YEAR-END REPORT 1 January - 31 December 2009
(Thomson Reuters ONE) - The Swedish Covered Bond Corporation (SCBC) Summary December 2009 December 2008 Net interest income, SEK million 813 797 Operating profit/loss, SEK million (295) 1,012 Net profit/loss for the period, SEK million (217) 720 Lending, SEK million 173,371 157,792 Capital adequacy ratio, % 11.1 10.0 Primary capital ratio, % 11.1 10.0 Volume of international funding, SEK million 54,102 66,779 Rating, long-term funding Standard & Poor's AAA* AAA Moody's Aaa Aaa* On 16 December 2009, Standard & Poor's placed SCBC and 97 other issuers ofcovered bonds on CreditWatch.All comparative figures in parentheses pertain to the year-earlier period.OrganisationThe Swedish Covered Bond Corporation, SCBC, is a wholly owned subsidiary of TheSwedish Housing Finance Corporation, SBAB. SCBC conducts its operations in sucha manner that they comply with the requirements specified in the Covered BondsAct (2003:1223) and the Swedish Financial Supervisory Authority's regulationsFFFS 2004:11.SCBC's operations comprise the issue of covered bonds in Swedish andinternational capital markets. For this purpose, the company uses two fundingprogrammes, the mortgage bond programme in Sweden and the EMTCN programme,primarily in the international market. The operations are conducted by personnelemployed by the Parent Company SBAB, which performs services on behalf of SCBCthat are governed by an outsourcing agreement.The loans that are not funded by issuing covered bonds are financed by asubordinated loan from the Parent Company SBAB. In the event of SCBC'sbankruptcy, liquidation or company restructuring, the subordinated loan andSBAB's claims on SCBC under the outsourcing agreement are subordinate toliabilities to all non-subordinated creditors. SCBC has thus minimised the riskof conflicts between creditors. To hedge currency and interest rate risks thatarise as a natural part of operations, SCBC regularly engages in derivativetransactions with SBAB and external counterparties.Operating resultsSCBC reported an operating loss of SEK 295 million (profit: 1,012) for 2009. Theloss was primarily due to net income/expense from financial instruments measuredat fair value. It resulted mainly from unrealised changes in the market value ofderivative instruments and hedged items and costs connected to the repurchase ofbonds.SCBC's total operating income declined compared with 2008 to SEK 175 million(1,428). Net interest income amounted to SEK 813 million (797). The increase innet interest income was primarily attributable to a larger loan portfolio.However, declining market interest rates had a dampening impact on the increasein net interest income.Expenses for the year totalled SEK 445 million (399), pertaining primarily tocosts resulting from the outsourcing agreement between SCBC and SBAB.Net loan losses increased compared with 2008 and amounted to SEK 25 million(loss: 17).LendingSCBC does not conduct any new lending activities itself; instead itcontinuously, or when needed, acquires loans from SBAB. The intention of theacquisitions is for these loans to be wholly or partly included in the coverpool that serves as collateral for SCBC's covered bond investors.SCBC's portfolio mainly comprises loans for residential mortgages, with theretail market as the largest segment. The portfolio contains no loans for purelycommercial properties. Information regarding SCBC's cover pool, updated on amonthly basis, is presented on the company's website, www.scbc.se.Lending to the public totalled SEK 173,371 million (157,792). The table belowshows the distribution of the loan portfolio between the retail and corporatemarkets. Loan portfolio, SEK million Dec 2009 Dec 2008 Retail market 107,157 105,740 Corporate market 66,214 52,052 Total 173,371 157,792According to an agreement between SBAB and SCBC, SBAB undertakes to repurchaseloans that are more than 30 days in arrears.This is a translation of the Swedish year-end report. The auditor has not signedthe translation for approval.FundingSCBC's operations focus primarily on the issue of covered bonds in Swedish andinternational capital markets. For this purpose, the company uses two fundingprogrammes: the mortgage bond programme in Sweden for the issue of covered bondsand SCBC's EUR 10 billion Euro Medium Term Covered Note Programme. Bothprogrammes received the highest possible long-term ratings of Aaa and AAA fromthe rating agencies Moody's and Standard & Poor's. Early during the year,Standard & Poor's announced its intention to change its rating methodology forcovered bonds. On 16 December 2009, Standard & Poor's placed SCBC and 97 otherissuers of covered bonds on CreditWatch.SCBC's funding takes place predominantly by issuing covered bonds, and, to acertain extent, through repo transactions. In addition, SCBC receives funding inthe form of a subordinated loan from SBAB. The value of outstanding covered debtsecurities in issue totalled SEK 139,963 million* (126,578). Programmeutilisation on 31 December 2009 was as follows: Swedish covered bonds SEK 83.9billion (61.9) and Euro Medium Term Covered Note Programme EUR 5,175 million(5,818).The turmoil that marked financial markets in 2008 continued during the initialpart of 2009, when the market for covered bonds encountered fierce competitionfrom substantial issuance volumes of government-guaranteed bank debt. Fromhaving been practically closed during most of the first half of 2009, theinternational market for covered bonds started to function again during thesummer. The Swedish covered bond market functioned as a reliable source offunding throughout the year. During the year, the average maturity of the debtportfolio was extended through continuous issuances and repurchases, primarilyin the Swedish covered bond market. SCBC joined the Swedish Government'sguarantee scheme for medium-term borrowing on 29 June 2009. The company did notutilise this programme, and decided not to extend its participation after 31October 2009.*Carrying amount including changes in market value.Capital adequacy and riskSCBC reports credit risk mainly in accordance with the Internal Risk-Based (IRB)approach, and reports operational risk and market risk in accordance with thestandardised approach. SCBC's capital ratio, taking the transitional regulationsinto account, amounted to 1.39 (1.25) on 31 December 2009 and both the capitaladequacy ratio and the primary capital ratio amounted to 11.1% (10.0). Afterfull implementation of Basel II, without taking into account the transitionalregulations, the capital adequacy ratio and primary capital ratio under Pillar1 amounted to 33.1% (21.8). The figures include earnings for the financial year.There are no ongoing or anticipated material obstacles or legal barriers to arapid transfer of funds from the capital base other than those that ensue fromthe terms applying for the subordinated debentures (see Note 6) or from whatgenerally applies pursuant to the Companies Act (2005:551).Since an increase in lending volume naturally entails a greater overall exposureto credit risk, the anticipated loss in the credit risk model has beenincreased.Interest-rate riskInterest-rate risk arises as a natural feature of SCBC's activities, primarilywhen the interest-rate structure between the company's deposits and lending (ALMrisk) is not fully matched.The main rule is that SCBC's interest-rate risk is hedged directly. Accordingly,SCBC is subject to only a limited interest-rate risk. SCBC does not conducttrading operations.Current eventsNo events of material importance to the assessment of the company's financialposition have occurred after the end of the reporting period.Accounting policiesSCBC applies statutory IFRS, which means that the year-end report has beenprepared in compliance with IFRS subject to the additions and exceptions thatensue from the Swedish Financial Reporting Board's recommendation RFR 2.2,Accounting for Legal Entities, Finansinspektionen's (The Swedish FinancialSupervisory Authority's) regulations and general guidelines on annual reports incredit institutions and securities companies undertakings (FFFS 2008:25) and theAnnual Accounts (Credit Institutions and Securities Companies) Act.This year-end report has been prepared in accordance with IAS 34 InterimFinancial Reporting and the new amendment to IAS 1 Presentation of FinancialStatements. In compliance with the amendment to IAS 1, income and expenses arerecognised in two statements, an income statement and a statement ofcomprehensive income. The statement of comprehensive income includes "Othercomprehensive income" which comprises income and expenses from transactionsrecognised directly under shareholders' equity until the closing of the 2008accounts. SCBC's transactions are solely with the company's shareholders, whichare reported in the statement of changes in equity. The accounting policies andcalculation methods remain unchanged compared with the 2008 Annual Report, withthe exception that SCBC now applies the new standard IFRS 8 Operating Segments,instead of IAS 14 Segment Reporting.According to IFRS 8, a segment is a component of a company that can earnrevenues and incur expenses. Discrete financial information must be availableand operating profit/loss must be regularly reviewed and monitored by thecompany's chief operating executive. SCBC's operations are monitored at thecomprehensive level, since the company primarily comprises loan receivablessubject to a risk level that enables the issuance of covered bonds. As a result,only one operating segment is recognised, comprehensive SCBC, which complieswith the previous application of IAS 14.All amounts are stated in millions of Swedish kronor (SEK million). Financial information 2010 SCBC's interim report, annual reports and other financial information is available at scbc.se Annual Report 31 March Annual General Meeting 20 April Interim report January-June 23 JulyStockholm den 3 February 2010Per TunestamManaging Director[HUG#1380994] YEAR-END REPORT 1 January - 31 December 2009: http://hugin.info/141447/R/1380994/340507.pdf
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The Swedish Covered Bond Corporation, (SCBC)
* The Swedish covered bond market continued to operate relatively
well despite the prevailing global financial crisis.
* The rating agency Standard & Poor's declared its intention to
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