When Michael Wolf took over the helm of Swedbank AB in 2009, the bank suffered the biggest losses of any major Nordic bank and relied on government guarantees for funding. Today, it’s among Europe’s strongest.
The 49-year-old set off to boost capital buffers, cut risks and restore investor confidence in a bank seen as the least crisis-resistant in the country’s 2009 stress tests. That has given the Stockholm-based lender a head start over competitors before tougher capital rules come into force next year and made it the second-best capitalized in the European Union.
Swedbank was the Swedish bank hardest hit by the global financial crisis sparked by Lehman Brothers Holdings Inc.’s collapse in September 2008, as a credit-fueled housing boom in the Baltics turned to bust. Wolf’s approach, which has seen the share price soar more than sixfold since he took over, transformed the bank into the only Swedish lender seen posting profits in every year through 2015 under a scenario of stress.
“You could say that we started the journey building capital, extending maturities and building liquidity buffers far ahead of the new regulatory changes,” Wolf said in an interview in Stockholm on Dec. 4. “We took the cost very early on for building a bank that had capacity to meet stress.”
Within six months of Lehman’s collapse, Swedbank had lost more than 80 percent of its market value. Shareholders and other investors bolstered the bank with 15.1 billion kronor ($2.3 billion) in October 2009, following a 12.4 billion-krona injection completed in December 2008.
In his first year as CEO, Swedbank reported a net loss of 10.5 billion kronor as credit impairments soared in the Baltics, where Swedbank is the largest lender. Three years later, the central bank stress test on Nov. 28 showed the lender posting a combined profit of 6.2 billion kronor in the three years through 2015, while Svenska Handelsbanken AB, Nordea Bank AB and SEB AB were seen with at least one annual loss.
Swedbank’s core Tier 1 capital ratio, a measure of financial strength, was at 17.3 percent at the end of the third quarter. That’s the second highest in the 27-member EU after Swedish rival Handelsbanken. By comparison, Germany’s Commerzbank AG and London-based HSBC Holdings Plc had a Tier 1 capital ratio of 12.2 percent and 11.7 percent, respectively.
The lender also already exceeds the Swedish government’s new capital requirements -- or common equity Tier 1 capital ratios of at least 10 percent next year and 12 percent from 2015 -- two years ahead of time. It will still have surplus capital after new Basel III regulation and accounting rules and higher risk-weights on Swedish mortgage assets come into force.
“Swedbank was transformed into a conservative and overcapitalized bank with focus on cost control,” said Mads Thinggaard, an analyst at Nykredit Markets in Copenhagen with an outperform rating. “I cover eight Nordic banks and Swedbank is by far the greatest Nordic rebound story among them.”
Swedbank, SEB and Nordea in 2008 and 2009 were among the first European lenders to raise capital from their shareholders as a result of the global financial crisis, giving them headway to improving capital ratios and securing access to funding. Deutsche Bank AG presented plans for a capital increase in September 2010, while Commerzbank followed just months later.
Since Wolf took over, Swedbank shares have increased by more than sixfold, while Handelsbanken doubled in value. The shares have risen 39 percent this year, beating the Bloomberg Europe Banks and Financial Services Index’s 21 percent gain.
Still, future threats may be largely beyond Wolf’s control as European leaders struggle to contain the debt crisis, which has raised investor concern about a breakup of the euro area.
“Swedbank’s turnaround has been impressive,” said Hakon Fure, an analyst at DNB ASA in Oslo, with a sell rating. Still, “the continued economic uncertainties in the euro area are increasingly posing a risk. Earnings growth is set to stall.”
To Wolf, who had previously worked at debt collector Intrum Justitia AB, the lender will continue to focus on risks.
“It’s important that banks have a strong view on risks and that they focus less on volumes and market share because then it becomes a relative game and we’re not here to play a market-share game,” he said. “We’re here to help our customers do well and if they do well, we will do well and the banking system will be less of a concern for the society.”