15.02.1999 15:08:00

REPORT ON THE 1998 RESULTS

* The total result*) of the SEB Group increased by 30 per cent, to SEK 6,084 M (pro forma SEK 4,687 M in 1997). The operating result rose by 26 per cent, to SEK 4,801 M
(SEK 3,804 M).

* The result included both the provisions of SEK 1.4 billion that were made during the third quarter for possible lending losses in Russia and capital gains of SEK 1.7 billion. 1997, the year of comparison, included restructuring costs of SEK 1.5 billion.

*· Return on equity was 16.1 per cent (12.6 per cent pro forma in 1997) and earnings per share (total result after tax) were SEK 8.27 (SEK 6.04).

* Funds under management increased by 25 per cent, to SEK 499 billion.

* Stable earnings were reported for the fourth quarter of 1998, for which the total result amounted to SEK 1,715 M. At the same time, risk-weighted assets decreased by SEK 47 billion during the last quarter, to SEK 309 billion.

* It is proposed to increase the dividend to SEK 3.50 per share (SEK 3.00 per share).

* The sale of Trygg-Hansa's non-life business is being considered.


*) Total result consists of operating result, pension provision and the change in surplus values in life insurance operations (see page 8). Starting with this report, the holdings of investment bonds of the insurance business are reported as current assets instead of fixed assets, i.e. the portfolio is valued at market. Unrealised changes during the year in the surplus value of the investment portfolio of the Bank are no longer included in the total result. The pro forma comparison figures for 1997 and the quarterly figures for 1998 have been changed in accordance with the new accounting principle.


President's comments
In more than one way, 1998 was an intensive year for the SEB Group. It was the first financial year of the new Group after the merger of S-E-Banken and Trygg-Hansa at the end of 1997.

On 1 January, 1999 SEB carried out the world's first currency transaction in the new euro currency. This marked the end of the Bank's long preparation for the euro. The first six months of the year were strong, with economic growth and firm stock markets, after which turmoil in the financial markets of the world and the collapse of the Russian banking system led to a very weak third quarter. During the fourth quarter, however, our result developed positively, which clearly shows that the underlying earning capacity of the Group is good.

As early as in the spring of 1998, the financial unrest in certain fast-growing economies caused us to start to reduce the Group's risk-taking in these countries. Our exposure on emerging markets has been cut down during the year from SEK 47 billion to SEK 18 billion, net. In addition, the bulk of Trygg-Hansa's investments in equities has been hedged since the spring of 1998. The Group is engaged in a programme for continued risk-reduction.

Many units of the Group operate in strongly growing markets and the Group has continued to grow in these during 1998. This is particularly true for those units that operate in the field of savings, pension and asset management, e.g. Asset Management, which acquired ABB Investment Management and increased its market share of the mutual fund market during the year. Also SEB Trygg Liv (life) has grown markedly and more than doubled its total result.

We have also penetrated the Baltic markets by acquiring strategic blocks of shares in three banks: Eesti Ühispank in Estonia, Latvijas Unibanka in Latvia and Vilniaus Bankas in Lithuania.

The rationalisation work that all business areas and central staff functions have been engaged in has started to yield results. Costs have been reduced according to plan, but this work continues. There is further room for improvement. Excluding restructuring costs, investments in the IT-area and the Nordic expansion, our costs have decreased by 9 per cent. We continue to invest in IT in order to improve service, increase earnings and reduce costs.

During 1998, we introduced new ways of rationalising our use of capital. All business areas are now provided with allocated capital, which is based upon the risks assumed by them. This leads to a more efficient use of capital and a better balance between risk and capital used. We have streamlined our activities and released capital resources through the sale of the office properties of the Group and the Industrial & Marine business area.

We are currently considering the sale of the non-life business operations of Trygg-Hansa. Our experience from the combined distribution of non-life insurance and banking services is good. This is an area that we intend to develop further, e.g. as regards various combinations of financing and insurance services.

However, after having investigated various alternatives, we have arrived at the conclusion that we do not need to own the non-life company. Trygg-Hansa's property insurance operations are among the most efficient and profitable ones in the insurance sector. Nevertheless, these operations should be run on an even larger scale in order to be successful in the long run as regards European competition. However, no negotiations are in progress at present.

1998 has been devoted to a great deal of internal work that is not always visible to the outsider. Those growth areas that formed the basis of the merger have now been integrated, i.e. mutual fund, asset management and the life and pension insurance units. Also the finance companies and telephone banks of the two companies have been amalgamated and are functioning well today. All this will now enable us to devote all our energy to customer-oriented work.

Today, we have a more distinct organisation, strategy and orientation. To an increasing extent, our customers will be able to see and experience the fruits of our efforts. The challenges facing us in 1999 are about increased focus on customers, improved operational efficiency and further rationalisation of our use of capital. In these respects, we still have a long way to go. At the same time, we will continue our investments in growth areas, particularly within our savings-related units.

The SEB Group is a knowledge company. Many of our direct services for our clients are of an advisory nature. Leading competence is one of our foremost success factors, not only in the form of expertise on various subjects but also, and increasingly, in terms of leadership and ability to create a good team spirit. At present, 20 per cent of the top managers are women, while the share of female employees is, in total, 55 per cent. To promote the advancement of women we use mentor programmes. We actively encourage women to apply for leading positions. The Group offers assistance at home to facilitate the combining of work and family for all employees with children under the age of eight. We are studying a new form of compensation system, by which part of the salary consists of options in accordance with the system that Parliament adopted in July, 1998. This system will first be applied to the Management Committee. The profit share for employees increased to SEK 292 M (SEK 88 M), which corresponds to approximately SEK 17,000 per employee.

In all, the 1998 result provides a stable basis for continued growth and rationalisation of the SEB Group. Turmoil in the financial environment, increased private savings and the introduction of the euro have intensified competition and put pressure on all the banks of the world. The great process of change that has been carried out within the SEB Group during 1998 is just the beginning. In 1999 as in coming years, there will be great opportunities for growth, both in volumes and results, which generate long-term shareholder value. The way in which our staff has faced challenges during the past year strengthens our faith for the future.


Market position of the Group
Despite increasing competition, the SEB Group managed to defend and to strengthen its leading position in most of its priority markets.

SEB accounts for between 35 and 40 per cent of all foreign exchange trading in Sweden. For several years, it has been ranked number one in Nordic currency trading by the magazine Euromoney.

SEB was the largest player on the Stockholm Stock Exchange also in 1998 and was ranked best Nordic securities broker (by Euromoney) and best corporate finance team in the Nordic area (by Affärsvärlden).

SEB is the largest asset manager in the Nordic area, with SEK 499 billion in funds under management.

At year-end 1998, SEB's total household savings amounted to SEK 344 billion (SEK 300 billion), which corresponded to a market share of 21.3 per cent (21.0 per cent). Its share of mutual fund savings was 23.2 per cent (22.0 per cent) and its share of household bank deposits was 13.2 per cent (13.4 per cent). The Group's share of new sales of life insurance was 19.7 per cent (21.0 per cent).

While total lending, excluding repos, increased by 6.6 per cent, SEB's lending, excluding repos, remained largely unchanged. This meant that its market share dropped to 14.1 per cent (14.6 per cent). In the household market, Group lending increased by 9.6 per cent, mainly due to SEB BoLån's increased volumes, and its market share increased to 11.6 per cent (11.3 per cent).

The market share of Securities Services (custodial services) ranges between 50 and 60 per cent. Also as regards credit and charge cards, the SEB Group's share of the so-called travel and entertainment cards is over 50 per cent.

Result per business area
The best contributions to the result, in absolute figures, were delivered by Retail and Asset Management, while SEB Trygg Liv accounted for the largest percentage result increase.

Retail developed well. Its external income increased, whereas its internal income dropped as a result of altered internal adjustment calculations. A combination of lower costs and declining lending losses improved the total result by 29 per cent, to SEK 2,346 M (SEK 1,813 M), or 39 per cent of the Group's total result. Return on allocated capital, SEK 8,800 M, was 19.2 per cent. *)

At the end of 1998, Retail was divided into two business areas: Sales & Service, which reported a total result of SEK 1,324 M, and Financial Services, the result of which totalled SEK 996 M. The number of positions within Sales & Service decreased during the year by close to 300, following internal rationalisation, the merger of the two telephone banks Sesam and Trygg-Banken and increased use of the Internet, telephone and automatic machines. During the year the number of Internet clients has more than doubled and, at year-end 1999, stood at 230,000. Nearly one third of all private payments and one fifth of all private share transactions at SEB are carried out via Internet banking.

Within Financial Services, SEB Kort (credit and charge cards) and Securities Services showed strong development. At year-end 1998, SEB Kort had 2 million cards outstanding in the Nordic region. Securities Services managed Swedish and foreign securities worth SEK 1,575 M in total at year-end 1998. The two finance companies, FinansSkandic and Trygg Finans, were
successfully merged into SEB Finans, which more than doubled its result in 1998.

Trygg-Hansa, the property insurance business area, reported a good trend in sales and its premium income rose by 6 per cent, to SEK 4,248 M, net. Operating and claims settlement costs dropped, whereas the claims costs rose, mainly due to increased car thefts. Taken together, this resulted in a combined ratio of 109.3 per cent (107.4 per cent).

*) Capital allocation to the various business areas of the Group is made in proportion to their respective risk exposure. When calculating each respective business area's profitability the results, after standard tax, have been put in relation to allocated risk capital. Such Group goodwill as is included in the allocated capital of the business areas is also taken into account in the calculation (see page 9).
The total result dropped, to SEK 451 M (SEK 642 M), which is explained by a lower risk-free cost of capital, lower liquidation gains and a higher combined ratio. The rest of actual return, approximately SEK 980 M, has been reported under the item Other, common to the Group.

Trygg-Hansa's return in 1998 was calculated on this business area's allocated capital, SEK
3,500 M, assuming a normal return on the normal portfolio. This gave a return of 9.3 per cent.

If actual return on the investment portfolio is added to the business area, the total result will be
SEK 1,431 M and the return 29 per cent.

SEB Asset Management's income rose by 23 per cent as a result of increased net savings and rising stock prices. Costs increased by 33 per cent, mainly due to investments in Finland and Norway. In addition, the number of analysts and fund managers was increased during the year. The total result improved by 11 per cent, to SEK 932 M (SEK 843 M), corresponding to 15 per cent of the total result of the Group. Return on allocated capital including attributable goodwill, in total SEK
3,750 M, was 17.9 per cent.

At year-end, Asset Management's funds under management totalled SEK 499 billion (SEK 402 billion), of which portfolio management accounted for SEK 188 billion, traditional life insurance for SEK 153 billion, mutual funds and unit-linked insurance for SEK 135 billion and the property insurance portfolio for SEK 23 billion. Net deposits amounted to approximately SEK 15 billion, of which SEK 8 billion went to the mutual funds of the Group and SEK 7 billion to portfolio management for account of customers in Sweden, Norway, Finland and Luxembourg.

In the autumn of 1998, ABB Investment Management was acquired. This company, which forms part of SEB as from 1 December 1998, is active in Sweden, Finland, Norway, Poland, Switzerland and the U.S.A. and its managed funds totalled SEK 32 billion at year-end, one fifth of which being within ABB Fonder (mutual funds).

SEB Trygg-Liv's (life) total result more than doubled, to SEK 575 M (SEK 280 M pro forma in 1997). Sales, i.e. new contracts and extra payments under existing insurance contracts, increased by 24 per cent, to SEK 7.3 billion (SEK 5.9 billion). New sales, particularly of unit-linked insurance, were the highest ever. Funds under management totalled SEK 190 billion at year-end 1998.

Profits from insurance operations were affected negatively by a provision in the British company SEB Trygg Life.

Return on allocated capital including attributable goodwill, in total SEK 3,250 M, was 12.7 per cent. The acquisition of Trygg-Hansa's life insurance operations in combination with rapid growth weighed down return short-term.

All life and unit-linked insurance operations within S-E-Banken Försäkring and Trygg-Hansa's life insurance operations have been assembled under a new holding company, SEB Trygg Holding AB.

SEB Merchant Banking's total result dropped to SEK 316 M (SEK 1,600 M) due to provisions for engagements on emerging markets, particularly Russia. During the fourth quarter, SEK 150 M of the general reserve for political risks abroad, previously reported at Group level, was reported for Merchant Banking.

The result before lending losses improved by 22 per cent, to SEK 2,326 M, through a combination of increased income and reduced costs. Customer-related earnings increased by 14 per cent, chiefly due to a very positive development within foreign exchange trading and to investments in new financial services, e.g within the euro area.

Income from proprietary trading and cash management was slightly lower than in 1997, chiefly due to the reduced difference between long- and short-term interest rates. Return on allocated capital, SEK 10,400 M, was 2.2 per cent.

Enskilda Securities' income for 1998 amounted to SEK 1,330 M, a decrease of about 9 per cent compared with 1997. Good market conditions during the first six months of the year made a large number of corporate finance transactions possible. This, together with increased volumes within equity trading, had a positive impact on Enskilda Securities. However, the turbulence in the financial markets in the autumn of 1998 led to a slackening of the positive trend. Lower volumes, continued pressure on brokerage commissions, trading and certain lending losses also contributed to an operating result of SEK 217 M (SEK 329 M). Costs decreased by 3 per cent, to SEK 1,084 M. Return on allocated capital, SEK 650 M, was 24 per cent.

Enskilda Securities' share of equity trading was over 9 per cent in 1998, which means that it maintained its position as the largest player on the Stockholm Stock Exchange.

As from 1 January, 1999 the business of Enskilda Securities has been incorporated.


Group performance

Income
Net interest earnings decreased marginally, to SEK 6,777 M (SEK 6,830 M), mainly due to the difference between long- and short-term interest rates being smaller on average than during the same period last year. This had a negative impact on the interest-sensitive positions of the Group.
Net interest earnings from deposits and lending rose as a result of growing volumes. The cost for the deposit guarantee amounted to SEK 268 M (SEK 249 M).

Net commission income increased by 10 per cent, to SEK 6,619 M (SEK 6,027 M), mainly due to increased securities commissions from equity trading and asset management, but also due to higher credit and charge card commissions.

Net insurance income, i.e. premium income, after deduction for claims incurred excluding claims settlement costs in the non-life insurance operations, plus calculated return, dropped to
SEK 1,220 M (SEK 1,534 M). For SEB Trygg-Liv, a provision in the British company SEB Trygg Life led to a decrease in net insurance income to SEK 144 M (SEK 279 M). The result of run-off activities and Industrial & Marine, which was sold on July 1, amounted to SEK 373 M (690). All in all this meant that total net insurance income dropped to SEK 1,737 M (SEK 2,503 M).

Net result of financial transactions decreased by 6 per cent, to SEK 3,467 M (SEK 3,675 M). This was chiefly as a consequence that investment portfolios of the Group not appreciating in value as strongly as in 1997, which was a better year for the stock market.

The negative impact of the stock market decline on Trygg-Hansa's market portfolio during the third quarter was limited through a hedging arrangement that was made in the spring of 1998. This hedge consisted originally of options, but was exchanged for forward positions in November. The main part of Trygg-Hansa's equity portfolio, which was worth close to SEK 7 billion on 31 December, 1998, has been sold. In mid-February, 1999 the remaining holding of approximately SEK 1.5 billion consisted of mutual fund units.

In early 1999, Trygg-Hansa sold its remaining holding of 2.3 per cent of the shares in the Finnish insurance company Sampo. The capital gain of approximately SEK 85 M has been included in the results for previous years as the shares were valued at market.

The result from proprietary trading and cash management declined somewhat, chiefly as a result of the reduced difference between long- and short-term interest rates. In 1998, the proprietary trading of the Group was confined to fewer markets.

A one percentage unit change in the Swedish market rates as at 31 December 1998 would have resulted in an increase/decrease of approximately SEK 1.9 billion in the market value of the Group's total positions in Swedish kronor and foreign currency.

Other income increased to SEK 2,166 M (SEK 1,269 M) as a result of capital gains of SEK
1,655 M. The sale of 44 office premises to Vasakronan led to a capital gain of a little over SEK
1 billion and the sale of the Industrial & Marine business area to the Swiss insurance company Zurich Group resulted in a capital gain of SEK 450 M.

Taken together, Group income amounted to SEK 21,097 M (SEK 20,644 M pro forma in 1997).

Costs
Group costs amounted to SEK 14,045 M which, excluding restructuring costs for 1997, meant a drop of 2 per cent compared with 1997. This means that the Group has managed to break the trend in recent years towards rising costs. SEB's administration of the operations and capital of the two mutual life companies has been reported on a net basis up to now. Following the incorporation of the life companies, the accounting method has been changed to gross accounting. This has affected both income and costs, by SEK 645 M, for 1997. Also the quarterly figures for 1998 have been recalculated.

Staff costs totalled SEK 7,447 M (SEK 7,466 M). The number of staff was reduced by 607 in 1998 and the average number of positions during the year was 12,771 (13,015). The profit share amounted to SEK 292 M (SEK 88 M).

IT costs rose by 21 per cent, to SEK 2,930 M. This was partly due to the Group's steady concentration on its Internet Office and other IT-based services and partly to costs pending the new millennium and the EMU, for which all essential investments have now been completed. Data costs will remain at a high level over the next few years due to the ongoing development of Internet services, for example.

In view of the growth of IT costs and the Nordic expansion, this means that the rest of the business has undergone considerable rationalisation, or minus 9 per cent.

By the end of 1998, SEK 1,054 M had been used of the restructuring reserve of SEK 2,255 M, principally distributed among the following units: Retail SEK 251 M, Trygg-Hansa SEK 184 M, SEB Merchant Banking SEK 141 M, IT SEK 184 M and central staff functions SEK 143 M.

Lending losses and doubtful claims
The Group's lending losses, including value changes in assets taken over and write-downs of financial fixed assets, totalled SEK 2,251 M (SEK 1,089 M). Incurred losses, after recoveries, amounted to SEK 242 M (SEK 83 M), while the provisions for possible lending losses including reserve for political risks abroad, increased to SEK ,1995 M (SEK 559 M) after withdrawals.

The provision for the Group's engagements on emerging markets totalled SEK 2.5 billion, of which SEK 1.3 billion was related to Russia. The provision ratio with respect to Russia is thus 82 per cent, taking into account that a minor part of the exposure is valued at market.

In all, the Group's credit exposure on emerging markets at year-end was a little more than SEK
18 billion, gross, compared with SEK 47 billion on 31 December, 1997 (see special section on the credit exposure of the Group on page 12).

Doubtful claims, net, declined by 15 per cent, to SEK 3,577 M (SEK 4,206 M) and the volume of assets taken over increased by 60 per cent, to SEK 1,031 M (SEK 633 M).

Surplus value in life insurance operations
The costs that an insurance company incurs with respect to an insurance contract arise chiefly when the insurance contract is written, whereas income is generated continuously during the life of the contract. This means that actual costs will exceed income in years of rapidly growing insurance portfolios, which has a negative impact on the operating result. At the same time, this means an increase in the surplus value. This change is reported as a special result item, after the operating
Result.

The surplus value in life insurance operations is equal to the present value of expected future gains from existing insurance contracts. This value is calculated as a present value computation, combined with accepted actuarial methods for the handling of future random events. The concept of embedded value is the sum total of this surplus value plus the life company's equity.

According to prevailing rules, surplus values in life insurance operations must not be included among distributable funds, since they consist of future gains. On the other hand, they form a natural basis for the calculation of earnings per share.

Pension provision
Operating costs are continuously charged with both general pension fund contributions actually paid and with standard pension costs in accordance with the supplementary pension plan of the Bank. These pension costs are restored in the total result of the Group, because the Bank has the right to compensate itself for this type of costs from the Bank's pension funds, which are independent from the Bank. This right applies as long as the assets of the pension funds exceed estimated pension commitments.

For 1998, this pension provision amounted to SEK 531 M (SEK 440 M). The total assets of the pension funds were SEK 19 billion, while their commitments totalled SEK 6 billion. Thus, the surplus value was SEK 13 billion.

Tax costs
Taxes relating to the total result amounted to SEK 1,211 M (SEK 1,138 M), which equals a weighted tax rate of 20 per cent. Tax costs consist of SEK 527 M in taxes paid, SEK 923 M in deferred taxes and an estimated tax of SEK 211 M, relating to changes in surplus values in life insurance operations. In all, this corresponds to a tax rate of 27 per cent. The actual lower tax cost was due to a tax reversal of SEK 450 M, which had been charged to the result in previous years.

Result
The total result, thus comprising operating result, changes in surplus values in life insurance operations and pension provision, amounted to SEK 6,084 M (SEK 4,687 M) before tax and to SEK 4,867 M (SEK 3,552 M) after tax. The operating result accounted for SEK 4,801 M (SEK 3,804 M) before tax.

The complete report is available to download from the link below.

Report on the 1998 Results

The Annual Report will be distributed in early April 1999. At the same time, it will also be available on the Internet (www.sebank.se).

The Annual General Meeting will be held at 4.30 p.m. on 29 April 1999 at Stockholmsmässan, Älvsjö near Stockholm.

The Interim Report for the first quarter of 1999 will be published on 29 April, 1999. (Internet address: www.sebank.se). The following two Interim Reports will be published on 17 August and 25 October, 1999, respectively.

For further information, please contact:
Gunilla Wikman, Head of Group Communications, Telephone +46-8-763 81 25
Lotta Treschow, Head of Investor Relations, Telephone +46-8-763 95 59.