11

Nordic Bank Liability Seminar

Anders Kvist Head

of Group Treasury

12 May 2011

2

Regulatory

waters

difficult

to navigate

Capital

Regulatory areas

Liquidity

Funding

Authority

Leverage

ratio

Basel committee EU Swe

Great uncertainty

on how

”directional

”

requirements

will

be converted

into

detailled

regulations

and the desired

internationel

harmonization, incl. time table

for the introduction

of Swedish rules

Insurance

/ Solvency

2

3

Capital and liquidity

–

SEB´s

record

0

20

40

60

80

100

2005 2006 2007 2008 2009 2010

Total capitalTier

1 capitalCT1

SEB´s

“matched funding”

horizonMonths

05

10152025

Q1-08

Q3-08

Q1-09

Q3-09

Q1-10

Q3-10

Cap

ital

Liqu

idity

SEKbn

Increased

capital

base

through

earnings

retention, rights issue, loss absorbing

hybrid issuance

and Tier

2 buy-backs

Core

capital

accounts

for the biggest

increase

Last Tier

2 issue

in 2006

Matched

funding

on a higher

level

Pricing

of liquidity

risk is important

part of financial

steeering

*

*Total capital

is lower

than

CT1 and Total Tier

1 capital

in 2010

4

Speedy and clear

information on buffer

required, allowed

capital

instruments and resolution regime

(bail-in)

Basel 3 and Solvency

2 must be aligned

to arrive

at workable

forms and conditions

for maturity

transformation

Analysis

of ”lagom”

size

of credit

expansion and foreign

borrowings

1

2

3

Take

the risk of ”unintended

consequences”

seriously

–

analysis

of proposed

regulations

4

Capita

l

Leverage ratioLiquidityFun

ding

Basel III

Central issues

for SEB 1 (2)

5

Greater

scope

for covered

bonds

in liquidity

buffer

acc

to Basel 3 –

there

is enough

government

paper!

’Net

Stable

Funding

Ratio’

should

be applied

under Pillar 2

5

6

7

Tougher

regulations

on deposit

companies

and consumer

dredit

companies

8

Corporate

customer

deposits

should

get higher

credit

as source

of stable

funding

in ’Net

Stable

Funding

Ratio’

7

Capita

l

Leverage ratioLiquidityFun

ding

Basel III

Central issues

for SEB 2 (2)

666

Liquidity

& Funding

777

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

Q12006

Q32006

Q12007

Q32007

Q12008

Q32008

Q12009

Q32009

Q12010

Q32010

Q12011

Public sector Corporate sectorTotal deposits Private sectorSEK m

Development of deposits from the general public, excl repos

Balance Sheet structure

Assets Equity &Liabilities

Funding <1 year

Funding, remaining

maturity >1 year

Cash & Lending

Financial Institutions

Deposits from the general publicOther

Lending

Net Trading Assets

Equity

Liquid assets

Stable funding

Short-term funding

“Banking book”

Bond Liquidity Portfolios

Deposits Financial

Institutions

Household Lending

Strong and well-aligned balance

sheet

structure

8

Strong structural

liquidity

situationStrong structural liquidity situation in the two most important business areas; 80% of all lending

Lending Funding

Retail banking Sweden

Lending Funding

Wholesale banking1

323

90

209

174

440

51

300

1. Excluding repos

and reclassified bondsBalance

mis-matches

funded

via long-term

debt

issuance

SEK bn

-300

-200

-100

0

100

200

300

Jan-09May-09Sep-09Jan-10May-10Sep-10Jan-11

Net Trading Assets CPs/CDs

CP

/CD

Fu

ndin

gN

et T

radi

ng

Ass

ets

1. CPs/CDs 2. Net Trading Assets excluding Derivatives

Short-term funding1

moves in line with Net Trading Assets2 (SEK bn)

Otherloans

Residentialmortgage

loans

Retaildeposits

Issuedcoveredbonds

Corporateloans

Corporatedeposits

Publicdeposits

9

Funding raised with original maturity >

1 year SEK bn

SEB’s

matched funding horizon 1)Months

05

10152025

Q1-08

Q3-08

Q1-09

Q3-09

Q1-10

Q3-10

Q1-11

InstrumentFull year

2009Full year

2010Q1

2011

Yankee CD 3,1 2,9 0,0

Senior unsecured SEB AG 5,2 0,4 0,2

Senior unsecured SEB AB 60,4 13,9 4,5

Structured bonds 8,3 3,2 1,5

Covered bonds SEB AG 24,4 10,7 0,0

Covered bonds SEB AB 25,7 71,0 43,9

Hybrid tier 1 3,3 0,0 0,0

Total 130,4 102,1 50,1

*

As per April 5*

Net liquidity position: Allows for sustained periods of no market access

*Overcollateralisation

net of Moody’s requirement for AAA rating (13.5%)

**Swedish Bankers Association (Bankföreningen)

External vs. Internal Liquidity Reserve definitions (SEK BN)

March 2011

0

100

200

300

400

500

FI SBA**/SEBCore Reserve

SEB ExtendedReserve

Total SEB LiquidResources

Bank Deposits GVT Bonds Public bondsCovered bonds (o ther) Covered bonds (SEB) Non-financialsFinancials Other

221 229

297

422

OC*

Net Trading Assets

101010

CPs/CDs15%

Corporate deposits30%

Private Individual deposits

12%Financial Institution deposits

10%

Public entity deposits

4%

Central Bank deposits

3%

Mortgage Cov Bonds SEB AB

15%

Mortgage Cov Bonds SEB AG

2%

Senior Debt7% Subordinated debt

2%

Overall liability & funding mix SEB Group, SEK 1,392 bn

(EUR 156 bn), March 2011

11

Well-diversified

across

instrument and market Maturity

of long-term

funding

Dec 2010

0

10

20

30

40

50

60

70

80

90

100

<1Y 1-2Y 2-3Y 3-4Y 4-5Y 5-7Y 7-10Y >10Y

Mortgage pfandbriefe, SEB AGCovered bonds SEK, SEB ABCovered bonds non SEK, SEB ABSenior unsecuredSubordinated debt

Product <1Y 1-2Y 2-3Y 3-4Y 4-5Y 5-7Y 7-10Y >10Y TotalSubordinated debt 2.4 4.5 0.0 2.7 8.1 4.5 0.0 1.2 23Senior unsecured 39.5 25.5 7.9 22.8 8.8 7.3 5.1 2.1 119Covered bonds non SEK, SEB AB 22.4 0.0 10.1 8.9 9.7 8.9 0.2 0.2 61Covered bonds SEK, SEB AB 32.6 34.7 27.5 16.1 18.8 0.0 0.0 8.4 138Mortgage pfandbriefe, SEB AG 1.4 4.4 3.3 1.1 1.9 3.9 9.8 5.8 32Total 98 69 49 52 47 25 15 18 373

SEK bn

-

1212

SEK bn

0

10

20

30

40

50

60

70

80

90

100

<1Y 1-2Y 2-3Y 3-4Y 4-5Y 5-7Y 7-10Y >10Y

Mortgage pfandbriefe, SEB AGCovered bonds SEK, SEB ABCovered bonds non SEK, SEB ABSenior unsecuredSubordinated debt

Product <1Y 1-2Y 2-3Y 3-4Y 4-5Y 5-7Y 7-10Y >10Y TotalSubordinated debt -2 -4 -3 -3 -5 -4 0 -1 -23Senior unsecured -25 -22 -8 -21 -12 -9 -5 -2 -104Covered bonds non SEK, SEB AB -9 0 -10 -9 -21 -9 -1 0 -59Covered bonds SEK, SEB AB -28 -35 -28 -20 -21 -11 0 -9 -151

Mortgage pfandbriefe, SEB AG -2 -4 -4 -1 -3 -3 -10 -6 -31Total -66 -66 -52 -54 -62 -36 -15 -18 -368

SEK bn

Longer

duration

and lower

roll-over

risk Maturity

of long-term

funding

March

2010

13

Capital

14

Economic Capital is a measure of capital needed to give the institution a probability of default corresponding to the chosen rating target

The SEB “brand”

of EC is nicknamed CAR: Capital At Risk

EC implemented in business steering is called Business Equity and is identical to CaR

but excludes concentration/diversification components

Confidence

level

chosen linked

to rating ambition, e.g. AA corresponds

to 99.97% and used

in CaR, regulatory

minimum 99.9%

Part of business plan, expected

losses

of doing

business

Unexpected

losses

covered

by capital

buffer

Unexpected

losses

potentially

leading

to insolvency

Losses

due

to risk taking

over time Risk appetite leading to capital levels

Economic capital, CaR

and Business Equity

Economic Capital –

SEB Methodology

15

Capital adequacy Outcome of recent stress tests

Core Tier 1 capital ratio (Basel II)

8,00%

9,00%

10,00%

11,00%

12,00%

13,00%

2009 2010 2011 2012 2013

Riksbanken Negative (Dec 2010)

Swedish FSA Stressunfloored (Oct 2010)

CEBS Adverse with additional sovereign shock (July 2010)

16

Return on Equity (actual and required)

Capital base (size and composition) comprising equity, hybrid capital and

subordinated loans

Risks (market risks, operational risks, business risks, insurance risks, credit risks etc)

Income, costs (incl. expected realisation of risks and cost of

liquidity)

and net result

Market views incl. investor perceptions

Return on Business Equity (actual and required)

Rating agency

risk and capital models

Regulatory (Basel I, II and III)

risk and capital models and

minimum requirements (Pillar 1 and 2) today and tomorrow

SEB

risk and capital models and

calibrated survival probability

Rating agency capital and considerations

Economic Capital/Business

EquityRegulatory Capital

SEB Group business plan incl. macroeconomic

environment

Setting of capital targets and capital plan

Holistic

Financial Steering Relating

risk to capital

and reward

17

Capital base vs

internal and external requirements SEKbn

0

20,000

40,000

60,000

80,000

100,000

120,000

2010

Capital base

Economic Capital

Basel II with transition rules

Basel II without transition rules

18

15.114.213.9

10.19.9

8.4 8.6

13.012.211.7

12.6 12.8

14.713.8

14.6

Dec 2007 Dec 2008 Dec 2009 Dec 2010 Mar 2011

Total capital ratio, %

Tier 1 capital ratio, %

Core Tier 1 (from 2007)

SEK bn

Tier 1 capital

72.7

82.5

101.6

102.0

102.1Capital base

93.0

104.7

107.3

99.1

98.8Risk-w. Assets

737

818

730

716

678

Target: A Tier 1 capital ratio of 10% (Basel II)

Note: In order to improve quality, capital management in 2010 has focused on shifting the capital base from Tier 2 to Tier 1. The end effect, when combined with certain deductions to be made from the total capital resources, is that Tier 1 capital becomes larger than the capital base from 2010.

Capital adequacy, SEB Group Basel II (without transition rules)

19

60% 65% 69% 70% 72% 72% 75% 76% 80%

11%11%

11% 10% 14% 13%14% 13% 13%29% 24% 20% 19% 14% 15% 11% 10% 8%

0%

20%

40%

60%

80%

100%

Dec2008

Mar2009

Jun2009

Sep2009

Dec2009

Mar2010

Jun2010

Sep2010

Dec-10

Core Tier 1 Hybrid Capital Tier 2

Improved quality of the capital base

94

51045

SEKbn Dec 2010

Lower Tier 2

Upper Tier 2

Hybridinnovative

Hybrid non-innovative

Equity

Loss absorption –

capital base Composition and development

20202020

Net credit loss dynamics, SEK bn

Build-up of provisions

2008 2009 2010 2011 ?

Realizing losses

Pro-active and conservative provisioning cycle with write-back potential

-0.7 -0.6-0.3

0.4

1.4

2.62.52.6

1.7

0.90.40.30.2

Q1-08 Q2 Q3 Q4 Q1-09 Q2 Q3 Q4 Q1-10 Q2 Q3 Q4 Q1-11

21

Expected Applicability of Capital Instruments

Regulatory Minimum

Buffer Capital (If any)

Leverage Ratio

S&P RAC Ratio

“High Strike” Coco (~7% Core Tier 1)

Hybrid Tier 1

LT2 ? X X

“Low Strike”Coco

(~5%Core Tier 1)

Hybrid Tier 1 ?

LT 2 ? X X

New-Style Hybrid Tier 1

Hybrid Tier 1 X

Funding

Source: Morgan Stanley

22

Loss absorbing subordinated debt

“Known”

Basel III hybrid capital

Basel III hybrid Tier 1

“True”

contingent capital

Non-viability Tier 2 Mimic Basel III, equity features

Swiss finish: —

up to 9% of 19% total capital requirementFSB: —

greater (G)-SIFI loss absorption capacity

Minimum 150bps

of RWA to most efficiently meet the Tier 1 capital

requirement

Minimum 200bps

of RWA to most

efficiently meet the Total Capital requirement

Still waiting for…–

clarity / guidance from the European Commission on Tier 1 and Tier 2

–

first guidance from the Basel Committee and FSB on “true”

contingent capital

Broad definition

Narrow definitions

Instruments

Application

Loss absorbing subordinated debt spectrum

Source: Deutsche Bank

23

What triggers and why?

Rem

oten

ess

Full regulator discretion

5.125% Core Tier 1 / Common Equity Tier 1 (requirement for Tier 1)

Non-viability

5% Core Tier 1 (Lloyds ECN)

7% Core Tier 1 / Common Equity Tier 1 (Credit Suisse BCN, Rabobank

SCN)

Comparison of effective triggers ? What features can be added?

Share price trigger–

Downside–

Upside

Other market based trigger

“Cure”

periods

What triggers are required? What does this mean?

Tier 1

Tier 2

Host

Contractual non-viability –

Decision to inject public sector capital–

Decision of the regulator that a write-off / conversion, without which the firm would become non-viable, is necessary, or…

…statutory regime with equivalent outcome

Regulator discretion (coupon and principal loss absorption)

Core Tier 1 ratio, c. 5.125% or higher

Non-viability as above

Less regulator discretion

Loss absorption linked to the failure of the institution

Trigger out-of-the-money?

Explicit regulator discretion

More issuer discretion

Dynamic triggers (regulatory definitions)

Interaction of going concern and contingent capital triggers?

For illustration purposes only –

in practice regulator discretion and/or non-viability may

take effect at varying points

Source: Deutsche Bank

24

Conversion into equity

Upside participation / attaching warrants

Write-down and write-up if future profitability & capital

levels are sufficiently restored

Write-off

Trigger is set at a fixed (regulatory capital) ratio

Write-down of principal

Conversion can be triggered by the regulator at

their sole discretion

Option to settle nominal in shares at any time at then

current share price

Regulatory requirements for the

role of contingent capital will directly

impact final structures (for

instance definition and relative

interaction of triggers)

However, issuers and investors are establishing (and

voicing) their structural

preferences now

in the context of future

hybrid Tier 1

Contingent capital –

instrument options

Source: Deutsche Bank

25

DeferralTrigger levels

Real money

–

Precise definitions preferred and there is a focus on the risks of non-viability

–

Existence of multiple or dynamic triggers will depend on existing capital buffers and the issuer’s funding and

liquidity profile

–

Triggers in the 7% area preferred for contingent capital

–

Ultimately the level of comfort on the trigger is credit specific

Hedge funds

–

Share price trigger is a point of interest

–

Contractual non-viability may require a premium

Insurance

–

Focus on objective triggers with little discretion of the issuer in non-viability situations

–

Triggers important for modelling expected loss

–

Cure periods preferred

Real Money

–

Regulator discretion is accepted but would entail a pricing premium

–

This is not seen as a critical risk in the structure

Hedge funds –

deferral is less important

Insurance

–

Issuer discretion to defer to be relatively constrained

–

Somewhat comfortable with regulator discretion

–

Specific deferral language is instrumental

Relative trigger: Low High

Due to the potential nature of this

security, an investor base may include

Real money

Insurance

Equity linked

Equity

Hedge funds

Retail

Strategic investors / SWFs

Assessing an instrument: What are the critical features?

Source: Deutsche Bank