Svenska Handelsbanken AB rose the most in more than two years and SEB AB rallied in Stockholm trading after raising their dividends more than analysts had forecast and reporting fourth-quarter profits that beat estimates.
Handelsbanken gained as much as 4.8 percent, its steepest intraday advance since Nov. 30, 2011, and rose 4.1 percent to 321.6 kronor ($49.49) as of 12:20 p.m. Swedish time. SEB jumped as much as 4.7 percent, its largest intraday increase since July 15, and was up 3.4 percent to 87.20 kronor.
Handelsbanken, the best-capitalized major lender in Europe based on its core Tier 1 capital ratio, proposed increasing its dividend by 53 percent to 16.5 kronor a share, including an extraordinary payment of 5 kronor. It was projected to pay shareholders 11.5 kronor, according to Bloomberg dividend forecasts, which take into account seven variables including analysts’ estimates, company guidance and industry analysis.
SEB, Europe’s fourth-best capitalized bank, plans to raise its dividend by 45 percent to 4 kronor a share, higher than the projected 3.35 kronor.
Sweden has subjected its banks to some of the strictest capital rules in Europe and warned it may raise requirements further this year after property prices and household debt levels soared to records. Swedish banks already exceed the government’s 2015 capital requirement of a core Tier 1 ratio of 12 percent, fueling speculation they will return more money to shareholders.
Handelsbanken’s common equity Tier 1 ratio increased to 18.9 percent of risk-weighted assets at the end of last year under Basel III rules, from 18.8 percent on Sept. 30 and 16.4 percent at the end of 2012. SEB’s ratio increased to 15 percent on Dec. 31 from 13.1 percent at the end of 2012.
Handelsbanken Chief Executive Officer Par Boman said in an interview in Stockholm today that the bank is continuing to build capital and will hand out funds it can’t reinvest to shareholders. Still, “we always prioritize to reinvest our free cash flows in our own business, and when we have done that we consider the payout ratio,” Boman said. “That means that the dividend ratio has gone up and down also historically.”
While SEB reiterated a target for a dividend payout ratio of at least 40 percent of earnings per share, the bank said it aims to continue raising the amount of the payment in coming years.
“SEB has proposed a divided of 4 kronor, implying a payout ratio of 59 percent,” Nordea Bank AB analysts led by Rickard Henze said in a note today. “This is better than expected and better than last year’s payout ratio of 52 percent. Like Handelsbanken, SEB’s dividend is still not a new policy, but we are once again strengthened in our dividend estimates, which we expect to increase to some 80 percent in 2015.”
Handelsbanken’s extraordinary dividend was also better than expected, Nordea’s analysts said, adding that they “view the pay-out ratio of 73 percent to remain around these levels in the upcoming years as well.” Handelsbanken had a dividend payout ratio of 47 percent last year, the analysts said.
Handelsbanken’s fourth-quarter profit fell 18 percent to 3.53 billion kronor after costs increased, higher than the average estimate of 3.46 billion kronor in a Bloomberg survey. SEB’s net income jumped 31 percent to 4.22 billion kronor in the quarter as net interest and fee and commission income increased, beating the average estimate of 3.83 billion kronor in a Bloomberg survey of 11 analysts.
The banks join Swedish rivals Nordea Bank, the Nordic region’s largest lender, and Swedbank AB, the largest bank in the Baltics, in raising their dividends. Nordea proposed on Jan. 29 to increase its dividend by 26 percent to 0.43 euro ($0.58) a share, while Swedbank on Jan. 28 proposed raising its 2013 dividend by 2 percent to 10.1 kronor per share. Those banks’ dividends missed the average estimate in surveys by SME.