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SEB’s Swedish Residential Mortgage Lending and Covered Bonds
Stockholm September, 2013
Contents
SEB’s Residential Mortgage Lending p.3 Asset Quality p.19 Cover Pool and Covered Bond Funding p.24
2
SEB’s Swedish Residential Mortgage Lending
4
Increased relative importance of SEB’s total income
Swedish Retail Banking increasingly more important to SEB
Deposits from Private Individuals (SEK bn)
100
145
0
50
100
150
200
Dec '07 Dec '08 Dec '09 Dec '10 Dec '11 Dec '12 Jun '13
CAGR +7%
Successful client acquisition strategy
• Major organisational changes in the Retail Division in 2008 – strategic move
• Successful product offerings and focus on long term customer relationships have contributed to increased volumes and profit gearing in the Retail Division
Strong development of key ratios
20% 30%
Dec ’07 Jun ’13
C/I Equity RoE
2010 71% SEK 9.7bn 14.5%
2011 65% SEK 10.8bn 21.4%
2012 57% SEK 14.4bn 22.3%
H1-13 51% SEK 20.2bn 20.0%
Development of certain business areas’ relative importance (credit exposure)
Development of SEB’s Swedish Residential Mortgage Lending
Increasing mortgage lending - a consequence of strategic focus
5
31%
22%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2007 2008 2009 2010 2011 2012 Jun '13
Large corporates
Swedish SMEs
SwedishResidentialMortgage Commercial RealEstate
Baltic total creditportfolio excl.banksPublic Sector
Other
373
40
140
240
340
440
2008 2009 2010 2011 2012 2013 Q2
6
Development of SEB’s Full Service Customers and Mortgage Lending
Focus is on full service customers – Growth of Mortgage lending is a consequence of the strategy
Household mortgage lending growth (SEK bn) Number of full service customers (thousands)
448
350
370
390
410
430
450
470
2008 2009 2010 2011 2012 2013 Q2
7
Residential Apartment Buildings –SEK 102bn Total SEK 475bn (”Multi-family”) Private companies 47% Housing co-operative associations 38% State/municipality owned 15%
Households – SEK 373bn
Single-family homes 64% Tenant owned apartments 31% Second homes 5%
SEB’s Swedish Residential Mortgage Lending
Household Mortgage Lending dominates the portfolio
Split between Household and Residential Apartment Buildings – June 2013
• High level of household debt a threat to the macro-stability? – Amortisation behaviour/requirements in focus
and proposal expected from SFSA on Oct 15th
• Are Swedish banks sufficiently capitalised? – Household mortgage risk weight floor of 15%
implemented
• Pricing transparency to be improved? – Proposal expected from SFSA on Oct 15th
• Pre-payment conditions and fees under scrutiny – More consumer friendly regulation proposed
Swedish Residential Mortgage Market
Household Mortgage Lending in public focus
8
On the agenda
Head of Central Bank
Minister for Financial Markets
House prices (index 1992=100) Price drivers for Swedish market
Household debt as % of disposable income Residential investments as % of GDP
Source: Macrobond
• Reduced subsidies in the beginning of the 1990s caused a decline in residential construction (rental units in particular) - Lack of supply in the larger cities
• Abolition of residential real estate and wealth tax in mid-2000
• Low debt servicing costs
• Interest costs deductible to 30% (20% above SEK 100th)
Price development and Household indebtedness
Increase in Sw edish house prices driven by lack of supply and higher affordability
Sw edish Household indebtedness not w orst in class - but Residential investments are
9
0
50
100
150
200
250
300
350
-92-93-94-95-96-97-98-99-00 -01 -02-03-04-05-06-07-08-09 -10 -11 -12 -13
UK Denmark Spain GermanyNetherlands Norway US Sweden
0
50
100
150
200
250
300
350
-00 -01 -02 -03 -04 -05 -06 -07 -08 -09 -10 -11 -12 -13
Germany Denmark Spain FinlandNorway Netherlands Sweden US
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
-00 -01 -02 -03 -04 -05 -06 -07 -08 -09 -10 -11 -12 -13
Denmark Spain UK NorwaySweden US Germany Ireland
Swedish Residential Mortgage Market
Risk mitigating factors in the Swedish Housing market
Highlights
10
Increased affordability among Swedish households
Structural lack of housing since the 90s
The household savings ratio is high both in absolute terms and compared to international peers
Socio-economic factors such as external credit bureau ("UC" – Sweden's "FICO"), no buy-to-let
market, personal liability, dual income etc.
Sweden has robust government finances and a social security system that reduces volatility. The pension system is also well financed
SEB’s Swedish Household Mortgage Lending
Successful private customer acquisition strategy
11
Lending development
Market shares – June 2013
Swedish Household Mortgage Lending a consequence of SEB’s long-term strategy
(13% in Dec ’07)
100
120
140
160
180
200
Dec
'07
Jun
'08
Dec
'08
Jun
'09
Dec
'09
Jun
'10
Dec
'10
Jun
'11
Dec
'11
Jun
'12
Dec
'12
Jun
'13
Market
SEB
CAGR +12%
CAGR +7%
Index =100 at lending balance Dec ’07
• Mortgage lending a main income driver
within Private market – creates cross selling opportunities
• Full service customers in focus – crucial for long term profitability – 46,000 new full service customers for
Swedish Retail between 2010-June 2013 • Efficient administration process and
increased sales distribution have supported the growth
• Pricing based on risk – Borrower’s repayment capacity (PD) – Loss given default (LGD)
– Loan-to-value (LTV) – Collateral type
Source: Statistics Sweden
16%
24%
15%
27%
18%
SEB
SHB
Nordea
Swedbank
Other
Distribution of lending Geographic split of growth
SEK 373bn
SEB’s Swedish Household Mortgage Lending
Strongest growth in larger cities with a structural lack of supply
12
47%
17%
11%
25%
Jun '13
Smaller cities Mid-sized citiesGreater Göteborg & Malmö Greater Stockholm
50%
16%14%
21%
Dec
'10
Gre
ater
Stoc
khol
m
Gre
ater
Göt
ebor
g &
Mal
mö
Mid
-siz
edci
ties
Smal
ler
citie
s
Jun
'13
SEK 373bn
SEK 273bn
SEB’s typical mortgage customer Customer age distribution
SEB’s mortgage customers have a relatively stronger credit quality than market average
Dual income households in larger cities
Personal savings above average
Stronger credit rating vs. market average
New lending concentrated to younger professionals in larger cities
NOTE: UC score is defined as the probability of getting a payment remark within one year
0%5%
10%15%20%25%30%35%40%45%
18-25 26-35 36-50 51-65 66-
Portfolio New loans
UC score
13
SEB’s Swedish Household Mortgage Lending
SEB’s borrowers have a strong economic profile
0.50.60.70.80.91.01.11.21.3
Oct
'10
Dec
'10
Feb
'11
Apr '
11
Jun
'11
Aug
'11
Oct
'11
Dec
'11
Feb
'12
Apr '
12
Jun
'12
Aug
'12
Oct
'12
Dec
'12
Feb
'13
Market SEB
(Q2 ’13)
• 85% regulatory LTV cap
• 15% household mortgage risk weight
Regulatory requirements
SEB’s Swedish Household Mortgage Lending
Conservative underwriting criteria support robust asset quality
14
Strong focus on repayment capacity
• Customer should afford 7% interest rate and a straight amortisation over a period of 60 years
• Regardless of LTV all customers are recommended to amortise
− Mandatory to amortise on new loans above 70% LTV
• Max loan amount 5x total gross household income irrespective of LTV
• No more than one payment remark
• ‘Sell first and buy later’
Additional internal requirements
15
New loans: Amortising loans’ share of total
SEB’s Swedish Household Mortgage Lending
New policy has led to increased loan amortisations
Total portfolio: Amortising loans’ share of total
58.2%
43.1%
71.6%
73.2%
59.2%
86.0%
All new loans
LTV below70%
LTV over 70%
Dec '12 Jun '13
Highlights
•New amortisation policy adopted in
January 2013 • Increase in amortisations both within
higher and lower LTV ranges •Majority of total portfolio amortising
59%
51%
54%
LTV over 70%
LTV below70%
Portfolio
Swedish Multi-family part of SEB’s long-term SME strategy
Credit exposure (SEK bn)
SEB’s Swedish Multi-family Lending
Robust growth also in the Multi-family segment
16
Weighted average max LTV Housing co-ops 39% Other Multi-family 55%
45
102
Dec '07 Jun '13
CAGR +16%
• Target is to become the customer’s main bank – creates ancillary business
• New lending focused to larger cities
• Growth achieved with maintained credit
assessment critieria – i.e. strictly cash flow based lending
– Max tenor 10 years – LTV <75% but depending on geographic
location
• Pricing based on risk; – Borrower’s repayment capacity (PD) – Internal RoBE requirements – LTV – Location – Level of relationship – Size of loan
62% (65)
38% (35)
Housing co-ops
Other Multi-family
SEK 102bn
SEB’s Swedish Multi-family Lending
Lending growth in larger cities
Distribution of lending
17
Geographic split of growth
43%
22%
21%
14%
Jun '13
Smaller cities Mid-sized citiesGreater Göteborg & Malmö Greater Stockholm
72%
21%11% -4%
Dec
'10
Gre
ater
Stoc
khol
m
Gre
ater
Göt
ebor
g &
Mal
mö
Mid
-siz
edci
ties
Smal
ler
citie
s
Jun
'13
SEK 102bn
SEK 72bn
SEB’s Swedish Residential Mortgage Lending
Summary
Conservative risk assessment and underwriting policy support the robust asset quality
The successful overall client acquisition strategy also rendered increased mortgage lending
The growth is particularly strong in the major cities
18
Asset Quality
Effectively no net credit losses since the 90s
Asset Quality of Swedish Household Mortgage Lending
Negligible losses in the portfolio after the 90s crisis
Loans past due 60 days do not typically turn into credit losses
20
0.00 0.01 0.00 0.01 0.02 0.01 0.01
0.11
0.170.13
0.10
0.150.13 0.12
2007 2008 2009 2010 2011 2012 Jun '13
Net credit loss level
Level of past dues over 60 days
-0.05
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Jun '13
Net credit loss level
Loan-to-value distribution (”bucket method”)
0-50%
71-85% 6%
>85% 1%
LTV Share of portfolio
76%
Asset Quality of Swedish Household Mortgage Lending
Swedish Household Mortgage LTV stable over time
21
Weighted average max LTV by property type
51-70% 17%
Jun ’13 Jun ’13
Asset Quality of Swedish Multi-family Lending
Very low levels of impaired loans and negligible credit losses
Effectively no net credit losses since the 90s
Loans past due 60 days do not typically turn into credit losses
0.00
0.00
0.02
0.00
0.01 0.00 0.010.03 0.03
0.08 0.10
0.040.02 0.03
2007 2008 2009 2010 2011 2012 Jun '13
Net credit loss level
Level of impaired loans
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Jun'13
Net credit loss level
22
Additional conservative provisions for legacy 90s portfolio, later reversed
23
• In an extreme environment – under circumstances with both unemployment rates and
interest rates substantially above current levels, in combination with falling market values – in-house stress tests show that net credit losses for will be manageable
• The accumulated net credit loss level over a 3 year period is estimated to some 0.80% – which is largely in line with what was experienced during the early 90s crisis
Highlights
Stress Testing of SEB’s Residential Mortgage Lending
Stress testing indicates that losses in an extreme environment would be manageable
Cover Pool and Covered Bond Funding
25 25
Liquid assets
117% of short-term funding
Stable funding 113% of “Banking book”
Short-term funding
Balance sheet
Diversified and Liquid Balance Sheet
Total SEK 2,596bn June 2013
1. A relatively large share of lending is contractually short which allows for swift re-pricing to adjust for e.g. changed funding costs.
2. Central bank deposits refer to long-term relationship-based deposits from central banks and do not refer to borrowings from central banks
Central Bank deposits 2)
“Banking book” 1)
Equity
Corporate & Public Sector lending
Corporate & Public Sector Deposits
Household LendingHousehold Deposits
Liquidity Portfolio
DerivativesDerivatives
Credit Institutions Credit Institutions
Life Insurance Life Insurance
Other Other
Funding, remaining maturity >1y
Cash & Deposits in Central Banks
Central Bank deposits
Funding, remaining maturity<1y
Client Trading Client Trading
0%
20%
40%
60%
80%
100%
Assets Liabilities
2)
26
Funding Base
Diversified Funding Base June 2013
Total Funding Base */** SEK 1,792bn Wholesale funding SEK 744bn **
* Excluding repos ** Excluding public covered bonds issued by SEB AG which are in a run-off mode
Household deposits 12%
Wholesale Funding 42%
Central Bank deposits 3% Public Sector deposits
5%
CP/CD 36%
Mortgage Covered Bonds SEB AB 40%
Mortgage Covered Bonds SEB AG 4%
Senior Debt 17%
Subordinated Debt 3%
Financial Institutions deposits 8%
Corporate deposits 28%
27
Benchmarking the major Swedish banks’ Swedish Cover Pools
SEB – more lending to Households than to Multi-family Major Swedish banks’ Cover Pools – June 2013
Source: Fact books, Investor Relations sites, Interim and Pillar 3 reports
85%76% 76%
67%
15%24% 24%
33%
SEB Swedbank Nordea SHB
Households
Multi-family and other eligible assets
Cover pool size
SEK 422bn SEK 722bn SEK 409bn SEK 610bnOvercollateralisation (OC)
56% 46% 42% 16%Cov er pool: Weighted average max LTV (property level)
59% 58% 55% 47%Sw edish household mortgage portfolio: Weighted average max LTV (property level)
65% 63% n/a 65%
28
Cover pool Q2 2013 Q4 2012 Q4 2011422 401 36059% 59% 44%*645 625 561400 391 357654 642 610
0 0 010 11 130 1 1
Loans past due 60 days (basis points)Net credit losses (basis points)
Total residential mortgage assets (SEK bn)Weighted average LTV (property level)Number of loans (thousand)Number of borrowers (thousand)Weighted average loan balance (SEK thousand)Substitute assets (SEK thousand)
Highlights – June 2013
• Only Swedish Residential Mortgages in the Cover Pool, which historically have had very low credit losses
• SEB’s Cover Pool is more concentrated towards Single family and Tenant owned apartments, which generally have somewhat higher LTVs
• The Cover Pool is on the parent bank’s balance sheet contrary to SEB’s major Swedish peers
• All eligible Swedish residential mortgages are directly booked in the Cover Pool on origination , i.e. no cherry picking of mortgages from balance sheet to Cover Pool
• Mortgage values are updated on a regular basis
• Covered Bonds are issued out of the parent bank and investors have full and dual recourse to the parent bank’s assets as well as secured exposure to the Cover Pool
• All legal requirements and matching criteria are met
• SEB has by far the highest OC of all the Swedish peers – 56%
* LTV for Q4 2011 calculated on a loan by loan basis
Cover Pool Only Swedish Residential Mortgages in SEB’s Cover Pool
Type of loans Interest rate type Geographical distribution
Residential Apt Buildings
15%
Tenant owned apartments
26%
Single family 59%
Fixed rate reset =>5y1%
Fixed rate reset 2y<5y15%
Fixed reset <2y34%
Floating (3m)50%
Larger regional cities32%
Malmö region
8%
Stockholm region44%
Göteborg region16%
10%7%
3%0%
12%14%
16%18%
20%0-10%10-20%20-30%30-40%40-50%50-60%60-70%70-75%
>75%
1%
6%
93%No prior ranking loans
<25% of property value
>25<50% of propertyvalue
83%
17%
Monthly
Quarterly
NOTE: Distribution in different LTV buckets based on exact order of priority for the individual mortgage deeds according to the Association of Swedish Covered Bond Issuers
Jun ’13
Cover Pool SEB’s mortgage lending is predominantly in the three largest and fastest growing cities with an interest rate reset date within two years
LTV distribution by volume in % of the Cover Pool Prior ranking loans Interest payment frequency
29
30
SEB Swedish Mortgage Covered Bonds
Covered Bonds
Profile of outstanding Covered Bonds – June 2013 Outstanding covered bonds (SEK bn)
Currency mix Maturity profile (SEK bn)
0
50
100
150
200
250
300
mar
-11
apr-
11m
aj-1
1ju
n-11
jul-1
1au
g-11
sep-
11ok
t-11
nov-
11de
c-11
jan-
12fe
b-12
mar
-12
apr-
12m
aj-1
2ju
n-12
jul-1
2au
g-12
sep-
12ok
t-12
nov-
12de
c-12
jan-
13fe
b-13
mar
-13
jun-
13
Increase >30% in 2 years
74%
26%
0%10%20%30%40%50%60%70%80%90%
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
Covered Bond SEK Covered Bond Non-SEK
0
10
20
30
40
50
60
70
2013
2014
2015
2016
2017
2018
2020
2021
2022
2023
2026
2031
2032
2039
2041
Non-Benchmark
EUR Benchmark
SEK Benchmark
Moody’s Rating Aaa
Total outstanding SEK 271bn
FX distribution SEK 74%
non-SEK 26%
Benchmark Benchmark 93%
Non Benchmark 7%
31 31
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
Matured / Maturing Senior Unsecured
Matured / Maturing Covered Bonds
Issued Senior Unsecured non SEK
Issued Senior Unsecured SEK
Issued Covered Bonds non SEK
Issued Covered Bonds SEK
2011 20142012 2013Sept 23rd
2013 2015
SEK bn
Long-term Funding
Modest re-financing needs the next few years
32
Contacts Thomas Bengtson, Head of Debt Investor Relations Email: [email protected] tel: +46 8 763 8150 John Arne Wang, Head of Treasury Management Email: [email protected] tel: +46 8 506 23255
SEB contacts and information
More information Available on www.sebgroup.com You will find it under Investor Relations