capital adequacy and risk management report (pillar 3) 2007

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Capital Adequacy and Risk Management report (Pillar 3) 2007

The Capital Adequacy and Risk Management report refers to the public disclosure in ac-cordance with the Capital Requirements Directive (CRD), which implements the Basel II framework in the European Union; in Sweden the new regime is in effect since 1 February 2007.

SEB from the start applies the Internal Ratings Based (IRB) approach for reporting of bank-ing, corporate and household mortgage portfolios in Sweden and Germany – corresponding to more than 70 per cent of the total credit volume. The other parts of the Group are reported ac-cording to the Standardised Approach or Basel I. SEB will gradually continue to roll-out the IRB ap-proach to the vast majority of all operations. As a next step, SEB has received approval to apply the IRB approach for retail, corporate and interbank exposures in Latvia and Lithuania, which cor-respond to 5 per cent of the total credit volume.

Regarding operational risk, SEB during 2007 uses the Basic Indicator Approach, but the Group has applied for supervisory approval to report according to the Advanced Measurement Approach for the full Group as it gets available from 2008. For market risk, SEB since 2001 holds a super-visory approval to use its internal VaR model for calculating capital requirements for the majority of the trading book market risks.

Whereas SEB views positively the increased transparency provided by pillar 3 report-ing, SEB continues to analyse and report the RWA and capital ratios according to both Basel I and Basel II. The quality of the Group’s credit portfolio and the internal risk management culture translate into substantial RWA reductions for the Group. However, this cannot be equated with a similar capital release, due to the framework’s increased business cycle sensitivity, supervi-sory evaluation, transitional floors and rating agency considerations. Careful capital management will be necessary during the transition period.

The Capital Adequacy and Risk Management report provides details on the Group’s risk profile, e.g. business volumes by customer categories and risk classes, which forms the basis for the calculation of the capital requirement. The report supplements the information provided in the Annual Report 2007 on corporate governance, risk and capital management as well as the Notes to the financial statements.

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SEB Group, pillar 3 disclosure 2007

Information below is disclosed following Swedish regulation FFFS 2007:5 – Finans inspek tionen’s

regulations and general guidelines regarding public disclosure of information concerning

capital adequacy and risk management. English version of the regulation can be found at:

www.fi.se/upload/90_English/30_Regulations/1_Regulatory%20code/FFFS0705_eng.pdf

FFFS 2007:5 Description Page

Chapter 3 § 1–2 SEB Financial Group of Undertakings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Chapter 3 § 3 Risk management objectives and guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Chapter 4 § 1–3 Capital base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Chapter 4 § 4–5 Strategies and methods for regulatory and internal capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Chapter 4 § 6–10 Capital requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Chapter 5 § 1 Definition of impairment, etc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Chapter 5 § 2 Credit exposure by exposure class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Chapter 5 § 3, 1 Credit exposure by exposure class and geography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Chapter 5 § 3, 2 Credit exposure by exposure class and industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Chapter 5 § 3, 2 Credit exposure by remaining maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Chapter 5 § 4–5 Impaired loans by industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Chapter 5 § 4–5 Impaired loans by geography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Chapter 5 § 4–5 Provisions and write-offs on impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Chapter 5 § 4–5 Change of reserves for impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Chapter 5 § 6 Credit risk mitigation strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Chapter 5 § 7–8 Credit risk mitigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Chapter 5 § 9–12 Securitisations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Chapter 5 § 13 Standardised approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Chapter 5 § 15 IRB approval and implementation plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Chapter 5 § 16 Structure of risk class scale in PD dimension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Chapter 5 § 17 Credit risk rating & estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Chapter 5 § 18 IRB reported credit exposures by risk class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Chapter 5 § 19 IRB reported exposures with own estimates of LGD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Chapter 5 § 20 IRB reported exposures with own estimates of CCF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Chapter 5 § 23 Comparison between expected and actual losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Chapter 6 Counterparty risk in derivative contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Chapter 7 Operational risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Chapter 8 Trading book market risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Chapter 9 § 1–2 Banking book market risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Chapter 9 § 3–4 Equity exposures not included in the trading book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

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SEB Financial Group of UndertakingsParent company is Skandinaviska Enskilda Banken AB (publ), corporate registration number 502032-9081

ConsolidationCompany Ownership, % Full Pro rata

Credit institutionsFinansSkandic Leasing (SEA) Pte Ltd, Singapore 100 XMöller Bilfinans AS, Oslo 51 XNjord AS, Oslo 100 XOJSB Factorial Bank, Kharkiv 98 XOJSC SEB Bank, Kiev 100 XSEB AG, Frankfurt am Main 100 XSEB Bank JSC, St Petersburg 100 XSEB Eesti Ühispank, AS, Tallinn 100 XSEB Kort AB, Stockholm 100 XSEB Latvijas Unibanka, AS, Riga 100 XSEB Leasing Oy, Helsinki 100 XSEB Vilniaus Bankas, AB, Vilniaus 100 XSkandinaviska Enskilda Banken A/S, Copenhagen 100 XSkandinaviska Enskilda Banken Corporation, New York 100 XSkandinaviska Enskilda Banken S.A., Luxembourg 100 XSkandinaviska Enskilda Ltd, London 100 X

Investment operationsAktiv Placering AB, Stockholm 100 XSEB AB, Stockholm 100 XSEB Asset Management America Inc, Stamford 100 XSEB Asset Management Norge AS, Oslo 100 XSEB Asset Management S.A., Luxembourg 100 XSEB Baltic Holding AB, Stockholm 100 XSEB Enskilda ASA, Oslo 100 XSEB Enskilda Corporate Finance Oy Ab, Helsinki 65 XSEB Enskilda Inc., New York 100 XSEB Fonder AB, Stockholm 100 XSEB Fund Services S.A., Luxembourg 100 XSEB Förvaltnings AB, Stockholm 100 XSEB Gyllenberg Asset Management Ab, Helsinki 100 XSEB Gyllenberg Fondbolag Ab, Helsinki 100 XSEB Gyllenberg Private Bank Ab, Helsinki 100 XSEB Portföljförvaltning AB, Stockholm 100 XSEB Privatbanken ASA, Oslo 100 XSEB Strategic Investments AB, Stockholm 100 XSEB TFI SA (Towarzystwo Funduszy Inwestycyjnych), Warzaw 100 X

Other operationsBDB Bankernas Depå AB, Stockholm 20 XBGC Holding AB, Stockholm 33 XEnskilda Kapitalförvaltning SEB AB, Stockholm 100 XInterscan Servicos de Consultoria Ltda, Sao Paulo 100 XParkeringshuset Lasarettet HGB KB, Stockholm XPM Leasing AB, Stockholm 100 XSEB Hong Kong Trade Services Ltd, Hongkong 100 XSEB Internal Supplier AB, Stockholm 100 XSEB IT Partner Estonia OÜ, Tallinn 100 XSEB NET S.L., Barcelona 100 XSkandic Projektor AB, Stockholm 100 XSkandinaviska Kreditaktiebolaget, Stockholm 100 XTeam SEB AB, Stockholm 100 X

The SEB Group comprises banking, finance, securities and insurance compa-nies. The capital adequacy rules apply to each individual Group company that has a licence to carry on banking, finance or securities operations as well as to the consolidated Financial Group of Undertakings. Group companies that carry on insurance operations have to comply with capital solvency requirements, but are excluded in the capital adequacy reporting and are thus not listed above.

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Capital base

SEKm 2007-12-31

Total equity according to balance sheet (1) 76,719./. Estimated dividend for current year (excl repurchased shares) –4,442./. Deductions for investments outside the financial group of undertakings (2) –81./. Other deductions outside the financial group of undertakings (3) –2,975

= Total equity in the capital adequacy 69,221

Core capital contribution 10,907Adjustment for hedge contracts (4) 237Net provisioning amount for IRB reported credit exposures (5) –235./. Unrealised value changes on available-for-sale financial assets (6) 572./. Goodwill (7) –6,079./. Other intangible assets –1,135./. Deferred tax assets –786

= Core capital (tier 1) 72,702

Dated subordinated debt 18,670./. Deduction for remaining maturity –1,414Perpetual subordinated debt 14,256Net provisioning amount for IRB reported credit exposures (5) –235Unrealised gains on available-for-sale financial assets (6) 451./. Deductions for investments outside the financial group of undertakings (2) –81

= Supplementary capital (tier 2) 31,647

./. Deductions for investments in insurance companies (8) –10,592

./. Deduction for pension assets in excess of related liabilities (9) –784

= Capital base 92,973

Specification of the net provisioning amount above

SEKm 2007-12-31

Provisioning amount for IRB reported credit exposures 4,959./. Expected loss (EL) –5,429

Net provisioning amount (5) –470

Risk management objectives and guidelinesIn providing its customers with financial solutions and products SEB assumes various risks that must be managed. The Group’s profitability is directly depend-ent on its ability to evaluate, manage and price these risks, while maintaining an adequate capitalisation to meet unforeseen events.

As a consequence, risk management is always a prioritised area for the Group, continuously under development. Board supervision, an explicit decision-making structure with a high level of risk awareness among the staff, common definitions and principles, controlled risk-taking within decided limits and a high degree of transparency in external disclosures are the cornerstones of the Group’s risk and capital management. To secure the Group’s financial stability, risk and capital related issues are identified, monitored and managed early on.

This is an integral part of the long-term strategic planning and operational busi-ness planning processes performed throughout the Group.

SEB views the macro economic environment as the major driver of risk to the Group’s earnings and financial stability. SEB uses scenario stress testing to as-sess the consequences of a deteriorating economy and applies conservative risk parameters in its estimation of capital needs.

For a detailed description of the Group’s strategies, processes, organisation, measurement and reporting for risk management, please refer to the Risk and Capital Management section of the Annual report 2007.

To note: Total equity according to the balance sheet (1) includes the current year´s profit which has been reviewed by the auditors.

Deductions (2) for investments outside the financial group of undertakings should be made with equal parts from core and supplementary capital (before 2007 such deductions were made from the capital base). However, investments in insurance companies made before 20 July 2006 can be deducted from the capital base (8) - this holds for SEB´s investments in insurance companies. The deduction (3) consists of retained earnings in subsidiaries outside the fi-nancial group of undertakings.

The adjustment (4) refers to differences in how hedging contracts are ac-knowledged according to the capital adequacy regulation, as compared with the preparation of the balance sheet.

If provisions and value adjustments for credit exposures reported according

to the Internal Ratings Based approach fall short of expected losses on these ex-posures, the difference (5) should be deducted in equal parts from primary and supplementary capital. A corresponding excess can, up to a certain limit, be added to the supplementary capital.

For Available For Sale portfolios (6) value changes on debt instruments should not be acknowledged for capital adequacy. Any surplus attributable to equity instruments may be included in the supplementary capital.

Goodwill in (7) relates only to consolidation into the financial group of undertak-ings. When consolidating the entire Group´s balance sheet further goodwill is creat-ed, of which SEK 5,721m is related to the insurance investments under (8) above.

Pension surplus values (9) should be deducted from the capital base, except-ing such indemnification as prescribed in the Swedish Act on safeguarding of pension undertakings.

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Strategies and methods for regulatory and internal capitalThe Group’s internal capital targets are well above regulatory minima, and the Group reports an available / required ratio of 138% at end of year 2007.

The Group’s capital policy defines how capital management should support the business goals. Shareholders’ return requirements shall be balanced against the capital requirements of the regulators, the expectations of debt investors and other counterparties as regards SEB’s rating, and the economic capital that rep-resents the total risk of the Group. Scenario stress testing is used to assess an extra safety margin over and above the formal capital model requirements – cov-ering e.g. the potential of a sharp decline in the macro-economic environment.

Good risk management notwithstanding, the Group must keep capital buffers against unexpected losses. The regulatory capital requirements serve as one measure of the necessary capital buffer to meet these risks. Requiring a more precise and risk-sensitive measure for internal capital assessment and perform-ance evaluation, SEB uses an economic capital framework. This framework as-sesses how much capital is needed to carry out various business activities. The greater the risk – granted that all business is pursued within strong internal con-trol procedures – the larger risk buffer is needed. This capital need constitutes SEB’s Economic Capital and is based on a Capital at Risk (CAR) model.

Allocation of capital to divisions is an integral part of the regular planning process. The analysis is based upon actual and planned business volumes, and follows the methodology used for the Economic Capital framework. The Group’s

financial steering model is largely built on the same concepts as the new capital adequacy (Basel II) rules, which limits the impact on customers and market offer-ings of the transition to the new regime.

SEB analyses the capital effects of Basel II by regularly assessing RWA levels under the new framework and by continuously observing national regulatory de-velopments. The quality of the Group’s credit portfolio and the internal risk man-agement culture translate into substantial RWA reductions – though limited by supervisory floors during the first years of the regime. However, this cannot be equated with a similar capital release, due to the framework’s increased busi-ness cycle sensitivity, supervisory evaluation and rating agency considerations. Careful capital management will be necessary during the transition period.

The Chief Financial Officer is responsible for the process, linked to overall business planning, to assess capital requirements in relation to the Group’s risk profile, and to propose a strategy for maintaining the capital levels. Together with continuous monitoring, and reporting of the capital adequacy to the Board, this ensures that the relationships between shareholders’ equity, economic capi-tal, regulatory and rating-based requirements are managed in such a way that SEB does not jeopardise the profitability of the business and the financial strength of the Group.

Capital is managed centrally, meeting also local requirements as regards statutory and internal capital.

The capital requirement for the individual company (both in solo and in consolidated reporting) is computed either fully according to Basel I or fully according to Basel II. The companies that in 31 December 2007 reporting follow Basel II are Skandinaviska Enskilda Banken AB, SEB AG and SEB Gyllenberg (three compa-nies). SEB BoLån AB and SEB Finans AB were merged with the parent bank during the fourth quarter.

Capital requirements

SEKm 2007-12-31

Credit risk IRB Approach:Institutions 4,506Corporates 21,420Retail mortgages 3,409Securitisation positions 174

Total IRB Approach 29,509

Credit risk Standardised Approach:Central governments and Central banks 25Local governments and authorities 5Administrative bodies, non-commercial undertakings 27Institutions 141Corporates 792Retail 3,624Exposures secured by real estate property 344Past due items 93Securitisation positions 31Other items 1,145

Total Standardised Approach 6,227

Risks in the trading book:Interest rate risk 3,151Equity risk 577Other market risks 282Foreign exchange rate risk 580

Operational risk Basic Indicator Approach 3,723

Total, companies that report according to Basel II 44,049

Capital requirement for companies within SEB that apply Basel I regulationCredit risk Group B 20% 209

Credit risk Group C 50% 1,880

Credit risk Group D 100% 12,770Risks in the trading book 41

Total, companies that report according to Basel I 14,900

Total capital requirement before transitional rules 58,949

Adjustment due to transitional rules 8,409

Total capital requirement 67,358

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Definition of impairment, etc.Like all financial assets on the balance sheet (except those classified at fair value through profit or loss) loans and receivables are tested for impairment on each balance sheet date. A financial asset or group of financial assets is impaired if there is objective evidence that something has happened after the asset was ini-tially recognised (“loss event”) that will impact the future cash flow according to the contract. Events of this nature may include:• Restructuring of the loan where a concession is granted due to the borrower’s

financial difficulty.• A default in the payment of interest or principal, i.e. the loan is non-performing.• It is probable that the borrower will go bankrupt.

The impairment loss is measured as the difference between the carrying amount of the loan and the discounted value of the estimated cash flow. A specific provi-sion of equal size is recorded in an allowance account. As soon as it is possible

to determine the amount that cannot be recovered from the borrower or from a sale of collateral it is written off and the provision is reversed by the same amount. Similarly, the provision is reversed if the estimated recovery value ex-ceeds the carrying amount.

In addition to an individual impairment test, a collective assessment is made of the value of receivables that have not been deemed to be impaired on an indi-vidual basis. Receivables with similar credit risk characteristics are grouped to-gether and assessed collectively for impairment. The Group’s internal risk classi-fication system constitutes one of the components forming the basis for deter-mining the total amount of the collective provision.

For certain homogeneous groups of individually insignificant credits (e.g. credit card claims), provision models have been established on the basis of his-torical credit losses and the status of these claims.

Credit exposure by exposure class

2007-12-31Exposure, SEKm Year-end Average

Institutions 372,196 272,915Corporates 500,974 483,962Retail mortgages 264,269 251,013Securitisation positions 29,252 33,162

Total IRB Approach 1,166,691 1,041,052

Central governments and Central banks 174,294 105,315Local governments and authorities 100,875 88,567Administrative bodies, non-commercial undertakings 338 374Institutions 7,152 13,760Corporates 10,027 11,290Retail 60,821 58,177Exposures secured by real estate property 14,680 23,768Past due items 962 571Securitisation positions 1,913 2,297Other items 15,104 12,710

Total Standardised Approach 386,166 316,829

Total 1,552,857 1,357,881

Credit exposure by exposure class and geography

Exposure 2007-12-31, SEKm Sweden Other Nordic Germany Baltic Other Europe Other TOTAL

Institutions 33,954 30,992 102,053 12 157,473 47,712 372,196Corporates 234,494 66,490 113,428 1,214 48,560 36,788 500,974Retail mortgages 204,004 295 58,683 3 787 497 264,269Securitisation positions 43 10,804 18,405 29,252

Total IRB Approach 472,452 97,777 274,207 1,229 217,624 103,402 1,166,691

Central governments and Central banks 27,880 39,169 95,572 8,400 3,273 174,294Local governments and authorities 26,171 108 74,596 100,875Administrative bodies, non-commercial undertakings 338 338Institutions 5,795 645 633 64 15 7,152Corporates 7,278 120 2,205 208 174 42 10,027Retail 43,297 890 15,868 6 558 202 60,821Exposures secured by real estate property 5,800 13 8,768 68 31 14,680Past due items 57 891 4 10 962Securitisation positions 1,913 1,913Other items 11,953 796 1,747 170 438 15,104

Total Standardised Approach 128,569 41,741 200,280 278 9,374 5,924 386,166

Total 601,021 139,518 474,487 1,507 226,998 109,326 1,552,857

Exposure amounts after eligible offsets but without taking into account the effects of credit risk mitigation.Exposure amounts for off balance sheet items are after application of relevant conversion factors.Following supervisory guidelines the averages are based on four quarterly observations.The above does not include exposures that are reported according to Basel I or trading book rules.

Geographical distribution according to obligors’ country of domicile. Exposure amounts for off balance sheet items are after application of relevant conversion factors. The above does not include exposures that are reported according to Basel I or trading book rules.

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Credit exposure by exposure class and industry

Exposure, SEKm 2007-12-31

Institutions 372,196Corporates 500,974of which Business Services 66,489 Construction 7,310 Finance & Insurance 57,453 Household Services 7,953 Manufacturing 107,739 Property Management 138,847 Transportation 37,853 Wholesale & Retail 33,893 Other 43,437Retail mortgages 264,269Securitisation positions 29,252

Total IRB Approach 1,166,691

Central governments and Central banks 174,294Local governments and authorities 100,875Administrative bodies, non-commercial undertakings 338Institutions 7,152Corporates 10,027of which Business Services 275 Construction 57 Finance & Insurance 2,639 Household Services 1,700 Manufacturing 350 Property Management 2,909 Transportation 52 Wholesale & Retail 391 Other 1,654Retail 60,821Exposures secured by real estate property 14,680Past due items 962Securitisation positions 1,913Other items 15,104

Total Standardised Approach 386,166

Total 1,552,857

Credit exposure by remaining maturity

Exposure 2007-12-31, SEKm < 3 months 3 < 6 months 6 < 12 months 1–5 years > 5 years TOTAL

Institutions 190,527 12,732 16,040 90,823 62,074 372,196Corporates 125,685 21,372 42,299 157,043 154,575 500,974Retail mortgages 9,886 2,549 2,403 17,138 232,293 264,269Securitisation positions 10 1,019 2,355 1,013 24,855 29,252

Total IRB Approach 326,108 37,672 63,097 266,017 473,797 1,166,691

Central governments and Central banks 130,398 2,356 9,040 19,871 12,629 174,294Local governments and authorities 35,824 2,193 12,043 28,145 22,670 100,875Administrative bodies, non-commercial undertakings 112 8 6 134 78 338Institutions 6,024 0 172 278 678 7,152Corporates 3,164 174 579 2,332 3,778 10,027Retail 17,107 1,212 1,481 15,495 25,526 60,821Exposures secured by real estate property 1,069 271 1,411 2,618 9,311 14,680Past due items 662 2 8 47 243 962Securitisation positions 1,913 1,913Other items 12,486 17 26 1,175 1,400 15,104

Total Standardised Approach 208,759 6,233 24,766 70,095 76,313 386,166

Total 534,867 43,905 87,863 336,112 550,110 1,552,857

Exposure amounts for off balance sheet items are after application of relevant conversion factors. The above does not include exposures that are reported according to Basel I or trading book rules.

Exposure amounts for off balance sheet items are after application of relevant conversion factors. The above does not include exposures that are reported according to Basel I or trading book rules.

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Provisions and write-offs on impaired loans

SEKm 2007

Provisions:Net collective provisions 200Specific provisions –572Reversal of specific provisions no longer required 342Net provisions for contingent liabilities 6

Net provisions –24

Write-offs:Total write-offs –1,149Reversal of specific provisions utilized for write-offs 668

Write-offs not previously provided for –481Recovered from previous write-offs 227

Net write-offs –254

Net credit losses –278

Impaired loans (gross) by industry Corporate exposures in all exposure classes

Impaired and Impaired but2007-12-31, SEKm non-performing performing TOTAL

Business services 175 66 241Construction 135 20 155Finance & Insurance 5 5Household services 1 1 2Manufacturing 564 101 665Property Management 2,982 323 3,305Transportation 61 61Wholesale & Retail 529 64 593Other 649 31 680

Total 5,101 606 5,707

Impaired loans (gross) by geographyTotal exposures in all exposure classes

Impaired and Impaired but2007-12-31, SEKm non-performing performing TOTAL

Sweden 814 27 841Other Nordic 4 4Germany 5 050 726 5 776BalticOther Europe 158 14 172Other 174 174

Total 6 200 767 6 967

Change of reserves for impaired loans

Collective SpecificSEKm reserves reserves

Opening balance, 2007-01-01 1,291 3,829

Net collective provisions –200Specific provisions 572Reversal of specific provisions utilized for write-offs –668Reversal of specific provisions no longer required –343Currency differences, group structure changes, reclassifications etc. 5 35

Closing balance, 2007-12-31 1,096 3,425

The above does not include exposures that are reported according to Basel I or trading book rules.

Geographical distribution according to lending company’s country of domicile. The above does not include exposures that are reported according to Basel I or trading book rules.

The above does not include credit volumes that are reported according to Basel I or trading book rules.

The above does not include exposures that are reported according to Basel I or trading book rules.

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Credit risk mitigation strategiesCredit approvals are based on an evaluation of the counterparty’s creditworthi-ness and the type of credit arrangement, both for a transaction and in total for that counterparty. Consideration is given to the counterparty’s current and pro-jected financial condition and also to the protection given by covenants, collater-al, etc. in the event of credit quality deterioration.

In the selection of a particular credit risk mitigation technique consideration is given to its legal enforceability, its suitability for the particular counterparty, and to the organisation’s experience and capacity to manage and control the particular technique.

The most important credit risk mitigation techniques are pledges, guaran-tees and netting agreements. Real estate mortgages and financial collateral rep-resent the two most common types of pledges. Banks, securities firms and in-surance companies are typically counterparties in more sophisticated risk miti-gation transactions, such as credit derivatives. SEB’s credit policy requires the credit derivative counterparty to be of the highest credit quality and the use of close-out netting agreements with all trading counterparties (while on balance sheet netting is a less frequent practice).

The credit portfolio is continually analyzed for risk concentrations to geo-graphical and industry sectors and to single large names - both as concerns di-rect exposures and for issuers of collaterals and guarantees / credit derivatives. This analysis serves as input to the active portfolio management which is per-formed at a limited scale by Group Treasury.

The general control process for various credit risk mitigation techniques in-cludes credit review and approval requirements, specific credit product policies, and credit risk monitoring and control. The market value of both the base expo-sure and the credit risk mitigation are monitored on a regular basis. The frequen-cy depends on the type of counterparty, the structure of the transaction and the liquidity of the hedge instrument. The control process does differ among instru-ments and business units. For example within the Merchant Banking division there is a collateral management unit responsible for the daily collateralisation of trading products, i.e. FX and derivatives, repos and stock lending.

All non-retail collateral values are reviewed at least annually by the relevant credit committee. Collateral values for watch-listed engagements are reviewed on a more frequent basis.

SecuritisationsSEB does not regularly securitise its assets, and has no outstanding own issues. In addition, the Group does not operate any Asset Backed Commercial Paper (ABCP) conduit or similar structure. Thus, most of the securitisation RWA frame-work is of less relevance for the Group.

SEB provides liquidity facilities to three US conduits; these can only be used for clients’ trade, lease or consumer receivables transactions and not for other assets.

The conduits are reported based on ratings inferred from SEB’s internal rating or, where SEB has not yet recieved IRB approval for underlying assets, following the Standardised approach. The liquidity facilities have not been drawn by the conduits.

As part of its diversified liquidity portfolio SEB holds securitisation positions in others’ issues. These are reported according to the External Rating approach, and the absolute majority consist of super senior (AAA) tranches.

Credit risk mitigation

SEKm Exposure Collateralised Guaranteed

Institutions 372,196 51,967 1,895Corporates 500,974 143,615 29,780Retail mortgages 264,269 201,334 1,035Securitisation positions 29,252

Total IRB Approach 1,166,691 396,916 32,710

Central governments and Central banks 174,294 46,002 511Local governments and authorities 100,875 71Administrative bodies, non-commercial undertakings 338Institutions 7,152Corporates 10,027 50 28Retail 60,821 550 27Exposures secured by real estate property 14,680 12,859 9Past due items 962 417Securitisation positions 1,913Other items 15,104

Total Standardised Approach 386,166 59,878 646

Total 1,552,857 456,794 33,356

SEKm, 2007-12-31Reporting approach S&P/ Moody's Exposure Risk weight RWA

External rating AAA/Aaa 25,717 7.42% 1,909External rating AA/Aa 108 8.48% 9External rating A/A2 43 12.72% 5Inferred rating AAA/Aaa equiv. 3,384 7.42% 251Standardised AAA 1,912 20% 382

Total 31,164 2,556

Following regulation, the IRB risk weights 7/8/12 per cent above are scaled up with the general factor 1.06. The above does not include exposures that are reported according to Basel I or trading book rules.

Exposure amounts for off balance sheet items are after application of relevant conversion factors. Only CRM arrangements eligible in capital adequacy reporting are represented above. The above does not include exposures that are reported according to Basel I or trading book rules.

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Standardised approachSEB’s reporting according to the Standardised approach mainly refers to expo-sures to the public sector, to retail companies, and to other household expo-sures than those secured by residential mortgage. A minor share of exposures to institutions and corporates also remains at the Standardised approach. Roll-ing out the Group’s Basel II plan all of these except the public sector exposures will become part of IRB reporting over the next couple of years.

Thus, the overwhelming majority of exposures where external rating is used to determine the risk weight has to do with central governments, central banks and local governments and authorities. According to the regulation, either the

rating from the Swedish export credit agency (EKN) shall be used, or the (second best) country rating from eligible credit assessment agencies Moody’s, S&P, Fitch and DBRS.

Following regulation, local authorities e.g. in Sweden and Germany are risk weighted based on the rating of the corresponding central government, and not on the local authorities’ own rating.

The table below displays Basel II reported exposures to central governments, central banks and local authorities, broken down by credit quality.

IRB approval and implementation planIn December 2006 Finansinspektionen (the Swedish FSA) announced that SEB could start to use internally developed credit risk models for the majority of the non-retail portfolios (Foundation IRB) and for retail mortgage portfolios (Ad-vanced IRB) in Sweden and Germany in the calculation of legal capital require-ments from 1 February 2007.

Internally developed credit risk models for remaining non-retail and retail portfolios of significant size will be rolled-out in accordance with the SEB Group roll-out plan which has been agreed with Finansinspektionen. During 2007 SEB continued to implement IRB models for the remaining credit risk portfolios in the

Group where amongst others the non-retail and retail portfolios in the Group’s banks in Estonia, Latvia and Lithuania were included. As the first bank in both Latvia and Lithuania SEB received an approval for IRB reporting from January 2008, and further approvals are expected during 2008.

The ultimate target is IRB reporting for all the Group’s credit exposures, ex-cept those to central governments, central banks and local governments and au-thorities, and excluding a small number of insignificant portfolios where IRB im-plementation would be statistically unreliable and too costly.

Structure of risk class scale in PD dimensionFor mortgages and other retail exposures a scoring methodology is used at credit granting time, and for assignment of exposures to risk-wise homogeneous pools at RWA calculation time. Details of scoring criteria and pool structures depend on the kind of business pursued, and differ between portfolios and countries.

All counterparties (excluding private individuals) on whom the Group has credit exposure are assigned an internal risk class that reflects the risk of default on payment obligations. The risk classification scale has 16 classes, with 1 being the best possible risk and 16 being the default class. Risk classes 1–7 are consid-ered “investment grade”, while classes 13–16 are classified as “watch list”.

The table below exposes lower and upper probability of default (PD) values for aggregates of SEB risk classes, and displays an approximate relation to two rat-ing agencies’ scales. Such relation is based on similarity between the method and the definitions used by SEB and these agencies to rate obligors, a similarity which in turn leads to reasonable correspondence between SEB’s mapping of risk classes onto PD values, and default statistics published by the agencies. Due to the prevailing benign economic environment, default frequencies current-ly observed by SEB are typically lower than the through-the-cycle estimates used for RWA calculations.

SEB uses the risk classes for decisions on credit limits and for structuring the monitoring, managing and reporting of the credit portfolio.

The risk classes are also a fundamental input when calculating the economic capital attributable to exposures, thus linking into pricing and performance measurement processes. The Group’s overall economic capital is an important factor in SEB’s internal capital assessment process.

Processes for managing and recognising credit risk protection are outlined in sheet CRM.

The performance of the risk rating system itself is regularly reviewed by the Credit Risk Control Unit in accordance with the Instructions for Validation of Credit Risk Class Assignment Systems. The validation is done in order to both secure that the Credit Risk Class Assignment system is working satisfactorily and that it is used in accordance with the internal rules and instructions. Assess-ing the discriminatory power and evaluation of the through-the-cycle PD (SEB Masterscale) is monitored on a quarterly basis. The validation is performed by personnel within the bank who are independent of those responsible for risk class assignment of counterparties.

Risk class Lower PD Upper PD Moody's S&P

Investment grade 1–4 0.00% 0.08% Aaa..A3 AAA..A-5–7 0.08% 0.32% Baa BBB

Normal business 8–10 0.32% 1.61% Ba BB11–12 1.61% 5.16% B1/B2 B+/B

Watch list 13–16 5.16% 100.00% B3..C B-..D

SEKm, 2007-12-31 EquivalentCredit quality step S&P rating Exposure

1 AAA/AA 273,7042 A 1,3643 BBB 74/5 BB/B 906 CCC and worse 4

Total 275,169

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Credit risk rating & estimationThe SEB Group Risk Class Assignment (RCA) System is a tool for assigning risk classes between 1 and 16 to non-retail counterparties covering Corporates, Real Estate, Financial Institutions and Specialised Lending. The overall rating ap-proach is common for all counterparties, but on a more detailed level there are differences between rating institutions and corporates, just as there are be-tween rating corporates belonging to different industries.

The SEB Group RCA System is based on traditional standards of credit analy-sis covering business risk and financial risk using the required and applicable set of descriptive definitions. Financial ratios, peer group comparison and scoring tools are used to enhance the risk assessment of counterparties. The SEB Group RCA System uses a template in the form of a Risk Class Worksheet which is reviewed by SEB’s credit authorities in conjunction with review of the counter-party and facilities in each Credit Application.

All risk classes are subject to minimum one review annually by a credit ap-proval authority. High-risk exposures (risk classes 13–16) are subject to more frequent reviews in order to identify potential problems at an early stage, there-

by increasing the chances of finding constructive solutions.SEB uses through-the-cycle PD estimates, which reflect the expected long

term average default frequency over a full business cycle for a given risk class. The PD values are calculated as averages of the internal historical observed de-fault frequencies over one or more full business cycles. In those geographies where internal data has been insufficient, external data has been used to extrapo-late the time series to span full business cycles. This has been performed using sophisticated methods based on regression analysis of macro economic parame-ters and their correlation to internally observed default frequencies.

Retail Mortgage exposures: Assignment of exposures to PD pools is done via a scoring methodology where the most important factors are measures of pay-ment behaviour. New exposures without a history in the bank are scored using a model provided by an external vendor using openly available information and well tested risk drivers. Also LGD and CCF estimates are based on the Group’s historical experience.

IRB reported credit exposures by risk class

Average2007-12-31, SEKm Risk class PD Range EAD RWA risk weight

Institutions 1–4 0–0.08% 331,519 38,308 11.6%5–7 0.08–0.32% 31,910 11,679 36.6%

8–10 0.32–1.61% 5,026 3,667 73.0%11–12 1.61–5.16% 3,508 2,237 63.8%13–16 5.16–100% 233 432 185.4%

Total Institutions 372,196 56,323 15.1%

Corporates 1–4 0–0.08% 106,552 14,185 13.3%5–7 0.08–0.32% 117,481 46,866 39.9%

8–10 0.32–1.61% 221,495 157,997 71.3%11–12 1.61–5.16% 41,759 36,865 88.3%13–16 5.16–100% 13,687 11,835 86.5%

Total Corporates 500,974 267,748 53.4%

Retail mortgages 0–0.2% 68,239 2,649 3.9%0.2–0.4% 77,845 5,003 6.4%0.4–0.6% 43,954 5,441 12.4%0.6–1.0% 37,886 7,256 19.2%1.0–5.0% 25,444 13,045 51.3%5.0–10% 4,332 3,220 74.3%10–30% 4,395 4,746 108.0%30–50% 953 731 76.7%

50–100% 1,221 526 43.1%

Total Retail mortgages 264,269 42,617 16.1%

Securitisation positions AAA/Aaa 29,101 2,160 7.4%AA/Aa 108 9 8.5%A/A2 43 5 12.7%

Total Securitisation positions 29,252 2,174 7.4%

Total IRB reported credit exposures 1,166,691 368,862 31.6%

Exposure amounts for off balance sheet items are after application of relevant conversion factors. PD – Probability of Default – through-the-cycle adjusted one-year probability, estimated for each risk class (non-retail) and pool of homogeneous obligors (retail). The above does not include exposures that are reported according to Basel I or trading book rules.

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Comparison between expected and actual lossesFor retail mortgages, which is the only asset class running IRB Advanced, the ex-pected loss for non-defaulted exposures was SEK 496m during the year 2007. This is to be compared to the realised loss of SEK 103m. The counterparty weighted probability of default for 2007 was 1.06% and the corresponding ob-served default frequency was 0.32%. The LGD estimate for 2007 of 15.3% is a recession adjusted value and since 2007 was a quite strong year the actual LGD outcome during 2007 was lower. For the retail mortgage portfolio, exposure at default is calculated using a credit conversion factor of one except for undis-bursed loan commitments, where an estimate of disbursal rate is made. The vol-ume of undisbursed commitments is insignificant in this portfolio.The realised loss for 2007 was lower than the expected loss due to several rea-

sons. In Sweden, the default rates for retail mortgages have been on extremely low levels and forced sale rates on mortgage properties have also been ex-tremely low giving low LGD outcomes and low loss rates. In Germany loss rates, mortgage recovery rates, and default rates have all been at historical averages during 2007.

For the non-retail portfolio which is reported as IRB Foundation, the counter-party weighted probability of default for 2007 was 1.67% and the corresponding observed default frequency was 0.43%.

The non-retail loss rates and default rates in Sweden and Germany were low during 2007 reflecting the strong European economy.

Counterparty risk in derivative contractsSEB enters into derivative contracts primarily to offer clients products for man-agement of their financial exposures, and then manages the resulting positions through entering offsetting contracts in the market place. The Group also uses derivatives for the purpose of protecting the cash-flows and fair value of finan-cial assets and liabilities from interest rate fluctuations.

Positive market values on derivative contracts imply a counterparty risk, which SEB actively manages. Close-out netting agreements (giving the ability to offset positive market values against negative market values) are disregarded in accounting but form a very important part of the Group’s credit risk mitigation strategy. In order to reduce the counterparty exposure in event of default SEB strives to enter into close-out netting agreements as well as collateral agree-ments with all major derivative counterparties. The counterparties are mainly Swedish and international banks of very high quality.

Netting and collateral agreements could contain rating triggers. SEB has a very restrictive policy in respect of rating-based levels for thresholds and minimum transfer amounts related to the provision of collateral in derivative master agree-ments. In addition, asymmetrical levels require specific approval from a devia-tion committee. Rating-based thresholds have only been accepted for a very lim-ited number of counterparties. Further, rating triggered termination events are as a general rule not accepted. Deviations require approval from head of Group Treasury.

For capital adequacy reporting as well as for establishing and monitoring credit limits SEB uses the Current Exposure method (market value plus a schematic add-on for the potential future exposure). For calculation of internal capital an in-house developed model is used to calculate an Expected Positive Exposure style of meas-ure. This calculation is based on the Group’s Value at Risk model for market risk.

Derivative contractsCredit risk mitigation effects, 2007-12-31, SEKm Fair value

Gross positive fair value of contracts 87,368Netting benefits –54,532

Netted current credit exposure 32,836

Collateral benefits –12,703

Net derivative credit exposures 20,133

LGD – Loss Given Default – statistically expected loss in the event of default, expressed as a percentage of exposure in the event of default. The overall average is a forward-looking estimate at 2007-12-31, thus it differs slightly from the value reported in sheet EL, which is forward-looking at 2006-12-31.

IRB reported exposures with own estimates of LGD

ExposureSEKm LGD amount

Retail mortgages 0–1% 126,715> 1–10% 41,634

> 10–20% 24,424> 20–30% 10,561> 30–40% 18,742> 40–50% 16,875

> 50% 25,318

Total 14.8% 264,269

IRB reported exposures with own estimates of CCF

Original ExposureSEKm exposure after CCF Average CCF

Advanced IRB retail Retail mortgages 15,834 11,047 69.8%

Total 15,834 11,047 69.8%

CCF – Credit Conversion Factor – statistically expected exposure in the event of default, expressed as a percentage of a contract’ s nominal amount.

Add-on for potential future exposure is not included in above numbers. The above does not include exposures that are reported according to Basel I rules.

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Credit derivatives Reduces Adds to Nominal amounts, 2007-12-31, SEKm the risk the risk

Credit derivatives hedging exposures in own credit portfolios Credit default swaps 6,368 0 Total return swaps 0 0 Credit linked notes 178 0

Subtotal 6,546 0

Credit derivatives in trading operations Credit default swaps 23,996 18,924 Total return swaps 21,718 0 Credit linked notes 90 90

Subtotal 45,804 19,014

Total 52,350 19.014%

Credit derivatives in the trading operations to a large extent represent hedges of bonds that are held for trading. All the Group’s credit derivative contracts are entered into by the parent company, and are thus reported according to Basel II.

Operational riskSEB has applied for supervisory approval to use the Advanced Measurement ap-proach as it gets available from 2008. The application documents SEB’s long-time experience and expertise in operational risk management, including inci-dent reporting, operational loss reporting, capital modelling, quality assessment of processes etc.

Awaiting supervisory processing of the application SEB’s operational risk report-ing follows the Basic Indicator approach, based on the Group’s operating income averaged over the last three years.

Trading book market riskSince 2001 SEB holds a supervisory approval to use its internally developed VaR model for calculating capital requirements for general interest rate, foreign ex-change and equity price risk in the parent bank. The model maps positions onto risk buckets for market rates and other key risk drivers. For each modelled cur-rency the model keeps track of the government and the swap yield curve. Equi-ties are modelled against a set of equity indices, with beta adjustment for each position. Volatility in and correlation between risk drivers is measured over a one year history.

The use of the VaR model is supplemented with measures of interest rate and credit spread sensitivity, foreign exchange exposure and option activities. Sce-nario analyses and stress tests are made on a regular basis. For example, exist-ing positions are analysed in historical or potential market crisis scenarios and risk levels in the portfolio are assessed without diversification effects. Nine his-torical crisis scenarios from 1987 onwards are modelled in detail, and the per-formance of SEB’s actual portfolio under each of those is reported to manage-ment on a monthly basis.

Backtesting is performed by comparison of daily trading result against the

daily Value-at-Risk outcome. For this analysis, a theoretical result is calculated with updated market data where as the end-of-day positions are remained un-changed. The theoretical result is calculated as the sum of changes in modelled market prices times the market value exposed to each risk factor.

EU Directive 2006/49/EG is implemented in Swedish law and regulations, and is thus a binding constraint for the Group’s risk management of positions in the trading book. Market risks in the trading operations arise from the Group’s role as a market maker for trading in the international foreign exchange, money and capital markets following transactions with customers and other profession-al market participants. The risks are managed at the different trading locations within a comprehensive set of limits in VaR, stoploss and delta-1 terms, with a supplementary limit structure for non-linear risks. The risks are consolidated each day on a Group-wide basis by Risk Control for reporting to the Executive Management. Risk Control is present in the trading room and monitors limit com-pliance and market prices at closing, as well as valuation standards and the in-troduction of new products.

Trading book VaR

31 Dec AverageSEKm Min Max 2007 2007

Interest risk 28 233 119 64Currency risk 4 83 30 21Equity risk 17 243 70 75Diversification –66 -68

Total 36 281 153 92

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The following table exposes repricing periods for the Group’s overall balance sheet

Banking book market riskMarket risks in the banking book arise because of mismatches in currencies, in-terest rate terms and periods in the balance sheet, as well as from limited equity related holdings not part of trading activities. Group Treasury has the overall re-sponsibility for managing these risks, which are consolidated centrally through the internal funds transfer pricing system. Small market risk mandates are grant-ed to subsidiaries where cost-efficient, in which case Group Treasury is repre-sented on the local Asset and Liability Committee for co-ordination and informa-tion sharing. The centralised operations create a cost-efficient matching of li-quidity and interest rate risk in all non-trading related business.

Banking book market risk is monitored both from a value perspective daily and from an income perspective monthly by calculation of sensitivity in net inter-est income, NII.

NII is exposed to external factors such as yield curve movements and com-petitive pressure. The NII risk depends on the overall business profile, especially

mismatches between interest-bearing assets and liabilities in terms of volumes and repricing periods (see below). The NII is also exposed to a “floor” risk. Asym-metries in pricing of products (deposit rates cannot really go below zero) create a margin squeeze in times of low interest rates, making it relevant to analyse both “up” and “down” changes. The Group measures the NII risk as the potential change in income, over a pre-defined period, from a standardised shift in the yield curve. The NII risk should be kept within the limit set by the Board. As per year-end, the one-year effect of a one per cent “up” scenario was SEK +84m, and SEK -442m for an equal-size “down” scenario.

Banking book VaR has during the year 2007 been affected by the higher mar-ket volatility, but SEB has also reduced the interest rate risk in its German port-folios.The levels were considerably higher during the second half of 2007 than during the first, as a consequence of the turmoil on the financial markets.

Banking book VaR

31 Dec AverageSEKm Min Max 2007 2007

Interest risk 138 402 199 251Currency risk 0 69 51 25Equity risk 11 151 30 47Diversification -83 -63

Total 120 416 197 260

SEB Group

1 < 3 3 < 6 6 < 12 1 < 3 3 < 5Assets, 2007-12-31, SEKm < 1 month months months months years years 5 years < Non rate Insurance TOTAL

Loans to credit institutions 223,594 14,569 2,229 6,444 3,485 3,304 4,506 3,738 1,143 263,012Loans to the public 542,449 160,272 75,905 39,267 95,829 65,324 89,598 –1,303 1,067,341Financial assets 284,949 109,782 55,809 14,878 59,660 7,958 47,439 151,558 224,630 956,663Other assets 41,623 15,823 57,446

Total 1,050,992 284,623 133,943 60,589 158,974 76,586 141,543 195,616 241,596 2,344,462

Liabilities and equityDeposits by credit institutions 349,850 49,944 18,988 1,370 502 516 770 –592 421,348Deposits and borrowing from the public

608,373 45,416 15,121 11,222 12,714 7,474 47,492 2,669 750,481

Issued securities 129,041 138,201 59,089 21,484 127,711 56,712 14,911 7,404 554,553Other liabilities 15,296 7,967 5,567 3,313 8,322 18,268 51,983 196,465 234,180 541,361Total equity 76,719 76,719

Total 1,102,560 241,528 98,765 37,389 149,249 82,970 115,156 282,665 234,180 2,344,462

Interest rate sensitive, net –51,568 43,095 35,178 23,200 9,725 –6,384 26,387 –87,049 7,416 0Cumulative sensitive –51,568 –8,473 26,705 49,905 59,630 53,246 79,633 –7,416 0

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Investments in associates held by the venture capital organisation of the Group have in accordance with IAS 28 been designated as at fair value through profit or loss. Therefore, are these holdings accounted for under IAS 39.

Strategic investments in associates are in the Group accounted for using the equity method.

Some entities where the bank has an ownership of less than 20 per cent, has been classified as investments in associates. The reason is that the bank is rep-resented in the board of directors and participating in the policy making proc-esses of those entities.

All financial assets within the Group’s venture capital business are managed and its performance is evaluated on a fair value basis in accordance with docu-mented risk management and investment strategies.

Fair values for investments listed in an active market are based on quoted market prices. If the market for a financial instrument is not active, fair value is established by using valuation techniques based on discounted cash flow analy-sis, valuation with reference to financial instruments that is substantially the same, and valuation with reference to observable market transactions in the same financial instrument.

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

Further information regarding accounting principles and valuation methodolo-gies can be found in the annual report of 2007.

Equity exposures not included in the trading book

Book Fair Fair value of Unrealised Realised RevaluationSEKm value value listed shares gains/losses gains/losses gains/losses

Associates (venture capital holdings) 833 833 -50 32Associates (strategic investments) 424 424 31Other strategic investments 1,773 1,773 140 195Seized shares 39 39

Total 3,069 3,069 140 145 63 0

capital adequacy and risk management report (pillar 3) 2007

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