EUR 169.49 For Business Accounts Only

Swedbank (Sell, TP: SEK192.00) - Profitability likely to have peaked

Our 2018–2019 EPS estimates are unchanged, and we reiterate our SEK192 target price and SELL recommendation. We see potential risks to earnings expectations and investor sentiment from further margin pressure in Swedish mortgages, negative short-term revisions owing to raised cost estimates, falling Swedish house prices and a slowing Swedish economy, and depressed customer satisfaction. Q3 review. Swedbank reported good Q3 results, in our view, with ROE at 16.0% (adjusted for one-off impacts including a SEK200m release of earlier restructuring reserve), helped by seasonally strong commissions in payments and strong asset management fees. NII increased by 1% QOQ, driven by a 5% QOQ improvement in Baltic Banking, while NII from treasury continued to decline as the USD funding arbitrage has been reduced. The CET1 ratio increased by 70bp QOQ, to 24.3%, 280bp above the minimum requirement. Some AML granularity provided, but concerns likely to remain for some time. Swedbank provided new data showing that its share of non-resident clients in the Baltics has been fairly stable at c1% in the past decade. The Estonian central bank’s recently published data of banks’ market share of cross-border payments puts Swedbank at 20–30% in 2008–2009, which is large but not abnormal in relation to Swedbank’s overall market share in the country.