2009-02-12 07:00:00 CET
2009-02-12 07:00:08 CET
REGULATED INFORMATION
Pohjola Pankki Oyj - Financial Statement Release
OP-Pohjola Group's January-December 2008
OP-Pohjola Group Central Cooperative Company Release, 12 February 2009 at 8 am (GMT +2), 1(39) Release category: Financial Statements OP-Pohjola Group's January-December 2008 Group results for 2008 satisfactory considering the conditions - OP-Pohjola Group's earnings before tax came to EUR 372 million (1,005)*. Impairment losses and lower income related to investments account for 90% of the earnings reduction. - Pre-tax earnings made by Banking came to EUR 532 million (722), the decline significantly affected by customer bonuses, charged to expenses, which increased to EUR 132 million (83). - In Non-life Insurance, earnings before tax stood at EUR 55 million (181). Return on investment fell sharply, but the balance on technical account was excellent. The operating combined ratio** was 91.5. - Poor investment performance in Life Insurance operations resulted in a loss of EUR 162 million (earnings of 129). - Despite the exceptional market situation, OP-Pohjola Group did not adopt its own pricing models for financial instrument measurement, nor value their liabilities at market prices. Sustained vigorous growth and stronger market position - Total deposits increased by 19% - and the market share increase, 1.5 percentage points, was record-high. - Loan portfolio up by 14% - home mortgages by 12% and corporate loans by 22%. Non-life insurance premium revenue rose by 9% and those from private customers by 12%. - The market share of mutual fund capital grew by 1.1 percentage points, while the market share of life insurance savings declined by 0.6 percentage points year on year. Solid capital adequacy a competitive advantage in challenging operating environment - OP-Pohjola Group's capital adequacy is very strong. Tier 1 ratio stood at 12.6% (12.6). - Impairment losses on receivables were 0.1%, or EUR 58 million (13), of the loan and guarantee portfolio. Non-performing loans increased year on year, but their share of the loan and guarantee portfolio remained low. - The Group's liquidity and availability of funding have remained good despite the exceptionally challenging operating environment. - It is exceptionally difficult to predict at this stage how the financial sector's operating environment will be affected in the future. OP-Pohjola Group's extremely strong capital adequacy will act as a stabilising buffer to ensure continuity. Executive Chairman's comments "The past financial year almost saw the collapse of the global financial system. Market value swings, higher risk premiums and the equity market plunge were of record proportions. I would say that our financial results were quite satisfactory under such conditions. Falling asset prices eroded our total earnings significantly, but customer business earnings remained stable. Our core business of providing banking and insurance services has been very successful indeed despite the crisis. The record growth in the number of new banking customers and a steep market share increase are clear indicators that we have been doing the right things and listening to the customers. This has shown us in quite concrete terms how valuable it is to have a sound financial system built on a national foundation. From a national viewpoint it is crucial to ensure that the domestic financial system will continue to operate under all conditions - even if globally operating actors may be in a crisis. One of the things we have to understand already at this stage is the severity of problems the Finnish banking system would be faced with today if it had been more or fully dependent on multinational forces. OP-Pohjola Group bears its national responsibility, witnessed by a 22% annual growth of our corporate loan portfolio. At the moment it is impossible to predict when the world will return to normal, or indeed what just the next few months will bring. One thing we can be certain about: 2009 will be a difficult year. As a financial services group we cannot do any better than our customers, but our exceptionally high capital adequacy will act as a foundation upon which we and our customers can together start building a new tomorrow." Reijo Karhinen * Changes are based on a year-on-year comparison. ** The official combined ratio declined from 92.9% to 94.7%. OP-Pohjola Group's Financial Statements Bulletin 1 January-31 December 2008 OP-Pohjola Group's key indicators -------------------------------------------------------------------------------- | | 2008 | 2007 | Change* | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Earnings before tax, EUR million | 372 | 1,005 | -63 | -------------------------------------------------------------------------------- | Banking and Investment Services | 532 | 722 | -26 | -------------------------------------------------------------------------------- | Non-life Insurance | 55 | 181 | -70 | -------------------------------------------------------------------------------- | Life Insurance | -162 | 129 | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Bonuses paid to customers | 132 | 83 | 59 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Return on equity (ROE),% | 4.1 | 13.7 | -9.6 | -------------------------------------------------------------------------------- | Return on equity at fair value,% | -6.0 | 10.9 | -16.8 | -------------------------------------------------------------------------------- | Cost/income,% | 54 | 49 | 5.8 | | (Banking and Investment Services) | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Average personnel | 12,615 | 12,378 | 1.9 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | | 31 Dec | 31 Dec | Change* | | | 2008 | 2007 | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Total assets, EUR billion | 75.7 | 65.7 | 15.3 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Capital adequacy ** | 12.7 | 12.2 | 0.5 | -------------------------------------------------------------------------------- | Tier 1 ratio,%** | 12.6 | 12.2 | 0.4 | -------------------------------------------------------------------------------- | Ratio of capital resources to | 1.40 | 1.52 | -0.12 | | minimum amount of capital | | | | | resources*** | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Non-performing loan losses within | 0.4 | 0.3 | 0.1 | | loan and guarantee portfolio,% | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Market share,% | | | | -------------------------------------------------------------------------------- | Of loan portfolio | 32.1 | 31.1 | 1.0 | -------------------------------------------------------------------------------- | Of total deposits | 33.8 | 32.3 | 1.5 | -------------------------------------------------------------------------------- | Of capital invested in mutual funds | 22.5 | 21.4 | 1.1 | -------------------------------------------------------------------------------- | Of insurance savings through life | 19.4 | 19.9 | -0.5 | | and pension insurance | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | | 2008 | 2007 | Change* | -------------------------------------------------------------------------------- | Of premiums written in life and | 29.4 | 30.8 | -1.4 | | pension insurance,% | | | | -------------------------------------------------------------------------------- * Percentage point change, except for earnings before tax, customer bonuses, total assets and average number of personnel, for which the change is stated in percentages, as well as the ratio of capital resources to the minimum amount of capital resources, for which the change is stated as a change in the ratio. ** Pursuant to the Act on Credit Institutions.Year 2007 figures have been converted into comparable figures. *** Pursuant to the Act on the Supervision of Financial and Insurance Conglomerates. Operating environment The global financial market got into a serious crisis in 2008. Problems originating from the US housing market began to affect other countries and sectors, resulting in falling GDP figures in many countries. Finland is not immune to this contagious global recession and the economic outlook for 2009 is even bleaker. The global financial crisis came to a head in autumn 2008 when Lehman Brothers, an investment bank, filed for Chapter 11 protection, bringing down the liquidity in financial markets, and the lack of confidence increased short-term market rates and intensified equity and currency market swings. To settle the crisis, national central banks took considerable measures to support the financial markets, such as increasing market liquidity to prevent a loan slump, and also bringing their benchmark interest rates exceptionally low. Many countries also put in place considerable revival packages. Many financial institutions in various countries suffered massive losses and had to rely on state support, which led to a number of restructuring measures in the financial sector. In January 2009, the Finnish government decided to make interbank lending guarantees available and to make fixed-term capital investments in banks. The support measures taken by central banks and governments alleviated the acute crisis, with the short-term market rates being cut and interbank trading picking up a little. The long-term effects, however, are difficult to predict. The global financial crisis has weakened economic outlooks everywhere. Both the US and many EU countries have veered into recession and emerging economies too are experiencing slower growth, because weaker export prospects will be only partly offset by sustained domestic demand. Finland's economic outlook deteriorated rapidly in the latter half of 2008, bringing GDP growth to a standstill and resulting in a downturn of exports owing to the global recession. Growth in consumer spending slowed down as households became more and more wary in the wake of dismal economic and business news. Incomes continued their upward trend, but so did unemployment. Capital spending was up for most of the year owing to the completion of earlier construction projects, but the number of building permits applied for gives reason to believe that construction investments will be falling sharply. It would appear that Finland alongside other industrial countries is drifting into a recession in 2009, with industry and especially construction showing a drastic downturn, while the service sector is expected to fare better than other sectors. Consumer confidence is as weak as it was during the slump in the 1990s, and the only thing people have faith in is that they will be able to save up money. In 2008, the inflation rate went up to 4.1%, mostly due to higher food prices and housing costs. The stagnating economy is expected to decrease the inflation rate to less than 3% in 2009. Owing to lack of confidence in financial markets, the Euribor rates rose until autumn 2008. Moreover, the European Central Bank (ECB) raised its benchmark interest rate further in July to 4.25%, basing its decision on high inflation. As the financial crisis came to a head in the autumn, the ECB cut its benchmark interest rate three times by the end of 2008, coming to 2.5%, and in January 2009 to 2.0%, bringing the Euribor rates down in its wake. Loans and deposits continued to grow briskly in the banking market in 2008, and the growth rate of the loan portfolio of financial institutions remained the same as in the previous year, at 11.7%. Because the financial markets were jammed up, the growth rate of corporate loans in particular rose to 19%, whereas the home mortgage growth rate slowed down to 8.7% despite the falling interest rates and housing prices in the latter half of the year. However, households' loan portfolio increased faster than their income, resulting in higher indebtedness. The deposit growth rate rose to a record 12.9% in 2008, because many savings were channelled to deposits due to the steep fall in the equity market. Banking market growth is forecast to slow down in 2009. Slower growth in household income and lower interest rates are expected to dampen deposit growth. The rise in home loans is also expected to slow down, although the average interest rates of new home loans will fall. In 2008, capital market performance was exceptionally poor and stock performance was one of the worst ever experienced, with the OMX Helsinki Cap index - a measure of stock prices in Finland - falling by a stunning 50%. Mutual fund assets shrank by 37.4% owing to considerable net subscriptions and negative returns. Life insurance premiums written fell by 6.8%, which contributed to a fall in insurance savings. Despite the weaker economy, non-life insurance premiums written rose by 4.2% in 2008. The non-life insurance business is not so badly affected, because statutory insurance accounts for such a high percentage of the policies. On the other hand, the stagnating economy is expected to slow down growth in claims expenditure. OP-Pohjola Group's earnings and total assets January-December Earnings before tax came to EUR 372 million (1005)*. Various impairment losses related to investments and lower income account for 90% of the EUR 633 million reduction in earnings. Poor return on investment weakened life insurance results in particular, ending in a loss, with non-life insurance earnings before tax also adversely affected, whereas the balance on technical account was excellent. Banking and Investment Services earnings before tax were still good despite the difficult market situation, although we fell short of the previous year's record figures. The Group's revenues declined by 19% to EUR 1.823 million (2.254). Net interest income rose by 13% to EUR 1,189 million (1,048), but other income declined by 14% to EUR 634 million (1,206). Net commissions, totalling EUR 419 million, were almost the same as last year, despite diminished asset management commissions. Other key sources of income suffered in the historically poor investment markets, cutting return on investment substantially. On the whole, the poor investment performance has been calculated to have weakened the Group's result by EUR 572 million year-on-year. The net investment income of life insurance fell by EUR 308 million and that of non-life insurance by EUR 100 million, while net trading income fell by EUR 95 million and the net investment income of banking by EUR 70 million. The above net income figures include a EUR 51 million decrease in fair value recognised in the financial statement from available-for-sale securities, EUR 112 million in impairments recognised in the financial statements as a result of reclassification of investment instruments containing embedded derivatives, and a fair value decrease of EUR 74 million recognised under the liquidity reserve. The Group recognised EUR 78 million in net sales losses during the financial year, whereas the year before profits of EUR 134 million were recorded. During the financial crisis, there has been no proper market for a number of investment instruments, which has made market price sources less reliable. However, OP-Pohjola Group did not adopt any of its own market valuation models. The Group has reclassified certain assets according to the European Commission regulation approved in October. See under 'Changes in accounting policies' for more details. This reclassification will reduce result fluctuations in the future. Expenses stood at EUR 1,238 million (1,129), up by 9.7% year on year, a significant part of this increase due to higher personnel costs. The 8.3% rise in personnel costs resulted not only from an increase in staff numbers and the payroll bill but also by pension costs which had risen at a much higher rate than wages and salaries. ICT expenses accounted for a significant part of other administrative costs. Bonuses paid to owner-members and OP bonus customers rose by 59% and totalled to EUR 132 million (83). Net impairment losses on loans and receivables increased to EUR 58 million (13). New impairment losses in gross terms totalled EUR 81 million, or 92% more than the year before. The biggest single impairment loss, EUR 10 million, was recorded in relation to Lehman Brothers. Value readjustments and cancellations of impairment losses totalled EUR 23 million, or 21% more than the year before. Impairment losses on receivables remained low, at 0.11% of the loan and guarantee portfolio. Comparatives for 2007 are given in brackets. For income-statement and other aggregated figures, January-December 2007 figures serve as comparatives. For balance-sheet and other cross-sectional figures, figures on the previous balance sheet date (31 December 2007) serve as comparatives. Return on equity stood at 4.1%, down from last year's 13.7%. Pre-tax loss at fair value was EUR 365 million (earnings of EUR 798 million)* as a result of a fall in the market value of securities. Banking and Investment Services reported a pre-tax profit of EUR 532 million (722). Non-life Insurance earnings before tax were EUR 55 million (181), showing a 70% year-on-year decrease. Non-life Insurance reported a combined ratio of 94.7% (92.9), and the operating combined ratio** improved to 91.5% (93.8). Life Insurance recorded pre-tax losses of EUR 162 million (earnings of EUR 129 million). The results of both life and non-life insurance operations were weakened by falling net investment income. In the autumn of 2005 in connection with the Pohjola acquisition, the then OP Bank Group announced that it would seek income and cost synergies of about EUR 91 million by the end of 2010. It is estimated that the decisions made by the end of the financial period will yield annual cost savings of over EUR 55 million. In 2010 the cost savings are estimated to rise to over EUR 65 million with the decisions made by the end of 2008. Revenue Income synergies achieved to date are estimated to amount to over EUR 30 million per year. Estimates of the total amount of synergy benefits already achieved or to be achieved by the end of the report period will therefore exceed the target set in 2005. Although we achieved our target, there is still potential especially in terms of profit synergies. Immediate integration costs concerning the financial period totalled EUR 4 million (15). Project expenses related to information system integration, including internal personnel costs, totalled EUR 16 million. Earnings analysis -------------------------------------------------------------------------------- | EUR million | 2008 | 2007 | Change, | Change, % | | | | | EUR | | | | | | million | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Earnings before tax | 372 | 1,005 | -633 | -63.0 | -------------------------------------------------------------------------------- | Gross change in fair value | -737 | -207 | -530 | | | reserve | | | | | -------------------------------------------------------------------------------- | Earnings/loss before tax at | -365 | 798 | -1,162 | | | fair value | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Return on equity (ROE),% | 4.1 | 13.7 | | -9.6,* | -------------------------------------------------------------------------------- | Return on equity at fair | -6.0 | 10.9 | | -16.8,* | | value,% | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Income | | | | | -------------------------------------------------------------------------------- | Net interest income | 1,189 | 1,048 | 141 | 13.5 | -------------------------------------------------------------------------------- | Net income from Non-life | 345 | 427 | -82 | -19.3 | | Insurance | | | | | -------------------------------------------------------------------------------- | Net income from Life Insurance | -139 | 172 | -311 | | -------------------------------------------------------------------------------- | Net commissions and fees | 419 | 430 | -11 | -2.6 | -------------------------------------------------------------------------------- | Net trading and investment | -99 | 65 | -164 | | | income | | | | | -------------------------------------------------------------------------------- | Other operating income | 108 | 109 | -2 | -1.4 | -------------------------------------------------------------------------------- | Share of associates' | 1 | 3 | -2 | -74.1 | | profits/losses | | | | | -------------------------------------------------------------------------------- | Other income, total | 634 | 1,206 | -572 | -47.5 | -------------------------------------------------------------------------------- | Total income | 1,823 | 2,254 | -431 | -19.1 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Expenses | | | | | -------------------------------------------------------------------------------- | Personnel costs | 598 | 553 | 46 | 8.3 | -------------------------------------------------------------------------------- | Other administrative expenses | 328 | 303 | 24 | 8.0 | -------------------------------------------------------------------------------- | Other operating expenses | 312 | 273 | 40 | 14.6 | -------------------------------------------------------------------------------- | Total expenses | 1,238 | 1,129 | 110 | 9.7 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Impairment losses on | 58 | 13 | 45 | | | receivables | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Returns to owner-members and | | | | | | OP bonus customers | | | | | -------------------------------------------------------------------------------- | Bonuses | 132 | 83 | 49 | 59.1 | -------------------------------------------------------------------------------- | Interest on ordinary and | 22 | 24 | -2 | -9.6 | | supplementary cooperative | | | | | | capital | | | | | -------------------------------------------------------------------------------- | Total returns | 154 | 107 | 47 | 43.6 | -------------------------------------------------------------------------------- * Percentage point(s) **The combined cost ratio excluding amortisation on intangible assets arising from the Pohjola acquisition and allocated to the business segment without the effect of changes in calculation bases. On December 31, OP-Pohjola Group's total assets stood at EUR 75.7 billion (65.7), up by 15% from those on 31 December 2007. During the review period, receivables from customers increased by 16% to EUR 51.7 billion (44.8) and deposits by 19% to EUR 34.5 billion (29.0). Debt securities issued to the public rose by 29% to EUR 18.2 billion. Equity capital decreased by 7.5% to EUR 5.2 billion (5.6) owing to the lower fair value reserve, the latter, adjusted for deferred tax assets, being EUR 556 in the negative (minus EUR 10 million). The main reason for the decrease in the fair value reserve during the reporting period was the dip in securities' market values. On 31 December, the cooperative capital investments and supplementary cooperative capital investments of the member cooperative banks' owner-members totalled EUR 695 million (689). Member banks' interest on the ordinary and supplementary cooperative capital recognised in the 2008 financial statements totalled some EUR 22 million. The Board of Directors of Pohjola Bank plc (OKO Bank plc until 29 February 2008) proposes that the company pay a dividend of EUR 0.23 for each Series A share and EUR 0.20 for each Series K share for 2008, totalling EUR 45 million (131). October-December Investment instruments containing embedded derivatives were reclassified in the last quarter, and at the same time a total EUR 112 million of impairments were recognised in the income statement. Some EUR 3 million of the impairments were recognised in Q4, and the amounts from earlier on in the year have been used to adjust the quarterly results of 2008 on an accrual basis. Earnings before tax in the fourth quarter amounted to EUR 15 million. Total income shrank by 28% mainly as a result of poor investment performance. Reported expenses grew by EUR 37 million. Year on year, fourth-quarter personnel costs increased by 8.6%, accounting for EUR 13 million of growth in total expenses. Returns to owner-members grew by EUR 7 million. Impairment losses on receivables came to EUR 31 million, or EUR 28 million higher year on year. The fair value reserve (gross) shrank by EUR 299 million, while a year ago it decreased by EUR 112 million. Earnings before tax in the fourth quarter were EUR 60 million lower than in the second. Fourth-quarter earnings analysis -------------------------------------------------------------------------------- | EUR million | 2008 | 2007 | Change, | Q3 | Change, | | | | | % | 2008 | % | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Earnings before tax | 15 | 247 | -94.1 | 74 | -80.2 | -------------------------------------------------------------------------------- | Gross change in fair | -299 | -112 | | -132 | | | value reserve | | | | | | -------------------------------------------------------------------------------- | Earnings/loss before tax | -285 | 135 | | -59 | | | at fair value | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Return on equity (ROE),% | -2.2 | 12.7 | -14.9* | 3.3 | -5.6* | -------------------------------------------------------------------------------- | Return on equity at fair | -18.7 | 6.8 | -25.5* | -3.8 | -15.0* | | value,% | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Income | | | | | | -------------------------------------------------------------------------------- | Net interest income | 316 | 277 | 14.4 | 305 | 3.7 | -------------------------------------------------------------------------------- | Net income from Non-life | 72 | 121 | -41.1 | 96 | -25.5 | | Insurance | | | | | | -------------------------------------------------------------------------------- | Net income from Life | -49 | 54 | | -91 | -46.1 | | Insurance | | | | | | -------------------------------------------------------------------------------- | Net commissions and fees | 99 | 106 | -6.3 | 97 | 2.6 | -------------------------------------------------------------------------------- | Net trading and | -46 | -8 | | -27 | 69.3 | | investment income | | | | | | -------------------------------------------------------------------------------- | Other operating income | 28 | 31 | -10.4 | 26 | 7.9 | -------------------------------------------------------------------------------- | Share of associates' | 0 | 0 | 2.9 | 0 | -4.9 | | profits/losses | | | | | | -------------------------------------------------------------------------------- | Other income, total | 104 | 305 | -65.6 | 101 | 3.1 | -------------------------------------------------------------------------------- | Total income | 420 | 582 | -27.8 | 406 | 3.6 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Expenses | | | | | | -------------------------------------------------------------------------------- | Personnel costs | 158 | 146 | 8.6 | 130 | 21.5 | -------------------------------------------------------------------------------- | Other administrative | 97 | 93 | 5.1 | 61 | 58.3 | | expenses | | | | | | -------------------------------------------------------------------------------- | Other operating expenses | 84 | 65 | 30.0 | 80 | 5.0 | -------------------------------------------------------------------------------- | Total expenses | 339 | 303 | 12.1 | 272 | 25.0 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Impairment losses on | 31 | 4 | | 18 | 73.3 | | receivables | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Returns to owner-members | | | | | | | and | | | | | | | OP bonus customers | | | | | | -------------------------------------------------------------------------------- | Bonuses | 35 | 21 | 62.4 | 34 | 3.0 | -------------------------------------------------------------------------------- | Interest on ordinary and | 0 | 6 | -97.6 | 8 | -98.1 | | supplementary cooperative | | | | | | | capital | | | | | | -------------------------------------------------------------------------------- | Total returns | 35 | 28 | 25.6 | 42 | -16.4 | -------------------------------------------------------------------------------- Changes in accounting policies The European Commission issued Commission Regulation (EC) No. 1004/2008 of 15 October 2008 concerning IAS 39 and IFRS 7, enabling financial instruments to be reclassified under exceptional conditions. The underlying reason for adopting this Regulation lay in the current financial turmoil which is why reliable market prices were not available to all financial instruments on 30 September. OP-Pohjola Group has reclassified most of the notes in its liquidity reserve to have their purpose correspond better with how they were treated in the accounts. Liquidity reserves can be converted into cash in a liquidity crisis or used as collateral for central bank funding, enabling reclassification into investments held to maturity, loans and other receivables, and available-for-sale financial assets. The notes and bonds were upon initial recognition classified as financial assets held for trading. Notes and bonds under available-for-sale financial assets that will not be sold in the near future were reclassified as loans and other receivables, and investment instruments containing embedded derivatives as financial assets held for trading. Investment instruments containing other than embedded derivatives were reclassified using fair values on 1 July 2008. The effect of the reclassification on the fair value reserve was approximately EUR 72 million, and earnings before tax were up by EUR 125 million. The reclassification has no effect on the results recorded for previous periods. Following the draft published by IASB in December 2008 for a amendment to the standard on embedded derivatives, the Group reclassified certain investment instruments that contain embedded derivative. Impairments made in connection with the reclassification weakened the Group's pre-tax earnings by EUR 112 million. Capital adequacy Two sets of capital adequacy ratios are calculated for OP-Pohjola Group. OP-Pohjola Group operates in compliance with the Act on Cooperative Banks and other Cooperative Institutions. Owing to the regulations on joint responsibility and security conditions prescribed in the Act, a minimum amount of capital resources has been set for the amalgamation of the cooperative banks calculated according to the regulations for capital adequacy specified in the Act on Credit Institutions. The amalgamation of the cooperative banks comprises its central institution (OP-Pohjola Group Central Cooperative), the central institution's member credit institutions and companies belonging to their consolidation groups. Although OP-Pohjola Group's insurance companies do not belong to the amalgamation of the cooperative banks, investments made in them have a major impact on capital adequacy calculated in accordance with the capital adequacy regulations for credit institutions. This capital adequacy figure is called the amalgamation of cooperative banks' capital adequacy. OP-Pohjola Group is also a financial and insurance conglomerate, pursuant to the Act on the Supervision of Financial and Insurance Conglomerates. The conglomerate is governed by specific provisions of the capital adequacy requirement. In view of both capital adequacy requirements, OP-Pohjola Group's risk-bearing capacity is strong. Transition to the capital adequacy calculation measurement in accordance with Basel II OP-Pohjola Group Central Cooperative will publish annually, as part of the financial statements, the full information required by Pillar III of the capital adequacy framework and the Financial Supervision Authority standards. In its calculation of capital requirement for credit risk, OP-Pohjola Group will phase in the Internal Rating-based Approach (IRBA). The Financial Supervision Authority granted OP-Pohjola Group permission to use IRBA in its capital adequacy measurement for credit risks as of 30 September 2008. This permission concerns liabilities granted to Pohjola Bank plc's corporate and institutional customers. Otherwise the capital requirement is calculated using the Standardised Approach. The adoption of IRBA will reduce OP-Pohjola Group's capital requirement but is expected to make the capital requirement more susceptible to market fluctuations. As to market risks, OP-Pohjola Group will continue to use the Standardised Approach. The capital requirement for operational risks will be calculated using the Basic Indicator Approach (BIA), with the objective of adopting the Standardised Approach in 2010. Capital adequacy of the amalgamation of cooperative banks On 31 December, OP-Pohjola Group's capital adequacy ratio under the Credit Institutions Act stood at 12.7% and Tier 1 capital adequacy ratio at 12.6%. Both the capital adequacy ratio and Tier 1 capital adequacy stood at 12.2% (comparable figures). -------------------------------------------------------------------------------- | Capital resources | Basel II | Basel | | | Reported | | | | II* | | | | -------------------------------------------------------------------------------- | EUR million | 31 Dec | 31 Dec | Change, | Change, | 31 Dec | | | 2008 | 2007 | EUR | % | 2007 | | | | | million | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Capital resources | | | | | | -------------------------------------------------------------------------------- | Tier 1 capital | 4,884 | 4,656 | 228 | 4.9 | 4,826 | -------------------------------------------------------------------------------- | Tier 2 capital | 0 | 0 | 0 | | 802 | -------------------------------------------------------------------------------- | Other capital | 47 | | 47 | | | | resources | | | | | | -------------------------------------------------------------------------------- | Allowances from | - | - | | | -360 | | combined | | | | | | | Tier 1 and Tier 2 | | | | | | | capital | | | | | | -------------------------------------------------------------------------------- | Total capital | 4,931 | 4,656 | 275 | 5.9 | 5,268 | | resources | | | | | | -------------------------------------------------------------------------------- * Converted into comparable figures On 1 January 2008, OP-Pohjola Group adopted a method recommended by the Financial Supervisory Authority to include insurance company investments in the calculation of capital adequacy as referred to in the Act on Credit Institutions. After this change, half of the balance sheet value of the insurance company investments will be deducted from the company's Tier 1 capital and the other half from Tier 2 capital. As a result of this change, the company's capital resources on 31 December 2007 converted into comparable figures were reduced by some EUR 378 million, which lowered the capital adequacy ratio by about 0.9 percentage points to 12.9%. The change had no major effect on the amount of Tier 1 capital. The Financial Supervisory Authority issued in January 2009 its new interpretation on the calculation of consolidated capital resources, the amendments relating to how insurance institutions are treated in terms of capital resources. OP-Pohjola Group has adjusted the calculation of its capital resources in accordance with the Financial Supervisory Authority. This change in the interpretation reduced the company's capital resources reported on 31 December 2007 by EUR 234 million and the capital adequacy ratio by about 0.6 percentage points. The Group's capital resources were EUR 491 million higher on 31 December 2008 than they would have been if the former calculation principles had been applied. The adoption of capital adequacy calculation according to Basel II did not affect the Group's capital resources. Tier 1 capital amounted to EUR 4,884 million on 31 December. Comparable Tier 1 capital stood at EUR 4,656 million on 31 December 2007. The result for the reporting period less the estimated dividend payout is included in Tier 1 capital. OP-Pohjola Group's Tier 1 capital increased by 4.9% during the report period. Tier 2 capital was reduced to zero following deductions from the item during the report period. Any deductions in excess of the Tier 2 capital were made from Tier 1 capital. At the end of the report period, capital resources were reduced by a fair value reserve that was EUR 84 million in the red. At the end of 2007, the comparable fair value reserve increased the consolidation group's capital resources by EUR 18 million. In March, Pohjola Bank plc issued a EUR 170 million debenture loan, classified as lower Tier 2 capital, with a maturity of ten years, and in December a EUR 100 million subordinated bond, of which a total of EUR 80 million is included in Tier 1 capital and EUR 20 million in other upper Tier 2 capital. The loan has a maturity of 5 years. On 31 December, insurance company investments, deducted in equal proportions from Tier 1 and 2 capital, came to EUR 2,159 million (1,813). On the basis of the exemptions granted by the Financial Supervisory Authority, investments by OP-Pohjola Group entities in venture capital funds, managed by Pohjola Capital Partners, are treated in the capital adequacy calculation in the same way as investments in shares in business or industrial corporations. On 31 December, the ratio of hybrid capital to Tier 1 capital before adjustments was 3.6% (4.6). Tier 1 capital does not include equity capital growth resulting from the IFRS-compliant measurement of pension liabilities and the assets covering them, and from the measurement at fair value of investment property. -------------------------------------------------------------------------------- | Capital adequacy | Basel | Basel I | | | Reported | | | II | | | | | -------------------------------------------------------------------------------- | EUR million | 31 Dec | 31 Dec | Change, | Change, | 31 Dec | | | 2008 | 2008 | EUR | % | 2007 | | | | | million | | | -------------------------------------------------------------------------------- | Risk-weighted items, | 38,746 | 43,482 | -4,736 | -10.9 | 38,245 | | total | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Capital resources | | | | | | | requirement | | | | | | -------------------------------------------------------------------------------- | Credit and | 2,832 | 3,403 | -571 | -16.8 | 3,011 | | counterparty risk | | | | | | -------------------------------------------------------------------------------- | Market risk | 47 | 75 | -28 | -37.3 | 49 | -------------------------------------------------------------------------------- | Operational risk | 221 | - | 221 | | - | -------------------------------------------------------------------------------- | Total | 3,100 | 3,478 | -378 | -10.9 | 3,060 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Capital adequacy | 12.7 | 11.3 | 1.4 | | 13.8 | | ratio,% | | | | | | -------------------------------------------------------------------------------- | Ratio of Tier 1 | 12.6 | 11.2 | 1.4 | | 12.6 | | capital | | | | | | | to total risk-weighted | | | | | | | items, | | | | | | | % (Tier 1 ratio) | | | | | | -------------------------------------------------------------------------------- Capital adequacy under the Act on the Supervision of Financial and Insurance Conglomerates OP-Pohjola Group's capital adequacy pursuant to the Act on the Supervision of Financial and Insurance Conglomerates is calculated using the consolidation method, whereby assets included in capital resources but not included in equity capital, under the regulations for the banking or insurance industry, are added to the equity capital in the conglomerate's balance sheet. Capital resources may not include items not available for covering the losses of other companies belonging to the conglomerate. Based on its interpretation issued on 31 March 2008, the Finnish Financial Supervisory Authority altered the manner in which OP-Pohjola Group Mutual Insurance Company's equalisation provision is to be applied in capital adequacy calculation. As a result of this change, the capital adequacy referred to in the Act on the Supervision of Financial and Insurance Conglomerates was reduced by EUR 196 million on 31 March. However, this has no material effect on the Group's actual risk-bearing capacity. On 31 December, OP-Pohjola Group's capital resources calculated according to the Act on the Supervision of Financial and Insurance Conglomerates exceeded the minimum amount specified in the Act by EUR 1,406 million (1,753). Changes in the capital adequacy calculation as specified in the Act on Credit Institutions increased the possibilities of using Tier 2 capital, which in effect compensates for the negative effect of the interpretation concerning OP-Pohjola Group Mutual Insurance Company. The insurance companies' equalisation provision is not included in the financial and insurance conglomerate's capital resources. On 31 December 2008, the combined equalisation provision less the non-life and life insurance tax liabilities stood at EUR 481 million. The equalisation provision acts as a buffer for insurance companies in case of years with heavy losses and is therefore part of the financial services group's actual buffer against losses. Capital adequacy under the Act on the Supervision of Financial and Insurance Conglomerates -------------------------------------------------------------------------------- | EUR million | 31 Dec | 31 Dec | Change, | Change, | | | 2008 | 2007 | EUR | % | | | | | million | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | OP-Pohjola Group's equity | 5,215 | 5,638 | -423 | -7.5 | | capital | | | | | -------------------------------------------------------------------------------- | Business-segment-specific | 1,873 | 1,607 | 266 | 16.5 | | items | | | | | -------------------------------------------------------------------------------- | Goodwill and intangible | -1,106 | -1,116 | 10 | -0.9 | | assets | | | | | -------------------------------------------------------------------------------- | Equalisation provision | -481 | -256 | -225 | 87.7 | -------------------------------------------------------------------------------- | Other items included in | -619 | -728 | 109 | -15.0 | | equity capital and | | | | | | business-segment-specific | | | | | | items, but not included | | | | | | in the conglomerate's | | | | | | capital resources | | | | | -------------------------------------------------------------------------------- | Conglomerate's capital | 4,882 | 5,145 | -263 | -5.1 | | resources, total | | | | | -------------------------------------------------------------------------------- | Regulatory capital | 3,115 | 3,037 | 78 | 2.6 | | requirement for credit | | | | | | institutions | | | | | -------------------------------------------------------------------------------- | Regulatory capital | 361 | 355 | 6 | 1.7 | | requirement for insurance | | | | | | operations | | | | | -------------------------------------------------------------------------------- | Total minimum amount of | 3,476 | 3,392 | 84 | 2.5 | | conglomerate's capital | | | | | | resources | | | | | -------------------------------------------------------------------------------- | Conglomerate's capital | 1,406 | 1,753 | -347 | -19.8 | | adequacy | | | | | -------------------------------------------------------------------------------- | Conglomerate's capital | 1.40 | 1.52 | -0.11 * | | | adequacy ratio (capital | | | | | | resources/minimum of | | | | | | capital resources) | | | | | -------------------------------------------------------------------------------- * Change in ratio Capital adequacy management and risk exposure Capital adequacy management: key objectives, principles and organisation in a nutshell The purpose of capital adequacy management is to secure the financial services group's risk-bearing capacity and to ensure continuity of operations. In OP-Pohjola Group, this consists of reliable management and the organisation of internal control and risk management, relying on stress testing concerning financial capital and sufficiency of capital, and also making use of capital plans and a backup plan made in connection with the strategy to protect company capital. Capital adequacy management has been integrated into business control and management, and is carried out at Group level in all business areas. OP-Pohjola Group's strategy contains the key risk management principles and the Group's targets for risk-bearing capacity and risk appetite. The Group has a moderate attitude towards risk-taking. The indicator for success in terms of risk-bearing capacity has been set in the strategy as the ratio between non-current capital resources and economic capital. The objective is that non-current capital resources are always greater than economic capital. The target in terms of risk appetite is that OP-Pohjola Group's net impairment losses on receivables do not exceed 0.25% of the loan and guarantee portfolio. OP-Pohjola Group Central Cooperative is responsible for Group-level capital adequacy management and for ensuring that the Group's risk management system is sufficient and kept up to date. The Central Cooperative issues Group entities with guidelines for ensuring risk management and supervises the operation of the entities. Group entities are responsible for their own capital adequacy management in accordance with the nature and extent of their operations. OP-Pohjola Group's risk limit system plays a key risk management role. The Central Cooperative's Supervisory Board sets limits for risk-bearing capacity and credit and market risks and, based on OP-Pohjola Group's risk limits, the Central Cooperative and its subsidiaries adjust their own risk limit systems. The Group's risk limit system is also used to determine the supervision limits concerning Group member banks (including Helsinki OP Bank Plc), and any control and supervision of the member banks by the Central Cooperative is based on this supervision limit system. Group member banks set themselves stricter risk limits than the supervision limits imposed by the Central Cooperative. OP-Pohjola Group's risk exposure Risk-bearing capacity The indicator for OP-Pohjola Group's risk-bearing capacity is the ratio of capital resources to the minimum amount of capital resources referred to in the Act on the Supervision of Financial and Insurance Conglomerates. The Group's risk limit for this capital adequacy ratio is 1.2, while the legal requirement is 1. On 31 December 2008, the ratio was 1.40, against 1.52 on 31 December 2007. On 31 December 2008, OP-Pohjola Group's capital resources were EUR 710 million (1,074) above the Group's internal risk limit and EUR 1,406 million (1,753) more than the limit required by law. The high risk-bearing capacity acts as a buffer against unexpected losses and paves the way for business growth. OP-Pohjola Group assesses the sufficiency of capital resources at regular intervals. Capital management follows the principles of the Group's risk limit system. The primary risk indicator for capital planning is capital adequacy, as defined in the Act on the Supervision of Financial and Insurance Conglomerates, which measures risk-bearing capacity. The amount of capital required to cover the risks is assessed by means of OP-Pohjola Group's internal economic capital model. OP-Pohjola Group's capital plan includes scenarios to estimate the sufficiency of capital in various operating environments. The Group's risk-bearing capacity is lower is certain stress scenarios but always remains above the risk level of the Group's risk-bearing capacity. Credit risks OP-Pohjola Group's banking loan and guarantee portfolio stood at EUR 53.9 billion (47.2), or 14% higher year on year. Of the EUR 6.8 billion increase in the loan and guarantee portfolio, EUR 3.3 billion was accounted for by households and EUR 3.2 billion by companies and housing associations. In 2008, home mortgages increased by 12% to EUR 24.2 billion, accounting for 45% (46%) by year-end of the Group's total loan and guarantee portfolio. Households accounted for 63% (65) and companies and housing associations 34% (32) of the entire loan and guarantee portfolio. OP-Pohjola Group's loan and guarantee portfolio is diversified. At the end of 2008, the largest single counterparty-related customer risk accounted for 7.1% (7.0%) of the Group's capital resources. The limit for an individual customer risk is 15%. The biggest risk concentration for any sector in banking is in the real estate business: it accounted for EUR 2.7 billion, or 12.0%, of private sector receivables and commitments. The Group's corporate loan categorisation encompasses almost all company customers. The purpose of rating is to put customers in different group according to the risk.Customers' credit rating is reassessed whenever necessary, but at least once a year. At the end of 2008, 96% of corporate exposures were rated. 66% of the exposures were in good rating categories (categories 1-6). Customers with poor loan repayment ability (categories 9-12) accounted for 7% of the exposures. Private customers are also put in credit categories according to risk. 91% of private customers' exposure had been categorised by 33 December 2008. Of the six main categories, 70% of the exposures belong to the top two categories. The main category immediately below them accounted for 12% of the exposures. On 31 December 2008, OP-Pohjola Group's non-performing and zero-interest receivables came to EUR 203 million, up by 38% on the previous year. Non-performing and zero-interest loans are stated net of impairment losses on specific receivables and groups of receivables, which amounted to EUR 91 million (87). The ratio of non-performing and zero-interest loans to the loan and guarantee portfolio on 31 December 2008 was 0.4% (or 0.1 percentage points) higher year on year, and 1.6 percentage points below its risk level of 2.0%. Impairment losses on receivables remained low, at a gross amount of EUR 81 million in 2008, which is 0.15% of the loan and guarantee portfolio. Credit risks have increased but are still at a low level. The percentage of non-performing and other doubtful receivables of the loan and guarantee portfolio is still low. This view is supported by the individual credit decisions made by the loan portfolio insurance and credit risk committees and by loan portfolio analyses and reports. Disturbances in the economic environment in the last quarter of 2008 did not yet reflect on customers' liquidity. Market risks OP-Pohjola Group has good liquidity, and funding operations have performed well despite the difficult market situation. Deposits account for about two-thirds of funding, this proportion remaining the same throughout the year thanks to strong increase in deposit accounts. OP-Pohjola Group's financial position was boosted during the year thanks to bonds issued by Pohjola Bank and OP Mortgage Bank. The liquidity reserve maintained by OP-Pohjola Group and Pohjola Bank plc amounted to EUR 9.8 billion (5.7) on 31 December 2008. The liquidity reserves plus items included in OP-Pohjola Group's balance sheet comprise the liquidity reserve eligible for central bank refinancing, which can be used to cover OP-Pohjola Group's wholesale funding maturities for approximately 24 months. The risk limit measure for the Group's banking operations' funding risk was the cumulatively calculated ratio of the difference of maturing receivables and liabilities to the balance sheet total in periods of a maximum of one, three and five years. At the end of the year, the key ratios for the financial risk were substantially better than the risk limits. In addition, the Group monitored the share of deposit funding within total assets and the product breakdown of deposits using specific indicators. In the risk limit system, the interest risk indicator has been defined as the effect of a 1.0 percentage point interest rate increase on economic capital, in proportion to the interest rate risk position's current value. The market risk control of the risk limit system also includes the insurance business. On 31 December 2007, the interest rate risk indicator value was 0.6% (0.7). OP-Pohjola Group's interest risk must remain within its risk limits, ± 10%. The Group's biggest interest rate risks are those related to retail banking's banking book, and investments in non-life and life insurance. The banking interest rate risk is derived from the banking book and Pohjola Bank's trading portfolio. On 31 December 2008, the market value of OP-Pohjola Group's publicly quoted shares and mutual fund units totalled EUR 380 million (1,128). Share and mutual fund investments were 20% of the maximum interest rate risk. The indicator for currency risk is the ratio of the overall net currency position to economic capital. The interest rate risk was about a quarter of the maximum interest rate risk. Property holdings tied up in banking operations decreased further, at year-end totalling EUR 1.0 billion, down by EUR 19 million year-on-year. The market value of property investment made by the insurance companies stood at EUR 275 million (276), and the property risk was less than half of its maximum. The relative proportion of investments in real estate by insurance companies depends on the investment markets and trends.The Group mainly invests in targets that can be held for a long period. Non-life Insurance On 31 December 2008, Non-life Insurance solvency capital stood at EUR 608 million (613), accounting for 66% (72) of insurance premium revenue. The financial market turbulence reduced the fair value of investment reflected in lower solvency. In order to enhance its solvency, Pohjola Insurance Ltd issued a EUR 50 million perpetual capital bond to OP-Pohjola Group Central Cooperative, and Pohjola Bank plc capitalised non-life insurers by a total of EUR 65 million. Moody's upgraded credit rating for Pohjola Insurance Ltd, Pohjola's subsidiary engaged in non-life insurance operations, from A2 to A1. According to Moody's, this change reflects the successful integration of Pohjola Insurance with Pohjola Bank. The reinsurance of Non-life Insurance is managed on a centralised basis. Retention in risk-specific reinsurance is a maximum of EUR 5 million and that in catastrophe reinsurance EUR 5 million. The capacity of catastrophe insurance covering loss accumulation stands at EUR 80 million. Normal fluctuations in business operations are reflected in changes in earnings and shareholders' equity. The number and size of claims vary annually. The year-on-year variation in earnings generated by the insurance business is, to a large extent, explained by the claims incurred due to major losses. In Non-life Insurance, the first quarter saw 204 (229) major or medium-sized losses, with their claims incurred retained for own account totalling EUR 84 million (101). A large part of Non-life Insurance contract liabilities consists of annuities affected by estimated mortality, the inflation rate and the discount rate used. A one-year increase in the average life expectancy increases technical provisions by about EUR 29 million (29). The life insurance investment assets came to EUR 2.4 billion (2.5) at the end of 2008. The largest asset class consisted of bonds, which accounted for 70% (69) of investment assets. The average credit rating of the Non-life Insurance fixed-income portfolio is S&P's AA- (AA-). 94% (93) of the fixed-income portfolio was in the 'investment grade'. Equities and venture-capital investments accounted for 8% (16) of the entire investment portfolio, property for 6% (5) and alternative investments for 5% (7). The total net foreign currency exposure of non-life insurance was slightly over 2% (1) of investment assets. Sharply falling equity prices and widening credit spreads affected Non-life Insurance investment income, with the related return at fair value standing at -7.0% (4.8). On 31 December 2008, the average maturity of the fixed-income portfolio was 4.3 years (3.8) and the current interest rate 5.3% (4.8). Discounted insurance contract liabilities of EUR 1,268 million (1,244), with a duration of 11.9 years (11.7), were discounted using a 3.5% interest rate (3.5), while the remaining insurance contract liabilities, EUR 848 million (773), were undiscounted, with a duration of 2.2 years (2.0). Life Insurance Owing to the instability of investment markets, it was decided that the solvency margin was increased in 2008. OP Life Assurance Company Ltd carried out two share issues worth a total of EUR 260 million with which OP-Pohjola Group's good risk-bearing capacity was allocated to life insurance operations. The most significant risks in life insurance operations are associated with investments. Specific risk management instructions and operating policies have been laid down for the risk management of investment operations. An investment plan is made annually to determine the financial targets and to set quantitative and qualitative limits. The life insurance investment assets came to EUR 3.9 billion (4.2) at the end of 2008. Fixed-income instruments accounted for 73% (64) of the investment assets, with a significant part of the fixed-income investments in fixed income funds. 83% (82) of bonds were in the 'investment grade'. The average credit rating of a fixed-income portfolio is A+ (AA-) and the average duration 4.2 years (5.4), with equities accounting for 5% (17) of all the investment assets, property for 6% (5) and alternative investments for 16% (14). Investment asset losses were -12.0% (profits of 2.6%). Return on equity investments was affected by the bearish equity market, and consequently the percentage of equity in investment assets was reduced during the autumn. Fixed-income investments suffered as a result of interest rates that kept going up until the last quarter, and wider credit spreads following market instability. The life insurance total net foreign currency exposure was slightly over 3% (6) of investment assets. Pension entities The investment operations of OP-Pohjola Group's pension entities (OP Bank Group Pension Fund and OP Bank Group Pension Foundation) involve market risks. The 2008 financial crisis has also impaired the risk-bearing capacity of pension entities, and therefore portfolios have been adapted to the new situation. The pension entities are not consolidated into OP-Pohjola Group's financial statements. Operational risks and trials Financial losses caused by operational risks were small. The key factor in OP-Pohjola Group's compliance activities is to ensure that the principles of good corporate governance are followed in all business operations. The operating procedures and organisation related to compliance activities were improved in 2008. Another important item on the agenda was to introduce procedures to conform with new legislation against money laundering and terrorism. The Group was also getting ready for the Payment Services Act that will enter into force in late 2009 and ratify the Directive on payment services in the internal market. The dispute over the redemption price of Pohjola Group plc shares continues in the court of appeal. Based on the District Court's decision, the pre-share redemption price of EUR 13.35 remained the same as previously bid by Pohjola Bank plc. The special representative of Pohjola Group plc's minority shareholders and some individual minority shareholders have appealed against the Helsinki District Court's decision on the shares' redemption price. Pohjola Bank plc has also appealed against the legal expenses sentenced to be paid by the adverse parties, interest confirmed on the redemption price and some matters related to legal proceedings. Credit ratings Of the international credit rating agencies, Fitch Ratings provides a rating for both OP-Pohjola Group and its central bank, Pohjola Bank plc. OP-Pohjola Group's financial position also has a considerable impact on credit ratings issued for Pohjola Bank plc alone. The credit ratings are as follows: -------------------------------------------------------------------------------- | Rating agency | Short-term debt | Long-term debt | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Fitch Rating | F1+ | AA- | | (OP-Pohjola Group and | | | | Pohjola Bank plc) | | | -------------------------------------------------------------------------------- | Standard & Poor's (Pohjola | A-1+ | AA- | | Bank) | | | -------------------------------------------------------------------------------- | Moody's (Pohjola Bank) | P-1 | Aa1 | -------------------------------------------------------------------------------- All of the credit rating agencies have confirmed a stable rating outlook for Pohjola Bank. OP-Pohjola Group's long-term financial targets OP-Pohjola Group's business strategy adopted in June 2006 describes the Group's long-term financial targets for risk-bearing capacity, profitability, risk appetite and efficiency. Due to the fall in financial instruments' market values, OP-Pohjola Group did not reach its long-term profitability target. The cost/income efficiency weakened from last year's 49% to 54%. The values for risk-bearing capacity and risk appetite were higher than the target levels. Long-term performance indicators -------------------------------------------------------------------------------- | | Indicator | Target | 31 Dec | 31 Dec | | | | | 2008 | 2007 | -------------------------------------------------------------------------------- | Risk-bearing | Non-current | Min. | 1.06 | 1.14 | | capacity | capital | 1.0 | | | | | resources/ | | | | | | e | | | | | | conomic | | | | | | capital | | | | -------------------------------------------------------------------------------- | | Indicator | Target | 2008 | 2007 | -------------------------------------------------------------------------------- | Profitability | Return on | Min. | 8.0% | 22.5% | | | economic | 17% | | | | | capital | | | | -------------------------------------------------------------------------------- | Risk appetite | Impairment | Max. | 0.11% | 0.03% | | | losses on | 0.25% | | | | | receivables/ | | | | | | loan and | | | | | | guarantee | | | | | | portfolio | | | | -------------------------------------------------------------------------------- | Efficiency | Cost/income | Max. | 54% | 49% | | (Banking and | | 50% | | | | Investment | | | | | | Services) | | | | | -------------------------------------------------------------------------------- Changes in OP-Pohjola Group's structure OP-Pohjola Group's consolidated financial statements include 227 member cooperative banks, OP-Pohjola Group Central Cooperative Consolidated and OP Bank Group Mutual Insurance Company. Karunan Osuuspankki merged with Sauvon Osuuspankki on 31 October 2008. In addition, the member banks Joensuun Osuuspankki and Kontiolahden Osuuspankki merged on 31 December 2008 to establish a new member bank, Joensuun Seudun Osuuspankki. Kuusjoen Osuuspankki, Kiikalan Rekijoen Osuuspankki, Kiskon Osuuspankki, Perniön Osuuspankki and Salon Seudun Osuuspankki have decided to create Salon Osuuspankki through a combination merger. In another combination merger, Lieksan Osuuspankki, Nurmeksen Osuuspankki and Valtimon Osuuspankki will become Pielisen Osuuspankki. The planned date for the last two mergers to be entered in the trade register is 30 April 2009. In accordance with the agreement made between Pohjola Bank plc and Kesko Corporation on 21 December 2007, the share capital of K-Finance Ltd was transferred to Pohjola Bank plc 31 January 2008 and the company was renamed Pohjola Finance Ltd. The Boards of Directors of Pohjola Bank plc and Pohjola Finance Ltd have approved a plan whereby Pohjola Finance Ltd is expected to merge with its parent company by 31 September 2009. As part of the agreement between OP-Pohjola Group Central Cooperative and TietoEnator on datacentre services, the former sold TietoEnator and Ilmarinen Mutual Pension Insurance Company 34% of its FD Finanssidata Oy shares in May. As a result, FD Finanssidata Oy is no longer consolidated in OP-Pohjola Group's financial statements as a subsidiary. This structural change has no material effect on the Group's result. During the reporting period, Pohjola Insurance Ltd and a number of OP-Pohjola Group member cooperative banks have implemented a new operating model for banking and non-life insurance product sales to private customers. Pohjola Insurance's field staff for private customers (294 employees) joined the payroll of local cooperative banks on 1 October 2008. On 22 August 2008, the Helsinki District Court issued its verdict in the redemption dispute between Pohjola Bank plc's and Pohjola Group plc's minority shareholders. The redemption price bid by Pohjola Bank plc for Pohjola Group plc's shares held by minority shareholders was EUR 13.35, which is the same as the redemption price offered by Pohjola Bank for them. This concerned some 2.1 per cent of the company's shares (about 3.4 million shares). The dispute over the shares has been submitted to the Court of Appeal. Owner-members and customers The cooperative member banks had 1,255,000 owner-members at the end of December, or 53,000 more than a year earlier. Group member banks and Helsinki OP Bank plc, which operates in the Greater Helsinki area, had a total of 1,059,000 OP bonus customers at the end of December. Loyal customer bonuses earned by OP bonus customers totalled EUR 132 million, up by 59% on the previous year, this growth stemming particularly from the nearly 40% increase in the value of accumulated bonuses since the beginning of 2008. As of May, bonus customers also began to receive bonuses for OP-Visa purchases. Bonuses earned by owner-members are stated in OP-Pohjola Group's income statement under 'Returns to owner-members'. OP bonus customers used a total of EUR 56 million (57) in bonuses for banking services during January-September, and since the autumn of 2007 bonuses can also have been used to pay for Pohjola's non-life insurance products. In January-December, bonuses worth EUR 17 million were used to pay for insurance premiums. The entire OP-Pohjola Group had 4,143,000 customers in Finland at the end of December, or 56,000 more than a year earlier. There were 3,737,000 private customers, up by 43,000 year on year, and 406,000 corporate customers, up by 13,100. In addition, OP-Pohjola Group has approximately 200,000 non-life insurance customers in the Baltic countries. In the year to September, the number of joint banking and non-life insurance customers in Finland increased by 95,000 to 993,000 as a result of cross-selling. On 31 December, the number of Pohjola's loyal customer households totalled 389,000, up by 34,400 year on year. Personnel and incentive system On 31 December 2008, OP-Pohjola Group had a staff of 12,752, up by 281 year on year. About 94% of OP-Pohjola Group's personnel are members in the Group's Personnel Fund. A management incentive scheme is also in place within the Group. Central Cooperative's corporate governance OP-Pohjola Group Central Cooperative is the central institution of the amalgamation of the cooperative banks, the parent company of OP-Pohjola Group Central Cooperative Consolidated and the company heading the financial and insurance conglomerate formed by OP-Pohjola Group. Acting as a development and service centre for OP-Pohjola Group and as a strategic owner institution, the Central Cooperative plays a pivotal role in developing and steering OP-Pohjola Group's business. OP-Pohjola Group Central Cooperative's Annual Cooperative Meeting of 27 March 2008 re-elected the following members due to resign to the Cooperative's Supervisory Board for a term ending in 2011: Mr Jari Laaksonen, Managing Director; Mr Olli Lehtilä, Managing Director; Mr Juhani Leminen, Managing Director; and Ms Marita Marttila, Senior Nursing Officer. Jaakko Pehkonen, Professor, and Timo Parmasuo, Chairman of the Board of Directors, were appointed as new Supervisory Board members. In addition, the Meeting elected Mr Jussi Ruuhela, Managing Director, for the term ending in 2009. The Supervisory Board comprises 34 members. At its first meeting following election, the Supervisory Board re-elected Mr Seppo Penttinen Chairman and Mr Paavo Haapakoski and Mr Jukka Hulkkonen Vice Chairmen. The Annual Cooperative Meeting re-elected KPMG Oy Ab, a firm of authorised public accountants, the auditor of OP-Pohjola Group Central Cooperative and OP-Pohjola Group for the financial year 2008. As proposed by Central Cooperative's Executive Board, the Meeting decided to change the corporate name of OP Bank Group Central Cooperative to OP-Pohjola Group Central Cooperative. The new name was registered in the Trade Register on 21 April 2008. Capital expenditure The Central Cooperative, together with its subsidiaries, is responsible for developing OP-Pohjola Group's services. ICT investments and related specifications make up a significant portion of costs of developing these services. ICT procurement capitalised in the balance sheet totalled EUR 43 million. EUR 26 million allocated to banking and investment operations, EUR 11 million to non-life insurance operations and EUR 6 million to life insurance operations. Expenses of some EUR 16 million were during the report period caused by the integration of information systems between banking and insurance operations. Joint responsibility and joint security Under the Act on Cooperative Banks and Other Cooperative Credit Institutions, the amalgamation of the cooperative banks comprises the organisation's central institution (OP-Pohjola Group Central Cooperative), the Central Cooperative's member credit institutions and the companies belonging to their consolidation groups. This amalgamation is monitored on a consolidated basis. Central Cooperative and its 231 member banks are ultimately responsible for each other's liabilities and commitments. Central Cooperative's members at the end of the reporting period comprised OP-Pohjola Group's 227 member banks as well as Pohjola Bank plc, Helsinki OP Bank Plc, OP Mortgage Bank and OP-Kotipankki Oyj. OP-Pohjola Group's insurance companies do not fall within the scope of joint responsibility. Deposit banks belonging to OP-Pohjola Group, i.e. its member cooperative banks, Pohjola Bank plc, Helsinki OP Bank Plc and OP-Kotipankki Oyj, are regarded as a single bank with respect to deposit protection. Under legislation governing the Investor Compensation Fund, OP-Pohjola Group is also considered a single entity for purposes of compensation protection. Events after the reporting period OP-Pohjola Group, Nordea Bank Finland Plc and Sampo Bank plc provided funding to secure the repayment of deposits in Kaupthing Bank hf's Finnish branch that had run into financial difficulty. The financing for this scheme totalled some EUR 100 million, OP-Pohjola Group accounting for around 40% of it. This arrangement, which was approved by both the Icelandic and Finnish authorities, was concluded in January 2009 with no significant effect on the Group's result. The Cabinet Committee on Economic Policy outlined measures on 27 January 2009 as part of a more extensive package to alleviate banks' capacity to ensure funding to households and businesses. The primary means include an option for State guarantee for banks' refinancing and an option for a subordinated loan, neither of which OP-Pohjola Group has so far decided to exercise. In December 2008, OP-Pohjola Group Central Cooperative offered its member cooperative banks to subscribe to its supplementary cooperative capital. The subscription period ended on 2 February 2009, resulting in new capital totalling EUR 444 million. The Board of Pohjola Bank, OP-Pohjola Group Central Cooperative's subsidiary, decided at its meeting on12 February 2009 to take measures to strengthen the company's capital base. Accordingly, this capital increase could be implemented through a rights issue in the spring 2009 of around EUR 300 million for the existing shareholders, subject to a Board authorisation issued by the Annual General Meeting. This would further increase Pohjola Bank's solid capital adequacy and improve Pohjola Bank capacity to its customer companies' funding in a situation where the funding is difficult to get and many foreign players have left the Finnish market. The three largest owners of Pohjola Bank have committed to subscribing shares in accordance with the subscription rights made available to them. The Central Cooperative has also guaranteed to subscribe any shares that may otherwise not be subscribed. Prospects for 2009 Our operating environment in 2008 was troubled by financial market swings, plummeting asset values and higher funding costs. The market rate began to fall sharply in late 2008, this trend still continuing in 2009. It is exceptionally difficult to predict how the financial sector's operating environment will be affected in 2009. The financial market are still unstable and the investment environment's problems are forecast to continue. To make forecasts even more difficult, the repercussions of the financial crisis are only now being felt in the real economy. Owing to heightening problems in the operating environment, the financial sector's growth rate is expected to slow down and credit losses to rise, and the interest rates are likely to remain low throughout 2009. OP-Pohjola Group's profits for 2009 are very difficult to predict, but the Group's high capital adequacy ratio enables us to develop and increase our business in the long term despite the challenging times. Our strong capital adequacy will also act as a buffer against any rising credit losses. All forward-looking statements in this bulletin expressing the management's expectations, beliefs, estimates, forecasts, projections and assumptions are based on the current view of the future financial performance of OP-Pohjola Group and its various functions, and actual results may differ materially from those expressed in the forward-looking statements. Operations and earnings by business segment OP-Pohjola Group's business segments are Banking and Investment Services, Non-life Insurance and Life Insurance. Non-segment operations are presented in 'Other Operations'. OP-Pohjola Group's segment reporting is based on accounting policies applied in its financial statements. Amortisation on intangible assets arising from the Pohjola acquisition is allocated to the business segments. OP-Pohjola Group's business segment reporting was changed as of the second quarter of 2008: Pohjola Bank Group's asset management and central bank operations which used to be included in Banking and Investment Services will from now on be reported as part of the non-business-segment Other Operations. The comparison period figures for 2007 have been changed to correspond to the new segment division. The changes concern the Banking and Investment Services and Other Operations. Companies within the Banking and Investment Services segment are the member banks, Helsinki OP Bank Plc, OP Kotipankki Oyj, OP Mortgage Bank, OP Fund Management Company Ltd, Pohjola Asset Management Limited, Pohjola Corporate Finance Ltd*, Pohjola Capital Partners Ltd**, as well as certain smaller companies supporting banking and investment services in their entirety. Pohjola Bank plc's*** banking and asset management segments are also included in the Banking and Investment Services segment as are the operations of OP-Pohjola Group Mutual Insurance Company, because most of the company's business consists of credit insurance granted to the Group's retail banks. The Non-life Insurance segment encompasses the operations of OP-Pohjola Group's non-life insurance companies, i.e. Pohjola Insurance Ltd****, Eurooppalainen Insurance Company Ltd, A-Insurance Ltd, the Seesam companies operating in the Baltic countries, as well as the operations of service companies supporting non-life insurance. * OKO Corporate Finance Ltd until 29 February 2008 ** OKO Venture Capital Ltd until 29 February 2008 *** OKO Bank Group until 29 February 2008 **** Pohjola Non-Life Insurance Company Ltd, until 29 February 2008 The Life Insurance segment comprises OP Life Assurance Company Ltd engaged in the Group's life and pension insurance business. As a result of the new division into segments, Other Operations, which does not fall under any segment, grew in size. Pohjola Bank Group's central bank and asset management, which are now included under Other Operations, include the financial services group's EUR 10 billion liquidity reserve, Pohjola Bank Group's capital market asset management and the central bank operations offered to Group member banks by Pohjola Bank. Other Operations already included operations that supported all business segments, particularly the operations of OP-Pohjola Group Central Cooperative and FD Finanssidata Oy (up to May 2008) and Pohjola's Group management. Costs of the services which Central Cooperative and FD provide for the business segments are allocated to the segments in the form of internal service charges. The allocation of own capital to the business segments is carried out through an internal bank under Other Operations, which means that any positive results in excess of the target level will be shown under Other Operations. Summary of performance by business segment -------------------------------------------------------------------------------- | EUR million | Income | Expense | Others | Earnings/lo | Earnings/lo | | | | s | items | ss before | ss before | | | | | | tax | tax 2007 | | | | | | 2008 | | -------------------------------------------------------------------------------- | Banking and | 1,610 | 875 | -202 | 532 | 722 | | Investment | | | | | | | Services | | | | | | -------------------------------------------------------------------------------- | Non-life | 372 | 317 | 0 | 55 | 181 | | Insurance | | | | | | -------------------------------------------------------------------------------- | Life Insurance | -110 | 53 | 0 | -162 | 129 | -------------------------------------------------------------------------------- | Other Operations | 322 | 337 | -10 | -24 | -27 | -------------------------------------------------------------------------------- | Eliminations | -360 | -332 | -1 | -29 | 0 | -------------------------------------------------------------------------------- | Total | 1,834 | 1,249 | -213 | 372 | 1,005 | -------------------------------------------------------------------------------- Banking and Investment Services The banking and investment operating environment became more and more challenging towards the end of the financial period as a result of the heightening financial crisis. The fact that real economy is no longer growing and that interest rates are falling sharply will not make the operating environment any less challenging. Credit losses increased in 2008 but were nevertheless moderate. Mutual fund capital declined sharply, although credits and deposits continued to grow well. Customers' confidence for Finnish OP-Pohjola Group with high capital adequacy remained high, witnessed by an improvement in the Group's market position especially in the most critical stages of the financial crisis. On 31 December, the Group's loan portfolio stood at EUR 51 billion (44.8), and the guarantee portfolio at EUR 2.7 billion (2.4). Loan portfolio grew by 13.9% (13.1). The market share of the loan portfolio grew by 1.0 percentage points to 32.1% over the previous year. The portfolio of home mortgages at the end of December amounted to EUR 24.2 billion (21.5). During the report period, home mortgages increased by 12.1% (13.7). The December-end market share of home mortgages was 35.9%, up by 1.1 percentage points year on year. The steady decrease of the average margin of home mortgages that had continued for years levelled off during the report period. The margins turned up in the latter half of the year. The margins are expected to spread even more. The percentage of fixed-rate home mortgages of all home mortgages remained low at 2.4% (0.7). The financial services group's mortgage Bank, OP Mortgage Bank issued in May a EUR 1 billion covered bond, which will further improve OP-Pohjola Group's already strong competitiveness and position in the home mortgage market. Pohjola Bank issued long-term bonds worth EUR 1.4 billion during the financial period. However, although funding has been more difficult to obtain, the growth of OP-Pohjola Group's loan portfolio was never in danger of being jeopardised. On 31 December, the consumer credit portfolio amounted to EUR 3.7 billion (3.3), showing a year-on-year increase of 10.7%. On 31 December, the Group's corporate loan portfolio stood at EUR 14.1 billion (11.3), and the guarantee portfolio at EUR 2.6 billion (2.1). The corporate loan portfolio grew by 22% during the year. The increase in corporate loans is partly explained by the capital market crisis, which has increased the popularity of bank financing in proportion to companies' direct funding from the capital markets. The market share of corporate loans was 26.8% at the end of December, or up by 1.1 percentage points year on year. On 31 December, deposits totalled EUR 34.5 billion (29.0), or 19% higher than the previous year. The growth took place mainly in investment deposits, which shot up by 36% to EUR 19 billion (14.0). The Group's market share of deposits was 33.8% on 31 December, or 1.5 percentage points higher year on year. On 31 December, OP-Pohjola Group customers had 1.8 million (1.6) international OP-Visa, OP-Visa Electron, OP-Visa Debit and OP-MasterCards. By the end of December, over 567,000 cards had the K-Group's Plussa bonus point feature following the card cooperation started with the K-Group in 2007. Capital invested in OP-Pohjola Group's mutual funds stood at EUR 9.3 billion (14.1) billion. The amount of capital fell with the market trends by 34.1% during the report period. On 31 December, OP-Pohjola Group held a 22.5% market share of the capital of mutual funds registered in Finland, up by 1.1 percentage year on year. Net subscriptions to OP-Pohjola Group's mutual funds were EUR 2.3 billion in the negative (+0.6). On 31 December, assets managed by Pohjola Bank's asset management were worth EUR 25.3 billion (31.3), EUR 8.5 billion (13.1) of which was invested in OP-Pohjola Group's mutual funds. OP-Pohjola Group companies accounted for EUR 8.5 billion of assets managed by Pohjola Bank. OP-Pohjola Group companies account for EUR 6.1 billion of managed assets. Assets managed in accordance with the OP-Private operating model totalled EUR 2.7 billion (2.9). Stockbroking for households totalled 570,695 trades during the reporting period, or down by 0.9% on the previous year. Earnings and risk exposure Banking and Investment Services reported earnings of EUR 532 million (722) before tax for January-December 2008, down by 26% year on year. A quarter of this change can be attributed to higher bonuses paid to customers, totalling EUR 132 million (83) in the report period. Without these higher payouts to OP bonus customers, the Banking and Investment Services result would have been less than 20 per cent smaller than a year ago. Net interest income increased by 8.9% to EUR 1,121 million, while net commissions and fees fell by 2% to EUR 450 million. The net interest income increase mainly derives from business growth. Personnel costs rose by 10.2% and other expenses by 9.7%. Impairment losses on receivables came to EUR 48 million (13), increased by the EUR 7 million impairment loss caused by Lehman Brothers Holdings Inc that filed for bankruptcy. Otherwise the growth increase in impairment losses can be seen to reflect a turning point in real economy and a normal level of credit losses typical to bearish markets. The amount of impairment losses was still low in relation to the business volumes, and less than half of the risk level set by the Group itself. The Group's non-performing and zero-interest receivables increased but remained at low levels, totalling EUR 203 million on 31 December 2008, up by 38% year on year. Non-performing and zero-interest loans are stated net of impairments of specific receivables and groups of receivables, which amounted to EUR 91 million (87). The ratio of non-performing and zero-interest receivables to the loan and guarantee portfolio was 0.4, or slightly higher than a year ago (0.3). Banking and Investment Services: key figures -------------------------------------------------------------------------------- | EUR million | 2008 | 2007 | Change, % | -------------------------------------------------------------------------------- | | | | | -------------------------------------------------------------------------------- | Net interest income | 1,121 | 1,030 | 8.9 | -------------------------------------------------------------------------------- | Impairment losses on | 48 | 13 | | | receivables | | | | -------------------------------------------------------------------------------- | Other income | 489 | 610 | -19.8 | -------------------------------------------------------------------------------- | Personnel costs | 381 | 346 | 10.2 | -------------------------------------------------------------------------------- | Other expenses | 494 | 450 | 9.7 | -------------------------------------------------------------------------------- | Returns to owner-members and | 154 | 107 | 43.6 | | OP bonus customers | | | | -------------------------------------------------------------------------------- | Earnings/loss before tax | 532 | 722 | -26.3 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EUR million | 2008 | 2007 | Change, % | -------------------------------------------------------------------------------- | Home mortgages drawn down | 7,041 | 7,226 | -2.6 | -------------------------------------------------------------------------------- | Corporate loans drawn down | 8,271 | 6,797 | 21.7 | -------------------------------------------------------------------------------- | Net subscriptions to mutual | -2,308 | 595 | | | funds | | | | -------------------------------------------------------------------------------- | No. of brokered property | 14,569 | 16,263 | -10.4 | | transactions | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EUR billion | 31 Dec 2008 | 31 Dec 2007 | Change, % | -------------------------------------------------------------------------------- | Loan portfolio | | | | -------------------------------------------------------------------------------- | Home mortgages | 24 | 22 | 12.1 | -------------------------------------------------------------------------------- | Other loans to households | 10 | 9 | 7.3 | -------------------------------------------------------------------------------- | Corporate loans | 14 | 11 | 21.9 | -------------------------------------------------------------------------------- | Other loans | 3 | 3 | 15.4 | -------------------------------------------------------------------------------- | Total | 51 | 45 | 13.8 | -------------------------------------------------------------------------------- | Guarantee portfolio | 2.7 | 2.4 | 10.9 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Deposits | | | | -------------------------------------------------------------------------------- | Total current and payment | | | | | transfer | | | | -------------------------------------------------------------------------------- | Households | 10 | 10 | -1.5 | -------------------------------------------------------------------------------- | Companies | 4 | 3 | 16.1 | -------------------------------------------------------------------------------- | Others | 2 | 2 | 9.8 | -------------------------------------------------------------------------------- | Total current and payment | 16 | 15 | 3.4 | | transfer | | | | -------------------------------------------------------------------------------- | Investment deposits | 19 | 14 | 35.8 | -------------------------------------------------------------------------------- | Total deposits | 35 | 29 | 19.1 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Mutual funds | | | | -------------------------------------------------------------------------------- | Equity and hedge funds | 2.1 | 4.2 | -50.0 | -------------------------------------------------------------------------------- | Balanced funds | 1.3 | 2.1 | -35.5 | -------------------------------------------------------------------------------- | Long-term bond funds | 4.0 | 3.9 | 2.4 | -------------------------------------------------------------------------------- | Money market funds | 1.9 | 4.0 | -52.4 | -------------------------------------------------------------------------------- | Total value of mutual funds | 9.3 | 14.1 | -34.1 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Market share,% | 31 Dec | 31 Dec | Change, | | | 2008 | 2007 | percentage | | | | | points | -------------------------------------------------------------------------------- | Total loans | 32.1 | 31.1 | 1.0 | -------------------------------------------------------------------------------- | Home mortgages | 35.9 | 34.8 | 1.1 | -------------------------------------------------------------------------------- | Corporate loans | 26.8 | 25.7 | 1.1 | -------------------------------------------------------------------------------- | Total deposits | 33.8 | 32.3 | 1.5 | -------------------------------------------------------------------------------- | Capital invested in mutual | 22.5 | 21.4 | 1.1 | | funds | | | | -------------------------------------------------------------------------------- | EUR million | | | | -------------------------------------------------------------------------------- | Non-performing and | | | Change, % | | zero-interest receivables | | | | -------------------------------------------------------------------------------- | Households | 122 | 92 | 32.7 | -------------------------------------------------------------------------------- | Companies | 62 | 52 | 19.5 | -------------------------------------------------------------------------------- | Condominiums and others | 19 | 3 | | -------------------------------------------------------------------------------- | Total non-performing and | 203 | 147 | 37.8 | | zero-interest receivables | | | | -------------------------------------------------------------------------------- | Non-performing and | 0.4 | 0.3 | 0.06* | | zero-interest receivables | | | | | within loan and guarantee | | | | | portfolio,% | | | | -------------------------------------------------------------------------------- * Percentage point(s) Non-life Insurance The non-life insurance business improved well in 2008. On 31 December, the number of loyal customer households within the Non-life Insurance segment totalled 389,000, showing a year-on-year increase of 34,400 by comparably figures. Insurance premium revenue rose by 8.6% to EUR 923 million (850). Growth remained strong within the Private Customers division because of closer cooperation between Group member banks and the non-life insurance operations, and because of the increase in the number of loyal customer households. Insurance premium revenue from Private Customers improved by 12% to EUR 380 million. Within the Corporate Customers division, insurance premium revenue amounted to EUR 485 million, up by 8%. The increase of earnings in statutory accident insurance in the latter part of the period under review boosted growth. Premium revenue generated by the Baltic business increased by 4.2% to EUR 58 million (56). In 2007, Pohjola Insurance become the market leader in non-life insurance with a 26.9% market share and we estimate that our position as Finland's leading non-life insurer was solidified further in 2008. The integration of OP-Pohjola Group functions proceeded well in 2008 in terms of non-life insurance sales. Pohjola Insurance's field staff for private customers (294 employees) joined the payroll of cooperative banks on 1 October 2008. Using OP bonuses earned through banking transactions to pay for insurance premiums has been possible since autumn of 2007. Bonuses worth EUR 18 million were used to pay for insurance premiums in 2008. Bonuses were used for the payment of 307,000 bills, with over 72,000 bills paid with bonuses alone. Earnings and risk exposure Non-life Insurance earnings before tax for the report period were EUR 55 million, or 70% lower than a year ago (181). In terms of balance on technical account, 2008 was better than 2007. Net investment income recognised under earnings came to EUR 59 million, or EUR 101 million higher year on year (160). Net investment losses at fair value came to EUR 166 million (income of EUR 121 million). Results for the same period a year ago included EUR 6 million in capital gains on the sale of the marine hull insurance business. Insurance premium revenue totalled EUR 923 million (850) and indemnities EUR 591 million (536). The risk ratio stood at 63.4 (66.3). In particular, developments in the claims incurred due to severe traffic and industrial accidents were favourable. The number of major or medium-sized losses in excess of EUR 0.1 million (EUR 0.5 million in pension liabilities) totalled 204 (229), accounting for EUR 84 million (101) of total claims incurred. Another factor that contributed to higher indemnifications paid out was caused by the growing insurance portfolio. Operating expenses and loss adjustment expenses showed controlled growth, totalling EUR 262 million (235). The cost ratio was 28.4 (27.5). The operating combined ratio stood at 91.5 (93.8) and reached the target level. On 31 December, the investment portfolio of Non-life Insurance totalled EUR 2.4 billion (2.5), with bonds and bond funds accounting for 82% (71) and equities 8% (16). The average remaining maturity of the fixed-income portfolio was 6.6 (5.4) years and the duration 4.3 years (3.8). Due to unfavourable developments in the equity market, return on investment at fair value stood at -7.0% (4.8). Non-life Insurance: key figures -------------------------------------------------------------------------------- | EUR million | 2008 | 2007 | Change, % | -------------------------------------------------------------------------------- | | | | | -------------------------------------------------------------------------------- | Insurance premium revenue | 923 | 850 | 8.6 | -------------------------------------------------------------------------------- | Insurance claims and benefits | 591 | 536 | 10.2 | -------------------------------------------------------------------------------- | Net investment income | 59 | 160 | -63.0 | -------------------------------------------------------------------------------- | Unwinding of discount and other | -40 | -39 | 2.1 | | items included in net income | | | | -------------------------------------------------------------------------------- | Net income from Non-life | 352 | 435 | -19.1 | | Insurance | | | | -------------------------------------------------------------------------------- | Other income | 20 | 37 | -44.9 | -------------------------------------------------------------------------------- | Personnel costs | 111 | 103 | 7.8 | -------------------------------------------------------------------------------- | Other expenses | 206 | 188 | 9.4 | -------------------------------------------------------------------------------- | Earnings/loss before tax | 55 | 181 | -69.6 | -------------------------------------------------------------------------------- | Gross change in fair value | -226 | -39 | | | reserve | | | | -------------------------------------------------------------------------------- | Earnings/loss before tax at fair | -171 | 142 | -157.3 | | value | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EUR million | 2008 | 2007 | Change, % | -------------------------------------------------------------------------------- | Insurance premium revenue | | | | -------------------------------------------------------------------------------- | Private Customers | 380 | 345 | 10.1 | -------------------------------------------------------------------------------- | Corporate Customers | 485 | 449 | 8.0 | -------------------------------------------------------------------------------- | Baltic States | 58 | 56 | 4.2 | -------------------------------------------------------------------------------- | Total insurance premium revenue | 923 | 850 | 8.6 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EUR billion | 31 Dec | 31 Dec | Change, % | | | 2008 | 2007 | | -------------------------------------------------------------------------------- | | | | | -------------------------------------------------------------------------------- | Insurance contract liabilities | | | | -------------------------------------------------------------------------------- | Discounted insurance contract | 1.3 | 1.3 | 1.1 | | liabilities | | | | -------------------------------------------------------------------------------- | Other insurance contract | 0.8 | 0.8 | 11.2 | | liabilities | | | | -------------------------------------------------------------------------------- | Total | 2.1 | 2.0 | 4.9 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Investment portfolio | | | | -------------------------------------------------------------------------------- | Bonds and bond funds | 1.7 | 1.7 | -1.8 | -------------------------------------------------------------------------------- | Money market instruments | 0.3 | 0.1 | 446.9 | -------------------------------------------------------------------------------- | Equities and equity funds | 0.2 | 0.4 | -54.1 | -------------------------------------------------------------------------------- | Real property investment *) | 0.1 | 0.1 | 5.2 | -------------------------------------------------------------------------------- | Alternative investments | 0.1 | 0.2 | -40.7 | -------------------------------------------------------------------------------- | Total | 2.4 | 2.5 | -3.8 | -------------------------------------------------------------------------------- *) Includes real estate funds Life Insurance The operating environment in 2008 and particularly in the second half was unfavourable for the life insurance sector. Negative developments in the investment market thwarted life insurance companies' investment activities and weakened demand for unit-linked products. Premiums written in the domestic life insurance market were 6.8% lower than a year ago, mainly due to a fall in premiums written in endowment insurance policies. Year on year, OP-Pohjola Group's premiums written in life and pension insurance decreased by 10% to EUR 717 million (794). The market share of corporate loans was 29.4% at the end of December, or down by 1.4 percentage points year on year. Premiums written in endowment insurance declined by 28%, and the premiums written of pension policies increased by 28%. Premiums written from personal pension plans were at the same level as the year before. Premiums written in unit-linked policies accounted for 55.2% of those written in endowment insurance and personal pension insurance. Life insurance claims paid totalled EUR 643 million (507), of which surrenders accounted for EUR 332 million (204). EUR 49 million in pensions (37) was paid out in the review period. OP-Pohjola Group's market share of insurance savings through life and pension insurance policies increased by 0.5 percentage points to 19.4% since year-end 2007. Unit-linked policies accounted for 30% (41) of insurance savings in life and pension insurance. Earnings and risk exposure Life Insurance recorded pre-tax losses of EUR 162 million (earnings of EUR 129 million). The fair value reserve change before tax stood at EUR -403 million (-132). Net losses from Life Insurance were EUR 126 million (income of EUR 177 million). Net losses from investment assets other than those covering unit-linked insurance stood at EUR 94 million (income of EUR 206 million). The provision worth EUR 10 million for future supplementary benefits made at the end of 2007 was reversed during the financial period. Personnel costs increased by 5% to EUR 7 million, while other expenses decreased by 11% to EUR 48 million (53). Other expenses include EUR 26 million (27) in commissions paid to the sales network. On 31 December, total insurance contract liabilities within OP-Pohjola Group's life insurance operations stood at EUR 5.3 billion (6.0), down by 10.4% year on year. Interest-bearing contract liabilities accounted for 70.5% and unit-linked 29.5% of the total liabilities. Life insurance investment assets, excluding assets covering unit-linked insurance, amounted to EUR 3.9 billion (4.2). The investment environment was difficult in 2008 and therefore investments at fair value recorded a loss of 12.0% (income of 2.6%). Owing to the instability of investment markets, it was decided that the solvency margin was increased in 2008. In May, OP Life Assurance Company Ltd carried out two share issues worth a total of EUR 260 million. OP-Pohjola Group Central Cooperative is prepared to improve the solvency of OP Life Assurance Company Ltd by means of new equity investments. Life Insurance: key figures -------------------------------------------------------------------------------- | EUR million | 2008 | 2007 | Change, | | | | | % | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Premiums written, IFRS | 717 | 794 | -9.8 | -------------------------------------------------------------------------------- | Unit-linked | 299 | 451 | -33.8 | -------------------------------------------------------------------------------- | Other | 418 | 343 | 21.9 | -------------------------------------------------------------------------------- | Net investment income | -802 | 303 | -364.7 | -------------------------------------------------------------------------------- | Unit-linked | -708 | 97 | -831.6 | -------------------------------------------------------------------------------- | Other | -94 | 206 | -145.5 | -------------------------------------------------------------------------------- | Change in insurance contract | -590 | 409 | -244.3 | | liabilities | | | | -------------------------------------------------------------------------------- | Unit-linked | -758 | 282 | -368.8 | -------------------------------------------------------------------------------- | Other | 168 | 127 | 32.6 | -------------------------------------------------------------------------------- | Claims incurred | 643 | 507 | 26.7 | -------------------------------------------------------------------------------- | Other items | 12 | -4 | -413.0 | -------------------------------------------------------------------------------- | Net income from Life Insurance | -126 | 177 | -170.8 | -------------------------------------------------------------------------------- | Other income | 16 | 12 | 33.1 | -------------------------------------------------------------------------------- | Personnel costs | 5 | 7 | -27.9 | -------------------------------------------------------------------------------- | Other expenses | 48 | 53 | -11.0 | -------------------------------------------------------------------------------- | Earnings/loss before tax | -162 | 129 | -226.0 | -------------------------------------------------------------------------------- | Gross change in fair value | -403 | -132 | 204.9 | | reserve | | | | -------------------------------------------------------------------------------- | Earnings/loss before tax at fair | -565 | -3 | | | value | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EUR million | 2008 | 2007 | Change, | | | | | % | -------------------------------------------------------------------------------- | Premiums written | | | | -------------------------------------------------------------------------------- | Endowment insurance | 382 | 530 | -28.0 | -------------------------------------------------------------------------------- | Pension insurance | 279 | 218 | 27.9 | -------------------------------------------------------------------------------- | Term life insurance | 73 | 50 | 45.2 | -------------------------------------------------------------------------------- | Other | 34 | 61 | -44.7 | -------------------------------------------------------------------------------- | Total premiums written | 767 | 859 | -10.7 | -------------------------------------------------------------------------------- | of which unit-linked | 317 | 462 | -31.4 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Market share of premiums written in | 29.4 | 30.8 | -1.4* | | life and pension insurance,% | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EUR billion | 31 Dec | 31 Dec | Change, | | | 2008 | 2007 | % | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Insurance savings | | | | -------------------------------------------------------------------------------- | Endowment insurance | 3.7 | 4.3 | -13.4 | -------------------------------------------------------------------------------- | Pension insurance | 1.5 | 1.6 | -1.2 | -------------------------------------------------------------------------------- | Capital redemption contracts | 0.1 | 0.2 | -43.3 | -------------------------------------------------------------------------------- | Total insurance savings | 5.4 | 6.0 | -11.1 | -------------------------------------------------------------------------------- | of which unit-linked | 1.6 | 2.4 | -32.2 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Investment portfolio | | | | -------------------------------------------------------------------------------- | Bonds and bond funds | 2.3 | 2.6 | -13.2 | -------------------------------------------------------------------------------- | Money market instruments | 0.6 | 0.1 | | -------------------------------------------------------------------------------- | Equities and equity funds | 0.2 | 0.7 | -71.2 | -------------------------------------------------------------------------------- | Real property investment **) | 0.3 | 0.3 | 14.8 | -------------------------------------------------------------------------------- | Alternative investments | 0.5 | 0.5 | -2.3 | -------------------------------------------------------------------------------- | Total investment portfolio | 3.9 | 4.2 | -8.1 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Market share of insurance savings | 19.4 | 19.9, | -0.5 | | in life and pension insurance,% | | | | -------------------------------------------------------------------------------- * Percentage points ** Includes real estate funds Other Operations Other Operations' pre-tax result for 2008 was EUR 3 million better than last year, ending in a loss of EUR 24 million (loss of EUR 27 million). The financial crisis continued to disrupt the result made by Other Operations. Other Operations accounted for EUR 62 (-54) million of liquidity reserve impairment losses, and Other Operations' result was eroded by EUR 9 million impairments of receivables related to bond issued by Lehman Brothers Holdings Inc., and a EUR 3 million credit loss recognised on guarantee receivables. Impairment losses on receivables were EUR 10 million in the negative. The net interest income was EUR 39 million (14) and net investment income EUR 10 million (26). Most of the other income in Other Operations came from within the Group as internal service charges, which are recorded as business segment expenses. Of the Other Operations expenses, EUR 100 million (96) were personnel costs and EUR 236 million (217) other costs. Earnings were burdened by the liquidated damages ruled by the Arbitral Tribunal concerning the shareholder agreement dispute over Nooa Savings Bank Ltd. This affected other costs by EUR 10 million. Other Operations: key figures -------------------------------------------------------------------------------- | EUR million | 2008 | 2007 | Change, % | -------------------------------------------------------------------------------- | | | | | -------------------------------------------------------------------------------- | Net trading income | -61 | -52 | 15.6 | -------------------------------------------------------------------------------- | Other income | 383 | 339 | 12.9 | -------------------------------------------------------------------------------- | Expenses | 337 | 313 | 7.4 | -------------------------------------------------------------------------------- | Impairment losses on | 10 | 0 | | | receivables | | | | -------------------------------------------------------------------------------- | Earnings/loss before tax | -24 | -27 | -10.7 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EUR billion | 31 Dec 2008 | 31 Dec 2007 | Change, % | -------------------------------------------------------------------------------- | | | | | -------------------------------------------------------------------------------- | Receivables from financial | 6.3 | 5.0 | 27.1 | | institutions | | | | -------------------------------------------------------------------------------- | Financial assets held for | 2.1 | 3.4 | -36.4 | | trading | | | | -------------------------------------------------------------------------------- | Investment assets | 2.5 | 1.8 | 39.5 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Liabilities to financial | 3.4 | 2.5 | 34.9 | | institutions | | | | -------------------------------------------------------------------------------- | Debt securities issued to the | 17.1 | 13.2 | 29.6 | | public | | | | -------------------------------------------------------------------------------- OP-Pohjola Group income statement 1 January-31 December 2008 -------------------------------------------------------------------------------- | EUR million | 1-12/ | 1-12/ | Change, % | | | 200 | 2007 | | | | 8 | | | -------------------------------------------------------------------------------- | Interest income | 4,853 | 3,630 | 34 | -------------------------------------------------------------------------------- | Interest expenses | 3,664 | 2,583 | 42 | -------------------------------------------------------------------------------- | Net interest income (Note 1) | 1,189 | 1,048 | 13 | -------------------------------------------------------------------------------- | Impairments of receivables (Note 2) | 58 | 13 | | -------------------------------------------------------------------------------- | Net interest income after impairments | 1,131 | 1,035 | 9 | -------------------------------------------------------------------------------- | Net income from Non-life Insurance | 345 | 427 | -19 | | operations | | | | | (Note 3) | | | | -------------------------------------------------------------------------------- | Net income from Life Insurance | -139 | 172 | | | operations (Note 4) | | | | -------------------------------------------------------------------------------- | Net commissions and fees (Note 5) | 419 | 430 | -3 | -------------------------------------------------------------------------------- | Net trading income (Note 6) | -125 | -30 | | -------------------------------------------------------------------------------- | Net investment income (Note 7) | 25 | 95 | -73 | -------------------------------------------------------------------------------- | Other operating income (Note 8) | 108 | 109 | -1 | -------------------------------------------------------------------------------- | Personnel costs (Note 9) | 598 | 553 | 8 | -------------------------------------------------------------------------------- | Other administrative expenses (Note | 328 | 303 | 8 | | 10) | | | | -------------------------------------------------------------------------------- | Other operating expenses (Note 11) | 312 | 273 | 15 | -------------------------------------------------------------------------------- | Returns to owner-members (Note 12) | 154 | 107 | 44 | -------------------------------------------------------------------------------- | Share of associates' profits/losses | 1 | 3 | -74 | -------------------------------------------------------------------------------- | Earnings before tax for the period | 372 | 1,005 | -63 | -------------------------------------------------------------------------------- | Income tax expense | 151 | 266 | -43 | -------------------------------------------------------------------------------- | Profit for the period | 221 | 738 | -70 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Attributable to: | | | | -------------------------------------------------------------------------------- | OP-Pohjola Group's owners | 221 | 738 | -70 | -------------------------------------------------------------------------------- | Minority interest | 0 | 0 | 52 | -------------------------------------------------------------------------------- | Total | 221 | 738 | -70 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Key figures and ratios | 1-12/ | 1-12/ | | | 2008 | 2007 | -------------------------------------------------------------------------------- | Return on equity, % | 4.1 | 13.7 | -------------------------------------------------------------------------------- | Return on equity at fair value, % | -6.0 | 10.9 | -------------------------------------------------------------------------------- | Return on assets, % | 0.31 | 1.18 | -------------------------------------------------------------------------------- | Cost/income ratio, % | 68 | 50 | -------------------------------------------------------------------------------- | Average personnel | 12,615 | 12,378 | -------------------------------------------------------------------------------- | Full-time | 11,464 | 11,226 | -------------------------------------------------------------------------------- | Part-time | 1,151 | 1,152 | -------------------------------------------------------------------------------- Definition of key figures and ratios Return on equity (ROE) = Profit for the period / Equity capital (average of the beginning and end of the period) x 100 Return on equity at fair value, % = Profit for the period + change in fair value reserve less deferred tax liability / equity capital (average of the beginning and end of the period) x 100 Return on assets (ROA) = Profit for the period / Balance sheet total (average of the beginning and end of the period) x 100 Cost/income ratio, % = (Personnel costs + other administrative expenses + other operating expenses) / (Net interest income + net income from Non-life Insurance operations + net income from Life Insurance operations + net commissions and fees + net trading income + net investment income + other operating income + share of associates' profits/losses) x 100 Combined ratio (excl. unwinding of discount) Loss ratio+expense ratio Risk ratio+cost ratio Loss ratio (exc. unwinding of discount) Claims and loss adjustment expenses / Net insurance premium revenue x 100 Expense ratio Operating expenses + Amortisation/adjustment of intangible assets related to company acquisition / Net insurance premium revenue x 100 Risk ratio (excl. unwinding fo discount) Claims excl. loss adjustment expenses / Net insurance premium revenue x 100 Cost ratio Operating expenses and loss adjustments expenses / Net insurance premium revenue x 100 OP-Pohjola Group quarterly performance -------------------------------------------------------------------------------- | | 2007 | 2008 | -------------------------------------------------------------------------------- | EUR million | Q4 | Q1 | Q2 | Q3 | Q4 | -------------------------------------------------------------------------------- | Interest income | 1,050 | 1,113 | 1,140 | 1,257 | 1,343 | -------------------------------------------------------------------------------- | Interest expenses | 773 | 841 | 844 | 952 | 1,026 | -------------------------------------------------------------------------------- | Net interest income | 277 | 272 | 296 | 305 | 316 | -------------------------------------------------------------------------------- | Impairments of | 4 | 2 | 7 | 18 | 31 | | receivables | | | | | | -------------------------------------------------------------------------------- | Net interest income | 273 | 270 | 289 | 287 | 285 | | after impairments | | | | | | -------------------------------------------------------------------------------- | Net income from Non-life | 121 | 89 | 89 | 96 | 72 | | Insurance operations | | | | | | -------------------------------------------------------------------------------- | Net income from Life | 54 | 8 | -7 | -91 | -49 | | Insurance operations | | | | | | -------------------------------------------------------------------------------- | Net commissions and fees | 106 | 120 | 103 | 97 | 99 | -------------------------------------------------------------------------------- | Net trading income | -30 | -58 | 1 | -37 | -30 | -------------------------------------------------------------------------------- | Net investment income | 22 | 18 | 13 | 10 | -16 | -------------------------------------------------------------------------------- | Other operating income | 31 | 27 | 27 | 26 | 28 | -------------------------------------------------------------------------------- | Personnel costs | 146 | 152 | 158 | 130 | 158 | -------------------------------------------------------------------------------- | Other administrative | 93 | 82 | 86 | 61 | 97 | | expenses | | | | | | -------------------------------------------------------------------------------- | Other operating expenses | 65 | 77 | 72 | 80 | 84 | -------------------------------------------------------------------------------- | Returns to owner-members | 28 | 37 | 40 | 42 | 35 | -------------------------------------------------------------------------------- | Share of associates' | 0 | 0 | 0 | 0 | 0 | | profits/losses | | | | | | -------------------------------------------------------------------------------- | Earnings before tax for | 247 | 125 | 158 | 74 | 15 | | the period | | | | | | -------------------------------------------------------------------------------- | Income tax expense | 69 | 34 | 44 | 28 | 45 | -------------------------------------------------------------------------------- | Profit for the period | 179 | 91 | 114 | 46 | -30 | -------------------------------------------------------------------------------- As a result of clarifications to the processing rules of financial instruments, investment instruments containing embedded derivatives have been transferred from available-for-sale financial assets to financial assets held for trading. The effect of this on earnings is EUR -56 million in the first quarter of 2008, EUR 1 million in the second and EUR -54 million in the third. OP-Pohjola Group balance sheet -------------------------------------------------------------------------------- | EUR million | 31 Dec. | 31 Dec. | Change, % | | | 2008 | 2007 | | -------------------------------------------------------------------------------- | Liquid assets | 2,393 | 589 | | -------------------------------------------------------------------------------- | Receivables from financial | 2,450 | 285 | | | institutions | | | | -------------------------------------------------------------------------------- | Financial assets at fair value through | 3,313 | 4,791 | -31 | | profit or loss (Note 13) | | | | -------------------------------------------------------------------------------- | Derivative contracts | 1,470 | 526 | | -------------------------------------------------------------------------------- | Receivables from customers | 51,708 | 44,776 | 15 | -------------------------------------------------------------------------------- | Non-life Insurance assets (Note 14) | 2,670 | 2,750 | -3 | -------------------------------------------------------------------------------- | Life Insurance assets (Note 15) | 5,093 | 6,361 | -20 | -------------------------------------------------------------------------------- | Investment assets (Note 16) | 2,441 | 1,970 | 24 | -------------------------------------------------------------------------------- | Investments in associates | 17 | 26 | -35 | -------------------------------------------------------------------------------- | Intangible assets | 1,211 | 1,230 | -2 | -------------------------------------------------------------------------------- | Property, plant and equipment (PPE) | 762 | 715 | 7 | -------------------------------------------------------------------------------- | Other assets | 1,814 | 1,579 | 15 | -------------------------------------------------------------------------------- | Tax assets | 403 | 117 | | -------------------------------------------------------------------------------- | Total assets | 75,746 | 65,716 | 15 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Liabilities to financial institutions | 693 | 949 | -27 | -------------------------------------------------------------------------------- | Financial liabilities at fair value | 138 | 52 | | | through profit or loss | | | | -------------------------------------------------------------------------------- | Derivative contracts | 1,565 | 554 | | -------------------------------------------------------------------------------- | Liabilities to customers | 37,082 | 31,224 | 19 | -------------------------------------------------------------------------------- | Non-life Insurance liabilities (Note | 2,238 | 2,140 | 5 | | 17) | | | | -------------------------------------------------------------------------------- | Life Insurance liabilities (Note 18) | 5,413 | 6,099 | -11 | -------------------------------------------------------------------------------- | Debt securities issued to the public | 18,164 | 14,074 | 29 | | (Note 19) | | | | -------------------------------------------------------------------------------- | Provisions and other liabilities | 2,393 | 2,480 | -4 | -------------------------------------------------------------------------------- | Tax liabilities | 971 | 893 | 9 | -------------------------------------------------------------------------------- | Cooperative capital | 570 | 571 | 0 | -------------------------------------------------------------------------------- | Subordinated liabilities (Note 20) | 1,304 | 1,042 | 25 | -------------------------------------------------------------------------------- | Total liabilities | 70,531 | 60,078 | 17 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Equity capital | | | | -------------------------------------------------------------------------------- | Share of OP-Pohjola Group's owners | | | | -------------------------------------------------------------------------------- | Share and cooperative capital | 362 | 359 | 1 | -------------------------------------------------------------------------------- | Share issue account | - | - | | -------------------------------------------------------------------------------- | Translation differences | 0 | 0 | | -------------------------------------------------------------------------------- | Reserves | 1,819 | 2,224 | -18 | -------------------------------------------------------------------------------- | Retained earnings | 3,034 | 3,052 | -1 | -------------------------------------------------------------------------------- | Minority interest | 0 | 3 | -96 | -------------------------------------------------------------------------------- | Total equity capital | 5,215 | 5,638 | -8 | -------------------------------------------------------------------------------- | Total liabilities and equity capital | 75,746 | 65,716 | 15 | -------------------------------------------------------------------------------- Statement of changes in equity capital -------------------------------------------------------------------------------- | EUR million | Share | Fair | Other | Retain | Minorit | Total | | | and | value | reserv | ed | y | equity | | | cooper | reserv | es | earnin | interes | capital | | | ative | e | | gs | t | | | | capita | | | | | | | | l | | | | | | -------------------------------------------------------------------------------- | Balance at 1 January | 344 | 144 | 2,151 | 2,483 | 2 | 5,124 | | 2007 | | | | | | | -------------------------------------------------------------------------------- | Increase of share | - | - | - | - | - | - | | capital | | | | | | | -------------------------------------------------------------------------------- | Transfer of | 18 | - | - | - | - | 18 | | cooperative capital | | | | | | | | to equity capital | | | | | | | -------------------------------------------------------------------------------- | Fair value reserve | - | -154 | - | - | - | -154 | -------------------------------------------------------------------------------- | Transfer of reserves | - | - | 82 | -82 | - | - | -------------------------------------------------------------------------------- | Profit distribution | - | - | - | -76 | - | -76 | -------------------------------------------------------------------------------- | Profit for the | - | - | - | 738 | 0 | 738 | | period | | | | | | | -------------------------------------------------------------------------------- | Other | -3 | - | 1 | -11 | 0 | -12 | -------------------------------------------------------------------------------- | Balance at 31 | 359 | -10 | 2,235 | 3,052 | 3 | 5,638 | | December 2007 | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Balance at 1 January | 359 | -10 | 2,235 | 3,052 | 3 | 5,638 | | 2008 | | | | | | | -------------------------------------------------------------------------------- | Increase of share | - | - | - | - | - | - | | capital | | | | | | | -------------------------------------------------------------------------------- | Transfer of | 7 | - | - | - | - | 7 | | cooperative capital | | | | | | | | to equity capital | | | | | | | -------------------------------------------------------------------------------- | Fair value reserve | - | -545 | - | - | - | -545 | -------------------------------------------------------------------------------- | Transfer of reserves | - | - | 138 | -138 | - | - | -------------------------------------------------------------------------------- | Profit distribution | - | - | - | -77 | - | -77 | -------------------------------------------------------------------------------- | Profit for the | - | - | - | 221 | 0 | 221 | | period | | | | | | | -------------------------------------------------------------------------------- | Other | -5 | - | 2 | -24 | -2 | -29 | -------------------------------------------------------------------------------- | Balance at 31 | 362 | -556 | 2,375 | 3,034 | 0 | 5,215 | | December 2008 | | | | | | | -------------------------------------------------------------------------------- Cash flow statement -------------------------------------------------------------------------------- | EUR million | 1-12/ | 1-12/ | | | 2008 | 2007 | -------------------------------------------------------------------------------- | Cash flow from operating activities | | | -------------------------------------------------------------------------------- | Profit for the period | 221 | 738 | -------------------------------------------------------------------------------- | Adjustments to profit for the period | 747 | 817 | -------------------------------------------------------------------------------- | Increase (-) or decrease (+) in operating | -8,505 | -6,684 | | assets | | | -------------------------------------------------------------------------------- | Receivables from financial institutions | 30 | 112 | -------------------------------------------------------------------------------- | Financial assets at fair value through profit | -747 | 3 | | or loss | | | -------------------------------------------------------------------------------- | Derivative contracts | -89 | -50 | -------------------------------------------------------------------------------- | Receivables from customers | -6,135 | -5,206 | -------------------------------------------------------------------------------- | Non-life Insurance assets | -211 | -21 | -------------------------------------------------------------------------------- | Life Insurance assets | 501 | -319 | -------------------------------------------------------------------------------- | Investment assets | -1,427 | -694 | -------------------------------------------------------------------------------- | Other assets | -428 | -510 | -------------------------------------------------------------------------------- | Increase (+) or decrease (-) in operating | 5,316 | 4,366 | | liabilities | | | -------------------------------------------------------------------------------- | Liabilities to financial institutions | -433 | -139 | -------------------------------------------------------------------------------- | Financial liabilities at fair value through | 86 | 52 | | profit or loss | | | -------------------------------------------------------------------------------- | Derivative contracts | 104 | 50 | -------------------------------------------------------------------------------- | Liabilities to customers | 5,862 | 3,508 | -------------------------------------------------------------------------------- | Non-life Insurance liabilities | 68 | 0 | -------------------------------------------------------------------------------- | Life Insurance liabilities | -106 | 30 | -------------------------------------------------------------------------------- | Provisions and other liabilities | -266 | 865 | -------------------------------------------------------------------------------- | Income tax paid | -21 | -168 | -------------------------------------------------------------------------------- | Dividends received | 73 | 125 | -------------------------------------------------------------------------------- | A. Net cash from operating activities | -2,169 | -805 | -------------------------------------------------------------------------------- | Cash flow from investing activities | | | -------------------------------------------------------------------------------- | Increases in held-to-maturity financial assets | -209 | -218 | -------------------------------------------------------------------------------- | Decreases in held-to-maturity financial assets | 69 | 231 | -------------------------------------------------------------------------------- | Acquisition of subsidiaries, net of cash | -35 | -3 | | acquired | | | -------------------------------------------------------------------------------- | Disposal of subsidiaries, net of cash disposed | 14 | 13 | -------------------------------------------------------------------------------- | Purchase of PPE and intangible assets | -106 | -105 | -------------------------------------------------------------------------------- | Proceeds from sale of PPE and intangible | 1 | 22 | | assets | | | -------------------------------------------------------------------------------- | B. Net cash used in investing activities | -266 | -59 | -------------------------------------------------------------------------------- | Cash flow from financing activities | | | -------------------------------------------------------------------------------- | Increases in subordinated liabilities | 439 | 233 | -------------------------------------------------------------------------------- | Decreases in subordinated liabilities | -176 | -252 | -------------------------------------------------------------------------------- | Increases in debt securities issued to the | 47,716 | 34,618 | | public | | | -------------------------------------------------------------------------------- | Decreases in debt securities issued to the | -43,611 | -34,030 | | public | | | -------------------------------------------------------------------------------- | Increases in cooperative and share capital | 176 | 216 | -------------------------------------------------------------------------------- | Decreases in cooperative and share capital | -170 | -224 | -------------------------------------------------------------------------------- | Dividends paid and interest on cooperative | -101 | -97 | | capital | | | -------------------------------------------------------------------------------- | Returns to owner-members | 0 | -7 | -------------------------------------------------------------------------------- | Monetary increases in other equity items | - | 12 | -------------------------------------------------------------------------------- | Other | - | -3 | -------------------------------------------------------------------------------- | C. Net cash from financing activities | 4,273 | 466 | -------------------------------------------------------------------------------- | Net change in cash and cash equivalents | 1,838 | -398 | | (A+B+C) | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Cash and cash equivalents at period-start | 700 | 1,098 | -------------------------------------------------------------------------------- | Cash and cash equivalents at period-end | 2,538 | 700 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Interest received | 5,213 | 3,437 | -------------------------------------------------------------------------------- | Interest paid | -3,402 | -2,240 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Adjustments to profit for the period | | | -------------------------------------------------------------------------------- | Non-cash transactions and other adjustments | | | -------------------------------------------------------------------------------- | Impairments of receivables | 52 | 22 | -------------------------------------------------------------------------------- | Unrealised net earnings in Non-life Insurance | 85 | 45 | -------------------------------------------------------------------------------- | Unrealised net earnings in Life Insurance | 229 | 408 | -------------------------------------------------------------------------------- | Change in fair value for trading | 17 | 64 | -------------------------------------------------------------------------------- | Unrealised net gains on foreign exchange | -13 | -48 | | operations | | | -------------------------------------------------------------------------------- | Change in fair value of investment property | 0 | -22 | -------------------------------------------------------------------------------- | Depreciation and amortisation | 134 | 129 | -------------------------------------------------------------------------------- | Share of associates' profits/losses | 0 | -2 | -------------------------------------------------------------------------------- | Other | 221 | 191 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Items presented outside cash flow from | | | | operating activities | | | -------------------------------------------------------------------------------- | Capital gains, share of cash flow from | -1 | -1 | | investing activities | | | -------------------------------------------------------------------------------- | Interest on cooperative capital | 22 | 24 | -------------------------------------------------------------------------------- | Other returns to owner-members | 0 | 7 | -------------------------------------------------------------------------------- | Total adjustments | 747 | 817 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Cash and cash equivalents | | | -------------------------------------------------------------------------------- | Liquid assets | 183 | 157 | -------------------------------------------------------------------------------- | Receivables from financial institutions | 2,355 | 543 | | payable on demand | | | -------------------------------------------------------------------------------- | Total | 2,538 | 700 | -------------------------------------------------------------------------------- Notes -------------------------------------------------------------------------------- | Note 1 Net interest income | | | | -------------------------------------------------------------------------------- | EUR million | 1-12/ | 1-12/ | Change, % | | | 200 | 2007 | | | | 8 | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Interest income | | | | -------------------------------------------------------------------------------- | Receivables from financial | 73 | 53 | 37 | | institutions | | | | -------------------------------------------------------------------------------- | Receivables from customers | 2,723 | 2,087 | 30 | -------------------------------------------------------------------------------- | Other | 2,056 | 1,490 | 38 | -------------------------------------------------------------------------------- | Total | 4,853 | 3,630 | 34 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Interest expenses | | | | -------------------------------------------------------------------------------- | Liabilities to financial institutions | 86 | 37 | | -------------------------------------------------------------------------------- | Liabilities to customers | 1,010 | 657 | 54 | -------------------------------------------------------------------------------- | Other | 2,568 | 1,888 | 36 | -------------------------------------------------------------------------------- | Total | 3,664 | 2,583 | 42 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Net interest income | 1,189 | 1,048 | 13 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Note 2 Impairments of receivables | | | | -------------------------------------------------------------------------------- | EUR million | 1-12/ | 1-12/ | Change, % | | | 200 | 2007 | | | | 8 | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Impairments of receivables | 73 | 39 | 89 | -------------------------------------------------------------------------------- | Reversals of impairments | -17 | -20 | 18 | -------------------------------------------------------------------------------- | Payments on impaired receivables | -6 | -9 | 27 | | amortised from balance sheet | | | | -------------------------------------------------------------------------------- | Net change in group-specific | 8 | 4 | | | impairments | | | | -------------------------------------------------------------------------------- | Total | 58 | 13 | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Note 3 Net income from Non-life | | | | | Insurance | | | | -------------------------------------------------------------------------------- | EUR million | 1-12/ | 1-12/ | Change, % | | | 200 | 2007 | | | | 8 | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Net insurance premium revenue | | | | -------------------------------------------------------------------------------- | Premiums written | 991 | 944 | 5 | -------------------------------------------------------------------------------- | Insurance premiums ceded to reinsurers | -42 | -49 | 14 | -------------------------------------------------------------------------------- | Change in provision for unearned | -24 | -43 | 44 | | premiums | | | | -------------------------------------------------------------------------------- | Reinsurers' share | -1 | -2 | 38 | -------------------------------------------------------------------------------- | Total | 923 | 850 | 9 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Net Non-life Insurance claims | | | | -------------------------------------------------------------------------------- | Claims paid | -602 | -556 | -8 | -------------------------------------------------------------------------------- | Insurance claims recovered from | 14 | 14 | -3 | | reinsurers | | | | -------------------------------------------------------------------------------- | Change in provision for unpaid claims | -30 | 10 | | -------------------------------------------------------------------------------- | Reinsurers' share | 27 | -5 | | -------------------------------------------------------------------------------- | Total | -591 | -536 | -10 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Net investment income, Non-life | | | | | Insurance | | | | -------------------------------------------------------------------------------- | Interest income | 70 | 68 | 4 | -------------------------------------------------------------------------------- | Capital gains and losses and realised | | | | | changes in fair value | | | | -------------------------------------------------------------------------------- | Notes and bonds | -16 | -39 | 60 | -------------------------------------------------------------------------------- | Shares and participations | -27 | 47 | | -------------------------------------------------------------------------------- | Property | 2 | 3 | -25 | -------------------------------------------------------------------------------- | Other | -10 | 13 | | -------------------------------------------------------------------------------- | Unrealised changes in fair value | | | | -------------------------------------------------------------------------------- | Notes and bonds | -4 | 0 | | -------------------------------------------------------------------------------- | Shares and participations | 4 | -1 | | -------------------------------------------------------------------------------- | Property | 3 | 2 | 66 | -------------------------------------------------------------------------------- | Other | 1 | 0 | 93 | -------------------------------------------------------------------------------- | Dividend income | 26 | 61 | -57 | -------------------------------------------------------------------------------- | Other | 3 | 0 | | -------------------------------------------------------------------------------- | Total | 53 | 153 | -65 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Unwinding of discount | -42 | -39 | -7 | -------------------------------------------------------------------------------- | Other | 2 | 0 | | -------------------------------------------------------------------------------- | Net income from Non-life Insurance | 345 | 427 | -19 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Note 4 Net income from Life Insurance | | | | -------------------------------------------------------------------------------- | EUR million | 1-12/ | 1-12/ | Change, % | | | 200 | 2007 | | | | 8 | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Premiums written | 745 | 809 | -8 | -------------------------------------------------------------------------------- | Reinsurers' share | -28 | -15 | -91 | -------------------------------------------------------------------------------- | Net investment income | -816 | 297 | | -------------------------------------------------------------------------------- | Claims incurred | | | | -------------------------------------------------------------------------------- | Benefits paid | -645 | -507 | -27 | -------------------------------------------------------------------------------- | Change in provision for unpaid claims | -47 | -40 | -18 | -------------------------------------------------------------------------------- | Reinsurers' share | 3 | 0 | | -------------------------------------------------------------------------------- | Change in insurance contract | | | | | liabilities | | | | -------------------------------------------------------------------------------- | Change in life insurance provision | 602 | -373 | | -------------------------------------------------------------------------------- | Reinsurers' share | 25 | 12 | | -------------------------------------------------------------------------------- | Other | 22 | -11 | | -------------------------------------------------------------------------------- | Net income from Life Insurance | -139 | 172 | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Note 5 Commissions and fees | | | | -------------------------------------------------------------------------------- | EUR million | 1-12/ | 1-12/ | Change, % | | | 200 | 2007 | | | | 8 | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Commission income | | | | -------------------------------------------------------------------------------- | Lending | 102 | 103 | -1 | -------------------------------------------------------------------------------- | Deposits | 5 | 6 | -8 | -------------------------------------------------------------------------------- | Payment transfers | 121 | 112 | 8 | -------------------------------------------------------------------------------- | Securities brokerage | 20 | 27 | -27 | -------------------------------------------------------------------------------- | Securities issuance | 4 | 7 | -36 | -------------------------------------------------------------------------------- | Mutual funds brokerage | 67 | 95 | -29 | -------------------------------------------------------------------------------- | Asset management and legal services | 51 | 53 | -4 | -------------------------------------------------------------------------------- | Insurance brokerage | 48 | 49 | 0 | -------------------------------------------------------------------------------- | Guarantees | 14 | 11 | 25 | -------------------------------------------------------------------------------- | Other | 46 | 39 | 16 | -------------------------------------------------------------------------------- | Total | 480 | 502 | -5 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Commission expenses | | | | -------------------------------------------------------------------------------- | Total | 61 | 72 | -16 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Net commissions and fees | 419 | 430 | -3 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Note 6 Net trading income | | | | -------------------------------------------------------------------------------- | EUR million | 1-12/ | 1-12/ | Change, % | | | 200 | 2007 | | | | 8 | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Capital gains and losses | | | | -------------------------------------------------------------------------------- | Notes and bonds | -15 | -8 | 80 | -------------------------------------------------------------------------------- | Shares and participations | -2 | 6 | | -------------------------------------------------------------------------------- | Derivatives | -26 | 3 | | -------------------------------------------------------------------------------- | Changes in fair value | | | | -------------------------------------------------------------------------------- | Notes and bonds | -51 | -65 | -22 | -------------------------------------------------------------------------------- | Shares and participations | -19 | -5 | | -------------------------------------------------------------------------------- | Derivatives | -11 | 24 | | -------------------------------------------------------------------------------- | Dividend income | 1 | 1 | 4 | -------------------------------------------------------------------------------- | Net income from foreign exchange | -1 | 16 | | | operations | | | | -------------------------------------------------------------------------------- | Total | -125 | -30 | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Note 7 Net investment income | | | | -------------------------------------------------------------------------------- | EUR million | 1-12/ | 1-12/ | Change, % | | | 200 | 2007 | | | | 8 | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Available-for-sale financial assets | | | | -------------------------------------------------------------------------------- | Capital gains and losses | | | | -------------------------------------------------------------------------------- | Notes and bonds | -5 | -5 | -5 | -------------------------------------------------------------------------------- | Shares and participations | 1 | 32 | -96 | -------------------------------------------------------------------------------- | Other | - | - | | -------------------------------------------------------------------------------- | Dividend income | 12 | 24 | -50 | -------------------------------------------------------------------------------- | Impairment losses | -6 | -1 | | -------------------------------------------------------------------------------- | Total | 3 | 50 | -94 | -------------------------------------------------------------------------------- | Investment property | | | | -------------------------------------------------------------------------------- | Rental income | 49 | 53 | -6 | -------------------------------------------------------------------------------- | Maintenance charges and expenses | -29 | -31 | 6 | -------------------------------------------------------------------------------- | Changes in fair value, capital gains | 2 | 20 | -92 | | and losses | | | | -------------------------------------------------------------------------------- | Other | 1 | 4 | -81 | -------------------------------------------------------------------------------- | Total | 22 | 45 | -50 | -------------------------------------------------------------------------------- | Other | 0 | - | | -------------------------------------------------------------------------------- | Net investment income | 25 | 95 | -73 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Note 8 Other operating income | | | | -------------------------------------------------------------------------------- | EUR million | 1-12/ | 1-12/ | Change, % | | | 200 | 2007 | | | | 8 | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Income from property and business | 12 | 13 | -3 | | premises in own use | | | | -------------------------------------------------------------------------------- | Other | 95 | 97 | -1 | -------------------------------------------------------------------------------- | Total | 108 | 109 | -1 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Note 9 Personnel costs | | | | -------------------------------------------------------------------------------- | EUR million | 1-12/ | 1-12/ | Change, % | | | 200 | 2007 | | | | 8 | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Wages and salaries | 512 | 482 | 6 | -------------------------------------------------------------------------------- | Pension costs | 55 | 39 | 41 | -------------------------------------------------------------------------------- | Other social expenses | 31 | 31 | 0 | -------------------------------------------------------------------------------- | Total | 598 | 553 | 8 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Note 10 Other administrative expenses | | | | -------------------------------------------------------------------------------- | EUR million | 1-12/ | 1-12/ | Change, % | | | 200 | 2007 | | | | 8 | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Office expenses | 47 | 48 | -2 | -------------------------------------------------------------------------------- | IT expenses | 110 | 86 | 28 | -------------------------------------------------------------------------------- | Telecommunications expenses | 38 | 38 | 0 | -------------------------------------------------------------------------------- | Marketing expenses | 61 | 63 | -2 | -------------------------------------------------------------------------------- | Other administrative expenses | 71 | 68 | 4 | -------------------------------------------------------------------------------- | Total | 328 | 303 | 8 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Note 11 Other operating expenses | | | | -------------------------------------------------------------------------------- | EUR million | 1-12/ | 1-12/ | Change, % | | | 200 | 2007 | | | | 8 | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Expenses for property and business | 74 | 77 | -3 | | premises in own use | | | | -------------------------------------------------------------------------------- | Depreciation | 134 | 129 | 4 | -------------------------------------------------------------------------------- | Other | 104 | 67 | 55 | -------------------------------------------------------------------------------- | Total | 312 | 273 | 15 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Note 12 Returns to owner-members | | | | -------------------------------------------------------------------------------- | EUR million | 1-12/ | 1-12/ | Change, % | | | 200 | 2007 | | | | 8 | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Bonuses | 132 | 83 | 59 | -------------------------------------------------------------------------------- | Interest on cooperative capital | 22 | 24 | -10 | -------------------------------------------------------------------------------- | Total | 154 | 107 | 44 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Note 13 Financial assets at fair value through | | | | profit or loss | | | -------------------------------------------------------------------------------- | EUR million | 31 Dec. | 31 Dec. | Change, % | | | 2008 | 2007 | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Notes and bonds | 3,268 | 4,721 | -31 | -------------------------------------------------------------------------------- | Shares and participations | 45 | 69 | -35 | -------------------------------------------------------------------------------- | Purchased loans and other receivables | - | - | | -------------------------------------------------------------------------------- | Total | 3,313 | 4,791 | -31 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Note 14 Non-life Insurance assets | | | | -------------------------------------------------------------------------------- | EUR million | 31 Dec. | 31 Dec. | Change, % | | | 2008 | 2007 | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Investments | | | | -------------------------------------------------------------------------------- | Loan and other receivables | 418 | 57 | | -------------------------------------------------------------------------------- | Shares and participations | 737 | 894 | -18 | -------------------------------------------------------------------------------- | Property | 81 | 85 | -4 | -------------------------------------------------------------------------------- | Notes and bonds | 1,075 | 1,387 | -23 | -------------------------------------------------------------------------------- | Other | 4 | 1 | | -------------------------------------------------------------------------------- | Total | 2,316 | 2,425 | -5 | -------------------------------------------------------------------------------- | Other assets | | | | -------------------------------------------------------------------------------- | Prepayments and accrued income | 33 | 28 | 16 | -------------------------------------------------------------------------------- | Other | | | | -------------------------------------------------------------------------------- | Arising from direct insurance | 218 | 210 | 4 | | operations | | | | -------------------------------------------------------------------------------- | Arising from reinsurance operations | 100 | 74 | 35 | -------------------------------------------------------------------------------- | Cash in hand and at bank | 4 | 12 | -68 | -------------------------------------------------------------------------------- | Total | 355 | 325 | 9 | -------------------------------------------------------------------------------- | Non-life Insurance assets | 2,670 | 2,750 | -3 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Note 15 Life Insurance assets | | | | -------------------------------------------------------------------------------- | EUR million | 31 Dec. | 31 Dec. | Change, % | | | 2008 | 2007 | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Investments | | | | -------------------------------------------------------------------------------- | Loan and other receivables | 422 | 16 | | -------------------------------------------------------------------------------- | Shares and participations | 2,259 | 2,525 | -11 | -------------------------------------------------------------------------------- | Property | 123 | 121 | 1 | -------------------------------------------------------------------------------- | Notes and bonds | 550 | 1,263 | -56 | -------------------------------------------------------------------------------- | Other | 0 | 1 | | -------------------------------------------------------------------------------- | Total | 3,354 | 3,926 | -15 | -------------------------------------------------------------------------------- | Assets covering unit-linked insurance | | | | | contracts | | | | -------------------------------------------------------------------------------- | Shares and participations | 1,614 | 2,374 | -32 | -------------------------------------------------------------------------------- | Other assets | | | | -------------------------------------------------------------------------------- | Prepayments and accrued income | 23 | 36 | -38 | -------------------------------------------------------------------------------- | Other | | | | -------------------------------------------------------------------------------- | Arising from direct insurance | 20 | 9 | | | operations | | | | -------------------------------------------------------------------------------- | Arising from reinsurance operations | 38 | 14 | | -------------------------------------------------------------------------------- | Cash in hand and at bank | 44 | 2 | | -------------------------------------------------------------------------------- | Total | 125 | 61 | | -------------------------------------------------------------------------------- | Life Insurance assets | 5,093 | 6,361 | -20 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Note 16 Investment assets | | | | -------------------------------------------------------------------------------- | EUR million | 31 Dec. | 31 Dec. | Change, % | | | 2008 | 2007 | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Available-for-sale financial assets | | | | -------------------------------------------------------------------------------- | Notes and bonds | 450 | 979 | -54 | -------------------------------------------------------------------------------- | Shares and participations | 310 | 368 | -16 | -------------------------------------------------------------------------------- | Other | - | - | | -------------------------------------------------------------------------------- | Held-to-maturity financial assets | 1,198 | 116 | | -------------------------------------------------------------------------------- | Investment property | 467 | 496 | -6 | -------------------------------------------------------------------------------- | Subsidiaries and associates not | 15 | 11 | 41 | | consolidated | | | | -------------------------------------------------------------------------------- | Total | 2,441 | 1,970 | 24 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Note 17 Non-life Insurance liabilities | | | | -------------------------------------------------------------------------------- | EUR million | 31 Dec. | 31 Dec. | Change, % | | | 2008 | 2007 | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Insurance contract liabilities | | | | -------------------------------------------------------------------------------- | Provision for unearned premiums | 346 | 318 | 9 | -------------------------------------------------------------------------------- | Provision for unpaid claims | 1,770 | 1,699 | 4 | -------------------------------------------------------------------------------- | Total | 2,115 | 2,017 | 5 | -------------------------------------------------------------------------------- | Other liabilities | | | | -------------------------------------------------------------------------------- | Accrued expenses and deferred income | - | - | | -------------------------------------------------------------------------------- | Other | | | | -------------------------------------------------------------------------------- | Arising from direct insurance | 74 | 71 | 5 | | operations | | | | -------------------------------------------------------------------------------- | Arising from reinsurance operations | 9 | 15 | -37 | -------------------------------------------------------------------------------- | Other | 39 | 38 | 3 | -------------------------------------------------------------------------------- | Total | 122 | 123 | -1 | -------------------------------------------------------------------------------- | Non-life Insurance liabilities | 2,238 | 2,140 | 5 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Note 18 Life Insurance liabilities | | | | -------------------------------------------------------------------------------- | EUR million | 31 Dec. | 31 Dec. | Change, % | | | 2008 | 2007 | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Insurance contract liabilities | 3,748 | 3,605 | 4 | -------------------------------------------------------------------------------- | Provisions for unit-linked policies | 1,571 | 2,333 | -33 | -------------------------------------------------------------------------------- | Other liabilities | | | | -------------------------------------------------------------------------------- | Accrued expenses and deferred income | 4 | 1 | | -------------------------------------------------------------------------------- | Other | | | | -------------------------------------------------------------------------------- | Arising from direct insurance | 1 | 1 | 55 | | operations | | | | -------------------------------------------------------------------------------- | Arising from reinsurance operations | 2 | 2 | -2 | -------------------------------------------------------------------------------- | Other | 86 | 156 | -45 | -------------------------------------------------------------------------------- | Total | 93 | 161 | -42 | -------------------------------------------------------------------------------- | Life Insurance liabilities | 5,413 | 6,099 | -11 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Note 19 Debt securities issued to the | | | | | public | | | | -------------------------------------------------------------------------------- | EUR million | 31 Dec. | 31 Dec. | Change, % | | | 2008 | 2007 | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Bonds | 7,654 | 8,107 | -6 | -------------------------------------------------------------------------------- | Certificates of deposit | 10,322 | 5,859 | 76 | -------------------------------------------------------------------------------- | Other | 188 | 109 | 73 | -------------------------------------------------------------------------------- | Total | 18,164 | 14,074 | 29 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Note 20 Subordinated liabilities | | | | -------------------------------------------------------------------------------- | EUR million | 31 Dec. | 31 Dec. | Change, % | | | 2008 | 2007 | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Subordinated loans | 221 | 204 | 8 | -------------------------------------------------------------------------------- | Other | 1,083 | 839 | 29 | -------------------------------------------------------------------------------- | Total | 1,304 | 1,042 | 25 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Collateral given | | | | -------------------------------------------------------------------------------- | EUR million | 31 Dec. | 31 Dec. | Change, % | | | 2008 | 2007 | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Given on behalf of own liabilities and | | | | | commitments | | | | -------------------------------------------------------------------------------- | Mortgages | 1 | 1 | 0 | -------------------------------------------------------------------------------- | Pledges | 4,135 | 2,633 | 57 | -------------------------------------------------------------------------------- | Other | 400 | 123 | | -------------------------------------------------------------------------------- | Total | 4,536 | 2,756 | 65 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Off-balance-sheet items | | | | -------------------------------------------------------------------------------- | EUR million | 31 Dec. | 31 Dec. | Change, % | | | 2008 | 2007 | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Guarantees | 1,180 | 613 | 93 | -------------------------------------------------------------------------------- | Other guarantee liabilities | 1,777 | 1,785 | 0 | -------------------------------------------------------------------------------- | Pledges | 1 | 1 | 0 | -------------------------------------------------------------------------------- | Loan commitments | 7,397 | 7,708 | -4 | -------------------------------------------------------------------------------- | Commitments related to short-term | 177 | 171 | 3 | | trade transactions | | | | -------------------------------------------------------------------------------- | Other | 485 | 568 | -15 | -------------------------------------------------------------------------------- | Total off-balance-sheet items | 11,018 | 10,847 | 2 | -------------------------------------------------------------------------------- Derivative contracts Total trading and hedging derivatives, 31 December 2008 -------------------------------------------------------------------------------- | EUR million | Nominal values / remaining | | Fair values | | | term to maturity | | | -------------------------------------------------------------------------------- | | <1 year | 1-5 | >5 | Total | Assets | Liabilit | | | | years | years | | | ies | -------------------------------------------------------------------------------- | Interest rate | 30,177 | 45,771 | 11,891 | 87,839 | 1,093 | 1,006 | | derivatives | | | | | | | -------------------------------------------------------------------------------- | Currency | 12,634 | 1,128 | 1,037 | 14,799 | 426 | 734 | | derivatives | | | | | | | -------------------------------------------------------------------------------- | Equity and | 127 | 525 | - | 652 | 21 | 2 | | index-linked | | | | | | | | derivatives | | | | | | | -------------------------------------------------------------------------------- | Credit | 188 | 179 | - | 367 | 4 | 21 | | derivatives | | | | | | | -------------------------------------------------------------------------------- | Other | - | 16 | - | 16 | 1 | - | | derivatives | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Total | 43,126 | 47,620 | 12,928 | 103,673 | 1,545 | 1,764 | | derivatives | | | | | | | -------------------------------------------------------------------------------- Total trading and hedging derivatives, 30 September 2007 -------------------------------------------------------------------------------- | EUR million | Nominal values / remaining | | Fair values | | | term to maturity | | | -------------------------------------------------------------------------------- | | <1 year | 1-5 | >5 | Total | Assets | Liabilit | | | | years | years | | | ies | -------------------------------------------------------------------------------- | Interest rate | 44,416 | 36,405 | 8,797 | 89,617 | 386 | 328 | | derivatives | | | | | | | -------------------------------------------------------------------------------- | Currency | 8,766 | 1,650 | 995 | 11,411 | 77 | 341 | | derivatives | | | | | | | -------------------------------------------------------------------------------- | Equity and | 87 | 264 | 58 | 408 | 51 | - | | index-linked | | | | | | | | derivatives | | | | | | | -------------------------------------------------------------------------------- | Credit | 71 | 125 | - | 196 | 0 | 1 | | derivatives | | | | | | | -------------------------------------------------------------------------------- | Other | 8 | 6 | - | 14 | 2 | - | | derivatives | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Total | 53,348 | 38,450 | 9,849 | 101,647 | 516 | 671 | | derivatives | | | | | | | -------------------------------------------------------------------------------- Related-party transactions 31 December 2008 OP-Pohjola Group's related parties comprise associates, administrative personnel and other related-party companies. The administrative personnel comprises OP-Pohjola Group's Executive Chairman (Chairman of the Executive Board of OP-Pohjola Group Central Cooperative), President of OP-Pohjola Group Central Cooperative, members and deputy members of the Executive and Supervisory Boards and their family members. Other organisations considered as related parties include OP Bank Group Pension Fund and OP Bank Group Pension Foundation. With respect to loans granted to the management, OP-Pohjola Group applies standard terms and conditions for credit. Loans are tied to generally used reference rates. -------------------------------------------------------------------------------- | EUR million | Associate | Management | Others | | | s | | | -------------------------------------------------------------------------------- | Loans | 147 | 3 | - | -------------------------------------------------------------------------------- | Other receivables | 0 | 0 | 0 | -------------------------------------------------------------------------------- | Deposits | 6 | 11 | 36 | -------------------------------------------------------------------------------- | Other liabilities | - | - | - | -------------------------------------------------------------------------------- | Interest income | 0 | 0 | - | -------------------------------------------------------------------------------- | Interest expenses | 1 | 0 | 1 | -------------------------------------------------------------------------------- | Dividend income | 1 | - | - | -------------------------------------------------------------------------------- | Commission income | 0 | 0 | 0 | -------------------------------------------------------------------------------- | Commission expenses | 0 | 0 | 0 | -------------------------------------------------------------------------------- | Other operating income | - | - | - | -------------------------------------------------------------------------------- | Impairments of loans | - | - | - | -------------------------------------------------------------------------------- | Impairments of loans at the end of the | - | - | - | | period | | | | -------------------------------------------------------------------------------- | Off-balance-sheet items | | | | -------------------------------------------------------------------------------- | Guarantees | - | - | - | -------------------------------------------------------------------------------- | Irrevocable commitments | - | - | - | -------------------------------------------------------------------------------- | Other off-balance-sheet commitments | - | 0 | - | -------------------------------------------------------------------------------- | Wages and salaries | | | | | and | | | | | performance-based pay | | | | -------------------------------------------------------------------------------- | Wages and salaries | - | 5 | - | -------------------------------------------------------------------------------- | Performance-based pay | - | - | - | -------------------------------------------------------------------------------- | Holdings of related parties | | | | -------------------------------------------------------------------------------- | Number of share options | - | - | - | -------------------------------------------------------------------------------- | Number of shares | - | 99,587 | 3,680,793 | -------------------------------------------------------------------------------- | Number of participations | - | 5,512 | - | -------------------------------------------------------------------------------- Related-party transactions 31 December 2007 -------------------------------------------------------------------------------- | EUR million | Associate | Management | Others | | | s | | | -------------------------------------------------------------------------------- | Loans | 120 | 4 | - | -------------------------------------------------------------------------------- | Other receivables | 0 | 0 | 0 | -------------------------------------------------------------------------------- | Deposits | 30 | 7 | 92 | -------------------------------------------------------------------------------- | Other liabilities | - | - | - | -------------------------------------------------------------------------------- | Interest income | 0 | 0 | - | -------------------------------------------------------------------------------- | Interest expenses | - | 0 | - | -------------------------------------------------------------------------------- | Dividend income | 1 | - | - | -------------------------------------------------------------------------------- | Commission income | 0 | 0 | 0 | -------------------------------------------------------------------------------- | Commission expenses | 0 | 0 | 0 | -------------------------------------------------------------------------------- | Other operating income | - | - | - | -------------------------------------------------------------------------------- | Impairments of loans | - | - | - | -------------------------------------------------------------------------------- | Impairments of loans at the end of the | - | - | - | | period | | | | -------------------------------------------------------------------------------- | Off-balance-sheet items | | | | -------------------------------------------------------------------------------- | Guarantees | - | - | - | -------------------------------------------------------------------------------- | Irrevocable commitments | - | - | - | -------------------------------------------------------------------------------- | Other off-balance-sheet commitments | - | 0 | - | -------------------------------------------------------------------------------- | Wages and salaries and | | | | | performance-based pay | | | | -------------------------------------------------------------------------------- | Wages and salaries | - | 4 | - | -------------------------------------------------------------------------------- | Performance-based pay | - | - | - | -------------------------------------------------------------------------------- | Holdings of related parties | | | | -------------------------------------------------------------------------------- | Number of share options | - | - | - | -------------------------------------------------------------------------------- | Number of shares | - | 86,064 | 3,680,793 | -------------------------------------------------------------------------------- | Number of participations | - | 4,537 | - | -------------------------------------------------------------------------------- This Interim Report for 1 January-31 December 2008 has been prepared in accordance with IAS 34 (Interim Financial Reporting). OP-Pohjola Group's accounting policies can be found in its Financial Statements 2008. This Interim Report is based on unaudited figures. Pohjola Bank plc publishes its own Interim Report. OP-Pohjola Group's financial statements for 2008 will be published in week 11. The 2009 interim reports will be published on 7 May, 6 August and 5 November 2009. Helsinki, 12 February 2009 OP-Pohjola Group Central Cooperative Executive Board OP-Pohjola Group Central Cooperative Markku Koponen Senior Vice President FURTHER INFORMATION Reijo Karhinen, Executive Chairman, tel. +358 (0)10 252 4500 Tony Vepsäläinen, President, tel. +358 (0)10 252 4020 Harri Luhtala, CFO, tel. +358 (0)10 252 2433 DISTRIBUTION NASDAQ OMX Helsinki Ltd London Stock Exchange SWX Swiss Exchange Major media
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