1 Pohjola Group 31 March 2008
2 Group business structure Strategy Interim report 31 March 2008 Pohjola Group Banking and Investment Services Non-life Insurance Acquisition synergies Prospects for 2008 Dividend policy 2
3 3 Group business structure
4 4 Pohjola Group in brief Pohjola Group offers banking, investment and non-life insurance services as one of the leading players in the Finnish market. For corporate customers: comprehensive financial, investment and payment transaction solutions and non-life insurance services in Finland and abroad. For private customers: non-life insurance and asset management services.
5 The Group's business structure Q1/ Pohjola Group Banking and Investment Services Non-life Insurance Corporate Banking Markets Group Treasury Asset Management Private Customers Corporate Customers Baltic States
6 6 Strategy
7 Strategy in a Nutshell Fully Integrated Financial Services Company 7 Vision The most preferred financial services partner Mission Goals Measures Tools and critical success factors Business concept Creating economic value for our customers and shareholders High profitability High cost-efficiency Market leadership Exploiting the shared International New value-added customer potential and service services service network capabilities Brand Proactive risk management Effective capital management People and competencies Integrated business model
8 Financial targets 8 1-3/ / Target 2010 Banking and Investment Services Operative return on equity, % > 19 Operative cost/income ratio, % < 40 Non-life Insurance Operative return on equity, % > 20 Operative combined ratio, % Operating expense ratio, % < 20 Solvency ratio, % Group Return on equity at fair values, % Tier 1 ratio, % (old approach) Tier 1 ratio, % (new approach) > 8.5
9 Objective: leading market position in Finland 9 Now Target Corporate Banking 2nd 1st Non-life Insurance 1st 1st Asset Management 2nd 1st Source: Data disclosed by companies, Financial Supervision Authority, Federation of Finnish Insurance Companies
10 10 Systematic implementation of strategy continues In Banking and Investment Services, the focus is on strengthening further the market position of Corporate Banking and Asset Management. Customers' positive opinions are a strength. Problem-solving orientation guides the operations. In Non-life Insurance, the market position as the insurer of private households can be improved in particular. The target is to increase the number of loyal customer households. by offering the market's best bonuses for customers who pool their banking and insurance matters with the OP-Pohjola Group, and by benefiting from the wide customer base and branch office network of the OP-Pohjola Group. Requirements for reaching the Group's profitability target: Fulfilment of synergy benefits and improvement of operational efficiency Organic growth in business operations Increased efficiency in the use of capital.
11 11 Interim report 31 March 2008
12 12 Pohjola Group Growth remained strong Customer business improved profitability Lower liquidity reserve market value undermined earnings markedly Capital adequacy at a good level
13 Sustained Strong Growth Lower Earnings than in Q1/ The Group continued its strong growth during the first quarter The loan portfolio increased by 11% and by 26% in the year to March. Insurance premium revenue was 8% higher than a year ago. It is estimated that the Group's market position strengthened during the first quarter. Earnings were markedly lower than a year ago Improved year-on-year earnings from customer business were eroded by marketvalue changes recognised for liquidity reserves. Banking and Investment Services showed a slight loss before tax. Non-life Insurance posted a higher balance on technical account than a year ago although it reported lower earnings before tax than a year earlier, due to year-on-year lower investment income from Non-life Insurance.
14 12 mrd. billion Banking and Investment Services Strong growth: Loan portfolio up by 11% in the first quarter 11% % 8 17% 6 12% 7% 19% 13% / / / / / /2007 3/2008 Growth rates are based on growth over the previous period.
15 million 300 Non-life Insurance Strong growth: Insurance premium revenue up by 8% % % 6% % Private Customers Corporate Customers Baltic Total 1-3/ /2008
16 Banking and Investment Services 16 million Earnings adjusted for fair value changes up by 12% *) Q Q Q Q Q Earnings before tax Earnings adjusted for fair value changes *) *) Earnings adjusted for value changes in liquidity reserves
17 Non-life Insurance Customer business profitability improved Operating combined ratio Q1
18 Income statement 18 million 1-3/ / Net interest income after impairment losses Net income from non-life insurance Net commissions and fees Other operating income Total income Total expenses Earnings before tax Earnings per share,
19 million 50 Earnings before tax by business line 45 January-March Banking and Investment Services Non-life Insurance 1-3/ /2008 Other operations
20 Balance sheet - Loans and investments 20 billion billion 16% 6% 19% 53% 2% 5% 22.3 billion 12% 9% 17% 30% 12% 1% 10% 24.2 billion 14% 9% 20% 32% 11% 1% 12% 25.9 billion 9% 11% 18% 36% 11% 3% 12% 29.0 billion 11% 6% 18% 36% 11% 5% 14% 31 Dec Dec Dec Dec March 2008 Receivables from Member Cooperative Banks Receivables from other financial institutions Financial assets for trading Receivables from customers Non-life insurance assets Life insurance assets Investment assets Other items
21 Balance sheet Funding 21 billion billion 19% 7% 25% 37% 3% 5% 4% 22.3 billion 7% 9% 9% 9% 41% 2% 9% 6% 25.9 billion 24.2 billion 5% 5% 5% 5% 11% 8% 9% 55% 3% 8% 7% 31 Dec Dec Dec Dec March % 50% 3% 7% 10% 29.0 billion 6% 9% 11% 9% 43% 4% 5% 12% Liabilities to Member Cooperative Banks Liabilities to other financial institutions Liabilities to customers Non-life insurance liabilities Life insurance liabilities Debt securities issued to the public Subordinated liabilities Capital loans Shareholders' equity and minority interests Other items
22 22 Own funds and capital adequacy million % Tier 2 Tier 1 Tier 1 ratio, % Capital adequacy ratio, % /04* 12/05* 12/06* 12/07 03/ * Measurement approach under Basel I, which is not comparable with the current approach under Basel II
23 Long-term credit ratings *) 23 Moody's Investors Standard Fitch Service & Poor s Ratings Pohjola Bank Aa1 AA- AA- Danske Bank Aa1 AA- AA- Handelsbanken Aa1 AA- AA- Nordea Aa1 AA- AA- DnB NOR Aa1 AA- - Swedbank Aa1 A+ A+ SEB Aa2 A+ A+ Pohjola Insurance **) A2 A+ - If **) A2 A - Finnish Sovereign Aaa AAA AAA *) Long-term funding **) Insurer financial strength
24 24 Banking and Investment Services Customer business improved profitability, but the lower liquidity reserve market value eroded earnings
25 Banking and Investment services Q1/2008 in brief 25 The loan portfolio grew by 11% and by 26% in the year to March. The average level of corporate loan portfolio's margins stood at 0 83% (0.81). Loss before tax EUR 1 (earnings of EUR 45 million). EUR 59 million negative mark-to-market valuation of liquidity reserves, EUR 49 million recognised in the income statement.
26 Banking and investment services Performance 26 million 1-3/08 1-3/ Net interest income Impairment losses on receivables Net interest income after impairment losses Net commissions and fees Net trading income Net investment income Other operating income Total income Operating expenses Earnings before tax at fair values
27 Banking and Investment Services Credit margins in the derivatives market *) /06 03/07 06/07 09/07 12/07 03/08 itraxx 5 yrs, Companies and financial institutions investment grade (left axis) itraxx Financials Senior 5 yrs, Financial institutions investment grade (left axis) itraxx Crossover 5 yrs, Companies below investment grade (right axis) *) Developments in margins in the spot and derivatives markets may differ from each other
28 million Banking and investment services Earnings before tax by division January-March Corporate Banking Markets Central Banking Treasury Asset Management Banking and Investment Services 1-3/ /2008
29 billion 12 Banking and investment services Growth in the first quarter: loan portfolio % 11% % 7% 19% 13% 17% / / / / / /2007 3/2008 The percentages describe the change of loan portfolio from the end of the previous period.
30 20 % Banking and Investment Services Market share in corporate loans developed favourably % 29 March % 31 March /99 12/00 12/01 12/02 *) **) 12/03 12/04 12/05 12/06 12/07 *) Until December 2002 deposit banks' corporate loan portfolio. **) Since January 2003 according to the new statistics of the Bank of Finland.
31 % 1,0 0,9 0,8 0,7 0,6 0,5 0,4 0,3 0,2 0,1 0,0 Banking and Investment Services Average margin of corporate loan portfolio Average margin of corporate loan portfolio 31 12/99 12/00 12/01 12/02 12/03 12/04 12/05 12/06 12/07
32 Banking and investment services Corporate exposure by industry 32 Construction Forest industry Real estate Investment Services Transport and traffic Energy Other industry Food industry Real estate management Telecommunications and electronics Chemical Industry Communications and publishing Other industries Wholesale and retail trade Metal industry % 31 Dec.2003 ( 6.6 billion) 31 Dec.2004 ( 7.9 billion) 31 Dec.2005 ( 8.6 billion) 31 Dec.2006 ( 10.6 billion) 31 Dec 2007 ( 12.3 billion) 31 March 2008 ( 14.3 billion)
33 % Banking and investment services Corporate exposure by credit rating *) 1-2 (AAA-A-) 3-4 (BBB+ - BBB-) 5-6 (BB+ - BB) 7-8 (BB- - B+) 9-10 (B - C) (D) Non-rated 31 Dec Dec Dec Dec Dec March.2008
34 billion 14 Banking and investment services Loan and guarantee portfolio % /02 12/03 12/04 12/05 12/06 12/07 3/ Loan and guarantee portfolio *) Impairment losses on receivables / Loan and guarantee portfolio, % Doubtful receivables / Loan and guarantee portfolio, % *) Loan portfolio, including leasing assets, repos, guarantees and guarantee commitments.
35 Banking and investment services Impairment losses on receivables and credit losses New impairment losses Credit loss recoveries and reversal of impairment losses Net credit and impairment losses 1-3/2008
36 Banking and investment services Average balances of receivables and liabilities between Pohjola Bank million and OP-Pohjola Group retail banks /04 6/04 9/04 12/04 3/05 6/05 9/05 12/05 3/06 6/06 9/06 12/06 03/07 06/07 09/07 12/07 03/08 Other deposits Reserve deposits Capital investments and perpetual bonds Cash reserve deposits Other loans Net position
37 Mrd. billion Banking and investment services Growth- assets under management 152 % 14% 0% -6% % 37 % 30 % 5 0
38 Banking and investment services Assets under management 31 March % 58% 3% Institutional clients Pohjola Private OP-Mutual funds
39 Banking and investment services Assets under management by asset class 31 March % 4.4% 7.8% 12.2% Money market Bonds Shares Other investments
40 40 Non-life Insurance Strong growth and balance on technical account investment income lower than a year ago
41 Non-life Insurance Q1/2008 in brief 41 Insurance premium revenue EUR 220 million (204), up by 8%. Operating combined ratio 98.2% (100.8). Return on investment at fair value at 0.6% (2.4). Earnings before tax EUR 22 (31).
42 Non-life Insurance Performance 42 M 1-3/08 1-3/ Insurance premium revenue Claims incurred Operating expenses Operating balance on technical account Amortisation/adjustment on intangible asset*) Balance on technical account Investment income and expenses Other income and expenses Operating profit Unwinding of discount Finance costs Earnings before tax *) Due to amortisation on intangible assets arising from company acquisition
43 million 300 Non-life insurance Growth - insurance premium revenue January-March % % 100 9% % Private Customers Corporate Customers Baltic Total 1-3/ /2008
44 Net annual growth Strong growth in the number of Loyal Customer Households Total growth (target by 2010) Net annual growth Total growth
45 40 Non-life insurers' market shares in premiums written*) Pohjola If/Sampo Tapiola Fennia Lähivakuutus Others *) market shares of domestic direct premiums written
46 % Private Customers Non-life insurance Operating combined ratio by division Corporate Customers Baltic Total % 97.4 % % 99.6 % 91.7 % 89.0 % % 98.2 % /07 1-3/08 1-3/07 1-3/08 1-3/07 1-3/08 1-3/07 1-3/08 Operating expenses / Insurance premium revenue Claims handling expenses / Insurance premium revenue Claims incurred / Insurance premium revenue
47 Non-life insurance Development of combined ratio Q1 Whole year
48 million 3200 Non-life insurance Allocation of investment portfolio million 8 % million 3 % million 2 % million 5% Money market *) 2000 Bonds and bond funds *) % 72% 69% 69% Shares Alternative investments 1200 Properties % 17% 16% 14% 0 Fair values, 31 Dec Fair values, 31 Dec Fair values, 31 Dec 2007 Fair values, 31 March 2008 *) The figures include accrued interest income on interest-bearing instruments.
49 Non-life insurance Net investment income 49 million /06 4-6/06 7-9/ /06 1-3/07 4-6/07 7-9/ /07 1-3/08 Net investment income on income statement Change in fair value reserve Net investment income at fair values
50 50 Acquisition synergies
51 Inclusion in the OP-Pohjola Group brings benefits for Pohjola Bank 51 The OP-Pohjola Group is the market leader as a bank for Finnish retail customers and small and medium-sized companies - over four million customers Possibility to benefit from customer information The OP-Pohjola Group's customer promise: the market s best concentration benefits The OP-Pohjola Group has the market's most comprehensive service network which serves as a distribution channel for OKO Bank's non-life insurance services The majority of OKO Bank's support services are acquired from the central organisation of the OP-Pohjola Group. The strong financial standing of the OP-Pohjola Group improves OKO Bank's credit rating.
52 OP-Pohjola-Group today 52 Central Cooperative Group services Strategic ownership Shares 29.9 % Votes 56.9 % Ownership 100% Pohjola Group Member Cooperative Banks Retail banking Shares 13.6 % Votes 12.8 % Banking and Investment Services Non-life Insurance Legal structure: OP-Pohjola Group has joint and several liability for each other s commitments
53 The roles of Group entities 53 Central Cooperative Life insurance Mutual fund management Group services Profits in excess of administrative costs and capitalisation as sales fees of sold mutual funds and life insurance policies Compensation for support services Member Cooperative Banks Retail banking Asset management fees on centralised asset management Salesfeesof mutualfunds and life policies sold by OKO Bank Compensation for centralised support services Pohjola Group Corporate Banking Asset Management Non-life insurance Cross-utilisation of customer information, no fees Common corporate customers, returns to the party providing the service
54 Net annual growth Strong growth in the number of Loyal Customer Households Total growth (target by 2010) Net annual growth Total growth
55 Non-life Insurance Income synergies supported by growth of loyal customer households million Revenue synergies Target *) The estimate was calculated using the following formula: 10% *( new loyal customer households obtained through cooperation within the OP Bank Group * average premium/household)-+ 5,4 % profit for invested insurance premiums
56 Non-life insurance Cost synergies on the track 56 million 40 Target Non-life Insurance Asset Management Group structure
57 57 Prospects for 2008
58 Prospects for the Rest of 2008 In 2008, economic growth is expected to slow down and the corporate loan market is anticipated to continue its growth at a slower rate than in Recent developments in the corporate loan market herald widening lending margins. Provided that the negative mark-to-market valuations of liquidity reserves will not increase considerably during the rest of the year, Banking and Investment Services' earnings before tax in 2008 are estimated to be better than or at the same level as in Risk exposure is projected to remain healthy. In addition to market growth, intense cooperation with OP-Pohjola Group member cooperative banks and the adoption of bonus benefits for joint banking and insurance customers, which are expected to strengthen the market share among private customers in particular, will contribute to insurance premium revenue within Non-life Insurance. In Non-life Insurance, the operating combined ratio is estimated to vary between 91% and 95% if the number of major losses is not unusually large. Non-life Insurance's expected long-term return on investment is 5.4%. Other Operations' results for 2007 included EUR 11 million in non-recurring expenses. Since the Group does not expect to incur these expenses in 2008, results are anticipated to be better than in
59 Pohjola Group Business Structure 6 May Pohjola Group Banking Asset Management Non-life Insurance Group Functions Corporate Banking Markets Baltic States Institutional Customers Private Customers Corporate Customers Private Customers Baltic States Finance Risk Management HR Services Corporate Communications
60 60 Dividend policy
61 Dividend policy 61 Dividends paid out more than targeted: Aim: distributing a minimum of 50% of earnings in dividends, provided that Tier 1 stands at least 8.5%. Dividend payout ratio during averaged 63%. 2,50 2,00 1,50 1,00 % , , Dividend per share Dividend payout ratio
62 Market capitalisation (Pohjola Bank series A and K) 62 billion 3,5 3,0 2, ,0 1, , ,5 0,0 12/02 12/03 12/04 12/05 12/06 12/07 03/08
63 Turnover and price 63 15,00 OKO OKO-Pohjola Turnover , , , , ,00 0 3/02 3/03 3/04 3/05 3/06 3/07 3/08 Turnover Price
64 Distribution of share holdings 31 March % 29.9% 17.3% 7.8% 13.6% 10.2% 10.0% OP Bank Group Central Cooperative Ilmarinen mutual pension insurance company Other domestic institutions Private households OP Bank Group member cooperative banks Suomi mutual life assurance company Nominee-registered shareholders Others
65 65 IR contact information CFO Ilkka Salonen Tel IR Controller Raila Rissanen Tel SVP,Corporate Planning and IR Pasi Laaksonen Tel IR Communications Officer Jaana Mäkelä Tel
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