EUR 850.00 For Business Accounts Only

Morningstar | Swedbank's Shares Undervalued but Come With Very High Uncertainty

Swedbank is one of the largest retail banks in Sweden and the largest in the Baltic states. While its foundation is based in Swedish savings banks, a position that still benefits Swedbank today and is part of the rationale for our narrow moat rating for the lender, its dominant presence in the Baltics is owed to the acquisition of Hansabank in 2005. Since then, Swedbank has transformed both its Swedish and Baltic lending arms into highly efficient banking operations, taking advantage of economic growth in the Baltics, a booming real estate market in Sweden, and digitalisation initiatives to improve efficiency. As a result, Swedbank has transformed itself into the best-performing Swedish bank recently.All is not good, however. Reports of suspicious money flows as part of about EUR 135 billion in gross transactions from nonresident customers over the last decade, and more importantly the handling of said transactions, weigh heavily on the bank's short- to medium-term outlook. Not only does the bank face potentially substantial fines from regulators, the scandal takes focus away from Swedbank's core business and investments into the future.Next to the more direct impact of fines, Swedbank's operations in the Baltics are in limbo. Although management is adamant that the Baltics will remain core, this may not be Swedbank's decision alone. Danske, after winding down most of its Estonian operation amid its money laundering scandal, was required to close shop entirely by Estonian regulators. A similar fate could overcome Swedbank. We do not include such a scenario in our forecasts, given that it is unlikely for Estonia to push out all international banks as the country lacks national banks to support its economic development. But, uncertainty about Swedbank's place in the Baltics as well as its strategy going forward are high and will remain so at least until new leadership has been put in place.