board of directors’ report for 2008 - sparebank 1 gruppen
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Board of Directors’ Report for 2008 SpareBank 1 Gruppen ASTRANSCRIPT
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Board of Directors’ Report for 2008SpareBank 1 Gruppen
2 SpareBank 1 Gruppen
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Board of Directors’ Report for 2008SpareBank 1 Gruppen AS
OPERATIONS IN 2008
SpareBank 1 Gruppen AS is a holding company that produces,
provides and distributes products in the fields of life and general
insurance, fund management, securities brokering, factoring and
debt collection services through its subsidiaries. The company also
has subsidiaries that engage in banking and real estate services in
Oslo and Akershus. SpareBank 1 Gruppen AS owns in addition
24.5% of First Securities AS. SpareBank 1 Gruppen AS is owned
by SpareBank 1 Nord-Norge (19.89%), SpareBank 1 SMN
(19.89%), SpareBank 1 SR-Bank (19.89%), Samarbeidende
Sparebanker AS (19.89%), Sparebanken Hedmark (11.14%) and
the Norwegian Confederation of Trade Unions and affiliated
trade unions (9.29%).
In this Directors’ Report, SpareBank 1 Gruppen AS refers to the
holding company, and the SpareBank 1 Group refers to the group
consisting of SpareBank 1 Gruppen AS and its subsidiaries.
The SpareBank 1 Group reported a pre-tax loss of NOK 731.6
million for 2008, compared with a profit of NOK 1,168 million in
2007. The profit gave a return on equity after tax of minus 16.2%,
compared with 26% in 2007. The poor earnings in 2008 are
attributed primarily to unrealised losses on securities portfolios,
as well as the termination of a major IT project and the associated
write-off of NOK 415 million in SpareBank 1 Livsforsikring AS.
The claims ratios were still low in 2008. The SpareBank 1 Group’s
total assets were NOK 56.3 billion as of 31 December 2008. This
represents growth of 3.7% over 2007. In addition, ODIN’s securities
funds had NOK 19.2 billion in assets under management as of 31
December 2008, which is a decline of NOK 18.6 billion from
2007. Capital adequacy ratio was 12.3% as of 31 December 2008,
while the core capital adequacy ratio was 9.2%. The capital
situation of the SpareBank 1 Group is considered satisfactory.
In 2008 SpareBank 1 Gruppen AS purchased 75% of the shares in
Argo Securities AS. The company is engaged in securities activities,
and its head office is located in Oslo. In 2008 SpareBank 1 Gruppen
AS entered into an agreement with SpareBank 1 Nord-Norge to
acquire the bank’s factoring activities. In the first half of 2009, these
activities will be merged with SpareBank 1 Factoring AS – formerly
Glitnir Factoring, which is based in Ålesund. SpareBank 1 Gruppen
AS acquired 10% of Actor Fordringsforvaltning from Sparebanken
Sør effective 1 January 2009 and now owns 100% of the company.
In 2008 the savings banks in the SpareBank 1 Alliance acquired
all the shares in Glitnir Bank ASA and changed the name of the
bank to BNbank ASA.
In 2008 the SpareBank 1 Group introduced a new management
system based on principles taken from «Beyond Budgeting». The
new management system is called Dynamic Management in the
SpareBank 1 Group. This means, for example, that the Group
has discontinued the traditional budgetary process and imple-
mented rolling forecasts. Ambitious, relative targets and extended
use of comparisons (benchmarks), which tell us how good we are
in relation to the market and our competitors, are important
elements of Dynamic Management. The Group’s bonus and
profit-sharing systems will be modified in accordance with the
principles of this management philosophy.
In 2008 SpareBank 1 Skadeforsikring AS and SpareBank 1 Livs-
forsikring AS introduced the FRISK Forsikring brand and concept.
The companies entered into an agreement with 15 major sports
federations with a total of 230,000 members in 2008. In 2009 an
agreement was entered into with the Football Association of
Norway, which has 375,000 members. The FRISK Forsikring
concept and brand will give SpareBank 1 Livsforsikring AS and
SpareBank 1 Skadeforsikring AS a good foundation for the direct
distribution of insurance products to over a half million sports
federation members.
After the completion of an extensive process at SpareBank 1 Livs-
forsikring, a decision was made in 2005 to renew the core systems,
4 SpareBank 1 Gruppen
customer solutions, internal administrative systems, and a number
of support systems. Development of the system has been very
demanding, and the project was plagued by major cost overruns
and delays. Development of a new administrative system has
been halted. The contract with the supplier has been terminated,
and we are negotiating compensation from the supplier. The
system has been written down by NOK 415 million. The Board of
the life insurance company has taken the initiative to have an
internal and external evaluation conducted.
In January 2009 Chief Executive Eldar Mathisen received a serious
medical diagnosis. Kirsten Idebøen, the company’s Chief Financial
Officer became the acting Chief Executive from this point in time.
SPAREBANK 1 ALLIANCE
The SpareBank 1 Alliance consists of 20 savings banks, a com-
mercial bank and the product companies owned by SpareBank 1
Gruppen AS. The alliance represents one of the largest providers
of financial products and services in the Norwegian market. The
member banks in the SpareBank 1 Alliance distribute the
SpareBank 1 Group’s products and collaborate in key areas such
as brands, work processes, skills development, IT operations,
systems development and purchasing. The SpareBank 1 Alliance has
entered into strategic agreements with the Norwegian Federation
of Trade Unions (LO) and affiliated trade unions.
The SpareBank 1 Alliance’s main goal is to ensure each bank’s
independence and regional affiliation through strong competi-
tiveness, profitability and financial soundness. At the same time,
the SpareBank 1 Alliance represents a complete competitive banking
alternative at the national level. To achieve common goals, the
banks in the alliance have established a national marketing profile
and developed a common strategy for brand building and com-
munication. This strategic marketing platform also forms the
basis for joint development of products and concepts. The product
companies established under SpareBank 1 Gruppen AS and the
alliance banks have developed a common technology platform.
Experience sharing and the transfer of expertise within the alliance,
based on best practices, are key elements in the alliance’s develop-
ment. As an element of these efforts, competence centres have been
established for Credit Management in Stavanger, Payments in
Trondheim, and Training in Tromsø.
The SpareBank 1 Alliance had assets of around NOK 585 billion
under management at the end of 2008. This is an increase from
around NOK 440 billion in 2007. Some of this increase is attributed
to the fact that BNbank ASA is included in the figures for 2008.
The SpareBank 1 Alliance consists of 352 offices and branches
throughout Norway that distribute the SpareBank 1 Group’s
products.
SpareBank 1 Utvikling DA represents the administrative frame-
work for the alliance cooperation. The company is owned by the
alliance banks and SpareBank 1 Gruppen AS. SpareBank 1 Gruppen
AS has an ownership interest of 17.74%. SpareBank 1 Utvikling
DA handles financing and the ownership of applications, concepts,
contracts and brands on behalf of the alliance partners.
SpareBank 1 Gruppen AS plays an important role in the efforts to
realise the alliance’s strategic goals. SpareBank 1 Gruppen AS’s
operations are based on creating value for its customers and
owners.
SpareBank 1 Gruppen AS’s main functions in the SpareBank 1
Alliance are two-fold:
• Manage and develop the financial group with respect to the
production and delivery of competitive products and services
for distribution through the alliance banks, its own bank in
Oslo and Akershus, as well as other banks that have a distri-
bution agreement with companies in the SpareBank 1 Group.
• Manage and develop the alliance cooperation with respect
to common management, development and execution of
activities that provide economies of scale and competitive
advantages.
The SpareBank 1 Group’s vision states that «The customer must
experience security, proximity and a simpler everyday life». This
customer-focused vision supports the alliance's vision, which
states that «SpareBank 1 shall be the recommended bank where
customers are reminded of their local roots, meet staff who are
experts at what they do, and experience a simpler everyday life».
The core values of SpareBank 1 Gruppen AS are «to be an expert
and close to you». This means that employees should be friendly
and helpful, take the initiative, and provide customers with relevant
advice. In accordance with the core values, the employees should
be customer-focused and have solid professional competence,
good skills and clear attitudes. Advice and sales transactions
should be based on high ethical standards. The marketing efforts
are aimed primarily at the private market, small and medium-sized
enterprises, and trade unions affiliated with the Norwegian
Federation of Trade Unions (LO).
CORPORATE GOVERNANCE
The shares in SpareBank 1 Gruppen AS are not publicly traded,
but the company does have a listed bond loan and a listed sub-
ordinated loan. The company has a concentrated shareholder
structure, with all shareholder groups either directly or indirectly
represented on the Board. There is good, ongoing contact with all
the owner groups. The Board of SpareBank 1 Gruppen AS has dis-
cussed the «Norwegian Code of Practice for Corporate Governance»
and adopted this wherever the guidelines applied and were relevant
for a company that does not have shares listed on the stock exchange.
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The company is managed in accordance with the objectives,
strategies and ethical guidelines drawn up by the Board. The
company attaches great importance to compliance with the require-
ments that the stock exchange and market places on the company.
In 2007 the Board adopted a new dividend policy for the company.
This means that the company’s owners will be paid a larger portion
of the Group’s profit as a dividend compared with earlier practice.
In determining the dividend for the SpareBank 1 Group AS,
importance shall be attached to the fact that the Group shall have
a satisfactory core and capital adequacy ratio in relation to the
planned growth and risk associated with the operations. The
financial situation must also be deemed satisfactory in other
respects.
In 2008 the Board established an audit committee and a com-
pensation committee. The duties and functions of these commit-
tees are described in instructions stipulated by the Board.
The SpareBank 1 Group has two management teams: Group
Management, which is responsible for managing and developing
the financial group, and Alliance Management, which is responsible
for managing and developing the alliance cooperation. Group
Management consists of the Chief Executive of the holding company
and the Chief Executives of the largest product companies and the
bank in the Group, as well as Group Managers for relevant staff
functions. Alliance Management consists of the Chief Executive
of SpareBank 1 Utvikling DA and Group Managers with special
responsibility for support functions in the alliance cooperation.
Information on the remuneration of the Chief Executive, Group
Management, Board of Directors, Supervisory Board, Audit
Committee and Auditor may be found in the notes to the accounts.
The corporate governance of the SpareBank 1 Gruppen AS is
also discussed elsewhere in this annual report.
SPAREBANK 1 GROUP – RESULTS AND KEY FIGURES
In accordance with Section 3-9 of the Norwegian Accounting
Act, SpareBank 1 Gruppen AS reports the annual accounts for the
Group and holding company in accordance with IFRS (Internati-
onal Financial Reporting Standards). The accounts and analyses
described below have been prepared based on the consolidated
accounts under IFRS. The accounts of Bank 1 Oslo are reported in
accordance with IFRS. The accounts of SpareBank 1 Skadefor-
sikring AS and SpareBank 1 Livsforsikring AS are reported in
accordance with the ”Regulations relating to Annual Accounts etc.
for Life Insurance Companies”, as laid down by the Ministry of
Finance on 16 December 1998 and amended most recently on 30
January 2009, as well as the generally accepted accounting prin-
ciples. Pursuant to the Financial Reporting Regulations, the
company accounts have been prepared in accordance with the
International Accounting Standard Regulations unless otherwise
The SpareBank 1 Group’s
vision states that «The
customer must experience
security, proximity and a
simpler everyday life».
This customer-focused
vision supports the
alliance's vision, which
states that «SpareBank 1
shall be the recommended
bank where customers are
reminded of their local
roots, meet staff who are
experts at what they do,
and experience a simpler
everyday life».
6 SpareBank 1 Gruppen
prescribed by the regulations. There are provisions herein stating
that the international accounting standards can be departed from
in accordance with the provisions of the Regulations of 21 January
2008 relating to the Simplified Application of International
Accounting Standards.
In the consolidated accounts the accounts of all the companies
have been incorporated in accordance with IFRS principles. The
principles applied are described under accounting policies. The
consolidated capital adequacy statement (COREP) is based on
Bank 1 Oslo’s IRB statement, and it includes capital requirements
for the other companies in the Group.
The SpareBank 1 Group reported a loss after tax of NOK 857.7
million in 2008, compared with a profit of NOK 1,210 million for
the previous year. The pre-tax loss was NOK 731.6 million. This
is NOK 1,899.6 million less than in 2007. The tax exemption
model has resulted in major changes in the tax calculations for the
life insurance company, and this has entailed an overall tax charge
of NOK 126.2 million for the Group as a whole, compared with an
income of NOK 42.5 million for the previous year.
SpareBank 1 Livsforsikring AS reported a pre-tax loss of NOK 993
million for 2008. The pre-tax profit was NOK 380 million in 2007.
The risk result improved significantly in 2008, while the admi-
nistrative result and interest result were significantly poorer than
in 2007. The underlying operations generated good results in
2008, and, after adjustment for non-recurring effects, the operating
profit before financial items for the insurance operations was
NOK 68 million. The corresponding figure for 2007 was NOK 32
million.
SpareBank 1 Livsforsikring has decided to hold out through the
financial crisis without any significant sell-off of shares. This
has had an impact on the return achieved by the company in 2008.
At the end of the year, shares and other equity investments repre-
sented 12.4% of the total financial assets in the group portfolio.
The company’s value adjusted return on assets in the group port-
folio as a whole was minus 4.9% in 2008, while the booked
return on assets was minus 2.8%. The return on assets in the com-
pany portfolio was 0.4%. In 2007 the company reported an over-
all value adjusted return of 6.4%, while the booked return was
8.9%.
The development of a new administrative system for the insurance
portfolio has been halted, and the system has been written down
by NOK 415 million. The residual value of NOK 50 million is
attributed to the reuse value of what has been developed.
The capital adequacy ratio was 14.3% as of 31 December 2008,
compared with 12.5% at the end of last year. The solvency margin
capital was 192% of the solvency margin requirement, compared
with 244% for the previous year. At the end of 2008, the require-
ment was NOK 848 million, compared with NOK 735 million
in 2007. The increase in the requirement is due in part to the
discontinuation of a reinsurance agreement. The buffer capital
represented 5.8% of the technical insurance reserves at the end of
2008, compared with 9.3% in 2007. Of the company’s supplementary
provisions, NOK 345 million was used to cover the interest rate
commitments at the end of 2008. The remaining supplementary
provisions totalled NOK 172 million. The securities adjustment
reserve was NOK 0 at the end of the year due to the fact that the
market value of the financial assets was lower than the cost price.
SpareBank 1 Gruppen AS injected equity of NOK 734 million in
the life insurance company in 2008. The SpareBank 1 Group showed
by this that it was willing and able to inject equity in a scope that
enables the company to carry out appropriate investment strategies.
SpareBank 1 Skadeforsikring AS reported a pre-tax profit of NOK
217.7 million for 2008, which corresponds to a reduction of NOK
241.3 million, compared with 2007. The technical result impro-
ved in relation to 2007, primarily due to the normalisation of
new major losses.
The financial income was significantly weaker in 2008, compared
with 2007. The income was reduced by 333.4 million, compared
with 2007. The poorer result is also attributed to an 88.2% reduc-
tion in the financial income, compared with 2007. The investment
portfolio has, nevertheless, proven to be robust throughout 2008.
The financial return was positive 0.5% in spite of the crisis in the
financial markets.
The capital adequacy ratio was 29.2% at the end of 2008, which
corresponds to a coverage of NOK 846 million in relation to the
minimum requirements set by the authorities. The capital adequacy
ratio increased by 1.3 percentage points in 2008.
The combined ratio for own account was 93.7% in 2008, which
was 0.6 percentage points lower than in 2007. The premium
income for own account totalled NOK 3.7 billion in 2008, which
corresponds to an increase of NOK 161 million, or 4.6%, compared
with 2007. The company’s market share declined from 2007 to
2008 and was measured at 9.8% in relation to the premiums
written.
The gross claims ratio was 71.1% in 2008, which corresponds to
a reduction by 3.9 percentage points compared with 2007. The
company experienced fewer new major losses in the corporate
market in 2008, compared with 2007, and just one major loss was
of great significance to the claims ratio.
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The company continued to develop and implement the company’s
corporate market strategy throughout 2008. The goal is to increase
earnings by adding new products that make full-range of services
possible, as well as implementing best practices in the banks for
the sale of corporate market insurance.
In addition to good profitability, the company’s long-term strategy
of high customer satisfaction has given good results. In 2008
independent surveys showed, for the third year in a row, that the
company has the most satisfied customers among the largest com-
panies in the Norwegian general insurance market.
The Bank 1 Oslo Group reported a pre-tax profit of NOK 3.1
million in 2008, which is NOK 127.8 million less than the profit
in 2007. This decline is attributed to the write-down of goodwill,
shares and bonds, as well as higher losses on loans. The year 2008
was marked by financial unrest, and this has also impacted the
bank’s accounts. In 2008 the Group reported unrealised losses on
securities of NOK 73.4 million, where the write-down of shares
represented NOK 22.8 million, and the write-down of goodwill and
other intangible assets in EiendomsMegler 1 Oslo og Akershus
represented NOK 21.0 million and NOK 5.0 million, respectively.
In addition, losses on loans increased by NOK 74.9 million, com-
pared with 2007. The parent bank showed an improvement of
28.3% in the underlying banking operations due to the strong
growth in deposits and lending, and an increase in commission
income.
In 2008, the Group achieved total growth of 19.8% in retail and
corporate lending. This includes home mortgage loans (NOK 1.0
billion) transferred to SpareBank 1 Boligkreditt AS. Growth in the
retail market was 23.5%, and in the corporate market it was
11.6%.
After three years of net income recognition due to loan loss
provisions, the Group had to recognise losses on loans totalling
NOK 65.1 million in 2008. The loan losses are attributed primarily
to certain loans in the corporate market, as well as an increase
of NOK 16.3 million in the group write-downs. The loss ratio
(recognised loss as a percentage of gross lending) was 0.31% in
2008, compared with -0.05% in 2007.
The group write-downs as of 31 December 2008 totalled NOK 73.3
million, or 0.35% of the combined gross loans, which is an
increase of NOK 16.3 million from 31 December 2007.
In April 2008, the bank received approval from the Financial
Supervisory Authority of Norway to use internal credit models (the
IRB approach) for calculating capital adequacy requirements
according to the new regulations. The IRB approval has raised the
bank’s level of quality with regard to the development of credit
systems and skills development. The risk management system has
also improved, with special emphasis on the registration,
measurement and reporting of credit risk.
At the end of 2008, the capital adequacy ratio was 8.00% (10.71%)
and the core capital adequacy ratio was 7.93% (9.95%). The
transition scheme for IRB banks entails an improvement in the
bank’s capital and core capital adequacy ratios by one percentage
point as of 1 January 2009. The bank’s target is a capital adequacy
ratio of 11%, and it will raise a non-perpetual subordinated loan
in the first quarter of 2009 to reach this target.
The bank has 16 local branch offices, nine of which are in Oslo and
seven in Akershus. During the period from 2006 to 2007, the
bank opened six new local branches as part of its planned expansion
strategy.
In addition to good profitability, the company’s long-term strategy of high customer satisfaction has givengood results. In 2008 independent surveys showed, forthe third year in a row, that the company has the mostsatisfied customers among the largest companies inthe Norwegian general insurance market.
8 SpareBank 1 Gruppen
Bank1 Oslo has a good deposit-loan ratio and is less dependent
than many other banks on funding from the money and capital
markets. In addition, Bank 1 Oslo’s funding has a relatively long
maturity profile. Bank 1 Oslo’s funding situation has therefore been
satisfactory throughout 2008.
ODIN Forvaltning AS reported an operating profit of NOK 84.2
million for 2008, compared with a profit of NOK 283.6 million for
2007. The lower profit is attributed primarily to a sharp fall in total
assets due to the falling stock markets.
ODIN’s value-oriented investment philosophy entails that the
annual return yielded by ODIN’s equity funds varies from year to
year. The year 2008 was a difficult year for everyone in the equity
markets, and nine of ODIN’s eleven self-managed equity funds
showed a poorer return than the market in which they were
invested. The equity funds show, however, a good long-term
return.
At the end of 2008, ODIN managed a total of NOK 19.2 billion,
which is a reduction of NOK 18.6 billion, compared with 2007.
The company had more than 280,000 unit holders in 17 equity
funds and six fixed income funds at the end of 2008. The level of
both equity fund subscriptions and redemptions was lower in 2008
than in 2007, and ODIN saw net equity fund redemptions of NOK
3 billion. The combination of poor absolute and relative returns
and the net redemption of equity funds resulted in ODIN’s mar-
ket share for equity funds falling from 15.9% at the beginning of
2008 to 13.8% at the end of the year. The total market share fell
from 9.2% to 6.6%. At the end of 2008 the company was still
Norway’s second largest manager of equity funds.
In October 2008 SpareBank 1 Gruppen AS acquired 75% of the
shares in Argo Securities AS for NOK 165 million. Argo Securities
AS is an investment firm, and it has ambitions of becoming a
leading Norwegian brokerage house with activities in corporate
finance, stock broking, and debt capital, as well as derivatives of
shares and interest rates. The company was established by former
employees of Kaupthing Bank’s Norwegian brokering activities.
SpareBank 1 Gruppen AS owns 24.5% of the shares in First
Securities ASA. This holding is considered a financial investment
after SpareBank 1 Gruppen AS acquired the brokerage firm Argo
Securities AS.
SpareBank 1 Gruppen AS owned 90% of the shares in the debt
collection company Actor Fordringsforvaltning AS at the end of
the year. Actor reported a pre-tax profit of NOK 15.3 million,
which is an improvement of NOK 1.5 million, compared with
2007. The company has over 35 years of experience in debt
collection and provides, for example, receivables management and
legal debt collection services. Actor has offices in Hamar and
Gjøvik. In the first quarter of 2009, SpareBank 1 Gruppen AS
acquired the remaining 10% of the shares in the company.
In addition to shares in subsidiaries, the holding company's assets
consist of bank deposits and minor assets. SpareBank 1 Gruppen
AS sold its shares in Alka Forsikring in 2008. The holding
company had liquidity reserves of NOK 1,152 million as of 31
December 2008, and unutilised credit facilities accounted for
NOK 400 million of this amount. The liquidity reserves increased
by around NOK 769 million, compared with 2007. The Group's
cash and cash equivalents increased by NOK 787.2 million in 2008.
Net cash flow from the Group's operations was negative NOK
1,515.6 million. Loans to customers increased by NOK 2,445,
security holdings declined by NOK 748 million and the real
estate portfolio increased by NOK 144 million. Other financing
activities increased cash flow by NOK 4,297.1 million in 2008.
Liabilities arising from the issuance of securities increased by
NOK 1,891.8 million, and deposits and liabilities to customers and
credit institutions increased by NOK 1,931.3 million. The owners
made a contribution by injecting NOK 924 million in new
equity. A dividend of NOK 450 million was paid in 2008.
The equity consists of share capital, share premium reserve and
other reserves. The share capital in the holding company was NOK
1,747.2 million as of 31 December 2008, while the Group’s
combined equity was NOK 5,054 million at the end of the year.
SpareBank 1 Gruppen AS received NOK 924 million in new
equity in 2008. In accordance with an interpretation of IFRS,
various insurance funds from SpareBank 1 Skadeforsikring AS
have been transferred to equity in the amount of NOK 937.9 in the
consolidated accounts. The parent company’s combined equity
was NOK 4,109 at the end of the year. Recognised goodwill in the
Group totalled NOK 704 million as of 31 December 2008.
The Group’s capital adequacy ratio was 12.3% as of 31 December
2008 on a consolidated basis, compared with 13.1% in 2007. The
Group's core capital adequacy ratio was 9.2% as of 31 December
2008, compared with 9.6% for the previous year. For the holding
company in isolation, the capital adequacy ratio was 74%, com-
pared with 74.9% in 2007, and the core capital adequacy ratio was
61.7% in 2008 and 59.6% in 2007, respectively. The holding
company had distributable equity of NOK 1,376 million at the end
of the year, before the proposed dividend.
The annual accounts have been presented on the assumption
that the company will continue as a going concern. The Board
finds that the prerequisites for the going concern assumption
have been met by the annual accounts for 2008 and the earnings
forecast for 2009–2011.
9
Beyond matters mentioned in this report, no circumstances have
arisen after the end of the accounting year that would be of mate-
rial significance to the company's position and results.
DIVIDEND
The Board proposes that a dividend of NOK 624 million be
distributed for 2008 from SpareBank 1 Gruppen AS’s profit of NOK
897.8 million. Most owner banks changed their accounting
policies for the treatment of their investment in the joint venture,
SpareBank 1 Gruppen AS, from the equity method to the cost
method in connection with the transition to IFRS. When the equity
method was employed, the profit from SpareBank1 Gruppen AS
was recognised as income. This is no longer possible in accordance
with the cost method. When the cost method is used, only dividend
received can be recognised as income. Seen in isolation, this
accounting policy change entails a greater interest on the part of
the primary capital certificate banks to increase the size of the
dividend. SpareBank 1 Gruppen AS received NOK 924 million in
new equity in the fourth quarter of 2008 with a view to this. The
Board considers the Group’s capital situation and the parent
company’s liquidity situation to be compatible with the size of the
dividend for 2008.
PROPOSED ALLOCATION OF THE PROFIT FOR THE YEAR
AND PAYMENT OF DIVIDEND
Transferred to other equity NOK 897.8 million
Proposed payment of dividend NOK 624 million
RISK FACTORS
The operations of SpareBank 1 Gruppen AS are organised into
different business areas through subsidiaries. There are major
differences in the risk structure of the individual subsidiaries. The
most important risk categories impacting the Group are related to
market risk, credit risk, liquidity risk, insurance risk, operational
risk and concentration risk, as well as strategic and commercial
risk.
Responsibility for risk management and control
Responsibility for the Group’s risk management lies with SpareBank
1 Gruppen AS. The company boards are responsible for overall risk
management in their own companies. The individual companies
have their own risk managers. Responsibility for the overall risk
management within the organisation lies with the Group Manager
of Strategy, Analysis and Risk Management in the holding company.
This position reports directly to the Chief Executive of SpareBank
1 Gruppen AS.
The aim of risk management in the SpareBank 1 Group is to
ensure capital adequacy and the fulfilment of statutory capital
requirements. This shall be achieved through a moderate risk
profile characterised by:
• a strong risk culture with a high level of risk management
awareness,
• striving towards an optimal application of capital within the
adopted business strategy,
• exploitation of synergy and diversification effects, and
• having adequate core capital in accordance with the chosen
risk profile.
Internal control within the Group is defined as a line responsibility.
In accordance with the «Regulations relating to Risk Management
and Internal Control» and the Group’s own guidelines, risk factors
in the operations are reviewed annually and action plans are pre-
pared in all units, which are reported to the respective company
boards. In addition, the Group also conducts surveys across the
group with regard to internal control, Personal Data Act, and
security matters. SpareBank 1 Gruppen AS has outsourced inter-
nal auditing to Ernst & Young. The Group has acquired added
expertise as a result of this. The internal auditing operations also
encompass the subsidiaries.
Performance of risk management in 2008
Overarching governing documents have been prepared for risk
management, compliance, capital management and liquidity
management. A separate compliance function for the holding
company has also been established in 2008. There is also an active
effort to develop reporting systems for continuous calculation of
risk-adjusted profitability at both the overarching level and at
the segment level.
The year 2008 has demonstrated in earnest what risk in the capital
market entails. The year was marked by a decline in the major
markets that we have to go as far back as the depression in the
1930s to find one that was as severe. The unrest in the financial
markets started in the credit market, particularly US home
mortgage loans in the high risk segment (subprime). The situation
that arose in the credit market quickly spread to the equity and
commodity markets. As a result of this, the Norwegian stock
market fell 54.1% in 2008 (Oslo Børs Benchmark Index), while
equity markets outside Norway represented by the Morgan
Stanley World Index showed a decline of 40.9%. The turbulence
we have experienced in the commodity markets can be illustrated
well by looking at the development of the price of oil (Brent
Blend), which was USD 93.9 per barrel at the start of 2008, rose
to USD 146.1 per barrel in July, and then fell to USD 45.6 per bar-
rel at the end of the year.
The severe market fluctuations have put the SpareBank 1 Group’s
10 SpareBank 1 Gruppen
risk management to the test. This has resulted, for example, in the
implementation of contingency plans that were prepared to con-
trol the Group’s risk. It has entailed frequent reporting of the
company’s financial status, as well as a need to ensure that the
Group has both adequate risk capital and liquidity to withstand
the financial risk to which the operations are exposed. This has
been necessary in light of a situation where we have had relatively
high exposure to equities in SpareBank 1 Livsforsikring and did not
desire to sell these equities off at very low prices. To accomplish
such a strategy, a total of NOK 735 million has been injected into
the life insurance company through group contributions and a
capital increase. The capital increase in SpareBank 1 Livsforsikring
of NOK 300 million was completed towards the end of 2008, and
the SpareBank 1 Group has furnished an additional guarantee for
up to NOK 300 million, which will remain in effect until 1 April 2009.
SpareBank 1 Gruppen AS has raised NOK 924 million from a
private offering to its owners, and the owners have furnished an
additional guarantee of up to NOK 400 million as a capital
injection from the company’s owners. This guarantee is valid
until 1 April 2009.
SpareBank 1 Livsforsikring has adapted its operations to new
legislation, where separate investment strategies have been
formulated, for example, for the company and group portfolios.
The company has also implemented a new balance sheet manage-
ment model. This will be refined on a continuous basis until the
implementation of the Solvency II rules.
A new risk model that quantifies the need for risk capital at the
company and group level was developed and implemented in
2008. The model allows, for example, the Group to link balance
sheet management to the capitalisation objectives and the actual
capitalisation situation through simulation of detailed trading
rules in the various portfolios of the life insurance company.
RISK CATEGORIES
The Group’s risk exposure is related primarily to market risk,
owner risk, credit risk, concentration risk, insurance risk,
operational risk and liquidity risk, as well as strategic and
commercial risk.
Market risk
Market risk is defined as the risk of loss due to changes in
observable market variables, such as interest rates, currency
exchange rates, security prices or real estate.
The Group’s consolidated market risk is measured and reported
quarterly to the Board of SpareBank 1 Gruppen AS. The calcula-
tions are based on a Value at Risk (VaR) model. A corresponding
model is used for the follow-up of each individual company. The
subsidiaries in the Group manage and also monitor their own risk
exposure in accordance with their own models and routines.
The SpareBank 1 Group was impacted significantly by the finan-
cial crisis. This applies in particular to SpareBank 1 Livsforsikring,
which has been affected by a substantial fall in prices in both its
equities portfolio and interest rate portfolio. The value adjusted
return on assets in the customer portfolio in the life insurance
company was a weak minus 4.9%, and the booked return was
minus 2.8%. SpareBank 1 Livsforsikring’s securities adjustment
reserve was reduced from NOK 401.3 million to NOK 0 during the
year; NOK 65.2 million of this reduction attributed to the company
portfolio was reclassified as equity in accordance with the new
accounting regulations for life insurance. In addition, the life
insurance company allocated supplementary provisions of NOK
345.1 million in 2008 to fulfil the interest rate guarantee. The
remaining supplementary provisions totalled NOK 172.3 million
as of 31 December 2008. SpareBank 1 Livsforsikring still has a
satisfactory capital and solvency margin situation. At the start of
2009, however, the company is far more vulnerable to fluctuations
in the financial market. As a result of this the buffer capital utili-
sation in SpareBank 1 Livsforsikring is followed up daily with a
view to monitoring the Group’s risk exposure. In its customer port-
folio at the end of the year the life insurance company had 12%
of its investments in the equities market and 23% of its invest-
ments in the real estate market (excluding the company portfolio
and assets linked to insurance with investment options). The
company did not adjust the market value of its properties in
2008. The running return on SpareBank 1 Livsforsikring’s real
estate portfolio was 6.75% at the start of 2009.
In spite of the fact that SpareBank 1 Skadeforsikring AS has a con-
servative investment profile, the company’s financial return was
impacted quite negatively by the unrest in the financial markets.
The equity exposure corresponds to 5.1% of the company’s finan-
cial assets at the end of 2008. The percentage of the investment
portfolio invested in hedge funds was 4.5%. The company’s fixed
income investments have a very short maturity. At the end of the
year, 15.7% of the company’s investment portfolio was invested
in real estate. The market risk with respect to the company’s
financial investments is considered medium high.
Bank 1 Oslo acquired primary capital certificates valued at NOK
94 million in connection with a non-performing commitment. The
bank does not have any equities trading portfolio beyond this. The
bank’s interest rate and currency exchange risk is considered to be
low.
Owner risk
Owner risk is defined as the risk that arises as a result of being an
owner of a company. SpareBank 1 Gruppen AS’s owner risk in
11
subsidiaries is related to the risk that the individual product
companies assume in their operations, as well as the risk of a need
for the injection of fresh capital into one or more of these com-
panies. As the result of an established strategy in 2008, SpareBank
1 Livsforsikring has maintained a higher share of equities than
most of its important competitors. Due to the plummeting finan-
cial markets, the company has required an injection of capital from
its parent company. The parent company has for its part completed
a private offering to its largest owner banks and obtained a guarantee
for the injection of additional capital as required.
Owner risk related to interests in SpareBank 1 Gruppen Finans
Holding AS (100%), Argo Securities AS (75%) and First Securities
AS (24.5%), as well as certain smaller share holdings, has been
included in the Group’s risk calculations as equity risk under
market risk.
The holding company’s financial position is regarded as satis-
factory overall, given the current risk exposure.
Credit risk
Credit risk is the risk that the company’s borrowers, intermediaries
and reinsurers cannot manage or do not desire to fulfil their
obligations to the SpareBank 1 Group. This also includes the risk
of changes in the general credit prices, the so-called spread risk,
and the reinsurance risk in the insurance companies.
The Group’s credit risk is largely associated with Bank 1 Oslo AS,
and it represents the most significant risk component in the bank.
The bank’s retail market portfolio grew 23.5%. Growth in the
corporate market was 11.9%. The corporate market’s share of the
combined loans was 29.0% as of 31 December 2008, compared
with 31.4% as of 31 December 2007.
Non-performing loans in the bank increased in 2008, compared
with 2007. This applies to both the retail and corporate markets.
Total non-performing and impaired loans in Bank 1 Oslo totalled
NOK 422 million as of 31 December 2008, which is 1.9% of the
bank’s gross loan portfolio, compared with 0.9% as of 31 December
2007.
Bank 1 Oslo AS uses the SpareBank 1 Alliance’s system solutions
for credit approval in both the retail and corporate markets. The
system solutions include decision-support tools (scoring models),
value assessment models for security, and a model for risk pricing.
The credit models are adapted to the requirements under the
Basel II rules and classify customers based on the expected pro-
bability of default in 11 risk classes. Credit risk in individual
commitments is constantly monitored by means of continuous
migration and default reporting, overdraft lists, and close contact
with customers. At the portfolio level, credit risk is monitored in
the form of periodic reporting of the status of defined parameters
in comparison to set limits. Important parameters in this regard are
the likelihood of default, expected losses, unexpected losses and
risk-adjusted return.
Credit risk in the life and general insurance companies relates to
investments in money market instruments and bonds. SpareBank
1 Livsforsikring is directly and indirectly exposed to so-called
CDOs in its portfolios. CDOs are fixed income papers with a
return that is dependent on the development of the credit quality
of a number of underlying counterparties. The development of
the CDO market in 2008 was very unfavourable, and SpareBank 1
Livsforsikring had to write off NOK 138 million as of 31 December
2008. The remaining CDO positions in the life insurance companies
have a book value of NOK 308 million. The risk related to the other
fixed income investments is limited to companies that have a high
credit rating. The credit risk in this portion of the portfolio is con-
sidered to be low to moderate. The insurance companies are also
exposed to a credit risk associated with various reinsurers. Their
rating is monitored closely, and the risk is considered to be low.
In the real estate portfolio there is risk associated with the servicing
of rental agreements. The risk in this category is also considered
to be limited.
Concentration risk
Concentration risk is associated with major commitments, industry
concentration and geographic concentration in credit or investment
portfolios.
There is concentration risk in SpareBank 1 Gruppen, particularly
on the credit side in Bank 1 Oslo. Concentration risk in Bank 1
Oslo means a risk for losses as a result of concentration in major
individual commitments, individual industries or geographic
areas. A concentration risk arises when many commitments are
exposed to the same risk factors, and these factors move more or
less in the same direction. The bank manages concentration risk
through, for example, setting limits for the maximum size of indi-
vidual commitments, number of large commitments, and exposure
to each individual industry, and quantifying this in connection
with the ICAAP process.
In both the life and general insurance companies there is assumed
to be a concentration risk on the investment side, particularly related
to investments in bonds issued by financial institutions. The
capital needs for this risk have not been calculated as of
31 December 2008. The general insurance company has a certain
concentration risk associated with reinsurers.
Insurance risk
Risk associated with uncertainty concerning the frequency and cost
of future insurance claims, and the risk of extreme events (disasters).
12 SpareBank 1 Gruppen
Insurance risk is an inherent part of life insurance and general
insurance company operations. Loss in the general insurance
company can arise as a result of fluctuations in the year’s loss ratio
and prior-year losses. For the SpareBank 1 Livsforsikring, insurance
risk is mainly associated with non-profit-sharing risk products.
Both the life and general insurance companies reduce risk through
reinsurance, partly by the reinsurers taking over portions of the risk
within individual business segments and partly by limiting the
own account share for individual claims through reinsurance.
The reinsurance also covers cumulative claims and disasters.
The risk associated with the reinsurers’ creditworthiness is placed
under credit risk.
Control of the insurance risk in both the life and general insurance
companies is considered to be satisfactory.
Operational risk
Risk that is due to inadequate or failing internal processes, failures
by humans, or failures in systems or external events. The definition
also encompasses legal risk.
Operational risk in the subsidiaries is currently documented in
connection with work relating to compliance with the «Regulations
relating to Risk Management and Internal Control». This work
normally requires the management group of a particular subsidiary
and staff area in the holding company to identify the main cate-
gory of operational risk before and after the implementation of
measures. This effort did not identify any serious risk factors in
the Group in 2008. In connection with the implementation of
the Group’s ICAAP calculations, models were put in place for
calculating necessary capital needs for operational risk. Reference
is made to the Third Pillar report for a more detailed description
of these calculations.
In connection with the coming into force of the new «Regulations
relating to Risk Management and Internal Control», including
Section 6 (last paragraph) of these regulations, which clarifies the
overlap with the «Capital Adequacy Regulations», all the frame-
work and management documents in the Group have been updated
to clarify the boundaries between the risk processes that are
encompassed by the internal control work and those that are
encompassed by the ICAAP work. Compliance with statutory
risk processes and an efficient implementation of these are ensured
through this work.
A major IT project in SpareBank 1 Livsforsikring has been halted,
and this will entail a write-down of NOK 415 million. A thorough
evaluation of the project will be made, but this can serve as an
illustration of substantial operational risk in the Group.
At the start of 2009,
Bank 1 Oslo had an
adequate liquidity
situation.
The liquidity risk is
regarded to be low to
moderate. Bank 1 Oslo
has a very high deposit
coverage ratio, and this
was 77% at the end
of 2008.
13
Liquidity risk
Liquidity risk is the risk of not managing to refinance obligations
or to finance any increased financing needs without substantial
added cost.
Management of the Group’s financial structure is based on an
overall liquidity strategy that is assessed and approved by the
Board at least annually. The liquidity risk is reduced by the diver-
sification of loans in different markets, funding sources, instru-
ments and maturity periods. The liquidity risk of the SpareBank
1 Group is mainly associated with the parent company and Bank
1 Oslo AS, and the risk is considered to be low.
At the start of 2009, Bank 1 Oslo had an adequate liquidity situ-
ation. The liquidity risk is regarded to be low to moderate. Bank
1 Oslo has a very high deposit coverage ratio, and this was 77%
at the end of 2008. Depositors associated with trade unions repre-
sented 47% of the combined deposits at the end of 2008.
The liquidity risk has been reduced throughout the year measured
in relation to the limits the Board has set, such as the net refinancing
need, liquidity indicator and results of the bank’s stress tests in the
area. At the start of 2009 all the target figures were well within the
limits set by the bank’s Board. In 2008 the bank established all the
necessary processes for the transfer of home mortgage loans to
SpareBank 1 Boligkreditt. This gives the bank access to the
exchange scheme that Norges Bank has established for bonds
with pre-emptive rights to government securities. As of 31 December
2008 the bank has substantial liquidity reserves ready for transfer
to SpareBank 1 Boligkreditt. When the overall liquidity risk is con-
sidered nevertheless to have increased somewhat, this is associ-
ated with the general development of the funding markets over the
last year, where there has been an unfortunate development in both
the price and supply of securitised funding.
Strategic and commercial risk
Strategic and commercial risk is the risk for losses resulting from
changes in external circumstances beyond the control of the
company, such as regulatory matters, or inadequate earnings or
supply of capital due to a lack of confidence and the company’s
reputation in the market, i.e. with customers, counterparties,
shareholders and the authorities (reputation risk).
The SpareBank 1 Group has established a contingency plan for
handling reputation-sensitive issues. Work on specific matters
will be initiated and managed by the Group Manager for Infor-
mation and Public Relations, and it will be a dynamic part of the
department’s planning. The contingency plan’s agenda will be
reviewed and updated every quarter.
Together with the Alliance’s Risk Management Forum, the Group
will continue to focus on the establishment of quantitative models
with a view to estimating the capital needs for the strategic and
commercial risks in the Group.
CHANGES IN THE REGULATIONS
The SpareBank 1 Group continued its efforts in 2008 to adapt to
the new regulations for risk management and new capital adequacy
requirements in accordance with the international Basel II rules.
Bank 1 Oslo received approval by the Financial Supervisory
Authority of Norway in the first quarter to report capital adequacy
for credit risk in accordance with internal measurement
methods, so-called IRB approval. The Capital Adequacy Regulations
contain transitional rules with defined «floors» for capital
adequacy for IRB banks up until 2010. For 2009 the floor for the
bank’s capital adequacy is at least 80% in relation to the old
capital adequacy regulations. The bank has not estimated the
effects with regard to capital adequacy of using the IRB method in
relation to the standard method, which is used by most Norwegian
banks. The bank’s ambitions with the IRB approval are to
professionalise the credit operations and risk management in the
credit area.
As the owner of a bank, SpareBank 1 Gruppen AS is subject to the
new capital adequacy rules for banks and other financial institutions
(Basel II). The Second Pillar stipulates that the institution must
have a separate process for measuring capital requirements based
on a separate risk profile. The SpareBank 1 Group has submitted
its own ICAAP documentation to the Financial Supervisory
Authority of Norway from 2007. Work to identify the Group’s over-
all risk situation is under continuous development, and updated
ICAAP calculations will be prepared quarterly for the Board.
From 2009, the SpareBank 1 Group will publish a quarterly Third
Pillar report, which will cover the requirements stipulated in the
capital adequacy regulations with regard to market discipline
and the publication of financial information.
THIRD PILLAR
Reference is made to a separate Third Pillar report prepared in
accordance with the requirements stipulated in Part IX, Chapters
45 and 46, of the Capital Adequacy Regulations. The report has
also been prepared to meet the market’s increased demand for
transparency and openness with regard to risk in general and a
more detailed review of the company’s capital and risk situation.
ORGANISATION AND WORKING ENVIRONMENT AT
SPAREBANK 1 GRUPPEN AS
Organisation
At the end of 2008, SpareBank 1 Gruppen AS had 207 employees
and 201 full-time equivalents. In the SpareBank 1 Group with
subsidiaries there was a total of 1,381 employees and 1,345 full-
time equivalents. The corresponding figures for 2007 were 1,214
14 SpareBank 1 Gruppen
and 1,202, respectively. The increase in the workforce is related
primarily to ventures in new business areas through the acquisition
of companies and growth in the savings and pension area in
SpareBank 1 Livsforsikring.
A total of 117 employees resigned from their positions in 2008. The
total turnover in 2008 was 9.4%. The corresponding figure for 2007
was 8.6%. Adjusted for early retirement pensions, old age pensions
and disability pensions, the Group’s turnover was 6.5%. In a
labour market that was an employees’ market for most of 2008, this
must be regarded as a satisfactory level.
The business areas are organised in separate subsidiaries. The
managers for these areas, as well as the managers for the two
staff areas, Finance and Strategy and Business Development, are
members of the Group Management for the SpareBank 1 Group.
The Chief Executive of SpareBank 1 Utvikling DA leads the
alliance cooperation, which encompasses Marketing, IT, HR,
Information and Public Relations and Alliance Cooperation
functions.
HR strategy
The SpareBank 1 Group’s HR strategy is based on the company’s
vision, values, goals and success factors. The main goal of the HR
strategy is to ensure that SpareBank 1 Gruppen:
• Attracts the right employees by focusing on the values «to be
an expert and close to you».
• Retains the best employees by giving them responsibilities,
communicating with them and rewarding them for good
performance.
• Develops employees by involving them, giving them clear
objectives and following them up.
The HR strategy follows the employment cycle of an employee and
contains frameworks and guidelines for how we as an employer
should manage and develop its employees. Key areas of the HR
strategy include: skills development, career opportunities, remu-
neration and rewards, equal opportunities, fitness programme
(HSE) and a trainee scheme.
The trainee scheme, which was introduced in 2006, was continued
in 2007 and 2008. The first group of eight trainees completed their
trainee period in 2008 and now have central positions in the
Group. The SpareBank 1 Group has seven trainees now and will
recruit a new group of trainees in 2009. The purpose of the trainee
programme is to recruit future managers and technical specialists
who, during a two-year period, will acquire wide-ranging expertise
in our various business areas.
In connection with an audit of the company’s life phase policy in
2008, a decision was made to implement measures to increase the
actual retirement age in the Group. This is based both on a financial
perspective, by reducing the need for recruitment, and an exper-
tise perspective, by benefiting longer from valuable expertise.
The remuneration policy is another key area of the HR strategy.
Regular analyses are conducted to ensure that the Group offers
competitive terms without being a leader. The incentive scheme
and profit sharing at the group level and bonus scheme at the com-
pany level was continued in 2008. The actual results in relation
to the budget and achievement of goals in relation to defined
criteria form the basis for any payments. No bonuses were paid to
the Group’s employees under this scheme in 2008.
Working environment and sickness absence
The company’s working environment is considered to be very
good. Annual work climate surveys are conducted, and they are
followed up through systematic activities in the organisation to
improve any weaknesses that are identified in the surveys.
The SpareBank 1 Group continued the agreement on an Inclusive
Workplace and has set a target for reducing sickness absence by
20% during the period of the agreement, which runs from 1 January
2007 to the end of 2009. Sickness absence in 2008 was 4.4%, com-
pared with 4.5% in 2007, and these rates are among the lowest in
the industry. Training in various HSE disciplines was provided for
managers and safety coordinators, respectively, in 2008. This was
carried out in consultation with the individual working environ-
ment committees.
The SpareBank 1 Group has its own company working environ-
ment committee. This ensures an optimum way of identifying
challenges in the working environment and establishes a body that
has the authority to resolve them. The safety personnel in our
companies make an active contribution. A central Workplace
Anti-Alcoholism and Drug Addiction Dependency Committee
has been appointed, and employee training of managers and
employees has been arranged in cooperation with the police with
a view to preventive activities in this area. Collaboration with the
employee organisations has been constructive and had a positive
impact on the operations and results for 2008.
The SpareBank 1 Group’s ethical guidelines specify rules for
how the employees and representatives shall give notice if they
become aware of matters that are in violation of laws, regulations
or the Group’s internal rules. A separate notification routine has
also been established.
SpareBank 1 Gruppen AS’s operations do not pollute the external
environment.
15
Expertise
Common skills development work in the alliance is organised in
a Skills Committee, which is chaired by SpareBank 1 Gruppen
AS’s Group Manager of Organisation & Human Resources. The
Skills Committee is to work to realise synergies on the basis of the
expertise found in the alliance’s various units, enhancing the
alliance’s overall performance. A large portion of the committee’s
work is associated with the training model in the SpareBank 1
Alliance. Through this model, training is offered in the specialist
areas of investment, insurance, financing and payment transfers.
In connection with the training model, an internal certification
scheme has been developed for customer advisors, and a large
number of advisors has already been certified. A separate skills
strategy has been formulated to support the development of a
culture of continuous learning. A common competence centre has
been established in Tromsø, which will contribute to essential
skills enhancement throughout the alliance.
Technical and professional training and other skills-enhancement
measures are initiated and run primarily in the individual
subsidiary as needed. Management development programmes
have also been established, and these are managed jointly by
SpareBank 1 Gruppen AS on behalf of the companies.
Equal opportunities
Of the Group’s employees, 47% are women and 53% are men.
A total of 15% of all female employees work on a part-time
basis, compared with 2% of the male employees. In the Group
Management, one out of seven members is a woman, and in
Alliance Management, four out of seven are women. The central
management groups in the parent company and subsidiaries have
19% female representation overall. There were two women among
the eight members of the Group Board at the end of the year,
while female representation on the largest subsidiary boards was
36% overall.
The Group’s Life Phase Committee ensures that the company
complies with the Norwegian Gender Equality Act. The committee
also focuses on how the SpareBank 1 Group can be an attractive
employer for employees in various life phases. The Life Phase
Committee is a sub-committee of the Group’s Works Council.
In connection with the development of our remuneration and
reward system, an objective assessment was made of the Group’s
various roles/positions. This was to ensure equal pay for work of
equal value.
As a member of the Norwegian Financial Services Association,
SpareBank 1 Gruppen AS has participated in the FUTURA pro-
gramme. This is a development programme that aims to increase
the share of women in the recruitment basis for leading positions.
Attractive employer
The SpareBank 1 Group experienced increased interest by young
employees in 2008. This is a result of the fact that the Group has
a strong brand in the SpareBank 1 name and the activities that
are carried to market the Group as an attractive employer at
universities and colleges.
The SpareBank 1 Group recruited 170 new employees in 2008 and
experienced a good response to advertised positions in this
connection.
Efforts to emerge as an attractive employer with exciting career
opportunities and competitive terms will continue in 2009.
OUTLOOK
2The year 2008 was marked by substantial market turbulence. The
Board’s ongoing work will focus a great deal on risk manage-
ment in 2009, as it did in 2008. A focus on risk management is
particularly important during periods of considerable market
turbulence. It is the Board’s assessment that SpareBank 1 Gruppen
AS is financially well equipped to tolerate the fluctuations that we
are experiencing now in credit and equities markets and that the
necessary risk management systems have been established to
continuously monitor the SpareBank 1 Group’s overall risk
exposure.
The SpareBank 1 Group showed poor earnings last year, due, for
example, to falling stock exchanges and unrest in the financial
markets. The world economy experienced a substantial economic
downturn in 2008, and the impact of the weak global economy was
also felt in a small, open economy like the Norwegian. The out-
look for 2009 is very uncertain, but there is reason to assume that
also this year will be demanding, where, for example, the per-
formance of the equities markets and the level of losses on loans
will be decisive to the Group’s earnings.
The Board believes that the SpareBank 1 Group has established
financial robustness in all the companies, so that the expected
volatility in the financial markets can be handled well in 2009. The
Board assumes that the SpareBank 1 Group will deliver signifi-
cantly better results as soon as the conditions in the financial
markets normalise.
Competition will escalate in the financial markets as customers
become choosier, and ever more professional players arrive on the
scene. Companies will find themselves competing for the best
employees and will come under increasing pressure to provide the
most competitive products and services. Skills development, as well
as innovation and execution capability, is therefore among the key
factors of success in the further development of our operations.
16 SpareBank 1 Gruppen
Oslo, 24 March 2009
Knut Oscar Fleten Harry Konterud Hans Olav Karde CHAIRMAN OF THE BOARD DEPUTY CHAIRMAN
Terje Vareberg Finn Haugan Bente N. Halvorsen
Knut Bekkevold Venche Johnsen Kirsten IdebøenACTING CHIEF EXECUTIVE
The SpareBank 1 Group and its owners have shown through the
acquisition of new companies in 2008 that they area able and
willing to be offensive even though the economic situation has
been demanding. SpareBank 1 Gruppen AS has strengthened its
overall economic situation and financial manoeuvrability in
recent years, which means that it has also strengthened its ability
to control its structural choices in the future.
A decision has been made to implement an extensive profitability
programme during the next five quarters, which will give a
permanent improvement in the profitability of the SpareBank 1
Group. An important part of this programme will be to achieve a
reduction in the Group’s cost base. This will also entail a review
of the existing portfolio of business areas and products.
A WORD OF GRATITUDE
The employees have shown strong commitment in 2008. Colla-
boration with the employee organisations has been close and
productive. The Board would like to extend thanks to all the
employees of the SpareBank 1 Group for their excellent efforts in
a demanding year.