Banks. Skandinaviska Enskilda Banken AB. Sweden. Full Rating Report. Key Rating Drivers. Rating Sensitivities. Ratings

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1 Sweden Full Rating Report Ratings Foreign Currency Long-Term IDR A+ Short-Term IDR F1 Viability Rating a+ Support Rating 2 Support Rating Floor Related Research Nordic Banks' Significant Wholesale Funding Reliance (April 215) Ratings Navigator (June 215) Analysts Jens Hallen jens.hallen@fitchratings.com Bjorn Norrman bjorn.norrman@fitchratings.com BBB SEB AG Long-Term IDR A+ Short-Term IDR F1 Support Rating 1 Sovereign Risk Foreign-Currency Long-Term IDR AAA Local-Currency Long-Term IDR AAA Outlooks Foreign-Currency Long-Term IDR Positive SEB AG Foreign-Currency Long-Term IDR Positive Sovereign Risk Sovereign Foreign-Currency Long- Stable Term IDR Sovereign Local-Currency Long- Stable Term IDR Financial Data 3 Sep Dec 14 Total assets (USDm) 326, ,396 Total assets (SEKm) 2,742,569 2,641,246 Total equity (SEKm) 136, ,576 Operating profit 15,36 23,469 (SEKm) Published net income 11,98 19,219 (SEKm) Comprehensive 12,882 2,249 income (SEKm) Operating ROAA (%).7.9 Operating ROAE (%) Fitch Core Capital/ weighted risks (%) Tier 1 ratio (%) Key Rating Drivers Strong Standalone Strength: s (SEB) ratings reflect its strong domestic franchise, particularly in corporate banking, solid capitalisation and sound asset quality. They also factor in its high dependence on merchant banking and a structural reliance on wholesale funding. The Positive Outlook reflects SEB s strengthened profitability and lower potential volatility, resulting from its strategy to expand the retail and wider Nordic corporate franchises. Corporate Focused, Diversification Improving: Large corporate and institutional banking is SEB's greatest profit generator. Profitability in corporate banking can be more volatile than retail banking and asset quality more sensitive in times of severe stress, in Fitch Ratings' view, although we believe that SEB is managing the potentially higher risks well. In addition, the bank is increasingly focused on long-term relationship banking, with reduced reliance on marketdriven income. Solid Revenue Generation, Cost Conscious: SEB's strategy to expand its retail and corporate businesses should improve its income diversification, while maintaining a strong cost focus. Fitch expects the more diversified business model and lower market-related revenues to lead to strengthened profitability and lower potential volatility. These factors underpin the improving trend for Fitch s assessment of SEB's earnings and profitability. Resilient Asset Quality: Fitch expects SEB's asset quality to remain resilient, supported by conservative underwriting focused on debt-servicing capacity, and a growing retail book. Corporate lending is of good quality and commercial real estate (CRE) exposures represent just above 1% of total gross loans. Impaired loans are low. We expect SEB to be able to withstand an unexpected deterioration in its largest market, Sweden, and its other Nordic and Baltic operations. Robust Capitalisation: SEB's solid capitalisation provides a buffer against unexpected shocks alongside its earnings. Its risk-weighted capital ratios and its leverage compare well with regional and international peers. Wholesale Funding Reliance: SEB is reliant on wholesale funding, although to a lesser extent than its Nordic peers. Fitch expects continued good access to debt capital markets, due to strong liquidity and a domestic captive investor base, particularly for covered bonds. The group partly funds its corporate lending through corporate deposits, and it closely monitors the stickiness of these deposits, which have proved a reliable source of funding. Rating Sensitivities One-Notch Upgrade Possible: Fitch could upgrade SEB by one notch over the next one to two years if the trends of de-risking and improving profitability continue. An upgrade is also contingent on the bank maintaining strong capital and leverage ratios, sound asset quality and a healthy funding and liquidity profile. Sensitive to Investor Perceptions: Pressure on the ratings could come from an adverse change in investor sentiment materially affecting SEB's access to debt capital markets, although this is not expected, a shortened funding profile or reduced emphasis on liquidity. Larger-than-expected losses or revenue volatility in corporate banking would also put pressure on the ratings. 4

2 Figure 1 SEB Operating Environment Supportive Operating Environment in SEB s Main Markets Sweden is SEB s largest market, with the other Nordic markets, the three Baltic countries and Germany largely making up the rest. These markets, except Germany, are all relatively concentrated. In Sweden, the four major banks SEB, Nordea Bank AB (AA /Stable/aa ), Svenska Handelsbanken AB (AA /Stable/aa ), and Swedbank AB (A+/Positive/a+) dominate the banking system with a combined market share of around 75%. Sweden has maintained its AAA /Stable rating through the global financial crisis, and its low net sovereign debt allows for some flexibility to support the economy. The country's gross general government debt is lower than the 'AAA' median. Sweden has high governance and human development indicators, high income per capita, and a record of sound macroeconomic policy implementation, which contribute to a stable political and economic environment. Universal Banking Merchant Banking and Wealth Management Norway, Denmark and Germany have also maintained AAA /Stable ratings, with Finland (AAA/Negative) more affected by weaker growth prospects. The three Baltic countries faced severe stress during the financial crisis, although economic prospects have improved and the downside for companies and households is much reduced. Figure 2 Real GDP Growth (%) Sweden Denmark Norway Germany Finland Lithuania Latvia Estonia Source: Fitch, September F 216F 217F Strong Regulator; Support for Banks Becoming More Constrained Sweden has been the leading EU advocate of flexibility, partly due to its experience of cleaning up banks in its 199s crisis, but also because it has a concentrated, largely homogenous banking sector that relies on attracting international and foreign-currency funding. The banking sector's wholesale funding reliance, with material interconnectedness between the banks, means faltering investor confidence could spill over to the whole sector. For this reason, prudential requirements for the country s banks are very high. The banking authorities have been vocal advocates of tougher requirements, including capital and liquidity buffers, and also for more frequent and transparent reporting. Higher capital requirements and liquidity buffers than in most EU countries are being introduced. The depth and sophistication of the domestic debt capital markets is an important mitigating factor for the wholesale-funded banking system. Related Criteria Global Bank Rating Criteria (March 215) Company Profile Strong Swedish Franchise; Nordic Corporate Bank SEB offers a full range of financial services including retail, corporate and institutional banking, wealth management and life insurance. The bank has a strong market share in Sweden and in the Baltics, where it operates a universal banking model. In Germany and in the other Nordic countries it mainly focuses on corporate and institutional banking activities. Sweden, its home market, represents a little over half of group operating profit. 2

3 Figure 3 Lending and Profitability By division; 9M15 (%) Retail Merchant Wealth Life Baltic Gross lending (SEK1,357bn) Source: SEB, Fitch Figure 4 Operating profit (SEK15.4bn) Lending and Profitability By geography; 9M15 (%) Other Nordic (excl. Swe) Baltic Germany Sweden Gross lending (SEK1,357bn) Source: SEB, Fitch Operating profit (SEK15.4bn) The bank has offices in a number of cities around the world, including London, New York, Beijing, Shanghai, Singapore and Hong Kong. Their role is to provide global services to selected Nordic and German corporates and to help global financial institutions access Nordic investment opportunities. Overall, SEB is present in more than 2 countries. Its German operations are conducted via SEB AG, its wholly owned subsidiary. The close integration between the two leads Fitch to align SEB AG's IDRs with those of SEB, and they are sensitive to a change in SEB s ratings. Merchant Banking Driven Business Model SEB's business model is more geared towards corporate and institutional banking than its Nordic peers, reflecting its traditionally very strong merchant bank franchise, particularly in Sweden. Merchant banking revenues can be volatile, although SEB has significantly reduced its reliance on trading revenues (flat in nominal terms), and it benefits from fairly good product and geographical diversification. Crucially, it has strengthened its risk management, which has resulted in stable revenue generation. Like its Nordic peers, its business model is based on building close customer relationships and promoting cross-selling. Management and Strategy Strong Management SEB has a strong management team with suitable depth, experience and credibility among major shareholders. Corporate governance and internal controls are effective, and there is a high degree of transparency. The bank is listed on the Stockholm Stock Exchange. The AGM elects 11 members to the board of directors annually, for a one-year term. All are independent of the bank except SEB s president and CEO, Annika Falkengren. Four more board members are elected as staff representatives. Coherent Strategy Well Executed Management s ability to continue to execute its strategy (mainly focusing on improving riskadjusted returns and cost efficiency) is an important rating driver. This includes enhancing SEB s merchant banking position among Nordic corporates and financial institutions, and among selected mid-sized businesses in Germany. In Sweden the bank is focused on expanding its retail franchise, including with small and medium-sized enterprises (SMEs). The retail franchise is important for SEB as it helps create a more balanced business mix. Fitch does not expect the bank to expand into other geographical areas. Risk Appetite Moderate Risk Appetite and Controlled Growth SEB has reduced its risk appetite in recent years, and increased its focus on a more robust risk management framework. Lending to Swedish households and large Nordic corporates has increased, and SEB has reduced its exposure to German CRE; the sharp contraction in lending in the Baltics has flattened out. Credit risk is the most significant risk for SEB and represented 76% of total group risk exposure at end-september 215. Fitch expects modest loan growth to be maintained in 216, combined with continued strong internal capital generation. SEB s stated caps on Baltic credit exposure (limit of 8% of total non-bank on- and off-balance sheet exposures) and CRE lending (1% limit) are likely to be maintained. Low Market Risk; Mostly Customer Driven Trading As a strong corporate and institutional bank, SEB is exposed to market risk from various products provided to its customers, including foreign exchange and interest rate hedging products. SEB is also one of the largest market-makers in Nordic bonds, equities and currencies, and needs to maintain some inventory to facilitate liquidity. SEB has strict market risk limits and manages trading risk well, in Fitch s view, reporting very few trading loss days over the past years. SEB monitors market risk using value-at-risk (VaR) 3

4 calculations, stop-loss limits and sensitivity analysis. The maximum VaR in 9M15, based on a 1-day holding period, a 99% confidence interval and a one-year observation period, was a low SEK16m (.1% of Fitch Core Capital, FCC). The maximum stressed VaR for the trading book was SEK1bn in 214 (.9% of FCC). SEB is also exposed to structural interest rate sensitivity, although this is manageable in Fitch s view. The banking book s value sensitivity to a 1bp parallel yield curve shift was an acceptable SEK2bn at end-214, 1.7% of FCC. Figure 5 Group Loan Split September 215 Housing assoc. 3% Baltics 8% Banks & public 8% Property mngt. 15% Household other 3% Source: SEB, Adjusted by Fitch Corporates 32% Household mortg. loans 31% Limited Insurance Risk Insurance liabilities represent 1%-15% of the group s balance sheet and do not pose a material risk to SEB. The operations are well capitalised, and new sales are focused on unitlinked products. Traditional policies with guaranteed returns could cause more volatility for SEB, and these totalled SEK251bn at end-september 215. SEB is technically not liable for 7% of this book, which was previously sold through its Swedish mutual insurance company and is not consolidated, but for reputational reasons it may have to cover any potential shortfall. The Danish operation, which makes up the remaining 3% of the traditional book, is the only one that still writes new traditional policies, although it is mainly a unit-linked underwriter. Financial Profile Asset Quality Strong Asset Quality; Swedish Property Prices under Scrutiny SEB s asset quality is strong and compares well to Nordic peers. SEB continues to benefit from a resilient Swedish economy and improving prospects for the three Baltic countries. The bank s impaired loans ratio (impaired loans/gross loans) remained low, 65bp at end-september 215, and has reduced following the working out of its Baltic loan portfolio (impaired loans include portfolio-assessed loans that are more than 6 days overdue, and restructured loans). Sweden represents around three-quarters of the total loan portfolio, and around 45% of total loans are linked to Swedish real estate, although most of it relates to low-risk mortgage loans and lending to multifamily housing associations. Property prices in Sweden continue to increase at a brisk rate, fuelled by low mortgage loan interest rates and increasingly indebted households. Fitch expects the quality of the residential mortgage lending to remain robust, although secondary effects from (eventually) rising interest rates on consumption, and as a consequence on Swedish SMEs and corporates, could have a greater impact on SEB via its corporate exposures. Figure 6 Figure 7 Impaired Loans % of gross loans Impaired loans - SEB Reserves for imp. loans - SEB Peers' imp. loansª Sep 215 ª Average impaired loans ratio for SEB, OP Financial Group ('a+'), Svenska Handelsbanken AB ('aa-'), Swedbank AB ('a+') and Nordea Bank AB ('aa-') 214 data for OP, no disclosure at end-sep 15 Source: Banks, Adjusted by Fitch Swedish Household Lending Remains Robust Net Impaired Loans/Equity Fitch believes that SEB s residential mortgage lending in Sweden is of good quality and could withstand an unexpected house price correction. Residential mortgage lending (including housing associations) represented a third of group loans at end-september 215, and most of this book is in Sweden. Impaired residential mortgage loans represented a minimal 3bp of gross loans at end-september (%) 212 Net impaired loans/equity - SEB Net impaired loans/equity av. peers 213 Source: Banks, adjusted by Fitch 214 Sep 215 4

5 The trend of ever-rising house prices, partly financed by increasing household indebtedness, could eventually result in greater sensitivities for households when interest rates rise or should unemployment increase. However, households have been accumulating financial assets and SEB, like its main Swedish peers, focuses on households debt serviceability when granting mortgage loans, and stresses interest rates to 7% (while assume loans fully amortise) when testing affordability. SEB requires household borrowing to be maximum five times gross income. The bank has also required new mortgage lending with loan/value ratios above 5% to amortise the principal since 213. Fitch therefore does not believe a material deterioration in the quality of the loan portfolio to be the main effect should a house price correction occur which is not expected but cannot be ruled out. Instead, reduced consumption is the most likely downturn scenario. The strict and efficient personal bankruptcy laws and a shortage of rental accommodation both provide incentives for households to keep up mortgage loan repayments. Figure 8 Non-Baltic Corporate Loan Split (excl. CRE) September 215 Other 29% Whole sale & retail 9% Shipping 11% Source: SEB, adjusted by Fitch Manufacturing 19% Finance & insurance 13% Business & household serv.19% Good-Quality Nordic Corporate Exposures SEB s Nordic and German corporate exposures are fairly diversified by industry and obligor. Many of its largest customers are reliant on export markets but their revenue generation is normally geographically diversified. SEB strives to maintain strong customer relationships, and the portfolio proved resilient through the global financial crisis. Individually impaired corporate loans remained low (below 1% of gross loans) at end-september 215. Exposure to riskier industries is managed conservatively. The shipping book (below 4% of gross loans at end-september 215) has good sub-industry diversification, and lending focuses on industrial companies with strong ongoing cash flows rather than project finance. Individually impaired loans in the shipping book were 2.8% at end-september 215. The quality of the German portfolio remains solid, with impaired loans just above.5% of gross loans at end-september 215. There have been no material loan impairment charges in recent years, and Fitch expects the quality of this portfolio to remain stable. Property Management; Large Sophisticated Clients Mainly in Sweden and Germany SEB s non-baltic property management lending comprises both commercial and residential real estate management, with the latter representing just less than 4% of this portfolio. Over 7% of the book is in Sweden, and the remaining exposure is mainly in Germany (17% at end- September 215). Rental residential real estate management is subject to rent control in Sweden, which reduces the often speculative nature of this industry, increases affordability and has contributed to a shortage of rental properties, which creates stable demand. The Swedish CRE market has large, strong clients, often listed, with good cash flows and access to debt and equity markets. SEB takes a corporate rather than asset-based approach when lending to these companies. Fitch expects continued good performance. The book s individually impaired loans ratio was.7% at end-september 215, most of which related to the German exposure. Baltics: Economic Growth and Falling Problem Loans The risks posed to SEB from its Baltic operations are manageable, in Fitch s view. The sustained economic recovery, years of working out problem loans (many real estate related), and significantly tightened underwriting criteria since the sharp contraction in the Baltics in underpin this assessment. Impaired loans fell to 3.7% at end-september 215, and reserves for impaired loans appear conservative at around 6%. High-Quality Securities Portfolio The credit risk in the debt securities portfolio is low. At end-september 215, it totalled SEK247bn (around 1% of total assets) and mainly comprised AAA rated covered bonds and government and public sector securities. The bank s exposure to eurozone peripherals (Greece, Ireland, Italy, Portugal, Spain, and Cyprus) totalled SEK3.3bn at end-september 215 (2.8% of FCC) and was mostly Spanish covered bonds. 5

6 Figure 9 Cost/Income Ratio (%) Figure 1 Cost/income - SEB Cost/income av. Peers M15 Source: Banks, adjusted by Fitch Operating ROE (%) OP RoE - SEB OP RoE av. Peers M15 Source: Banks, adjusted by Fitch Earnings and Profitability Merchant Banking Largest Profit Generator; Efficiency Improving SEB s revenue generation and profitability remain solid, but more tilted towards corporate and institutional banking than Swedish peers. In line with its tightened risk appetite, SEB has moved away from the more volatile capital market-driven businesses, with an increasing proportion of revenues made up of net interest income and recurring fees and commissions (including cash management and trade finance). The bank has also actively increased its retail offering, which together with its core large corporates business, should improve the stability of earnings through the cycle. Despite the changing business mix, SEB remains active in facilitating customer trading and is a key participant in the foreign exchange market in the region. This is a core competence for SEB, and it views these activities as complementary to its service offering. The low interest rates are affecting SEB, like its peers, and optimising costs to become a more efficient bank has been a focus for management for the past years. The bank has reduced complexity in the group by, for example, centralising support functions, and SEB s cost efficiency, as measured by its cost/income ratio, has improved significantly and is now closer to peers. It has had a cost cap of SEK22.5bn since 213. This is also in place for 215 and 216, and Fitch believes the bank has the infrastructure to achieve continued revenue growth while keeping costs contained. Loan impairment charges are very low and likely to remain so, reflecting robust asset quality and risk management practices. Figure 11 Operating Profit by Division 9M (SEKm) (%) (SEKm) (%) Merchant banking 6, ,88 39 Retail banking 4, , Wealth management 1, ,258 1 Life 1,6 1 2,66 9 Baltics 1,18 7 1,445 6 Eliminations and others ,869 8 Operating profit 15, ,348 1 Source: SEB, Fitch Franchise and Integration Key to Merchant Banking Merchant banking revenues are dependent on customer flows and partly on general market activities, which can lead to income volatility. Deconstructing the revenue drivers is therefore important, in Fitch s view, and SEB has moved towards a more stable revenue base, although the type of products it provides to its customers will not be immune to market movements. Corporate and investment banking is the largest revenue source within merchant banking. This segment incorporates lending to large corporates and real estate, and capital markets services, and since the start of 28 net interest income has been the main revenue line (around threequarters of the total). Net fees and commissions make up most of the rest and have steadily grown over the past seven years. While corporate and investment banking revenues fluctuate more than retail banking, Fitch expects this segment to remain fairly robust. Figure 12 Merchant Banking Operating Income (SEKm) 9M Markets 4,812 5,396 Corporate and 6,558 9,737 investment banking Transaction banking 2,29 3,3 Total 13,579 18,136 Source: SEB, Fitch SEB s markets segment incorporates foreign exchange, equity and derivatives products. These are customer driven but still depend on customer flows and can be volatile. However, although quarterly market revenue has varied from just over SEK1bn to over SEK3bn (in 28) in the past eight years, it has averaged around SEK1.5bn a quarter and now makes up a much smaller proportion of total merchant banking revenues. Fitch expects this trend to continue. Transaction banking incorporates cash management, trade finance and custody services, and has generated consistent revenues (around SEK75m a quarter) since 28. Fitch expects SEB to maintain this, underpinned by long relationships and strong integration of the services with the bank s customers. 6

7 Retail Banking: Volume Growth and Cost Focus Fitch expects continued growth in revenue, driven by volume rather than margins. The bank aims to increase cross-selling among its existing customer base and to win new clients. The agency expects this to result in a more robust income generation ability and a healthy mix of commission and interest income. The bank is actively working to address its cost base, and the reported cost to income ratio for the retail banking segment improved to 46% in 9M15. Wealth Management and Life The Swedish savings business is a growth area for SEB. Assets under management (AuM) were largely flat in 9M15 (excluding divestments), with net inflows offsetting negative market valuations. A similar trend was also reported by many of SEB s Swedish peers. To improve efficiency and increase cross-selling, the bank aims to integrate the expertise of its wealth management and life operations. The sale of SEB Asset Management AG reduced reported AuM by SEK75bn to SEK1,631bn at end-september 215. Fitch expects life insurance to remain a stable profit generator for SEB. Unit-linked policies represent around 85% of sales. Traditional products with guarantees create an earnings challenge in the current low/negative interest rate environment, but this is not a material risk to the bank. Capitalisation and Leverage Solid Capitalisation; High Regulatory Requirements SEB s risk-weighted capital ratios are solid and compare well with peers. At end-september 215, the bank reported a Basel III common equity Tier 1 (CET1) ratio of 17.8% and an FCC ratio of 19.8%. SEB uses internal models to calculate risk exposure amounts for most of its credit exposures, and the bank benefits from fairly low risk weights, particularly on mortgage loans. Nonetheless, its Basel III leverage ratio was a solid 4.5% at end-september 215, which compares well with peers. Figure 13 Figure 14 Risk-Weighted Capital Ratios Total capital ratio - SEB (%) Source: Banks, adjusted by Fitch Fitch core capital ratio - SEB Av. peers total capital ratio Av.peers Fitch core capital ratio 214 Sep 215 Tangible Leverageª (%) SEB Peer average Sep 215 ª Tangible Common Equity / Tangible Assets, adjusted for Goodwill, Other Intangibles and DTAs Source: Banks data, adjusted by Fitch Fitch expects SEB to maintain its strong capitalisation, particularly in light of its wholesale funding reliance and the need to maintain investor confidence. The interconnectedness between the major Swedish banks and large (and growing) mortgage loan market has also resulted in high capital requirements for the Swedish banks. At end-september 215, SEB s CET1 requirement (pillar 1 + pillar 2) was 15.6%, including 1.9pp from risk-weight floors on mortgage loans and 6pp combined buffer requirements (3pp systemic risk buffer,.5pp countercyclical buffer and 2.5% capital conservation buffer). SEB aims to maintain a 15bp management buffer over regulatory minimums. 7

8 Figure 15 Non-Equity Funding Mix a September 215 Public deposits 3% FIs & central bank 8% Senior unsecured 9% CPs/CDs 13% Household deposits 15% ª Excluding repos Source: SEB, Adjusted by Fitch Subordinated 2% Corporate deposits 34% Covered bonds 16% Funding and Liquidity Wholesale Funded Although Fairly Diversified Wholesale funding is an important funding tool for Nordic banks, and SEB is no exception. Although Fitch believes Nordic banks' wholesale funding is stable, it is not without risks and strong funding and liquidity management are important. SEB's smaller retail franchise means it issues proportionally fewer covered bonds than the other major Swedish banks, and its loan/deposit ratio is somewhat lower. Fitch expects continued good access to debt capital markets, due to strong liquidity and a domestic captive investor base, particularly for covered bonds. The group partly funds its corporate lending through corporate deposits, and it closely monitors the stickiness of these deposits. SEB monitors its corporate deposit base closely, and its behaviour analysis is sophisticated, in Fitch s view. SEB benefits from strong customer relationships, particularly in the Swedish market, and a substantial part of this funding is related to operational deposits (including cash management services), which Fitch believes would be less volatile in the event of stress. Short-term funding (around 13% of non-equity funding at end-september 215) is broadly used to finance the bank s net trading assets related to customer activities. Although the bank needs to retain an inventory to cater for its customers requirements, it can quickly reduce its funding needs should access to short-term funding worsen in the market. Strong Liquidity Management Is Key SEB, like its Nordic peers, maintains a strong liquidity buffer. This is critical in light of the bank s wholesale funding and corporate deposit base. At end-september 215, the liquidity portfolio totalled SEK486bn and was mainly made up of AAA rated assets (48% cash and cash equivalents in central banks, 31% covered bonds, 16% bonds issued/guaranteed by sovereigns, municipalities and public-sector enterprises, and central banks). Including the bank s extended liquidity reserve, which takes into account unused overcollateralisation in its covered bonds cover pool and net trading assets held outside the treasury operation, the bank s total liquidity reserve was SEK727bn. SEB s liquidity coverage ratio, based on Swedish regulation, was 116% at end-september 215. A significant part of the liquidity portfolio is in foreign currency, and the bank s euro and US dollar liquidity coverage ratios were 129% and 25%, respectively. The latter mean that SEB s Swedish krona liquidity is significantly lower; however, SEB has access to the Swedish central bank, which, against appropriate collateral, could in theory extend unlimited krona liquidity. Maintaining a large volume of unencumbered assets eligible for repo transactions with the central bank (as a last resort in a liquidity squeeze), is therefore important. Support Decreased likelihood of Sovereign Support In Fitch's view, there is a clear intention ultimately to reduce implicit state support for financial institutions in the EU, as demonstrated by a series of legislative, regulatory and policy initiatives. As an EU member country, Sweden is subject to the requirements of the BRRD. However, the country has signalled its intention not to join the banking union and will remain in control of the resolution process (but it will not have full control over support decisions). Fitch believes Sweden will take a flexible approach to applying BRRD, in part because of its experience of cleaning up banks in its 199s crisis, but also because it has a concentrated, largely homogenous banking sector that relies on attracting international and foreign currency funding. These factors explain why Fitch has maintained a Support Rating of 2 and a Support Rating Floor at BBB- for Swedish Domestic Systemically Important Banks, including SEB, reflecting Fitch's view that extraordinary external support for these banks is still highly probable, although less so than previously. The Swedish parliament is still to vote on, and hence adopt, the proposed BRRD legislation, but Fitch expect this to be adopted in early

9 Income Statement 3 Sep Dec Dec Dec Months - 3rd Quarter 9 Months - 3rd Quarter As % of Year End As % of Year End As % of Year End As % of USDm SEKm SEKm Earning SEKm Earning SEKm Earning Unaudited Unaudited Earning Assets Unqualified Assets Unqualified Assets Unqualified Assets 1. Interest Income on Loans n.a. n.a. - 35, , , Other Interest Income 3, , , , , Dividend Income n.a. n.a Gross Interest and Dividend Income 3, , , , , Interest Expense on Customer Deposits n.a. n.a. - 9, , , Other Interest Expense 1, , , , , Total Interest Expense 1, , , , , Net Interest Income 1, , , , , Net Gains (Losses) on Trading and Derivatives , , , , Net Gains (Losses) on Other Securities , (19.) (.1) 11. Net Gains (Losses) on Assets at FV through Income Statement n.a. n.a. - (1,924.) (.8) (179.) (.1) (73.) (.) 12. Net Insurance Income , , , , Net Fees and Commissions 1, , , , , Other Operating Income (223.) (.1) (424.) (.2) 15. Total Non-Interest Operating Income 2, , , , , Personnel Expenses 1, , , , , Other Operating Expenses , , , , Total Non-Interest Expenses 1, , , , , Equity-accounted Profit/ Loss - Operating n.a. n.a Pre-Impairment Operating Profit 1, , , , , Loan Impairment Charge , , Securities and Other Credit Impairment Charges n.a. n.a. - n.a. - n.a Operating Profit 1, , , , , Equity-accounted Profit/ Loss - Non-operating n.a. n.a. - n.a. - n.a. - n.a Non-recurring Income n.a. n.a Non-recurring Expense n.a. n.a n.a. - n.a Change in Fair Value of Own Debt n.a. n.a. - n.a. - n.a. - n.a Other Non-operating Income and Expenses n.a. n.a. - n.a. - n.a. - n.a Pre-tax Profit 1, , , , , Tax expense , , , , Profit/Loss from Discontinued Operations n.a. n.a. - n.a. - (11.) (.) (488.) (.2) 32. Net Income 1, , , , , Change in Value of AFS Investments (39.5) (332.) (.2) (11.) (.) 1, , Revaluation of Fixed Assets n.a. n.a. - n.a. - n.a. - n.a Currency Translation Differences (12.3) (13.) (.1) (386.) (.2) 36. Remaining OCI Gains/(losses) , ,56..2 (1,76.) (.8) 37. Fitch Comprehensive Income 1, , , , , Memo: Profit Allocation to Non-controlling Interests n.a. n.a Memo: Net Income after Allocation to Non-controlling Interests 1, , , , , Memo: Common Dividends Relating to the Period n.a. n.a. - 1, , , Memo: Preferred Dividends Related to the Period n.a. n.a. - n.a. - n.a. - n.a. - Exchange rate USD1 = SEK8.398 USD1 = SEK USD1 = SEK USD1 = SEK

10 Balance Sheet 3 Sep Dec Dec Dec Months - 3rd 9 Quarter Months - 3rd Quarter As % of Year End As % of Year End As % of Year End As % of USDm SEKm Assets SEKm Assets SEKm Assets SEKm Assets Assets A. Loans 1. Residential Mortgage Loans 55, , , , , Other Mortgage Loans 5, , , , , Other Consumer/ Retail Loans 4, , , , , Corporate & Commercial Loans 81, , , , , Other Loans 8,38.2 7, , , , Less: Reserves for Impaired Loans , , , , Net Loans 155, ,36, ,279, ,215, ,16, Gross Loans 156, ,311, ,286, ,221, ,169, Memo: Impaired Loans included above 1,14.4 8, , , , Memo: Loans at Fair Value included above n.a. n.a. - n.a. - n.a. - n.a. - B. Other Earning Assets 1. Loans and Advances to Banks 1, , , , , Reverse Repos and Cash Collateral 11, , , , , Trading Securities and at FV through Income 33, , , , , Derivatives 29, , , , , Available for Sale Securities 4,78.1 4, , , , Held to Maturity Securities n.a. n.a Equity Investments in Associates , , , , Other Securities n.a. n.a. - n.a. - n.a. - n.a Total Securities 8, , , , , Memo: Government Securities included Above n.a. n.a. - n.a. - n.a. - n.a Memo: Total Securities Pledged n.a. n.a. - n.a. - n.a. - n.a Investments in Property n.a. n.a. - 9, , , Insurance Assets 43, , , , , Other Earning Assets n.a. - n.a Total Earning Assets 29, ,441, ,458, ,255, ,167, C. Non-Earning Assets 1. Cash and Due From Banks 25, , , , , Memo: Mandatory Reserves included above n.a. n.a. - n.a. - n.a. - n.a Foreclosed Real Estate n.a. n.a. - n.a. - n.a. - n.a Fixed Assets 1,18.6 9, , Goodwill 1,197. 1, , , , Other Intangibles , , , , Current Tax Assets n.a. n.a. - 8, , , Deferred Tax Assets n.a. n.a. - 1, , , Discontinued Operations n.a. n.a. - n.a. - n.a. - n.a Other Assets 7, , , , , Total Assets 326, ,742, ,641, ,484, ,453, Liabilities and Equity D. Interest-Bearing Liabilities 1. Customer Deposits - Current 113, , , , , Customer Deposits - Savings n.a. n.a. - n.a. - n.a. - n.a Customer Deposits - Term n.a. n.a. - n.a. - n.a. - n.a Total Customer Deposits 113, , , , , Deposits from Banks 17, , , , , Repos and Cash Collateral 4, , , , , Commercial Paper and Short-term Borrowings 38, , , , , Total Money Market and Short-term Funding 173, ,459, ,34, ,363, ,35, Senior Unsecured Debt (original maturity > 1 year) 45, , , , , Subordinated Borrowing 2, , , , , Covered Bonds n.a. n.a. - n.a. - n.a. - n.a Other Long-term Funding n.a. n.a. - n.a. - n.a. - n.a Total LT Funding (original maturity > 1 year) 48, , , , , Derivatives 28, , , , , Trading Liabilities 3, , , , , Total Funding 254,38.9 2,136, ,6, ,957, ,936, E. Non-Interest Bearing Liabilities 1. Fair Value Portion of Debt n.a. n.a. - n.a. - n.a. - n.a Credit impairment reserves n.a. n.a. - n.a. - n.a. - n.a Reserves for Pensions and Other , , , , Current Tax Liabilities n.a. n.a. - 3,..11 1, , Deferred Tax Liabilities n.a. n.a. - 8, , , Other Deferred Liabilities n.a. n.a. - n.a. - n.a. - n.a Discontinued Operations n.a. n.a. - n.a. - n.a. - n.a Insurance Liabilities 43, , , , , Other Liabilities 1, , , , , Total Liabilities 39, ,596, ,498, ,352, ,334, F. Hybrid Capital 1. Pref. Shares and Hybrid Capital accounted for as Debt 1,12.9 9, , , , Pref. Shares and Hybrid Capital accounted for as Equity n.a. n.a. - n.a. - n.a. - n.a. - G. Equity 1. Common Equity 15, , , , , Non-controlling Interest n.a. n.a Securities Revaluation Reserves , , , Foreign Exchange Revaluation Reserves (175.4) (1,473.) (.5) (1,37.) (.5) (2,18.) (.8) (2,422.) (.1) 5. Fixed Asset Revaluations and Other Accumulated OCI , , , (43.) (.2) 6. Total Equity 16, , , , , Total Liabilities and Equity 326, ,742, ,641, ,484, ,453, Memo: Fitch Core Capital 14, , , , , Memo: Fitch Eligible Capital 15, , , , , USD1 = SEK8.398 USD1 = SEK USD1 = SEK USD1 = SEK

11 Summary Analytics 3 Sep Dec Dec Dec Months - 3rd Quarter Year End Year End Year End A. Interest Ratios 1. Interest Income on Loans/ Average Gross Loans n.a Interest Expense on Customer Deposits/ Average Customer Deposits n.a Interest Income/ Average Earning Assets Interest Expense/ Average Interest-bearing Liabilities Net Interest Income/ Average Earning Assets Net Int. Inc Less Loan Impairment Charges/ Av. Earning Assets Net Interest Inc Less Preferred Stock Dividend/ Average Earning Assets B. Other Operating Profitability Ratios 1. Non-Interest Income/ Gross Revenues Non-Interest Expense/ Gross Revenues Non-Interest Expense/ Average Assets Pre-impairment Op. Profit/ Average Equity Pre-impairment Op. Profit/ Average Total Assets Loans and securities impairment charges/ Pre-impairment Op. Profit Operating Profit/ Average Equity Operating Profit/ Average Total Assets Operating Profit / Risk Weighted Assets C. Other Profitability Ratios 1. Net Income/ Average Total Equity Net Income/ Average Total Assets Fitch Comprehensive Income/ Average Total Equity Fitch Comprehensive Income/ Average Total Assets Taxes/ Pre-tax Profit Net Income/ Risk Weighted Assets D. Capitalization 1. Fitch Core Capital/ Risk Weighted Assets Fitch Eligible Capital/ Risk Weighted Assets Tangible Common Equity/ Tangible Assets Tier 1 Regulatory Capital Ratio Total Regulatory Capital Ratio Core Tier 1 Regulatory Capital Ratio Equity/ Total Assets Cash Dividends Paid & Declared/ Net Income n.a Internal Capital Generation E. Loan Quality 1. Growth of Total Assets Growth of Gross Loans Impaired Loans/ Gross Loans Reserves for Impaired Loans/ Gross Loans Reserves for Impaired Loans/ Impaired Loans Impaired loans less Reserves for Impaired Loans/ Fitch Core Capital Impaired Loans less Reserves for Impaired Loans/ Equity Loan Impairment Charges/ Average Gross Loans Net Charge-offs/ Average Gross Loans Impaired Loans + Foreclosed Assets/ Gross Loans + Foreclosed Assets F. Funding and Liquidity 1. Loans/ Customer Deposits Interbank Assets/ Interbank Liabilities Customer Deposits/ Total Funding (excluding derivatives)

12 Reference Data 3 Sep Dec Dec Dec Months - 3rd 9 Quarter Months - 3rd Quarter As % of Year End As % of Year End As % of Year End As % of USDm SEKm Assets SEKm Assets SEKm Assets SEKm Assets A. Off-Balance Sheet Items 1. Managed Securitized Assets Reported Off-Balance Sheet n.a. n.a. - n.a. - n.a. - n.a Other off-balance sheet exposure to securitizations n.a. n.a. - n.a. - n.a. - n.a Guarantees n.a. n.a. - 13, , , Acceptances and documentary credits reported off-balance sheet n.a. n.a Committed Credit Lines 73, , , , , Other Contingent Liabilities 13, , , , , Total Assets under Management 194, ,631, ,78, ,475, ,328, B. Average Balance Sheet Average Loans 155,393. 1,34, ,263, ,228, ,22, Average Earning Assets 298,762. 2,59, ,382, ,234, ,169, Average Assets 331, ,78, ,654, ,536, ,383, Average Managed Securitized Assets (OBS) n.a. n.a. - n.a. - n.a. - n.a. - Average Interest-Bearing Liabilities 259, ,182, ,18, ,34, ,96, Average Common equity 15, , , , , Average Equity 15, , , , , Average Customer Deposits 114, , , , , C. Maturities Asset Maturities: Loans & Advances < 3 months 27, , , , , Loans & Advances 3-12 Months 34, , , , , Loans and Advances 1-5 Years 75, , , , , Loans & Advances > 5 years 17, , , , , Debt Securities < 3 Months n.a. n.a. - n.a. - 2, , Debt Securities 3-12 Months n.a. n.a. - n.a. - 38, , Debt Securities 1-5 Years n.a. n.a. - n.a , , Debt Securities > 5 Years n.a. n.a. - n.a. - 73, , Loans & Advances to Banks < 3 Months 8, , , , , Loans & Advances to Banks 3-12 Months 1,23.6 1, , , , Loans & Advances to Banks 1-5 Years , , , , Loans & Advances to Banks > 5 Years , Liability Maturities: Retail Deposits < 3 months 13, , , , , Retail Deposits 3-12 Months 3, , , , , Retail Deposits 1-5 Years 3, , , , , Retail Deposits > 5 Years 2, , , , , Other Deposits < 3 Months n.a. n.a. - n.a. - n.a. - n.a. - Other Deposits 3-12 Months n.a. n.a. - n.a. - n.a. - n.a. - Other Deposits 1-5 Years n.a. n.a. - n.a. - n.a. - n.a. - Other Deposits > 5 Years n.a. n.a. - n.a. - n.a. - n.a. - Deposits from Banks < 3 Months 15, , , , , Deposits from Banks 3-12 Months 1,84.9 9, , , , Deposits from Banks 1-5 Years , , , , Deposits from Banks > 5 Years ,7..1 5, , Senior Debt Maturing < 3 months 2, , , , , Senior Debt Maturing 3-12 Months 18, , , , , Senior Debt Maturing 1-5 Years 38, , , , , Senior Debt Maturing > 5 Years 7, , , , , Total Senior Debt on Balance Sheet 84, , , , , Fair Value Portion of Senior Debt n.a. n.a. - n.a. - n.a. - n.a. - Subordinated Debt Maturing < 3 months , , , Subordinated Debt Maturing 3-12 Months n.a. n.a n.a. - n.a. - Subordinated Debt Maturing 1-5 Year , , , , Subordinated Debt Maturing > 5 Years 2, , , , , Total Subordinated Debt on Balance Sheet 3, , , , , Fair Value Portion of Subordinated Debt n.a. n.a. - n.a. - n.a. - n.a. - D. Risk Weighted Assets 1. Risk Weighted Assets 71, , , , , Fitch Adjustments to Risk Weighted Assets n.a. n.a. - n.a. - n.a. - n.a Fitch Adjusted Risk Weighted Assets 71, , , , , E. Equity Reconciliation 1. Equity 16, , , , , Add: Pref. Shares and Hybrid Capital accounted for as Equity n.a. n.a. - n.a. - n.a. - n.a Add: Other Adjustments n.a. n.a. - n.a. - n.a. - n.a Published Equity 16, , , , , F. Fitch Eligible Capital Reconciliation 1. Total Equity as reported (including non-controlling interests) 16, , , , , Fair value effect incl in own debt/borrowings at fv on the B/S- CC only Non-loss-absorbing non-controlling interests Goodwill 1,197. 1, , , , Other intangibles , , , , Deferred tax assets deduction Net asset value of insurance subsidiaries , , First loss tranches of off-balance sheet securitizations Fitch Core Capital 14, , , , , Eligible weighted Hybrid capital n.a. n.a. - 8, n.a. - n.a Government held Hybrid Capital Fitch Eligible Capital n.a. n.a , n.a. - n.a. - Exchange Rate USD1 = SEK8.398 USD1 = SEK USD1 = SEK USD1 = SEK

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