Seb Annual Report 2006

Annual Report

Notices convening the General Meeting including an agenda for the Meeting will be published in the major Swedish daily newspapers and on www.sebgroup.com on 26 February 2007. Shareholders wishing to attend the Annual General Meeting shall – both be registered in the shareholders’ register kept by VPC (the Swedish Securities Register Centre) on Thursday 22 March, 2007. – and notify the Bank in writing under address Skandinaviska Enskilda Banken AB, Box 47011, SE-100 74 Stockholm, or by telephone 0771-23 18 18 between 9.00 a.m. and 4.30 p.m. in Sweden or, from abroad, at +46 771 23 18 18 or via Internet on www.sebgroup.com, not later than 1 p.m. on Thursday 22 March, 2007. Dividend The Board proposes a dividend of SEK 6.00 per share. The share is traded ex dividend on Thursday 29 March, 2007. Monday 2 April, 2007 is proposed as record date for the dividend. If the Annual General Meeting resolves in accordance with the proposals, dividend is expected to be distributed by VPC on Thursday 5 April, 2007.

ANNUAL REPORT 2006

The Annual General Meeting will be held on Wednesday 28 March, 2007 at 2 p.m. (Swedish time) at Stockholm Concert Hall.

Production: SEB and Intellecta Communication AB • Photos: Mats Lundqvist, Bruno Ehrs • Printing: Elanders • R:5056

Annual General Meeting

2006 ■ Robust business climate and high customer interaction ■ Improved efficiency and continued organic growth ■ Operating profit SEK 15,562m (11,223) ■ Earnings per share SEK 18.72 (12.58) ■ Return on equity 20.8 per cent (15.8) ■ Focused strategy and new organisation as from 2007

www.seb.se

Contents

SEB’s financial information is available on www.sebgroup.com

Addresses Head Office

2006 in brief

1

Group Executive Committee

Chairman’s statement President’s statement

2 3

Postal Address: SE-106 40 Stockholm

SEB today

4

Telephone: +46 771 62 10 00

Markets, competition and customers

8

SEB’s employees

14

SEB’s role in society

16

The SEB share

18

Report of the Directors Financial Review of the Group Result and profitability Financial structure Divisions SEB Merchant Banking Nordic Retail & Private Banking SEB in Gemany (SEB AG Group) German Retail & Mortgage Banking Eastern European Banking SEB Asset Management SEB Trygg Liv Risk and Capital Management Corporate Governance within SEB Board report on the internal control of the financial reporting for 2006

Publication of annual accounts Publication of Annual Report on the Internet Annual General Meeting

20 20 23

Interim report January–June

26 28 30 31 32 34 36 38

For further information please contact:

45 54 55

60 61 62 63 64 121 123 124 125

Board of Directors

126

Group Executive Committee and Auditors

128

56 57 58 59

+46 8 22 19 00 (management)

Financial information during 2007

Interim report January–March

Financial Statements SEB Group Income statements Balance sheets Statement of changes in equity Cash flow statements Skandinaviska Enskilda Banken Income statements Balance sheets Statements of changes in equity Cash flow statements Notes to the financial statements Five-year summary Definitions Proposal for the distribution of profit Auditors’ report

Addresses

Visiting Address: Kungsträdgårdsgatan 8

Interim report January–September

9 February 6 March 28 March 4 May 19 July 26 October

Divisions Merchant Banking Postal Address: SE-106 40 Stockholm Visiting Address: Kungsträdgårdsgatan 8 Telephone: +46 771 62 10 00

Per-Arne Blomquist Chief Financial Officer Telephone +46 8 22 19 00 E-mail: [email protected] Ulf Grunnesjö Head of Investor Relations Telephone +46 8 763 85 01 E-mail: [email protected] Annika Halldin Financial Information Officer Telephone +46 8 763 85 60 E-mail: [email protected]

Retail Banking Postal Address: SE-106 40 Stockholm Visiting Address: Sergels Torg 2 Telephone: +46 771 62 10 00 Wealth Management Postal Address: SE-106 40 Stockholm Visiting Address: Sveavägen 8 Telephone: +46 771 62 10 00 Life Postal Address: SE-106 40 Stockholm Visiting Address: Sergels Torg 2 Telephone: +46 771 62 10 00

Skandinaviska Enskilda Banken AB’s corporate registration number: 502032-9081

2006 in brief result and proposed dividend

Key figures 006

2005

n operating profit increased by 39 per cent, to SEK 15,562m.

return on equity, %

20.8

15.8

return on equity excl. one-off charges, %

20.8

17.0

n net profit increased by 50 per cent to SEK 12,623m, or SEK 18.72 per share.

Basic earnings per share, SEK

18.72

12.58

Cost/income ratio

0.58

0.65

Credit loss level, %

0.08

0.11

total capital ratio, %

11.47

10.83

1)

n the SEB share rose by 33 per cent while the Swedish SaX-index increased by 24 per cent and the European Bank index by 19 per cent.

Core capital ratio, %

8.19

7.53

19,672

18,948

number of e-banking customers, thousands

2,597

2,299

assets under management, SEKbn

1,262

1,118

total assets, SEKbn

1,934

1,890

number of full time equivalents, average

n the credit loss level remained low. n return on equity was 20.8 per cent. n proposed dividend is SEK 6.00 (4.75).

1) For further information on the SEB share, please see page 18.

Important events during 2006 n In April, SEB aquired the russian bank petroEnergoBank. n In July, SEB sold its 47-per cent ownership in Bank ochrony ´Srodowiska S.a. and opened a branch in Warsaw during the autumn. n In September a new organisational structure, with four customer-oriented divisions and three support functions, was presented. the structure is effective as of 1 January 2007. SEB’s retail activities in five countries were integrated and the private Banking business area was united with the asset Management division.

n Throughout the year, SEB celebrated its 150th anniversary by arranging events for customers and all its 20,000 employees. these special anniversary celebrations gave SEB many occasions for strengthening its customer relations and for creating new business opportunities. n SEB continued to receive a number of awards, such as Best private bank in the nordic and Baltic countries and Best cash management bank in the nordic region. n SEB has advanced within many areas, among others a number one position with a market share in own mutual funds net sales of 26 per cent in Sweden.

Operating profit per division

Net profit per SEB share

SEKm

SEK 

SEB Merchant Banking 

Nordic Retail & Private Banking German Retail & Mortgage Banking



Eastern European Banking SEB Asset Management



SEB Trygg Liv  0

2,000

2005

4,000

6,000

8,000

    

2006

SEB annual rEport 2006 1

Chairman’s statement

Continued efforts in order to create ­long-term shareholder value A year of very satisfactory results for SEB has just passed. 2006 was also a specific year, marked by the fact that the bank has been in operation for 150 years. It is with a sense of pride and humility that we now take on the challenges of the future. The global economy showed strong growth in 2006. Even though the U.S. slowed down during the second half, Asia and Europe showed a solid development. The euro-zone picked up speed and Germany experienced both stronger growth and falling unemployment. All the Nordic countries performed very well and the Baltic countries were among the fastest-growing economies of the world. Financial markets in general held up well, despite some nervousness about the U.S. slowdown. The Federal Reserve continued to hike its interest rate, and in Europe and Asia the trends in general were also rising. The American residential market cooled, stock markets were volatile, while overall bond yields remained at historically low levels. The dollar was sliding as a result of the U.S. slowdown and narrowing rate spreads. In Sweden, repo rates doubled and stock prices rose more than in most other EU countries. SEB’s share price at all time high Last year’s positive economic conditions in combination with SEB’s geographical spread and business mix once again proved fruitful and SEB’s profitability compared well with its peer group. With a share price increase of 33 per cent, SEB outperformed both the Swedish General Index and the European Banking Index in 2006. For the period 2004–2006 the market value of SEB has more than doubled. My fellow Board members and I will continue to make every effort to create long-term value for SEB’s shareholders. Industry consolidation and financial integration The consolidation within the European banking industry continued in 2006 with a number of mergers and acquisitions. We continue to follow SEB’s stated strategy to develop our attractive platform for profitable growth through a combination of costefficiency and organic expansion. The financial industry is working under more regulatory requirements than many other industries. There is still a long way to go before global harmonisation of financial services can be reached. Regulatory demands that currently have an impact on SEB:s operations include: n The creation of the Single European Payment Area – SEPA – will enable companies and private individuals to make their cross-border payments within EU as easily as in their domestic markets. n MiFID (Markets in Financial Instruments Directive) will replace EU’s existing Investment Services Directive (ISD), with effect from 1 November 2007. MiFID introduces new and more extensive requirements, particularly for business conduct and internal organisation.

 SEB annual report 2006

 “We could not have received a better birthday present for SEB’s 150th anniversary than the strong result and the high return achieved in 2006.”

n Last, but not least, we have the current implementation of the Basel II capital adequacy rules within the EU. As with any other major regulatory change, the strategic implications on the global and European arenas remain to be seen. On behalf of the Board I would like to thank the President, the Group Executive Committee and the SEB staff for their commitment and professionalism. We could not have received a better birthday present for SEB’s 150th anniversary than the strong result and the high return achieved in 2006.

Stockholm in February 2007

Marcus Wallenberg Chairman of the Board

President’s statement

Well positioned for reaching long-term ambitions The past year was a very good year for SEB and its shareholders. In a buoyant economic climate with high financial market activities and business volumes, SEB achieved its best result to date. The combination of strong revenue growth and only moderately increasing costs, which marked 2006, reflects the increasing scalability of our business model. Improved customer satisfaction continued to be in focus and we intensified our efforts to offer customers better access to all of SEB’s services and product range. I am proud of what we have accomplished in 2006. An attractive business mix and customer base Over the years SEB has established a platform with a diversified business mix around the Baltic rim. We have a solid customer franchise in our core areas of strength – large corporate and institutional customers and affluent individuals. We are especially strong in offering our customers advisory services. During 2006, intensified customer activities led to increased operating profits in all divisions. Commissions, including net life income, overall generated close to 50 per cent of total revenues. Committed to excellence Our ambition is to be top-ranked in terms of customer satisfaction within our selected segments, in order to reach leadership in financial performance. This is a long-term undertaking, building on the two cornerstones of operational excellence and profitable growth. An integrated bank SEB has expanded considerably over the last ten years. We now need to consolidate and focus our efforts. In 2006, we narrowed our strategy to a full universal offering in Sweden, Estonia, Latvia, Lithuania and Germany, and a more focused offering in other markets based on our core strengths. In order to better serve our customers we laid out a roadmap to integrated businesses and common support functions. We launched the SEB Way, our operational excellence programme which includes installing streamlined processes, improving quality and encouraging a culture of continuous improvement. Several initiatives were taken to address the underlying costbase. These are gradually yielding result. We will continue to increase the resilience of the cost-base in order to cater also for periods of a more feeble business climate.

“Customer satisfaction continues to be a top ­priority. We have intensified the efforts to offer our ­customers the markets’ best services and product range, in our selected areas.”

SEB well positioned All in all, these measures aim at strengthening our customer offerings and increasing efficiency. The work to fully exploit the SEB platform will continue in 2007. SEB is well positioned for further profit growth. My own and the whole SEB team’s commitment to long-term leadership remains unchanged.

Stockholm in February 2007

Annika Falkengren President and Group Chief Executive

SEB annual report 2006 

SEB today

Increased ambitions for customer satisfaction and financial performance SEB is a North-European financial group for corporate customers, institutions and private individuals. Its activities comprise mainly banking services, but SEB also carries out significant life insurance operations.

SEB serves 400,000 corporate customers and institutions and more than five million private individuals. SEB has local presence in the Nordic and Baltic countries, Germany, Poland, Russia and the Ukraine and has a strategic presence through its international network in another ten countries. More than half of SEB’s approximately 20,000 employees are located outside Sweden. On 31 December 2006, total assets amounted to SEK 1,934bn, while the Group’s assets under management totalled SEK 1,262bn. Business concept SEB’s business concept is to provide financial services and to handle financial risks and transactions for companies and private individuals in such a way that customers are satisfied, shareholders get a competitive return and that SEB is considered a good citizen of society.

Vision, targets and strategy SEB’s vision is to be highest ranked by its customers within the chosen segments in Northern Europe and leading in terms of financial performance. These goals shall be reached with the help of motivated employees, increased co-operation between the Group’s different parts and Group-wide support and staff functions. ”One SEB” shall give customers access to SEB’s total competence and supply of services. As from 2006 SEB has set new financial targets. SEB’s return on equity shall be the highest among its peers, while its profit growth shall be sustainable. SEB’s minimum rating shall be AA.

Strategic development Expansion between 199 and 001 In the mid-1990s SEB formulated its vision of becoming the leading North-European bank. SEB’s traditionally strong position among companies and demanding private customers was strengthened through acquisitions in the area of life insurance and asset management and through expansion in new markets in Germany and Eastern Europe. Consolidation and profit growth between 00 and 005 With the broadened platform in place, several steps were taken in order to consolidate it, primarily through the so-called 3 Cprogramme (Cost efficiency, Customer satisfaction and Crossservicing within the Group).

4 SEB annual rEport 2006

Improved efficiency and organic growth complemented with minor add-on acquisitions around the Baltic rim supported SEB’s profit growth. Realising the full potential 006– Higher ambitions to realise the full potential of the platform shall contribute to profitable growth in SEB’s existing markets. Increased pro-activity towards customers in combination with a better integrated business will form the basis of increased customer satisfaction and profitability. By fully realising the whole SEB, higher quality, more complete services to our customers as well as cost-efficient operations will be achieved.

SEB today

New and higher targets Financial targets and outcome Return on equity Per cent

Net profit growth

25

15

10

50

20

12

8

40

15

9

6

30

10

6

4

20

5

3

2

10

SEK billion

0

0 2002 2003 2004 2005 2006

Snitt för jämförbara banker

Target: Highest among its peers

Core capital ratio Per cent

Dividend Per cent of earnings per share

0

0

2002 2003 2004 2005 2006

K/I-tal (%) Target: Sustainable profit growth Mål (%)

2002 2003 2004 2005 2006

2002 2003 2004 2005 2006

Primärkapitalrelation (%) Target: At least 7 per cent

Utdelning aktieof(%) Target: 40 perpercent net profit per shareMål over (%) a business cycle

Mål (%)

Customers and employees – targets and outcome The most important non-financial targets to be achieved are: n Top ranked in terms of customer satisfaction within SEB’s chosen segments. n The most motivated employees among SEB’s peer group. KNIX (Customer satisfaction index)

PULSE (Motivation index)

Index showing customer satisfaction and loyalty, group average.

Index showing employees’ motivation and satisfaction with leadership, group average.

Private individuals1)

Corporates and institutions2)

80

80

80

60

60

60

40

40

40

20

20

20

0

0

0 2002 2003 2004 2005 2006

2002 2003 2004 2005 2006

European average

European average

1) Includes Germany since 2003 and the Baltic countries since 2004

In the future SEB has decided to carry through attitude surveys among the staff with longer intervals. During 2006 no survey was made. Next poll is planned to take place during the autumn of 2007.

2) Germany included 2003–2005

2002

2003

2004

2005

Motivation Leadership European average

SEB annual report 2006 

SEB today

A focused strategy SEB has a broad product mix and an attractive customer franchise in its core areas of strength – large corporations, institutions and affluent individuals.

A strategy for growth SEB has expanded its geographical scope and its business mix over the last ten years. In 2006 several steps were taken to consolidate the platform in order to better position SEB for future profit growth. These included initiatives to establish a more integrated bank, thereby facilitating customers’ access to SEB’s offerings in different markets. Other key actions during last year comprised: n Increasing pro-activity in meeting customer demands n Installing operational excellence n Improving cost-efficiency.

Business structure

President and Chief Executive Officer

Merchant Banking

Retail Banking

Wealth Management

Life

Group Operations / Group IT / Group Staff

SEB’s ambition is to be top-ranked in terms of customer satisfaction within selected segments in order to reach leadership in financial performance. Customer offerings In Sweden, SEB’s original home market, the Bank has a universal offering and aspires to be leading in all areas. Also in the Baltic countries SEB has a full range of universal banking services and operates from a strong market position. In Germany SEB offers retail and wholesale banking as well as asset management services. In the rest of the Nordic countries and Poland, SEB will offer wholesale banking, private banking, asset management, life insurance and cards to medium sized and large corporate customers, financial institutions and affluent private individuals. A customer-oriented organisation In order to strengthen customer offerings, increase the integration of the Group and minimise double functions, SEB’s operations are as from 1 January 2007 carried out through four divisions (compared with six divisions in 2006): n Merchant Banking – wholesale and investment banking n Retail Banking – retail operations in five countries and Card activities n Wealth Management – asset management and private banking n Life – life and pension insurance operations. New Markets, i.e. SEB in Ukraine and Russia, is kept separate in order to take better advantage of the long-term growth potential in these attractive regions. All businesses are supported by three cross-divisional support functions – Group Operations, Group IT and Group Staff.

6 SEB annual rEport 2006

Merchant Banking Merchant Baking has global responsibility within SEB for banking and capital markets products aimed at large and mediumsized corporations as well as financial institutions. The division is also responsible for SEB’s international network in the world’s major financial centres. Going forward, Merchant Banking will make targeted investments in products and staff in order to continue growing profitably in its main markets in the Nordic and Baltic countries, Germany and Poland. The division sees further opportunities to sell additional products to existing customers and to increase market share in its main markets outside Sweden, not least through intensified activities aimed at medium-sized corporations and financial institutions. This will be achieved by pursuing the division’s proven strategy of investing in cutting edge products and value added financial solutions. Retail Banking The new retail division comprises SEB’s retail operations in Sweden, Germany, Estonia, Latvia and Lithuania as well as the Group’s card business. The growth opportunities are to expand on the market for small and medium-sized companies in Sweden, continuing a turn-around of the German retail operations and sustainable organic growth in the Baltic countries, including expansion of the card business. SEB’s initiatives to further strengthen customer services based on increased simplicity, clarity and availability – the “Enkla-assortment” – will continue.

SEB today

Wealth Management This division includes the former SEB Asset Management division and the business area Private Banking within the former Nordic Retail & Private Banking division. By year-end 2006, the division’s assets under management amounted to SEK 928bn of the Group’s total assets under management of SEK 1,262bn. Going forward, the ambition is to offer enhanced advisory service, more alternative products and shorter time-to-market for new products. SEB has a strong market position within asset management in Sweden. Building on this franchise and knowledge the division will grow further outside Sweden, primarily in the Nordic and Baltic countries and Germany. The ambition is to become the leading North-European wealth manager. Life This division is responsible for SEB’s life insurance activities and consists of SEB Trygg Liv (Sweden), SEB Pension (Denmark) and SEB Life & Pension International. The business concept is to provide customers with security throughout every phase of their lives using insurance solutions. The growth opportunities are within corporate pension and care business in Sweden and Denmark, maintained quality leadership in Sweden and continued unit-linked transition in Denmark. The division is also aiming at a leading position in the emerging Baltic life insurance market as well as growth in new East European markets. Support functions with focus on productivity The divisions are supported by three common functions – Group Operations, Group IT and Group Staff. The guiding principle is from now on “one function, one solution”. Processes will be streamlined, efficiency increased and the creation of one integrated bank will be facilitated.

With the formation of Group Operations SEB is building scalability and a global process ownership. This means for example a stepwise integration of all lending, payment and securities processes – operations that have up to now been taking place within each of the divisions. The transformation within Group IT comprises for example a reduction of the number of IT-platforms and a streamlining of processes. Within Group staff a separate staff and support project has been set up in order to create Group wide centres of excellence based on best practice. The cost improvement potential is SEK 1.5–2.0bn over the next three years, excluding incremental investments. For 2007 the savings are targeted to roughly SEK 300–500m. SEB Way for increased productivity In order to ensure a continuous productivity work, SEB accelerated its operational excellence programme – “SEB Way” – during 2006. By SEB Way the Group strives to encourage a culture of continuous improvement, meeting increased quality demands from customers and the productivity pressure in the banking industry. So called transformations are being rolled out continuously in small teams of 10–50 people at a time – after diagnosis of the divisions and business areas. Up to year-end 2006, the equivalent of 1,500 full time employees has been involved in transformations and about 6,000 employees have been included in the roll-out plan. Examples of achievements reached include the Custody Services-unit, which could increase its volumes by 150 per cent without adding staff. Simultaneously, error rates went down by 35 per cent. In the Life division, the first front-end transformation led to sales staff booking 30 per cent more customer meetings with the average premium increasing by almost 20 per cent.

SEB annual report 2006 

Markets, competition and customers

Increased growth in all of SEB’s markets The North-European markets account for almost all of SEB’s income, result and number of employees. During 2006, SEB continued to consolidate its position through increased volumes and high rankings. Approximately 50 per cent of the operating profit emanated from markets outside Sweden. High economic activity and growth characterised SEB’s NorthEuropean core markets during 2006. All the Nordic countries performed well and the Baltic economies were among the fastest growing ones in the world. Germany experienced a stronger growth than in previous years. In Poland, Russia and Ukraine growth was also good. In the market for large corporations and financial institutions SEB meets tough competition from international financial groups such as Citigroup, Deutsche Bank, J P Morgan, Royal Bank of Scotland and Merrill Lynch. In the market for small and medium-sized companies, the competitors are mostly domestic or regional banks like Hansabank in the Baltic countries and Nordea, Handelsbanken and Danske Bank in the Nordic region. In the private market local banks and insurance companies account for most of the competition, but various niche players are also competing for investors and savers. Sweden Sweden is still SEB’s single largest market, with approximately 1.9 million private and 200,000 corporate customers. In 2006, the Swedish market accounted for approximately 50 per cent of the Group’s operating profit. In Sweden, SEB occupies a clearly leading position among large corporations and demanding private individuals, with substantial market shares of foreign exchange trading, equities

trading, cash management, private banking, asset management, unit linked insurance and cards, for example. For several years, SEB has been ranked the best foreign exchange bank in Swedish kronor on a global scale. SEB was once again the largest broker on the stock exchange in Stockholm in 2006. Within the traditional deposit and lending market SEB is number four. During 2006, SEB’s market share of deposits from and lending to the public decreased, due to a lower share of corporate lending. SEB’s market share of household lending was unchanged. Seen over a five-year period, SEB’s share of private mortgage loans has grown from 12.3 to 14.7 per cent. In the total Swedish household savings market (excluding directly owned shares), the Group ended the year as number two, with a share of 13.0 per cent (12.7). In 2006, SEB consolidated its market position in the asset management and private banking areas. The business magazine Euromoney appointed SEB the best private bank in the Nordic and Baltic countries. In the biannual Prospera survey, retail customers ranked SEB as number two of all major fund companies operating in the Swedish market. SEB’s market share for new sales of of mutual funds rose to 26 per cent (17). Within life insurance SEB Trygg Liv is the second largest player, with a total market share of 18 per cent. As regards new sales of unit-linked funds SEB is No 1 with a market share of 29 per cent in 2006.

Customer segmentation, Nordic banks

Income distribution, Nordic banks

Share of total income, per cent

Share of total income, per cent 100

Retail, Nordic countries

SEB Swedbank

80

Retail, Germany Retail, The Baltic

SHB

Retail, GB/Ireland

Nordea

Merchant Banking Danske Bank

Net interest income Net fee and commission income Net financial income

60

40

20

Asset Management

DnB NOR

Life insurance 0

20

40

60

80

100

The Nordic banks differ in terms of business structure. Corporate customers account for a considerably higher share of the business of SEB and DnB NOR compared with the other banks.

8 SEB ANNUAL REPORT 2006

0 SEB Swedbank SHB Nordea

DnB Danske NOR Bank

Net life insurance income Net other income

SEB’s commission income traditionally weighs heavier than that of other Nordic banks due to the Group’s specialisation on advisory services and more transaction-intensive activities with large companies and demanding private customers.

Markets, competition and customers

SEB’s markets

+57%

Profit growth 2006 1) +38%

Finland

+33%

100

+50%

+96% St: Petersburg

Norway Sweden

90

St Petersburg

Moscow

70 60

Estonia

50 40

Moscow

30

Latvia

Denmark

New York

80

+42%

+34%

20

Beijing

Lithuania

Gross income Geographical distribution, per cent Sweden Germany Rest of the Nordic countries

42 20

(44) (26)

16

(14)

The Baltic Rest of Europe Rest of the world

8 6 8

(6) (6) (4)

SEB’s markets in Northern Europe account for the dominating part of income.

Shanghai

+29%

London Germany

Poland

Luxembourg

Paris

10

Ukraine

Singapore

Geneva Marbella

1)

Overall operating profit growth 2006, 39%

São Paulo

Marbella

The other Nordic countries In Denmark, Norway and Finland, SEB has a strong position within selected areas, for example cards, asset management, wholesale and investment banking as well as life insurance. The Group has close to 1.4 million customers in these countries. On a Nordic scale, SEB has a leadership position within corporate and investment banking for large corporations and financial institutions. This is due to SEB’s unique position in Sweden, and the aim is to reach similarly prominent positions within the Bank’s chosen areas in the other Nordic markets.

Denmark In Denmark, SEB’s customer offering comprises wholesale and investment banking, life insurance, asset management, private banking and cards (Eurocard, Diners Club, MasterCard and Visa). At year-end 2006, SEB in Denmark had 780 employees and more than 600,000 customers, accounting for approximately 7 per cent of the Group’s operating profit for 2006. Within investment banking, SEB retained its strong market position. SEB was market leader in the corporate finance area and ranked among the top three players in all major equity and

Total assets under management

Market shares of total savings, Sweden

SEKbn

Per cent

1,500

1,200

900

SEB is one of the largest asset managers in the Nordic region.

600

Swedbank SEB Handelsbanken Skandia Alecta Nordea AMF Other

14.2 13.0 11.0 10.2 10.1 8.3 7.3 25.9

(13.8) (12.7) (10.8) (10.5) (10.5) (8.6) (7.5) (25.3)

SEB is number two on the Swedish private savings market.

300

2006 0

2005 SE

B

Sw

SH B ed ban k

No

D D rde ansk nB N a eB O ank R

SEB ANNUAL REPORT 2006 9

Markets, competition and customers

Market shares 2006

2005

2004

Sweden1)

20.5

21.7

21.4

The Baltic countries

27.3

29.0

31.0

Sweden2)

14.4

15.0

15.0

The Baltic countries

27.2

29.0

29.0

12.6

12.5

12.3

Sweden

14.7

14.7

14.8

The Baltic countries

24.1

n.a.

n.a.

26.1

17.1

7.4

4.4

1.7

3.9 16.3

Per cent Deposits from general public

Lending to general public

Mortgage loans, total Sweden Mortgage loans, private market

Mutual funds, new business Sweden Finland Mutual funds, total volumes3) Sweden

16.6

16.0

Finland

5.5

5.7

7.3

Estonia

22.2

24.9

27.5

Poland

1.6

3.3

4.7

Germany4)

8.2

6.5

6.7

29.1

32.6

34.6

Sweden

18.3

19.5

20.9

Denmark

10.0

9.0

9.0

Unit-linked insurance, new business Sweden Life insurance, total

Equity trading 10.1

10.6

10.0

Oslo

7.6

7.9

8.4

Helsinki Copenhagen

3.5 5.9

3.8 6.8

3.2 6.0

Stockholm

1) Market shares for deposits from households were 12.2 per cent (12.2) and from companies 25.8 per cent (27.5). 2) Market shares for lending to households were 12.5 per cent (12.5) and to companies 16.0 per cent (17.0). 3) Excluding third-party funds. 4) Real estate funds.

capital market products. The generated profits from the Danish merchant and investment banking activities have significantly increased, making 2006 the best year to date. Assets under management in Denmark amounted to SEK 143bn, primarily on behalf of institutional clients, and SEB is ranked third in the Danish market after the two major local banks, Danske Bank and Nordea. SEB’s funds were again top ranked in different ratings and surveys. In the spring, SEB acquired Prime Management, a smaller Danish private banking company. SEB Pension is Denmark’s fourth-largest private pension company with 300,000 customers and assets of SEK 82bn. The annual gross premiums rose by 21 per cent, to SEK 6.1bn. The company offers both unit-linked and traditional insurance. Norway SEB in Norway offers wholesale and investment banking services, private banking and cards (Eurocard, MasterCard and Diners Club). SEB has 500 employees and close to 600,000 customers in Norway. In 2006, Norway accounted for approximataely 9 per cent of SEB’s operating profit. The niche bank Privatbanken ASA, acquired in 2005, is serving affluent private customers under the name of SEB Privatbanken. In addition, SEB started asset management activities in Norway in early 2006. Business flows were strong within most product areas and prioritised customer segments. Activity on the Oslo Stock Exchange was high, measured both in trading volumes and numbers of IPOs. SEB arranged and participated in several major transactions and SEB maintained its position as one of the five highest-ranking banks for large corporations. SEB Enskilda secured its position as the market leader within investment banking and was No. 3 on the Oslo Stock Exchange (after DnB NOR and Carnegie), with a market share of 7.6 per cent in 2006. Finland SEB in Finland comprises wholesale and investment banking, card operations (Diners Club and MasterCard) and wealth management (primarily via the subsidiary SEB Gyllenberg). Close to 350 employees serve more than 100,000 customers in total. In 2006, Finland accounted for approximately 3 per cent of SEB’s operating profit.

Nordic M&A transactions

Nordic IPO’s

Deals completed during 2006, USDm

By bookrunner 2006, USDm

SEB Enskilda

SEB Enskilda

Deutsche Bank

UBS

Goldman Sachs

ABG Sundal Collier

Carnegie

SHB

Morgan Stanley

Pareto Securities

ABN Amro

Carnegie

Lazard

Nordea

JP Morgan

Morgan Stanley

Merrill Lynch

Lehman Brothers

Lehman Brothers

Credit Suisse 0

5,000

10,000

Source: Thomson Financial

10 SEB ANNUAL REPORT 2006

15,000

20,000

25,000

30,000

0

200 Source: Dealogic

400

600

800

1 000

Markets, competition and customers

Within custody services SEB is the second largest bank, after Nordea, but ranked No. 1 in terms of customer satisfaction. SEB Enskilda is also highly ranked within research and equities in Finland and No. 1 within M&A advice. In 2006, SEB participated in seven (excl. commercial real estate) syndicated loan transactions, acting as mandated lead arranger for five of these. Other financing transactions in the form of private placements and major leasing transactions were carried out during the year. The Commercial Real Estate unit financed or participated in six important real estate transactions during 2006. Trade finance activities were successful and continued growth is expected for this area. The leasing business ABB Credit Oy (acquired in 2005) was re-branded SEB Leasing Oy and merged with the financing operations of SEB Finans Helsinki Branch. SEB, which is the leading provider of large leasing financing in Finland, expanded further in the leasing market and diversified its business into structured receivables financing. SEB’s market share of the Finnish mutual fund market, where the subsidiary SEB Gyllenberg is one of the largest players, was 5.7 per cent in 2006. SEB Gyllenberg has a top position in the institutional asset management market and is one of the leading providers of private banking services in Finland. Germany In Germany, SEB AG is one of ten banks with a nation-wide network of branch offices. The bank is focused on private customers with savings and mortgage loans, merchant banking activities, commercial real estate financing and asset management. SEB has approximately 3,400 employees and close to one million customers in Germany. In 2006, SEB AG accounted for approximately 10 per cent of the Group’s operating profit. SEB is a strong player in the German market for real estate funds, with a market share of 8 per cent. The share of the total deposit and lending market in Germany is less than one per cent. SEB has a strong position within commercial real estate financing in Germany, having been one of the key banks in this area for years. SEB’s services to corporate clients and financial institutions in Germany were once again ranked at the very top. Within retail banking, customer satisfaction improved substantially and SEB is now one of the highest-ranking banks in Germany in this respect. Estonia, Latvia and Lithuania In the Baltic area SEB has three subsidiary banks – SEB Eesti Ühispank in Estonia, SEB Unibanka in Latvia and SEB Vilniaus Bankas in Lithuania – with 4,500 employees and 2.6 million customers, of whom 178,000 corporate customers. In addition, SEB has a life insurance company in each Baltic country. The combined result for 2006 corresponds to 15 per cent of SEB’s operating profit. The three banks have strong positions in their respective markets. SEB Eesti Ühispank is the second largest bank in Estonia after Hansabank. SEB Unibanka is number three in size in Latvia but number one in terms of deposits and lending. SEB Vilniaus Bankas is the largest bank in Lithuania. The three banks’ combined share of the total deposit and lending markets of the Baltic countries is approximately 30 per cent. SEB Vilniaus Bankas has a somewhat higher share while that of SEB Unibanka is slightly lower.

In the Baltic region, SEB has a leading position among large corporations, especially in the areas of foreign exchange, trading, cash management and M&A business. The three Baltic banks have during 2006 sucessfully met the increased demand for new savings products, such as mutual funds and unit-linked insurance. The SEB banks have a significant share of these markets.

Market share per country 2006 Per cent 50

40

Due to signs of potential economic overheating in Estonia and Latvia, SEB has increased the focus on return and loan portfolio quality. As a consequence, the bank’s lending market shares have marginally decreased in these countries.

30

20

10

Loans 0

Deposits Estonia1)

Latvia2)

Lithuania

1) Excluding loans to financial institutions 2) Resident deposits only

Poland, Ukraine and Russia After the sale of its 47-per cent shareholding in Bank Ochrony ´Srodowiska, BO´S, SEB’s operations in Poland comprise a branch, a wholly-owned mutual fund company, SEB TFI, and a branch of SEB’s German leasing company. In Ukraine, SEB Bank with 500 employees has 21,000 private and 6,300 corporate customers. The demand for various types of banking services is growing. However, only 27 per cent of the inhabitants in Ukraine have an established bank relation today. Thus, the potential for future growth is substantial. SEB’s ambition is to open ten branch offices per year and to establish life insurance business in the country during 2007. In 2006, SEB acquired PetroEnergoBank which in 2007 will be renamed SEB. Twelve branch offices are planned for the next two years. SEB’s other operations in Russia include a representative office in Moscow and a leasing company in St Petersburg – SEB Russian Leasing. Other international locations SEB runs operations at strategically important locations in such financial centres as London, New York and Singapore to serve corporate customers with international operations. Nordic and German private individuals living outside their home countries make use of these offices, too.

SEB ANNUAL REPORT 2006 11

Markets, competition and customers

Higher customer interaction The SEB Group serves more than five million private individuals and 400,000 corporate customers today. In recent years, growth has primarily taken place in its new markets. SEB offers individual, active and developing banking relations whenever and wherever customers so desire. This means, among other things, that SEB solutions by combining products and services in order to meet different customers’ needs. SEB stands for pro-activity, competence and attention to customers’ individual needs. Focus on increased customer satisfaction In order to realise the vision of being the leading bank in its chosen markets in Northern Europe , SEB strives to improve service levels and increase activity levels with respect to customers. SEB is a financial partner to more than 1,500 large companies that are active in the Nordic countries, Germany and the Baltic countries. In addition, on a global basis SEB counts approximately 1,000 banks and more than 200 major institutions among its customers. Within the corporate sector SEB occupies a leading position since long as a bank for large companies and financial institutions in Sweden, in several cases with more than century-old relations. In recent years SEB has strengthened its position on the market for large corporations in the rest of the Nordic area and Germany. During 2006, large companies and institutions accounted for approximately 40 per cent of SEB’s income. SEB serves 400,000 small and medium-sized corporate customers, mainly in Sweden and the Baltic countries. These customers can benefit from the knowledge and competence that SEB has built up in co-operation with the large companies and

Branch offices

Automatic bank service machines

Number of users of the Bank’s Internet services

3,000,000

2,500,000

2,000,000

1,500,000

1,000,000

The Baltic region Germany

500,000

Denmark 0

Sweden –97 –98 –99 –00 –01 –02 –03 –04 –05 –06

Today, SEB’s Internet banks are used by approximately 2.6 million private customers and small companies in six countries. In addition, the Group offers specialist services via the Internet such as foreign exchange and interest trading, mainly to large companies.

adapted to the needs of smaller companies. SEB’s customer base in the market for small and medium-sized companies is important and growing in Sweden and the Baltic area. The ambition is to focus more on these customer groups, both in the rest of the Nordic region and Germany.

Personal telephone service

Card transactions

Calls to SEB’s call centers, million

Million

Thousands 600

1.8

3.0

300

500

1.5

2.5

250

400

1.2

2.0

200

300

0.9

1.5

150

200

0.6

1.0

100

0.3

0.5

50

100

The figure for 2005 includes approx. XXX branch offices 0 and 50 for 2001. in Poland

0 1997

2001

2006

After a reduction of the number of branch offices at the end of the 1990s, the Bank has more than doubled its branch office network through acquisitions in Germany and Eastern Europe. During 2006 the Bank opened seven new branches offices in the Nordic region and the Baltic countries.

12 SEB ANNUAL REPORT 2006

2004

2005

0

0 2006

Automatic bank service machines include ATM’s, machines for cash deposits, transfers, foreign exchange and recharging cards.

2004

2005

2006

In Sweden and the Baltic countries, SEB’s private customers are offered personal service around the clock. In Sweden, the service is offered in 17 different languages.

1997

2001

Since 2001 the number of card transactions has doubled and amounts to 332 million transactions.

2006

Markets, competition and customers

During 2006 small and medium-sized companies accounted for approximately 25 per cent of SEB’s income. Today, SEB has the privilege of assisting 5 million private individuals, providing solutions to their everyday finances, loans and investments. During 2006, private individuals accounted for approximately 35 per cent of SEB’s income. When it comes to the private individual customers in Sweden, SEB has a leading position among financially active people within such areas as asset management, mutual funds and unit-linked insurance. SEB also has extensive operations in the private mar-

kets of the Baltic countries, where the Group’s position is strong, and in Germany. That also applies to certain niches, e.g. asset management, cards and life insurance, in the rest of the Nordic region. Distribution channels SEB’s customers can keep in contact with the bank around the clock via branch offices, internet and telephone service. In total, around 200 million customer meetings take place every year in the SEB Group, of which a third through the Internet.

SEB’s ranking 2006 – examples Area

Rank

Organisation/publication etc

Best bank at cash management in the Nordic and Baltic region

1

Euromoney

Best bank at cash management in the Nordic region

1

Global Finance Magazine

Best bank at liquidity management in the Nordic region Best bank at payments and collections in the Nordic region

1 1

Global Finance Magazine Global Finance Magazine

Best bank for risk management

1

Global Finance Magazine

Best sub-custody bank in Denmark, Finland, Latvia, Lithuania, Norway and Sweden

1

Global Finance Magazine

Best sub-custody bank in Estonia

2

Global Finance Magazine

Best stockbroker in the Nordic region

1

Prospera

Best research house in the Nordic region

1

Prospera

Best European equity team

2

Morningstar

Best Swedish small cap team in Europe

3

Morningstar

Best mututal fund company in Sweden

2

Prospera

Best M&A house in Latvia

1

Euromoney

Best at commercial real estate banking in the Nordic and Baltic region

1

Euromoney Real Estate Awards

Best at investment real estate banking in the Nordic and Baltic region

1

Euromoney Real Estate Awards

Best at advisory financial services in real estate banking in the Nordic and Baltic region

2

Euromoney Real Estate Awards

Best agent bank in the Nordic region

1

Global Custodian

Best research house in the Nordic countries

1

Extel Survey, Thomson Financial

Best bank for Scandinavian currencies

1

FX Week

Best bank in Lithuania

1

Euromoney

Best consumer internet bank in Lithuania

1

Global Finance Magazine

Best internet bank in Estonia

1

Metasite Business Solutions

Best risk manager in the Nordic region

1

TMI

Best private bank in the Nordic and Baltic region

1

Euromoney

Best private bank in Sweden

1

Prospera

Best overall customer service cards Best of Europe in Prepaid

1 1

Teleperformance Danmark A/S CRM Grand Prix MasterCard

SEB ANNUAL REPORT 2006 13

SEB’s employees

SEB’s employees SEB’s capability to attract, develop and keep the most competent employees is a key competitive factor for a successful development of SEB. SEB’s values The SEB Group’s common corporate culture is based upon four values: Commitment, Continuity, Mutual respect and Professionalism. These values form a natural part of leadership and a basis for the daily relations both between the employees of the Group and between employees and customers. SEB’s commitment to customers and society shall be reflected in these values. The goal is to create value for customers and shareholders and as a matter of course for the employees, too. Competence and leadership development Continuous competence and leadership development are of decisive importance for a growing business operation and a prerequisite for enabling SEB to deliver the right solutions to its customers. To make sure that SEB’s development activities are in line with the objectives set in its business plan, the Bank initiated a process during 2006, which not only assesses employees and leaders but also defines the needs for competence development in terms of individual goals, in view of the Group’s overriding objectives. It is SEB’s ambition to create a culture in which managers and employees constantly are trying new ways of developing the business in order to make the Bank an even more effective business partner. This is why the contents of the leadership programmes of 2006 are more clearly focused on change and innovation. SEB is active in some 20 countries and attaches great importance to making use of the total competence that exists within all parts of the Group. Job rotation is encouraged as well as work across divisional lines and geographical borders. To mirror the Group’s global structure, SEB developed a framework for Group-wide training in 2006. This means that all employees and managers are offered the same opportunities for development, regardless of division or geography. In 2006 SEB invested a total of SEK 252m (250) in competence development. Almost every Training cost per employee employee participated in SEK some kind of training 15,000 and 1,800 managers participated in the Group’s internal or external lead12,000 ership programmes. Internal training com9,000 prises everything from professional competence 6,000 courses to the Group’s own management programmes such as the 3,000 Wallenberg Institute and the Wallenberg Executive 0 (for high-level managers). 2004 2005 2006 In 2006, SEB imple-

14 SEB ANNUAL REPORT 2006

mented a common global process for performance management for all employees with individual targets, linked to SEB’s business plan. The same process is used in the annual top management review. The purpose is to ensure that SEB’s managers have the appropriate competence and that there exists a good succession planning for the key managers of the Group. SEB Licence In November 2005, SEB launched a common training programme in order for all employees to become better SEB ambassadors and strengthening the SEB brand. Improved knowledge about the Group’s products and services would lead to enhanced customer services and to an incentive to identify new product needs. The programme consisted of two parts. The first Internetbased part gave the participants general knowledge about almost all the products that SEB has on offer. The second part consisted of workshops to gain more profound knowledge about products and processes and to establish contacts between employees. Nearly all of SEB’s 20,000 employees participated in this programme.

Educational level Per cent Post gymnasium/University > 3 years

38

Post gymnasium/University < 3 years

12

Upper secondary school education

34

Compulsory school

10

Other/Unspecificed

6

Internal employee survey SEB has a systematic approach to an open and continuous dialogue about employees’ views on such important matters as work environment, motivation, leadership and Group performance in the market. SEB has chosen to carry out attitude surveys every second year in order to give time for improvement work to reach good, long-term results. Next survey is planned for the autumn of 2007. Equality and diversity The SEB Group strives to offer everybody equal opportunities and rights, regardless of gender, national or ethnic origin, age, sexual orientation and religious faith. According to the equality plan that was adopted by SEB in Sweden in 1998 the long-term goal is an equal distribution between men and women. Each sex shall be represented by at least 40 per cent at each level. SEB has taken several measures in order to achieve this objective. For example, when a new man-

SEB’s employees

ager is appointed both sexes shall be represented among the three main candidates. In 2006, 38 per cent (37) of all the Group’s managers were women and the same percentage was true for Sweden. The share for group and customer service managers was 48 per cent, while it was 33 per cent for department and branch office heads. At higher levels, the share of women was 22 per cent. SEB’s diversity plan was established in 2005. Work environment and health issues The awareness of the connection between work and health care is of vital importance for the working environment. In Sweden, a well-functioning and systematic programme is therefore being implemented. In co-operation with local, occupational health care SEB carries out extensive rehabilitation work to help longterm sick-listed employees return to work. In 2006, the number of long-term sick-listed employees decreased to 2.4 per cent (2.8), while total sickness absence dropped to 4.1 per cent (4.6).

No. of employees

Sick-leave, SEB in Sweden

Distributed by age and gender

Short and long-term leave by gender. Of regular working hours, per cent.

8,000

8

7,000

7

6,000

6

5,000

5

4,000

4

3,000

3

2,000

2

1,000

1 0

0 –29

30–39 40–49

Women

50–

Men

–29

30–49

50–

Men, shortterm leave

Women, shortterm leave

Men, longterm leave

Women, longterm leave

Total sick leave for SEB in Sweden 2006 was 4.1 per cent and longterm leave 2.4 per cent.

Employee turnover Year

Heads Average

Leavers

Retired

2002

19,994

884

(4.4%)

–1,343 (–6.7%)

–273 (–1.4%)

2003

19,411

643

(3.3%)

–1,069 (–5.5%)

–108 (–0.6%)

2004 2005

19,108 19,872

784 (4.1%) 2,029 (10.2%)

–789 (–4.1%) –1,183 (–6.0%)

–189 (–1.0%) –109 (–0.5%)

2006

20,689

2,249 (10.9%)

–2,012 (–9.7%)

–228 (–1.1%)

Starters

SEB and ”young professionals” In order to secure its position as an attractive employer SEB continuously works on building long-term relations with the target groups of “young professionals” (academics with a few years of working experience) and “last-year university and college students”. The work consists in communicating the Group’s values and in defining the desirable profiles of future employees. In January 2007 SEB’s first international trainee programme involving all divisions was concluded. A new programme will start in 2007. Remuneration within SEB SEB operates both in global and local environments as well as in different types of areas, e.g. retail banking, wholesale and investment banking, life insurance and wealth management. SEB’s success depends on the commitment and professionalism of its staff. The remuneration shall aim at meeting the financial objectives of SEB. The total remuneration shall also be competitive within each market in which SEB is present to attract, motivate and retain highly skilled individuals. Individual remuneration levels shall only be based on the factors of experience, competence, responsibility and performance. SEB’s total remuneration structure consists of the following main components: base salary, short term incentive compensation, long-term incentive compensation to senior managers and other key employees and pension and benefits. The base salary depends on the complexity of work and the individual’s work performance, experience and competence. The majority of SEB employees are eligible for short-term incentive compensation. This is based on the achievement of certain predetermined goals, individual and general, qualitative and quantitative. All employees in Sweden, as an example, can receive short-term incentive compensation of maximum SEK 30,000 based on the financial result of the Group plus another SEK 18,000 based on the result of each respective division and/ or local unit and individual/team performance during 2006. Managers and key specialists are generally subject to individual agreements, usually maximized to either a certain percentage of the base salary or a fixed amount. In 2006 approximately 500 senior managers and key specialists were granted long-term incentive compensation in the form of performance shares. The purpose of this compensation is to stimulate senior managers and other key staff to increased efforts by aligning their interests and perspectives with those of the shareholders. (See page 52 for more information on the SEB long-term incentive compensation programme) Pension conditions vary from one country to another. In Sweden, the pension conditions are defined by the collective agreements. Only a small number of employees at senior management level have pension conditions that go beyond the collective agreements. The pension conditions of the Group Executive Committee are specified in note 9.

SEB ANNUAL REPORT 2006 15

SEB’s role in society

An active role in society In order to achieve the goal of being a good social citizen it is of decisive importance to behave in a responsible and ethical way towards all interested parties in the daily operations. In its capacity as a financial group, SEB plays an important role in society by ■ acting as an intermediary between companies and/or private individuals with surplus capital and those who have borrowing needs, ■ providing an effective payment system, which is a condition for a functioning society and ■ handling financial risks. Primarily through carrying out these tasks in an ethical and responsible manner SEB will gain respect and contribute to a positive social development. Being a good social citizen in all countries where it is active is one of the Group’s overriding goals. SEB shall stand for good ethics and openness and contribute to a sustainable development. SEB’s corporate social responsibility SEB has a policy for the social responsibility of the Bank and supports the principles of the United Nation’s Global Compact and the OECD guidelines for multinational companies. This policy means that SEB takes long-term responsibility in its day-to-day work. SEB’s operations are based upon the long-term confidence of customers, employees and society. It applies to ethical issues that have a direct impact on SEB’s customers and business as well as to responsibility for the employees and, in a broader sense, for the society and environment. Several Group-wide policies and instructions govern the work on SEB’s social commitment. All this work is based upon SEB’s common values – Commitment, Continuity, Mutual respect and Professionalism. In addition, targets have been set for continuous and systematic assessment and follow-up of the work, which is led by a Group-wide Corporate Social Responsibility Committee, CSR, with representatives from all divisions and staff functions. The heads of divisions and subsidiaries have the operative responsibility for social commitment. Ethics and long-range planning SEB’s activities are based upon trust, continuity and long-term relations with customers. This means that SEB and its employees

SEB’s priority areas within Corporate Social Responsibility ■ Ethical and sustainable business conduct ■ SEB’s role as a lender ■ SEB’s role as an asset manager ■ SEB’s role as an employer ■ Social commitment ■ Environmental responsibility

16 SEB ANNUAL REPORT 2006

must meet the highest ethical standards and act in a long-term perspective. It is a matter of course that SEB observes all laws and other general regulations concerning bank secrecy, treatment of personal information, integrity protection and information safety. In addition, the Group has adopted a number of own rules regarding ethical issues. In early 2007 SEB’s Board of Directors adopted a new Code of Business Conduct. SEB’s role as a lender SEB’s credit policy describes the role and responsibility of the Group as a lender. SEB strives to increase awareness of the indirect effects and responsibilities that the Group’s credit-granting activities have on the environment and what they mean for a sustainable development. A special section of the credit policy stresses SEB’s social responsibility beyond the associated important issues of confidence in the customer, the credit purpose and environmental matters. The Group’s Head of Credits has issued special instructions and prepared follow-up systems to support credit decisions that involve SEB’s social responsibility. Factors that may have a negative impact on the environment and other issues of importance are assessed and analysed in connection with credit decisions and annual follow-up routines. Such analyses and assessments are made in a broader perspective than just taking factors that affect borrowers’ repayment capacity into account. Special attention is paid to financings of major infrastructure projects, which may involve risks for a negative impact upon the population and environment. SEB’s role as an asset manager SEB strives to maintain high ethical standards in its relations with customers, employees, suppliers and other partners. The Group offers a broad range of asset management products with a special ethical profile and works actively with corporate governance issues. SEB Fonder (Mutual Funds) finds it important

SEB’s Code of Business Conduct The SEB Code of Business Conduct describes and develops SEB’s values and standards of business conduct. The Code provides guidance on how to live by those values. The aim is to achieve the following main objectives: ■ ■ ■ ■ ■

Describe the responsibilities that follow with employment in SEB. Describe the standards of business conduct. Provide guidance on how to resolve potentially difficult situations. Establish procedures for reporting Code-related issues. Show stakeholders that SEB acts in an ethical and professional way.

SEB’s role in society

that each company in which they choose to invest has an established ethical and environmental policy. As a major manager of savings capital, it is the responsibility of SEB Fonder to be an active owner and to act in order to give companies the best possible opportunities for carrying on their activities. SEB’s mutual funds are put under strict obligations as to which shares its ethical portfolios may include by excluding such lines of business as weapons, alcohol, tobacco, pornograpy and gambling. SEB’s ethical assortment of funds must follow certain ethical standards and two different methods are used for selecting companies: screening by using Global Ethical Standard and exclusion of companies according to so-called negative criteria. Global Ethical Standard is based upon international standards regarding human rights, labour, environment, bribes, corruption and arms trading. Investments in indexed forwards are excluded since it is difficult to exclude indirect exposures on companies that violate SEB’s ethical criteria. Social commitment Being a good member of society forms part of SEB’s business concept and this is why the Group supports various social projects both centrally and through its different business areas. Youth, education, equality and diversity are areas of priority. In addition to direct grants of SEK 16.2m during 2006, the aim is that all SEB employees shall actively contribute with knowledge and personal commitment. Mentor Sverige and Mentor Lietuva Since 1997 SEB supports Mentor Sverige, a Swedish foundation engaged in drug prevention measures for the youth that runs two drug prevention programmes: a mentorship and a parental training programme. During 2006, 34 persons within SEB participated as mentors, while 100 took part in the parental training.

SEB employees can be mentors for pupils at the senior level of the compulsory school during one school year. SEB’s Lithuanian subsidiary bank, SEB Vilniaus Bankas, was one of the initiators of a national mentor organisation in Lithuania, Mentor Lietuva. SEB is trying to broaden its co-operation with Mentor to include also Germany, Estonia and Latvia. Other projects In various ways, wherever SEB is represented, the Bank supports local projects and initiatives that focus particularly on school-training and sports-linked children’s and youth issues. In connection with the ‘Rosa Bandet’-campaign (Pink Band), SEB sold about 8,000 pink bands for the benefit of the Cancer Fund, which also received SEB’s Christmas gift, which is given for charity purposes instead of sending Christmas cards. Since 1999, SEB’s Baltic Fund/WWF sends an annual contribution to the World Wide Fund for Nature and its Baltic action programme. At the annual Swedish Christmas concerts it is a tradition to collect money for various projects. In 2006, money was collected for Mentor, Queen Silvia’s Children’s Hospital and the Children’s Cancer Fund in Skåne. SEB also gave pictures to the City Mission of Stockholm for its art auction for the benefit of the homeless and to the Swedish Church in London. Environmental matters According to SEB’s environmental policy SEB shall consider environmental aspects to the greatest extent possible. SEB has signed the environmental documents of both the United Nations and the International Chamber of Commerce, under which the signatories are committed to paying due regard to, and acting for, a better environment within their respective activities. This work is led by a Group-wide environmental committee that makes reports on, and follows up, these issues on a continuous basis. Further information is available at www.sebgroup.com.

Social key figures Overall CSR

2006

2005

4)

77

4)

76

75

65

Employee attitude: Per cent of employees who think; – SEB is an ethical company – it is important that SEB is an ethical company Customer attitude: Per cent of customers who think; – SEB is an ethical company – it is important that SEB is an ethical company

Role as an employer

99

87

Motivation index Leadership index

4)

63 78

Gender equality1)

38

Sick leave rate2)

4

5

62

61

11

18

4)

Health index

37

SEB as an attractive employer, rank; – all companies – banks only Social Commitment

Mentorship programme3) Financial support of social projects, SEKm

2

2

90

95

17.5

18

1) Per cent female managers

2) In Sweden

3) Internal knowledge in Sweden

4) As from now measured every second year

SEB ANNUAL REPORT 2006 17

The SEB share

The SEB share doubled in value In 2006 the SEB Class A share rose by 33 per cent. In three years the SEB share has more than doubled in value. Earnings per share were SEK 18.72 (12.58). The proposed dividend is SEK 6.00 (4.75) per share. Share capital The SEB share is listed on the Stockholm Stock Exchange. The share capital amounts to SEK 6,872m, distributed on 687.2 million shares. The Class A share entitles to one vote and the Class C share to 1/10 of a vote. Stock Exchange trading During 2006, the value of the SEB Class A share increased by 33 per cent, while the Swedish General Index rose by 24 per cent and the European Banking Index by 19 per cent. During the year, the total turnover in SEB shares amounted to SEK 163bn. SEB thus remained one of the most traded companies on the Stockholm Stock Exchange. Market capitalisation by year-end was SEK149bn. Dividend policy The size of the dividend in SEB is determined by the financial position and growth possibilities of the Group. SEB strives to achieve long-term growth based upon a capital base for the financial group of undertakings that must not be inferior to a core capital ratio of 7 per cent. The dividend per share shall, over a business cycle, correspond to around 40 per cent of earnings per share, calculated on the basis of operating result after tax.

Sales of own shares In the third quarter 2006 SEB sold approximately 3 million shares, in excess of needs for the hedging of SEB’s long-term incentive programmes. SEB’s Class C shares To facilitate foreign ownership the Class C share was introduced at the end of the 1980s. The trading volumes of the Class C share are very limited and the number of Class C shares only constitutes 3.5 per cent of the share capital of the Bank. Due to this, the prerequisites for creating only one class of shares, thus giving the Class C shares the same rights as the Class A shares, have been examined. The examination has shown that there are significant practical difficulties to implement such a structure. According to the Swedish Companies Act a proposal that the Class C shares should carry the same rights as the Class A shares requires that the proposal is supported by shareholders representing at least 2/3 of the votes cast and shares represented at a General Meeting of Shareholders as well as by 9/10 of the Class A shares represented at the General Meeting. Furthermore approval from a majority of all Class A shareholders is required. The reason for this is that a resolution to this effect would lead to a certain dilution for the Class A shareholders. Since the number of shareholders in SEB is large, obtaining such approval would be a drawn-out and complicated procedure.

SEB Share

Monthly share price 2006

SEK

SEK 250

200 180 200

160 140 120 –120,000

100

–90,000

80

150

100

–60,000 60

50 –30,000 0

40 2002

2003

2004

SEB Share, logarithmic scale. Price equals last closing price paid on last day of each month. SIX General Index

18 SEB ANNUAL REPORT 2006

2005

2006

© FINDATA DIREKT

European Bank Index (FTSE) Number of shares traded, in thousands, linear scale (incl. after-hours transactions)

Jan

Feb

Highest paid Lowest paid

Mar

Apr

May

Jun

Jul

Aug Sep

Oct

Nov Dec

The SEB share

Share capital

SEB share Data per share

2006

2005

2004

2003

2002

Basic earnings, SEK

18.72

12.58

10.83

8.22

7.60

Diluted earnings, SEK

18.53

12.47

10.82

8.19

7.60

Equity, SEK

98.98

84.84

77.31

70.10

65.51

Adjusted equity

112.66

96.44

85.66

75.53

68.88

Net worth, SEK

115.90

102.19

89.50

78.03

70.55

Cash flow, SEK

6.32

52.49

4.95

–4.24

4.49

Dividend per A and C share, SEK

6.00

4.75

4.35

4.00

4.00

per Class A share, SEK

217.50

163.50

128.50

106.00

72.50

per Class C share, SEK

209.00

158.00

124.50

96.50

65.00

220.00

165.50

131.00

107.00

110.00

212.50

159.50

126.50

96.50

99.50

Year-end market price

Highest price paid during the year per Class A share, SEK per Class C share, SEK Lowest price paid during the year per Class A share, SEK

152.50

122.50

99.50

66.50

66.00

per Class C share, SEK

145.50

118.00

92.50

61.00

58.50

Dividend as a percentage of result for the year, %

32.0

37.8

40.2

48.6

52.7

2.8

2.9

3.4

3.8

5.5

11.6

13.0

11.9

12.9

9.5

Yield, % P/E

Number of shares

Number of votes

A

663,004,123

663,004,123

96.5

C

24,152,508

2,415,251

3.5

0.4

687,156,631

665,419,374

100.0

100.0

Share series

673.3 678.3

667.8 668.8

679.8 668.5

693.5 691.4

700.1 697.6

Distribution of shares by size of holding Size of holding

The SEB share on the OM Stockholm Stock Exchange 2006 Year-end market capitalisation, SEKm Volume of shares traded, SEKm

2005

2004

2003

2002

2001

149,251 115,026

90,382

74,391

50,850

66,900

162,707 104,372

86,293

85,648

83,758

75,424

Change in share capital Skandinaviska Enskilda Banken’s share capital has changed as follows since the Bank was started in 1972:

Year

Transaction

5,430,900

543

125

1,086,180

6,517,080

652

1976

Rights issue 1:6

140

1,086,180

7,603,260

760

1977

Split 2:1

7,603,260

15,206,520

760

1981

Rights issue 1B:10

1,520,652

16,727,172

837

1982

Bonus issue 1A:5

3,345,434

20,072,606

1,004

Per cent

No. of shareholders

1983

Rights issue 1A:5

5.4

243,800

1984

Split 5:1

501–1,000

18,694,359

2.7

25,764

1986

Rights issue 1A:15

1,001–2,000

18,644,235

2.7

13,176

1989

Bonus issue 9A+1C:10

2,001–5,000

21,299,129

3.1

6,934

1990

Directed issue2)

5,001–10,000

10,917,413

1.6

1,543

1993

Rights issue 1:1

10,001–20,000

7,868,496

1.1

564

1994

Conversion

20,001–50,000

10,535,204

1.5

338

1997

Non-cash issue

1999

Rights Issue3)

50,001–100,000

11,148,415

1.7

156

2005

550,307,363 687,156,631

80.1 100.0

339 292,614

Reduction of the share capital

Dividend

Per SEB share, SEK

Per SEB share, SEK

24

6

20

5

16

4

12

3

8

2

4

1

0

Basic earnings per share Diluted earnings per share

110 160 90 88.42

4,014,521

24,087,127

1,204

96,348,508

120,435,635

1,204

8,029,042

128,464,677

1,284 1)

128,464,677

256,929,354

2,569

6,530,310

263,459,664

2,635

20 263,459,664

526,919,328

5,269

59,001

526,978,329

5,270

61,267,733

588,246,062

5,882

35 116,311,618

704,557,680

7,046

–17,401,049

687,156,631

6,872

91.30

1) The recorded share capital at 31 December, 1986 was still SEK 1,204m, since the proceeds from the rights issue were not paid in full until early 1987. 2) The issue was directed at the member-banks of Scandinavian Banking Partners. Through splits in 1977 (2:1) and 1984 (5:1), the nominal value of the shares has been changed from SEK 100 to SEK 10. 3) According to the instructions of the Financial Supervisory Authority, subscribed shares that have been paid will not be registered as share capital in the balance sheet until the rights issue has been registered (which took place in January, 2000).

SEK 19,000 has grown to SEK 2.6m Those who bought 100 SEB shares at the price of SEK 190 per share on 1 January 1972, when Skandinaviska Enskilda Banken was formed, would have invested a total of SEK 19,000. Those who after that participated in all new issues of shares up to the present would have invested another SEK 195,000. On the other hand, they would have received total dividends of SEK 535,000 over the years. Today, the original 100 shares would have grown to 11,350 shares. On 31 January 2007, the share price was SEK 230, which means that the original investments represent a present value of SEK 2.6m.

0 2002 2003 2004 2005 2006

Share capital SEKm

Rights issue 1:5

37,742,017

Basic and diluted earnings

Accumulated no. of shares

1975

No. of shares

Source: SIS Ägarservice

Change in no. SEK of shares

1972

1–500

100,001–

99.6

Each Class A-share entitles to one vote and each Series C-share to 1/10 of a vote.

Number of issued shares, million average at year-end

Percentage of capital votes

2002 2003 2004 2005 2006

A dividend of SEK 6.00 per share is proposed for 2006.

SEB ANNUAL REPORT 2006 19

Report of the Directors Financial Review of the Group

Result and profitability

The SEB Group continued to develop positively during 2006, increasing its business volumes and improving both results and key ratios. Favourable economic development of the markets in which SEB is active in combination with the Group’s broad geographical base and product mix were the reasons for this improvement. A couple of minor acquisitions were made during the year in the form of the Russian bank PetroEnergoBank in St Petersburg and the Danish asset management company Prime Management. SEB’s sale of its total holding, 47 per cent, of the shares in Polish Bank Ochrony ´Srodowiska S.A. to the national fund for environmental protection and water purification (NFOS) for about SEK 1.4bn was completed in July, 2006. A few months later SEB opened a branch in Warsaw. During 2006 SEB’s operations were carried out through six divisions. ■ SEB Merchant Banking – the Group’s relations with large corporations, institutions and real estate companies, ■ Nordic Retail & Private Banking – the Group’s Nordic retail operations, private banking and card activities, ■ German Retail & Mortgage Banking – SEB’s German retail and mortgage business, ■ Eastern European Banking – SEB’s activities in Estonia, Latvia, Lithuania, Poland, Russia and Ukraine, ■ SEB Asset Management – mutual fund and asset management and ■ SEB Trygg Liv – life insurance operations.

Best result to date SEB’s operating profit for 2006 increased by SEK 4.3bn or 39 per cent, to SEK 15,562m (11,223). Approximately 50 per cent of this was generated outside Sweden. Net profit rose by 50 per cent, to SEK 12,623m (8,421).

As from 1 January 2007, the operations of the SEB Group are carried out through four divisions and three support functions (see further the Corporate Governance Report on pages 45–54).

Income up by 13 per cent Total operating income increased by SEK 4.5bn or 13 per cent to SEK 38,747m (34,227). Net interest income was flat at SEK 14,281m (14,282). Margin pressure, although less pronounced, in combination with increased funding costs due to higher short-term interest rates were offset by rising volumes. The customer driven proportion of net interest income increased by 14 per cent. Net fee and commission income improved by 19 per cent, to SEK 16,146m (13,559). All commission income categories increased significantly. This was particularly evident for securities commissions, which net of expenses increased by 24 per cent, and advisory, up by 36 per cent. Net financial income rose by 19 per cent to SEK 4,036m (3,392). The increase was an effect of high customer-driven activity in the trading and capital markets area. Net life insurance income improved by 13 per cent, to SEK 2,661m (2,352), principally as a result of continued strong sales and higher unit-linked volumes. A complete description of SEB Trygg Liv’s operations, including changes in surplus values, is found in “Additional information” on www.sebgroup.com. Net other income increased to SEK 1,623m (642), mainly due to higher capital gains and positive effects from hedge accounting. One-off capital gains during 2006 totalled SEK 474m.

Operating profit – geographical distribution

Operating profit – divisional distribution1)

Per cent

Per cent

2006 Operating profit SEK 15.6bn Sweden Sweden

47% 47%(50) (50)

Other OtherNordic Nordic 19% 19%(19) (19)

1997

Eastern EasternEurope Europe 15% 15%(13) (13)

Operating profit SEK 4.1bn1)

Germany Germany Other Other Sweden, 85% Other Nordic, 5% Other,

10%

1) Excl. restructuring costs of SEK 1,018m

20 SEB ANNUAL REPORT 2006

10% 10%(11) (11) 9% 9% (7) (7)

1) Adjusted for eliminations

SEB Merchant Banking

43 (43)

Nordic Retail & Private Banking

22 (26)

Eastern European Banking

14 (11)

SEB Trygg Liv

9

(7)

SEB Asset Management

8

(8)

German Retail & Mortgage Banking

4

(5)

Report of the Directors

Profit and loss account on quarterly basis – SEB Group SEKm

2006:4

2006:3

2006:2

2006:1

2005:4

Net interest income

3,604

3,503

3,578

3,596

3,803

Net fee and commission income

4,274

3,772

4,107

3,993

3,895

Net financial income

1,120

890

1,047

979

890

Net life insurance income Net other income

732 274

739 538

607 352

583 459

644 305

Total operating income

10,004

9,442

9,691

9,610

9,537

–3,735 –1,878

–3,443 –1,820

–3,463 –2,101

–3,722 –1,999

–3,766 –2,904

151

45

144

167

199

Staff costs Other expenses Net deferred acquisition costs Depreciation, amortisation and impairments of tangible and intangible assets Total operating expenses Gains less losses from tangible and intangible assets Net credit losses2) Operating profit1) Income tax expense Net profit from continuing operations

–218

–232

–217

–216

–258

–5,680

–5,450

–5,637

–5,770

–6,729

22 –222

6 –136

14 –162

28 –198

53 –331

4,124

3,862

3,906

3,670

2,530

–334

–803

–959

–843

–560

3,790

3,059

2,947

2,827

1,970

3,790

3,059

2,947

2,827

1,920

Discontinued operations Net profit Attributable to minority interests

–50

3

6

4

5

5

3,787

3,053

2,943

2,822

1,915

1) SEB Trygg Liv’s operating profit

439

453

295

283

268

Change in surplus values, net

364

381

493

422

643

SEB Trygg Liv’s business result

803

834

788

705

911

5.61 675

4.54 673

4.38 672

4.22 670

2.94 668

Attributable to equity holders3)

2) Including change in value of seized assets 3) Earnings per share (weighted), SEK Weighted number of shares, millions

Key ratios 2006

2005

20041)

2003 2)

2002 2)

Return on equity, %

20.8

15.8

14.7

14.2

13.7

Return on equity excl. one-off charges, %

20.8

17.0

14.7

14.2

13.7

Return on total assets, % Return on risk-weighted assets, %

0.64 1.71

0.48 1.31

0.51 1.32

0.52 1.26

0.51 1.24

Basic earnings per share, SEK1)

18.72

12.58

10.83

8.22

7.60

Basic earnings per share, excl. one-off, SEK1)

18.72

13.54

10.83

8.22

7.60

Diluted earnings per share, SEK

18.53

12.47

10.82

8.19

7.60

Cost/Income ratio

0.58

0.65

0.65

0.65

0.69

Cost/Income ratio, excl. one-off

0.58

0.62

0.65

0.65

0.69

Credit loss level, %

0.08

0.11

0.10

0.15

0.13

Reserve ratio for impaired loans, %

75.1

77.7

79.2

66.3

70.8

Level of impaired loans, %

0.22

0.22

0.31

0.52

0.47

11.47 8.19

10.83 7.53

10.29 7.76

10.23 7.97

10.47 7.88

741

705

570

535

503

19,672

18,948

17,772

18,067

19,003

2,597 1,262

2,299 1,118

1,953 886

1,614 822

1,332 742

Total capital ratio, incl. net profit, % Core capital ratio, incl. net profit, % Risk-weighted assets, SEKbn Number of full time equivalents, average Number of e-banking customers, thousands Assets under management, SEKbn 1) Restated to IFRS except for IAS 32 and IAS 39. 2) Not prepared under IFRS.

SEB ANNUAL REPORT 2006 21

Report of the Directors

Stable costs Total operating expenses amounted to SEK 22,537m (22,149), an increase of 2 per cent compared with last year. The increase was mainly due to higher performance-related remuneration, increased provisions for the long-term incentive programmes and for redundancy costs. Approximately SEK 200m of the oneoff charges of SEK 890m for unutilised office space and integration in 2005 was used during 2006. Staff costs rose slightly, excluding performance-related remuneration and provisions for redundancy costs. Including Cost/Income ratio these effects, total staff costs amounted to SEK 14,363m 1.0 (13,342). The average number of full time equivalents in 0.8 2006 increased to 19,672 (18,948), of which 650 due to 0.6 acquisitions and growth in Eastern Europe. Other expenses decreased 0.4 by 7 per cent, to SEK 7,798 (8,383). Adjusted for the 0.2 unutilised office space charges and insurance0 related broker commissions, 2002 2003 2004 2005 2006 other expenses were up by 1 per cent, mainly due to The incremental ratio Cost/Incomecost/income ratio (%) increased costs for IT and 2006 was 0.28. Target (%) marketing.

Net interest and Net fee and commission income SEB Group, SEKm 4,500 4,000 3,500 3,000 2,500

Q4 2002

Q4 2003

Q4 2004

Q4 2005

Q4 2006

Net interest income Net fee and commissions

Net financial, Other and Life insurance income SEB Group, SEKm 1,200 1,000 800 600

Low credit loss level The Group’s net credit losses, including changes in the value of assets taken over, decreased to SEK 718m (914). The credit loss level was 0.08 per cent (0.11). Asset quality remained stable.

400 200 0 Q4 2002

Q4 2003

Q4 2004

Q4 2005

Q4 2006

Reduced tax rate Total tax costs amounted to SEK 2,939m (2,770). The total tax rate was 18.9 per cent (24.7). The reduced tax rate was mainly due to improved results of business operations subject to a lower tax rate and increased non-taxable income. The expected tax rate for 2007 is around 23 per cent.

Net financial income Net other income Net life insurance income

Household mortgages – Sweden Volumes and margins 180

1.2

150

1.0

120

0.8

90

0.6

60

0.4

30

0.2 0.0

0 Mar

Jun

Sep

Dec

2004

Outstanding volume, SEKbn Average margin, %

22 SEB ANNUAL REPORT 2006

Mar

Jun

Sep

2005

Dec

Mar

Jun

Sep

2006

Dec

Report of the Directors

Financial structure Balance sheet The balance sheet total increased by 2.4 per cent to SEK 1,934bn (1,890) due to growth within general public lending and trading securities. Risk-weighted assets increased proportionally more than the balance sheet (by 5 per cent over the year), since much of the new lending business was to corporations carrying full risk weight.

Balance sheet SEKbn 2,000

Assets

Liabilities

1,600

1,200

800

400

0 2005

2006

Lending to credit institutions Lending to the public Financial assets Other assets

2005

2006

Deposits by credit institutions Deposits and borrowing from the public Financial liabilities Other liabilities Subordinated liabilities Shareholders’ equity and untaxed reserves

Assets The most important asset item on the balance sheet consists of loans to the public, which rose to SEK 946.6bn (901.3) during the year. Loans to credit institutions increased to SEK 179.3bn (177.6). Total credit exposure, including contingent liabilities and derivatives contracts, amounted to SEK 1,315bn (see further pp 40–41 in the Risk and Capital Management section and Note 44). Financial assets within insurance operations are classified as financial assets at fair value. Financial assets where the insurance policyholders carry the risk (unit linked insurance) amounted to SEK 120.9bn (96.1). Financial assets within traditional insurance operations amounted to SEK 81.4bn (89.6). Trading securities At year-end 2006, the market value of the trading securities of the SEB Group, classified as financial assets at fair value, was SEK 340.9bn (286.2). These portfolios consist of immediately liquid and pledgeable securities in SEK, EUR, USD and other major currencies. The higher level reflected increased trading activities in investment grade instruments; credit and market risk levels for the portfolios showed minor changes only.

Derivatives At year-end 2006, the nominal amount of the Group’s derivatives contracts totalled SEK 6,995bn (6,909). The volumes are primarily driven by offering clients derivatives products for management of their financial exposures. The Group manages the resulting positions through entering offsetting contracts in the market place. As a consequence, the mix of derivatives as detailed in Note 45 largely reflects the demand of our customer base. The customer and market making transactions form part of the trading book and are valued at market on a continuous basis. The Group also uses derivatives for the purpose of protecting the cash-flows and fair value of the Bank’s financial assets and liabilities from interest rate fluctuations. Following IFRS, also these contracts are accounted for at market value. The major portion of the Group’s derivatives engagements is related to contracts with short maturity, which are dominated by interest- and currency-related forwards. A minor portion consists of exchange-traded derivatives contracts, where profits and losses are continuously settled on a cash basis. Positive market values imply a counterparty risk; to reflect also future uncertainty in market conditions, a credit risk equivalent is calculated. Depending upon the type of contract, currency and remaining maturity, an add-on to the current market price is computed. The credit risk equivalent is fully consolidated in the Group’s credit exposure. Netting contracts (i.e. being able to offset negative against positive closing gains) are disregarded in accounting but form a very important part of the Group’s credit risk mitigation strategy. SEB strives to enter agreements with all major derivatives counterparties about netting and, where relevant, marginal collaterals, thereby reducing the exposure in the event of a counterparty default. The counterparties are mainly Swedish and international banks of very high quality as well as central banks. On a net basis, the total credit risk equivalent at year-end was SEK 55.8bn (61.7). Further details on exposures by industry are found in Note 44. Intangible fixed assets, including goodwill At year-end 2006 intangible assets totalled SEK 15.6bn (15.2), the majority consisting of goodwill. The most important goodwill items were related to the following: The acquisition of the Trygg-Hansa group in 1997 (SEK 5.7bn at year-end 2006), the Group’s investments in banking activities in Eastern Europe from 1998 (SEK 2.0bn), and investments in the credit card business in Norway and Denmark (SEK 1.1bn). Goodwill items are not amortised, but are subject to a yearly impairment test. Deferred acquisition costs in insurance operations amounted to SEK 2.8bn (2.3). Further information is found in Note 27. Deposits and borrowing The financing of the Group consists of deposits from the public (households, companies etc.), loans from Swedish, German and other financial institutions and issues of money market instruments, bonds and subordinated debt. Deposits and borrowing from the public increased by SEK 71.8bn to SEK 641.8 (570.0). Deposits by credit institutions decreased by SEK 33.5bn to SEK 366.0bn (399.5).

SEB ANNUAL REPORT 2006 23

Report of the Directors

Deposits from the public

Lending to the public

SEKbn

SEKbn

1,000

1,000

800

800

600

600

400

400

200

200

0

0 2004

2005

2006

2004

2005

2006

Liabilities in insurance operations At year end, liabilities in insurance operations amounted to SEK 203.7bn (185.4). Out of this, SEK 120.1bn (96.2) was related to financial contracts (unit linked insurance) and SEK 83.6bn (89.2) to insurance contracts (traditional insurance). Total equity Total equity at the opening of 2006 amounted to SEK 56.8bn (51.8). In accordance with a resolution of the Annual General Meeting of April 2006, SEK 3,264m (3,065) of this was used for dividend purposes including dividend to repurchased shares. At year-end 2006, total equity amounted to SEK 67.3bn. Capital adequacy The SEB Group is a financial group that comprises banking, finance, securities and insurance companies. The capital adequacy rules apply to each individual Group company that has a licence to carry Capital adequacy on banking, finance or Per cent securities operations as 12 well as to the consolidated financial group of under10 takings. Similarly, Group companies that carry on 8 insurance operations have to comply with capital sol6 vency requirements. The consolidated SEB 4 Group should also comply with the capital require2 ments introduced by the new legislation concerning 0 combined banking and 2004 2005 2006 insurance groups (“finanSupplementary capital cial conglomerates”). Core capital ratio Goal core capital ratio, minimum 7%

24 SEB ANNUAL REPORT 2006

Composition of capital base The capital base of the financial group of undertakings was SEK 84.9bn (76.3) at year-end 2006. Core capital amounted to SEK 60.7bn (53.1). Core capital consists of total equity plus minority interests, after deduction for intangible assets (mainly acquisition goodwill), deferred tax claims and the dividend proposed by the Board. Adjustments should be made where capital adequacy regulation differs from how the balance sheet is prepared, specifically as concerns hedge accounting and surplus values in available for sale portfolios. Certain subordinated debt issues can be included as core capital contribution, up to maximum 15 per cent of core capital. SEB could include SEK 7.5bn (8.0) of such debt in the core capital. In addition to core capital, the capital base may include subordinated debt up to maximum 100 per cent of core capital. Deductions from the capital base shall be made for investments in companies that are not consolidated with the financial group of undertakings, including insurance companies. As regards SEB, the deduction of SEK 11.0bn (12.2) was in all essentials due to the acquisition of the Trygg-Hansa group in 1997 and to the acquisition of Codan Pension in 2004. A deduction of SEK 0.6bn is also made for pension surplus values, except for such indemnification as prescribed in the Swedish Act on safeguarding of pension undertakings. Risk-weighted assets The combined risk-weighted volume of assets, off-balance-sheet commitments and market risk positions totalled SEK 741bn (705). The increase includes growing credit volumes of household mortgages and in the Baltic banks, together with increased corporate lending during the first part of the year. Business volumes in SEB’s German operations decreased during the year and the divestiture of BO´S Bank during the third quarter led to a reduction of risk-weighted assets (RWA). Currency effects curbed RWA growth during the fourth quarter, when accounted for in SEK. Capital adequacy ratio The total capital ratio was 11.5 per cent (10.8) and the core capital ratio 8.2 per cent (7.5). SEB’s objective is to maintain a core capital ratio of at least 7 per cent and a total capital ratio of at least 10 per cent, which reflects SEB’s ambitions in the international money and capital markets. This also leaves a good margin with respect to statutory requirements, where the lowest permissible total capital ratio and core capital ratio are 8 and 4 per cent, respectively. According to Swedish rules, deductions for investments in insurance operations, including goodwill, may be made in full from the total capital base. A more restrictive treatment of this goodwill in line with other goodwill, i.e. with a deduction from the core capital, would lead to a core capital ratio of 7.4 per cent and an unchanged total capital ratio. Some analysts and rating agencies prefer this way of calculation. The combined capital requirements for the SEB financial conglomerate was SEK 67.6bn, while the capital resources amounted to SEK 97.7bn. Further information about capital adequacy and capital base is found in Note 49.

Report of the Directors

Rating Last years’ positive rating trend for SEB was confirmed during 2006. Standard & Poor’s up-graded the Bank to A+ and Fitch changed the outlook for SEB from “stable” to “positive”. In February 2007, Moody’s changed SEB’s rating to Aa1. SEB has an AA-rating ambition and currently holds an AA-equivalent rating with Moody’s and DBRS. Strong ratings are important, since a higher rating over time leads to lower funding costs and more business opportunities in the international capital markets. The following table shows the current rating of SEB (February 2007).

Rating Moody’s

Standard & Poor’s

Fitch

Outlook Stable

Outlook Stable

Outlook Positive

DBRS Outlook Stable

Short

Short

Short

Long

Short

Long

AAA

R–1 (high)

AAA AA (high)

P–1

Long Aaa

A–1+

Long AAA

F1+

P–2

Aa1

A–1

AA+

F1

AA+

R–1 (middle)

P–3

Aa2

A–2

AA

F2

AA

R–1 (low)

AA

AA–

R–2 (high)

AA (low)

Aa3

A–3

AA–

F3

A1

A+

A+

R–2 (middle)

A

A2

A

A

R–2 (low)

BBB

A3

A–

A–

R-3

BB

Baa1

BBB+

BBB+

R–4

B

Baa2

BBB

BBB

R–5

CCC CC C

Baa3

BBB–

BBB–

D

D

Dividend The size of SEB’s dividend is determined by the financial position and growth possibilities of the Group. SEB strives to achieve long-term growth based on a capital base for the financial group of undertakings supporting a core capital ratio of minimum 7 per cent. Over a business cycle, the dividend per share shall correspond to around 40 per cent of earnings per share, calculated on the basis of operating result after tax. For 2006, the Board proposes a dividend of SEK 6.00 (4.75) per Class A and Class C share, resepctively. The total dividend amounts to SEK 4,123m (3,264), calculated on the total number of issued shares as per 31 December 2006, including repurchased shares. This proposal corresponds to 32 per cent (38) of earnings per share. The SEB share will be traded ex dividend on 29 March 2007. The size of the proposed dividend is based upon an adjustment of the Group’s capital structure and its opportunities for future growth. The Board is of the opinion that the proposed dividend does not prevent the company nor any other of the companies of the Group to fulfil its short- and long-term obligations. The so-called rule of prudence of the Swedish Companies Act has been taken into account and the proposed dividend can thus be justified (Chapter 17, Section 3, Swedish Companies Act 2005:551).

SEB ANNUAL REPORT 2006 25

Report of the Directors

SEB Merchant Banking This division has overall responsibility for servicing large and medium-sized companies, financial institutions, banks, and commercial real estate clients. It operates in 17 countries. Merchant Banking offers its clients integrated investment and corporate banking solutions. In 2006 the investment banking activities of Enskilda Securities were integrated within Merchant Banking and re-branded SEB Enskilda. Merchant Banking´s main areas of activity include: ■ Lending and debt capital markets ■ Trading in equities, currencies, fixed income, derivatives and futures ■ Advisory services, brokerage, research and trading strategies within equity, fixed income and foreign exchange markets ■ Prime brokerage and securities related financing solutions ■ Export, project and trade finance ■ Corporate finance ■ Acquisition finance ■ Venture capital ■ Cash management, liquidity management and payment services ■ Custody and fund services ■ Leasing and factoring products ■ Management of the SEB Group´s liquidity portfolio SEB Merchant Banking is continuously strengthening its presence and widening its range of products in SEB’s markets outside Sweden, primarily Denmark, Finland, Germany, Norway, Poland and the Baltic countries.

2006

2005

Percentage of SEB’s total income

37

36

Percentage of SEB’s operating profit Percentage of SEB’s staff

47 16

48 18

SEKm

2006

2005

Change, per cent

Net interest income Net fee and commission income

4,595 5,730

4,827 4,649

–5 23

Net financial income Net other income

3,511 683

2,498 181

41

Profit and loss account

Total operating income

14,519

12,155

19

Staff costs

–4,436

–4,309

3

Other expenses Depreciation of assets

–2,585 –70

–2,398 –92

8 –24

Total operating expenses

–7,091

–6,799

4

7,428

5,356

39

1

–100

Net credit losses1)

–116

–24

Operating profit

7,312

5,333

0.49 20.9

0.56 18.0

25.2 3,188

21.3 3,392

Profit before credit losses etc Gains less losses on assets

Cost/Income ratio Business equity, SEKbn Return on equity, % Number of full time equivalents, average

37

1) Including change in value of seized assets

Strong income and high operational leverage Activity and volumes remained strong in all markets in 2006, resulting in the division’s highest result to date. Operating profit was 37 per cent higher than in 2005, at SEK 7,312m (5,333). The financial performance in 2006 was based on strong income generation, good cost control as well as continued low net credit losses. The division’s scalable business model enabled it to take advantage of the favourable business climate throughout the year. Total operating income rose by 19 per cent. Improved revenues were due to customer acquisition and increased product penetration. Client revenues increased by approximately SEK 2.5bn. Approximately 50 per cent of total income was generated outside Sweden (45). Total operating expenses grew by 4 per cent compared with 2005 as a result of higher performance-related remuneration. Asset quality remained good and stable. 2006 in review Market conditions during 2006 were excellent, although the third quarter was somewhat weaker. Stock market turnover was high and valuations rose throughout the year, recovering strongly from reversals in May. Turnover on the Stockholm Stock Exchange reached record levels while the Norwegian market benefited from strong attention and capital inflows from international investors. Apart from the US dollar weakness, the FX market lacked clear trends and customer behaviour was therefore rather event-

26 SEB ANNUAL REPORT 2006

driven. Rising interest rates and high commodity prices had limited impact on investor sentiment, which for the most part remained positive. A significant feature of 2006 was the continued inflows of investment in private equity and alternative investment funds. The event driven market and investors’ searching for yield create new business opportunities for Merchant Banking, particularly in the trading and advisory areas. An expanded presence around the Baltic rim In line with the division’s strategy of investing in growth outside its traditional largest market, Sweden, Merchant Banking achieved the highest income growth in the other Nordic countries and in Germany. As from 1 January 2007 Merchant Banking has assumed full responsibility for wholesale banking activities in the Baltic countries. SEB Enskilda Corporate Finance and SEB Enskilda Equities will expand activities in Estonia, Latvia and Lithuania, with the intention to lead the development of investment banking in the Baltic countries. Merchant Banking’s expanded presence in these countries, its new branch in Poland and continued expansion in Germany strengthens its leading position in Northern Europe as a provider of integrated regional banking solutions. Renewed activity in trading and capital markets The division’s trading and capital markets businesses performed well, with higher profitability, in all asset classes, most particularly equity related areas. Business activity was significantly

Report of the Directors

Gross income

Financial development

Geographical distribution 2006, per cent

Operating profit and return on equity

Sweden Norway Germany Denmark Finland Rest of the world

50 15 10 5 4 16

(55) (12) (11) (5) (3) (14)

7,000

28

6,000

24

5,000

20

4,000

16

3,000

12

2,000

8

1,000

4

0

0

In 2006, income derived outside Sweden increased to 50 per cent (45).

higher among corporate customers as well as financial institutions. The Norwegian business developed particularly well. 2006 saw a number of new introductions to the Nordic stock exchanges. IPO activity was one of a number of factors which contributed to high stock exchange turnover in 2006. After a dip in activity during the summer months, commission generation returned to high levels in the fourth quarter. SEB was once again the largest broker by market share on Nordic stock exchanges. Sales of structured products were significantly higher and SEB increased its market share in this growth product. Total primary issuance by SEB increased 69 per cent from 2005 while SEB’s share of new issues registered with the Swedish VPC increased to 17 per cent (14). SEB distributes these products through its proprietary network in nine countries. In addition, third party distribution arrangements have been expanded in Finland and Norway whereby SEB’s products will be sold by local savings banks. High activity among corporate customers Demand for corporate finance advice was high throughout 2006 and SEB was the leading advisor on Nordic M&A transactions as well as the leading bookrunner on Nordic IPOs. In the fourth quarter, SEB Enskilda Corporate Finance was advisor to SAS and the Rezidor Hotel Group in the SEK 4.5bn initial public offering and listing of Rezidor on the Stockholm Stock Exchange. Other notable transactions during the year included advising EQT and Investor AB on their SEK 39bn buy-out of Gambro from the Stockholm Stock Exchange, advising the Swedish State-owned company Sveaskog on its divestment of AssiDomän Cartonboard to Korsnäs, advising Securitas AB on the listing of Securitas Direkt and Securitas Systems on the Stockholm Stock Exchange, and advising Ahlstrom on its initial public offering and listing on the Helsinki Stock Exchange. SEB maintained its regional leadership in commercial real estate banking and further developed its franchise in Norway and Finland with a focus on structured finance solutions. In Germany, SEB continued to develop its commercial real estate business with increasing profitability. From the first quarter of 2007, the financial result for SEB’s commercial real estate activities in Germany will be included in the result for Merchant Banking. Strong stock market valuations and companies’ increased appetite for acquisitions and investment presented good opportunities for venture capital exits. At the end of 2006, the portfolio of SEB Företagsinvest, SEB’s venture capital vehicle, comprised 35 holdings balanced over technology and life sciences. Overall deal flow quality continued to be satisfactory

Operating profit, SEKm 2002

2003

2004

2005

RoE, %

2006

Leading equity broker Market shares, Nordic stock exchanges, Jan–Dec 2006, per cent SEB Enskilda Carnegie Morgan Stanley SHB Fischer 0

2

2005

4

6

8

2006

The leveraged buy-out markets continued to show high levels of activity throughout the year. SEB led and participated in a number of acquisition financings in the Nordic countries, Germany and the UK. Increased market share in transaction banking Strong customer acquisition in cash management and securities services led to higher profitability in transaction banking. As the year progressed this was further aided by higher interest rates. Assets under custody have doubled in two years. At the end of 2006, assets under custody amounted to SEK 5,234bn (4,176), an increase of 25 per cent compared with the previous year. Transaction volumes increased 69 per cent compared to full year 2005. Investments in IT and processes allowed the large increase in volumes to be accommodated with unchanged costs. SEB’s fund services offering continued to capture market share. Volumes grew by 45 per cent year-on-year and the number of clients doubled for the second year in succession. Throughout 2006, awards and customer surveys have confirmed SEB’s regional leadership in wholesale banking. This includes both advisory services, such as research and corporate finance, as well as custody, cash management, commercial real estate, equities, foreign exchange and other banking services for companies and institutions.

SEB ANNUAL REPORT 2006 27

Report of the Directors

Nordic Retail & Private Banking The division serves 1.6 million private customers and 139,000 small and medium-sized corporate customers. Customers have access to SEB’s complete range of financial services through branch offices and 24-hour open telephone and e-banking services. The business areas are: ■ Retail Banking consists of SEB’s approximately 200 Swedish branch offices, ATMs, telephone banking and e-banking, as well as of back office and support functions. The mortgage business (SEB BoLån AB) is also a part of Retail Banking in Sweden. In addition, the division has branches in Copenhagen and Oslo. ■ Private Banking has representation in seven Swedish cities and branches in Luxembourg, Copenhagen, Oslo, London, Zurich, Geneva, Nice, Marbella, Singapore and Warsaw. In Sweden, SEB is the leading asset manager for private clients and foundations. ■ SEB Kort includes 3 million charge, credit, debit and co-branded cards. The business area operates in Sweden, Denmark, Norway and Finland and includes trade marks like Eurocard and Diners Club. SEB Kort also has acquiring agreements with 196,000 retailers.

2006

2005

Percentage of SEB’s total income

25

27

Percentage of SEB’s operating profit Percentage of SEB’s staff

24 22

29 25

SEKm

2006

2005

Change, per cent

Net interest income Net fee and commission income

4,679 4,740

4,558 4,437

3 7

295 150

200 71

48 111

Profit and loss account

Net financial income Net other income Total operating income

9,864

9,266

6

Staff costs

–3,102

–3,032

2

Other expenses Depreciation of assets

–2,786 –79

–2,691 –53

4 49

Total operating expenses

–5,967

–5,776

3

3,897

3,490

12

Profit before credit losses etc Gains less losses on assets

29

1

Net credit losses1)

–146

–192

–24

Operating profit

3,780

3,299

15

0.60 13.6

0.62 12.2

20.0 4,730

19.5 4,657

Cost/Income ratio Business equity, SEKbn Return on equity, % Number of full time equivalents, average 1) Including change in value of seized assets

High business activity during the year 2006 was characterised by strong business flows and good cost control across all business areas. Operating profit increased by 15 per cent, to SEK 3,780m (3,299). Total operating income rose by 6 per cent. Net interest income increased by 3 per cent, as the negative effect of lower pre-redemptions and margin pressure on household mortgages was compensated for by lending and deposit volume increases. Net commissions increased by 7 per cent, driven by a strong sales and volume development of savings products, such as equity-linked bonds and mutual funds, among other things. Total operating expenses increased by 3 per cent, primarily due to investments made in Norway and Denmark. For the retail operations in Sweden costs remained unchanged between the years. Increased market shares During 2006, market shares developed favourably within such key areas as mortgages, deposits, consumer credits and equitylinked bonds. According to SEB’s so called Sparbarometer, SEB’s share of household savings was 13.0 per cent as of December 2006. Lending volumes increased by 13 per cent, to SEK 280bn (247) and total deposit volumes increased by 14 per cent to SEK 160bn (141), of which SEK 137bn was related to Sweden. Asset quality remained stable.

28 SEB ANNUAL REPORT 2006

All business areas reported improved profit Retail Banking Activities to improve operational efficiency and customer services, in order to create a basis for profitable growth, were carried out during the year. Retail Banking increased its operating profit by 14 per cent, to SEK 2,118m (1,853). A strengthened focus on sales and pro-activity continued to yield result. As an example, the number of sales offers given to customers increased by more than 60 per cent. Income from the small and medium-sized companies segment improved considerably and new customers were gained. In 2007 further initiatives will be taken, among others via an intensified co-operation with the Merchant Banking division. SEB Way, SEB’s main tool for operational excellence, was implemented in back-office operations and pilot transformations started in branch operations, both with promising results. The roll-out of SEB Way will continue throughout 2007 and 2008 in remaining parts of the business area. Initiatives to improve customer offerings based on increased simplicity, clarity and availability, were continued throughout 2006. The launches were overall successful and have strengthened SEB’s position within key areas. For example, SEB’s market share of new deposit volumes has been above 20 per cent since the launch of “Enkla Sparkontot” (the easy and accessible savings account), and 20,000 customers have signed up for “Enkla depån”(the easy and accessible internet custody account) since the launch in mid-December. In 2007, additional “Enkla”-products will be launched.

Report of the Directors

SEB Kort SEB Kort increased its operating profit for 2006 to SEK 881m (807). The result included a capital gain of SEK 72m from the listing of MasterCard. Margin pressure was compensated by higher volumes. During 2006 the business area made further investments in organic growth in the Nordic region and in establishing business operations in the Baltic countries. SEB Kort has received awards for best customer service within credit cards and for best overall customer service in Denmark (Teleperformance Danmark A/S CRM Grand Prix). In Norway, Eurocard Norway was appointed Best of Europe in Prepaid 2006 by MasterCard.

Operating profit by business area Per cent

Retail Banking

56 (57)

SEB Kort

23 (24)

Private Banking

21 (19)

Growth cash-management customers, small and medium-sized companies Thousands 80

70

60

2004

2005

2006

Card turnover SEKbn 240

The figures include Eurocard in Norway (from December 2002) and Eurocard Denmark (from August 2004)

200 160 120 80 40 0 2002 2003 2004 2005 2006

During the year three branches have been opened at new locations, in Falkenberg, Enköping and Liljeholmen. Private Banking Private Banking increased its operating profit for 2006 by 22 per cent, to SEK 780m (639), due to high stock market activity, good sales and appreciating assets under management, SEK 307bn (252) at year-end. Net new volumes amounted to SEK 13bn during the period and the number of customers continued to grow. Customer satisfaction within the business area remained high and SEB was appointed best Private Bank in Sweden by Prospera. Euromoney ranked SEB as the best Private Bank in both the Nordic and Baltic countries. In June, SEB acquired Prime Management in Denmark. The acquisition contributed with SEK 4bn in assets under management. Private banking activities in Poland were launched in January 2007.

SEB ANNUAL REPORT 2006 29

Report of the Directors

SEB in Germany (SEB AG Group) The SEB AG Group comprises SEB’s operations in Germany: the German Retail & Mortgage Banking division, Merchant Banking Germany and Asset Management Germany. 2006

2005

Percentage of SEB’s total income

17

19

Percentage of SEB’s operating profit Percentage of SEB’s staff

10 17

10 18

SEKm

2006

2005

Change, per cent

Net interest income Net fee and commission income

3,436 2,561

4,094 2,167

–16 18

107 352

–32 240

47

Total operating income

6,456

6,469

0

Staff costs

–2,571

–2,502

3

Other expenses Depreciation of assets

–1,724 –271

–1,893 –301

–9 –10

Total operating expenses

–4,566

–4,696

–3

1,890

1,773

7

–9

–5

80

Profit and loss account

Net financial income Net other income

Profit before credit losses etc Gains less losses on assets Net credit losses1)

–393

–593

–34

Operating profit

1,488

1,175

27

0.71 12.6

0.73 12.2

9.5 3,404

7.7 3,388

Cost/Income ratio Business equity, SEKbn Return on equity, % Number of full time equivalents, average 1) Including change in value of seized assets

Gradual financial improvement The German economy showed strong signs of recovery during 2006 with increased private household consumption. The German stock market developed favourably. The entire operations of SEB in Germany benefited from this positive economic environment. SEB AG reported an operating profit of SEK 1,488m, up by 27 per cent compared with 2005. Net interest income decreased due to the negative impact from reduced risk-taking in treasury portfolios and higher shortterm interest rates. Commission income was up by 18 per cent owing to increased sales activities across all business areas. Operating expenses decreased by 3 per cent. Cost saving measures within IT and operations as well as staff and support functions compensated investments in growth initiatives. Net credit losses decreased by 34 per cent compared with 2005 due to improved asset quality.

30 SEB ANNUAL REPORT 2006

High business activities and enhanced sales Merchant Banking reported stronger results within trading and capital markets, successful acquisition of new clients and strong activities regarding tailor-made solutions, for example structured investment products, structured financing solutions and cash management. Commercial Real Estate showed higher results mainly due to a 40 per cent increase in new business volume compared to the previous year. The integration of the former subsidiary SEB Hypothekenbank in 2005 led to lower operating costs. Asset Management reported good income development due to high transaction activity and performance fees. The real estate funds of SEB ImmoInvest recorded high net inflows and increased its market share to 8.2 per cent (6.5). Assets under Management reached SEK 165bn, up 7 per cent compared with last year. Within Retail, the new market positioning and growth initiatives were yielding results. Enhanced sales activities resulted in significantly higher commission income.

Improved key ratios SEB AG Group – entire operations in Germany Cost/Income-ratio1)

Return on allocated capital,1) %

1.0

10

0.8

8

0.6

6

0.4

4

0.2

2

0

0 2002 2003 2004 2005 2006

1) Excl. one-off items.

2002 2003 2004 2005 2006

Report of the Directors

German Retail & Mortgage Banking This division serves close to one million private customers, 23,000 small and medium-sized comapanies and real estate companies throughout Germany. Customers are able to access its services through 174 branches, an Internet platform, telephone banking and a mobile sales force. Since 2006 SEB ImmoInvest, previously reported under the German Retail & Mortgage Banking, is consolidated with Asset Management. The period for 2005 has been restated. 2006

2005

Percentage of SEB’s total income

11

13

Percentage of SEB’s operating profit Percentage of SEB’s staff

4 15

4 15

SEKm

2006

2005

Change, per cent

Net interest income Net fee and commission income

2,670 1,401

3,180 1,128

–16 24

19 346

74 224

–74 54 –4

Profit and loss account

Net financial income Net other income Total operating income

4,436

4,606

Staff costs

–2,053

–1,978

4

Other expenses Depreciation of assets

–1,146 –251

–1,294 –279

–11 –10

Total operating expenses

–3,450

–3,551

–3

986

1,055

–7

–9

–5

80

Net credit losses1)

–347

–561

–38

Operating profit

630

489

29

Cost/Income ratio Business equity, SEKbn

0.78 9.4

0.77 9.9

5.4 2,918

4.0 2,870

Profit before credit losses etc Gains less losses on assets

Return on equity, % Number of full time equivalents, average 1) Including change in value of seized assets

Improved result The division’s operating profit for 2006 increased by 29 per cent, to SEK 630m (489). Total income was slightly down which was mainly caused by the development of net interest income. Thus the total income did not reflect the improvements in sales activities in 2006. As for SEB’s entire operations in Germany, net interest income was negatively affected by the higher short-term interest rates and the decision to reduce interest rate risk in treasury. Excluding treasury, the division’s operating income and operating profit improved considerably. Commission income rose by 24 per cent due to increased activity in the German economy and SEB’s higher sales of structured products, securities and life insurances. In spite of the various investments in growth and quality initiatives, total costs were reduced by 3 per cent. Credit losses were significantly below previous year although they increased in the fourth quarter.

Increased sales activities Retail banking in Germany faced fierce competition in 2006. The appearance of new competitors and demanding customers led to high margin pressure. In order to strengthen its competitiveness, SEB undertook several initiatives in 2006 for future growth, higher profitability and an efficient customer oriented business. The measures comprised the further build up of a mobile sales force. At the end of 2006 the number of mobile financial advisors reached 50. The target figure in 2008 is 200. In addition, the branch network sales force increased by 70 advisors. That included extensive quality improvements through product trainings on assurance and mortgage offerings for branch staff. The stepwise transformation of the Call Centre into Sales Centre developed favourably. The number of customer appointments through the Call Centre went up significantly. A new internet platform was implemented at year-end, offering new Internet banking features. The better usage of the Internet as an efficient sales channel is part of the multi-channel approach of SEB in Germany. Another key initiative of the growth strategy included the new market and marketing positioning with the creation of a new and innovative sales culture, a clear brand image and a new branch design. SEB signed a broad co-operation agreement with the insurance company AXA to benefit from the large potential in sales of pension savings plans in Germany. The co-operation started in January 2007. Consumer loan volumes increased by 30 per cent. New sales in mortgage loan were higher than in 2005. Net sales of funds were up 20 per cent in 2006. In order to concentrate on its core activities, the bank entered an agreement to sell Union Inkasso, a retail debt collection subsidiary, and the related non performing retail claim portfolio. The transaction had no impact on the result in 2006 and will have marginal effect on the profit and loss account in 2007. German Retail further strengthened its customer satisfaction leadership among German banks in 2006. N.B. The tax rate for the division is set at 20 per cent to reflect the medium-term tax rate. The actual tax rate is below 10 per cent.

SEB ANNUAL REPORT 2006 31

Report of the Directors

Eastern European Banking this division comprises three Baltic banks – SEB Eesti Ühispank (Estonia), SEB Unibanka (latvia) and SEB Vilniaus Bankas (lithuania), SEB Bank in ukraine and PetroEnergoBank in russia. the Baltic banks serve 2.6 million clients, whereof 178,000 corporate clients via some 200 branch offices and via Internet banks; more than 1.3 million use the banks’ Internet service. SEB’s mutual fund company in poland, SEB TFI, and a leasing company in russia also form part of the division. 2006

2005

percentage of SEB’s total income

11

9

percentage of SEB’s operating profit percentage of SEB’s staff

15 27

12 25

SEKm

2006

2005

Change, per cent

net interest income net fee and commission income

2,560 1,114

1,767 935

45 19

net financial income

391

314

25

net life insurance income

116

49

137

82

85

–4

Total operating income

4,263

3,150

35

Staff costs

–1,040

–858

21

–656

–608

8

Profit and loss account

net other income

other expenses net deferred acquisition costs Depreciation of assets Total operating expenses Profit before credit losses etc Gains less losses on assets

–201

–207

–3

–1,892

–1,673

13

2,371

1,477

61

50

63

–21

–101

–139

–27

Operating profit

2,320

1,401

66

0.44 7.5

0.53 4.8

26.3 5,278

24.8 4,787

return on equity, % number of full time equivalents, average 1) Including change in value of seized assets

32 SEB annual rEport 2006

Market share per country, per cent Estonia1)

latvia2)

lithuania

loans

30

20

35

Deposits

27

23

30

1) Excluding loans to financial institutions 2) resident deposits only

5

net credit losses1)

Cost/Income ratio Business equity, SEKbn

Strong volume and profit growth Strong volume growth within all product and customer segments increased operating profit by 66 per cent, to SEK 2,320m (1,401). Total operating income rose by 35 per cent as a result of continued volume and business growth. Net interest income increased by 45 per cent. Net interest margins stabilised during the year after downward pressure at the beginning of the year. Commission income grew by 19 per cent, mainly due to increased commissions from payments, cards and investment and trading services. Life insurance income showed a strong growth of 137 per cent. Total operating expenses increased by 13 per cent due to investments in organic growth, the acquisition of the Russian PetroEnergoBank as well as cost inflation. Net credit losses were low and asset quality remained stable.

Increased product penetration Significant volume growth increased the total loan portfolio by 39 per cent during 2006, to SEK 106bn (76). Lending volumes grew in all major segments, particularly within household mortgage lending. Due to signs of potential economic overheating in Estonia and Latvia, SEB has increased the focus on return and loan portfolio quality. As a consequence, the bank’s lending market shares have marginally decreased in these countries. Deposits rose by 17 per cent, to SEK 59bn (50). Assets under management amounted to SEK 21bn (16). SEB’s broad range of services in the Baltic countries is reflected in customer satisfaction surveys. SEB received a number of Euromoney awards such as best cash management bank in all three countries, best bank in Lithuania and best M&A house in Latvia. SEB is also at the forefront in offering top ranked e-banking services. During the year the division opened five new branch offices. Increasing wealth in the Baltic countries leads to a higher demand for more sophisticated financial solutions. Therefore, significant attention is put on offering more value added services such as asset management, life insurance, structured products and corporate finance services. As a result, SEB’s product penetration is rapidly increasing.

Report of the Directors

2,500

Customer growth, SEB’s Baltic banks number of customers, in thousands

2,000

2,500 1,500 2,000 1,000 1,500 500 1,000 0 500

2003 2004 2005 2006

Total customers 0

of which e-banking customers

2003 2004 2005 2006

Total customers

100,000

The demand for investment banking advice in the Baltic markets continues to increase and during the year SEB further strengthened its business by recruiting a number of top resources. In 2006, SEB’s Baltic corporate finance business, SEB Vilfima, reinforced its leading position in the region. SEB’s Eastern European funds, managed by equity teams in Tallinn, Vilnius and Warsaw, continued to perform well. The funds clearly outperformed their key competitors. In line with SEB’s real estate strategy, a process to divest property holdings in Estonia, Latvia and Lithuania was initiated. The sale is expected to be completed during the first half of 2007. In Ukraine SEB successfully completed the re-branding process of Bank Agio, which is now named SEB Bank. This was a step towards the Group’s target to be recognised as a strong international bank in the local market. Integration of the Russian PetroEnergoBank, acquired in 2006, with the rest of the Group is proceeding according to plan. N.B. The tax rate for the division is set at 15 per cent in order to reflect the actual tax rates in the region

of whichand e-banking customers Lending deposits, SEB’s Baltic banks (including Ukraine from 2005) 80,000 100,000

SEKm

100,000

80,000

80,000

60,000

60,000

40,000

20,000

40,000

20,000

0

20,000

0

60,000

40,000

2004

2004 0

2005

Lending 2004

Lending

2005

2006

Lending 2006

2005

2006

Deposits

of which mortgage loans Deposits

of which mortgage loans Deposits

of which mortgage loans

Operating profit development SEKm 2,500

2,000

1,500

1,000

500

0 2002 2003 2004 2005 2006

SEB annual rEport 2006 33

Report of the Directors

SEB Asset Management SEB asset Management offers a full spectrum of investment management services to institutions, life insurance companies and private individuals. the services include equity and fixed income, private equity, real estate and hedge fund management. the division has some 150 portfolio managers and analysts, who manage over SEK 900 billion of assets. the division’s activities during 2006 have been conducted in Copenhagen, Frankfurt, Helsinki, oslo, luxembourg and Stockholm. Since 2006 SEB ImmoInvest, previously reported under the German retail & Mortgage Banking, is consolidated with asset Management. the period for 2005 has been restated. 2006

2005

percentage of SEB’s total income

7

7

percentage of SEB’s operating profit percentage of SEB’s staff

9 3

9 3

SEKm

2006

2005

Change, per cent

net interest income net fee and commission income

104 2,477

85 2,110

22 17 –47

Profit and loss account

net financial income

9

17

20

21

–5

2,610

2,233

17

Staff costs

–731

–656

11

other expenses Depreciation of assets

–458 –19

–493 –24

–7 –21

net other income Total operating income

Total operating expenses

–1,208

–1,173

3

Profit before credit losses etc

1,402

1,060

32

Operating profit

1,402

1,060

32

Cost/Income ratio

0.46

0.53

Business equity, SEKbn

return on equity, % number of full time equivalents, average

2.0

1.8

50.5 580

42.4 549

Strong net sales and performance 2006 was overall characterised by robust net sales and buoyant equity markets. Profit grew from a combination of strong income generation and cost management. The division’s operating profit of SEK 1,402m outperformed 2005 by 32 per cent. The profit contribution from operations outside Sweden increased to 44 per cent (42). Total income increased by 17 per cent due to strong equity markets as well as increased performance fees and higher transaction fees. Performance fees amounted to SEK 336m (276) and transaction fees to SEK 130m (75). Total operating expensesrose by 3 per cent. Staff costs increased by 11 per cent due to investments in staff and higher variable compensation following strong financial net sales and investment performance results. Other non-staff expenses declined compared with 2005, partly due to successful cost management.

No 1 in Swedish fund market SEB managed to keep up strong net sales throughout the year, also during periods of uncertainty on the equity market. Annual net sales increased by 23 per cent, to SEK 48bn (39), corresponding to 6 per cent of assets under management at the beginning of the year. For the division as a whole institutional sales increased by 19 per cent and mutual funds sales improved by 27 per cent, with Sweden as the main contributor. Net sales of third party funds1) increased its importance during 2006 to SEK 8.0bn (3.6), which correspond to 17 per cent of total net sales. The distribution of net sales between various countries was well balanced with 40 per cent (51) from units outside Sweden. Finland had an exceptionally strong year in terms of total net sales and especially in the institutional segment. As an effect of this Finnish market share of SEB’s mutual funds net sales more than doubled to 4.4 per cent (1.7). The market share for the real estate fund company SEB ImmoInvest in Germany, which was integrated in Asset Management’s entity in Germany in 2006, rose to 8.2 per cent (6.5). The German market share for securities funds of 1.0 per cent remained stable compared to last year. In Sweden, SEB’s net sales of own mutual funds increased to SEK 18bn (14.1), compared with a total market which declined to SEK 70bn (83). This represents a record market share in net sales of 26 per cent (17) and a number one position. Excluding PPM-funds the net sales market share is 45 per cent (19). The strong mutual fund sales were explained by strong net sales through SEB Trygg Liv’s distribution channel and institutional clients. SEB’s net sales of third-party mutual funds in Sweden fell to SEK 0.2bn (1.8). Increased assets under management Strong net sales and appreciating equity markets increased the division’s total assets under management by 10 per cent to SEK 928bn (841) at year-end 2006. The distribution of assets under management between asset types has shifted moderately during the year. Real estate constitutes 8 per cent (8) of assets under management, equities increased to 41 per cent (40) while the fixed income part of 48 per cent (48) was in line with last year. Compared with the previous year-end, total mutual funds, including third-party mutual funds, increased its share of the division’s assets under management and represented 49 per cent (46) of the total, corresponding to SEK 453bn (385), of which SEK 284bn (240) in Sweden. Strong investment performance The division’s aggregate investment performance finished the year on a strong note, with most geographic markets and asset classes contributing. 61 per cent (60) of all portfolios and 79 per cent (48) of assets under management were ahead of their respective benchmarks. At the end of 2006 SEB’s funds in all of its markets had an average Morningstar rating above 3. In total, SEB has 182 rated funds (172), of which 78 per cent (43) had a four- or five-star rating. 1) Which are not included in the official market share statistics.

34 SEB annual rEport 2006

Report of the Directors

Assets under management

Total net sales per year, SEB Group, SEKbn Of which Asset Management SEK 48bn in 2006

Per asset type (incl. ImmoInvest) Total amount SEK 928bn

80

Fixed income

48%

(48)

Equities

41%

(40)

Real estate

8%

(8)

Cash

3%

(4)

70 60 50 40 30

Per country (incl. ImmoInvest) Total amount SEK 928bn

20 10

Sweden

60%

(58)

Denmark

15%

(18)

Germany

15%

(9)

Finland

10%

(15)

SEB Asset Management manages 74 per cent of the SEB Group’s total assets under management

Of which SEB Asset Management (incl. ImmoInvest)

0 2003

2004

2005

2006

Total net sales per year and country, Asset management, SEKbn Total amount SEK 48bn in 2006

Mutual funds per product type

30

Total amount SEK 453bn (incl. ImmoInvest)

25

Equity funds

48%

(47)

Fixed income funds

22%

(24)

Balanced funds

12%

(12)

Other funds

18%

(17)

20

15

10

Sweden Finland

5

Customer satisfaction remained strong During the year Asset Management was ranked number two in the Prospera mutual fund client survey in Sweden and thereby retained the same position as in previous survey 2004. Local surveys in Finland and Denmark also ranked SEB among the top three asset managers.

Denmark 0

Germany 2004

2005

2006

Increased product launch activity During 2006 more than 30 new products were launched or redesigned. Around half of these were designed to meet the increased demand for alternative products including real estate products. The start-up in Norway developed according to plan and had by year-end launched three new funds.

SEB ANNUAL REPORT 2006 35

Report of the Directors

SEB Trygg Liv SEB trygg liv is one of the leading life insurance groups in the nordic region. operations comprise insurance products within the investment and social security area for individuals and corporations. SEB trygg liv provides both unit-linked and traditional insurance. the division operates in Sweden, Denmark, Finland, Ireland, the uK and luxembourg and serves 1.7 million customers. the SEB Group also has life Insurance operations in Estonia, latvia and lithuania. the traditional life insurance operations in Sweden are conducted in the mutually operated insurance companies nya and Gamla livförsäkringsaktiebolaget SEB trygg liv, which are not consolidated with the SEB trygg liv Group’s results. 2006

2005

9 5

8 6

SEKm

2006

2005

net interest income net life insurance income

–15 3,352

9 2,857

17

Total operating income

3,337

2,866

16

percentage of SEB’s operating profit percentage of SEB’s staff

Profit and loss account

Staff costs other expenses net Deferred acquisition Costs

Change, per cent

–970

–952

2

–1,351

–1,405

–4

502

477

5

Depreciation of assets Total operating expenses

–48 –1,867

–53 –1,933

–9 –3

Operating profit Change in surplus values, net

1,470 1,660

933 1,280

58 30

Business result

3,130

2,213

41

Change in assumptions Financial effects of short-term market fluctuations Total result Cost/Income ratio Business equity, SEKbn

–72 528

1,651

–68

3,586

3,864

–7

0.56

0.67

7.0

7.2

18.5

11.4

39.3 1,051

27.0 1,089

return on equity, % based on operating profit based on business result number of full time equivalents, average

Strongly increased operating profit and business result High inflows of premiums, strong market trends and growing corporate pension volumes contributed to the improved operating profit of SEK 1,470m (933), up by 58 per cent. Total operating income rose by 16 per cent, to SEK 3,337m (2,866). The increase for the unit-linked business was 26 per cent compared with last year. Total operating expenses were SEK 1,867m (1,933), a decrease of 3 per cent. The effects from SEB Way as a means for establishing a lower long-term cost base are materialising. Volume-related sales bonuses were somewhat higher due to improved sales of occupational pension products compared with last year. Integration synergies related to IT-operations in Denmark contributed to lower expenses. The gradual decrease in the number of employees led to lower staff costs during the second half of the year.

36 SEB annual rEport 2006

The business result increased by 41 per cent, to SEK 3,130m. The surplus values are not included in the SEB Group’s consolidated accounts. For details, see Additional Information at www.sebgroup.com. Improved performance in each market Total sales for the division, measured as weighted volume, increased by 3 per cent, to SEK 45.8bn (44.4). Unit-linked products represented 85 per cent of total sales. Total premium income was at the same level as last year, SEK 30.4bn (30.2). The value of unit-linked funds increased by 24 per cent during 2006, to SEK 119bn (96) and total net assets under management rose by 7 per cent, to SEK 394bn (367). In Sweden, the occupational pension segment showed stable growth and represented 69 per cent (61) of total sales. The volume of collective occupational pension sold through SEB’s own distribution channels increased by 18 per cent. Sales of endowment policies (excluding “Kapitalpension”) increased by 11 per cent while the volume of “Kapitalpension” was down by SEK 5.1bn, or 53 per cent, to SEK 4.6bn. The decline was due to exceptionally high sales during 2005 and uncertainty regarding tax conditions. However, the decrease was offset by an increase in primarily corporate pension products. SEB Trygg Liv maintained its number one position in the Swedish unit-linked market with a market share for new unitlinked business of 29 per cent. Despite increased competition from new entrants, SEB Trygg Liv also maintained the position as the second largest player in the total market (i.e. including traditional life), with a market share of 18 per cent. Total premium income was SEK 21.3bn (22.0). The business transferred from Salus contributed with a premium income of about SEK 3.1bn. Operating profit increased by 62 per cent. In Denmark, SEB Pension increased total sales by 62 per cent compared with last year. Sale of unit-linked rose by 85 per cent and now comprise 59 per cent (52) of all sales. Corporate

Sales volume

Operating profit

SEKbn

SEKm

50

1,500

1,250

40

1,000 30 750 20 500 10

250

0

0 2002 2003 20041) 2005 2006

1) Including SEB pension from Q4

2002 2003 20041) 2005 2006

Report of the Directors

Volumes

Unit-linked insurance in Sweden, new business 2006

Sales volume (weighted), SEKm Traditional life and sickness/health insurance

2005

6,914

5,510

Unit-linked insurance

38,927

38,914

Total

45,841

44,424

Per cent

Premium income (SEKm) Traditional life and sickness/health insurance

7,715

7,755

Unit-linked insurance

22,706

22,431

Total

30,421

30,186

274.8

271.5

Assets under management (net assets), SEK bn Traditional life and sickness/health insurance

SEB Trygg Liv Skandia Swedbank Folksam Länsförsäkringar

29.1 (32.6) 15.6 (18.8) 11.2 (11.0) 7.9 (6.8) 7.3 (5.9)

SHB Danica Other

7.7 (8.0) 5.3 (4.2) 15.9 (12.7)

Source: The Swedish Insurance Federation statistics

Unit-linked insurance

119.2

95.6

Total

394.0

367.1

Sales margin, excluding SEB Pension

pension is the main growth area representing 77 per cent (68) of total sales. Operating profit increased by 45 per cent and was related both to traditional business and unit-linked. The operations outside Sweden and Denmark increased the operating profit by 19 per cent, excluding the positive effects of SEK 30m from the divestment of the UK subsidiary in September. The forming of a UK branch for the Swedish business transferred from the UK subsidiary will further strengthen SEB Life (Ireland) which now has total unit-linked funds of SEK 13.8bn in total. New business margin excluding SEB Pension was 24.5 per cent compared with 22.0 per cent last year. Traditional life insurance in Sweden In Sweden, traditional life insurance is conducted in two mutually operated companies, whose results are not consolidated with SEB Trygg Liv. This means that the policyholders are carrying the result and investment risk. The total return for Gamla Livförsäkringsaktiebolaget was 11.1 per cent and the collective consolidation ratio 122 per cent. For Nya Livförsäkringsaktiebolaget the total return was 0.7 per cent and the collective consolidation ratio 100 per cent. For more facts concerning these companies, see Additional Information at www.sebgroup.com. Restructuring of Nya Liv The Board of Nya Livförsäkringsaktiebolaget SEB Trygg Liv has decided to propose to the policyholders of Nya Liv that the company will merge with the unit-linked company Fondförsäkringsaktiebolaget SEB Trygg Liv. The unit-linked company has accepted the merger. It has sufficient capital resources to absorb Nya Liv as a separate portfolio with unchanged guarantee levels to the policyholders. It is also the ambition to offer a right to transfer policies, provided change in regulation. The merger is subject to the policyholders not voting against the proposal. SEB has decided to support the merger.

SEKm

2006

2005

Sales volumes weighted (regular + single/10)

3,345

3,678

Present value of new sales (8% disount rate1)) Selling expenses

1,788 –970

1,924 –1,116

818

808

24.5

22.0

Gamla Liv 182,725

Nya Liv 8,137

17,512

289

2,219

621

122

100

Profit – new business Sales margin, per cent

Traditional life insurance in Sweden As per 31 December 2006 Assets under management, net assets, SEKm Result for the period, SEKm Premium income, SEKm Collective consolidation ratio1), retrospective reserve, % Bonus rate, %

7

3

207

113

94,556

954

3,659

360

Solvency quota3)

25.8

2.7

Total return, %

11.1

0.7

Share of equities/equities exposure,%

43

12

Share of fixed income, %

45

88

Share of real estate, %

12

0

Solvency ratio2), % Capital base, SEKm Required solvency margin, SEKm

1) The collective consolidation ratio shows the company’s assets in relation to its commitments to policyholders. The commitments include both guaranteed and non-guaranteed values. 2) The company’s net assets (including equity and subordinated debts) in relation to the guaranteed commitments in the form of technical provisions. 3) Quota capital base/required solvency margin.

N.B. The tax rate for the division is set at 12 per cent in order to reflect the actual tax rate for the business.

SEB ANNUAL REPORT 2006 37

Report of the Directors

Risk and Capital Management

2006 highlights During 2006, the main focus has been the alignment and documentation of business processes, risk methods and stress scenario definitions to support the Group’s applications to use the advanced approaches for reporting of credit and operational risk under Basel II. Building on the strengths of its economic capital concept refined over the last decade, SEB is now ready to benefit from the new regulatory framework. During 2006 the Swedish FSA has implemented a “Traffic Light System” as a tool in the supervision of life insurance companies. The tool does not single out any of SEB’s insurance companies for “red light”, but over a longer time perspective the increased focus on insurance asset liability risk could lead to a re-balancing of assets on the Swedish insurance market. From 1 July 2006 new Swedish legislation is in force concerning combined banking and insurance groups (“financial conglomerates”). SEB is classified by the Swedish FSA as a financial conglomerate due to its significant banking and insurance operations. The Group meets the extra layer of requirements as concerns risk control, capital strength, etc. introduced by the new legislation. Basel II going live EU and national authorities are now implementing the Basel II capital adequacy rules; in Sweden the new regime is in effect from 1 February 2007. SEB received a positive ruling on 19 December 2006 to use the Internal Ratings Based (IRB) approach for reporting of banking, corporate and household mortgage portfolios in Sweden and Germany. This corresponds to more than 70 per cent of the total credit volume. Regarding operational risk, SEB plans to use the advanced approach as it gets available from 2008. For Basel II implementation, the Group has been using a decentralised project approach to ensure local commitment and

38 SEB annual report 2006

understanding. The Group’s financial steering model is largely built on the same concepts as the new capital adequacy rules, which limits the impact on customers and market offerings. SEB analyses the capital effects of Basel II by regularly assessing risk-weighted asset (RWA) levels under the new framework and by continuously observing national regulatory developments. The quality of the Group’s credit portfolio and the internal risk management culture translate into substantial RWA reductions for the Group – however limited by supervisory floors during the first years of the regime. This cannot be equated to a similar capital release though, due to the framework’s increased business cycle sensitivity, to supervisory evaluation and to rating agency considerations. Careful capital management will be necessary during the transition period:

Managing the transition period Basel I

Transition period

Basel II

Long term Basel I I capital level

Buffer

Capital Requirement

In providing its customers with financial solutions and products SEB assumes various risks that must be managed. The Group’s profitability is directly dependent on its ability to evaluate, manage and price these risks, while maintaining an adequate capitalisation to meet unforeseen events. As a consequence, risk management is always a prioritised area for the Group, continuously under development. Board supervision, an explicit decision-making structure with a high level of risk awareness among the staff, common definitions and principles, controlled risk-taking within decided limits and a high degree of transparency in external disclosures are the cornerstones of the Group’s risk and capital management. To secure the Group’s financial stability, risk and capital related issues are identified, monitored and managed early on. This is an integral part of the long-term strategic planning and operational business planning processes performed in all parts of the Group. Like most banks, SEB views the macro economic environment as the major driver of risk to the Group’s earnings and financial stability. The various risk types described in this chapter are also affected by economic events, to a greater or lesser degree. SEB uses scenario stress testing to assess the effect of the economy moving into a less benign state and applies conservative risk parameters in its estimation of capital needs.

2006

2007

2008

2009

2010

2011

Basel I capital Basel II pillar 1 capital Transitional capital level

SEB is also preparing itself for review by the supervisory authorities of the capital assessment process as described within Basel II’s second pillar. During the second half of 2006, the Swedish FSA – on a pilot basis – conducted such a review, and concluded SEB’s methodology and process to be satisfactory. Risk organisation and responsibility The Corporate Governance chapter on page 45 ff describes the risk organisation and responsibilities, and the roles of the Risk and Capital Committee of the Board, the Group Asset & Liability Committee, the Group Credit Committee and the Group Risk Control function. SEB’s Risk Policy and Capital Policy form the foundations for the Group’s risk and capital management as ­further described below.

Report of the Directors

Risk, risk management and risk control SEB defines risk as the possibility of a negative deviation from an expected financial outcome. For overall risk quantification purposes SEB’s Economic Capital framework establishes a uniform measure, as further described below. Risk management includes all activities relating to risk-taking, i.e. the processes and systems that the Group has at its disposal in order to identify, measure, analyse, monitor and report defined risks at an early stage. Internal control processes, which consist of rules, systems and routines including follow-up of compliance therewith, ensure that the business is carried out in efficient and controlled forms. Risk control comprises all activities involving measuring, reporting and following up of risks, independently from the risk-taking functions. Credit risk Credit risk is the risk of loss due to the failure of an obligor to fulfil its obligations towards SEB. The definition also encompasses counterparty risk in the trading operations, country risk and settlement risk. SEB also gives special attention to the concentration of credit risk in sectors and to individual obligors. Credit risk refers to all claims on companies, banks, public institutions and private individuals. The exposures consist mainly of loans, but also of contingent liabilities such as credit commitments, letters of credit, guarantees and counterparty risks arising in derivatives and foreign exchange contracts. The credit policy of the Group is founded on the principle that all lending shall be based on credit analysis and be proportionate to the repayment capacity of the customer. The customer shall be known to the Group in order to evaluate both capacity and character. Depending upon the customer’s creditworthiness and the nature and complexity of the transaction, collateral and netting agreements are used to a varying extent. All counterparties (excluding private individuals) on whom the Group has credit exposure are assigned an internal risk class that reflects the risk of default on payment obligations. The risk classification scale has 16 classes, with 1 being the best possible risk and 16 being the default class. Risk classes 1–7 are considered “investment grade”, while classes 13–16 are classified as “watch list”. SEB uses the risk classes when deciding on credit limits and in monitoring and managing the credit portfolio In order to manage the credit risk on each individual customer or group of customers a total limit is decided. The limit represents the maximum exposure that the Group accepts, given the customer’s financial status and existing business relations. Limits are also established for the total exposure on various countries and for settlement risks in trading operations. All total limits and risk classes are subject to a minimum of one review annually by a credit approval authority. High-risk engagements (risk classes 13–16) are subject to more frequent reviews in order to identify potential problems at an early stage, thereby increasing the chances of finding constructive solutions. Credit portfolio monitoring The aggregate credit portfolio is reviewed regularly, e.g. by industry, geography, risk class, product type, size etc. In addition, specific analyses and stress tests are made when market developments require a more careful examination of certain sectors.

SEB’s total credit exposure, including contingent liabilities and derivatives contracts but excluding bonds and repos, amounted to SEK 1,315bn (1,328), of which loans and leasing amounted to SEK 937bn (930). The strengthening of the Swedish krona, particularly against the U.S. dollar, affected volumes in SEK downwards. Credit volume growth was mainly related to Swedish households and to all sectors in the Baltic banks. Public sector and bank volumes decreased which explains the lower share of credit exposure in the best risk classes (risk class 1–4). Risk class migration (upgrades and downgrades) has had no signifigant effect on the average risk class of the credit portfolio. Credit quality remained strong in the Nordic and Baltic operations and improvement has been noted in the German operations.

Credit exposure – by category In total SEK 1,315bn Corporates

35%

(34)

Households

28%

(24)

Banks

13%

(15)

Property management

13%

(13)

Public sector

11%

(14)

For details about Credit exposure see note 44.

Credit portfolio – geographical distribution In total SEK 1,315bn Sweden

41%

(41)

Germany

27%

(31)

Rest of the world Rest of the Nordic Countries

13%

(13)

8%

(7)

The Baltic

10%

(7)

1%

(1)

Emerging markets

Credit exposure1), Emerging markets 31 Dec 2006

31 Dec 2005

8.2

9.4

Hong Kong

2.1

2.7

Korea

1.0

1.3

China

3.0

3.0

1.4

1.7

SEKbn Asia

Latin America Brazil Eastern and Central Europe russia Africa and Middle East

0.8

0.9

5.2 2.6 4.0

4.7 2.9 4.2

uaE

0.8

0.1

Iran

0.5

1.4

turkey

0.6

0.7

Saudi arabia

0.6

0.5

Total – gross

18.8

20.0

reserve Total – net

0.3

0.4

18.5

19.6

1) Exposure on the domestic market for the Baltic subsidiary banks has been excluded from the table

SEB annual rEport 2006 39

Report of the Directors

Impaired loans and reserves1), SEKm

Credit exposure – by risk class, excl. households

31 Dec 2006

31 Dec 2005

non-performing, gross performing, gross

7,123 1,403

7,957 1,144

Impaired loans, gross

8,526

9,101

Specific reserves

4,234

4,787

Collective reserves off-balance sheet reserves

2,170 215

2,283 268

Total reserves

6,619

7,338

Impaired loans, net

2,122

2,031

Reserve ratio, %

75.1

77.7

Specific reserve ratio, %

49.7

52.6

Level of impaired loans, %

0.22

0.22

a loan is classified as impaired when it is probable that the contractual payments will not be fulfilled. Each loan specifically provided for is included in impaired loans with its full amount i.e. even the portion covered by collateral.

(43)

Risk class 1–4

39%

Risk class 5–7

16%

(13)

Risk class 8–10

37%

(36)

Risk class 11–12

6%

(6)

Risk class 13–16

2%

(2)

Probability of default for SEB risk classes

Investment grade

1) For further information see note 44.

normal business Watch list

risk classes

lower pD

upper pD

1–4

0.00%

0.08%

5–7

0.08%

0.32%

8–10

0.32%

1.61%

11–12 13–16

1.61% 5.16%

5.16% 100.00%

3. Loss in the event of a default (LGD). Evaluation of how much the Group could lose of an outstanding claim in case of default, considering collateral provided etc. Evaluations are based upon internal and external historical experience and the specific details of the relevant transaction.

Credit loss level per cent 0.4

0.3

0.2

Germany 0.1

The Baltic region The Nordic region

0

SEB Group 2004

In total SEK 941bn

2005

2006

These components are combined and used in a portfolio model. Calculations are made both at divisional and Group level, taking into account industry and geographic diversification when the credit risks are aggregated. The model is validated with the help of studies of actual outcome within selected parts of the portfolio as regards probability of default and loss in the event of a default. SEB regularly reviews parameters and estimates to ensure that the model remains valid for changing portfolios and economic circumstances. Market risk

Credit risk quantification The economic capital framework represents yet another dimension for follow-up of the portfolio. The methodology is based upon the following three components, aligned with the Basel II framework for credit risk: 1. Probability of default (PD). For each class in the risk classification scale SEB estimates a one year probability of payment default, using nine years internal history of defaults. SEB’s PD estimates are estimated “through the cycle” meaning that today they include an upward adjustment to allow for a worse economic climate in the future. The estimates are also aligned against the scales of international rating agencies and their published default frequencies. For private individuals a scoring method is used to assign loans to pools of similar transaction type and sharing similar likelihood of default. Conservatively adjusted historical default data are then used to estimate the one year “through the cycle” default rate for each pool. 2. Size of exposure in the event of a default (EAD). Exposure is measured both in nominal terms (e.g. in the case of loans, leasing, letters of credit and guarantees) and through estimated market values, plus an increase for possibly increased exposure in the future (derivatives and foreign exchange contracts).

40 SEB annual rEport 2006

Market risk is the risk of loss or reduction of future net income following changes in interest rates, foreign exchange and equity prices, including price risk in connection with the sale of assets or closing of positions.

The Group Asset and Liability Committee allocates the market risk mandate set by the Board to each division which, in turn, allocates the limits obtained among its business units. SEB makes a clear separation between market risks in the trading book and in the banking book. Market risks in the trading book arise from the Group’s role as a market maker for trading in the international foreign exchange, money and capital markets following transactions with customers and other professional market participants. The risks are managed at the different trading locations within a comprehensive set of limits in VaR, stop-loss and delta-1 terms, with a supplementary limit structure for non-linear risks. The risks are consolidated each day on a Group-wide basis by Risk Control for reporting to executive management. Risk Control is present in the trading room and monitors limit compliance and market prices at closing, as well as valuation standards and the introduction of new products.

Report of the Directors

Market risks in the banking book arise because of mismatches in currencies, interest rate terms and periods in the balance sheet. Group Treasury has the overall responsibility for managing these risks which are consolidated centrally through the internal funds transfer pricing system. Small market risk mandates are granted to subsidiaries where cost-efficient, in which case Group Treasury is represented on the local Asset and Liability Committee for co-ordination and information sharing. The centralised operations create a cost-efficient matching of liquidity and interest rate risk in all non-trading related business. The Group uses a Value at Risk (VaR) method to measure its overall market risk. This statistical method expresses the maximum potential loss that can arise with a certain degree of probability during a certain period of time. For day-to-day risk management SEB has chosen a probability level of 99 per cent and a ten-day time horizon. SEB holds a supervisory approval to use its internal VaR model for calculating capital requirements for the majority of the Bank’s trading book market risks. The following table summarises ten-day trading book VaR for SEB during the year. The large spreads between the minimum and maximum VaR-values during 2006 were due to turbulent equity markets from May to September. For short periods SEB also undertook higher equity positions to meet customer demand. Except for these deals, positions have been fairly constant during the year and the VaR figure has mainly been driven by market volatilities, which have been at historically low levels.

SEKm

Min

Max

31 Dec 2006

Average 2006

Average 2005

Interest risk

30

117

62

63

47

Currency risk

5

85

12

30

34

Equity risk Diversification

9

290

33 –42

48 –45

24 –41

54

283

65

96

64

Total

The following chart shows VaR development over recent years.

VaR levels vs. trading flows 140

7

120

6

100

5

80

4

60

3

40

2

20

1

0

0 2000 2001 2002 2003 2004 2005 2006

Average Value at Risk 10 days, SEKm Average Value at Risk divided by Net Financial Income, per cent

The chart also illustrates that SEB has been able to service growing customer trading flows without a corresponding increase in the risk level.

The following graph displays daily trading result during the year. SEB uses this data to backtest the accuracy of the risk model, verifying that actual loss has not exceeded the VaR level significantly more than one per cent of the trading days.

Distribution of daily trading result No of days 20 18 16 14 12 10 8 6 4 2 0 –30

–25

–20

–15

–10

–5

0

5

10

15

20

25

30

35

Profit and loss, SEKm

The use of VaR is supplemented with measures of interest rate sensitivity, foreign exchange exposure and option activities. Scenario analyses and stress tests are made on a regular basis. For example, existing positions are analysed in historical or potential market crisis scenarios and risk levels in the portfolio are assessed without diversification effects. Analysis of net interest income Net interest income (NII) is exposed to external factors such as yield curve movements and competitive pressure. The NII risk depends on the overall business profile, especially mismatches between interest-bearing assets and liabilities as regards volumes and repricing periods. The NII is also exposed to a “floor” risk. Asymmetries in pricing of products (deposit rates cannot really go below zero) create a margin squeeze in times of low interest rates, making it relevant to analyse both “up” and “down” changes. The Group measures the NII risk as the potential change in income, over a pre-defined period, from a standardised shift in the yield curve. The NII risk should be kept within the limit set by the Group ALCO. As per year end, the one-year effect of a one per cent “up” scenario was SEK -551m (-805), and SEK +488 (+715) for an equal-size “down” scenario. Further information on interest rate sensitivity can be found through Note 43 which exposes repricing periods for the Group’s assets and liabilities. Monitoring and management of the NII risk gives a performance-oriented view and supplements the valuebased perspective given e.g. by the VaR measure described above. Foreign exchange risk Foreign exchange risk arises both through the Bank’s foreign exchange trading in international market places and because the Group’s activities are carried out in various currencies. Within the limit set by Group ALCO, Group Treasury manages the structural foreign exchange positions that arise on the balance sheet of the Group. Examples are equity investments in subsidiaries outside Sweden when the corresponding financing is not made in the currency of the share capital; and the translation risk of accrued income in foreign currencies.

SEB ANNUAL REPORT 2006 41

Report of the Directors

Equity price risk Equity price risk arises within market making and trading in equities and related instruments. VaR is the most important risk and limit measurement for equity risks. In addition, equity risk measurements defined by the Swedish capital adequacy rules are used both for limits and follow-up. Insurance risk The value contribution from life insurance operations is analysed in terms of surplus values (see note 51) – i.e. the present value of future net income on previously written insurance. Life insurance surplus value risk is the risk of a loss due to the fact that estimated surplus values cannot be realised due to slower than expected asset growth, cancellations or unfavourable price/cost development.

Furthermore, life insurance operations are exposed to the risk of shifts in mortality rates. Lower rates lead to more long-term pension commitments, whereas higher rates result in higher death claims. The surplus value risk level is closely associated with the aggregate savings volume. The following chart shows the risk components:

Components of life insurance surplus value risk in SEB per cent Asset growth risk

40

(38)

Expense risk

25

(28)

Persistency risk

19

(21)

Mortality risk

7

(6)

New Business risk

5

(4)

Morbidity risk

4

(3)

Guaranteed-benefit life insurance portfolios give rise to a mismatch risk between assets and insurance liabilities. Life insurance asset liability risk is the risk that growth in assets held to secure future payments is insufficient to meet policyholder claims.

The insurance asset liability risk is negligible in unit-linked portfolios, while it is more pronounced in SEB Pension’s operations. The Swedish FSA has from 2006 implemented a “Traffic Light System”, focussing on the mismatch risk between assets and liabilities. A similar system has been in use in Denmark for several years, thus affecting SEB’s Danish operations. These systems constitute supervisory tools to identify insurance companies where a closer analysis of assets versus liabilities is needed. All SEB’s Swedish and Danish companies show green light, using the supervisory-defined measures for life insurance companies. The surplus values and the financial risks regularly reported by the division form the basis of risk measurement. Life insurance risks are controlled with the help of so-called actuarial analysis and stress tests of the existing insurance portfolio. Mortality and morbidity risks are reinsured against large individual claims or against several claims caused by the same event. The risks in

42 SEB annual rEport 2006

guaranteed-benefit products are mitigated through standard market-risk techniques and monitored through scenario analysis. The Group also operates, on a run-off basis, a reinsurance non-life business with a limited risk to SEB’s shareholders. Operational risk Operational risk is the risk of loss due to external events (natural disasters, external crime, etc) or internal factors (e.g. breakdown of IT systems, mistakes, fraud, non-compliance with external and internal rules, other deficiencies in internal controls).

SEB has developed several Group-wide techniques to identify, analyse, report and mitigate operational risk. Key indicators serve as early warning signals about changes in risk level and business efficiency. The divisions perform self-assessment of the operational risk on a regular basis as well as on new or changed products, processes or services. Operational risks include legal risks, which the Group strives to reduce, e.g. when establishing the terms and conditions that apply to various products and services. During 2006 SEB has implemented an IT-based infrastructure for management of operational risk, security and compliance. The system enables all staff in the Group to register riskrelated issues and management at all levels are able to assess, monitor and mitigate risks and compile prompt and timely reports. This facilitates management of risk exposures and minimises the severity of incidents in progress. The implementation was made as a part of the Basel II project for operational risk. The system also provides input to SEB’s model for calculating the capital requirement under the Advanced Measurement Approaches (as detailed in SEB’s February 2007 application to use the model for regulatory reporting). This model, which is used also for economic capital, is based on internal data and on operational losses of a considerable size that have actually occurred in the global financial sector. The quality of the risk management of the divisions, based upon their self-assessment, is taken into account. Effective operational risk management results in a lower allocation of capital. Business and strategic risk Business risk is the risk of lower revenues due to an unexpected shortfall in normal income usually caused by reduced volumes, prices pressure or competition.

SEB measures business risk as the variability in income and cost that is not directly attributable to other types of risk. Business risk also includes reputational risk, the risk that revenues drop due to external rumours about either SEB or the industry in general. A specific case of business risk is venture risk related to undertakings such as acquisitions, large IT projects etc. Furthermore, SEB defines strategic risk as the risk of loss due to adverse business decisions, improper implementation of decisions, or lack of responsiveness to political, regulatory and industry changes. Being close in nature to business risk, this risk type focuses on large-scale, structural risk factors.

Report of the Directors

Liquidity risk and financing Liquidity risk is defined as the risk of a loss or substantially higher costs than calculated due to SEB Group being forced to make business changes or borrow at unfavourable rates in order to meet its payment commitments on time.

The Group maintains sufficient liquidity to meet current payment obligations while keeping extra capacity for unforeseen events. Deposits from households and corporate customers constitute the most important funding source of the Group. Furthermore, the Group has access to the international money and capital markets for financing over a range of maturities. In order to reduce the liquidity risk, the Group has diversified its financing by using various instruments and currencies, and by tapping several geographical areas. As a complement, payment capacity is ensured through the holding of a sufficiently large volume of liquid assets, e.g. in the form of bonds that can be pledged in the central banks and thus transformed into liquid funds with immediate effect. Liquidity is measured and reported using techniques such as short-term pledging capacity, analysis of future cash flows, scenario analyses and key ratios within the balance sheet. The Group uses liquidity limits for its operational control. By setting targets for its short-, medium- and long-term borrowing in relation to its lending, the Group creates balance sheet stability. Liabilities due within three months should be fully funded with assets that are available within the same time horizon. The relation between stable liabilities (including equity) and illiquid assets should always be above 70 per cent; the average level during the year was 100 per cent. Liquidity management also includes a contingency plan, to ensure that even very strained liquidity situations can be handled in a satisfactory manner. The Group’s presence in the international markets via its own international network is an important part of the contingency plan.

Asset and liability management The Group’s Treasury function is responsible for analysis and management of the balance sheet of the Group. This includes the following: ■ Management of the structural interest and foreign exchange risks ■ Cost-effective funding of balance sheet assets, including an on-going analysis of net interest income earned ■ Analysis, measurement and planning to ensure Group liquidity ■ Capital management, including supporting analysis and long-term planning. Economic capital – CAR Good risk management notwithstanding, the Group must keep capital buffers against unexpected losses. The regulatory capital requirements serve as one measure of the necessary capital buffer to meet these risks. Requiring a more precise and risk-sensitive measure for internal capital assessment and performance evaluation, SEB has implemented an economic capital framework. This framework assesses how much capital is needed to carry out various business activities. The greater the risk – granted that all business is pursued within strong internal control procedures – the larger risk buffer is needed. SEB calls this capital need Economic Capital and bases it on a Capital at Risk (CAR) model. Average and reasonably expected losses are regarded as an operational expense. The estimation of risk capital requirements is focused on unexpected losses. The quantification is based on statistical probability calculations for various types of risk on the basis of historical data and a probability level of 99.97 per cent, representing the capital requirements for a AA-rating. Due to diversification effects when aggregating risks across divisions, the Group’s total capital requirement becomes considerably lower than if the divisions were independent legal units. The Group’s total economic capital was SEK 52.8bn (53.2) at the end of 2006. Increases due to expanding business volumes

SEB risk taxonomy

regulatory capital Credit risk Counterparty risk

Economic capital

Non-trading market risk

Operational risk

Business risk

Non-life insurance risk

Group-wide risk management

Credit concentration risk

Trading market risk

Life insurance liability risk

Capital assessment

Life insurance surplus value risk

Liquidity risk Strategic risk Event risk

Reputational risk

Macro economic risk

SEB annual rEport 2006 43

Report of the Directors

during the year were countered by using lower estimates for credit risk drivers, made available through the Basel II programme. The following table shows the size of the risk components at the end of 2006 and the diversification effect.

Risk type

SEKm

Credit risk

42,300

Market risk Insurance risk

3,000 14,800

Operational risk

3,500

Business risk

7,100

Diversification

–17,900

Total economic capital

52,800

Risk-based management and performance evaluation Allocation of capital to divisions is an integral part of the regular planning process. The analysis is based upon planned business volumes. Profitability is measured by relating reported result to allocated capital, which makes it possible to compare the riskadjusted return of the Group and its divisions. Risk-adjusted measurements are also used as a basis for pricing certain transactions and services. The following diagram shows the composition of the economic capital and thus the risk profile of each division.

Risk composition by division Per cent 100

80

60

Business risk

40

Operational risk Insurance risk

20

Market risk 0

Credit risk MB

NRPB

GRMB

44 SEB ANNUAL REPORT 2006

EEB

AM

Trygg Liv

SEB

Capital assessment process The Group’s capital policy defines how capital management should support the business goals. Shareholders’ return requirements shall be balanced against the capital requirements of the regulators, the expectations of debt investors and other counterparties as regards SEB’s rating, and the economic capital that represents the total risk of the Group. Scenario stress testing is used to assess an extra safety margin over and above the formal capital model requirements – covering e.g. the potential of a sharp decline in the macro-economic environment. The Chief Financial Officer is responsible for the process, linked to overall business planning, to assess capital requirements in relation to the Group’s risk profile, and to propose a strategy for maintaining the capital levels. Together with continuous monitoring, and reporting of the capital adequacy to the RCC and the Board, this ensures that the relationships between shareholders’ equity, economic capital, regulatory and rating based requirements are managed so that SEB does not jeopardise the profitability of the business and the financial strength of the Group. Capital is managed centrally, meeting also local requirements as regards statutory capital. Dividends, securitisation, credit derivatives, investments, new issues, repurchases etc., are important measures that affect the capital level and relevant ratios. The alternatives are regularly evaluated under various scenarios and form the basis for Group ALCO recommendations to the Board.

Corporate Governance

Corporate Governance within SEB Swedish Code of Corporate Governance SEB applies the Swedish Code of Corporate Governance (Bolagsstyrningskoden), effective from 1 July 2005. No deviations have been made from the provisions of the Code. The Corporate Governance Report has not been reviewed by the auditors. Clear distribution of responsibilities The ability to maintain confidence among customers (e.g. depositors and lenders), shareholders and others is of vital importance for SEB. An essential factor in this context is a clear and effective structure for responsibility distribution and governance, thus avoiding e.g. conflicts of interest. SEB attaches great importance to the creation of clearly defined roles for officers and decision-making bodies within credit-granting, corporate finance activities, asset management and insurance operations, for example. The structure of responsibility distribution and governance comprises: ■ The Annual General Meeting ■ The Board of Directors ■ The President ■ The divisions, business areas and business units ■ Staff and Support functions ■ Internal Audit, Compliance and Risk Control. The Board of Directors and the President perform their governing and controlling roles through several policies and instructions, the purpose of which is to clearly define the distribution of responsibility. The Group’s credit instruction, instruction for the handling of conflicts of interest, ethics policy, risk policy, instruc-

tion on measures to prevent money laundering, Code of Business Conduct and the Corporate Social Responsibility policy are of special importance. Annual General Meeting Shareholders’ influence is exercised at the Annual General Meeting, which is the highest decision-making body of the Bank. All shareholders, registered in the Shareholders’ Register and having notified their attendance properly, have the right to participate in the Meeting and to vote for the full number of their respective shares. A shareholder who cannot participate in the Meeting can be represented by power of attorney. The 2006 Annual General Meeting was held in Swedish and simultaneously interpreted into English. The minutes from the Meeting can be found on the Bank’s website. SEB’s major shareholders and shareholder structure as per 31 December, 2006, appear from the tables on page 46. Nomination Committee According to a decision of the 2006 Annual General Meeting (AGM) the members of the Nomination Committee for the 2007 AGM were appointed during the autumn of 2006. Four of the Bank’s major shareholders have appointed one representative each who, together with the Chairman of the Board, forms the Nomination Committee. These four representatives are: Lars Wedenborn, Investor, Chairman of the Nomination Committee, Hans Mertzig, Trygg Foundation, Ramsay Brufer, Alecta and Torgny Wännström, AFA Försäkring. The composition of the Nomination Committee was announced on 28 September 2006. The task of the committee is to prepare proposals for Chairman of the AGM, for the number of Board members, for remu-

Corporate Governance Structure Board of Directors Risk & Capital Committee

Remuneration & HR Committee

Audit & Compliance Committee

Head of Group Internal Audit

CEO Group Credit Committe

Group Credit Officer

Head of Group Risk Control

Group Executive Committee

Asset & Liability Committee

Group Compliance Officer

Appointed by Reporting to/informing

SEB’s activities are managed, controlled and followed up in accordance with policies and instructions established by the Board and the president (CEo).

SEB annual rEport 2006 45

Corporate Governance

Shareholder structure percentage holdings of equity on 31 December 2006 Swedish shareholders Institutions and foundations Private individuals Mutual funds

45% 15% 10%

Foreign shareholders

30%

the majority of the Bank’s approximately 300,000 shareholders are private individuals with small holdings. Source: SIS Ägarservice

The largest shareholders1) per cent of number of all shares votes

December 31, 2006

of which no. of shares Series C shares

Investor aB trygg-Foundation

123,527,895 65,677,962

2,500,000 0

17.9 9.6

18.2 9.9

alecta

21,562,211

695,211

3.1

3.1

Swedbank robur Funds

16,841,155

0

2.5

2.6

aFa Försäkring

14,350,981

875,560

2.0

2.1

SHB/Spp Funds

13,092,556

0

2.0

2.0

SEB Funds Wallenberg foundations

11,192,934 10,330,389

0 5,871,173

1.7 0.8

1.7 0.8

nordea Funds

9,277,296

0

1.4

1.4

pioneer Investment Funds

6,865,833

0

1.0

1.0

EB-Foundation

6,680,993

70,000

1.0

1.0

andra ap-fonden

6,497,530

0

1.0

1.0

SHB

5,456,978

18,779

0.8

0.8

Första ap-fonden

5,236,793

67,847

0.8

0.8

tredje ap-fonden

4,700,384

0

0.7

0.7

203,676,048

1,713,475

29.9

31.1

Foreign shareholders

1) according to the VpC-register, excluding SEB as shareholder through repurchased shares to hedge employee stock option programme and for capital management.

Source: SIS Ägarservice

Ownership concentration largest owners’ share of capital and votes, per cent 70 60 50 40 30 20 10

Capital 0

Votes 10 largest owners

25 largest 100 largest owners owners

46 SEB annual rEport 2006

neration to the Board of Directors and the auditors, for Board members and Chairman of the Board and for the distribution of the remuneration between the Board members, as well as for committee work, to be presented at the AGM for decision. The size and composition of the Board of Directors should be such as to serve the Bank in the best possible way. This means that the Directors’ broad experience from, and knowledge about, the financial and other sectors, their international experience and strong network of contacts should meet the demands that the Bank’s position and future orientation call for. The result of the internal evaluation of the Board of Directors and its members forms part of the material used by the Nomination Committee. If necessary, the nomination committee will use external advisors. The Nomination Committee has held five meetings since the 2006 AGM as well as contacts between meetings. An account for the way in which the Nomination Committee has performed its work is found on the website of the Bank and will be presented at the 2007 AGM. No special compensation has been paid to the members of the Nomination Committee. Board of Directors The Board members are appointed by the shareholders at the Annual General Meeting for a term of office that lasts until the next Annual General Meeting. In accordance with the Corporate Governance Code the Chairman of the Board was also appointed by the 2006 AGM for a term of office until the end of the next AGM. During 2006 the Board of Directors has consisted of ten members, without any deputies, elected by the AGM and of two members and two deputies appointed by the employees. In order for the Board to form a quorum, at least half of the members must be present. The President is the only Board member elected by the Annual General Meeting who is equally an SEB employee. All other Board members elected by the AGM are considered to be independent in relation to the Bank and its Management. With the exception of Marcus Wallenberg and Jacob Wallenberg, who are not considered to be independent in relation to the shareholder Investor AB, all Board members are considered to be independent in relation to major owners. Independent Board members are defined as those who have no essential connections with the Bank, its Management or major shareholders (holding 10 per cent or more of the shares or votes) besides being Board members. The composition of the Board of Directors as from the 2006 Annual General Meeting appears from the table on page 47 and information on the members is found on pages 126–127. The Board of Directors has adopted Rules of Procedure that regulate the role and working forms of the Board as well as special instructions for the committees of the Board. The Board has the overall responsibility for the activities carried out within the Bank and the Group and thus decides on the nature, direction, strategy and framework of the activities and sets the objectives for the activities. The Board regularly follows up and evaluates the operations in relation to the objectives and guidelines established by the Board. Furthermore the Board has the responsibility to ensure that the activities are organised in such a way that the accounts, management of funds and financial conditions in all other respects are controlled in a satisfactory manner and that the risks inherent in the activities are identified, defined, measured, monitored and controlled in accordance with external and internal rules, including the Articles of Association of the Bank. The Board appoints and dismisses the President and his/her Deputy as well as the Executive Vice Presidents, the Group

Corporate Governance

Board of Directors as from the 2006 Annual General Meeting

name

Elected

position

risk and Capital Committee

Marcus Wallenberg

2002

Chairman

●

Gösta Wiking

1997

Deputy Chairman

Jacob Wallenberg

1997

Deputy Chairman

penny Hughes

2000

Director

urban Jansson

1996

Director

tuve Johannesson

1997

Director

Hans-Joachim Körber

2000

Director

Jesper ovesen

2004

Director

Carl Wilhelm ros

1999

Director

annika Falkengren

2006

Director, president and CEo

ulf Jensen

1997

Göran lilja

2006

Göran arrius Magdalena olofsson

● Chairman

audit and Compliance Committee

Compensation and Hr Committee

● ●

●

● ● ●

total remuneration, SEK

presence Board Meetings

presence Committee Meetings

2,600,000

100%

100%

880,000

100%

100%

530,000

100%

785,000

90%

100%

895,000

100%

100%

610,000

90%

100%

435,000

70%

725,000

100%

100%

610,000

100%

100%

–

100%

100%

Director appointed by the employees

–

100%

Director appointed by the employees

–

75%

2002

Deputy Director appointed by the employees

–

100%

2003

Deputy Director appointed by the employees

–

90%

● Deputy Chairman

● Director

Credit Officer, the members of the Group Executive Committee and the Head of Group Internal Audit. The Chairman of the Board organises and manages the work of the Board by convening Board meetings, deciding on the agenda and preparing the matters to be discussed at the meetings, after consulting the President, among other things. The Board members receive regular information about and, if necessary, training in changes in rules concerning the activities of the Bank and listed company directors’ responsibilities, among other things. They are regularly offered the opportunity of discussing with the Chairman of the Board, the President and the Secretary to the Board of Directors. The President takes part in all Board meetings except when the work of the President is evaluated. Other members of the Executive Management of the Bank participate whenever required for purposes of informing the Board or upon request by the Board or the President. The General Legal Counsel of the Bank and the Group is the Secretary to the Board of Directors. During 2006, ten Board meetings were held. External audit representatives were present at three of these meetings, including the one at which the annual accounts were adopted. The decisions of the Board are made after open and constructive discussions. Essential matters dealt with during the year included the following: ■ Strategic direction of Group activities (nature and scope) ■ Overall long-term goals for the activities ■ Group organisation ■ Policies and instructions, including an annual review and revision ■ Business plans, fi nancial plans and forecasts ■ Major investments and business acquisitions/divestments ■ The Group’s risk-taking, including the development of the credit portfolio ■ Capital and fi nancing issues, including risk limits

● ● ●

8,070,000

■ Issues concerning customer and staff satisfaction ■ Succession planning, management supply, remuneration and other personnel matters ■ Interim reports and annual report ■ Board committee reports ■ Evaluation of the functioning of the Bank’s internal control ■ Follow-up of external and internal audit activities and the Group’s compliance activities ■ Evaluation of the work of the Board of Directors, the President and the Group Executive Committee The overall responsibility of the Board cannot be delegated. However, the Board has established committees, pursuant to the Board’s instructions, to handle certain defined issues and to prepare such issues for decision by the Board of Directors. At present, there are three committees within the Board of Directors: the Risk and Capital Committee, the Audit and Compliance Committee and the Remuneration and Human Resources Committee. Minutes are kept of each committee meeting and communicated to the other Board members promptly after the meetings. The committees report regularly to the Board of Directors. Committee members are appointed for a period of one year at a time. It is an important principle that as many Board members as possible shall participate in the committee work, also as committee chairmen. Although the Chairman of the Board is a member of all three committees, he is not chairing any of them. Neither the President nor any other officer of the Bank is a member of the Audit and Compliance Committee or the Remuneration and Human Resources Committee. The President is a member of the Risk and Capital Committee. The work of the Board committees is regulated through instructions adopted by the Board. Apart from the committee work, no work distribution is applied by the Board.

SEB annual rEport 2006 47

Corporate Governance

Risk and Capital Committee The Risk and Capital Committee of the Board shall support the Board in establishing and reviewing the Bank’s organisation so that it is managed in such a way that all risks inherent in the Group’s activities are identified and defined and that the risks are measured, monitored and controlled in accordance with external and internal rules. The Committee decides the principles and parameters for measuring and allocating risk and capital within the Group. The Committee reviews and makes proposals for Group policies and strategies, such as risk policy and risk strategy, credit policy, capital policy, liquidity and pledging policy as well as trading and investment policy, for decision by the Board, and monitors that these policies are applied and follows up the development of the risks of the Group. The Committee prepares the Board decisions concerning limits for market and liquidity risks. As far as credit matters are concerned, the Committee adopts credit policies and instructions that supplement the credit policy and credit instruction of the Group and makes decisions on individual credit matters (matters of major importance or of importance as to principles). In addition, the Committee reviews on a regular basis both significant developments in the credit portfolio and the credit process within the Bank and the Group. It furthermore examines matters relating to operational risk, market and liquidity risk and insurance risk. As far as capital matters are concerned, the Committee regularly reviews essential changes in the overall capital situation and the capital adequacy situation of the Group including closely monitoring the implementation of Basel II. The Committee prepares changes in the Group’s capital goals and asset management matters, for decision by the Board, such as dividend level and the set-up and utilisation of repurchase programmes of own shares. The Committee consists of four members, including the President, and forms a quorum whenever a minimum of three members are present, including the Chairman or Deputy Chairman of the Committee. During 2006 the Committee had the following members: Urban Jansson, Chairman, Marcus Wallenberg, Deputy Chairman, Jesper Ovesen and Annika Falkengren. The Group’s Chief Financial Officer is the presenter of reports in the Committee, except for credit matters, which are presented by the Group Credit Officer and for risk control matters, which are presented by the Head of Group Risk Control. The Committee has held 18 meetings during the year. Audit and Compliance Committee The Audit and Compliance Committee of the Board supports the work of the Board in terms of quality control of the Bank’s financial reports. It prepares an annual report on internal control and, if necessary, a proposal for the appointment or dismissal of the Head of Group Internal Audit, for decision by the Board. The Committee maintains regular contact with the external and internal auditors of the Bank and discusses the co-ordination of the external and internal audit. During 2006 the Committee has met with representatives of the external auditors on several occasions, without the President or any other member of the Executive Management of the Bank being present. It deals with the accounts and interim reports as well as with audit reports, including any changes in the accounting rules. It ensures that all remarks and observations from the auditors are attended to. The Committee furthermore decides on guidelines for which services other than auditing services that may be procured by the Bank and the Group from the external auditors. It assesses the external

48 SEB annual report 2006

auditors’ work and independence and prepares proposals for new auditors prior to the Annual General Meeting’s election of auditor. The Committee establishes an annual audit plan for the internal audit function co-ordinated with the external audit plan. The Committee shall furthermore, if necessary, express its opinion on the President’s proposal for the appointment and dismissal of the Group Compliance Officer. The internal audit activities and compliance activities are monitored on a continuous basis. The Committee consists of three members, none of whom is in the employ of the Group, and forms a quorum whenever a minimum of two members are present, including the Chairman of the Committee. During 2006, the Audit and Compliance Committee had the following members: Gösta Wiking, Chairman, Marcus Wallenberg, Deputy Chairman and Carl Wilhelm Ros. The Head of Group Internal Audit and the Group Compliance Officer are the presenters of reports in the Committee. The Audit and Compliance Committee has held five meetings during the year. The external auditors attended all of these meetings. Remuneration and Human Resources Committee The Remuneration and Human Resources Committee of the Board prepares, for decision by the Annual General Meeting and the Board, respectively, a proposal for remuneration principles applicable to the President and the members of the Group Executive Committee as well as a proposal for remuneration to the President and the Head of Group Internal Audit. The Committee decides on issues concerning remuneration to the members of the Group Executive Committee according to the principles established by the Annual General Meeting. The Committee furthermore prepares matters regarding incentive programmes and pension plans, monitors the pension commitments of the Group and monitors, together with the Risk and Capital Committee of the Board, all measures taken to secure the pension commitments of the Group including the development of the Bank’s pension foundations. It furthermore discusses personnel matters of strategic importance, such as succession planning for strategically important positions and other management supply issues. The Committee consists of three members, none of whom is in the employ of the Group. The Committee forms a quorum whenever minimum two members are present, including the Chairman of the Committee. During 2006, the Committee had the following members: Penny Hughes, Chairman, Marcus Wallenberg, Deputy Chairman and Tuve Johannesson. The President presents proposals, reports and information to the Committee, together with the Head of Group Human Resources, with respect to matters where the President does not have an interest that may conflict with the interests of the Bank. The Remuneration and Human Resources Committee has held six meetings during 2006. Evaluation of the Board of Directors, the President and the Group Executive Committee SEB applies an annual self-assessment method, which among other things includes a questionnaire, followed by discussions within the Board. Through this process the activities and working methods of the Board and each respective committee are evaluated. Among the things examined through the assessment are the following: how to improve the work of the Board further, whether or not each individual Board member takes an active part in the discussions of the Board and the committees; whether they contribute independent opinions and whether the meeting

Corporate Governance

atmosphere facilitates open discussions. The outcome of the evaluation has been presented to, and discussed by the Board and the Nomination Committee. The Chairman of the Board evaluates each individual member’s work, formally once a year. Marcus Wallenberg did not participate in the evaluation of the Chairman’s work, which evaluation was conducted by Gösta Wiking. The Board evaluates the work of the President and the Group Executive Committee on a continuous basis without attendance by the President or any other member of the Group Executive Committee. The President The Board of Directors has adopted an instruction for the President’s work and role. The President is responsible for the day-today management of the Group’s activities in accordance with the guidelines and established policies and instructions of the Board. The President reports to the Board of Directors. The President appoints the Chief Financial Officer of the Group, Heads of divisions, Heads of branches, the Group Head of Staff, the Group Compliance Officer, the Head of Group Risk Control, the Chief Information Officer, Heads of the individual staff and support functions and the members of the Management Advisory Group. The Chief Financial Officer of the Group is appointed in consultation with the Chairman of the Board and the Group Compliance Officer in consultation with the Audit and Compliance Committee of the Board. President and Chief Executive Officer is Annika Falkengren. More information about the President is found on page 128. The President has three different committees at her disposal for the purpose of managing the operations; the Group Executive Committee, the Group Credit Committee and the Asset and Liability Committee. In order to protect the interests of the whole Group in the best way possible, the President consults with the Group Executive Committee (GEC) and its IT-Committee on matters of major importance or of importance as to principles. The GEC deals with matters of common concern to several divisions, strategic issues, business plans, financial forecasts and reports. The GEC has held 31 meetings during 2006. During 2006, the following persons were members of the Group Executive Committee and its IT Committee:

SEB’s organisation Board of Directors President and Chief Executive Officer Group Credits & Group Risk Control

Merchant Banking

Retail Banking

Internal Audit

Chief Financial Officer

Wealth Management

Group Operations / Group IT / Group Staff

Life

Annika Falkengren, Nils-Fredrik Nyblæus, Magnus Carlsson, Bo Magnusson, Fredrik Boheman, Mats Kjaer, Harry Klagsbrun (up to 15 August), Anders Mossberg, Per-Arne Blomquist (as from 1 October) and Hans Larsson (as from 1 October). The Group Credit Committee (GCC) is the highest creditgranting body of the Group, with the exception of a few matters that are reserved for the Risk and Capital Committee of the Board, see further on page 50. The Asset and Liability Committee (ALCO) is a Group-wide body responsible for the long- and short-term financial stability of the Group, see further on page 50. There is a special forum for information exchange at Group level, the Management Advisory Group (MAG), which consists of senior officers representing the whole Group. The members of MAG are appointed by the President in consultation with the GEC. Divisions, business areas and business units The Board of Directors has regulated the activities of the Group in an instruction concerning the Group’s operations and established how the divisions of the Group, including the international activities through branches and subsidiaries, shall be managed and organised. SEB’s activities are as from 1 January 2007 organised in four divisions (six divisions during 2006): ■ Merchant Banking, with Magnus Carlsson as Head, for SEB’s relations with large and medium-sized companies, financial institutions and real estate companies, ■ Retail Banking, with Bo Magnusson as Head, for SEB’s retail operations and card activities, ■ Wealth Management, with Fredrik Boheman as Head, for SEB’s mutual fund and asset management activities and private banking and ■ Life, with Anders Mossberg as Head, for SEB’s life insurance activities. All Heads of division are members of the Group Executive Committee. Each division’s operations are divided into business areas which, in turn, are divided into business units. The Head of division has the overall responsibility for the activities of the division and appoints, after consultations with the President, heads of business areas within the division and of those subsidiaries for which the division is responsible. Within each division there is a management group, which includes the Head of division and a number of heads of business areas and subsidiaries pertaining to the division. There are management groups within the business areas and business units, too. A Country Manager has been appointed for the co-ordination of activities within some of those countries outside Sweden in which several divisions carry out activities, such as Denmark, Norway and Finland. The Country Manager reports to a member of the Group Executive Committee, specially appointed for the purpose. Staff and support functions SEB’s staff and support functions are as from 1 January 2007 divided into three cross-divisional support functions in order to streamline operations and front office support; Group Operations, Group IT and Group Staff. SEB has, besides IT, a number of staff and support functions, such as Finance, Treasury, Human Resources, Communication, Legal, Security, Marketing, Economic

SEB ANNUAL REPORT 2006 49

Corporate Governance

Research, Strategic Planning and Procurement. In SEB the staff functions have a global functional accountability and own and manage the SEB Group’s common instructions and policies, processes and procedures with the aim to proactively support the President, the Group Executive Committee, managers and staff as well as all business units of the Group. SEB’s organisation as from 1 January 2007 appears from the chart on page 49. Risk organisation and responsibility The Board of Directors has the ultimate responsibility for the risk organisation of the Group and for the maintenance of satisfactory internal control. The Risk and Capital Committee of the Board shall support the Board in this work, e.g. by reviewing the Group’s risk, capital and liquidity policies for updates on a yearly basis. The Board receives a risk report at each Board meeting. Subordinated to the Board of Directors and the President are committees with mandates to make decisions depending upon the type of risk. The Group Asset and Liability Committee (ALCO), chaired by the President, deals with issues relating to the overall risk level of the Group and the various divisions, decides on risk limits and risk-measuring methods, capital allocation etc. Within the framework of the Group Capital Policy and the Group Risk Policy of the Board, ALCO has established policy documents for the responsibility and management of the risk types of the Group and for the relationship between risk and capital. ALCO has held 14 meetings during 2006. The Treasury Committee monitors the development of market and liquidity risks. The Group Credit Committee (GCC) is the highest creditgranting body within the Bank, with the exception of a few matters that are reserved for the Risk and Capital Committee of the Board of Directors. GCC is furthermore responsible for reviewing the credit-granting rules on a regular basis and for presenting proposals for changes to the Risk and Capital Committee of the Board, if necessary. The President is the Chairman of the Committee and the Group Credit Officer is its Vice Chairman. GCC has held 46 meetings during 2006. The credit organisation is independent from the business activities. Group Credits is responsible for the administration and management of the credit approval process and for important individual credit decisions and furthermore for analysis and follow-up of the composition of the credit portfolio as well as for the adherence to policies established by the Risk and Capital Committee and the Board of Directors. Its activities are regulated in the Group’s Credit Instruction, adopted by the Board of Directors. The Group Credit Officer is appointed by the Board and reports to the President. The Group Credit Officer presents credit matters in the Risk and Capital Committee of the Board. The Chairman of each credit committee has the right to veto credit decisions. The credit organisation is kept separate from the ­business units and handles credit matters exclusively. Significant exceptions to the credit policy of the Group must be referred to a higher level in the decision-making hierarchy. Responsibility for day-to-day risk management in the Group rests with the divisions (and similarly with Group Treasury). Thus, each division and Head of division is responsible for ensuring that the risks are managed and controlled in a satisfactory way on a daily basis, within established Group guidelines. It is a fundamental principle that all control functions shall be independent of the business operations.

50 SEB annual report 2006

Internal audit, compliance and risk control The Group has three control functions, which are independent from the business operations: Internal Audit, Compliance and Risk control. Group Internal Audit is an independent group-wide function, directly subordinated to the Board of Directors. The main responsibility for the Internal Audit is to evaluate risk management, control and governance processes within the Bank, which includes that the activities of the Group are conducted in accordance with the intentions of the Board and the President. The Head of Group Internal Audit reports regularly to the Audit and Compliance Committee of the Board and keeps the President and the Group Executive Committee regularly informed. The Audit and Compliance Committee adopts an annual plan for the work of Internal Audit. Compliance within SEB is mainly a support function for the business operations, entrusted with the task of identifying and evaluating the risk that the licensed activities are not carried out in accordance with external and internal rules. Among other things, the Compliance officers of the Group provide advice and actively promote compliance with the rules, engage in training in, and inform about, prevailing and new rules and inform the management and the Board on compliance issues. In addition to the rules concerning the licensed activities, special areas of responsibility are ethics, the risk of conflicts of interest, insider issues, Know Your Customer and measures against money laundering and personal account dealings. The task of the Group Compliance Officer is to assist the Board and the President on compliance matters and to co-ordinate the handling of such matters within the Group. The Group Compliance Officer reports regularly to the President and the Group Executive Committee and informs the Audit and Compliance Committee of the Board about major compliance events that concern the whole Group. The President adopts an annual plan for the compliance work. During 2006 a project was initiated to evaluate and further strengthen the compliance function and organisation of the Group. The Group’s risk control function (Group Risk Control) carries out the Group level independent risk control. Group Risk Control ensures that the risk control functions of the divisions are of high quality, and it monitors the risks of the Group, primarily credit risk, market risk, operational risk and liquidity risk (see further on page 38). The Head of Group Risk Control is appointed by the President and reports to the Group Credit Officer. The Group’s ALCO is regularly informed. The Head of Group Risk Control is the presenter of reports on risk control matters in the Risk and Capital Committee of the Board. The Board of Directors has adopted instructions for the internal audit and compliance activities of the Group. The President has adopted an instruction for the Group Risk Control activities. Financial reporting The quality of the financial reporting is ensured by governing documents in the form of policies and instructions for responsibility distribution and governance adopted by the Board, such as the Instruction for the President and Chief Executive Officer on amongst other things financial reporting. The President adopts, in turn, policies and instructions such as the Instruction for the Chief Financial Officer, Group Treasury, Group Controller and Finance and SEB’s Accounting Standard Committee (ASC). The decision hierarchy is firmly established; Head of Group Controller and Finance reports to the Chief Financial Officer, who in turn reports to the President. ASC, with the Head of Group Controller and

Corporate Governance

Finance as Chairman, adopts detailed instructions for the Bank and the Group on the financial reporting and the accounting standards as well as guidelines on the interpretation of internal rules regarding the financial reporting and makes sure that these rules are observed within the Group. The Group’s functions for Internal Audit, Group Risk Control and Compliance control and follow the reporting, compliance with internal and external rules and the risks inherent. The Board and its Audit and Compliance Committee (ACC) regularly follow up and evaluates the quality control as the annual accounts and interim reports as well as audit reports and changes in the accounting rules are regularly handled at the Board and ACC meetings. The Board’s report on the internal control of the financial reporting for 2006 is found on page 54. Information about the auditors According to its Articles of Association the Bank shall have at least one and not more than two auditors with at the most an equal number of deputies. A registered accounting firm may be appointed auditor. The auditors are appointed for a period of four years. PricewaterhouseCoopers AB has been the Bank’s auditor since 2000 and was re-elected in 2004 for the period up to and including the 2008 Annual General Meeting. Chief responsible has been Peter Clemedtson, Authorised Public Accountant, as from the 2006 Annual General Meeting. Peter Clemedtson has auditing assignments also in the following major companies: Electrolux, Ericsson and OMX. In addition, Authorised Public Accountant Ulf Davéus, has been the auditor appointed by the Financial Supervisory Authority since the 2004 Annual General Meeting. The fees charged by the auditors, including those expected for the auditing of the Bank’s 2006 annual accounts and for other assignments invoiced up to and including 31 December 2006, are as follows:

Fees to the auditors 2006

2005

audit assignments

49

48

other assignments

10

13

Total

59

61

SEKm

Remuneration to the Board of Directors, President and other Senior Officers The Board of Directors SEB’s 2006 Annual General Meeting fixed a total remuneration amount of SEK 8,070,000 for the members of the Board to be distributed as follows: SEK 2,600,000 to the Chairman of the Board, SEK 3,670,000 to be distributed by the Board among those other members elected by the Annual General Meeting who are not officers of the Bank and SEK 1,800,000 for committee work. The remuneration amount has been distributed by the Board. A higher amount is paid to the Chairman and the Deputy Chairmen as well as to those members who form part of the Committees of the Board. The Chairman of the Board has waived any fee for his committee assignments. The distribution of the directors’ remuneration for 2006 appears from the table on page 47. The remuneration is paid out on a running basis during the mandate period. Following a recommendation by the Nomination Committee for SEB, the Board of Directors has adopted a Share Ownership

Policy for the Board. The policy recommendation is that each Board member shall use the net after tax of 25 percent of the annual remuneration (excluding remuneration for committee work) distributed to said Board member to acquire shares in SEB. The President and the Group Executive Committee SEB’s Board of Directors has prepared proposals as to principles for the remuneration and other terms of employment of the President and the Group Executive Committee, which were approved by the 2006 Annual General Meeting. According to those principles, the Board has decided on the actual remuneration to the President following a proposal from the Remuneration and Human Resources Committee. The remuneration of the President has been benchmarked towards the Swedish and international market. The Committee has also approved the remuneration of the other members of the Group Executive Committee according to the principles established by the Annual General Meeting. The total remuneration shall be competitive within each market in which SEB is present. The remuneration structure is based upon four main components: base salary, short-term incentive compensation, long-term incentive compensation and pension. In addition, other benefits such as a company car may be offered. The base salary depends on the complexity of work and the individual’s work performance, experience and competence. The short-term incentive compensation is based on the achievement of certain predetermined goals, individual and general, qualitative and quantitative, agreed in writing with the individual. The short-term incentive compensation is set for one year at a time. Operating result, costs and customer satisfaction are examples of objectives used. Short-term incentive compensation shall be maximized either to a certain percentage of the base salary or a fixed amount. The aim of SEB’s long-term incentive compensation is to stimulate the participants, whose efforts are deemed to have a direct impact on the Bank’s result, profitability and value growth, to further increased efforts, by aligning their long-term interests and perspectives with those of the shareholders. The intention with annually installed long-term incentive programmes is to create a commitment to SEB, to strengthen the overall perspective on SEB and to offer the participants an opportunity to take part in SEB’s long-term success and value creation. Long-term incentive programmes shall be share-based and performance-based. The estimated value at allotment shall amount to a maximum of 50 per cent of the annual base salary. The pension plan may be defined benefit-based or contribution-based and shall be inviolable. SEB aims at increasing the defined contribution-based element. The size of the pensionable salary is capped. At termination of employment by the Bank, severance pay of between 12 and 24 months’ salary will be paid. The Bank has the right to make deductions from such severance pay of any cash payments that the Executive may receive from another employer or through his/her own business. The Board will propose that the Annual General Meeting 2007 approves above referred principles for the time up until the Annual General Meeting 2008. The base salaries , the incentive compensation and other benefits of the President and the members of the Group Executive Committee are specified in Note 9.

SEB annual rEport 2006 51

Corporate Governance

Long-term incentive programmes SEB’s first long-term incentive programme was introduced in 1999, after which additional programmes have been launched for the years 2000–2006. From 1999 to 2004, the long-term incentive came in the form of an employee stock option programme. For 2005 and 2006, performance shares were used. Information about these programmes has been provided in the annual reports for these years and at the Annual General Meetings since 2002. The scope of SEB’s long-term incentive programmes appears from Note 9. Value development and hedging arrangements The value development of the programmes, including the exercised employee stock options, reflect the positive development of SEB’s share price over the last three years. Since the introduction of long-term incentive programmes in 1999, total shareholder return, i.e. market capitalisation and paid-out dividends, has increased by SEK 124bn, as of 31 December 2006 (see further on page 19). The cost for the Bank has been limited due to the hedging of the value development and related social security contributions through the acquisition of own shares and equity swap contracts. The hedging arrangement offset the value of the longterm incentive programmes in equity. The hedge of social security contributions was dismantled during the autumn of 2006 due to timing differences in the recognition of these effects. The value split between the different programmes reflects that the sensitivity to the share price of the performance share programmes is lower than the previous employee stock options. Cap on the 2004 programme According to the terms and conditions for the year 2004 programme, the value of each option for the optionholders is limited to SEK 100. The Bank shall prematurely terminate the programme if the market price (based on the listed closing price on the exchange) for the Class A-shares in the Bank during the exercise period (2 April 2007–1 April 2011) is equal to or above the limit of SEK 220.

New programme from 2005 – Performance shares For the years 2005 and 2006 the Annual General Meeting has decided to launch long-term incentive programmes with a new performance-based structure compared with the programmes of previous years. The proposals were prepared by the Board and the Remuneration and Human Resources Committee of the Board, with the support of independent international expertise and in consultation with a large number of SEB’s major shareholders. The programme is designed in line with internationally established, so-called Performance Share-programmes used by several leading international banks. The purpose of performance shares is that senior SEB officers shall act as and over time become shareholders in the Bank. The programme is performance-based, focused on equities and transparent. One performance share under the programme represents the right to purchase one Class A share at a future point in time for the price of SEK 10. A price significantly below the prevailing market price will still motivate the holder to perform, if the share price falls below its present level, thereby aligning the interests of the participants with those of the shareholders. The outcome of the programme, that is the number of allotted performance shares that can be exercised, will depend upon fulfilment of the two predetermined performance criteria, the real increase in earnings per share and the total shareholders return compared to SEB’s competitors. The performance criteria will be measured during an initial three-year qualification period. A further requirement is that the participant remains within SEB. The programme is running for a seven-year period, including the qualification period. To reach full outcome of performance shares under the programme, the profit of the Bank must increase substantially during the performance period and the total return must develop significantly better than that of SEB’s Nordic and European competitors. The measures have been chosen in order to balance absolute and relative performance. Both performance criteria must be met before the programme can be utilised in full.

Value split of SEB´s LTI programmes

Value development

December 31, 2006, share of contribution to total value of SEK 2,583m, 1999–2006 programmes

For SEB´s shareholders and LTI participants, 1999–2006 programmes, SEKm 40,000 35,000

20061) 20051) 2004 2003 2002 2001 2000 1999

5% 5% 21% 27% 18% 13% 9% 2%

Performance shares, 10% Employee stock options, 90%

30,000 25,000 20,000 15,000 10,000

Paid out dividend and yearly change in market capitalisation

5,000

Yearly change in market values of LTI programmes

0 1)

2005 and 2006 performance share programmes at an assumed 40 per cent vesting. 20061)

20051) 2004 2003 2002 2001 2000 1999

1)

–5,000

5% 5% 21% 27% 18% 13% 9% 2%

52 SEB ANNUAL REPORT 2006 Performance shares, 10%

1999– 2001

2002

2003

2004

2005

1)

2006

1)

2005 and 2006 performance share programmes at 40% vesting.

Corporate Governance

Value development for performance shares SEB 3-year relative performance Embedded gain after 3 years for a participant receiving 20,000 performance Shares (SEKm) SEB share price development, % (starting price SEK 200)

lower Quartile

Median

Superior

+50 +30

0 0

1.2 1.0

5.8 5.0

0

0

0.8

3.8

–30

0

0.5

2.6

relative tSr

< Index

Index

Index +8%pa or above

real EpS growth

<2%pa

2%pa

10%pa or above

the allotment equals SEK 1.3m in fair value.

The Year 2006 Programme covers a maximum of 1,525,000 performance shares allotted to about 500 senior officers. The President and the Group Executive Committee were allotted approximately 15 per cent of the total number of performance shares under the 2006 long-term incentive programme. The remaining, approximately 85 per cent, was allotted to approximately 500 other senior officers. In order to motivate the holders to keep their performance shares after the first day on which they can be exercised, the holders are compensated for dividends to the shareholders after the performance period, by recalculating the number of Class A shares to which each performance share entitles, on an annual basis during the exercise period after the Annual General Meeting has been held each year. In addition, the Board has recommended the members of the Group Executive Committee to reach a holding in the Bank of a value that corresponds to at least one year’s base salary, after tax. Holdings of shares as well as of

employee stock options/performance shares that can be exerised may be included in this value. Performance shares are not securities that can be sold, hedged or transferred to another party. However, an estimated value per performance share may be calculated, based upon the expected outcome of the performance criteria, the price to acquire one Class A share and upon the fact that compensation for dividends is not payable during the performance period. The Board has consulted independent expertise for these calculations. The estimated value of one performance share under the 2006 programme amounts to SEK 65. The cost of the 2006 programme in the profit and loss accounts of the total value of the programme is SEK 99.1m (1,525,000 shares x SEK 65), to be distributed over the first three years. If earnings per share deviate from the expected outcome during the vesting period the cost changes accordingly. This cost does not imply any disbursement from the Bank, which means that shareholders’ equity is not affected. In the profit and loss accounts social security contributions will accrue, the size of which will depend upon the difference between exercise price and market price at the time of exercise. This difference will be accounted for in shareholders’ equity. If and when employee stock options/performance shares are exercised, the Bank will deliver shares already issued, which means that no new shares will be issued as a result of the programmes. The scope of SEB’s long-term incentive programmes and the number of employee stock options/performance shares allotted to the President and the Group Executive Committee appear from Note 9. Except for the President, no Board members have received any allotment under any of the programmes. The Board will propose a new performance share programme for 2007, for decision by the 2007 Annual General Meeting, according to the same principles as those applicable to the 2006 programme.

performance criteria for the 2006 programme In order to calculate the real increase in earnings per share the comparative number, i.e. SEB’s earnings per share is reduced by yearly actual inflation during the three year performance period. The measure implies a final outcome of performance shares if the real increase of earnings per share reaches 2 per cent per year. The outcome is then set at 10 per cent of the maximum allotment. There is also a ceiling for the number of shares that can be utilised. Maximum outcome (i.e. 50 per cent of total maximum allotment) is achieved if the average yearly real increase in earnings per share is 10 per cent. The total shareholder return measure is determined as the difference between the starting-point for the share price, the average price over the last three months in 2005 and the

closing rate of the average share price over the last three months in 2008 including dividends paid out. If the total shareholder return equals the development in a weighted Banking Index (60 per cent Dow Jones Nordic Banks index and 40 per cent FTSE Eurotop300 Banks), the outcome is 10 per cent of the maximum allotment. Above that level, the number of performance shares that can be utilised increases until a ceiling of 8 percentage points average per annum above the Banking Index is reached. At that level the maximum outcome according to the total share return measure is reached (i.e. 50 per cent of total maximum allotment).

SEB annual rEport 2006 53

Corporate Governance

Board report on the internal control of the financial reporting for 2006 This report on the internal control of the financial reporting for the year 2006 has been prepared in accordance with the Swedish Code of Corporate Governance. This report is part of the report on corporate governance. It has not been reviewed by the auditors of the Bank. Organisation of the internal control of the financial reporting Traditionally, banks have focused very strongly on risk management and internal control. Within SEB this is reflected in wellestablished risk management processes and well-developed internal audit, compliance and risk control functions. Within SEB, internal control of the financial reporting is defined as the process, effected by the Board, management and other personnel, designed to provide reasonable assurance regarding reliability of financial reporting. The internal control can be described in terms of control environment, risk management, control systems, information and communication channels and follow-up routines. Control environment Internal control of the financial reporting is based upon the control environment and its organisation, decision channels, authorities and responsibilities. In SEB, this is documented and communicated in governing internal rules such as policies and instructions. For example, this applies to the distribution of work between the Board and the President and between the various bodies that the Board and the President have set up as well as to instructions regarding authority and responsibility for entities and positions for accounting and reporting. Risk management Risk management within the SEB Group has for long been an area of priority, which has been developed continuously, not least due to the implementation of Basel II. Cornerstones of the Board’s risk and capital management are: Board responsibility, a clear decision order with a high degree of risk consciousness among the employees, common definitions and principles, a controlled risktaking within decided limits and a high degree of transparency in the external financial statements. A formal assesment of the risks that may result in material misstatements in the financial reporting is performed annually. The findings from the assessment form basis for measures to improve the internal control as well as direct follow-up routines.

54 SEB annual report 2006

Control systems All risks relating to the financial reporting that are identified are handled through the Group’s control systems and documented in process and internal control descriptions. SEB has routines and controls for the purpose of ensuring that satisfying internal control is establised within all relevant areas and at all levels. SEB’s Accounting Standards Committee (ASC) follows the development within IFRS and other relevant accounting frameworks and oversees the implementation within SEB. Information and communication channels The purpose of SEB’s information and communication channels is to ensure that the financial reporting is complete and accurate. In order to achieve this, there are governing documents in the form of internal policies, guidelines and manuals for the financial reporting that are updated yearly and communicated to all staff concerned. Follow-up routines SEB follows up compliance with internal rules, on a continuous basis as well as the effectiveness of the control structure and the accuracy of the financial reporting. In addition, the functions Risk Control, Compliance and Internal audit are continuously engaged in follow-up routines. This follow-up work furthermore ensures that the information and communication channels of the Bank are well adapted to the financial reporting. The Internal Audit function of the Group reviews the internal control of the financial reporting and works according to a plan that is established by the Audit and Compliance Committee of the Board. The result of Internal Audit’s reviews as well as all measures taken and their current status are regularly reported to the Audit and Compliance Committee. The Board of Directors receives monthly financial reports and the financial situation of the Group is addressed at each Board meeting. In addition, the committees of the Board play an important role in the follow-up work. The work of these committees is described on page 48 of the Corporate Governance Report.

Financial statements – Contents SEB Group Page

Notes to the balance sheets: Liabilities Page

Income statements

56

29 Deposits by credit institutions

94

Balance sheets

57

30 Deposits and borrowing by the public

95

Statement of changes in equity

58

31 Liabilities to policyholders

95

Cash flow statements

59

32 Debt securities

96

33 Financial liabilities at fair value

97

34 Other liabilities

97

Skandinaviska Enskilda Banken Income statements

60

35 Provisions

98

Balance sheets

61

36 Subordinated liabilities

99

Statement of changes in equity

62

37 Untaxed reserves

99

Cash flow statements

63 Additional information

Notes to the financial statements

38 Memorandum items

100

39 Current and non-current assets and liabilities

101

1 Accounting policies

64

40 Financial assets and liabilities by class

102

2 Segment reporting

70

41 Debt instruments by maturities

104

42 Debt instruments by issuers

105

43 Repricing periods

106

3 Net interest income

72

44 Loans and loan loss provisions

107

4 Net fee and commission income

72

45 Derivative instruments

111

5 Net financial income

73

46 Fair value information

113

6 Net life insurance income

73

47 Related party disclosures

114

7 Net other income

74

48 Future minimum lease payments for operational leases

114

8 Administrative expenses

75

49 Capital adequacy

115

9 Staff costs

75

50 Assets and liabilities distributed by main currencies

117

10 Other expenses

82

51 Income statements – Life insurance operations

119

11 Net deferred acquisition costs

82

52 Assets in unit-link operations

120

53 Discontinued operations/Assets held for sale

120

Notes to the income statements

12 Depreciation, amortisation and impairments of tangible and intangible assets

82

13 Gains less losses from tangible and intangible assets

83

14 Net credit losses incl changes in value of seized assets

83

Five-year summary

15 Appropriations

84

SEB Group

121

16 Income tax expense

84

Skandinaviska Enskilda Banken

122

17 Earnings per share

85

Notes to the balance sheets: Assets 18 Risk disclosures

85

19 Cash and cash balance with central banks

85

20 Loans to credit institutions

86

21 Loans to the public

86

22 Financial assets at fair value

87

23 Available-for-sale financial assets

88

24 Held-to-maturity investments

88

25 Investments in associates

88

26 Shares in subsidiaries

90

27 Tangible and intangible assets

91

28 Other assets

94

SEB annual report 2006 55

Financial statements

Income statements SEB Group SEKm

Interest income Interest expense Net interest income Fee and commission income Fee and commission expense Net fee and commission income Gains (losses) on financial assets and liabilities held for trading, net Gains (losses) on financial assets and liabilities designated at fair value, net Net financial income Net insurance premium revenue Income investment contracts Investment income net Other insurance income Net insurance expenses Net life insurance income Dividends Profit and loss from investments in associates Gains less losses from investment securities Other operating income Net other income

Note

3

4

5

6

7

Total operating income Staff costs Other expenses Net deferred acquisition costs Depreciation, amortisation and impairments of tangible and intangible assets

9 10 11 12

Total operating expenses Gains less losses from tangible and intangible assets Net credit losses incl. changes in value of seized assets

13 14

Operating profit Income tax expense

16

2006

2005

Change, %

66,137 –51,856 14,281 20,145 –3,999 16,146 4,098 –62 4,036 5,642 976 1,507 383 –5,847 2,661 63 44 1,038 478 1,623

54,471 –40,189 14,282 16,741 –3,182 13,559 3,098 294 3,392 5,050 702 9,066 456 –12,922 2,352 76 61 272 233 642

21 29 0 20 26 19 32 –121 19 12 39 –83 –16 –55 13 –17 –28

38,747

34,227

13

–14,363 –7,798 507 –883

–13,342 –8,383 477 –901

8 –7 6 –2

–22,537

–22,149

2

70 –718

59 –914

19 –21

15,562

11,223

39

105 153

–2,939

–2,770

6

12,623

8,453

49

–32

–100

Net profit

12,623

8,421

50

Attributable to minority interests Attributable to equity holders

18 12,605

20 8,401

–10 50

Net profit

12,623

8,421

50

18.72 18.53 18.72 18.53

12.58 12.47 12.63 12.52

Net profit from continuing operations Discontinued operations

Basic earnings per share, SEK Diluted earnings per share, SEK Basic earnings per share from continuing operations, SEK Diluted earnings per share from continuing operations, SEK

56 SEB annual report 2006

53

17 17 17 17

Financial statements

Balance sheets SEB Group 31, December, SEKm

Note

2006

2005

Change, %

19 20 21

11,314 179,339 946,643 340,879 65,212 2,660 283 120,524 81,387 610,945 115,482 2,208 2,189 1,085 15,572 2,302 5,040 22,914 2,568 1,121 11,277 27,356 42,322

27,545 177,592 901,261 286,243 115,768 2,998 2,810 96,148 89,639 593,606 93,265 16,502 1,405 1,218 15,196 3,307 4,971 23,474 1,637 1,209 21,910 29,114 53,870

–59 1 5 19 –44 –11 –90 25 –9 3 24 –87 56 –11 2 –30 1 –2 57 –7 –49 –6 –21

1,934,441

1,889,738

2

365,980 641,758 120,127 83,592 203,719 388,822 60,343 5,894 84,762 –147 150,852 1,036 9,099 12,479 47,914 70,528 2,066 43,449

399,494 570,001 96,178 89,185 185,363 353,205 119,592 8,901 72,563 718 201,774 1,193 8,358 26,120 40,415 76,086 2,816 44,203

–8 13 25 –6 10 10 –50 –34 17 –120 –25 –13 9 –52 19 –7 –27 –2

1,867,174

1,832,942

2

Minority interests Revaluation reserves Share capital Other reserves Retained earnings Shareholders’ equity

130 772 6,872 30,207 29,286 67,137

112 1,363 6,872 28,882 19,567 56,684

16 –43

Total equity

67,267

56,796

18

1,934,441

1,889,738

2

Cash and cash balances with central banks Loans to credit institutions Loans to the public Securities held for trading Derivatives held for trading Derivatives used for hedging Fair value changes of hedged items in a portfolio hedge Financial assets – policyholders bearing the risk Other financial assets designated at fair value Financial assets at fair value Available-for-sale financial assets Held-to-maturity investments Discontinued operations/Assets held for sale Investments in associates Intangible assets Property and equipment Investment properties Tangible and intangible assets Current tax assets Deferred tax assets Trade and client receivables Other assets Other assets

22 23 24 53 25

27

28

Total assets Deposits by credit institutions Deposits and borrowing from the public Liabilities to policyholders – investment contracts Liabilities to policyholders – insurance contracts Liabilities to policyholders Debt securities Trading derivatives Derivatives used for hedging Trading liabilities Fair value changes of hedged items in portfolio hedge Financial liabilities at fair value Current tax liabilities Deferred tax liabilities Trade and client payables Other liabilities Other liabilities Provisions Subordinated liabilities Total liabilities

Total liabilities and equity

29 30

31 32

33

34 35 36

5 50 18

SEB annual report 2006 57

Financial statements

Statement of changes in equity SEB Group 31, December, SEKm

2006

2005

Change, %

Minority interests Shareholders’ equity

130 67,137

112 56,684

16 18

67,267

56,796

18

380 392

882 481

–57 –19

Total equity Shareholders’ equity Reserve for cash flow hedges Reserve for available-for-sale financial assets Revaluation reserves

772

1,363

–43

Share capital, 663 004 123 Series A shares, 24 152 508 Series C shares Fund for cancelled shares Equity fund Translation difference Other restricted reserves

6,872 174 94 –475 30,410

6,872 174 86 –291 28,913

9 63 5

Equity, restricted

37,075

35,754

4

Swap hedging of employee stock option programme Eliminations of repurchased shares for employee stock option programme Eliminations of repurchased shares for improvement of the capital structure Profit brought forward Net profit attibutable to equity holders

–303 –393 –2,022 19,403 12,605

–795 –1,625 –2,022 15,608 8,401

–62 –76

Equity, non-restricted

29,290

19,567

50

Total

67,137

56,684

18

24

Changes in equity

2006 Opening balance Dividend to shareholders1) Dividend, own holdings of shares1) Neutralisation of PL impact and utilization of employee stock options Eliminations of repurchased shares for employee stock option programme2) Other changes Change in market value Recognised in income statement Translation difference Net income recognised directly in equity Net profit Total recognised income Closing balance 2005 Opening balance New accounting principle (IFRS/IAS) Reduction of share capital Dividend to shareholders1) Dividend, own holdings of shares1) Result, holding of own shares Neutralisation of PL impact and utilization of employee stock options Eliminations of repurchased shares for employee stock option programme2) Eliminations of repurchased shares for improvement of the capital structure3) Other changes Change in market value Recognised in income statement Translation difference Net income recognised directly in equity Net profit Total recognised income Closing balance

Minority interests

Reserve for cash flow hedges

Reserve for afs financial assets

112

882

481

–502

–27 –62

–502

–89

Share Restricted reserves ­c apital

6,872

28,882

1,505

Retained earnings

19,567 –3,264 75 580 1,232 –1,505

–529 –62 –184

–184

18

–502

–89

130

380

392

680

335

85

–184

12,605

11,848

30,203

29,290

67,267

7,046

27,277

17,355 –2,324

51,763 –1,309

–174

174 –3,065 216 –12 616 204 –218 –1,606

–3,065 216 –12 616 204 –218 7 620 –272 –175

1,606 146

202

146

–775 12,623

6,872

7 474 –272

12,605

–184

18

–175 –175

20

8,401

20

202

146

112

882

481

Total

56,796 –3,264 75 580 1,232

6,872

173 8,421

–175

8,401

8,594

28,882

19,567

56,796

1) Dividend per A-share SEK 4.75 (4.35) and per C-share SEK 4.75 (4.35). Further information can be found in The SEB-share on page 18. 2) As of 31 December 2006, SEB has repurchased 7.0, 6.2 and 6.2 million Series A shares for the employee stock option programme as decided at the Annual General Meetings in 2002, 2003 and 2004 respectively. The acquisition cost for these shares is deducted from shareholders’ equity. In 2005 1.0 million shares was transferred from the capital structure programme to the stock option programme and 2.0 million employee stock options was sold as employee stock options was exercised. During 2006 6.5 million of these shares have been sold as employee stock options have been exercised. In addition 3.1 million shares have been sold in accordance with decision at the AGM. Thus, as of 31 December SEB owned 8.8 million Class A-shares with a market value of SEK 1,929m. 3) Repurchased 18.4 million shares in order to create possibilities for the improvement of the capital structure of the Bank as decided at the 2004 Annual General Meeting. The acquisition cost for these shares is deducted from shareholders’ equity. Of these 17.4 million shares have been cancelled by the end of 2005 as decided at the 2005 Annual General Meeting and the remaining 1.0 million shares transferred to the employee stock option program.

58 SEB annual report 2006

Financial statements

Cash flow statements SEB Group SEKm

2006

2005

Change, %

64,759 –49,484 20,145 –3,999 4,941 4,865 –23,010 –2,727

51,971 –37,997 16,741 –3,182 2,710 3,207 –17,426 –3,717

25 30 20 26 82 52 32 –27

15,490

12,307

26

Increase (–)/decrease (+) in trading portfolios Increase (+)/decrease (–) in issued short term securities Increase (–)/decrease (+) in lending to credit institutions Increase (–)/decrease (+) in lending to the public Increase (+)/decrease (–) in liabilities to credit institutions Increase (+)/decrease (–) in deposits and borrowings from the public Increase (–)/decrease (+) in insurance portfolios Change in other balance sheet items

–69,110 10,581 17,745 –46,351 –33,559 71,495 18,319 –1,587

–121,965 38,816 57,327 –102,155 33,033 44,786 24,042 91

–43 –73 –69 –55

Cash flow from operating activities

–16,977

–13,718

24

175 449 38 –17 –42 –615

1,340 401 40 –5,466 –1,266 –2,427

–87 12 –5 –100 –97 –75

–12

–7,378

–100

Issue of securities and new borrowings Repayment of securities Dividend paid

–24,764 49,001 –3,189

–16,058 75,054 –2,849

54 –35 12

Cash flow from financing activities

21,048

56,147

–63

4,059

35,051

–88

Cash and cash equivalents at beginning of year Exchange rate differencies in cash and cash equivalents Net increase in cash and cash equivalents

70,796 –1,104 4,059

35,252 493 35,051

101 –88

Cash and cash equivalents at end of period1)

73,751

70,796

4

Interest received Interest paid Commission received Commission paid Net received from financial transactions Other income Paid expenses Taxes paid Cash flow from the profit and loss statement

Sales of shares and bonds Sales of intangible and tangible fixed assets Dividends Investments in subsidiaries2) Investments in shares and bonds Investments in intangible and tangible assets Cash flow from investment activities

Net increase in cash and cash equivalents

60 –24

1) Cash and cash equivalents at end of period is defined as Cash and cash balances with central banks (note 19) and Loans to credit institutions – payable on demand (note 20). Cash and cash equivalents 2005 is restated.



2) Investments in subsidiaries Cash Loans from customers Other assets Due to customers Other liabilities’ Goodwill Total purchase consideration paid

113 395 56 –307 –204 77

314 19,107 1,657 –13,084 –2,857 643

130

5,780

–130 113

–5,780 314

–17

–5,466



Cost of acquisition Less cash acquired Cash flow outflow on acquisition

SEB annual report 2006 59

Financial statements

Income statements In accordance with the Swedish Financial Supervisory Authority regulations

Skandinaviska Enskilda Banken SEKm

Interest income Leasing income Interest expense Dividends Fee and commission income Fee and commission expense Net financial income Other income

Note

2006

2005

Change, %

3 3 3 7 4 4 5 7

32,316 877 –28,482 1,407 8,374 –1,211 3,515 2,108

23,438 780 –19,333 1,919 6,055 –974 2,558 965

38 12 47 –27 38 24 37 118

18,904

15,408

23

–13,073 –399

–10,854 –336

20 19

–13,472

–11,190

20

5,432

4,218

–134 –100

–79 –9 –220

70 –100 –55

5,198

3,910

33

–345 –1,158 467

–1,058 –263 –30

–67

4,162

2,559

63

Total operating income Administrative expenses Depreciation, amortisation and impairments of tangible and intangible assets

8 12

Total operating expenses Profit before credit losses Net credit losses Change in value of seized assets Impairment of financial assets

14 14 7

Operating profit Appropriations Tax for the year Other taxes Net profit

60 SEB annual report 2006

15 16 16

Financial statements

Balance sheets Skandinaviska Enskilda Banken 31, December, SEKm

Note

2006

2005

Change, %

19 20 21

1,828 360,728 333,129 285,313 63,001 1,290 160 349,764 22,057 3,820

6,037 331,451 291,861 247,291 112,441 2,365 139 362,236 19,074 3,483 661 1,160 57,381 68 15,035 15,103 636

–70 9 14 15 –44 –45 15 –3 16 10 –100 –9 –4

23,702 19,038 43,376

–59 –7 –33

1,172,049

1,131,823

4

332,371 389,127 172,288 60,693 1,386 79,422 141,501 226 473 10,900 34,567 46,166 416 42,278

345,510 324,719 138,038 115,012 1,023 71,498 187,533 20 112 23,979 25,970 50,081 654 43,049

–4 20 25 –47 35 11 –25

–55 33 –8 –36 –2

1,124,147

1,089,584

3

12,089

11,402

6

Revaluation reserves Share capital Other reserves Retained earnings

579 6,872 12,804 15,558

1,009 6,872 12,260 10,696

–43

Shareholders’ equity

35,813

30,837

16

1,172,049

1,131,823

4

Cash and cash balances with central banks Loans and receivables to credit institutions Loans and receivables to the public Securities held for trading Derivatives held for trading Derivatives used for hedging Other financial assets designated at fair value Financial assets at fair value Available-for-sale financial assets Held-to-maturity investments Discontinued operations Investments in associates Shares in subsidiaries Intangible assets Property and equipment Tangible and intagible assets Current tax assets Deferred tax assets Trade and client receivables Other assets Other assets

22 23 24 53 25 26

27

28

Total assets Deposits by credit institutions Deposits and borrowing from the public Debt securities Trading derivatives Derivatives used for hedging Trading liabilities Financial liabilities at fair value Current tax liabilities Deferred tax liabilities Trade and client payables Other liabilities Other liabilities Provisions Subordinated liabilities

29 30 32

33

34 35 36

Total liabilities Untaxed reserves

Total liabilities, untaxed reserves and shareholders’ equity

37

1,059 55,306 634 14,763 15,397 1,485 35 9,694 17,747 28,961

–2 2 134

4 45

SEB annual report 2006 61

Financial statements

Statement of changes in equity Skandinaviska Enskilda Banken 31, December, SEKm

Reserve for cash flow hedges Reserve for available-for-sale financial assets Revaluation reserves

2006

2005

Change, %

367 212

818 191

–55 11 –43

579

1,009

Share capital, 663 004 123 Series A shares, 24 152 508 Series C shares Reserve fund and other restricted reserves Fund for cancelled shares Reserve for unrealised gains

6,872 12,086 174 544

6,872 12,086 174

Equity, restricted

19,676

19,132

3

Group contributions net after tax Swap hedging of employee stock option programme Eliminations of repurchased shares for employee stock option programme Eliminations of repurchased shares for improvement of the capital structure Translation differencies Profit brought forward Net profit for the year

1,627 –303 –393 –2,022 –26 12,513 4,162

1,794 –795 –1,625 –2,022 11 10,774 2,559

–9 –62 –76

Equity, non-restricted Total

15,558 35,813

10,696 30,837

45 16

16 63

Changes in equity 2006 Opening balance Effect of merger of SEB IT and Enskilda Securities Dividend to shareholders1) Dividend, own holdings of shares1) Group contributions net after tax 2) Neutralisation of PL impact and utilization of employee stock options Eliminations of repurchased shares for employee stock option programme3) Other changes Change in market value Recognised in income statement Translation difference Net income recognised directly in equity Net profit Total recognised income Closing balance

Reserve for cash flow hedges

Reserve for afs financial assets

Share ­c apital

Restricted reserves

Retained earnings

818

191

6,872

12,260

10,696 1,031 –3,264 75 1,627 580 1,232 –544

–451

45 –24

–451

21

544

–451

21

367

212

Total

30,837 1,031 –3,264 75 1,627 580 1,232

–37

–406 –24 –37

–37 4,162

–467 4,162

4,125

3,695

6,872

12,804

15,558

35,813

7,046

12,364

9,684 –1,394

29,094 –723

–174

174 –3,065 216 1,794 616 204 –218 278

–3,065 216 1,794 616 204 –218

2005 Opening balance New accounting principle (IFRS/IAS) Reduction of share capital Dividend to shareholders1) Dividend, own holdings of shares1) Group contributions net after tax 2) Neutralisation of PL impact and utilization of employee stock options Eliminations of repurchased shares for employee stock option programme3) Eliminations of repurchased shares for improvement of the capital structure4) Other changes Change in market value Recognised in income statement Translation difference Net income recognised directly in equity Net profit Total recognised income Closing balance

671

–278 147

304 –113

147

191

147 818

191 191

6,872

12,260

22

451 –113 22

22 2,559

360 2,559

2,581 10,696

2,919 30,837

1) Dividend per A-share SEK 4.75 (4.35) and per C-share SEK 4.75 (4.35). Further information can be found in The SEB-share on page 18. 2) In accordance with the opinion of the emergency group of the Swedish Financial Accounting Standards Council, Group contributions are reported in the parent company directly under ­Shareholders’ equity. 3) As of 31 December 2006, SEB has repurchased 7.0, 6.2 and 6.2 million Series A shares for the employee stock option programme as decided at the Annual General Meetings in 2002, 2003 and 2004 respectively. The acquisition cost for these shares is deducted from shareholders’ equity. In 2005 1.0 million shares was transferred from the capital structure programme to the stock option programme and 2.0 million employee stock options was sold as employee stock options was exercised. During 2006 another 6.5 million of these shares have been sold as ­employee stock options have been exercised. In addition 3.1 million shares have been sold in accordance with decision at the AGM. Thus, as of 31 December SEB owned 8.8 million Class A-shares with a market value of SEK 1,929m. 4) Repurchased 18.4 million shares in order to create possibilities for the improvement of the capital structure of the Bank as decided at the 2004 Annual General Meeting. The acquisition cost for these shares is deducted from shareholders’ equity. Of these 17.4 million shares have been cancelled by the end of 2005 as decided at the 2005 Annual General Meeting and the remaining 1.0 million shares transferred to the employee stock option program.

62 SEB annual report 2006

Financial statements

Cash flow statements Skandinaviska Enskilda Banken SEKm

Interest received Interest paid Commission received Commission paid Net received from financial transactions Other income Paid expenses Taxes paid Cash flow from the profit and loss statement Increase (–)/decrease (+) in trading portfolios Increase (+)/decrease (–) in issued short term securities Increase (–)/decrease (+) in lending to credit institutions Increase (–)/decrease (+) in lending to the public Increase (+)/decrease (–) in liabilities to credit institutions Increase (+)/decrease (–) in deposits and borrowings from the public Change in other balance sheet items Cash flow from operating activities

2006

2005

Change, %

32,436 –27,692 8,357 –1,120 3,782 2,866 –13,667 –1,038

24,414 –19,029 6,050 –903 2,541 1,162 –10,170 –3,047

33 46 38 24 49 147 34 –66

3,924

1,018

–32,945 60,688 –18,537 –41,796 –13,138 64,407 9,411

–44,240 32,354 19,719 –40,249 55,264 14,574 –9,626

–26 88 –194 4 –124

32,014

28,814

11

–17

–198

Sales of shares and bonds Dividends and Group contributions Investments in subsidiaries/Merger of subsidiaries Reduction of the share capital in subsidiaries Investments in shares and bonds Investments in intangible and tangible assets

617 3,646 1,975 –337 –693

4,397 –1,466 3,440 –4,177 –1,919

Cash flow from investment activities

5,208

275

Issue of securities and new borrowings Repayment of securities Dividend paid

–53,306 26,099 –3,189

50,783 –12,612 –2,849

12

Cash flow from financing activities

–30,396

35,322

–186

6,826

64,411

–89

Cash and cash equivalents at beginning of year Exchange rate differencies in cash and cash equivalents Net increase in cash and cash equivalents

82,666 –294 6,826

18,217 38 64,411

–89

Cash and cash equivalents at end of period1)

89,198

82,666

8

Net increase in cash and cash equivalents

–100 –92 –64

1) Cash and cash equivalents at end of period is defined as Cash and cash balances with central banks (note 19) and Loans to credit institutions – payable on demand (note 20). Cash and cash equivalents 2005 is restated.

SEB annual report 2006 63

Notes to the financial statements

Notes to the financial statements Currency codes BRL

Brazilian reales

EUR

Euro

ISK

Icelandic kronor

NOK

Norwegian kroner

THB

Thai baht

CHF

Swiss francs

GBP

British pounds

JPY

Japanese yen

PLN

Polish zloty

USD

U.S. dollars

DKK

Danish kroner

HKD

Hong Kong dollar

LTL

Lithuanian litas

SEK

Swedish kronor

EEK

Estonian kroon

INR

Indian rupees

LVLatvian lats

SGD

Singapore dollars

Corporate information The SEB Group provides corporate, retail, investment and private banking ser­ vices. The Group also provides asset management and life insurance services.

The parent company is included in the Large Cap segment of the Stockholm Stock Exchange.

Skandinaviska Enskilda Banken AB (publ.) is the parent company of the Group. The parent company is a Swedish limited liability company with its registered offices in Stockholm, Sweden.

The consolidated accounts for the financial year 2006 were approved for publication by the Board of Directors on 23 February and will be presented for adoption at the 2007 Annual General Meeting.

SEKm, unless otherwise stated.

1

Accounting policies

Significant accounting policies for the Group Basis of presentation The consolidated accounts have been prepared in accordance with the International Financial Reporting Standards IFRS/IAS endorsed by the European Commission. Additions to these standards, provided in the Act (1995:1559) on annual accounts of credit institutions and securities companies (AACS), the accounting regulations of the Financial Supervisory Board (“FSA 2005:33”) and Recommendation RR 30 (2005) of the Swedish Financial Accounting Standards Council (SFASC), have also been applied. The consolidated accounts are based on amortised cost, except as regards the fair value amounts applied to available-for-sale financial assets and to financial assets and liabilities valued at fair value through profit or loss. Changed accounting policies The adoption of the changes to IAS 19, IAS 39 and IFRS 4 did not result in substantial changes in the Group’s accounting policies and have not impacted reported results or equity. Amendment to IAS 19 Actuarial Gains and Losses, Group Plans and Disclosures Another alternative for the reporting of actuarial gains and losses on defined benefit plans directly against equity was introduced on the basis of this amendment. This amendment was endorsed by the European Commission in November 2005. The Group has chosen not to utilise this reporting option. Amendment to IAS 39 Cash Flow Hedge Accounting of Forecast Intra-group ­Transactions This amendment allowing for cash-flow hedge accounting of the foreign exchange risk in certain future intra-group transactions was endorsed by the ­European Commission in December 2005. The Group does not hedge these types of transactions. Amendment to IAS 39 and IFRS 4 regarding Financial Guarantee Contracts This amendment is intended to ensure that issuers of financial guarantee contracts include the resulting liabilities in their balance sheet. The amendment was endorsed by the European Commission in January 2006. The Group has ­previously reported financial guarantee contracts according to this method. The Group has chosen early adoption of IFRS 7 Financial Instruments: Disclo-

64 SEB annual report 2006

sure (August 2005). This standard was endorsed by the European Commission on 27 January 2006 and was applied by the Group in the annual accounts of 2005. The following standards, amendments and interpretations are mandatory for accounting periods beginning on or after 1 January 2006, they are relevant to the Group’s operations but have no effects on the Groups accounts: IAS 21 (Amendment), relating to Net Investment in a Foreign Operation. IAS 39 (Amendment), relating to the Fair Value Option. IFRIC 4 Determining Whether an Arrangement Contains a Lease. Consolidated accounts The consolidated accounts comprise the parent company and its subsidiaries including Special Purpose Entities (“SPE”). Subsidiaries are companies over which the parent company has control, implying that they have the power of governing the financial and operating policies of an entity so as to obtain benefits from its activities. Such influence is deemed to exist when, amongst other circumstances, the parent company holds, directly or indirectly, more than 50 per cent of the voting power of an entity. For SPE’s, consolidation also takes place if the Parent Company or subsidiary does not have more than 50 percent of the votes but bears the economic risks and receives the economic benefits in another manner. Companies in which the Parent Company or its subsidiary hold more than 50 percent of the votes, but are unable to exercise control due to contractual and legal reasons, are not included in the consolidated accounts. The financial statements of the parent company and the consolidated subsidiaries refer to the same period and have been drawn up according to the accounting policies applicable to the Group. A subsidiary is included in the consolidated accounts from the time of its acquisition, which is the date at which the parent company gains control over the subsidiary, and the subsidiary is included in the consolidated accounts until the date at which control over the company ceases to exist. The consolidated accounts are prepared in accordance with the purchase method. The cost of an acquisition is measured as the fair value of the assets provided as compensation, the fair value of any equity instruments issued, and the fair value of liabilities incurred or assumed, plus costs directly attributable to the acquisition. The identifiable assets acquired and the liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at acquisition date, irrespective of any minority interest. The excess of the cost of the acquisition over the fair value of the Group’s share of the identifiable acquired net assets is recorded as goodwill. If the cost of the acquisition is

Notes to the financial statements

less than the fair value of the net assets of the acquired subsidiary, the difference is recognised directly against profit or loss. Goodwill is allocated between the cash-generating units or groups of units which are expected to gain benefits from an acquisition through synergies. The cash-generating units to which goodwill is allocated correspond to the lowest ­level within the Group in which goodwill is monitored for internal management purposes. These units may not be larger than the equivalent of one segment, that is, one business segment or one geographical segment, as determined in the segment reporting of the Group. The useful life of each individual intangible asset is determined, however the useful life of goodwill is reported as indefinite. For information regarding amortisation and impairment, see further comments under intangible assets. Intra-group transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated. The minority share of the results in subsidiaries is included in the reported results in the consolidated profit and loss account, while the minority share of net assets is included in equity. The consolidated accounts also include associated companies, which are companies over which the Group has a significant influence. By significant influence is meant that the Group can participate in the financial and operating policy decisions of the company, whilst not determining or controlling such financial and operating policies. A significant influence is deemed to exist if the Group, ­directly or indirectly, holds between 20 and 50 per cent of the voting rights of an entity. A company in which the Group holds fewer than 20 percent of votes can also be classified as an associated company if the Group is represented in the Board of Directors and participates in work related to the company’s strategic ­issues and issues affecting guidelines. According to the major principle, associated companies are consolidated in accordance with the equity method. However, the Group has chosen to designate investments in associates held by the Group’s venture capital organisation at fair value through profit or loss. The equity method implies that participations in associated companies are ­initially reported at acquisition cost. The carrying amount of the participations is thereafter adjusted to the Group’s share of the change in the value of the net assets of the associated companies. The Group’s share of the results of the associated companies is included in profit or loss. Dilution gains and losses in associates are recognised in the income statement. Segment reporting A segment is a business segment or a geographical segment. A business segment is a distinguishable component, in terms of accounting, of an entity engaged in providing an individual product or service or a group of related products or services, and that is subject to risks and returns differing from those of other business segments. A geographical segment from a reporting point of view is a distinguishable component of an entity engaged in providing products or services in a particular economic environment and that is subject to risks and returns differing from those applicable to other economic environments. The Group has defined business segments as primary segments and geographical segments as secondary segments. Foreign currency translation The consolidated financial statements are presented in Swedish kronor (SEK), which is the presentation currency of the Group. When a foreign currency transaction is initially recognised, the amount is translated into the functional currency at the spot exchange rate on the date of the transaction. On subsequent balance sheet dates monetary items in foreign currency are translated using the closing rate. Non-monetary items, which are measured in terms of historical cost in foreign currency, are translated using the exchange rate on the date of the transaction. Non-monetary items, which are measured at fair value in a foreign currency, are translated applying the exchange rate on the date on which the fair value is determined. Gains and losses arising as a result of exchange rate differences on settlement or translation of monetary items are recognised in profit or loss. Translation differences on non-monetary items, classified as financial assets or financial liabilities at fair value through profit or loss, are included in the change in fair value of those items. Translation differences from non-monetary items, classified as available for sale financial assets, are recognised directly in equity. The income statements and balance sheets of Group entities, with a functional currency other than the Group’s presentation currency, are translated to Swedish kronor (SEK) in the consolidated accounts. Assets and liabilities in foreign Group entities are translated at closing rate and income and expenses in the income statement are translated at the average exchange rate for the year. Resulting ­exchange rate differences are recognised as a separate component of equity.

Hedge accounting is applied to net investments in foreign subsidiaries. Foreign currency loans constitute the major portion of hedging instruments in these hedging transactions. The translation differences arising when the hedging instruments are translated to the presentation currency are also recognised as translation differences in equity. When a foreign operation is partially disposed of or sold, exchange differences recorded in equity are recognised in the income statement as part of the gain or loss on the sale. Goodwill arising in conjunction with acquisitions of foreign Group entities, as well as adjustments to the fair value of assets and liabilities made in conjunction with acquisitions, is included in assets and liabilities in the foreign entity in question and is translated to the presentation currency at closing rate. Financial assets Classification Financial assets are divided into the following four categories: – Financial assets at fair value through profit or loss – Loans and receivables – Held-to-maturity investments – Available-for-sale financial assets Financial assets at fair value through profit or loss consist of financial assets classified as held for trading and financial assets which, upon initial recognition, have been designated at fair value through profit or loss (Fair Value Option). ­Financial assets are classified as held for trading if they are held with the intention to be sold in the short-term and for the purpose of generating profits. Derivatives are always to be seen as being held for trading purposes, unless they are designated as hedging instruments. The Fair Value Option can be applied to contracts including one or more embedded derivatives and in situations in which such designation results in more relevant information. The nature of the financial assets and financial liabilities which have been designated at fair value through profit or loss and the criteria for such designation are described in the relevant notes to the financial statements. Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Held-to-maturity investments are financial assets which an entity has the intention and ability to hold until maturity. This category consists of financial assets with fixed or determinable payments and fixed maturity. Equity instruments cannot be classified as held to maturity as their life is indefinite. Available for sale financial assets are either financial assets classified in this category or those financial assets that have not been classified as financial assets measured at fair value through profit or loss, as loans and receivables or as investments held to maturity. Measurement Financial assets are measured at fair value on initial recognition. In the case of ­f inancial assets which do not belong to the category financial assets valued at fair value through profit or loss, transaction costs directly attributable to the ­acquisition of the financial asset in question are included in the fair value calcu­ lation. Trade date accounting is applied to financial assets classified in the categories, financial assets at fair value through profit or loss and available for sale ­f inancial assets. Settlement date accounting is applied to the other categories of financial assets. A financial asset is removed from the balance sheet when the contractual rights to the cash flows arising from the asset expire, or if the company, in all material respects, transfers all of the risks and rewards associated with the ownership of the asset. The valuation of financial assets after initial recognition is governed by their classification. Financial assets at fair value through profit or loss are measured at fair value. Gains and losses arising from changes in fair value are reported in the income statement on an ongoing basis under the item Net income from financial trans­ actions. Loans and receivables and held-to-maturity investments are measured at ­amortised cost using the effective interest method. Available for sale financial assets are measured at fair value. Gains and losses arising from changes in fair value are reported directly in the fair value revaluation reserve in equity until the financial asset with which they are associated is sold or impaired. In the case of the sale or impairment of a financial asset, the accumulated gains and losses previously reported in equity are recognised in profit or loss. Interest on interest-bearing, available for sale financial assets is recognised in profit or loss, applying the effective interest method. Dividends on equity instru-

SEB annual report 2006 65

Notes to the financial statements

ments, classified as available for sale, are also recognised in profit or loss. Investments in equity instruments without a quoted market price in an active market are measured, if possible, at fair value on the basis of a recognised valuation method. Investments in equity instruments without a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost. Financial liabilities Classification Financial liabilities are specified in two categories: – Financial liabilities at fair value through profit or loss – Financial liabilities. Financial liabilities at fair value through profit or loss are comprised of financial ­liabilities classified as held for trading and of those financial liabilities which have been determined by management to belong to this category on initial recognition (Fair Value Option). The criteria for classification of financial liabilities under the Fair Value Option are the same as for financial assets. Financial liabilities held for trading are comprised, primarily, of short positions in interest-bearing securities and equities, as well as of derivatives. The category financial liabilities primarily includes the Group’s short-term and long-term borrowings. Measurement Financial liabilities are measured at fair value on initial recognition. In the case of financial liabilities not included in the category of financial liabilities measured at fair value through profit or loss, transaction costs directly attributable to the acquisition or the issuance of the financial liability are included in the calculation of fair value. After initial recognition, financial liabilities measured at fair value through profit or loss, are measured and reported in a manner equivalent to the measurement and reporting of financial assets measured at fair value through profit or loss. ­Financial liabilities are, after initial recognition, measured on an ongoing basis at amortised cost, using the effective interest method. Embedded derivatives The major rule is that embedded derivatives are separated from the host contract and accounted for in the same manner as other derivatives not included in hedging transactions. Embedded derivatives are not separated if their economic characteristics and risks are closely related to the economic characteristics and risks of the host contract, or if the financial instrument is valued at fair value. Certain combined instruments, i.e. contracts containing one or more embedded derivatives, are classified as a financial asset or a financial liability at fair ­value through profit or loss. This choice of classification implies that the entire combined instrument is valued at fair value and that any changes in fair value are recognised on an ongoing basis in profit or loss. Fair value measurement The fair value of financial instruments quoted in an active market, for example quoted derivatives, financial assets and financial liabilities held for trading, and available for sale financial assets, is based on quoted market prices. The current bid price is used for financial assets and the current offer price for financial liabilities. The fair value of financial instruments that are not quoted in an active market is determined by applying various valuation techniques which make maximum use of market inputs. The valuation techniques used are analyses of discounted cash flows, valuations with reference to other financial instruments that are substantially the same, and valuations with reference to recent transactions in the same instrument. Profits on day one can be recognised when a valuation technique is used whose variables only include data from observable markets. Interest income and interest expenses The effective interest method is applied to recognise interest income and interest expenses in profit or loss for financial assets and financial liabilities measured at amortised cost. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating interest income and ­interest expenses. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument. When calculating future payments, all payments included in the terms and conditions of the contracts, such as advance payments, are taken into consideration. However, future credit losses are not taken into account. The calculation of effective interest includes consideration of the fees to be received and paid as stipulated in the contracts. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is subsequently recognised applying the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Commission income and fees Commission income and income in the form of fees on financial instruments are

66 SEB annual report 2006

accounted for differently, depending upon the financial instrument from which the income in question is derived. When commission income and fees are included in the calculation of the effective interest rate of a financial instrument measured at amortised cost, such interest and fees are usually allocated over the ­expected tenor of the instrument applying the effective interest method. Commission income and fees from asset management and advisory services are reported in accordance with the stipulations of the respective agreements. This income is usually recognised during the period in which the service is pro­ vided. Performance-based fees are reported when the income in question can be reliably calculated. Fees from loan syndications in which SEB acts only as arranger are reported as income when the syndication is completed. Repurchase agreements In repurchase transactions, the asset continues to be reported on the selling ­party’s balance sheet and the payment received is reported as a deposit or borrowing. The sold instrument is reported as pledged collateral. The buying party reports the payment as an outstanding loan to the selling party. The difference in amounts between the spot and the forward payments is allocated as interest over the life of the instrument. Securities lending Securities lent remain on the balance sheet and are recognised as pledged collateral. Borrowed securities are not recognised as assets. When borrowed securities are sold (blanking), an amount corresponding to the fair value of the securities is entered as a liability. Credit losses (impairment of financial assets) All financial assets, except those classified at fair value through profit or loss, are tested for impairment. On each balance sheet date the Group assesses whether there is objective ­evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events occurring after the initial recognition of the asset, and if that loss event will have an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably measured. Examples of objective evidence that one or more events have occurred which may affect estimated future cash flows are: • significant financial difficulty on behalf of the issuer or obligor, • the borrower is granted a concession as a consequence of financial difficulty, the nature of which normally would not have been granted to the borrower, • a breach of contract, such as a default or delinquency in the payment of interest or principal, or • it is probable that the borrower will go bankrupt or undergo some other kind of financial reconstruction. An impairment is reported as a write off, if it is deemed impossible to collect the contractual amounts due that have not been paid and/or are expected to remain unpaid, or if it is deemed impossible to recover the acquisition cost by selling the collateral provided. In other cases, a specific provision is recorded in an allowance account. As soon as the non-collectible amount can be determined and the asset is written off, the amount reported in the allowance account is dissolved. Similarly, the provision in the allowance account is reversed if the estimated ­recovery value exceeds the carrying amount. Financial assets measured at amortised cost An impairment of a financial asset in the category loans and receivables or in the category held to maturity investments carried at amortised cost is calculated on the basis of the original effective interest rate of the financial instrument in question. The amount of the impairment is measured as the difference between the carrying amount of the asset and the present value of estimated future cash flows (recoverable amount). If the terms of an asset are renegotiated or otherwise modified due to financial difficulties on behalf of the borrower or issuer, impairment is measured using the original effective interest rate before modification of the terms and conditions. Cash flows relating to short-term receivables are not discounted if the effect of the discounting is immaterial. The entire, outstanding amount of each loan for which a specific provision has been established is included in Impaired loans, i.e. including the portion covered by collateral. In addition to an individual impairment test, a collective assessment is made of the value of receivables that have not been deemed to be impaired on an individual basis. Receivables with similar credit risk characteristics are grouped together and assessed collectively for impairment. The Group’s internal risk classification system constitutes one of the components forming the basis for determining the total amount of the collective provision. For certain homogeneous groups of individually insignificant credits (credit card claims, for example), provision models have been established on the basis of historical credit losses and the status of these claims. Collective impairment provisions are also established for credits to borrowers in countries with transfer obstacles, general problems in the banking system in question or similar circumstances.

Notes to the financial statements

Financial assets measured at acquisition cost The impairment of unquoted equities, measured at acquisition cost, is calculated as the difference between the carrying amount and the present value of estimated future cash flows, discounted at the current market rate of return for similar equities. Available for sale financial assets If an available for sale financial instrument is impaired, the accumulated loss that has been recognised directly in equity is reported in profit or loss. The amount of the accumulated loss that is transferred from equity and recognised in profit or loss is equal to the difference between the acquisition cost and the current fair value, with a deduction of any impairment losses on that financial asset which had been previously recognised in profit or loss. Impairment losses on bonds or other interest-bearing equity instruments classified as available-for-sale are reversed via profit or loss if the increase in fair value can be objectively attributed to an event taking place subsequent to the write down. Impairment losses for equity instruments classified as available for sale are not reversed through profit or loss. Hedge accounting Derivatives are always valued at fair value in the balance sheet. Hedge accounting is applied to derivatives used to reduce risks such as interest rate risks and currency risks in other financial instruments. There are three different types of hedges, fair value hedges, cash-flow hedges and net investment hedges. SEB applies all three of these types of hedges to varying degrees. Derivatives are almost exclusively used as hedging instruments. The only exception is the hedging of net investments in foreign subsidiaries, for which foreign currency loans are also used for hedging purposes. Hedge accounting is applied when hedging relationships comply with the following conditions: – There is a formal designation and documentation of the hedging relationship (identification) at its inception. – The hedge is expected to be highly effective. – As regards cash flow hedges, the likelihood that a forecasted transaction, which is to be hedged, will take place must be highly probable – The effectiveness of the hedge must be reliably measured. – The effectiveness of the hedge must be assessed on an ongoing basis. The hedging of fair value is the hedging of exposure to changes in the fair value of an asset or liability, or an identifiable component of such an asset or liability, which is attributable to a certain risk and which could affect the profit or loss. Gains and losses arising from the revaluation of derivatives to fair value are recorded in the income statement at the same time that any gains or losses attributable to the hedged risk of the item in question adjust the reported value of the hedged item and are also reported in the income statement. Where SEB hedges the fair value of interest rate exposure in a portfolio including financial assets or financial liabilities, so-called portfolio hedging of interest rate risk, the gains or losses attributable to the hedged item are reported either as a separate item under assets or as a separate item under liabilities. Fair value hedges will be discontinued in the following situations: – The hedging instrument expires or is sold, terminated or exercised. – The hedging relationship no longer meets the criteria for hedge accounting. – The hedging relationship is discontinued. When hedging relationships are discontinued, any accumulated gains or losses adjusting the carrying amount of the hedged item shall be allocated in profit or loss over the remaining tenor of the hedged item. Cash flow hedging is applied for the hedging of exposure to variations in future interest flows, such as future interest payments on assets or liabilities with variable interest rates. The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly against equity. The ineffective portion of the gain or loss on the hedging instrument is recognised in profit or loss. Gains or losses on hedging instruments reported directly against equity are reclassified and recognised in profit or loss in the same period in which interest income and interest expenses from a hedged asset or liability are recognised in profit or loss. Cash flow hedges are discontinued in the same situations as listed above re­gard­ ing the termination of fair value hedges. When cash flow hedges are discontinued but future cash-flows still are expected to occur, accumulated gains or losses from the hedging instrument will remain as a separate item in equity. Accumulated gains or losses are subsequently reported in profit or loss in the same period in which the previously hedged interest flows are recognised in ­profit or loss. The hedging of a net investment in a foreign operation refers to the hedging of the equity in a foreign subsidiary against foreign exchange fluctuations. This type of hedging is accounted for in a manner equivalent to the reporting of cash flow hedges. Gains or losses on a hedging instrument which are attributable to the ­effective portion of the hedge and which have been recognised directly against equity are recognised in profit or loss upon disposal of the foreign operation in question.

Tangible fixed assets Tangible fixed assets, with the exception of investment properties held in insurance operations, are reported at historical cost and are depreciated according to plan on a straight line basis over the estimated useful life of the asset. The maximum depreciation period for buildings is 50 years. The depreciation period for other tangible fixed assets is between 3 and 5 years. Tangible fixed assets are tested for impairment whenever there is indication of impairment. Leasing Leasing contracts are specified as finance or operating leases. A finance lease is a lease that transfers, from the lessor to the lessee, substantially all of the risks and rewards incidental to the ownership of an asset. Operational leasing contracts are those leases which are not regarded as finance leases. In the Group, essentially all leasing contracts in which the Group is the lessor are classified as finance leases. Finance leases are reported as lending, which implies that the leasing income is reported as interest income. Investment properties Investments in properties held in order to receive rental income and/or for capital appreciation are reported as investment properties. The recognition and measurement of such properties differs, depending upon the entity owning the property. Investment properties held in the insurance operations, used to match liabilities providing a yield directly associated with the fair values of specified assets, including the investment properties themselves, are accounted for using the fair value model. Holdings of investment properties in the banking operations are ­valued at depreciated cost. Intangible assets Intangible assets are identifiable, non-monetary assets without physical substance. In addition, an entity must be able to demonstrate control of the intangible asset, which implies that the entity has the ability to ensure that the future economic benefits flowing from the underlying resource will accrue to the company. Intangible assets, other than goodwill, are only recognised in the balance sheet if it is probable that the future economic benefits attributable to the asset will accrue to the Group and if the acquisition cost of the asset can be measured in a reliable manner. Intangible assets are measured initially at acquisition cost, and thereafter at cost less any accumulated amortisation and any accumulated impairment losses. Intangible assets with finite useful lives are amortised on a straight line basis over their useful lives and tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Customer lists are amortised over 20 years and internally generated intangible assets, such as software development, are amortised over a period of between 3 and 5 years. Intangible assets with indefinite useful lives, such as goodwill, are not amortised but, instead, are tested for impairment annually and whenever there is an indication that the intangible asset may be impaired. As regards goodwill, an impairment loss is recognised in profit or loss whenever the carrying amount, with respect to a cash-generating unit or a group of cash-generating units to which the goodwill can be attributed, exceeds the recoverable amount. Impairment losses attributable to goodwill are not reversed, regardless of whether the cause of the impairment has ceased to exist. The replacement value of an asset is determined if there is indication of a reduction in the value of the asset. An impairment loss is recognised if the carrying amount exceeds the replacement value of the asset. Provisions A provision is established when the Group has a present obligation as a result of past events. Conditions for the establishment of a provision are that the amount can be estimated in a reliable manner and that it is more likely than not that an outflow of resources will be required to settle the obligation. Provisions are evaluated at each balance sheet date and are adjusted as necessary. Provisions are valued at the present value of the amount expected to be required in order to settle the obligation. The applied discount rate before tax reflects the current market assessment of the time-dependent value of the funds or the risks to which the provision refers. The increase of the provision over the course of time is recorded as an interest expense. Pensions Depending upon local conditions, there are both defined benefit and defined ­contribution pension plans within the Group. The pension commitments of the Group with respect to defined benefit plans are covered by the pension funds of the Group, through insurance solutions or through provisions in the balance sheet. Defined benefit pension plans are calculated at present value according to the actuarial method called the Projected Unit Credit Method. The assumptions upon which the calculations are based are found in the note addressing staff costs. Actuarial gains and losses are recognised in profit or loss to the extent they exceed the greater of 10 per cent of ­pension commitments and plan assets at the beginning of the reporting period. Amounts outside this corridor are reported in profit or loss over the employees’

SEB annual report 2006 67

Notes to the financial statements

expected average remaining working lives. Pension commitments and any special plan assets are consolidated on a net basis per unit in the balance sheet. Pension costs for defined contribution pension plans are carried as an expense on a continuous basis in line with the pension rights earned by the indi­ vidual concerned. Share-based payments Group company employees receive compensation through share-based incentive programmes. The compensation consists of employee stock options (equity instruments), entitling the holder to subscribe for shares in the parent company at a future date and at a predetermined price. The total value of issued stock options is amortised over the vesting period. The vesting period is comprised of the period from the date on which the options are issued until the stipulated vesting conditions are satisfied. The total value of issued stock options equals the fair value per option, multiplied by the number of options that are expected to become exercisable, taking the vesting conditions into consideration. The allocation of this amount implies that profit and loss are impacted at the same time as the corresponding increase in equity is recognised. At each balance sheet date an assessment is made to determine if the vesting conditions will be fulfilled and the extent to which they will be fulfilled. If the conclusion of this assessment is that a lower number of options is expected to be vested during the vesting period, then the previously expensed amounts are reversed through profit or loss. This implies that in cases in which the vesting conditions are not fulfilled, no costs will be reported in profit or loss, seen over the entire vesting period. The employee stock option programmes are hedged through the repurchase of own equity instruments (treasury shares) or through contracts to buy own ­equity instruments (total return swaps). However, hedge accounting is not applied, as it is deemed that such hedges do not qualify for hedge accounting under IAS 39. Treasury shares are eliminated against equity. No gains or losses on the sale of treasury shares are recognised in profit or loss but are, instead, recognised as changes in equity. Total return swap contracts entered into with third parties represent an obligation for the parent company to purchase its own equity instruments (own shares) at a predetermined price. Consequently, the swap contracts are classified as ­equity instruments. Contracts with an obligation to purchase own equity instruments give rise to a financial liability for the present value of the redemption amount, and an amount equivalent to this liability is reported as a decrease in ­equity. Interest paid under the swap contracts is recognised in profit or loss and dividends received are regarded as dividends on own shares and are recognised in equity. Taxes The Group’s tax for the period consists of current and deferred tax. Current tax is tax referring to the taxable results for the period. Deferred tax arises due to temporary differences between the tax bases of assets and liabilities and their carrying amounts. Current tax and deferred tax are generally recognised in profit or loss. However, tax relating to items reported directly against equity is also reported directly against equity. Examples of such items are changes in the fair ­value of available-for-sale financial assets and gains or losses on hedging instruments in cash flow hedges. Deferred tax assets are recognised in the balance sheet to the extent that it is probable that future taxable profits will be available against which they can be utilised. The Group’s deferred tax assets and tax liabilities have been calculated at the tax rate of 28 per cent in Sweden and at each respective country’s tax rate for foreign companies. Insurance and investment contracts Insurance contracts are contracts under which the Group accepts significant insurance risk from the policyholder by agreeing to compensate the policyholder or other beneficiaries on the occurrence of a defined insured event. Investment contracts are financial instruments that do not meet the definition of an insurance contract, as they do not transfer significant insurance risk from the policyholder to the Group. Insurance contracts Insurance contracts are classified as Short-term (non-life) or Long-term (life). Short-term insurance comprise sickness, disability, health-care, and rehabilitation insurance. Long-term insurance comprise mainly traditional life insurance within the Danish subsidiary, SEB Pension. Measurement of Short-term insurance contracts (non-life) The provision for unearned premiums is intended to cover the anticipated cost of claims and operating expenses arising during the remaining policy period of the insurance contracts in force. The provision for unearned premiums is usually strictly proportional over the period of the insurance contracts. If premiums are judged to be insufficient to cover the anticipated cost of claims and operating ­expenses, the provision for unearned premiums is strengthened with a provision for unexpired risks. The provision for claims outstanding is intended to cover the anticipated future payment of all claims incurred, including claims incurred but not reported (IBNR provisions). This provision should also cover all costs for claims settle-

68 SEB annual report 2006

ment. The provision for claims outstanding is not discounted, with the exception of provisions for sickness annuities, which are discounted using standard actu­ arial methods. Measurement of Long-term insurance contracts (life) For long-term life insurance contracts, a liability for contractual benefits that are expected to be incurred in the future is recorded when the premiums are recognised. The liability equals the sum of the discounted value of expected benefit payments and future administration expenses, less any outstanding future contractual premium payments. Liabilities for long-term life insurance are discounted using standard actuarial methods. Liability adequacy test Swedish actuarial procedures involve performing liability adequacy tests on ­technical provisions. This is to ensure that the carrying amount of the provisions is sufficient in the light of estimated future cash flows. The carrying amount of a provision is the value of the provision less any related intangible asset or deferred acquisition costs. The current best estimates of future contractual cash flows, as well as claims handling and administration costs, are included in performing these liability adequacy tests. These cash flows are discounted and compared to the carrying amount of the provision. Any deficit is immediately ­reported in profit or loss. Revenue recognition Premiums for insurance contracts are recognised as revenue when they are paid by the policyholders. Premiums received during a period which are intended to cover insurance claims arising in that period are recognised as revenue proportionally during the period. Recognition of expenses Costs for insurance contracts are recognised as an expense when incurred, with the exception of commissions and other variable acquisition costs related to new contracts and the renewal of existing contracts. These costs are capitalised as deferred acquisition costs. The principles for deferring acquisition costs of insurance contracts are similar to the principles for deferring acquisition costs of investment contracts. Insurance compensation is recorded as an expense when ­incurred. Reinsurance Contracts with reinsurers, whereby compensation is received by the Group for losses on contracts, are classified as ceded reinsurance. For ceded reinsurance, the benefits to which the Group is entitled under the terms of the reinsurance contract are reported as the reinsurers’ share of actuarial provisions. Amounts recoverable from reinsurers are measured in the same manner as the amounts associated with the reinsurance contracts and in accordance with the terms of each reinsurance contract. Investment contracts The majority of the Group’s unit linked insurance is classified as investment contracts. No significant insurance risk is transferred from the policyholder to the Group. A small portion of the Group’s unit linked insurance business, the portion referring to the Lithuanian insurance subsidiary, is classified as insurance contracts. Measurement Investment contracts are financial commitments whose fair value is dependent on the fair value of the underlying financial assets. The underlying assets and ­related liabilities are measured at fair value through profit or loss. The fair value of the financial liabilities is determined using the fair value reflecting the current value of the financial assets to which the financial liabilities refer on the balance sheet date. Revenue recognition Amounts received from and paid to policyholders are reported in the balance sheet as deposits or withdrawals. Fees charged for managing investment contracts are recognised as revenue. The revenue recognition for these management services is evenly distributed over the tenor of the contracts in question. Recognition of expenses Variable expenses directly attributable to securing a new investment contract are deferred. These costs are primarily variable acquisition costs paid to sales personnel, brokers and other distribution channels. Deferred acquisition costs are reported in profit or loss as the related revenue is recognised. The asset is tested for impairment during each accounting period to ensure that the future economic benefits expected to arise from the contract exceed the carrying amount of the asset. All other costs, such as fixed acquisition costs or ongoing administration costs, are recognised in the accounting period in which they arise. Contracts with discretionary participation features (DPF) Traditional life insurance contracts within the Danish subsidiary, SEB Pension, include a discretionary participation feature. This feature entitles the policyholder to receive, as a supplement to guaranteed benefits, additional benefits or bo-

Notes to the financial statements

nuses. These contracts are reported applying the same principles as those established for the reporting of insurance contracts. The amounts referring to the guaranteed element and to the discretionary participation feature are reported as liabilities to policyholders. New and amended international accounting standards and IFRIC ­interpretations New and amended accounting standards and new IFRIC interpretations have been published which, after endorsement by the European Commission, will ­apply to accounting periods beginning on or after 1 January 2007. The Group’s assessment of the impact of these new standards and interpretations is set out below. Amendment to IAS 1 Capital Disclosures The amendment introduces requirements regarding capital disclosures. The amendment was endorsed by European Commission in January 2006. The amendment is applicable from 1 January 2007. Capital disclosures are usually quite extensive in a banking group, and the adoption of this amendment could lead to even further disclosures. IFRIC interpretations The following IFRIC interpretations, which will not affect the Group’s financial statements, have been issued: – IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies (endorsed) – IFRIC 8 Scope of IFRS 2 (endorsed) – IFRIC 9 Reassessment of Embedded Derivatives (endorsed) – IFRIC 10 Interim Financial Reporting and Impairment (not yet endorsed) – IFRIC 11 Group and Treasury Share Transactions (not yet endorsed). However, this interpretation will affect the subsidiaries’ accounting of equity-settled share-based payment transactions as the parent has granted such instruments directly to the employees of subsidiaries. In such cases, the subsidiaries shall measure the services received from its employees in accordance with the requirements applicable to equity-settled share-based payment transactions, with a corresponding increase in equity reported as a contribution from the parent company. Critical judgments in applying the Group’s accounting policies Consolidated accounts Within the life insurance operations of the SEB Group there are two life insurance entities which are operated as mutual life insurance companies, Gamla Livförsäk­ rings AB SEB Trygg Liv and Nya Livförsäkrings AB SEB Trygg Liv. These entities are not consolidated, as the judgment of the Group is that it does not control these two entities. Control is seen to imply the power to govern the financial and operating policies of an entity in order to obtain benefits from its activities. Life insurance entities operated as mutual life insurance companies cannot pay dividends. For this reason the Group deems that it cannot obtain benefits from these entities. In Gamla Livförsäkrings AB SEB Trygg Liv there are specific policies specifying the composition of the board, which implies that the SEB Group is not able to govern the financial and operating policies of the entity. The policyholders in SEB’s unit-linked company choose to invest in a variety of funds. The insurance company providing unit-linked products invests in the funds chosen by the customers. By doing so SEB might, in some cases, hold more than 50 per cent of the funds, which it holds on behalf of the customers for whom it acts as investment manager. Due to the legislation regarding fund operations, SEB considers that it does not have the power to govern the financial and operating policies of such investment funds to obtain benefits. This applies irrespective of whether the funds held on behalf of customers are greater or less than 50 percent of a fund. It is the policyholders who carry the investment risk, not SEB. Consequently, the policyholders are entitled to all of the returns generated by the funds. SEB only charges fees, on market conditions, for managing the funds. SEB has come to the conclusion that the funds which it manages should not be consolidated. However, the shares that the Group holds in such funds on behalf of its customers are recognised in the balance sheet. Important assumptions Significant assumptions have been made as regards financial instruments, buildings held for investment purposes in the insurance operations, the write-down ­requirements for goodwill and financial assets, reporting of tax assets, and actuarial calculations. The assumptions that have been made are described in the respective notes. Significant accounting policies of the parent company The annual report of the parent company has been prepared in accordance with the Act (1995:1559) on annual accounts of credit institutions and securities companies (“AACS”), the accounting regulations of the Financial Supervisory Board (“FSA 2005:33”) and recommendation RR 32 (2005) of the Swedish Financial ­Accounting Standards Council (“SFASC”).

The parent company applies so-called “legally restricted IAS”, which means that international accounting standards are applied to the extent permitted under Swedish accounting legislation. As the Swedish standards have not been fully adjusted to IFRS, the accounting principles of the parent company differ, in certain respects, from the accounting principles applied by the SEB Group. The essential differences are described below. Presentation format The presentation format for the balance sheet and the profit and loss account ­according to the AACS are not in conformity with IFRS. Credit institutions and ­securities companies applying international accounting standards (IFRS/IAS) ­endorsed by the European Commission in their consolidated accounts are provided the option to deviate from the presentation format for the balance sheet as stipulated in AACS, but may not deviate from the AACS stipulated profit and loss account. The parent company has chosen to utilise this option, implying that presentation format of the balance sheet is, in all material respects, the same in both the Group and the parent company. Definition of the Group The AACS and IAS 27 have different definitions of a group. According to the AACS, companies are not reported as parent companies and subsidiaries if there is no ownership interest. According to IAS 27, it is sufficient that there is controlling influence. In other words, no share in the ownership of the company is required. There is a definition in AACS which determines when a company is the parent company of a group and is, therefore, liable to prepare consolidated accounts, but it is IAS 27 which stipulates the companies to be included in the consolidated accounts. For SEB, this means that the consolidated accounts comprise a different group of companies than those constituting a group according to AACS. Holdings in subsidiaries and associated companies Participations in subsidiaries and associated companies shall be reported in accordance with the cost method. Dividends received are reported as income to the extent that they emanate from profits earned after the acquisition. Dividends in excess of such profits reduce the reported value of the participation. If the value of the participations is lower than their acquisition cost on balance sheet date, a write-down to the lower value will be made if such decrease in value is deemed permanent. The parent company has chosen to apply hedge accounting to the foreign exchange risk in participations held in foreign subsidiaries and to the exchange risk in accrued profits in these subsidiaries. For this purpose the hedging of fair values is applied, which means that the value of the participations and the loans serving as hedging instruments are translated taking into consideration the hedged risk. Participations in subsidiaries subject to hedge accounting are, consequently, ­reported at a value differing from their acquisition cost. Segment reporting The parent company need not present segment information. However, information shall be disclosed regarding income per business area and geographical market. Financial assets and financial liabilities designated at fair value through profit or loss (Fair Value Option) It is only possible to designate financial assets and financial liabilities as measured at fair value through profit or loss in those cases permitted by AACS. Therefore, it is not possible for the parent company to fully apply the Fair Value Option. For example, it is not possible to designate liabilities as measured at fair value through profit or loss, except for those held for trading purposes or which constitute derivatives. Leasing According to RR 32, leasing contracts which are classified as finance leases in the consolidated accounts may be accounted for as operating leases in legal ­entities. The parent company has chosen to utilise this option. Pensions The Act on safeguarding of pension commitments and the guidance from the FSA include regulations the application of which results in accounting treatment as ­regards defined benefit plans differing from the treatment stipulated in IAS 19. Compliance with the Act on safeguarding of pension commitments is a con­ dition for fiscal deductibility. In view of this, RR 32 states that it is not mandatory that the regulations in IAS 19 regarding defined benefit pension plans be applied in the legal entity. The parent company, whose obligations are covered by pension funds, has chosen to utilise this possibility. Imputed pension costs are, therefore, reported as personnel costs in the profit and loss account and reversed in appropriations. The parent company compensates itself for pensions paid from the pension funds, provided the financial position of the funds so permits. Paid pensions and compensation from the pension funds are recorded among appropriations. Group contributions Group contributions paid or received for the purpose of minimising the Group’s taxes are reported in the parent company as a decrease/increase in non-restricted equity, after adjustment for estimated tax.

SEB annual report 2006 69

Notes to the financial statements

2

Segment reporting

Business segments in SEB Group SEB Merchant Banking

Nordic Retail & Private Banking

German Retail & Mortgage Banking

Eastern European Banking

SEB Asset Management

SEB Trygg Liv1)

Other incl. eliminations 2)

SEB Group

Interest income Interest expense Net interest income Fee and commission income Fee and commission expense Net fee and commission income Net financial income Net life insurance income Net other income

76,293 –71,698 4,595 5,730

16,116 –11,437 4,679 4,740

19,489 –16,819 2,670 1,401

5,320 –2,760 2,560 1,114

143 –39 104 2,477

–15

5,730 3,511

4,740 295

1,401 19

2,477 9

683

150

346

1,114 391 116 82

–51,209 50,897 –312 4,683 –3,999 684 –189 –807 342

66,137 –51,856 14,281 20,145 –3,999 16,146 4,036 2,661 1,623

Total operating income of which internally generated

14,519

9,864

4,436

4,263

2,610

3,337

–282

38,747

Staff costs Other expenses Net deferred acquisition costs Depreciation, amortisation and ­impairments of tangible and ­intangible assets

–4,436 –2,585

–3,102 –2,786

–2,053 –1,146

–1,040 –656 5

–731 –458

–970 –1,351 502

–2,031 1,184

–14,363 –7,798 507

–70

–79

–251

–201

–19

–48

–215

–883

Total operating expenses

–7,091

–5,967

–3,450

–1,892

–1,208

–1,867

–1,062

–22,537

29

–9

50

Income statement, 2006

Gains less losses from tangible and intangible assets Net credit losses incl. changes in value of seized assets

–15

3,352 20

70

–116

–146

–347

–101

–8

–718

7,312

3,780

630

2,320

1,402

1,470

–1,352

15,562

Interest income4) Interest expense4) Net interest income Fee and commission income Fee and commission expense Net fee and commission income Net financial income Net life insurance income Net other income

45,779 –40,952 4,827 5,443 –794 4,649 2,498

8,928 –4,370 4,558 5,860 –1,423 4,437 200

14,216 –11,036 3,180 1,556 –428 1,128 74

85

9

85 2,493 –383 2,110 17

9

181

71

224

3,342 –1,575 1,767 1,318 –383 935 314 49 85

–17,888 17,744 –144 72 229 300 289 –554 60

54,471 –40,189 14,282 16,741 –3,182 13,559 3,392 2,352 642

Total operating income of which internally generated

12,155 379

9,266 727

4,606 86

3,150 17

2,233 –1,317

2,866 563

–49 –455

34,227

Staff costs Other expenses Net deferred acquisition costs Depreciation, amortisation and ­impairments of tangible and ­intangible assets

–4,309 –2,398

–3,032 –2,691

–1,978 –1,294

–858 –608

–656 –493

–952 –1,405 477

–1,557 505

–13,342 –8,383 477

–92

–53

–279

–207

–24

–53

–193

–901

Total operating expenses

–6,799

–5,776

–3,551

–1,673

–1,173

–1,933

–1,245

–22,149

1

1

–5

63

–1

59

–24

–192

–561

–139

5,333

3,299

489

1,401

Operating profit Income statement, 20053)

Gains less losses from tangible and intangible assets Net credit losses incl. changes in value of seized assets Operating profit

2,857 21

1,060

933

2

–914

–1,292

11,223

1) Business result in SEB Trygg Liv amounted to SEK 3,130m (2,213), of which change in surplus values was net SEK 1,660m (1,280). 2) Profit and losses from associated companies accounted for under the equity method are recognised in Net other income by SEK 44m (61). The aggregated investments are SEK 415m (398). 3) The movement of Immoinvest from German Retail & Mortgage Banking to SEB Asset Management has been restated. 4) Intra Company interest flows were previously netted.

Balance sheets, 2006-12-31 Assets Liabilities Investments

1,184,502 1,147,790 125

422,137 405,811 73

308,579 298,092 105

138,481 128,069 386

7,849 4,700 43

214,095 206,279 432

–341,202 –323,567 243

1,934,441 1,867,174 1,407

1,161,011 1,127,337 100

364,747 351,929 639

343,471 331,811 351

100,055 93,201 585

8,199 5,611 4

200,112 192,074 9

–287,857 –269,021 207

1,889,738 1,832,942 1,895

Balance sheets, 2005-12-31 Assets Liabilities Investments

70 SEB annual report 2006

Notes to the financial statements

Note 2 ctd. Segment reporting

Geographical segments in SEB Group 2006

2005

Gross Income*

Assets

Investments

Gross Income*

Assets

Investments

Sweden Other Nordic The Baltics Germany Other Europe Other world Group eliminations

49,625 18,246 7,282 23,872 8,907 9,061 –22,391

1,124,026 364,045 133,936 461,957 105,618 137,015 –392,156

319 461 309 149 100 69

36,439 11,287 4,815 22,024 4,856 3,383 –6,549

1,024,467 405,630 96,535 515,829 115,528 103,359 –371,610

267 640 421 371 187 9

Total

94,602

1,934,441

1,407

76,255

1,889,738

1,895

*Gross income in the Group is defined as the sum of Interest income, Fee and commission income, Net financial income, Net life insurance income and net other income according to IFRS.

Business segments in Parent company

2006 Gross income* Assets Investments

SEB Merchant Banking

Nordic Retail & Private Banking

20,856 918,676 43

3,886 55,567 15

13,365 961,294 43

3,495 51,300 8

German Retail & Mortgage Banking

Eastern European Banking

SEB Asset Management

SEB Trygg Liv

Other incl. eliminations

Parent company

20 12,498

809 1,009

91

22,935 184,299 2

48,597 1,172,049 60

11 597

751 669

73

18,016 117,963

35,715 1,131,823 51

2005 Gross income* Assets Investments

4

Geographical segments in Parent company 2006

Sweden Other Nordic Other Europe Other world Total

2005

Gross Income*

Assets

Investments

Gross Income*

Assets

Investments

32,421 6,769 4,576 4,831

889,631 193,417 33,177 55,824

60

26,104 4,476 2,982 2,153

685,645 270,464 83,125 92,589

51

48,597

1,172,049

60

35,715

1,131,823

51

*G ross income in the Parent company is defined as the sum of Interest income, Leasing income, Dividends, Fee and commission income, Net Financial income and Other income according to SFSA accounting regulations.

Primary segment – Business segment The Business segments are presented on a management reporting basis. The different divisions assist different groups of customers. The customers’ demands decide the type of products that are offered. SEB Merchant Banking ­offer two main groups of products to their customer (large corporates, financial institutions and medium-sized companies) Corporate banking and Investment banking. Nordic Retail & Private Banking offers products mainly to the retail customers (private customers and small corporates). German Retail & Mortgage Banking and Eastern European Banking offer mainly traditional banking products to retail customers. Due to the management view and the regulatory environment the Nordic, German and Baltic retail divisions are shown separately SEB Asset Management offers funds management and SEB Trygg Liv offers life and pensions insurance.

Secondary segment – Geographical segment The split is based on the location of the entity. Transfer pricing The internal transfer pricing objective in the SEB Group is to measure net interest income, to transfer interest risk and to manage liquidity. The internal price is set according to the market price, which is the price paid at the interbank market for a specific interest and liquidity term. The business units do not pay nor receive any margins on funds transferred to and from the Treasury unit. Transactions ­between Business Segments are conducted at arm’s length.

SEB annual report 2006 71

Notes to the financial statements

3

Net interest income Group

Parent company

2006

2005

2006

2005

Loans to credit institutions Loans to the public Interest-bearing securities1) Other interest income

8,548 42,090 11,929 3,570

6,977 35,979 8,697 2,818

12,105 10,959 6,814 2,438

8,189 8,295 4,917 2,037

Interest income2)

66,137

54,471

32,316

23,438

Deposits by credit institutions Deposits and borrowing from the public Interest-bearing securities Subordinated liabilities Other interest costs

–13,313 –18,472 –14,771 –2,111 –3,189

–11,038 –13,832 –11,057 –1,546 –2,716

–12,766 –5,147 –7,151 –2,003 –1,415

–9,695 –3,333 –4,159 –1,474 –672

–51,856

–40,189

–28,482

–19,333

14,281

14,282

3,834

4,105

11,167

8,161

6,424

4,781

56

62

877 –302

780 –284

575

496

Interest expense Total 1) of which, measured at fair value 2) including interest on impaired loans

Net income from leases1) Income from leases Depreciation of leased equipment Total

1) In the group Net income from leases is reclassified to interest income. In the parent company depreciation of leased equipment is reported as Depreciation, amortisation and impairment of tangible and intangible assets.

Net interest income Interest income Income from leases Interest expense Depreciation of leased equipment Total

4

32,316 877 –28,482 –302

23,438 780 –19,333 –284

4,409

4,601

Net fee and commission income Group

Parent company

2006

2005

2006

2005

290 3,300 531 6,184

193 2,599 340 5,010

1,155 785 534 2,159

38 653 308 1,854

10,305

8,142

4,633

2,853

Payments Card fees

1,787 3,730

1,679 3,371

1,123 156

1,072 146

Payment commissions

5,517

5,050

1,279

1,218

Lending Deposits Advisory Guarantees Derivatives Other

946 124 1,742 278 384 849

940 96 1,284 225 306 698

537 67 551 180 280 847

569 67 58 149 260 881

Other commissions

4,323

3,549

2,462

1,984

20,145

16,741

8,374

6,055

–898 –2,150 –951

–583 –1,807 –792

–174 –490 –547

–118 –468 –388

Fee and commission expense

–3,999

–3,182

–1,211

–974

Total

16,146

13,559

7,163

5,081

Issue of securities Secondary market shares Secondary market other Custody and mutual funds Securities commissions

Fee and commission income Securities commissions Payment commissions Other commissions

72 SEB annual report 2006

Notes to the financial statements

5

Net financial income Group

Gains (losses) on financial assets and liabilities held for trading, net Gains (losses) on financial assets and liabilities designated at fair value, net

Parent company

2006

2005

2006

2005

4,098

3,098

3,515

2,558

–62

294

4,036

3,392

3,515

2,558

Equity instruments and related derivatives Debt instruments and related derivatives Currency related

392 1,437 2,269

1,616 –904 2,386

189 1,557 1,769

1,068 –425 1,915

Total

4,098

3,098

3,515

2,558

Equity instruments and related derivatives Debt instruments and related derivatives Currency related

–50 –13 1

4 285 5

Total1)

–62

294

1) of which measured at fair value with valuation techniques based on ­assumptions that are not supported by prices from observable current market transactions in the same instrument and not based observable market data.

–69

25

Total Gains (losses) on financial assets and liabilities held for trading, net

Gains (losses) on financial assets and liabilities designated at fair value, net

Fair value changes in financial assets and financial liabilities within the unit linked insurance business, designated as at fair value through profit or loss offset each other in full.

6

Net life insurance income* Group 2006

2005

Net insurance premium revenue Income investment contracts Investment income net Other insurance income Net insurance expenses

5,642 976 1,507 383 –5,847

5,050 702 9,066 456 –12,922

Total

2,661

2,352

3,896 –1,908 59 –240

3,810 2,534 4,025 229

1,807

10,598

–96 –204

–107 –1,425

1,507

9,066

Claims incurred, net Change in collective bonus provisions Change in other insurance contract provisions

–8,205 –411 2,769

–6,872 –2,208 –3,842

Total

–5,847

–12,922

Other insurance income Direct yield1) Realised result on investments at fair value, net Unrealised result on investments at fair value, net Foreign exchange gains (losses) Expenses for asset management services Policyholders tax Total 1) Net interest income, dividends received and operating surplus from properties

Net insurance expenses

* 2006 the Baltic insurance business is included line by line. In 2005 the total income for the Baltic business, SEK 49m, is ­included in other insurance income.

SEB annual report 2006 73

Notes to the financial statements

7

Net other income Group

Dividends Impairment of financial assets

Parent company

2006

2005

2006

2005

63

76

1,407

1,919

–100

–220 113 9 843 965

7

–26

Investments in associates Gains less losses from investment securities Gains from tangible assets1) Other income

44 1,038

61 272

471

259

496 4 1,608

Total

1,623

642

2,108

Available-for-sale investments Investments in associates Shares in subsidiaries

61

50

21

14

2

26

38

39

1,348

1,866

Total

63

76

1,407

1,919

–26

–100

–220

–100

–220

1) See note 13 for the Group.

Dividends

Impairment of financial assets Impairments Reversals

7

Total

7

–26

VPC BGC Other

–15 56 3

53

Total

44

61

942 168 17

206 67 23

496

113

1,127

296

496

113

Available for sale financial assets – Equity instruments Available for sale financial assets – Debt instuments Loans

–5 –74 –10

–6 –18

Capital losses

–89

–24

1,038

272

496

113

Fair value adjustment in hedge accounting Operating result from non-life insurance, run off Other income

124 7 340

–109 –29 397

6

–20

1,602

863

Total

471

259

1,608

843

–178 82

189 –285

727 –732

272 –281

–96

–96

–5

–9

Fair value changes of the hedging derivatives

11

–13

11

–11

Cash-flow hedges – ineffective portion

11

–13

11

–11

–109

6

–20

Investments in associates1)

8

1) Recognised through the equity method.

Gains less losses from investment securities Available for sale financial assets – Equity instruments Available for sale financial assets – Debt instruments Loans Capital gains

Total Other income

Fair value adjustment in hedge accounting Fair value changes of the hedged items attributable to the hedged risk Fair value changes of the hedging derivatives Fair value hedges – ineffective portion

Fair value changes of the hedged items Fair value changes of the hedging derivatives

–2,218 2,427

Fair value portfolio hedge of interest rate risk – ineffective portion

209

Total

124

74 SEB annual report 2006

Notes to the financial statements

Note 7 ctd. Net other income Fair value hedges The Group hedges a proportion of its existing interest rate risk, in financial assets payments and financial liabilities with fixed interest rates, against changes in fair value due to changes in the interest rates. For this purpose the Group uses interest rate swaps, cross-currency interest rate swaps and in some situations also options. Cash flow hedges The Group uses interest rate swaps to hedge future cash flows from deposits and lending with floating interest rates. Interest flows from deposits and lending with

8

floating interest rates are expected to be amortised in profit or loss during the period 2006 to 2026. Net investment hedges The Group hedges the currency translation risk of net investments in foreign operations through currency borrowings and currency forwards. Borrowing in foreign currency to an amount of SEK 53,350m (53,526) and currency forwards to an amount of SEK 369m (429) was designated as hedges of net investments in foreign operations. No ineffectiveness has been recognised from these hedges.

Administrative expenses Group

Parent company

2006

2005

2006

2005

–14,363 –7,798

–13,342 –8,383

–8,409 –4,664

–6,186 –4,668

–22,161

–21,725

–13,073

–10,854

2006

2005

2006

2005

Salaries and remuneration Payroll overhead Employee stock option programme

–10,246 –2,631 –397

–9,528 –2,409 –187

–5,186 –1,724 –397

–3,836 –1,240 –191

Payroll related costs

–13,274

–12,124

–7,307

–5,267

–345 –396

–284 –274

–741

–558

Staff costs Other expenses Total

9

Staff costs Group

Parent company

Imputed pension costs Pension premiums paid Benefit retirement plans Contribution retirement plans

388 –703

280 –660

Pension related costs

–315

–380

Other staff costs Total

–774

–838

–361

–361

–14,363

–13,342

–8,409

–6,186

Pension costs in the Group are accounted for according to IAS 19, Employee benefits. Pension costs in Skandinaviska Enskilda Banken have been calculated in ­accordance with the directives of the Financial Supervisory Authority, implying an actuarial calculation of imputed pension costs. Non-recurring costs of SEK 327m (SEK 45m) for early retirement have been charged to the pension funds of the Bank.

9 a

Salaries and other remunerations per category Group

2006

Parent company*

Executives1)

Other

Total

Executives1)

Other

Total

Sweden Norway Denmark Finland Estonia Latvia Lithuania Germany Poland Ukraine China Great Britain France Ireland Luxembourg Russia Singapore United States Other2)

–33 –57 –21 –13 –7 –8 –18 –244 –3 –3

–4,547 –937 –721 –260 –212 –195 –240 –1,829 –16 –24 –5 –469 –9 –8 –151 –13 –61 –109 –13

–4,580 –994 –742 –273 –219 –203 –258 –2,073 –19 –27 –5 –470 –9 –9 –160 –14 –61 –117 –13

–17

–3,864 –169 –264 –163

–3,881 –169 –264 –163

–5

–5

–112 –5

–112 –5

–5 –466 –9

–5 –466 –9

–52 –55

–52 –55

Total

–427

–9,819

–10,246

–17

–5,169

–5,186

–1 –1 –9 –1 –8

SEB annual report 2006 75

Notes to the financial statements

Note 9 a ctd. Salaries and other remunerations per category Group

2005

Parent company*

Executives1)

Other

Total

Executives1)

Other

Total

Sweden Norway Denmark Finland Estonia Latvia Lithuania Germany Poland Ukraine China Great Britain France Ireland Luxembourg Russia Singapore United States Other3)

–72 –44 –23 –11 –7 –7 –23 –281 –3 –3

–4,589 –636 –657 –212 –183 –156 –233 –2,008 –10 –21 –1 –476 –12 –7 –161 –3 –53 –98 –12

–16

–3,114 –140 –109 –71

–3,130 –140 –109 –71

–1 –265 –12

–1 –265 –12

–9 –1

–4,517 –592 –634 –201 –176 –149 –210 –1,727 –7 –18 –1 –474 –12 –6 –153 –3 –53 –89 –11

–53 –55

–53 –55

Total

–495

–9,033

–9,528

–16

–3,820

–3,836

–2 –1 –8

1) Comprises current and previous Board members and their substitutes in the parent company and subsidiaries, President in parent company and Managing Directors and Deputy Managing ­Directors in subsidiaries. Total number of Presidents, Managing Directors and Deputy Presidents was 102 (90) of which 15 (14) female. Total number of Board members and their substitutes was 208 (204) of which 47 (44) female. These Board members do not, with the exception of the Board members elected at the AGM in the parent company, receive board remuneration. 2) Other in 2006 includes Switzerland and Brazil. 3) Other in 2005 includes Spain, Switzerland and Brazil. * SEB IT and Enskilda Securities merged with the parent company in 2006.

Loans to Executives Group

Parent company

2006

2005

2006

Managing Directors and Deputy Managing Directors1) Boards of Directors2)

114 178

85 180

2005

25

14

Total

292

265

25

14

1) Comprises of current President in the parent company and Managing Directors and Deputy Managing Directors in subsidiaries. Total number of executives was 102 (90) of which female 15 (14). 2) Comprises of current Board members and their substitutes in the parent company and subsidiaries. Total number of persons was 208 (204) of which female 47 (44).

Pension commitments to Executives Group

Pension disbursements made Change in commitments Commitments at year-end

Parent company

2006

2005

2006

2005

80 51 1,589

78 61 1,587

18 9 741

36 13 709

The above commitments are covered by the Bank’s pension funds or through Bank-owned endowment assurance schemes. Includes active and retired Presidents and Deputy Presidents in the parent company and Managing Directors and Deputy Managing Directors in subsidiaries, in total 116 (119) persons.

76 SEB annual report 2006

Notes to the financial statements

9 b

Retirement benefit obligations

Defined benefit plans in SEB Group Net amount recognised in the Balance sheet Defined benefit obligation at the beginning of the year Acquisitions and reclassification Service costs Interest costs Benefits paid Exchange differences Unrecognised actuarial gains/losses Defined benefit obligation at the end of the year Fair value of plan assets at the beginning of the year Acquisitions and reclassification Calculated return on plan assets Benefits paid Exchange differences Unrecognised actuarial gains/losses Fair value of plan assets at the end of the year Funded status Unrecognised actuarial gains/losses on liabilities Unrecognised actuarial gains/losses on assets Exchange differences Net amount recognised in the Balance sheet of which recognised as assets of which recognised as liabilities

2006

2005

Sweden1)

Foreign1)

Group1)

Sweden1)

Foreign1)

Group1)

13,233

18,191 16 406 688 –922 –184 1,133

11,341

1,009

4,958 16 110 205 –213 –184 124

1,926

4,125 79 80 211 –192 170 485

15,466 79 286 705 –926 170 2,411

14,312

5,016

19,328

13,233

4,958

18,191

16,533

4,193

20,726

13,836

1,240 –709

1,503 –539 –158 519

1,038 –732

515

263 170 –158 4

2,391

3,817 83 234 –190 157 92

17,653 83 1,272 –922 157 2,483

17,579

4,472

22,051

16,533

4,193

20,726

3,267

–544

2,723

3,300

–765

2,535

3,914

856

4,770

2,911

747

3,658

–3,285

–114 –6

–3,399 –6

–2,770

–110 10

–2,880 10

3,896 3,908 12

192 238 46

4,088 4,146 58

3,441 3,468 27

–118 118

3,323 3,468 145

3,441

–118 16 –67 213 170 –20

3,321 16 388 922 –539 –20

3,102

64 –4 57 –192 190 3

3,038 4 280 926 –922 –3

192

4,088

3,441

118

3,323

296 483 –709

206 494 –734

Movements in the net assets or net liabilities Defined benefit obligation at the beginning of the year Acquisitions and reclassification Total expense as below Pension paid Pension compensation Exchange differences Amounts recognised in Balance sheet

455 709 –709 3,896

337 734 –732

The actual return on plan assets was SEK 1,755m (3,429) in Sweden and SEK 267m (326) in foreign plans. The allocation of total plan assets in Sweden is 65 per cent (62) shares, 16 (17) interest-bearing and 19 (21) hedgefunds, in foreign plans 25 (22) shares and 75 (78) interest-bearing. The pension plan assets include SEB shares with a fair value of SEK 1,092m (1,355) and buildings occupied by the company with a value of SEK 792m (792). Amounts recognised in the Profit and loss Service costs Interest costs Return on plan assets Actuarial gains/losses Total included in staff costs

–296 –483 1,240 –6

–110 –205 263 –15

–406 –688 1,503 –21

–206 –494 1,038 –1

–80 –211 234

–286 –705 1,272 –1

455

–67

388

337

–57

280

3.8% 2.0% 3.5%

4.3% 1.5% 2.3%

4.5% 2.0% 3.5%

5.0% 1.5% 2.5%

3.0% 7.5%

6.0%

3.0% 7.5%

6.0%

Principal actuarial assumptions used, % Discount rate Inflation rate Expected rate of salary increase Expected rate of increase in the income basis amount Expected rate of return on plan assets

1) Defined benefit obligations and plan assets are disclosed gross in the table. There exist no legal right to offset obligations and assets between entities in the Group but in the Balance sheet the net amount is recognised for each entity either as an asset or liability.

Defined contribution plans in SEB Group Net amount recognised in the Profit and loss Expense in Staff costs

2006

2005

Sweden

Foreign

Group

Sweden

Foreign

Group

–467

–236

–703

–418

–242

–660

SEB annual report 2006 77

Notes to the financial statements

Note 9 b ctd. Retirement benefit obligations DEFINED BENEFIT PLANS IN SK ANDINAVISK A ENSKILDA BANKEN Parent company

Net amount recognised in the Balance sheet

2006

2005

Defined benefit obligation at the beginning of the year Imputed pensions costs Interest costs and other changes Early retirement Pension disbursements

10,275 345 964 327 –707

10,289 284 383 45 –726

Defined benefit obligation at the end of the year

11,204

10,275

Fair value of plan assets at the beginning of the year Return in pension foundations Benefits paid

15,767 2,283 –707

13,171 3,322 –726

Fair value of plan assets at the end of the year

17,343

15,767

The above defined benefit obligation is calculated according to Tryggandelagen. The obligation is fully covered by assets in pension foundations and is not included in the balance sheet. The assets in the foundations are mainly equity related SEK 11,383m (10,025) and to a smaller extent interest related SEK 2,674m (2,594). The assets include SEB shares of SEK 1,085m (1,338) and buildings occupied by the company of SEK 792m (792). The return on assets was 11 per cent (25) before pension compensation. Amounts recognised in the Profit and loss Imputed pension costs

–345

–284

Total included in staff costs

–345

–284

Recovery of imputed pension costs Pension disbursements Compensation from pension foundations

345 –707 707

284 –726 726

Total included in appropriations

345

284

3.0% 2.5%

3.5 % 3.0 %

Net pension costs for defined benefit plans

Principal actuarial assumptions used, % Gross interest rate Interest rate after tax The actuarial calculations are based on salaries and pensions on the balance sheet date. DEFINED CONTRIBUTION PLANS IN SKANDINAVISKA ENSKILDA BANKEN Parent company

Net amount recognised in the Profit and loss

2006

2005

Expense in Staff costs

–396

–274

Pension foundations Pension commitments 2006

2005

SB-Stiftelsen, Skandinaviska Enskilda Bankens Pensionstiftelse1) SEB-Stiftelsen, Skandinaviska Enskilda Bankens Pensionsstiftelse1) SEB Kort AB:s Pensionsstiftelse SEB IT AB:s Pensionsstiftelse1) Total

Market value of asset 2006

2005

11,204 235

4,926 5,349 206 539

17,343 236

6,758 9,009 216 550

11,439

11,020

17,579

16,533

1) SB-Stiftelsen, Skandinaviska Enskilda Bankens Pensionstiftelse and SEB IT AB:s Pensionsstiftelse were merged with EB-Stiftelsen, Skandinaviska Enskilda Bankens Pensionstiftelse during 2006. At the same time the name was changed to SEB-Stiftelsen, Skandinaviska Enskilda Bankens Pensionstiftelse.

Retirement benefit obligations The Group has established pension schemes in the countries where business is performed. There are both defined benefit plans and defined contribution plans. The major pension schemes are final salary defined benefit plans and are funded. The defined contribution plans follow the local regulations in each country. Defined benefit plans The major defined benefit plans exist in Sweden and Germany and covers substantially all employees in these countries. Independent actuarial calculations ­according to the Projected Credit Unit Method (PUCM) are performed each year as per 31 December to decide the value of the defined benefit obligation. The benefits covered include retirement benefits, disability, death and survivor pen­ sions according to the respective countries collective agreements. The plan assets are kept separate in specific pension foundations. The assets 78 SEB annual report 2006

are market valued each year at the same date as the obligation. The asset allocation is determined to meet the various risk in the pension obligations and are decided by the board/trustees in the pension funds. The pension costs and the return on plan assets are accounted for among Staff costs. Defined contribution plans Defined contribution plans exist both in Sweden and abroad. In Sweden a smaller part of the retirement collective agreement is defined contribution plans. Over a certain salary level the employees can also choose to leave the defined benefit plan and replace it by a defined contribution plan. Most other countries have full defined contribution plans except for the Baltic countries where the company to a very limited extent contribute to the employees retirement. The defined contribution plans are accounted for as an expense among Staff costs.

Notes to the financial statements

9 c

Compensation to the top management and the Group Executive Committee

Compensation to the top mangement, SEK 2006

Variable salaries

Base salary

Chairman of the Board, Marcus Wallenberg Other members of the Board President, Annika Falkengren

Remunerations1)

Benefits 2)

Total

630,540

2,600,000 5,470,000 9,996,819

8,070,000

630,540

18,066,819

1,775,000 4,275,000

12,659 68,148 209,143

1,787,659 4,275,000 2,052,878 8,663,543

289,950

16,779,080

2,600,000 5,470,000

Total

6,587,529

2,778,750

6,587,529

2,778,750

2005 Chairman of the Board, Marcus Wallenberg Other members of the Board President, Annika Falkengren (10 November–31 December) President, Lars H Thunell (1 January–9 November) Total

1,068,063 5,554,400

916,667 2,900,000

6,622,463

3,816,667

6,050,000

1) As decided at AGM. 2) Includes benefits for homeservice and company car.

The principles for compensation of the President and the other members of the Group Executive Committee were prepared by the Board and the Remuneration and Human Resources Committee of the Board and approved by the Annual ­General Meeting 2006. For more information, see page 51. Short Term Incentive Short term incentive for the Group Executive Committee are based on Group and divisional financial criteria, such as operating result, costs and other varying quantitative criteria. In addition to that there are individual qualitative criteria measured discretionary. All short term incentives to the Group Executive Com­ mittee members are maximised to a percentage of base salary. Long Term Incentive programme From 1999 to 2004, employee stock options have been used as the vehicle for SEB’s long term incentive programmes. For 2005, the Annual General Meeting decided on a programme with a new performance based structure based on ­performance shares. For more information, see note 9d on page 80.­ Performance shares and employee stock options cannot be sold nor pledged, which means that they do not have any market value. However, the calculated ­value for the 2006 programme at the time of the allotment was SEK 65 per performance share. The calculated value for allotted performance shares to the President is SEK 2,849,990 (1,832,318) and to the GEC excluding the President SEK 10,255,765 (10,428,200). The allotted performance shares that can be exercised

will depend on two predetermined performance criteria, the real increase in earnings per share, 50 per cent, and the total shareholder return compared to SEB´s competitors, 50 per cent. Pension and severance pay Under the pension agreement of the President, Mrs Falkengren, pension is payable from the age of 60. The pension plan is defined benefit-based and inviolable. Pension is paid at the rate of 65 per cent of the pensionable income. Pensionable income consists of base salary plus 50 per cent of the average variable salary during the last three years, however limited to a maximum amount. Termination of employment by the Bank is subject to a 12-month period of notice and entitles to a severance pay of 12 months’ salary. As regards pension benefits and severance pay the following is applicable to the members of the Group Executive Committee excluding the President. The pension plans are inviolable and defined benefit-based except for one that is ­de­fined contribution-based. Pension is payable from the age of 60 at the rate of maximum 70 per cent of pensionable income up to the age of 65 and at maximum 65 per cent thereafter. Pensionable income consists of base salary plus 50 per cent of the average variable salary during the last three years. Termination of employment by the Bank is subject to a maximum 12-month ­period of notice and entitles to a severance pay of maximum 24 months’ salary. The Bank has the right to make deductions from such severance pay of any cash payments that the Executive may receive from another employer or through his/her own business.

Compensation to the Group Executive Committe, SEK1)

2006 2005

Base salary

Variable salaries

24,530,107 23,632,355

16,152,859 19,150,333

Benefits

Total

2,201,993 42,884,959 1,370,168 44,152,856

1) Excluding the President. The number and persons partly differ between the years.

Pension costs (service costs and interest costs) President, President, Annika Falkengren Lars H Thunell

2006 2005

4,091,930 531,007

5,060,439

GEC1)

Total

15,426,555 14,067,058

19,518,485 19,658,504

1) Group Executive Committee excluding the President. The number and persons partly differ between the years.

Outstanding number of Employee stock options/Performance shares to the President and the Group Executive Committtee 2006 President

2005 GEC1)

Total

President

GEC1)

Total

103,333 301,919 480,662 437,838 512,112 247,400 2,083,264

2000: Employee stock options 2001: Employee stock options 2002: Employee stock options 2003: Employee stock options 2004: Employee stock options 2005: Performance shares 2006: Performance shares

79,412 191,177 132,353 132,353 62,000 43,846

124,001 164,720 216,220 322,877 161,100 157,781

203,413 355,897 348,573 455,230 223,100 201,627

79,412 191,177 132,353 132,353 62,000

103,333 222,507 289,485 305,485 379,759 185,400

Total

641,141

1,146,699

1,787,840

597,295

1,485,969

1) Group Executive Committee excluding the President. The number and persons partly differ between the years.

SEB annual report 2006 79

Notes to the financial statements

Note 9 c ctd. Compensation to the top management and the Group Executive Committee Related party disclosures* Group

Loans to conditions on the market

2006

2005

Top management and the Group Executive Committee Other related parties

41,234,852 2,208,218

27,246,248 4,380,984

Total

43,442,800

31,627,232

* For information about related parties such as Group companies and Associated companies see note 47.

9 d

Share-based payments 2006

Employee stock options/Performance shares

LTI

Outstanding at the beginning of the year Granted Forfeited Exercised

1,781,400 1,477,327 –141,048

Outstanding at the end of the year of which exercisable

3,117,679

2005 Programmes 1999–2004

LTI

21,137,906

Programmes 1999–2004 27,624,223

1,789,100 –7,700

–343,6731) –7,975,0442) 12,819,189 7,224,509

1,781,400

–466 1801) –6 020 1372) 21,137,906 9,510,911

1) Weighted average exercise price SEK 83.82 (107.07). 2) Weighted average exercise price SEK 97.30 (104.23) and weighted average share price at exercise SEK 185.70 (137.91).

Total Long-term incentive programme

1999: Employee stock options 2000: Employee stock options 2001: Employee stock options 2002: Employee stock options 2003: Employee stock options 2004: Employee stock options 2005: Performance shares 2006: Performance shares Total

No of out­ standing 2006

Original no of holders 3)

No of issued

12 368 874 1,029 792 799 537 513

953,997 4,816,456 6,613,791 6,790,613 6,200,000 6,200,000 1,789,100 1,477,327

254,554 1,858,166 2,306,220 2,805,569 5,594,680 1,684,534 1,433,145

34,841,284

15,936,868

No of out­ A-share per standing 2005 option/share

85,000 1,587,397 3,651,776 4,186,738 5,778,883 5,848,112 1,781,400

1.121) 1 1 1 1 1 1 1

Exercise price

Validity

First date of exercise

82.41) 91.5 118 106.2 81.3 120 10 10

1990–2006 2000–2007 2001–2008 2002–2009 2003–2010 2004–2011 2005–2012 2006–2013

02-02-15 03-03-01 04-03-05 05-03-07 06-02-27 07-04-02 20082) 20092)

22,919,306

1) After recalculation for SEB’s rights issue in 1999. 2) The fifth banking day falling after the Annual accounts for the financial year 2007 and 2008 respectively are made public. 3) In total 1,624 individuals have participated in all programmes.

Long-term incentive programme The first long-term incentive programme was installed in 1999 in the form of an employee stock option programme. Further employee stock option programmes have been issued for 2000–2004. All programmes have a maximum term of ­seven years, a vesting period of three years and are settled with SEB Series A shares. The 1999 programme matured in 2006. According to the terms and conditions for the year 2004 programme, the value of each option for the option holders is limited to SEK 100. The Bank shall prematurely terminate the programme if the market price (based on the closing listed price on the Nordic Exchange) for the SEB class A-shares during the exercise period (2 April–1 April 2011) is equal to or above the limit market price of SEK 220. At premature termination the holders are entitled to purchase a recalculated number of shares for the price SEK 120 per share. The Long Term Incentive programmes issued during 2005 and 2006 have a new performance based structure compared with the programmes from 1999–2004. These programmes are based on performance shares The maximum term and vesting are the same but the allotted performance shares that can be exercised will depend on two predetermined performance criteria, the real increase in earnings per

9 e

share, 50 per cent, and the total shareholder return compared to SEB’s competitors, 50 per cent. After the vesting period the performance share holder is compensated for the dividend by recalculating the number of A-shares that the performance share entitles on an annual basis during the exercise period after the Annual General Meeting has been held each year. Performance shares are not securities that can be sold, pledged or transferred to another party. However, an estimated value per performance share has been calculated for 2006 to SEK 65 (46) (based upon closing price of one SEB Series A share at grant). Other inputs to the options pricing model are; exercise price SEK 10 (10); volatility 33 (36) (based on historical values); expected dividend approximately 3.25 (3.50) per cent; risk free interest rate 3.16 (3,17) and expected early exercise termination of employment of 3 (3) per cent per annum. In the value of the option the expected outcome of earnings per share and total shareholders return compared to SEB’s competitors are taken into account, meaning that 40 per cent of the performance shares are expected to be vested. Since earnings per share is a non-market condition, changes to the expected outcome under the vesting period, if any, influence the costs accounted for under that period. Further details of the outstanding programmes are found in the table above.

Sick leave rate

Sick leave rate by gender and age group in parent company, % Long term sick leave

Total sick leave

2006

Men

Women

Total

Men

Women

Total

–29 years 30–49 years 50– years

0.0 0.9 2.2

1.0 3.2 5.0

0.6 2.1 3.6

1.5 2.2 3.6

3.4 5.2 7.3

2.5 3.7 5.5

Total

1.3

3.5

2.4

2.5

5.6

4.1

–29 years 30–49 years 50– years

0.1 0.9 2.5

1.6 3.8 5.4

1.0 2.5 4.1

1.7 2.1 3.8

3.8 5.8 7.6

2.9 4.2 6.0

Total

1.2

4.1

2.8

2.5

6.2

4.6

2005

80 SEB annual report 2006

Notes to the financial statements

9 f

Number of employees

Average number of full time equivalents Group

Division SEB Merchant Banking Nordic Retail & Private Banking German Retail & Mortgage Banking Eastern European Banking SEB Asset Management SEB Trygg Liv Shared Services och IT Staff units Total

Parent company*

2006

2005

2006

2005

3,188 4,730 2,918 5,278 580 1,051 1,563 364

3,392 4,657 2,969 4,787 450 1,089 1,328 276

2,356 3,589

2,326 3,649

11 187 4 1,536 363

9 224 4 212 275

19,672

18,948

8,046

6,699

13,913,143

11,687,075

Number of hours worked Average number of employees Group

2006

Parent company*

Men

Women

Total

Men

Women

Total

Sweden Norway Denmark Finland Estonia Latvia Lithuania Germany Poland Ukraine China Great Britain France Ireland Luxembourg Russia Singapore United States Other1)

4,239 290 432 147 387 445 512 1,874 26 151 5 130 6 7 106 20 36 43 9

4,976 252 383 166 1,265 1,128 1,221 1,831 16 246 5 82 15 11 101 57 49 16 4

9,215 542 815 313 1,652 1,573 1,733 3,705 42 397 10 212 21 18 207 77 85 59 13

3,190 89 95 59

3,983 49 57 56

7,173 138 152 115

20

32

52

58 5

11 5

69 10

5 111 4

5 70 14

10 181 18

2 29

48

2 77

2

1

3

Total

8,865

11,824

20,689

3,669

4,331

8,000

Sweden Norway Denmark Finland Estonia Latvia Lithuania Germany Poland Ukraine China Great Britain France Ireland Luxembourg Russia Singapore United States Other2)

4,222 279 427 145 382 417 471 1,852 18 82 2 132 6 7 95 2 34 43 9

5,083 203 388 158 1,152 967 1,076 1,810 13 142 2 77 18 9 84

2,809 87 70 46

3,876 46 45 47

6,685 133 115 93

2 100 4

2 61 15

4 161 19

46 15 4

9,305 482 815 303 1,534 1,384 1,547 3,662 31 224 4 209 24 16 179 2 80 58 13

2 34

46

2 80

1

1

2

Total

8,625

11,247

19,872

3,155

4,139

7,294

2005

1) 2006: Switzerland and Brazil. 2) 2005: Spain, Switzerland and Brazil. * SEB IT and Enskilda Securities merged with the Parent company in 2006.

SEB annual report 2006 81

Notes to the financial statements

10

Other expenses Group

Parent company

2006

2005

2006

2005

Costs for premises1) Data costs Stationery Travel and entertainment Postage and telecommunications Consultants Marketing Information services Other operating costs

–1,572 –1,848 –186 –503 –440 –678 –784 –319 –1,468

–2,510 –1,703 –176 –469 –442 –655 –650 –336 –1,442

–896 –1,611 –22 –278 –233 –433 –340 –231 –620

–1,452 –1,600 –139 –205 –166 –334 –255 –155 –362

Total

–7,798

–8,383

–4,664

–4,668

–1,269

–1,775

–639

–1,180

PricewaterhouseCoopers BDO

–46 –3

–46 –2

–10 –1

–8 –1

Audit assignments

–49

–48

–11

–9

1) Of which rental costs

Fees and expense allowances to appointed auditors and audit firms1) 2)

PricewaterhouseCoopers

–10

–13

–1

–2

Other assignments

–10

–13

–1

–2

Total

–59

–61

–12

–11

1) The audit has been performed in a mutual process with the internal audit team of SEB. The cost for internal audit is SEK 121m (110). 2) The parent company includes the foreign branches.

11

Net deferred acquisition costs Group

Capitalisation of brokerage commissions Capitalisation of staff costs Amortisation of deferred acquisition costs Total

12

2006

2005

654 257 –404

465 339 –327

507

477

Depreciation, amortisation and impairments of tangible and intangible assets Group

Parent company

2006

2005

2006

2005

Depreciation tangible assets Amortisation intangible assets Impairment tangible assets Impairment goodwill

–689 –191 –3

–730 –159 –10 –2

–382 –17

–334 –2

Total

–883

–901

–399

–336

Office equipment is depreciated according to plan, which specifies that personal computers and similar equipment are depreciated over three years and other office equipment over five years. Properties are depreciated according to plan.

82 SEB annual report 2006

Notes to the financial statements

13

Gains less losses from tangible and intangible assets Group

Parent company

2006

2005

2006

2005

Properties Other tangible assets

92 5

61 11

3 1

8 1

Capital gains

97

72

4

9

Properties Other tangible assets

–18 –9

–3 –10

Capital losses

–27

–13

70

59

4

9

2006

2005

2006

2005

Net credit losses Change in value of seized assets

–703 –15

–900 –14

–134

–79 –9

Total

–718

–914

–134

–88

Provisions: Net collective provisions Specific provisions Reversal of specific provisions no longer required Net provisions for contingent liabilities

–108 –888 544 31

403 –1,286 438 –6

–138 –46 36

114 –191 53 5

Net provisions

–421

–451

–148

–19

–1,308 704

–1,532 756

–265 182

–217 93

Write-offs not previously provided for Recovered from previous write-offs

–604 322

–776 327

–83 97

–124 64

Net write-offs

–282

–449

14

–60

Total

–703

–900

–134

–79

Properties taken over Other assets taken over

4

2 –3

Realised change in value

4

–1

Properties taken over Other assets taken over

–14 –5

–5 –8

–1 –8

Unrealised change in value

–19

–13

–9

Total

–15

–14

–9

Total

14

Net credit losses incl changes in value of seized assets Group

Parent company

Net credit losses (Impairments)

Write-offs: Total write-offs Reversal of specific provisions utilized for write-offs

Change in value of seized assets

SEB annual report 2006 83

Notes to the financial statements

15

Appropriations Parent company 2006

2005

Recovery of imputed pension premiums Compensation from pension funds, pension disbursements Pension disbursements

345 708 –710

284 726 –726

Pension compensation

343

284

Appropriations to/utilisation of untaxed reserves Accelerated tax depreciation

–688

–1,342

Appropriations

–688

–1,342

Total

–345

–1,058

16

Income tax expense Group

Major components of tax expense

Parent company

2006

2005

2006

2005

Current tax Deferred tax

–2,342 –1,234

–2,132 –610

–667 –491

–630 367

Tax for current year Current tax for previous years

–3,576 637

–2,742 –28

–1,158 467

–263 –30

–2,939

–2,770

–691

–293

12,623

4,162

2,559

2,939

8,421 32 2,770

691

293

15,562

11,223

4,853

2,852

Current tax at Swedish statutory rate of 28 per cent Tax effect relating to other tax rates in other jurisdictions Tax effect relating to not tax deductible expenses Tax effect relating to non taxable income Tax effect relating to a previously recognised tax loss, tax credit or temporary difference Tax effect relating to a previously unrecognised tax loss, tax credit or temporary difference

–4,357 –47 –475 1,072

–3,142 36 –177 823

–1,356

–799

–546 672

–157 701

1,390

264

563

–375

75

64

Current tax

–2,342

–2,132

–667

–630

–1,390

–256

–491

367

–11

–3

158

–337

Income tax expense

Relationship between tax expenses and accounting profit Net profit Discontinued operations Income tax expense Accounting profit before tax

Tax effect relating to origin and reversal of tax losses, tax credits and temporary differences Tax effect relating to changes in tax rates or the imposition of new taxes Tax effect relating to a previously unrecognised tax loss, tax credit or temporary difference Tax effect relating to impairment or reversal of previous ­impairments of a deferred tax asset Deferred tax Current tax for previous years Income tax expense

9

–14

–1,234

–610

–491

367

637

–28

467

–30

–2,939

–2,770

–691

–293

–491

388 –21

–491

367

See also note 28 for current and deferred tax assets and note 34 for current and deferred tax liabilities.

Deferred tax income and expense recognised in income statement Accelerated tax depreciation Unrealised profits in financial assets at fair value Other temporary differences Total 1) For SEB Group the effect is included in other temporary differences in 2005.

84 SEB annual report 2006

–332 –662 –240

–467

–1,234

–610

–143

Notes to the financial statements

17

Earnings per share Group 2006

2005

Net profit attributable to equity holders, SEKm Weighted average number of shares, millions Basic earnings per share, SEK

12,605 673 18.72

8,401 668 12.58

Net profit attributable to equity holders, SEKm Weighted average number of diluted shares, millions Diluted earnings per share, SEK

12,605 680 18.53

8,401 674 12.47

Net profit from continuing operations attributable to equity holders, SEKm Weighted average number of shares, millions Basic earnings per share from continuing operations, SEK

12,605 673 18.72

8,433 668 12.63

Net profit from continuing operations attributable to equity holders, SEKm Weighted average number of diluted shares, millions Diluted earnings per share from continuing operations, SEK

12,605 680 18.53

8,433 674 12.52

The dividend paid 2006 was SEK 4.75 per share.

18

Risk disclosures

Disclosures about risks and the management of risks is found under the section Risk and Capital Management (page 38–44 of the Report of the directors), which also form part of the financial statements.

19

Cash and cash balances with central banks Group

Cash Balances with foreign Central Banks Total

Parent company

2006

2005

2006

2005

4,184 7,130

4,013 23,532

1,430 398

1,549 4,488

11,314

27,545

1,828

6,037

SEB annual report 2006 85

Notes to the financial statements

20

Loans to credit institutions Group

Remaining maturity – payable on demand – maximum 3 months – more than 3 months but maximum 1 year – more than 1 year but maximum 5 years – more than 5 years Total of which repos Average remaining maturity (years)

21

Parent company

2006

2005

2006

2005

62,437 88,317 5,773 15,196 7,616

43,251 79,049 20,735 20,454 14,103

87,366 102,177 15,626 143,242 12,317

76,629 119,791 30,362 99,798 4,871

179,339 82,867

177,592 71,676

360,728 77,281

331,451 52,535

0.76

1.27

1.60

1.15

2006

2005

2006

2005

152,061 199,393 94,501 257,114 243,574

154,055 159,420 89,974 262,512 235,300

55,048 111,843 27,138 89,932 49,168

39,956 96,419 28,663 85,352 41,471

946,643 112,425

901,261 85,278

333,129 112,210

291,861 85,210

3.48

3.57

2.38

2.40

62,761 77,728 63,673 14,967 –105

57,771 71,544 56,966 13,773 –70

Loans to the public Group

Remaining maturity – payable on demand – maximum 3 months – more than 3 months but maximum 1 year – more than 1 year but maximum 5 years – more than 5 years Total of which repos Average remaining maturity (years)

Parent company

Financial leases Book value Gross investment Present value of minimum lease payment receivables Unearned finance income Reserve for impaired uncollectable minimum lease payments

Group, 2006

Group, 2005

Book value

Gross investment

Present value

Book value

Gross investment

Present value

Remaining maturity – maximum 1 year – more than 1 year but maximum 5 years – more than 5 years

5,678 29,455 27,628

6,784 35,353 35,591

5,712 29,854 28,107

4,467 29,714 23,590

5,345 35,606 30,593

4,367 29,269 23,330

Total

62,761

77,728

63,673

57,771

71,544

56,966

The largest lease engagement amounts to 5.5 billion SEK (5.6).

86 SEB annual report 2006

Notes to the financial statements

22

Financial assets at fair value Group

Parent company

2006

2005

2006

2005

Securities held for trading Derivatives held for trading Derivatives used for hedging Fair value changes of hedged items in a portfolio hedge Financial assets – policyholders bearing the risk Insurance assets designated at fair value Other financial assets designated at fair value

340,879 65,212 2,660 283 120,524 79,942 1,445

286,243 115,768 2,998 2,810 96,148 88,711 928

285,313 63,001 1,290

247,291 112,441 2,365

160

139

Financial assets at fair value

610,945

593,606

349,764

362,236

The category Financial assets at fair value comprises of financial instruments either classified as held for trading or financial assets designated to this category upon initial recognition. These financial assets are recognised at fair value and the value change is recognised through profit and loss. Securities held for trading Equity instruments Eligible debt instruments1) Other debt instruments1)

31,637 108,900 200,342

38,200 74,818 173,225

22,634 51,424 211,255

28,144 28,425 190,722

Total

340,879

286,243

285,313

247,291

Positive replacement values of interest-related derivatives Positive replacement values of currency-related derivatives Positive replacement values of equity-related derivatives

38,634 25,053 1,525

77,149 34,896 3,723

37,399 24,187 1,415

75,469 34,240 2,732

Total

65,212

115,768

63,001

112,441

Fair value hedges Cash flow hedges Portfolio hedges for interest rate risk

1,506 413 741

1,658 1,219 121

877 413

1,146 1,219

Total

2,660

2,998

1,290

2,365

18,010 61,932

21,685 67,026

79,942

88,711

704 42 699

569

160

139

1,445

928

160

139

1) See note 41 for maturity and note 42 for issuers.

Derivatives held for trading

Derivatives used for hedging

Insurance assets designated at fair value Equity instruments Other debt instruments1) Total 1) See note 41 for maturity and note 42 for issuers.

Other financial assets designated at fair value Equity instruments Eligible debt instruments1) Other debt instruments1) Total

359

1) See note 41 for maturity and note 42 for issuers.

To significantly eliminate inconsistency in measurement and accounting the Group has chosen to designate financial assets and financial liabilities, which the unit linked insurance business give rise to, at fair value through profit or loss. This implies that changes in fair value on those investment assets (preferably funds), where the policy-holder bear the risk and the corresponding liabilities are recognised in profit or loss. Fair value on those assets and liabilities are set by quoted market price in an active market. The fair values on those liabilities, designated at fair value to profit or loss, have not been affected by changes in credit risk. See also note 31.

SEB annual report 2006 87

Notes to the financial statements

23

Available-for-sale financial assets Group 2005

2006

2005

439 1,838 84,085 29,078 42

999 1,154 73,535 17,531 46

439 879 5,907 14,818 14

377 818 3,592 14,273 14

115,482

93,265

22,057

19,074

Equity instruments at cost Equity instruments at fair value Eligible debt instruments1) Other debt instruments1) Seized shares Total

Parent company

2006

1) See note 41 for maturity and note 42 for issuers.

Equity instruments measured at cost do not have a quoted market price in an active market. Further, it has not been possible to reliably measure the fair values of those equity instruments. Most of these investments are held for strategic reasons and are not intended to be sold in the near future.

24

Held-to-maturity investments Group 2006

Eligible debt instruments1) Other debt instruments1) Total

Parent company 2005

2006

2005

1 2,207

16,502

3,820

3,483

2,208

16,502

3,820

3,483

2006

2005

2006

2005

395 690

398 820

369 690

365 795

1,085

1,218

1,059

1,160

1) See note 41 for maturity and note 42 for issuers.



25

Investments in associates Group

Strategic investments Venture capital holdings Total

Strategic investments Bankomatcentralen AB, Stockholm Bankpension AB, Stockholm BDB Bankernas Depå AB, Stockholm BGC holding AB, Stockholm Föreningen Bankhälsan i Stockholm, Stockholm Haugerud Regnskap A/S, Honefoss IBX Integrated Business Exchange, Stockholm Information Mosaic Ltd, Dublin Privatgirot AB, Stockholm SSI Search Ltd, Sutton Upplysningscentralen UC AB, Stockholm VPC Holding AB, Stockholm Parent company holdings Holdings of subsidiaries Group holdings

88 SEB annual report 2006

Assets

Liabilities

Parent company

Revenues

Profit or loss

409

139

861

162

58 259 26 57 141 110 1,595

34 81 125 37 134 42 189

70 251 69 124 4 251 712

4 4 –31 1 19 –50

Book value

Ownership, %

0 4 4 4 4 16 66 48 0 17 0 206

22 40 20 33 33 49 22 20 24 50 27 25

369 26 395

Notes to the financial statements

Note 25 ctd. Investments in associates 2006

Venture capital holdings

2005

Book value

Ownership, %

Book value

Ownership, %

3nine AB, Stockholm Ascade Holding AB, Stockholm Askembla Growth Fund KB, Stockholm Capres A/S, Copenhagen Cobolt AB, Stockholm Crossroad Loyalty Solutions AB, Gothenburg Datainnovation i Lund AB, Lund Emers Holdings AB, Huddinge Fält Communications AB, Kalix InDex Diagnostics AB, Stockholm InDex Pharmaceuticals AB, Stockholm Interpeak AB, Stockholm Kreatel Communication AB, Linköping LightUp Technologies AB, Huddinge Matrix AB, Stockholm Neoventa Medical AB, Gothenburg Novator AB, Stockholm NuEvolution A/S, Gothenburg Oligovation AB, Uppsala (former Quiatech) PhaseIn AB, Stockholm Prodacapo AB, Örnsköldsvik ProstaLund AB, Lund Sanos Bioscience A/S, Herlev SBL Holding AB, Solna Scandinova Systems AB, Uppsala Scibase AB, Stockholm Tail-f Systems AB, Stockholm Time Care AB, Stockholm XCounter AB, Danderyd Zealcore Embedded Solutions, Västerås

19 46 115 18 37 13 18 39 23 23 15

27 41 25 22 40 30 39 19 46 25 45

17 31 95 19 26 13 11

25 35 25 22 34 30 28

23

46

16 45

47 33

34 34 16 65 34

46 35 42 16 31 28

16 22 17 21

26 27 32 38

20 19 58 34 12 50 49 43 23 29 26 42 31 14 13 15 17 21 44

17 27 32 33 40 39 48 25 34 41 16 13 28 39 26 32 30 38 10

4

16

Parent company holdings

690

Group adjustments Group holdings

795 25

690

820

Information about the corporate registration numbers and numbers of shares of the associates is available upon request.

Strategic investments in associates are in the Group accounted for using the ­equity method. Investments in associates held by the venture capital organisation of the Group have in accordance with IAS 28 been designated as at fair value through profit or loss. Therefore, are these holdings accounted for under IAS 39. Some entities where the bank has an ownership of less than 20 per cent, has been classified as investments in associates. The reason is that the bank is represented in the board of directors and participating in the policy making processes of those entities.

All financial assets within the Group’s venture capital business are managed and its performance is evaluated on a fair value basis in accordance with documented risk management and investment strategies. Fair values for investments listed in an active market are based on quoted market prices. If the market for a financial instrument is not active, fair value is established by using valuation techniques based on discounted cash flow analysis, valuation with reference to financial instruments that is substantially the same, and valuation with reference to observable market transactions in the same financial instrument.

SEB annual report 2006 89

Notes to the financial statements

26

Shares in subsidiaries Parent company

Swedish subsidiaries Foreign subsidiaries Total of which holdings in credit institutions

2006

2005

25,696 29,610

27,032 30,349

55,306

57,381

40,655

42,096

2006

Swedish subsidiaries Aktiv Placering AB, Stockholm Enskilda Juridik AB, Stockholm Enskilda Kapitalförvaltning SEB AB, Stockholm Enskilda Securities AB, Stockholm Försäkringsaktiebolaget Skandinaviska Enskilda Captive, Stockholm Repono Holding AB, Stockholm SEB AB, Stockholm SEB Baltic Holding AB, Stockholm SEB BoLån AB, Stockholm SEB Fastigheter Region Väst AB, Stockholm SEB Fastighetsservice AB, Stockholm SEB Finans Holding AB, Stockholm SEB Finans AB, Stockholm SEB Fonder AB, Stockholm SEB Förvaltnings AB, Stockholm SEB Internal Supplier AB, Stockholm SEB IT AB, Stockholm SEB Kort AB, Stockholm SEB Portföljförvaltning AB, Stockholm SEB Strategic Investments AB, Stockholm Skandinaviska Kreditaktiebolaget, Stockholm Team SEB AB, Stockholm Total

Book value

Dividend

2005 Ownership, %

Book value

38

100 100 100

100 5,407 6,076 13 9,881

100 100 100 100 100

0 0 0 1,181 100 6,588 6,076 13 8,881 2 0 145

100 145 642 5 12 2,260 1,115 1

100 100 100 100

30

1 25,696

100 100 100 100 100

30

642 5 12 10 2,260 1,115 1 0 1 27,032

Dividend

159 11

300

54 30

Ownership, %

100 100 100 90 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100

554

Foreign subsidiaries FinansSkandic Leasing (SEA) Pte Ltd, Singapore Interscan Servicos de Consultoria Ltda, São Paulo OJSC SEB Bank, Kiev Osprey Mortage Securities (No 10) Ltd, Jersey PetroEnergoBank, St Petersburg Scandinavian Finance BV, Amsterdam SEB AG, Frankfurt am Main SEB Asset Management America Inc, Stamford SEB Asset Management Fondmæglerselskab A/S, Copenhagen SEB Asset Management Norge AS, Oslo SEB Eesti Ühispank, AS, Tallinn SEB Enskilda ASA, Oslo SEB Enskilda Inc., New York SEB Fund Service S.A., Luxembourg SEB Gyllenberg AB, Helsinki SEB Hong Kong Trade Services Ltd, Hong Kong SEB Investment Management AG, Zürich SEB IT Partner Estonia OÜ, Tallinn SEB Latvijas Unibanka, AS, Riga1) SEB NET S.L., Barcelona SEB Privatbanken ASA, Oslo SEB Strategic Investments.B.V., Amsterdam SEB TFI SA (Towarzystwo Funduszy Inwestycyjnych), Warsaw SEB Vilniaus Bankas, AB, Vilnius1) Skandinaviska Enskilda Banken South East Asia Ltd, Singapore Skandinaviska Enskilda Banken A/S, Copenhagen Skandinaviska Enskilda Banken Corporation, New York Skandinaviska Enskilda Banken S.A., Luxembourg Skandinaviska Enskilda Ltd, London Three Crowns Funding, New York Total

270

100 100 100

126

100

19,292 23 128 11 1,348 522 18 22 492

770

51

100 100 100 100 100 100 100 100 100 100

0 0

9 19,788 30 138

100 100

1,114

1,476

4 510 0

100

47 0

617 1,281 1 24 1,777

34 31 68

1,662 121 1,218 657

153 211

29,610

1,318

65 100 100 100 100 100 100 100 100 100 100 100

724 0 1,443 1 27 1,811 149 2,033 147 1,284 775 30,349

100 100 100 100

150

100 100 99 100 100 100 100 100 100 100 100 100 100 100 100

1,311

Information about the corporate registration numbers and numbers of shares of the subsidiaries is available upon request. 1) In 2006 SEB initiated a compulsory redemption process for the remaining shares.

The note includes two entities, Osprey and Three Crowns, which according to AACS not are regarded as subsidiaries since an ownership is lacking. These entities are special purpose entities (SPE:s), which are created to accomplish a narrow and well-defined objective. Osprey and Three Crowns are included in the consolidated ­accounts of the Group, since the parent company controls these entities. 90 SEB annual report 2006

Notes to the financial statements

27

Tangible and intangible assets Group

Parent company

2006

2005

2006

Goodwill Deferred acquisition costs Other Intangible assets

11,668 2,845 1,059

11,773 2,334 1,089

523 111

68

Intangible assets

15,572

15,196

634

68

1,411

1,463

805 86

1,725 119

202 14,552 9

76 14,952 7

2,302

3,307

14,763

15,035

629

925

15,397

15,103

Office, IT and other tangible assets Equipment leased to clients1) Properties for own operations Properties taken over for protection of claims Property and equipment Investment properties recognised at cost Investment properties recognised at fair value through profit and loss Investment properties Total

4,411

4,046

5,040

4,971

22,914

23,474

2005

1) Equipment leased to clients are recognised as financial leases and presented as loans in the Group.

Goodwill

–167

11,165 643 –2 –216 –15 198

11,668

11,773

Opening balance Capitalisation of acquisition costs Amortisation of acquisition costs Reclassifications Exchange rate differences

2,334 911 –404 9 –5

1,792 804 –327 62 3

Total

2,845

2,334

Opening balance Acquisitions during the year Current year’s impairments Reclassifications Sales during the year Exchange rate differences Total

11,773 80 –18

Deferred acquisition costs

Goodwill and intangible assets with indefinite lives Cash generating units with significant carrying amounts of goodwill and intangible assets with indefinite lives are SEB Kort with SEK 1,122m (1,194) in goodwill and SEK 119m (119) in intangible assets with indefinite lives and Enskilda Securities with SEK 904m (857) in goodwill. Goodwill in connection with the Trygg Hansa ­acquisition, SEK 5,721m (5,721), generates cash flows in Retail Banking Sweden, SEB Asset Management Sweden and SEB Trygg Liv Sweden. The goodwill has been allocated to these units for impairment testing. The carrying amounts of goodwill for Retail Banking Sweden is SEK 775m, SEB Asset Management Sweden SEK 2,769m and SEB Trygg Liv Sweden SEK 2,021m. The impairment tests for the entities specified above have been based on their value in use with forecasted cash flows for a period of five years. The cash flows are determined based on historical performance and market trends for key assumptions such as growth and cost/income ratio. The growth rates used after five years are principally the expected long-term inflation rate, SEB Kort 2 per cent and Enskilda Securities 4 per cent and for the Trygg Hansa goodwill 3 per cent. The discount rate used for SEB Kort is 9 per cent, Enskilda Securites 8 per cent and the Trygg Hansa goodwill 9 per cent. The assumptions here specified are for impairment test purposes only. A sensitivity analysis where the discount rate and growth rate, respectively, were changed with one percentage point did not result in calculated recoverable amounts below the carrying amounts. Acquisitions 2006 During 2006 only two minor acquisitions were made, PetroEnergoBank, Russia and PrimeManagement, Denmark. The purchase price was SEK 130m and goodwill was SEK 80m.

Acquisitions 2005 Four acquisitions were done during the year. Their total purchase price was SEK 5,780m resulting in a goodwill of SEK 643m whereof Privatbanken SEK 541m which mainly relates to expected synergies. Customer lists were valued at SEK 42m. Privatbanken in Norway was acquired to 98 per cent as at 14 September 2005. A week later SEB owned Privatbanken to 100 per cent. It is a bank for private customers with high demands. Bank Agio, a full scale bank in the Ukraine market, was acquired 1 January 2005 to 92 per cent, at the end of the year the share was 99 per cent. Balta Life in Latvia was acquired 3 August 2005. The company is market leader within life insurance in its country. ABB Credit Oy, a Finnish company with a large leasing portfolio, was acquired on 30 November 2005. The acquired companies have contributed with SEK 69m to the operating profit. The acquired main asset was Loans to the public SEK 19.1bn whereof Privatbanken 8.6 and ABB Credit Oy 10.5 and the main liability was Deposits and borrowings of 13.1bn whereof Privatbanken 8.3 and ABB Credit Oy 4.3. A minor fair value adjustment was made to the Loans to the public with SEK –70m in the acquisition analysis. Investment property The fair value model is used for valuation of investment property held in the insurance business. The cost model is used for other investment properties. Investment property recognised at fair value through profit and loss is owned by SEB Pension in Denmark. The valuation of the portfolio is done by independent valuers with experience in the market. The investment property valued at costs is held in Germany and the Baltic countries. The valuation is done at costs due to uncertain market conditions. The best possible estimation is that the market value would be close to the book value. The depreciation is done by the straight line method and is ranging over 20 to 50 years depending on classification as building or improvements to the building.

SEB annual report 2006 91

Notes to the financial statements

Note 27 ctd. Tangible and intangible assets Group

Parent company

Other intangible assets

2006

2005

2006

2005

Opening balance Acquisitions during the year Group adjustment Reclassifications Sales during the year Exchange rate differences

2,810 201

157 60

105 52

–11 –94

2,155 302 38 280 –18 53

Acquisition value

2,906

2,810

217

157

Opening balance Current year’s depreciations Group adjustment Reclassifications Accumulated depreciations on current year’s sales Exchange rate differences

–1,721 –191

–89 –17

–87 –2

6 59

–1,464 –159 –14 –62 13 –35

–1,847

–1,721

–106

–89

1,059

1,089

111

68

Opening balance Acquisitions during the year Group adjustment/Merger Reclassifications Sales during the year Exchange rate differences

7,132 620 5 24 –511 –154

7,072 573 14 56 –746 163

1,993 114 360

1,983 26

Acquisition value

7,116

7,132

2,467

1,993

Opening balance Current year’s depreciations Current year’s impairments Group adjustment/Merger Reclassifications Accumulated depreciations on current year’s sales Exchange rate differences

–5,669 –619

–1,917 –79

–1,890 –36

–2 –18 484 119

–5,562 –649 –5 –14 –23 699 –115

Accumulated depreciations

–5,705

–5,669

–2,265

–1,917

1,411

1,463

202

76

16,557 –98

14,721 1,836

16,459

16,557

Opening balance Current year’s depreciations

–1,605 –302

–1,321 –284

Accumulated depreciations

–1,907

–1,605

Total

14,552

14,952

Accumulated depreciations Total

Office, IT and other tangible assets

Total

–16

–270 9 1

Equipment leased to clients1) Opening balance Acquisitions during the year Acquisition value

1) Equipment leased to clients is depreciated in annuities, based on a conservatively estimated residual value at the end of the contract period. For leased equipment that cannot be sold in a functioning market, the scheduled residual value is zero at the end of the contract period. Any surplus resulting from the sale of leased equipment is reported under Other income.

92 SEB annual report 2006

Notes to the financial statements

Note 27 ctd. Tangible and intangible assets Group

Parent company

Properties for own operations

2006

2005

2006

2005

Opening balance Acquisitions during the year Group adjustment Reclassifications Sales during the year Exchange rate differences

2,310 59 8 –860 –189 –80

2,107 264 25 –39 –135 88

8 2

9

1,248

2,310

10

8

Opening balance Current year’s depreciations Group adjustment Reclassifications Accumulated depreciations on current year’s sales Exchange rate differences

–585 –42 –1 110 54 21

–530 –47 –9 12 10 –21

–1

–1

Accumulated depreciations

–443

–585

–1

–1

805 5 3

1,725 7 3

9 5 3

7 7 3

119 3 –15 –17 –4

106 18

86

119

3 –2

5 –4

1

1

1,206 2

1,136 113

–210 –89 –38

62 –151 46

871

1,206

Opening balance Current year’s depreciations Current year’s impairments Group adjustment Reclassifications Accumulated depreciations on current year’s sales Exchange rate differences

–281 –28 –3

–226 –35 –6

29 31 10

–6 1 –9

Accumulated depreciations

–242

–281

629

925

Opening balance Acquisitions during the year Group adjustment Revaluation at fair value Sales during the year Exchange rate differences

4,046 428

3,916 79

222 –137 –148

166 –265 150

Total

4,411

4,046

External income Operating costs1)

287 –107

292 –81

Total

180

211

Acquisition value

Total Tax value, real properties of which, buildings

–1

Tax value refers only to properties in Sweden.

Properties taken over for protection of claims Opening balance Acquisitions during the year Current year’s impairments Sales during the year Exchange rate differences Total

1 –1

–8 3

Net operating earnings from properties taken over for protection of claims External income Operating costs Total Investment properties recognised at cost Opening balance Acquisitions during the year Group adjustment Reclassifications Sales during the year Exchange rate differences Acquisition value

Total Investment properties recognised at fair value through profit and loss

Net operating earnings from investment properties

1) Direct operating expenses arising from investment property that did not generate rental income amounts to SEK 7m (10).



SEB annual report 2006 93

Notes to the financial statements

28

Other assets Group

Current tax assets Deferred tax assets Trade and client receivables Other assets Other assets

Parent company

2006

2005

2006

2005

2,568 1,121 11,277 27,356

1,637 1,209 21,910 29,114

1,485 35 9,694 17,747

636 23,702 19,038

42,322

53,870

28,961

43,376

Current tax assets Other

2,568

1,637

1,485

636

Recognised in profit and loss

2,568

1,637

1,485

636

Total

2,568

1,637

1,485

636

18 544 579

176 459 595

35

1,141

1,230

35

Deferred tax assets Tax effect of changes in accounting principles (IFRS) Unrealised losses in financial assets at fair value Tax losses carry forwards Other temporary differences1) Recognised in profit and loss Unrealised losses in cash flow hedges Unrealised losses in available-for-sale financial assets

–20

–21

Recognised in Shareholders’ equity

–20

–21

1,121

1,209

Total

35

1) Temporary differences are differences between the carrying amount of an asset or liability in the balance sheet and its tax base. Taxable temporary differences give rise to deferred tax ­assets and liabilities.

Tax losses carried forward in the SEB Group for which the tax asset are not recognized in the balance sheet amounts gross to SEK 3,661m (3,715). These are not recognized due to the uncertainty of possibility to use them. This includes losses where the amount only can be used for trade tax. The potential tax asset not recognized is SEK 578 m (594). Trade and client receivables 463 10,814

502 21,408

9,694

23,702

11,277

21,910

9,694

23,702

Pension plan assets, net Reinsurers share of insurance provisions Accrued interest income Other accrued income Prepaid expenses Other

4,146 670 9,959 1,600 436 10,545

3,467 633 9,882 1,705 510 12,917

6,910 820

5,777 1,085

10,017

12,176

Total

27,356

29,114

17,747

19,038

2006

2005

2006

2005

113,978 211,752 18,283 7,395 14,572

95,982 249,742 29,146 9,270 15,354

126,836 185,401 16,736 213 3,185

120,710 181,260 42,884 115 541

365,980 59,467

399,494 38,337

332,371 61,909

345,510 44,888

0.56

0.58

0.20

0.16

Trade receivables Client receivables Total

Other assets



29

Deposits by credit institutions Group

Remaining maturity – payable on demand – maximum 3 months – more than 3 months but maximum 1 year – more than 1 year but maximum 5 years – more than 5 years Total of which repos Average remaining maturity (years) 94 SEB annual report 2006

Parent company

Notes to the financial statements

30

Deposits and borrowing by the public Group

Parent company

2006

2005

2006

2005

575,315 66,443

515,011 54,990

300,749 88,378

261,443 63,276

641,758

570,001

389,127

324,719

Remaining maturity – payable on demand – maximum 3 months – more than 3 months but maximum 1 year – more than 1 year but maximum 5 years – more than 5 years

382,215 122,093 14,138 26,861 30,008

327,440 113,034 21,380 30,175 22,982

300,749

261,443

Total

575,315

515,011

300,749

261,443

Deposits Borrowing Total

Deposits1)

1) Only account balances covered by the Deposit Guarantee are reported as deposits. The amount refers to the total account balance without considering the limitation in terms of amount that is applicable to the Deposit Guarantee and fee bases.

Average remaining maturity (years)

0.70

0.68

15,865 30,969 4,899 3,128 11,582

16,050 24,948 2,995 2,402 8,595

24,494 39,010 5,703 4,103 15,068

15,791 32,183 3,604 3,123 8,575

66,443 37,500

54,990 17,606

88,378 37,494

63,276 34,018

1.99

1.78

1.94

1.60

Borrowing Remaining maturity – payable on demand – maximum 3 months – more than 3 months but maximum 1 year – more than 1 year but maximum 5 years – more than 5 years Total of which repos Average remaining maturity (years)

31

Liabilities to policyholders

Liabilities to policyholders – investment contracts1) Liabilities to policyholders – insurance contracts Total

Group 2006

2005

120,127 83,592

96,178 89,185

203,719

185,363

96,178 –706 117 22,380 11,039 –951 –6,968 –580 –96 –1 10 –295

67,427

22,097 19,025 –738 –11,508 –609 –39 –19 82 460

120,127

96,178

1) Designated at fair value through profit and loss.

Liabilities to policyholders – investment contracts* Opening balance Transfer of portfolios through divestments Reclassification from Long-term insurance contracts Premiums received Change in value of investment funds Fees deducted from account balances Provisions released for payments, surrender and other terminations Policyholders tax deducted from account balances Other technical costs Change in unallocated premiums Other change in provisions Exchange rate differences Total * Insurance provisions where the policyholders are carrying the risk.

SEB annual report 2006 95

Notes to the financial statements

Note 31 ctd. Liabilities to policyholders Group

Liabilities to policyholders – insurance contracts

2006

2005

Opening balance Transfer of portfolios through acquisitions Reclassification of Reinsurers’ share Reclassification to/from Long-term insurance contracts Change in provisions Exchange rate differences

4,541

2,405 1,258

16 –71 155 –105

384 405 89

Short–term insurance contracts (non-life)

4,536

4,541

Opening balance Transfer of portfolios through divestments/acquisitions Reclassification to Investment contracts Reclassification from/to Short-term insurance contracts Change in collective bonus provisions Change in other insurance contract provisions1) Exchange rate differences

84,644 –241 –117 71 411 –2,768 –2,944

73,713 2,192

Long–term insurance contract provisions (life)

79,056

84,644

Total

83,592

89,185

–384 2,208 4,086 2,829

1) Include mainly premiums received during the year, allocated guaranteed interest less payments to policyholders.

32

Debt securities Group 2005

2006

2005

259,191 129,631

234,180 119,025

54,767 117,521

47,730 90,308

388,822

353,205

172,288

138,038

Bond loans Other issued securities Total

Parent company

2006

The Group issues equity index linked bonds, which contains both a liability and an equity component. The Group has chosen to designate issued equity index linked bonds, with fair values amounting to SEK 6,873m, as at fair value through profit or loss, since they contain embedded derivatives. This choice implies that the ­entire hybrid contract is measured at fair value in profit or loss. Fair value for

those financial instruments is calculated using a valuation technique, exclusively based on quoted market prices. Fair value on these financial liabilities has not been affected by changes in credit risk. This has been concluded by evaluating the bank’s rating which has been stable.

Bond loans Remaining maturity – maximum 1 year – more than 1 years but maximum 5 years – more than 5 years but maximum 10 years – more than 10 years Total Average remaining maturity (years)

86,315 162,779 7,501 2,596

49,001 174,879 9,723 577

15,007 38,805 571 384

26,099 20,680 374 577

259,191

234,180

54,767

47,730

2.41

2.71

2.45

1.50

2,128 67,059 53,541 6,903

6,032 73,903 35,166 3,924

2,124 55,214 53,358 6,825

1,967 51,567 34,070 2,704

129,631

119,025

117,521

90,308

0.48

0.36

0.52

0.42

Other issued securities Remaining maturity – payable on demand – maximum 3 months – more than 3 months but maximum 1 year – more than 1 year but maximum 5 years – more than 5 years Total Average remaining maturity (years)

96 SEB annual report 2006

Notes to the financial statements

33

Financial liabilities at fair value Group

Parent company

2006

2005

2006

2005

60,343 5,894 84,762 –147

119,592 8,901 72,563 718

60,693 1,386 79,422

115,012 1,023 71,498

150,852

201,774

141,501

187,533

33,637 24,690 1,976 40

79,277 34,312 6,003

35,608 23,865 1,220

76,830 33,697 4,485

60,343

119,592

60,693

115,012

Fair value hedges Cash flow hedges Portfolio hedges for interest rate risk

3,080 111 2,703

4,453 101 4,347

1,284 102

922 101

Total

5,894

8,901

1,386

1,023

3,746 81,016

9,714 62,849

3,744 75,678

9,630 61,868

84,762

72,563

79,422

71,498

2006

2005

2006

2005

1,036 9,099 12,479 47,914

1,193 8,358 26,120 40,415

226 473 10,900 34,567

20 112 23,979 25,970

70,528

76,086

46,166

50,081

Trading derivatives Derivatives used for hedging Trading liabilities Fair value changes of hedged items in portfolio hedge Total

Financial liabilities designated at fair value through profit or loss is specified in note 31 and 32.

Trading derivatives Negative replacement values of interest-related derivatives Negative replacement values of currency-related derivatives Negative replacement values of equity-related derivatives Negative replacement values of other derivatives Total

Derivatives used for hedging

Trading liabilities Short positions in equity instruments Short positions in debt instruments Total

34

Other liabilities Parent company

Group

Current tax liabilities Deferred tax liabilities Trade and client payables Other liabilities Total Current tax liabilities Other

1,036

1,193

–407

–678

Recognised in profit and loss

1,036

1,193

–407

–678

Group contributions

633

698

Recognised in Shareholders’ equity

633

698

226

20

249

–280

Total

1,036

1,193

Accelerated tax depreciation Unrealised profits in financial assets at fair value Pension plan assets, net Other temporary differences

6,831 311 1,111 534

6,499 –192 971 696

Recognised in profit and loss

8,787

7,974

249

–280

180 132

343 41

143 81

318 74

312

384

224

392

9,099

8,358

473

112

Deferred tax liabilities

Unrealised profits in cash flow hedges Unrealised profits in available-for-sale financial assets Recognised in Shareholders’ equity Total

Temporary differences are differences between the carrying amount of an asset or liability in the balance sheet and its tax base. Taxable temporary differences give rise to deferred tax ­assets and liabilities. In Estonia no income tax is paid unless profit is distributed as dividend. No deferred tax liability is recognised related to possible future tax costs on dividends from Estonia. Tax rate applicable to dividends are 22 (23) per cent.

SEB annual report 2006 97

Notes to the financial statements

Note 34 ctd. Other liabilities Parent company

Group

Trade and client payables

2006

2005

361 12,118

834 25,286

10,900

23,979

12,479

26,120

10,900

23,979

Accrued interest expense Other accrued expense Prepaid income Other

10,490 2,764 2,198 32,462

9,418 3,000 1,626 26,371

5,101 1,171

4,143 914

28,295

20,913

Total

47,914

40,415

34,567

25,970

2006

2005

2006

2005

143 215 58 1,650

346 268 145 2,057

7 4

24 4

405

626

2,066

2,816

416

654

346 –190 –13

635 –309 20

24 –17

62 –38

143

346

7

24

Trade payables Client payables Total

2006

2005

Other liabilities

35

Provisions Group

Restructuring reserve Reserve for off-balance-sheet items Pensions and other post retirement benefit obligations (note 9b) Other provisions Total

Parent company

Restructuring reserve Opening balance Amounts used Exchange differences Total

The restructuring reserve mainly regards the German business and is expected to be used mainly in 2007. Reserve for off-balance-sheet items Opening balance Additions Amounts used Acquisitions through business combination Exchange differences

268

4

–7

255 41 –36 3 5

Total

215

268

4

–46

8 –4

4

The reserve for off-balance sheet items is mainly referring to the German market and its corporate sector. A minor part is expected to be used during 2007 while the remaining part have a substantially longer life. Other provisions Opening balance Additions Amounts used Unused amounts reversed Other movements Exchange differences

2,057 47 –399 –15 –18 –22

598 1,442 –1

Total

1,650

2,057

626 626 –221

18 405

626

The other provisions consists of three main parts, unutilised premises in connection with the integration of SEB’s different business units in Sweden, the Nordic countries, Germany and U.K. expected to be used between 5 and 10 years, unsettled claims in the U.K. market to be settled within 7 years and provisions linked to property funds and guarantees given in Germany for a maximum of 5 years.

98 SEB annual report 2006

Notes to the financial statements

36

Subordinated liabilities Group

Parent company

2006

2005

2006

2005

Debenture loans Debenture loans, perpetual Debenture loans, hedged positions

22,858 21,516 –925

23,835 20,618 –250

21,687 21,516 –925

22,681 20,618 –250

Total

43,449

44,203

42,278

43,049

Currency

Original nom. amount

Book value

Rate of interest, %

USD EUR EUR EUR EUR

200 500 500 750 500

1,355 4,527 4,520 6,768 4,517

Debenture loans 1994/2009 2002/2012 2003/2015 2004/2014 2005/2017 Total Parent company

21,687

Debenture loans issued by SEB AG Debenture loans issued by other subsidiaries Total Group

1,083 88 22,858

6.875 5.625 4.125 1) 1)

Debenture loans, perpetual 1995 1996 1996 1996 1997 1997 2000 2004 2005 2005 2006

JPY GBP USD USD JPY USD USD USD USD GBP GBP

10,000 10 150 50 15,000 150 100 500 600 500 375

576

4,400 9,040 8,125

864 763 14 3,429 4,114 6,718 5,038

5,000 7,500

1)

Total

1)

4,958 1)

5,000 5,500

21,516

1) FRN, Floating Rate Note

37

Untaxed reserves1) Parent company

Excess depreciation of office equipment/leased assets Other untaxed reserves Total

2006

2005

12,085 4

11,397 5

12,089

11,402

1) In the balance sheet of the Group untaxed reserves are reclassified partly as deferred tax liability and partly as restricted equity.

Parent company Excess depreciation

Other untaxed reserves

Opening balance Appropriations Reversals Exchange rate differencies

10,055 1,342

4

1

1

Closing balance 2005

11,397

5

11,402

Appropriations Reversals Exchange rate differencies Closing balance 2006

688

688

12,085

Total

10,059 1,342

–1

–1

4

12,089

SEB annual report 2006 99

Notes to the financial statements

38

Memorandum items Group

Parent company

2006

2005

2006

2005

354,694 189,730 60,156 346,517

316,425 143,042 57,891 283,830

231,121 70,051 55,721 233,895

168,014 48,846 51,188 197,283

98 173,347 98,618 82,631

178 165,197 62,494 88,556

98 132,405 98,618

146 105,374 62,494

354,694

316,425

231,121

168,014

Collateral and comparable security pledged for own liabilities Other pledged assets and comparable collateral Contingent liabilities Commitments

Collateral and comparable security pledged for own liabilities Lending1) Bonds Repos Assets in insurance business Total

1) Of which SEK 98m (146) refers to the parent company’s pledging of promissory notes for the benefit of the Swedish Export Credit Corporation.

Other pledged assets and comparable collateral Shares in insurance premium funds Securities loans

119,679 70,051

95,957 47,085

70,051

48,846

189,730

143,042

70,051

48,846

Guarantee commitments, credits Guarantee commitments, other Own acceptances

7,586 42,543 1,048

7,240 39,917 678

7,523 40,700 1,024

11,187 32,184 645

Total

51,177

47,835

49,247

44,016

8,979

10,056

6,474

7,172

60,156

57,891

55,721

51,188

Total

Contingent liabilities

Approved, but unutilised letters of credit Total Other contingent liabilities The parent company has pledged to the Monetary Authority of Singapore to ensure that its subsidiary bank in Luxembourg’s branch in Singapore is able to fulfil its commitments.

The parent company has issued a deposit guarantee for SEB AG in Germany to the Bundesverband deutscher Banken e.V. The parent company has granted a capital contribution to SEB AG.

Commitments Deposits in other banks Granted undrawn credit Unutilised part of approved overdraft facilities Securities loans Other commmitments Total1)

20 166,674 96,565 82,592 666

2,256 155,174 77,009 47,343 2,048

109,491 54,901 69,503

108,151 40,286 48,846

346,517

283,830

233,895

197,283

1) Commitments for future payments are from 2006 not regarded as memorandum items. 2005 have been restated accordingly.

100 SEB annual report 2006

Notes to the financial statements

39

Current and non-current assets and liabilities

Group 2006

Assets Cash and cash balances with central banks Loans to credit institutions Loans to the public Securities held for trading Derivatives held for trading Derivatives used for hedging Fair value changes of hedged items in a portfolio hedge Financial assets – policyholders bearing the risk Other financial assets designated at fair value Financial assets at fair value Available-for-sale financial assets Held-to-maturity investments Discontinued operations/Assets held for sale Investments in associates Intangible assets Property and equipment Investment properties Tangible and intagible assets Current tax assets Deferred tax assets Trade and client receivables Other assets Other assets Total

Current assets

11,314 156,527 445,955 90,346 65,212 2,660 283 120,524 20,245 299,270 14,880 470 2,189

Non-current assets

22,812 500,688 250,533

2005 Total

Current assets

11,314 179,339 946,643 340,879 65,212 2,660

27,545 143,035 403,449 84,820 115,768 2,998 2,810 96,148 24,634 327,178 10,629 16 1,405

21,910 29,114 52,661

Deposits by credit institutions Deposits and borrowing from the public Liabilities to policyholders – investment contracts Liabilities to policyholders – insurance ­contracts Liabilities to policyholders Debt securities Trading derivatives Derivatives used for hedging Trading liabilities Fair value changes of hedged items in ­portfolio hedge Financial liabilities at fair value Current tax liabilities Deferred tax liabilities Trade and client payables Other liabilities Other liabilities Provisions Subordinated liabilities Total

34,557 497,812 201,423

Total

27,545 177,592 901,261 286,243 115,768 2,998

11,277 27,356 41,201

1,121

283 120,524 81,387 610,945 115,482 2,208 2,189 1,085 15,572 2,302 5,040 22,914 2,568 1,121 11,277 27,356 42,322

1,209

2,810 96,148 89,639 593,606 93,265 16,502 1,405 1,218 15,196 3,307 4,971 23,474 1,637 1,209 21,910 29,114 53,870

973,062

961,379

1,934,441

967,219

922,519

1,889,738

Current ­liabilities

Non-current, liabilities

Total

Current ­liabilities

Non-current liabilities

344,013 570,179 7,004 4,536 11,540 209,043 60,343 5,894 84,762 –147 150,852 1,036

21,967 71,579 113,123 79,056 192,179 179,779

374,870 505,847 11,508 4,541 16,049 164,102 119,592 8,901 72,563 718 201,774 1,193

24,624 64,154 84,670 84,644 169,314 189,103

9,099 2,066 43,449

365,980 641,758 120,127 83,592 203,719 388,822 60,343 5,894 84,762 –147 150,852 1,036 9,099 12,479 47,914 70,528 2,066 43,449

520,118

1,867,174

1,331,673

595 661 1,256 2,568

61,142 311,675 100,602 1,738 1,085 14,977 1,641 5,040 21,658 1,121

486 815 1,301 1,637

9,099 12,479 47,914 61,429

1,347,056

65,005 266,428 82,636 16,486 1,218 14,710 2,492 4,971 22,173 1,209

2006

Liabilities

Non-current assets

2005

8,358 1,513 44,203 501,269

1,832,942

8,358 26,120 40,415 67,728 1,303

Total

399,494 570,001 96,178 89,185 185,363 353,205 119,592 8,901 72,563 718 201,774 1,193 8,358 26,120 40,415 76,086 2,816 44,203

SEB annual report 2006 101

Notes to the financial statements

40

Financial assets and liabilities by class

Group 2006 Classes of financial assets and liabilities

Financial assets Cash and cash balances with central banks (note 19) Loans to credit institutions (note 20) Loans to the public (note 21) Financial assets at fair value (note 22) Available-for-sale financial assets (note 23) Held-to-maturity financial assets (note 24) Investments in associates (note 25) Trade and client receivables (note 28)

Loans and deposits

Equity ­instruments

Debt Derivative ­instruments instruments

Investment contracts

Insurance contracts

Other

Total

11,314

309,983 113,163 2,208

67,872

120,524

283

11,277

11,314 179,339 946,643 531,003 115,482 2,208 1,085 11,277

425,354

67,872

120,524 79,942

22,874 56,148

1,798,351 136,090

79,942

79,022

1,934,441

179,339 946,643 32,341 2,319 1,085

Financial assets Other assets (non-financial)

1,125,982

Total

1,125,982

35,745 35,745

425,354

67,872

120,524

Financial liabilities Deposits by credit institutions (note 29) Deposits and borrowing from the public (note 30) Liabilities to policyholders (note 31) Debt securities (note 32) Financial liabilities at fair value (note 33) Trade and client payables (note 34) Subordinated liabilities (note 36)

365,980 641,758 120,127 3,746

388,822 81,016

3,746

513,287

66,238

-148 12,479

43,449

Financial liabilities Other liabilities (non-financial) Total equity

1,007,738

Total

1,007,738

3,746

Loans and deposits

Equity ­instruments

513,287

66,238

66,238

120,127

120,127

365,980 641,758 120,127 388,822 150,852 12,479 43,449

83,592

12,331 60,115 67,267

1,723,467 143,707 67,267

83,592

139,713

1,934,441

Group 2005 Classes of financial assets and liabilities

Financial assets Cash and cash balances with central banks (note 19) Loans to credit institutions (note 20) Loans to the public (note 21) Financial assets at fair value (note 22) Available-for-sale financial assets (note 23) Held-to-maturity financial assets (note 24) Investments in associates (note 25) Trade and client receivables (note 28)

Debt Derivative ­instruments instruments

Investment contracts

Insurance contracts

Other

Total

27,545

248,402 91,066 16,502

118,766

96,148

2,810

21,910

27,545 177,592 901,261 504,895 93,265 16,502 1,218 21,910

355,970

118,766

96,148 88,711

52,265 56,839

1,744,188 145,550

88,711

109,104

1,889,738

177,592 901,261 38,769 2,199 1,218

Financial assets Other assets

1,078,853

Total

1,078,853

42,186 42,186

355,970

118,766

96,148

Financial liabilities Deposits by credit institutions (note 29) Deposits and borrowing from the public (note 30) Liabilities to policyholders (note 31) Debt securities (note 32) Financial liabilities at fair value (note 33) Trade and client payables (note 34) Subordinated liabilities (note 36)

399,494 570,001 96,178 9,714

353,205 62,849

9,714

460,257

128,493

718 26,120

44,203

Financial liabilities Other liabilities (non-financial) Total equity

969,495

Total

969,495

9,714

460,257

128,493

128,493

96,178

96,178

399,494 570,001 96,178 353,205 201,774 26,120 44,203

89,185

26,838 52,782 56,796

1,690,975 141,967 56,796

89,185

136,416

1 889,738

SEB has grouped its financial instruments by class taking into account the characteristics of the instruments: Loans and deposits includes financial assets and liabilities with fixed or determinable payments that are not quoted in an active market. These are further specified in note 43 and 44. Equity intruments includes shares, rights issues and similar contractual rights of other entities. Debt instruments includes contractual rights to receive or obligations to deliver cash on a predetermined date. These are further specified in note 41, 42 and 43. Derivative instruments includes options, futures, swaps and other derived products held for trading and hedging purposes. These are further specified in note 45. Investment contracts includes those assets and liabilities in the Life insurance operations where the policyholder is carrying the risk of the contractual agreement (is not qualified as an insurance contract under IFRS 4). The Life insurance operations are further specified in note 51. Insurance contracts includes those assets and liabilities in the Life insurance operations where SEB is carrying the insurance risk of a contractual agreement (is qualified as an insurance contract under IFRS 4). The Life insurance operations are further specified in note 51. Other includes other financial asset and liabilities recognised in accordance with IAS 39. 102 SEB annual report 2006

Notes to the financial statements

Note 40 ctd. Financial assets and liabilities by class Parent 2006 Classes of financial assets and liabilities

Financial assets

Loans and deposits

Equity instrumens

Debt Derivative instruments instruments

Other

Total

1,828

9,694

1,828 360,728 333,129 349,764 22,057 3,820 1,059 55,306 9,694

Financial assets Other assets (non-financial)

693,857

80,491

287,224

64,291

11,522 34,664

1,137,385 34,664

Total

693,857

80,491

287,224

64,291

46,186

1,172,049

Cash and cash balances with central banks (note 19) Loans to credit institutions (note 20) Loans to the public (note 21) Financial assets at fair value (note 22) Available-for-sale financial assets (note 23) Held-to-maturity financial assets (note 24) Investments in associates (note 25) Shares in subsidiaries (note 26) Trade and client receivables (note 28)

360,728 333,129 22,794 1,332

262,679 20,725 3,820

64,291

1,059 55,306

Financial liabilities Deposits by credit institutions (note 29) Deposits and borrowing from the public (note 30) Debt securities (note 32) Financial liabilities at fair value (note 33) Trade and client payables (note 34) Subordinated liabilities (note 36)

332,371 389,127 3,744

172,288 75,678

62,079 10,900

42,278

332,371 389,127 172,288 141,501 10,900 42,278

Financial liabilities Other liabilities (non-financial) Total equity and untaxed reserves

721,498

3,744

290,244

62,079

10,900 35,682 47,902

1,088,465 35,682 47,902

Total

721,498

3,744

290,244

62,079

94,484

1,172,049

Parent 2005 Classes of financial assets and liabilities

Financial assets

Loans and Equity deposits instruments

Debt Derivative ­instruments instruments

Other

Total

6,037

23,702

6,037 331,451 291,861 362,236 19,074 3,483 1,160 57,381 23,702

Financial assets Other assets

623,312

88,033

240,495

114,806

29,739 35,438

1,096,385 35,438

Total

623,312

88,033

240,495

114,806

65,177

1,131,823

Cash and cash balances with central banks (note 19) Loans to credit institutions (note 20) Loans to the public (note 21) Financial assets at fair value (note 22) Available-for-sale financial assets (note 23) Held-to-maturity financial assets (note 24) Investments in associates (note 25) Shares in subsidiaries (note 26) Trade and client receivables (note 28)

331,451 291,861 28,283 1,209

219,147 17,865 3,483

114,806

1,160 57,381

Financial liabilities Deposits by credit institutions (note 29) Deposits and borrowing from the public (note 30) Debt securities (note 32) Financial liabilities at fair value (note 33) Trade and client payables (note 34) Subordinated liabilities (note 36)

345,510 324,719 9,630

138,038 61,868

116,035 23,979

43,049

345,510 324,719 138,038 187,533 23,979 43,049

Financial liabilities Other liabilities (non-financial) Total equity and untaxed reserves

670,229

9,630

242,955

116,035

23,979 26,756 42,239

1,062,828 26,756 42,239

Total

670,229

9,630

242,955

116,035

92,974

1,131,823

SEB annual report 2006 103

Notes to the financial statements

41

Debt instruments by maturities

Eligible debt instruments < 1 month

1<3 months

3 months < 1 year

1<5 years

5 < 10 years

Securities held for trading (note 22) Other financial assets at fair value (note 22) Available-for-sale financial assets (note 23) Held-to-maturity financial assets (note 24)

2,298

5,717

17,823

42,370

1,673

1,613

8,243

32,826 1

27,273 42 27,426

12,304

Total

3,971

7,330

26,066

75,197

54,741

25,723

193,028

Securities held for trading (note 22) Available-for-sale financial assets (note 23)

3,925 3,633

2,217 1,547

11,838 2,778

34,148 31,907

14,730 23,573

7,960 10,097

74,818 73,535

Total

7,558

3,764

14,616

66,055

38,303

18,057

148,353

9,168 4,880 14,048

51,424 5,907 57,331

Group 2006

10 years <

Total

13,419

108,900 42 84,085 1

Group 2005

Parent 2006 Securities held for trading (note 22) Available-for-sale financial assets (note 23) Total

2,607

10,941

19,615

9,093

1,027 1,027

2,607

10,941

19,615

9,093

2

1,759

3,239

7,407

10,273

5,745 3,592

28,425 3,592

2

1,759

3,239

7,407

10,273

9,337

32,017

< 1 month

1<3 months

3 months < 1 year

1<5 years

5 < 10 years

10 years <

Total

Securities held for trading (note 22) Insurance assets (note 22) Other financial assets at fair value (note 22) Available-for-sale financial assets (note 23) Held-to-maturity financial assets (note 24)

6,726 102 1 606

4,457 32 12 206

21,688 1,264 120 220 470

74,734 12,064 242 10,003 1,371

17,953 46,613 314 5,974 230

74,784 1,857 10 12,069 136

200,342 61,932 699 29,078 2,207

Total

7,435

4,707

23,762

98,414

71,084

88,856

294,258

Securities held for trading (note 22) Insurance assets (note 22 Other financial assets at fair value (note 22) Available-for-sale financial assets (note 23) Held-to-maturity financial assets (note 24)

2,542

9,661

11 94 16

94

16,437 2,287 82 284

86,422 13,402 149 2,185 1,276

13,994 49,434 48 3,840 2,676

44,169 1,903 69 11,034 12,534

173,225 67,026 359 17,531 16,502

Total

2,663

9,755

19,090

103,434

69,992

69,709

274,643

Securities held for trading (note 22) Available-for-sale financial assets (note 23) Held-to-maturity financial assets (note 24)

5,009

4,573

29,151

300

151

79,977 878 775

17,786 1,918 2,458

74,759 12,022 136

211,255 14,818 3,820

Total

5,009

4,873

29,302

81,630

22,162

86,917

229,893

Securities held for trading (note 22) Available-for-sale financial assets (note 23) Held-to-maturity financial assets (note 24)

2,862

13,418

19,940 750

94,343 636 1,216

13,734 2,721 1,264

46,425 10,916 237

190,722 14,273 3,483

Total

2,878

13,418

20,690

96,195

17,719

57,578

208,478

Parent 2005 Securities held for trading (note 22) Available-for-sale financial assets (note 23) Total Other debt instruments Group 2006

Group 2005

Parent 2006

Parent 2005

104 SEB annual report 2006

16

Notes to the financial statements

42

Debt instruments by issuers

Eligible debt instruments Other foreign issuers

Total

23,633 8 10,456

52,694 34 72,552 1

108,900 42 84,085 1

931

34,097

125,281

193,028

15,094 60

2

13,963 42,782

45,759 30,693

74,818 73,535

15,154

2

56,745

76,452

148,353

31,642 1,027 32,669

931 931

16,934 4,314 21,248

1,917 566 2,483

51,424 5,907 57,331

15,096

2

13,327 3,354

238

28,425 3,592

15,096

2

16,681

238

32,017

Other Swedish Other Swedish issuers – non- issuers – other financial financial ­c ompanies ­c ompanies

Foreign States

Other foreign issuers

Total

17 89

1,599 4,313 208 219

150,804 54,725 474 28,770 1,369

200,342 61,932 699 29,078 2,207

Swedish State

Swedish municipalities

Foreign States

Securities held for trading (note 22) Other financial assets at fair value (note 22) Available-for-sale financial assets (note 23) Held-to-maturity financial assets (note 24)

31,642

931

Total

32,719

Securities held for trading (note 22) Available-for-sale financial assets (note 23) Total

Group 2006

1,077

Group 2005

Parent 2006 Securities held for trading (note 22) Available-for-sale financial assets (note 23) Total Parent 2005 Securities held for trading (note 22) Available-for-sale financial assets (note 23) Total Other debt instruments

Group 2006 Securities held for trading (note 22) Insurance assets (note 22) Other financial assets at fair value (note 22) Available-for-sale financial assets (note 23) Held-to-maturity financial assets (note 24) Total

Swedish State

Swedish ­m ortgage ­institutions

2,387

42,696 389

2,586 118

2,657

838 2,387

43,923

2,704

2,763

6,339

236,142

294,258

49,153 833

2,286

2,403

7

1,813 12 2

429 23,372 63 300 4,756

119,544 40,406 287 17,231 10,711

173,225 67,026 359 17,531 16,502

51,021

2,293

1,827

28,920

188,179

274,643

50,113

2,586

2,657

155,899 14,818 2,745

211,255 14,818 3,820

Group 2005 Securities held for trading (note 22) Insurance assets (note 22) Other financial assets at fair value (note 22) Available-for-sale financial assets (note 23) Held-to-maturity financial assets (note 24) Total

1,035 2,403

Parent 2006 Securities held for trading (note 22) Available-for-sale financial assets (note 23) Held-to-maturity financial assets (note 24) Total

975

100

51,088

2,686

2,657

173,462

229,893

49,153

2,286

1,813

137,470 14,273 1,658

190,722 14,273 3,483

1,813

153,401

208,478

Parent 2005 Securities held for trading (note 22) Available-for-sale financial assets (note 23) Held-to-maturity financial assets (note 24) Total

1,725

100

50,878

2,386

SEB annual report 2006 105

Notes to the financial statements

43

Repricing periods

Group 2006 < 1 month

1<3 months

4<6 months

7 < 12 months

1<3 years

4<5 years

123,831 479,414 99,211 13,111

30,456 129,537 134,029 –1,898

3,059 60,900 112,618 1,944

5,002 37,396 4,047 51

10,577 114,761 59,810 185

3,007 53,827 16,699 29

2,739 70,808 22,340 –86

102,392 30,900

715,567

292,124

178,521

46,496

185,333

73,562

95,801

133,292

Deposits by credit institutions Deposits and borrowing from ­ the public Issued securities Other liabilities Total equity

328,792

20,640

5,951

7,914

2,348

–953

1,288

365,980

510,568 106,758 3,628

51,477 100,397 522

14,094 50,041 17,064

11,637 15,559 1,469

26,189 96,976 20,748

7,084 34,521 7,280

20,709 28,019 30,176

641,758 432,271 427,165 67,267

Total

949,746

173,036

87,150

36,579

146,261

47,932

Interest rate sensitivity, net Cumulative interest rate sensitivity

–234,179 –234,179

119,088 –115,091

91,371 –23,720

9,917 –23,720

39,072 25,269

25,630 50,899

< 1 month

1<3 months

4<6 months

7 < 12 months

1<3 years

4<5 years

124,366 424,454 135,342

26,555 136,231 122,675

3,500 61,802 28,668

4,418 37,637 28,966

6,987 118,153 44,413

7,022 57,984 39,846

4,036 65,000 –2,268

684,162

285,461

93,970

71,021

169,553

104,852

66,768

325,771

28,955

20,340

13,294

9,663

1,471

468,761 59,272 8,015

42,927 114,476 3,978

13,429 30,304 1,616

6,321 19,853 2,912

13,437 89,274 20,073

8,177 47,253 9,067

16,949 36,976 10,895

Total

861,819

190,336

65,689

42,380

132,447

65,968

Interest rate sensitivity, net Cumulative interest rate sensitivity

–177,657 –177,657

95,125 –82,532

28,281 –54,251

28,641 –25,610

37,106 11,496

38,884 50,380

Assets Loans to credit institutions Loans to the public Financial assets Other assets Total

5 years < No interest

Insurance

Total

668 201,165 11,912

179,339 946,643 752,311 56,148

213,745

1,934,441

Liabilities and equity

140,396 67,267

205,882

80,192

207,663

205,882

15,609 66,508

–74,371 –7,863

7,863

5 years < No interest

Insurance

Total

708

1,934,441

Group 2005 Assets Loans to credit institutions Loans to the public Financial assets Other assets Total

122,992 91,443

185,362 13,446

177,592 901,261 705,996 104,889

214,435

199,516

1,889,738

Liabilities and equity Deposits by credit institutions Deposits and borrowing from ­ the public Issued securities Other liabilities Total equity

106 SEB annual report 2006

399,494

218,750 56,796

190,733

64,820

275,546

190,733

1,948 52,328

–61,111 –8,783

8,783

570,001 397,408 466,039 56,796 1,889,738

Notes to the financial statements

44

Loans and loan loss provisions Group

Parent company

2006

2005

2006

2005

179,339 946,643

177,592 901,261

360,728 333,129

331,451 291,861

1,125,982

1,078,853

693,857

623,312

1,123,860 7,123

1,076,822 7,957

693,909 1,033

623,194 1,236

1,403 1,132,386

1,144 1,085,923

15 694,957

45 624,475

Specific reserves Collective reserves

–4,234 –2,170

–4,787 –2,283

–678 –422

–874 –289

Reserves

–6,404

–7,070

–1,100

–1,163

1,125,982

1,078,853

693,857

623,312

Loans to credit institutions Loans to the public Total Loans Normal loans Non-performing impaired loans Performing impaired loans Loans prior to reserves

Total Loans by category of borrower

Credit­ institutions

Corporates

Property­ management

Public sector

Households

Total

179,320 56

358,430 2,888

146,128 2,398

115,667 8

324,315 1,773

1,123,860 7,123

179,376

246 361,564

1,015 149,541

115,675

142 326,230

1,403 1,132,386

Specific reserves

–37

–1,994

–1,717

–3

–483

–4,234

Collective reserves Reserves

–37

–1,994

–1,717

–3

–483

–2,170 –6,404

179,339

359,570

147,824

115,672

325,747

1,125,982

177,568 71

305,843 2,927

150,070 3,354

148,258 5

295,083 1,600

1,076,822 7,957

177,639

574 309,344

541 153,965

148,263

29 296,712

1,144 1,085,923

–47

–2,294

–1,955

–2

–489

–4,787

Group 2006 Normal loans Non-performing impaired loans Performing impaired loans Loans prior to reserves

Total Group 2005 Normal loans Non-performing impaired loans Performing impaired loans Loans prior to reserves Specific reserves

–47

–2,294

–1,955

–2

–489

–2,283 –7,070

177,592

307,050

152,010

148,261

296,223

1,078,853

360,728 22

250,330 571 15

30,627 270

27,153

25,071 170

693,909 1,033 15

360,750

250,916

30,897

27,153

25,241

694,957

Specific reserves Collective reserves

–22

–446

–204

–6

–678 –422

Reserves

–22

–446

–204

–6

–1,100

360,728

250,470

30,693

27,153

25,235

693,857

331,451 24

210,208 787 29

31,596 258 14

28,035

21,904 167 2

623,194 1,236 45

331,475

211,024

31,868

28,035

22,073

624,475

Specific reserves Collective reserves

–24

–637

–190

–23

–874 –289

Reserves

–24

–637

–190

–23

–1,163

331,451

210,387

31,678

22,050

623,312

Collective reserves Reserves Total Parent company 2006 Normal loans Non-performing impaired loans Performing impaired loans Loans prior to reserves

Total Parent company 2005 Normal loans Non-performing impaired loans Performing impaired loans Loans prior to reserves

Total

28,035

SEB annual report 2006 107

Notes to the financial statements

Note 44 ctd. Loans and loan loss provisions

Loans by geographical region1) The Nordic region

Germany

The Baltic region

Other

Total

688,014 1,303 18

284,927 4,854 1,365

108,779 694 19

42,140 272 1

1,123,860 7,123 1,403

689,335

291,146

109,492

42,413

1,132,386

Specific reserves Collective reserves

–532

–3,151

–368

–183

–4,234 –2,170

Reserves

–532

–3,151

–368

–183

–6,404

688,803

287,995

109,124

42,230

1,125,982

Normal loans Non-performing impaired loans Performing impaired loans

614,348 1,467 63

339,036 5,740 796

77,544 449 285

45,894 301

1,076,822 7,957 1,144

Loans prior to reserves

615,878

345,572

78,278

46,195

1,085,923

Specific reserves Collective reserves

–735

–3,525

–325

–202

–4,787 –2,283

Reserves

–735

–3,525

–325

–202

–7,070

615,143

342,047

77,953

45,993

1,078,853

658,014 647 1

35,895 386 14

693,909 1,033 15

658,662

36,295

694,957

Specific reserves Collective reserves

–426

–252

–678 –422

Reserves

–426

–252

–1,100

658,236

36,043

693,857

Normal loans Non-performing impaired loans Performing impaired loans

576,849 823 31

46,345 413 14

623,194 1,236 45

Loans prior to reserves

577,703

46,772

624,475

Specific reserves Collective reserves

–606

–268

–874 –289

Reserves

–606

–268

–1,163

577,097

46,504

623,312

Group 2006 Normal loans Non-performing impaired loans Performing impaired loans Loans prior to reserves

Total Group 2005

Total

Parent company 2006 Normal loans Non-performing impaired loans Performing impaired loans Loans prior to reserves

Total Parent company 2005

Total 1) Breakdown based on where the business is carried out.



108 SEB annual report 2006

Notes to the financial statements

Note 44 ctd. Loans and loan loss provisions

Loans against collateral

Parent company

Group 2006

2005

2006

2005

Mortgage, real property Securities and deposits State, central bank or municipality1) Credit institutions1) Unsecured loans Other2)

436,818 24,827 114,285 95,539 165,622 100,004

400,492 19,909 150,475 100,601 162,971 94,519

31,840 21,420 27,055 291,939 111,358 21,854

32,291 17,346 37,007 255,722 102,609 26,000

Loans prior to reserves Repos Reserves

937,095 195,291 –6,404

928,967 156,956 –7,070

505,466 189,491 –1,100

470,975 153,500 –1,163

1,125,982

1,078,853

693,857

623,312

12 12

30 20

7 7

24 14

915

1,159

3

74

7,123 1,403

7,957 1,144

1,033 15

1,236 45

Loans, net 1) Including guarantees from and loans to 2) Including floating charges, factoring, leasing, guarantees etc

Loans restructured current year Book value of loans prior to restructuring Book value of loans after restructuring Loans reclassified current year Book value of impaired loans which have regained normal status Impaired loans Non-performing impaired loans1) Performing loans Impaired loans gross Specific reserves of which reserves for non-performing loans of which reserves for performing loans Collective reserves Impaired loans net Reserves not included in the above: Reserves for off-balance sheet items Total reserves

8,526

9,101

1,048

1,281

–4,234 –3,630 –604 –2,170

–4,787 –4,183 –604 –2,283

–678 –663 –15 –422

–874 –842 –32 –289

2,122

2,031

–52

118

–215

–268

–5

–4

–6,619

–7,338

–1,105

–1,167

0.22%

0.22%

–0.01%

0.02%

75.1

77.7

105.0

90.8

172

145

1) Loans past due by more than 60 days and with insufficient collateral.

Level of impaired loans Reserve ratio for impaired loans Non-performing loans not determined to be impaired (sufficient collateral)

Out of the total volume of impaired loans more than 40 per cent is collateralized by real property.

SEB annual report 2006 109

Notes to the financial statements

Note 44 ctd. Loans and loan loss provisions Credit exposure by sector* Loans and leasing

Group

Contingent liabilities

Derivative instruments

Total

2006

2005

2006

2005

2006

2005

2006

2005

102,315

103,979

24,637

60,233

40,679

33,589

167,631

197,801

15,912 35,377 33,245 30,746 9,741 49,305 69,009

16,793 30,327 32,148 38,948 6,439 44,227 60,820

13,488 29,530 10,100 23,299 6,962 71,899 52,677

26,013 27,880 10,324 25,795 5,571 64,402 45,250

6,504 211 560 784 34 1,963 1,298

15,978 305 468 1,330 86 3,474 1,804

35,904 65,118 43,905 54,829 16,737 123,167 122,984

58,784 58,512 42,940 66,073 12,096 112,103 107,874

Corporate

243,335

229,702

207,955

205,235

11,354

23,445

462,644

458,382

Property management

149,541

151,469

20,704

19,214

986

1,465

171,231

172,148

Public sector2)

115,675

148,261

21,155

28,741

2,728

3,231

139,558

180,233

Housing loans3) Other

269,630 56,599

239,880 56,314

48,035

23,222

18

23

269,630 104,652

239,880 79,559

Households

326,229

296,194

48,035

23,222

18

23

374,282

319,439

Credit portfolio

937,095

929,605

322,486

336,645

55,765

61,753

1,315,346

1,328,003

82,867 112,424

71,677 85,279

Repos

195,291

156,956

Debt instruments

487,300

422,516

1,997,937

1,907,475

Banks1) Finance and insurance Wholesale and retail Transportation Other service sectors Construction Manufacturing Other

Credit institutions General Public

Total

1) Including National Debt Office. 2) Including state- and municipality-owned companies. 3) Derivatives are reported after netting agreements have been taken into account. The exposure is calculated according to the market value method, i.e. positive market value and estimated amount for possible change in risk. * Before provisions for possible credit losses.

110 SEB annual report 2006

Notes to the financial statements

45

Derivative instruments Group

Parent company

2006

2005

2006

2005

Interest-related Currency-related Equity-related Other

40,918 25,053 1,901

80,142 34,900 3,723

38,169 24,706 1,416

77,834 34,240 2,732

Positive closing values or nil value

67,872

118,765

64,291

114,806

Interest-related Currency-related Equity-related Other

39,532 24,690 2,016

87,926 34,564 6,003

36,427 24,428 1,224

77,852 33,697 4,485

66,238

128,493

62,079

116,034

Negative closing values

Positive closing values or nil value

Group, 2006 Options Futures Swaps Interest-related of which, cleared Options Futures Swaps Currency-related of which, cleared

Negative closing values

Nom. amount

Book value

Nom. amount

Book value

215,536 1,409,077 2,154,719

5,734 2,846 32,338

106,267 1,409,984 2,207,635

3,063 2,314 34,155

3,779,332 652,984

40,918 27

3,723,886 525,113

39,532 5

425,506 401,208 2,379,878

2,675 2,450 19,928

437,408 389,193 2,390,038

1,937 3,686 19,067

3,206,592 2,472

25,053 32

3,216,639 12,664

24,690 238

3,084

4,813

1,321

6,448

1,087 233 581

14,965

695

Equity-related of which, cleared

9,532

1,901

19,778

2,016

Total of which, cleared

6,995,456 655,456

67,872 59

6,960,303 537,777

66,238 243

67,772 1,007,703 2,510,823

1,270 1,020 77,852

57,459 1,003,342 2,586,416

1,097 1,131 85,698

3,586,298 26,361

80,142 147

3,647,217 26,879

87,926 153

591,786 322,773 2,374,644

3,589 2,631 28,680

597,837 314,801 2,374,221

2,468 2,632 29,464

3,289,203

34,900

3,286,859

34,564

17,599 13,180 2,699

3,542 180 1

25,386 4,602

4,840 10 1,153

Equity-related of which, cleared

33,478 14,921

3,723 831

29,988 17,227

6,003 924

Total of which, cleared

6,908,979 41,282

118,765 978

6,964,064 44,106

128,493 1,077

Options Futures Swaps

Group, 2005 Options Futures Swaps Interest-related of which, cleared Options Futures Swaps Currency-related of which, cleared Options Futures Swaps



SEB annual report 2006 111

Notes to the financial statements

Note 45 ctd. Derivative instruments Positive closing values or nil value

Parent company 2006 Options Futures Swaps Interest-related of which, cleared Options Futures Swaps Currency-related of which, cleared

Negative closing values

Nom. amount

Book value

Nom. amount

Book value

193,218 773,519 2,105,992

5,515 2,835 29,819

88,993 913,433 2,105,052

5,701 2,320 28,406

3,072,729 650,007

38,169

3,107,478 525,168

36,427

441,087 371,378 2,421,327

2,613 1,804 20,289

440,100 372,483 2,419,098

1,898 3,265 19,265

3,233,792

24,706

3,231,681

24,428

10,244

601 233 582

10,244

693

Equity-related of which, cleared

10,244

1,416

10,244

1,224

Total of which, cleared

6,316,765 650,007

64,291

6,349,403 525,168

62,079

53,266 995,420 2,441,827

973 1,014 75,847

33,951 995,691 2,422,522

850 1,127 75,875

3,490,513 12,971

77,834

3,452,164 17,903

77,852

594,088 293,494 2,419,692

3,581 2,146 28,513

598,533 293,033 2,420,514

2,446 2,246 29,005

3,307,274

34,240

3,312,080

33,697

Options Swaps

13,315

2,560 172

11,160

3,332 1,153

Equity-related of which, cleared

13,315

2,732

11,160

4,485

Total of which, cleared

6,811,102 12,971

114,806

6,775,404 17,903

116,034

Options Futures Swaps

531

Parent company 2005 Options Futures Swaps Interest-related of which, cleared Options Futures Swaps Currency-related of which, cleared

112 SEB annual report 2006

Notes to the financial statements

46

Fair value information Group 2006

Cash and cash balances with central banks Loans to credit institutions Loans to the public Securities held for trading Derivatives held for trading Derivatives used for hedging Fair value changes of hedged items in a portfolio hedge Financial assets – policyholders bearing the risk Other financial assets designated at fair value Financial assets at fair value Available-for-sale financial assets Held-to-maturity investments Discontinued operations/Assets held for sale Investments in associates Intangible assets Property and equipment Investment properties Tangible and intagible assets Current tax assets Deferred tax assets Trade and client receivables Other assets Other assets Total assets

Deposits by credit institutions Deposits and borrowing from the public Liabilities to policyholders – investment contracts Liabilities to policyholders – insurance contracts Liabilities to policyholders Debt securities Trading derivatives Derivatives used for hedging Trading liabilities Fair value changes of hedged items in portfolio hedge Financial liabilities at fair value Current tax liabilities Deferred tax liabilities Trade and client payables Other liabilities Other liabilities Provisions Subordinated liabilities Total liabilities

Group 2005

Book value

Fair value

Book value

Fair value

11,314 179,339 946,643 340,879 65,212 2,660 283 120,524 81,387 610,945 115,482 2,208 2,189 1,085 15,572 2,302 5,040 22,914 2,568 1,121 11,277 27,356 42,322

11,314 179,481 950,497 340,879 65,212 2,660 283 120,524 81,387 610,945 115,482 2,205 2,189 1,085 15,572 2,302 5,040 22,914 2,568 1,121 11,277 27,356 42,322

27,545 177,592 901,261 286,243 115,768 2,998 2,810 96,148 89,639 593,606 93,265 16,502 1,405 1,218 15,196 3,307 4,971 23,474 1,637 1,209 21,910 29,114 53,870

27,545 178,534 911,372 286,243 115,768 2,998 2,810 96,148 89,639 593,606 93,265 16,607 1,405 1,218 15,196 3,307 5,016 23,519 1,637 1,209 21,910 29,114 53,870

1,934,441

1,938,434

1,889,738

1,900,941

365,980 641,758 120,127 83,592 203,719 388,822 60,343 5,894 84,762 –147 150,852 1,036 9,099 12,479 47,914 70,528 2,066 43,449

366,315 642,713 120,127 83,592 203,719 388,453 60,343 5,894 84,762 –147 150,852 1,036 9,099 12,479 47,914 70,528 2,066 43,467

399,494 570,001 96,178 89,185 185,363 353,205 119,592 8,901 72,563 718 201,774 1,193 8,358 26,120 40,415 76,086 2,816 44,203

400,063 573,384 96,178 89,185 185,363 355,000 119,592 8,901 72,563 718 201,774 1,193 8,358 26,120 40,415 76,086 2,816 44,325

1,867,174

1,868,113

1,832,942

1,838,811

The above calculation comprises balance sheet items at fixed rates of interest during fixed periods. This means that all items subject to variable rates of interest, i.e. deposit/lending volumes for which interest terms are market-related, have not been recalculated; the nominal amount is considered to equal a fair value. When calculating fair values for fixed-interest rate lending, future interest income is discounted with the help of a market interest curve, which has been adjusted for applicable margins on new lending. Correspondingly, fixed-interest rate-related deposits/lending are discounted with the help of the market interest curve, adjusted for relevant margins. In addition to fixed-rate deposits/lending, adjustments have also been made for surplus values in properties and certain shareholdings. One effect of this calculation method is that the fair values arrived at in times of falling margins on new lending will be higher than book values, while the opposite is true in times of rising margins. It should furthermore be noted that this calculation does not represent a market valuation of the Group as a company.

SEB annual report 2006 113

Notes to the financial statements

47

Related party disclosures* Group companies

Associated companies Assets/ ­Liabilities

Interest

241,583 30,622 18,868 5,052

5,585 1,564 591 –20

296,125

7,720

53,616 8,116 919 3,101

–1,868 –264 –3 –4

65,752

–2,139

212,338 23,141 22,278 5,655

3,561 1,032 482 24

12

263,412

5,099

–1,697 –240 –6 –38

4 18

59,873 9,801 1,377 4,042

–1,697 –240 –6 –38

–1,981

22

75,093

–1,981

Interest

241,583 30,474 18,852 5,048

5,585 1,563 591 –20

148 16 4

1

295,957

7,719

168

1

53,616 8,047 919 3,101

–1,868 –263 –3 –4

69

–1

65,683

–2,138

69

–1

212,338 23,129 22,278 5,655

3,561 1,032 482 24

263,400

5,099

Deposits by credit institutions Deposits and borrowings from the public Issued securities Other liabilities

59,869 9,783 1,377 4,042

Total

75,071

Parent company 2006 Loans to credit institutions Loans to the public Bonds and other interest-bearing securities Other assets Total Deposits by credit institutions Deposits and borrowings from the public Issued securities Other liabilities Total

Total Assets/ ­Liabilities

Assets/­ Liabilities

Interest

Parent company 2005 Loans to credit institutions Loans to the public Bonds and other interest-bearing securities Other assets Total

12

* For information about Top management, The Group Executive Committee and Other related parties see note 9c.



48

Future minimum lease payments for operational leases* Group

Parent company

2006

2005

2006

2005

Year 2006 Year 2007 Year 2008 Year 2009 Year 2010 Year 2011 and later

1,298 1,147 989 835 3,016

1,456 1,307 1,275 1,213 1,063 3,436

647 544 459 361 2,385

702 591 579 536 441 2,470

Total

7,285

9,750

4,396

5,319

* Leases for premises and other operational leases.

114 SEB annual report 2006

Notes to the financial statements

49

Capital adequacy Financial group of undertakings1)

Calculation of capital base

Parent company

2006

2005

2006

2005

67,267 –4,070 –2,622

56,796 –3,177 –1,730

35,813 –4,070

30,837 –3,177

60,575

51,889

31,743

27,660

7,543

8,701 7,000

8,206 4,869

–5,342 –712 –1066 51 –387

7,962 780 –6,265 –697 –1,208 966 –352

60,662

53,075

46,662

40,665

22,770 –1,288

23,802 –973

21,687 –813

13,973 381

12,655

14,515 217

22,681 –628 –1,720 15,748

Supplementary capital (tier 2)

35,836

35,484

35,606

36,081

Deductions for investments in insurance companies 4) Deductions for other investments outside the financial group of undertakings Deductions for pension assets in excess of related liabilities

–10,500

–11,682

–206

–6,894

–465 –611

–537

Capital base

84,922

76,340

82,062

69,852

Shareholders equity in the balance sheet Proposed dividend to be decided by the Annual General Meeting Deductions from the financial group of undertakings2) Shareholders equity in the capital adequacy Untaxed reserves Core capital contribution Minority interest3) Goodwill3) 4) Other intangible assets Deferred tax assets Adjustment for hedge accounting Unrealised value change on available-for-sale financial assets Core capital (tier 1) Dated subordinated debts Deductions for remaining maturity Deductions for core capital constraints5) Perpetual subordinated debts Deduction for pension assets in excess of related liabilities

–524 –110 –70 64 –212

SEB annual report 2006 115

Notes to the financial statements

Note 49 ctd. Capital adequacy Financial group of undertakings1)

Calculation of capital requirement for different credit risks

Parent company

2006

2005

2006

2005

Balance sheet items Group A (0%) Group B (20%) Group C (50%) Group D (100%)

233,333 136,464 293,345 426,507

317,499 139,880 256,460 422,078

374,183 35,577 12,910 158,516

359,660 36,935 11,891 152,105

Total investments

1,089,649

1,135,917

581,186

560,591

25,384 146,673 426,507

27,976 128,230 422,078

7,115 6,455 158,516

7,387 5,946 152,105

Risk-weighted amount

598,564

578,284

172,086

165,438

Off-balance-sheet items Group A (0%) Group B (20%) Group C (50%) Group D (100%)

126,131 310,626 25,172 144,054

125,984 330,440 11,666 135,722

16,378 115,405 3,196 190,796

13,867 167,843 4,029 169,824

605,983

603,812

325,775

355,563

8,713 15,601 1,052 75,395

7,551 14,469 784 70,568

8,314 10,503 3,135 56,479

7,076 9,619 3,526 50,194

100,761

93,372

78,431

70,415

3,120 526 75,395

2,894 392 70,568

2,101 1,568 56,479

1,924 1,763 50,194

79,041

73,854

60,148

53,881

677,605

652,138

232,234

219,319

42,732 36,889 5,843 1,027 612 415 263 15,495 3,391

32,601 27,440 5,161 833 400 433 1,358 14,836 2,859

35,168 31,062 4,106 678 499 179 98 11,777 3,047

25,714 23,141 2,573 13 13

12,404 2,184

62,908

52,487

50,768

40,315

84,922 740,513

76,340 704,625

82,910 283,002

69,852 259,634

11.47

10.83

29.30

26.90

Group A (0%) Group B (20%) Group C (50%) Group D (100%)

Nominal amount Group A (0%) Group B (20%) Group C (50%) Group D (100%) Converted amount Group A (0%) Group B (20%) Group C (50%) Group D (100%) Risk-weighted amount Total risk-weighted amount for credit risks

Calculation of capital requirements for market risks Risk-weighted amount for interest rate risks of which, for specific risks of which, for general risks Risk-weighted amount for equity-price risks of which, for specific risks of which, for general risks Risk-weighted amount for liquidation risks Risk-weighted amount for counterparty risks and other risks Risk-weighted amount for currency-related risks Total risk-weighted amount for market risks

Calculation of total capital ratio Total capital base Total risk-weighted amount for credit and market risks Total capital ratio %

1) The Capital adequacy analysis comprise the financial group of undertakings which include non-consolidated associated companies and exclude insurance companies. 2) The deduction from shareholders equity in the consolidated balance sheet consists mainly of non-restricted equity in subsidiaries (insurance companies) that are not consolidated in the financial group of undertakings. 3) The minority interest and goodwill that is included in the capital base differ from the amounts stated in the balance sheet due to the inclusion of companies in the capital adequacy ­calculation that are not consolidated in the Group’s balance sheet. 4) G oodwill includes only goodwill from acquisitions of companies in the financial group of undertakings, i.e. not insurance companies. Goodwill from acquisitions of insurance companies is deducted from the capital base. 5) Dated subordinated debts must not exceed an amount corresponding to half of the core capital.



116 SEB annual report 2006

Notes to the financial statements

50

Assets and liabilities distributed by main currencies Group

Parent company

2006

2005

2006

2005

35,643 47,130 56,450 688 34,144 1,265 4,019

34,641 55,119 50,362 632 31,178 2,339 3,321

144,358 104,130 56,797 1,637 33,753 6,430 13,623

124,589 105,370 54,077 1,323 30,462 8,125 7,505

Loans to credit institutions

179,339

177,592

360,728

331,451

SEK EUR USD GBP DKK NOK Other currencies

448,799 344,094 36,347 9,915 29,102 33,047 45,339

402,275 363,653 41,440 8,579 24,656 23,336 37,322

199,669 48,204 30,273 8,386 27,759 16,247 2,591

174,421 36,852 32,979 6,571 24,707 10,340 5,991

Loans to the public

946,643

901,261

333,129

291,861

SEK EUR USD GBP DKK NOK Other currencies

232,672 250,095 60,011 19,665 132,132 21,520 13,625

190,323 206,971 62,776 14,456 158,605 61,262 11,603

161,885 126,448 47,538 15,285 48,707 25,232 6,911

139,866 112,695 47,269 8,832 67,641 59,627 8,065

Financial assets

729,720

705,996

432,006

443,995

SEK EUR USD GBP DKK NOK Other currencies

27,201 15,728 4,208 1,570 17,267 2,100 10,665

15,673 32,303 4,179 11,185 24,451 6,629 10,469

17,562 539 9,415 4,959 4,564 958 8,189

27,030 11,576 3,066 1,480 19,533 1,013 818

Other assets

78,739

104,889

46,186

64,516

Total assets

1,934,441

1,889,738

1,172,049

1,131,823

744,315 657,047 157,016 31,838 212,645 57,932 73,648

642,912 658,046 158,757 34,852 238,890 93,566 62,715

523,474 279,321 144,023 30,267 114,783 48,867 31,314

465,906 266,493 137,391 18,206 142,343 79,105 22,379

1,934,441

1,889,738

1,172,049

1,131,823

SEK EUR USD GBP DKK NOK Other currencies

SEK EUR USD GBP DKK NOK Other currencies Total assets

SEB annual report 2006 117

Notes to the financial statements

Note 50 ctd. Assets and liabilities distributed by main currencies Group

Liabilities, provisions and shareholders’ equity

Parent company

2006

2005

2006

2005

83,119 93,904 82,133 11,958 40,796 22,072 31,998

61,525 127,716 118,542 11,930 57,239 10,944 11,598

90,122 70,333 71,236 11,477 40,135 22,236 26,832

66,710 76,902 117,111 8,878 56,983 11,375 7,551

Deposits by credit institutions

365,980

399,494

332,371

345,510

SEK EUR USD GBP DKK NOK Other currencies

271,801 222,427 45,434 13,758 19,350 21,141 47,847

232,340 224,800 37,139 6,408 11,170 21,916 36,228

269,361 35,452 38,396 13,264 15,518 14,783 2,353

230,945 34,571 26,714 8,269 8,208 15,130 882

Deposits and borrowing from the public

641,758

570,001

389,127

324,719

SEK EUR USD GBP DKK NOK Other currencies

281,546 152,444 148,024 15,922 128,952 12,268 4,237

261,029 153,991 93,518 33,986 135,997 55,572 6,249

93,886 28,051 134,920 –1,346 45,838 11,317 1,123

83,858 29,341 78,639 28,423 48,952 54,540 1,818

Financial liabilities

743,393

740,342

313,789

325,571

SEK EUR USD GBP DKK NOK Other currencies

19,294 15,595 19,474 2,680 10,966 2,401 2,184

24,775 17,926 10,028 1,362 19,513 2,648 2,650

11,157 4,925 16,540 2,241 9,837 951 931

5,488 17,453 2,151 100 23,494 322 1,727

Other liabilities

72,594

78,902

46,582

50,735

SEK EUR USD GBP NOK Other currencies

10 21,337 9,345 11,460 94 1,203

22,385 12,093 8,199 117 1,409

20,254 9,345 11,460 1,219

21,289 12,093 8,199 59 1,409

Subordinated liabilities

43,449

44,203

42,278

43,049

SEK EUR USD GBP NOK Other currencies

67,267

56,796

46,472 951 56

40,755 1,177

Shareholders’ equity and untaxed reserves

67,267

56,796

47,902

42,239

1,934,441

1,889,738

1,172,049

1,131,823

723,037 505,707 304,410 55,778 200,064 57,976 87,469

636,465 546,818 271,320 61,885 223,919 91,197 58,134

510,998 159,966 270,493 37,096 111,328 49,710 32,458

427,756 180,733 236,708 54,176 137,637 81,426 13,387

1,934,441

1,889,738

1,172,049

1,131,823

SEK EUR USD GBP DKK NOK Other currencies

Total liabilities and equity SEK EUR USD GBP DKK NOK Other currencies Total liabilities and equity

118 SEB annual report 2006

307 423

Notes to the financial statements

51

Income statements – Life insurance operations Group 2006

2005

5,643

5,319

951 927

746 706

1,878

1,452

Net investment income Other operating income

1,385 397

8,996 373

Total income, gross

9,303

16,140

Net insurance benefits and claims

–5,847

–13,174

Total income, net Of which from other units within the SEB group Expenses for acquisition of investment and insurance contracts Acquisition costs Change i deferred acquisition costs

3,456 795

2,966 563

–1,512 507

–1,445 479

Administrative expenses Other operating expenses

–1,005 –869 –62

–966 –910 –117

Total expenses

–1,936

–1,993

1,520

973

Present value of new sales1) Return on existing policies Realised surplus value in existing policies Actual outcome compared to assumptions2)

2,545 1,085 –1,258 –210

2,278 816 –892 –445

Change in surplus values from ongoing business, gross

2,162

1,757

–893 391

–800 323

1,660

1,280

Net insurance premium revenue Income investment contracts Own fees including risk gain/loss Commissions from fund companies

Operating profit

Change in surplus values in life insurance operations

Capitalisation of acquisition costs Amortisation of capitalised acquisition costs Change in surplus values from ongoing business, net3) Change in assumptions4) Financial effects due to short term market fluctuations5) Total change in surplus values6)

–72 528

1,651

2,116

2,931

The calculation of surplus values in life insurance operations is based upon assumptions concerning the future development of written insurance contracts and a risk-adjusted discount rate. The most important assumptions are:

Discount rate Surrender of endowment insurance, contracts signed 5 year / thereafter Lapse rate of regular premiums, unit-linked Growth in fund units Inflation CPI / Inflation expenses Right to transfer policy (unit-linked) Mortality

2006

2005

8% 6% / 12% 10% 6% 2% / 3% 1%

8% 10% / 10% 10% 6% 2% / 3% 1%

According to the Group’s experience

According to industry experience

1) Sales defined as new contracts and extra premiums in existing contracts. 2) The reported actual outcome of contracts signed can be placed in relation to the operative assumptions that were made. Thus, the value of the deviations can be estimated. The most important components consist of extensions of contracts as well as cancellations. However, the actual income and administrative expenses are included in full in the operating result. 3) Deferred acquisition costs are capitalised in the accounts and amortised according to plan. The reported change in surplus values is therefore adjusted by the net result of the capitalisation and amortisation during the period. 4) In 2005 the surrender rate in the UK business was changed from 7.5 to 10 per cent. In Sweden the surrender rate was also changed to 10 per cent and administrative costs per policy were adjusted. In 2006 the assumption of a 1% transfer of ITPK policies was introduced in Sweden with a negative effect. The surrender rate was changed from 10 per cent to 6 or 12 per cent depending on years past since signement of contracts. Administrative costs per policy were also adjusted with a positive effekt. 5) Assumed annual unit growth is 6 per cent. Actual growth results in positive or negative financial effects. 6) Calculated surplus values are not included in the SEB Group’s consolidated accounts.

SEB annual report 2006 119

Notes to the financial statements

52

Assets in unit-link operations

Within the unit-linked business SEB holds, for its customer’s account, a share of more than 50 per cent in 30 (29) funds, where it is the investment manager. The total value of those funds amounted to SEK 79 122m (60 901) of which SEB, for its customer’s account, holds SEK 54 967m (42 023).

53

Discontinued operations/Assets held for sale

Discontinued operations

Group 2006

Parent company 2005

2006

2005

0

0

Profit and loss Investment in associates recognised through the equity method Impairments of financial assets Current tax Total

47 –65 –14 0

–32

Earnings per share Net profit from discontinued operations attributable to equity holders, SEKm Weighted average number of shares, millions Basic earnings per share from discontinued operations, SEK

–32 668 –0.05

Net profit from discontinued operations attributable to equity holders, SEKm Weighted average number of diluted shares, millions Diluted earnings per share from discontinued operations, SEK

–32 674 –0.05

Balance sheet Investments in associates Other assets Total

889 516 0

1,405

Group

Assets held for sale

2006

2005

Balance sheet Investment properties Credit portfolio

923 1,266

Total

2,189

0

In line with the Group’s property strategy there is an ongoing process in selling the properties in Estonia, Latvia and Lithuania within the division Eastern European Banking. The sale is estimated to be closed in the first half of 2007. Further SEB AG in Germany (division German Retail & Mortgage banking) sells its non-performing retail claim portfolio currently administrated by Union Inkasso GmbH. The transaction will be closed in the first quarter of 2007.

120 SEB annual report 2006

661 0

661

Five-year summary

The SEB Group Profit and Loss accounts SEKm

2006

2005

20041)

20032)

2002 2)

Net interest income Net fee and commission income Net financial income Net life insurance income Net other income

14,281 16,146 4,036 2,661 1,623

14,282 13,559 3,392 2,352 642

13,551 11,704 2,176 1,401 1,163

13,782 10,555 2,084 1,037 833

13,719 10,305 2,409 951 925

Total operating income

38,747

34,227

29,995

28,291

28,309

Staff costs Other expenses Net deferred acquisition costs Depreciation, amortisastion and impairment

–14,363 –7,798 507 –883

–13,342 –8,383 477 –901

–11,579 –7,190 316 –932

–11,005 –6,838 222 –855

–10,854 –7,681 103 –964

–22,537

–22,149

–19,385

–18,476

–19,396

70 –718

59 –914

100 –701

–1,006

108 –828

15,562

11,223

10,009

8,809

8,193

Total operating expenses Gains less losses from tangible and intangible assets Net credit losses Operating profit Income tax expense

–2,939

–2,770

–2,662

–2,247

–2,057

12,623

8,453

7,347

6,562

6,136

–32

35

Net profit

12,623

8,421

7,382

6,562

6,136

Attributable to minority interests Attributable to equity holders

18 12,605

20 8,401

17 7,365

12 6,550

37 6,099

Net profit

12,623

8,421

7,382

6,562

6,136

Net profit from continued operations Discontinued operations

1) Restated to IFRS except for IAS 32 and IAS 39. 2) Not prepared under IFRS, only major groups of income and expenses have been reclassified in line with 2005. Previous goodwill amortisations are brought back. Full IFRS compliance would require revaluations of assets and ­liabilities and further reclassifications.­

Balance sheets SEKm

Loans to credit institutions Loans to the public Financial assets Other assets Total assets Deposits by credit institutions Deposits and borrowing from the public Liabilities to policyholders Financial liabilities Other liabilities Subordinated liabilities Total equity Total liabilities, provisions and shareholders’ equity

2006

2005

20041)

20032)

2002 2)

179,339 946,643 672,369 136,090

177,592 901,261 665,335 145,550

208,226 783,355 532,401 82,569

179,308 707,459 345,221 47,405

150,380 680,206 352,291 58,235

1,934,441

1,889,738

1,606,551

1,279,393

1,241,112

365,980 641,758 203,719 552,153 60,115 43,449 67,267

399,494 570,001 185,363 581,099 52,782 44,203 56,796

370,483 516,513 145,730 419,686 71,572 30,804 51,763

246,852 494,036 59,615 309,419 96,746 24,261 48,464

234,289 499,542 48,644 305,231 82,384 25,326 45,696

1,934,441

1,889,738

1,606,551

1,279,393

1,241,112

1) Restated to IFRS except for IAS 32 and IAS 39. 2) Not prepared under IFRS, only major groups of assets and liabilities have been reclassified in line with 2005. Full IFRS compliance would require revaluations of assets and liabilities and ­f urther reclassifications.

Key ratios SEKm

2006

2005

20041)

20032)

2002 2)

Return on equity, per cent Basic earnings per share, SEK Cost/Income ratio Credit loss level, per cent Level of impaired loans, per cent Total capital ratio, per cent Core capital ratio, per cent

20.8 18.72 0.58 0.08 0.22 11.5 8.2

15.8 12.58 0.65 0.11 0.22 10.8 7.5

14.7 10.83 0.65 0.10 0.31 10.3 7.8

14.2 9.44 0.65 0.15 0.52 10.2 8.0

13.7 8.71 0.69 0.13 0.47 10.5 7.9

1) Restated to IFRS except for IAS 32 and IAS 39. 2) Not prepared under IFRS. SEB annual report 2006 121

Five-year summary

Skandinaviska Enskilda Banken Profit and Loss accounts SEKm

2006

2005

20041)

20032)

2002 2)

Net interest income Net commission income Net result of financial transactions Other income

4,711 7,163 3,515 3,515

4,885 5,081 2,558 2,884

5,047 4,813 1,778 2,235

5,790 4,216 1,570 2,234

5,744 4,142 1,734 1,550

Total operating income

18,904

15,408

13,873

13,810

13,170

Administrative expenses Depreciation and write-downs

–13,073 –399

–10,854 –336

–9,791 –310

–9,271 –340

–9,627 –291

Total operating costs

–13,472

–11,190

–10,101

–9,611

–9,918

5,432

4,218

3,772

4,199

3,252

–134 –100

–88 –220

–42 –392

–121 –416

–83 –405

5,198

3,910

3,338

3,662

2,764

–345 –691

–1,058 –293

3,654 –1,978

–943 –435

–661 –476

4,162

2,559

5,014

2,284

1,627

Profit before credit losses Lending losses and changes in value Write-downs of financial fixed assets Operating profit Appropriations including pension compensation Taxes Net profit for the year

1) Restated to IFRS except for IAS 32 and IAS 39. 2) Not prepared under IFRS. Full IFRS compliance would require revaluations of assets and liabilities.

Balance sheets SEKm Loans to credit institutions Loans to the public Financial assets Other assets Total assets Deposits by credit institutions Deposits and borrowing from the public Financial liabilities Other liabilities Subordinated liabilities Shareholders’ equity and untaxed reserves Total liabilities, provisions and shareholders’ equity

2006

2005

20041)

20032)

2002 2)

360,728 333,129 443,528 34,664

331,451 291,861 473,073 35,438

290,448 251,857 350,434 53,466

228,077 219,643 293,796 32,390

226,682 231,531 297,508 38,226

1,172,049

1,131,823

946,205

773,906

793,947

332,371 389,127 324,689 35,682 42,278 47,902

345,510 324,719 349,550 26,756 43,049 42,239

290,247 310,145 225,590 51,774 29,296 39,153

197,619 302,822 131,726 79,421 21,567 40,751

234,673 295,057 141,835 61,625 22,245 38,512

1,172,049

1,131,823

946,205

773,906

793,947

1) Restated to IFRS except for IAS 32 and IAS 39. 2)Not prepared under IFRS, only major groups of assets and liabilities have been reclassified in line with 2005. Full IFRS compliance would require revaluations of assets and liabilities and ­f urther reclassifications.

122 SEB annual report 2006

Definitions

Definitions Return on equity Net profit attributable to equity holders for the year as a percentage of average shareholders equity, defined as the average of equity at the opening of the year and at the close of March, June, September and December, respectively, adjusted for dividends paid during the year, repurchase of own shares and rights issues. Return on business equity Operating profit reduced by a standard tax per division, divided by allocated capital. Return on total assets Net profit as a percentage of average assets, defined as the average of total assets at the opening of the year and at the close of March, June, September and December. Return on risk-weighted assets Net profit as a percentage of average risk-weighted assets, defined as the average of risk-weighted assets at the opening of the year and at the close of March, June, September and December. Cost/Income-ratio Total operating expenses divided by total operating income. Earnings per share Net profit for the year divided by the average number of shares. Adjusted shareholders’ equity per share Shareholders’ equity as per the balance sheet plus the equity portion of any surplus values in the holdings of interest-bearing securities and surplus value in life insurance operations divided by the number of shares at year-end. Risk-weighted asset The book value of the assets as per the balance sheet and the off balance-sheet commitments are valued in accordance with the capital adequacy rules.

Core capital ratio Core capital as a percentage of the risk-weighted assets. Core capital consists of shareholders’ equity, adjusted according to the capital adequacy rules. Total capital ratio The capital of the financial group of undertakings adjusted according to the capital adequacy rules as a percentage of the risk-weighted assets. Total capital consists of core capital and supplementary capital minus holdings of shares in unconsolidated companies and proposed dividend as well as deferred tax and intangibles. Supplementary capital includes subordinated debenture loans plus reserves and capital contributions, after approval by the Financial Supervisory Authority. Supplemen­tary capital must not exceed the amount of core capital. Lending loss level The lending loss level is defined as lending losses and value changes in assets taken over divided by lending to the general public and credit institutions (excluding banks), assets taken over and loan guarantees at the opening of the year. Reserve ratio for impaired loans Reserve for probable loan losses as a percentage of impaired loans, gross. Level of impaired loans Impaired loans (net) divided by loans to the general public and credit institutions (excluding banks) and equipment leased to clients (net).

All figures within brackets refer to 2005 unless otherwise stated. ­Percentage changes refer to comparisons with 2005 unless otherwise stated. Re-classification of the figures for 2005 has been made in relation to the 2006 form of presentation.

Exchange rates for SEB’s main markets 2006

Profit and loss account 2005 Change, %

2006

Balance sheet 2005

Change, %

Dkk Eek Eur

1.241 0.591 9.254

1.246 0.593 9.281

0 0 0

1.213 0.578 9.041

1.258 0.600 9.388

–4 –4 –4

Nok

1.151

1.159

–1

1.098

1.177

–7

Ltl

2.680

2.688

0

2.617

2.720

–4

Lvl Sek

13.292 1.000

13.332 1.000

0 0

12.969 1.000

13.487 1.000

–4 0

SEB annual report 2006 123

Proposal for the distribution of profit

Proposal for the distribution of profit Standing at the disposal of the Annual General Meeting in accordance with the balance sheet of Skandinaviska Enskilda Banken, SEK 15,558,362,358. SEKm Retained profits 11,396 Result for the year 4,162 Non-restricted equity

15,558

The Board’s motivation of the dividend is found on page 25. The board proposes that, following approval of the balance sheet of Skandinaviska Enskilda Banken for the financial year 2006, the Annual General Meeting should distribute the abovementioned unappropriated funds as follows: declare a dividend of SEK 6.00 per Series A-share SEK 6.00 per Series C-share and bring forward to next year

SEK 3,978,024,738 144,915,048 11,435,422,572

The Board of Directors and the President hereby certify that, to the best of our knowledge, the annual accounts have been prepared in accordance with good accounting practices for a stock market company, that the information presented is consistent with the actual ­conditions and that nothing of material value has been omitted that would affect the picture of the Bank presented in the Annual Report.

Stockholm 23 February, 2007

Marcus Wallenberg Chairman

Jacob Wallenberg

Penny Hughes

Tuve Johannesson

Hans-Joachim Körber

Gösta Wiking

Urban Jansson

Jesper Ovesen

Annika Falkengren President

124 SEB annual report 2006

Ulf Jensen

Carl Wilhelm Ros

Göran Lilja

Auditors’ Report

Auditors’ report To the annual meeting of the shareholders of Skandinaviska Enskilda Banken AB (publ); Corporate registration number 502032-9081 We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the board of directors and the managing director of Skandinaviska Enskilda Banken AB (publ) for the year 2006. The company’s annual accounts are included in the printed version of this document on pages 20–44 and 55–124. The board of directors and the managing director are responsible for these accounts and the administration of the company as well as for the application of Annual Accounts Act for Credit Institutions and Securities Companies when preparing the annual accounts and the app­lication of international financial reporting standards IFRSs as adopted by the EU and Annual Accounts Act for Credit Institutions and Securities Companies when preparing the ­consolidated accounts. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit. We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain reasonable assurance that the annual accounts and the consolidated accounts are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the board of directors and the managing director and significant estimates made by the board of directors and the managing director when preparing the annual accounts and consolidated accounts as well as evaluating the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we examined significant decisions,

actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any board member or the managing director. We also examined whether any board member or the managing director has, in any other way, acted in contravention of the Companies Act, Banking and Financing Business Act, Annual Accounts Act for Credit Institutions and Securities Companies or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below. The annual accounts have been prepared in accordance with Annual Accounts Act for Credit Institutions and Securities Companies and give a true and fair view of the company’s financial position and results of operations in accordance with generally accepted accounting principles in Sweden. The consolidated accounts have been prepared in accordance with international financial reporting standards IFRSs as adopted by the EU and Annual Accounts Act for Credit Institutions and ­Securities Companies and give a true and fair view of the group’s financial position and results of operations. The statu­tory administration report is consistent with the other parts of the annual accounts and the consolidated accounts. We recommend to the annual meeting of shareholders that the income statements and balance sheets of the parent company and the group be adopted, that the profit of the parent company be dealt with in accordance with the proposal in the administration report and that the members of the board of directors and the managing director be discharged from liability for the financial year.

Stockholm 23 February, 2007

PricewaterhouseCoopers AB



Peter Clemedtson

Peter Nyllinge



Authorised Public Accountant

Authorised Public Accountant



Partner in charge

Ulf Davéus Authorised Public Accountant Appointed by the Financial Supervisory Authority

SEB annual report 2006 125

Board of Directors

Marcus Wallenberg

Tuve Johannesson

Marcus Wallenberg 2) 5) 7) Born 1956; elected 2002, B. Sc. of ­Foreign Service. Chairman since 2005 Other assignments: Chairman of Saab and ICC (International Chamber of Commerce). Deputy Chairman of Ericsson. Board ­member of AstraZeneca, Electrolux, Stora Enso, Thisbe AB and the Knut and Alice Wallenberg Foundation. Background: Marcus Wallenberg joined Investor in 1993 as Executive Vice President and was appointed President and Group Chief Executive 1999. Prior to that he worked at Stora Feldmühle in Germany for three years. Marcus Wallenberg began his career at Citibank in New York 1980, followed by various positions at Deutsche Bank in ­Germany, S G Warburg Co Ltd in London and Citicorp in Hong Kong. He joined SEB in 1985 and worked there until 1990. Own and closely related persons’ shareholding: 105,638 Series A-shares and 1,473 class C-shares. Independent in relation to the bank and management, non-independent in relation to major shareholders. Jacob Wallenberg Born 1956; elected 1997, B. Sc. (Econ) and MBA. Deputy Chairman since 2005 (Chairman 1998–2005). Other assignments: Chairman Investor. Deputy Chairman Atlas Copco and SAS. Director ABB, the Knut and Alice Wallenberg Foundation, the Nobel Foundation, Thisbe AB and Stockholm School of Economics. Background: Jacob Wallenberg joined SEB in London in 1984. Thereafter he held various positions in SEB in Singapore, Hong Kong and primarily in Sweden. In 1990 he joined Investor as Executive Vice President and in 1993 he rejoined SEB.

126 SEB annual report 2006

Magdalena Olofsson

Jacob Wallenberg

Carl Wilhelm Ros

In 1997 he was appointed President and Group Chief Executive of the SEB Group and in 1998 Chairman of the Board. Jacob Wallenberg began his banking career at JP Morgan in New York in 1981. Own and closely related persons’ shareholding: 19,772 class A-shares and 3,408 class C-shares. Independent in relation to the bank and management, non-independent in relation to major shareholders (Chairman Investor). Gösta Wiking 4) Born 1937; elected 1997. Deputy Chairman since 1997. Other assignments: Chairman Angiogenetics. Director XCounter and Grycksbo. Background: In 1972 Gösta Wiking joined Perstorp where he held various senior positions. He was appointed President and CEO in 1991 when he also became a board member. In 1997 he was appointed Chairman of the Board of Perstorp. He was Chairman of Trygg Hansa until the merger with SEB. Own and closely related persons’ shareholding: 4,300 class A-shares. Independent in relation to the bank and management, independent in relation to major shareholders. Penny Hughes 6) Born 1959; elected 2000, B. Sc. ­(Chemistry) Other assignments: Director Reuters, GAP Inc, Bridgepoint Capital (Advisory Board) and Home Retail Group Plc. Background: Penny Hughes began her career at Procter & Gamble in 1980. In 1984 she joined Coca-Cola and was appointed President of Coca Cola UK Ltd 1992. She left the company in 1994 and has since then held several directorships.

Urban Jansson

Jesper Ovesen

Own and closely related persons’ shareholding: 500 class A-shares. Independent in relation to the bank and management, independent in relation to major shareholders. Urban Jansson 1) Born 1945; elected 1996, Higher bank degree (Skandinaviska Banken). Other assignments: Chairman AB Elspiraler, Jetpak Group, Rezidor Hotel Group and Siemens AB. Deputy Chairman Ahlstrom Corp. Director Addtech, Wilh. Becker, CapMan, Clas Ohlson, Eniro, Ferd A/S, HMS and Stockholm Stock Exchange Listing Committee. Background: Urban Jansson joined SEB in 1966 where he held various management positions between 1972 and 1984. In 1984 he joined HNJ Intressenter (former subsidiary of the Incentive Group) as President and CEO. In 1990 Urban Jansson was appointed Executive Vice President of the Incentive Group. In 1992 he was appointed President and Group Chief Executive of Ratos. He left the company in 1998 and has since then held several board directorships. Own and closely related persons’ shareholding: 9,000 class A-shares. Independent in relation to the bank and management, independent in relation to major shareholders.

Ulf Jensen

Tuve Johannesson 8) Born 1943; elected 1997, B. Sc. and MBA. Other assignments: Chairman Ecolean International A/S, IBX Integrated Business Exchange AB and CJS Chumak, Ukraine. Director Gambro AB, Cardo AB and Meda AB. Advisor to JCB Excavators Ltd. Background: Tuve Johannesson began his career at Tetra Pak in 1969 where he held various senior positions in South Africa, Australia and Sweden. In 1983 he was appointed Executive Vice President of Tetra Pak. He became President of VME, presently Volvo Construction Equipment, in 1988. He then became President of Volvo Car Corporation in 1995 a position he held until 2000. Vice Chairman of the Board of Volvo Car Corporation 2000–2004. Own and closely related persons’ shareholding: 20,000 class A-shares. Independent in relation to the bank and management, independent in relation to major shareholders. Dr Hans-Joachim Körber Born 1946; elected 2000; Dr. Other assignments: President and Chief Executive Officer (CEO) Metro AG. Director Air Berlin Plc, Bertelsmann AG and Loyalty Partner Holding GmBH. Background: Hans-Joachim Körber joined Metro AG in 1985 and was appointed Member of the Management Board Metro AG in 1996 and President and Group Chief Executive in 1999. He began his career as Senior Controller at the Oetker Group in 1975. Own and closely related persons’ shareholding: 0 IIndependent in relation to the bank and management, independent in relation to major shareholders.

Board of Directors

Göran Lilja

Gösta Wiking

Annika Falkengren

Hans-Joachim Körber

Penny Hughes

Jesper Ovesen 3) Born 1957, elected 2004, Bachelor of Commerce Degree (Econ) and MBA. Other assignments: Chief Executive Officer (CEO) KIRKBI Group. Director, FLSmidth & Co A/S and Merlin Entertainments Group Luxembourg S.a.r.l. Background: January 1 2007, Jesper Ovesen took office as Chief Executive Officer of the KIRKBI Group, coming from a position as CFO at LEGO Holding A/S which he assumed in 2003. Prior to that, he held the position as CFO of Den Danske Bank during five years. Between 1994 and 1998 he joined Novo Nordisk as Vice President and Head of Finance. Jesper Ovesen began his career at Price Waterhouse where he worked between 1979 and 1989. Thereafter he joined Baltica Bank as Vice President, later on as Group Chief Executive. Own and closely related persons’ shareholding: 480 class A-Shares

Annika Falkengren 3) Born 1962; elected 2005 (effective as of 1 January 2006), SEB employee since 1987; B. Sc. (Econ). President and Group Chief Executive as of 10 November 2005. Other assignments: Director Securitas, Ruter Dam and the Mentor Foundation. Background: Annika Falkengren started as an SEB trainee in 1987 and worked in Trading & Capital Markets 1988–2000. She was appointed Global Head of Fixed Income in 1995, Global Head of Trading in 1997, Head of Merchant Banking in 2000. In 2001 she became Head of the Corporate & Institutions division and Executive Vice President of SEB. Own and closely related persons’ shareholding: 31,000 class A-shares, 535,295 employee stock options and an initial allotment of 105,846 performance shares.

Independent in relation to the bank and management, independent in relation to major shareholders.

Non-independent in relation to the bank and management (President and Group Chief Executive SEB), independent in relation to major shareholders.

Carl Wilhelm Ros 9) Born 1941, elected 1999, M.Sc. (Econ). Other assignments: Director Anders Wilhelmsen & Co AS, Bonnier, Camfil, INGKA (Ikea) Holding and Bisnode. Background: Carl Wilhelm Ros worked at Astra between 1967 and 1975. In 1975 he joined Alfa Laval where he was appointed Group Controller in 1978. 1985 he joined Ericsson as Senior Executive Vice President. He left the company 1999 and has since then held several directorships. Own and closely related persons’ shareholding: 4,529 class A-shares and 38 class C-shares. Independent in relation to the bank and management, independent in relation to major shareholders.

Göran Arrius

Directors appointed by the employees Ulf Jensen Born 1950; appointed 1997 (1995), university studies economics and law. Chairman Financial Sector Union of Sweden SEB Group. Director Financial Sector Union of Sweden. Background: Ulf Jensen joined SEB in 1977 where he held various positions. He was elected Chairman of Financial Sector Union of Sweden Stockholm City in 1989 and Financial Sector Union of Sweden SEB Group in 1999. Own and closely related persons’ shareholding: 0

Göran Lilja Born 1963; appointed 2006, Higher bank degree. Vice chairman Financial Sector Union of Sweden SEB Group. Chairman Regional Club Väst of the same union. Director of the European Works Council SEB Group in 2006. Background: Göran Lilja joined SEB in 1984 where he held various positions. He was elected vice Chairman of Financial Sector Union of Sweden Group and Chairman Regional Club Väst of the same union in 2006. Own and closely related persons’ shareholding: 540 class A-shares.

Magdalena Olofsson is also a Director of the European Works Council SEB Group. Own and closely related persons’ shareholding: 0

Deputy Directors appointed by the employees

6)

2)

3)

4)

5)

7)

Göran Arrius Born 1959; appointed 2002, Naval Officer. Chairman Association of University Graduates at SEB and JUSEK’s Section for Bank and Insurance. Background: Göran Arrius began his career as a Naval Officer. In 1988 he joined Trygg Hansa Liv and has since then held various positions in the life insurance business. Göran Arrius works today as Product ­Specialist for occupational pensions at SEB Trygg Liv. Own and closely related persons’ shareholding: 0

Chairman of Risk and Capital ­Committee of the Board of Directors.  Deputy Chairman of Risk and Capital Committee of the Board of Directors  Member of Risk and Capital Committee of the Board of Directors.  Chairman of Audit and Compliance ­Committee of the Board of Directors.  Deputy Chairman of Audit and ­Compliance ­Committee of the Board of Directors.  Chairman of Remuneration and HR ­Committee of the Board of Directors.  Deputy Chairman of Remuneration and HR Committee of the Board of Directors.  Member of Remuneration and HR ­Committee of the Board of Directors.  Member of the Audit and Compliance Committee of the Board of Directors.

1) 

8)

9)

Magdalena Olofsson Born 1953; appointed 2003. Director Financial Sector Union of Sweden SEB Group. Vice Chairman Regional Club Stockholm & Öst of the same union. Director Financial Sector Union of Sweden. Background: Magdalena Olofsson joined SEB in 1974 and has since then held various positions in the SEB Group, including twelve years at SEB BoLån AB. Since 2002

SEB annual report 2006 127

Group Executive Committee and Auditors

Annika Falkengren

Magnus Carlsson

Bo Magnusson

Anders Mossberg

Hans Larsson

Per-Arne Blomquist

Annika Falkengren Born 1962; SEB employee since 1987; B. Sc. (Econ). President and Group Chief Executive as of 10 November 2005. Other assignments: Director Securitas, Ruter Dam and the Mentor Foundation. Background: Started as SEB trainee and worked in Trading & Capital Markets 1988– 2000. Appointed Global Head of Fixed Income in 1995, Global Head of Trading in 1997 and Head of Merchant Banking in 2000. Head of the Corporate & Institutions division and Executive Vice President 2001. Own and closely related persons’ shareholding: 31,000 class A-shares, 535 295 employee stock options and an initial allotment of 105,846 performance shares.

Magnus Carlsson Born 1956; SEB employee since 1993; M. Sc. Executive Vice President, Head of Merchant Banking since 2005. Background: Bank of Nova Scotia 1980– 93, holding several leading positions in London. Head of Project & Structured Finance, SEB Merchant Banking in 1996, Head of Corporate Clients in 1999, later on Deputy Head of SEB Merchant Banking and Head of the SEB Merchant Banking division and Executive Vice President of SEB in 2005. Own and closely related persons’ shareholding: 5,000 class A shares, 84,324 employee stock options and an initial allotment of 60,623 performance shares.

Per-Arne Blomquist Born 1962; SEB employee since 2001; B. Sc. (Econ). Executive Vice President, Chief Financial Officer since 1 October 2006. Background: Joined SEB as Head of Group Finance. Between 1997 and 2000, with Telia, e.g. as President at Telia Företag. Per-Arne Blomquist started his career at Alfa Laval. Own and closely related persons’ shareholding: 1,500 class A shares, 87,234 employee stock options and an initial allotment of 17,850 performance shares. Fredrik Boheman Born 1956; SEB employee since 1985; M.A. Executive Vice President, Head of Wealth Management since 1 January 2007. Other assignments: Director Teleopti. Background: Started as SEB trainee. SEB in Sao Paulo and Branch Manager in Hong Kong 1994–1998. Thereafter Head of Corporate Clients and Head of Trade and Project Finance. 2002–2006 in Germany, first as Head of Merchant Banking, thereafter as CEO of SEB AG. Head of Asset Management since October 2006. Own and closely related persons’ shareholding: 8,127 class A-shares, 25,000 employee stock options and an initial allotment of 31,346 performance shares.

128 SEB ANNUAL REPORT 2006

Hans Larsson Born 1961; SEB employee since 1984; B. Sc. (Econ). Head of SEB Group Staff since 1 October 2006. Background: Started in SEB within Trading & Capital Markets, Head of Fixed Income 1986. TCM in New York 1988–92. Head of Debt Capital Markets from 1994. In 2002 appointed Deputy Global Head of Client Relationship Management. Head of SEB’s Business Development and the CEO-office 2005–06. Own and closely related persons’ shareholding: 446 class A shares, 17 series C shares, 40,000 employee stock options and an initial allotment of 14,500 performance shares. Bo Magnusson Born 1962; SEB employee since 1982; Higher bank degree. Executive Vice President, Head of Retail Banking since 1 January 2007. Other assignments: Director Nordic Central Securities Depository and Swedish Bankers’ Association. Background: Started his career at SEB Trading & Capital Markets, holding several leading positions as Head of Accounting and Controller within both Trading & Capital Markets, SEB Group Finance and Enskilda Securities. Chief Financial Officer of SEB Merchant Banking in 1998, Head of Staff

Functions in 2000. Later on Global Head of Cash Management & Securities Services in 2003 and Deputy Head of SEB Merchant Banking in 2005. In 2005 appointed Head of Nordic Retail & Private Banking. Own and closely related persons’ shareholding: 3,500 class A shares, 58,000 employee stock options and an initial allotment of 39,123 performance shares. Anders Mossberg Born 1952; SEB employee since 1985. Executive Vice President, Head of Life since 1997. Other assignments: Director Sveriges Försäkringsförbund. Background: Head of the bank’s life insurance operations in 1990. Head of SEB Trygg Liv since 1997. In 1998 Executive Vice President of SEB and Head of the then Asset Management & Life division. Anders Mossberg started his career at Skandia Försäkring AB in 1981. Own and closely related persons’ shareholding: 7,008 class A-shares, 368,809 employee stock options and an initial allotment of 63,385 performance shares. Mats Kjær Born 1950; SEB employee since 1971. Executive Vice President, Head of Eastern European Banking and member of Group Executive Committee between 2004 and 2006. Own and closely related persons’ shareholding: 2,000 class A-shares, 111,118 employee stock options and an initial allotment of 51,231 performance shares.

Fredrik Boheman

Nils-Fredrik Nyblæus Born 1951; SEB employee since 2004, B. Sc. (Econ). Head of Group Staff and IT (since 2004) and CFO (since 2005) until 1 October 2006. Executive Vice President and member of Group Executive Committee between 2004 and 2006. Own and closely related persons’ shareholding: 400 class A-shares, 53,333 employee stock options and an initial allotment of 40,823 performance shares. Appointments to the Group Executive Committee in 2007 Ingrid Engström, formerly with Eniro, has been appointed as Executive Vice President and Head of HR & Organisational Development as from 26 March 2007. David Smith, formerly with Citigroup, has been appointed Executive Vice President and Head of Business Support with responsibilities including Group IT, Group Operations and SEB Way as from 8 February 2007.

AUDITORS Auditors elected by the Annual General Meeting PricewaterhouseCoopers Peter Clemedtson Born 1956; Signing auditor in SEB as of 2006. Authorised Public Accountant, auditor in charge as of 2006. Peter Nyllinge Born 1966; co-signing auditor in SEB as of 2006. Authorised Public Accountant. Auditor appointed by the Financial Supervisory Authority Ulf Davéus Born 1949; auditor in SEB as of 2004. Authorised Public Accountant, BDO

Contents

SEB’s financial information is available on www.sebgroup.com

Addresses Head Office

2006 in brief

1

Group Executive Committee

Chairman’s statement President’s statement

2 3

Postal Address: SE-106 40 Stockholm

SEB today

4

Telephone: +46 771 62 10 00

Markets, competition and customers

8

SEB’s employees

14

SEB’s role in society

16

The SEB share

18

Report of the Directors Financial Review of the Group Result and profitability Financial structure Divisions SEB Merchant Banking Nordic Retail & Private Banking SEB in Gemany (SEB AG Group) German Retail & Mortgage Banking Eastern European Banking SEB Asset Management SEB Trygg Liv Risk and Capital Management Corporate Governance within SEB Board report on the internal control of the financial reporting for 2006

Publication of annual accounts Publication of Annual Report on the Internet Annual General Meeting

20 20 23

Interim report January–June

26 28 30 31 32 34 36 38

For further information please contact:

45 54 55

60 61 62 63 64 121 123 124 125

Board of Directors

126

Group Executive Committee and Auditors

128

56 57 58 59

+46 8 22 19 00 (management)

Financial information during 2007

Interim report January–March

Financial Statements SEB Group Income statements Balance sheets Statement of changes in equity Cash flow statements Skandinaviska Enskilda Banken Income statements Balance sheets Statements of changes in equity Cash flow statements Notes to the financial statements Five-year summary Definitions Proposal for the distribution of profit Auditors’ report

Addresses

Visiting Address: Kungsträdgårdsgatan 8

Interim report January–September

9 February 6 March 28 March 4 May 19 July 26 October

Divisions Merchant Banking Postal Address: SE-106 40 Stockholm Visiting Address: Kungsträdgårdsgatan 8 Telephone: +46 771 62 10 00

Per-Arne Blomquist Chief Financial Officer Telephone +46 8 22 19 00 E-mail: [email protected] Ulf Grunnesjö Head of Investor Relations Telephone +46 8 763 85 01 E-mail: [email protected] Annika Halldin Financial Information Officer Telephone +46 8 763 85 60 E-mail: [email protected]

Retail Banking Postal Address: SE-106 40 Stockholm Visiting Address: Sergels Torg 2 Telephone: +46 771 62 10 00 Wealth Management Postal Address: SE-106 40 Stockholm Visiting Address: Sveavägen 8 Telephone: +46 771 62 10 00 Life Postal Address: SE-106 40 Stockholm Visiting Address: Sergels Torg 2 Telephone: +46 771 62 10 00

Skandinaviska Enskilda Banken AB’s corporate registration number: 502032-9081

Annual Report

Notices convening the General Meeting including an agenda for the Meeting will be published in the major Swedish daily newspapers and on www.sebgroup.com on 26 February 2007. Shareholders wishing to attend the Annual General Meeting shall – both be registered in the shareholders’ register kept by VPC (the Swedish Securities Register Centre) on Thursday 22 March, 2007. – and notify the Bank in writing under address Skandinaviska Enskilda Banken AB, Box 47011, SE-100 74 Stockholm, or by telephone 0771-23 18 18 between 9.00 a.m. and 4.30 p.m. in Sweden or, from abroad, at +46 771 23 18 18 or via Internet on www.sebgroup.com, not later than 1 p.m. on Thursday 22 March, 2007. Dividend The Board proposes a dividend of SEK 6.00 per share. The share is traded ex dividend on Thursday 29 March, 2007. Monday 2 April, 2007 is proposed as record date for the dividend. If the Annual General Meeting resolves in accordance with the proposals, dividend is expected to be distributed by VPC on Thursday 5 April, 2007.

ANNUAL REPORT 2006

The Annual General Meeting will be held on Wednesday 28 March, 2007 at 2 p.m. (Swedish time) at Stockholm Concert Hall.

Production: SEB and Intellecta Communication AB • Photos: Mats Lundqvist, Bruno Ehrs • Printing: Elanders • R:5056

Annual General Meeting

2006 ■ Robust business climate and high customer interaction ■ Improved efficiency and continued organic growth ■ Operating profit SEK 15,562m (11,223) ■ Earnings per share SEK 18.72 (12.58) ■ Return on equity 20.8 per cent (15.8) ■ Focused strategy and new organisation as from 2007

www.seb.se