Swedish Financial Supervisory Authority, Finansinspektionen, Issues Warning To Carnegie, Assigns Financial Penalty Of SEK 50 Million And Replaces The CEO And Board Of Directors

Carnegie Investment Bank has received a warning from Finansinspektionen due to serious deficiencies in its governance and control of the firm’s operations. In addition, Carnegie must pay the maximum financial penalty of SEK 50 million. FI requires that Carnegie replaces the CEO and that an Extraordinary General Meeting be called to elect new members to the Board of Directors.

The Board of Directors and executive management for Carnegie are the subject of serious criticism in FI’s decision, which will be published today. FI states that governance of the operations has been contradictory and the bank’s internal rules have been incomplete. The control functions have been significantly undersized in relation to the scope and risk of the operations. Allocation of responsibility has been unclear and important review assignments have been allocated to persons lacking sufficient competence to carry out the task. The follow-up of risks by the Board of Directors has not been sufficiently forceful. The bank’s annual reports for 2005 and 2006 have presented incomplete information with regard to trading operations. FI intends to report the responsible auditors during those years to the Supervisory Board of Public Accountants.

In light of its findings, there is sufficient cause for FI to take action against the bank by either revoking its license or issuing a warning. The bank has presented an action plan during the investigation and FI therefore finds it sufficient to issue a warning in combination with a financial penalty of SEK 50 million. FI would like to ensure that the action plan is implemented and will consequently utilise its right to require that the bank convene an Extraordinary General Meeting to appoint new members to the Board of Directors. FI has also decided that Carnegie must replace the CEO.

On May 25, 2007, the bank disclosed that it had overestimated its trading results by a total of SEK 630 million for the period 2005–2007. According to the bank, three people in the trading unit affected the valuation of certain contracts by basing a theoretical valuation on unrealistic volatility assumptions. During its investigation, FI has been able to verify that all valuation data was available for control in the bank’s system. The fact that incorrect valuations have been able to continue for such a long period of time is in FI’s opinion due to the serious deficiencies that have existed in the governance and control of the bank’s operations.

Follow the press conference via www.fi.se at 8:15 AM.