Swedbank's Wolf Guards Capital Buffer as Debt Woes Roil Europe

Swedbank AB Chief Executive Officer Michael Wolf said the bank’s priority is to maintain a “significant” capital cushion to ensure access to funding until concerns roiling European debt markets diminish.

“There has been a lot of noise on the debt issues in Ireland and other countries, but we were able to fund ourselves nicely throughout the fourth quarter,” Wolf said in an interview at Swedbank’s headquarters in Stockholm yesterday. “We have a very strong balance sheet, a good funding situation and we’re basically in control of our own destiny.”

Swedbank was the only one of Sweden’s four biggest banks forced to use state guarantees to raise money during the global financial crisis as its losses mounted in the Baltic nations, where the company is the biggest lender. While that region’s crisis is “clearly behind us,” Wolf said, markets remain “choppy” following European Union bailouts of Greece and Ireland and amid concern Portugal and Spain may be next.

“We want to be in a position of strength to make sure we can always access the funding market,” said Wolf. “Until we have more predictability on what’ll happen with these countries, you will see us be very prudent on the core Tier 1 ratio to make sure we have options. Over the long-haul, this is a very high level and wouldn’t be necessary in a normal market situation.”

Swedbank’s core Tier 1 capital ratio, a measure of financial strength, stood at 13.4 percent at the end of the third quarter. Under the Basel III rules for banks, the ratio would drop to about 13 percent, compared with the 7 percent minimum set by regulators, Wolf said.

Share Rebound

Swedbank was the Swedish lender hit hardest by the economic crisis after the Baltic countries suffered the steepest recessions in the European Union in 2009, resulting in a full- year loss. The bank relied on government guarantees for funding until July 2009 and was forced to raise a total of 27.5 billion kronor ($4.1 billion) in two separate share sales during the financial crisis to replenish capital.

As a result, Swedbank was the seventh-worst performer on the Bloomberg Europe Banks and Financial Services Index between the collapse of Lehman Brothers Holdings Inc. on Sept. 15, 2008, and early March 2009, slumping 78 percent. Since then, the lender’s stock has been the best performer on the 48-company index, increasing more than five-fold to 98.95 kronor. Wolf took over as CEO on March 1, 2009.

‘Be Humble’

Swedbank raised 40 billion kronor in long-term funding in the third quarter of last year and a total of 300 billion kronor between September 2009 and the same month in 2010, according to information in the Stockholm-based bank’s third-quarter report.

“For us it is most important to ensure access to the funding markets,” Wolf said. “I feel strongly comfortable at 13 percent and I don’t think we need to be higher than that. There are a lot of uncertainties and we need to be humble.”

The Group of 20 nations in November endorsed Basel III, which will more than triple the highest-quality capital, such as shareholders’ equity, that banks must hold as a cushion against losses. Basel III rules are scheduled for full implementation by 2019.

“Nordic banks are the best capitalized banks on a Basel III basis in Europe and they have a relatively low exposure to the peripheral European debt crisis,” Andrew Lim, head of financials research at Matrix Corporate Capital LLP in London, said. “They are in a position to return more capital.”

‘Big Question Mark’

Swedbank skipped a dividend in 2009 and 2010 to boost reserves, and is forecast to pay out a 0.5 krona dividend to its shareholders for 2010, according to data compiled by Bloomberg. Nordea Bank AB, Svenska Handelsbanken AB, and SEB AB, the three largest Swedish lenders by market value, are expected to increase dividend payments to shareholders compared with last year, the data show.

Swedbank returned to profit in the first quarter of last year and was profitable at its Baltic operations in the third quarter for the first time since late 2008 after loan losses in Estonia, Latvia and Lithuania abated. Economic growth in Sweden probably reached 5.3 percent last year, and may amount to 3.3 percent in 2011, according to Swedbank forecasts released yesterday.

“Our markets are on a good footing with a good trend,” Wolf said. “The big question mark is the implicit effects of the global economy and how that will develop. The resilience of the bank is extremely strong.”

To contact the reporters on this story: Adam Ewing in Stockholm at aewing5@bloomberg.net. Niklas Magnusson in Hamburg at nmagnusson1@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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