Annual Report 2001

Svenska Handelsbanken THE ANNUAL GENERAL MEETING OF SVENSKA HANDELSBANKEN will be held at the Grand Hôtel, Vinterträdgården, Royal entrance, Stallgatan 4, Stockholm, at 10.00 a.m. on Tuesday, 23 April 2002.

NOTICE OF ATTENDANCE AT ANNUAL GENERAL MEETING Shareholders wishing to attend the Meeting must: • be entered in the Register of Shareholders kept by VPC AB (Swedish Central Securities Depository and Clearing Organisation), on or before Friday, 12 April 2002, and • give notice of attendance to the Chairman's Office at the Head Office of the Bank, Kungsträdgårdsgatan 2, SE-106 70 Stockholm, telephone +46 8 701 19 84, or via the Internet www.handelsbanken.se/bolagsstamma (Swedish only), by 3 p.m. on Wednesday, 17 April 2002.

In order to be entitled to take part in the Meeting, any share- holders whose shares are nominee-registered must also request a temporary entry in the register of shareholders kept by the VPC. Shareholders must notify the nominee about this well before 12 April 2002, when this entry must have been effected.

DIVIDEND The Board of Directors recommends that the record day for the dividend be Friday, 26 April 2002. If the Annual General Meeting votes in accordance with this recommendation, the VPC expects to be able to send the dividend to shareholders on Thursday, 2 May 2002.

PUBLICATION DATES FOR INTERIM REPORTS January–March 22 April 2002 January–June 20 August 2002 January–September 22 October 2002

Svenska Handelsbanken AB (publ) Registered no. 502007-7862 www.handelsbanken.se Contents

HIGHLIGHTS OF THE YEAR 2

THE GROUP CHIEF EXECUTIVE’S COMMENTS...... 3

HANDELSBANKEN GROUP PERFORMANCE ...... 8

HANDELSBANKEN’S SHARES ...... 10

OBJECTIVES, POLICY AND ORGANISATION...... 12 Objectives and principles...... 12 Policy and organisation ...... 12 Environmental issues ...... 14 Social responsibility...... 15 Ethical guidelines ...... 16 Our staff...... 17 2001 IN AN ECONOMIC PERSPECTIVE 19 REVIEW OF OPERATIONS ...... 20 General...... 20 Result and profitability...... 20 Business volume trend...... 21 Loan losses and bad debts...... 23 Financial risk ...... 23 Capital ratio ...... 25 Acquisition of SPP and Midtbank...... 26 IT development...... 26 REVIEW OF BUSINESS AREAS 27 Branch office operations 27 Handelsbanken Markets 31 Handelsbanken Securities 33 Handelsbanken Asset Management 35 Handelsbanken Finans 37 Handelsbanken Pension and Insurance 39 Stadshypotek Bank 42 Handelsbanken Treasury 43 RISK AND RISK CONTROL 44 Credit risk 44 Financial risk 45 Operational risk 48 DIRECTORS’ REPORT 49 ACCOUNTING PRINCIPLES 50 PROFIT AND LOSS ACCOUNTS 52 CASH FLOW STATEMENT 54 NOTES TO THE PROFIT AND LOSS ACCOUNT 55 NOTES TO THE BALANCE SHEET 61 FIVE-YEAR REVIEW 76 RECOMMENDATION FOR DISTRIBUTION OF PROFITS 78 AUDIT REPORT 79 BRANCHES IN THE NORDIC COUNTRIES 80 REGIONAL HEAD OFFICES IN THE NORDIC COUNTRIES 82 UNITS OUTSIDE THE NORDIC COUNTRIES 84 CENTRAL HEAD OFFICE 85 BOARD OF DIRECTORS 86 SENIOR MANAGEMENT 88 AUDITORS 88 ADDRESSES Inside back cover DEFINITIONS Fold-out inside back cover Highlights of the year

Highlights of the year

Profits for 2001 were SEK 11.2 billion

Return on shareholders’ equity was 18.4%.

The Board proposes that the dividend be raised to SEK 4.50

Handelsbanken acquired the Danish bank Midtbank A/S

The Bank repurchased 5.4 million shares in 2001

The Bank sold 5.6 million shares in connection with the acquisition of Midtbank

According to the Svenskt Kvalitetsindex survey, Handelsbanken again had the greatest proportion of satisfied customers in Sweden – both corporate and private

According to an equivalent survey in Denmark, Handelsbanken/Midtbank had the highest proportion of satisfied private customers

Over 50% of corporate customers and over 30% of private customers were linked to the Bank’s Internet services

Handelsbanken had the highest share of the net flows to the Swedish mutual fund market, excluding the PPM pension system

Sixteen new units were started outside Sweden: eight in Finland, two in Denmark, two in Norway, two in the UK, one in Poland and one in Austria

Handelsbanken Liv was demutualised on 1 January 2002

Handelsbanken was acclaimed Bank of the Year by Privata Affärer, a Swedish periodical for private finances

2 Svenska Handelsbanken Annual Report 2001 The group chief executive’s comments

The group chief executive’s comments

Nowadays we count among our Something else which is very competitors all the listed banks expensive is organisational in the four Nordic countries muddle. If nobody is really where we are active. This is responsible, there are lots of the first time Denmark is in- things that will be only almost cluded, since our Danish right, almost in time. Thus, operations are now sufficiently in order to be thrifty, you need large (today we are the fifth a strong accounting and control largest bank in Denmark), that system. The representation of we can safely say that we con- income and expenses reported duct full universal banking by such a system must be seen operations there too. as fair by everyone in the orga- Satisfied shareholders begin nisation. This in turn means with satisfied customers and that the system must not be cost-efficiency. Cost-efficiency open to manipulation by cen- leads to high profitability today. tral units seeking a certain goal, Satisfied customers bring more however desirable this goal of their business to us and may be to many people in the become goodwill ambassadors organisation. The reported for the Bank and thus also expenses and revenues must be contribute to higher growth. correct. It must also be quite This is why it is so important clear who is responsible. The for us to ensure that we are person who is responsible must efficient and that our customers be able to compare his or her are satisfied. performance, not with some- thing unreal like a plan or a Our view of efficiency budget, but with something Some people claim that cost- tangible, such as the result efficiency and satisfied customers achieved by people with similar are an impossible combination. responsibilities over the same That low costs entail a view of period of time. That is why service which cannot possibly benchmarking is such an simultaneously result in satisfied important instrument for customers. The fact that Handelsbanken, where we have Handelsbanken has nevertheless survived perfectly well without managed to combine the two is, budgets for thirty years. of course, practical proof of the In a thrifty company, the LARS O GRÖNSTEDT contrary. employees must be proficient But I am convinced that this at many things. To be pro- incompatibility does not exist Last year was the thirtieth year ficient and knowledgeable, even in theory. Proponents of employees need long and broad this theory have probably not running that Handelsbanken could professional experience. Thus, taken sufficient account of the “ in a thrifty company, it is fundamental difference between yet again please shareholders by important to create the sort turning thrifty and being thrifty. achieving its corporate goal – higher of working conditions where It is true that companies wishing the employees are happy, want to slash their costs quickly, find return on shareholders’ equity than to stay with the company for it very difficult to keep their the average for peer banks. a long time and are keen on customer focus while embark- learning new things. Product- ing on such a tough process ivity will then increase so that the thrifty company” manages with fewer employees. and thus they will almost certainly endure a period of deteriorated customer relations. A thrifty company also cares about its customers. But being thrifty means that you have always had to It is better to keep a satisfied customer than to rely on be focused. If you are thrifty, you have a strong incentive the continuous acquisition of new customers, because to get things right the first time. Mistakes are just too you have lost your old ones. expensive. A frugal person finds ways of getting things And in a company where the employees are happy, right the first time around. it is easy for the customers to feel comfortable.

Svenska Handelsbanken Annual Report 2001 3 The group chief executive’s comments

In a world where everything seems to be measured, weighed COST-EFFICIENCY OF SOME NORDIC and computed in terms of internal return, it is easy to BANKING GROUPS forget how attractive a welcoming smile is to customers. 31 December Of course, good service has its technical side. When Cost/ Expenses we meet our customers less often face-to-face, it becomes income expressed as a percentage increasingly important that our technology always works of total assets and that it is smooth and user-friendly. To achieve this, we need the best technical specialists in central positions. Handelsbanken 47 0.9 But it is difficult for financial services companies to Danske Bank 56 1.1 use technology as the base for a long-term competitive FöreningsSparbanken 59 1.4 advantage, since technological advances are not patented Nordea 62 1.4 in the financial world. IT is also an area where it is easy Den norske Bank 64 2.2 to spend a lot of money without achieving all that much SEB 79 1.9 in terms of customer benefit. A thrifty company does Average excl. not adopt new ideas hastily. Thrift is also a question of Handelsbanken 66 1.6 saying no, of deciding what you should not do. This is not as easy as it sounds. In big companies there are Excl. loan losses and adjusted for items affecting comparability. always plenty of ideas about how to develop operations. Ingenious analyses of future developments are often used to back this up, combined with arguments that it is RETURN ON SHAREHOLDERS’ EQUITY AFTER STANDARD TAX all desperately urgent. % 30

It is possible to combine the highest Svenska Handelsbanken 25 profitability in the banking sector “ 20 with the most satisfied customers 15

Other 10 In this situation, a critical attitude is very beneficial” to listed banks thrift. It means that you say no to many proposals after 5 only a brief period of indecision. Of course, sometimes Standard tax 50% 1985–1988 the idea may then mature and turn into a much better 0 30% 1989–1993 worked-out concept. 28% 1994–2001 There are a few exceptions to this general rule. -5 For highly specialised services aimed at a small number of customers, it is often quite profitable to be an early 1985 1987 1989 1991 1993 1995 1997 1999 2001 innovator. You gain market share and you can also charge a good price. Since few people are involved and, initially, modest volumes are sold, the service can be virtually hand- crafted at the outset without major initial investments. A good example of our innovative abilities in the last few years is in investment banking. By being first in HANDELSBANKEN’S SHARE PERFORMANCE Sweden with a new product, such as equity-linked bonds Index 300 or equity buy-back programmes, we have been able to Svenska take large shares in these markets and also advance our Handelsbanken positions in the whole investment banking field. Our property bidding service on the Internet, “e-bud”, 250 is another area where we are convinced that being first with this useful idea has contributed to our success in the General Index mortgage market. 200 But isn’t the result of all this oh-so-sensible scrimping and saving, a sleepy, rather dull organisation? We don’t think so. A thrifty company can least of all afford to 150 neglect its customers. On the contrary, the work with Nordix bank customers permeates the thrifty organisation. Such an index excl. organisation cannot afford large central units. Thus, Handelsbanken work with customers has much more impact on the whole 100 1997 1998 1999 2000 2001 company, since a greater proportion of the staff work directly with customers.

4 Svenska Handelsbanken Annual Report 2001 The group chief executive’s comments

Sometimes, people are concerned that customers do not like thrift. But the fact is that customers like banks who stick to their own ideals. It is natural for banks to sing the praises of saving money. So it is natural for them to practice what they preach. This is why I do not find it so surprising that it is possible to combine the highest profitability in the banking sector with the most satisfied customers.

Satisfied customers Cost-efficiency leads to high profitability, and satisfied customers lead to strong growth. In 2001, we were named “Bank of the Year” by Privata Affärer, a periodical for private finances. We were delighted, since it was a public acknowledgement that we are working in a way which our customers appreciate. But it is important that we not only achieve this in one single year but also sustainably over a longer period of time. That is why the annual customer satisfaction sur- veys are so vital for us. They have been conducted in Sweden since 1989, using the same methodology. Every year we have been number one for household cus- tomers and every year but one for corporate customers. Handelsbanken was again judged best in 2001 and we also had the satisfaction of seeing our lead increase. For the first time, we have also participated in a similar survey in Denmark. Here, too, we had the most satisfied private customers of the six major banks. A digression on statistics might be appropriate at this point. It is true that in this kind of survey, small banks are normally more appreciated by their customers than large ones. This is partly explained by the fact that the benefits of economies of scale are often exaggerated in banking operations. But it is also a statistical effect where the smaller a group is, the more homogenous it is, and the easier it is to meet the group’s demands. Imagine for a moment a bank with just one customer whose smallest demand can be met in every detail. A bank like this would of course get the highest possible ranking from its one and only customer. And then imagine the other extreme, a bank where everyone is a customer. In statistical terms, this bank could never raise its ranking above the average since it is the average.

Our insurance operations Last year, we took two major steps in our insurance operations. We completed the acquisition of the insur- ance company SPP and as of 1 January 2002, we demutualised Handelsbanken Liv. Handelsbanken Liv was acquired by Handelsbanken in 1992. In 2001, Handelsbanken Liv contributed SEK 328m to our income, through commission income for asset management and sales. The demutualisation is good for the Bank’s share- holders since in normal years it will contribute to the Bank’s profits. But, above all, it is good for our insurance customers. The risks in being a customer of a mutual company became very apparent in autumn 2001 when

Svenska Handelsbanken Annual Report 2001 5 The group chief executive’s comments

almost all Swedish life insurance companies had a nega- Our international operations tive solvency margin – the reserves did not cover the With the acquisition of the Danish bank, Midtbank, bonuses previously allocated to the insurance holders. we completed the first phase of our Nordic expansion. Furthermore, we are convinced that a hands-on, We are now sufficiently large in Sweden, Norway, recognisable owner runs operations more efficiently and Finland and Denmark to serve all customers – both is more sensitive to customers’ wishes than is the case in companies and households – with all the products they a mutual company. We also considered it important to demand. We can offer a wide range of services to com- be the first company in Sweden to offer savers the right panies across the Nordic borders, international services of transfer of insurance funds if they are not satisfied which are still closely integrated with the personal with the way we manage their money. We strongly believe service in our local branch office network in each country. that they should have this opportunity, and we are In recent years, we have been testing our concept in happy that Swedish legislation now permits it. a non-Nordic country – the UK. Our non-Nordic ope- Since almost 80% of Handelsbanken Liv’s customers rations had previously focused on service to customers voted in favour of demutualisation, it is obvious that with a Nordic connection. this conviction is not only our own but is also shared So far, I am very encouraged by the reception given by our customers. to our UK operations. Our customers there seem The demutualisation was implemented without overwhelmingly sympathetic to the local way we run a problems on 1 January 2002. bank, focusing on personal service and rapid response. In 2001, we completed the acquisition of SPP, thus And good UK banking staff are also genuinely interested becoming the second biggest company in the Swedish in working our way. insurance market. With this acquisition, our assets under management doubled to SEK 236bn. Our view of growth Handelsbanken enjoyed some major market successes in 2001. This also applied to our Swedish core market, Handelsbanken enjoyed where we increased our share in all important market some major market successes segments: household deposits, household credits, mort- “ gage loans, corporate loans and mutual funds. in 2001 Achieving a specific market share is not a goal in itself for Handelsbanken. Our corporate goal is profit- This is in itself good, since there” are considerable ability, not size. But when market shares increase, economies of scale in asset management, although in this is proof that customers are satisfied, and that is practice they are not quite as large as many people are important. wont to believe. But the acquisition of a major asset We aim to grow organically: customer by customer, management assignment was not the main reason why product by product, branch by branch. Our customers we wanted to buy SPP. must know that wherever they meet Handelsbanken, In SPP, we see good opportunities for extra sales as they meet the same fundamental principle of overall we did with our acquisition of Stadshypotek. When we responsibility for each customer at the customer’s own bought Stadshypotek in 1997, around 30% of the branch. The commitment and competence of the staff customers were already customers of Handelsbanken. at the local branch are the keys to success in this respect. There are no shortcuts when it comes to developing this Five years after the acquisition, over 60% of Stads- competence. Like so many of the good things in life, hypotek’s customers also used another Handelsbanken competence matures slowly to achieve the best results. product. This achievement is the result of a strong But since our competitive advantage is mainly brand name, competitive services and prices, but above cultural; in other words, more a matter of how we do all the methodical work at all our Swedish branches. things rather than what we do; of implementation rather Now we are using the same formula with SPP’s cus- than strategy, this sets limits to our growth. We cannot tomers. It is true that the link between insurance and grow more quickly than the pace at which we can train banking is not as obvious as that between mortgages and develop our employees. At first sight, it would and banking. But we have learnt quite a lot from the appear to be a troublesome constraint on growth which years with Stadshypotek. SPP also has many more otherwise would be able to proceed at a much quicker corporate customers than Stadshypotek ever did. rate. Indeed, it might seem like a constraint that is We hope to be able to demutualise SPP in a few much more serious than financial restrictions – you can years’ time, to the benefit of policy-holders and the issue new shares, but nobody has yet issued a new Bank’s shareholders. corporate culture. Just as we assumed in the acquisition calculation, But if we consider the development of the Swedish the financial result of the SPP acquisition was slightly banks in the past five years, several have certainly negative in 2001. The cost of amortising the brand grown more quickly than Handelsbanken in terms of name, financing the purchase price and the deficit in total assets and income. But their expenses have also SPP Fonder (mutual funds) were major items. grown quickly. In terms of what really matters – profits

6 Svenska Handelsbanken Annual Report 2001 The group chief executive’s comments

– Handelsbanken has had by far the best growth in earnings per share. And in the world of banking, the bank which has built up its credit portfolio with care and without making volume its primary goal, tends to end up with the best portfolio. In fact, I think that some of the vast and complex structures which have emerged as a result of mergers and acquisitions among the world’s banks in recent years are not sustainable in the long term, since they do not offer sufficient benefit to the customers. But although our fundamental strategy is organic growth, we have also carried out a number of acquisi- tions during the past decade. Of the 87 branches we have outside Sweden today, 34 were gained through acquisi- tion and 53 we have started ourselves. Our insurance operations are the result of two acquisitions: RKA in 1992 and SPP in 2001. And the acquisition of Stads- hypotek in 1997 doubled the Bank’s credit portfolio.

Handelsbanken has had “by far the best growth in earnings per share

We will continue with our fundamental ”approach – along the path of organic growth. But if we find a com- pany where we think we can develop the operations, and where the price is right, we will also continue to take advantage of such acquisition opportunities. To develop an operation, we must have leadership capacity and for that, we must understand the market where we are making the acquisition. This makes it unlikely that we would carry out a number of major acquisitions in quick succession, or that we would move by acquisition into a market where we lack previous experience.

Employee input is vital I have emphasised many times, in these, my first com- ments to the Annual Report as CEO, that the foundation of so many successful years is the way we work; the corporate culture we have built up; the way we treat our customers and our colleagues, the approach which we continue to build and reinforce every day. A corpor- ate culture is not something tangible which you can put in the balance sheet, but nor is it something so intangible that it just lives on whatever we do. Our employees are imbued with this culture and they actualise its value in their daily work. So when we have succeeded better than the rest of the banking sector, it is natural to end these words with a tribute to the source of our success – with my sincere thanks to all the staff for their devoted and loyal work during 2001.

Stockholm, February 2002

LARS O GRÖNSTEDT Ulf Hinds

Svenska Handelsbanken Annual Report 2001 7 Handelsbanken Group performance

Handelsbanken Group performance

PROFIT AND LOSS ACCOUNT – GROUP

SEK m 2001 2000 Change %

Net interest income 13 385 11 791 14 Commission, net 5 028 5 455 – 8 Trading, net 2 656 2 633 1 Other income 585 801 – 27 Total income 21 654 20 680 5 Staff costs excl. performance-related – 5 580 – 4 844 15 Performance-related staff costs – 338 – 464 – 27 Other expenses – 4 376 – 3 756 17 Total expenses Ð 10 294 Ð 9 064 14 Result before loan losses 11 360 11 616 Ð 2 Loan losses incl. change in value of repossessed property – 152 67 Operating profit 11 208 11 683 Ð 4 Pension settlement 306 797 – 62 Taxes – 3 202 – 3 353 – 5 Minority interests – 22 – 22 — Profit for the year 8 290 9 105 Ð 9

In order to illustrate the development of operations more clearly, the profit and loss account is shown above with the various income categories, excluding that which is generated in the trading operation. The “Net result on financial operations” (equity-, interest rate- and currency-related) and trading-related income from other income categories are reported under “Trading, net”. Performance-related staff costs are reported separately. The result of insurance operations has been allocated to the respective income/expense categories. Participations in associated companies’ results are reported under “Other income”.

PROFIT AND LOSS ACCOUNT BY BUSINESS AREA – GROUP

Branch Handels- Handels- Handels- Handels- Handels- Stads- Treasury Other Total Total Change offices banken banken banken banken banken hypotek 2001 2000 % Markets Securities Asset Finans Pension and Bank SEK m Management Insurance

Net interest income 12 355 1 506 – 121 186 499 15 87 215 – 320 14 422 11 306 28 Commission, net 2 646 218 767 900 285 171 32 – 42 51 5 028 5 455 – 8 Net result on financial operations 274 690 499 23 – 1 – 18 0 – 33 107 1 541 3 029 – 49 Other income 106 15 158 23 17 8 14 13 309 663 890 – 26 Total income 15 381 2 429 1 303 1 132 800 176 133 153 147 21 654 20 680 5 Net internal remuneration included in income 906 Net internal remuneration deducted from income 41 63 518 3 259 22 — Total expenses Ð 6 441 Ð 1 071 Ð 947 Ð 572 Ð 450 Ð 110 Ð 110 Ð 15 Ð 578 Ð 10 294 Ð 9 064 14 Profit before loan losses 8 940 1 358 356 560 350 66 23 138 Ð 431 11 360 11 616 Ð 2 Loan losses incl. change in value of repossessed property – 232 88 – 10 – 5 – 1 8 – 152 67 — Operating profit 8 708 1 446 356 550 345 66 22 138 Ð 423 11 208 11 683 Ð 4 Return on equity, % 20.6 23.6 35.6 28.4 29.4 15.6 30.6 14.6 18.4 22.3 Average number of employees 5 549 768 447 372 436 11 109 38 1 509 9 239 8 574

The net amount of received/paid remunerations between the business areas is included in/deducted from the income categories for the business areas. The net amount of received/paid 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 also 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 for the whole Group it is computed after appropriations and full tax. The shareholders’ equity, on which 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. Handelsbanken Liv Fondförsäkrings AB (unit-linked) and commission income from the mutual company, Handelsbanken Liv Försäkrings AB, are included in the Pension and Insurance business area.

8 Svenska Handelsbanken Annual Report 2001 Handelsbanken Group performance

QUARTERLY PERFORMANCE – GROUP

SEK m 2001:4 2001:3 2001:2 2001:1 2000:4

Net interest income 3 529 3 392 3 224 3 240 3 010 Commission, net 1 299 1 150 1 366 1 213 1 288 Trading, net 662 532 649 813 665 Other income 155 98 179 153 157 Total income 5 645 5 172 5 418 5 419 5 120 Staff costs excl. performance-related – 1 472 – 1 449 – 1 367 – 1 292 – 1 278 Performance-related staff costs – 20 – 59 – 130 – 129 – 5 Other expenses – 1 298 – 1 099 – 1 024 – 955 – 985 Total expenses Ð 2 790 Ð 2 607 Ð 2 521 Ð 2 376 Ð 2 268 Profit before loan losses 2 855 2 565 2 897 3 043 2 852 Loan losses incl. change in value of repossessed property – 203 – 14 – 13 78 – 42 Operating profit 2 652 2 551 2 884 3 121 2 810 Pension settlement – 26 – 14 184 162 304 Taxes – 672 – 732 – 852 – 946 – 839 Minority interests – 5 – 6 – 5 – 6 – 5 Profit for the period 1 949 1 799 2 211 2 331 2 270

KEY FIGURES FOR THE HANDELSBANKEN GROUP

2001 2000 1999 1998 1997

Profit before loan losses, SEK m 11 360 11 616 8 388 8 031 8 123 Loan losses, SEK m – 152 67 219 – 319 – 302 Operating profit, SEK m 11 208 11 683 8 607 7 712 7 821 Total assets, SEK m 1 174 521 1 020 353 936 256 932 845 862 448 Shareholders’ equity, SEK m 48 112 42 466 38 570 34 431 32 353 Return on shareholders’ equity, % 18.4 22.3 18.4 18.6 20.2 Return on shareholders’ equity, %1) 18.4 21.6 18.4 17.9 20.2 Return on shareholders’ equity after standard tax, %1) 17.8 19.9 17.0 16.3 18.8 Cost/income ratio before loan losses, % 47.5 43.8 50.8 52.3 48.6 Cost/income ratio after loan losses, % 48.2 43.5 49.5 54.2 50.6 Cost/income ratio before loan losses, %1) 47.5 44.6 50.8 53.4 48.6 Cost/income ratio after loan losses, %1) 48.2 44.2 49.5 55.3 50.6 Loan loss ratio, % 0.02 – 0.01 – 0.03 0.05 0.05 Bad debt reserve ratio, % 70.9 58.2 66.8 58.8 52.6 Proportion of bad debts, % 0.18 0.33 0.27 0.45 0.64 Capital ratio, % 9.9 9.5 9.4 9.8 10.4 Tier 1 capital ratio, % 6.1 6.4 6.5 6.3 6.2 Return on total assets. % 0.99 1.17 0.93 0.85 0.95 Average number of employees 9 239 8 574 8 520 8 546 8 184 Number of branches in Sweden 458 460 465 480 485 Number of branches in other Nordic countries 87 52 43 33 30

1) Adjusted for items affecting comparability. For definitions see fold-out inside back cover.

Svenska Handelsbanken Annual Report 2001 9 Handelsbanken’s shares

Handelsbanken’s shares

KEY FIGURES PER SHARE

2001 2000 1999 1998 1997

Net earnings per share, SEK 11.99 12.89 9.31 8.41 8.38 Dividend per share, SEK 4.50 1) 4.00 3.00 2.67 2.17 Dividend growth, % 12.50 33.3 12.4 23.0 30.0 Adjusted shareholders’ equity per share, SEK 69.50 61.35 53.97 47.56 44.66 Price of class A share, 31 Dec, SEK 154.00 161.50 107.00 114.00 91.00 Average daily turnover on Stockholm Stock Exchange Class A, number of shares 1 892 366 1 482 206 1 317 270 1 141 320 1 205 370 Class B, number of shares 85 252 121 059 63 101 57 434 78 078 Highest/lowest price paid, class A shares, SEK 170/132 173/94 132/91 131/83 100/61 Direct yield, % 2.9 2.5 2.8 2.3 2.4 P/E ratio 12.8 12.5 11.5 13.6 10.9 Stock exchange price/Equity, % 222 263 198 240 205

1) Dividend 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. For definitions see fold-out inside back cover.

SHARES PER SHAREHOLDER 31 DECEMBER 2001

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 45 779 53.5 8 266 1.2 181 501 – 2 500 shares 27 880 32.6 32 671 4.6 1 172 2 501 – 25 000 shares 11 106 13.0 65 865 9.2 5 931 25 001 – 250 000 shares 631 0.7 46 135 6.4 73 114 250 001 – shares 212 0.2 540 450 75.6 2 549 295 Shares repurchased by Handelsbanken 21 360 3.0 Total 85 608 100.0 714 747 100.0 8 349

THE MAJOR SWEDISH SHAREHOLDERS 31 DECEMBER 2001 SHARES DIVIDED INTO SHARE CLASSES 31 DECEMBER 2001

% of Share class Number % of % of Average prices Nominal votes capital votes Repurchased value amount SEK The Oktogonen Foundation 10.1 Class A 649 949 619 90.93 99.01 2 599 798 476 Industrivärden 7.4 Class B 64 797 321 9.07 0.99 259 189 284 Robur funds (29) 4.5 Alecta 3.4 714 746 940 100.00 100.00 2 858 987 760 Repurchases AMF Pension 3.2 Class A 400 0.00 0.00 SEK 120.30 1 600 Nordea funds (31) 2.7 Class B 21 359 125 2.99 0.33 SEK 142.87 85 436 500 Handelsbanken funds (33) 2.3 21 359 525 2.99 0.33 3 051 720 496 85 438 100 Skandia Liv 2.3 After repurchases Class A 649 949 219 93.74 99.34 2 599 796 876 Class B 43 438 196 6.26 0.66 173 752 784 Total after repurchases 693 387 415 100.00 100.00 2 773 549 660

Repurchased during the year Class A — — — — — Class B 5 417 625 0.76 0.08 SEK 158.54 21 670 500 5 417 625 0.76 0.08 858 930 192 21 670 500 Sold during the year Class A 1 664 000 0.23 0.25 SEK 151.11 6 656 000 Class B 3 900 000 0.55 0.06 SEK 144.00 15 600 000 The average number of outstanding shares in 2001 was 691 205 879. 5 564 000 0.78 0.31 813 039 000 22 256 000

10 Svenska Handelsbanken Annual Report 2001 Handelsbanken’s shares

SHARE PRICE PERFORMANCE AND DIVIDEND The Bank has repurchased 21.4 million shares net. In 2001, the Swedish stock market fell by 17%, mea- As at 31 December 2001, the number of outstanding sured by the Affärsvärlden General Index. In the same shares was 693.4 million. period, Nordic bank shares, measured by the Nordix Class A shares each carry one vote and class B shares bank index, fell by 18%. Handelsbanken’s Class A carry one-tenth of a vote each. At the Annual General shares, however, fell by only 5%, which was better Meeting, no shareholder is allowed to vote for more than any of the other major Nordic banks. than 10% of the total number of votes in the Bank. Even when comparing over a more extended period Handelsbanken’s shares are listed on the Stockholm of time, Handelsbanken’s shares outperformed the Stock Exchange. One trading unit is equivalent to general index. Since the beginning of 1997, Handels- 100 shares. banken’s share price has risen by 138%, which is twice as much as the General Index. THE SHAREHOLDERS Handelsbanken’s long-term dividend policy reflects At the end of 2001, Handelsbanken had over 85 000 the ambition to raise dividends at a pace which is above shareholders, most of them private individuals. As the average for the banking sector. The Board recom- shown in the adjoining table, the majority of share- mends a dividend of SEK 4.50 for 2001, which is an holders owned only a small number of shares. The larger increase of 12.5% compared with the previous year. shareholders included a number of asset managers MARKET CAPITALISATION representing foreign private individuals and institutional investors. At the end of 2001, around 30% of the shares As at 31 December 2001, the market capitalisation of were owned by investors outside Sweden. Handelsbanken’s shares was SEK 106bn, a decrease of In April 2001, Handelsbanken acquired Midtbank, 5%. The Bank’s market capitalisation was almost seven a Danish bank. Each shareholder who accepted Handels- times more than at the start of 1990. banken’s cash offer, also received one class A share in Handelsbanken. Around 20 000 shareholders in Midt- THE SHARES bank received a Handelsbanken Class A share in this In the first quarter of 2001, Handelsbanken repurchased way. Since these shares are collected in a custody 5.4 million shares. At the Annual General Meeting in account in Denmark, they are not included in the ad- April 2001, the board of the Bank was authorised to joining table. repurchase up to 20 million shares during the year until Just over 50% of the total number of shares were the next Meeting, and to be able to sell shares which had owned by major Swedish institutional holders. These already been repurchased for the purpose of financing mainly comprise insurance companies, investment com- any future acquisitions. Since then, Handelsbanken has panies and equity funds representing a large number of not repurchased any shares, but has sold 5.6 million private individuals. Holdings of the largest Swedish shares in connection with the acquisition of Midtbank. shareholders are reported in the adjoining table.

HANDELSBANKEN’S SHARE PERFORMANCE MARKET CAPITALISATION 31 DECEMBER 1996–2001 NET EARNINGS AND DIVIDEND PER SHARE

Index SEKMdkr bn SEK 300 120 14

Svenska 110 Net earnings per share Handelsbanken 100 12 90 Dividend per share (For 2001, as recommended by the Board) 250 80 10 70 General Index 60 8 50 200 40 6 30 25 4 150 20 15 Nordix bank 2 index excl. 10 Handelsbanken 5 100 0 1997 1998 1999 2000 2001 1996 1997 1998 1999 2000 2001 1996 1997 1998 1999 2000 2001

Svenska Handelsbanken Annual Report 2001 11 Objectives, policy and organisation

Objectives, policy and organisation

OBJECTIVES AND PRINCIPLES Handelsbanken Group lies there, as does the responsibi- lity for all loans held in the Group by each individual Handelsbanken’s overall objective is to have higher person, company or group of companies. There, too, profitability than a weighted average of the other listed lies the responsibility for profitability within the Group Nordic banks. for the overall business relationship with the customer. The quality of the Group’s services should meet the This also means that the responsibility for the expectations of demanding customers. Handelsbanken Group’s marketing is held by the individual branch. should charge a fair price for its services. The cost level There is no central marketing department. The Bank should be lower than in other banks. does not make central marketing plans or control the Profitability must always be given higher priority branches’ marketing activities at central level by giving than volumes. When granting credit, this means that the priority to customer categories or product areas. quality of the credits must never be neglected in favour For many years, Handelsbanken has consistently and of a large lending volume. successfully applied and developed this basic concept. It Higher profitability should benefit the shareholders has proved to work flexibly and efficiently during major via greater growth in dividends than the average for changes in the conditions affecting banking operations. other Swedish banks. Handelsbanken aims to have more satisfied customers Universal banking operations expand gradually than other banks. Handelsbanken aims to be a universal bank, i.e to cover The Bank seeks to employ young, well-educated staff the entire banking area: traditional corporate transac- and train them within the Group. As far as possible, tions, investment banking, as well as consumer banking managers should be recruited internally. including life insurance. The Bank’s activities should benefit its customers, With 458 branches, Handelsbanken is strong in the the Bank itself and society as a whole. Swedish market. During the past ten years, the Bank At Handelsbanken, we work within the formal and has expanded universal banking operations into the ethical frameworks which apply to banking operations, other Nordic countries. Handelsbanken has a total of taking into account environmental responsibility. 87 branches in the Nordic countries outside Sweden. Norway, Finland and Denmark are natural domestic POLICY markets where Handelsbanken can apply its experience Overall customer responsibility close to the customer of running profitable universal banking operations. The business operations of the Handelsbanken Group The Bank will gradually be able to continue using its are strongly decentralised. The most important means experience from the Nordic countries in markets outside of control are a basic corporate policy which is deeply the region. In the UK, operations have been expanded rooted throughout the entire Group and an efficient to offer retail banking services to individual customers financial control system. and local companies. The main concept is that the organisation and methods Apart from this, the Bank’s network of units outside of work should be based on the branches’ responsibility the Nordic countries is adapted to give Nordic customers for individual customers and not on the central units’ good service and to do Nordic-related business with responsibility for product areas or market segments. international customers. The Bank assigns overall responsibility for each indi- ORGANISATION vidual customer to a single place in the Group, as close to the customer as possible – at the customer’s local Handelsbanken’s organisation aims at promoting the branch. Responsibility for providing the customer with interplay between strong branches, highly-trained expert and co-ordinated services from all units in the specialists and efficient support functions.

12 Svenska Handelsbanken Annual Report 2001 Objectives, policy and organisation

THE HANDELS- BANKEN GROUP’S Central Regional ORGANISATION Head Office Branches Customer Head Offices and subsidiaries

Central Regional Branches Head Office Head Offices in Sweden

458 GROUP MANAGEMENT NORTHERN NORRLAND Umeå BUSINESS OPERATION The other Nordic DEPARTMENTS SOUTHERN NORRLAND countries Asset Management Gävle Markets Denmark (32) Finland (28) STOCKHOLM CITY BUSINESS SUPPORT Norway (27) DEPARTMENTS Stockholm

Administration CENTRAL SWEDEN Units outside the Asset Management Nordic countries Stockholm Auditing Austria Business Development EASTERN SWEDEN Control and Accounting China Linköping Corporate Communications Estonia France (2) Credits WESTERN SWEDEN Human Resources Germany (2) Göteborg IT Operations Hong Kong Legal SOUTHERN SWEDEN Luxembourg Poland Markets Malmö Treasury Russia DENMARK Singapore Spain Subsidiaries Copenhagen Switzerland Handelsbanken Finans FINLAND Taiwan U.K. (6) Handelsbanken Fonder Helsinki Handelsbanken Liv U.S.A SPP NORWAY Stadshypotek Oslo – Handelsbanken Hypotek Stadshypotek Bank See inside back cover for addresses.

Svenska Handelsbanken Annual Report 2001 13 Objectives, policy and organisation

On the preceding page, the Handelsbanken Group’s Environmental training organisation is presented as a combined unit focusing The staff of the Bank and its subsidiaries have been on the individual customer and with the individual trained in environmental issues with internal material branch office at the forefront. based on information from the Swedish Business Develop- ment Agency and the Swedish Environmental Protection ENVIRONMENTAL ISSUES Agency. Environmental issues are now included in the Environmental policy introduction programme for new employees. Environ- mental issues are also a natural component of the Bank’s Environmental issues are a vital element in the Handels- training programme in the area of loan operations. banken Group’s operations. This applies both to the Bank’s responsibility for the environment in its own IT reduces negative impact on the environment operations and consideration of environmental risks The opportunity for customers to carry out banking when granting credits. transactions on the Internet and for employees of the Handelsbanken aims to promote long-term sustain- Bank to use IT tools has contributed to more efficient able development and to take measures to minimise any work, reduced use of paper and transport, and thus negative impact on the environment, as far as techni- reduced negative impact on the environment. cally and financially possible, and to the extent that it Conference calls and video conferencing are used is compatible with the Bank’s undertakings. Consistent extensively to reduce the number of business trips for and long-term improvements will generate benefits to meetings and conferences. Some 75% of the approxi- the environment and cost savings. An important principle mately 400 different forms used in branch office opera- is to reduce any environmental damage from the Bank’s tions have been converted to electronic forms. This operations and purchased goods and services. Key con- work will continue in 2002. cepts in the Bank’s environmental work are “thrift – Since February 2001, most of a customer’s state- renewability – biodegradability – recyclability”. ments of accounts are collected together so that he/she Handelsbanken has signed and complies with voluntary receives only one envelope per dispatch date regardless agreements, such as the ICC Business Charter for Sustain- of the number of accounts. This results in cost savings able Development and the UN Environment Programme as well as reduced impact on the environment. For – Banks and the Environment. newly-opened accounts, the number of statements of Environmental responsibility and work organisation account dispatched has declined by 50%. As with other areas at Handelsbanken, responsibility is Purchasing decentralised for environmental issues on a practical Environmental requirements are always made on suppliers level. All managers in the Handelsbanken Group have when procuring goods and services. Environmental con- primary responsibility for environmental issues at their siderations are included in decisions on all investments units and all employees have a responsibility for the and purchases. Handelsbanken maintains an ongoing environment as part of their duties. dialogue with the Bank’s suppliers to promote and An environmental manager has been appointed at all develop environmental issues. regional banks, subsidiaries and at various units at the Environmentally-adapted guidelines are applied in Central Head Office. The managers are responsible for planning the Bank’s buildings, premises and furnishings. environmental issues at their respective unit. For the The Bank requires declarations of environmental and Group as a whole, internal environmental issues are co- material content. Materials and components must be ordinated by the Central Administration Department and long-life, recyclable and low-energy. business-related environmental issues are co-ordinated by the Central Credit Department.

UJ

14 Svenska Handelsbanken Annual Report 2001 Objectives, policy and organisation

Energy and climate issues Environmental issues associated with granting loans Handelsbanken constantly seeks to reduce the amount of Banking operations have a limited impact on the environ- freons in the cooling systems of its buildings. In addition, ment. However, the Bank can influence the environment all electricity used at the head office in Stockholm and in a broader perspective in the application of its loan the regional main offices in Malmö is labelled Bra policy. Even though such traditional business economic Miljöval (Good environmental choice). factors as earnings capacity, equity ratios, business The Bank saves energy by optimising operations for plans and goal achievement are core elements in a bank’s computer equipment and heat and cooling plants, credit analysis, environmental issues play an important recycling energy, and using low-energy products. Energy role. In concrete terms, this means that environmental utilisation is continuously monitored. To reduce the issues will be taken into consideration in the yearly eval- amount of energy used in cooling plants and to comply uation of credit commitments and for each customer, with the Swedish Environmental Protection Agency’s an assessment is made of the economic consequences requirements for removing freons, the Bank has arranged of potential environmental hazards. This is, of course, nationwide service agreements for its cooling plants. especially important when taking into account the The Bank is designing routines for work with climate repayment capacity of a customer engaged in environ- issues, for example, in the areas of electricity and heating. mentally hazardous activities or who sells products that This purpose of this is to monitor and report carbon involve environmental or health risks. The assessment dioxide emissions generated from the purchase of these might concern the required governmental authorisations, services. adherence to the prescribed limits for emissions, and that the products in question remain competitive after Waste separation, recycling, recovery and reuse, environmental and health risks are taken into account. and destruction Of course, the customer is responsible for how ope- In support of local measures, the Bank has entered into rations are conducted, but repayment capacity and thus a number of central nationwide agreements on recycling, the Bank’s credit risk is affected by the customer’s desire reuse and recovery, and destruction. These agreements or ability to manage these risks. cover electronic equipment – PCs and office machines – toner cassettes, paper, plastic packaging, light sources SOCIAL RESPONSIBILITY and other environmentally hazardous waste. Refuse, The success of Handelsbanken in the market derives paper and environmentally hazardous waste are separated from the trust it enjoys from the public and authorities. at the workplace. Disposable material and items are The Bank’s work methods are based on a fundamental used as little as possible. Glass and paper are recycled, human outlook characterised by trust and respect. All while batteries, fluorescent lights and chemicals are employees are clearly responsible for their actions pro- returned to be destroyed. Only eco-labelled cleaning fessionally as well as in social and ethical issues. There- materials, floor-cleaning products, paper and returnable fore, it is important that business decisions at the Bank cassettes are used. can be also justified from a social and ethical perspective. In Stockholm, there is an internal environmental group comprising various business areas at the Bank. Working conditions and union rights The group works on a co-ordinated and joint strategy Handelsbanken complies with the laws and agreements for handling, separating, recycling and destroying on working hours in each country. In the Nordic waste, paper and environmentally hazardous waste. countries, where 95% of the Bank’s employees work, City of Göteborg International Environment Prize Handelsbanken adheres to the collective bargaining agreements which clearly regulate working hours, over- The Western Sweden Regional Bank, together with time, rest periods, breaks and vacations. The Handels- other major companies in western Sweden and the City banken Group has established a fixed set of employee of Göteborg, award the City of Göteborg International rights throughout the Group, such as a minimum wage. Environment Prize (GIMP). The prize for 2001 was Child labour is not accepted at Handelsbanken. awarded to KRAV, a Swedish control organisation that All employees in the Handelsbanken Group have the certifies products from organic farming, and to the right to organise and join a union. Employees are repre- International Forestry Stewardship Council, which pro- sented in the central Board of Directors through the motes responsible use of the world’s forests with respect Oktogonen profit-sharing foundation. Employee repre- to environmental, social and ecological issues. By par- sentatives are also found on the local boards of directors ticipating in GIMP, Handelsbanken supports environ- of the regional banks. mental work and makes clear its social responsibility. At Handelsbanken, all individuals with the same competence have the same right to employment, promo- tion, salary and professional development, regardless of gender, age, ethnic background or sexual orientation.

Svenska Handelsbanken Annual Report 2001 15 Objectives, policy and organisation

Equality ETHICAL GUIDELINES Handelsbanken’s Equal Opportunity Policy states that Handelsbanken’s ethical guidelines establish that all equal conditions shall apply for men and women for operations at the Bank are to be characterised by high personal development within the Handelsbanken ethical standards. Bank employees must conduct them- Group. An important element of equal opportunity selves in a manner that upholds confidence in the Bank. work takes place at the recruiting stage, where the same The ethical guidelines are laid down by the Central Board. demands exist for competence, skills and education A basic, self-evident rule is that the Bank and its regardless of gender. At Handelsbanken, work on employees must comply with the laws and regulations equality is carried out with the union organisations. that govern its operations in various ways. General The Handelsbanken Group’s long-term goals are: recommendations and statements from Finansinspektionen (Swedish Financial Supervisory Authority) and other • that the proportion of women managers corresponds to the proportion of women in the total staff force; authorities must be observed and incorporated into routines and instructions as necessary. • the same demands for education apply to women as for men in the recruitment of new staff members; Economic crime • to employ an equal share of men and women; The Bank must not participate in transactions involving • that men and women receive the same salary for similar work, taking into account experience and funds which may be suspected of originating from crim- competence. inal activities, nor must it participate in transactions, the implication of which its employees do not understand. Each year, every regional bank, central unit, and sub- It is the duty of managers to keep employees regularly sidiary establishes a local equal opportunity plan that informed of the content of the principal laws that deal describes the short-term and long-term goals and how with combating economic crime. The legal requirements these are to be achieved. for the prevention of money laundering must be given Sexual harassment is unacceptable at Handelsbanken. special emphasis. For example, the Bank must not All employees have access to Handelsbanken’s guidelines participate in securities transactions which for preventing sexual harassment. can be perceived as assisting tax evasion.

Work environment, health and security Customer relations Handelsbanken has supplemented the Swedish Work Financial advice must always be based on the customer’s Environment Act and its provisions and recommenda- needs, financial position and risk propensity. It is tions with a work environment agreement made between important that the employee makes certain that the the Bank and the local union committees. This states customer understands the implications of the decisions that the Bank will provide the necessary resources for that he/she takes. The advice given aims to provide the investigating and removing work environment problems. customer with the most suitable product from the The Bank also ensures that the work environment does not Bank’s range, irrespective of whether it is best for the expose employees to unhealthy conditions or accidents. Bank in the short term. Responsibility for the work environment has been It is especially important in relations with private delegated to managers/supervisors at the workplace customers that the Bank does not take advantage of its level. Handelsbanken’s health services and recreational greater expertise and financial position. Sound business club provide specialist courses in the work environment practices, acting in a consistent manner and fair treat- area. Handelsbanken’s goal is that employees can influ- ment of customers are key concepts at the Bank. ence their work assignments so that they enjoy their Customers must be treated with respect. There must work and gain a sense of well-being. be no discrimination of customers on such grounds as Handelsbanken is a drug-free and alcohol-free work- gender, age or ethnic background. place. A position at Handelsbanken cannot be combined In some cases, for example securities trading, where with drug abuse. It is the manager’s responsibility to the Bank is acting on behalf of both customers and ensure that action is taken concerning alcohol and drug itself, a conflict of interests may arise. Operations must abuse problems which have been identified. Guidance be directed in such a way as to avoid such conflicts. If and treatment in some form are always offered to an a conflict of interests nonetheless should arise, it must employee with alcohol or drug abuse problems. never be used to the customer’s disadvantage.

Conduct of employees It is important that the Bank’s employees are not suspected of taking improper advantage of knowledge about the financial markets which they obtain in the course of their work. All employees must be familiar

16 Svenska Handelsbanken Annual Report 2001 Objectives, policy and organisation

with the local insider trading laws and observe the Bank’s own rules governing employees’ private securities and currency transactions. In their work at the Bank and in their private affairs, Elisabeth Ohlson employees must refrain from business transactions that violate the Bank’s rules or the legislation in force. An employee must not handle matters in which the employee or a relative has a personal interest or acts for a company, in which the employee or a relative has a material interest. An employee must also refrain from transactions or other commitments that may seriously jeopardise his/her financial position. To avoid incurring personal obligations to customers and suppliers, employees must observe the Bank’s regu- lations regarding receiving and giving personal gifts and entertainment. Employees must notify the Bank of assignments out- side the Bank for approval. These rules also apply to secondary occupations and posts in clubs and societies, etc. Remuneration for being a member of a board on behalf of the Bank must be paid to the Bank.

Doubtful cases Employees who are in doubt when applying the Bank’s ethical guidelines and dealing with related issues, must contact their immediate superior to find out what is ethically acceptable. Employees are encouraged to ask themselves: “Can I account for my actions to the other employees at the Bank, to the public authorities, the press and other media and the general public without feeling the slightest doubt as to whether my conduct was ethically acceptable?”

OUR STAFF Many companies stress that their employees are their most important asset. The truth of this is particularly evident in a service company which is as strongly decentralised as Handelsbanken. Handelsbanken’s basic philosophy, which focuses on the individual customer’s requirements, is dependent on every employee taking responsibility for the customer relationship and the quality of the service offered. An overview of the Handelsbanken Group’s range of products is also vital. This not only places great demands on the skills and judgement of the staff but also on the interaction between and within the various units of the Bank.

Competence development Handelsbanken defines competence as the ability to acquire, use, develop and exchange knowledge, skills and experience. All employees must take responsibility for their own competence and skills development and also for sharing their own competence with both colleagues and customers. Handelsbanken stresses the importance of learning in daily work. The working organisation and tasks should be designed to facilitate natural

Svenska Handelsbanken Annual Report 2001 17 Objectives, policy and organisation

individual employee is based on respect and trust in the individual. From this follows that individual salary discussions are held with all employees. The Bank views the individual salary discussions as a means of increased motivation for employees to work and develop. Here the key words are a professional attitude, a proactive approach, sound judgement and quality.

Promoting equality Handelsbanken works continually to promote equality between men and women. Tangible results of this are that the Bank now offers the opportunity for subsidised household and family services for all staff who have children under the age of eight and also the opportunity to have flexible working hours. Handelsbanken stresses that staff on parental leave must have the same right to salary development as all other employees. The Bank also guarantees 80% of the salary for staff on parental leave – including that part of the salary which exceeds the national insurance office’s ceiling.

Oktogonen – the Bank’s profit-sharing system Every year since 1973, the Bank has allocated part of its profit to a profit-sharing system for its employees. The only exception was 1992 when no dividend was paid to the shareholders. The funds are managed by the Oktogonen Foundation. The main condition for an development of the employees’ skills. The Bank’s various allocation to be made is that the Handelsbanken Group skills development programmes are considered very has higher return on shareholders’ equity after standard important. There is a continuous process of finding tax than other banks, which is the overall goal laid down solutions to employees’ development requirements for the Bank’s operations. A certain part of the extra where courses are just one of many learning methods. result can be allocated to the employees in accordance Other development opportunities are moving to a diffe- with the regulations for the foundation. The amount rent area of the Bank, specialisation, broadening skills allocated is always limited to 25% of the Bank’s dividend or becoming a manager. to its shareholders. All employees receive an equal part in the allocated amount. Disbursement can be made Managers as leaders when the employee reaches the age of 60. One of the Managers should be leaders with the ability to delegate fundamental concepts in managing the foundation is responsibility to their colleagues. Apart from develop- that a considerable part of the funds is invested in shares ment programmes for current managers, the Bank has in Handelsbanken. Oktogonen is the Bank’s largest also implemented programmes for employees who are shareholder. prepared to take on managerial responsibility in the Apart from all staff in Sweden, the profit-sharing future. Almost all activities for enhancing competence system has included staff in Norway since the beginning take place within the Bank and 90% of all managers of 1995 and from 1997, the staff in Finland. From are recruited through internal promotion. 2001, it covers all employees in the Nordic countries since employees in Denmark are now included. Planning dialogues and salary discussions The profit-sharing system is based on the idea that The planning dialogues/performance reviews between the Bank’s employees should receive a portion of the manager and employee are the link between the unit’s extra earnings which they have played such a large part operational plan and the employee’s personal goals. in generating. Over the years, this has increased in The dialogue focuses on the present situation and devel- importance as an incentive to the staff. However, the opment requirements against the background of a busi- most important source of motivation and personal ness-oriented overall picture. It is then formulated in an development can be found in the decentralised customer individual action plan. These dialogues are an important and profit responsibility itself. The Bank places great investment which the Bank considers to have very high emphasis on always keeping this basic philosophy alive priority. Handelsbanken’s decentralised corporate phil- in its daily work and making sure that it is applied in osophy with a high degree of responsibility for the all activities.

18 Svenska Handelsbanken Annual Report 2001 Economic perspective

2001 in an economic perspective

The business cycle is always full of surprises and 2001 economy. These hopes were dashed at an early stage was no exception. Back in spring 2000, most experts when it turned out that both Germany and Italy had agreed that the booming US economy would soon enter negative GDP growth during the second quarter of a downturn. After the stock market slump in 2001, 2001, in other words before the US suffered the same more and more people forecast a crash-landing for the fate. After the terrorist attacks, business cycle barome- finances of American households, resulting in increased ters in Europe plunged as fast as in America. The UK savings and lower consumption. But this did not happen. was the shining light in the European economic gloom. It turned out that households were the mainstay of an Growth remained at amazingly high levels despite the increasingly weaker economy, while the growth base in strong pound’s negative influence on industry. Interest the 1990s – investments – started to weaken because of rate cuts proved to be a better medicine in the British dashed profit expectations. Isles than on the Continent. The weak global economy exposed financial weak- USA nesses in a number of economies. The Japanese banking The surprisingly strong growth in consumption was system was again under pressure. Problems for Turkish related to two factors. Bond yields fell sharply during banks led to devaluation of the lira. Argentina was forced autumn 2000 as growth expectations wound down. to give up its defence of the peso. These factors pressed This gave American households substantially more down the price of bank shares in Europe. money in their pockets in the form of sharply lower interest costs. This particular market effect completely Nordic countries overshadowed the impact on consumption of the The Nordic economies followed the global trend. Both dramatic stock market fall. The other positive factor Finland and Sweden suffered in the wake of the burst for households was the strong public finances, which telecom bubble in Europe, but strong public finances opened up for major tax cuts. The impact of the Fed’s and good financial strength in companies and house- sharp interest rate cuts in 2001 was not felt until the holds were stabilising factors. In Norway, monetary autumn in the shape of significantly lower financing tightening achieved the desired result in the form of a costs for cars, for example. The result was an all-time slower economy and lower inflation figures. In Sweden, high for auto sales in October. The terrorist attacks of inflation climbed much higher than the Riksbank September 11 troubled households and made them expected. This is an indication that monetary policy more cautious, but low interest rates and promised should have been tightened much more during the tax cuts softened the impact this might have had on upswing and it contributed to Swedish bond yields consumption. As for stock markets, the surprisingly rising relatively more than European yields. high spending levels had a favourable impact on consumption-related shares. Currency market While US households continued to act as the motor Currency markets were also affected by the changes in of the economy, companies went into reverse gear as the business cycle perspective. At the beginning of the their profits fell. The sharp drop in profits was not just year, most people thought that the days of the dollar the effect of weaker sales figures. It also reflected an were numbered and that the falling euro trend would overheated labour market where profits ended up in turn. But as soon as there were signs of a downturn in the pockets of employees rather than shareholders. The the EMU area, the dollar strengthened again. There was rapid reaction of American companies in 2001, with a similar situation following the events of September 11. heavy cutbacks, paves the way for higher profits and Initially, many people thought that the negative effects investments in 2002. At the same time, household of the terrorist attacks would be concentrated to the US, consumption will be hampered by a weaker labour and this caused the dollar to fall. When it became appa- market and smaller wage rises. Early signs of an upturn rent that Euroland would not escape the aftermath, the in corporate investments led to a recovery for technology dollar recovered. The Swedish krona fell sharply against stocks during the autumn. The fall in bond yields both the dollar and the euro as foreign investors sold off simultaneously came to an abrupt end and expectations some of their Swedish shareholdings. The recovery in the of continued relaxed monetary policy subsided. stock market in the autumn and signs that the bottom had been reached for the US technology sector revived Europe the krona. Developments below the surface thus led to both negative and positive surprises in the US economy in 2001. In Europe, there was disappointment that the economic trend for most countries was similar to the US trend. The general sentiment in early 2001 was that Europe would achieve good growth in spite of a weak US

Svenska Handelsbanken Annual Report 2001 19 Review of operations

Review of operations

GENERAL RESULT AND PROFITABILITY Handelsbanken is a Nordic universal bank – including Operating profit was SEK 11 208m (11 683). The insurance operations – with a highly decentralised orga- previous year’s result was affected by the one-off effect nisation. The heart of the Bank is its large branch office arising when the Bank sold its shares in Svensk Export- network. The branches are totally kredit AB (Swedish Export Credit Corporation). This responsible for customers within one-off effect was SEK 343m and when excluded, the their local area of operations. The previous year’s operating profit was SEK 11 340m. All branch office co-ordinates the central comparisons with the previous year exclude this one-off and/or regional resources which are effect. Net interest income and net trading income in- sometimes needed to offer customers creased, while net commission income fell. Expenses for the best possible service. Handels- comparable units and excluding exchange rate changes banken prioritises high-quality service increased by 7%. The profit and loss accounts for combined with the lowest expenses 1997–2001 are shown on pages 76–77. compared with other Nordic banks. OPERATING PROFIT

Ulf Hinds BRANCH OFFICE OPERATIONS consist of ten regional banks – seven in Sweden 2001 2000 Excl. items Change and one each in Norway, Finland affecting % and Denmark. SEK m comparability Net interest income 13 385 11 791 11 791 14 HANDELSBANKEN MARKETS is responsible for trading in the money and foreign Commission, net 5 028 5 455 5 455 – 8 exchange markets, for trade finance Trading, net 2 656 2 633 2 633 1 and financial institutions, and banking Other income 585 801 458 28 operations outside the Nordic Total income 21 654 20 680 20 337 6 countries. It also includes the Bank’s Staff costs excl. unit for economic research. performance-related – 5 580 – 4 844 – 4 844 15 Performance-related HANDELSBANKEN SECURITIES is respons- staff costs – 338 – 464 – 464 – 27 ible for corporate finance and equity Other expenses – 4 376 – 3 756 – 3 756 17 sales and trading. Handelsbanken Securities is organisationally part of Total expenses Ð 10 294 Ð 9 064 Ð 9 064 14 Handelsbanken Markets but its Result before loan losses 11 360 11 616 11 273 1 results are reported separately. Loan losses incl. change in value of HANDELSBANKEN ASSET MANAGEMENT repossessed property – 152 67 67 comprises fund management, discre- Operating profit 11 208 11 683 11 340 Ð 1 tionary management and institutional custody services. Income HANDELSBANKEN PENSION AND INSURANCE offers a full range of life insurance Income increased by just over 6%. Net interest income and pension products marketed by rose by 14% to SEK 13 385m (11 791). Margins were Handelsbanken Liv and SPP. essentially unchanged, and the increase in net interest income was therefore mainly due to higher volumes. HANDELSBANKEN FINANS offers a com- Net commission income fell by 8% to SEK 5 028m plete range of finance company services (5 455). Equity-market related commission decreased, in all the Nordic countries. while both lending and payment commission increased. STADSHYPOTEK BANK offers a selection Net trading income continued to increase to SEK 2 656m of bank and insurance services for (2 633). Money market and foreign exchange trading customers who do not need the were the most important factors behind this increase. branches’ broad range of products and customised service. Expenses HANDELSBANKEN TREASURY manages For comparable parts of the Group and excluding the Group’s Swedish kronor liquidity, foreign currency effects, expenses increased by 7%. funding in the capital markets, and Total expenses were SEK 10 294m (9 064), which was funding and clearing through the an increase of just under 14%. Five percentage points Riksbank. of this increase derived from the acquisitions of Midt- bank and SPP and two percentage points from foreign

UJ exchange fluctuations. The remaining cost increase was

20 Svenska Handelsbanken Annual Report 2001 Review of operations

due to higher IT expenses and a large increase in the COST/INCOME RATIO number of branches outside Sweden. The Bank opened 2001 2000 16 new branches outside Sweden, which led to SEK 87m in increased expenses. IT expenses were SEK 2.6bn (2.3). Before loan losses 47.5% 44.6% The C/I ratio before loan losses was 47.5% (44.6) After loan losses 48.2% 44.2% and after loan losses 48.2% (44.2).

Profitability SENSITIVITY ANALYSIS OF THE HANDELSBANKEN GROUP’S RESULT Return on shareholders’ equity calculated after full tax Change Impact on Impact on was 18.4% (21.6), while calculated after standard tax, operating earnings it was 17.8% (19.9). profit per share SEK

Commission, net +/– 1% +/– 49 0.05

RETURN ON SHAREHOLDERS’ EQUITY AFTER STANDARD TAX Number of employees +/– 100 –/+ 64 0.07 % Salaries +/– 1% –/+ 54 0.06 25 Other general Svenska Handelsbanken administrative expenses +/– 1% –/+ 33 0.03 20

15 ASSETS 10 Other listed banks 31 December 5 2001 2000 Change Standard tax SEK m % 0 50% 1985–1988 30% 1989–1993 Interest-bearing securities 128 347 88 262 45 -5 28% 1994–2001 Lending to the general public 800 068 689 106 16 Lending to credit institutions 70 857 94 677 – 25 1985 1987 1989 1991 1993 1995 1997 1999 2001 Other assets 175 249 148 308 18 Total assets 1 174 521 1 020 353 15

Appropriations and tax The Bank received compensation of SEK 400m (974) in LIABILITIES AND SHAREHOLDERS’ EQUITY pension settlement from the Bank’s pension foundation. 31 December The assets in the Bank’s pension foundation and the 2001 2000 Change pension fund exceeded the commitments by SEK 9bn SEK m % (15). The Group’s tax expense was SEK 3 202m (3 353). Deposits and funding This is equivalent to an effective tax rate for the Group from the general public 283 692 255 350 11 of 27.8%. Specifications of deviations from the nominal Liabilities to credit institutions 220 126 155 414 42 tax rate are reported under Note 14, page 60. Issued securities etc. 440 981 401 489 10 Other liabilities 152 634 146 568 4 BUSINESS VOLUME TRENDS Subordinated loans 28 976 19 066 52 Shareholders’ equity 48 112 42 466 13 Balance sheet, lending and deposits Total liabilities and Total assets increased by 15% to SEK 1 175bn (1 020). shareholders’ equity 1 174 521 1 020 353 15 The increase is due to higher lending to the general public, which increased by 16% to SEK 800bn (689). In addition to the increase in lending, the Bank’s holdings of interest-bearing instruments also rose by SEK 40bn to SEK 128bn (88). There was a large demand for loans from both companies and households. Lending growth peaked during the summer. Lending to households grew by 14% and to companies by 18%. Corporate lending totalled SEK 505bn and household lending was SEK 295bn. Mortgage lending represented almost 45% or SEK 350bn (326) of lending to the general public. Mortgage lending to households increased by 11% to

Svenska Handelsbanken Annual Report 2001 21 Review of operations

SEK 212bn (191). Corporate mortgage lending was adjoining table. The principles for granting loans are SEK 138bn (135). In the Nordic countries outside identical irrespective of business sector, and the Bank Sweden, lending was SEK 97bn (73). feels no particular concern regarding these commitments. The adjoining table shows the geographical distribu- The credit portfolio included 6 (5) exposures which tion of lending, principally based on where the borrower exceeded 10% of the Group’s capital base. The table is domiciled. Note that lending to the general public in shows lending to the general public by categories. Sweden decreased somewhat as a proportion of total Deposits from the general public rose by 18% to lending, to just over 80%. Special attention was paid SEK 226bn (191). The Bank continued to gain market during the year to a number of sectors where analysts share in the household deposits market in Sweden. Its and rating agencies foresaw problems, particularly share was 17.5%1) (17.2). following the terrorist attacks in the US in September. The Bank’s exposure to these sectors is shown in the 1) November 2001

GEOGRAPHICAL DISTRIBUTION OF LENDING DEPOSITS FROM THE GENERAL PUBLIC, HANDELSBANKEN GROUP

31 December 31 December

GROUP 2001 2000 Change SEK m 2001 2000 SEK m %

Sweden 646 753 573 767 Deposits in Swedish kronor Norway 43 640 35 226 from households 74 170 67 179 10 Finland 32 117 25 837 from companies etc. 78 094 76 001 3 Denmark 20 772 11 605 152 264 143 180 6 Rest of Europe 26 634 21 555 Foreign currency deposits North America 28 339 19 066 from households 13 641 8 312 64 Asia 1 813 2 050 from companies etc 59 845 39 524 51 Total 800 068 689 106 73 486 47 836 54 The distribution shows where lending operations are conducted. This mainly Total deposits 225 750 191 016 18 corresponds to the domicile of the borrowers.

OUTSTANDING LOANS TO CERTAIN SECTORS, HANDELSBANKEN GROUP

31 December HOUSEHOLD DEPOSITS – MARKET SHARE IN SWEDEN, SEK, SEK bn 2001 % of lending UP UNTIL NOVEMBER 2001 % Telecom 15.6 2.0 18 Travel, hotel 2.8 0.3 17 Shipping 9.5 1.2 16 Airlines, aircraft finance, airport finance 3.1 0.4 15 Non-life insurance 0.3 0 14

13 LENDING TO THE GENERAL PUBLIC, HANDELSBANKEN GROUP

31 December 12

2001 2000 Change 11 SEK m %

Lending in Swedish kronor 1991 1993 1995 1997 1999 2001 to households 258 579 234 650 10 to companies etc. 336 849 296 746 14 595 428 531 396 12 Foreign currency lending to households 36 163 25 024 45 to companies 171 953 135 875 27 208 116 160 899 29 Provision for possible loan losses – 3 476 – 3 189 9 Total lending 800 068 689 106 16

22 Svenska Handelsbanken Annual Report 2001 Review of operations

LOAN LOSSES AND BAD DEBTS FINANCIAL RISK Loan losses The Bank limits and monitors financial risk according The economic outlook deteriorated in Sweden and the to the principles described in “Risk and risk control” other Nordic countries. The number of bankruptcies on page 44. increased in Sweden and corporate profit levels fell. In The interest rate adjustment periods for the Bank’s 1999 and 2000, the Bank’s recoveries were higher than assets and liabilities are shown in the table on the next its loan losses. In 2001, the Bank reported loan losses page. The table shows the interest rate adjustment periods of SEK 152m, including changes in value of repossessed for the Group’s assets and liabilities on the balance property, compared to the previous year’s recoveries of sheet and off-balance-sheet items for all currencies at SEK 67m. The change in value of repossessed property the end of 2001. was SEK 8m (1). A change in interest rates has an impact on the Bank’s Amounts recovered from previous losses were net interest income, partly through the differences in SEK 574m (272) and provisions written back were interest rate adjustment periods between assets and lia- SEK 722m (565). bilities and partly due to the difference in the volume Eight of the loan losses exceeded SEK 40m. The of interest-bearing assets/liabilities. The overall impact table below shows loan losses analysed by borrower of these factors means that at the year-end, net interest category. income would have been higher if interest rates were rising. Bad debts Bad debts, after deduction of provision for possible loan losses, were SEK 1 468m (2 313). They represented 0.18% (0.33) of lending at the year-end. The reserve for possible loan losses was SEK 3 571m (3 219), which is 71% (58) of gross bad debts. A full report is given in note 17, page 63.

LOANS AND LOAN LOSSES BY CATEGORY

31 December

2001 2000 Loans Loan losses Loans Loan losses SEK m % SEK m %1) SEK m % SEK m %1)

Industrial, trading and service companies, etc. 264 768 30.4 – 705 0.33 215 671 27.5 – 200 0.11 Households 294 742 33.8 – 113 0.04 259 674 33.1 – 91 0.04 Construction and property companies 173 499 19.9 – 98 0.06 154 284 19.7 – 10 0.01 Housing co-operative associations 58 931 6.8 – 23 0.04 52 236 6.7 – 42 0.08 Local authorities 8 128 0.9 0 — 7 241 0.9 0 — Lending to the general public 800 068 689 106 Banks 48 498 5.6 12 – 0.02 76 095 9.7 7 – 0.01 Other credit institutions 22 359 2.6 0 — 18 582 2.4 0 — Lending to credit institutions 70 857 94 677 Less amounts recovered but not categorised 767 — 402 — Change in value of repossessed property 8 — 1 — Total 870 925 100.0 Ð 152 0.02 2) 783 783 100.0 67 Ð 0.01 2)

1) As a percentage of loans per category at beginning of year. 2) As a percentage of lending to the general public and credit institutions excl. banks at beginning of year.

Svenska Handelsbanken Annual Report 2001 23 Review of operations

INTEREST RATE ADJUSTMENT PERIODS FOR THE GROUP’S ASSETS AND LIABILITIES

SEK m Ð3 mths 3Ð6 mths 6Ð12 mths 1Ð5 yrs 5 yrsÐ Total

ASSETS Lending 511 271 46 910 38 050 184 816 36 530 817 576 Banks and other financial institutions 86 240 6 413 12 662 741 246 106 301 Bonds etc. 53 957 18 761 13 860 36 486 7 962 131 026 Total assets 651 468 72 083 64 572 222 042 44 738 1 054 903

LIABILITIES Deposits 314 239 7 489 2 014 6 109 6 081 335 932 Banks and other financial institutions 219 193 13 871 9 374 1 472 1 482 245 391 Issued securities 161 466 88 689 100 441 117 045 3 614 471 254 Total liabilities 694 898 110 049 111 828 124 625 11 177 1 052 578 Off-balance-sheet items 4 744 20 389 88 725 – 60 902 – 27 952 25 003 Difference between assets and liabilities including off-balance-sheet items – 38 687 – 17 576 41 469 36 514 5 609 27 329

The table shows the interest rate adjustment periods for the Group’s interest-related assets and liabilities as at 31 December 2001, reported as at the transaction date. Non-interest-bearing assets and liabilities have been excluded.

Value-at-Risk Value-at-Risk for interest and exchange rate risk was Handelsbanken uses Value-at-Risk (VaR) as a method of on average SEK 39m. It was SEK 66m at its highest measuring risks. Daily VaR at Handelsbanken Markets and SEK 19m at its lowest. is shown in the table. The largest risk in trading operations is interest rate The VaR level in the Bank’s equity, fixed-income and risk. It is possible to measure market risks with VaR exchange rate positions was on average SEK 37m (39), without taking into account the correlation between in other words with 99% probability, the Bank would interest rate, exchange rate and equity risk. This type not lose more than SEK 37m in a single day. During the of measurement revealed that interest rate risks comprise year, the VaR level was SEK 66m at its highest and 78%, equity risks 12% and exchange rate risks 10% of SEK 19m at its lowest. the total risk. The VaR level in Handelsbanken Markets’ equity risk was on average SEK 6m. At its highest, the equity risk was SEK 16m and at its lowest SEK 1m.

DAILY VALUE-AT-RISK IN 2001 FOR HANDELSBANKEN MARKETS – INTEREST-RATE RISKS, EXCHANGE RATE AND EQUITY PRICE RISKS

Frequency (number of days)

15

10

5

15 20 25 30 35 40 45 50 55 60 65 70 SEK m

24 Svenska Handelsbanken Annual Report 2001 Review of operations

Interest-rate, exchange rate and equity risks DERIVATIVE VOLUME 31 December The measure of interest rate risk used by Handelsbanken SEK bn 2001 2000 calculates the impact on the market value of all assets and liabilities both on and off the balance sheet, if all Currency forwards 1 497 983 interest rates rise by one percentage point. At year-end, Interest rate and currency swaps 1 772 1 381 the Group’s interest rate risk was SEK 659m (462). Interest rate futures and FRAs 2 304 1 819 The increase is due to Handelsbanken Markets expan- Interest rate and currency options 253 115 ding its operations in derivatives and bond trading. Equity derivatives 248 135 The equity risk was a maximum of SEK 9m (30), Total 6 074 4 433 in the case of a 10% change in all share prices. The exchange rate risk is measured as the impact on COUNTERPARTY RISK IN DERIVATIVES the Bank’s result if exchange rates change by 5%. This risk was SEK 1m (7.5). 31 December SEK bn Nominal amount Converted amount Derivative instruments Class A 200 8 As stated in the Risk and risk control section, a derivative Class B 4 593 24 is a financial contract whose value is dependent on the Class C 1 281 11 underlying asset. This means that derivatives are in Total 6 074 43 general monitored according to the same principles as the underlying asset. Derivative instruments in the Bank’s books are shown on page 73. CAPITAL BASE AND CAPITAL REQUIREMENT Nominal amount is the most common measure of volume for the derivatives market. The adjoining table SEK m 2001 2000 shows the aggregated nominal amounts in derivative CAPITAL BASE contracts. Tier 1 capital 37 188 34 596 The table shows that outstanding volumes increased Tier 2 capital 27 376 16 724 by 37%. Nominal amount is simply a measure of volume Less shareholdings in insurance and not of market risk or credit risk. These risks are companies and 5–50% in companies much smaller than the nominal volumes. which conduct banking operations – 4 868 – 675 The counterparty risk in derivatives is based on the Total tier 1 and tier 2 capital 59 696 50 645 risk classes used for calculating capital adequacy. Enlarged capital base 921 1 050 Groups A–C (see table) are weighted 0%, 20% and Total capital base 60 617 51 695 50%, respectively. The table shows that the largest exposures were in Group B, which is mainly Swedish CAPITAL REQUIREMENT or foreign credit institutions in the EU or OECD. The Risk-weighted amount recalculated amount of a derivative contract comprises Credit risks 588 746 518 185 the sum of the contract’s positive market value on the Market risks 22 023 23 371 balance sheet day and a computed amount for possible Total 610 769 541 556 future changes in risk. Capital ratio 9.9% 9.5% Tier 1 capital ratio 6.1% 6.4% CAPITAL RATIO The Group’s capital ratio was 9.9% (9.5) and the Tier 1 capital ratio was 6.1% (6.4). Tier 1 capital, which mainly consists of shareholders’ equity, increased by 7% to SEK 37.2bn (34.6). The in- crease was due to profits generated during the year, reduced by the proposed dividend, combined with the effect of the ongoing buy-back programme. Apart from Tier 1 capital, the total capital base also includes Tier 2 capital and the enlarged capital base. These types of capital are obtained by funding in the market.

Svenska Handelsbanken Annual Report 2001 25 Review of operations

NORDIC BANK RATINGS

31 December

MOODY’S STANDARD & POOR’S FITCH Long Short Financial Long Short Long Short term term strength term term term term

Handelsbanken Aa2 P-1 B+ A+ A-1 AA– F1+ FöreningsSparbanken Aa3 P-1 B A A-1 A+ F1 Nordea (Nordea Bank Sweden) Aa3 P-1 B A+ A-1 AA– F1+ SEB A2 P-1 C+ A– A-2 A+ F1 Danske Bank Aa2 P-1 B+ AA– A-1+ AA– F1+ Den norske Bank A1 P-1 B– A A-1

Rating The number of Internet customers increased by 36% The rating agencies’ rankings mainly affect the costs of to over 535 000. A new architecture and technical the Bank’s funding in international markets. In 2001, platform was launched for the Bank’s Internet services Handelsbanken’s rating from the three major rating in Sweden. The architecture is Java-based and work has agencies was unchanged. See the above table. started on rewriting the Swedish Internet services in Java. This will allow for an increased number of Internet ACQUISITIONS OF SPP AND MIDTBANK customers and transactions, while retaining the stability of the services. The platform is intended for subsequent In March, the Bank concluded the acquisition of SPP use by other parts of the Group. Liv AB, which had been announced in December. In Handelsbanken is an active participant in a joint April, the Bank made a public bid for all the shares in Swedish bank project which is developing a solution for Midtbank A/S, which was accepted by the shareholders. customers to identify themselves in a secure manner, for Midtbank A/S was consolidated with Handelsbanken example when filing electronic tax returns or shopping from 15 May. As a result of the acquisition, Handels- over the Internet. The service is sold to customers in banken gained 24 new branches, mainly in Jutland. It competition with other members of the consortium. also made Handelsbanken the fifth largest bank in Handelsbanken has entered into a framework agreement Denmark. with the Swedish Agency for Administrative Development on behalf of government, county council and municipal IT DEVELOPMENT agencies. The Group’s IT costs were SEK 2.6bn, which is nearly As the Bank expands outside Sweden, there is increased SEK 0.3bn more than the previous year. The increase demand for IT support. The Bank has extensive branch was mainly due to various investments in IT develop- office operations in the Nordic countries outside Sweden, ment for business operations in Sweden and abroad. where service providers are used for most IT develop- The Group also continued to expand its Internet opera- ment and operations, in close co-operation with the IT tions. The increase also includes the cost of transferring department at the local regional bank. This is the most the system platform for the Finland regional bank to efficient way of working in these countries, considering a new service provider and extra IT costs related to the the stage of development at these regional banks. At the acquisition of Midtbank. Bank’s non-Nordic units, development and operations As far as possible, Handelsbanken aims to run its IT are performed by the Bank’s own staff. The long-term operations with its own staff, since this promotes a aim at these units is to consolidate base systems and sense of community with the business operations and operations. The same base system has been implemented thereby a greater feeling of joint responsibility for the at the units in Singapore/Hong Kong and in Poland. Group’s results. It is also more efficient to employ people In 2002, it will also be implemented at the Frankfurt on a more permanent or long-term basis as it enables branch. All these IT operations will be run from Sweden. them to gain in-depth experience of the systems and In 2001, the Bank’s IT operations were stable and the operating environments which the Bank uses. This is level of accessibility was high. Two benchmark surveys a vital component in the Bank’s ability to run a cost- were performed, one for mainframes and one for mini- effective IT operation. To meet the increased demands computers, and both reported very good results in terms for IT support, there was a major recruitment drive in of quality, cost-effectiveness and system accessibility. the Group’s IT units.

26 Svenska Handelsbanken Annual Report 2001 Review of business areas

Review of business areas

Business area BRANCH OFFICE OPERATIONS

QUARTERLY PERFORMANCE

Total Total Change SEK m 2001:4 2001:3 2001:2 2001:1 2001 2000 %

Net interest income 3 414 3 112 2 931 2 898 12 355 10 609 16 Commission, net 713 585 738 610 2 646 2 979 – 11 Net result on financial operations – 10 24 120 140 274 434 – 37 Other income 27 67 10 2 106 49 116 Total income 4 144 3 788 3 799 3 650 15 381 14 071 9 Net internal remuneration included in income 238 203 249 216 906 1 072 – 15 Total expenses Ð 1 852 Ð 1 584 Ð 1 533 Ð 1 472 Ð 6 441 Ð 5 538 16 Profit before loan losses 2 292 2 204 2 266 2 178 8 940 8 533 5 Loan losses incl. change in value of repossessed property – 233 – 21 – 1 23 – 232 172 Operating profit 2 059 2 183 2 265 2 201 8 708 8 705 0 Return on equity, % 19.3 20.5 21.5 21.0 20.6 22.8 Average number of employees 5 670 5 927 5 452 5 149 5 549 5 190

BALANCE SHEET 31 December Nordic area, while Handelsbanken should have the lowest SEK m 2001 2000 expenses. This strategy will enable the Bank to grow Lending to credit institutions 45 025 36 533 Lending to the general public 703 169 622 699 throughout the Nordic area. Bonds 7 514 8 206 Handelsbanken has 458 branches in Sweden, 27 in Norway, Other assets 37 058 26 987 28 in Finland and 32 in Denmark. Handelsbanken is the Total assets 792 766 694 425 fourth largest bank in Finland, fifth in Norway and fifth in Liabilities to credit institutions 228 377 189 791 Denmark in terms of total assets. Deposits and funding from the general public 206 284 182 741 Results Issued securities 201 828 182 002 The result of branch office operations was unchanged Other liabilities 122 842 110 033 at SEK 8 708m (8 705). Net interest income increased Shareholders’ equity 33 435 29 858 by 16% to SEK 12 355m (10 609), which compensated Total liabilities and shareholders’ equity 792 766 694 425 for lower net commission income, an increase in loan losses and higher expenses. Net commission income was Handelsbanken is a Nordic universal bank with a strongly 11% lower at SEK 2 646m (2 979). Loan losses were decentralised organisation. The branch is responsible for all SEK 404m higher than the previous year, at SEK 232m. customers within its geographic area – including major Expenses were up by 16% to SEK 6 441m (5 538). This was mainly due to the continued expansion in the corporations. The branch office co-ordinates all services for Nordic countries outside Sweden and to higher costs for each customer. Where necessary, this is done in close co- IT investments. operation with the Bank’s subsidiaries and with specialists Branch office operations in Sweden at regional and central levels. The Swedish market is dominated by four major banks. Handelsbanken conducts complete universal banking opera- In the press and general debate, there is a tendency to tions throughout the Nordic area. The branch office operation treat them as one unit, the “big banks”. But in terms of consists of ten regional banks: seven in Sweden and one development and market policy, Handelsbanken is very each in Norway, Finland and Denmark. The regional banks different to other banks. Although the major banks as a group lost market share in the Swedish banking market, are responsible for their own profits and pursue the same in most customer segments, Handelsbanken succeeded in goals – to deliver universal banking services with a higher growing, while achieving very good profitability (see service level for customers compared with other banks in the table on next page).

Svenska Handelsbanken Annual Report 2001 27 network withfreebankingservicesovertheInternet.” branch officesandcombinesanextensive as “…abankwhichoffersgoodpersonalserviceat explained theirdecisionbydescribingHandelsbanken a majorSwedishbankhasreceivedthisaward.Thejury Handelsbanken “BankoftheYear”.Itisfirsttime Affärer, aperiodicalforprivatefinances,acclaimed surprise –butneverthelessverywelcomethatPrivata branch level”.) level. (Seethesection“Satisfiedcustomers–surveyat went furtherandconductedasurveyatbranchoffice broken downatregionallevelandonebank profitability thanourcompetitors.TheSKIsurveywas means ofachievingthecompany’soverallgoalhigher is apillaroftheBank’sphilosophyandanimportant other branchofficeservices.Customersatisfaction Internet serviceshavebeencompletelyintegratedwith ways ofcontactwiththeBankandforthisreason, has alwaysregardedtheInternetasjustoneofmany Bank. ThiswasveryencouragingsinceHandelsbanken irrespective ofhowtheychosetocommunicatewiththe for Handelsbanken,customersatisfactionwasthesame indeed thecaseforthreeoutoffourmajorbanksbut preferred otherchannelsformeetingtheBank.Thiswas nicated withtheBankviaInternetandthosewho in satisfactionbetweencustomerswhomainlycommu- customers tofindoutwhethertherewasanydifference also carriedoutaseparatesurveyamongprivate applies tobothprivateandcorporatecustomers.SKI offices alloverSweden.Handelsbanken’stopposition was stillNumberOneofthebankswhichhavebranch customer satisfaction–showedthatHandelsbanken services. payments, Datasvartelephone bankingandInternet giro has decidednottochargeforATMwithdrawals, Bank’s Internetservices.Inlinewiththis,Handelsbanken customers toaccesstheirmoney,paybillsandusethe for always maintainedthatitmustbeeasyandcost-free in itschargingpolicy,chieflybecausetheBankhas Handelsbanken alsodiffersfromtheothermajorbanks 28 11.4 +4.9 19.0 +6.5 1) Marketsharefor2001asat30November Profitability leadonotherlistedbanks Mortgage loansinSEK,households SEK lending,households Mutual funds,newsales SEK deposits,households MARKET SHAREINSWEDEN Review ofbusinessareas In viewoftheresultSKI’ssurvey,itwasnogreat Svenskt Kvalitetsindex(SKI)–theannualsurveyof 1) 1) 1) 1631.4 16.7 17.2 31.6 16.8 17.5 012000 2001 %% Privat- tomers tobemoreandsatisfied eachyear.” their operationsintherightdirection. Ourgoalisforcus- regional bank.“Thesurveyhelps ourbranchestosteer make measurements,”saysMagnusUggla,headofthe satisfied duringthepastyear. can thenseewhethertheircustomershavebecomemore well, wewillcontinue,”saysHåkan. extended ouropeninghoursonThursdays.Ifthisworksout manager oftheUpplandsVäsbybranch.“Sowehavenow times intheafternoonsandevenings,”saysHåkanLindholm, immediately sawthatourcustomerswantedlongeropening Many ofthemincreasedtheirsupplyforeigncurrency. front-office desksinordertocutwaitingtimeforcustomers, staffing levels,phoneserviceandincreasedthenumberof respects. Severalbranchesreviewedtheiropeningtimes, uct information,andthebranch’sperformanceinthese such asopeninghours,quickdecisionsandregularprod- showing howimportantdifferentfactorswereforcustomers, could acttoincreasecustomersatisfaction. each branchwithbetterfeedbackmaterialsothatthey than thatusedbySKI.Thepurposeofthiswastoprovide customers wereinterviewed,whichisanevenlargersample customers wereinterviewedbyphone.Atotalof7200 regional bank,50corporatecustomersand100private first surveyatbranchofficelevel.Atall48branchesinthe different partsofthecountry. level, thusenablingtheBanktofollowupitspositionin year running,theresultswerealsoreportedatregional customer surveys–SvensktKvalitetsindex.Forthesecond has beenatthetopofoneSweden’smostdetailed lead inprofitabilityandgrowth.Formanyyears,theBank banks isoneofthemainreasonsbehindHandelsbanken’s Having moresatisfiedcustomersthanothercomparable Satisfied customers–surveyatbranchlevel “It isdifficulttomakeanyrealimprovementsifyoudon’t Another surveywillbeperformedin2002.Allbranches The customers’opinionsledtotangibleresults:“We A centralfeatureofthebranchreportwasatable The StockholmCityregionalbankperformedtheBank’s Svenska Handelsbanken Annual Report2001

Victor Brott Review of business areas

When SPP Liv AB was acquired, a major factor in the Branch office operations in Finland acquisition calculation was the scope for cross-selling of The Bank had 28 branches in Finland, 8 of which banking services to SPP customers who did not already were new during the year, an increase of 40%. Branches have a relationship with Handelsbanken. Cross-selling were opened in Helsinki-Munkkivuori, Joensuu, has been particularly successful to companies. Business Kokkola, Raisio, Rovaniemi, Salo, Seinäjoki and volumes of almost SEK 5bn have been generated so far Hämeenlinna. Handelsbanken had approximately from SPP customers who were not previously customers 68 000 customers. Total assets were around SEK 54bn. of Handelsbanken. The Bank will continue working Operations expanded very rapidly. The most critical with cross-selling in the same way as it did to customers factor in opening new branches is finding the right of Stadshypotek. Plans have been drawn up and at the staff. They also need substantial backup from the end of the first quarter of 2002, more active customer regional head office. Thus, rapid organic growth makes marketing will start. very high demands on resources. Operating profits were lower in Finland. This was due in part to the Branch office operations in Norway rapid expansion, but also to the process of changing The Bank opened branches in Sarpsborg and Ålesund, IT service providers. This led to almost doubled costs bringing the number of branches in Norway to 27. The for IT production in Finland. Norwegian market was characterised by increased com- petition and a certain amount of pressure on margins. Branch office operations in Denmark The Bank gained market share among both companies Operations in Denmark continued and private individuals. The Bank’s market share in their very rapid expansion and for Norway is estimated at 4–5%. the third year running, income grew Profits in Norway fell, which was entirely due to by over 60%, excluding the effects provisions for loan losses against certain exposures in of the acquisition of Midtbank. the shipping industry, relating to the acquisition of At the beginning of April, Bergensbanken. The result before loan losses continued Handelsbanken made a public bid to develop in a very favourable direction. for Midtbank A/S. The bid was well- Bergensbanken is completely integrated with Handels- received by Midtbank’s shareholders, banken, both formally and in terms of working methods. employees and customers. Midtbank From a legal point of view, the whole Norwegian ope- was consolidated with Handelsbanken ration is run as a branch of Handelsbanken. Bergens- from 15 May, and in July, Handels- banken ceased to be a brand name at the end of 2001 banken had acquired 100% of the and all operations are run under the name of Handels- shares in Midtbank and the company was delisted from banken. Banking operations in Norway are run entirely the Copenhagen Stock Exchange. Like Handelsbanken, according to the Handelsbanken model. The branches in Midtbank has a long history. It was founded 131 years Bergen were allocated a geographic area of operations and ago and its operations have been centred on the Jutland were given complete responsibility for their customers. area of Denmark. The bank’s method of operations has been characterised by close customer relationships, particularly with private individuals and small/medium- sized companies. KEY FIGURES – NORDIC BRANCH OPERATIONS OUTSIDE SWEDEN Following the acquisition, Handelsbanken became the fifth largest bank in Denmark. Two new branches 2001 2000 were opened in Horsens and Esbjerg, bringing the Number of branches 87 52 number up to 32. The Denmark regional bank is now Number of customers, private, 1 000s 170 102 organised in the same way as Handelsbanken’s other regional banks. The process of delegating decision- Number of customers, corporate, 1 000s 29 19 making functions to the Midtbank branches is in Internet penetration %, private 23 28 progress. Average number of employees 1 091 758 In collaboration with the Århus School of Business, the Total assets, SEK bn 141 117 Danish Centre for Management carried out a survey of Lending to the general public, corporate, SEK bn 74 57 customer satisfaction among the private customers of Lending to the general public, private, SEK bn 31 20 Danish banks. Handelsbanken had the most satisfied Deposits from the general public, SEK bn 39 28 private customers of all the major Danish banks. Accord- Mutual fund volumes, SEK bn 5 4 ing to a survey carried out by a business magazine called Børsens Nyhedsmagasin, 13% of large Danish companies Income, SEK m 2 193 1 561 said they did regular business with Handelsbanken and Expenses, SEK m – 1 929 – 769 6% of companies with sales in excess of DKK 100m Operating profit, SEK m 264 792 said that Handelsbanken was their main bank.

Svenska Handelsbanken Annual Report 2001 29 Review of business areas

In 2000, a new mortgage loan – the corporate market where PrioritetsLån – was introduced Stadshypotek confirmed its on the Danish market. The total position as the predominant mortgage loan portfolio to lender. private individuals now exceeds At year-end, the mortgage DKK 1bn. group’s lending was SEK 350bn Handelsbanken issued an (326), an increase of SEK 24bn. equity linked bond for DKK As at 30 November, total lend- 207m, the largest-ever instru- ing in the Swedish mortgage ment of this type placed in the market was SEK 1 116bn Danish market. (1 0691)). Stadshypotek’s share was 31.0% (30.41)). Its share of Internet the household market was 31.6% At Handelsbanken, the Internet (31.41)) and 30.1% (29.21)) of is just one of many ways cus- the corporate market. Margins tomers can communicate with were unchanged but due to its their branch. But in order to increased share of household have a dialogue, two-way com- lending, Stadshypotek’s overall munication is needed. So, it was margin was slightly higher. important for the branches to TM be able to communicate back Stadshypotek e-bud over the Internet. The work of The electronic bidding service enabling branches to make their own homepage was (called e-bud in Swedish) was launched at the end of completed. Every single branch in all the Nordic 2000 and is a new feature on the Swedish housing market. countries has its own homepage which is unique to It enables buyers and sellers to follow in real-time via each branch. Over 535 000 customers of the Group the Internet, bidding on properties which estate agents were registered for the Internet, most of them in put on the market. The service is based on close co-ope- Sweden. More than 30% of Swedish private customers ration with estate agents but does not change their role use the Bank’s Internet services. The proportion is regarding contacts and responsibility towards their slightly lower in the other Nordic countries. In Sweden, customers. Stadshypotek’s role is to provide an inde- over 50% of corporate customers are linked to Internet pendent marketplace. banking. Towards the end of the year, the rate at which Over 400 estate agents signed up for this service in they signed up declined to some extent. 2001. A total of 3 400 properties were available for bidding and over 13 500 bids were made. The service New credit system attracted more and more attention with over 600 000 A great deal of effort has been invested in a new loan visitors to the marketplace. and collateral system which will be implemented grad- Stadshypotek e-bud creates added value for all those ually, starting in 2003 with the collateral system. In order involved. For interested parties/buyers, it means that to make system development work more efficiently, the they can follow the bidding process in real-time and see Bank is aiming for systems to be built partly using for themselves the status of their own bid. For the seller, general components, which can be reused for future IT the attraction is that more people can participate in the projects. bidding process, thus leading to a fairer price. For estate agents, e-bud means increased efficiency since the time Mortgage lending they save can be used for giving advice and marketing. Stadshypotek and its subsidiary Handelsbanken Hypotek Many estate agents who frequently use the service, are responsible for most of the Group’s mortgage financ- consider that the customer has a more positive view of ing, and all customer contacts are through the Bank’s the complex bidding process through using e-bud. There Swedish branch network. is increased transparency, faster information about how In 2001, there was high demand for loans, particu- the sale is going and a higher level of security. The larly from households. An important reason for this customers’ financing requirements are also met at an was an active trend to convert rental apartments into earlier stage of the process. The branches have an housing co-operatives, particularly in the large cities. important advisory role in connection with mortgage Stadshypotek’s market shares increased, in both transactions, mainly for loans, but also insurance solu- corporate and household lending. Apart from increased tions and ancillary banking business. focus on mortgage loans at branch offices, these successes 1) As at 31 December 2000 are due to the launch of the property bidding service, e-bud, which helped expand the Bank’s collaboration with estate agents. Lending volumes also increased on

30 Svenska Handelsbanken Annual Report 2001 Review of business areas

Business area HANDELSBANKEN MARKETS

QUARTERLY PERFORMANCE

Total Total Change SEK m 2001:4 2001:3 2001:2 2001:1 2001 2000 %

Net interest income 498 455 404 149 1 506 145 Commission, net 81 48 45 44 218 166 31 Net result on financial operations – 7 168 101 428 690 1 625 – 58 Other income 7 2 – 1 7 15 10 50 Total income 579 673 549 628 2 429 1 946 25 Net internal remuneration deducted from income 7 7 20 7 41 39 5 Total expenses Ð 238 Ð 294 Ð 263 Ð 276 Ð 1 071 Ð 1 010 6 Profit before loan losses 341 379 286 352 1 358 936 45 Loan losses incl. change in value of repossessed property 44 1 – 5 48 88 17 – 418 Operating profit 385 380 281 400 1 446 953 52 Return on equity, % 27.2 24.7 17.2 26.1 23.6 18.5 Average number of employees 878 759 717 718 768 703

BALANCE SHEET 31 December

SEK m 2001 2000 Increased expenses as a result of investments in banking in the UK and Mid-Europe and the subsidiary in Poland Lending to credit institutions 211 023 198 197 were compensated by lower expenses through efficiency Lending to the general public 70 328 48 560 gains in trading operations. Bonds 90 491 59 645 All three business areas at Handelsbanken Markets Other assets 212 052 138 516 increased their results, with Trading reporting the largest Total assets 583 894 444 918 increase. Liabilities to credit institutions 186 560 198 076 In October, a joint back-office function was created. Deposits and funding from All money and bond market, currency, equity and the general public 91 345 54 954 Swedish custody operations are now gathered in one Issued securities 209 633 182 374 department called Handelsbanken Markets Operations, Other liabilities 91 896 5 495 which carries out all back-office operations for Handels- Shareholders’ equity 4 460 4 019 banken Markets, Handelsbanken Securities, the Swedish Total liabilities and shareholders’ equity 583 894 444 918 branch office operations and to some extent, the Nordic branch operations.

Handelsbanken Markets’ operations are organised into three Trading business areas: Trading, Financial Institutions and Trade Handelsbanken Trading is responsible for the Bank’s Finance, and Banking operations outside the Nordic countries. trading on the foreign exchange, money and fixed income markets and also for the Bank’s activities in the public The Bank’s economic research unit is also included in Handels- debt capital markets. Operations have become highly banken Markets as a resource. Handelsbanken Markets has centralised in recent years. Previously, interbank trading just over 850 employees in 17 countries. From an organisa- was conducted in twelve locations around the world, tional point of view, Handelsbanken Securities is also part but now only in Stockholm, New York and Singapore. of Handelsbanken Markets. Handelsbanken Securities is During the year, interbank trading in Luxembourg was transferred to Stockholm. Customer sales remain a reported as a separate business area in the interim and natural part of business operations in those places annual reports. where the Bank was previously engaged in interbank trading. Customer sales are carried out as close to the Results customer as possible, in total accordance with Handels- Handelsbanken Markets’ operating profit was SEK 1 446m banken’s traditional work methods. There were 170 (953) – a rise of 52%. employees at Handelsbanken Trading. Income increased by 25% to SEK 2 429m, mainly due Profits continued to develop well during the year in to a strong growth in trading volumes. Expenses rose all units and areas of operation, with New York and by 6%, which is entirely due to exchange rate fluctuations. Money Markets reporting particularly good results.

Svenska Handelsbanken Annual Report 2001 31 Review of business areas

FOREIGN EXCHANGE AND purchased Nordic telecommuni- MONEY MARKETS cations equipment and the Bank In foreign exchange and money also arranged financing for a market trading, Handelsbanken water purification project in maintained its strong position China with a Swedish supplier. in Nordic currencies, while Due to higher commission trading in international and income, this operation reported emerging markets represented an increased result. Volumes an increasing share of this for both export documentary business area’s result. credits and export and project Through continued expan- finance increased. sion of the product base, there were increased opportunities to Banking operations outside the Nordic countries meet customers’ requirements. This also made it easier to Banking operations outside the manage various types of finan- Nordic regions are organised cial risk in the operation. As a into five units: UK, Mid-Europe, result, Handelsbanken was able Asia, New York and Warsaw. to offer a number of structured In the UK, the Bank has branches solutions in the area of foreign in London, Manchester, Birming- exchange during the year. ham, Nottingham, Leeds and Efforts to expand the number of financially strong Reading; in Mid-Europe, in Frankfurt, Hamburg, counterparties continued successfully. The Baltic focus Luxembourg, Vienna, Zurich and Paris; and in Asia, resulted in Handelsbanken being acclaimed Best Bank in Singapore and Hong Kong. A total of 280 people in the Nordic and Baltic Regions by Euromoney in July were employed in these operations. 2001. The Bank also received a number of awards for The year was characterised by geographic and business foreign exchange trading from leading financial periodicals expansion in the UK and Mid-Europe. In the UK, where such as Corporate Finance and FX&MM. the Bank has conducted retail banking operations for almost two years, branches were opened in Leeds and MONEY MARKETS Reading. Many British companies and individuals became The result for trading in bonds and interest derivatives customers of the six branches in the UK, even though increased. there was no formal marketing of their services. The Handelsbanken reinforced its position as a leading key to this success is a good range of products, a high Nordic bank for public corporate issues and syndicated service level and local knowledge of the market. Two loans in the debt capital market. This was confirmed new branches will be opened in 2002, one of them in when the specialist periodical, EuroWeek, put Handels- Newcastle. banken in first place for Eurobonds in Swedish kronor. During the spring, the corporate-focused banking Handelsbanken performed public debt capital trans- operations in continental Europe, apart from Poland, actions for companies such as General Electric Capital were concentrated to a new unit called Mid-Europe, Corporation, Stora Enso and Nordiska Investeringsbanken. with its head office in Frankfurt. This organisational Handelsbanken was a leading bank for syndicated change has resulted in a well-integrated and cost-effective loans to Nordic companies and arranged loans for com- banking operation. As part of this focus, the Bank was panies including Volvo, SCA, Copenhagen Airports and the first Nordic bank to start a branch in Vienna. The Stena Line. Vienna branch generated several attractive business opportunities with Austrian customers who have Financial institutions and trade finance a Nordic connection. Handelsbanken will be enhancing Operations continued to develop well and the result its European presence in the first half of 2002 by opening increased by 14%. an office in Amsterdam. Financial Institutions is responsible for business with In February 2001, Handelsbanken was the first Nordic foreign banks and foreign governments. The main prod- bank to receive permission to start a wholly-owned ucts offered are clearing services and cash management subsidiary in Poland. The permission to start actual solutions for foreign banks. The Bank increased the number operations was received in early October. The unit is of customers using its Swedish krona clearing services. situated in Warsaw and has 26 employees, one-quarter This operation reported a significantly higher result. of whom speak Swedish. The new subsidiary has attracted Trade Finance is responsible for export documentary a great deal of interest from the media and also from credits, short- and long-term export finance, and project Nordic-related companies which are its target group. finance. During the fourth quarter, Handelsbanken par- The number of new customers and completed trans- ticipated in financing a Mexican telecom operator which actions has so far exceeded even the best expectations.

32 Svenska Handelsbanken Annual Report 2001 Review of business areas

Business area HANDELSBANKEN SECURITIES

QUARTERLY PERFORMANCE

Total Total Change SEK m 2001:4 2001:3 2001:2 2001:1 2001 2000 %

Net interest income – 2 – 29 – 38 – 52 – 121 – 130 7 Commission, net 181 147 241 198 767 980 – 22 Net result on financial operations 106 93 101 199 499 804 – 38 Other income 5 40 87 26 158 83 90 Total income 290 251 391 371 1 303 1 737 Ð 25 Net internal remuneration deducted from income 31 7 14 11 63 80 – 21 Total expenses Ð 234 Ð 220 Ð 244 Ð 249 Ð 947 Ð 982 Ð 4 Profit before loan losses 56 31 147 122 356 755 Ð 53 Loan losses incl. change in value of repossessed property Operating profit 56 31 147 122 356 755 Ð 53 Return on equity, % 22.4 12.4 58.8 48.8 35.6 83.6 Average number of employees 392 474 467 454 447 425

BALANCE SHEET 31 December

SEK m 2001 2000 deteriorated market conditions. Expenses, excluding performance-related staff costs, rose, mainly because Lending to credit institutions 67 113 the average number of employees rose by 22 to 447 Lending to the general public 535 54 and because of the negative impact of the falling krona. Bonds 294 — Although Handelsbanken Securities was considerably Other assets 18 563 14 808 smaller than its major Nordic competitors in terms of Total assets 19 459 14 975 sales, the business area reported a competitive result. Liabilities to credit institutions 3 296 2 093 In terms of value added per employee, Handelsbanken Deposits and funding from was one of the top companies. The market position for the general public 613 305 Handelsbanken Securities was strengthened in all four Issued securities — — Nordic countries. Overall, Handelsbanken was the third Other liabilities 14 821 11 893 largest participant on the Nordic stock exchanges. Shareholders’ equity 729 684 On 1 January 2002, Handelsbanken Investment Total liabilities and shareholders’ equity 19 459 14 975 Banking changed its name to Handelsbanken Securities, which is the conventional name for this kind of business.

Handelsbanken Securities is responsible for corporate finance Operations and equity sales and trading. Apart from its activities aimed Handelsbanken Securities aims to be the first choice at companies and institutional investors, Securities also for customers performing equities transactions or corporate finance business with a Nordic connection. provides support to the branches in the field of equity- The Bank’s ambition is to secure a position in equities related products for small institutional investors and private and Corporate Finance which corresponds to that which customers. This support comprises research, development the Bank has in most other areas. Customers comprise of new products and IT support. Operations are run in seven Nordic private individuals, via the branch offices, and countries with a focus on the Nordic markets. International also Nordic and international institutions and companies, who are served directly by Handelsbanken Securities investors are mainly serviced via the units in Stockholm, within the framework of a well-defined business London and New York. responsibility. Handelsbanken Securities has good opportunities to Results improve its market position. At an early stage, the Bank Handelsbanken Securities reported an operating profit focused on structured equity products which demand of SEK 356m (755), down by 53%. Corporate Finance broader financial competence and capacity than tradi- and Sales/Trading both reported a lower result. For tional equities business. For products such as equity- Corporate Finance, the decrease was much less than for linked bonds, warrants, buy-backs, corporate incentive equities trading, which is more dependent on volumes. programmes, various types of hedge instruments, equity The lower result was mainly due to dramatically loans etc, Handelsbanken is probably already the overall

Svenska Handelsbanken Annual Report 2001 33 Review of business areas

largest player in the Nordic For Corporate Finance, this countries. These products can be trend of customers seeking tailored to meet each customer’s a main provider offers consider- specific requirements and often able potential for working more entail structuring risk or added closely with other units of the yield in an optimal manner. Bank. Handelsbanken’s efficient The market for Corporate branch network in the Nordic Finance services was much countries gives a unique oppor- weaker than the previous year. tunity to offer various equity prod- The market for IPOs was gener- ucts to Nordic private customers. ally weak and transaction volumes The Bank’s financial capacity and for mergers and acquisitions also credibility are also necessary in dropped significantly. This trend order to offer customers competi- was accentuated after the sum- tive solutions in, for example, mer and was further reinforced equity loans or equity redemption after the terrorist attacks in the programmes. US. Handelsbanken was affected by the generally dismal market Equity sales and trading situation, but all in all it was Handelsbanken Securities has a good year for the Bank with overall product responsibility for profitability still at a healthy level. equities sales/trading and equity A fall in profits in Sweden was to research. This includes support to a high degree counteracted by the branch offices on research products, information increases in other Nordic countries, particularly Den- systems and product development. The result generated mark. In sector terms, the technology sector brought in by Nordic customers’ equity business is reported under by far the largest income, as in the previous year. branch office operations. Handelsbanken Securities is Among Corporate Finance’s seven public acquisitions remunerated for the work done on behalf of the branches. in the equity market in 2001 were German Eon’s acqui- Handelsbanken reinforced its market position in sition of Sydkraft, Sveaskog’s acquisition of AssiDomän traditional equity business – meaning research-driven and the Ernström Group’s acquisition of Platzer. Two advice to institutional customers and private individu- transactions were related to Danish companies: FSN als. Gradual expansion of technology and research Capital’s bid for Jamo and Handelsbanken’s acquisition products has also made Handelsbanken a major Internet of Midtbank. broker. Almost half of all equity trading in branch office In Mergers & Acquisitions/Divestitures of unlisted operations is done via the Internet. companies, many of the transactions were cross-border. Handelsbanken Securities decided to develop two Sales mandates included Cloetta Fazer’s sale of the main areas: to offer customers an even better research Consiva Group to Swiss Valora, Swedcarrier’s sale product and to focus more effectively on the international of Unigrid to Cap Gemini and XponCard’s sale of customer base outside the Nordic countries. Equities Graphium to Finnish Edita. On the buying side, trading is becoming increasingly global and customers Corporate Finance assisted Telia in its acquisition of are seeking a cross-border, sector-based research product. Danish Powercom, French Vivendi in buying Danish The fact that the Bank closed its equity operations in Marius Pedersen and Finnish YIT in acquiring Calor. Paris should be seen in the light of this trend. In Norway, a leading buildings material chain was creat- ed by the merger of Gann-Graveren, Byggmo and LA Corporate Finance Lund, and in France, Handelsbanken was adviser in the An increasing number of customers and companies are merger of two IT companies, Himalaya and Euroasset. seeking a main provider of various financial products, On the Stockholm Stock Exchange, three new com- one which can offer a broad range of business credits, panies were launched by Handelsbanken: Dimension, syndicated loans, currency hedging and equity finance etc. Lagercrantz and Addtech, the latter two being demerged This is a clear trend which favours Handelsbanken. from Bergman & Beving. In a number of companies It is a matter of combining the competence at the indi- such as Getinge, Switchcore, Proact and Decim, new vidual branch, Handelsbanken Trading and Handels- issues were carried out for listed companies. Handels- banken Securities in an efficient manner. The Bank banken was market leader for incentive programmes aims to offer a joint service in the financial area. But in for listed companies. other cases it is vital to keep loans and advisory func- tions clearly separated. The individual customer’s wishes are the decisive factor.

34 Svenska Handelsbanken Annual Report 2001 Review of business areas

Business area HANDELSBANKEN ASSET MANAGEMENT

QUARTERLY PERFORMANCE

Total Total Change SEK m 2001:4 2001:3 2001:2 2001:1 2001 2000 %

Net interest income 48 53 45 40 186 172 8 Commission, net 225 230 247 198 900 878 3 Net result on financial operations 8 2 8 5 23 32 – 28 Other income 0 14 1 8 23 8 188 Total income 281 299 301 251 1 132 1 090 4 Net internal remuneration deducted from income 126 118 145 129 518 621 – 17 Total expenses Ð 144 Ð 141 Ð 151 Ð 136 Ð 572 Ð 444 29 Profit before loan losses 137 158 150 115 560 646 Ð 13 Loan losses incl. change in value of repossessed property – 10———– 10— Operating profit 127 158 150 115 550 646 Ð 15 Return on equity, % 26.1 33.2 31.8 22.7 28.4 37.7 Average number of employees 346 397 383 362 372 327

BALANCE SHEET 31 December

SEK m 2001 2000 Mutual fund management

Lending to credit institutions 3 847 2 975 The Bank’s mutual fund management company managed 84 mutual funds with a total value of SEK 99bn (90). Lending to the general public 2 193 2 080 Sixteen of these funds derive from the acquisition of Bonds — — SPP Fonder, and have been managed by Handelsbanken Other assets 5 400 4 348 Asset Management since April 2001. Since March Total assets 11 440 9 403 2001, SPP Fonder AB has been a separate company Liabilities to credit institutions 598 253 within Handelsbanken’s mutual fund operations. Deposits and funding from New savings in the Swedish mutual fund market the general public 7 455 7 719 were SEK 57bn (100), of which premium pensions Issued securities — — savings represented SEK 12bn. Handelsbanken’s share Other liabilities 1 821 96 of net deposits in the Swedish mutual fund market was Shareholders’ equity 1 566 1 335 19%. This was the third year running that Handels- Total liabilities and shareholders’ equity 11 440 9 403 banken’s market share for new mutual fund savings was higher than its share of the total volume. Excluding new savings in the premium pension system, Handels- Handelsbanken Asset Management comprises Fund Manage- banken’s market share was 19.3% – the highest of the ment, Discretionary Management and Institutional Custody players in the Swedish mutual fund market. The net Services. Apart from services aimed at companies, institu- inflow to Handelsbanken was SEK 10.9bn (11.7), of tions and private individuals, Asset Management provides which 2.1bn was premium pension savings. The Bank’s support to the branch offices regarding investments, portfolio increase was partly due to successful sales of mutual funds to major customers and also to continued good systems and accounting for foundations. Operations are con- performance for sales of unit-linked insurance and ducted in four Nordic countries, Luxembourg and the UK. traditional mutual funds. Sales of SPP’s funds also contributed to the increase. The largest net deposits in Results 2001 were in fixed-income funds. Generation funds and Operating profit was SEK 550m (646). Lower volumes the new hedge fund also reported net inflows. For the of managed assets, the result of a weak stock market, Nordic equity funds, however, there was a net outflow were compensated by new management assignments so during 2001. that income rose by 4%. Expenses rose by 29%. Increased On 1 July, the management fees for Handelsbanken’s volumes of managed assets, partly due to the acquisition index funds were lowered from 0.90% to 0.65%. The of SPP, meant that the organisation had to be expanded, Bank also removed the withdrawal fee for units held resulting in increased staff costs. Expenses for systems longer than 30 days. development also went up. The volume of assets managed In March 2001, a new mutual fund, Chalmers Global- by Handelsbanken Asset Management was SEK 236bn fond, was launched in collaboration with the Chalmers (149). The total volume of assets under management by University of Technology in Göteborg. Each year, 2% the Group was SEK 284bn (211). of the value of the Globalfond will be distributed in

Svenska Handelsbanken Annual Report 2001 35 Review of business areas

order to further strengthen Investment Management Chalmers’ position as a leading Investment Management international university of tech- manages Handelsbanken’s nology. The fund is an actively mutual funds and discretionary managed global equity fund. assignments. In order to raise In October, Handelsbanken competence and capacity, the Hedgefond Aktie Europa was management organisation was started, a hedge fund of the reinforced and expanded. This “equity long/short” category, was prompted by increased i.e. an equity fund with flexible volumes, partly due to the investment rules. The fund aims acquisition of SPP and the new to achieve positive performance product area of hedge funds. even when share prices are The key concepts in Handels- falling. The investment focus is on banken’s investment philosophy European equities. On the three are goal focus, clear allocation sales occasions in 2001, SEK of responsibility and knowledge 0.6bn was invested in the fund. transfer. At the end of 2001, During the autumn, customers over 60 analysts, traders and who have private pension portfolio managers worked at savings, alternative ITP or ITPK Investment Management. supplementary pension schemes with SPP, were given the oppor- Licensing of financial advisers tunity to invest in 15 of Handels- In order to ensure high stan- banken’s funds. These funds dards on the Swedish securities complement SPP’s mutual fund range in areas where market, the Swedish Securities Dealers Association has SPP previously lacked investment opportunities. introduced licensing requirements, in force from 2002. In 2001, the management performance was good for The licensing requirement applies to all staff who fixed-income funds and Swedish equity funds but less work with securities and whose main duties involve so for international equity funds. contact with customers, market places and clearing organisations. At Handelsbanken, around 1 000 staff Discretionary management are subject to these requirements. During 2001, a large Despite poorer market conditions, assets under discre- number of branch office investment advisers, stock- tionary management increased by SEK 80bn to SEK brokers and asset managers received their licence after 131bn at year-end. The unit received new assignments passing the certification exam. amounting to SEK 83bn, primarily from Handelsbanken’s acquisition of SPP, but also from new customer assign- Asset management outside the Nordic countries ments such as Norges Bank. SEK 7bn of the assets Outside the Nordic countries, asset management is under discretionary management were invested in conducted at units in London and Luxembourg. The Handelsbanken’s mutual funds. Handelsbanken Asset units in Marbella, Côte d’Azur and Zurich are repre- Management continued to strengthen its position in sentative offices whose main task is to support asset Sweden for index management. management in Luxembourg. The subsidiary in A new portfolio management system was introduced Luxembourg received authorisation to start a branch in during the year to meet customers’ high demands on Zurich. Operations are expected to start in spring 2002. management, administration and systems. The new Assets managed were SEK 12bn. agreements which the Bank has entered into with, for example, Norges Bank, are proof that asset management Institutional custody services can deal with the most demanding customers and this In Sweden, market share increased for institutional offers new opportunities throughout the Nordic region. custody services, primarily due to new assignments The performance for customer portfolios varied from major pension managers. In the other Nordic somewhat depending on the market but in general, the countries, market share went up for both domestic and portfolios underperformed their benchmark indexes international customers. The unit’s income was based in slightly. However, there was a major recovery in the part on total value of accounts and in part on the num- last quarter. ber of transactions. Despite falling market values, the total value of custody accounts rose and the number of transactions increased by 48%.

36 Svenska Handelsbanken Annual Report 2001 Review of business areas

Business area HANDELSBANKEN FINANS

QUARTERLY PERFORMANCE

Total Total Change SEK m 2001:4 2001:3 2001:2 2001:1 2001 2000 %

Net interest income 126 132 121 120 499 483 3 Commission, net 69 72 79 65 285 239 19 Net result on financial operations – 1 0 0 0 – 1 12 – 108 Other income 4 3 5 5 17 19 – 11 Total income 198 207 205 190 800 753 6 Net internal remuneration deducted from income 0 2 0 1 3 15 – 80 Total expenses Ð 118 Ð 108 Ð 116 Ð 108 Ð 450 Ð 408 10 Profit before loan losses 80 99 89 82 350 345 1 Loan losses incl. change in value of repossessed property – 3 – 2 – 7 7 – 5 – 14 – 64 Operating profit 77 97 82 89 345 331 4 Return on equity, % 25.9 33.9 28.6 29.8 29.4 24.8 Average number of employees 425 438 441 440 436 423

BALANCE SHEET 31 December Leasing, conditional sales and car administration SEK m 2001 2000 Handelsbanken Finans is one of the most prominent Lending to credit institutions 3 265 4 257 finance companies in the Nordic area in the field of Lending to the general public 21 256 15 179 investment finance. Almost all companies need new Bonds — — investments in order to increase efficiency, expand or Other assets 6 766 1 200 update their operations. Via Handelsbanken’s branch Total assets 31 287 20 636 office network in the Nordic countries, corporate Liabilities to credit institutions 13 711 12 273 customers are offered local specialist skills in all types Deposits and funding from of financing. Handelsbanken Finans has a local presence the general public 838 345 with representatives at each regional bank to assist the Issued securities — 2 196 branches with training and marketing finance company Other liabilities 15 776 4 919 services. The aim is to create simpler and more secure Shareholders’ equity 962 903 solutions so that as many branch office staff as possible Total liabilities and shareholders’ equity 31 287 20 636 will be able to carry out transactions directly with customers. For large and very complex transactions, Handelsbanken Finans offers specialist functions. Last year, a new model was introduced for the branch Handelsbanken Finans offers in four Nordic countries a full offices’ responsibility and authority concerning finance range of local finance company services: leasing, conditional company services. It proved to work well. A new trans- sales, financing in collaboration with vendors of investment action management system guides the Bank’s staff assets, company car financing and associated administration efficiently and securely through new deals. More than 80% of all transactions are arranged in real-time at the services, factoring/invoice services, debt collection, consumer branch together with the customer. credits and private label plastic cards for retailer partners. A marketing programme was implemented to support the branches in their work with customers. Each pro- Results gramme comprised one week of activities together with The result was SEK 345m (331), an increase of 4%. the branches and their customers. Around one hundred Return on equity was 29.4% (24.8%). Income rose by such programmes were carried out. 6% to SEK 800m (753), mainly due to higher business New sales increased by 31% despite the economic volumes. The rise in expenses was due to major IT invest- downturn. Handelsbanken Finans’ share of the leasing ments in the Finnish operations and to the expansion market in Sweden increased to over 15%. of retail sales finance in the Nordic countries outside In 2001, major leasing transactions were contracted Sweden. Remuneration to the branch office operations for a total of SEK 5bn. These included contracts with was also higher. Total credit volumes increased by 31% Jönköpings Lokaltrafik and Linjebuss for financing to SEK 26.5bn, which means that Handelsbanken trains and buses. In 2000, the Öresund Bridge Consortium Finans has taken market share from its competitors. entered into an agreement for financing trains to traffic

Svenska Handelsbanken Annual Report 2001 37 Review of business areas

the bridge between Sweden and that Handelsbanken Finans can Denmark. This was one of now meet customers’ demands Handelsbanken Finans’ largest- for a local presence in the whole ever transactions and in 2001, Nordic region. deliveries of trains started and In order to achieve high thus also utilisation of the agreed profitability in the field of retail credit facility. financial services, easy-to-use IT-based services must be pro- Factoring/invoice and vided, combined with tailored collection services sales support material and train- Factoring/invoice and collection ing. New partnerships in the services enable customers to capital goods sector and devel- release working capital. Using opment of existing partnerships invoice processing, the customer led to significantly increased assigns management of ledgers to volumes. Handelsbanken Finans. Factoring A survey was carried out in implies that the customer borrows the autumn to determine the money against invoices as collateral level of customer satisfaction and also hands over administra- among the Swedish retail part- tion of the company’s ledgers to ners of Retail financial services. Handelsbanken Finans. Factoring The survey was divided into without invoice processing is a sales, credit assessment, cus- service where the company admin- tomer service and sales support. isters its own ledgers but raises The overall result gave an index credit with invoices as collateral. of 80%, which means that Various debt collection services customers in general were very also help the customer to admin- satisfied with Retail financial ister payment demands and moni- services. tor overdue invoices. In 2000, a comprehensive High priority was given to package of financial services investments in IT solutions to was launched for the auto trade. manage business flows. In line with this, electronic So far, around 80 dealers have chosen to work with services, such as file communication, were enhanced. Retail financial services. Factoring/invoice and debt collection services are avail- Just over two years ago, the Swedish Köpkort was able via the Internet and over 70% of factoring/invoice relaunched and by the end of 2001, there were over customers use the Internet as the main information 200 000 cardholders. The reason for this rapid expan- source for payment flows and invoice status. There was sion is the concept of a plastic card for financing goods also increased use of the Internet for debt collection ser- via an account, combined with its validity as a payment vices. card. A factoring service was established in Norway Handelsbanken Finans entered into new agreements through the acquisition of Kronos AS, and extensive with a number of special interest organisations. An product development was implemented together with example of this is the Swedish Automobile Association, a major customer. which signed an agreement to offer its members a car It was decided to sell the debt collection company, loan and credit card. This type of deal confirms how Nordan AS in Denmark. This was in order to streamline important it is to find partners and/or organisations operations and focus resources for further expansion whose members have a strong interest in the sectors, of the core business. The sale of Nordan AS is expected towards which Retail financial services traditionally to be completed during the first quarter of 2002. aims its marketing. As a result of Handelsbanken’s acquisition of One of the world’s largest IT companies, IBM, chose Midtbank, a new finance company called Midtfinans Handelsbanken Finans’ Netpay, which is a secure solution AS was added to the Group. for retail finance over the Internet. Via the Aktiiviraha credit card in Finland, consumer Retail financial services finance is offered in close co-operation with retailer Retail financial services’ task is to provide services to help partners in the capital goods sector. A number of new boost sales of consumer and capital goods. Handels- partners led to growth and good profitability. A new banken Finans has a leading position in Sweden in the card system was launched and 150 000 customers have field of Retail financial services. In the last two years, converted to the new system, which offers increased positions have advanced in Norway and Denmark so functionality.

38 Svenska Handelsbanken Annual Report 2001 Review of business areas

Business area HANDELSBANKEN PENSION AND INSURANCE

QUARTERLY PERFORMANCE

Total Total Change SEK m 2001:4 2001:3 2001:2 2001:1 2001 2000 %

Net interest income 8 4 2 1 15 12 25 Commission, net 44 40 43 44 171 176 – 3 Net result on financial operations 11 – 18 4 – 15 – 18 – 6 – 200 Other income 3 12285 60 Total income 66 27 51 32 176 187 Ð 6 Net internal remuneration deducted from income 60 64 68 67 259 303 – 15 Total expenses Ð 31 Ð 29 Ð 27 Ð 23 Ð 110 Ð 85 29 Profit before loan losses 35 Ð 2 24 9 66 102 Ð 35 Loan losses incl. change in value of repossessed property Operating profit 35 Ð 2 24 9 66 102 Ð 35 Return on equity, % 33.2 Ð 1.9 22.7 8.3 15.6 23.2 Average number of employees 11 11 11 11 11 11

BALANCE SHEET Handelsbanken Liv 31 December The result for the profit-distributing, unit-linked opera- SEK m 2001 2000 tion was SEK 66m (102). The lower result was caused Lending to credit institutions — — by higher expenses and reduced yield on the company’s Lending to the general public 177 178 own investments. Due to the substantial growth in sales Bonds — — in the late 1990s, administrative and sales resources Other assets 21 754 17 556 were expanded in 2000. The cost of these investments had full impact during 2001. Since some of the company’s Total assets 21 931 17 734 own investments have been in shares, the stockmarket Liabilities to credit institutions 1 2 slump had a negative impact on profits. During the Deposits and funding from year, the portfolio was re-allocated in favour of fixed- the general public 1 148 1 994 income investments. Since the end of 2001, the company’s Issued securities — — own assets are mainly invested in fixed-income securities. Other liabilities 20 450 15 396 Total premium income for traditional and unit-linked Shareholders’ equity 332 342 insurance was SEK 5.9bn (9.0). The decrease was Total liabilities and shareholders’ equity 21 931 17 734 reported in unit-linked insurance. For traditional insur- ance, premium income increased slightly to SEK 2.4bn (2.3). The slump in equity markets led to a fall in the The Handelsbanken Pension and Insurance business area value of the assets but was compensated by new sales. comprises Handelsbanken Liv and SPP. Together, these companies are a market leader, offering a complete range HANDELSBANKEN LIV FÖRSÄKRINGS AB RESULTS of life insurance products for occupational and private pensions, asset protection schemes and employee pension SEK m 2001 2000 insurance, which are available to companies, private customers Result on technical account Ð life insurance business and organisations. Both companies sell their services via Premium income 2 350 2 260 Investment income – 439 34 Handelsbanken’s branch offices. SPP also uses its own sales Insurance claims – 1 331 – 1 186 force, franchisees, independent brokers, and direct sales and Change in life insurance provisions – 1 338 – 1 873 telemarketing. The traditional life insurance operations in Bonus – 60 – 103 Operating expenses – 331 – 264 Handelsbanken Liv Försäkrings AB and SPP’s operations Other — 33 were run on mutual principles where the whole surplus on Result on technical account Ð operations was returned to policy-holders in the form of life insurance business Ð 1 149 Ð 1 099 bonuses and collective risk capital. These units were not Non-technical account Taxes – 152 – 156 included in Handelsbanken’s consolidated accounts. From Profit for the year Ð 1 301 Ð 1 255 1 January 2002, Handelsbanken Liv Försäkrings AB is a Handelsbanken Liv Försäkrings AB is a mutual life insurance company and is not demutualised company which distributes profits. included in the consolidated accounts.

Svenska Handelsbanken Annual Report 2001 39 Review of business areas

Insurance assets managed were of a life insurance company SEK 37bn (37), of which unit- offering traditional savings insur- linked insurance represented SEK ance which has ever been done 17bn (17). in Sweden. It marked the end of Total yield was –2.1% (0.2) a process which was initiated in and the average bonus rate was 1992 when Handelsbanken 5.8%. At year-end, the solvency bought RKA. The new Insurance margin was 102% (113). The Operations Act – which was expenses ratio was 7% (4). intended to permit demutualisa- The slump on global equity tion of life insurance companies markets had an impact on sales – was already being investigated of endowment insurance. Unit- in 1992. linked insurance, focused on The law was not passed by investments, fell by 48%. Sales the Swedish parliament until of traditional endowment insur- autumn 1999. Handelsbanken ance and inheritance planning Liv’s work on demutalising the solutions were not affected, how- company started in earnest at ever. Nor were pension savings this stage. negatively affected. Premium In autumn 2000, customers income increased for private who were affected by the demu- pension insurance, occupational tualisation were given the pensions and employee pensions. opportunity of voting. Some 98% voted in favour of demutualisa- Review of operations tion, with almost 80% of custom- During the autumn, a product ers participating in the ballot. called Studiekapitalspar was launched, which is an After an extensive investigation, Finansinspektionen endowment insurance policy where the funds are invest- then gave its approval and in April 2001, the govern- ed in optional mutual funds. This type of insurance is ment finally gave the go-ahead for demutualisation. intended to build up capital for children’s future studies. The change means that the policy-holders will share The capital can also be used for other purposes such as the total return with the company, with 90% going to driving lessons, buying a car or somewhere to live. the policy-holders and 10% to the company. The company Studiekapitalspar is exempted from income and capital simultaneously takes responsibility for the administrative gains tax. Disbursements are made every month for result and for the risk result. at least five years, or as a one-off amount. Demutualisation means greater freedom, security and The specialisation of the advisory sales force continued fairness for Handelsbanken Liv’s customers. More free- in 2001, with focus on private customers, particularly dom since Handelsbanken Liv is the first company in in the larger cities. By working together with the branch Sweden to allow customers to move insurance with offices, the advisers who were recruited in autumn guaranteed interest and unit-linked insurance to other 2000, contributed to increased sales of pension savings. companies. Private customers can move to a different Staff at many branches were trained during the year in company and all customers can change within the asset protection schemes and occupational pensions. company between unit-linked insurance and guaranteed These training courses were held on a regional level and interest insurance. had a positive impact in the form of increased sales of Security increases since Handelsbanken injects risk occupational pensions and inheritance and gift solutions. capital and assumes the risk for the guaranteed assets During the year, a number of transactions were per- for which the customers were previously jointly and formed with occupational pensions and endowment severally liable. Shareholders’ equity is initially SEK insurance at large companies, together with SPP. This 1.5bn. collaboration is based on a free service offered by the It is fairer for the customers as a result of the change Bank to high net worth individuals, which includes from a collective to an individual system because the advice on investments, insurance and family law. customer will not sacrifice return in order to build up As of 1 January 2002, Handelsbanken Liv’s occupa- the collective risk reserve. All the insurance assets become tional group life insurance was transferred to SPP, strictly individual and only the policy-holder receives which then became the insurer. the return. In connection with demutualisation, the unit-linked Demutualisation of Handelsbanken Liv company is being merged with the new company. This On 1 January 2002, Handelsbanken Liv was converted paves the way for attractive opportunities to take out from a mutual life insurance company into a profit-dis- new insurance with combinations of mutual funds and tributing company. This was the first demutualisation guaranteed interest management.

40 Svenska Handelsbanken Annual Report 2001 Review of business areas

SPP Business trends Premium income increased for the eighth year running to SEK 12.6bn (10.0). Traditional insurance represented SEK 9.6bn (8.2) and unit-linked insurance SEK 3.0bn (1.8). Regular premiums were SEK 7.4bn (5.9) and single premiums were SEK 5.2bn (4.1). SPP retained its strong position and was one of the biggest insurance companies in the Swedish occupational pensions market. SPP is the biggest unit-linked company on the ITPK market (supplementary retirement pensions). Total insurance assets managed were SEK 87.2bn (87.4), of which traditional life insurance represented

SEK 80.7bn (83.5). Total return on investments in the Elisabeth Ohlson traditional life insurance operations was –2.8% (3.3). The expenses ratio was 9.7% (9.1). In spite of the weak stockmarket, the collective solvency margin could be retained at a satisfactory level and was 108% (119) at year-end. The bonus rate was on average 5.8% (10.9) during the year. The bonus rate was gradually lowered in February, May and November 2001, from 7% down to 3%.

SPP – a wholly-owned subsidiary in the Handelsbanken Group On 7 March 2001, SPP became a wholly-owned subsidiary of Handelsbanken. Handelsbanken and SPP complement each other with skills and competence, services and products which the separate companies could not previously offer customers. The two companies collaborate on a central and regional level. On 1 February 2002, SPP took over most sales of occupational pensions from Handelsbanken Liv. Occupational group life insurance was moved to SPP at the end of the year. SPP is organised in three business areas: Key Accounts

(large companies and municipalities), Companies and SPP GROUP RESULTS Individuals. They are supported by specialists at SPP Consulting, the Development unit and central depart- SEK m 2001 2000 ments. At large companies, individuals are increasingly Result on technical account Ð making their pension selections by various types of life insurance business Internet/IT solutions. Last year, SPP in collaboration Premium income 12 627 10 011 with a major Swedish company, developed an Internet Investment income – 2 693 2 785 portal called Benefit World for large corporate groups Insurance claims – 3 872 – 3 003 to manage their pensions. This portal is neutral from a competitive point of view. The concept was well- Change in life insurance provisions – 10 734 – 8 884 received by the company and the insured parties. Operating expenses – 1 223 – 911 The main focus of operations was unchanged. At the Other 58 – 2 end of the year, the company had 673 (599) employees Result on technical account Ð life insurance business Ð 5 837 Ð 4 and was represented in 15 locations in Sweden, with its head office in Stockholm. Non-technical account SPP owns 50% of Nordben Life and Pension Insurance Other operations 18 16 Co Ltd, which offers insurance solutions to the staff of Taxes – 780 – 509 multinational Nordic groups employed abroad. SPP Profit for the year Ð 6 599 Ð 497 also owns 50% of Euroben Life and Pension Ltd which The Parent company, SPP Livförsäkring AB, is a mutual life insurance company insures the local staff abroad of Nordic companies. and is not included in the consolidated accounts.

Svenska Handelsbanken Annual Report 2001 41 Business area STADSHYPOTEK BANK

QUARTERLY PERFORMANCE

Total Total Change SEK m 2001:4 2001:3 2001:2 2001:1 2001 2000 %

Net interest income 28 21 19 19 87 65 34 Commission, net 6 3 11 12 32 59 – 46 Net result on financial operations 0 00000 0 Other income 2 11 1 0 14 2 Total income 36 35 31 31 133 126 6 Net internal remuneration deducted from income 8 9 2 3 22 14 57 Total expenses Ð 28 Ð 27 Ð 28 Ð 27 Ð 110 Ð 111 Ð 1 Profit before loan losses 8 8 3 4 23 15 53 Loan losses incl. change in value of repossessed property – 1 0 0 0 – 1 0 Operating profit 7 8 3 4 22 15 47 Return on equity, % 44.8 51.2 19.2 15.4 30.6 17.1 Average number of employees 108 107 108 111 109 106

BALANCE SHEET 31 December

SEK m 2001 2000 At the Stockholm Boat Show in early November, Stads- hypotek Bank launched a Rescue Card in collaboration Lending to credit institutions 1 714 1 481 with the Swedish Sea Rescue Society. In tough competi- Lending to the general public 145 88 tion with other banks and finance companies, the bank Bonds 3 904 4 102 also entered into an agreement with Save the Children. Other assets 61 70 This collaboration is based on a VISA card with a unique Total assets 5 824 5 741 profile, which is expected to be launched in February 2002. Liabilities to credit institutions 26 34 The VISA card has been enhanced so that it is now possible to link one of the best travel insurance policies Deposits and funding from the general public 5 315 5 242 on the market to the card. It is a combined assistance, Issued securities — — travel and accident insurance, which also includes travel cancellation insurance. Card services continued to go Other liabilities 438 398 from strength to strength. The number of accounts in- Shareholders’ equity 45 67 creased by 39%, the number of purchases by 85% and Total liabilities and shareholders’ equity 5 824 5 741 purchase volume by 72%. Stadshypotek Bank’s Internet service was developed Stadshypotek Bank is a leading Internet and telephone bank further to include transfers to optional accounts and monthly standing transfers. Accounts which the customer in Sweden. It operates under its own brand name and provides has added via the Internet service, also allow with- its own range of services. The bank specialises in offering drawals to be made via the bank’s Teleservice. The basic banking and insurance services with a unique profile. bank also offered customers the opportunity to transfer It aims for private customers to see it as their basic bank money from their accounts with other banks, on a monthly basis or via a single transfer. At the year-end, for day-to-day finances. over 28 000 customers could do their banking business with Stadshypotek Bank via the Internet, an increase of Results 49%. The customers who were linked to the service were Profits were SEK 22m (15). Increased income from the active users. Over 61% of all private payments made by VISA payment card and higher net interest income Stadshypotek Bank’s customers went via the Internet. compensated for significantly lower income from retail Stadshypotek Bank was the first niche bank to remove bonds and a 50% drop in commission on equity trans- charges for making bank and postal giro payments via actions. Expenses have fallen each year since Handels- the Privatgiro system. Payment of bills over the Internet banken acquired the company in 1997. was already free of charge. Stadshypotek Bank introduced the opportunity for Business trends private customers to make individual purchases or monthly In the face of increasing competition, Stadshypotek savings in equity baskets via the Internet. These baskets Bank took a dominant position in the market for the are based on the Stockholm Stock Exchange’s new new plastic card concept introduced in 2000, in colla- industrial sector index and contain a selection of shares boration with leading sports associations. In 2001, in the largest companies in value terms in each area. It is agreements were made with some of Sweden’s leading also possible to make purchases by phone and the baskets non-profit-making organisations. are “packaged” with the shares in question in advance.

42 Svenska Handelsbanken Annual Report 2001 Review of business areas

Business area HANDELSBANKEN TREASURY

QUARTERLY PERFORMANCE

Total Total Change SEK m 2001:4 2001:3 2001:2 2001:1 2001 2000 %

Net interest income 31 63 63 58 215 243 – 12 Commission, net – 10 – 12 – 11 – 9 – 42 – 12 – 250 Net result on financial operations – 14 – 28 23 – 14 – 33 – 55 40 Other income 4 3 3 3 13 11 18 Total income 11 26 78 38 153 187 Ð 18 Net internal remuneration deducted from income —————— — Total expenses 7 Ð 7 Ð 7 Ð 8 Ð 15 Ð 14 7 Profit before loan losses 18 19 71 30 138 173 Ð 20 Loan losses incl. change in value of repossessed property Operating profit 18 19 71 30 138 173 Ð 20 Return on equity, % 7.6 8.4 32.8 11.6 14.6 10.2 Average number of employees 38 38 38 38 38 39

BALANCE SHEET 31 December The internal bank and liquidity management SEK m 2001 2000 The internal bank’s task is to match various flows Lending to credit institutions 154 891 148 770 within the Group. Internal units needing to borrow or Lending to the general public 3 065 1 invest funds utilise the internal bank, which applies Bonds 26 478 21 325 market rates to the transactions. To earn money on the Other assets 15 531 8 079 Group’s cash flows, the internal bank can take positions Total assets 199 965 178 175 in connection with internal transactions. One example Liabilities to credit institutions 98 795 46 561 is fixed-term lending to the Bank’s subsidiaries, which Deposits and funding from can be funded with liabilities with shorter maturities. the general public 2 116 2 114 The regional banking operations had a surplus of Issued securities 29 853 40 835 Swedish kronor in 2001, which on average was SEK Other liabilities 68 377 87 231 20.9bn (20.9). The internal bank is responsible for Shareholders’ equity 824 1 434 ensuring that this surplus is efficiently transferred to Total liabilities and shareholders’ equity 199 965 178 175 units within the Group which need liquidity, mainly Stadshypotek. Fluctuations in the Bank’s liquidity are managed by the internal bank on the overnight market. Handelsbanken Treasury manages the Group’s liquidity in In order to be able to carry out clearing, the Bank Swedish kronor (the internal bank), its funding in the capital must pledge securities with the Riksbank. These com- market, and funding and clearing at the Riksbank. Treasury prise Swedish government bonds, bonds and certificates of deposit from issuers with a high rating (at least A) also measures and controls financial risks within the Group. from Moody’s and Standard & Poor’s. The securities The activity with a direct impact on the profit and loss are managed in a separate trading portfolio, which account is liquidity management in Swedish kronor. yielded a positive result in 2001. The collateral portfolio represents Handelsbanken’s liquidity reserve for the Results purpose of managing short-term market fluctuations. Handelsbanken Treasury’s result fell by 20% to SEK Capital market funding 138m. The surplus liquidity generated in the Swedish regional banking operations was transferred internally The Handelsbanken Group is an active borrower on to other units in need of liquidity. Thus, no income the Swedish and international capital markets. On the from the surplus liquidity arose at treasury operations. Swedish market, the main funding sources were bonds and A large part of Treasury’s earnings arise through commercial paper issued in the name of Stadshypotek. fixed-rate lending which is funded by borrowing with Internationally, commercial paper funding in the US shorter maturities. In previous years, Treasury could and deposits funding were the main sources. When take advantage of the slope of the yield curve. In 2001, necessary, foreign currency loans were converted into there was only a small difference between short- and Swedish kronor through currency swaps. long-term interest rates. Maturing transactions were therefore not extended. The decreased result was due to lower business volumes.

Svenska Handelsbanken Annual Report 2001 43 Risk and risk control

Risk and risk control

Credit risk, financial risk and operational risk arise in the Bank’s operations. Credit risks depend on whether LOAN LOSSES AS A PERCENTAGE OF LENDING individual customers can fulfil their commitments to the % Bank, while financial risks arise when there are changes 6 Svenska Handelsbanken in interest rates or market prices of currencies and secu- Other Swedish banks rities which have an impact on the value of the Bank’s 5 positions. Operational risks refer to errors within the Bank which may lead to losses. Credit risk mainly arises 4 in branch office operations and financial risk mainly at

Handelsbanken Markets, while operational risks can 3 occur anywhere within the Group. The Bank aims for the individual employee’s responsi- 2 bility for transactions to be combined with the responsi- bility for risk. The person who best knows the customer and the market conditions is also in the best position to 1 evaluate the risk. In this way, full responsibility is taken 0.02 for the business operations and it is done as close to the 1991 1993 1995 1997 1999 2001 customer as possible. However, in order for decentralised risk-taking to work, centralised management and follow- up of risks are necessary. Credit risks and financial risks are always restricted through credit or limit decisions. Individual employees of how the customer’s operations are progressing and have a personal limit, within which they take full it can quickly identify potential problems which might responsibility for their decision. If a larger limit is needed, change the degree of credit risk in the Bank’s exposure. a decision is required at a higher level of the Bank. The For all commitments over SEK 1 million – for mortgages Bank’s method means that everyone who does trans- over SEK 3 million – the branch establishes a limit actions which entail risk, learns the established way of document. The Bank has over 25 000 customers with assessing what is an acceptable level of risk for the limits. The limit documentation contains information Bank. about the customer’s current and maximum commitment Total exposure to credit risks and financial risks is with the Handelsbanken Group and also what security measured and reported to Finansinspektionen. This is required for the maximum exposure. A business eval- exposure leads to requirements on the size of the Bank’s uation of the customer is performed in order to make equity and gives an overall idea of how large the Bank’s the limit decision. This consists of a description of the risks are in relation to the capital base. customer’s operation, an analysis of accounts and an Nevertheless, the capital adequacy requirement for evaluation of the company’s future prospects. An credit risks is an insufficient measure of the actual assessment is also made of the degree of credit risk in exposure. A better picture of Handelsbanken’s credit the Bank’s exposure where the customer’s repayment risks is obtained by looking at the actual outcome. For capacity is analysed and graded, using a credit risk index a long time – and particularly during the financial crisis (internal rating) which the Bank has applied for more in the early 1990s – the Bank’s method of analysing than 20 years. The internal rating of repayment capacity and managing credit risk and bad debts has led to signi- is done in two stages: first an assessment is made of the ficantly lower loan losses than for its competitors in probability of financial strain for the customer and then relation to outstanding loan volumes. the customer’s financial powers of resistance, each on a scale from one to five. After this, a written assessment CREDIT RISK is made of facts and assumptions which must be well- documented in the business evaluation. Finally, the value Credit risk arises in lending and in issuing guarantees, 2) but also includes risks arising when customers do trans- of the collateral is estimated in the event of insolvency . actions with the Bank on the foreign exchange and The business evaluation concludes with a summary of securities markets. The latter is usually referred to as the Bank’s financial benefit from the customer and the counterparty risk. 1) Certain types of lending are not subject to this principle. These are the Bank’s Credit risk in lending operations exposure to other banks and outright export credits, for which Handelsbanken Markets assumes the credit responsibility, and some small consumer credits at Handelsbanken The responsibility for the Handelsbanken Group’s credit Finans and Stadshypotek Bank. exposure lies with the branch which is responsible for 2) The internal rating is considered to comply closely with the Basel Committee’s 1) ‘Probability of Default’ concept in its proposed new capital adequacy regulations. The the customer in question . The day-to-day business overall risk assessment and estimated value of collateral provides a good foundation relationship gives the branch a clear, continuous picture for assessing the ‘Loss Given Default’ in the proposal.

44 Svenska Handelsbanken Annual Report 2001 Risk and risk control

future strategy for working with the customer. This where for some reason the counterparty does not meet business evaluation is performed at least once a year for its commitments. On these occasions, the Bank’s risk is all customers with a limit. Depending on the size of the 100% of the value of the transaction. Payment risks limit and the type of collateral, the credit decision is arise in all transactions where the Bank cannot check made by the branch, the regional head office, the Central that the counterparty has fulfilled its obligations at the Board of the Bank or its credit committee. same time as the Bank. Apart from this, each branch performs a quarterly Unlike value change risks, payment risks are not review of its credit commitments to identify and report included in the Bank’s credit limit for the customer. those which are considered to entail an abnormally Payment risks are instead part of a separate limit called large credit risk. For each commitment of this type, the a settlement limit which is intended to cover the payment possible (lesser) or likely (greater) risk of loan loss is risks described above, as well as the very short-term assessed and whether a provision needs to be made for value change risks which may arise when customers a possible loss. Normally, the exposure has been reported buy and sell securities (for example, shares) through the and risk limitation measures have been taken before the Bank. loan becomes non-performing. The risk reports are Where limits, decisions and follow-up are concerned, compiled by the credit department at the regional bank settlement risks follow the same pattern as credit risks. in question, Handelsbanken Markets and each subsidiary Normally, the settlement limit for a customer is approved and by the Central Credit Department for the whole at the same time as the credit limit. Group. These quarterly reports are presented to the boards of the regional banks and subsidiaries and to FINANCIAL RISK the Central Board of the Bank. In the Bank’s operations, various types of financial risk New rules for valuation of bad debts arise. These are classified as follows. From 2002, new rules have been introduced for valua- tion of bad debts. Until now, a bank, when calculating Interest rate risk bad debts, has mainly looked at the principal amount Systematic risk Market Equity risk and made a provision for the part which it assesses risk Specific risk Exchange will be lost. The new rules also take into consideration Financial rate risk unpaid (or reduced) interest income and take into risk account the time aspect, i.e. that a krona today is worth Liquidity more than in five years’ time. An overall assessment of risk the consequences of applying these new rules is that they will not lead to any significant difference in the value of the Bank’s bad debts.

Counterparty risk Market risk Counterparty risk can be divided into two categories: Market risk refers to the impact of changes in interest risk of change in value and payment risk. rates, foreign exchange rates and share prices, which Value change risks arise when the Bank has as its result in a profit or loss for the Bank. counterparty customers who have issued some kind of The Bank’s market risks mainly arise within Handels- derivative instrument. There is a risk that issuers will banken Markets and the aim is to keep most of these not meet their obligations. If such a situation arises, the risks there. Bank must acquire a new equivalent contract in the Handelsbanken Markets is market maker for fixed market to replace the old one. This may entail a cost income products, currencies and equity instruments. for the Bank, depending on price trends in the market Risks arise either through customer-related transactions in question. The risk of this cost arising is calculated for or through the Bank taking its own positions and they each contract and is regarded as a risk on the counter- are contained in a trading portfolio, which is accounted party in the contract. In terms of limits, credit decision for at market value on a daily basis. The variations in and follow-up, the counterparty risk is managed in the result arising when making a valuation have an impact same way as credit risk in lending. This implies that the on the Bank’s profit and loss account. value change risk for derivative contracts is part of the The market risks which arise in the trading portfolios Bank’s credit limit and total exposure for a specific are subject to capital adequacy requirements. This customer. means that the Bank must provide capital in proportion Payment risks arise in transactions where the Bank to the market risks arising in the trading portfolios. fulfils its obligations in the form of foreign exchange The market risks which arise outside Handelsbanken conversion, payments or delivery of securities, but Markets are smaller. In practice, all foreign exchange

Svenska Handelsbanken Annual Report 2001 45 Risk and risk control

and equity price risk is concentrated to Handelsbanken EQUITY PRICE RISK Markets. This is done by the unit in the Group which Equities trading is controlled by measuring and restrict- does a foreign exchange or equity transaction with a ing systematic and specific risk. Systematic risk is defined customer, making a reverse transaction with Handels- as that part of a share’s change in value that can be banken Markets as the counterparty. Handelsbanken explained by general changes in the market. Systematic Markets then performs a matching transaction. risk is measured as the largest negative change which can occur in the case of a simultaneous change in index INTEREST RATE RISK and volatility. The calculation covers all option risks The change in value of all assets and liabilities, on and and both probable and improbable events. Specific risk off the balance sheet, when there is a simultaneous is defined as that part of the change in value of a share change of one percentage point in all interest rates, is which is not affected by the general market but only by used as a measure to limit interest rate risks both at the specific share. Handelsbanken Markets and at other units of the Bank. For equity risks, Value-at-Risk is used as a complement. Interest rate risks arise at other parts of the Bank than Handelsbanken Markets. Interest rate risk arises Liquidity risk mainly because of differences in the interest-rate adjust- Liquidity risk arises when the Bank’s lending and funding ment periods of assets and liabilities. At the regional do not coincide in time. The Bank’s lending has a longer bank operations, there may be a situation where lending maturity than the funding. In this case, the lending must has a longer maturity than refinancing and this is carried be refinanced once or several times during its life. Nor- out within the framework of a limit for interest rate risk. mally, this is not a problem. If, however, the financial This risk-taking does not lead to any capital adequacy markets are turbulent, the funding may be expensive. requirements. Normally, the Bank’s assets have longer For this reason, the Bank tries to limit its need for re- maturities than the liabilities. If interest rates rise, net financing in the financial markets, and to spread it as interest income falls. This is counteracted by the fact evenly as possible over time. that the Bank has a larger volume of interest-bearing Liquidity risk is measured by means of a cash flow assets than liabilities, which is mainly because the forecast in various currencies over all maturities. The shareholders’ equity is invested in interest-bearing liquidity deficit, i.e. the difference between in-payments assets. When the interest rate increases, the equity can and out-payments, is limited in an interval of 1 to 14 be gradually invested at higher interest rates. Outside days. Handelsbanken Markets, interest rate risk is mainly In order to limit the Group’s exposure to liquidity managed by the Central Treasury Department, which risk, the Bank has set a target so that medium and long- also functions as the Group’s internal bank and manages term foreign currency funding must be at least a certain the Group’s liquidity. percentage of medium- and long-term foreign currency In the trading portfolios, the impact of changes in lending. The Bank also has a foreign currency liquidity market value is reported in the trading result. In those reserve, which can be used to bridge temporary turbu- parts of the Group where items are not reported at lence in the foreign exchange markets. market value, changed interest rates only have an Another way that the Bank reduces liquidity risk is impact on net interest income and are therefore a net to spread its funding over as many markets as possible. interest income risk. Thus, the impact on the result of a rise in all interest rates by one percentage point comes Value-at-Risk (VaR) from two sources: from net interest income and from VaR is a method of measuring the potential losses the impact on the trading portfolios. which can arise in risk positions due to movements in For interest rate risks, Value-at-Risk is used as a the underlying markets over a specified holding period complement. and for an assumed level of probability. The different risk categories, i.e. equity risk, interest rate risk and EXCHANGE RATE RISK foreign exchange risk, are handled in a homogenous Exchange rate risk is the risk of changes in value of way, which means that the risks can be aggregated into currency-related assets and liabilities when the under- a total market risk. This is not possible using traditional lying exchange rates change. The Bank’s exchange rate risk measurements. risks are controlled by limits which restrict the various At Handelsbanken, VaR is calculated using daily units’ exchange rate risk exposure. For all units, apart changes in interest rates and prices for the latest year; a from Handelsbanken Markets, the exchange rate risks 99% confidence interval and 1-day and 10-day holding are restricted by limits for each unit’s position in indivi- periods respectively. Since the VaR model is a probabil- dual currencies (net position) and groups of currencies ity-based model for risk measurement, it is important to (aggregated net position). For Handelsbanken Markets, verify whether it is correct or not. This is known as there are also VaR limits. back-testing and is regularly carried out at Handels-

46 Svenska Handelsbanken Annual Report 2001 Risk and risk control

means of a limit of maximum losses allowed when there HOW VALUE-AT-RISK WORKS are extreme fluctuations in volatility and prices or rates. These are called risk matrices and they provide a frame- Frequency work of limits for trading. Other derivative instruments are measured using the same methods as for the underlying instruments. These two methods are aggregated with the Bank’s other financial risks and are included in the Bank’s financial 1% risk of a major loss reporting. Organisation of the Group’s financial risk control The Board of Directors establishes the total market risk and liquidity risk limits for the entire Group within each type of risk. These are allocated to the various Loss 0 Profit EXPECTED OUTCOME business areas by the Chief Executive. The overall responsibility for financial risks and further allocation of limits lies with the head of Central Treasury. Within VaR is the value on the horizontal axis where the probability of a major the allocated limits, the Group units are themselves loss is only a certain percentage, e.g. 1%, while the probability of a smaller loss than this value is 99%. responsible for follow-up and control of the financial risks. Each unit with a limit is subject to independent risk control to ensure that the follow-up is appropriate banken. The VaR model calculates the worst outcome for its purpose. in statistical terms which can occur on one day out of a The internal bank’s maximum risk exposure and hundred. But there may also be exceptional turbulence types of transactions are restricted by rules established on the markets, as occurred for example on the equity by the Chief Executive of the Bank. market in 1987 and the money market in Sweden in The financial risks and limit utilisation for the trading 1992. The VaR model does not capture these risks, and operation, the internal bank and the mortgage business VaR calculations are therefore regularly complemented are checked on a daily basis. In practice, the risk in the with calculations of possible losses in the case of market trading portfolio fluctuates more frequently and more turbulence. These are known as stress tests. widely than in the mortgage companies and the internal bank. However, there is also potential for considerable Derivative instruments and options risks fluctuations in interest rate risks in the latter two port- Derivatives, such as options and futures, are financial folios. For this reason, they are also followed carefully. contracts whose value is dependent on an underlying The Central Board receives a monthly report of the asset. Examples of underlying assets are equities, equity Group’s exposure to financial risks. indexes, bonds and currencies. At Central Treasury, there is a unit which works Since derivatives are dependent on how an underlying exclusively on independent risk control. This unit has asset performs, they can be used to reduce the risk in the overall responsibility for measurement methods, the underlying asset. This is done by entering into a instructions and control of financial risks, regardless of derivative contract which has the opposite effect to the whether the risk is trading-related or arises in business asset held by the Bank, for example, interest rate swaps with customers in the regional bank operations or the where the Bank wants to reduce the impact on its result subsidiaries. Apart from continuous analysis of the of changes in interest rates. Group’s exposure to market fluctuations, regular reviews Derivative contracts are used in this way by Central are performed of the local risk control. These reviews Treasury, the regional banks and by subsidiaries, where include the unit’s positions, measurement methods, they are usually subject to hedge accounting. Derivative limit structure, administrative controls and risk reports. contracts are a natural part of the Bank’s trading port- In addition, the Central Auditing Department carries folios, both in customer transactions and in order to out independent examinations. change and limit financial risks. Options are derivative instruments which differ slightly from other instruments with respect to risk. The value of an option depends not only on the level of interest rates and prices (the underlying asset) but also on changes and expected changes in the pace of interest rate and price fluctuations (volatility). Interest and exchange rate options are controlled and restricted by

Svenska Handelsbanken Annual Report 2001 47 Risk and risk control

OPERATIONAL RISK risks instead of the current more standardised methods. However, there are major requirements for extensive The accepted definition of operational risk is the risk of statistical verification of these internal systems. direct loss due to inappropriate or inadequate internal The Basel committee’s proposal does not involve any routines, human error and erroneous systems or due to dramatic changes as regards capital adequacy for market external events. In its general guidelines for steering, risk but the proposal to introduce capital adequacy internal information and internal control, Finansinspek- requirements for operational risks is completely new. tionen specifies IT risks, other technical, administrative Preparations for the new capital adequacy regula- and legal risks as operational risks, to which banks tions are in progress at the Central Credit Department. should pay special attention. An assessment of these Probably the most important task is to be able to verify four types of risk is made twice yearly to the Central the Bank’s long-established internal system for grading Board of the Bank. of credit risks to show that these correspond with the In the Handelsbanken Group, the responsibility for criteria laid down by the Basel committee. The Basel steering and internal control with the purpose of mini- committee’s proposal for new regulations makes it more mising operational risks is an integral part of managerial advantageous to use the internal system, called the responsibility at all levels. When the Bank issues internal rating method, compared to standardised meth- instructions, special attention is always paid to how ods. Another important area is to define and measure internal control is organised. It is the duty of managers the operational risks. As mentioned above, the Bank who are responsible for the various functions at the reports the operational risks to the Central Board every central head office to deal adequately with the issue of six months. The Bank is taking measures to comply risks in the Bank’s internal set of instructions, paying with the future rules on operational risks. attention to appropriate distribution of work and The proposal aims to have lower capital adequacy responsibilities, the control structure of routines and the requirements for banks with small loan losses and risks. information and reporting systems. The set of instruc- For many years, the outcome of these risks has been tions therefore contains adequate instructions on how lower for Handelsbanken than for its competitors. This the organisation should manage and report operational would indicate that in the future the capital adequacy risks. A separate section on security contains instruc- requirement for Handelsbanken will be lower than for tions regarding physical security, information security other banks. and special instructions for staff working in the IT area. Finally, one of the main tasks of the Bank’s auditing organisation is to evaluate and ensure that the internal control is appropriately designed. For many years, Handelsbanken has had low costs for operational risk losses. Increasing dependence on IT support in the Bank’s work implies a risk for disruptions and other errors. The most tangible threats are errors in program code or equipment and problems relating to provision of electric power, cooling and similar factors. Other threats may be overloading, manual errors, unforeseen effects of changes, violation attempts and risk of errors when launching new systems. The overall view of the Bank’s IT security is that it is high in relation to the threat level.

The Basel committee’s proposals for new capital adequacy regulations The Basel committee, which mainly consists of repre- sentatives from the central banks of OECD countries, has presented a proposal for principles for new capital adequacy regulations. The proposal, which will come into effect in 2005 at the earliest, requires preparations at the Bank. As regards capital adequacy for credit risks, the committee’s proposal means that it will be possible for banks to use their internal systems for grading credit

48 Svenska Handelsbanken Annual Report 2001 Directors’ report

Directors’ report

A well-integrated universal bank total of 5.4 million shares and 5.6 million shares were Handelsbanken is a universal bank, covering all types sold in connection with the acquisition of Midtbank. of banking services for both corporate and private At year-end, the Bank owned 21.4 million of its own customers. shares. The Board is requesting that the Annual General At Handelsbanken, customer responsibility rests with Meeting authorise the Board to repurchase a maximum the local branch. This is where the services for each of 20 million shares up until the 2003 Annual General customer are co-ordinated, in collaboration with regional Meeting. The Board also states that the maximum and central specialists when necessary. amount for the repurchase of shares will be SEK 2bn. Handelsbanken’s objectives, policy and organisation It is also proposed that the Annual General Meeting are described in more detail on page 12 onwards. authorise the Board to use repurchased shares to finance any future acquisitions. Total assets and shareholders’ equity Acquisitions The Handelsbanken Group’s total assets were SEK 1 175bn (1 020) and shareholders’ equity was In April, Handelsbanken acquired a Danish bank, SEK 48 112m (42 466). Midtbank A/S, for SEK 2.5bn. Balance sheets for 1997–2001 are shown on pages During the year, the Bank acquired two properties 76–77 and key figures for the same years on page 9. next to the head office in Stockholm. The total acquisi- tion price was SEK 452m. At the time of acquisition, the Capital ratio Bank was already a major tenant in these properties. At the end of 2001, the Handelsbanken Group’s capital The Board’s activities during the year ratio was 9.9% (9.5). The Tier 1 capital ratio was 6.1% (6.4). See page 86 for a description of the Central Board’s activities during the year. Result Competent staff The Group’s operating profit was SEK 11 208m (11 683). Income rose by 5% to SEK 21 487m (20 458). Handelsbanken’s decentralised organisation and the Expenses increased by 12%. The cost/income ratio increasing complexity of banking make high demands (C/I ratio) before loan losses was 47.5% (43.8) on the skills of our staff. Handelsbanken therefore con- Profit and loss accounts for 1997–2001 are shown sistently channels a great deal of resources and efforts on pages 76–77. into the training and development of managers and employees at all levels. Profitability More information about our employees can be found Return on equity after full tax was 18.4% (22.3). on page 17. Handelsbanken’s profitability, expressed as operating profit after standard tax and adjusted for items affect- ing comparability, was 17.8% (19.9). Handelsbanken’s return on equity has been higher than the average for the other Swedish banks since 1972.

Appropriations and tax Compensation from the Bank’s pension foundation was SEK 400m (974). The Group’s tax expense for 2001 was SEK 3 202m (3 353).

Dividend The Board recommends a dividend of SEK 4.50 (4.00) on the class A and B shares. The dividend will require SEK 3 120.2m.

Buy-back of own shares The Annual General Meeting authorised the Board of the Bank to resolve on repurchase of a maximum of 20 million class A or B shares and to sell shares which had already been repurchased for the purpose of financing possible acquisitions. In 2001, the Bank repurchased a

Svenska Handelsbanken Annual Report 2001 49 Accounting principles

Accounting principles

The accounting follows the regulations and that transactions between the parent and unrealised gains/losses are reported of the Annual Accounts Act for Credit company and the respective unit are only under Net result on financial operations. Institutions and Securities Companies part of their operations. The foreign units Interest-bearing securities which have (ÅRKL), the Swedish Financial Account- also conduct their own funding and the been acquired with the intention of ing Standards Council’s recommendations parent company is only affected indirectly being held to maturity are classified as and the directives issued by Finans- by each operation’s cash flows. Salary Financial fixed assets and reported at inspektionen – the Swedish Financial payments and purchases are normally acquisition value. For securities where Supervisory Authority (FFFS 2000:18). made in local currency. the value has fallen and this decline in When converting the foreign subsid- value is considered to be permanent, a Changed accounting principles iaries’ balance sheets and profit and loss write-off is made. Realised price gains are accounts, the current method has been reported under Other operating income The Accounting Standards’ recommend- used. Assets, liabilities and minority while realised price losses are reported ation RR 9 on Income taxes came into interests in equity have been converted under Other operating expenses. force on 1 January 2001. This recom- at the closing day rate. Shareholders’ The acquisition value of discount and mendation implies that both deferred tax equity is translated at the rate applicable coupon instruments (held and issued) claims and deferred tax liabilities shall at the time of investment or earning. means the accrued acquisition value. be reported in the accounts. The recom- The profit and loss account has been This value is the discounted present mendation implies a change of principle translated at the average annual rate. value of future payments where the dis- and the accounts for the previous year Liabilities in foreign currencies which count interest rate represents the effective have therefore been restated. refer to financing of shares in subsidiaries interest rate at the time of acquisition. In addition, the composition and are recorded at the rate on the balance This implies that acquired premiums and headings in the profit and loss account sheet date. The resulting translation discounts on coupon instruments are have been changed to comply with a differences have been classed as share- allocated over the bond’s remaining period new accounting regulation issued by the holders’ equity. to maturity or, for loans with interest Finansinspektionen. The result of insur- rate adjustments, until the next time the ance operations before appropriations Valuation of assets and liabilities interest rate is adjusted. and taxes is now reported as a total Purchases and sales of money market directly above the operating profit. in foreign currencies and capital market instruments on the Certain other minor reclassifications Assets and liabilities in foreign currencies spot market are subject to trade date have been made. The comparative figures have been recorded at the average of the accounting. Forward transactions are have been restated accordingly. end-of-day buying and selling price. registered on the transaction date, but Foreign banknotes have been recorded at until the date of settlement they are Consolidated accounts the buying rates applicable to the general regarded as off-balance-sheet commit- The consolidated accounts have been public on the balance sheet date. ments. On the date of settlement, they prepared in accordance with the acquisi- In the parent company, liabilities are reported on the balance sheet. tion accounting method. The consolidat- which refer to financing of shares in Equities which are held on a perma- ed accounts comprise all companies in subsidiaries are recorded at the rate nent basis are classified as Financial which Handelsbanken directly or indirectly applicable on acquisition. Holdings of fixed assets and are reported at acquisi- holds more than 50% of the voting subordinated loans issued by subsidiaries tion value. For equities where the value power. Associated companies are reported are also recorded in the parent company has fallen and this decline in value is in the consolidated accounts in accord- at the rate applicable on acquisition considered to be permanent, a write-off ance with the equity method. Companies (hedge accounting). is made. taken over to protect claims are not Forward contracts in foreign currencies Other equities are classified as Finan- included in the consolidated accounts. are recorded at present value. cial current assets and are recorded at Handelsbanken Liv Försäkrings AB Unrealised gains or losses which have the lower of cost or market unless they and SPP Livförsäkring AB, which are arisen as a result of the aforementioned are in the trading book. Equities in the mutual life insurance companies, are not valuation methods, are credited or charged trading book are recorded at market consolidated, since the whole surplus of to the operating result. value. the life insurance operation accrues to the Short positions in both interest- policy-holders in the form of bonuses. Financial instruments bearing securities and equities are reported Holdings of intra-Group bonds classi- On the balance sheet, interest-bearing as a liability at their market value. fied as financial fixed assets are eliminated securities are reported either as Instru- Derivative instruments are valued at on consolidation. The difference thus ments eligible as collateral with central market value. An exception is made for arising between the book value of the banks or as Bonds, depending on the derivative transactions which are hedg- intra-Group bonds and that of the corre- category of issuer. Both the trading book ing balance-sheet items that have not sponding liabilities is credited/charged to and securities, which are held long-term been given a market value. If the hedge net interest income. but not with the purpose of being held is considered to represent an effective All foreign operations have been clas- until maturity, are classified as Financial protection against unfavourable changes sified as independent. This classification current assets. Securities in the trading in value, i.e. the changes in value of the is based on the fact that each operation book are valued at market value, while hedged instrument are balanced by is run independently in accordance with other financial current assets are valued corresponding changes in value of the the Group’s decentralised organisation at the lower of cost or market. Realised hedging instrument, the derivative

50 Svenska Handelsbanken Annual Report 2001 Accounting principles

transaction is reported using the account- less than that of the Bank’s original Provisions for country risks are made in ing principles which apply to the hedged collateral, the difference is reported as amounts which are considered necessary transaction. In cases where unrealised an actual loan loss. Changes in value on the basis of an individual assessment. losses arise in the case of hedge report- after the property has been repossessed In the accounts, the reserve is allocated ing according to the acquisition method, are reported under Changes in value of to the asset items in the balance sheet to these are reported on the balance sheets repossessed property. which the reserve refers. and profit and loss accounts. Derivative Reported as actual loan losses are losses transactions with a positive market value Pension costs where the amounts have been finally at the balance sheet date are reported A pension cost computed on an actuarial determined or are very likely as a result under Other assets, and transactions with basis, relating to pension commitments of an official receiver providing an esti- a negative market value are reported which are backed by Handelsbanken’s mation of bankruptcy dividends, the under Other liabilities. Receivables and pension foundation, is reported as an acceptance of composition recommenda- payables with the same counterparty operating expense. Premiums paid for tions or the reduction of claims in some which can be set off, i.e. where a pension insurance are also reported other way. For loans which have earlier contractual relationship exists implying under Operating expenses. been reported as actual loan losses in that there are legal grounds for applying The actuarial pension premium is full, a re-appraisal of the size of the loss set off, are reported net on the balance restored as an appropriation under is made in those cases where the custom- sheet in those cases where there is an Settlement of pensions, where settlement er is following a payment plan. intention to settle the obligations by is made against disbursed pensions and Write-offs of possible loan losses are netting or simultaneously. any compensation from the pension made in respect of bad debts if the bor- Index-linked bonds are reported on foundation. rower’s ability to repay is not considered the balance sheet divided into debt likely to improve sufficiently within two instruments and derivative instruments. Development costs years and the value of the collateral does No division is made for the Bank’s own not cover the loan amount. Investments in software developed by holdings in the trading book. Write-offs are made down to the the Bank and also software acquired amount which is expected to be realised, externally are reported as expenses as taking into account the value of the col- Lending and deposits they arise. lateral. If the collateral is a listed asset, Lending to the general public and credit the valuation is based on the list price; institutions is classified as financial fixed Depreciation otherwise the valuation is based on the assets and is reported on the balance EQUIPMENT yield value or the market value estimated sheet on the settlement date at acquisi- in some other manner. tion value. Leasing agreements in which Personal computers are depreciated over If the collateral consists of a mortgage the lessee substantially bears the economic 3 years and investments in bank vaults on a property, the valuation of the under- risks and acquires the rewards associated and similar investments on premises are lying security is made in the same way with the ownership of the asset are also depreciated over 10 years. as for repossessed properties (see above). reported as lending. Loans which repre- PROPERTY CONTAINING BANK PREMISES Unpaid interest on non-performing sent bad debts are reported on the loans where the value of the collateral balance sheet at their net amount, i.e. Property containing the Bank’s premises does not cover the principal amount and after deduction of the provision for pos- is depreciated at the highest percentage the accrued interest by a satisfactory sible and actual loan losses. Undrawn rate allowed for taxation purposes. margin is not taken up as income. loans (including the risk related to fixed Interest on these claims which was advance interest rates) are regarded as REPOSSESSED PROPERTY reported as income but not paid during an off-balance-sheet commitment until Repossessed properties for protection of the accounting year has been reversed. the settlement date. If a loan is redeemed claims are reported at the lower of cost Interest payments received thereafter in ahead of time, the early redemption or market at the balance-sheet date. respect of this type of credit are reported charge received is allocated over the Consequently, there is no depreciation in the year of receipt. remaining period of the loan. of these properties. Lending and deposits are reported Taxes on the balance sheet at their acquisition GOODWILL The tax expense for the period consists value. Goodwill from acquisitions with long- of Current tax and Deferred tax. Cur- term strategic significance is amortised rent tax refers to reported taxes for the Valuation of repossessed property over 20 years. Other goodwill is amortised period’s taxable result. Deferred tax over 10 years. Repossessed property is a current asset claims and liabilities are taxes based on and is valued at the lower of cost or Loan losses taxable temporary differences between market. By market value is meant the the value of an asset or liability in the market value after deduction of costs of Actual loan losses for the year and write- accounts and its taxable value. sale. This value is based upon an indivi- offs in respect of possible losses for loan dual valuation by a firm of valuers with receivables are reported as loan losses. the required skills in the field. When Also reported as loan losses are write- repossessed, the properties are written offs of interest shown as income in down to market value. If this value is previous annual accounts.

Svenska Handelsbanken Annual Report 2001 51 Profit and loss accounts and Balance sheets

Profit and loss accounts

GROUP PARENT COMPANY SEK m 2001 2000 2001 2000

Interest income Note 1 57 667 66 308 41 674 47 935 Interest expense Note 1 – 43 141 – 55 024 – 33 118 – 42 118 Net interest income 14 526 11 284 8 556 5 817

Dividends received Note 2 309 504 322 584 Commission income Note 3 5 894 6 048 5 047 5 275 Commission expense Note 4 – 1 038 – 770 – 973 – 746 Net result on financial operations Note 5 1 577 3 049 1 499 2 987 Other operating income Note 6 219 343 117 341 Total income 21 487 20 458 14 568 14 258

General administrative expenses Staff costs Note 7 – 5 909 – 5 300 – 5 270 – 4 814 Other administrative expenses Note 8 – 3 346 – 2 928 – 2 614 – 2 332 Depreciation and write-down in value of tangible and intangible fixed assets Note 9 – 805 – 753 – 500 – 402 Total expenses before loan losses Ð 10 060 Ð 8 981 Ð 8 384 Ð 7 548 Profit before loan losses 11 427 11 477 6 184 6 710

Loan losses, net Note 10 – 160 66 – 780 – 129 Change in value of repossessed property Note 11 81—1 Participations in result of associated companies 82 32 Result of banking operations 11 357 11 576 5 404 6 582

Result of insurance operations Note 12 – 149 107 Operating profit 11 208 11 683 5 404 6 582

Appropriations Note 13 306 797 4 802 4 274 Profit before taxes 11 514 12 480 10 206 10 856

Taxes Note 14 – 3 202 – 3 353 – 2 873 – 2 860 Minority interests – 22 – 22 Profit for the year 8 290 9 105 7 333 7 996

Net earnings per share, SEK 11.99 12.89

52 Svenska Handelsbanken Annual Report 2001 Profit and loss accounts and Balance sheets

Balance sheets

31 December

GROUP PARENT COMPANY SEK m 2001 2000 2001 2000

ASSETS Cash and balance with central banks 10 614 5 258 10 371 5 109 Instruments eligible as collateral with central banks Note 15 23 796 12 662 23 796 11 710 Lending to credit institutions Note 16 70 857 94 677 230 841 240 637 Lending to the general public Note 17 800 068 689 106 414 485 327 240 Bonds and other interest-bearing securities Note 15 104 551 75 600 100 092 76 511 Shares and participations Note 18 13 769 13 883 13 166 13 733 Shares and participations in associated companies Note 19 300 271 245 246 Shares and participations in Group companies Note 20 4 419 247 36 964 29 821 Assets in insurance operations Note 21 20 429 17 762 Intangible fixed assets Goodwill Note 22 6 587 4 970 475 — Tangible assets Equipment Note 23 767 744 639 615 Buildings and land Note 24 1 699 1 014 1 356 921 Other assets Note 25 109 623 95 073 109 495 96 371 Prepayments and accrued income Note 26 7 042 9 086 6 324 7 900 Total assets 1 174 521 1 020 353 948 249 810 814

LIABILITIES, PROVISIONS AND SHAREHOLDERS’ EQUITY

Liabilities to credit institutions Note 27 220 126 155 414 254 200 195 337 Deposits and funding from the general public Deposits Note 28 225 750 191 016 210 799 178 916 Funding Note 29 57 942 64 334 54 226 61 332 Issued securities etc Issued debt instruments Note 30 440 981 401 489 230 681 197 164 Liabilities in insurance operations Note 31 17 535 17 276 Other liabilities Note 32 119 532 109 391 117 668 107 036 Accruals and deferred income Note 33 10 017 14 720 7 319 11 274 Provision for deferred taxes Note 34 5 289 4 920 196 305 Subordinated liabilities Note 35 28 976 19 066 28 566 18 089 Total liabilities and provisions 1 126 148 977 626 903 655 769 453 Minority interest in shareholders’ equity 261 261

Untaxed reserves Note 36 10 296 9 248

Share capital Note 37 2 859 2 859 2 859 2 859 Other reserves Statutory reserve Note 37 2 748 2 748 2 682 2 682 Reserve for unrealised profits Note 37 205 425 195 421 Other restricted reserves Note 37 14 369 10 541 — — Profit brought forward Note 37 19 641 16 788 21 229 18 155 Profit for the year Note 37 8 290 9 105 7 333 7 996 Total shareholders’ equity 48 112 42 466 34 298 32 113 Total liabilities, provisions and shareholders’ equity 1 174 521 1 020 353 948 249 810 814

Collateral pledged for own debt Note 38 63 137 43 611 64 388 48 883 Other collateral pledged Note 39 33 420 28 357 17 317 11 353 Contingent liabilities Note 40 79 644 67 162 113 956 120 156 Pension commitments Note 41 ———— Other commitments Note 42 6 426 421 4 770 643 6 545 270 4 460 217

Svenska Handelsbanken Annual Report 2001 53 Cash flow statement

Cash flow statement

GROUP PARENT COMPANY SEK m 2001 2000 2001 2000

OPERATING ACTIVITIES Operating profit 11 208 11 683 5 404 6 582 Adjustment for items in the operating result which do not affect the cash flow: Loan losses 734 206 986 265 Unrealised changes in value 410 – 2 256 425 – 2 313 Depreciation and write-downs 805 753 500 402 Paid income tax – 3 853 – 1 716 – 4 101 – 2 547 Changes in the assets and liabilities of operating activities: Lending to credit institutions 24 783 4 182 9 796 – 50 912 Lending to the general public – 103 624 – 63 106 – 88 231 – 55 395 Financial current assets – 36 275 2 800 – 36 102 2 379 Liabilities to credit institutions 62 467 – 31 088 58 863 20 451 Deposits and funding from the general public 20 539 33 867 24 776 26 077 Issued securities 39 492 41 949 33 517 37 701 Other – 7 005 8 004 – 4 821 9 296 Cash flow on operating activities 9 681 5 278 1 012 Ð 8 014

INVESTING ACTIVITIES Acquisition of subsidiaries – 2 355 — — — Change in shares – 5 215 – 1 397 – 8 158 – 1 397 Change in interest-bearing securities – 3 093 1 344 1 590 6 997 Change in tangible fixed assets – 1 139 – 329 – 843 – 338 Change in intangible fixed assets – 124 – 590 — Cash flow on investing activities Ð 11 802 Ð 506 Ð 8 001 5 262

FINANCING ACTIVITIES Subordinated loans 9 910 – 784 10 477 2 600 Dividend paid – 2 751 – 2 144 – 2 751 – 2 144 Group contribution — — 4 218 4 536 Repurchase of own shares – 46 – 2 950 – 46 – 2 950 Cash flow on financing activities 7 113 Ð 5 878 11 898 2 042 Cash flow for the year 4 992 Ð 1 106 4 909 Ð 710

Liquid funds at beginning of year 5 258 6 285 5 109 5 735 Cash flow on operating activities 9 681 5 278 1 012 – 8 014 Cash flow on investing activities – 11 802 – 506 – 8 001 5 262 Cash flow on financing activities 7 113 – 5 878 11 898 2 042 Exchange rate difference on liquid funds 364 79 353 84 Liquid funds at end of year 10 614 5 258 10 371 5 109

Acquisition of subsidiaries SPP Fonder and Midtbank were acquired during the year. According to the acquisition analyses, the value of the acquired assets and liabilities was as follows:

Lending to the general public 8 073 Lending to credit institutions 964 Interest-bearing securities 986 Goodwill 1 798 Other assets 1 382

Deposits and funding from the general public – 7 802 Liabilities to credit institutions – 2 103 Other liabilities – 773 Purchase price paid 2 525

Liquid funds in the acquired company – 170 Impact on Group’s liquid funds 2 355

54 Svenska Handelsbanken Annual Report 2001 Notes

Notes to the profit and loss accounts Amounts in SEK million unless otherwise stated

Note 1 Interest

GROUP PARENT COMPANY 2001 2000 2001 2000 INTEREST INCOME Interest income in Swedish kronor Credit institutions 1 924 1 906 8 350 6 209 General public 32 600 31 258 11 712 9 917 Interest-bearing securities, fixed assets 523 715 522 707 Interest-bearing securities, current assets 1 868 1 499 1 705 1 361 Other interest income 50 5 985 36 5 968 Total interest income in Swedish kronor 36 965 41 363 22 325 24 162 Interest income in foreign currency Credit institutions 4 327 5 960 4 926 6 566 General public 11 809 9 609 10 027 7 998 Interest-bearing securities, fixed assets 118 63 118 63 Interest-bearing securities, current assets 2 896 2 798 2 855 2 746 Other interest income 1 552 6 515 1 423 6 400 Total interest income in foreign currency 20 702 24 945 19 349 23 773 Total interest income 57 667 66 308 41 674 47 935 INTEREST EXPENSE Interest expense in Swedish kronor Credit institutions – 6 949 – 2 385 – 6 641 – 1 878 General public – 4 315 – 3 664 – 3 944 – 3 321 Issued securities – 8 822 – 11 598 – 847 – 827 Subordinated loans – 92 – 312 – 89 – 213 Other interest expense – 434 – 8 545 – 254 – 8 157 Total interest expense in Swedish kronor Ð 20 612 Ð 26 504 Ð 11 775 Ð 14 396 Interest expense in foreign currency Credit institutions – 3 317 – 8 869 – 3 456 – 10 162 General public – 4 690 – 3 822 – 6 121 – 3 437 Issued securities – 12 698 – 12 305 – 10 015 – 10 719 Subordinated loans – 1 324 – 926 – 1 288 – 890 Other interest expense – 500 – 2 598 – 463 – 2 514 Total interest expense in foreign currency Ð 22 529 Ð 28 520 Ð 21 343 Ð 27 722 Total interest expense Ð 43 141 Ð 55 024 Ð 33 118 Ð 42 118 Net interest income 14 526 11 284 8 556 5 817 From 2001, interest on swap agreements which is subject to hedge accounting, is reported net.

AVERAGE VOLUMES Assets Lending credit institutions in Swedish kronor 40 494 48 733 181 905 146 265 Lending general public in Swedish kronor 555 779 508 102 205 789 174 856 Interest-bearing securities, fixed assets in Swedish kronor 5 291 2 427 9 004 13 753 Interest-bearing securities, current assets in Swedish kronor 41 905 33 364 37 952 29 875 Average volume in Swedish kronor 643 469 592 626 434 650 364 749 Lending credit institutions in foreign currency 85 422 106 279 96 906 116 197 Lending general public in foreign currency 203 796 149 791 178 610 127 557 Interest-bearing securities, fixed assets in foreign currency 1 594 708 1 594 708 Interest-bearing securities, current assets in foreign currency 57 780 46 939 56 588 46 057 Average volume in foreign currency 348 592 303 717 333 698 290 519 Liabilities Deposits and funding credit institutions in Swedish kronor 55 878 58 470 48 611 48 537 Deposits and funding general public in Swedish kronor 174 754 165 723 167 645 158 680 Issued securities in Swedish kronor 167 927 203 791 18 814 19 180 Average volume in Swedish kronor 398 559 427 984 235 070 226 397

Deposits and funding credit institutions in foreign currency 194 700 148 940 239 283 160 991 Deposits and funding general public in foreign currency 103 988 74 553 92 252 76 136 Issued securities in foreign currency 264 461 197 700 204 971 171 203 Average volume in foreign currency 563 149 421 193 536 506 408 330 Average lending rate general public 5.85% 6.21% 5.66% 5.92% Average deposit and funding rate general public 3.23% 3.12% 3.87% 2.88% Interest income received from Group companies 7 342 8 803 Interest expense paid to Group companies 2 559 5 219 Insurance premiums paid to Group companies 107 104 107 104

Svenska Handelsbanken Annual Report 2001 55 Notes

Note 2 Dividends received

GROUP PARENT COMPANY 2001 2000 2001 2000 Dividends on shares and participations 309 500 294 498 Dividends from associated companies — 4 28 4 Dividends from Group companies —82 309 504 322 584

Note 3 Commission income

GROUP PARENT COMPANY 2001 2000 2001 2000 Payments 1 311 1 014 1 253 960 Lending 790 544 554 355 Deposits 76 79 74 78 Guarantees 301 253 277 242 Securities 2 189 2 988 1 624 2 328 Other commission 1 227 1 170 1 265 1 312 5 894 6 048 5 047 5 275

Commission income received from Group companies 264 403

Note 4 Commission expense

GROUP PARENT COMPANY 2001 2000 2001 2000 Payments – 780 – 511 – 746 – 483 Securities – 164 – 162 – 132 – 117 Other commission – 94 – 97 – 95 – 146 Ð 1 038 Ð 770 Ð 973 Ð 746

Commission expense paid to Group companies – 10 – 48

Note 5 Net result on financial operations

GROUP PARENT COMPANY 2001 2000 2001 2000 Shares and participations 947 1 371 976 1 343 Interest-bearing securities – 233 – 2 175 – 265 – 2 182 Realised profit 714 Ð 804 711 Ð 839

Shares and participations – 325 – 271 – 325 – 259 Interest-bearing securities – 85 2 572 – 100 2 572 Unrealised changes in value Ð 410 2 301 Ð 425 2 313

Currency changes 1 273 1 552 1 213 1 513 Net result on financial operations 1 577 3 049 1 499 2 987

Note 6 Other operating income

GROUP PARENT COMPANY 2001 2000 2001 2000 Realised share price gains, not trading book 63 94 63 86 Rental income 57 29 33 26 Other operating income 99 220 21 229 219 343 117 341

56 Svenska Handelsbanken Annual Report 2001 Notes

Note 7 Staff costs

GROUP PARENT COMPANY 2001 2000 2001 2000 Salaries and fees – 3 878 – 3 514 – 3 413 – 3 159 Social security costs – 1 057 – 999 – 968 – 922 Pension costs1) – 470 – 327 – 423 – 309 Appropriation to profit-sharing foundation – 155 – 166 – 140 – 150 Other staff costs – 349 – 294 – 326 – 274 Ð 5 909 Ð 5 300 Ð 5 270 Ð 4 814

1) SEK 311m (234) of pension costs are calculated costs and SEK 159m (94) are pension premiums. The calculated pension cost, which is charged to the operating result, is based on the number of employees in active service.

Pension premiums paid to Group companies – 3 – 4 – 3 – 4

Salaries and other remuneration Board, CEO and EVPs Sweden – 72 – 59 – 64 – 49 Norway – 6 – 6 – 2 – 2 Finland – 5 – 4 – 3 – 2 Denmark – 4 – 3 – 3 – 2 France — – 4 Luxembourg – 2 – 2 USA – 6 – 3 Ð 95 Ð 81 Ð 72 Ð 55

Other Sweden – 2 691 – 2 570 – 2 499 – 2 358 Norway – 227 – 169 – 212 – 162 Finland – 230 – 206 – 196 – 175 Denmark – 249 – 123 – 123 – 110 UK – 123 – 133 – 123 – 133 Luxembourg – 50 – 48 – 17 – 19 Germany – 23 – 19 – 23 – 19 USA – 109 – 104 – 93 – 76 Singapore – 26 – 25 – 26 – 25 Hong Kong – 12 – 9 – 12 – 9 Other countries – 43 – 27 – 17 – 18 Ð 3 783 Ð 3 433 Ð 3 341 Ð 3 104 Total Ð 3 878 Ð 3 514 Ð 3 413 Ð 3 159

Number of employees Average during year 2001 2000 Women Men Sweden 7 276 7 004 4 002 3 274 Norway 525 504 267 258 Finland 532 465 324 208 Denmark 445 150 214 231 UK 143 145 43 100 Luxembourg 78 83 30 48 Germany 41 39 19 22 USA 86 82 29 57 Singapore 37 37 20 17 Hong Kong 23 24 7 16 Poland 25 — 12 13 Other countries 28 41 12 16 9 239 8 574 4 979 4 260

Information concerning companies which are not consolidated Handelsbanken Liv Försäkrings AB and SPP AB The average number of employees was 918 (232). SEK 4.5m (2.5) was paid in salary and other remuneration to the CEO and board.

Svenska Handelsbanken Annual Report 2001 57 Notes

Loans to Senior Management GROUP PARENT COMPANY 2001 2000 2001 2000 CEO and EVPs 97 88 76 64 Board members 11 29 2 8 108 117 78 72

Terms and remuneration of the Bank's senior management index-linked base amounts. They also receive a pension under the and Chairman of the Board general national insurance scheme. A retirement pension of 65% is paid on the portion of the salary in excess of 7.5 index-linked base amounts. CONDITIONS REMUNERATION The Bank has no agreements on severance pay. The Group Chief In 2001, the Chairman of the Board, Arne Mårtensson, received remune- Executive, Lars O Grönstedt, has a retirement age of 60. His retirement ration and benefits from the Bank amounting to SEK 18 718 216. This pension between the ages of 60 and 64 is 75% of his salary, and from amount includes a non-pensionable bonus of SEK 10m which was paid the age of 65 the pension is 65%. in recognition of Arne Mårtensson’s 10 years of service as group chief For the Chairman of the Board of the Bank and ex-CEO, Arne executive when he left this position. Fees from serving on other boards Mårtensson, an agreement exists which was entered into when he have been paid to the Bank. No regular bonus is paid. became CEO in 1991. This agreement is the same as that which The present Group Chief Executive, Lars O Grönstedt, has received applied to the two previous CEOs, Jan Wallander and Tom Hedelius. remuneration and benefits amounting to SEK 4 786 602. Fees from This implies that if the CEO is not re-appointed, up to and including serving on other boards have been paid to the Bank. No regular bonus the fifth annual general meeting thereafter, he is to be offered other is paid. work and to be paid as if he had been CEO. If the CEO takes up employment outside the Bank, no compensation will be paid to him. PENSION COMMITMENTS Arne Mårtensson has a retirement age of 55, which has been consi- Increased pension commitments and paid pension insurance premiums dered desirable both for the Bank and him, in view of the fact that he for the present and previous boards, CEOs and EVPs amount to SEK was appointed CEO at a relatively young age. Until then he is compen- 170m (85) for the Group and SEK 159m (69) for the parent company. sated in accordance with the above-mentioned agreement on condition Pension commitments for the same people are SEK 685m (585) for the that he does not serve on any other boards than those desired by the Group and SEK 652m (528) for the parent company. Apart from normal Bank and that all fees are paid to the Bank. Between the ages of 55 and salary changes, the increase is due to changed interest rate assump- 64, his retirement pension is 75% of his salary, and from the age of 65, tions for insurance reasons and also changed conditions. The number of it is 65%. people in the Group covered by these commitments is 64 (68), of whom The pension for both the CEO and Chairman of the Board is earned 28 (27) are pensioners. The commitments are covered by the Bank's gradually during the years up to age of retirement and is fully earned by pension foundation. the age of 60 and 55, respectively. The Bank is charged annually for the cost at the same rate as the pension is earned. An earned pension com- OPTIONS PROGRAMME mitment is guaranteed by the Bank's pension foundation. If they leave In 1999, branch managers and other senior managers were invited to the Bank before the stipulated retirement age, a paid-up policy is issued acquire synthetic options with Handelsbanken class A shares as the for the pension earned. underlying securities. The options programme runs for five years, from The Bank's Executive Vice Presidents retire at the age of 60. Between November 1999 until November 2004. By means of hedging transac- the ages of 60 and 64, the retirement pension is 65% of their salary. tions, the Bank has limited its maximum cost. The cost in 2001 is SEK From the age of 65, their pension is 10% of the annual salary up to 7.5 25m.

Note 8 Other administrative expenses

GROUP PARENT COMPANY 2001 2000 2001 2000 Property and premises – 867 – 706 – 783 – 643 External IT costs – 856 – 690 – 585 – 466 Communication – 405 – 394 – 342 – 335 Travel and marketing – 377 – 324 – 285 – 241 Purchased services – 499 – 433 – 324 – 314 Supplies – 181 – 178 – 155 – 156 Other expenses – 161 – 203 – 140 – 177 Ð 3 346 – 2 928 – 2 614 – 2 332

Leasing costs paid to Group companies – 36 – 47

Fees paid to auditors

GROUP PARENT COMPANY Audits Consulting Audits Consulting 2001 2000 2001 2000 2001 2000 2001 2000 External auditing KPMG Bohlins AB – 4.4 – 3.5 – 4.1 – 0.1 – 2.5 – 2.3 – 3.4 – 0.1 Ernst & Young AB – 0.5 – 0.5 – 9.8 — – 0.5 – 0.5 – 9.8 — Deloitte & Touche AB – 1.1 – 0.8 — — – 0.5 – 0.4 — —

Internal auditing – 59.9 – 56.3 – 53.5 – 49.6

Consulting mainly refers to fees for tax consultation, negotiated and performed independent of the audit.

Note 9 Depreciation and write-down in value of tangible and intangible fixed assets

GROUP PARENT COMPANY 2001 2000 2001 2000 Equipment – 392 – 395 – 346 – 357 Property – 39 – 33 – 38 – 33 Goodwill – 369 – 318 – 115 – 10 Other depreciation/write-downs – 5 – 7 – 1 – 2 – 805 – 753 – 500 – 402

58 Svenska Handelsbanken Annual Report 2001 Notes

Note 10 Loan losses

GROUP PARENT COMPANY 2001 2000 2001 2000

A. INDIVIDUALLY VALUED CLAIMS The year’s write-down for actual loan losses – 665 – 449 – 468 – 368 Write-back of previous provisions for possible loan losses which have been reported as actual losses in this year’s accounts 445 347 308 288 The year’s write-down relating to possible loan losses – 1 200 – 630 – 1 113 – 571 Recovered from actual losses in previous years 545 258 204 134 Write-back of provisions for possible losses which are no longer necessary 722 553 288 386 Net expense for the year for individually valued claims Ð 153 79 Ð 781 Ð 131

B. CLAIMS VALUED AS A GROUP The year’s write-down for actual loan losses – 36 – 39 – 1 – 1 Recovered from actual losses in previous years 29 14 1 2 Allocation to/dissolution of reserve for loan losses 0 12 1 1 Net expense for the year for claims valued as a group Ð 7 Ð 13 1 2

C. PROVISION TO GENERAL RESERVE FOR COUNTRY RISK — — — — Total loan losses (A+B+C) Ð 160 66 Ð 780 Ð 129

Both actual and possible loan losses reduce the corresponding claim amount on the assets side of the Balance Sheet. The reserve for possible loan losses decreased by SEK 57m for the Group and increased by SEK 35m for the Parent Company in the form of foreign currency translation differences.

Write-downs: Claims on credit institutions – 2 – 4 – 2 – 4 Claims on the general public – 1 454 – 767 – 1 272 – 648 Total write-downs – 1 456 – 771 – 1 274 – 652

Write-backs: Claims on credit institutions 6 6 6 6 Claims on the general public 716 559 283 381 Total write-backs 722 565 289 387

Note 11 Change in value of repossessed property

GROUP PARENT COMPANY 2001 2000 2001 2000 Repossessed buildings — 1 — 1 Other repossessed property 8 0 — 0 Realised change in value 8 1 — 1

Note 12 Result of insurance operations

GROUP PARENT COMPANY (In accordance with the Annual Accounts Act for Insurance companies) 2001 2000 2001 2000 Technical account Ð insurance operations Premium income 3 537 6 751 Investment income transferred from financial operations – 5 – 2 Investment income 344 196 Other technical income 50 0 Change in value of investments for which policyholders bear the investment risk – 2 490 – 2 039 Insurance claims paid – 1 321 – 1 110 Change in insurance provisions 288 – 3 479 Operating expenses – 82 – 57 Other technical expenses – 125 — Result on technical account Ð insurance operations 196 260

Svenska Handelsbanken Annual Report 2001 59 Notes

GROUP PARENT COMPANY 2001 2000 2001 2000 Non-technical account Investment income (incl. unrealised changes in value) 31 50 Unrealised gains on investments 9 8 Investment charges – 151 2 Unrealised losses on investments – 18 – 53 Yield tax – 216 – 160 Profit before company taxes Ð 149 107

Taxes 53 – 1 Profit for the year Ð 96 106

Note 13 Appropriations etc

GROUP PARENT COMPANY 2001 2000 2001 2000 Settlement of pensions Calculated pension premiums in the bank 311 234 311 234 Pensions paid by the bank – 405 – 411 – 405 – 411 Compensation from pension foundation 400 974 400 974 306 797 306 797 Change in tax equalisation reserve K 456 Change in tax allocation reserve – 1 050 – 2 087 Change in other untaxed reserves 27 – 46 Group contribution 5 519 5 154 306 797 4 802 4 274

Note 14 Taxes

GROUP PARENT COMPANY 2001 2000 2001 2000 Current tax Tax expense for the period – 2 598 – 3 008 – 3 004 – 2 880 Adjustment of tax relating to previous years – 50 – 241 47 – 65 Deferred tax Changes in temporary differences – 502 – 59 109 105 Other tax – 52 – 45 – 25 – 20 Ð 3 202 Ð 3 353 Ð 2 873 Ð 2 860

Nominal tax rate in Sweden 28.0% 28.0% 28.0% 28.0% Deviations Non-taxable income/non-deductible expenses 0.0% – 0.5% 0.0% – 1.2% Utilised deficit deduction in associated Group companies — – 0.3% — — Amortisation of goodwill 0.9% 0.7% Effects of foreign taxation and other – 1.1% – 0.9% 0.2% – 0.5% The Group’s effective tax rate 27.8% 27.0% 28.2% 26.3%

A number of legal disputes concerning tax cases are currently being processed in Swedish tax courts. The tax liabilities include a provision of SEK 275m (271) for claims from the tax authorities which, if admitted, will lead to tax payments for the same amount. The Bank considers it less than likely that the amount will need to be paid. The Bank has also appealed against other taxation decisions. The Bank has not reported a claim corresponding to its claim on the authorities.

60 Svenska Handelsbanken Annual Report 2001 Notes

Notes to the balance sheets Amounts in SEK million unless otherwise stated

Note 15 Interest-bearing securities

GROUP PARENT COMPANY 2001 2000 2001 2000

INSTRUMENTS ELIGIBLE AS COLLATERAL WITH CENTRAL BANKS Government instruments eligible as collateral 23 552 12 336 23 552 11 384 Other securities eligible as collateral 244 326 244 326 Instruments eligible as collateral with central banks 23 796 12 662 23 796 11 710

Instruments eligible as collateral with central banks Remaining maturity: maximum one year 18 170 3 460 18 170 2 508 Remaining maturity: over one year but maximum five years 5 009 5 545 5 009 5 545 Remaining maturity: over five years but maximum ten years 597 2 373 597 2 373 Remaining maturity: over ten years 20 1 284 20 1 284 Total 23 796 12 662 23 796 11 710

Average remaining maturity 1.2 3.4 1.2 3.7

BONDS AND OTHER INTEREST-BEARING SECURITIES Issued by public bodies — — — — Issued by other borrowers 104 551 75 600 100 092 76 511 Bonds and other interest-bearing securities 104 551 75 600 100 092 76 511

Of which unlisted securities 39 920 31 350 36 015 27 268 Of which subordinated (debenture loans) — — — — Of which claims on Group companies — — 334 5 017

Bonds and other interest-bearing securities Remaining maturity: maximum one year 51 819 36 277 47 921 36 858 Remaining maturity: over one year but maximum five years 42 086 23 678 41 977 24 009 Remaining maturity: over five years but maximum ten years 9 810 15 426 9 759 15 427 Remaining maturity: over ten years 836 219 435 217 Total 104 551 75 600 100 092 76 511

Average remaining maturity 2.2 2.4 2.1 2.4

CURRENT ASSETS Current assets acquisition price Swedish government 16 262 8 155 16 262 8 155 Swedish mortgage institutions 25 144 23 527 22 736 21 711 Other Swedish issuers: non-financial companies 5 551 5 801 5 551 5 801 other financial companies 18 820 8 231 16 441 5 945 Foreign governments 7 356 3 995 7 356 3 043 Other foreign issuers 46 945 33 157 46 945 33 153 Total 120 078 82 866 115 291 77 808

Of which subordinated (debenture loans) — — — —

Current assets fair value Swedish government 16 206 8 230 16 206 8 230 Swedish mortgage institutions 25 091 23 577 22 684 21 761 Other Swedish issuers: non-financial companies 5 438 5 768 5 438 5 768 other financial companies 18 980 8 245 16 593 5 959 Foreign governments 7 347 4 106 7 347 3 154 Other foreign issuers 47 140 33 210 47 140 33 207 Total 120 202 83 136 115 408 78 079

Of which subordinated (debenture loans) — — — —

Difference between acquisition price and fair value 124 270 117 271

Svenska Handelsbanken Annual Report 2001 61 Notes

GROUP PARENT COMPANY 2001 2000 2001 2000 Current assets book value Swedish government 16 206 8 230 16 206 8 230 Swedish mortgage institutions 25 091 23 577 22 684 21 761 Other Swedish issuers: non-financial companies 5 438 5 764 5 438 5 764 other financial companies 18 907 8 245 16 521 5 959 Foreign governments 7 346 4 106 7 346 3 154 Other foreign issuers 47 140 33 214 47 140 33 210 Total 120 128 83 136 115 335 78 078

Of which subordinated (debenture loans) — — — —

FIXED ASSETS Fixed assets acquisition price Swedish mortgage institutions 1 711 200 2 045 5 217 Other Swedish issuers: non-financial companies 5 255 4 450 5 255 4 450 other financial companies 100 100 100 100 Other foreign issuers 1 153 376 1 153 376 Total 8 219 5 126 8 553 10 143

Of which subordinated (debenture loans) — — — —

Fixed assets fair value Swedish mortgage institutions 1 711 200 2 054 5 261 Other Swedish issuers: non-financial companies 5 362 4 547 5 362 4 547 other financial companies 90 90 90 90 Other foreign issuers 1 169 378 1 169 378 Total 8 332 5 215 8 675 10 276

Of which subordinated (debenture loans) — — — — Book value higher than nominal value 1 259 861 1 180 966 Book value lower than nominal value 1 200 282 1 186 267

Note 16 Lending to credit institutions

GROUP PARENT COMPANY 2001 2000 2001 2000

FIXED ASSETS Banks, in Swedish kronor 12 663 27 120 11 916 26 838 Banks, in foreign currencies 35 861 49 001 36 731 53 760 Other credit institutions, in Swedish kronor 3 781 4 607 153 685 139 013 Other credit institutions, in foreign currencies 18 578 13 975 28 535 21 052 70 883 94 703 230 867 240 663

Possible loan losses – 26 – 26 – 26 – 26 70 857 94 677 230 841 240 637

Of which subordinated 92 — 135 43 Of which claims on Group companies 162 137 148 037 Of which claims on associated companies 121 1 689 0 —

Information concerning maturities: Payable upon demand 20 629 22 915 47 980 36 765 Remaining maturity: maximum three months 27 970 42 268 73 805 95 278 Remaining maturity: over three months but maximum one year 16 083 25 798 82 276 81 117 Remaining maturity: over one year but maximum five years 3 917 2 089 23 791 25 127 Remaining maturity: over five years 2 258 1 607 2 989 2 350 Total 70 857 94 677 230 841 240 637

Average remaining maturity 0.7 0.4 0.8 0.6

62 Svenska Handelsbanken Annual Report 2001 Notes

Note 17 Lending to the general public

GROUP PARENT COMPANY 2001 2000 2001 2000

FIXED ASSETS Lending, Swedish kronor Households 258 579 234 650 42 464 40 097 Companies etc 336 849 296 746 186 551 150 330 Total 595 428 531 396 229 015 190 427

Lending foreign currency Households 36 163 25 024 28 464 17 619 Companies etc 171 953 135 875 159 502 120 883 Total 208 116 160 899 187 966 138 502

Possible loan losses – 3 476 – 3 189 – 2 496 – 1 689 Total lending to the general public 800 068 689 106 414 485 327 240

Of which subordinated 221 2 221 2 Of which claims on Group companies 3 065 900 Of which claims on associated companies 25 1 25 1

Gross investments referring to financial leasing agreements concluded since 1 January 1997 have been calculated to be SEK 18 587m (12 686). Unearned financial income according to the same calculation is SEK 1 520m (2 088).

Information concerning maturities: Payable upon demand 43 091 112 368 42 399 22 968 Remaining maturity: maximum three months 247 222 126 823 96 936 84 112 Remaining maturity: over three months but maximum one year 153 436 132 332 109 674 83 892 Remaining maturity: over one year but maximum five years 237 707 211 004 79 948 67 905 Remaining maturity: over five years 118 612 106 579 85 528 68 363 Total 800 068 689 106 414 485 327 240

Average remaining maturity 2.8 2.3 3.6 2.6

Bad debts etc (For definitions see fold-out inside back cover) Bad debts 5 039 5 532 3 824 3 121 Reserve for possible loan losses – 3 571 – 3 219 – 2 588 – 1 715 Bad debts, net 1 468 2 313 1 236 1 406

Reduced rate loans without a provision for possible loan losses 58 55 51 47 Total problem loans 1 526 2 368 1 287 1 453

Bad debt reserve ratio 70.9% 58.2% 67.7% 55.0% Proportion of bad debts 0.18% 0.33% 0.21% 0.29% Problem loans before write-down for possible loan losses 5 097 5 587 3 875 3 168 Income on problem loans during the year 203 254 42 35 Annual interest rate on problem loans 9.19 10.73 2.67 2.38 Annual interest rate on loans which are not problem loans 5.86 6.16 5.75 5.89 Non-performing loans for which interest is accrued 2 084 1 321 606 307

COLLATERAL TAKEN OVER Book value Buildings and land 16 0 0 0 Shares and other participations 71 55 49 34 Other 83 93 0 — Total collateral taken over 170 148 49 34

Svenska Handelsbanken Annual Report 2001 63 Notes

Note 18 Shares and participations

GROUP PARENT COMPANY 2001 2000 2001 2000 Trading book 10 785 11 306 10 071 11 044 For protection of claims 71 55 49 34 Other shares 26 648 159 782 Current assets 10 882 12 009 10 279 11 860

Shares in credit institutions 1 1 1 1 Other shares and participations 2 886 1 873 2 886 1 872 Fixed assets 2 887 1 874 2 887 1 873 Shares and participations 13 769 13 883 13 166 13 733

Of which unlisted 130 133 242 245

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 10 853 11 196 10 015 10 917 For protection of claims 71 55 50 34 Other shares 26 652 159 785 Total 10 950 11 903 10 224 11 736

Fair value Trading book 10 785 11 306 10 071 11 044 For protection of claims 78 55 56 34 Other shares 26 1 140 159 1 273 Total 10 889 12 501 10 286 12 351

FIXED ASSETS Acquisition value Shares in credit institutions 3 3 3 3 Other shares and participations 2 886 1 940 2 886 1 940 Total 2 889 1 943 2 889 1 943

Fair value Shares in credit institutions 1 1 1 1 Other shares and participations 3 235 2 204 3 235 2 202 Total 3 236 2 205 3 236 2 203

Note 19 Shares and participations in associated companies

GROUP PARENT COMPANY 2001 2000 2001 2000

FIXED ASSETS Credit institutions 41 39 30 30 Other associated companies 259 232 215 216 300 271 245 246 All shares in associated companies are unlisted.

Shares and participations, associated companies 31 December 2001

No. of Book value Book value Parent company’s shares Group Parent company proportion of equity %

CREDIT INSTITUTIONS Svensk Bostadsfinansiering AB BOFAB (Stockholm) 25 000 41 30 50.0 Total 41 30

OTHER ASSOCIATED COMPANIES VPC AB (Stockholm) 443 700 200 200 24.7 Various companies — 59 15 — Subtotal 259 215 Total 300 245 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.

64 Svenska Handelsbanken Annual Report 2001 Notes

Note 20 Shares and participations in Group companies

GROUP PARENT COMPANY 2001 2000 2001 2000

FIXED ASSETS Shares in Swedish credit institutions 27 376 27 376 Shares in foreign credit institutions 4 852 1 834 Shares in other Swedish companies1) 4 419 247 4 603 460 Shares in other foreign companies 133 151 4 419 247 36 964 29 821

All shares in Group companies are unlisted. 1) Handelsbanken Liv Försäkrings AB and SPP Livförsäkring are not included in the Consolidated Accounts.

Shares and participations, Group companies 31 December 2001

No. of Book value Book value Parent company’s shares Group Parent company proportion of equity %

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

FOREIGN CREDIT INSTITUTIONS Midtbank A/S (Herning) 2 460 000 2 525 100 Bank Svenska Handelsbanken (Polska) S.A. (Warsaw) 50 000 494 100 Handelsbanken Norge Holding AS (Oslo) 1 550 000 1 682 100 Svenska Handelsbanken S.A. (Luxembourg) 1 000 000 147 100 Various companies — 4 — Subtotal 4 852

OTHER SWEDISH COMPANIES Handelsbanken Liv Försäkrings AB (Stockholm) 1 500 247 300 100 Handelsbanken Liv Fondförsäkrings AB (Stockholm) 100 000 139 100 SPP Livförsäkring AB (Stockholm) 2 000 4 172 4 139 100 Various companies — 25 — Subtotal 4 419 4 603

OTHER FOREIGN COMPANIES Svenska Re S.A. (Luxembourg) 19 999 35 99.99 Svenska Finans International BV (Rotterdam) 10 200 84 100 Various companies — 14 — Subtotal 133 Total 4 419 36 964

Particulars of subsidiaries’ registered numbers can be found on the inside back cover. 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 21 Assets in insurance operations

GROUP PARENT COMPANY 2001 2000 2001 2000 Investment assets 667 715 Investment assets for which the life insurance policy-holder bears the investment risk 16 733 16 951 Other claims and assets 3 029 96 20 429 17 762

Svenska Handelsbanken Annual Report 2001 65 Notes

Note 22 Goodwill

GROUP PARENT COMPANY 2001 2000 2001 2000

FIXED ASSETS Acquisition value at beginning of year 6 333 6 235 274 274 Acquisition value of past goodwill – 274 – 11 – 274 — Acquisition value of future goodwill 1 798 109 592 — Total acquisition value at year-end 7 857 6 333 592 274

Accumulated amortisation at beginning of year – 1 367 – 1 055 – 269 – 259 Accumulated amortisation of past goodwill 269 6 269 — Amortisation for the year according to plan – 369 – 318 – 115 – 10 Accumulated amortisation at year-end Ð 1 467 Ð 1 367 Ð 115 Ð 269

Accumulated write-downs at beginning of year — – 5 — — Accumulated amortisation of past goodwill — 5 — — Write-downs for the year — — — — Accumulated write-downs at year-end — — — —

Foreign currency effect 197 4 – 2 – 5 Book value 31 December 6 587 4 970 475 —

Goodwill arising from the acquisitions of Stadshypotek AB in 1997, Bergensbanken ASA in 1999 and Midtbank A/S in 2001, is amortised over 20 years. Other goodwill is amortised over 10 years.

The acquisition value for 2000 of future goodwill in the Group is SEK 109m. SEK 46m of this amount refers to adjustment of the acquistion balance with respect to Bergensbanken ASA.

Note 23 Equipment

GROUP PARENT COMPANY 2001 2000 2001 2000

FIXED ASSETS Residual value according to plan on 1 January 744 785 615 633 New acquisitions, net during the year 333 261 370 339 The year’s depreciation according to plan – 392 – 395 – 346 – 357 Book value of leasing assets taken over 82 93 — — Residual value according to plan 767 744 639 615

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 122m (99). For the parent company, the equivalent value was SEK 183m (198).

Note 24 Buildings and land

GROUP PARENT COMPANY 2001 2000 2001 2000

FIXED ASSETS Containing bank premises 1 683 1 014 1 356 921

CURRENT ASSETS For protection of claims etc 16 0 0 0 1 699 1 014 1 356 921

Containing bank premises Acquisition value at beginning of year 1 038 1 034 930 928 New acquisitions during the year 678 2 467 — Capitalised new and rebuilding costs 6 2 6 2 Total acquisition value 1 722 1 038 1 403 930

Accumulated depreciation at beginning of year – 326 – 298 – 311 – 293 Accumulated depreciation of acquired properties – 9 – 10 — Depreciation during the year – 26 – 18 – 23 – 18 Total accumulated depreciation Ð 361 Ð 326 Ð 334 Ð 311

Acquisition value, revaluations 452 436 436 436 Accumulated depreciation on revaluation – 136 – 119 – 134 – 119 Depreciation for the year – 15 – 15 – 15 – 15 Total revaluation 301 302 287 302

Foreign currency effect 21 0 Residual value according to plan 1 683 1 014 1 356 921

Tax assessment value of property in Sweden 2 010 1 576 2 010 1 576

66 Svenska Handelsbanken Annual Report 2001 Notes

Note 25 Other assets

GROUP PARENT COMPANY 2001 2000 2001 2000 Pre-paid tax 86 173 40 29 Claims on investment banking settlements 16 719 12 645 13 530 11 673 Derivative contracts with a positive value 84 498 77 704 83 360 76 028 Possible loan losses – 4 – 4 — — Other 8 324 4 555 12 565 8 641 109 623 95 073 109 495 96 371

Note 26 Prepayments and accrued income

GROUP PARENT COMPANY 2001 2000 2001 2000 Accrued interest income 6 504 8 232 5 850 7 328 Other accrued income 512 790 451 505 Prepayments 26 64 23 67 7 042 9 086 6 324 7 900

Note 27 Liabilities to credit institutions

GROUP PARENT COMPANY 2001 2000 2001 2000 Banks, in Swedish kronor 56 340 31 258 52 700 29 781 Banks, in foreign currencies 146 872 110 224 151 987 111 283 Other credit institutions, in Swedish kronor 9 043 10 460 7 794 5 113 Other credit institutions, in foreign currencies 7 871 3 472 41 719 49 160 220 126 155 414 254 200 195 337

Of which liabilities to Group companies 45 176 51 737 Of which liabilities to associated companies 528 405 384 0

Information concerning maturities: Payable upon demand 52 010 26 846 54 306 30 268 Remaining maturity: maximum three months 141 264 106 344 172 119 140 253 Remaining maturity: over three months but maximum one year 23 070 16 223 26 973 24 670 Remaining maturity: over one year but maximum five years 2 120 4 341 665 87 Remaining maturity: over five years 1 662 1 660 137 59 Total 220 126 155 414 254 200 195 337

Average remaining maturity 0.2 0.2 0.2 0.1

Note 28 Deposits from the general public

GROUP PARENT COMPANY 2001 2000 2001 2000 Deposits, Swedish kronor Households 74 170 67 179 69 490 62 572 Companies etc 78 094 76 001 76 855 74 795 Total 152 264 143 180 146 345 137 367

Deposits, foreign currencies Households 13 641 8 312 8 598 5 529 Companies etc 59 845 39 524 55 856 36 020 Total 73 486 47 836 64 454 41 549 Total deposits 225 750 191 016 210 799 178 916

Of which liabilities to Group companies 460 392 Of which liabilities to associated companies 23 127 23 127

Information concerning maturities: Payable upon demand 192 770 159 802 181 312 152 183 Remaining maturity: maximum three months 29 870 30 078 28 256 25 772 Remaining maturity: over three months but maximum one year 1 280 1 001 1 023 923 Remaining maturity: over one year but maximum five years 627 107 200 10 Remaining maturity: over five years 1 203 28 8 28 Total 225 750 191 016 210 799 178 916

Average remaining maturity 0.1 0.1 0.1 0.2

Svenska Handelsbanken Annual Report 2001 67 Notes

Note 29 Funding from the general public

GROUP PARENT COMPANY 2001 2000 2001 2000 Funding from the general public in Swedish kronor 25 487 30 030 23 780 28 926 in foreign currencies 32 455 34 304 30 446 32 406 57 942 64 334 54 226 61 332

Of which liabilities to Group companies 134 328 Of which liabilities to associated companies

Information concerning maturities: Payable upon demand 4 706 6 432 4 729 6 444 Remaining maturity: maximum three months 47 409 51 386 43 530 48 641 Remaining maturity: over three months but maximum one year 5 005 5 681 5 107 5 423 Remaining maturity: over one year but maximum five years 458 550 496 539 Remaining maturity: over five years 364 285 364 285 Total 57 942 64 334 54 226 61 332

Average remaining maturity 0.2 0.1 0.2 0.1

Note 30 Issued securities

GROUP PARENT COMPANY 2001 2000 2001 2000 Certificates in Swedish kronor 32 785 49 420 14 151 8 965 in foreign currencies 275 331 201 796 200 700 156 244 Total certificates 308 116 251 216 214 851 165 209

Bond loans in Swedish kronor 122 745 122 390 7 859 7 715 in foreign currencies 10 120 27 883 7 971 24 240 Total bond loans 132 865 150 273 15 830 31 955 440 981 401 489 230 681 197 164

Information concerning maturities: Remaining maturity: maximum one year 338 007 297 605 222 836 185 225 Remaining maturity: over one year but maximum five years 92 687 92 858 7 275 11 196 Remaining maturity: over five years but maximum ten years 10 287 11 026 570 743 Remaining maturity: over ten years — — — — Total 440 981 401 489 230 681 197 164

Average remaining maturity 0.9 1.0 0.5 0.4

Note 31 Liabilities in insurance operations

GROUP PARENT COMPANY 2001 2000 2001 2000 Technical provisions 96 94 Technical provisions for life insurance where the policy-holder bears the investment risk 16 733 16 951 Other provisions and liabilities 706 231 17 535 17 276

Note 32 Other liabilities

GROUP PARENT COMPANY 2001 2000 2001 2000 Tax liabilities 255 1 588 13 1 176 Liabilities on investment banking settlements 14 548 10 510 13 122 9 714 Derivative contracts with a negative value 77 911 77 223 75 852 75 530 Short-term positions 16 889 17 930 16 889 17 930 Other 9 929 2 140 11 792 2 686 119 532 109 391 117 668 107 036

68 Svenska Handelsbanken Annual Report 2001 Notes

Note 33 Accruals and deferred income

GROUP PARENT COMPANY 2001 2000 2001 2000 Accrued interest expense 8 128 12 491 5 954 9 749 Other accrued expenses 1 503 1 626 1 318 1 473 Deferred income 386 603 47 52 10 017 14 720 7 319 11 274

Note 34 Provision for deferred taxes

GROUP PARENT COMPANY 2001 2000 2001 2000

DEFERRED TAX CLAIM Machines and equipment 45 38 45 38 Other fixed assets 24 69 — — Other current assets 115 50 — — 184 157 45 38

DEFERRED TAX LIABILITY Machines and equipment 1 702 1 084 — — Tax allocation reserve 3 385 3 389 Other fixed assets 290 232 164 176 Other current assets 96 372 77 167 5 473 5 077 241 343 Net deferred tax liability 5 289 4 920 196 305

Changes in deferred tax Opening Impact Reported via Reported directly Acquisitions/ Closing balance of changed profit and against share- divestments balance principles loss account holders’ equity

GROUP Machines and equipment 1 046 — 548 0 63 1 657 Tax allocation reserve 3 389 — – 4 3 385 Other fixed assets 163 — 192 1 – 90 266 Other current assets 322 – 57 – 234 – 47 – 3 – 19 4 920 Ð 57 502 Ð 46 Ð 30 5 289

PARENT COMPANY Machines and equipment – 38 — – 7 — — – 45 Other fixed assets 176 — – 12 — — 164 Other current assets 167 — – 90 0 — 77 305 — Ð 109 0 — 196

Note 35 Subordinated liabilities

GROUP PARENT COMPANY 2001 2000 2001 2000 Subordinated loans in Swedish kronor 1 600 3 901 1 600 3 401 Subordinated loans in foreign currencies 27 376 15 165 26 966 14 688 Total subordinated loans 28 976 19 066 28 566 18 089

Of which liabilities to Group companies —— Of which liabilities to associated companies — — — —

Svenska Handelsbanken Annual Report 2001 69 Notes

Specification, subordinated loans, Parent company 31 December 2001

Year of issue/conv./ Original nominal Interest Outstanding maturity amount in each rate amount currency (million) % SEK m

IN SWEDISH KRONOR Other Swedish 5) 1 600 Total 1 600

IN FOREIGN CURRENCY 1997/perpetual 1) USD 350 variable 3 702 1997/perpetual 2) USD 360 7.125 3 807 2000/2010 3) EUR 300 variable 2 792 2001/2011 4) EUR 750 5.500 6 979 2001/2011 4) EUR 415 5.125 3 718 Other foreign 5) 5 968 Subtotal 26 966 Total 28 566 1) 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. 2) Perpetual subordinated loan at fixed interest rate paid semi-annually. 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. 3) Fixed-term subordinated loan with 3-month variable coupon, linked to Euribor. Premature redemption may occur in the case of changed tax regulations. Premature redemption requires the approval of the Swedish Financial Supervisory Authority. 4) Fixed-term subordinated loan at fixed interest rate. Premature redemption may occur in the case of changed tax regulations or on the interest due dates starting in 2006. Premature redemption before 2006 requires the approval of the Swedish Financial Supervisory Authority. In connection with the right of redemption without the approval of this Authority, the interest rate becomes variable, linked to Euribor. 5) Other subordinated loans which are not specified here are issued in the form of fixed-term or perpetual subordinated loans.

Note 36 Untaxed reserves

GROUP PARENT COMPANY 2001 2000 2001 2000 Accumulated depreciation on property in excess of plan 10 10 Tax allocation reserve 10 155 9 105 Other untaxed reserves 131 133 10 296 9 248

Note 37 Shareholders’ equity

GROUP PARENT COMPANY 2001 2000 2001 2000

RESTRICTED SHAREHOLDERS’ EQUITY Share capital 2 859 2 859 2 859 2 859 Statutory reserve 2 748 2 748 2 682 2 682 Reserve for unrealised profits 205 425 195 421 Other restricted reserves 14 369 10 541 — —

UNRESTRICTED SHAREHOLDERS’ EQUITY Profit brought forward 19 641 16 788 21 229 18 155 Profit for the year 8 290 9 105 7 333 7 996 48 112 42 466 34 298 32 113

Reserve for unrealised profits by balance sheet item: Bonds and other interest-bearing securities 10 4 — — Shares and participations 195 421 195 421 205 425 195 421

GROUP Share Restricted Unrestricted Profit for Total capital reserves reserves the year Shareholders’ equity carried forward 2 859 13 714 26 058 42 631 Changed accounting principles for income taxes – 165 – 165 Equity carried forward after adjustment 2 859 13 714 25 893 42 466

Cash dividend – 2 751 – 2 751 Repurchase of own shares – 46 – 46 Transfer between restricted and unrestricted equity 3 415 – 3 415 0 Change of foreign currency component 297 293 590 Change in price difference on financing of subsidiaries’ shares – 104 – 333 – 437 Profit for the year 8 290 8 290 Shareholders’ equity at year-end 2001 2 859 17 322 19 641 8 290 48 112

The accumulated amount of the Group’s unrealised foreign exchange differences is SEK 808m (218). The accumulated exchange rate difference on matching hedging instruments is SEK –529m (–92).

70 Svenska Handelsbanken Annual Report 2001 Notes

PARENT COMPANY Share Restricted Unrestricted Profit for Total capital reserves reserves the year Shareholders’ equity carried forward 2 859 3 103 26 316 32 278 Changed accounting principles for income taxes – 165 – 165 Equity carried forward after adjustment 2 859 3 103 26 151 32 113

Cash dividend – 2 751 – 2 751 Repurchase of own shares – 46 – 46 Group contribution paid – 2 386 – 2 386 Transfer between restricted and unrestricted equity – 226 226 0 Change of foreign currency component 35 35 Profit for the year 7 333 7 333 Shareholders’ equity at year-end 2001 2 859 2 877 21 229 7 333 34 298

The share capital comprises: Class A shares 2 600 649 949 619 shares at SEK 4.00 Class B shares 259 64 797 321 shares at SEK 4.00 2 859 714 746 940

Note 38 Collateral pledged for own debt

GROUP PARENT COMPANY 2001 2000 2001 2000 Shares — 3 — 3 Government instruments and bonds 20 053 14 205 20 053 13 366 Repos 42 278 27 924 43 530 34 035 Property mortgages 1 — — — Securities loans 805 1 479 805 1 479 63 137 43 611 64 388 48 883

Note 39 Other collateral pledged

GROUP PARENT COMPANY 2001 2000 2001 2000 Cash funds 560 114 560 114 Government instruments and bonds 11 790 9 176 11 629 9 156 Assets registered for insurance-holders 15 938 16 980 Securities loans 5 128 2 083 5 128 2 083 Other 4 4 — — 33 420 28 357 17 317 11 353

Note 40 Contingent liabilities

GROUP PARENT COMPANY 2001 2000 2001 2000 Guarantees, loans 10 525 9 684 47 733 63 308 Guarantees, other 29 533 22 062 29 043 21 468 Special guarantees — 0 — 0 Irrevocable letters of credit 36 912 31 295 36 912 31 272 Own acceptances 315 1 129 249 1 129 Other 2 359 2 992 19 2 979 79 644 67 162 113 956 120 156

Note 41 Pension commitments

GROUP PARENT COMPANY 2001 2000 2001 2000 Market value of assets in the Bank’s pension foundation 13 416 16 597 13 416 16 597 Pension liability – 9 237 – 8 797 – 9 237 – 8 797 Surplus 4 179 7 800 4 179 7 800

The pension commitments in the Bank’s pension fund (Pensionskassan SHB, försäkringsförening) are SEK 2 068m (1 618) and the market value of the assets is SEK 6 776m (8 467). The surplus in the fund is thus SEK 4 708m (6 849).

Svenska Handelsbanken Annual Report 2001 71 Notes

Note 42 Other commitments

GROUP PARENT COMPANY 2001 2000 2001 2000 Certificate programmes 4 185 6 319 4 185 6 319 Other commitments 552 1 899 548 313 Commitments regarding future payments 4 737 8 218 4 733 6 632

Interest rate swaps 1 608 533 1 250 728 1 783 453 1 247 480 FRA/Futures 2 303 946 1 818 581 2 301 676 1 592 586 Interest rate options 145 831 50 721 141 705 44 619 Interest-rate related instruments 4 058 310 3 120 030 4 226 834 2 884 685

Forward currency contracts 1 496 695 983 302 1 506 736 976 349 Currency swaps 163 924 129 790 163 526 128 735 Currency options 107 643 64 697 107 643 64 697 Currency-related instruments 1 768 262 1 177 789 1 777 905 1 169 781

Equity futures 1 565 1 305 1 565 1 305 Equity swaps 3 831 3 980 3 831 3 980 Equity options 241 787 129 618 241 787 129 601 Equity-related instruments 247 183 134 903 247 183 134 886

Credits granted but not yet drawn 164 075 168 355 104 761 102 885 Unutilised part of overdraft facilities granted 183 854 161 348 183 854 161 348 Other commitments 347 929 329 703 288 615 264 233 Total commitments 6 426 421 4 770 643 6 545 270 4 460 217

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

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total 344 232 166 85 45 13 11 10 6 6 2 2 922

OTHER INFORMATION

Geographical distribution of income GROUP Nordic Rest of Rest of countries Europe world Interest income 49 362 2 421 5 884 Dividends received 309 0 — Commission income 5 463 236 195 Net result on financial operations 1 232 169 176 Other operating income 206 8 5 Total 56 572 2 834 6 260

PARENT COMPANY Nordic Rest of Rest of countries Europe world Interest income 33 547 2 243 5 884 Dividends received 322 0 — Commission income 4 738 175 134 Net result on financial operations 1 161 162 176 Other operating income 110 2 5 Total 39 878 2 582 6 199

The distribution of income is based on in which country the Group’s various units are located.

72 Svenska Handelsbanken Annual Report 2001 Notes

Assets and liabilities in foreign currency

GROUP USD EUR DKK NOK GBP CHF JPY Other currencies

Assets Lending to credit institutions 37 069 6 699 6 183 316 230 574 2 688 655 Lending to the general public 57 133 66 219 20 415 42 610 4 042 3 141 11 479 1 917 Bonds and other interest-bearing securities 40 372 14 795 6 230 158 6 6 6 385

Liabilities Liabilities to credit institutions 87 828 25 486 16 064 4 367 7 035 2 978 5 165 5 820 Deposits and funding from the general public 29 548 30 364 12 805 20 867 1 791 1 052 8 006 1 508 Issued securities 252 715 25 477 678 1 833 4 424 324 Subordinated liabilities 12 119 14 814 171 272

Other assets and liabilities, including derivative positions 248 203 8 587 – 3 445 – 15 705 4 508 387 3 378 4 261

Net position in foreign currency 567 159 Ð 335 40 Ð 40 78 Ð 44 Ð 434

Information concerning fair value, Group Book Adjustment value to fair value 2001 2001 ASSETS Lending to credit institutions, fixed assets 70 857 195 Lending to the general public, fixed assets 800 068 364 Interest-bearing securities fixed assets 8 219 113 current assets 120 128 74 Other assets fixed assets 16 643 2 212 current assets 158 606 5 207 Total assets 1 174 521 8 165

LIABILITIES Liabilities to credit institutions 220 126 431 Deposits and funding from the general public 283 692 96 Issued securities 440 981 3 214 Other liabilities 152 373 2 215 Subordinated liabilities 28 976 859 Total liabilities 1 126 148 6 815 Total surplus value 1 350

In accordance with Finansinspektionen's (the Swedish Financial Supervisory Items which are not traded on liquid markets, irrespective of whether these are Authority) directives (2000:18), a comparison is to be made between fair value current assets, fixed assets, issued liabilities or off-balance-sheet financial items and book value for both assets and liabilities in the balance sheet and also financial are valued at the current market rate for the corresponding maturity adjusted to items which are not reported in the balance sheet. Values which are based on take into account the credit and liquidity risk. The credit and liquidity risk premi- customer relations are not to be taken into account, although they may be of impor- um by which the market rate has been adjusted when making the valuation is tance in valuing, for example, deposit accounts and mortgage and customer credits. assumed to be the same as the average margin for new lending at the time of The directives allow scope for choice of method and various assumptions. Thus, the the measurement. methods applied and the assumptions made may vary among the credit institutions. Properties are valued on the basis of an external valuation. Information concerning fair value is not a corporate valuation and therefore cannot With the method applied, the interest risk in the balance sheet gives rise to constitute the basis of a comparison between credit institutions. surplus values if short-term rates are falling and losses if interest rates are rising. For means of payment, current claims and liabilities and also for claims and A surplus value also occurs when margins decrease and a loss when margins liabilities with a variable interest rate, the fair value is considered to be the same as increase. the book value. Claims and liabilities with final maturity or date for next interest-rate In those cases where fair value on assets is less than the book value and for fixing within 30 days are considered to be short-term. liabilities, the book value is less than fair value, this is due to these items being Current assets and liabilities which are traded on liquid markets have been valued a) subject to hedge accounting and b) that they are to be regarded as fixed at the average price on the balance sheet day. Market-listed off-balance-sheet items assets where the fall in value has been considered temporary. are valued in the same way.

Derivative instruments

GROUP REPORTED AT MARKET VALUE REPORTED AS HEDGES Nominal Book value Nominal Market value Book value value Positive Negative value Positive Negative Positive Negative

Interest rate-related instruments Options 138 719 116 143 7 113 46 0 82 1 FRA/Futures 2 291 693 3 319 3 392 12 253 52 47 — — Swaps 1 360 748 24 158 26 442 247 784 9 565 5 926 5 037 3 813 Total 3 791 160 27 593 29 977 267 150 9 663 5 973 5 119 3 814

Of which cleared 573 936 233 216 6 904 7 2 — —

Svenska Handelsbanken Annual Report 2001 73 Notes

GROUP REPORTED AT MARKET VALUE REPORTED AS HEDGES Nominal Book value Nominal Market value Book value value Positive Negative value Positive Negative Positive Negative

Currency-related instruments Options 107 643 572 683 — — — — — Futures 1 481 496 23 785 19 361 15 199 389 8 – 77 6 Swaps 163 532 14 566 10 852 391 91 — 3 — Total 1 752 671 38 923 30 896 15 590 480 8 Ð 74 6

Of which cleared — — — — — — — —

Equity-related instruments Options 240 582 7 523 8 047 1 205 60 81 63 27 Futures 1 565 79 25 — — — — — Swaps 3 334 — – 22 496 102 — – 3 — Total 245 481 7 602 8 050 1 701 162 81 60 27

Of which cleared 112 754 5 841 5 277 — — — — —

Capital base 31 December 2001 Capital requirement 31 December 2001

GROUP PARENT COMPANY GROUP PARENT COMPANY

TIER 1 CAPITAL RISK-WEIGHTED AMOUNT Shareholders’ equity1) 43 726 31 178 Credit risks 588 746 361 888 Tax allocation reserve of which 72% 7 311 Market risks 22 023 22 022 Minority interest 261 Total 610 769 383 910 Less goodwill – 6 586 – 474 Capital ratio 9.9% 15.9% Less adjustment write-up – 213 – 213 Tier 1 capital ratio 6.1% 9.8% Total tier 1 capital 37 188 37 802

TIER 2 CAPITAL Subordinated loans after reduction, maximum 27 163 26 786 Adjustment write-up 213 213 Total tier 2 capital 27 376 26 999 Total 64 564 64 801

Less shareholdings in insurance companies and 5–50% in companies which conduct banking operations – 4 868 – 4 857 Total tier 1 and tier 2 capital 59 696 59 944

Enlarged capital base 921 922 Total capital base 60 617 60 866

1) The Group’s equity includes 72% of untaxed reserves.

Capital requirement 31 December 2001 FOR CREDIT RISKS GROUP PARENT COMPANY Weighting Investments Risk-weighted Investments Risk-weighted factor amount amount

Balance sheet items Group A 0 229 600 387 992 B 20 59 990 11 998 57 460 11 492 C 50 370 322 185 161 85 490 42 745 D 100 338 449 338 449 255 502 255 502 Total AÐD 998 361 535 608 786 444 309 739

Off-balance-sheet items GROUP PARENT COMPANY Weighting Nominal Converted Risk-weighted Nominal Converted Risk-weighted factor amount amount amount amount amount amount

Group A 0 25 378 10 788 170 510 49 927 B 20 209 132 9 141 1 828 191 427 8 342 1 668 C 50 222 797 5 365 2 683 218 719 3 584 1 792 D 100 102 370 48 627 48 627 102 129 48 689 48 689 Total AÐD 559 677 73 921 53 138 682 785 110 542 52 149 Total credit risks 1 072 282 588 746 896 986 361 888

74 Svenska Handelsbanken Annual Report 2001 Notes

FOR MARKET RISKS GROUP PARENT COMPANY Specific General Risk-weighted Specific General Risk-weighted risk risk amount risk risk amount

Interest rate risks 5 497 7 573 13 070 5 497 7 573 13 070 Equity risks 113 76 189 113 75 188 Settlement risks 9 9 Counterparty and other risks 8 755 8 755 Exchange rate risks — — Total market risks 22 023 22 022

The Board’s recommendation for appropriations and distribution of profits has had an impact on tier 1 capital.

Handelsbanken Liv Försäkrings AB SPP Group

PROFIT AND LOSS ACCOUNT PROFIT AND LOSS ACCOUNT 2001 2000 2001 2000 Technical account Ð Technical account Ð life insurance business life insurance business Premium income 2 350 2 260 Premium income 12 627 10 011 Investment income – 439 34 Investment income – 2 693 2 785 Insurance provisions – 1 331 – 1 186 Insurance provisions – 3 872 – 3 003 Changes in technical provisions – 1 338 – 1 873 Changes in technical provisions – 10 734 – 8 884 Bonus – 60 – 103 Operating expenses – 1 223 – 911 Operating expenses – 331 – 264 Other 58 – 2 Other — 33 Balance on technical account Ð Balance on technical account Ð life insurance business Ð 5 837 Ð 4 life insurance business Ð 1 149 Ð 1 099 Non-technical account Non-technical account Other operations 18 16 Tax – 152 – 156 Tax – 780 – 509 Surplus for the year Ð 1 301 Ð 1 255 Surplus for the year Ð 6 599 Ð 497

BALANCE SHEET BALANCE SHEET 2001 2000 2001 2000 Assets Assets Buildings and land 559 535 Investment assets 83 535 86 254 Shares and participations 8 818 8 767 Other assets 5 656 3 873 Bonds and other securities 9 483 9 390 Total assets 89 191 90 127 Other investment assets 2 10 Claims 175 166 Liabilities and equity Other assets 1 088 1 854 Equity and bonuses 13 045 24 036 Prepayments Technical provisions for life insurance 74 221 63 300 and accrued income 269 255 Other financial liabilities 1 925 2 791 Total assets 20 394 20 977 Total liabilities and equity 89 191 90 127

Liabilities, provisions and equity Equity 150 150 Bonuses 5 763 7 392 Surplus for the year – 1 301 – 1 255 Technical provisions for life insurance 15 451 13 966 Provisions for taxes 54 79 Liabilities 215 573 Accruals and deferred income 62 72 Total liabilities, provisions and equity 20 394 20 977

Comments: The accounts have been prepared in accordance with the Accounting Act for Insurance Companies and also with the instructions issued by the Swedish Financial Supervisory Authority. The profit and loss account and balance sheet for Handelsbanken Liv För- säkrings AB are based on preliminary information and may differ from the final figures published in Handelsbanken Liv’s annual report. Handelsbanken Liv Försäkrings AB is run on mutual principles. According to the Insurance Companies Business Act, dividends may not be paid to the shareholders of a traditional life insurance company. The entire surplus shall accrue to the policy-holders.

Svenska Handelsbanken Annual Report 2001 75 Five-year review

Five-year review

GROUP

PROFIT AND LOSS ACCOUNT (SEK m) 2001 2000 1999 1998 1997 Interest income 57 667 66 308 58 048 61 940 57 209 Interest expense – 43 141 – 55 024 – 46 540 – 50 510 – 46 040 Dividends received 309 504 245 139 150 Commission income 5 894 6 048 4 693 4 077 4 024 Commission expense – 1 038 – 770 – 715 – 669 – 687 Net result on financial operations 1 577 3 049 969 1 242 593 Other operating income 219 343 354 616 563 Total income 21 487 20 458 17 054 16 835 15 812 General administrative expenses Staff costs – 5 909 – 5 300 – 4 888 – 4 579 – 4 150 Other administrative expenses – 3 346 – 2 928 – 3 030 – 3 543 – 2 926 Depreciation and write-downs in value of tangible and intangible fixed assets – 805 – 753 – 750 – 684 – 616 Total expenses Ð 10 060 Ð 8 981 Ð 8 668 Ð 8 806 7 692 Profit before loan losses 11 427 11 477 8 386 8 029 8 120 Loan losses incl. change in value of repossessed property – 152 67 219 – 319 – 302 Participations in result of associated companies 82 32 2 2 3 Result of banking operations 11 357 11 576 8 607 7 712 7 821 Result of insurance operations – 149 107 Operating profit 11 208 11 683 8 607 7 712 7 821 Pension settlement 306 797 603 505 532 Profit before taxes 11 514 12 480 9 210 8 217 8 353 Taxes – 3 202 – 3 353 – 2 525 – 2 168 – 2 326 Minority interest – 22 – 22 – 22 – 22 – 19 Profit for the year 8 290 9 105 6 663 6 027 6 008

BALANCE SHEET (SEK m) 2001 2000 1999 1998 1997 Cash 10 614 5 258 6 285 4 054 3 025 Interest-bearing securities 128 347 88 262 93 291 107 709 65 858 Lending to credit institutions 70 857 94 677 98 859 139 823 134 472 Lending to the general public 800 068 689 106 626 206 587 405 586 824 Shares and participations 18 488 14 401 9 863 3 326 2 226 Assets in insurance operations 20 429 17 762 13 731 6 644 3 182 Tangible assets 2 466 1 758 1 859 1 778 9 329 Other assets 123 252 109 129 86 162 82 106 57 532 Total assets 1 174 521 1 020 353 936 256 932 845 862 448 Liabilities to credit institutions 220 126 155 414 186 503 261 146 241 436 Deposits and funding from the general public 283 692 255 350 221 483 206 524 204 747 Issued securities etc 440 981 401 489 359 540 299 378 284 051 Liabilities in insurance operations 17 535 17 276 13 649 6 541 3 135 Other liabilities 134 838 129 031 96 400 101 429 73 227 Subordinated liabilities 28 976 19 066 19 850 23 135 23 231 Total liabilities 1 126 148 977 626 897 425 898 153 829 827 Minority interest in shareholders’ equity 261 261 261 261 268 Shareholders’ equity 48 112 42 466 38 570 34 431 32 353 Total liabilities and shareholders’ equity 1 174 521 1 020 353 936 256 932 845 862 448

MEMORANDUM ITEMS Pledged collateral 96 557 71 968 85 007 93 782 59 437 Contingent liabilities 79 644 67 162 61 927 76 731 81 921 Pension commitments ————— Other commitments 6 426 421 4 770 643 5 713 401 6 304 560 5 452 935

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

76 Svenska Handelsbanken Annual Report 2001 Five-year review

PARENT COMPANY

PROFIT AND LOSS ACCOUNT (SEK m) 2001 2000 1999 1998 1997 Interest income 41 674 47 935 38 924 38 273 28 976 Interest expense – 33 118 – 42 118 – 32 678 – 32 514 – 22 941 Dividends received 322 584 1 490 2 552 1 729 Commission income 5 047 5 275 4 078 3 656 3 736 Commission expense – 973 – 746 – 736 – 614 – 608 Net result on financial operations 1 499 2 987 859 1 211 570 Other operating income 117 341 278 648 2 037 Total income 14 568 14 258 12 215 13 212 13 499 General administrative expenses Staff costs – 5 270 – 4 814 – 4 443 – 4 108 – 3 520 Other administrative expenses – 2 614 – 2 332 – 2 488 – 2 991 – 2 347 Depreciation and write-downs in value of tangible and intangible fixed assets – 500 – 402 – 437 – 370 – 321 Total expenses Ð 8 384 Ð 7 548 Ð 7 368 Ð 7 469 Ð 6 188 Profit before loan losses 6 184 6 710 4 847 5 743 7 311 Loan losses incl. change in value of repossessed property – 780 – 128 – 181 – 131 123 Operating profit 5 404 6 582 4 666 5 612 7 434 Appropriations 4 802 4 274 4 177 188 – 129 Profit before taxes 10 206 10 856 8 843 5 800 7 305 Taxes – 2 873 – 2 860 – 2 101 – 771 – 1 050 Profit for the year 7 333 7 996 6 742 5 029 6 255 Dividend for the year 3 120 * 2 751 2 144 1 922 3 515

*) Recommended by the Board

BALANCE SHEET (SEK m) 2001 2000 1999 1998 1997 Cash 10 371 5 109 5 735 4 050 3 023 Interest-bearing securities 123 888 88 221 98 384 115 556 90 166 Lending to credit institutions 230 841 240 637 189 725 215 541 175 771 Lending to the general public 414 485 327 240 272 110 242 056 223 426 Shares and participations 50 375 43 800 39 301 31 505 30 385 Tangible assets 1 995 1 536 1 589 1 612 1 788 Other assets 116 294 104 271 79 322 73 767 47 829 Total assets 948 249 810 814 686 166 684 087 572 388 Liabilities to credit institutions 254 200 195 337 174 886 215 730 172 855 Deposits and funding from the general public 265 025 240 248 214 171 212 187 222 161 Issued securities etc 230 681 197 164 159 463 119 501 72 311 Other liabilities 125 183 118 615 84 281 88 342 58 441 Subordinated liabilities 28 566 18 089 15 489 15 742 15 609 Total liabilities 903 655 769 453 648 290 651 502 541 377 Untaxed reserves 10 296 9 248 7 570 6 282 5 959 Shareholders’ equity 34 298 32 113 30 306 26 303 25 052 Total liabilities and shareholders’ equity 948 249 810 814 686 166 684 087 572 388

MEMORANDUM ITEMS Pledged collateral 81 705 60 236 84 188 93 758 59 193 Contingent liabilities 113 956 120 156 72 739 79 081 83 648 Pension commitments ————— Other commitments 6 545 270 4 460 217 5 695 990 6 290 006 5 408 299

Svenska Handelsbanken Annual Report 2001 77 Recommendation for distribution of profits

Recommendation for distribution of profits

The Handelsbanken Group’s unrestricted equity is SEK 27 931m. SEK 12m is required for transfer to restricted reserves. In accordance with the balance sheet for Handelsbanken, profits totalling SEK 28 562m 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 4.50 per share (SEK 4.00 for 2000) 3 120.2

Balance carried forward 25 441.5 Total allocated 28 561.7

Stockholm, 12 February 2002

ARNE MÅRTENSSON

BO RYDIN HANS LARSSON

PIRKKO ALITALO TOMMY BYLUND PER-OLOF ERIKSSON OLLE PERSSON

LOTTY BERGSTRÖM GÖRAN ENNERFELT ANDERS NYRÉN BENGT SAMUELSSON

LARS O GRÖNSTEDT President and Group Chief Executive

78 Svenska Handelsbanken Annual Report 2001 Audit report

Audit report

To the General Meeting of the shareholders of Svenska Handelsbanken AB (publ) Registered no. 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 2001. 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 financial statements. 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 financial statements. 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 profit and loss accounts 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 directors’ report and that the members of the Board of Directors and the President be discharged from liability for the financial year.

Stockholm, 6 March 2002

KPMG Bohlins AB Ernst & Young AB

THOMAS THIEL STEFAN HOLMSTRÖM ÅKE HEDÉN Authorised Public Accountant Authorised Public Accountant Authorised Public Accountant

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

Svenska Handelsbanken Annual Report 2001 79 Branches in the Nordic countries

Branches in the Nordic countries

In SWEDEN, a branch was opened in Salem. Operations at NORTHERN NORRLAND three branches were transferred to nearby branches. At the end of the year there were 458 branches in Sweden. Arvidsjaur Gammelstad Lugnvik Ramsele Backe Gällivare Luleå Robertsfors In DENMARK, branches were opened in Horsens and Bjurholm Haparanda - Storgatan Råneå Vilhelmina Esbjerg. Following the acquisition of Midtbank, there Bjästa Holmsund - Örnäset Skellefteå Vindeln Björna Hoting Lycksele Sollefteå Vännäs are now 32 branches in Denmark. Boden Husum Lövånger Sorsele Ånäset In FINLAND, branches were opened in Helsinki – Bredbyn Härnösand Malå Storuman Åsele Munkkivuori, Joensuu, Kokkola, Raisio, Rovaniemi, Bureå Jokkmokk Nordingrå Trehörningsjö Älvsbyn Burträsk Junsele Nordmaling Ullånger Örnsköldsvik Salo, Seinäjoki and Hämeenlinna, bringing the number Byske Kalix Norsjö Umeå Överkalix of branches there to 28. Domsjö Kiruna Näsåker - Storgatan Övertorneå Dorotea Kramfors Pajala - Teg In NORWAY, the Bank opened branches in Sarpsborg Piteå - Västerslätt and Ålesund. There are now 27 branches in Norway.

SOUTHERN NORRLAND

Alfta Föllinge Kopparberg Orsa WESTERN SWEDEN Arbrå Gagnef Krokom Rättvik Avesta Gnarp Kvissleby Sala Bergby Grangärde Leksand Sandviken Tierp Alingsås - Frölunda Torg Kristinehamn Bergsjö Grängesberg Liden Skinnskatte- Timrå Ambjörnarp - Första Långgatan Kungsbacka Bispgården Gällö Lima berg Torsåker Arvika - Gårda Kungälv - Hisings Kärra Säffle Bjursås Gävle City Lit Skutskär Vansbro Blidsberg Landvetter - Hjällbo Tibro Bjuråker Hammarstrand Ljusdal Skärplinge Västanfors Bollebygd - Högsbo Lerum Tidaholm Björbo Hammerdal Ljusne Skönsberg Ånge - Kortedala Borås Lidköping Torsby Stora Tuna - Landala Bollnäs Heby Ludvika Åre - Hulta Lilla Edet Trollhättan Storvik - Norrby - Lilla Bommen Borlänge Hede Malung Östersund Mariestad Uddevalla - Stora torget - Majorna Bräcke Hedemora Matfors Strömsund Östervåla Mellerud Ulricehamn Falkenberg - Marieholm Delsbo Hedesunda Mockfjärd Sundsvall - Odinsgatan Mölndal Vara Edsbyn Hudiksvall Mora Sveg Falköping - Sisjön Nödinge Varberg Fagersta Insjön Mörsil Svenstavik Filipstad - Volvo PVB Partille - Örgryte Vårgårda Falun Järpen Norberg Säter Fristad Skara Hagfors Vänersborg Fränsta Järvsö Ockelbo Söderhamn Färgelanda Skövde Herrljunga Åmål Furudal Kilafors Offerdal Sörberge Gällstad Sollebrunn Hjo Årjäng Göteborg Stenungsund Karlskoga Älvängen - Almedal Sunne - Avenyn Karlstad Surte - Backa Ringön - Stora torget Svenljunga EASTERN SWEDEN - Brunnsgatan - Våxnäs - City - Eriksberg Alvesta Gislaved Linköping Nässjö Anderstorp Hemse - City Oskarshamn Bankeryd Hultsfred - Tornby Rörvik Virserum Borensberg Huskvarna Mjölby Slite Visby Borgholm Högsby Motala Strängnäs - Adelsgatan CENTRAL SWEDEN Mönsterås Eksjö Jönköping Sävsjö - Öster Mörbylånga Emmaboda Kalmar Söderköping Vislanda Alviks Torg Hökarängen Stockholm Mörlunda Eskilstuna - Berga Tingsryd Värnamo Arboga Jakobsberg - Arbetargatan - Fristadstorget - Kvarnholmen Norrköping Torsås - Fleminggatan Västervik Axelsberg Järna - Östermalm Katrineholm - Drottninggatan Tranås - Fridhemsplan Växjö Blackeberg Kolbäck Finspång Klintehamn - Eneby Centrum Vaggeryd - Globen Vällingby - Hageby Ålem Brommaplan Kumla - Götgatsbacken Flen Lammhult Vetlanda Värmdö Nybro Åseda Bålsta Kungsängen - Hornsberg Fårösund Landsbro Västerhaninge Vimmerby Åtvidaberg Dalarö Kungsör - Hornsgatan Nyköping Västertorp Färjestaden Enköping Kärrtorp - Högalid Västerås Farsta Köping - Kungs- holmstorg - Emausgatan Fellingsbro Lindesberg - Marieberg - Köpingsvägen Finnerödja Marievik - Renstiernas - Stora gatan Fjugesta Nacka Forum gata - Vasagatan SOUTHERN SWEDEN Frövi Norrtälje - Skanstull Årsta Stuvsta Hallsberg Nynäshamn Älvsjö Arlöv Karlshamn Lomma Osby Södertälje Hallstavik Pålsboda Örebro Broby Karlskrona Lund Ronneby Trosa Hallunda Rimbo - Drottninggatan Båstad Kivik Malmö Simrishamn Hammarby Salem Trångsund - Ekersgatan Vittsjö - Våghustorget Eslöv Klippan - Amiralsgatan Sjöbo Haninge Centrum Saltsjö-Boo Tullinge - City Vollsjö Ösmo Halmstad Knislinge Staffanstorp Huddinge Centrum Skultuna Tyresö - Dalaplan Ystad Österbybruk Helsingborg Kristianstad Svedala Hässelby Gård Skärholmen Ulvsunda - Fosie Åhus Östhammar - Norr Kävlinge - Fridhemstorget Sölvesborg Högdalen Sköndal Uppsala Älmhult - Stortorget Laholm - Köpenhamns- Sösdala - City Spånga - Söderport Landskrona vägen Tomelilla Ängelholm - Eriksberg Hässleholm - Lundavägen - Industriområdet Liatorp Trelleborg Höganäs - Triangeln - Luthagen Limhamn Tyringe - Värnhem Höllviken Ljungby Veberöd Markaryd Höör Ljungbyhed Vellinge Olofström

80 Svenska Handelsbanken Annual Report 2001 Branches in the Nordic countries

NORWAY FINLAND DENMARK

Bergen Espoo Aulum Silkeborg - Fana Helsinki Bording Struer - Flesland - Bulevardi Brande Sunds - Fyllingsdalen - Esplanadi Brøndby, Park Allé Vejle - Minde - Itäkeskus Esbjerg Viborg - Sentrum - Kamppi - Strandgaten - Munkkivuori Give Videbæk - Vest - Pasila Hammerum Vildbjerg - Åsane Hyvinkää Herning Ålborg Fredrikstad Hämeenlinna - Bredgade Århus Haugesund Joensuu - Fredhøj - Østergade Kristiansand Jyväskylä Holstebro Lysaker Kokkola Horsens Oslo Kouvola Ikast - Fyrstikktorget Kuopio - Kirkegaten Kgs. Lyngby Lahti - Olav V´s gate Karup Lappeenranta - Skøyen Kibæk Oulu Sandnes Kolding Pietarsaari Sarpsborg Copenhagen NORTHERN NORRLAND Pori Ski - City Skårer Raisio - Nytorv Stavanger Rovaniemi Lemvig - Sentrum Salo Odense - Løkkeveien Seinäjoki Sdr Felding Tromsø Tampere Sdr Omme Trondheim Tornio - Sentrum Turku - Heimdal Vaasa Tønsberg Vantaa Ålesund

The map shows branches at 31 March 2001

FINLAND

SOUTHERN NORRLAND

NORWAY

WESTERN CENTRAL SWEDEN SWEDEN STOCKHOLM CITY

STOCKHOLM CITY

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

81 Regional head offices in the Nordic countries

Regional head offices in the Nordic countries

The Nordic branch network is organised into ten regional banks – seven in Sweden and one each in Norway, Finland and Denmark. Branch managers report directly to the Head of the Regional Bank. NORWAY At the regional head offices there are various specialists to support the work of the branch offices, BOARD: for example: Regional Area Managers, specialists for DAG MEJDELL, Oslo, Chairman credits, international business, payments, finance JON FREDRIK BAKSAAS, Sandvika company, asset management, insurance and legal HANS CHRISTOFFERSON, Åkersberga matters. There are also internal functions for finance KARIN JOYS VABØ, Nesttun and control, administration, human resources and CLAUS KJØRVEN, Oslo (E) auditing. BJÖRN-ÅKE WILSENIUS, Head of Regional Bank

WESTERN SWEDEN

BOARD: FINN JOHNSSON, Göteborg, Chairman STIG-ARNE BLOM, Hökerum THOMAS DAFGÅRD, Källby LARS IDERMARK, Kullavik SVANTE CARLSSON, Göteborg SÖREN MANNHEIMER, Göteborg EVA PERSSON, Västra Frölunda LARS-PETER FORSBERG, Tollered (E) M. JOHAN WIDERBERG, Head of Regional Bank

DENMARK

BOARD: HANS CHRISTOFFERSON, Åkersberga, Chairman HANS-OLOF HARRISON, Linköping STEEN HOVE, Herning JENS IVERSEN, Brande PIA LARSEN, Smørum JÖRGEN LYHNE, Herning THOMMY MOSSINGER, Malmö ESKILD THYGESEN, Ikast TOVE G. GRANDELAG, Herning (E) JENS CHR. JÖRGENSEN, Fredericia (E) HANNE MADSBJERG, Brande (E) PÄR BOMAN, Head of Regional Bank

SOUTHERN SWEDEN

BOARD: JAN EKBERG, Åhus, Chairman PER ANDERSSON, Lund ROLAND BENGTSSON, Viken KURT J JOHANSSON, Sölvesborg SVEN LANDELIUS, Lund MIKAEL ROOS, Malmö ANN-CHRESTIN SAEDÉN, Ystad (E)

Victor Brott THOMMY MOSSINGER, Head of Regional Bank

82 Svenska Handelsbanken Annual Report 2001 Regional head offices in the Nordic countries

NORTHERN NORRLAND

BOARD: SOUTHERN NORRLAND BJÖRN KUMLIN, Skellefteå, Chairman

BOARD: BJÖRN FRANKLIN, Lycksele ULF BERGKVIST, Insjön, Chairman BENGT-OVE HÖGSTRÖM, Härnösand OVE ANONSEN, Gävle MARGARETA JONSSON, Älvsbyn PETER LARSON, Sandviken ERIK ORRING, Umeå ÅKE RYDÉN, Sveg MARIANNE ERIKSSON, Örnsköldsvik (E) ANDERS WIKLANDER, Sundsvall STEFAN NILSSON, Head of Regional Bank GÖTHE ÖSTLUND, Mora MARIA LEIWERT, Årsunda (E) HÅKAN SANDBERG, Head of Regional Bank FINLAND

BOARD: STIG-ERIK BERGSTRÖM, Espoo, Chairman KAJ JANSSON, Söderkulla SEIJA TURUNEN, Helsinki HANS CHRISTOFFERSON, Åkersberga PETRI HATAKKA, 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 OLOF G WIKSTRÖM, Järfälla JURGEN KLEFELT, Stockholm (E) MICHAEL ZELL, Head of Regional Bank

STOCKHOLM CITY

BOARD: JAN BLOMBERG, Stockholm, Chairman Gävle CARL-OLOF BY, Saltsjöbaden Oslo Helsinki EVA FÄRNSTRAND, Bromma GÖRAN LARSSON, Stockholm Stockholm GÖRAN NORD, Bromma LENNART SVENSSON, Stockholm Linköping Götebteborg CHARLOTTE SKOG, Stockholm (E) MAGNUS UGGLA, Head of Regional Bank

EASTERN SWEDEN

BOARD: CopenhagenCoCope hagen Malmö ANDERS HULTMAN, Växjö, Chairman LENNART BOHLIN, Linköping JAN CEDWALL, Nyköping JAN-ERIC NILSSON, Visby KENNETH STÅHL, Jönköping KENNETH SYNNERSTEN, Västerås LARS HULTMAN, Tranås (E) HANS-OLOF HARRISON, Head of Regional Bank

(E) = Employee representative

Svenska Handelsbanken Annual Report 2001 83 Units outside the Nordic countries

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 US. These units focus their operations on Nordic companies with operations abroad and non-Nordic companies with operations in the Nordic region. They also offer investment banking and trading. Concerning operations in the UK, see Banking operations outside the Nordic countries on page 32. Handelsbanken in Luxembourg and London also offer asset management services to Nordic citizens living abroad. These operations are organised under Handelsbanken Asset Management.

UNITS OUTSIDE THE NORDIC COUNTRIES:

Austria Hong Kong Spain China Luxembourg Switzerland Estonia Poland Taiwan France (2) Russia UK (6) Germany (2) Singapore USA Victor Brott

Tallinn Moscow Leeds Manchester Hamburg Nottingham London Birmingham Luxembourg Warsaw Reading Frankfurt Vienna New York Paris Zurich Cô ´AzurAzu Beijing

Marbella

Taipei Hong Kong

Singapore

84 Svenska Handelsbanken Annual Report 2001 Central Head Office

The Central Head Office departments provide support to the branches with development work, day-to-day services and specialist skills. Our Swedish subsidiaries, which are integrated in the Bank’s business operations, are also shown here.

ADMINISTRATION DEPARTMENT CREDIT DEPARTMENT SUBSIDIARIES Head: JANITA THÖRNER-LEHRMARK Head: BJÖRN BÖRJESSON Responsible for managing the Bank’s premises, Overall responsibility for the Group’s lending investments in premises, equipment and policies, credit procedures and risk assessment HANDELSBANKEN FINANS machines, physical security as well as insurance of the lending portfolio. Head: ULF RIESE and environmental matters. Prepares credits to be presented to the Offers leasing, conditional sales, finance This responsibility includes general purchas- Central Board. collaboration with suppliers of investment ing and building matters and also the Head assets, company car finance and adminis- Office’s telephone switchboard, distribution HUMAN RESOURCES tration, factoring (with and without financing), and mail services. Head: ANNA RAMBERG debt collection and sales finance in collabo- ration with vendors. Overall responsibility for the Group’s human HANDELSBANKEN ASSET MANAGEMENT Conducts operations in Sweden, Norway, resources strategy, personnel and management Finland and Denmark. Head: BJÖRN C ANDERSSON recruitment, management and skills develop- Responsible for asset management, mutual ment, personnel administration, and negotiations HANDELSBANKEN FONDER fund management and also institutional custody on salaries and employment conditions. Also services and capital investment services. responsible for working environment, corporate Head: JOACHIM SPETZ health care and pension matters. Manages and administers the Bank's mutual AUDITING DEPARTMENT funds and administers funds for corporate IT OPERATIONS customers. Head: TORD JONEROT Conducts operations in Sweden, Norway Head: ANDERS H JOHANSSON Overall responsibility for internal auditing. and Finland. Co-ordinates auditing issues within the Group. Responsible for operation of the Group’s IT Responsible for evaluating and reviewing systems, workstations and communications. HANDELSBANKEN LIV internal control. Audits accounts and annual Development and maintenance of technical reports. infrastructure and also operational responsibility Head: BARBRO JOHANSSON for IT security at the Handelsbanken Group. Offers a wide range of life insurance prod- BUSINESS DEVELOPMENT ucts, such as pension insurance, group LEGAL DEPARTMENT life insurance, unit-linked insurance, health Head: BJÖRN G OLOFSSON and accident insurance and international Head: ULF KÖPING-HÖGGÅRD Responsible for overall development issues endowment insurance. within the Group. Responsible for developing Overall responsibility for legal matters in the Conducts operations in Sweden, Norway, payment and cash management services, Group. Provides legal support to all units within Finland and Denmark. deposits and lending services, electronic the Group. services, branch office systems, development SPP and maintenance of the Group’s IT systems HANDELSBANKEN MARKETS Head: ANDERS ÖSTRYD and information security. Head: GÖRAN BJÖRLING Responsible for investments in IT systems. One of Sweden's leading life and pension Operations comprise corporate finance, debt insurance groups. The main operations are CONTROL AND ACCOUNTING DEPARTMENT capital markets, money market, foreign occupational pension insurance, occupational exchange and equity trading, correspondent group life insurance, supplementary private Head: LENNART FRANCKE banking, trade finance, economic research and insurance and ancillary administrative services. Responsible for Group accounts, annual back-office operations for securities and foreign accounts, Group financial control, financial exchange trading at the Bank and custody STADSHYPOTEK GROUP and administrative control systems, internal account administration. Head: CLAES NORLÉN cash management and tax analysis. Handelsbanken Markets also includes the STADSHYPOTEK and its subsidiary HANDELS- Group’s units outside the Nordic countries. BANKEN HYPOTEK provide first-mortgage loans CORPORATE COMMUNICATIONS for single-family houses, second homes, TREASURY Head: LARS LINDMARK shares in housing co-operatives, multi-family Overall responsibility for the Group’s marketing Head: PEHR WISSÉN dwellings and office and commercial buildings. policy, internal/external information, advertising, Responsible for Group funding in Swedish and investor relations, complaints and contact with international capital markets. Responsible for STADSHYPOTEK BANK the media. Publishes the Group’s house journal. the Group’s liquidity management. Overall Head: YONNIE BERGQVIST responsibility for the Group’s exposure to A telephone and Internet bank which offers interest rate, exchange rate, liquidity and equity a selection of standardised and packaged risks. Operates the internal bank and central banking and insurance services for private bank clearing. customers.

Svenska Handelsbanken Annual Report 2001 85 Board of directors

Board of directors

CHAIRMAN AND GROUP CHIEF EXECUTIVE BOARD MEMBERS In connection with the Annual General Meeting on 24 April 2001, Tom Hedelius, Chairman of the Board of the Bank, resigned from his post. At the initial board meeting on that day, the Board appointed Arne Mårtensson, Group Chief Executive of the Bank since 1991, as new Chairman and Lars O Grönstedt, Executive Vice-President since 1997, as new Group Chief Executive after Arne Mårtensson. Tom Hedelius was appointed Honorary Chairman.

BOARD OF DIRECTORS At the Annual General Meeting on 24 April 2001, the Board of the Bank was re-elected apart from Tom Hedelius and Clas Reuterskiöld, who had both declined re-election. New members elected to the Board were Anders Nyrén and Lars O Grönstedt. In January 2001, Roland Fahlin left the Board, due to ARNE MÅRTENSSON, Chairman BO RYDIN, Vice Chairman a new commitment in an operation which competes with the Bank.

THE BOARD’S ACTIVITIES The Board held eleven meetings during 2001. At their meetings, the Board has discussed the economic situation and the Bank’s strategy. It has also followed up limits for interest rate risks etc. The Board has also received regular information on operational risks. It has made decisions concerning major credit issues, major investments and strategic issues. The Board has issued working instructions for itself, instructions for the Group Chief Executive, and credit instructions. The Board has also appointed members of the credit committee and the compensation committee.

PIRKKO ALITALO LOTTY BERGSTRÖM

COMMITTEES

Credit committee. This committee makes decisions on behalf of the Central Board of Directors on the majority of the credit matters which the Board has to determine and prepares matters which, because of their special importance, must be presented to the whole Board. Ten meetings of the Credit Committee were held in 2001. MEMBERS: Arne Mårtensson, Chairman, Bo Rydin and Hans Larsson, Vice Chairmen, Tommy Bylund, Göran Ennerfelt, Lars O Grönstedt, Olle Persson, Bengt Samuelsson and Björn Börjesson. DEPUTY MEMBERS: Lotty Bergström and Anders Nyrén

Compensation committee. This committee reviews the Chairman’s remuneration and benefits in accordance with his contract; it adjusts the salary and benefits of the Group Chief Executive in accordance with his contract; it also establishes the principles and overall policy for the salaries, benefits and pensions of the Executive Vice Presidents. MEMBERS: Hans Larsson, Chairman, and Pirkko Alitalo. PER-OLOF ERIKSSON ANDERS NYRÉN

86 Svenska Handelsbanken Annual Report 2001 Board of directors

ARNE MÅRTENSSON, Chairman PER-OLOF ERIKSSON of the Board * 1938, Sandviken * 1951, Djursholm Member since 1986 Member since 1990 Chairman of Svenska Kraftnät, Sapa Director of Holmen AB, Sandvik AB, AB; Director of Assa Abloy AB, Skanska AB, V&S Vin & Sprit AB, AB Custos, Preem Petroleum AB, Swedish ICC, Industry and Commerce Sandvik AB, Skanska AB, SSAB Stock Exchange Committee, Business Svenskt Stål AB, AB Volvo Council of World Economic Forum, Shareholding: 18 000 Chairman of the Stockholm School of Economics' Advisory Board ANDERS NYRÉN Shareholding: 0, * 1954, President and CEO of synthetic options: 80 000 AB Industrivärden, Bromma BO RYDIN, Vice Chairman Member since 2001 Director of the Ernström Group, * 1932, Stockholm Svenska Cellulosa AB SCA, Member since 1973 Shareholding: 1 000 Chairman of Svenska Cellulosa AB SCA, AB Industrivärden, Skanska AB, OLLE PERSSON HANS LARSSON, Vice Chairman LARS O GRÖNSTEDT Graninge AB * 1935, Östersund Shareholding: 40 000 Member since 1989 HANS LARSSON, Vice Chairman Chairman of Byggelit AB, Z-Invest * 1942, Stockholm Shareholding: 21 000 Member since 1990 BENGT SAMUELSSON Chairman of Nobia AB, Sydsvenska Kemi AB, Biolight International AB; * 1934, Professor, Djursholm Director of Bilia AB, Holmen AB, Member since 1989 Carema AB, Pergo AB Chairman of the Nobel Foundation; Director of Pharmacia Corp., USA, Shareholding: 18 600 Nicox S.A., France, BioStratum Inc., LARS O GRÖNSTEDT, President USA, Pyrosequencing AB and Group Chief Executive Shareholding: 3 000 * 1954, Stockholm Member since 2001 Shareholding: 600, ELECTION COMMITTEE synthetic options: 80 000 Since 1988, the Central Board of PIRKKO ALITALO Directors of Handelsbanken has * 1949, Helsinki appointed an election committee Member since 2000 which nominates members of the Vice Chairman of the Foundation Board and auditors before the Annual TOMMY BYLUND GÖRAN ENNERFELT for Finnish Medical Science; Director General Meeting. This procedure was of Lagercrantz Group AB changed in connection with the 2001 Shareholding: 1 500 Meeting. Following a proposal from the Board, Handelsbanken’s Annual LOTTY BERGSTRÖM General Meeting resolved that the * 1949, Ekerö Chairman of the Board would appoint Member since 1996 four representatives for the share- Shareholding: 0 holders of the Bank, who, with the Chairman, would form a committee to TOMMY BYLUND prepare the next election of Board * 1959, Ljusdal members. Board members are not Member since 2000 eligible to serve on the committee. In Chairman of the Oktogonen foundation connection with the publication of the Shareholding: 944, interim report for the third quarter, the synthetic options: 5 000 names of the representatives appoint- GÖRAN ENNERFELDT ed by the Chairman of the Board, Arne Mårtensson, were announced: * 1940, President and Group CEO Stellan Borgh, Oktogonen Foundation, of Axel Johnson Group, Upplands Väsby Christer Elmehagen, AMF Pension, Member since 1985 Björn Franzon, Fourth AP fund and Director of Saba Trading AB, Spirent plc Tom Hedelius, Industrivärden. OLLE PERSSON BENGT SAMUELSSON Shareholding: 34 000

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.

Svenska Handelsbanken Annual Report 2001 87 Senior Management, Auditors

Senior Management

President Executive Vice Presidents Chief Executives and Group Chief Executive at the Regional Banks of Subsidiaries

LARS O GRÖNSTEDT, * 1954 STEFAN NILSSON, * 1957 YONNIE BERGQVIST, * 1961 Employed: 1983 Head of Northern Norrland Regional Bank Head of Stadshypotek Bank Shareholding: 600, options 80 000 Employed: 1980 Employed: 1979 Shareholding: 0, options 40 000 Shareholding: 37, options 40 000

HÅKAN SANDBERG, * 1948 BARBRO JOHANSSON, * 1944 Executive Vice Presidents Head of Southern Norrland Regional Bank Head of Handelsbanken Liv at the Central Head Office Employed: 1969 Employed: 1961 Shareholding: 509, options 40 000 Shareholding: 0, options 40 000

BJÖRN C ANDERSSON, * 1946 MAGNUS UGGLA, * 1952 CLAES NORLÉN, * 1955 Head of Handelsbanken Asset Management Head of Stockholm City Regional Bank Head of Stadshypotek Bank/ Employed: 1985 Employed: 1983 Handelsbanken Hypotek Shareholding: 12 500, options 40 000 Shareholding: 30 000, options 40 000 Employed: 1978 Shareholding: 0, options 10 000 GÖRAN BJÖRLING, * 1942 MICHAEL ZELL, * 1950 Head of Handelsbanken Markets Head of Central Sweden Regional Bank ULF RIESE, * 1959 Employed: 1977 Employed: 1978 Head of Handelsbanken Finans Shareholding: 0, options 40 000 Shareholding: 2 000, options 40 000 Employed: 1983 Shareholding: 18 657, options 40 000 BJÖRN BÖRJESSON, * 1951 HANS-OLOF HARRISON, * 1943 Head of Central Credit Department Head of Eastern Sweden Regional Bank ANDERS ÖSTRYD, * 1953 Employed: 1981 Employed: 1964 Head of SPP Shareholding: 0, options 40 000 Shareholding: 10 336, options 40 000 Employed: 2001 Shareholding: 0, options 10 000 LENNART FRANCKE, * 1950 M JOHAN WIDERBERG, * 1949 Head of Central Control and Accounting Head of Western Sweden Regional Bank Department Employed: 1972 Employed: 1972 Shareholding: 3 540, options 40 000 Others Shareholding: 1 284, options 40 000 THOMMY MOSSINGER, * 1951 ANDERS JOHANSSON, * 1955 Head of Southern Sweden Regional Bank JAN HÄGGSTRÖM, * 1949 Head of Central IT Operations Employed: 1982 Head of Handelsbanken Markets Research Employed: 1999 Shareholding: 0, options 25 000 Employed: 1988 Shareholding: 0, options 5 000 Shareholding: 0, options 40 000 PÄR BOMAN, * 1961 BJÖRN G OLOFSSON, * 1950 Head of Denmark Regional Bank LARS LINDMARK, * 1945 Head of Central Business Development Employed: 1991 Head of Corporate Communications Department Shareholding: 0, options 40 000 Employed: 1992 Employed: 1986 Shareholding: 5 000, options 40 000 Shareholding: 0, options 10 000 PETRI HATAKKA, * 1962 Head of Finland Regional Bank BENGT RAGNÅ, * 1950 ANNA RAMBERG, * 1952 Employed: 1990 Head of Investor Relations Head of Human Resources Shareholding: 0, options 20 000 Employed: 1982 Employed: 1971 Shareholding: 1 000, options 40 000 Shareholding: 909, options 40 000 BJÖRN-ÅKE WILSENIUS, * 1944 Head of Norway Regional Bank Changes PEHR WISSÉN, * 1951 Employed: 1961 Head of Central Treasury Department Shareholding: 2 310, options 40 000 Michael Zell, previously Chief Executive of Employed: 1983 Stadshypotek and Handelsbanken Hypotek, Shareholding: 0, options 18 000 was appointed Executive Vice President and All options are synthetic. head of the Central Sweden Regional Bank. Petri Hatakka, previously head of trading at Handelsbanken Markets, was appointed Executive Vice President and head of the Finland Regional Bank. Claes Norlén, previously regional area manager at the Central Sweden Regional Bank, was appointed Chief Executive of Stadshypotek Auditors and Handelsbanken Hypotek.

Appointed by the Annual General Meeting Appointed by Finansinspektionen

KPMG Bohlins AB Ernst & Young AB ULF DAVÉUS Authorised Public Accountant, THOMAS THIEL, Chairman, Auditor in charge ÅKE HEDÉN, Auditor in charge Deloitte & Touche AB, Åkersberga Authorised Public Accountant, Stockholm Authorised Public Accountant, Enköping STEFAN HOLMSTRÖM Authorised Public Accountant, Täby

88 Svenska Handelsbanken Annual Report 2001 Addresses

Addresses

Central Regional Banks’ Subsidiaries Units outside the Nordic countries Head Office Head Offices

Kungsträdgårdsgatan 2 Handelsbanken Finans Northern Norrland Beijing New York B Postal address: Mäster Samuelsgatan 42 Storgatan 48 CITIC Building No. 22D 153 East 53rd Street, 37th floor SE-106 70 Stockholm Postal address: Box 1002 19 Jianguomenwai Dajie New York, NY 10022-4678, USA Telephone +46 8 701 10 00 SE-106 35 Stockholm SE-901 20 Umeå Beijing, CN-100004 China Telephone +1 212 3265100 Registered no. 502007-7862 Telephone +46 8 701 46 00 Telephone +46 90 15 45 00 Telephone +86 10 65004691 www.handelsbanken.com www.handelsbanken.se Registered no. 556053-0841 www.handelsbanken.se www.handelsbanken.com Paris B www.handelsbanken.se Handelsbanken Southern Norrland Côte d’Azur 29-31, rue Saint-Augustin Securities Handelsbanken Fonder Nygatan 20 62 Place Pierre Coulet FR-75002 Paris, France Blasieholmstorg 12 Blasieholmstorg 12 Box 196 B.P. 317 Telephone +33 1 42665898 Postal address: Postal address: SE-801 03 Gävle FR-83700 St Raphaël Cedex www.handelsbanken.com SE-106 70 Stockholm SE-106 70 Stockholm Telephone +46 26 17 20 60 France Singapore B Telephone +46 8 701 10 00 Telephone +46 8 701 10 00 www.handelsbanken.se Telephone +33 494 953911 65 Chulia Street, Units 21-00 www.handelsbankensecurities. Registered no. 556070-0683 Stockholm City Frankfurt am Main B OCBC Centre, Singapore 049513 com www.handelsbanken.se Kungsträdgårdsgatan 20 Mittlerer Hasenpfad 25 Telephone +65 653 23 800 Handelsbanken Handelsbanken Liv Postal address: Postfach 700955 www.handelsbanken.com Asset Management Torsgatan 12 SE-106 70 Stockholm DE-60559 Frankfurt am Main Taipei Blasieholmstorg 12 Box 1325 Telephone +46 8 701 10 00 Germany Room 0813, International Postal address: SE-111 83 Stockholm www.handelsbanken.se Telephone +49 69 605060 Trade Building SE-106 70 Stockholm Telephone +46 8 613 20 00 www.handelsbanken.com Central Sweden 333, Keelung Road Telephone +46 8 701 10 00 Registered no. 516401-8326 Kungsträdgårdsgatan 2 Hong Kong B Section 1, Taipei, Taiwan www.handelsbanken.se www.handelsbanken.se Postal address: 2008 Hutchison House Telephone +886 22 7577112 Handelsbanken Markets SPP SE-106 70 Stockholm 10 Harcourt Road, Central www.handelsbanken.com Blasieholmstorg 11 and 12 Hälsingegatan 38 Telephone +46 8 701 10 00 Hong Kong Tallinn Postal address: Telephone +852 28682131 Postal address: www.handelsbanken.se 15, Pärnu mnt. SE-106 70 Stockholm www.handelsbanken.com SE-105 39 Stockholm P.O. Box 1021 Telephone +46 8 701 10 00 Eastern Sweden Telephone +46 8 556 850 00 London B Nygatan 20 EE-19090 Tallinn, Estonia www.handelsbanken.se Registered no. 516401-8524 SE-581 04 Linköping Trinity Tower Telephone +372 6 651748 Information Systems www.spp.se Telephone +46 13 28 91 00 9 Thomas More Street www.handelsbanken.com Department Stadshypotek/ www.handelsbanken.se London E1W 1GE, U.K. Warsaw S Tegeluddsvägen 10 Handelsbanken Hypotek Telephone +44 20 75788000 Western Sweden Wisniowy Business Park Postal address: Kungsträdgårdsgatan 20 www.handelsbanken.com ul. Ilzecka 26 SE-115 82 Stockholm Postal address: Östra Hamngatan 23 Luxembourg S B PL-02-135 Warsaw, Poland Telephone +46 8 701 10 00 SE-103 70 Stockholm SE-405 40 Göteborg 146, Boulevard de la Pétrusse Telephone +48 22 8787387 www.handelsbanken.se Telephone +46 8 701 10 00 Telephone +46 31 774 80 00 B.P. 678 www.handelsbanken.com Registered no. www.handelsbanken.se LU-2016 Luxembourg Stadshypotek 556459-6715 Southern Sweden Vienna B Telephone +352 4998111 Handelsbanken Hypotek Parkring 10 Södergatan 10 www.handelsbanken.com 556000-7618 Postal address: AT-1010 Vienna, Austria Marbella www.stadshypotek.se SE-205 40 Malmö Telephone +43 1 516333820 Centro Plaza 2 www.handelsbanken.com Stadshypotek Bank Telephone +46 40 24 50 00 www.handelsbanken.se Nueva Andalucia Zurich Arenavägen 33 ES-29660 Marbella Gotthardstrasse 21 Box 10085 Denmark (Málaga), Spain Postfach 2889 SE-121 27 Stockholm Amaliegade 3 Telephone +34 95 2817550 CH-8022 Zurich, Switzerland Telephone +46 8 725 53 00 Postboks 1032 www.handelsbanken.com Registered no. 516401-9803 DK-1007 Copenhagen K Telephone +41 1 2871020 Moscow www.stadshypotekbank.se Denmark www.handelsbanken.com Khlebny per., 19A Telephone +45 33 418200 2nd floor www.handelsbanken.dk RU-121069 Moscow Finland Russia Södra kajen 8 Telephone +7 502 2213560 P.O. Box 315 www.handelsbanken.com FI-00131 Helsinki, Finland Telephone +358 10 44411 www.handelsbanken.fi Norway Rådhusgaten 27 Postboks 1342 Vika NO-0113 Oslo, Norway Telephone +47 22 940700 www.handelsbanken.no

B = Branch = Representative office S = Subsidiary

Svenska Handelsbanken Annual Report 2001 General definitions Explanation of concepts concerning risk

ADJUSTED SHAREHOLDERS’ EQUITY PER SHARE Shareholders’ equity as BACK-TESTING In the evaluation of statistical models, back-testing is reported in the balance sheet adjusted for the capital part of the one method of monitoring whether the statistical calculations of the difference between the book value and market value of interest-bearing model agree with the actual outcome. securities which are classified as financial fixed assets divided by DERIVATIVE INSTRUMENTS An instrument whose value is linked to the the number of shares after full conversion of convertible subordinated value of an underlying commodity. Options, swaps and forward notes. An adjustment has been made where preference and index contracts are examples of derivatives. An option is a derivative share capital is calculated at current redemption value. instrument which gives the holder the right to buy or sell a share at a certain price (the exercise price) within a certain period of time BAD DEBTS A non-performing loan, or a loan where other circumstances (the maturity). It can be used to increase or decrease the risk level of lead to doubt concerning its value and where the value of the colla- a portfolio. A forward contract is an agreement to buy an underlying teral does not cover the principal amount and the accrued interest commodity at a predetermined price with delivery and payment at by a satisfactory margin. Net bad debts are bad debts minus the a predetermined future date. Unlike options, forward contracts are reserve for possible loan losses. binding on both parties. BAD DEBT RESERVE RATIO Reserve for possible credit losses as a EQUITY RISKS The Bank’s exposure to equity risk is divided into system- percentage of gross bad debts. atic and specific risk. The systematic risk originates in the price CAPITAL BASE The capital base is the sum of tier 1 (primary) and tier 2 movements of the entire stock market. The specific risk originates in the price variation of each individual share compared to the index. (supplementary) capital. Tier 1 capital comprises shareholders’ equity less goodwill plus 72% of untaxed reserves in the parent company. EXCHANGE RATE RISKS Exchange rate risks arise when there is a diffe- Tier 2 capital includes subordinated loans with some reduction when rence between the present value of assets and liabilities in foreign the residual maturity is under five years. This part of the supplementary currencies – including the effects of derivative positions. When this is the case, the Group’s profit is affected by fluctuations in exchange capital may not exceed 50% of tier 1 capital. With specific permission rates. from the Government or, following authorisation by the Government, from the Swedish Financial Supervisory Authority, other instruments FINANCIAL RISKS Financial risks are divided into market and liquidity risks. Market risks comprise interest rate risks, exchange rate risks may also be included in tier 1 or tier 2 capital. However, tier 2 capital and share price risks. They constitute the changes in value which must never exceed tier 1 capital. The capital base is obtained by arise as a result of a change in price, exchange rate or volatility. reducing the total of tier 1 and tier 2 capital by the book value of Liquidity risk is the risk that the bank’s expenses will increase as a holdings in insurance and financial operations not included in the result of the funding requirement on a particular day being too large Consolidated Accounts. To cover the capital requirement on the in relation to available funding. market risks, subordinated loans with an original maturity of at least HEDGE ACCOUNTING Hedge accounting refers to a situation where an two years can be included in the capital base. asset or liability is effectively protected against unfavourable changes CAPITAL RATIO Capital ratio or the total capital ratio is the capital base in value on the money, foreign exchange and equity markets and in relation to risk-weighted volume. The Act on Capital Adequacy different accounting principles apply for the hedged and the protect- and Large Exposures of Credit Institutions and Securities Companies ing transactions. In hedge accounting, only one of the accounting stipulates that it should be at least 8%. principles is used, whereby the transactions have a common valuation principle. The aim is to value and report the hedged and protecting C/I RATIO Total expenses in relation to total income. The C/I ratio is positions at market value. computed before and after loan losses including changes in value of repossessed property. INTEREST RATE RISKS Interest rate risks arise because the maturity periods of the Group’s assets and liabilities or off-balance-sheet DIRECT YIELD Dividend per share divided by the share price at items do not coincide. A change in the yield curve may lead to year-end. deterioration in net interest income and/or fall in value when the LOAN LOSS RATIO Loan losses and changes in value of repossessed maturities for assets and liabilities are different. property as a percentage of the opening balance for the period for INTEREST RATE SWAPS Interest rate swaps are derivative instruments, lending to the general public, lending to credit institutions (excluding which normally consist of an agreement to swap interest payments banks), repossessed property and credit guarantees. from a floating to a fixed interest rate or vice-versa. LIQUIDITY RISKS NET EARNINGS PER SHARE The result for the period after appropriations Liquidity risks arise when assets and liabilities have differing maturities. When assets mature later than liabilities, the and tax divided by the average number of shares. An adjustment assets must be refinanced once or several times during their lifetime. has been made to take into account preference shares, index shares The risk is that the funding cost may increase, if on a particular day and full conversion of convertible subordinated notes. the refinancing requirement in an individual currency is large. NON-PERFORMING LOANS Loans where interest, repayments or over- RISK MATRIX A risk matrix shows how much the market value of a drafts have been due for payment for more than 60 days. position in an option changes when the price of the underlying asset P/E RATIO The share price at year-end divided by net earnings per and the volatility change by certain predetermined values. share. SPOT CONTRACT Spot contracts are contracts concerning physical PROBLEM LOANS The total of bad debts (net) and reduced rate loans. instruments or commodities which, unlike derivative instruments, require immediate delivery. Spot contracts may refer to the purchase PROFITABILITY See Return on equity. and sale of shares, currencies, etc. PROPORTION OF BAD DEBTS Bad debts (net) in relation to total lending TRADING BOOK The trading book is a concept defined in the Act on to the general public and credit institutions (excluding banks). the Capital Adequacy and Large Exposure of Credit Institutions and REDUCED RATE LOANS Loans for which the interest rate has been Securities Companies (1994:2004). The trading book includes posi- reduced relative to market rates. tions in financial instruments which have been taken for the purpose of short-term profit in the money, foreign exchange and equity markets. RETURN ON EQUITY The result for the period after appropriations and The trading book is subject to capital adequacy requirements for tax in relation to average shareholders’ equity adjusted for rights market risks. issues and dividend. VAR Value-at-Risk is a probability-based method of measuring market RETURN ON TOTAL ASSETS Operating profit before tax in relation to risks. VaR indicates the maximum loss which can be expected to average total assets. occur at a specific confidence interval and for a certain holding period. For example, if a 99-percent confidence interval is used, the proba- RISK-WEIGHTED VOLUME The risk-weighted volume is determined by bility of a larger loss than the VaR amount is only 1%. the assets and off-balance-sheet items being placed in varying risk VOLATILITY Volatility expresses the expected change in the price of classes, in accordance with the Act on Capital Adequacy and Large the underlying asset for an option. Volatility is one of the variables in Exposures of Credit Institutions and Securities Companies. The theoretical option valuation models. In statistical terms, volatility is volumes are weighted taking into account the assessed risk such measured by the standard deviation of the change in market price. that they are included in the risk-weighted volume by 0%, 20%, 50% YIELD CURVE The yield curve is a graph showing the yield which the or 100%. fixed income market agrees on depending on the maturity per credit TIER 1 CAPITAL RATIO Primary capital in relation to risk-weighted volume. risk. Credit risk is split into the following types of risk: government, (See Capital base and Risk-weighted volume.) bank, mortgage institutions and corporate. Production: Ulla Jansson Information AB

Cover: Painting by Magnus Dahlbäck Definitions Photographs: Bengt Wanselius, unless otherwise stated Repro: Typografen Text&Bild Explanation of concepts Printing: Ljung, ISO 14001 environmental certificate Svenska Handelsbanken www.handelsbanken.se