pohjola Bank Group
RetailRetail Bank Bank inin HelsinkiHelsinki Area Area
MutualMutual 299299 FundsFunds MemberMember Cooperative LifeLife Cooperative InsuranceInsurance BanksBanks OP-PohjolaOP-Pohjola Group Group OtherOther CentralCentral Cooperative Cooperative
BankingBanking PohjolaPohjola BankBank plcplc AssetAsset OP Mortgage ManagementManagement Bank Non-lifeNon-life InsuranceInsurance
GroupGroup Functions Functions Legal structure: OP-Pohjola Group has joint and several liability for each others’ commitments. 17
Joint Responsibility for Liability
• Joint responsibility within the OP-Pohjola Group is based on the Cooperative Bank Act and the Member Credit Institutions are committed to the joint responsibility in their articles of association (commercial banks) or statutes (Member Cooperative Banks) • In the event that a Member Credit Institution or the Central Cooperative is unable to pay any debts owed the other Member Credit Institutions/ Central Cooperative are jointly and severally responsible for paying that debt • The outstanding debt is apportioned among the Central Cooperative and the Member Credit Institutions in proportion to their assets as a percentage of the total group assets from the most recently adopted balance sheets • The joint responsibility under the cooperative system includes the Central Cooperative and its Member Credit Institutions • The Member Cooperative Banks of the OP-Pohjola Group, Pohjola Bank plc Helsinki OP Bank Plc, OP-Kotipankki Oyj and OP Mortgage Bank • Insurance companies within the OP-Pohjola Group are not included in the cooperative joint responsibility 18 OP-Pohjola Group on the deposit and lending markets* 40 % * Up until 12/2002 deposit banks' loans to and deposits placed by Finnish non-MFI's; since 1/2003 MFI's loans to and deposits placed by euro area non-MFI's 35
30
25 Market share 20 of lending
15 Market share of deposits 10
5 Latest value 6/2008 0 1902 1922 1942 1962 1982 2002 2022 19 OP-Pohjola Group Earnings before tax, 12 month moving total 1995-2003 FAS €1,2001,200 million
1,000
800
600
400
200
0 95 96 97 98 99 00 01 02 03 04 05 06 07 06/08 20
OP-Pohjola Group Income statement
€ million Change 1 January to 30 June 2008 2007 € million % Net interest income 568 509 59 12 Other income 484 652 -167 -26 Total income 1,052 1,160 -108 -9 Personnel costs 310 285 25 9 Other expenses 296 294 2 1 Total expenses 606 579 27 5 Impairment losses on receivables 9 6 3 58 Returns to owner-members 77 52 25 48 and OP bonus customers Earnings before tax 359 523 -164 -31 21 Diversified business mix
OP-Pohjola Group - Pohjola Bank Group - Earnings before tax, 1-6/2008 Earnings before tax, 1-6/2008
9%
10%
36%
58%
6% 81%
Banking Banking and Investment Services Asset Management Non-Life Insurance Non-life Insurance Life Insurance 22
OP-Pohjola Group Balance sheet items
€ million 06/2008 12/2007
Total assets 71 514 65 716 Credit stock 48 453 44 776 Non-performing and zero-interest claims 204 147 Deposits 32 067 29 001 Equity capital 5 542 5 638 23 OP-Pohjola Group Ratios
6/2008 12/2007 Net interest margin, % * 1.7 1.7 Cost/ income ratio, Banking and Investment Services, % 51 49 Return on equity (ROE), % 9.4 13.7 Return on equity at fair value, % -0.2 10.9 Return on assets (ROA), % 0.77 1.18 Non-performing and zero-interest bearing receivables of loans and guarantees, % 0.4 0.3 Tier 1 ratio, % 12.3 12.6 Capital adequacy ratio, % 12.3 13.8
* Net interest income as a % of average total assets 24
The amalgamation of the cooperative banks Own funds and capital adequacy
% 6,000€6,000 million 24 Tier 2 own funds
5,000 20 Subordinated loans
4,000 14.3 14.3 14.3 14.1 13.8 12.8 16 12.3 Tier 1 own funds 3,000 12 excl. subordinated 12.7 12.8 12.6 12.7 12.6 12.7 12.3 loans 2,000 8 Capital adequacy ratio, %
1,000 4 Tier 1 funds/ Risk- weighted items, total, % 0 0 Dec. March June Sept. Dec. March June Deductions of own funds are not 2006 2007 2007 2007 2007 2008 2008 included 25 Nordic banks: Total capital ratio
Danske Bank
Nordea
SEB
Handelsbanken
DnB NOR
Swedbank
OP Bank Group
0 5 10 15 20 % 1-3/2008 2007 2006 26 Asset Mix OP-Pohjola Group Loans and leasing assets by sector
June 30, 2008
Communication and publishing Telecommunications 1% and electronics Housing associations 2% Households: 10% Energy other loans Construction 2% 6% 23% Food industry 3% Services 9%
Corporates Wholesale and retail 29% trade 14% Others 8% Households: housing loans Other industry 48% 4%
Forest industry 4% Real-estate activities 27% Metal industry 5% Transports and traffics 5% 27
OP-Pohjola Group Loan portfolio by sector
Non-performing and Change zero-interest loans € million 30 June 2008 30 June 2007 € million % 30 June 2008 Of loans
Non-banking corporate sector and housing corporations 14,220 29% 12,053 28% 2,167 18% 65 0.5% Industry 2,579 5% 2,351 6% 228 10% 12 0.5% Construction 843 2% 804 2% 39 5% 9 1.1% Trade and catering 2,182 5% 1,717 4% 465 27% 11 0.5% Property investment 3,726 8% 3,101 7% 625 20% 18 0.5% Other companies 3,406 7% 2,723 6% 683 25% 12 0.4% Housing corporations 1,483 3% 1,357 3% 126 9% 2 0.1% Finance and insurance 18 0% 46 0% -28 -62% 0 0.6% Public corporations and non-profit organisations 851 2% 797 2% 54 7% 3 0.4% Households 32,539 67% 29,034 69% 3,505 12% 125 0.4% Home mortgages 23,099 48% 20,247 48% 2,852 14% 69 0.3% Foreign 647 1% 466 1% 181 39% 10 1.6% Other items, net 177 0% -55 231 Total 48,451 100% 42,342 100% 6,109 14% 204 0.4% 28
OP-Pohjola Group Non-performing and zero-interest loans
€ million 30 June 2008 30 June 2007 Change, % 31 Dec. 2007
Households 125 102 23.0 92 Companies 63 61 4.0 52 Housing corporations and others 16 4 3 Total 204 166 22.5 147 Non-performing loans of loan and 0.4 0.4 0.0* 0.3 guarantee portfolio, % * Percentage points 29
Pohjola Bank plc Earnings before Tax by Business Line 30 January–June
€ million 100 83 80 65 64 60 40 40
20 9 7 8 0
-20
-40 -40 -60 Banking Asset Non-life Insurance Group functions management
1-6/2007 1-6/2008 31
Financial Targets for Group
rolling Target €million 4-6/08 4-6/07 1-6/08 1-6/07 12kk 1-12/07 2010
Group Return on equity at fair values, % 3,4 12,2 -2,4 12,8 2,0 9,3 15,0 Tier 1 ratio, % 8,5 8,5 8,5 9,0 > 8,5
• During autumn 2008 the Group will publish its financial targets by new business segments released in May 2008.
• The aim is to distribute at least 50% of earnings in dividends, provided that Tier 1 stands at least 8.5%. 32 Own Funds and Capital Adequacy
€ million % 2 000 50,0 1 800 45,0
1 600 721 40,0 550 378 362 1 400 258 35,0
1 200 1233 30,0 1185 1181 1 000 25,0 1002 800 948 20,0 12,8 12,9 600 10,9 10,8 10,9 15,0 400 10,0 9,6 200 8,2 9,0 8,2 8,5 5,0 0 0,0 2005 2006 2007* Q1/08 Q2/08
Tier 1 Tier 2 Capital adequacy ratio, % Tier 1 ratio, % * For capital adequacy measurement, treatment of insurance company holdings changed as of 2007 33 Income Statement
rolling €million 4-6/08 4-6/07 1-6/08 1-6/07 12Mo 1-12/07 Net interest income 40 32 75 58 132 115 Impairment losses -1 1 -3 1 -3 1 Net interest income after impairment losses 42 31 78 58 135 114 Net income from non-life insurance 90 113 181 208 407 433 Net commissions and fees 27 31 55 59 111 115 Net trading income -2 3 -46 10 -90 -34 Net investment income 3 13 9 23 14 28 Other operating income 13 24 28 36 63 71 Total income 173 214 305 393 640 728 Total expenses 119 114 234 228 446 440 Earnings before tax 54 100 71 165 194 288
Earnings per share, € 0,19 0,36 0,26 0,61 0,70 1,04 34
Funding Profile 35 Long-term Credit Ratings*)
Moody's Investors Standard Fitch Service & Poor´s Ratings Pohjola Bank Aa1 AA- AA- Danske Bank Aa1 AA- AA- Handelsbanken Aa1 AA- AA- Nordea Aa1 AA- AA- DnB NOR Aa1 AA- - Swedbank Aa2 A A+ SEB Aa2 A+ A+
Pohjola Insurance Ltd**) A2 A+ - If **) A2 A -
Finnish sovereign Aaa AAA AAA
*) Long-term debt **) Insurer financial strength
Companies´ internet pages 7.10.2008 36
OP-Pohjola Group Funding Profile
€8080 billion Non-life insurance liabilities
70 2.4 5.9 Life insurance liabilities 2.4 2.4 60 6.0 0.6 Liabilities to financial 50 institutions 34.3 40 29.2 Liabilities to customers 30 Debt securities issued to the
20 14.6 13.9 public Other liabilities 10 5.3 7.1 5.4 5.5 0 Equity capital 30 June 2007 30 June 2008 37 38 39
Contact Information
Ilkka Salonen, CFO, Pohjola Group tel. +358 10 252 3146 mobile +358 50 539 0929 [email protected]
Hanno Hirvinen, Executive Vice President Head of Group Treasury tel. +358 10 252 2221 mobile +358 50 522 8322 [email protected] 40 41
APPENDIX: Additional information on liquidity reserve 42
Banking and Investment Services Liquidity Reserves by Maturity and Credit Rating on 31 Dec. 2007 (€ million)
Year (s) 0 - 1 1 - 3 3 - 5 5 - 7 7 - 10 10 - Total % AAA 833 451 569 362 376 0 2 591 45 % AA 1 398 239 294 216 26 0 2 173 38 % A 74 203 126 34 57 0 494 9 % BBB 14 31 71 22 0 0 138 2 % BB+ or lower 0 0 0 0 0 0 0 0 % Internally rated 35 133 157 15 12 0 353 6 % 2 355 1 059 1 217 648 471 0 5 749 100 % 43
Non-life Insurance Fixed-income Portfolio by Maturity and Credit Rating on 31 Dec. 2007 (€ million)
Year(s) 0 - 1 1 - 3 3 - 5 5 - 7 7 - 10 10 - Total % AAA 54 185 128 43 116 86 613 35 % AA 46 60 93 17 34 20 270 15 % A 20 103 287 107 30 54 600 34 % BBB 5 31 84 29 8 14 170 10 % BB+or lower 16 21 13 3 16 29 98 6 % Internally rated 3 2 12 0 2 0 19 1 % 144 403 616 198 205 203 1 769 100 %