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2008Annual Report 2008 Contents 2008Annual Report 2008 Contents The Nordea Business Solid result and strong position Summary 2 despite financial turmoil and economic re- CEO letter 6 Vision, values and strategy 8 cession. Nordea sticks to its organic growth Business development 2008 12 strategy, but adjusts the speed of execution. People forming Great Nordea 22 Cost, risk and capital management receives Corporate Social Responsibility 24 higher priority. Nordea will continue to focus The Nordea share 26 Events 2008 30 ’’on supporting existing core customers and to Board of Directors’ Report attract new relationship customers with solid Financial Review 2008 31 credit profiles. Our ambitious vision of Great Customer area results 37 Nordea remains. Risk, Liquidity and Capital management 44 Christian Clausen, Corporate Governance 70 President and Group CEO Financial statements 5-year overview 78 Quarterly development 81 Income statement 82 Balance sheet 83 Statement of recognised income and expense 84 Cash flow statement 85 Notes to the financial statements 87 Proposed distribution of earnings 145 Audit report 146 Organisation Legal structure 147 Board of Directors 148 CEO letter Page Group Executive Management 150 6 Group Organisation 151 Others Ratings 151 Business definitions 152 Annual General Meeting 153 Financial calendar 153 Corporate Governance Report This Annual Report contains forward-looking statements that reflect management’s current views with respect to certain future events and potential financial performance. Although Nordea believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of various factors. Important factors that may cause such a difference for Nordea include, but are not limited to: (i) the macroeconomic development, (ii) change in the competitive climate and (iii) change in interest rate level. This report does not imply that Nordea has undertaken to revise these forward-looking statements, beyond what is required by applicable law or applicable stock exchange regulations if and when circumstances arise that will lead to changes compared to the date when these statements were provided. Organic growth strategy maintained, but the speed of implementation has been reduced. The organic growth strategy is maintained, despite the much more challenging macro- Strong income growth in 2008 economic environment. By applying the – continued support to customers. “middle of the road” approach, Nordea aims to Lending growth to Nordea’s corporate cus- maintain high business momentum balancing tomers increased, following strong market opportunities and challenges. position and strong funding and capital posi- tion. In the household segments, the number Vision, values and strategy Page 8 of customers continued to increase. Business development 2008 Page12 Well-diversified credit portfolio. The economic slowdown has resulted in higher net loan losses and increased impaired loans. Impaired loans net have increased from a low level to 0.50% of total loans and receivables and net loan losses were 2008 EUR 466m or 19 basis points of lending. Risk, Liquidity and Capital management Page 44 The Nordea Business Summary Nordea is the largest financial services dic and Baltic Sea region, including more than 260 branches in five new European markets, Russia, Poland, group in the Nordic and Baltic Sea Lithuania, Latvia and Estonia. Nordea has the largest customer base of any financial region with a market capitalisation of services group in the Nordic region with approx. 10 million customers including new European markets, of which 7.5 approx. EUR 13bn, total assets of million are household customers in customer programme and 0.7 million are active corporate customers. EUR 474bn and a tier 1 capital of The core in Nordea’s strategy is segmentation of custom- ers and differentiating both value proposition and resource EUR 15.8bn, as of end December allocation according to customer needs. Gold customers in the household segment are offered a complete range of 2008. Nordea is the region’s largest products and services including a personal banker. Nordea has a clear emphasis on relationship banking with corpo- asset manager with EUR 126bn in rate customers and aims at becoming the house bank by combining Nordic resources and competences with local assets under management. presence and applying a customer team concept. Nordea pursues an organic growth strategy, with pru- dent risk management. The lending portfolio is well diver- Nordea is a universal bank with leading positions within sified with the largest geographical market accounting for corporate merchant banking as well as retail banking and approx. one quarter of Nordea’s total income. private banking. Nordea’s total shareholder return (TSR) was –47% in With approx. 1,400 branches, call centres in all Nordic 2008, only surpassed by one other bank in the European countries and a highly competitive e-bank, Nordea also has peer group. Since end of 2000, Nordea’s accumulated TSR the largest distribution network for customers in the Nor- is 56%, exceeded by only two peer banks. Nordea – with an outstanding starting point Total operating income, EURbn A unique customer base Approx. 10 million Household customers and 700,000 active Corporate customers Global, Other, Group1) Sweden 0.7 2.0 Finland Strong distribution power Norway Approx, 1,400 branches 1.9 1.1 Denmark 2.0 0.5 Financial strength New European Markets EUR 15.8bn in tier 1 capital Tier 1 ratio 9.3% before transi- tion rules Economies of scale Cost base/RWA ratio 2.0% (average among Nordic peers 2.1%) Nordea Annual Report 2008 Report Annual Nordea 1) Shipping, Oil Services & International, International Private Banking and Group functions. 2 The Nordea Business Return on equity was 15.3% in 2008. Starting from 2006, funding strength and has been able to raise new funding at Nordea’s long-term target is to double the risk-adjusted good prices on a relative basis. Nordea draws benefit from profit in seven years. In 2008, the risk-adjusted profit being a well recognised AA- rated bank, having a prudent increased by 2%, and by 3.5% when excluding the Danish liquidity management, with a conservative business pro- State guarantee fee. file. This, combined with the well-diversified and strong funding base, including stable household deposits and the Capital position and revised capital policy access to two large domestic covered bond markets, have Nordea has a strong capital position, with EUR 15.8bn in all contributed positively. tier 1 capital, a tier 1 capital ratio before transition rules of 9.3% and a core capital ratio of 8.5% at the end of 2008. Well-diversified credit portfolio The revised capital policy states that over a business Nordea has operated with a consistent and prudent credit cycle, the target for the tier 1 ratio is 9% and the target for risk management over a long time period. The Group-wide the total capital ratio is 11.5%. decision-making structure ensures that credit risk limits for customers and customer groups are set at the relevant Rights offering and reduced 2008 dividend to credit decision authority level within the Group. strengthen core capital position by EUR 3bn Some weakening has been seen in credit quality in the Nordea in February announced measures to strengthen the fourth quarter 2008, mainly in the corporate credit port- Group’s core tier 1 capital by EUR 3bn. This will be done folio, with somewhat more customers being downrated through an underwritten discounted issue of new ordinary than uprated. The total effect from rating migration on shares with pre-emptive rights for existing shareholders of RWA was an increase by approx. 4.5% in 2008. Loan losses approx. EUR 2.5bn net and secondly by proposing to amounted to EUR 466m, giving a loan loss ratio of 19 basis reduce the dividend payment to 19% of the net profit for points. Impaired loans gross increased to EUR 2,224m. 2008, which will increase core tier 1 capital by approx. EUR Impaired loans net, after allowances for individually 0.5bn. The rights offering is subject to shareholder approval assessed loans, in relation to total loans and receivables at an Extraordinary General Meeting to be held on 12 March were 0.50%, up 19 basis points from 2007. 2009. Nordea’s Board of Directors and Group Executive Man- Business development and Group result 2008 agement believes it is responsible to act pro-actively to best Total income increased 4% to EUR 8,200m and profit before position the bank for the risks and the opportunities aris- loan losses increased by 1% to EUR 3,862m. Despite the ing from the prevailing extraordinarily challenging market financial crisis and global recession, Nordea again man- conditions. aged to produce a year with solid result. The income growth was particularly strong within cus- Liquidity and funding tomer areas. Nordic Banking and Institutional & Interna- The short-term liquidity risk has been held at moderate tional Banking reported an income growth of 10%, sup- levels throughout 2008. Nordea’s liquidity buffer has been ported by a strong underlying business momentum and in the range EUR 20 – 40bn throughout 2008, which Nordea successful execution of strategic investment plans. considers a high level reflecting the Group’s conservative The strong growth in net interest income continued, attitude towards liquidity risk. driven by volume growth in combination with increased Even in the very difficult environment that the financial lending margins, reflecting re-pricing of credit risk and to industry has faced, Nordea has in 2008 continued to show compensate for higher liquidity premiums. Due to its Capital position, Funding strength, Tier 1 ratio before transition rules total long-term funding issued % EURbn 10 35 30 8 25 6 20 4 15 10 2 5 0 0 2005 2006 2007 2008 2007 2008 2008 Report Annual Nordea 3 The Nordea Business strong position, Nordea was able to conduct business with enough in the financial sector.
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