IFRS Effects on financial statements

1
IFRS Effects on financial statements

• Analyst seminar
• 7 April 2005

2
Agenda

• 1. Introduction Arne Liljedahl, EVP Group CFO
• 2. Opening Balance effects
• Key effects on PL Sigurd Carlsen, Head of
  Group Finance
• 3. Reconciliation of 2004/2005 PL Sigurd
  Carlsen, Head of Group Finance
• 4. Segment reporting Arne Liljedahl, EVP
  Group CFO
• Appendix 1 Reconciliation of Operational income
  statement restated IFRS income statement
  2004
• Appendix 2 New format, key pages in Q1 report
  2005

3
IFRS Opening balance 2005

• Swedish accounting standards have been gradually
  aligned to IFRS since 2000
• 29 standards implemented by year-end 2004
• Implementation of IFRS from 1 January 2005 will
  increase equity by EUR 160m (net of tax)
• Main standards affecting the opening balance
• IFRS 3 Business combinations, incl. goodwill
• IAS 39 Financial instruments - loan loss
  provisions
• IAS 39 Financial instruments - other than lending
• IAS 36 Impairment of assets
• IAS 1 Disclosure - minority interests
• Effect on Tier 1 capital negligible

4
IFRS Opening balance 2005
EURm EURm
Reported Equity 2004 (end of period) Reported Equity 2004 (end of period) 12,549
IFRS 3 Goodwill amortisation 161
IAS 39 Loan loss provisions 70
IAS 39 Financial instruments -37
IAS 36 Impairment of assets -29
IAS 1 Minority interests 13
Other opening balance issues Other opening balance issues -16
Equity Opening Balance 1 Jan 2005 Equity Opening Balance 1 Jan 2005 12,711 162
5
Opening balance - key comments

• Net effect on equity and Tier 1 capital as
  disclosed in the Annual Report for 2004
• Page 34 - 37 provides explanatory comments
• No major changes expected prior to announcement
  of result for Q1/05
• Revisions and updates during 2005 may occur
• Changes as a result of amended accounting
  standards will as a main rule not flow through
  the PL
• Other changes, if any, will flow through the PL
• Danish mortgage loans and closely related issued
  mortgage bonds
• Measured at fair value, in line with principles
  applied in Nordea Kredit Realkreditaktieselskab
• No effect on opening balance
• Uncertainty remains with respect to fair value
  measurement of issued bonds

6
IFRS Profit and loss

• The implementation of the new standards is
  expected to have a positive effect on Nordeas
  reported earnings in 2005
• IFRS 3 regarding goodwill means that no
  amortisation of goodwill will be made, but
  impairment test will, as previously, be performed
• net effect on Nordea in 2004 would have been an
  increase of approx. EUR 160m
• Implementation of IAS 39 is expected to lead to
  some increased volatility
• Nordeas current asset liability strategy,
  regarding its non-trading interest risk will be
  continued in 2005
• Line by line consolidation of Life insurance in
  line with IFRS 3 / IAS 27
• Reclassifications, incl. Life line by line, will
  lead to higher reported income and costs
• reported profits and financial position not
  affected
• Reported RoE will decrease approx 3-points due
  to changed methodology (not deducting goodwill
  from equity in 2005 calculations)

7
IFRS Profit and loss

• Restatement of Income Statement 2004
• EURm
• Reported earnings 2004 1,914
• No Goodwill amortisation 161
• Minority interests recorded as equity 3
• Reported earnings (excluding effects of IAS 39)
  2,078

8
Line by line consolidation of Life

• No effect on Net Interest Income
• Commission income will include
• Expense loading ()
• Unit Linked commissions ()
• Sales commissions and fund mgmt. fees (-)
• Real estate income and expenses related to Lifes
  investment portfolio reported on the Other
  income line
• Main items from Life reported on Items to fair
  value, including
• Premium income (except expense loading etc.)
• Claims benefits, change in technical provisions
  financial buffers
• Investment result
• Other expenses, incl. personnel, reported on
  ordinary expense lines

9
Net gains / losses on items to fair value

• New line in the PL
• Comprises EURm 2004
• Income in Markets, except commissions
  434
• (previously reported as Trading income)
• Premium income in Life 2,309
• (except expense loading, UL com. com.
  expenses)
• Investment result in Life 1,543
• Claims benefits paid, Life -1,644
• Change in technical provisions, Life
  -1,888
• Change in financial buffers, Life
  -275
• Investment result in Treasury (except Net
  Interest Income) 48
• Other agio elements in Business Areas
  8
• Total 535

45
10
Other issues

• Staff other expenses in Life will increase
  reported expenses (EUR 117m)
• Nordea will report real estate income and costs
  in Life on same line (Other income)
• Uncertainty remains regarding market practice
  on this issue
• Depreciation of operational leases will increase
  reported expenses (EUR 37m)
• Operational income statement 2004 Reported in
  Net interest income (financing cost)
• Statutory income statement 2004 Reported in
  Depreciations
• IFRS Income statement 2005 Reported in
  Depreciations
• Vast majority of securities will be measured at
  fair value
• Including OMX shares
• Some bonds in Norwegian Life portfolio will be
  classified as Hold to maturity
• Some corporate bonds (CIB) may be classified as
  Available for sale

11
IFRS Effects on financial statementsComments
to reconciliation of- Operational income
statement 2004- Restated IFRS income statement
2004Refers to Bridges 1-3, provided in Excel

• Analyst seminar
• 7 April 2005

12
Effect per IFRS standard - Bridge no. 1

• IFRS 4 - Life
• Not restated for 2004
• Fair value already main valuation principle in
  Nordea
• Effect of Deferred Acquisition Cost-standard
  expected to be limited
• Limited total effect in PL expected going
  forward
• IFRS 3 - Life line by line
• One line consolidation no longer allowed
• See page 8 pf this document for redistribution of
  income and cost elements
• See page 9 of this document for gross flows
  behind net effect from Life on Items to fair
  value
• No effect on reported net profit 2004

13
Effect per IFRS standard, contd

• IFRS 3 - Consolidation, new companies
• Some smaller companies previously accounted for
  using Equity method
• Negligible effects on income and costs
• No effect on reported net profit 2004
• IAS 39 - Lending
• Not restated for 2004
• Interest income related to impaired loans will be
  recognised in 2005
• NPV calculation on value of impaired loans in
  2005
• Net interest income and impairment losses will
  show increases of same magnitude going forward
• Expected increase of approx. EUR 15m on both
  lines for 2005

14
Effect per IFRS standard, contd

• IAS 39 - Other than lending
• Not restated for 2004
• May lead to increased volatility going forward
  related to valuation of financial instruments
• Nordea will use hedge accounting for financial
  assets/liabilities where relevant
• Minor effects on PL as long as hedges are
  effective
• All derivatives will be measured at fair value
• Continued uncertainty attached to the scope of
  IAS 39
• Revised recommendations expected during 2005
• No material impact on reported earnings expected
  going forward

15
Effect per IFRS standard, contd

• IAS 38 / IFRS 3 - Goodwill
• No amortisation of goodwill will be made in 2005
• Impairment tests will, as previously, be
  performed
• Amortisation in 2004 restated (reversed)
• Positive effect on restated operating profit of
  EUR 161m for 2004 (actual depreciation 2004)
• IFRS 3 - Minority interests
• No longer disclosed in net income
• 2004 restated
• Positive effect of EUR 3m on restated net profit
  in 2004

16
Reclassifications according to IFRS - Bridge no. 2

• Treasury
• 2004 PL line Investment earnings, banking will
  be deleted
• Result element, EUR 8m, has been reclassified to
  other lines in the PL, as follows
• Net interest income shows NII on Treasurys
  bond portfolio (main part of investment
  portfolio)
• Fee and commission expenses shows commission
  expenses related to Treasurys investment
  portfolio
• Net gains/losses to fair value shows value
  changes on Treasurys investment portfolio
• Equity method shows a small non-recurring gain
  on a holding disposed by Treasury in 2004
• No significant result element expected on
  this line in 2005
• Dividends shows dividends on equities held in
  Treasurys investment portfolio
• Other operating income shows various minor
  income elements in Treasury
• Staff costs and Other expenses show such
  expenses related to Treasurys investment
  activities

17
Reclassifications according to IFRS (contd)

• Markets
• 2004 PL line Trading will be deleted
• Result element, EUR 481m, has been reclassified
  to other lines in the PL, as follows
• Fee and commission income shows commission
  income in Markets
• (Note that brokerage already in 2004 was
  included in Fee and commission income)
• Net gains/losses to fair value shows Markets
  income on financial instruments, f/x etc.
• Insurance
• EUR 45m transferred from Bridge no.1 on the
  Trading line, which will be deleted
• The result element (EUR 45m) is reported on
  Net/gains losses on items to fair value
• The amount as such, EUR 45m, is explained on
  slides 8, 9 and 12 of this presentation

18
Reclassifications according to IFRS (contd)

• Other financial income
• Small amounts of other financial income in
  Business Areas or Treasury have in 2004 been
  reported as Net interest income
• Such amounts have been reclassified to Net
  gains/losses on items to fair value, where
  relevant
• Equity Method
• This line in the PL is moved in the PL
• Will form part of Total income going forward

19
Reclassifications according to IFRS (contd)

• Depreciation
• Depreciation of tangible and intangible assets
  will be shown on a separate line
• Reclassified from Other expenses
• Leasing depreciation
• Depreciations of operational leases (Nordea
  lessor) reclassified from Net interest income
  to Depreciations
• Operational income statement 2004 Reported in
  Net interest income (financing cost)
• Statutory income statement 2004 Reported in
  Depreciations
• IFRS Income statement 2005 Reported in
  Depreciations

20
Summary - Bridge no. 3

• Shows summary of bridges no. 1 2
• Operational income statement 2004
• Net effect of Bridge no. 1 - effect per IFRS
  standard
• Operational income statement 2004, including
  effects per IFRS standard
• Net effect of Bridge no. 2 - reclassifications
  according to IFRS
• Full IFRS income statement 2004, restated and
  reclassified

21
IFRS Effects on financial statements Segment
Reporting

• Analyst seminar
• 7 April 2005

22
IFRS restatements in Segment Reporting 2004

• Goodwill Depreciations discontinued (Retail EUR
  21m, CIB EUR 14m, Group functions and
  Eliminations EUR 126m).
• Depreciations operational leasing reclassified
  (Retail EUR 37m EUR moved from net interest to
  depreciations).
• Trading income split into IFRS reporting lines.
• Life income and expenses split into IFRS
  reporting lines.
• Investment earnings, Banking split into IFRS
  reporting lines.

23
Other restatements in Segment Reporting 2004

• Change in principles for allocation of costs in
  Markets to Retail
• (Retail EUR 18m / CIB EUR -18m).
• Change in principles for allocation of costs in
  Group IT to Business Areas (Retail EUR 23m / CIB
  EUR 9m / AM EUR 5m).
• Changed principle for capital benefit rate used
  in segment reporting, reduced by 80 bp (Net
  Interest Income, Retail EUR - 40 m, CIB EUR -
  14m).
• Now equal to investment return target 3.2 in
  2004 (3.0 in 2005).
• Responsibility for certain customers moved
  between CIB and Retail (Income EUR 40m and
  Expenses EUR 10m moved to Retail).

24
Restated Segment Reporting FY 2004

• Restated quarterly segment information Q1 -
  Q4 2004 will be disclosed in connection with
  Interim Reporting for Q1 2005.