Swedbank exits Ukraine & Russia

In a continuation of an ongoing trend, Swedbank (OMX: SWED A) joins the list of European banks leaving Ukraine and Russia after coming to an agreement to sell its Ukrainian subsidiary to Mr. Mykola Lagun who is the majority owner of Delta Bank. The bank has made a strategic decision to focus on its home market of Sweden as well as the Baltic countries and that transformation is now complete.

Swedbank is taking a 340 million SE impairment in Discontinued Operations in Q1 2013 accounts. Negative cumulative exchange rate difference of 1.9 billion SEK will now be shown in discontinued operations as well having previously made an impact via other comprehensive income. Remaining exposure to Ukraine has a book value of some 600 million SEK in real estate holdings that are to be divested as well.

In Russia the bank will not do any new business and its current net lending position of 2.6 billion consisting mainly of performing business loans will decrease through amortization. The Ukraine transaction is subject to regulatory approvals with expected completion within H1 2013.

Swedbank stays pessimistic about Europe

Swedbank’s (OMX: SWED A) second quarter of 2012 was weaker than the first according to most metrics. President and CEO Michael Wolf summarized this as follows: First there was a short-lived confidence boost from ECB liquidity injection until markets refocused on sovereign economic challenges and their effect on the banking systems. This deteriorated growth outlook and led to lower interest rates. Since then there are some political initiatives to stimulate recovery but their effect is very uncertain. The bank is preparing for a European wide recession and is thus staying very cost-focused, aiming to cut variable costs by a billion this year. The uncertainty is too great to give accurate earnings guidance.

Since Swedbank is one of those seen among the strongest, more customers are contacting it according to the bank. Total income of 8.9 billion is 5% above Q2 2011 but 3% below Q1 2012. Net interest income stayed above 5.2 billion while staff costs and other expenses continued downward trend. Operating profit of about 4.2 4 billion is lower than in both comparison periods. Reported profit was 3.162 billion. Core Tier 1 capital ratio with currently recommended calculation methods climbed to 16.6 per cent according to Basel 2 and Basel 3 ratio stands at 15.5% as of June 30th.

Swedbank divests part of retail client operations in Ukraine

Swedbank (OMX: SWED A) said this afternoon that it has sold parts of its retail portfolio in Ukraine to Delta Bank JSC (KZ: NFBN). The Swedish bank said last September, that it has made the decision to focus entirely on corporate clients in Ukraine and plans to exist all retail segment activities. The sale nets Swedbank about 1.5 billion SEK. According to local media reports in Ukraine the parts of the portfolio sold consisted mainly of automobile and mortgage loans and could have been sold with more than 20% discount.

Moody’s Nordic downgrades come

Ratings agency Moody’s has today announced ratings actions concerning a number of banks in the Nordic region. Senior debt and deposit ratings of Norwegian DNB Bank ASA, part of DNB ASA (OSE: DNB) were downgraded to A1from Aa3 couple with downgrades on other ratings as well with a stable outlook. This reflects reliance on market funding and exposures to volatile assets such as real estate sector and shipping and possible pressure on earnings from higher liquidity requirements. The decline was mitigated due to likely system support in the event of problems and stable domestic environment.

Rating actions on five Swedish banking groups resulted in a downgrade of long-term debt and deposit ratings for Nordea Bank Ab (OMX: NDA, OMXH: NDA1V) and Svenska Handelsbanken (OMX: SHB A) both by one notch from Aa3 and that of farm and forest holder member owned specialised agricultural lender Landshypotek AB by two notches. The debt and deposit ratings of Skandinaviska Enskilda Banken's SEB (OMX: SEB A) and Swedbank (OMX: SWED A) were maintained at A1 and A2 respectively. All the ratings carry a stable outlook. The challenges faced by the sector as given by Moody’s are comparatively high reliance on wholesale funding, modest profits and risks to assets quality. Nonetheless the commendable performance of the Swedish economy and the relative strength of the banks is recognized.

Swedish bank CFO slams Moody’s expertise

In the latest round of different opinions between Nordic banks and ratings agency Moody’s, Swedbank’s (OMX: SWED A) CFO Goran Bronner told Bloomberg representative that Swedish banks should not pay too much attention on Moody’s investors service because its analysis is outdated and backward looking. Danske Bank and other Danish banks have previously ditched the agency as it has given local banks far worse rating than its peers S&P and Fitch.

Denmark is also working to lessen the impact that credit ratings from the three firms may have as per rules against investing in institutions rated lower than some threshold as an example and to also impose sanctions on the credit agencies if they are round to be in violation of rules. Reuters was informed that Swedbank thinks it will maintain its current A2 credit rating but that Moody’s may downgrade other Swedish banks as it finishes its current round of investigation looking into over a hundred European financial firms. Bronner said that since the downgrades came to discussions, credit spreads have actually tightened instead.

Swedbank bests expectations, stays conservative

Swedbank (OMX: SWED A) reports a quarterly result of 3 425 million SEK for this first quarter of 2012. This is is more than 11% lower than last year but clearly higher sequantially. Returns on equity is 14%. Diluted earnings per share are at2.20 SEK. The numbers were above market expectations and the share has been hovering close to a 5% gain in first half of daily trading.

Core Tier 1 capital ratio as of 31.3.2012 prints at 15.9% according to Basel 2 rules, while Basel 3 Tier 1 capital ratio stands at 14.9%. The ECB liquidity boost helped drive profits at the start of the year but concerns renewed towards the end of the quarter. Swedbank continues to prepare for the weak macroeconomic scenario of a European wide recession and is cutting costs by 1 billion in 2012.

Swedbank's full-year results out

Swedbank (OMX: SWED A) bested expectations with 11.7 billion annual result. Fourth quarter result was affected by a near 2 billion kroner write-down of goodwill on Latvian operations. That pushed fourth quarter after tax profit below 1 billion. Net interest income was near 5 billion and total income around 8.5 billion in Q4 (on Q4 2010 revenue was just below 8 billion).

Full-year EPS was 9.52 SEK and return on equity 12.2%. The Board of Directors proposes a 5.30 SEK dividend. This is a large increase compared to 2010. Dividend policy is to pay out 50% of the profit per year.

The Board has decided to withdraw the current long-term capital targets (Tier 1 capital ratio of at least 10%, with at least 13% until 2013). A new policy will be decided as the situation stabilizes. The Board’s current feeling is that long-term target for core Tier 1 capital ratio will need to be revised upwards to 13.5-14.5 percent range. The bank is above that at the moment with Basel 2 Core Tier 1 capital ratio of 15.7% at the end of the quarter.

Swedbank managed a scary potential bank-run in Latvia during the quarter by longer opening times, continuous filing of ATM’s and an active participation in the social media. The situation stabilized in two days.

The base scenario in the bank’s internal planning is that of a recession in Europe. Therefore the bank aims to reduce costs in 2012 by around 1 billion Euros excluding variable staff costs. The bank feels it got restructuring done ahead of the curve and is well positioned for the future. The stock is trading flat just above 105 SEK ahead to the close.

Largest companies in Stockholm stock exchange

Newspaper Dagens Industri noted the fact that after a poor fourth quarter performance and subsequent fall in the stock price, Ericsson has dropped out of the podium when the largest companies in Swedish stock exchange are listed. Engineering firm Alfa Laval rises to replace it at number 3. Clothing retail giant H&M is far ahead of the field with Nordea Bank coming in at number 2.

Top 10 consists of mainly banks and engineering companies. Firms that have their primary listing elsewhere such as AstraZeneca and ABB aren't included. Here is the current list as compiled by the newspaper (market cap in SEK/billions, excluding unquoted shares such as H&M class A):

1. H&M 327,3
2. Nordea Bank 239,8
3. Atlas Copco 199,2
4. Ericsson 198,8
5. TeliaSonera 196,5
6. Volvo 194,2
7. Sandvik 125,9
8. Svenska Handelsbanken 126,4
9. Swedbank 114,3
10. Skandinaviska Enskilda Banken 95,3

Queues on ATM’s in Latvia after rumours on Swedbank

Some Swedbank (OMX: SWED A) customers in Latvia have been spooked by rumours on the financial state of Swedbank. The rumours seem to have initiated in the Russian speaking social media on Friday. At the time of writing this, the mainstream media has picked it up and tweets claiming of a ’bank run’ taking place stream continuously in Twitter. Aftonbladet said some customers were panicking and showed pictures of a handful of people in lines ready to cash out.

The savers in Latvia are still vigilant from the collapse of Latvijas Krājbanka this November. Swedbank is the largest bank in Latvia with around 25% market share. Latvian financial regulator FKTK dismissed rumours as groundless and said customers need not worry about the financial situation of the bank.

Just last week Swedbank was upgraded to A+ by S&P and Sweden’s financial watchdog Finansinspektionen said on Thursday that based on the new capital buffer requirements from The European Banking Authority (EBA), the need for new capital for Swedbank and Handelsbanken had disappeared. This renewed investors’ hopes, that dividends may not be gone after all.

Changes involving Nordic firms in STOXX indices

European index specialist STOXX Limited completed an annual review of its Blue-Chip indices. Finnish mobile phone manufacturer Nokia (OMX: NOK1V) will be removed from STOXX Europe 50 Index as it is still down 40% for the year despite a little bit of a rebound in recent days.

There are also some changes in STOXX Nordic 30 Index with Skanska (OMX: SKA B) and Vestas Wind Systems (OMX:VWS) being taken out to be replaced by Swedbank(OMX: SWED A) and Seadrill (OSE:SDRL, NYSE:SDRL). The changes will take effect on September 19th.

Another positive Swedish banking sector report from Swedbank

Swedbank’s (OMX: SWED A) second quarter result amounted to 3452 billion SEK and return on equity was 14.4%. Both numbers are down slightly from last year. CEO Michael Wold was happy with continued improvement in credit quality and net interest income growth. He feels that this strong report allows increased focus on returns and Swedbank is guiding for gradual improvement in profit.

Basel II core Tier 1 capital ratio was 14.8% and Tier 1 capital ratio 16.1%. The same numbers according to transition rules were 10.1% and 11.0% respectively. Liquidity reserve was increased to over 200 billion. Swedbank is up 3% two hours into the trading session. Full interim report is available here.

Nordic banks pass stress tests

European Banking Authority has published results of the 2011 EU-wide stress tests for 90 banks in 21 countries. All 10 Nordic banks involved in the latest stress tests passed comfortably. They were Nordea Bank (OMXS: NDA, OMXH: NDA1V), Skandinaviska Enskilda Banken (OMX: SEB A, STO: SEB C), Svenska Handelsbanken(OMX: SHB A) and Swedbank(OMX: SWED) from Sweden, Danske Bank (OMX: DANSKE), Jyske Bank (OMX: JYSK), Nykredit Bank and Sydbank (OMX: SYDB) from Denmark, DNB NOR (OSE: DNBNOR) from Norway and Pohjola Bank (HSE: POH1S) as a part of OP-Pohjola group from Finland.

Eight banks were below 5% Core Tier 1 T capital threshold and sixteen banks between 5% and 6% CT1R. EBA is formally recommending national supervisory authorities to require those banks under 5% CT1R to promptly remedy capital shortfall. Those failing the tests were all small banks. Five of them are in Spain, two in Greece and one in Austria.

While stricter than the tests last year, these tests have been also been blamed too soft and authorities are worried markets will view the fact that the tests do not include Greek default provision as a reason to panic. Also some have worried about the great detail that banks are revealing about their specific exposures to provide bad incentives. More information is available here.