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Morningstar | SEB Reports Full-Year 2018 Results; Loan Volume Growth and Baltics Bright Spots

Skandinaviska Enskilda Banken closed its books for 2018 with an operating profit before special items of SEK 22.8 billion, up about half a percentage point compared with last year. This rather uninspiring full-year result comes on the back of net financial income and net other income declines more than offsetting solid growth of 6% and 4% for net interest income and net fee and commission income, respectively. Loan volumes were up by SEK 159 billion to SEK 1.6 trillion in total, largely due to good growth in volumes to non-financial corporations, while deposits growth of SEK 76 billion was more homogenously spread among corporations and households. Expenses were contained below management’s target of SEK 22 billion for the full year, keeping SEB’s cost-to-income ratio below 50%. We maintain our SEK 96 per share fair value estimate and no-moat rating.

Healthy activity in mergers and acquisitions as well as higher market volatility around the Swedish repo rate increase supported SEB’s largest segment, large corporates and financial institutions, to make up ground after a slow start of the year. Nevertheless, operating profit fell short of last year’s performance by about 1% at SEK 8.7 billion. Similarly, corporate and private as well as life and investment management could not surpass last year’s results. On a positive note, however, a strong macroeconomic environment, currency tailwinds, and higher customer activity lifted results in the Baltics.

SEB’s capital position is solid. Its common equity Tier 1 ratio sits at 17.6%, 270 basis points above capital requirements and higher than management’s buffer target of 150 basis points. In line with long-term financial targets of a dividend pay-out ratio above 40%, SEB plans an ordinary dividend of SEK 6 per share and an extraordinary dividend of SEK 0.50 per share, corresponding to a pay-out ratio of 61%.