Morningstar | Svenska Handelsbanken Reports Good Third-Quarter Results in Line With Expectations: FVE Maintained
Svenska Handelsbanken reported good third-quarter results in line with our expectations. On a year-to-date basis, total income increased to SEK 32.7 billion versus SEK 30.1 billion in the year-ago period. The biggest driving factors were higher lending volumes, up 8%, more than offsetting weaker margins while higher fund and asset management commissions counteracted lower brokerage income. Both net interest income and net fee and commission income increased 6% period over period, bringing in a combined SEK 31 billion versus SEK 29.2 billion last year. Despite higher staff and other expenses, operating profit grew a respectable 4% to SEK 16.7 billion on the back of flat net loan loss charges. After a lower tax charge, this translated to profits for the first three quarters of SEK 13.3 billion, up 8% year over year, resulting in a return on equity of 13.2%. Third-quarter performance viewed in separation was weaker at a ROE of 12.1%, however, as higher expenses offset larger income generation. We maintain our fair value estimate of SEK 121 and narrow moat rating.The bank remains well capitalized with a common equity Tier 1 ratio of 21.7% at the end of the third quarter versus a requirement of 19.6%. Considering the risk weight floor for Swedish mortgage loan exposures moving from Pillar 2 to Pillar 1 as of 2019, Handelsbanken calculated its common equity Tier 1 ratio ratio to stand at 16.7% versus a requirement of 15.1%. While this 160-basis-point spread is still healthy, we expect Handelsbanken to build up slightly more capital over the next year in lieu of the 50 basis points higher countercyclical buffer coming into effect in September 2019.
Handelsbanken is currently in the job market for a new chief executive officer after the current person at the helm, Anders Bouvin, has told his board that he wishes to retire in August 2019.
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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