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WRAPUP 2-Nordea, Handelsbanken capital buffers swell in solid Q2
July 17, 2013 / 2:57 PM / 4 years ago

WRAPUP 2-Nordea, Handelsbanken capital buffers swell in solid Q2

* Nordea Q2 profits in line at 1.05 billion euros

* Handelsbanken op profits top forecasts at 4.72 bln SEK

* Core tier one ratios rise

* Banks face renewed capital focus due to regulations (Adds quotes, details)

By Mia Shanley and Oskar von Bahr

STOCKHOLM, July 17 (Reuters) - Nordic banks Nordea and Handelsbanken reported solid second quarter earnings and improved capital bases on Wednesday, helped by signs of a recovery in consumer demand and business investment.

Helped by a relatively robust set of Scandinavian economies and past efforts to reform the Swedish sector, the banks are among Europe’s strongest and have escaped some of the problems lenders have faced since the 2008 financial crisis.

But amid a renewed global push to ensure banks are more responsible, they are under pressure from local regulators to show that they have not been over-optimistic in assessing the risks to the loans they have issued.

Nordea, the region’s biggest bank, posted quarterly earnings largely in line with expectations while profits at Handelsbanken, the second biggest by market value, rose a forecast-beating 7 percent.

Nordea, hit by losses in a struggling shipping sector and a burst property bubble in Denmark, said the quality of its loan book had improved and that it had been helped by improvement in shipping - a major business for it.

Business in Denmark is expected to be helped by more stable housing prices and stronger consumer confidence and the Swedish recovery was also gaining traction although credit demand has been soft as consumers remain cautious, it said.

“We are seeing a light at the end of the tunnel,” said Lennart Jacobsen, head of Nordea’s Swedish retail business.

“At some point in time we expect that consumption will start to take off.”

The bank’s more optimistic tone followed bullish comments from corporate-focused peer SEB, which said on Monday that companies were starting to sign off on long-awaited investment deals.

SEB beat all earnings forecasts for the second quarter and Handelsbanken and Nordea both reported rises in their core Tier 1 capital ratios - a measure of financial strength - to 17.8 percent and at least 14 percent respectively, well above the average for large European banks.

“The general focus has been on capital, and everyone (in the region) is coming out with strong capital figures,” said Matti Ahokas, an analyst at Handelsbanken who covers Nordea. “This bodes well for dividend payouts for 2013 and the coming years. Nordea is joining the list of over-capitalised banks.”

Nordic bank shares have risen 22 percent this year against a 4 percent rise in the European banking index.

MEASURING RISK

There have been hopes Swedish banks would start offloading some surplus capital via special dividends or share buy-backs, given how robust their capital position has looked.

But increased scrutiny from regulators over how Handelsbanken and others calculate their risks has thrown some doubt over when and how much they can return to shareholders.

After the initial push under the Basel III reform to get banks to put aside more capital, regulators worldwide have grown increasingly suspicious that lenders have been underestimating the risk on particular loans - inflating how much high quality capital they appear to hold.

The most recent move in this respect by regulators in Sweden and Norway has been to seek a floor on how little percentage risk banks can apply to their mortgage portfolios - respectively minimums of 15 and 35 percent in the two countries.

Handelsbanken - which has some of the lowest risk weights in Europe on corporate loans, largely due to a conservative approach in the past - says the Swedish decision to do so will entail a capital requirement of about 7 billion crowns ($1.1 billion). Norway is still considering the move.

Nordea has also been busy reassessing its capital position to take into account the potentially tough requirements from Norway. It is also still awaiting official approval of models used for its corporate loan book that were originally expected to be approved in the second quarter. The bank said on Wednesday that could take a few months more.

The other of Sweden’s four big banks, Swedbank, said this week it would probably have to hold 15 percent core tier one capital, at the top end of a previous plan for 13 to 15 percent. It is also waiting for a green light from the regulator on its risk models and has said an approval could free up several billion for shareholders.

Nordea’s operating profit for the second quarter was 1.05 billion euros ($1.38 billion), just above a mean forecast for 1.04 billion seen in a Reuters poll.

Handelsbanken’s operating profits in the quarter reached 4.72 billion Swedish crowns ($714 million), topping a mean forecast for 4.45 billion seen in a Reuters poll of analysts and compared with 4.41 billion in the year-earlier period.

$1 = 6.5815 Swedish crowns Editing by Alistair Scrutton and Patrick Graham

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