SEB Tops Estimates, Warns Capital Rules May Hurt Growth

July 14 (Bloomberg) -- SEB AB, Europe’s third-best capitalized major bank, reported second-quarter profit that beat estimates on higher fee and commission income and warned that Sweden’s stricter capital regulation may hamper growth.

Net income advanced to 4.17 billion kronor ($614 million) from 3.79 billion kronor a year earlier, the Stockholm-based bank said in a statement today. That beat the average 4 billion-krona estimate of 12 analysts surveyed by Bloomberg. SEB’s common equity Tier 1 ratio rose to 16 percent at the end of June compared with 15.7 percent at the end of March.

SEB and peers Nordea Bank AB, Svenska Handelsbanken AB and Swedbank AB are subjected to some of the world’s strictest capital rules. That has helped the lenders become the best capitalized major banks in Europe. SEB today warned that those rules may hurt growth and banks’ ability to support the economic recovery in Sweden.

“We need to be profitable with a robust financial position so that we are not forced to pull back on lending in times of more subdued economic development,” SEB’s Chief Executive Officer Annika Falkengren said. “That would amplify cyclicality. Over the long term, the absence of a level playing field for the Swedish banking system in comparison to its European peers risks having a negative effect on real growth.”

Reviewing Targets

SEB said today that it targets a dividend that is 40 percent or more of earnings per share, a common equity Tier 1 ratio under Basel III rules of 13 percent and a return on equity “that is competitive with peers.” In the longer-term, the bank aims for a return on equity of 15 percent, it said. The bank will review its financial targets once all new capital rules are in place, Falkengren said at a press conference today.

Net fee and commission income rose to 4.21 billion kronor in the second quarter from 3.81 billion kronor a year earlier, beating the 3.86 billion-krona estimate. Net interest income advanced to 4.94 billion kronor from 4.68 billion kronor, in line with estimates.

SEB shares rose as much as 1.8 percent to 91.25 kronor in Stockholm trading, and advanced 0.4 percent to 90 kronor as of 9:44 a.m. local time. Trading volume was at 26 percent of the daily average in the past three months.

To contact the reporter on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net Kati Pohjanpalo, Kim McLaughlin