ANNUAL REPORT 1999

Svenska Handelsbanken THE ANNUAL GENERAL MEETING OF SVENSKA HANDELSBANKEN will be held at the Grand Hôtel’s Winter Garden, Royal entrance, Stallgatan 4, Stockholm, at 10.00 a.m. on Friday, 14 April 2000.

Notice of attendance at Annual General Meeting Shareholders wishing to attend the Meeting must • be recorded in the register of shareholders kept by VPC AB (Swedish Central Securities Depository and Clearing Organisation), on or before Tuesday, 4 April 2000, and • give notice of attendance to the Chairman’s office at the Head Office of the Bank, Kungsträdgårdsgatan 2, 106 70 Stockholm, telephone +46 8 701 19 84, or via the Internet www.handelsbanken.se/bolagsstamma, by 3 p.m. on Monday, 10 April 2000.

Any shareholders whose shares are nominee-registered must also, in order to be entitled to take part in the Meeting, request a temporary entry in the register of shareholders kept by VPC. Share- holders must notify the nominee about this well before 4 April 2000, when this entry must have been effected.

Dividend The Board of Directors recommends that the record day for the dividend be Wednesday, 19 April 2000. If the Annual General Meeting votes in accordance with this recommendation, VPC expects to be able to send the dividend to shareholders on Wednesday, 26 April 2000.

Publication dates for interim reports January – March 13 April 2000 January – June 22 August 2000 January – September 24 October 2000

Svenska Handelsbanken AB (publ) Registered no. 502007-7862 www.handelsbanken.se 1999 ANNUAL REPORT 1999

HANDELSBANKEN HIGHLIGHTS...... 2

THE GROUP CHIEF EXECUTIVE´S COMMENTS...... 5

OBJECTIVES, POLICY AND ORGANISATION...... 10

Objectives and principles...... 10 Policy...... 10 Organisation...... 10 Our staff...... 12 Branches ...... 14 Regional Head Offices in the Nordic countries...... 16 Units outside the Nordic countries ...... 18 Central Head Office and Subsidiaries...... 20 Board of Directors...... 22 Senior Management...... 24 Auditors...... 24

REVIEW OF BUSINESS AREAS...... 25

General ...... 25 Branch office operations...... 26 Handelsbanken Markets...... 29 Handelsbanken Asset Management...... 33 Handelsbanken Finans...... 35 Handelsbanken Liv ...... 37 Stadshypotek Bank ...... 40 Handelsbanken Central Treasury...... 41

The Bank and the environment...... 42 IT development...... 43

DIRECTORS’ REPORT ...... 44

Objective...... 44 A well-integrated universal bank...... 44 Total assets ...... 44 Capital ratio...... 44 Rating ...... 45 Result and profitability...... 45 Buy-back of own shares ...... 46 Loan losses and credit risks ...... 47 Financial risks...... 47 Operational risks...... 53 The Board’s activities during the year...... 53 Competent staff...... 53 The Oktogonen foundation...... 53 Options programme...... 53

PROFIT AND LOSS ACCOUNTS AND BALANCE SHEETS ...... 54

Accounting principles...... 56 Notes ...... 58

RECOMMENDATION FOR DISTRIBUTION OF PROFITS ...... 78

AUDIT REPORT...... 79

HANDELSBANKEN’S SHARES...... 80

Share price performance and dividend...... 80 Market capitalisation ...... 80 The shares...... 80 The shareholders...... 80

PROFIT AND LOSS ACCOUNTS AND BALANCE SHEETS 1995–1999...... 82

ADDRESSES ...... 84 HANDELSBANKEN HIGHLIGHTS

2 www.handelsbanken.se rftfrteya 6 2 11 12 6027 7712 319 4 7 6663 –11 1 –21 8806 8607 8031 4579 4227 –219 757 16837 17 8668 1 888 4 3780 Profit fortheyear 8388 –22 3408 17056 Appropriations 601 Minority interests 1242 11430 Operating profit Loan losses 3978 Profit beforeloanlosses Total expenses 11508 969 Other expenses Staff costs Total income Other income Net resultonfinancialoperations Commission, net Net interestincome Performance fortheHandelsbankenGroup Handelsbanken highlights oa ses927996400 926450 8546 480 33 922799 8520 465 43 Number ofbranchesinotherNordiccountries Number ofbranchesinSweden Number ofemployees Total assets E 9919 Change% 1998 1999 SEK m CAPITAL BASE. BAD DEBTRESERVERATIO. BAD DEBTS. SHARE. ADJUSTED SHAREHOLDERS’EQUITYPERORDINARY loan lossesasapercentageofgrossbaddebts. calculated atcurrentredemptionvalue. where preferenceandindexsharecapitalis nated notes.Anadjustmenthasbeenmade after fullconversionofconvertiblesubordi- divided bythenumberofordinaryshares which areclassifiedasfinancialfixedassets and marketvalueofinterest-bearingsecurities part ofthedifferencebetweenbookvalue the balancesheetadjustedforcapital Consolidated Accounts. and financialoperationsnotincluded inthe by thebookvalueofholdingsininsurance ducing thetotaloftier1and2capital capital. Thecapitalbaseisobtained byre- ever, tier2capitalmustneverexceed1 be includedintier1or2capital.How- visory Authority,otherinstrumentsmayalso the Government,fromFinancialSuper- Government or,followingauthorisationby 1 capital.Withspecificpermissionfromthe mentary capitalmaynotexceed50%oftier is underfiveyears.Thispartofthesupple- some reductionwhentheresidualmaturity capital includessubordinatedloanswith reserves intheparentcompany.Tier2 equity lessgoodwillplus72%ofuntaxed capital. Tier1capitalcomprisesshareholders’ tier 1(primary)and2(supplementary) minus thereserveforpossibleloanlosses. factory margin.Netbaddebtsare amount andtheaccruedinterestbyasatis- the collateraldoesnotcoverprincipal concerning itsvalueandwheretheof where othercircumstancesleadtodoubt Taxes Shareholders’ equityasreportedin A non-performingloan,oraloan The capitalbaseisthesumof Reserve forpossible – 2525 – 22 subordinated notes. shares andfullconversionofconvertible take intoaccountpreferenceshares,index shares. Anadjustmenthasbeenmadeto divided bytheaveragenumberofordinary for theperiodafterappropriationsandtax LOAN LOSSRATIO. I/E RATIO. DIRECT YIELD. CAPITAL RATIO. tax dividedby minority interestandafter28%standard Operating profitafterdeductionof OPERATING PROFITPERORDINARYSHARE. NON-PERFORMING LOANS. NET EARNINGSPERORDINARYSHARE. of repossessedproperty. and afterloanlossesincl.changesinvalue parability. TheI/Eratioiscomputedbefore expenses adjustedforitemsaffectingcom- can beincludedinthecapitalbase. an originalmaturityofatleasttwoyears on themarketrisks,subordinatedloanswith In ordertocoverthecapitalrequirement divided bythesharepriceatyear-end. property andcreditguarantees. dit institutions(excl.banks),repossessed lending tothegeneralpublic,cre- of theopeningbalanceforperiod value ofrepossessedpropertyasapercentage payment formorethan60days. repayments oroverdraftshavebeenduefor lates thatitshouldbeatleast8%. Institutions andSecuritiesCompaniesstipu- Adequacy andLargeExposuresofCredit risk-weighted volume.TheActonCapital tal ratioisthecapitalbaseinrelationto 603 Total incomeinrelationtototal DEFINITIONS Dividend perordinaryshare Capital ratioorthetotalcapi- the numberofordinaryshares. Loan lossesandchangesin 6 16 – 2168 Loans whereinterest, 20 – 22 0 19 505 The result – 2 market rates. interest ratehasbeenreducedrelativeto before taxinrelationtoaveragetotalassets. TIER 1CAPITALRATIO. RISK-WEIGHTED VOLUME. RETURN ONTOTALASSETS. RETURN ONEQUITY. REDUCED RATELOANS. PROPORTION OFBADDEBTS. PROFITABILITY. PROBLEM LOANS. P/E RATIO. rights issues average after appropriationsandtaxinrelationto and creditinstitutions(excl.banks). relation tototallendingthegeneralpublic 0%, 20%,50%or100%. included intherisk-weightedvolumeby account theassessedrisksuchthattheyare es. Thevolumesareweightedtakinginto Credit InstitutionsandSecuritiesCompani- Capital AdequacyandLargeExposuresof risk classes,inaccordancewiththeActon balance-sheet itemsbeingplacedinvarying volume isdeterminedbytheassetsandoff- by netearningsperordinaryshare. base andRisk-weightedvolume.) tion torisk-weightedvolume.(SeeCapital and reducedrateloans. notes. full conversionofconvertiblesubordinated account preferenceshares,indexsharesand An adjustment shareholders’ equityadjustedfor The sharepriceatyear-enddivided and dividend. See Returnonequity. has beenmadetotakeinto The totalofbaddebts(net) The resultfortheperiod Primary capitalinrela- Loans forwhichthe The risk-weighted Operating profit Bad debts(net)in SHB 1999 HANDELSBANKEN HIGHLIGHTS

Result per business area

Branch Handels- Handels- Handels- Handels- Stads- Central Other Total Total offices banken banken banken banken hypotek Treasury 1999 1998 Markets Asset Finans Liv Bank SEK m Management Net interest income 9 353 1 295 91 481 7 53 456 – 228 11 508 11 430 Commission, net 2 168 878 601 203 100 74 – 4 – 42 3 978 3 408 Net result on financial operations 339 586 47 0 27 0 – 100 70 969 1 242 Other income 44 72 6 29 2 2 13 433 601 757 Total income 11 904 2 831 745 713 136 129 365 233 17 056 16 837 Income includes net internal remuneration 1 000 Net internal remuneration has been deducted from income — 254 518 41 173 14 — — Total expenses 5 281 1 968 339 419 73 114 25 449 8 668 8 806 Result before loan losses 6 623 863 406 294 63 15 340 – 216 8 388 8 031 Loan losses – 126 – 82 – 11 – 219 319 Operating result 6 749 945 406 305 63 15 340 – 216 8 607 7 712 Return on equity, % 20.7 16.0 26.8 22.0 15.6 18.1 14.2 18.4 18.6

The net amount of received/paid remuneration between the business areas is included in/ Handelsbanken Liv Fondförsäkrings AB (unit-linked) and commission income from the mutual deducted from the income categories for the business areas. The net amount of received/paid company are included under the business area “Handelsbanken Liv”. remuneration is shown above. The internal remuneration is credited to the business area which is responsible for the customer and reduces the income of the unit paying the remuneration. The remuneration is intended to cover expenses and also to distribute the profit arising on market terms. Expenses include the distribution of costs made internally within the Group for services rendered by business support operations. Return on shareholders’ equity for the business areas is computed after standard tax while it is reported after appropriations and full tax for the whole Group. The shareholders’ equity, on which the calculation of return on equity is based, is mainly distributed in accordance with the requirements of the Act on Capital Adequacy. “Other” includes capital gains, dividends, amortisation of goodwill and Group adjustments which are not attributable to an individual business area.

Quarterly performance of the Handelsbanken Group

SEK m 1999:4 1999:3 1999:2 1999:1 1998:4 Net interest income 2 708 2 750 3 096 2 954 2 857 Commission, net 1 234 934 942 868 854 Net result on financial operations 526 59 53 331 370 Other 63 108 230 200 60 Total income 4 531 3 851 4 321 4 353 4 141 Staff costs 1 307 1 166 1 200 1 215 1 195 Other administrative expenses 855 664 751 760 1 043 Depreciations and write-down 202 181 187 180 184 Total expenses 2 364 2 011 2 138 2 155 2 422 Profit before loan losses 2 167 1 840 2 183 2 198 1 719

Loan losses – 145 – 62 – 37 25 108 www.handelsbanken.se Operating profit 2 312 1 902 2 220 2 173 1 611 Minority interests – 7 – 4 – 5 – 6 – 5 Pension settlement 669 – 26 – 40 — 56 Taxes – 827 – 530 – 583 – 585 – 535 Profit for the period 2 147 1 342 1 592 1 582 1 127

SHB 1999 3 HANDELSBANKEN HIGHLIGHTS

Key figures for the Handelsbanken Group

1999 1998 1997 1996 1995 Profit before loan losses, SEK m 8 388 8 031 8 123 8 526 7 437 Loan losses, SEK m – 219 319 302 1 806 2 392 Operating profit, SEK m 8 607 7 712 7 821 6 720 5 045 Total assets, SEK m 922 799 926 450 859 457 571 115 506 548 Shareholders’ equity, SEK m 38 570 34 431 32 353 27 549 25 949 Return on shareholders’ equity, % 18.4 18.6 20.2 19.8 14.9 Return on shareholders’ equity after standard tax, %1) 17.0 16.3 18.8 18.8 14.8 Income/expenses ratio before loan losses 1.97 1.87 2.06 2.42 2.24 Income/expenses ratio after loan losses 2.02 1.81 1.98 1.86 1.60 Loan loss ratio, % – 0.03 0.05 0.05 0.60 0.84 Bad debt reserve ratio, % 66.8 58.8 52.6 65.2 61.0 Proportion of bad debts, % 0.27 0.45 0.64 0.76 1.11 Capital ratio, % 9.4 9.8 10.4 12.2 14.2 Tier 1 capital ratio, % 6.5 6.3 6.2 10.0 10.3 Return on total assets, % 0.93 0.85 0.95 1.20 1.01 Operating profit per ordinary share, SEK 8.64 7.72 7.84 6.75 5.12 Net earnings per share, SEK 9.31 8.41 8.38 7.11 5.13 Dividend per share, SEK 2) 3.00 2.67 2.17 1.67 1.25 Adjusted shareholders’ equity per share, SEK 53.97 47.56 44.66 38.15 36.67 Average daily turnover on Stockholm Stock Exchange Class A, number of shares 1 317 270 1 141 320 1 205 370 1 179 120 1 278 660 Class B, number of shares 63 101 57 434 78 078 86 160 94 740 Direct yield, % 2.8 2.3 2.4 2.6 2.7 P/E ratio 11.5 13.6 10.9 9.2 8.9 Share price/Equity, % 198 240 205 171 125 Average number of employees 8 520 8 546 8 184 7 398 7 395 Number of branches in Sweden 465 480 485 480 488 Number of branches in other Nordic countries 43 33 30 24 19

1) Based on operating profit, adjusted for items affecting comparability. 2) Dividend for 1999 as recommended by the Board.

For 1998 and previous years, key figures relating to the shares have been adjusted for the 3:1 split. See also Key figures per share, page 81, and Profit and Loss Accounts and Balance Sheets, pages 54–55. www.handelsbanken.se

4 SHB 1999 THE GROUP CHIEF EXECUTIVE’S COMMENTS

The group chief executive’s comments

The Handelsbanken Group’s profits for 1999 were SEK 8.6 billion, an increase of 17% excluding abnormal profits. Return on share- holders’ equity was 18.4%, which means that for the twenty-eighth year running we have achieved our goal – higher return on equity than the average for the other Swedish and Nordic banks.

By having higher return on our shareholders’ equity than other banks, we can give our shareholders higher long-term returns. Our method of achieving this is easy to say but difficult to do: Offering better service to our customers and thus having more satisfied customers than other banks, while simultaneously having lower costs.

Better service and more satisfied customers… In 1999, we had ample proof that we are Sweden’s best bank in terms of service and satisfied customers. Yet again we were number one bank in an official survey, Svenskt Kvalitetsindex, which measures satisfied customers in various business sectors. This survey is organised by the Stockholm School of Economics, Statistics Sweden, the Swedish Institute for Quality and the Service Research Centre at the University of Karlstad. Surveys of satisfied customers in various sectors have been performed since 1989. Not only do we have the most satisfied customers – both corporate and private – the most important criterion when changing banks is of the major Swedish banks, but in 1999 we also that the bank has knowledgeable and friendly staff. increased our lead compared to the average of the The business weekly Veckans Affärer’s annual brand banks in Sweden. name survey showed that Handelsbanken has the Privata Affärer, which is Sweden’s leading periodical strongest brand name in the Swedish banking business in the area of private finances, acclaimed Handelsbanken and that the trend is on the up. We are the only major “the customers’ favourite bank 1999”. According to bank with an upward-pointing trend. Our leading position their annual survey, Swedes have more confidence in is particularly strong where confidence is concerned. Handelsbanken than in any other bank. We were given We also continue to have a much lower level of the the best ratings for our service and are the bank that complaints made to the National Board for Consumer most people would want to change to – 29% – if they Complaints and the Consumers Banking Agency than changed banks. Since the survey held the previous year, our proportionate share of the Swedish banking market. 18% have actually changed banks, most of them to There can be no doubt that not only did we retain Handelsbanken. Dissatisfaction with the level of service our lead regarding service and satisfied customers in offered is by far the commonest reason for people to 1999 but we also increased it. This is of vital importance move to another bank. According to the survey, we are for our future ability to retain and increase our lead in the best bank in Sweden where service is concerned. profitability. A company’s relationship with its customers The leading Swedish consumer periodical, Råd och should be the most important criterion for a person

Rön, also reported in a survey in 1999 that Handels- who is buying shares on a long-term perspective. www.handelsbanken.se banken has the most satisfied customers of the major Swedish banks. Eighty-four percent of the Bank’s cus- …combined with lower and falling costs tomers would consider recommending the Bank to For many years Handelsbanken has had the lowest people they know. As many as 35% of consumers expenses in the banking industry – not only in the who say that Handelsbanken is their main bank have Nordic countries but also in Europe. Our expenses changed to the Bank during the last five years. This is expressed as a percentage of total assets are half those a clear reflection of Handelsbanken’s success in the market of a European and Nordic average. Since we succeeded during the 1990s. According to Råd och Rön’s survey, in lowering our expenses by a further 2% in 1999, we

SHB 1999 5 THE GROUP CHIEF EXECUTIVE’S COMMENTS

have increased what was already a resounding lead. long run and we risk losing them at some stage in the One important explanation for our favourable expenses future. This means that our staff must listen to our trend is that in 1999 we clearly began to see the effects customers and must have sufficient knowledge to of our customers using Internet for their banking trans- understand which product is the most appropriate in actions to such a large extent. At present, 20% of the each individual case. Our policy is always to do our Bank’s transactions are carried out via the Internet. best to offer the customer the product which is best In March 1999, the Financial Times wrote the for him or her even if this in the short-term could be following on the subject of banks’ costs: “European detrimental to the Bank’s profitability. Our aim is banks have lost control over their costs. If this is not always to sell what is best for the customer – not what the case, why are they searching for mergers to deliver is best short-term for the Bank. the cost savings that determined internal actions should The way in which this communication is carried out provide? To find a role model close at hand, Europe’s is also an integral part of the customer’s perception of bankers need look no further than Stockholm, where the product. If it is done in a professional and pleasant Handelsbanken is committed to remaining a leader manner, this is often more important for the customer’s in low-cost banking. It is also one of Europe’s most view of the Bank than the actual content of the product. consistently profitable banks.” Can it be expressed Surveys indicate that the customer’s level of satisfaction more clearly? with a service company is 70% dependent on how the Another important factor in our ability to compete product is delivered – not on the product itself. is our high credit rating in the international market. Customers are satisfied when they receive at least In 1999, the credit rating agency Moody’s raised our what they expect. Banks are unique in that 90% of the rating to Aa2. Only two listed universal banks in staff are in contact with the customers. In other words, Europe now have a higher rating. Even before our 90% of our staff must every day live up to – and rating was raised, Handelsbanken had the highest credit preferably surpass – the expectations of our customers. rating of the Nordic banks. This implies that we obtain This is something which makes consistently good our raw material – money – at a cheaper price than our banking service very difficult to achieve. most important competitors. There is no single magic formula for creating good service in a bank. If there were, good service would be The service company – a finely-tuned Stradivarius much more common. It can only be done if the whole Companies which not only think that it is important system – organisation, personnel policy, market policy, to deliver a good product at the right price but also that atmosphere, attitudes, profit-sharing system – is well it is important how the product is delivered are called thought-out and is pulling in the same direction. service companies. Handelsbanken is a service company. A service company is a very sensitive instrument – We aim to create long-term relationships with our a Stradivarius – where each string must be well-tuned customers. Naturally, our range of products must be in order to produce the best sound. first-class. But our products are really only building The quality of the employees is the most important blocks which have to be tailored to meet the individual factor. Their knowledge and quality is vital for the customer’s needs. In order to do this, we must commu- customer to obtain the right product and for the com- nicate with the customer. munication itself to be carried out in a competent and How this communication is carried out is a key friendly manner. So knowledgeable employees who stay factor in the customer’s perception of the Bank. with the Bank for a long time – and in this way learn Communication is essential in order for the customer the profession – are essential for good service. This is to obtain the correct product. Customers who do not why Handelsbanken has a very long-term view of its obtain the correct product will not be satisfied in the employees and wants its employees to have a long-term

Cost effectiveness of some Nordic Return on shareholders’ Handelsbanken’s banking groups, 31 December 1999 equity after standard tax share performance % Index Income/ Expenses 30 500 expenses expressed as Svenska Handelsbanken 450 Svenska Handelsbanken a percentage 25 of total assets 400 Handelsbanken 2.0 0.9 20 350 Kreditkassen 1.8 1.7 www.handelsbanken.se 15 300 MeritaNordbanken 1.7 1.6 Other listed banks Den Danske Bank 1.7 1.3 250 10 FöreningsSparbanken 1.5 1.5 200 Unidanmark 1.5 1.7 5 General Index Standard tax 150 Den norske Bank 1.4 2.7 50% 1985–1988 0 SEB 1.3 2.3 30% 1989–1993 Average excl. 28% 1994– Bank share index -5 50 Handelsbanken 1.5 1.7 excl Handelsbanken

Excl loan losses and adjusted for items affecting comparability. 1984 1986 19881990 1992 1994 1996 1998 1999 1990 1992 1994 1996 1998 1999

6 SHB 1999 THE GROUP CHIEF EXECUTIVE’ S COMMENTS

view of their relationship with the Bank. The internal environment must be characterised by mutual respect. It is impossible to carry on being friendly to customers in the long term if the internal atmosphere is not pleasant. Our profit-sharing system, Oktogonen, is also an important link in the chain. For a service company it is important to create commitment among all the staff. Since 90% of our staff are in contact with customers, our profit-sharing system allocates an equal amount of money to each person, irrespective of their position. The requirement is that we achieve our goal – higher return on shareholders’ equity than the other banks. Oktogonen has created a unique and broad-based level of commitment at Handelsbanken – for both our customers and our shareholders. To the best of my knowledge there is no other large company anywhere in the world where all employees own such a large proportion of the company where they work. Today, the Oktogonen Foundation manages assets worth SEK 18 billion of which the Bank has paid 3 billion. The rest is increase in value – principally on the founda- tion’s largest shareholding: shares in Handelsbanken. I can think of no other large company world-wide where the staff at all levels are so dependent on the performance of the company’s own shares.

The Internet – greatest historic leap I have a firm belief in the value of personal advice and forward for better service service. But there are many areas in banking where the When assessing the consequences of a certain phenome- level of service is improved if customers can do the non it is often simplest to start at a personal level. The transactions themselves at home. The most obvious Internet and PCs have certainly changed my life – both areas are payments, and buying and selling securities personally and at work. And the changes are almost all where no advisory services are needed. For people with for the better. My laptop contains practically everything PCs who know how to use them, the option of doing I need for both work and leisure. I pay my bills, buy these transactions themselves at home, without having and sell shares and obtain information about my to visit the Bank, implies an improvement in the level accounts over the Internet. Before taking time off, I no of service. longer need to think about what work material to take The securities field is a good example of our Internet with me. Everything is there on my laptop or can be service. Today we can offer our custody customers a wide obtained from the Internet. When out sailing, I use my range of services with everything from the purchase and laptop to navigate – it contains sea charts for the whole sale of shares and units in mutual funds to subscription globe. And if I need an extra chart, I can download it at for shares in stockmarket launches, as well as top-quality sea from the Internet. I store all my holiday photos on market information. Our equity analysts can also my laptop and send holiday postcards – with photos – distribute the very latest analyses at a speed which was via the Internet. The weather charts come from the not possible in the past. We see this as an excellent Internet. I do a lot of shopping via the net, mainly complement to the personal advice and service which is because it is simple and convenient, although sometimes available to our customers at our branches. In this way, more expensive when postage and duty have been Handelsbanken can combine advanced technical solu- added on. I can always be reached by e-mail. I have the tions with professional staff to provide our customers same address whether I am at work or on holiday. My with better service. This is confirmed by the fact that colleagues at the Bank do not need to know where I am our market share on the Nordic stock exchanges went as e-mail means that I am always available. When I am up in 1999. on holiday or on a business trip I can read the morning The potential to improve our service is the main rea- papers via the Internet. I can also read international son for us to invest so much in the Internet. The effects www.handelsbanken.se papers which I am interested in on the day of publica- for the Bank vary in other respects. While the cost per tion, all thanks to the Internet. All of this has made an transaction is lower, experience shows that Internet enormous change to my life. Today, I don’t understand customers do more transactions than other customers, how I could manage without it all just a few years ago. thus increasing costs. Because it is so simple to use, The Internet is also the best thing that has happened Internet customers check their balances, the payments during my lifetime with regard to tools for improving they have made and their share transactions much more the service we offer to our customers. It has allowed us often than other customers. The net effect is that the to take a great leap forward.

SHB 1999 7 THE GROUP CHIEF EXECUTIVE’ S COMMENTS

Bank does save money but this effect should not be ex- phones and transfer money between their own aggerated. Internet customers also do more transactions accounts. As soon as WAP phones offer a sufficiently but the effects on the income side should not be over- high level of security, they will also be able to make estimated since Internet has led to a discount in the payments and buy and sell securities. price of certain products. For example, commission on This means that our customers will be able to use equity transactions is lower for Internet transactions. all Handelsbanken’s Internet services via their mobile The overall effect of all this is difficult to assess and in phones. They will need a special WAP phone, however. fact is not particularly interesting. We are a service With Internet services via mobile phones, it will even- company which is always striving to improve the service tually be realistic for almost all customers to use the we offer our customers. This is quite sufficient as a reason Bank’s Internet services. for investing in Internet services – not as the only route Internet is already playing a revolutionary role and to the customer but as a complement to competent and there are many opinions as to its role in the future. friendly personal service. In this area, I think that our traditional scepticism con- cerning long-term forecasts is particularly well-founded. More Internet transactions than A few years ago, not many people guessed the role that branch office transactions in 2000 the Internet would play today. Most prophecies were Today, Handelsbanken has Internet services in four way off target. We are absolutely determined to be at countries – Sweden, Norway, Finland and Denmark. the forefront in offering our customers Internet banking In 2000, we will also start Internet services in the U.K. services. To succeed in this, flexibility and speed are when we start retail banking services for private cus- needed rather than hard and fast forecasts about the tomers in Manchester and Birmingham. future which tend to lock you into a certain way of Twenty percent of Handelsbanken’s customers are thinking. active users of Internet services. Around 20% of all payments and securities transactions by private cus- Nordic expansion continues tomers are done via the Internet. Twenty-five percent Although the Internet has revolutionised many things in of the Bank’s corporate customers are already using the the world – not least banking – we do not believe that Internet services for companies, which were launched a bank can expand in other countries solely by means in 1999. This gives Handelsbanken one of the highest of the Internet. It is a very important part of a bank’s Internet penetration levels in Europe. service but for many types of banking transactions – In 2000, for the first time we expect the number of primarily the ones which are more seldom used – you Internet transactions to surpass the number of trans- need a competent person to speak to, not least when actions carried out at our branch offices. borrowing or investing money. This also applies to many of the services provided to the corporate sector. M-business makes Internet services Local presence is necessary in order to build an atmo- available to everyone sphere of trust with individuals and companies in other Today, a PC is necessary in order to use all the Bank’s countries. Internet services. PCs are wonderful tools for people For this reason, our expansion in the other Nordic who have learned to use them but many people find countries is being done with a combination of new them far too complicated. It is therefore reasonable to branches and good Internet services. On the other hand, assume that we can never exceed an Internet penetration the branch networks do not need to be the same size or level of more than 50% as long as a PC is necessary to be as dense as in pre-Internet days. use the services. But in 1999 we took an important step forward when we were one of the first banks in the world to launch Internet ser- vices for mobile phones. These days this is often referred to as m-business as opposed to e-business which is done over the Internet on a PC. The new WAP technology means that it is now possible to start using mobile phones for Internet services. As a result of this, Internet services are suddenly a realistic alternative for a much www.handelsbanken.se greater proportion of our customers. Thus, m-business and WAP technology provide other important opportu- nities for us to improve our customer service. At present, a test group is using a limited number of Handelsbanken’s Internet services via mobile phones. They can access share prices and a certain amount of news material. By summer 2000, our customers will be able to check balances and transactions via their mobile

8 SHB 1999 THE GROUP CHIEF EXECUTIVE’ S COMMENTS

Our Norwegian operations Surplus value of SEK 19 billion in the Bank’s pension expanded significantly in 1999 foundation and pension fund due to the purchase of Bergens- The Bank’s pension commitments are secured through banken. This acquisition gave us the pension foundation and through insurance in the 15% of the banking market in pension fund. For many years, the market value of the Norway’s second largest city. We assets which secure these commitments has well exceeded already had a strong position in the actual insurance liabilities. The rise in the stock- the two other metropolitan areas market in 1999 increased the surplus by 90% and at – Oslo and Stavanger. Bergens- the end of the year the surplus was SEK 19 billion. It is banken has six branches in possible to transfer this surplus to the Bank by taking Bergen. In 1999, we also opened out each year a maximum amount corresponding to a branch in Fredrikstad and the Bank’s pension expense for that particular year. announced our plans to start a In 1999, this amount was SEK 750 million and it was branch in Tromsø. Tromsø will transferred to the Bank from the pension foundation. be the Bank’s sixth branch north This amount does not increase the Bank’s operating of the Arctic Circle. The others profit of SEK 8.6 billion before tax but is entered as an are in Kiruna, Gällivare, Malmberget, Pajala and appropriation and therefore only has an impact on the Jokkmokk, all in Sweden. But Tromsø will be furthest result reported after tax. However, it does have a posi- north of them all, situated even above the northernmost tive impact on earnings per share and return on share- point in Sweden. Including Tromsø, we now have 23 holders’ equity. It is our intention to continue transfer- branches in Norway. ring the maximum permitted amount from the pension In Finland, we opened a new branch in Kuopio in foundation in the years to come. 1999, making 16 branches in Finland. In Denmark, new branches were opened in Odense and Kolding, Buy-back of shares bringing the total number there to five. In 2000 the law will be changed so that Swedish companies will be allowed to buy their own shares. Successful asset management Handelsbanken has such a strong capital situation that Our asset management was successful last year. Most at present it allows repurchase of the Bank’s shares on of our mutual funds performed better than their bench- a relatively large scale. It is therefore being proposed mark indexes. Management of Handelsbanken Liv’s that the Annual General Meeting authorises the Board traditional life insurance portfolio was also successful. to decide on a purchase of a maximum of 50 million Investment income was 21.6%, one of the highest figures shares until the next Annual General Meeting in 2001. in the sector. Handelsbanken Liv’s premium income If so authorised, the Board intends to buy back shares increased by 36% and the volume for unit-linked insur- for a maximum of SEK 4 billion. The buy-back would ance more than doubled. increase the profit per share and also return on equity and would therefore have a favourable effect on the The right to change fund managers share price. In the years to come, we intend to continue During the 1990s, Handelsbanken has increased its optimising our capital structure from the point of view market share in practically all product areas. For house- of the company and the shareholders. hold deposits, our market share has risen from 11% to Finally, I would like to thank all the employees of 17% and for lending from 12% to 27%. Many people the Bank for their great efforts during the past year. It have moved their banking business to Handelsbanken is your hard work that has led to us achieving our goal during the 1990s. According to the Råd och Rön survey, for the twenty-eighth year running – higher return on as many as 35% of those who say that Handelsbanken equity than other comparable banks. With our satisfied is their main bank have moved to us during the last five customers, low costs, committed employees, first-class years. These much higher market shares are visible in Internet services and superior creditworthiness, we have all areas but considerably less so where mutual funds a very good starting point at the beginning of the 21st are concerned. This is because in Sweden it is impossible century. to change fund managers without having to pay capital gains tax. So for tax reasons many of the private cus- Stockholm, February 2000 tomers who have changed to Handelsbanken have kept their mutual fund savings with their old bank. This is a threat to competition in the mutual funds market. www.handelsbanken.se The Competition Authority has also said the same thing ARNE MÅRTENSSON recently. The law should be changed so as to increase competition in this market. It is a fundamental right to be allowed to change banks including all banking trans- actions without restrictions being imposed. A reform of this kind would have a major impact on Handelsbanken’s position in the fund market.

SHB 1999 9 10

www.handelsbanken.se OBJECTIVES, POLICYANDORGANISATION into accountourresponsibilityfortheenvironment. work whichappliestobankingoperationsandtake to ourcustomers,theBankitselfandsocietyasawhole. agers shouldberecruitedinternally. train themwithintheGroup.Asfaraspossible,man- banks. average forotherSwedishbanks. the shareholdersviaahigherdividendgrowththan folio infavourofalargelendingvolume. that wemustneverneglectthequalityofourloanport- than volume.Whengrantingcredits,thisalsomeans should belowerthaninotherbanks. charge afairpriceforourservices.Ourcostlevel expectations ofdemandingcustomersandweshould Swedish, NorwegianandFinnishbanks. profitability thanaweightedaverageofotherlisted Handelsbanken’s overallobjectiveistohaveahigher Objectives, policyandorganisation business relationshipwiththe customer. ity forprofitabilitywithintheGroupouroverall or groupsofcompanies.Theretooliestheresponsibil- all loansheldintheGroupbyindividuals,companies banken Groupliesthere,asdoestheresponsibilityfor and co-ordinatedservicesfromallunitsintheHandels- Responsibility forprovidingthecustomerwithexpert the customeraspossible–atcustomer’sbranch. responsibility atoneplaceintheGroup,ascloseto segments. central units’responsibilityforproductareasormarket responsibility forindividualcustomersandnoton methods ofworkshouldbebasedonthebranches’ efficient financialcontrolsystem. deeply rootedthroughouttheentireGroupandan of controlareafundamentalcorporatepolicywhichis are stronglydecentralised.Themostimportantmeans The businessoperationsoftheHandelsbankenGroup close tothecustomer Overall customerresponsibility We mustworkwithintheformalandethicalframe- We aimtoworkinsuchawaythatweareofbenefit We seektoemployyoung,well-educatedstaffand We aimtohavemoresatisfiedcustomersthanother It isintendedthathigherprofitabilityshouldbenefit Profitability mustalwaysbegivenhigherpriority The qualityoftheGroup’sservicesshouldmeet For eachindividualcustomerthereisanoverall The mainconceptisthatourorganisationand OBJECTIVES ANDPRINCIPLES POLICY tional customers. world andtodoNordic-relatedbusinesswithinterna- customers withfirst-classserviceinotherpartsofthe dic countries,wearealsoabletoprovideourNordic running profitableuniversalbankingoperations. where wecanapplyHandelsbanken’sexperiencein Denmark andFinlandasnaturaldomesticmarkets operations intheNordiccountries.WeregardNorway, in theSwedishmarket. With almost500branches,Handelsbankenisstrong Growth intheNordiccountries as wellconsumerbankingincludinglifeinsurance. porate transactions,investmentbankingandtrading, should covertheentirebankingarea–traditionalcor- Handelsbanken aimstobeauniversalbank,i.e.we Universal bank branch officeattheforefront. on theindividualcustomerandwith nisation ispresentedasacombinedunitconcentrating specialists andefficientsupportfunctions. the interplaybetweenstrongbranches,highly-trained Handelsbanken’s organisationisaimedatpromoting major changesintheenvironmentwhichwework. It hasprovedtoworkflexiblyandefficientlyduring and successfullyapplieddevelopedthisbasicconcept. rare. er categoriesorproductareas.Productcampaignsare marketing activitiesbygivingcentralprioritytocustom- marketing plansandwedonotcontrolthebranches’ no centralmarketingdepartments,wemake marketing isheldbytheindividualbranch.Wehave This alsomeansthattheresponsibilityforGroup’s With ournetworkofunitslocatedoutsidetheNor- Our policyforgrowthistoestablishuniversalbanking On thenextpage,HandelsbankenGroup’sorga- For manyyears,Handelsbankenhasconsistently ORGANISATION SHB 1999 OBJECTIVES, POLICY AND ORGANISATION

The Handelsbanken Group’s organisation 31 December 1999

CENTRAL HEAD OFFICE REGIONAL BRANCHES CUSTOMER AND SWEDISH HEAD OFFICES SUBSIDIARIES

CENTRAL REGIONAL BRANCHES HEAD OFFICE HEAD OFFICES IN SWEDEN GROUP MANAGEMENT NORTHERN NORRLAND 465 Umeå OPERATIONAL THE OTHER NORDIC DEPARTMENTS SOUTHERN NORRLAND COUNTRIES Asset Management Gävle Markets Denmark (5) Finland (16) STOCKHOLM CITY BUSINESS SUPPORT Norway (22) DEPARTMENTS Stockholm Administration UNITS CENTRAL SWEDEN Asset Management OUTSIDE THE NORDIC Stockholm Auditing COUNTRIES Business Development EASTERN SWEDEN Belgium Control China Linköping Corporate Communi- Estonia cations France (2) WESTERN SWEDEN Credits Germany (2) Göteborg Information Systems Hong Kong Legal SOUTHERN SWEDEN Luxembourg Markets Poland Malmö Personnel Russia Treasury DENMARK Singapore Spain SUBSIDIARIES Copenhagen Handelsbanken Finans Switzerland Handelsbanken Fonder FINLAND Taiwan U.K. (3) Handelsbanken Liv Helsinki Stadshypotek U.S.A. www.handelsbanken.se – Handelsbanken Hypotek NORWAY Stadshypotek Bank Oslo

See page 84 for addresses

SHB 1999 11 12

www.handelsbanken.se OBJECTIVES, POLICYANDORGANISATION sure thatitisappliedinallactivities. this basicphilosophyaliveinitsdailyworkandmaking itself. TheBanklaysgreatemphasisonalwayskeeping in thedecentralisedcustomerandprofitresponsibility of motivationandpersonaldevelopmentcanbefound and from1997,staffinFinland. includes Handelsbanken’sstaffinNorwayfrom1995, employees inSweden,theprofit-sharingsystemalso by theOktogonenFoundation.Apartfromall since thenaremanagedonbehalfoftheemployees started in1973.Thefundswhichhavebeenallocated years istheBank’sprofit-sharingsystemwhichwas which hasbecomemoreandimportantoverthe conditions fordevelopmenttotakeplace. responsibility ofeverymanagertocreatethenecessary his/her skillsandcompetencedevelopment.Itisthe internal promotion.Eachemployeeisresponsiblefor Bank and90%ofallmanagersarerecruitedthrough lopment. Almostalltrainingiscarriedoutwithinthe Group; andanadvancedprogrammeformanagerdeve- interested inandsuitableforadvancementwithinthe individual developmentplansforemployeeswhoare system forannualappraisalsallstaffintheGroup; development inthebankingprofession;awell-tried new employees;acomprehensiveprogrammeforskills m requirements andrefinedselection context, mentionshouldbemadeofever-increasing that therightstaffandmanagersarerecruited.Inthis philosophy andwhoareabletomeetitsdemands. who understandandagreewithHandelsbanken’sbasic must makesurethatithasemployeesandmanagers rent fromthetraditionalsaleofproducts.TheBank services isalsovital.Thismakesdemandsthatarediffe- An overviewoftheHandelsbankenGroup’srange relationship andthequalityofserviceoffered. every employeetakesresponsibilityforthecustomer the individualcustomer’srequirements,demandsthat Handelsbanken. a servicecompanywhichisasstronglydecentralised are itsmostimportantassets.Thisisparticularlytrueof Many companiesstressthatthecompany’semployees However, webelievethatthemostimportantsource A meansofmotivationforHandelsbanken’sstaff For thisreason,theBankconsidersitveryimportant Handelsbanken’s basicphilosophy,whichfocuseson OUR STAFF ethods forrecruiting customer’s requirements, employee aninterest philosophy, which demands ofevery “ in thecustomer’s circumstances. focuses onthe Our basic ” SHB 1999 OBJECTIVES, POLICYANDORGANISATION 13 www.handelsbanken.se OBJECTIVES, POLICY AND ORGANISATION

BRANCHES IN THE NORDIC COUNTRIES Northern Norrland

In SWEDEN, a new branch was started in Karlstad Våxnäs Arvidsjaur Gällivare - Storgatan Ramsele Backe Haparanda - Örnäset Robertsfors in 1999. Operations at 16 branches were transferred Vilhelmina Bjurholm Holmsund Lycksele Råneå Vindeln to nearby branches. At the end of the year there were Bjästa Hoting Lövånger Skellefteå Vännäs Björna Husum Malmberget Sollefteå 465 branches in Sweden. Ånäset Boden Härnösand Malå Sorsele Åsele In FINLAND, a new branch was started in Kuopio. Bredbyn Jokkmokk Mellansel Storuman Älvsbyn Bureå Junsele Nordingrå Trehörningsjö The total number of branches there is now 16. Örnsköldsvik Burträsk Kalix Nordmaling Ullånger In NORWAY, a new branch was started in Fredrikstad. Överkalix Byske Kiruna Norsjö Umeå Övertorneå Following the acquisition of Bergensbanken with Domsjö Kramfors Näsåker - Storgatan 6 branches, and including Tromsø, which will open Dorotea Lugnvik Pajala - Teg Piteå - Västerslätt during the first half of 2000, there are now 23 branches. Gammelstad Luleå In DENMARK, two branches were started: Kolding and Odense. The total number of branches there is Southern Norrland now five. Alfta Föllinge Kopparberg Orsa Arbrå Gagnef Krokom Rättvik Avesta Gnarp Kvissleby Sala Western Sweden Bergby Grangärde Leksand Sandviken Tierp Bergsjö Grängesberg Liden Skinnskatte- Timrå Alingsås - Första Långgatan Kristinehamn Bispgården Gällö Lima berg Torsåker - Gårda Ambjörnarp Kungsbacka Bjursås Gävle City Lit Skutskär - Hisings Kärra Tärnsjö Arvika Kungälv Skärplinge - Hjällbo Säffle Bjuråker Hammarstrand Ljusdal Vansbro Blidsberg - Högsbo Landvetter Tibro Björbo Hammerdal Ljusne Skönsberg Västanfors Bollebygd - Kortedala Lerum Tidaholm Bollnäs Heby Ludvika Stora Tuna Ånge Borås - Landala Lidköping Torsby Borlänge Hede Malung Storvik Åre - Lilla Bommen - Hulta Lilla Edet Trollhättan Bräcke Hedemora Matfors Strömsund Östersund - Norrby - Majorna Mariestad Trädet Delsbo Hedesunda Mockfjärd Sundsvall - Stora torget - Marieholm Östervåla Mellerud Uddevalla Edsbyn Hudiksvall Mora Sveg Falkenberg - Odinsgatan - Sisjön Mölndal Ulricehamn Fagersta Insjön Mörsil Svenstavik Falköping - Volvo PVB Nödinge Vara Falun Järpen Norberg Säter Filipstad - Vågmästare- Partille Varberg Fränsta Järvsö Ockelbo Söderhamn Fristad platsen Rävlanda Sörberge - Örgryte Vårgårda Furudal Kilafors Offerdal Färgelanda Skara Hagfors Vänersborg Gällstad Skövde Herrljunga Åmål Göteborg Sollebrunn Hjo Årjäng - Almedal Stenungsund - Avenyn Karlskoga Älvängen Sunne Eastern Sweden - Backa Ringön Karlstad - Brunnsgatan Surte - Stora torget Alvesta Gislaved Linköping Nässjö - City - Våxnäs Svenljunga - Frölunda Torg Anderstorp Hemse - City Oskarshamn Bankeryd Hultsfred - Tornby Rörvik Visby Borensberg Huskvarna Mjölby Slite - Adelsgatan Motala Borgholm Högsby Strängnäs - Öster Central Sweden Mönsterås Eksjö Järnforsen Sävsjö Vislanda Mörbylånga Emmaboda Jönköping Söderköping Värnamo Alviks Torg Hökarängen Stockholm Mörlunda Eskilstuna Kalmar Tingsryd Västervik Arbetargatan Jakobsberg - Fleminggatan - Fristadstorget - Berga Norrköping Torsås - Fridhemsplan Växjö Arboga Järna - Östermalm - Kvarnholmen - Drottninggatan Tranås - Globen Ålem Axelsberg Kolbäck Finspång Katrineholm - Eneby Centrum - Götgatsbacken Vällingby Vaggeryd Åseda Blackeberg Kumla Flen Klintehamn - Hageby - Hornsberg Värmdö - Såpkullen Vetlanda Åtvidaberg Brommaplan Kungsängen - Hornsgatan Fårösund Lammhult Västerhaninge Nybro Vimmerby Bålsta Kungsör - Hornstull Färjestaden Landsbro Västertorp Nyköping Virserum Dalarö Kärrtorp - Kungsholmstorg Västerås Enköping Köping - Marieberg - Renstiernas gata - Emausgatan Farsta Lindesberg - Skanstull - Köpingsvägen Fellingsbro Marievik Stuvsta - Stora gatan - Vasagatan Finnerödja Nacka Forum Södertälje Southern Sweden Årsta Fjugesta Norrtälje Trosa Frövi Nynäshamn Älvsjö .handelsbanken.se Trångsund Arlöv Karlshamn Lomma Osby Örebro Hallsberg Pålsboda Tullinge Broby Karlskrona Lund Ronneby - Drottninggatan Hallstavik Rimbo Tyresö Båstad Kivik Malmö Simrishamn - Ekersgatan Vittsjö Hallunda Saltsjö-Boo Ulvsunda Eslöv Klippan - Amiralsgatan Sjöbo www - Våghustorget Vollsjö Hammarby Skultuna Uppsala Halmstad Knislinge - City Staffanstorp Ösmo - Dalaplan Ystad Haninge Centrum Skärholmen - City Helsingborg Kristianstad Svedala Österbybruk - Fosie Huddinge Centrum Sköndal - Eriksberg - Norr Kävlinge Sölvesborg Åhus Östhammar - Fridhemstorget - Industriområdet Älmhult Hässelby Gård Spånga - Stortorget Laholm - Köpenhamns- Sösdala - Luthagen Högdalen - Söderport Landskrona vägen Tomelilla Ängelholm Hässleholm Liatorp - Lundavägen Trelleborg Höganäs Limhamn - Triangeln Tyringe - Värnhem Höllviken Ljungby Veberöd Markaryd Höör Ljungbyhed Vellinge Olofström

14 SHB 1999 OBJECTIVES, POLICY AND ORGANISATION

NorwayFinland Denmark

Bergen Espoo Copenhagen - Strandgaten Helsinki - City Bergensbanken - Bulevarden - Park Allé - Flesland - Böle Kolding - Fyllingsdalen - Kampen Odense - Lagunen - Södra Kajen Århus - Rådstuplassen Kuopio - Vestkanten Lahti - Åsane Lappeenranta Fredrikstad Oulu Haugesund Pietarsaari Kristiansand Pori Lysaker Tampere Oslo Tornio - Fyrstikktorget Turku - Kirkegaten - Olav V´s gate Vaasa NORTHERN NORRLAND - Skøyen Vantaa Sandnes Ski Skårer Stavanger - Sentrum - Løkkeveien Tromsø Trondheim Tønsberg

The map shows branches at 31 March 2000.

FINLAND

SOUTHERN NORRLAND NORWAY

WESTERN CENTRAL SWEDEN SWEDEN STOCKHOLM CITY

Stockholm City

Danderyd Stockholm EASTERN - Djursholm - Birger Jarlsgatan - Stureplan - Mörby Centrum - Erik Dahlbergsgatan SWEDEN - Sveavägen - Frihamnen Lidingö - Upplandsgatan - Fältöversten - Baggeby - Vanadisplan - Gamla Stan - Centrum - Vasagatan - Gustav Adolfs Torg - Larsberg - Värtavägen - Humlegården www.handelsbanken.se - Näset - Östermalmstorg - Hötorgscity SOUTHERN Sigtuna - Östra Station - Karlaplan SWEDEN - Arlanda Sky City - Karlavägen Sundbyberg DENMARK - Märsta - Kista - Hallonbergen - Stora Gatan - Kungsgatan - Sturegatan Sollentuna - Kungsträdgården Täby - Centrum - Norrmalmstorg - Centrum - Rotebro - Norrtull - Näsby Park Solna - Odengatan Upplands Väsby - Odenplan - Centrum Vallentuna - Vreten - S:t Eriksplan - Sergels Torg Vaxholm - Strandvägen Åkersberga

SHB 1999 15 OBJECTIVES, POLICY AND ORGANISATION

REGIONAL HEAD OFFICES IN THE NORDIC COUNTRIES The Nordic branch network is organised in ten regional banks – seven in Sweden and one each in Denmark, Finland and Norway. Branch managers report direct- ly to the Head of the Regional Bank. At the Regional Head Office there are specialists to support the work of the In the ten Nordic regional banks branch offices, for example, Regional there are branches from Tromsø in Area Managers, specialists for credits, the north to Denmark and Skåne international business, payments, (Sweden) in the south. In the west finance company, investment, insurance there are branches all along the Norwegian coast. Bergensbanken and legal matters. There are also inter- has added six – and the branches nal functions for finance and control, farthest to the east are Kuopio and administration, personnel and auditing. Lappeenranta in Finland.

Norway

BOARD: DAG MEJDELL, Oslo, Chairman JON FREDRIK BAKSAAS, Sandvika HANS CHRISTOFFERSON, Åkersberga BJÖRN-ÅKE WILSENIUS, Head of Regional Bank

Western Sweden

BOARD: FINN JOHNSSON, Göteborg, Chairman BENGT BENGTSSON, Hovås STIG-ARNE BLOM, Hökerum THOMAS DAFGÅRD, Källby SVANTE CARLSSON, Göteborg ANDERS LÖFBERG, Karlstad SÖREN MANNHEIMER, Göteborg EVA PERSSON, Västra Frölunda LENA LINDÉN, Edsvalla (E) M. JOHAN WIDERBERG, Head of Regional Bank

Denmark

BOARD: HANS CHRISTOFFERSON, Åkersberga, Chairman BJÖRN BÖRJESSON, Malmö HANS-OLOF HARRISON, Linköping

www.handelsbanken.se PÄR BOMAN, Head of Regional Bank

16 SHB 1999 OBJECTIVES, POLICY AND ORGANISATION

Northern Norrland

BOARD: BO KÄLLSTRAND, Bollstabruk, Chairman BJÖRN FRANKLIN, Lycksele BENGT-OVE HÖGSTRÖM, Härnösand Southern Norrland MARGARETA JONSSON, Älvsbyn BOARD: ERIK ORRING, Umeå ULF BERGKVIST, Insjön, Chairman INGER ANDERSSON, Umeå (E) OVE ANONSEN, Gävle STEFAN NILSSON, Head of Regional Bank ÅKE RYDÉN, Sveg LEIF SUNNERMALM, Sandviken Finland ANDERS WIKLANDER, Sundsvall BOARD: GÖTHE ÖSTLUND, Mora STIG-ERIK BERGSTRÖM, Espoo, Chairman JAN LARSSON, Gävle (E) KAJ JANSSON, Söderkulla HÅKAN SANDBERG, Head of Regional Bank SEIJA TURUNEN, Helsinki HANS CHRISTOFFERSON, Åkersberga CARL-AXEL OLSSON, Head of Regional Bank

Central Sweden

BOARD: PER SORTE, Saltsjöbaden, Chairman PER JOHAN BEHRN, Örebro ESKIL FLORVALL, Saltsjöbaden ESBJÖRN OLSSON, Stockholm Umeå GUSTAV OHLSSON, Västerås ALLAN PETTERSSON, Huddinge OLOF G WIKSTRÖM, Järfälla JURGEN KLEFELT, Stockholm (E) CURT KÄLLSTRÖMER, Head of Regional Bank

Gävle Helsinki Oslo Stockholm City

Stockholm BOARD: ÅKE RIETZ, Stockholm, Chairman Linköping Göteborg JAN BLOMBERG, Stockholm CARL-OLOF BY, Saltsjöbaden GÖRAN LARSSON, Stockholm GÖRAN NORD, Bromma LENNART SVENSSON, Stockholm Copenhagen MAINE GRÄNS, Vallentuna (E) Malmö MAGNUS UGGLA, Head of Regional Bank

Southern Sweden Eastern Sweden

BOARD: BOARD: SVEN-ERIC HERSVALL, Malmö, Chairman ANDERS HULTMAN, Växjö, Chairman BENGT ADOLFSSON, Hästveda LENNART BOHLIN, Linköping ROLAND BENGTSSON, Viken JAN CEDWALL, Nyköping www.handelsbanken.se ROLF BÖRJESSON, London PER JÄRNLAND, Norrahammar JAN EKBERG, Åhus JAN-ERIC NILSSON, Visby KURT J JOHANSSON, Sölvesborg KENNETH STÅHL, Jönköping MIKAEL ROOS, Malmö KENNETH SYNNERSTEN, Västerås ANN-CHRESTIN SAEDÉN-NILSSON, Blentarp (E) LARS HULTMAN, Tranås (E) BJÖRN BÖRJESSON, Head of Regional Bank HANS-OLOF HARRISON, Head of Regional Bank (E) = Employee representative

SHB 1999 17 OBJECTIVES, POLICY AND ORGANISATION

UNITS OUTSIDE THE NORDIC COUNTRIES Operations outside the Nordic countries are part of Handelsbanken Markets’ organisation. There are units in other European countries, Asia and the USA. These units mainly focus their operations on Nordic companies with operations abroad and non-Nordic companies with operations in the Nordic region as well as investment banking and trading. Handelsbanken in Luxembourg and London also offer asset management services to Nordic citizens living abroad. These operations are organised under Handelsbanken Asset Management. A representative office was opened in Brussels New York in 1999.

Units outside the Nordic countries

Belgium Germany (2) Russia Taiwan China Hong Kong Singapore U.K. (3) Estonia Luxembourg Spain U.S.A. France (2) Poland Switzerland .handelsbanken.se www

18 SHB 1999 OBJECTIVES, POLICY AND ORGANISATION

Tallinn Moscow Manchester Hamburg Birmingham London Brussels Warsaw Luxembourg Frankfurt Paris Zürich

Ctedô ’Azur Beijing

Marbella

Taipei Hong Kong

Singapore www.handelsbanken.se

SHB 1999 19 20

www.handelsbanken.se OBJECTIVES, POLICYANDORGANISATION also shownhere. the Bank’sbusinessoperations,are subsidiaries, whichareintegratedin and specialistskills.OurSwedish development work,day-to-dayservices provide supporttothebrancheswith The CentralHeadOfficedepartments services. phone switchboard,distributionandmail matters andalsotheHeadOffice’stele- includes generalpurchasingandbuilding environmental matters.Thisresponsibility physical securityaswellinsuranceand equipment andmachines,information premises, investmentsin Responsible formanagingtheBank’s Head: ADMINISTRATION DEPARTMENT and annualreports. reviewing internalcontrol.Auditsaccounts Group. Responsibleforevaluatingand Co-ordinates auditingissueswithinthe Overall responsibilityforinternalauditing. Head: AUDITING DEPARTMENT capital investmentservices. fund managementandalsocustodian Responsible forassetmanagementand Head: HANDELSBANKEN ASSETMANAGEMENT THE CENTRALHEADOFFICE TORD JONEROT JANITA THÖRNER-LEHRMARK BJÖRN CANDERSSON SHB 1999 the CentralBoard. risk assessmentofthelendingportfolio. lending policies,creditproceduresand Overall responsibilityfortheGroup’s Head: CREDIT DEPARTMENT Publishes theGroup’shousejournal. complaints andcontactswiththemedia. mation, advertising,investorrelations, marketing policy,internal/externalinfor- Overall responsibilityfortheGroup’s Head: DEPARTMENT CORPORATE COMMUNICATIONS cash managementandtaxanalysis. administrative controlsystems,internal accounts, annualfinancialand Responsible foraccounting,Group Head: CONTROL ANDACCOUNTINGDEPARTMENT tion technology. services andbranchofficesystems. deposits andlendingservices,electronic payment andcashmanagementservices, ing within theGroup.Responsiblefordevelop- Responsible foroveralldevelopmentissues Head: BUSINESS DEVELOPMENT Prepares creditstobepresented Responsible forinvestmentsininforma- LENNART FRANCKE LARS LINDMARK SVEN GREVELIUS GRÖNSTEDT LARS O SHB 1999 near Stockholm. Conference CentreatSödergarnonLidingö, care, pensionmattersandtheBank’s working environment,corporatehealth ment conditions.Alsoresponsiblefor and negotiationsonsalariesemploy- skills development,personneladministration management recruitment,and human resourcesstrategy,personneland Overall responsibilityfortheGroup’s Head: PERSONNEL DEPARTMENT Group’s unitsoutsidetheNordiccountries. economic research. correspondent banking,tradefinanceand foreign exchangeandequitiestrading, debt capitalmarkets,moneymarket, Operations comprisecorporatefinance, Head: HANDELSBANKEN MARKETS units withintheGroup. in theGroup.Provideslegalsupportforall Has overallresponsibilityforlegalmatters Head: LEGAL DEPARTMENT and communicationsnetwork. Group’s computersystems,workstations, tion, maintenanceandoperationofthe Responsible fordevelopment,co-ordina- Head: INFORMATION SYSTEMSDEPARTMENT Handelsbanken Marketsalsoincludesthe ANNA RAMBERG GÖRAN BJÖRLING LARS KINANDER GRÖNSTEDT LARS O internal bankandcentralclearing. liquidity andequityrisks.Operatesthe exposure tointerestrate,exchange Overall responsibilityfortheGroup’s ible fortheGroup’sliquiditymanagement. and internationalcapitalmarkets.Respons- Responsible forGroupfundinginSwedish Head: TREASURY DEPARTMENT Finland andDenmark. boration withvendors. debt collectionandsalesfinanceincolla- factoring (withandwithoutfinancing), assets, carfinanceandadministration, collaboration withsuppliersofinvestment Offers leasing,conditionalsales,finance Head: HANDELSBANKEN FINANS Subsidiaries HANDELS STADSHYPOTEK Head: STADSHYPOTEK GROUP for privatecustomers. packaged bankingandinsuranceservices a limitedselectionofstandardisedand A telephoneandInternetbankwhichoffers Head: STADSHYPOTEK BANK Finland andDenmark. capital insurance. and accidentinsuranceinternational life insurance,unit-linkedhealth ance, occupationalpensionsscheme,group products, suchasindividualpensioninsur- Offers acompleterangeoflifeinsurance Head: HANDELSBANKEN LIV Finland. customers. funds andadministersforcorporate Manages andadministerstheBank’smutual Head: HANDELSBANKEN FONDER office andcommercialbuildings. operatives, multi-familydwellings and second homes,sharesinhousing co- mortgage loansforsingle-family houses, Has operationsinSweden,Norway, Has operationsinSweden,Norway, Has operationsinSweden,Norwayand MICHAEL ZELL YONNIE BERGQVIST JOHANSSON BARBRO PETER ENGDAHL PEHR WISSÉN ULF RIESE BANKEN HYPOTEK and itssubsidiary OBJECTIVES, POLICYANDORGANISATION provide first- 21 www.handelsbanken.se 22

www.handelsbanken.se OBJECTIVES, POLICYANDORGANISATION and thecompensationcommittee. members ofthecreditcommittee,electioncommittee credit instructions.TheBoardhasalsoappointed itself, instructionsfortheGroupChiefExecutive,and TheBoardhasissuedworkinginstructionsfor issues. issues, majorinvestmentsandstrategic credit major ing and theBank’sstrategy.Ithasmadedecisionsconcern- meeting, theBoardhasdiscussedfinancialsituation Board Member. reached theageof70,andMrBjörn Börjesson, exception ofMrJanEkman,whoresignedhaving Central BoardofDirectorswasre-electedwiththe the At theAnnualGeneralMeetingon27April1999, The Boardheld11meetingsduring1999.Ateach Meeting. the BoardandauditorsbeforeAnnualGeneral an electioncommitteewhichnominatesmembersof Board ofDirectorsHandelsbankenhasappointed Claesson, HansLarsson,BoRydinandSvenÅgrup. Executive VicePresidents. policy forthesalaries,benefits andpensionsofthe contract; italsoestablishestheprinciplesandoverall of theGroupChiefExecutiveinaccordancewithhis with hiscontract;itadjuststhesalaryandbenefits Chairman’s remunerationandbenefitsinaccordance were heldin1999. whole Board.Elevenmeetingsofthecreditcommittee of theirsizeorimportance,mustbepresentedtothe to determineandpreparesmatterswhich,because majority ofthecreditmatterswhichBoardhas on behalfoftheCentralBoardDirectors Credit committee. Committees Compensation committee. Election committee. Fahlin, BoRydinandSvenÅgrup. Olle Persson,ClasReuterskiöldandBengtSamuelsson. Lennart Francke,HansLarsson,ArneMårtensson, Vice Chairman,LennartClaesson,RolandFahlin, Ennerfelt. MEMBERS: MEMBERS: DEPUTY MEMBERS: MEMBERS: BOARD OFDIRECTORS Tom Hedelius,Chairman,Lennart Tom Hedelius,Chairman,BoRydin, Clas Reuterskiöld,Chairman, Roland This committeemakesdecisions Each yearsince1988,theCentral Lotty BergströmandGöran This committeereviewsthe Deputy Board Members Tom Hedelius, Hans Larsson Lotty Bergström Chairman Lennart Claesson Olle Persson Bo Rydin, Vice Chairman SHB 1999 OBJECTIVES, POLICY AND ORGANISATION

TOM HEDELIUS, Chairman ARNE MÅRTENSSON GÖRAN ENNERFELT * 1939, Stockholm * 1951, President and Group Chief * 1940, President and Group CEO Arne Mårtensson Member since 1977 Executive, Danderyd of Axel Johnson Group, Chairman of Bergman & Beving AB; Member since 1990 Upplands Väsby Vice Chairman of AB Industrivärden, Vice Chairman of Swedish Bankers’ Member since 1985 Telefon AB L M Ericsson; Director Association, Director of Holmen AB, Shareholding: 30 000 of Svenska Cellulosa AB SCA, AB Sandvik AB, V&S Vin & Sprit AB, PER-OLOF ERIKSSON Volvo, SAS OM Gruppen AB, Swedish ICC, Shareholding: 26 400 Industry and Commerce Stock * 1938, Sandviken Member since 1986 BO RYDIN, Vice Chairman Exchange Committee, Council of World Economic Forum Chairman of Svenska Kraftnät; * 1932, Stockholm Shareholding: 0 Director of Assa Abloy AB, Member since 1973 Synthetic options: 80 000 AB Custos, Preem Petroleum Chairman of Svenska Cellulosa AB AB, Sandvik AB, Skanska AB, SCA, AB Industrivärden, Skanska AB, LOTTY BERGSTRÖM AB SKF, SSAB Svenskt Stål AB, Graninge AB, SAS * 1949, Ekerö AB Volvo Shareholding: 40 000 Member since 1996 Shareholding: 18 000 Shareholding: 0 ROLAND FAHLIN LENNART CLAESSON * 1938, President of ICA Förbundet, * 1944, Nässjö Stockholm Member since 1985 Member since 1993 Chairman of ICA AB; Vice chairman Per-Olof Eriksson Chairman of Oktogonen Foundation Shareholding: 0 of Hakon Gruppen A/S, Oslo Synthetic options: 5 000 Shareholding: 6 000 Göran Ennerfelt HANS LARSSON * 1942, Stockholm Roland Fahlin Member since 1990 Chairman of NCC AB, Althin Medical AB, Biolight International AB, Nobia AB; Director of Bilia AB, Mo och Domsjö AB, Nordstjernan AB Shareholding: 18 600 OLLE PERSSON * 1935, Östersund Member since 1989 Chairman of Byggelit AB, Z-Invest Shareholding: 21 000 CLAS REUTERSKIÖLD * 1939, President and CEO of AB Industrivärden, Danderyd Member since 1994 Director of Sandvik AB, Skanska AB, Bengt Samuelsson Svenska Cellulosa AB SCA, Telefon AB L M Ericsson Shareholding: 16 527 Clas Reuterskiöld BENGT SAMUELSSON Sven Ågrup * 1934, Professor, Danderyd Member since 1989 Chairman of the Nobel Foundation; Director of Pharmacia & Upjohn Inc., The Liposome Co., Inc., USA, Nicox S.A., France Shareholding: 3 000 SVEN ÅGRUP * 1930, Lidingö Member since 1973 Director of Tetra Laval AB Shareholding: 9 000 www.handelsbanken.se Honorary Chairmen

TORE BROWALDH JAN WALLANDER * 1917, Stockholm * 1920, Drottningholm

For members of the Board who were previously Deputies, the year stated for election to the Board is the year the person was elected Deputy.

SHB 1999 23 24

www.handelsbanken.se OBJECTIVES, POLICYANDORGANISATION Shareholding: 15000,options:40000 Employed: 1985 Head ofHandelsbankenAssetManagement BJÖRN CANDERSSON, at theCentralHeadOffice Executive VicePresidents Options: 80000 Shareholding: 0 Employed: 1974 ARNE MÅRTENSSON, Group ChiefExecutive President and Shareholding: 0,options:18000 Employed: 1983 Head ofCentralTreasuryDepartment PEHR WISSÉN, Shareholding: 909,options:40000 Employed: 1971 Head ofCentralPersonnelDepartment ANNA RAMBERG, Shareholding: 600,options:40000 Employed: 1983 and InformationSystemsDepartment Head ofBusinessDevelopmentDepartment LARS OGRÖNSTEDT, Shareholding: 5000,options:40000 Employed: 1984 Accounting Department Head ofCentralControland SVEN GREVELIUS, Shareholding: 1284,options:40000 Employed: 1972 Head ofCentralCreditDepartment FRANCKE, LENNART Shareholding: 0,options:40000 Employed: 1977 Head ofHandelsbankenMarkets GÖRAN BJÖRLING, * 1951 * 1952 * 1942 * 1942 * 1950 * * 1954 1951 * 1946 Authorised PublicAccountant,Enköping HEDÉN ÅKE Ernst &YoungAB Authorised PublicAccountant,Stockholm ÅKE DANIELSSON Authorised PublicAccountant,Sollentuna BERTIL EDLUND, Öhrlings PricewaterhouseCoopersAB Annual GeneralMeeting Appointed bythe Auditor incharge , Auditor incharge Chairman, Shareholding: 2310,options:40000 Employed: 1961 Head ofRegionalBankNorway BJÖRN-ÅKE WILSENIUS, Shareholding: 8000 Employed: 1958 Head ofRegionalBankFinland CARL-AXEL OLSSON, Shareholding: 0,options:40000 Employed: 1991 Head ofRegionalBankDenmark PÄR BOMAN, Shareholding: 0,options:40000 Employed: 1981 Head ofRegionalBankSouthernSweden BJÖRN BÖRJESSON, Shareholding: 3540,options:40000 Employed: 1972 Head ofRegionalBankWesternSweden M JOHANWIDERBERG, Shareholding: 10336,options:40000 Employed: 1964 Head ofRegionalBankEasternSweden HANS-OLOF HARRISON, Shareholding: 55287,options:40000 Employed: 1961 Head ofRegionalBankCentralSweden CURT KÄLLSTRÖMER, Shareholding: 30000,options:40000 Employed: 1983 Head ofRegionalBankStockholmCity MAGNUS UGGLA, Shareholding: 1009,options:40000 Employed: 1969 Head ofRegionalBankSouthernNorrland HÅKAN SANDBERG, Shareholding: 0,options:40000 Employed: 1980 Head ofRegionalBankNorthernNorrland STEFAN NILSSON, at theRegionalBanks Executive VicePresidents SENIOR MANAGEMENT * 1961 AUDITORS * 1952 * 1957 * 1948 * 1951 * 1938 * 1941 * 1949 * 1943 * 1944 Touche AB,Åkersberga Authorised PublicAccountant,Deloitte& Ulf Davéus Financial SupervisoryAuthority Appointed bytheSwedish Shareholding: 2000,options40000 Employed: 1978 Hypotek Head ofStadshypotek/Handelsbanken MICHAEL ZELL, Shareholding: 18657,options40000 Employed: 1983 Head ofHandelsbankenFinans ULF RIESE, Shareholding: 0,options40000 Employed: 1961 Head ofHandelsbankenLiv BARBRO JOHANSSON, Shareholding: 21,options40000 Employed: 1979 Head ofStadshypotekBank YONNIE BERGQVIST, of Subsidiaries Chief Executives Shareholding: 0,options40000 Employed: 1982 Head ofInvestorRelations BENGT RAGNÅ, Shareholding: 3000,options40000 Employed: 1992 Department Head ofCorporateCommunications LARS LINDMARK, Shareholding: 0,options40000 Employed: 1988 Head ofHandelsbankenMarketsResearch JAN HÄGGSTRÖM, Others All optionsaresynthetic. 1959 * 1950 * * 1950 * 1945 * 1949 * 1961 * 1944 SHB 1999 REVIEW OF BUSINESS AREAS

Review of business areas

GENERAL Lending to the general public, Handelsbanken Group 31 December Handelsbanken is a Nordic universal bank with a highly decentralised organisation. The heart of the Bank is its 1999 1998 Change SEK m % large branch office network. The branches are responsible for all customers within their geographic area – even Lending in Swedish kronor very large companies. The branch office co-ordinates to households 202 161 194 573 4 services for all customers. Where necessary, this is done to companies etc. 292 600 287 583 2 in close co-operation with the Bank’s subsidiaries and 494 761 482 156 3 specialists at regional and central level. Foreign currency lending Handelsbanken conducts complete universal banking to households 19 289 12 970 49 operations in the whole of the Nordic area. to companies 115 572 95 985 20 BRANCH OFFICE OPERATIONS consist of ten regional 134 861 108 955 24 banks – seven in Sweden and one each in Norway, Provision for possible Finland and Denmark. loan losses – 3 416 – 3 706 – 8 HANDELSBANKEN MARKETS is responsible for corporate Total lending 626 206 587 405 7 finance, trading in the equity, money and foreign exchange markets, debt capital finance, correspondent Lending – market shares in Sweden, banking and trade finance. It also includes the Bank’s SEK and foreign currency units for economic research and banking operations 31 December outside the Nordic countries. 1999 1998 HANDELSBANKEN ASSET MANAGEMENT comprises fund %% management, discretionary asset management and Lending – market shares in Sweden custody services. to household 27.2 28.3 HANDELSBANKEN FINANS offers a full range of finance company services in all the Nordic countries. to companies etc. 27.1 27.7 Total 27.1 28.0 HANDELSBANKEN LIV markets a complete range of life insurance products. STADSHYPOTEK BANK offers a limited selection of bank Deposits from the general public, Handelsbanken Group and insurance services for customers who do not need the 31 December branches’ broad range of individually adapted services. 1999 1998 Change HANDELSBANKEN CENTRAL TREASURY manages the SEK m % Group’s Swedish kronor liquidity, funding in the capital Deposits in Swedish kronor markets as well as funding and clearing through the from households 68 778 66 193 4 Swedish central bank. from companies etc. 70 409 59 330 19 Business volume trend 139 187 125 523 11 Foreign currency deposits LENDING from households 8 014 4 103 95 Lending to the general public increased in 1999 by from companies etc. 38 093 38 380 – 1 7% to SEK 626bn (587). 46 107 42 483 9 The fall in volumes at Stadshypotek, which was Total deposits 185 294 168 006 10 anticipated at the time of the acquisition, stopped towards the end of the year and an increase is now apparent, particularly for private customers. Lending in Deposits from households – market share in Sweden, Swedish kronor foreign currency, both corporate and private, continues to develop well, partly because of a substantial increase 18% in the other Nordic countries. Swedish kronor lending .handelsbanken.se 17 volumes in the Bank are also increasing. 16

DEPOSITS www 15 Deposits in Handelsbanken rose during the year by 10% to SEK 185bn (168). Swedish kronor deposits 14 were up by 11%, with a rise of 19% for corporate 13 deposits and 4% for private deposits. The Bank’s share 12 of the household deposits market continued to increase and is now 17% of the Swedish market. Foreign cur- 11 rency deposits went up by 9% to SEK 46bn (42). Most 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 of the increase is attributable to the Nordic countries outside Sweden.

SHB 1999 25 BRANCH OFFICE OPERATIONS

Quarterly performance

Total Total Change SEK m 1999:4 1999:3 1999:2 1999:1 1999 1998 % Net interest income 2 365 2 217 2 472 2 299 9 353 9 414 – 1 Commission, net 693 498 508 469 2 168 1 900 14 Net result on financial operations 106 84 70 79 339 388 – 13 Other income 32147442391 Total income 3 196 2 800 3 054 2 854 11 904 11 725 2 Income includes net internal remuneration 282 251 257 210 1 000 1 032 – 3 Total expenses 1 399 1 234 1 303 1 345 5 281 5 371 – 2 Result before loan losses 1 797 1 566 1 751 1 509 6 623 6 354 4 Loan losses – 142 – 13 – 29 58 – 126 394 Operating profit 1 939 1 579 1 780 1 451 6 749 5 960 13 Return on equity, % 23.4 19.3 22.1 18.1 20.7 20.0

Balance sheet 31 December

SEK m 1999 1998 Operations in Sweden and the other Nordic countries are run according to the same concept – the delivery of Lending to credit institutions 71 895 25 650 universal banking services with a higher service level Lending to the general public 559 986 524 643 and at a lower cost than competitors. It is on this base Bonds 15 558 5 094 that the Bank will be able to grow in the whole of the Other assets 23 917 13 668 Nordic area. Handelsbanken is already the largest bank Total assets 671 356 569 055 in Sweden. It is also the fourth largest commercial bank Liabilities to credit institutions 181 145 164 015 in Finland, fifth in Norway and ninth in Denmark. Deposits and funding from the general public 165 033 144 416 Income and expenses trend Issued securities 230 345 175 107 In 1999, net interest income in the branch office opera- Other liabilities 69 165 62 849 tions decreased by 1% compared to the previous year. Shareholders’ equity 25 668 22 668 Lending to the general public increased by 7%. Total liabilities and shareholders’ equity 671 356 569 055 Expenses fell, partly because of increased use of Handelsbanken’s Internet service. Handelsbanken is the only bank with a full range of All workstations at the Swedish branches have now universal banking services in all the Nordic countries. been replaced by standard, PC-based workstations. Handelsbanken now has 465 branches in Sweden, The physical workplace combined with a new customer 22 in Norway, 16 in Finland and 5 in Denmark. In information system tool and various other tools make 1999, new branches were opened in each of the Nordic it possible to provide better customer service and to countries outside Sweden – Fredrikstad in Norway, substantially improve the efficiency of branch office Kuopio in Finland and Odense and Kolding in Denmark. routines. This is of benefit to both customers and the In Norway, due to the acquisition of Bergensbanken, Bank. the number of branches in the Bergen area has Increased use of Handelsbanken’s Internet service by

www.handelsbanken.se increased by six. Bergensbanken’s lending volume is customers means that routine tasks are being gradually SEK 12bn. There are now 22 branches in Norway. eliminated and that more time is made available for On 3 May 1999, Handelsbanken made a bid of NOK advisory services to customers. 125 per share to the shareholders of Bergensbanken, corresponding to a total bid amount of NOK 1 550m. Internet, WAP and other electronic The bid was accepted by the shareholders and Bergens- self-service banking banken was consolidated with Handelsbanken as at Development of the Internet service for private customers 1 November 1999. As a result of the acquisition, continued throughout the year. This work included the Handelsbanken now has a market share of 15% in provision of extensive information services concerning Bergen, the second largest city in Norway. the securities market. Internet services for corporate

26 SHB 1999 REVIEW OF BUSINESS AREAS

customers were also implemented on a broad front, become a natural way of doing routine banking trans- and attracted a large number of customers, particularly actions. towards the end of the year. Demand for the NordicLink electronic banking system By the end of the year, Handelsbanken had almost (for international transactions) continued to be very 225 000 Internet customers at five web sites – two in high. In 1999, development of Euro Cash Pools started Sweden (Handelsbanken and Stadshypotek Bank) and within the NordicLink concept. This enables companies one in each of the other Nordic countries. The number with operations in many countries to centralise their of new private customers on the Internet has increased finance and control departments to one country. substantially and at a steady rate. Use of the Internet by The number of card transactions continued to in- signed-up customers is also high. Today, 20% of private crease substantially, both in-store and at ATMs. In 1999, customers’ payments are done via the Internet and the functionality was improved even more, particularly for proportion of share orders put in via the Internet by the Bank’s Allkort and Corporate Card. private customers is now up at 20%. A considerable A pilot version of the new e-giro service started in proportion of Internet usage for bank transactions is 1999. This is a service whereby customers can see and represented by queries about balances and transactions. pay electronic invoices over the Internet. E-giro offers In autumn 1999, customers were given the option of great savings to companies that send large numbers of no longer having bank statements sent by post. Almost invoices, since it removes the need to print and 7 000 customers availed themselves of this opportunity. despatch invoices in paper form. It also means that all In 2000, the Bank will be launching another web remitter information on incoming payments is complete site, this time for customers in the U.K. and correct. In 1999, Handelsbanken started a pilot version of At the beginning of 1999, several euro-oriented prod- WAP services. Handelsbanken was the first bank to be ucts were launched. For example, it is now possible to able to demonstrate these services in real time and with have loans, deposits, cards and mutual funds denominated www.handelsbanken.se direct contact between a mobile phone and the Bank’s in euros. So far, there has not been much demand for central computer. This spring, a number of banking these products. services will be launched. The goal is for customers to be able to perform all the banking services currently Property finance available via a PC on a mobile phone, wherever and Handelsbanken offers property finance mainly through whenever the customer wants. The Bank believes that Stadshypotek AB and the latter’s subsidiary Handels- due to the high proportion of mobile phone users in the banken Hypotek AB (hereafter “Stadshypotek” refers Nordic countries, WAP technology will very quickly to the Stadshypotek Group).

SHB 1999 27 REVIEW OF BUSINESS AREAS

At the end of the year, the Swedish mortgage institutions’ has fallen, although less than could have been expected total lending to the general public was SEK 1 048bn when Handelsbanken acquired Stadshypotek three as compared to SEK 1 015bn in 1998. While lending to years ago. households increased by SEK 46bn, corporate lending decreased through repayment of loans totalling SEK 13bn. FUNDING FOR STADSHYPOTEK Traditionally, the Swedish mortgage loan market has In 1998, the whole of Stadshypotek’s treasury function been completely dominated by demand for long-term was transferred to Handelsbanken’s treasury depart- loans with fixed interest rates. The mortgage institutions ment, thereby making it easier to utilise all the funding provide this type of financing by issuing bonds with products – in Sweden and abroad – available to the equivalent maturities. Variable rate loans have expanded Handelsbanken Group. Funding in the Swedish mort- rather slowly. In recent years, the proportion of gage bond market is still done exclusively in the name customers who have chosen variable rate loans when of Stadshypotek. Funding costs continued to be they have the opportunity to change the terms of the favourable during the year compared to those of other loan has been 25–30%. In the summer and autumn of market participants. 1999 this proportion grew to 60–70%. Ratings are important for the price and availability of funding. In 1999, Stadshypotek was twice upgraded STADSHYPOTEK’S PERFORMANCE by Moody’s – first in March to Aa3 (the same as the The Bank’s mortgage lending to the general public was parent company Handelsbanken) and then in June, SEK 319bn at the end of the year, a decrease of SEK 7bn when both companies were upgraded to Aa2. during the year. The whole of this decrease is attributable to the corporate sector, principally municipalities and INTEGRATION OF STADSHYPOTEK www.handelsbanken.se municipal companies. Lending to these organisations is The work of integrating Stadshypotek with Handels- characterised by extremely tight margins. Stadshypotek’s banken was completed in 1999. Stadshypotek now share of the mortgage market was 30% (32) at the end comprises fewer than 50 employees with a business of the year. support role. Their main task is to support the branch At Stadshypotek, private volumes continued to offices’ business operations with respect to mortgage increase. Each month since August 1998 has seen higher lending to corporate and private customers and to lending. However, it has not increased at the same rate ensure quality and control in the areas of finance, as the total market. This means that the market share credits and administration.

28 SHB 1999 REVIEW OF BUSINESS AREAS

HANDELSBANKEN MARKETS

Quarterly performance

Total Total Change SEK m 1999:4 1999:3 1999:2 1999:1 1999 1998 % Net interest income 188 348 390 369 1 295 957 35 Commission, net 343 177 186 172 878 671 31 Net result on financial operations 322 – 23 – 4 291 586 791 – 26 Other income 1 – 5 58 18 72 32 125 Total income 854 497 630 850 2 831 2 451 16 Net internal remuneration deducted from income 66 66 64 58 254 403 – 37 Total expenses 559 461 482 466 1 968 2 019 – 3 Result before loan losses 295 36 148 384 863 432 100 Loan losses – 1 – 47 – 12 – 22 – 82 – 100 Operating profit 296 83 160 406 945 532 78 Return on equity, % 20.5 5.7 10.6 27.0 16.0 9.4

Balance sheet 31 December

SEK m 1999 1998 ment Banking has increased what was already a good result by over 60%. Trading has increased its income by Lending to credit institutions 102 365 148 439 20%, while it succeeded in lowering expenses by 16%. Lending to the general public 46 433 47 839 The conditions for satisfactory and sustainable prof- Bonds 49 922 77 145 itability in this area have thus been greatly improved. Other assets 98 125 80 018 Both Financial Institutions and Trade Finance and Total assets 296 845 353 441 Banking Operations outside the Nordic countries report Liabilities to credit institutions 144 234 170 993 substantially improved profits. Deposits and funding from the general public 45 803 67 322 Market trends Issued securities 93 323 101 403 After a stormy autumn of 1998 in the financial markets, Other liabilities 9 131 9 128 many experts believed that 1999 would be calmer, Shareholders’ equity 4 354 4 595 especially in Europe with EMU finally in place. This Total liabilities and shareholders’ equity 296 845 353 441 proved to be wrong. The year was as dramatic as the previous year but in the other direction. The 1998 autumn depression was replaced by spring fever as At present, Handelsbanken Markets has around 1 100 more and more people realised that the worst was be- employees in 19 countries. Operations are organised hind us and that the global economy was turning round. in four business areas: Investment Banking, Trading, The central banks had played the role of deflation fighters Financial Institutions and Trade Finance, and Banking during the autumn and winter. By Easter it was already Operations outside the Nordic countries. apparent that the period of interest rate cuts was over. Commodity prices were rising and when OPEC Performance succeeded in doubling the price of oil, inflation forecasts Handelsbanken Markets’ operating result was SEK 945m pointed sky-high again. Faced with tighter monetary

– which is an increase of 78% compared to 1998. policy, rising real interest rates and inflation, bond www.handelsbanken.se Income increased by 16% to SEK 2 831m, mainly yields went up. The substantial weakening of the euro due to higher market shares and a large rise in volume against the dollar was one of the spring surprises – on the Nordic stock exchanges. It has been possible except for the people who had read Handelsbanken’s to lower expenses by 3%, mainly due to the action forecasts. For Europe, the rise in the dollar was also an programme initiated last year in the area of trading. important reason for increased optimism on the part of All four areas of Handelsbanken Markets have sig- companies and the fact that the economic outlook is nificantly improved results compared to 1998. Invest- brighter today.

SHB 1999 29 REVIEW OF BUSINESS AREAS

Economic research equity or equity-related products to Swedish and Economic research is essential to most business areas at Nordic private customers. This is particularly true of Handelsbanken Markets. The research unit is organised Initial Public Offerings (IPOs) and when selling structured as an independent department and works in close and equity products such as equity-linked bonds where successful co-operation both with Handelsbanken Markets’ Handelsbanken is one of the leading providers on the own business areas and the Bank’s other business areas. Swedish market with a market share of around 45%. Trends in the financial markets in 1999 demonstrate During the last few years, there have been major the importance of being at the forefront where economic changes in the business conditions for conducting prof- research is concerned. The rapid economic turnaround itable investment banking operations. The introduction in Europe and the sustainability of growth in the USA of a single currency in many European countries has led to a major reassessment of the prospects for both changed customer behaviour and also increased compe- the money and equity markets. Handelsbanken forecast tition. In 1999, major institutions changed the composi- tion of their portfolios in favour of a higher proportion these changes at an early stage. The start of EMU was of non-Swedish shares. A similar phenomenon can be accompanied by a great deal of optimism regarding the observed in the other Nordic countries. The fact that new currency and one of the most surprising developments non-Swedish providers have expertise on international during the year was therefore the substantial weakening companies and stockmarkets has worked in their of the euro against the dollar. Before the launch of the favour. In order to meet these new conditions, Invest- euro, Handelsbanken’s economists went against the ment Banking has expanded its analysis and research in mainstream of international analysts by predicting a 20% major business sectors outside the Nordic markets. The fall, which is what in fact happened. The leading posi- changed market has also prompted greater interest from tion of the Bank’s economic research department in the international investors in Nordic companies and equities. area of Nordic macroeconomics was confirmed in 1999 This offers great potential for new business. Apart from in surveys carried out by the independent assessment being a member of the Nordic stock exchanges, Handels- institutes Prospera and Greenwich Associates. banken is also a member of the Paris and Frankfurt stock In 1999, macroeconomic research was developed to exchanges, which offers good opportunities for improv- keep pace with the new demands of the various business ing customer service and access to international business. areas. The development of in-depth global analysis Many industrial sectors are still in the process of continued and focused on the major economic power restructuring as a result of increased globalisation. blocs and also the emerging markets in Asia, Eastern The number of corporate transactions has increased Europe and Latin America. Traditional business cycle and Investment Banking offers advisory services and analysis has been supplemented with research into execution of public and non-public transactions. trends in key sectors and on the structural factors Competition is also extremely sharp in this area – which explain growth differences in a more long-term particularly from American investment banks. perspective. The methods of spreading the research products, EQUITY SALES AND TRADING both internally and externally, are being continuously In 1999, Handelsbanken substantially strengthened reviewed. Today Handelsbanken Markets provides a its position in the area of equity sales and trading. customised research product for its equity and trading Customer sales, trading and structured equity products customers via the Internet and a number of other reported significantly higher results. electronic channels. In the second half of 1999, Handelsbanken was the largest individual participant on the Stockholm Stock Investment Banking Exchange, attaining a market share of 9.9% for the In the last few years, Handelsbanken has increased its whole year. Of the major participants, Handelsbanken focus on Investment Banking – corporate finance, equity is the one which increased its market share most during research, institutional equity sales and equity trading. the past year. The trend in the other Nordic countries Operations are conducted in seven countries: the has also been positive. According to available statistics Nordic countries and also France, the UK and the USA. from the Nordic stock exchanges, but without informa- This business area also provides support to the branch tion from Denmark, Handelsbanken is now the second office operations’ equity sales for smaller institutional largest player in the Nordic countries. customers and private investors. This support includes Investment Banking has a particularly prominent research, equity-related products and technical support position for sales of French equities to Nordic investors.

www.handelsbanken.se in the IT field. Handelsbanken is well-positioned in the area of At present, some 360 people are employed at Invest- derivative and structured products. This, in combination ment Banking, just over half of them in Sweden. Based with the Bank’s financial strength, means that Handels- on Handelsbanken’s strong financial position and credi- banken can offer new products both to major counter- bility, this unit aims to maintain sustainable profitability parties such as American investment banks and to for investment banking in the markets where the Bank Nordic private individuals. One example of the creation is involved. The Bank’s excellent distribution capacity of a new product is the synthetic buy-back of equities through over 500 branches in the Nordic area is a which has been carried out by Custos and Öresund. strong competitive advantage when it comes to selling Another is equity finance.

30 SHB 1999 REVIEW OF BUSINESS AREAS

As another step to further the Bank’s position in the purchase of listed Humlegården. Handelsbanken field of equities, Investment Banking has developed an Markets also managed acquisitions of a large number Internet-based research product which is principally of listed companies, the largest being Scancem which aimed at institutional customers. An Internet-based was acquired by the German company Heidelberger trading system has also been developed for private cus- Zement. Handelsbanken Markets also advised MoDo tomers and this now represents over 20% of all private when SCA’s and MoDo’s fine paper and merchanting transactions. A system has also been created which will divisions were merged into a joint company called allow customers to subscribe for public offerings via MoDo Paper for subsequent listing on the stock the Internet. exchange. Three new issues with preferential rights for In order to facilitate international equities trading, the shareholders were carried out, the largest of these in 1999, Handelsbanken became a member of the being SCA. new German electronic stock exchange Xetra and the Three share redemption programmes were carried European derivatives exchange Eurex. out, with AGA as the largest. In Norway, Corporate Finance managed Handelsbanken’s acquisition of CORPORATE FINANCE Bergensbanken and in Denmark, mandates included Corporate finance operations consist of financial advisory the sale of Partner Electric to NatWest Equity Partner. services and execution of public offerings, mergers and A large number of stock option programmes for acquisitions of listed companies, equity issues in the corporate management and convertible programmes for market or to employees, purchase and sale of unlisted employees were executed, including Bergman & Beving, companies, and design and sales of structured products. Guide, Handelsbanken and Seco Tools. Work on this This unit employs just over 100 people. type of incentive programme has been moved into The corporate finance department at Handelsbanken a separate product area in order to improve efficiency, Markets is one of the leaders in Sweden. Operations in quality and product development. the other Nordic countries have also expanded signific- During the year, resources were invested in the design antly with Denmark, Finland and Norway all making and sales of structured equity products, i.e. equity- a substantial contribution to the total result. Operations linked bonds, equity basket certificates and warrants. in London and Paris have also played an important role Ten issues were made through the branch office net- in the unit’s successes. work and these attracted over 50 000 investors in all. A large number of transactions were concluded in There were several issues of structured equity products 1999. The number of IT-related assignments was on the institutional market. www.handelsbanken.se particularly large. In recent years, Handelsbanken Markets has focused on this segment and the outcome Trading has been successful. Handelsbanken Markets Trading is responsible for Seventy corporate finance assignments were carried the Bank’s trading on the currency, money and fixed out in 1999, including the IPOs of Connecta, Enlight, income markets and the Bank’s activities in the public ProAct, Arete and Jeeves, all in the IT or IT-related debt capital markets. Operations are conducted in sector. In the real estate sector, the Bank managed Stockholm, London, Luxembourg, New York and Balder’s purchase of listed PriFast and Länsförsäkringar’s Singapore with a total of around 200 employees.

SHB 1999 31 REVIEW OF BUSINESS AREAS

Profitability has increased substantially compared to Financial Institutions and Trade Finance the previous year. The action programme which started The Financial Institutions unit is responsible for relations in 1998 with the purpose of making operations more with foreign banks and foreign governments. The main efficient has led to a drop of 16% in expenses. This has products offered are clearing services and cash manage- taken place at the same time as the Bank has reinforced ment solutions for foreign banks. its position as the largest trading bank in Sweden and Operations performed well in 1999 with increasing the Nordic countries. The work of adapting the trading volumes and income. This, combined with a very small organisation to new market conditions is still in increase in expenses, has led to a healthy increase in progress, for example by centralising operations and profits compared to the previous year. using new technology. Trade Finance is responsible for documentary pay- ments and short- and long-term trade finance. In 1999, FOREIGN EXCHANGE AND MONEY MARKETS it participated in projects such as financing Turkcell Handelsbanken has succeeded in its aim of becoming for deliveries from Ericsson and arranging financing for one of the leading players for the euro, both in the Purac’s export of a water purification project in China foreign exchange and money markets. Today Handels- as well as the project finance for the Arlandabanan banken is the leading Swedish bank in the euromarket, railway project. which means that the trading unit can offer both local The bank has retained its strong position in the area and international customers a competitive service in this of export documentary credits. In the aftermath of the new market. The Bank’s dominant position in the Asian crisis, however, volumes have been poor for this Nordic countries has enabled it to take advantage of type of credit and profitability therefore declined in the reduced number of currencies. 1999.

FIXED INCOME Banking operations outside the Nordic countries In 1999, the European market for corporate bonds Banking operations outside the Nordic countries are started in earnest. Many Nordic borrowers have used conducted via branches in Frankfurt, Hamburg, London, the opportunity to broaden their funding base and Birmingham, Manchester, Luxembourg, New York, many others are preparing for strong market growth Singapore and Hong Kong and via representative in the next few years. Particularly in the areas of bond offices in Beijing, Taipei, Moscow, Tallinn, Warsaw, trading, advice and research, there will be continued Zürich, Marbella, St Raphaël (Côte d’Azur) and Brussels. high growth on the euromarket. In Europe, Handels- Banking operations outside the Nordic countries banken competes with the largest banks and our posi- employ around 275 people. tion is based on the good relations we enjoy with our In August 1999, the Bank decided to expand its Nordic corporate customers, as well as on the Bank’s operations in Poland by opening a branch in Warsaw. strong position in the Nordic markets. The purpose of this is to develop services for the Bank’s In 1999, the Bank has received mandates from customers in Poland. A branch manager was appointed companies such as Volvo, Ericsson and AssiDomän. at the end of 1999, new premises have been acquired and During the year, bond loan programmes have also recruitment of key personnel is under way. The goal is to been arranged for AGA and Birka and bond loans for start banking operations in autumn 2000 targeted at Nordiska Investeringsbanken, Öresundskonsortiet, Nordic companies which are active in Poland and Polish Haldex, BT Industrier and Gränges. This demonstrates companies with business in any of the Nordic countries. that the fixed income market has expanded and is no For many years, Handelsbanken has been expanding longer only used by the very biggest companies. its operations in the UK with units in London, Manchester Handelsbanken is one of the leading banks for and Birmingham. The focus has been Nordic-related syndicated bank loans for Nordic companies, and has corporate business and asset management for Nordic arranged loans for companies such as SCA, Graninge private customers resident in the UK. In autumn 1999, and Getinge. the Bank made the decision to offer a complete range For the fourth year running, in the annual survey by

www.handelsbanken.se of services to corporate and private customers on the Foreign Exchange and Money Markets, Handelsbanken local market. Apart from traditional retail banking via has been acclaimed best bank for Nordic currencies. branches, the Bank’s services will also be available via Furthermore, Risk Magazine adjudged the Bank best the Internet and telephone banking. Bank cards will be Swedish bank for derivative trading. offered for withdrawing cash easily and efficiently. This expansion will start in Birmingham and Manchester in the first half of 2000 and continue in London in the second half of the year. The Bank intends to continue expanding in the UK in the years to come.

32 SHB 1999 REVIEW OF BUSINESS AREAS

HANDELSBANKEN ASSET MANAGEMENT

Quarterly performance

Total Total Change SEK m 1999:4 1999:3 1999:2 1999:1 1999 1998 % Net interest income 30 27 16 18 91 59 54 Commission, net 169 152 141 139 601 481 25 Net result on financial operations 3 31 7 6 47 11 327 Other income 4 – 121616– 63 Total income 206 209 166 164 745 567 31 Net internal remuneration deducted from income 148 129 139 102 518 455 14 Total expenses 108 79 80 72 339 267 27 Result before loan losses 98 130 86 92 406 300 35 Loan losses —————— Operating profit 98 130 86 92 406 300 35 Return on equity, % 25.7 34.2 23.2 24.3 26.8 46.7

Balance sheet 31 December focus on sectors such as IT and telecommunications. SEK m 1999 1998 On the fixed income markets, the trend was not so Lending to credit institutions 187 139 good. The recovery of the global economy after the dip Lending to the general public 0 3 in 1998 led to higher bond yields on almost all markets. Bonds — — The yield on a 10-year government bond rose during Other assets 4 182 2 419 the year from 4.8% to 6.4% in the USA, from 3.9% to Total assets 4 369 2 561 5.4% in Germany and from 4.2% to 5.7% in Sweden. Liabilities to credit institutions 1 2 In 1999, the foreign exchange market was marked Deposits and funding from the general public 3 186 2 003 by a strong Japanese yen, a weak start for the euro and a Swedish krona that weakened against the dollar but Issued securities — — strengthened against the euro. Other liabilities 16 13 Handelsbanken Asset Management could report Shareholders’ equity 1 166 543 good performance with almost all portfolios out- Total liabilities and shareholders’ equity 4 369 2 561 performing their respective benchmark indexes. The management organisation was expanded during the On 1 March 1998, Handelsbanken Asset Management year with the ambition of focusing on pan-European was formed as a new business area. The purpose of this equity management and investment analysis. organisational change was to increase focus on asset management in the Handelsbanken Group. Fund management Assets managed totalled over SEK 140bn. In 1999, At the end of 1999, the Bank’s fund management com- income increased to SEK 745m (567). Asset Management’s pany managed 48 mutual funds with some 750 000 expenses were SEK 339m (267), which means that prof- unit-holders. The assets managed in these funds in- its were up by 35%. creased significantly, very much due to the excellent rise

in share prices on several important markets and the www.handelsbanken.se Investment Management large net inflow to the funds. Assets managed in these 1999 will go down in history as a year of extraordinary funds grew from some SEK 55bn at the beginning of stockmarket performance. All leading stockmarkets the year to SEK 88bn at the end, an increase of 33bn reported large or very large rises in share prices. The or 60%. Of this increase, SEK 8bn represented net Morgan Stanley Capital International Index rose by 30% deposits to the funds and SEK 25bn was increase in during the year. During the last quarter of the year, the value. Handelsbanken’s mutual funds had 13.2% of the Stockholm Stock Exchange was one of the best of them net inflow to the Swedish mutual fund market, which is all with a rise of 70%. In a global perspective too, the considerably higher than our total share of this market stockmarkets were very much characterised by a strong in Sweden.

SHB 1999 33 REVIEW OF BUSINESS AREAS

Most of the deposits to our mutual funds have been in multimarket and international equity funds. Fixed income funds have also had net inflows while Swedish equity funds have had a slight outflow. Four new mutual funds were started during the year, of which two invest in European equities (Europa Aggressiv and Euro Active) and one is aimed mainly at institutional customers (Värdefonden). The latter fund was created to meet increased demand from institutional and other major customers. The minimum deposit is SEK 500 000 and the asset management fee is slightly lower than for normal mutual funds. Three funds have been merged with other funds and one (Fastighetsfonden) has been closed. The Internet has become an increasingly important channel for information to unit-holders and for trading in the units. For this reason, in the autumn of 1999, extensive new and expanded information about the Bank’s mutual funds was launched. In 2000, a large proportion of the Swedish population will be able to choose mutual funds for investing the premium pension part of the new pensions Operations outside the Nordic countries system. Handelsbanken has decided to Outside the Nordic countries, the Bank has asset start seven new funds for this purpose, five of which are management units in Luxembourg and London. These known as generation funds. Apart from this, people operations focus on Nordic customers resident outside saving for a pension will be able to invest their premium their home countries. Assets managed total more than pension in eleven of the Bank’s existing funds. SEK 10bn.

Discretionary management Custody services In 1999 discretionary asset management experienced The Bank’s custody services continue to attract customers. a breakthrough with respect to management services As at 31 December, there were over 100 000 custody negotiated via consultants. During the year, Handels- accounts with a total value of SEK 650bn. This is an banken Asset Management received new assignments increase of 53% in the number of accounts since the with a value of SEK 5.3bn, including several from previous year. More than 60% of newly-opened custody municipalities and county councils. Overall, the amount accounts and 32% of the total number of accounts are of assets managed is expanding rapidly and at linked to the Internet. During the third quarter, an Internet 31 December 1999 it was SEK 45bn, an increase of 30%. service was launched called Market Information to The customer portfolios performed better than the which all customers with custody accounts have access. benchmark indexes in spite of a rather cautious allocation This service was given a very favourable reception. between shares and interest-bearing investments. In 1999, the Bank’s discretionary management was Institutional custody services subject to a verification process by external consultants For the eighth year running, international custody and auditors. The purpose of this process is to ensure services has been top-rated by Global Custodian. This uniform measuring methods and comparability between year, Handelsbanken was the only Swedish bank to different managers with respect to return and risk receive this rating. In the face of competition from other www.handelsbanken.se (GIPS/Global Investment Performance Standard). In this major banks in Sweden, Handelsbanken has received way, Handelsbanken Asset Management helps to ensure mandates from several international customers to be sound market practices regarding marketing of asset their sub-custodian in Sweden. management services. International customers are increasingly demanding Handelsbanken Asset Management is continually regional solutions for their custody service requirements developing its range of services and offers expert adviso- and as a result, Handelsbanken’s concept, which offers ry services in areas such as forming pension and profit- an integrated Nordic solution, has grown in strength sharing foundations and insurance solutions. and reaped successes.

34 SHB 1999 REVIEW OF BUSINESS AREAS

HANDELSBANKEN FINANS

Quarterly performance

Total Total Change SEK m 1999:4 1999:3 1999:2 1999:1 1999 1998 % Net interest income 115 124 123 119 481 464 4 Commission, net 50 48 53 52 203 201 1 Net result on financial operations 0 0 – 1 1 0 – 1 — Other income 5 17 1 6 29 20 45 Total income 170 189 176 178 713 684 4 Net internal remuneration deducted from income 11 10 10 10 41 39 5 Total expenses 111 97 105 106 419 429 – 2 Result before loan losses 59 92 71 72 294 255 15 Loan losses – 2 – 2 4 – 11 – 11 25 Operating profit 61 94 67 83 305 230 33 Return on equity, % 17.9 26.8 19.4 24.0 22.0 19.2

Balance sheet Income increased by 4% to SEK 713m (684). New 31 December IT solutions and improved efficiency have resulted in SEK m 1999 1998 a reduction in costs by 2% compared with the previous year despite an increase in credit volumes of 12%. Lending to credit institutions 917 1 378 Lending to the general public 17 042 15 242 Leasing, conditional sales and car administration Bonds — — Handelsbanken Finans is one of the leading finance Other assets 963 796 companies in the Nordic area in the field of investment Total assets 18 922 17 416 finance. Via Handelsbanken’s branch office network in Liabilities to credit institutions 12 887 10 069 the Nordic countries, corporate customers are offered Deposits and funding from the general public 332 314 local specialist skills in all types of financing. Issued securities 519 2 217 The increase in the volume of leasing and conditional Other liabilities 4 053 3 872 sales over the year was very good. This applies both to the business generated from Handelsbanken’s local Shareholders’ equity 1 131 944 branch network and to the volumes generated from Total liabilities and shareholders’ equity 18 922 17 416 Finans’ close co-operation with vendors. Total average volumes increased by 14%. Handelsbanken Finans is the only bank-owned finance Car service volumes rose sharply in company with an extensive range of local finance Sweden and Finland. During the year, company services in all of the Nordic countries. car fleet services were launched via the In 1999, Handelsbanken Finans reinforced its leading Internet, allowing customers to analyse position in a number of areas. As part of an ongoing their car fleet requirements in a conve- development process, efforts are also in progress to nient manner. In Finland, contracts further enhance the range of services offered and inten- were concluded with an increased number sify co-operation with Handelsbanken’s branch network of dealers, and as a result Handels- and the shared customer base. For example, changes banken Finans attained a very strong www.handelsbanken.se were made to decision-making routines in connection position on the Finnish car market. with leasing and conditional sales transactions. New A number of major deals were contracts were concluded with vendors particularly in concluded during the year. In Sweden, the office machine business and with Finnish car dealers. Handelsbanken Finans will finance 75 A new retail finance services unit was established in subway carriages for SL (Stockholm Norway. Transport). This is the company’s The result for 1999 was the best ever for Handels- biggest deal ever, totalling SEK 1.8bn. banken Finans. Profits increased by 33% to SEK 305m Handelsbanken Finans also concluded (230). Return on equity went up to 22.0% (19.2). its biggest ever deal on the Finnish

SHB 1999 35 REVIEW OF BUSINESS AREAS

market: SEK 1.4bn in financing a combined power and heating plant for Alholmens Kraft in Pietarsaari.

Retail Financial Services Retail Financial Services aims to provide financial services that will help boost the sales volumes of its business partners, i.e. retailers of consumer and capital goods. Retail Financial Services provides easy to use IT-based services in combination with tailored sales support material and training. Like the capital goods sector in general, Retail Financial Services continued to develop strongly in 1999. Despite increasing competition, its market position has strengthened particularly in Sweden and Finland. One example of this is Elgiganten, who selected Handelsbanken Finans in a number of Nordic countries. Via the Aktiiviraha credit card, Handelsbanken Finans in Finland offers consumer finance in close co-operation with retailers in the capital goods sector. During the year, the Aktiiviraha Privat overdraft facility was successfully launched in collaboration with Handelsbanken’s branches in Finland. In Norway, a retail finance unit was established, focusing mainly on capital goods. In Sweden, the Köp- kort card was relaunched. The card features MultiCard functionality that allows purchases to be made on different credit terms against one and the same account. This makes the new Köpkort a unique product in the market. In order to simplify retailers’ credit administration routines, a financial guide has been launched. The guide is a PC application to simplify administration of business proposals and credit agreements. Retail Financial Services also launched its own Internet-based sales sup- port service, called Netsale. This means that, via the Internet, their retail partners can do everything themselves – from applying for credit on behalf of customers and receiving complete agreements on their own printers in reply, to ordering new sales support material.

Factoring & Collection Services Factoring & Collection Services provides ledger services for corporate customers in the form of factoring, credit, monitoring, claims and debt collection services. Attract- ed by the prospect of more effective administration, improved cashflow and better claims routines, an increasing number of companies have enlisted the ser- www.handelsbanken.se vices of Factoring & Collection Services. Companies that wish to retain their own administration routines can utilise the other strengths of the “factoring with finance” services. Factoring & Collection Services has also embarked on a joint Nordic IT project for co-ordinated invoicing services. The number of new customers in 1999 beat all previous records.

36 SHB 1999 REVIEW OF BUSINESS AREAS

HANDELSBANKEN LIV

Quarterly performance 1)

Total Total Change SEK m 1999:4 1999:3 1999:2 1999:1 1999 1998 % Net interest income 221275 40 Commission, net 32 24 24 20 100 54 85 Net result on financial operations 23 – 4 2 6 27 22 23 Other income 001121 100 Total income 57 22 28 29 136 82 66 Net internal remuneration deducted from income 53 42 41 37 173 125 38 Total expenses 16 20 19 18 73 62 18 Result before loan losses 41 2 9 11 63 20 215 Loan losses —————— Operating result 41 2 9 11 63 20 215 Return on equity, % 40.4 2.0 8.9 10.3 15.6 5.2 1) Handelsbanken Liv Fondförsäkrings AB (unit-linked) and commission income from the mutual company are included under the business area “Handelsbanken Liv”.

Balance sheet Handelsbanken Liv Försäkrings AB 2) 31 December Results

SEK m 1999 1998 SEK m 1999 1998 Lending to credit institutions 154 47 Premium income 2 203 1 819 Lending to the general public 321 110 Investment income 3 496 2 513 Bonds 124 117 Insurance claims – 1 174 – 967 Other assets 918 1 069 Change in technical provision – 1 721 – 1 204 Total assets 1 517 1 343 Bonus – 96 – 72 Liabilities to credit institutions 0 — Operating expenses – 224 – 185 Deposits and funding from the general public 1 023 998 Result on technical account – Issued securities — — life insurance business 2 484 1 904 Other liabilities 178 42 2) Handelsbanken Liv Försäkrings AB is a mutual life insurance company and is not consolidated. Shareholders’ equity 316 303 Total liabilities and shareholders’ equity 1 517 1 343

Life insurance is included in Handelsbanken’s universal Försäkringsaktiebolag, which is a traditional insurance bank concept in the Nordic countries as part of the company, is run as a mutual company, while Handels- Bank’s range of products. banken Liv Fondförsäkringsaktiebolag can distribute its In Sweden, the Bank’s insurance company Handels- profits. The companies are marketed under the joint banken Liv markets a complete range of life insurance name of Handelsbanken Liv. Handelsbanken Liv Fond- products for private customers, employees and companies försäkringsaktiebolag has a subsidiary in Denmark via the Bank’s branch office network. In the other called SHB Liv Forsikringsaktieselskab, with branches

Nordic countries, the range of products is smaller. In in Norway and Finland. For the past five years, www.handelsbanken.se Denmark, personal risk insurance is offered in the form Handelsbanken Liv Försäkringsaktiebolag has had of life insurance and permanent disability benefit. In operations in Norway in the form of a branch for Norway and Finland, unit-linked insurance is also certain insurance products. marketed for pension and investment purposes. For legal reasons, products in Sweden are provided Performance by two subsidiaries of Handelsbanken – Handelsbanken In 1999, the company’s total premium income continued Liv Försäkringsaktiebolag and Handelsbanken Liv to rise substantially and was SEK 6.9bn (5.1), an Fondförsäkringsaktiebolag. Handelsbanken Liv increase of 36%. It is savings in unit-linked insurance

SHB 1999 37 REVIEW OF BUSINESS AREAS

This increase is mainly due to IT investments with the purpose of making insurance administration more effi- cient and simplifying the branch offices’ work. This large rise in income also led to a substantial increase in the operating profit to SEK 63m (20). 1999 was also a good year for asset management in the traditional life insurance company. Total yield was 21.6% (18.7). The average for the sector was 20.2% (15.8). The average bonus paid was 11.3% (14.0) in 1999. The solvency margin was 130% at the end of the year. Since 1992, when Handelsbanken Liv became a subsidiary of Handelsbanken, market share measured in new premium income has increased from 5% to 11% in 1999. For traditional insurance, Handelsbanken Liv’s market share was 7% (8) in 1999 and for unit-linked insurance 13% (13). The aim of the company is to achieve a market share in all product areas that reflects the Bank’s market share in other areas.

Traditional life insurance companies can be restructured to become profit-making companies As from 1 January 2000, major changes were made in the legislation concerning insurance companies. These changes are so extensive that the insurance sector has been given a transition period of two years to adapt to the new regulations. It is principally operations in tradi- tional life insurance companies which are affected. The new legislation makes it possible for traditional life insurance to be conducted via a normal company which distributes profits and also for unit-linked insurance and traditional life insurance to be run in the same company. These rules already apply in most other EU countries. When converting a traditional life insurance company which have continued to perform best with a rise in into a profit-distributing company, the policy-holders’ premium income from SEK 3.2bn in 1998 to SEK surplus capital is transferred back to them and replaced 4.7bn in 1999, a rise of 44%. Premium income for by risk capital from the shareholder. The new law does, traditional insurance also went up to SEK 2.2bn (1.8), however, require that a majority of customers do not an increase of 21%. The largest rise occurred in the oppose the conversion. asset management market, with the unit-linked product Handelsbanken Liv considers that a conversion called Fondkapitalspar continuing to increase. It now would be advantageous to both customers and the represents over 40% of premium income in the unit- company and therefore intends to offer customers this linked company. Due to a greater focus on occupational opportunity within the next two years. It is intended pensions, there was a rise in premium income of 43% that Handelsbanken will go in with extra capital and for this type of insurance in 1999. assume some of the risk which customers have at present.

www.handelsbanken.se This substantial increase in premium income, combined with a very good increase in value, means that assets New opportunities for individual choice managed rose from SEK 22.4bn to 33.3bn in 1999. The In both basic state and collective agreement pension unit-linked company more than doubled the value of schemes, it is now possible for individuals to invest assets managed in 1999 and at the year-end the figure some of the premium according to their own choice. was SEK 13.5bn (6.4). White-collar workers have had this possibility for many The unit-linked company’s increased volume is the years and in 1998 this opportunity was also given to main reason that income grew by 66%, totalling SEK blue-collar workers. Starting in 2000, local authority 136m (82). Expenses went up from SEK 62m to 73m. and county council employees will be able to do the

38 SHB 1999 REVIEW OF BUSINESS AREAS

same. The total annual amount of these individually chosen premiums is around SEK 11bn. The basic state pension scheme will also allow individuals to invest their “premium pension” in mutual funds. In autumn 2000, everyone who is covered by the general pension system will be able to choose in which fund the Premium Pension Authority will invest their premium pension.

Product areas Handelsbanken Liv’s products are adapted to customers’ requirements for risk protection insurance and savings in the corporate market, the private pensions market and the asset protection market. All three product areas increased their sales in 1999. Handelsbanken’s Occupational Pension Plan has been produced for companies who wish to provide their employees with individually designed occupational pensions. The plan allows great flexibility in terms of premium size, insurance amount and disbursement. When family and income conditions change, the insurance policy can be adapted. Individual occupational pension plans are being increasingly used by companies to both recruit and retain executive staff. One service which was introduced during the year for major customers was portfolio management of pension assets which are invested in mutual funds. This service is much appreciated and the majority of these customers have opted for the supplementary service. The personal insurance requirements of private cus- tomers can be covered in a single insurance agreement through Handelsbanken’s Private Insurance. This is a flexible insurance policy which is normally taken out directly at the branch office and can thus be adapted to fit the customer’s personal situation. According to the customer’s choice, the policy can include life insurance, old-age pension, family pension, accident and sickness insurance and waiver of premium in the case of long- term illness. The field of capital insurance has expanded a great deal during the last few years. One unit-linked product which has been very successful is called Fondkapital- spar. Since it was introduced in 1997, more than 50 000 customers have signed up for it for a total value of over SEK 3.7bn. During the year, Fondkapitalspar was totally integrated with the Bank’s other products, which means

that all administration in connection with new policies www.handelsbanken.se and re-allocation takes place at branch offices. In order to provide expertise on insurance for the customers and staff at branch offices, Handelsbanken Liv has some 75 insurance advisers stationed at branches in all the Nordic countries. Their main job is to take care of complex insurance packages in the field of occupational pensions, inheritance planning and asset protection.

SHB 1999 39 STADSHYPOTEK BANK

Quarterly performance

Total Total Change SEK m 1999:4 1999:3 1999:2 1999:1 1999 1998 % Net interest income 16 13 12 12 53 48 10 Commission, net 18 17 19 20 74 99 – 25 Net result on financial operations 000000 0 Other income — — —221 100 Total income 34 30 31 34 129 148 – 13 Net internal remuneration deducted from income 4433141040 Total expenses 29 26 29 30 114 121 – 6 Result before loan losses 54241527– 44 Loan losses —————— Operating result 54241527– 44 Return on equity, % 20.6 20.1 9.8 18.6 18.1 37.2

Balance sheet 31 December

SEK m 1999 1998 Apart from personal service, the customers are provided with completely new automated services that allow them Lending to credit institutions 1 360 2 614 to buy and sell shares via mobile and touch tone tele- Lending to the general public 28 17 phones. Bonds 4 498 3 377 In a contact centre, all types of communication Other assets 36 43 channels can be efficiently managed in the same system. Total assets 5 922 6 051 This means that all requests by phone, the Internet, e-mail, fax and mail are handled as equal-priority Liabilities to credit institutions 21 18 assignments in joint transaction queues. Deposits and funding from the general public 5 440 5 534 Issued securities — — Business still developing well Other liabilities 402 438 The co-operation between Handelsbanken’s branch Shareholders’ equity 59 61 office network and Stadshypotek Bank continued during Total liabilities and shareholders’ equity 5 922 6 051 the year. An increasing number of branches were inter- ested in marketing PrivatPaketet, which is a special For the second consecutive year, Stadshypotek Bank has package for the employees of corporate customers. reported satisfactory profitability. Expenses continued to Stadshypotek Bank continued to develop its Internet fall, and were almost 6% lower than in 1998. Total in- service, and the customers can now access most of its come has declined, due mainly to waning commission in- products via the Internet. come since the volume of retail bonds has fallen during the Stadshypotek Bank’s system for securities administra- year. Stadshypotek Bank has more than 300 000 customers tion has been developed further. The AktieSpar service – and about SEK 20bn in customer funds. It is Sweden’s monthly savings in individual shares – was augmented largest independent telephone and Internet bank. with shares quoted on the SBI list and Aktietorget and shares that are quoted unofficially. The service contin- www.handelsbanken.se Stadshypotek Bank installs interactive ued to develop well. Stadshypotek Bank is now unique customer service in offering monthly savings in such a wide range of 1999 was characterised by a continuing high rate of individual shares. development. As first bank in the Nordic countries and Deposits amounted on average to SEK 5.7bn and one of the first banks in the world, Stadshypotek Bank have remained at a stable level. has introduced a full-scale contact centre; this is a new The market share of retail bonds has not changed type of interactive customer service, with computer and despite a large volume of bonds maturing. telephony integration on the same technical platform. Stadshypotek Bank FondSpar, a savings product For customers, the solution implies enhanced service, comprising a selection of Handelsbanken mutual funds, while Stadshypotek Bank takes a leading position in continued to do very well during the year. The number the provision of service “at a distance”. of savers increased by 73% to just over 19 000.

40 SHB 1999 REVIEW OF BUSINESS AREAS

HANDELSBANKEN CENTRAL TREASURY

Quarterly performance

Total Total Change SEK m 1999:4 1999:3 1999:2 1999:1 1999 1998 % Net interest income 61 90 138 167 456 616 – 26 Commission, net – 1 — – 2 – 1 – 4 – 4 — Net result on financial operations – 18 – 25 – 20 – 37 – 100 21 – 576 Other income 8 1 4 — 13 — — Total income 50 66 120 129 365 633 – 42 Net internal remuneration deducted from income —————— Total expenses 7594251656 Result before loan losses 43 61 111 125 340 617 – 45 Loan losses —————— Operating profit 43 61 111 125 340 617 – 45 Return on equity, % 8.2 10.7 17.4 18.5 14.2 29.9

Balance sheet 31 December

SEK m 1999 1998 SEK 29.7bn in 1999 – is transferred from the internal bank mainly to Stadshypotek. Lending to credit institutions 18 030 14 693 The internal bank lends at various maturities. In Lending to the general public 4 — 1999, loans granted in previous years at higher rates of Bonds 33 704 33 669 interest have fallen due. Since they have been replaced Other assets 12 043 6 219 at lower interest rates in 1999, net interest income has Total assets 63 781 54 581 fallen. Liabilities to credit institutions 0 1 377 This is the main reason why the Central Treasury’s Deposits and funding from the general public 103 367 result fell from SEK 617m in 1998 to SEK 340m in 1999. Issued securities 46 122 32 284 Cash management Other liabilities 15 748 19 004 Apart from the internal bank, the Central Treasury also Shareholders’ equity 1 808 1 549 manages the Bank’s funding on the overnight market as Total liabilities and shareholders’ equity 63 781 54 581 well as funding and clearing in the Riksbank. In order to administer clearing, the Bank must pledge securities with the Riksbank. These pledged securities consist Central Treasury manages the Group’s liquidity in of Swedish government bonds, mortgage bonds and Swedish kronor, the Group’s funding in the capital certificates of deposit which are managed by the Central market, funding in the overnight market and in the Treasury in a special portfolio. There is also euro-deno- Riksbank and clearing at the Riksbank. The department minated collateral. is also in charge of risk management within the Group. In 1999, the portfolio had a positive impact on the The activity which has a direct and significant effect result, although not as large as the impact from the on the Group’s profit and loss account is liquidity internal bank operations. The collateral portfolio may management in Swedish kronor. be regarded as Handelsbanken’s liquidity reserve or www.handelsbanken.se cash funds in Swedish kronor. It is maintained in order Internal bank to manage daily or even hourly fluctuations in liquidity. The internal bank accepts deposits from various units in the Group and lends them to other units. Market costs Capital market funding are kept at a minimum since transactions are retained The Central Treasury Department is responsible for within the Group. The internal bank has a mandate to the Group’s funding in the capital market. The most take interest rate risks. Surplus liquidity from the important feature in this is issuing bonds in the name branch office operations – on average approximately of Stadshypotek in order to finance mortgage lending.

SHB 1999 41 REVIEW OF BUSINESS AREAS

The Group also borrows in foreign currencies. This is include electronic equipment – PCs and office machines done in the name of Handelsbanken and usually for – toner cassettes, paper, plastic packaging, light sources the purpose of funding Stadshypotek. Foreign currency and other environmentally harmful materials. loans are then swapped into Swedish kronor. The Bank is systematically minimising and removing During the second half of 1999, there was little use of harmful materials such as asbestos for pipe funding on international markets. This is explained by insulation and fire doors and mercury in light-bulbs. the fact that market activity in general was affected Material such as paint, glue and packing cases used for by the millennium shift. Funding on international mar- office furniture must be as environmentally friendly as kets – swapped into Swedish kronor – was expensive possible. The Bank now uses halogen-free electricity compared to borrowing directly on the Swedish market. cables in new installations and has started an inventory of PCB used in premises. It also complies with the Risk management Swedish Environmental Protection Agency’s plans for The Central Treasury Department is responsible for replacing freon in cooling plants. managing the Group’s financial risks. This includes The Bank saves energy by consistent work in all setting limits and developing measurement methods. areas, for example by optimising operations for com- puter equipment and heat and cooling plants, recycling THE BANK AND THE ENVIRONMENT energy and using low-energy products. All operating and maintenance instructions must ensure low impact Environmental responsibility and work organisation on the environment. Energy utilisation is continuously Environmental issues are becoming increasingly monitored so that effective and quick action can be taken important for society and for a long time have been if necessary. a vital element in the Handelsbanken Group’s operations. In order to spread knowledge internally concerning This applies both to the Bank’s responsibility for the the Bank’s environmental work, annual regional plans environment in its own operations and to taking into are summarised into a joint plan for the Group. account environmental risks when granting credits. Handelsbanken has signed the ICC Business Charter Environmental issues associated with granting loans for Sustainable Development and the UN Environment When granting loans, it is the customer’s repayment Programme called Banks and the Environment. capacity that is in focus. When forming an opinion of Like other areas at Handelsbanken, the responsibility the company’s sustainable repayment capacity, the Bank for environmental issues on a practical level is decen- first of all considers business factors. Alongside tradi- tralised. All managers in the Handelsbanken Group have tional factors such as earnings capacity, equity ratios, the primary responsibility for environmental issues at business plans and goal achievement, these days the their units and all employees have a responsibility for company’s situation in an environmental perspective the environment as part of their duties. is an important factor in the analysis. At all regional banks, subsidiaries and at various units While some business sectors have very little impact at the Central Head Office, an environmental manager on the environment, companies in other sectors affect has been appointed who is responsible for these issues the environment to a large extent and are dependent at the unit in question. For the Group as a whole, internal on permits from the public authorities and have legal environmental issues are co-ordinated by the Central requirements in order to conduct their operations. Administration Department and business-related Ignorance, carelessness and deliberate negligence can environmental issues by the Central Credit Department. affect the company’s income and expenses. A lack of Internal environmental work respect for environmental requirements may lead to As far as technically and financially possible and to the difficulty in selling the product as a result of negative extent that it is compatible with the Bank’s undertakings, customer reaction. Companies which do not comply with Handelsbanken aims to take measures to minimise any environmental regulations may have to pay fines and negative effect on the environment. incur a debt to the environment which may jeopardise Environmental considerations are taken in all in- the company’s repayment capacity and future existence. vestment and purchasing decisions. Environmental This is why environmental issues are an important requirements are made on suppliers when procuring element in the business evaluation which the Bank goods and services. For example, the Bank demands performs once a year for large corporate customers and which is the basis for granting loans. www.handelsbanken.se declarations of environmental and material content. Material and components must be long-life, recyclable In this context, it is important to stress that the and low-energy. They are assessed in a lifecycle per- responsibility for environmental issues, applications for spective, in other words on the basis of how the material permits and compliance with legislation lie with the and products will have an impact on the environment company in question. The Bank has an indirect influence throughout their lifecycle. by stressing the importance of environmental issues In support of the local measures, the Bank has when granting credits and through adopting a cautious entered into a number of central, nation-wide agree- attitude to companies which do not take these problems ments on waste-sorting and recycling. These agreements seriously.

42 SHB 1999 REVIEW OF BUSINESS AREAS

Environmental training work stations will provide the Bank’s employees with Using internal material based on information from more stable PC operations at lower cost. NUTEK and the Swedish Environmental Protection In Norway, the Bank changed service agencies. Agency, the staff of the Bank and subsidiaries have been Following extensive preparation, the actual changeover systematically trained in environmental issues during went very smoothly. The Bank’s Asian operations now the last few years. Environmental issues are an integral have a totally new system platform. In spite of a very part of the introduction programme for new employees tight schedule, the changeover was actually made ahead and also in our financing courses. of the original schedule. The installation of new workstations at the Bank’s branch offices all over Sweden was completed in IT OPERATIONS November. A total of 4 850 workstations have been In 1999, the Group’s IT expenses were SEK 2.3bn, installed. The software in the new workstations will be which was some SEK 0.3bn less than the previous year. continually developed over the next few years. For Costs fell in most areas, but above all the number of example, branch staff will be able to access a data consultants was two-thirds lower. warehouse featuring advanced search tools. The data The work of consolidating system operations started warehouse was launched at a number of pilot branches in 1999, with the aim of having almost all of the Bank’s during the autumn. IT production monitored from one place. For security The Bank’s Intranet was developed extensively during reasons, the actual operations are run from two operations the year to incorporate new joint databases such as the centres with duplicate computers and mirrored data. Bank’s Set of Instructions, product descriptions and also Higher productivity was achieved in systems devel- work-specific databases. opment due to increased use of the Bank’s development Large investments have been made to keep up with model and also to improved project control. the enormous expansion in the number of Internet Since so much of the development work for the new customers and the number of transactions they perform channels such as the Internet and WAP is actually done via the Internet. in the old production systems, it is important for the Bank that as many people as possible know both the Year 2000 old and new technology. For this reason, the Bank has In preparation for the new millennium, Handels- started an extensive training programme for its system banken’s year 2000 project had been working since development staff. 1996 to ensure that all computer systems and technical The costs of providing IT support, both to external equipment would function as before the millennium customers and the Bank’s own staff, increased signifi- shift and that all external relations would continue cantly in 1999 partly as a result of the large expansion unchanged. By mid-1999, the preparations were more in new Internet customers but also due to the introduc- or less completed and the last six months of the year tion of much more extensive IT support to the whole were spent doing supplementary tests and preparing Bank. An action plan to improve efficiency in IT sup- contingency plans in case, in spite of everything, port started in 1999. The introduction of standard unexpected malfunctions were to occur. www.handelsbanken.se

SHB 1999 43 DIRECTORS’ REPORT

Directors’ report

OBJECTIVES The universal bank concept applies to Handelsbanken’s operations in all four Nordic countries. Outside the For many years, the Handelsbanken Group’s overall Nordic countries, the Bank’s units mainly focus on objective has been to achieve return on shareholders’ Nordic-related business apart from in the UK where equity which is higher than the average for other listed the Bank will offer a complete range of retail banking banks that are active in the Group’s domestic market. services both to private and corporate customers, starting As the Group has expanded in the Nordic countries, in 2000. the comparison has been extended to include both Handelsbanken’s objectives, policy and organisation Norwegian (from 1995) and Finnish banks (from 1997). are described in more detail on page 10 onwards. Profitability must always be given higher priority than volumes. When granting credit, this also implies TOTAL ASSETS that the quality of the loan portfolio must never be neglected in favour of a large lending volume. In 1999, the Handelsbanken Group’s total assets were unchanged compared to the previous year, and amounted A WELL-INTEGRATED UNIVERSAL BANK to SEK 923bn (926). Lending to the general public increased to SEK 626bn Handelsbanken is a universal bank. A universal bank (587). Both Swedish kronor and foreign currency covers all types of banking services for both corporate lending in the Bank have increased, while lending in and private customers: deposits, lending, property the Stadshypotek Group has fallen slightly. This fall is finance, payments, investment banking, trading, fund in line with expectations at the time of the purchase management, factoring, leasing and life insurance. of Stadshypotek. At Handelsbanken, customer responsibility rests Portfolios of interest-bearing securities decreased to with the local branch. This is where the services for SEK 93bn (108). Securities in the portfolio which are each customer are co-ordinated, in collaboration with classified as fixed assets total SEK 6bn (1). regional and central specialists when necessary. Balance sheets for 1995–1999 are shown on pages Handelsbanken’s ambition is to always meet the 82–83. Key figures for 1995–1999 are presented on customers’ requirements. The Internet is one way of page 4. doing this. For this reason, the Bank is developing Internet CAPITAL RATIO services in close collaboration with the branch office operations and not as an alternative to them. At the end of 1999, the Handelsbanken Group’s capital ratio was 9.4% (9.8). The Tier 1 capital ratio was 6.5% (6.3). Assets Tier 1 capital, which mainly consists of shareholders’ 31 December equity, increased by 12% during 1999. The change in 1999 1998 Change Tier 1 capital between the two years is a result of profits SEK m % generated during the year reduced by the proposed Interest bearing securities 93 415 107 826 – 13 dividend. Apart from this, Tier 1 capital was reduced Lending to the general public 626 206 587 405 7 in 1999 by the goodwill (SEK 832m) originating from Lending to credit institutions 98 859 139 823 – 29 the acquisition of Bergensbanken. Other assets 104 319 91 396 14 Apart from Tier 1 capital, the total capital base also Total assets 922 799 926 450 0 includes Tier 2 capital and the enlarged capital base. These types of capital, which from the point of view of priority are subordinated, are obtained by funding in Liabilities and shareholders’ equity the market. Tier 2 capital and the enlarged capital base 31 December have declined somewhat since maturing volumes to a 1999 1998 Change large extent have not been replaced by new funding. SEK m % Total risk-weighted volume increased by 9%. Credit Deposits and funding risk volume increased by 12%, while market risk volume www.handelsbanken.se from the general public 221 483 206 524 7 fell by 32%. Liabilities to credit institutions 186 503 261 146 – 29 Issued securities 359 540 299 378 20 RATING Other liabilities 96 853 101 836 – 5 The costs of the Bank’s funding in the international Subordinated loans 19 850 23 135 – 14 markets are affected by the rating agencies’ credit Shareholders’ equity 38 570 34 431 12 assessments. In 1999, Moody’s raised the Bank’s rating Total liabilities and to Aa2 from Aa3. The Bank has the best rating of the shareholders’ equity 922 799 926 450 0 Nordic banks.

44 SHB 1999 DIRECTORS’ REPORT

RESULT AND PROFITABILITY Capital base and requirement SEK m 1999 1998

Result CAPITAL BASE Operating profits increased by 17% after adjustment Tier 1 capital 31 177 27 736 for items affecting comparability. A healthy increase for Tier 2 capital 14 478 15 331 net commission income, reduced costs and lower loan losses are the main reasons for this positive development. Less shareholdings in insurance companies and domestic financial The profit and loss accounts for 1995–1999 are shown institutions – 874 – 674 on pages 82–83. Total tier 1 and tier 2 capital 44 781 42 393 Income Enlarged capital base 670 1 250 Total capital base 45 451 43 643 Income increased by 1%. Excluding capital gains on a property sale in 1998, income increased by 3%. Total CAPITAL REQUIREMENT net interest income increased by 1% despite the fact Risk-weighted amount that generally lower interest rates reduced return on the Credit risks 461 947 413 258 Bank’s liquid funds. The interest spread was slightly Market risks 20 319 29 940 improved. Net interest income includes the fee of SEK Total 482 266 443 198 308m (287) to the Swedish government for the deposit Capital ratio 9.4% 9.8% protection guarantee. Net commission income increased by 17% to Tier 1 capital ratio 6.5% 6.3% SEK 3 978m (3 408), mainly due to large increases in For detailed information see page 76. equities commission and fund management. The net result on financial operations fell by 22% Results to SEK 969m, mainly due to a decreased result for 1999 1998 Change fixed income trading. SEK m % Other income decreased by SEK 156m to SEK 601m. Net interest income 11 508 11 430 1 In 1998, other income included capital gains of SEK 338m on property sales. Net commission 3 978 3 408 17 Net result on Expenses financial operations 969 1 242 – 22 Expenses decreased by 2% or SEK 138m. The decrease Other income 601 757 – 21 is due to IT-related expenses, which have fallen by Total income 17 056 16 837 1 SEK 300m. It has been possible to reduce expenses in Staff costs 4 888 4 579 7 spite of continued investments in the Nordic countries Other expenses 3 780 4 227 – 11 and also in the Internet area. Total expenses 8 668 8 806 – 2 Staff costs increased by 7%, while other expenses Operating profit fell by 11%. Two percentage points of the increase in before loan losses 8 388 8 031 4 staff costs is due to the acquisition of Bergensbanken Loan losses – 219 319 and an increased number of employees in the IT area. Net operating profit 8 607 7 712 12

Nordic bank ratings, 31 December 1999

MOODY’S S&P FITCH IBCA BANKWATCH

Financial Long Short Long Short Indivi- Long Short Issuer Short strength term term term term dual Legal term term term Handelsbanken B+ Aa2 P-1 A+ A-1 B 2 AA– F1+ B TBW-1 Nordbanken C+ A1 P-1 A A-1 B 2 A+ F1 B/C TBW-1 www.handelsbanken.se SEB C A2 P-1 A– A-2 B/C 2 A+ F1 C TBW-1 FöreningsSparbanken B Aa3 P-1 A A-1 B 2 A+ F1 B/C TBW-1 Merita Bank C A1 P-1 A A-1 C 2 A+ F1 B/C TBW-1 Den Danske Bank B Aa3 P-1 A+ A-1 B 2 AA– F1+ B TBW-1 Unibank C+ A1 P-1 — A-1 B/C 2 A+ F1 B/C TBW-1 Den norske Bank C A2 P-1 A A-1 — — — — C TBW-1 Christiania Bank C A2 P-1 — A-1 B/C 2 A+ F1 B/C TBW-1

SHB 1999 45 DIRECTORS’ REPORT

The reduction in other expenses is mainly due to lower Income/Expenses ratio expenses for consultants. 1999 1998 The I/E ratio – income in relation to expenses – was 1.97 (1.87) before loan losses and 2.02 (1.81) after I/E ratio before loan losses 1.97 1.87 loan losses. I/E ratio after loan losses 2.02 1.81

Profitability Return on equity after full tax is 18.4% (18.6). Sensitivity analysis of the Handelsbanken Group’s results Handelsbanken’s profitability, expressed as operating profit after standard tax and adjusted for items affecting Change Impact on Impact on operating earnings per comparability, was 17.0% (16.3). Thus, Handelsbanken result ordinary substantially exceeded the profitability level of the share SEK other Swedish banks. Handelsbanken’s return on equity Commission, net +/– 1% +/– 40 0.04 has been higher than the average for the other banks since 1972. Number of employees +/– 100 –/+ 56 0.06 Salary change +/– 1% –/+ 45 0.05 Appropriations and tax Other general Compensation from the Bank’s pension foundation administrative expenses +/– 1% –/+ 30 0.03 was SEK 750m. At the year-end the market value of the pension foundation exceeded the Bank’s pension commitments by SEK 11.2bn. In the pension fund, the Return on shareholders’ equity after standard tax market value exceeded the fund’s commitments by % 30 SEK 7.7bn. Thus, the total surplus is SEK 18.9bn. It is Svenska Handelsbanken the Bank’s intention to take out the maximum possible 25 compensation from the pension foundation in future

years. 20 The Group’s tax expense for 1999 was SEK 2 525m (2 168). This is equivalent to an effective tax rate for the 15 Group of 27.5%. A specification of deviations from the Other nominal tax rate is reported under note 13, page 62. 10 listed banks

Dividend 5 The Board of Directors recommends a dividend of SEK 3.00 Standard tax 0 50% 1985–1988 on the class A and B shares (SEK 2.67 last year after 30% 1989–1993 recalculation, taking into account a split). The dividend -5 28% 1994– will require SEK 2 144m. 1984 1986 19881990 1992 1994 1996 1998 1999 BUY-BACK OF OWN SHARES The Board considers that the Bank’s capital situation is sufficiently strong at present for the repurchase of shares or not. A buy-back for SEK 4bn at a hypothetical shares worth around SEK 4bn. It is therefore proposed share price of SEK 110 would lead to an increase in that the Annual General Meeting authorise the Board earnings per share of around 3%, calculated on a to decide on a purchase of a maximum of 50 million 12-month basis. All else being equal, return on share- class A or class B shares during the period until the holders’ equity would be some 1.5 percentage points Annual General Meeting in 2001. higher as a result of the repurchases. Repurchase of The Board would use this authorisation to buy back shares decreases the Bank’s capacity for large corporate shares for the above-mentioned amount provided acquisitions since the buy-back amount reduces the www.handelsbanken.se changed circumstances do not make it necessary to act Bank’s capital base. However, for the foreseeable future otherwise. The repurchases would be made via the the repurchased shares will not be cancelled. Thus, they stock exchange. can be sold again if this is necessary in order for the The repurchase of shares is not expected to affect Bank to carry out a strategic corporate acquisition. the Bank’s rating. Even after buy-back, the Bank has If a sale of this kind were to be considered, however, a sufficiently large capital base for the continued it would be presented to a General Meeting of the growth of the current operations. shareholders for a decision to be made. A buy-back should be attractive for the Bank’s The Board intends to use the opportunity to repur- shareholders, irrespective of whether they sell their chase shares after 2000 if this is considered justified.

46 SHB 1999 DIRECTORS’ REPORT

LOAN LOSSES AND CREDIT RISKS Loan losses by category

The financial turbulence which arose on the inter- 1999 1998 national markets during the second half of 1998 turned SEK m %1) SEK m %1) into a rapid recovery in 1999. The global economy Industrial, trading and performed much more strongly than had been predicted service companies, etc 372 0.25 307 0.20 at the beginning of the year. In the Nordic countries, Households 85 0.04 191 0.10 the situation was mixed, with weak growth in Denmark Construction and Norway but stronger in Finland and Sweden. and property companies – 9 – 0.01 125 0.07 Swedish exports increased and household consumer Housing co-operative demand was strong. This improved the business condi- associations 0 — 67 0.11 tions for both export and domestic market companies. Credit institutions excl banks – 40 – 0.14 0 — Credit risks continued to be small. This was due to Foreign banks 5 — 18 — healthy profit levels for companies, increased disposable Less amounts recovered income for households and low interest rates. The but not categorised – 616 — – 378 — number of bankruptcies in Sweden continued to fall. Change in value of repossessed property – 16 — – 11 — Loan losses – 219 – 0.03 319 0.05 Handelsbanken’s recoveries from previously reported 1) As a percentage of loans per category and total loans at beginning of year. losses exceeded loan losses, including changes in value of repossessed property, by SEK 219m. In 1998, loan losses were SEK 319m. The recoveries included SEK 16m (11) with respect to changes in value of repossessed FINANCIAL RISKS property. In the Bank’s operations, various types of financial risk Amounts recovered from previous actual losses arise apart from credit risks. The risk taken is controlled amounted to SEK 371m (377) and provisions written and subject to limits. Financial risks are divided into back were SEK 642m (306). market and liquidity risks. Market risks consist in their Of the year’s reported loan losses, four were over turn of interest rate risks, exchange rate risks and SEK 20m. The adjoining table shows loan losses equity risks. They constitute the changes in value which according to borrower category. arise as a result of a change in price, exchange rate or Handelsbanken’s operations outside the Nordic volatility. Liquidity risk is the risk that the bank’s funding countries are mainly aimed at the Bank’s Nordic customer costs will increase as a result of a shortage of supply in base and thus the Bank has a low risk exposure to the market on a particular day. emerging markets, particularly when taking into account The following diagram shows how these concepts Handelsbanken’s size. At the end of the year, the Bank’s relate to each other: exposure to emerging markets was SEK 6.6bn.

Bad debts Interest rate risk Systematic risk Market Equity risk Bad debts, after deduction of provision for possible risks Specific risk loan losses, fell by 37% to SEK 1 723m (2 756). They Exchange Financial rate risk represented 0.27% (0.45) of lending at the year-end. risks The reserve for possible loan losses was SEK 3 463m (3 926), which is 67% (59) of gross bad debts. Liquidity risks A full report is given in note 16, page 65.

Managing credit risks In accordance with the credit policy laid down by the All three types of market risk can be quantified using

Central Board, the branch office which is responsible the Value-At-Risk (VaR) method. We describe below www.handelsbanken.se for the customer must also assess and manage the credit the three types of market risk and VaR. risk. In this way, the Bank draws on the branch’s Historically, interest rate risk has been the largest knowledge of the customer and the local market and market risk category. If interest rate risk, equity risk the problem loans are dealt with quickly and efficiently. and exchange rate risk are measured individually using The branch office is assisted by experts at regional and the VaR method without taking into account the corre- central head office. lation between the types of risk, interest rate risks accounted for 62% of the total, equity risks 25% and exchange rate risks 13% in 1999.

SHB 1999 47 48

www.handelsbanken.se DIRECTORS oa iblte 4 6 8814 2 3 4 816789759 230327 18156 37612 6386 381448 6085 5328 8880 136242 5925 –17059 821286 85466 41723 59008 –13024 121527 40543 1326 703 –9577 177984 36972 3744 635127 208274 48871 6535 2890 37956 14829 55044 2923 33910 25495 11228 8790 544767 198872 30916 100693 Group the for 180159 36581 59537 214390 periods 4048 –55963 11184 1261 adjustment rate interest the shows table The 37708 457888 2867 55193 12038 including off-balance-sheetitems Difference betweenassetsandliabilities 7235 324010 Off-balance-sheet items 150218 Total liabilities Issued securities 10645 Banks andotherfinancialinstitutions Deposits 78685 LIABILITIES Total assets Bonds etc Banks andotherfinancialinstitutions Lending Interest rateadjustmentperiodsfortheGroup’s assetsandliabilities ASSETS bank’s borrowingandlending.Thefundswhichare differences inmaturityperiodsbetweentheinternal rateriskarisesasaresultoftheintentional interest network toStadshypotek.Theinternalbank’soffice In 1999,largeamountswerepassedfromthebranch and transfersfundsbetweenvariousunitsintheGroup. rates ofonepercentagepoint. off thebalancesheetineventofariseallinterest market valueofallassetsandliabilitiesbothon a dailybasis. The interestrateriskintheseportfoliosvarieson are theBank’s tradingbookoffinancialinstruments. banks andsubsidiaries. and depositoperationsofHandelsbanken’s regional Treasury. Therearealsointerestraterisksinthelending and theinternalbankwhichismanagedbyCentral by thetradingportfoliosatHandelsbankenMarkets when thematuritiesdifferforassetsandliabilities. to achangeinnetinterest do notmatch.Achangein Group’s assetsandliabilitiesoroff-balance-sheetitems Interest rateriskarisesbecausethematuritiesof INTEREST RATERISK Market risks equity investmentsonthepartofBank’s customers. ment suchasthestartofEMUandgreaterinterestin ance. ThisreflectsmajorchangesintheBank’s environ- Equity risksaretendingtoincreaseinrelativeimport- ’ Non-interest-bearing assets and liabilities have been excluded. The interest rate risk in the event of a rise in all interest r interest all in rise a of event the in risk rate interest The excluded. been have liabilities and assets Non-interest-bearing REPORT When calculating the interest rate risk for subsidiaries, the equity is assigned an interest rate adjustment period which corre which period adjustment rate interest an assigned is equity the subsidiaries, for risk rate interest the calculating When SEK m The internalbankisrunbytheCentralTreasury The interestrateriskmeasurestheimpacton The tradingportfoliosatHandelsbankenMarkets The largestsourcesofinterestrateriskarerepresented income and/orfallsinvalue the yieldcurvemaylead ’ s interest-related assets and liabilities as at 31 December 1999, reported as at the transaction day. day. transaction the at as reported 1999, December 31 at as liabilities and assets interest-related s – ts3 3 mths – ts6 6 mths between interest i at ahigherrateofinterest.Thesecondeffectonnet on theseassetsincreasesastheyaregraduallyre-invested shareholders’ equity. Wheninterestratesrise,thereturn interest-bearing liabilitiesismainlyexplainedbythe between thevolumeofinterest-bearingassetsand showing interestrateadjustmentperiods.Thedifference assets thanliabilities.Thiscanbeseeninthetable by thefactthatGrouphasmoreinterest-bearing a marketvalue. trading, i.e.alltheassetsandliabilitieswhichhave both throughnetinterestincomeandtheimpacton rates byonepercentagepointcomesfromtwosources: sometimes calledthenetinterestincomerisk. only haveanimpactonnetinterestincome.Thisis market valuegoestotheprofitandlossaccount. market basis,thecompleteimpactofthesechangesin balance-sheet itemsareaccountedforonamark-to- parts oftheGroupwhereallassets,liabilitiesandoff- assets, liabilitiesandoff-balance-sheetitems.Inthose currencies attheendof1999. balance sheetaswelloff-balance-sheetitemsforall periods fortheGroup’s assetsandliabilitiesonthe securities. Consequently, thereisnoneedtoinvestinexternal are lowerthanStadshypotek’s fundingrequirement. passed frombranchofficeoperationstoStadshypotek The impactonnetinterestincomeisfirstlyexplained Thus, theimpactonresultofariseinallinterest In otherpartsoftheGroup,changedinterestrates Changes inmarketratesaffectthevalueof The tablebelowshowstheinterestrateadjustment – ates of one percentage point at the year-end was SEK 359m (685). (685). 359m SEK was year-end the at point percentage one of ates 2mh 1 12 mths sponds to the average life of the assets. the of life average the to sponds ncome isaresultofincompletematching the interestrateadjustmentperiodsof – r 5yrs 5 yrs – Total SHB 1999 DIRECTORS’ REPORT

assets and the liabilities. If the assets have longer inter- EXCHANGE RATE RISKS est rate adjustment periods than the liabilities – as is Exchange rate risks arise when there is a difference usually the case – this reduces the positive impact that between the present value of assets and liabilities in rising interest rates have on net interest income. The foreign currencies – including the effects of derivative net effect of these two factors was positive at the year- positions. When this is the case, the Group’s profit is end. Thus, rising interest rates lead to higher net interest affected by fluctuations in exchange rates. Exposure income. The impact on trading operations from chang- to exchange rate risk is in all essentials restricted to ing interest rates varies significantly depending on the Handelsbanken Markets’ trading operations. measurement day. This is best measured using a different interest rate risk measure – Value-at-Risk – as described VALUE-AT-RISK below. VaR for trading operations’ interest rate and Value-at-Risk is a method of measuring market risks. currency positions was on average SEK 30m in 1999, During the last few years, this method has become the maximum being SEK 58m and the minimum increasingly used by banks and other participants on SEK 12m. the financial markets. Handelsbanken has used VaR for a number of years. Unlike traditional risk measures, EQUITY RISKS for example a parallel shift in the yield curve of one The Bank’s exposure to equity risk, i.e. the risk of loss- percentage point, VaR is a probability-based measure es as a result of changes in share prices, is divided into of market risk. It is based on historic price movements. systematic and specific risk. The systematic risk origi- VaR indicates the maximum loss which can be expected nates in the price movements of the entire stock mar- to occur on the basis of a certain confidence interval ket. The specific risk originates in the price variation of and for a certain holding period. For example, if a 99- each individual share compared to the index. Equity- percent confidence interval is used, this means that the related risks mainly arise at Handelsbanken Markets. probability of a larger loss than the VaR amount is The Bank is a marketmaker in the equity and options only 1%. The holding period refers to how long it may markets, where equity-related risks arise. be expected to take to close the positions, i.e. to neu-

EXPLANATION OF CONCEPTS USED

BACK-TESTING. In order to evaluate models, assume longer holding periods than one day stockmarket. When calculating systematic the expected outcome is compared with the since it is often difficult to find purchasers risk, the stockmarket is represented by a actual outcome for a historic period of time. or sellers in situations of this kind. broad and diversified equity index, for CONFIDENCE INTERVAL. A confidence interval RISK MATRIX. A risk matrix shows how much example OMX for the Swedish market. expresses the probability that a random the market value of a position in an option For a Swedish share which exactly follows outcome from a statistical distribution will or the market value of a portfolio which the movements, a relative fall in the OMX assume a value within a certain range of contains options changes when the price of of 10% would affect the price of the share values. the underlying asset and the volatility change to the same relative extent, i.e. both the share and the market would fall by 10%. DERIVATIVES CONTRACT. An instrument whose by one or several certain predetermined shifts. One axis shows the percentage changes Volatility can also be regarded as a system- value is linked to the value of an underlying atic source of risk. asset. Options and futures are examples of in the price of the underlying asset and the derivatives. An option gives the holder a other axis shows the percentage changes in TRADING BOOK. The trading book includes right but not an obligation, for example, the volatility. Each item in the matrix an- positions in financial instruments which the right to buy or sell a share at a certain swers a question of the following type: how have been taken for the purpose of making price (the exercise price) within a certain much will the market value of the position short-term profits on the money, foreign period of time (the maturity). Derivatives change if the price of the underlying asset exchange or equity markets. The trading can be used to increase or decrease the risk increases by 10% at the same time as the book is subject to capital adequacy require- level of a portfolio. volatility falls by 1%. ments for market risks. FORWARD CONTRACT. A forward contract is SPECIFIC RISK. The specific risk of a share is VOLATILITY. Volatility expresses the move- an agreement to buy an underlying asset at the variation in price which is a result of ments in the price of the underlying asset a predetermined price and with delivery circumstances and events which are specific for an option. Volatility is one of the varia- and payment at a predetermined future to a certain company. For example, a com- bles in theoretical option valuation models. date. Unlike options, forward contracts are pany may have received a large new order In statistical terms, the volatility is measured binding on both parties. or announced an unexpected financial by the standard deviation of the change in www.handelsbanken.se result. market price. HOLDING PERIOD. The holding period refers to the period of time it may take to close SPOT CONTRACT. Spot contracts require YIELD CURVE. The yield curve is a graph with a position, i.e to neutralise the risk in the immediate delivery. Spot contracts may refer the yield to maturity on one axis and the position. Everything else being equal, VaR to purchase or sale of shares, currencies, remaining maturity on the other. It is often becomes larger if the holding period is commodities etc. constructed for the yield on government extended. For trading portfolios, a holding SYSTEMATIC RISK. The systematic risk of bonds with differing remaining maturities, period of one day is usually assumed. In a share is the variation in price which is but can also show the yield on, for example, turbulent markets, it may be reasonable to explained by general movements on the mortgage bonds or interest rate swaps.

SHB 1999 49 DIRECTORS’ REPORT

Daily Value-at-Risk in 1999 for Handelsbanken Markets, interest-rate risks, exchange rate and equity price risks

Frequency (no. of days) 15

10

5

15 20 25 30 35 40 45 50 55 60 SEK m

tralise the risk in them. For trading positions, a holding in a homogenous manner, which means that the risks period of one day is often used since the markets are so can be aggregated into a total market risk. This is not liquid that positions can be closed relatively quickly. possible using traditional risk measurements. The diagram below demonstrates the VaR method. For the calculation of VaR there are three main VaR is the value on the horizontal axis whereby the types of methods to choose from. They are usually probability of a major loss is only a certain percentage, called historical simulation, the parameter method and e.g. 1%, while the probability of a smaller loss than Monte Carlo simulation. They all have their advantages this value is 99%. and disadvantages. When choosing a method, a number of factors must be considered such as the cost of imple- How Value-at-Risk works mentation and what type of operation is being conducted. Frequency The method which is intuitively easiest to understand is historical simulation. Handelsbanken has chosen it for two reasons: it is easy to communicate and it uses real data without using assumptions of a certain distribution. Here is a brief description of the method of calculating VaR by historical simulation. First, historical price 1% risk of information is gathered, for example the price of the a major loss currency pair USD/SEK. Normally, a historical time series is used which covers at least a period of one year back in time. After this the percentage changes between two consecutive days in the time series are calculated, thus obtaining a distribution of daily relative price Loss0 Profit changes. Then an assumption is made as to whether EXPECTED OUTCOME this distribution of historic price movements also gives There are several reasons that VaR is being established as a fair view of future price movements in the market. a standard for measuring market risk. First, VaR is On the basis of the current position, it is then easy to a more realistic measure of market risk than previously obtain a distribution of hypothetical future profits and used measures. This is partly because VaR measures the losses.

www.handelsbanken.se impact of realistic price changes in the market instead If, for example, VaR is to be calculated for the of using standard figures and partly because it captures exchange rate risk in a USD/SEK position, the market correlations between the various prices, for example value of the position is multiplied by each of the relative between interest rates and foreign exchange rate move- changes. For each day in the time series, a profit or loss ments. Second, VaR shows the probability of a loss of a is thus obtained. When this has been done, the hypo- certain magnitude in money terms. This makes it easy thetical profits and losses are sorted from the largest to understand and provide information about risk loss to the largest profit, after which the searched measured with VaR. Third, the VaR method implies amount can be found within the confidence interval. that the different risk categories, i.e. equity price risk, The value which is then obtained is VaR for the day interest rate risk and foreign exchange risk, are handled in question.

50 SHB 1999 DIRECTORS’ REPORT

Since the VaR model is a probability-based model for Foreign currency funding risk measurement, it is important to verify whether it is 31 December correct or not. If, for example, a 99-percent confidence 1999 1998 Change interval is used, the actual trading result should exceed SEK m % VaR on one day out of 100 if the model is correct. General public 63 709 64 947 – 2 Back-testing of this kind is regularly carried out at Certificates of deposit 120 704 101 233 19 Handelsbanken and the results have not caused us to Credit institutions 115 004 154 574 – 26 change the assumptions behind the model. Bonds 34 279 26 624 29 The VaR level in Handelsbanken Markets’ interest and exchange rate positions was on average SEK 30m, Subordinated loans 11 848 10 999 8 in other words with 99% probability, the Bank could Total 345 544 358 377 – 4 not lose more than SEK 30m. During the year, the VaR level was SEK 58m at its highest and SEK 12m at its occurrence of a loss in excess of a certain level. The lowest. Board of the Bank is ultimately responsible for limiting The VaR level in Handelsbanken Markets’ equity financial risks. The Board delegates its risk limits to the risk was on average SEK 12m. At its highest, the equity units whose results are dependent on market changes. risk was SEK 19m and at its lowest SEK 7m. The Bank’s exchange rate risks are controlled by limits which restrict the various units’ exchange rate Liquidity risks risk exposure. For the trading units, exchange rate risk Liquidity risks arise when assets and liabilities have is limited by VaR limits, while for other units it is limited differing maturities. When, for example, assets mature by exposure limits. There are two kinds of exposure at a later time than liabilities, the assets must be re- limits. One refers to the net position, i.e. the maximum financed once or several times during their lifetime. exposure in an individual currency. The other refers to The risk is that the funding cost may increase, if the aggregate net position and is intended to limit the on a particular day the refinancing requirement in an extent of the Bank’s total exchange rate risks. individual currency is large. The change in value of a portfolio or balance sheet The majority of funding in non-Nordic currencies when there is a simultaneous change of one percentage comes from deposits from foreign banks and regular point in all market rates is used as a measure to limit issues in the international capital markets. interest rate risks both in trading and in other units of In order to secure the Group’s foreign currency the Bank. Value-at-Risk is calculated but is not used funding, a target has been set so that medium and for setting limits. long-term foreign currency funding must be at least Interest rate and exchange rate options are con- 25% of medium- and long-term foreign currency lending. trolled and restricted by means of a limit of maximum Apart from this, a liquidity reserve is kept in foreign losses allowed when there are extreme fluctuations in currency to cope with temporary disturbances in the volatility and prices or rates. These so-called risk mat- currency markets. Handelsbanken’s funding in interna- rices provide a framework of limits for trading. tional markets is achieved through a number of funding Equities trading is controlled by measuring and programmes, for example, a US Commercial Paper limiting systematic and specific risk. Systematic risk is Program, a Euro Commercial Paper Programme and defined as the largest negative change in value in a risk a Euro Medium-Term Note Programme. matrix consisting of index change on one axis and During 1999, there was at times a considerable volatility change on the other. The risk matrix covers amount of concern that the millennium shift would all option risks and both probable and improbable lead to turbulence on the global financial markets. Many events. Specific risk is defined as that part of the banks and companies reduced their risk positions and change in value of a share which is not affected by increased their liquidity. In autumn 1999, Handels- the general market but only by the specific share. VaR banken also took a number of measures to protect is calculated daily as a complement to the limit. liquidity and reduce risk so as to be well-prepared for Liquidity risk is measured as a cash flow forecast in any turbulence in connection with the millennium shift. various currencies over all maturities. The limit restricts www.handelsbanken.se There was no particular turbulence on the financial the liquidity deficit for up to seven days. markets at the millennium shift. Organisation of the Group’s risk control Limiting market and liquidity risks The Board of Directors establishes the total market In banking operations it is natural to have exposure risk and liquidity risk limits for the entire Group to market risk and liquidity risks. It is possible to earn within each type of risk. These are allocated to the money by taking risk. In order to reduce the risks various business areas by the Chief Executive. The there is a limit system. Its purpose is to prevent the overall responsibility for financial risks and further

SHB 1999 51 DIRECTORS’ REPORT

allocation of limits lies with the head of the Central Derivative volume Treasury. Within the allocated limits, the Group units 31 December are responsible for follow-up and control of the finan- Total Total cial risks. SEK m 1999 1998 The internal bank’s maximum risk exposure and Currency forwards 1 442 1 365 types of transaction are restricted by rules laid down Interest rate and currency swaps 1 373 1 057 by the Chief Executive of the Bank. Interest rate futures and FRAs 2 583 3 671 The financial risks and limit utilisation are checked Interest rate and currency options 109 82 on a daily basis for trading operations, the internal bank and the mortgage business. In practice, the risk Equity forwards and options 36 14 in the trading portfolio fluctuates more frequently and Total 5 543 6 189 more widely than in the mortgage companies and internal bank. The Board receives a monthly report of Counterparty risk in derivatives the whole Group’s exposure to financial risks. A unit at the Central Treasury works exclusively on SEK m Nominal amount Converted amount risk control independent of the trading organisation. Class A 30 182 2 065 This unit has the overall responsibility for measurement Class B 3 736 481 27 719 methods, setting limits and examining financial risks, regardless of whether the risk is trading-related or arises Class C 491 779 9 595 in business with customers in the regional bank opera- Total 4 258 442 39 379 tions or the subsidiaries. Apart from continuous analysis of the Group’s exposure to market fluctuations, the department carries out regular reviews of the local risk controls at the Bank’s units. These reviews include the flows from the derivative instruments are intended to unit’s positions, measurement methods, limit structure, co-vary with the cash flows in the underlying sight administrative controls and risk reports. In addition, instruments. The derivative instruments are either parts the auditing department carries out independent of the trading portfolio or held by the Central Treasury, examinations. by a regional bank or a subsidiary where they are usually subject to hedge accounting. Derivative instruments The derivative instruments in the trading portfolio Derivative instruments do not give rise to any unique are either held as part of a customer transaction – for type of market risk. The value of a derivative contract example, the Bank effects an interest rate swap for a is dependent on an exchange rate, interest rate or share customer – or are used to increase or decrease risks in price. Derivatives are instruments for changing financial the trading portfolio. risks. Market and liquidity risks in the derivative instruments They are a natural part of trading portfolios and are are not measured separately. The risks are measured in also used to change and limit the financial risks outside portfolios where both on-balance and derivative instru- the trading operation. The risks in derivative instruments ments are included. Since the risks are of the same type can be measured in the same way as risk is measured in on-balance and derivative instruments, it is only of in the underlying portfolios. This means that risks in interest to measure the total risk in the portfolio, but derivative and in underlying instruments can be never to measure it separately. The credit risks in off- aggregated. balance-sheet items – where derivative instruments are Options are derivative instruments which differ from included – are shown in the information regarding underlying instruments with respect to risk. The value capital requirement on page 76. of an option depends not only on the level of interest rates and prices but also on changes in the pace of Trends in derivative trading interest rate and prices fluctuations (the volatility). The volume of derivative instruments held by Handels-

www.handelsbanken.se The value of an option can also change proportionally banken has fallen. This says nothing about whether the much more than the underlying interest rate, share risks have changed. The financial risk is the sum of the price or exchange rate. The risks are said to be non- risks in underlying spot instruments and in derivatives. linear. They can rise very rapidly in turbulent markets. Trading operations accounted for more than 97% Option-related risks constitute a minor part of the of the derivative volume. Group’s total risks but for the reasons given above must be monitored particularly carefully. Counterparty risks in derivative trading The main groups of derivative instruments held by Not only do the Bank’s holdings of derivative contracts the Bank are shown in the table above. The future cash imply exposure to various market risks but also to so-

52 SHB 1999 DIRECTORS’ REPORT

called counterparty risks. There is a risk that the issuers COMPETENT STAFF of derivatives will not meet their obligations. Handelsbanken’s decentralised organisation and the If such a situation arises, the Bank must acquire increasing complexity in banking make high demands a new equivalent contract in the market to replace the on the skills of our staff. Handelsbanken therefore old one. consistently channels a great deal of resources and Unlike the credit risk in lending commitments, the effort into training and development of managers and counterparty risk is affected by the development in employees at all levels. market prices. If the derivative instrument is valued More information about our employees can be positively, an unrealised gain arises which constitutes found on page 12. a counterparty risk. Counterparty risks in a derivative transaction are THE OKTOGONEN FOUNDATION assessed in the same way as other credit risks. Apart from the risk in trends for market prices, Every year since 1973, the Bank has allocated part of counterparty risk also includes the payment risk which its profit to a profit-sharing system for its employees. may arise when settling derivative transactions. This The only exception was 1992 when no dividend was risk is managed by having separate limits for the paid to the shareholders. The funds are managed by the counterparty known as settlement limits. Oktogonen Foundation. The main condition for an Exchange-traded instruments transfer the counter- allocation to be made is that the Handelsbanken Group party risk exposure to the clearing institution. has higher return on shareholders’ equity after standard Exposure is considerably lower here than in OTC tax than other banks in accordance with the overall instruments. The clearing institution applies multilateral goal laid down for operations. Some of the extra netting of the market participants’ internal commit- earnings can then be allocated to the employees in ments, which means that the settlement risks are kept accordance with certain regulations. The upper limit to a minimum. In addition, the participants provide for the allocation is, however, 25% of the dividend to margin security in relation to their positions. the shareholders. All employees receive an equal part in the allocated amount. Disbursement can be made when OPERATIONAL RISKS the employee reaches the age of 60. One of the funda- mental concepts in managing the foundation is that a Apart from credit risks and financial risks, banking considerable part of the funds is invested in shares in operations also entail operational risks. These consist Handelsbanken. Today, Oktogonen is the Bank’s largest of the risks which arise in the running of the operation. shareholder with 10.1% of the voting power and more These may be for example risks in IT operations, risks than 9.3% of the capital. due to non-compliance with instructions and rules, The profit-sharing system is based on the idea that external and internal crime and legal risks. the Bank’s employees should receive a portion of the The risks are controlled by issuing instructions. The extra earnings in which they have played such a large people responsible for various functions are under a part. Over the years, this has increased in importance duty to ensure that the instructions are changed as as an incentive to the staff of the Bank. operations develop. Every year there is an evaluation of Apart from all staff in Sweden, the profit-sharing the risks and internal controls. system has also included staff in Norway since the The heads of various operational units are responsi- beginning of 1995 and from 1997, the staff in Finland. ble for compliance with the instructions. In order to make operational risks clear, all opera- OPTIONS PROGRAMME tional units are allocated a risk level grade by the inter- nal auditing function. In autumn 1999, the Board decided to offer all branch All costs which the Group incurs as a result of pro- managers and other managers and key personnel the cessing errors etc are reported and evaluated with the opportunity to acquire synthetic options through a purpose of reducing the future risks. five-year options programme. Through hedging trans- actions, the maximum cost for the Bank is limited to

THE BOARD’S ACTIVITIES DURING THE YEAR SEK 7m per quarter. If the Bank’s shares increase in www.handelsbanken.se value by more than 30% during this five-year period Please see page 22 for a description of the Central the options programme will not entail any costs for Board’s activities during 1999. Handelsbanken. There was a very large uptake among the group of people who were offered this opportunity, with 87% of them subscribing for options.

SHB 1999 53 PROFIT ANDLOSSACCOUNTS 54 www.handelsbanken.se oa noe1 5 6871 1 13212 12215 16837 17056 5759 6246 11430 11508 General administrativeexpenses Total income Net resultonfinancialoperations Commission expense Commission income Dividends received Net interestincome Interest income Profit andLossAccounts rftfrteya 6 2 4 5029 5800 6742 5612 8843 6027 4666 8195 6663 –22 7712 5743 9188 –22 4847 8607 7469 8031 7368 8388 8806 Profit fortheyear 8668 Taxes Profit beforetaxes Appropriations Minority interests Operating profit Loan losses,net Profit beforeloanlosses Total expensesbeforeloanlosses E 9919 991998 1999 1998 1999 SEK m Other administrativeexpenses Staff costs Interest expense Change invalueofrepossessedproperty of tangibleandintangiblefixedassets Depreciation andwrite-downinvalue Other operatingincome Note 10 Note 9 Note 8 Note 7 Note 6 Note 5 4 Note Note 3 Note 2 Note 1 Note 1 Note 13 Note 12 Note 11 650–5 1 268–32514 –32678 –50510 – 46540 2 6 0 –771 – 2101 –2168 – 2525 8086 4 89438273 38924 61940 58 048 0 3 8 131 182 330 – 203 –614 –736 –669 – 715 3 4 8 2991 4108 2488 4443 3543 4579 3656 3 030 4 888 4078 4077 4 693 6–1 — –1 –11 – 16 5 8 3 370 437 684 648 1211 278 750 859 2552 618 1490 1242 356 139 969 245 0 0 7 188 4177 505 603 RU PARENTCOMPANY GROUP SHB 1999 31 December Balance Sheets SHB 1999 oa hrhles qiy3 7 4413 0 26303 30306 34431 684087 38570 686166 926450 Other commitments 922799 651502 Pension commitments Contingent liabilities 648290 Collateral pledgedforowndebt 261 Total liabilities,provisionsandshareholders’equity 891758 Total shareholders’equity 883 968 Profit broughtforward 261 684087 686166 Share capital Untaxed reserves 926450 Minority interestinshareholders’equity 922799 Total liabilitiesandprovisions Accruals anddeferredincome Other liabilities Liabilities tocreditinstitutions 4050 LIABILITIES, PROVISIONSANDSHAREHOLDERS’EQUITY Total assets 5735 Other assets 4054 6285 Shares andparticipationsinGroupcompanies Shares andparticipationsinassociatedcompanies Shares andparticipations Bonds andotherinterest-bearingsecurities Lending tothegeneralpublic Lending tocreditinstitutions Instruments eligibleascollateralwithcentralbanks Cash andbalancewithcentralbanks ASSETS Subordinated liabilities E 9919 991998 1999 1998 1999 SEK m rvsosfrtxs44036823— 233 3608 4490 Other restrictedreserves Reserve forunrealisedprofits Statutory reserve Provisions fortaxes Issued debtinstruments Funding Deposits Buildings andland Equipment Goodwill Deposits andfundingfromthegeneralpublic Prepayments andaccruedincome Profit fortheyear Provisions Issued securitiesetc Other reserves Tangible assets Intangible fixedassets Note 37 Note 36 Note 35 Note 34 Note 33 Note 33 Note 33 Note 33 Note 33 Note 33 Note 31 Note 30 Note 29 Note 28 Note 27 Note 26 Note 25 Note 24 Note 23 Note 22 Note 21 Note 20 Note 19 Note 18 Note 17 Note 14 Note 16 Note 15 Note 14 Note 32 1 0 0 6 9 9 6290006 5695990 6304560 5 713401 2 0 8 0 7 1 242056 272110 587405 626 206 5 4 9 7 5 6 119501 159463 175789 299378 180356 215730 359 540 174886 168006 261146 185 294 186 503 1356 9 17764255 71797 67695 71 315 81575 85992 33981 215541 73794 189 725 12392 139823 80 155 34032 98 859 13 260 9287 3 27979081 93758 72739 84188 76731 15725 93782 69 288 17421 85 007 16377 17 398 15742 15489 5227 83115 23135 5876 78172 36398 19 850 12663 85304 33815 11 602 80 500 38518 36 189 2 2 1 9474 1015 7514 38 956 9821 11 1087 9 724 3059 1 074 4645 9240 5 171 3107 9 452 6 2 4 5029 — 6742 — 2936 6027 2605 2682 6393 6 663 2859 3007 8 263 2605 2 754 2 859 8 9 3 597 633 42 28404 693 233 29828 785 247 47 247 266 3 2628 602 22 633 ———— RU PARENTCOMPANY GROUP 7 6282 7 570 BALANCE SHEETS 55 www.handelsbanken.se ACCOUNTING PRINCIPLES

ACCOUNTING PRINCIPLES Valuation of assets and liabilities in foreign currencies The accounting follows the regulations of the Annual Assets and liabilities in foreign currencies have been Accounts Act for Credit Institutions and Securities recorded at the average of the end-of-day buying and Companies (ÅRKL), the Swedish Financial Accounting selling price. Foreign banknotes have been recorded at Standards Council’s recommendations and the directives the buying rates applicable to the general public on the issued by Finansinspektionen, the Swedish Financial balance sheet date. Supervisory Authority (FFFS 1998:27). Liabilities in foreign currencies which refer to financing of shares in subsidiaries or holdings of subordinated loans Changed accounting principles issued by subsidiaries are recorded at the rate applicable The accounting principles applied have been adapted to on acquisition (hedge accounting). the Swedish Financial Accounting Standards Council’s Forward contracts in foreign currencies are recorded at recommendation No. 8 concerning the impact of changed present value. foreign exchange rates. In accordance with this, goodwill Unrealised gains or losses, which have arisen as a result arising when acquiring establishments abroad is reported of the aforementioned translation methods, are credited or at the closing day rate. The impact on opening share- charged to the operating result. holders’ equity is SEK 0m. The comparative figures have Financial instruments been revised using the new accounting principle, in accordance with the Swedish Financial Accounting On the Balance Sheet, interest-bearing securities are Standards Council’s recommendation No. 5. reported either as Instruments eligible as collateral with Certain other minor reclassifications have been made. central banks or as Bonds, depending on the category of The comparative figures have been recalculated accordingly. issuer. Both the trading book and securities which are held long-term but not with the purpose of being held until Consolidated Accounts maturity are classified as Financial current assets. Securities The Consolidated Accounts have been prepared in in the trading book are valued at market value, while other accordance with the acquisition accounting method. financial current assets are valued at the lower of cost or Uniform accounting principles have been applied within market. Realised and unrealised gains/losses are reported the Group in all material respects. The Consolidated under Net result on financial operations. Accounts comprise all companies in which Handelsbanken Interest-bearing securities which have been acquired directly or indirectly holds more than 50% of the voting with the intention of being held to maturity are classified power. Associated companies are reported in the Con- as Financial fixed assets and reported at acquisition value. solidated Accounts in accordance with the equity method. For securities where the value has fallen and this decline in Companies taken over to protect claims are not included value is considered to be permanent, a write-off is made. in the Consolidated Accounts. Realised price gains are reported under Other operating Handelsbanken Liv, which is a mutual life insurance income, while realised price losses are reported under company, is not consolidated, since any surplus of the life Other operating expenses. insurance operation accrues to the policy-holders in the By acquisition value of discount and coupon instruments form of bonuses. (held and issued) is meant the accrued acquisition value. Holdings of intra-Group bonds classified as financial This value is the discounted present value of future pay- fixed assets are eliminated on consolidation. The difference ments where the discount interest rate represents the effec- thus arising between the book value of the intra-Group tive interest rate at the time of acquisition. This implies bonds and that of the corresponding liabilities is that acquired premiums and discounts on coupon instru- credited/charged to net interest income. ments are allocated over the bond’s remaining period to All foreign operations have been classified as independent. maturity or, for loans with interest rate adjustments, until This classification is based on the fact that each operation the next time the interest rate is adjusted. is run independently in accordance with the Group’s Purchases and sales of money market and capital market decentralised organisation and that transactions between instruments on the spot market are subject to trade date the parent company and the respective unit are only part accounting. Forward transactions are registered on the of their operations. The foreign units also conduct their transaction date but until the date of settlement are regarded own funding and the parent company is only affected as commitments off the Balance Sheet. On the date of indirectly by each operation’s cash flows. Salary payments settlement, they are reported on the Balance Sheet. and purchases are normally made in local currency. Equities in the trading book are recorded at market When converting the foreign subsidiaries’ balance sheets value. Other equities which are classified as current assets .handelsbanken.se and profit and loss accounts, the current method has been are recorded at the lower of cost or market. used. Assets, liabilities and minority interests in equity Short positions in both interest-bearing securities and have been converted at the closing day rate. Shareholders’ equities are reported as a liability at their market value. www equity is translated at the rate applicable at the time of Derivative instruments are valued at market value. investment or earning. The acquired portion of untaxed An exception is made for derivative transactions which reserves has been translated at the current rate on the date are hedging balance-sheet items which have not been given of acquisition. The Profit and Loss Account has been a market value. If the hedge is considered to represent an translated at the average annual rate. The resulting transla- effective protection against unfavourable changes in value, tion differences have been classed as shareholders’ equity. i.e. the changes in value of the hedged instrument are bal- anced by corresponding changes in value of the hedging instrument, the derivative transaction is reported using the accounting principles which apply to the hedged transac-

56 SHB 1999 ACCOUNTING PRINCIPLES

tion. In cases where unrealised losses arise in the case of GOODWILL hedge reporting according to the acquisition method, these Goodwill arising in 1997 in connection with the acquisition are reported on the Balance sheets and Profit and loss of Stadshypotek and in 1999 in connection with the acqui- accounts. Derivative transactions with a positive market sition of Bergensbanken is amortised over 20 years. The value at the balance sheet date are reported under Other amortisation period chosen is justified by the long-term assets and transactions with a negative market value are significance of the acquisitions since the customer base reported under Other liabilities. Receivables and payables of the respective branch office network and relative com- with the same counterparty which can be set off, i.e. where petitiveness have been strengthened. Other goodwill is a contractual relationship exists implying that there are amortised over 10 years. legal grounds for applying set-off, are reported net on the Balance Sheet in those cases where there is an intention to Loan losses settle the obligations by netting or simultaneously. Actual loan losses for the year and write-offs in respect Equity-linked bonds are reported on the balance sheet of possible losses for loan receivables are reported as loan divided into debt instruments and derivative instruments. losses. Also reported as loan losses are write-offs of interest No division is made for the Bank’s own holdings in the shown as income in previous annual accounts. trading book. Provisions for country risks are made in amounts which are considered necessary in the opinion of the Bank and on Lending and deposits the basis of an individual assessment. In the accounts, the Lending to the general public and credit institutions is reserve is allocated to the asset items in the balance sheet classified as financial fixed assets and is reported on the to which the reserve refers. Balance Sheet on the settlement date at acquisition value. Reported as actual credit losses are losses where the Leasing agreements in which the lessee substantially bears amounts have been finally determined or are more than the economic risks and acquires the rewards associated likely as a result of an official receiver providing an with the ownership of the asset are also reported as estimation of bankruptcy dividends, the acceptance of lending. Loans which represent bad debts are reported on composition recommendations or the concession of claims the Balance Sheet at their net amount, i.e. after deduction in some other way. of the provision for possible and actual loan losses. Write-offs of possible loan losses are made in respect Undrawn loans (including the risk related to fixed advance of bad debts if the borrower’s ability to repay is not con- interest rates) are regarded as an off-balance-sheet commit- sidered likely to improve sufficiently within two years and ment until the settlement date. If a loan is redeemed ahead the value of the collateral does not cover the loan amount. of time, the early redemption fee received is allocated over Write-offs are made down to the amount which is the remaining period of the loan. expected to be realised, taking into account the value of Lending and deposits are reported on the Balance Sheet the collateral. If the collateral is a listed asset, the valuation at their acquisition value. is based on the list price; otherwise the valuation is based on the yield value or the market value estimated in some Pension costs other manner. A pension cost computed on an actuarial basis, relating If the collateral consists of a mortgage on a property, to pension commitments which are backed by Handels- the valuation of the underlying security is made in the banken’s pension foundation, is reported as an operating same way as for repossessed properties (see below). expense. Premiums paid for pension insurance are also Unpaid interest on non-performing loans where the reported under Operating expenses. value of the collateral does not cover the principal amount The actuarial pension premium is restored as an appro- and the accrued interest by a satisfactory margin is not priation under Settlement of pensions, where settlement is taken up as income. Interest on these claims which was made against disbursed pensions and any compensation reported as income but not paid during the accounting from the pension foundation. year has been reversed. Interest payments received there- after in respect of this type of credit are reported in the Development costs year of receipt. Investment in software developed by the Bank and also software acquired externally are reported as expenses Valuation of repossessed property on a regular basis. Repossessed property is a current asset and is valued at the lower of cost or market. By market value is meant the Depreciation market value after deduction of costs of sale. This value is EQUIPMENT based upon an individual valuation by a firm of valuers Equipment is mainly depreciated on a straight-line basis with the required skills in the field. When repossessed, the over 5 years. Personal computers are depreciated over properties are written down to market value. If this value 3 years and investments in bank vaults and similar invest- is less than that of the Bank’s original collateral, the www.handelsbanken.se ments in premises are depreciated over 10 years. difference is reported as an actual loan loss. Changes in value after the property has been repossessed are reported PROPERTY CONTAINING BANK PREMISES under Changes in value of repossessed property. Property containing the Bank’s premises is depreciated at the highest percentage rate allowed for taxation purposes.

REPOSSESSED PROPERTY Repossessed properties for protection of claims are reported at the lower of cost or market at the balance-sheet date. Consequently, there is no depreciation of these properties.

SHB 1999 57 58

www.handelsbanken.se PROFIT ANDLOSSACCOUNTSBALANCESHEETS Note 1 eea ulc6236875486229 78 7135 5448 5451 1992 16 8713 6857 3002 4584 6730 1266 8262 18028 78 1473 6213 6463 443 5061 620 20118 1771 36667 16 2488 1569 41386 266 31349 1522 3838 38778 108 1914 Interest-bearing securities,fixedassets General public Credit institutions Interest incomeinforeigncurrency Total interestincomeinSwedishkronor Other interestincome Interest-bearing securities,currentassets Interest-bearing securities,fixedassets General public Credit institutions Interest incomeinSwedishkronor INTEREST INCOME Interest nuac rmuspi oGopcmais9 79 67 91 3.58% 89903 6.32% 84838 2.50% 135060 12242 5.33% 344812 71618 170071 67 362822 18286 122222 129948 156144 3.39% 202887 60697 7.36% 57652 143160 91 151197 231062 347587 69616 198968 2.42% 167713 6.25% 1106 59493 100602 280654 136491 364833 34760 205580 154143 456652 144186 121193 229 105266 281375 149981 50828 125052 457448 287551 135767 101887 98151 18440 35193 5759 108917 282111 Insurance premiums paid toGroupcompanies 794 336321 152101 Interest expensepaidtoGroupcompanies 1106 137307 34781 Interest incomereceivedfromGroupcompanies 133268 32514 11598 3549 39354 Average depositrategeneralpublic 116412 6246 4899 285942 4359 Average lendingrategeneralpublic 789 118320 229 576020 8269 32678 482557 Average volumeforeigncurrency 50981 4193 Issued securities 53306 6050 3016 3719 36438 Deposits generalpublic 264 11430 Deposits creditinstitutions 595755 484958 21870 6575 Average volumeSwedishkronor 4164 562 50510 65261 797 Issued securities 3335 43953 1583 3661 Deposits generalpublic 6797 220 20623 2871 11508 2319 Deposits creditinstitutions 5160 46540 Liabilities 8184 633 2358 797 Average volumeforeigncurrency 4283 6926 10644 2403 Interest-bearing securities,currentassets 3684 22310 Interest-bearing securities,fixedassets 807 6521 Lending generalpublic 3015 38273 12055 5619 Lending creditinstitutions 3711 12222 20930 Average volumeSwedishkronor 8445 Interest-bearing securities,currentassets 38924 417 Interest-bearing securities,fixedassets 4352 5995 11742 2667 Lending generalpublic 28200 Lending creditinstitutions 6432 20245 1184 Assets AVERAGE VOLUMES 61940 25610 5705 Net interestincome 18806 1896 Total interestexpense Total interestexpenseinforeigncurrency 58048 Other interestexpense 6075 Subordinated loans Issued securities 20554 1184 General public Credit institutions Interest expenseinforeigncurrency 19270 Total interestexpenseinSwedishkronor 1905 Other interestexpense Subordinated loans Issued securities General public Credit institutions Interest expenseinSwedishkronor INTEREST EXPENSE Total interestincome Total interestincomeinforeigncurrency Other interestincome Interest-bearing securities,currentassets NOTES TOTHEPROFITANDLOSSACCOUNTBALANCESHEET Amounts inSEKmillionunlessotherwisestated 9919 991998 1999 1998 1999 RU PARENTCOMPANY GROUP 4 3323 5595 2 949 5 244 SHB 1999 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Note 2 Dividends received GROUP PARENT COMPANY 1999 1998 1999 1998 Dividends on shares and participations 242 136 239 133 Dividends from associated companies 3 3 3 3 Dividends from Group companies 1 248 2 416 245 139 1 490 2 552

Note 3 Commission income GROUP PARENT COMPANY 1999 1998 1999 1998 Payments 759 736 746 734 Lending 426 352 239 176 Deposits 69 92 69 92 Guarantees 209 160 209 159 Securities 2 281 1 892 1 779 1 497 Other commission 949 845 1 036 998 4 693 4 077 4 078 3 656

Commission income received from Group companies 387 369

Note 4 Commission expense GROUP PARENT COMPANY 1999 1998 1999 1998 Payments 469 428 453 419 Securities 120 91 94 74 Other commission 126 150 189 121 715 669 736 614

Commission expense paid to Group companies 76 10

Note 5 Net result on financial operations GROUP PARENT COMPANY 1999 1998 1999 1998 Shares and participations – 469 229 – 520 219 Interest-bearing securities – 907 – 525 – 907 – 532 Realised profit – 1 376 – 296 – 1 427 – 313

Shares and participations 835 21 817 15 Interest-bearing securities 10 720 13 717 Unrealised changes in value 845 741 830 732

Currency changes 1 500 797 1 456 792 Net result on financial operations 969 1 242 859 1 211

Note 6 Other operating income GROUP PARENT COMPANY 1999 1998 1999 1998 Realised share price gains, not trading book 191 181 190 206 Surplus on sales of properties 42 334 — 326 Profit before depreciation on repossessed property 3 1 4 3 Rental income 16 30 14 30 Other operating income 104 72 70 83 356 618 278 648

Specification of net operating surplus

on repossessed property www.handelsbanken.se External income 7 9 5 4 Operating expenses 4 8 1 1 Net operating surplus 3 1 4 3

SHB 1999 59 60

www.handelsbanken.se PROFIT ANDLOSSACCOUNTSBALANCESHEETS Note 7 or ebr 61 5 37 7 49 11 57 26 70 Board members CEO andEVPs Loans toSeniorManagement te tf ot 3 4 2 226 4 223 800 4 2699 129 865 240 2934 4 133 887 234 3021 4 142 943 3243 147 Board, CEOandEVPs Salaries andotherremuneration Insurance premiumspaidtoGroupcompanies 1) SEK 217m(192)ofpensioncostsarecalculatedand104m(97)premiums. Other staffcosts Appropriation toprofit-sharingfoundation Pension costs Social securitycosts Salaries andfees Staff costs oa 4 2 3 2699 2934 3021 SEK 2.3m(1.6)waspaidinsalaryandotherremunerationtotheCEOboard. The averagenumberofemployeeswas220(191). Handelsbanken LivFörsäkringsAB 3243 Information aboutcompanieswhicharenotincludedintheConsolidated Accounts Average duringyear Number ofemployees Total The calculatedpensioncost,whichischargedtotheoperatingresult,basedonnumberofemployeesinactiveservice. ogKn 54 025 18 64 18 24 136 47 10 10 24 25 96 17 181 67 189 34 47 34 48 88 48 241 3131 131 40 214 77 35 28 3984 88 43 159 402 41 295 5 203 21 63 81 24 7142 144 19 422 320 3 153 12 19 71 23 81 7115 20 132 160 120 14 82 21 23 71 24 142 2023 132 19 — 2 154 Other countries 40 2 Hong Kong 19 19 2222 81 99 23 Singapore 162 USA 42 20 2 126 Germany 2 160 Luxembourg 2 45 4 UK 2217 95 Denmark 174 40 Finland 139 2 2 Norway Sweden 1 2403 3 3 3 50 2 2 4 4 3 47 Other countries Hong Kong Singapore USA Germany Luxembourg UK Denmark Finland Norway Sweden USA Luxembourg France Denmark Finland Norway Sweden Other staff 1) 8 7 4 4108 4443 4579 4 888 2 4 9 3929 4591 8546 8 520 2653 2888 2956 3 178 9919 991998 1999 1998 1999 9919 991998 1999 1998 1999 991998 1999 2 8 8 254 288 289 321 66 642 56 68 96 56 646 46 65 65 RU PARENTCOMPANY GROUP RU PARENTCOMPANY GROUP OE MEN WOMEN SHB 1999 Note 10 Note 9 Note 8 SHB 1999 OPTIONS OFFER: PENSION COMMITMENTS: REMUNERATION: TERMS Terms andremunerationoftheBank’sseniormanagementChairmanViceBoard oa onlse ABC 0 3 8 131 182 2 2 – 1 – 1 – 330 2 2 – 1 – –1 –203 27 33 –380 528 18 30 763 2 26 –22 308 27 –193 33 558 504 –5 – 184 26 376 1 – 24 –595 –3 –355 294 for theGroupandincreasedbySEK2m ParentCompanyintheformofforeigncurrencytranslationdifferences. –260 34 719 Both actualandpossibleloanlossesreducethe correspondingclaimamountontheassetssideofBalanceSheet.Thereserve –426 1005 139 Total loanlosses(A+B+C) 351 149 – 347 C. PROVISIONTOGENERALRESERVE FORCOUNTRYRISK 5 305 Net expensefortheyearclaimsvalued asagroup 33 610 –306 709 Allocation to/dissolutionofreserveforloanlosses –759 411 136 Recovered fromactuallossesinpreviousyears 302 207 407 283 The year’swrite-downforactualloanlosses 5 B. CLAIMSVALUEDASAGROUP: –642 –530 320 Net expensefortheyearindividuallyvaluedclaims 678 348 1029 Write-back ofprovisionsforpossiblelosseswhicharenolongernecessary 213 157 Recovered fromactuallossesinpreviousyears 227 The year’swrite-downrelatingtopossibleloanlosses which havebeenreportedasactuallossesinthisyear’saccounts 610 654 Write-back ofpreviousprovisionsforpossibleloanlosses 486 The year’swrite-downforactualloanlosses 155 394 357 233 A. INDIVIDUALLYVALUEDCLAIMS: 1165 430 Loan losses 757 404 281 Other depreciation/write-downs 812 Goodwill 715 Property Equipment Depreciation andwrite-downinvalueoftangibleintangiblefixedassets Leasing costspaidtoGroupcompanies Other expenses Supplies Purchased services Travel andmarketing Communication Information technology Property andpremises Other administrativeexpenses earned pensioncommitmentisguaranteedbytheBank’sfund.IfCEOleavesBankbeforeageof55,apaid-up gradually duringtheyearsuptoageofretirementandisfullyearnedby55.TheBankchargedannuallyfort appointing relativelyyoungpeopletothepositionofChiefExecutiveOfficer.Theretirementpensionis75%salaryupt tion willbepaidtohim. including thefifthannualgeneralmeetingthereafter,heistobeofferedotherworkandpaidasifhadbeenCEO.If during theperiodofagreementwhichisdifferencebetweenpensionandremunerationpriortoretirement. previous agreement,doesnotserveasadirectoronanyotherboardsthanthosedesiredbytheBankandthatfeesarepaid age ofretirementandapensionwaspayable,supplementaryagreementappliesuntiltheannualgeneralmeetingin2000.This national basicpension(AFP)andsupplementary(ATP). the ageof65,retirementpensionis65%annualsalaryupto40index-linkedbaseamountsand32.5%abovethislevel result initsvaluation.IntheopinionofBoard,valuationscanbeconsideredtohavebeenperformedonsoundbusiness The optionshavebeenvaluedbyAlfredBergFondkommissionAB,whereanexercisepriceintheSEK176–181bandwasobtained.Ha the optionsis25November2004.TheaveragepriceofHandelsbankenclassAshareswasSEK111.83duringmeasurementperiod the underlyingsecurities.Atotalof3.85millionsyntheticoptionsweresubscribedfor.ThepriceeachoptionwasSEK11a No regularbonusispaid. other boardsthantheBankhadbeendeductedfromhisagreedfeeBank.Apensionwaspaidunderagreementdescribe The numberofpeopleintheGroupcoveredbythesecommitmentsis64(62),whom26(26)arepensioners. the GroupandSEK58m(55)forParentCompany.Pensioncommitmentssamepeopleare533m(498) Arne Mårtensson,likehispredecessors,hasaretirementageof55.ThisisconsideredtobedesirablebothfortheBankandth The remunerationoftheChairmanandCEOarereviewedannuallybyCompensationCommitteeCentralBoardDirectors. For theChairmanofBoardHandelsbanken,TomHedelius,thereisaCEOagreementasdescribedabove.FromNovember1994, The basicprincipleisthatExecutiveVicePresidentsretireattheageof60,withoccasionalexceptions.retirementpensi The PresidentandCEO,ArneMårtensson,hasreceivedremunerationbenefitsamountingtoSEK7228638.Feesfromservingon : TheBankhasnoagreementsonseverancepay.Formanyyears,thehadanagreementwithChiefExecutiveOfficer, In November1999,branchmanagersandothersenior–atotalof685wereinvitedtoacquiresyntheticoptionswithH In 1999,TomHedeliusreceivedremunerationandbenefitsfromtheBankamountingtoSEK97546,afterfeeswhichHedeli Increased pensioncommitmentsandpaidinsurancepremiumsforthepresentpreviousboards,CEOsEVPsamountto – 0 0 8 132 183 304 200 3 4 8 2991 2488 3543 3 030 9919 991998 1999 1998 1999 9919 991998 1999 1998 1998 1999 1999 1998 1999 5 8 3 370 437 684 750 ——— —— RU PARENTCOMPANY GROUP RU PARENTCOMPANY PARENTCOMPANY GROUP GROUP o theageof65and65%thereafter.Thepensionisearned he takesupemploymentoutsidetheBank,nocompensa- he costatthesamerateaspensionisearned.An nd theexercisepriceisSEK178.50.Theexpirydatefor principles. on is65%ofthesalaryinageband60-64.From to theBank.Inreturn,TomHedeliusreceivesafee forpossibleloanlossesdecreasedbySEK8m greement impliesthatTomHedelius,asinthe . Thepensionincludesamountsdueintheformof e CEOinviewoftheBank’straditionoften policy isissuedforthepensionearned. d above.Noregularbonusispaid. covered bytheBank'spensionfoundation. ndelsbanken Marketshasarrivedatasimilar whichoccurredduringthesubscriptionperiod. SEK482m(458)fortheParentCompany. otherboardshavebeenpaidtotheBank. whereby ifheisnotre-appointed,uptoand when TomHedeliusreachedthecontracted PROFIT ANDLOSSACCOUNTSBALANCESHEETS andelsbanken classAsharesas us receivedfromservingon 880 58 SEK 66m(61)for 61 www.handelsbanken.se PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

GROUP PARENT COMPANY 1999 1998 1999 1998 Write-downs: Claims on credit institutions 18 26 18 26 Claims on the general public 797 987 620 672 Total write-downs 815 1 013 638 698

Write-backs: Claims on credit institutions 50 9 50 9 Claims on the general public 597 297 212 177 Total write-backs 647 306 262 186

Note 11 Change in value of repossessed property GROUP PARENT COMPANY 1999 1998 1999 1998 Repossessed property – 2 — – 2 — Other repossessed property – 19 – 11 — — Realised change in value – 21 – 11 – 2 —

Repossessed property 1 — 1 — Other repossessed property 4 — — — Unrealised change in value 5 —1— Change in value of repossessed property – 16 – 11 – 1 —

Note 12 Appropriations GROUP PARENT COMPANY 1999 1998 1999 1998 Settlement of pensions Calculated pension premiums in the bank 217 192 217 192 Pension paid – 364 – 287 – 364 – 281 Compensation from pension foundation 750 600 750 600 603 505 603 511

Change in tax equalisation reserve K 457 457 Change in tax allocation reserve – 1 725 – 750 Change in other untaxed reserves – 20 – 30 Group contribution 4 862 — 603 505 4 177 188

Note 13 Taxes GROUP PARENT COMPANY 1999 1998 1999 1998 Current tax 1 917 1 807 1 834 739 Deferred tax 564 324 233 — Other taxes 44 37 34 32 2 525 2 168 2 101 771

Nominal tax rate in Sweden 28.0% 28.0% Deviations Non-taxable income/non-deductible expenses 0.0% – 0.6% Utilised deficit deduction in associated companies – 0.5% – 0.4% Amortisation of goodwill 0.9% 1.0% Effects of foreign taxation and other – 0.9% – 1.5% The Group’s effective tax rate 27.5% 26.5%

The Swedish tax authority has made a decision which could imply, if the decision is upheld in a higher court, that the Group’s tax expense would increase by SEK 384m. The Bank does not agree with the tax authority's decision and has appealed against it. At the year-end 1999, the Group had unutilised loss carry forwards, the taxation effects of which were SEK 45m. These loss carry forwards, which it is estimated will be possible to use in their entirety, have not been taken into consideration when calculating the tax expense for the year. www.handelsbanken.se

62 SHB 1999 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Note 14 Interest-bearing securities GROUP PARENT COMPANY 1999 1998 1999 1998

INSTRUMENTS ELIGIBLE AS COLLATERAL WITH CENTRAL BANKS Government instruments eligible as collateral 12 814 33 505 11 946 33 454 Other securities eligible as collateral 446 527 446 527 Instruments eligible as collateral with Central Banks 13 260 34 032 12 392 33 981

Instruments eligible as collateral with Central Banks Remaining maturity: maximum one year 10 150 18 394 9 355 18 394 Remaining maturity: over one year but maximum five years 2 056 12 779 2 029 12 758 Remaining maturity: over five years but maximum ten years 1 049 2 014 1 008 1 983 Remaining maturity: over ten years 5 845 0 846 Total 13 260 34 032 12 392 33 981

Average remaining maturity 1.9 1.5 2.0 1.5

BONDS AND OTHER INTEREST-BEARING SECURITIES Issued by public bodies — — — — Issued by other borrowers 80 155 73 794 85 992 81 575 Bonds and other interest-bearing securities 80 155 73 794 85 992 81 575

Of which unlisted securities 33 964 19 945 29 212 19 945 Of which subordinated (debenture loans) — 5 — 5 Of which claims on Group companies 10 670 11 469

Bonds and other interest-bearing securities Remaining maturity: maximum one year 61 788 51 158 67 080 48 947 Remaining maturity: over one year but maximum five years 11 798 12 838 12 313 18 634 Remaining maturity: over five years but maximum ten years 6 553 9 014 6 594 13 127 Remaining maturity: over ten years 16 784 5 867 Total 80 155 73 794 85 992 81 575

Average remaining maturity 1.5 1.2 1.6 1.2

CURRENT ASSETS Current assets acquisition price Swedish government 10 429 26 230 10 354 26 180 Swedish local authorities 102 — 102 — Swedish housing finance institutions 23 119 31 277 19 639 29 576 Other Swedish issuers: non-financial companies 4 586 3 217 4 524 3 170 other financial companies 7 424 8 979 6 177 7 083 Foreign governments 2 300 7 104 1 506 7 104 Other foreign issuers 39 155 28 869 39 132 28 847 Total 87 115 105 676 81 434 101 960

Of which subordinated (debenture loans) — 5 — 5

Current assets market value Swedish government 10 413 26 351 10 340 26 300 Swedish local authorities 102 — 102 — Swedish housing finance institutions 22 983 31 687 19 515 29 986 Other Swedish issuers: non-financial companies 4 600 3 314 4 504 3 245 other financial companies 7 424 9 000 6 176 7 105 Foreign governments 2 301 7 139 1 506 7 139 Other foreign issuers 39 123 28 980 39 102 28 957 Total 86 946 106 471 81 245 102 732

Of which subordinated (debenture loans) — 5 — 5 www.handelsbanken.se Difference between acquisition price and market value – 169 795 – 189 772

SHB 1999 63 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

GROUP PARENT COMPANY 1999 1998 1999 1998 Current assets book value Swedish government 10 413 26 351 10 340 26 300 Swedish local authorities 102 — 102 — Swedish housing finance institutions 22 983 31 687 19 515 29 986 Other Swedish issuers: non-financial companies 4 600 3 295 4 504 3 226 other financial companies 7 424 9 000 6 176 7 105 Foreign governments 2 300 7 139 1 505 7 139 Other foreign issuers 39 123 28 966 39 102 28 943 Total 86 945 106 438 81 244 102 699

Of which subordinated (debenture loans) — 5 — 5

FIXED ASSETS Fixed assets acquisition price Swedish government — — — — Swedish local authorities — — — — Swedish housing finance institutions 6 143 1 260 16 813 12 729 Other Swedish issuers: non-financial companies 293 — 293 — other financial companies — — — — Foreign governments — 15 — 15 Other foreign issuers 34 113 34 113 Total 6 470 1 388 17 140 12 857

Of which subordinated (debenture loans) — — — —

Fixed assets market value Swedish government — — — — Swedish local authorities — — — — Swedish housing finance institutions 6 160 1 323 16 797 12 952 Other Swedish issuers: non-financial companies 286 — 286 — other financial companies — — — — Foreign governments — 15 — 15 Other foreign issuers 28 107 28 107 Total 6 474 1 445 17 111 13 074

Of which subordinated (debenture loans) — — — — Book value higher than nominal value 745 2 570 1 082 2 809 Book value lower than nominal value 402 515 387 553

Note 15 Lending to credit institutions GROUP PARENT COMPANY 1999 1998 1999 1998

FIXED ASSETS Banks, in foreign currencies 43 999 69 149 47 915 72 269 Banks, in Swedish kronor 34 768 42 157 34 448 41 586 Other credit institutions, in foreign currencies 8 500 25 837 21 623 31 712 Other credit institutions, in Swedish kronor 11 630 2 847 85 777 70 141 98 897 139 990 189 763 215 708 Possible loan losses – 38 – 167 – 38 – 167 98 859 139 823 189 725 215 541 Of which subordinated — — 260 245 Of which claims on Group companies 83 179 75 840 Of which claims on associated companies 1 511 262 www.handelsbanken.se Information concerning maturities: Payable upon demand 18 894 24 349 35 667 24 240 Remaining maturity: maximum three months 58 490 76 400 76 663 102 984 Remaining maturity: over three months but maximum one year 17 515 35 194 48 628 63 254 Remaining maturity: over one year but maximum five years 2 368 1 855 25 916 21 871 Remaining maturity: over five years 1 592 2 025 2 851 3 192 Total 98 859 139 823 189 725 215 541

Average remaining maturity 0.3 0.3 0.7 0.6

64 SHB 1999 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Note 16 Lending to the general public GROUP PARENT COMPANY 1999 1998 1999 1998

FIXED ASSETS Lending SEK Households 202 161 194 573 35 192 32 924 Companies etc 292 600 287 583 127 566 111 825 Total 494 761 482 156 162 758 144 749

Lending foreign currency Households 19 289 12 970 13 085 10 567 Companies etc 115 572 95 985 98 038 88 470 Total 134 861 108 955 111 123 99 037

Possible loan losses – 3 416 – 3 706 – 1 771 – 1 730 Total lending to the general public 626 206 587 405 272 110 242 056

Of which subordinated 5 3 2 3 Of which claims on Group companies 470 451 Of which claims on associated companies 1 5 1 5

Gross investments referring to financial leasing agreements concluded from 1997 have been calculated to be SEK 8 210m (6 863). Unearned finance income according to the same calculation is SEK 1 580m (1 567).

Information concering maturities: Payable upon demand 76 716 20 692 24 077 20 329 Remaining maturity: maximum three months 102 512 121 079 64 303 56 093 Remaining maturity: over three months but maximum one year 109 711 122 366 62 361 59 394 Remaining maturity: over one year but maximum five years 245 977 250 812 65 970 60 035 Remaining maturity: over five years 91 290 72 456 55 399 46 205 Total 626 206 587 405 272 110 242 056

Average remaining maturity 2.0 2.2 1.8 2.2

Bad debts etc (For definitions see “Handelsbanken Highlights”) GROUP PARENT COMPANY 1999 1998 1999 1998 Bad debts 5 186 6 682 2 556 2 892 Reserve for possible loan losses – 3 463 – 3 926 – 1 809 – 1 937 Bad debts, net 1 723 2 756 747 955

Reduced rate loans without a provision for possible loan losses 128 231 85 130 Total loan losses 1 851 2 987 832 1 085

Bad debt reserve ratio 66.8% 58.8% 70.8% 67.0% Proportion of bad debts 0.27% 0.45% 0.20% 0.28% Problem loans before write-down for possible loan losses 5 314 6 913 2 641 3 022 Income on problem loans during the year 340 391 51 44 Annual interest rate on problem loans 6.40 5.67 1.93 1.46 Annual interest rate on loans which are not problem loans 6.09 7.02 5.23 6.26 Non-performing loans for which interest is accrued 1 372 1 617 250 370

COLLATERAL TAKEN OVER Book value Buildings and land 21 64 4 30 Shares and other participations 55 120 34 94 Other 76 9 — 0 152 193 38 124

Net income (Net operating surplus) Buildings and land 3 1 4 3

Shares and participations — — — — www.handelsbanken.se 31 43

Net operating surplus, % of book value Buildings and land 6.0 1.6 16.7 10.0 Shares and participations — — — —

SHB 1999 65 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Note 17 Shares and participations GROUP PARENT COMPANY 1999 1998 1999 1998 Trading book 7 840 1 989 7 517 1 837 For protection of claims 55 120 34 94 Other shares and participations 1 075 529 1 208 662 Current assets 8 970 2 638 8 759 2 593 Shares in credit institutions 171 171 171 171 Other shares and participations 311 298 310 295 Fixed assets 482 469 481 466 Shares and participations 9 452 3 107 9 240 3 059 Of which unlisted 282 268 393 372

Fv Fastighetsvärden AB, a wholly-owned subsidiary of the Bank, is included in the parent company. The shares in the company are regarded as investment shares and as such are current assets. In the Group, this holding has been eliminated by SEK 133m.

CURRENT ASSETS Acquisition value Trading book 5 706 1 857 5 425 1 724 For protection of claims 55 160 34 134 Other shares and participations 1 075 529 1 209 662 Total 6 836 2 546 6 668 2 520 Market value Trading book 7 840 1 989 7 517 1 837 For protection of claims 55 120 34 94 Other shares and participations 1 727 941 1 901 1 086 Total 9 622 3 050 9 452 3 017

FIXED ASSETS Acquisition value Shares in credit institutions 74 74 74 74 Other shares and participations 311 298 310 295 Total 385 372 384 369 Market value Shares in credit institutions 171 171 171 171 Other shares and participations 579 298 576 295 Total 750 469 747 466

Note 18 Shares and participations in associated companies GROUP PARENT COMPANY 1999 1998 1999 1998

FIXED ASSETS Credit institutions 37 35 30 30 Other associated companies 229 12 203 12 266 47 233 42 All associated companies are unlisted.

Shares and participations, associated companies 31 December 1999 No. of Book value Book value Parent company shares Group Parent company proportion of equity %

CREDIT INSTITUTIONS Svensk Bostadsfinansiering AB BOFAB (Stockholm) 25 000 37 30 50.0 Subtotal 37 30

OTHER ASSOCIATED COMPANIES Värdepapperscentralen AB VPC (Stockholm) 147 900 198 200 24.7 Various companies — 31 3 — Subtotal 229 203 Total 266 233 The associated company’s name, registered number, registered office, equity, profit/loss, proportion of equity, number of participations and their value according to the balance sheet have not been included since this information is not considered to be of major importance in providing a fair view. www.handelsbanken.se Note 19 Shares and participations in Group companies GROUP PARENT COMPANY 1999 1998 1999 1998

FIXED ASSETS Shares in Swedish credit institutions 27 376 27 376 Shares in foreign credit institutions 1 856 547 Shares in other Swedish companies1) 247 247 445 445 Shares in other foreign companies 151 36 247 247 29 828 28 404 All Group companies are unlisted. 1) Handelsbanken Liv Försäkrings AB is not inlcuded in the Consolidated Accounts.

66 SHB 1999 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Shares and participations, Group companies 31 December 1999 No. of Book value Book value Parent company shares Group Parent company proportion of equity %

SWEDISH CREDIT INSTITUTIONS Handelsbanken Finans AB (Stockholm) 1 550 000 0 145 100 Stadshypotek AB (Stockholm) 162 000 000 0 26 870 100 Stadshypotek Bank AB (Stockholm) 3 000 000 0 361 100 Subtotal 0 27 376

FOREIGN CREDIT INSTITUTIONS Handelsbanken Norge Holding AS (Oslo) 1 550 000 0 1 682 100 Svenska Handelsbanken S.A. (Luxembourg) 1 000 000 0 147 100 Various companies — 0 27 — Subtotal 0 1 856

OTHER SWEDISH COMPANIES Handelsbanken Liv Försäkrings AB (Stockholm) 1 500 247 300 100 Handelsbanken Liv Fondförsäkrings AB (Stockholm) 100 000 0 139 100 Various companies — 0 6 — Subtotal 247 445

OTHER FOREIGN COMPANIES Svenska International (London) 8 000 000 0 92 100 Svenska Re S.A. (Luxemburg) 19 999 0 35 99,99 Various companies — 0 24 — Subtotal 0 151 Total 247 29 828 Particulars of subsidiaries’ registered numbers can be found on page 84. The subsidiary’s name, registered number, registered office, equity, profit/loss, proportion of equity, number of participations and their value according to the balance sheet have not been included since this information is not considered to be of major importance in providing a fair view.

Note 20 Goodwill GROUP PARENT COMPANY 1999 1998 1999 1998

FIXED ASSETS Acquisition value at beginning of year 5 419 5 251 274 274 Acquistion value of future goodwill 832 168 — — Acquistion value of past goodwill – 16 — — — Total acquisition value 6 235 5 419 274 274

Accumulated amortisation at beginning of year – 771 – 477 – 232 – 205 Accumulated amortisation of past goodwill 16 — — — Amortisation for the year according to plan – 300 – 294 – 27 – 27 Accumulated amortisation at year-end – 1 055 – 771 – 259 – 232

Accumulated write-downs at beginning of year — — — — Write-downs for the year – 5 — — — Accumulated write-downs at year-end – 5 ——— Foreign currency effect – 4 – 3 – 4 – 4 5 171 4 645 11 38

SEK 166m of the acquisition value of future goodwill in the Group for 1998 (SEK 168m) refers to adjustment of the acquisition balance with respect to Stadshypotek.

Note 21 Equipment GROUP PARENT COMPANY 1999 1998 1999 1998

FIXED ASSETS Residual value according to plan on 1 January 693 721 597 521 New acquisitions, net during the year 423 314 412 384 The year’s depreciation according to plan – 407 – 351 – 376 – 308 Book value of leasing assets taken over 76 9 0 0 Residual value according to plan 785 693 633 597 www.handelsbanken.se Apart from owned equipment, the Bank also has equipment which is subject to leasing contracts. The book residual value of leased equipment in the Group was SEK 97m (51). For the Parent Company, the equivalent value was SEK 231m (204).

SHB 1999 67 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Note 22 Buildings and land GROUP PARENT COMPANY 1999 1998 1999 1998

FIXED ASSETS Containing bank premises 1 053 1 023 952 985 CURRENT ASSETS For protection of claims etc 21 64 4 30 1 074 1 087 956 1 015

Containing bank premises Acquisition value at beginning of year 971 1 729 928 1 209 New acquisitions during the year 101 0 — 0 Capitalised new and rebuilding costs 0 8 0 8 Acquisition value of properties sold during the year – 38 – 766 — – 289 Total acquisition value 1 034 971 928 928

Accumulated depreciation at beginning of year – 280 – 344 – 275 – 322 Accumulated depreciation of sold properties — 83 — 65 Depreciation during the year – 18 – 19 – 18 – 18 Total accumulated depreciation – 298 – 280 – 293 – 275

Revaluation at beginning of year 436 436 436 436 Accumulated depreciation on revaluation – 104 – 89 – 104 – 89 Depreciation for the year – 15 – 15 – 15 – 15 Total revaluation 317 332 317 332 Residual value according to plan 1 053 1 023 952 985

Tax assessment value, properties in Sweden 1 344 1 323 1 344 1 290

Note 23 Other assets GROUP PARENT COMPANY 1999 1998 1999 1998 Pre-paid tax 916 74 14 54 Claims on investment banking settlements 7 187 5 156 4 698 3 375 Derivative contracts with a positive value 58 444 58 424 57 282 57 775 Possible loan losses – 9 – 13 — — Other 4 777 4 054 9 803 3 051 71 315 67 695 71 797 64 255

Note 24 Prepayments and accrued income GROUP PARENT COMPANY 1999 1998 1999 1998 Accrued interest income 7 567 7 955 6 301 6 779 Other accrued income 1 082 290 1 131 2 606 Prepayments 1 075 1 576 82 89 9 724 9 821 7 514 9 474

Note 25 Liabilities to credit institutions GROUP PARENT COMPANY 1999 1998 1999 1998 Banks, in foreign currencies 105 710 138 993 103 203 140 657 Banks, in Swedish kronor 59 608 51 831 55 841 47 890 Other credit institutions, in foreign currencies 9 294 15 581 10 047 16 413 Other credit institutions, in Swedish kronor 11 891 54 741 5 795 10 770 186 503 261 146 174 886 215 730

Of which liabilities to Group companies 6 766 11 432 Of which liabilities to associated companies 184 — 0 —

www.handelsbanken.se Information concerning maturities: Payable upon demand 28 398 34 544 31 563 42 041 Remaining maturity: maximum three months 130 830 152 237 126 658 130 251 Remaining maturity: over three months but maximum one year 15 509 57 381 16 134 41 513 Remaining maturity: over one year but maximum five years 9 001 9 854 465 1 884 Remaining maturity: over five years 2 765 7 130 66 41 Total 186 503 261 146 174 886 215 730

Average remaining maturity 0.1 0.4 0.1 0.1

68 SHB 1999 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Note 26 Deposits from the general public GROUP PARENT COMPANY 1999 1998 1999 1998 Deposits, Swedish kronor Households 68 778 66 193 64 043 61 505 Corporate etc 70 409 59 330 69 074 58 080 Total 139 187 125 523 133 117 119 585

Deposits, foreign currencies Households 8 014 4 103 5 477 3 872 Corporate etc 38 093 38 380 41 762 52 332 Total 46 107 42 483 47 239 56 204 Total deposits 185 294 168 006 180 356 175 789

Of which liabilities to Group companies 8 321 15 214 Of which liabilities to associated companies 15 14 15 14

Information concerning maturities: Payable upon demand 154 182 147 496 144 672 141 971 Remaining maturity: maximum three months 27 682 7 009 31 762 18 994 Remaining maturity: over three months but maximum one year 310 307 943 2 104 Remaining maturity: over one year but maximum five years 3 099 12 856 2 958 12 689 Remaining maturity: over five years 21 338 21 31 Total 185 294 168 006 180 356 175 789

Average remaining maturity 0.1 0.1 0.1 0.0

Note 27 Funding from the general public GROUP PARENT COMPANY 1999 1998 1999 1998 Funding from the general public in foreign currencies 17 602 22 464 16 173 21 193 in Swedish kronor 18 587 16 054 17 642 15 205 36 189 38 518 33 815 36 398 Of which liabilities to Group companies 42 40 Of which liabilities to associated companies — — — —

Information concerning maturities: Payable upon demand 2 712 1 889 2 754 1 790 Remaining maturity: maximum three months 28 217 31 765 25 937 30 007 Remaining maturity: over three months but maximum one year 3 816 3 415 3 698 3 229 Remaining maturity: over one year but maximum five years 808 1 029 793 974 Remaining maturity: over five years 636 420 633 398 Total 36 189 38 518 33 815 36 398 Average remaining maturity 0.2 0.1 0.2 0.2

Note 28 Issued securities GROUP PARENT COMPANY 1999 1998 1999 1998

CERTIFICATES in foreign currencies 120 704 101 233 113 292 87 149 in Swedish kronor 36 136 23 512 10 617 4 246 Total certificates 156 840 124 745 123 909 91 395

BOND LOANS in foreign currencies 34 279 26 624 29 619 22 959 in Swedish kronor 168 421 148 009 5 935 5 147 Total bond loans 202 700 174 633 35 554 28 106 359 540 299 378 159 463 119 501 www.handelsbanken.se Of which liabilities to Group companies —— Of which liabilities to associated companies — — — —

Information concerning maturities: Remaining maturity: maximum one year 193 389 140 777 144 175 91 942 Remaining maturity: over one year but maximum five years 159 720 139 350 14 828 15 100 Remaining maturity: over five years but maximum ten years 6 431 18 783 460 11 973 Remaining maturity: over ten years 0 468 0 486 Total 359 540 299 378 159 463 119 501 Average remaining maturity 1.3 1.6 0.4 0.6

SHB 1999 69 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Note 29 Other liabilities GROUP PARENT COMPANY 1999 1998 1999 1998 Tax liabilities 825 361 744 23 Liabilities on investment banking settlements 3 942 4 567 3 817 4 559 Derivative contracts with a negative value 58 168 63 501 56 621 62 579 Short-term positions 12 889 14 003 12 889 14 003 Other 4 676 2 872 4 101 1 951 80 500 85 304 78 172 83 115

Note 30 Accruals and deferred income GROUP PARENT COMPANY 1999 1998 1999 1998 Accrued interest expense 9 162 10 433 4 700 4 389 Other accrued expenses 1 352 1 095 1 127 768 Deferred income 1 088 1 135 49 70 11 602 12 663 5 876 5 227

Note 31 Subordinated liabilities GROUP PARENT COMPANY 1999 1998 1999 1998 Subordinated loans in foreign currencies 11 848 10 999 11 374 10 943 Subordinated loans in Swedish kronor 8 002 12 136 4 115 4 799 19 850 23 135 15 489 15 742 Of which liability to Group companies —— Of which liability to associated companies — — — —

Specification, subordinated loans, Parent Company 31 December 1999 Year of issue/conv./ Original nominal Interest Outstanding maturity amount in each rate amount currency (million) % SEK m

IN SWEDISH KRONOR 1990/05 1) 2 000 variable 2 000 Other Swedish kronor 5) 2 115 Subtotal 4 115

IN FOREIGN CURRENCY 1992/04 2) USD 400 8.350 3 141 1997/perpetual 3) USD 350 variable 2 985 1997/perpetual 4) USD 360 7.125 3 070 Other foreign currency 5) 2 178 Subtotal 11 374 Total 15 489 1) Fixed-term subordinated loan with 6-month variable coupon, linked to Stibor. 2) Fixed-term subordinated loan at fixed interest rate paid twice per annum. Premature redemption may occur in the case of changed tax regulations. 3) Perpetual subordinated loan with 3-month variable coupon linked to Libor. Premature redemption may occur in the case of changed tax regulations or from 3 March 2002. The interest rate is adjusted if the right to redeem the loan in advance is used. Premature redemption requires the approval of the Swedish Financial Supervisory Authority. 4) Perpetual subordinated loan at fixed interest rate paid twice per annum. Premature redemption may occur in the case of changed tax regulations or on the interest due dates starting on 7 March 2007 provided that the Swedish Financial Supervisory Authority gives its approval. In connection with the right of redemption, the interest rate becomes variable, linked to Libor. 5) Other subordinated loans which are not specified here are issued in the form of fixed-term or perpetual subordinated loans.

Note 32 Untaxed reserves GROUP PARENT COMPANY 1999 1998 1999 1998 Accumulated depreciation on property in excess of plan 11 11 Tax equalisation reserve K 456 913 Tax allocation reserve 7 018 5 293 www.handelsbanken.se Other untaxed reserves 85 65 7 570 6 282

70 SHB 1999 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Note 33 Shareholders’ equity GROUP PARENT COMPANY 1999 1998 1999 1998

RESTRICTED SHAREHOLDERS’ EQUITY: Share capital 2 859 2 605 2 859 2 605 Statutory reserve 2 754 3 007 2 682 2 936 Reserve for unrealised profits 633 22 602 8 Other restricted reserves 8 263 6 393 — —

UNRESTRICTED SHAREHOLDERS’ EQUITY: Profit brought forward 17 398 16 377 17 421 15 725 Profit for the year 6 663 6 027 6 742 5 029 38 570 34 431 30 306 26 303

Reserve for unrealised profits by balance sheet item Shares and participations 633 22 602 8 633 22 602 8

GROUP Share Restricted Unrestricted Profit for Total capital reserves reserves the year Shareholders’ equity carried forward 2 605 9 422 16 378 6 026 34 431 Changed accounting principles for goodwill in foreign currency – 1 1 0 Shareholders’ equity carried forward after adjustment 2 605 9 422 16 377 6 027 34 431 Cash dividend – 1 922 – 1 922 Other distributions of profits 222 3 883 – 4 105 0 Redemption of index and preference shares – 222 – 262 – 484 Bonus issue 476 – 476 0 Transfer between restricted and unrestricted equity 2 577 – 2 577 0 Change of foreign currency component – 95 – 61 – 156 Change of exchange rate difference on hedging instruments 38 38 Profit for the year 6 663 6 663 Shareholders’ equity at year-end 1999 2 859 11 650 17 398 6 663 38 570

The accumulated amount of the Group’s unrealised foreign exchange differences is SEK 140m (296). The accumulated exchange rate difference on matching hedging instruments is SEK –77m (–115).

PARENT COMPANY Share Restricted Unrestricted Profit for Total capital reserves reserves the year

Shareholders’ equity carried forward 2 605 2 944 15 725 5 029 26 303 Cash dividend – 1 922 – 1 922 Other distributions of profits 222 2 885 – 3 107 0 Redemption of index and preference shares – 222 – 262 – 484 Bonus issue 476 – 476 0 Group contribution paid – 327 – 327 Transfer between restricted and unrestricted equity 594 – 594 0 Change of foreign currency component – 6 – 6 Profit for the year 6 742 6 742 Shareholders’ equity at year-end 1999 2 859 3 284 17 421 6 742 30 306

The share capital comprises: A shares 2 600 649 949 619 shares at SEK 4.00 B shares 259 64 797 321 shares at SEK 4.00 2 859

Note 34 Collateral pledged for own debt GROUP PARENT COMPANY 1999 1998 1999 1998

Pledged bonds 72 874 64 096 72 059 64 076 www.handelsbanken.se Repledged securities 11 506 29 682 11 506 29 682 Other 627 4 623 0 85 007 93 782 84 188 93 758

SHB 1999 71 PROFIT AND LOSS ACCOUNTS BALANCE SHEETS

Note 35 Contingent liabilities GROUP PARENT COMPANY 1999 1998 1999 1998 Guarantees, loans 16 753 19 427 21 281 28 557 Guarantees, other 18 551 18 691 17 823 18 312 Special guarantees 62 62 62 62 Irrevocable letters of credit 28 493 26 647 28 476 26 647 Own acceptances 927 5 503 927 5 503 Other 4 502 6 401 4 170 — 69 288 76 731 72 739 79 081

Note 36 Pension commitments GROUP PARENT COMPANY 1999 1998 1999 1998 Market value of assets in the Bank’s pension foundation 19 399 11 691 19 399 11 691 Pension liability – 8 200 – 5 621 – 8 200 – 5 621 Surplus 11 199 6 070 11 199 6 070

The pension commitments in the Bank’s pension fund (Pensionskassan SHB, försäkringsförening) are SEK 1 499m (1 349) and the market value of the assets is SEK 9 246m (5 254). The surplus in the fund is thus SEK 7 747m (3 905).

Note 37 Other commitments GROUP PARENT COMPANY 1999 1998 1999 1998 Certifcate programmes 6 466 — 6 466 — Other commitments 3 309 958 3 283 931 Commitments regarding future payments 9 775 958 9 749 931

Interest rate swaps 1 237 170 963 576 1 233 920 960 339 FRA/Futures 2 583 496 3 670 759 2 583 496 3 670 758 Interest rate options 56 861 28 565 51 822 25 766 Interest-rate related contracts 3 877 527 4 662 900 3 869 238 4 656 863

Forward currency contracts 1 441 665 1 365 212 1 440 911 1 364 090 Currency swaps 135 437 93 295 134 052 88 551 Currency options 52 381 53 900 52 381 53 900 Currency-related contracts 1 629 483 1 512 407 1 627 344 1 506 541

Equity futures 3 405 1 027 3 405 1 027 Equity swaps 1 486 1 486 Equity options 30 786 13 048 30 786 13 048 Equity-related contracts 35 677 14 075 35 677 14 075

Credits granted but not yet drawn 87 323 63 535 80 366 60 911 Unutilised part of overdraft facilities granted 73 616 50 685 73 616 50 685 Other commitments 160 939 114 220 153 982 111 596 Total commitments 5 713 401 6 304 560 5 695 990 6 290 006

Agreed future leasing fees distributed by the year they fall due for payment

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total 344 281 209 129 83 52 32 23 15 15 11 11 1 205 www.handelsbanken.se

72 SHB 1999 SHB 1999 te prtn noe2413 85 1 123 1 130 –84 0 274 131 3863 123 50 1489 820 253 –77 306 4309 923 Other operatingincome Net resultonfinancialoperations Commission income Dividends received Interest income PARENT COMPANY Total Other operatingincome Net resultonfinancialoperations Commission income Dividends received Interest income GROUP Geographical distributionofincome OTHER INFORMATION ahfo noeaigatvte 508281 4 –13240 11445 –1225 258 5612 –1089 4666 15008 –2168 –2313 7712 8607 24 51 Cash flowonoperatingactivities 10674 — 1370 314 8572 2552 336 355 83 23930 1678 3303 Changes intheassetsandliabilitiesofoperatingactivities 2113 6677 Paid incometax 3334 19068 21126 — 3399 484 16662 211 4619 Adjustment foritemsintheoperatingresultwhichdonotaffectcashflow: 2777 10744 89762 Operating profit 2496 3719 949 2324 OPERATING ACTIVITIES 1368 1901 37047 215610 42114 5614 2151 11258 23137 Cash flowstatement 736 10520 5 11231 12816 105510 are thereasonthattabledoesnotshowexposuretoexchangeraterisks.Seepage49forinformationaboutri 8395 1654 23472 funding. Theloanscanthenbeswappedintoothercurrenciesthroughtransactionsonthederivativemarket.Theseoff-balance-s The allocationbetweencurrenciesinthebalancesheetisnotanexpressionofexchangeraterisks.Bankraisesfunding 21066 4489 81936 All amounts=SEKmillion. 29496 14234 3859 Total liabilities Subordinated liabilities 73957 107015 1424 Other liabilities 7825 29085 Issued securities 4250 the generalpublic Deposits andfundingfrom Liabilities tocreditinstitutions 51684 Liabilities 11529 GROUP 40093 36413 Total assets Other assets instruments Bonds andotherinterest-bearing Lending tothegeneralpublic Lending tocreditinstitutions Assets GROUP Assets andliabilitiesinforeigncurrency The distributionofincomeisbasedoninwhichcountrytheGroup’svariousunitsarelocated. Total onlse 6 0 7 512 –40922 37860 370 –32377 15497 –17705 376 –41409 –732 24604 –31227 437 –44131 20121 –830 707 2239 –340 14176 686 –80714 –741 167 –28292 40258 750 –841 Liabilities tocreditinstitutions Financial currentassets Lending tothegeneralpublic Lending tocreditinstitutions Depreciation andwrite-downs Unrealised changesinvalue Loan losses te 3 1 5 2008 –852 45894 38513 5216 –430 11639 –12535 2759 53196 –682 10 444 Other Issued securities Deposits andfundingfromthegeneralpublic S U B O K Othercurrencies DKK NOK GBP Othercurrencies DKK EUR NOK USD GBP EUR USD 9919 991998 1999 1998 1999 1228914138 8931 51 242 2968594094 8539 32 996 6508413883 8491 3884 26 550 8703 45 461 RU PARENTCOMPANY GROUP onre uoeworld Europe world countries Europe countries 4 0 2 243 odcRs fRestof Restof Restof Nordic Restof Nordic the currenciesofferingbesttermsattimeof heet transactionslimitexchangeraterisksand sks. PROFIT ANDLOSSACCOUNTSBALANCESHEETS 73 www.handelsbanken.se 74 www.handelsbanken.se PROFIT ANDLOSSACCOUNTSBALANCESHEETS ahfo o h er24290182910 1852 1950 – 600 –1565 –3000 –85 — 910 — –1922 –3290 0 –620 — –82 1950 – 2402 –1565 –3333 –407 17150 600 0 –418 484 – — –1631 –1922 6187 – –6303 –389 17639 — –3781 — –265 –4283 130 3985 –342 –231 4462 –484 –834 –6419 –527 Cash flowfortheyear Cash flowonfinancingactivities –5082 Group contribution Compensation frompensionfoundation Disbursement forredeemedindexandpreferenceshares Distribution ofBalder Paid dividend Subordinated loans FINANCING ACTIVITIES Cash flowoninvestingactivities Change inintangiblefixedassets Change intangiblefixedassets Change ininterest-bearingsecurities Change inshares Acquisition ofsubsidiaries INVESTING ACTIVITIES te iblte 919 1686 255 3568 255 839 616 3696 796 5266 289 4050 12595 Impact ontheGroup’sliquidfunds 117 Liquid fundsintheacquiredcompany 5735 Purchase pricepaid –3000 17150 Other liabilities –13240 3023 Issued securities –167 Liabilities tocreditinstitutions –3290 –6303 Deposits andfundingfromthegeneralpublic 4054 11445 4050 Other assets Goodwill 119 Interest-bearing securities –3333 6285 3985 258 Lending tocreditinstitutions Lending tothegeneralpublic 3025 –6187 –171 –6419 Bergensbanken wasacquiredduringtheyear.Theassetsandliabilitieswerevaluedasfollowsaccordingtoacquisi 15008 statement flow 1) ACQUISITIONOFSUBSIDIARIES 4054 Cash concerning Information Liquid fundsconsistofcashandbalanceswithbothSwedishforeigncentralbanks. The itemsinthecashflowstatementhavebeenadjustedforexchangeratedifferences.Changesbalancesheetaretherefo Liquid fundsatendofyear Exchange ratedifferenceonliquidfunds Cash flowonfinancingactivities Cash flowoninvestingactivities Cash flowonoperatingactivities Liquid fundsatbeginningofyear 1) 1999 9919 991998 1999 1998 1999 5 — — — 255 RU PARENTCOMPANY GROUP re notcomparablewiththeitemsincashflowstatement. tion analysis. 6 0 – 264 SHB 1999 SHB 1999 sudscrte 5 4 –3932 6736 –40 13 359540 922799 186503 –381 –3822 221483 Issued securities Deposits andfundingfromthegeneralpublic Liabilities tocreditinstitutions 626206 98859 LIABILITIES Total assets Interest-bearing securities Lending tothegeneralpublic,fixedassets Lending tocreditinstitutions,fixedassets ASSETS Information concerningfairvalue,Group wp 8 04705 3 0 — — — — 53 42 — 0 — — 106 — — — — 39 497 — –6 — 5 129 — — — –79 14 — 90 — 1194 5612 851 784 — — 2719 — — 389 67 — 2723 2612 5095 5133 94 2329 2168 — — 33986 111 989 1036 7147 — 4397 2329 993 — 21204 4059 3405 — 899 — — 2750 cash flowswithrespecttooutstandingderivative positions. 29592 reversed differencesbetweenfairvalueandbook valueoftheassetsandliabilitieswhicharesubjecttohedgeaccounting.Ple 5604 30447 6619 — For market-tradedderivativeinstruments,themarket valueisthesameasbookvalue.Thedifferencesbetweenfairan 124 290 5480 193 6339 — 31674 Of whichcleared 4623 23538 — 6022 124 Total 260 1622336 140115 26791 5039 Swaps 131040 Futures 131614 1438915 52381 Options 231 3462 15779 Equity-related instruments 295 13443 213 14655 Of whichcleared 12354 2041 Total 270 3737412 Swaps 448466 1105556 2031 Futures 582 51822 Options Currency-related instruments 2580034 4174 367 Of whichcleared Total Swaps FRA/Futures Options Interest-rate relatedinstruments GROUP 883968 Derivative Instruments 96592 19850 are valuedinthesameway. at theaveragepriceonbalancesheetday.Market-listedoff-balance-sheetitems 30 daysareconsideredtobeshort-term. value. Claimsandliabilitieswithfinalmaturityordatefornextinterest-ratefixingwithin with avariableinterestrate,thefairvalueisconsideredtobesameasbook therefore cannotconstitutethebasisofacomparisonbetweencreditinstitutions. credit institutions.Informationconcerningfairvalueisnotacorporatevaluationand assumptions. Thus,themethodsappliedandassumptionsmademayvaryamong gage andconsumercredits.Thedirectivesallowscopeforchoiceofmethodvarious although theymaybeofimportanceinvaluing,forexample,depositaccountsandmort- Sheet. Valueswhicharebasedoncustomerrelationsnottobetakenintoaccount, ities intheBalanceSheetandalsofinancialitemswhicharenotreported a comparisonistobemadebetweenfairvalueandbookforbothassetsliabil- In accordancewiththeSwedishFinancialSupervisoryAuthority’sdirectives(1998:27), Total surplusvalue Total liabilities Subordinated liabilities Other liabilities Other assets Current assetsandliabilitieswhicharetradedonliquidmarketshavebeenvalued For meansofpayment,currentclaimsandliabilitiesalsofor urn ses9 1 8808 2127 0 4 96315 8004 86945 6470 current assets fixed assets current assets fixed assets au oiieNgtv au oiieNgtv oiieNegative Positive Negative Positive value Negative Positive value oia okvleNmnlMre au Bookvalue Marketvalue Nominal Bookvalue Nominal REPORTED ATMARKETVALUEASHEDGES value hasbeenconsideredtemporary. hedge accountingandb)thattheyaretoberegardedasfixedassetswherethefallin the bookvalueislessthanfairvalue,thisduetotheseitemsbeinga)subject A surplusvaluealsooccurswhenmarginsdecreaseandalossincrease. surplus valuesifshort-terminterestratesarefallingandlossesrising. new lendingatthetimeofmeasurement. adjusted whenmakingthevaluationisassumedtobesameasaveragemarginfor and liquidityrisk.Thecreditriskpremiumbywhichthemarketratehasbeen current marketrateforthecorrespondingmaturityadjustedtotakeintoaccountcredit assets, fixedissuedliabilitiesoroff-balance-sheetfinancialitemsarevaluedatthe Items whicharenottradedonliquidmarkets,irrespectiveofwhetherthesecurrent In thosecaseswherefairvalueonassetsislessthanthebookandforliabilities, With themethodapplied,interestrateriskinBalanceSheetgivesriseto Properties arevaluedonthebasisofanexternalvaluation. 991999 tofairvalue Adjustment 1999 value Book 9 2 21645 106 92 129 1 691 ase seepages49-53foradescriptionoftherisks and d bookvaluereportedinthetablecorrespondto the PROFIT ANDLOSSACCOUNTSBALANCESHEETS 6 154 – 65 – 1 75 www.handelsbanken.se 76

www.handelsbanken.se PROFIT ANDLOSSACCOUNTSBALANCESHEETS oa 56547139 45655 339 –874 13946 –874 14478 339 –11 33193 13607 –339 and domesticfinancialinstitutions 31177 –5171 Less shareholdingsininsurancecompanies 261 328 14139 Total –339 Total tier2capital 5053 Adjustment write-up Subordinated loansafterreduction,max TIER 2CAPITAL Total tier1capital Less adjustmentforwrite-up ofwhich72% Less goodwill ofwhich72% Minority interest Tax equalisationreserve Tax allocationreserve Shareholders’ equity TIER 1CAPITAL Capital base31December1999 xhnert ik 0 20300 632 10437 387 118 8844 269 0 4020 20319 632 248291 4824 387 10456 570475 45198 118 71500 8844 15994 303113 4020 269 83956 203093 498975 461947 4824 46813 195270 864856 73314 Total marketrisks Exchange raterisks Counterparty andotherrisks 289597 15063 Settlement risks Equity risks 415134 Interest raterisks 39636 791542 FOR MARKETRISKS 0 135350 Total creditrisks Total A–D A Group 0 Off-balance-sheet items Total A–D A 670 46935 Group Balance sheetitems 45451 670 46265 FOR CREDITRISKS Capital requirement31December1999 44781 1) Thecapitalbasehasbeenreducedbytheproposeddividend. Total capitalbase Enlarged capitalbase Total tier1and2capial 0 4414 7 2057 7 09940929 40929 72574 160200 160200 42075 42075 74471 232701 100 232701 D 100 D 06 7 0 0 2734532256 2013 4513 10064 52793 93790 23653 19240 47306 2504 96199 2234 5008 11168 66578 108912 162892 19541 50 20 325785 97706 C B 50 20 C B 1) atraon mutaon mutaon amount amount amount Risk-weighted amount Converted amount Nominal Risk-weighted amount Risk-weighted Investments Converted amount amount Nominal factor Weighting Risk-weighted Investments factor Weighting pcfcGnrlTtlSeii eea Total General Specific Total General Specific ikrs ikrs ikrisk risk risk risk risk risk 64628162 36 426 RU PARENTCOMPANY GROUP RU PARENTCOMPANY GROUP RU PARENTCOMPANY GROUP RU PARENTCOMPANY GROUP aia ai .%17.5% 12.4% 268591 20300 9.4% 6.5% 482266 248291 20319 461947 Tier 1capitalratio Capital ratio Total Market risks Credit risks RISK-WEIGHTED AMOUNT Capital requirement31December1999 RU PARENTCOMPANY GROUP SHB 1999 SHB 1999 to theshareholdersofatraditionallifeinsurancecompany.Theentiresurplusshallaccruepolicy-holders. the finalfigurespublishedinHandelsbankenLiv’sannualreport. hne ntcnclpoiin 2 –1204 1904 –1721 2484 BALANCE SHEET Surplus fortheyear Tax Non-technical account Balance ontechnicalaccount–lifeinsurancebusiness Operating expenses Bonus Changes intechnicalprovisions Insurance provisions Investment income Premium income Technical account–lifeinsurancebusiness PROFIT ANDLOSSACCOUNT Handelsbanken LivFörsäkringsAB oa ses2 5 16963 963 1060 20754 212 754 6 328 the SwedishFinancialSupervisoryAuthority. The accountshavebeenpreparedinaccordancewiththeAccountingActforInsuranceCompaniesandalsoinstructionsis 470 6 Comments: 327 7000 7136 535 8476 Total assets 10444 Prepayments andaccruedincome Other assets Claims Other investmentassets Bonds andothersecurities Shares andparticipations Buildings andland Assets Handelsbanken LivFörsäkringsABisrunonmutualprinciples.AccordingtotheInsuranceCompaniesBusinessAct,dividendsmay The profitandlossaccountbalancesheetforHandelsbankenLivFörsäkringsABarebasedonpreliminaryinformationmay 991998 1999 iblte 4 829 62 744 30 150 3948 84 1718 44 150 5412 16963 2308 20754 10226 Total liabilities,provisionsandequity Accruals anddeferredincome 12012 Liabilities Provisions fortaxes Technical provisionsforlifeinsurance Surplus fortheyear Bonuses Equity Liabilities, provisionsandequity 7 –967 – 1174 7 –186 –185 – 176 – 224 9 2513 1819 3 496 2 203 0 1718 2 308 6–72 – 96 991998 1999 sued by differfrom not bepaid PROFIT ANDLOSSACCOUNTSBALANCESHEETS 991998 1999 77 www.handelsbanken.se RECOMMENDATION FOR DISTRIBUTION OF PROFITS

Recommendation for distribution of profits

The Handelsbanken Group’s unrestricted equity is SEK 24 061m. No funds are required for transfer to restricted reserves. In accordance with the Balance Sheet for Handelsbanken, profits totalling SEK 24 163m are at the disposal of the Annual General Meeting.

The Board of Directors recommends that the profits be distributed as follows:

SEK m Dividend to shareholders SEK 3.00 per share (SEK 2.67 for 1998 recalculated after the split) 2 144.2

Balance carried forward 22 018.5 Total allocated 24 162.7

Stockholm, 22 February 2000

TOM HEDELIUS

BO RYDIN

LOTTY BERGSTRÖM PER-OLOF ERIKSSON CLAS REUTERSKIÖLD LENNART CLAESSON ROLAND FAHLIN BENGT SAMUELSSON GÖRAN ENNERFELT HANS LARSSON SVEN ÅGRUP OLLE PERSSON

ARNE MÅRTENSSON President and Group Chief Executive www.handelsbanken.se

78 SHB 1999 AUDIT REPORT

Audit report

To the General Meeting of the Shareholders of Svenska Handelsbanken AB (publ) Registered number 502007-7862

We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the Board of Directors and the President of Svenska Handelsbanken AB (publ) for the year 1999. These accounts and the administration of the Company are the responsibility of the Board of Directors and the President. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit.

We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain reasonable assurance that the annual accounts and the consolidated accounts are free of material misstatement. During the year, the auditing department of Svenska Handelsbanken has continuously examined the internal controls and accounts. We have received the reports that have been prepared. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the board of Directors and the President, as well as evaluating the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we examined significant decisions, actions taken and circumstances of the Company in order to be able to determine the liability, if any, to the Company of any Board Member or the President. We also examined whether any Board Member or the President has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act for Credit Institutions and Securities Companies or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below.

The annual accounts and the consolidated accounts have been prepared in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies, and thereby, give a true and fair view of the Company’s and the Group’s financial position and results of operations in accordance with generally accepted accounting principles in Sweden.

We recommend to the General Meeting of Shareholders that the income statements and balance sheets of the Parent Company and the Group be adopted, that the profit of the Parent Company be dealt with in accordance with the proposal in the administration report and that the Members of the Board of Directors and the President be discharged from liability for the financial year.

Stockholm, 1 March 2000

Öhrlings PricewaterhouseCoopers AB Ernst & Young AB www.handelsbanken.se BERTIL EDLUND ÅKE DANIELSSON ÅKE HEDÉN Authorised Public Accountant Authorised Public Accountant Authorised Public Accountant

ULF DAVÉUS Authorised Public Accountant Appointed by the Swedish Financial Supervisory Authority

SHB 1999 79 HANDELSBANKEN’S SHARES

Handelsbanken’s shares

SHARE PRICE PERFORMANCE AND DIVIDEND All ordinary shares have been unrestricted since 1 January 1993. Ordinary class A shares each carry In 1999, the rise on the Stockholm Stock Exchange, one vote. Ordinary class B shares carry one-tenth of measured by the Affärsvärlden Share Index, was 66%. a vote each. Bank shares put in a poor performance, however. The At the Annual General Meeting, no shareholder is drop in the price of Handelsbanken’s share was 5.9%. allowed to vote for more than 10% of the total number Nevertheless, during the 1990s, Handelsbanken’s shares of votes in the Bank. have risen at the same pace as the general index and Handelsbanken’s shares are listed on the Stockholm almost twice as fast as the bank index excluding Stock Exchange. One trading unit is equivalent to Handelsbanken. 100 shares. Handelsbanken’s long-term dividend policy reflects the ambition to raise dividends at a rate which is above THE SHAREHOLDERS the average for the banking sector. The Board recom- mends a dividend of SEK 3.00 for 1999, which is an At the year-end, Handelsbanken had over 83 000 share- increase of 12% compared with the previous year. holders, most of them private individuals. As shown in the table on the next page, the majority of shareholders MARKET CAPITALISATION owned only a small number of shares. Of the 193 shareholders with more than 250 000 shares, there As at 31 December 1999, the market capitalisation of were a number of asset managers representing foreign Handelsbanken’s shares was SEK 76bn. The Bank’s private individuals and legal entities. At the end of market capitalisation has increased by a factor of five 1999, around 26% of the shares were owned by during the 1990s. investors outside Sweden. THE SHARES Approximately 54% of the total number of shares are owned by Swedish institutional holders. These At the Annual General Meeting in 1999, the Board mainly include insurance companies, investment proposed a bonus issue and a split where each share companies and equity funds representing a large number was divided into three new shares. Following this, the of private individuals. number of shares is 714 746 940, with a nominal value Eight of the Swedish shareholders each held more per share of SEK 4.00. The Bank’s share capital is than 2% of the number of votes, as shown in the SEK 2 859m. adjoining table. It was also resolved at the General Meeting that all index and preference shares be redeemed. Payment was made on 12 August 1999.

Trend for Handelsbanken’s Market capitalisation 31 December Net earnings and dividend shares 1990–1999 per share Index SEK bn SEK 500 10 80 450 Svenska Handelsbanken Net earnings 70 per share 400 8 60 Dividend per share 350 50 6 300 40

250 30

www.handelsbanken.se 4 25 200 General Index 20 150 2 15

10 50 Bank share index 0 excl Handelsbanken 5

1990 1992 1994 1996 1998 1999 1990 1992 1994 1996 1998 1999 1990 1992 1994 1996 1998 1999

80 SHB 1999 HANDELSBANKEN’ S SHARES

Key figures per share

1999 1998 1997 1996 1995 Operating profit per share, SEK 8.64 7.72 7.84 6.75 5.12 Net earnings per share, SEK 9.31 8.41 8.38 7.11 5.13 Dividend per share, SEK1) 3.00 2.67 2.17 1.67 1.25 Dividend growth, % 12.4 23.0 30.0 33.3 25.0 Adjusted shareholders’ equity per share, SEK 53.97 47.56 44.66 38.15 36.67 Price of class A share, 31 Dec, SEK 107 114 91 65 46 Average daily turnover on Stockholm Stock Exchange Class A, number of shares 1 317 270 1 141 320 1 205 370 1 179 120 1 278 660 Class B, number of shares 63 101 57 434 78 078 86 160 94 740 Highest/lowest price paid, class A shares, SEK 132/91 131/83 100/61 67/40 47/28 Direct yield, % 2.8 2.3 2.4 2.6 2.7 P/E ratio 11.5 13.6 10.9 9.2 8.9 Stock exchange price/Equity, % 198 240 205 171 125

1) Dividend for 1999 as recommended by the Board. Figures for 1998 and previous years have been adjusted for the 3:1 split carried out during 1999. Adjusted to take account of current accounting principles and definitions.

Shares per shareholder 31 December 1999

Number of shares Shareholders Shareholdings Number Percentage of Number of shares Percentage of Average number all shareholders in thousands share capital per holder 1 – 500 shares 40 658 48.7 7 460 1.0 183 501 – 2 500 shares 29 434 35.3 34 557 4.8 1 174 2 501 – 25 000 shares 12 562 15.1 73 993 10.4 5 890 25 001 – 250 000 shares 617 0.7 41 117 5.8 66 641 250 001 – shares 193 0.2 557 620 78.0 2 889 222 Total 83 464 100.0 714 747 100.0 8 564

The major Swedish shareholders 31 December 1999 Shares divided into share classes 31 December 1999

% of Share class Number % of % of votes capital votes The Oktogonen Foundation 10.1 Class A 649 949 619 90.93 99.01 Industrivärden 6.8 Class B 64 797 321 9.07 0.99 Robur’s securities funds (22) 6.0 Total 714 746 940 100.00 100.00 National Swedish Pension Fund, 4th fund board 5.5 www.handelsbanken.se Nordbanken’s mutual funds (21) 3.3 SPP 3.3 AMF-Pension 3.2 Skandia 2.0

SHB 1999 81 PROFIT AND LOSS ACCOUNTS AND BALANCE SHEETS 1995–99 Profit and loss accounts and Balance sheets 1995–99

Group

PROFIT AND LOSS ACCOUNT (SEK m) 1999 1998 1997 1996 1995 Interest income 58 048 61 940 57 209 40 179 40 112 Interest expense – 46 540 – 50 510 – 46 040 – 30 798 – 31 368 Dividends received 245 139 150 107 65 Commission income 4 693 4 077 4 024 3 294 2 770 Commission expense – 715 – 669 – 687 – 666 – 404 Net result on financial operations 969 1 242 593 2 143 1 574 Other operating income 356 618 566 290 689 Total operating income 17 056 16 837 15 815 14 549 13 438 General administrative expenses Staff costs 4 888 4 579 4 150 3 477 3 413 Other administrative expenses 3 030 3 543 2 926 2 237 2 248 Depreciation and write-downs in value of tangible and intangible fixed assets 750 684 616 309 340 Total expenses 8 668 8 806 7 692 6 023 6 001 Profit before loan losses 8 388 8 031 8 123 8 526 7 437 Net loan losses – 219 319 302 1 806 2 392 Operating profit 8 607 7 712 7 821 6 720 5 045 Minority interests – 22 – 22 – 19 – 1 10 Pension settlement 603 505 532 201 – 72 Profit before taxes 9 188 8 195 8 334 6 920 4 983 Taxes – 2 525 – 2 168 – 2 326 – 1 829 – 1 340 Profit for the year 6 663 6 027 6 008 5 091 3 643

BALANCE SHEET (SEK m) 1999 1998 1997 1996 1995

ASSETS Cash 6 285 4 054 3 025 7 487 1 304 Interest-bearing securities 93 415 107 826 65 955 107 965 87 758 Lending to credit institutions 98 859 139 823 134 472 119 166 92 286 Lending to the general public 626 206 587 405 586 824 277 790 259 168 Shares and participations 9 965 3 401 2 299 4 488 2 629 Tangible assets 1 859 1 780 9 329 1 937 8 560 Other assets 86 210 82 161 57 553 52 282 54 843 Total assets 922 799 926 450 859 457 571 115 506 548

LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities to credit institutions 186 503 261 146 241 436 170 974 143 646 Deposits and funding from the general public 221 483 206 524 204 747 167 507 137 452 Issued securities 359 540 299 378 284 051 129 284 120 741 Other liabilities 96 592 101 575 73 371 63 492 65 904 Subordinated liabilities 19 850 23 135 23 231 12 302 12 826 Total liabilities 883 968 891 758 826 836 543 559 480 569 Minority interest in shareholders’ equity 261 261 268 7 30 Shareholders’ equity 38 570 34 431 32 353 27 549 25 949 Total liabilities and shareholders’ equity 922 799 926 450 859 457 571 115 506 548

MEMORANDUM ITEMS Collateral pledged for own debt 85 007 93 782 59 437 48 650 39 639 Contingent liabilities 69 288 76 731 81 921 58 984 62 768

www.handelsbanken.se Pension commitments ————— Other commitments 5 713 401 6 304 560 5 452 935 4 445 388 3 258 729

The profit and loss accounts and balance sheets have been adjusted to take into account the accounting principles now applied.

82 SHB 1999 PROFIT AND LOSS ACCOUNTS AND BALANCE SHEETS 1995–99

Parent Company

PROFIT AND LOSS ACCOUNT (SEK m) 1999 1998 1997 1996 1995 Interest income 38 924 38 273 28 976 28 822 29 342 Interest expense – 32 678 – 32 514 – 22 941 – 21 864 – 22 669 Dividends received 1 490 2 552 1 729 1 839 385 Commission income 4 078 3 656 3 736 3 389 2 948 Commission expense – 736 – 614 – 608 – 576 – 430 Net result on financial operations 859 1 211 570 2 093 1 598 Other operating income 278 648 2 037 244 175 Total income 12 215 13 212 13 499 13 947 11 349 General administrative expenses Staff costs 4 443 4 108 3 520 3 183 3 100 Other administrative expenses 2 488 2 991 2 347 2 045 2 028 Depreciation and write-down in value of tangible and intangible fixed assets 437 370 321 249 275 Total expenses 7 368 7 469 6 188 5 477 5 403 Profit before loan losses 4 847 5 743 7 311 8 470 5 946 Loan losses 181 131 – 123 1 638 1 672 Operating profit 4 666 5 612 7 434 6 832 4 274 Appropriations 4 177 188 – 129 – 882 – 1 071 Profit before taxes 8 843 5 800 7 305 5 950 3 203 Taxes – 2 101 – 771 – 1 050 – 1 344 – 768 Profit for the year 6 742 5 029 6 255 4 606 2 435 Dividend for the year 2 144 1 922 3 515 1 208 3 877

BALANCE SHEET (SEK m) 1999 1998 1997 1996 1995

ASSETS Cash 5 735 4 050 3 023 7 347 1 303 Interest-bearing securities 98 384 115 556 90 166 122 262 106 530 Lending to credit institutions 189 725 215 541 175 771 133 517 116 084 Lending to the general public 272 110 242 056 223 426 160 451 148 259 Shares and participations 39 301 31 505 30 385 8 023 8 147 Tangible assets 1 589 1 612 1 788 1 732 1 826 Other assets 79 322 73 767 47 829 49 806 53 449 Total assets 686 166 684 087 572 388 483 138 435 598

LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities to credit institutions 174 886 215 730 172 855 177 362 153 265 Deposits and funding from the general public 214 171 212 187 222 161 175 827 154 677 Issued securities 159 463 119 501 72 311 38 264 30 749 Other securities 84 281 88 342 58 441 57 033 63 203 Subordinated liabilities 15 489 15 742 15 609 8 934 10 126 Total liabilities 648 290 651 502 541 377 457 420 412 020 Untaxed reserves 7 570 6 282 5 959 5 298 4 215 Shareholders’ equity 30 306 26 303 25 052 20 420 19 363 Total liabilities and shareholders’ equity 686 166 684 087 572 388 483 138 435 598

MEMORANDUM ITEMS Collateral pledged for own debt 84 188 93 758 59 193 47 573 38 840 Contingent liabilities 72 739 79 081 83 648 65 736 75 234

Pension commitments —————www.handelsbanken.se Other commitments 5 695 990 6 290 006 5 408 299 4 482 371 3 359 828

SHB 1999 83 ADDRESSES

Addresses

CENTRAL REGIONAL BANKS’ HEAD OFFICE HEAD OFFICES UNITS OUTSIDE THE NORDIC COUNTRIES

Kungsträdgårdsgatan 2 Northern Norrland Svenska Handelsbanken Svenska Handelsbanken Postal address: Storgatan 48 Beijing Manchester SE-106 70 Stockholm, Sweden Box 1002 CITIC Building No. 22D 1st floor Sunlight House Telephone +46 8 701 10 00 SE-901 20 Umeå 19 Jianguomenwei Dajie 202 Quay Street Registered no. 502007-7862 Telephone +46 90 15 45 60 Beijing, CN-100004 China Manchester M3 3JZ, U.K. Handelsbanken Southern Norrland Telephone +86 10 65004691 Telephone +44 161 8390568 Fax +86 10 65126692 Fax +44 161 8390570 Asset Management Nygatan 20 Blasieholmstorg 12 Box 196 Svenska Handelsbanken Svenska Handelsbanken Postal address: SE-801 03 Gävle Birmingham Marbella SE-106 70 Stockholm Telephone +46 26 17 20 60 Centre Court Centro Plaza 2 Telephone +46 8 701 10 00 Stockholm City 1301 Stratford Road Nueva Andalucia Birmingham B28 9HH, U.K. ES-29660 Marbella Handelsbanken Markets Kungsträdgårdsgatan 20 Telephone +44 121 7772277 (Málaga), Spain Blasieholmstorg 11 and 12 Postal address: Fax +44 121 7777452 Telephone +34 95 2817550 Postal address: SE-106 70 Stockholm Fax +34 95 2817567 SE-106 70 Stockholm Telephone +46 8 701 10 00 Svenska Handelsbanken Telephone +46 8 701 10 00 Svenska Handelsbanken Central Sweden Brussels Moscow Information Systems Department Kungsträdgårdsgatan 2 Sweden House Khlebny per., 19A, 2nd floor Tegeluddsvägen 10 Postal address: 3, rue de Luxembourg RU-121069 Moscow, Russia Postal address: SE-106 70 Stockholm BE-1000 Brussels, Belgium Telephone +7 502 2213560 SE-115 82 Stockholm Telephone +46 8 701 10 00 Telephone +32 2 5015264 Telephone +46 8 701 10 00 Fax +32 2 5015265 Fax +7 503 2306256 Eastern Sweden Svenska Handelsbanken Svenska Handelsbanken Nygatan 20 Côte d’Azur New York Box 421 SUBSIDIARIES SE-581 04 Linköping 62 Place Pierre Coullet 153 East 53rd Street, 37th floor Telephone +46 13 28 91 00 B.P. 317 New York, NY 10022-4678, USA FR-83703 St Raphaël Cedex Telephone +1 212 3265100 Western Sweden Handelsbanken Finans France Fax +1 212 3265196 Östra Hamngatan 23 Telephone +33 494 953911 Mäster Samuelsgatan 42 Svenska France S.A. Box 1530 Fax +33 498 110468 Postal address: Paris SE-405 40 Göteborg SE-106 35 Stockholm Svenska Handelsbanken Telephone +46 31 774 80 00 29-31, rue Saint-Augustin Telephone +46 8 701 46 00 Frankfurt am Main FR-75002 Paris, France Registered no. 556053-0841 Southern Sweden Mittlerer Hasenpfad 25 Telephone +33 1 42665898 Handelsbanken Fonder Södergatan 10 Postfach 700955 Fax +33 1 42669612 Postal address: DE-60559 Frankfurt am Main Blasieholmstorg 12 Svenska Handelsbanken SE-205 40 Malmö Germany Postal address: Singapore Telephone +46 40 24 50 00 Telephone +49 69 605060 SE-106 70 Stockholm Fax +49 69 60506252 65 Chulia Street, Units 21-00 Telephone +46 8 701 10 00 Handelsbanken Denmark OCBC Centre, Singapore 049513 Registered no. 556070-0683 Amaliegade 3 Svenska Handelsbanken Telephone +65 5 323800 Hamburg Handelsbanken Hypotek Postboks 1032 Fax +65 5 344909 DK-1007 Copenhagen K Grosser Burstah 31 Kungsträdgårdsgatan 20 Svenska Handelsbanken Denmark Postfach 113332 Postal address: Taipei Telephone +45 33 418200 DE-20433 Hamburg, Germany SE-103 70 Stockholm Fax +45 33 418260 Telephone +49 40 3697120 Room 0813, International Telephone +46 8 701 10 00 Fax +49 40 36971252 Trade Building Registered no. 556000-7618 Handelsbanken Finland 333, Keelung Road Svenska Handelsbanken Handelsbanken Liv Södra kajen 8 Section 1, Taipei, Taiwan P O Box 315 Hong Kong Torsgatan 12 Telephone +886 22 7577112 FI-00131 Helsinki, Finland Box 1325 2008 Hutchison House Fax +886 22 7576270 Telephone +358 10 44411 SE-111 83 Stockholm 10 Harcourt Road, Svenska Handelsbanken Fax +358 10 4442299 Central Hong Kong Telephone +46 8 613 20 00 Tallinn Registered no. 516401-8326 Handelsbanken Norway Telephone +852 28682131 Fax +852 28684339 15, Pärnu mnt. Stadshypotek Rådhusgaten 27 P.O. Box 1021 Postboks 1342 Vika Svenska Handelsbanken Kungsträdgårdsgatan 20 EE-19090 Tallinn, Estonia NO-0113 Oslo, Norway London Postal address: Telephone +372 6 651748 Telephone +47 22 940700 SE-103 70 Stockholm Trinity Tower Fax +372 6 651750 Fax +47 22 411524 Telephone +46 8 701 10 00 9 Thomas More Street Svenska Handelsbanken

www.handelsbanken.se London E19WY, U.K. Registered no. 556459-6715 Warsaw Telephone +44 171 5788000 Stadshypotek Bank Fax +44 171 5788300 ul. Szpitalna 1, room 16 PL-00-020 Warsaw, Poland Arenavägen 33 Svenska Handelsbanken Box 10085 Telephone +48 39 121176 Luxembourg SE-121 27 Stockholm Fax +48 22 8280180 Telephone +46 8 725 53 00 146, Boulevard de la Pétrusse Svenska Handelsbanken P.O. Box 678 Registered no. 516401-9803 Zürich LU-2016 Luxembourg Telephone +352 4998111 Gotthardstrasse 21 Fax +352 490004 P.O. Box 4378 CH-8022 Zürich, Switzerland Telephone +41 1 2871020 Fax +41 1 2871029

= Subsidiary = Branch = Representative office

84 SHB 1999 Produced by: Ulla Jansson Information AB Photographs: Victor Brott, Global Reporting, unless otherwise stated Cover photo brochures: Ulla Jansson, Bergen: Husmo-foto Repro: Typografen Text&Bild Printing: Tryckcentra AB

ÖMÄR ILJ KT M

T RYCKSAK 341 039 Svenska Handelsbanken