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Pohjola Pankki Oyj: OP-Pohjola Group with a strong start to 2014

OP-Pohjola Group

Stock Exchange Release 29 April 2014 at 8.00 am (EEST)
Interim Report

OP-Pohjola Group with a strong start to 2014

* OP-Pohjola Group's earnings before tax for the first quarter of 2014 were
EUR 257 million (234). This was the second-best result reported ever for
any quarter.
* All three business segments improved their year-on-year earnings. Banking's
earnings before tax increased by 64%, those of Wealth Management by 18% and
those of Non-life Insurance by 12%.
* Net interest income continued growing, being 17% higher than a year ago.
Total income increased by 7%.
* Expenses excluding direct expenses caused by the purchase of Pohjola Bank
plc shares increased by 3.7%.
* Common Equity Tier 1 (CET1) ratio was 15.5 %. Capital adequacy decreased as
a result of the purchase of Pohjola Bank plc shares.
* The Group's loan portfolio increased by 3.7% in the year to March, deposits
by 3.5%, mutual fund assets by 12% and Non-life Insurance premium revenue
by 8%.
* The number of joint banking and non-life insurance customers increased by
93,000 in the year to March.
* The number of OP-mobile users increased during the first quarter by 21% to
* Earnings before tax 2014 are expected to be higher than in 2013. For more
details, see " Outlook towards the year end" below.
* OP-Pohjola Group Central Cooperative published a plan on 6 February 2014 to
increase its ownership of Pohjola Bank plc shares to 98%, and reached this
figure in late April. For more details about the purchase of Pohjola Bank
plc shares and its effects, see "OP-Pohjola Group's tender offer for
Pohjola Bank shares" below.

OP-Pohjola Group's key indicators

| Q1/2014 Q1/2013 Change % Q1-Q4/2013 |
|Earnings before tax, EUR million 257 234 10,0 701 |
|Banking 160 98 63,5 404 |
|Non-life Insurance 62 56 12,3 166 |
|Wealth Management 67 57 18,2 113 |
| |
|Returns to owner-members and OP bonus customers 49 48 2,8 193 |
| |
| 31 Mar 2014 31 Mar 2013 Change % 31 Dec 2013 |
|Common Equity Tier 1 (CET1) ratio, % / Core Tier 1** 15.5 14.6 17.3 |
|Ratio of capital base to minimum amount of capital base (under the Act on the 2.00 1.85 1.90 |
|Supervision of Financial and Insurance Conglomerates) |
|Ratio of receivables more than 90 days overdue to loan and guarantee portfolio 0.41 0.51 -0.10* 0.42 |
|, % |
|Joint banking and insurance customers (1,000) 1,535 1,442 6.5 1,518 |
Change in ratio

** The comparatives are presented based on the regulatory framework effective
before 1 January 2014.

Comments on Q1/2014 by Reijo Karhinen, Executive Chairman and CEO

OP-Pohjola Group had a very strong start to 2014. The first quarter was
historically good and eventful quarter both in terms of our earnings and the
development of our structure. Banking improved its earnings significantly and
Non-life Insurance and Wealth Management improved their earnings too. At the
same time, delisting Pohjola shares has fully proceeded as planned.

Exceptionally strong growth in our volumes reported in recent years lies
behind our good first-quarter earnings. During the last three years, growth
of our Banking has annually accounted for half of the growth in the entire
sector. The strongly increased deposit and loan portfolios are now generating
better net interest income and earnings. At the same time, however, it must
be noted that the growth rate of total loans has rapidly slowed down in the
financial sector in recent months. The caution of companies in fixed
investments that has continued for quite a long time now also spread to
households during the reporting period. The early 1990s were the last time
when the home loan market was as quiet as it is now.

Growth in expenses eroded our good earnings performance. In addition to volume
growth, the growth in expenses were affected by our active efforts in product
and service development and several structural reforms that were underway and
the resulting, mostly non-recurring expenses recognised. We will continue to
make dedicated efforts to achieve our target at Group level that requires
zero-growth in expenses. In addition, the predictable, slowing income
generation as a result of weaker demand for loans will require tight cost

In addition to our good earnings performance, I am extremely satisfied with
our progress in Non-life Insurance on a long-term basis. The most recent
market share figures for this spring prove that we have managed to truly
increase our market share in relation to our competitors. We have become a
clear market leader, leaving the number two player behind with five
percentage points. This is an excellent proof of the fact that rewarding our
customers according to our customer promise bears fruit, and the number of
joint banking and insurance customers is increasing.

We are now undergoing a major transformation within OP-Pohjola. Our strong
belief in the future and customer ownership lies behind our major principled
decisions made in February. Identifying our customers' changing needs and
wishes is at the core of everything. We need to have the courage to challenge
the past, structures while improving the awareness of digital technology and
invest in the availability of services. OP-Pohjola has put smooth customer
service on a daily basis and customer satisfaction at the core of all

We will continue to simplify our structures, streamline our management system
and improve our operational dynamics and efficiency through several
development initiatives according to the statements that we published in
early February. OP-Pohjola's new beginning aims at a transforming financial
services group where customers have a stronger position and our
competitiveness is better.

Economic and geopolitical uncertainty keeps the euro area and especially
Finland in the grip. There is no reason to downplay challenges and the
ongoing nervousness. The Finnish economy has, however, all conditions for a
growth path. Finland should turn its deep crisis awareness into trust. The
persistent gloomy mood has made consumers and companies overly cautious.

Instead of the crisis awareness justifiably created during the autumn and
winter, we now need trust and the inspiring spirit in Finland which will
bring the economy back to its growth path. Finland only has a lot of untapped
resources. The Finnish economic policy has moved in the right direction
recently. This is the course that we must stay. Together with a slight
recovery and new business initiatives, Finland can be taken on a growth path.
All constructive initiatives for growth creation are welcome. Through our
efforts at OP-Pohjola, we have proved that Finnish economic growth is not
dependent on the availability of financing.

Financial performance in the report period

OP-Pohjola Group's earnings before tax were EUR 257 million (234). This was
the second-best quarterly result of all time in the Group's history. Earnings
were improved especially because of higher net interest income and net
commissions and fees and the fact that Non-life Insurance's premiums written
grew at a higher rate than the claims expenditure. Wealth Management earnings
before tax improved as a result of an increase in net investment income and
net commissions and fees. However, the Group's performance was eroded by
higher expenses.

Net interest income increased by 17% year on year as interest rates
stabilised, the average level of loan portfolio margins increased and the
loan portfolio grew. Compared with the previous quarter, the net interest
income was almost 2% higher.

The Group's expenses increased by 5.7%. A non-recurring EUR 8 million expense
related to the tender offer for Pohjola Bank plc shares was recognised under
'Other operating expenses' during the report period. Excluding these tender
offer expenses, the Group's expenses would have risen by 3.7%.

Thanks to efficiency-enhancement measures and outsourcing of ICT services, the
Group's personnel costs decreased by 7.5%. Outsourcing and the reform of
related operating models, on the other hand, increased ICT costs.

OP-Pohjola Group's fair value reserve before tax totalled EUR 403 million
(409) at the end of the report period. Earnings before tax at fair value
amounted to EUR 251 million (209).

Bonuses to owner-members and OP bonus customers recognised in the income
statement increased by 3.2% year on year to EUR 46 million (45).

Outlook towards the year end
The world economy is expected to grow during 2014 but at a slower rate than
average. The euro area and Finnish economies are also expected to recover
slowly. The crisis in Ukraine has nevertheless made predictions less and less
reliable and increased the risk of less favourable developments. A deepening
of the crisis in Ukraine may have significant repercussions for the Finnish

As a result of the slowly recovering economy, the operating environment in the
financial sector is gradually becoming more stable although historically low
interest rates will continue to erode banks' net interest income and weaken
insurance institutions' investment income. Uncertainty about economic
development also reduces growth expectations in the financial sector. Changes
in the operating environment and the more rigorous regulatory framework will
highlight even more the role of measures to strengthen the capital base and
improve profitability.

Unless the operating environment turns out to be considerably weaker t...

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