2007-02-21 08:00:41 CET
2007-02-21 08:00:41 CET
REGULATED INFORMATION
Nordea Bank AB (publ.) - Financial Statement Release
Year-end Report 2006
NORDEA BANK AB Stock Exchange Release 21.02.2007 1(19)
Year-end Report 2006
Record results following reinforced organic growth strategy - RoE at
all time high 22.9%
* Operating profit up 25% to EUR 3,820m (EUR 3,048m)
* Net profit up 39% to EUR 3,153m (EUR 2,269m)
* Earnings per share EUR 1.21 (EUR 0.86), up 41%
* Dividend per share EUR 0.49, up 40% corresponding to dividend payment of
EUR 1,271m.
* Income up 12% to EUR 7,377m (EUR 6,573m in 2005)
* Costs up 4%
* Gap between revenue and cost growth 5.4%-points, excl.full impact of IMB
sale
* Cost/income ratio continued down to 52%
* Positive net loan losses of EUR 257m (EUR 137m)- 11th consecutive quarter
with net recoveries
* Return on equity 22.9% (18.0%)
Strong momentum in all business areas
* Total lending up 14%
* Mortgage lending up 15%
* SME lending up 12%
* Consumer lending up 12% - non-collateralised consumer
lending up 17%
* Number of credit cards increased by 15%
* Strong growth in Private Banking
* Increased cross-selling of Markets' products to SMEs
* Strong increase in capital markets transactions with large
corporates
* Net written premiums in Life up 22%
"2006 was another record year for Nordea, and we consolidated our
position as the leading bank in the region with a strong integrated
business model and well diversified business mix. Shareholders
benefited from an EPS growth of 41%, and the proposed dividend is the
highest ever. The execution of our profitable organic growth strategy
continued to pay off with record results and strong momentum in all
business areas. Income growth surpassed the growth in costs by 5.4
percentage points, well in line with our communicated ambition for
2006. Going forward we will continue to reap the full benefits of our
organic growth strategy while maintaining strict cost management,
prudent risk control and efficient capital management." says Lars G
Nordström, President and Group CEO of Nordea.
Key financial figures
Income
statement
Jan-Dec Jan-Dec Change Q4 Q4 Change Q3 Change
EURm 2006 2005 % 2006 2005 % 2006 %
Net interest 3,869 3,663 6 1,006 933 8 979 3
income
Net fee and
commission
income 2,074 1,935 7 549 529 4 497 10
Net
gains/losses on
items at fair
value[1] 1,036 765 35 310 184 68 224 38
Equity method 80 67 19 8 21 -62 17 -53
Other income[1] 318 143 122 26 29 -10 217 -88
Total operating
income 7,377 6,573 12 1,899 1,696 12 1,934 -2
Staff costs -2,251 -2,082 8 -606 -532 14 -550 10
Other expenses -1,485 -1,455 2 -391 -393 -1 -355 10
Depreciation of
tangible and
intangible
assets -86 -131 -34 -19 -31 -39 -23 -17
Total operating
expenses -3,822 -3,668 4 - 1,016 -956 6 -928 9
Loan losses 257 137 82 7 55
Disposals of
tangible and
intangible
assets 8 6 2 1 2
Operating
profit 3,820 3,048 25 967 748 29 1,063 -9
Income tax
expense -667 -779 -14 -91 -242 -62 -191 -52
Net profit 3,153 2,269 39 876 506 73 872 0
1 The running yield on investment properties in Nordea's Life companies has
been moved from "Other income" to "Net gains/losses on items at fair value".
For details see page 30.
Business volumes, key items
31 Dec 31 Dec Change 30 Sep Change
EURbn 2006 2005 % 2006 %
Loans and
receivables to
the public 214.0 188.5 14 201.1 6
Deposits and
borrowings from
the public 126.5 115.6 9 119.1 6
Assets under
management 161.0 147.6 9 158.4 2
Technical
provisions,
Life 30.8 28.5 8 29.7 4
Equity 15.3 13.0 18 14.3 7
Total assets 346.9 325.5 7 328.7 6
Ratios and key
figures
Jan-Dec Jan-Dec Q4 Q4 Q3
2006 2005 2006 2005 2006
Earnings per
share (EPS),
EUR 1.21 0.86 0.34 0.20 0.34
Share price[1],
EUR 11.67 8.79 10.34
Total
shareholders'
return, % 32.3 27.5 9.9 6.5 11.6
Proposed/
actual dividend
per share, EUR 0.49 0.35
Equity per
share[2],[3], EUR5.89 4.98 5.51
Shares
outstanding[1],[3],
million 2,591 2,592 2,592
Return on
equity, % 22.9 18.0 23.6 15.6 25.0
Cost/income
ratio, % 52 56 54 56 48
Tier 1 capital
ratio[1], % 7.1 6.8 6.9
Total capital
ratio[1], % 9.8 9.2 9.5
Tier 1
capital[1], EURm13,147 11,438 12,704
Risk-weighted
assets[1],
EURbn 185 169 185
Number of
employees
(full-time
equivalents)[1]29,248 28,925 29,396
Risk adjusted
profit, EURm 2,107 1,783
Economic
profit, EURm 1,412 1,127
Economic
capital, 9.3 8.7
EURbn[4]
EPS, risk
adjusted,
EUR 0.81 0.67
RAROCAR, % 22.7 20.6
Expected
losses, bp 19 20
MCEV, EURm 2,873 2,283
1 End of period.
2 Equity excluding minority interests and revaluation reserves.
3 See note 8.
4 Annual average.
The Group
Result summary 2006
Nordea's increased focus on profitable organic growth and
cross-selling continues to pay off with a strong performance in all
business areas. The momentum was increasingly evident throughout the
year, creating a solid platform for further growth.
Nordea's operating profit in 2006 increased by 25% to EUR 3,820m and
net profit by 39% to EUR 3,153m. Total income increased by 12% and
total expenses by 4%, resulting in a return on equity of 22.9% and a
cost/income ratio of 52%. Total income includes EUR 199m from the
sale of shares in International Moscow Bank (IMB) reported in the
third quarter. Excluding the gain from IMB, total income increased by
9% and return on equity was 21.5%. Loan losses were positive for the
eleventh consecutive quarter. For the full year, net recoveries
amounted to EUR 257m.
Income
All business areas performed strongly in 2006 with double- digit
volume growth in most segments. Total income increased by 12% to EUR
7,377m.
Net interest income grew by 6% to EUR 3,869m. Total lending to the
public increased by 14% to EUR 214bn and volume growth compensated
for the margin pressure. Deposits increased by 9% to EUR 126bn and
deposit margins improved following higher market interest rates,
which means that deposit margins are recovering after a long period
of pressure following declining rates.
Net interest income in Retail Banking increased by 5%, supported by
growth in lending to small and medium-sized enterprises (SMEs),
consumer lending and improved income from deposits as a result of
better margins and higher volumes.
In Corporate and Institutional Banking, net interest income increased
by 15% following stabilising margins and growth in lending in the
Shipping, Offshore and Oil Services Division, as well as in Poland
and the Baltic countries where lending increased by 40%. Net interest
income in Poland and the Baltics increased by 25%. Corporate deposits
increased by 9% and contributed positively to the increase in net
interest income.
Assets under management (AuM) increased by 9% to EUR 161bn compared
to last year. Inflow was particularly strong in Private Banking.
Income in Asset Management increased by 18% reflecting higher AuM,
better product mix, high transaction and performance fees leading to
improved income margins.
Net commission income increased by 7% to EUR 2,074m. Savings-related
commissions income grew by 9%, of which asset management commissions
increased by 9% following growth in assets under management and high
transaction and performance fees, particularly in the fourth quarter.
Commissions from payments increased by 7% to EUR 738m of which card
commissions by 12% to EUR 296m as a result of growth in the number of
transactions as well as increased penetration among gold customers.
Net gains/losses on items at fair value increased by 35% to EUR
1,036m. Net gains/losses in Business Areas increased by 23% to EUR
967m driven by a doubling of income from structured products as well
as client-driven FX and fixed-income transactions. In Group Treasury,
net gains/losses were EUR 99m compared to EUR 1m last year, following
both a strong investment result and a solid performance for Group
Funding. The result also improved in the Life business.
Other income increased by 122% to EUR 318m, including EUR 199m from
the divestment of IMB. Excluding IMB, other income was stable.
Expenses
Total expenses increased by 4% to EUR 3,822m. The increase reflects
Nordea's decision to put further emphasis on the growth ambition and
prioritised investments in certain areas with sizeable potential, as
well as an increase in variable salaries and profit-sharing in light
of the strong result. Excluding the increase in variable salaries and
profit sharing, total expenses increased by approx. 3%.
Staff costs increased by 8% to EUR 2,251m. The strong performance in
2006 in all business areas has resulted in increasing variable
salaries as well as an increased reservation for profit-sharing which
accounts for approx. one third of the increase in staff costs. In
addition, Nordea has chosen to increase the number of employees in
order to meet the demand for Nordea's products and services. The
average number of FTEs increased by approx. 340, or 1.2% compared to
last year and the general wage inflation was approx. 3.5% during the
year. Excluding the expansion in growth areas such as Poland and the
Baltics, Life and Sweden, the average number of employees was
unchanged in 2006. Within the Group, the shift towards increasing
number of advisory and sales-related employees in Business Areas and
a falling number in processing and staff units, continued. In the
fourth quarter, the number of employees decreased by approx. 150
FTEs.
Other expenses were EUR 1,485m, up by 2% compared to last year.
Higher business volumes have resulted in an increase in transaction
and sales-related expenses.
Depreciation decreased by 34% to EUR 86m following Nordea's sourcing
strategy as well as reduced leasing activity.
The reported cost/income ratio continued down to 52% compared to 56%
in 2005. Excluding the sale of shares in IMB, the cost/income ratio
was 53%. Since 2002, Nordea has reduced its costs by approx. 2 %,
which is unique in a European context. Business volumes, measured by
total assets, have increased by approx 40% during the same period.
The reported gap between income and cost growth was 8%-points in
2006. When excluding the full impact from the sale of shares in IMB,
ie the capital gain as well as the lower contribution under equity
method, the gap was 5.4%-points.
Loan losses
Net loan losses were positive at EUR 257m reflecting low new
provisions coupled with recoveries maintained at a high level. Credit
quality remains strong in all markets.
Taxes
The effective tax rate in 2006 was 19%, when excluding the tax-free
gain from IMB, following revaluation of the deferred tax asset in
Finland. In 2005, the effective tax rate was 26%. During 2006 the
revaluation of the tax asset in Finland has reduced the tax expenses
by approx. EUR 340m. The remaining unrecognised tax asset amounts to
approx. EUR 370m.
Net profit
Net profit increased by 39% to EUR 3,153m, corresponding to a return
on equity of 22.9% compared to 18.0% last year. Earnings per share
increased by 41% to EUR 1.21. Excluding the gain from IMB, return on
equity was 21.5% and earnings per share EUR 1.14.
Fourth quarter 2006
Compared to the fourth quarter of 2005, total income increased by
12%, operating profit by 29% and net profit by 73%. Moreover the
fourth quarter was strong and the revenue growth accelerated. The gap
between income growth and cost growth was 6% in the fourth quarter.
Income
Total income increased by 12% to EUR 1,899m compared to the fourth
quarter 2005. Net interest income increased by 8% to EUR 1,006m.
Deposit margins improved following higher market interest rates.
Compared to the third quarter 2006, lending increased by 6%. Net
interest income increased by 3%.
Compared to the already strong fourth quarter last year, net
commission income increased by 4% to EUR 549m. Savings-related
commission income increased by 9% to EUR 359m due to a strong
development in Asset Management as well as Life commissions. Total
payment commissions increased by 11% to EUR 197m supported by a
strong trend in card commissions. Commission expenses increased to
EUR 147m as a result of increased transaction activity. Compared to
the third quarter 2006, net commission income increased by 10% due to
a strong growth in savings-related commissions as well as payment
commissions.
Net gains/losses increased by 68% to EUR 310m compared to the fourth
quarter 2005. Net gains/losses in Business Areas amounted to EUR
277m, an increase by 20% compared with an already strong fourth
quarter last year. The positive trend is supported by an increasing
demand for Markets-related products, not only by large corporates,
but also from small and medium sized companies. Increased penetration
of the customer base is contributing to the strong underlying trend.
In Group Treasury, net gains/losses were EUR 44m in the fourth
quarter 2006 compared to a loss of EUR 31m in the corresponding
quarter 2005.
Compared to the third quarter 2006 net gains/losses increased by 38%
reflecting a continued strong performance in Markets as well as a
strong quarter in Group Treasury where net gains/losses increased
from EUR 8m to EUR 44m.
Income under Equity method decreased by 62% to EUR 8m compared to the
fourth quarter 2005. From the third quarter this year and onwards
there is no contribution from IMB, which in the first half-year 2006
contributed with approx. EUR 25m.
Expenses
Total expenses increased by 6% to EUR 1,016m compared to the fourth
quarter 2005. Staff costs increased by 14% to EUR 606m while other
expenses including depreciations were down 3% to EUR 410m. Excluding
increased variable salaries and cost for profit sharing total
expenses increased by 4%. Compared to the third quarter 2006, total
expenses were up by 9%. Increased variable salaries and an increased
reservation for profit-sharing in the fourth quarter represent
approx. 40% of the increase.
Loan losses
Loan losses were positive at EUR 82m in the quarter following a
continued flow of recoveries and low new provisions. The large
movements in gross provisions are mainly due to changes in group-wise
provisions. Based on a recent decision by the Danish FSA, Nordea Bank
Denmark has restated group-wise loan loss provisions in 2005 by
approx. EUR 60m. This release of provisions is reflected in the Group
numbers for the fourth quarter 2006.
Taxes
During the fourth quarter the revaluation of the tax asset in Finland
reduced the tax expenses by approx. EUR 170m.
Net profit
Compared to the fourth quarter 2005 net profit increased by 73% to
EUR 876m corresponding to EUR 0.34 per share.
Credit portfolio
Total lending was EUR 214bn and the share of personal customer
lending was 45%. Within personal customer lending, mortgage loans
accounted for 77%.
There was no major change in the composition of the corporate loan
portfolio during the quarter. Real estate companies remain the
largest industry exposure in the credit portfolio and amounts to
EUR 30.7bn, representing 14% of the total lending portfolio.
Capital position
Risk-weighted assets (RWA) were stable at EUR 185bn during the
quarter. In December 2006, all the Nordic financial supervisory
authorities approved Nordea's market risk (Value at Risk) models for
the calculation of the capital requirement for market risk in the
Trading Book. This implies that Nordea is allowed to base its capital
requirement for market risk on internal models calculating the actual
market risk exposure instead of the authorities' standard method. The
effect is a reduction in Nordea's RWA for market risk of around EUR
7bn. The Tier 1 capital ratio was 7.1% at year-end. The total capital
ratio was 9.8%.
Value creation
Nordea uses Economic Profit, defined as total income less operating
expenses, expected losses, standard tax and cost of equity, as the
overall key financial performance indicator. This is the key
indicator used to ensure risk-adjusted profit growth. In investment
decisions in general and in business relationships with customers
more specifically, it drives and supports the right behaviour with
focus on income, costs as well as risks. The economic profit model
captures both growth and return. For the first time, Nordea discloses
Economic Profit, which increased by 25% in 2006 to EUR 1,412m
excluding major non-recurring items.
Nordea has introduced a target for risk-adjusted profit in order to
signal the ambition to grow the business and thereby contribute to
retaining high profitability. In contrast to Economic Profit,
risk-adjusted profit does not take into account the cost of equity,
which is decided annually by Nordea's management. Risk-adjusted
profit is thus viewed as a more relevant external target than the
Economic Profit, which is used internally.
Risk-adjusted profit is defined as operating profit, excluding
non-recurring items, including expected loan losses and standard tax.
In the calculations for 2007, the expected loan losses, ie the
normalised loss level, is estimated to be 17bp. The risk-adjusted
profit in 2006 was EUR 2,107m, an increase by 18% compared to 2005.
+------------------------------------------+
| EURm | Baseline 2006 |
|--------------------------+---------------|
| Total income | 7,377 |
|--------------------------+---------------|
| - non-recurring items1 | -256 |
|--------------------------+---------------|
| Total operating expenses | 3,822 |
|--------------------------+---------------|
| Expected losses | 373 |
|--------------------------+---------------|
| Standard tax 28% | 819 |
|--------------------------+---------------|
| Risk-adjusted profit | 2,107 |
+------------------------------------------+
1 Includes sales gain and contribution under equity method from IMB
and sales gain from Asiakastieto
Nordea has used Economic Capital (EC) since 2001 as a measure to
assess capital requirement. EC is defined as the capital required to
cover unexpected losses in the course of its business. In 2006, EC
increased by 7% to EUR 9.6bn at the end of the year.
In addition, Market Consistent Embedded Value (MCEV) was introduced
in 2006 as a measure of value creation in Nordea's Life business.
MCEV measures the value of contracts over their whole contractual
lifetime. Particularly in a period of growth, this is an important
supplement to statutory accounting as growth might produce immediate
statutory losses stemming from sales commissions and prudent
reserving, while the expected future profits are measured by the
MCEV. The MCEV of Nordea's life and pension business was EUR 2,873m
at the end of 2006 and the value of new business increased by EUR
188m during the year.
Nordea share
In 2006, the share price of Nordea appreciated by 28% on the
Stockholm Stock Exchange from SEK 82.50 on 30 December 2005 to SEK
105.50 on 29 December 2006. Total shareholder return (TSR) was 32.3%.
This means that Nordea reached the target of being among top 5 in the
European peer group measured by TSR.
Mandate to repurchase and convey own shares
In order to be able to distribute excess capital to the shareholders
and to use own shares as payment in connection with acquisitions or
in order to finance such acquisitions, the Board of Directors will
propose to the Annual General Meeting (AGM) a 10% authorisation to
repurchase own shares on a stock exchange where the company's shares
are listed, or by means of an acquisition offer directed to all
shareholders.
The Board of Directors will further propose to the AGM an
authorisation to decide on conveyance of own shares as payment in
connection with acquisitions of companies or businesses or in order
to finance such acquisitions.
Dividend
The Board of Directors will propose to the AGM a dividend of EUR 0.49
per share, corresponding to a payout ratio of 40% of net profit. This
represents an increase of 40% or EUR 0.14 per share. The dividend
payment amounts to EUR 1,271m.
The ex-dividend date for the Nordea share is 16 April.
The proposed record date for the dividend is 18 April 2007, and
dividend payments will be made on 25 April.
Profit sharing and management incentive
In 2006, a total of EUR 80m was provided for under Nordea's incentive
systems. Of this, EUR 75m was provided for under the ordinary
profit-sharing scheme for all employees. Approx. EUR 5m was provided
for under the Executive Incentive Programme comprising some 350
managers.
In 2007 Nordea's Board of Directors has decided to increase the
threshold in the existing profit-sharing scheme for all employees to
support the increased ambition level. The performance criteria still
reflect internal goals as well as benchmarking with
competitors. Employees can receive a maximum of EUR 3,000, of which
EUR 2,200 is based on a pre-determined level of return on equity, and
an additional EUR 800 based on Nordea's relative performance compared
to a Nordic peer group as measured by return on equity. If all
performance criteria are met, the cost of the scheme will amount to a
maximum of EUR 85m.
The Board of Directors has decided to propose to the Annual General
Meeting a Long Term Incentive Programme (LTIP) 2007 to replace the
existing Executive Incentive Programme. To be part of the programme
the participants will have to invest in Nordea shares at market price
and thereby align their interest and perspectives with the
shareholders. The participants will be granted a number of rights to
acquire matching and performance shares, which can be exercised after
two years at the earliest, conditional on continued employment and
fulfilment of certain financial targets.
Nordea acquired a majority stake in Orgresbank in Russia
On 7 November 2006, Nordea signed an agreement to purchase a 75.01
per cent stake in JSB Orgresbank in Russia for USD 313.7 million (EUR
246 million). The remaining 24.99 per cent will be split evenly
between the current management shareholders of Orgresbank and the
European Bank for Reconstruction and Development (EBRD). The
transaction is expected to be completed during the first quarter
2007. Orgresbank reported a net profit for 2006 of approx. EUR 15m.
With this investment, Nordea will capture growth opportunities in the
Russian corporate and retail banking segments. It will also
strengthen Nordea's platform for servicing Nordic customers
conducting business in Russia, as well as create new opportunities
for existing customers of Orgresbank.
Tax claim from Swedish authorities
The Swedish tax authorities have notified Nordea that the taxable
income for Nordea's wholly owned subsidiary Nordea Fastigheter AB
will be increased by SEK 225m and SEK 2,711m, for the years 2003 and
2004, respectively. The total potential tax claim, including a
surcharge, amounts to approx EUR 100m and is related to the sales
gain in respect of the divestment of Nordea's owner occupied
properties in Sweden.
Nordea is of the opinion that all tax rules and regulations have been
complied with in the transactions, and that the previously reported
gain is correctly treated from a tax perspective. Since this
divestment structure was a well established practice for many
real-estate companies divesting their portfolios, Nordea will
strongly contest both the ordinary tax claim and the tax surcharge by
taking the decisions to the Swedish courts.
Lars G Nordström to retire as Group CEO in April 2007. Christian
Clausen appointed successor
Nordea's President and Group CEO Lars G Nordström will retire from
his position in connection with Nordea's next AGM that will take
place on 13 April 2007. The Board of Directors has appointed
Christian Clausen to succeed Lars G Nordström as President and Group
CEO of Nordea.
Christian Clausen is 51 years old and he is currently Head of Asset
Management & Life and since 2001 member of Group Executive Management
in Nordea.
Financial targets
At Nordea's Capital Markets Day on 5 December 2006, Nordea presented
the Group's organic growth strategy as well as the updated financial
targets decided by the Board of Directors. The targets are listed
below:
Total shareholder return, %
The target is to be in the top quartile of Nordea's European peer
group.
Risk-adjusted profit
The target is to double the risk-adjusted profit in 7 years. The
purpose of this target is to support the execution of the organic
growth strategy. To double the risk-adjusted profit in seven years
implies an average annual growth rate of approx. 10%.
Return on equity (RoE)
The target is to have a RoE in line with top Nordic peers. The
absolute target in percent has been eliminated since return on equity
over time will vary with the business cycle and is dependent of
inflation and interest rates.
The Board of Directors has also decided the following capital
structure policy:
Dividend payout ratio, %
Nordea will ensure competitive and predictable dividends. The target
is that the total dividend payment should exceed 40% of net profit.
Tier 1 capital ratio, %
Efficient use of capital will contribute to achieving the
profitability target and shareholder value creation. Nordea aims at a
Tier 1 ratio at or above 6.5%.
Nordea adopts Equator Principles
Nordea is the first Nordic bank to adopt the Equator Principles, a
voluntary set of environmental and social guidelines for project
financing.
The Equator Principles is a financial services industry benchmark for
assessing and managing social and environmental risk in asset-based
project financing.
Nordea is now finalising the internal procedures to ensure that work
proceeds according to the guidelines in all applicable project
finance cases.
AGM
The Annual General Meeting of shareholders will be held on Friday 13
April 2007 in Aula Magna, Stockholm University at 12.30 am (CET).
Prior to the AGM, information meetings for shareholders in Finland
and Denmark will be held on 14 March in Helsinki and 22 of March in
Copenhagen, respectively.
Outlook 2007
Based on solid macroeconomic forecasts for the Nordic area,
double-digit growth in business volumes is expected for 2007. Despite
the current pressure on lending margins Nordea expects the strong
revenue growth to continue in 2007. This will mainly be driven by the
strong business platform and the increased momentum in the organic
growth strategy. In addition, more focus on risk-adjusted pricing,
combined with expected higher market interest rates, will positively
affect the revenue generation in 2007. The quality of the credit
portfolio remains strong, however lower expected recoveries means
that new provisions are expected to exceed reversals in 2007.
The organic growth strategy leads to investments, in particular in
reference to the accelerated growth plan in the Nordic markets,
investments in Private Banking, and increased growth ambitions in
Poland. These previously communicated investments amount to approx.
EUR 60m.
The cost increase in 2007 is expected to be of the same magnitude as
in 2006. The gap between revenue and cost growth is for the full year
2007 expected to be 3-4 %-points.
The gap and the cost forecasts are excluding the acquisition of
Russian Orgresbank (see page 13 for details on Orgresbank).
The average standard tax rate for Nordea's business based on current
tax regulations is approx. 27%. The effective tax rate for 2007 is
expected to be 3-5 %-points lower than this average.
Quarterly development
Q4 Q3 Q2 Q1 Q4 Jan-Dec Jan-Dec
EURm 2006 2006 2006 2006 2005 2006 2005
Net interest
income 1,006 979 957 927 933 3,869 3,663
Net fee and
commission
income (note 1) 549 497 521 507 529 2,074 1,935
Net
gains/losses on
items at fair
value 310 224 223 279 184 1,036 765
Equity method 8 17 30 25 21 80 67
Other income 26 217 54 21 29 318 143
Total operating
income 1,899 1,934 1,785 1,759 1,696 7,377 6,573
General
administrative
expenses (note2):
Staff costs -606 -550 -552 -543 -532 -2,251 -2,082
Other -391 -355 -372 -367 -393 -1,485 -1,455
expenses
Depreciation of
tangible and
intangible
assets -19 -23 -21 -23 -31 -86 -131
Total operating
expenses -1,016 -928 -945 -933 -956 -3,822 -3,668
Loan losses 82 55 89 31 7 257 137
Disposals of
tangible and
intangible
assets 2 2 3 1 1 8 6
Operating
profit 967 1,063 932 858 748 3,820 3,048
Income tax
expense -91 -191 -192 -193 -242 -667 -779
Net profit 876 872 740 665 506 3,153 2,269
Earnings per
share (EPS) 0.34 0.34 0.28 0.26 0.20 1.21 0.86
EPS, rolling 12
months up to
period end 1.21 1.07 0.95 0.94 0.86 1.21 0.86
Q4 Q3 Q2 Q1 Q4 Jan-Dec Jan-Dec
Note 1 Net fee
and commission
income, EURm 2006 2006 2006 2006 20051 2006 20051
Asset
Management
commissions 203 176 179 186 189 744 684
Life insurance 75 50 56 52 44 233 186
Brokerage 54 46 61 66 62 227 221
Custody 18 18 20 20 19 76 75
Deposits 9 11 9 11 14 40 48
Total savings
related
commissions 359 301 325 335 328 1,320 1,214
Payments 117 111 110 104 110 442 426
Cards 80 76 73 67 67 296 265
Total payment
commissions 197 187 183 171 177 738 691
Lending 60 56 59 60 67 235 238
Guarantees and
document
payments 31 31 27 28 31 117 119
Total lending
related
commissions 91 87 86 88 98 352 357
Other
commission
income 49 36 46 41 49 172 171
Fee and
commission
income 696 611 640 635 652 2,582 2,433
Life insurance -16 -11 -11 -13 -6 -51 -32
Payment
expenses -70 -57 -53 -49 -57 -229 -212
Other
commission
expenses -61 -46 -55 -66 -60 -228 -254
Fee and
commission
expenses -147 -114 -119 -128 -123 -508 -498
Net fee and
commission
income 549 497 521 507 529 2,074 1,935
Note 2 General
administrative
expenses, Q4 Q3 Q2 Q1 Q4 Jan-Dec Jan-Dec
EURm 2006 2006 2006 2006 2005 2006 2005
Staff2 574 534 536 527 512 2,171 2,017
Profit sharing 32 16 16 16 20 80 65
Information
technology3 110 106 120 120 133 456 485
Marketing 34 21 27 22 33 104 100
Postage,
telephone and
office
expenses 44 44 47 53 48 188 199
Rents, premises
and real estate
expenses 87 88 80 83 82 338 337
Other 116 96 98 89 97 399 334
Total 997 905 924 910 925 3,736 3,537
1 Restated (brokerage and other).
2 Variable salaries were EUR 58m in Q4 2006 (Q3 2006: EUR 37m) and for 2006
EUR 188m (2005: EUR 147m).
3 Refers to IT operations, service expenses and consultant fees. Total
IT-related
costs including staff etc, but excluding IT expenses in the Life operations,
were
EUR 166m in Q4 2006 (Q3 2006: EUR 156m) and for 2006 EUR 628m (2005: EUR 636m).
Segment reporting
Nordea's operations are organised into three business areas. The
business areas are Retail Banking, Corporate and Institutional
Banking and Asset Management & Life. The latter segment is divided
into two columns in note 2, due to transparency reasons. The business
areas operate as profit centres.
According to IAS 14 the reporting of vertical integrated activities
are encouraged, why, in addition to the results of the business
areas, the result for Group Treasury, which conducts Nordea's
financial management operations, is also disclosed.
Within Nordea, customer responsibility is fundamental. Nordea's total
business relations with customers are reported in the customer
responsible unit's income statement and balance sheet.
Economic capital
Capital allocation is based on the internal framework for calculating
economic capital, which reflects each business unit's actual risk
exposure considering credit and market risk, insurance risk as well
as operational and business risk. This framework optimises
utilisation and distribution of capital between the different
business areas. Standard tax is applied when calculating risk-
adjusted return on economic capital.
Economic capital is allocated to business areas according to risks
taken. As a part of net interest income business units receive a
capital benefit rate corresponding to the expected average
medium-term risk-free return. The cost above Libor from issued
subordinated debt is also included in the business areas net interest
income based on the respective use of economic capital.
Economic profit constitutes the internal basis for evaluating
strategic alternatives as well as for the evaluation of financial
performance.
Allocation principles
Cost is allocated based on calculated unit prices and the individual
business areas' consumption. Income is allocated with the underlying
business transactions as driver combined with the identification of
the customer responsible unit.
Assets, liabilities and economic capital are allocated to the
business areas. Group Functions and Eliminations consists of income
statement and balance sheet items that are related to the unallocated
reconciling items/units.
Asset Management & Life has customer responsibility within investment
management and in private banking outside a joint unit with Retail
Banking. In addition, Asset Management & Life commands product
responsibility for investment funds and life insurance products. The
operating profit shown in the accompanying table includes the
customer responsible units. The product result for Asset Management
and Life respectively represent the Group's total earnings including
income allocated to Retail Banking on these products, as well as
sales and distribution costs within Retail Banking.
Transfer pricing
Funds transfer pricing is based on current market interest rate and
applied to all assets and liabilities allocated to or booked in the
business areas or group functions.
Group internal transactions between legal entities are performed
according to arm's length principles in conformity with OECD
requirements on transfer pricing. The financial result of such
transactions is reported in the relevant business area based on
assigned product and customer responsibilities. However, the total
result related to investment funds is included in Retail Banking, as
well as sales commissions and margins from the life insurance
business.
Group functions and Eliminations
Group Functions and Eliminations include the unallocated results of
the four group functions: Group Processing and Technology, Group
Corporate Centre, Group Credit and Risk Control and Group Legal and
Compliance. Group Treasury, which is part of Group Corporate Centre,
has been excluded in this calculation as this is treated as a
vertical integrated segment and therefore reported separately.
Expenses in Group functions, not defined as services to business
areas, and profits from associated undertakings that are not included
in the customer responsible units are reported under this heading.
Segment
reporting
Corporate and
Retail Banking Institutional Asset Mgmt Life
Banking
EURm Jan-Dec Jan-Dec Jan-Dec Jan-Dec
Customer
responsible
units 2006 2005 2006 2005 2006 2005 2006 2005
Net interest
income 3,185 3,043 489 426 47 40 0 0
Net fee and
commission
income 1,372 1,299 364 348 311 262 31 43
Net
gains/losses on
items at fair
value1 361 237 320 284 25 23 261 241
Equity method 21 26 36 21 0 0 0 0
Other income1 73 69 220 15 14 12 8 1
Total operating
income 5,012 4,674 1,429 1,094 397 337 300 285
of which
allocations 985 763 -526 -396 -323 -276 -139 -94
Staff costs -1,119 -1,050 -346 -322 -132 -111 -92 -73
Other
expenses -1,516 -1,496 -241 -238 -67 -64 -73 -61
Depreciation of
tangible and
intangible
assets -32 -59 -10 -11 -3 -2 -9 -4
Total operating
expenses -2,667 -2,605 -597 -571 -202 -177 -174 -138
of which
allocations -1,104 -1,091 -135 -151 24 19 0 0
Loan losses 220 97 33 40 4 0 0 0
Disposals of
tangible and
intangible
assets 0 0 0 0 0 0 0 0
Operating
profit 2,565 2,166 865 563 199 160 126 147
Balance sheet,
EURbn
Loans and
receivables to
the public 172 152 36 32 3 2 1 1
Other assets 22 24 79 75 1 2 34 29
Total assets 194 176 115 107 4 4 35 30
Deposits and
borrowings from
the public 88 80 29 27 4 3 2 0
Other
liabilities 100 90 84 78 0 1 32 29
Total
liabilities 188 170 113 105 4 4 34 29
Economic
capital/equity 6 6 2 2 0 0 1 1
Total
liabilities and
allocated
equity 194 176 115 107 4 4 35 30
RAROCAR, % 26 24 29 19
Other segment
items
Capital
expenditure,
EURm 6 17 7 1 11 4 19 65
Product
result 375 305 243 221
1 The running yield on investment properties in Nordea's Life companies has been
moved from "Other income" to "Net gains/losses on items at fair value".
Segment
reporting
continued
Business areas
total
EURm Jan-Dec Change
Customer
responsible
units 2006 2005 %
Net interest
income 3,721 3,509 6
Net fee and
commission
income 2,078 1,952 6
Net
gains/losses on
items at fair
value 967 785 23
Equity method 57 47 21
Other income 315 97 225
Total operating
income 7,138 6,390 12
of which
allocations -3 -3 0
Staff costs -1,689 -1,556 9
Other expenses -1,897 -1,859 2
Depreciation of
tangible and
intangible
assets -54 -76 -29
Total operating
expenses -3,640 -3,491 4
of which
allocations -1,215 -1,223 -1
Loan losses 257 137 -
Disposals of
tangible and
intangible
assets 0 0 -
Operating
profit 3,755 3,036 24
Balance sheet,
EURbn
Loans and
receivables to
the public 212 187 13
Other assets 136 130 5
Total assets 348 317 10
Deposits and
borrowings from
the public 123 110 12
Other
liabilities 216 198 9
Total
liabilities 339 308 10
Economic
capital/equity 9 9 0
Total
liabilities and
allocated
equity 348 317 10
RAROCAR, %
Other segment
items
Capital
expenditure,
EURm 43 87
Product
result
Segment reporting continued
Group Treasury Group functions and Nordea Group
eliminations
EURm Jan-Dec Jan-Dec Jan-Dec Change
Customer
responsible
units 2006 2005 2006 2005 2006 2005 %
Net interest
income 118 110 30 44 3,869 3,663 6
Net fee and
commission
income -8 -6 4 -11 2,074 1,935 7
Net
gains/losses on
items at fair
value 99 1 -30 -21 1,036 765 35
Equity method 17 7 6 13 80 67 19
Other income 19 25 -16 21 318 143 122
Total operating
income 245 137 -6 46 7,377 6,573 12
of which
allocations 0 2 3 1 0 0 -
Staff costs -16 -15 -546 -511 -2,251 -2,082 8
Other expenses -28 -30 440 434 -1,485 -1,455 2
Depreciation of
tangible and
intangible
assets 0 0 -32 -55 -86 -131 -34
Total operating
expenses -44 -45 -138 -132 -3,822 -3,668 4
of which
allocations -14 -15 1,229 1,238 0 0 -
Loan losses 0 0 0 0 257 137 -
Disposals of
tangible and
intangible
assets 0 0 8 6 8 6 33
Operating
profit 201 92 -136 -80 3,820 3,048 25
Balance sheet,
EURbn
Loans and
receivables to
the public 0 0 2 1 214 188 14
Other assets 11 11 -14 -3 133 138 -4
Total assets 11 11 -12 -2 347 326 6
Deposits and
borrowings from
the public 2 3 1 3 126 116 9
Other
liabilities 9 8 -19 -9 206 197 5
Total
liabilities 11 11 -18 -6 332 313 6
Economic
capital/equity 0 0 6 4 15 13 15
Total
liabilities and
allocated
equity 11 11 -12 -2 347 326 6
RAROCAR, % 23 21
Other segment
items
Capital
expenditure,
EURm 0 0 181 88 224 175
Product result
For further information:
- A press conference with the management will be arranged on 21
February at 11.00 CET.
- An analyst conference will be arranged on 21 February at
14.30, CET at Smålandsgatan 24, Stockholm
- A conference call with management will be arranged on 21
February 2007 at 16.30, CET.
(Please dial +44 (0) 207 769 6432, access code Nordea, ten minutes in
advance.) The telephone conference can be monitored live on
www.nordea.com. An indexed on-demand version will also be available
on www.nordea.com.
- This interim report is available on www.nordea.com.
- A slide presentation is available on www.nordea.com.
Contacts:
Lars G Nordström, President and Group +46 8 614 7808
CEO
Arne Liljedahl, Group CFO/EVP +46 8 614 7996
Johan Ekwall, Head of Investor +46 8 614 7852
Relations (or +46 70 607 92 69)
Torben Laustsen, Head of Group Identity +46 8 614 7916
and Communications (or +45 40 54 48 22)
Annual General Meeting
Nordea's Annual General Meeting will take place in Aula Magna in
Stockholm on 13 April 12.30
Financial calendar
3 May - interim report for the first quarter
19 July - interim report for the second quarter
31 October - interim report for the third quarter
The Nordea Bank AB (publ) Annual Report is expected to be published
in week 10 at www.nordea.com. The Annual Report will be available in
print in week 12.
Wednesday 21 February 2007
Lars G Nordström
President and Group CEO
This report is published in four additional language versions;
Danish, Finnish, Norwegian and Swedish. In the event of any
inconsistencies between those language versions and this English
version, the English version shall prevail.
This report has not been subject to review by the auditors.
Nordea Bank AB (publ)
Hamngatan 10
SE-105 71 Stockholm
www.nordea.com/ir
Tel. +46 8 614 7800
Corporate registration No. 516406-0120
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