Morningstar | Handelsbanken Reports 1H in Line With Our Expectations; Fair Value Maintained
Narrow-moat Handelsbanken reported first-half 2019 results largely in line with our expectations for the full year. Profit for the period was SEK 9 billion compared with our full-year assumption of SEK 17.5 billion. Cost development was a negative in first-half 2019, however. Excluding Oktogonen provisions for comparability, costs increased 10% vis-a-vis last year, of which 3.5% are related to one-off charges. The largest outlier were anti-money laundering, or AML, costs, which came in at SEK 252 billion. Although Handelsbanken is not currently known to be involved in the AML issues engulfing many of its Nordic peers, the bank was reprimanded and fined by regulators in the past for inadequate AML procedures. We will update our model with a slightly higher cost assumption for 2019 but we do not expect to change our fair value estimate materially as a result. Our fair value estimate is SEK 110 per share.In an effort to streamline its operation, refocus on its core strength and reduce its cost base, the bank has begun exiting countries outside its home markets in the Nordics, the United Kingdom, and the Netherlands. Branches in Estonia, Latvia, Lithuania and Poland will be the first to be scrapped through 2020. We think this is positive. Handelsbanken’s operations in these markets were subscale, which in tandem with increasing regulatory costs meant profitability was a herculean task. The group will also discontinue its export finance offerings and consolidate its trade finance operations from its home markets to Sweden.
Svenska Handelsbanken is a commercial bank for both private and corporate customers. Co. has six home markets: Sweden, the U.K., Denmark, Finland, Norway and the Netherlands. Co. has four business areas: Handelsbanken Capital Markets, which includes operations for investment banking, asset management, and also pensions and insurance; Stadshypotek, a mortgage provider; Forestry and Farming, which provides financial advice to forest owners and farmers; and Handelsbanken Direkt, which is engaged in business and product development of standardised banking services for the private and corporate market. At Dec 31 2013, Co. had total assets of SEK 2.49 trillion and deposits of SEK 825.21 billion.
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