OP-Pohjola Group's January-September performance at same level as last year

OP-Pohjola Group
Stock Exchange Release 31 October 2012 at 8.00 am (EEST)
Interim Report


OP-Pohjola Group's January-September performance at same level as last year

- OP-Pohjola Group's earnings before tax came to EUR 493 million (488).
- The growth of net interest income slowed down to 2%. Comparable total income increased by 6%. Expenses increased by 9%, excluding those incurred due to the reorganisation of OP-Pohjola Group Central Cooperative Consolidated.
- Impairments of receivables contracted by 26% to EUR 47 million.
- Earnings before tax in the third quarter amounted to EUR 156 million (122).
- Core Tier 1 ratio was a solid 14.8% on 30 September.
- The liquidity position was strong and the Group has had good access to funding.
- In August, the Group acquired Skandia Life Finland's life insurance operations.
- The corporate loan portfolio increased in the year to September by 10%, home loans by 8% and deposits by 9%. Within Non-life Insurance, insurance premium revenue rose in the report period by 9%.
- OP-Pohjola Group Central Cooperative Consolidated initiated an efficiency and reorganisation programme in September, with the aim of achieving annual cost savings of EUR 150 million  by the end of 2015.
- OP-Pohjola Group's 2012 earnings before tax are expected to be better than in 2011. For more details, see "Outlook for the rest of 2012".


OP-Pohjola Group's key indicators

* Change in ratio


Comments by Reijo Karhinen, Executive Chairman

The figures for the first three quarters of 2012 show that OP-Pohjola Group is not in crisis. Our performance in the current operating environment was good but nevertheless insufficient, both in relation to tightening regulation requiring even higher capital adequacy and in light of the financial and business outlook. Just to maintain our current level of capital adequacy will require us to make a better result. For a financial services group operating on a cooperative principle, the only way to maintain and increase capital adequacy is to generate earnings.

A sufficient capital adequacy achieved through core capital is a strategic choice for us. This is what has enabled us to stand taller than many others amid the euro area crisis. We have had good access to funding and our ability to grant loans has remained excellent. Growth was good, too. I am very happy with our growth in home and corporate loans that is clearly higher than the market average. We actually achieved record figures in the growth of joint banking and insurance customers.

We are in the middle of historic transition. The next few years will be characterised in the financial sector as a period of discontinuity. We will have to adjust to a regulatory environment that will be more and more difficult to control. Never before have we experienced such a simultaneous impact of increased regulation and new taxes.

The persistently low market interest rates, new cost pressures driven by new regulations, the new national bank levy and higher funding costs require us to take more determined steps merely to maintain our current earnings level. Some of the steps we must take are unpleasant but nevertheless necessary. An economic upswing is not in the horizon to boost the economy. The effects of regulation will hit us faster than the operating environment has time to recover from the euro area sovereign debt crisis.

This means that the good performance figures we have achieved now do not serve as a sound basis for predicting the future. The reorganisation of OP-Pohjola Group Central Cooperative Consolidated arises from the necessity to prepare for the future. Making the necessary changes in time is a responsible way to react to a major shift in the operating environment. We cannot rely on securing our earnings capacity and capital adequacy by increasing our customer margins and service charges. It is necessary that we simultaneously rationalise our own operations and in this way seek major cost savings in the entire Group.

Our good earnings power is our strength. As we are owned by our customers, they are the reason for our existence. In light of the actual market share figures, we have responded to Finnish financing and other financial requirements in an exemplary manner. And this is the way we intend to keep it. Even in the middle of major changes, we invest a lot in development and build the future with a feeling of confidence.

We expect political decision-makers to make fair decisions. Customers of a bank which operates mainly in Finland must not be placed in a disadvantaged position through tax decisions. Decision-makers should have the vision and courage to disclose the genuine condition and outlook of our national economy. Sustainable economic growth will not be attained just by raising taxes and increasing bureaucracy.


Financial performance in the report period

OP-Pohjola Group's earnings before tax came to EUR 493 million, which was at the same level as in 2011. Changes in reserving bases recorded in Non-life Insurance in the report period weakened the Group's earnings by EUR 52 million. A year ago there were no similar changes in reserving bases. When Skandia Life Finland was bought, a positive non-recurring item of EUR 19 million related to estimated cost and income synergies was recognised. A non-recurring provision for expenses of EUR 20 million was made related to the reorganisation of OP-Pohjola Group Central Cooperative Consolidated announced in September.

The report period's profit performance was supported by higher net interest income year on year, lower impairment loss on receivables, earnings from derivatives and an increase in net investment income by Non-life Insurance. The growth of net interest income slowed down considerably during the report period. Earnings were eroded by lower wealth management commissions and fees year on year, lower investment income by Banking, and the Group's higher expenses. Bonuses to owner-members and OP bonus customers recognised in the income statement grew by 6.5% year on year to EUR 129 million.

The Group's fair value reserve increased by EUR 560 in the report period million thanks to the performance of the investment market, whereas a year ago it decreased by EUR 456 million. Earnings before tax at fair value came to EUR 1,053 million (32).


Outlook for the rest of 2012

The world economic outlook has been weak throughout the report period. As a result of the European sovereign debt crisis, the euro area has already sunk into recession. Economic growth in the euro area is estimated to be weak, even by the most optimistic predictions.  The economic prospects for Finland look subdued, too.

The financial sector is under major profitability pressures. Future profitability will be eroded by extremely low market interest rates, grim economic situation, challenging investment environment, tightening regulations in the sector and the national bank levy. These changes will be felt the most in 2013.

Uncertainty about economic development and the continued threat of a deepening euro area sovereign debt crisis make it difficult to predict OP-Pohjola Group's financial performance in the last quarter of 2012. OP-Pohjola Group's 2012 results are expected to be better than the year before, provided that the operating environment will not deteriorate significantly more than expected and the euro area's sovereign debt crisis will not get any worse. The greatest uncertainty affecting the financial performance during the rest of the year relates to investment income.

All forward-looking statements in this report expressing the management's expectations, beliefs, estimates, forecasts, projections and assumptions are based on the current view on developments in the economy, and actual results may differ materially from those expressed in the forward-looking statements.


Press conference

OP-Pohjola Group's financial performance will be presented to the media by Executive Chairman and CEO Reijo Karhinen in a press conference on 31 October 2012 at 12 noon at Teollisuuskatu 1 b, Vallila, Helsinki.

Pohjola Bank plc will publish its own interim report.


Publication dates for the 2012 financial statements and 2013 interim reports

Financial Statements Bulletin for 1 January-31 December 2012: 6 February 2013
Interim report for 1 January-31 March 2013: 2 May 2013
Interim report for 1 January-30 June 2013: 31 July 2013
Interim report for 1 January-30 September 2013: 30 October 2013


Additional information

Executive Chairman and CEO Reijo Karhinen, tel. +358 (0)10 252 4500
Harri Luhtala, CFO, tel. +358 (0)10 252 2433
Carina Geber-Teir, Chief Communications Officer, tel. +358 (0)10 252 8394


Distribution
NASDAQ OMX Helsinki Ltd
London Stock Exchange
SIX Swiss Exchange
Major media       
op.fi and pohjola.fi


OP-Pohjola Group is Finland's leading financial services group providing a unique range of banking, investment and insurance services. The Group has the mission of promoting the sustainable prosperity, well-being and security of its owner-members, customers and operating regions through its local presence. Its objective is to offer the best and most versatile package of loyal customer benefits on the market. OP-Pohjola Group consists of some 200 member cooperative banks and the Group's central institution, OP-Pohjola Group Central Cooperative, with its subsidiaries and closely-related companies, the largest of which is the listed company Pohjola Bank plc. With a staff of more than 13,000 OP-Pohjola Group posted consolidated earnings of 518 million euros before tax in 2011 and had total assets of 92 billion euros on 31 December 2011. The group has over four million customers.