Swedbank beats estimates as Q3 profit jumps 23 percent

Bloomberg

Swedbank AB’s profit jumped 23 percent in the third quarter, exceeding analysts’ expectations, as Sweden’s biggest mortgage lender generated more revenue while keeping impairments in check.
Net income in the three months through September reached 4.82 billion kronor ($541 million), compared with 3.93 billion kronor a year earlier, the Stockholm-based bank said on Tuesday. That was well above the average 4.17 billion-krona estimate of 14 analysts surveyed by Bloomberg.
The bank also exceeded estimates in building regulatory capital. At the end of September, Swedbank held common equity Tier 1 capital equivalent to 23.8 percent of risk-weighted assets, or 0.8 percentage points more than analysts had foreseen. The Swedish financial regulator set its requirement at 21.6 percent, it said.
Chief Executive Officer Birgitte Bonnesen said the results will allow Swedbank to “speed up the transformation to the modern bank we want to be, where customers can do all their daily banking in our digital channels.”
As a result, the bank forecasts total costs of 16.7 billion kronor in 2017 compared with 16.3 billion kronor in 2015 and 12.0 billion kronor in the first nine months of this year. Emphasizing what she characterized as a “cost-conscious culture,” Bonnesen said there are still areas where management wants to accelerate the rate of investment. Compensation to the savings banks Swedbank cooperates with is also likely to increase due to higher lending margins, she said.
Regulatory Environment
Sweden’s banks need to comply with some of the world’s toughest capital requirements. Svenska Handelsbanken AB said last week the 24 percent CET1 ratio it reported at the end of last quarter may not be enough to meet future regulatory demands. At the same time, the Swedish government is planning to enforce a financial tax that the industry warns will put about 16,000 jobs at risk. New tax rules making subordinated debt issuance costlier are also adding to the list of hurdles facing banks.
Bonnesen said the bank’s current capital buffer is adequate and at the level where it should be. Even though it well exceeds the requirement set by the financial regulator, Bonnesen said the bank doesn’t have too much capital.
“When we take into account what will come, and what we don’t have visibility on today, I think this is the level we need,” she said on a conference call with journalists. “We don’t have any excess capital.”
While Swedbank’s “strong result” in the third quarter could lead to a “mid-single digit” upgrade of the consensus view on the lender’s earnings per share, higher taxes could weigh on profit, Ronit Ghose, an analyst at Citigroup Inc. in London, said in a note.
Swedbank gained as much as 2.1 percent in Stockholm trading, and rose 0.7 percent to 207.1 kronor as of 9:16 a.m. Swedish time. The stock has gained 11 percent so far this year.
Net interest income rose 4 percent to 6.06 billion kronor, beating the average estimate of 5.85 billion kronor. Net fee and commission income also gained 4 percent, to reach 2.84 billion kronor, while analysts had expected 2.74 billion kronor, on average. Credit impairments were significantly smaller than expected, at 201 million kronor, compared with an estimate of 501 million kronor.