Brexit Fans Worst Handelsbanken Selloff Since 2009 on U.K. Plans

As investors dump their shares in Svenska Handelsbanken AB, the Nordic bank with the biggest ambitions in the U.K. says the country’s decision to leave the European Union won’t affect its plans there.

Handelsbanken fell more than 10 percent on Monday, marking the steepest decline in its share price since February 2009.

But the lender says it still sees “strong demand” from U.K. customers for everyday banking services and products.

“Our customer business will not be affected by the U.K.’s decision to leave the EU,” Johan Wallqvist, a spokesman for Stockholm-based Handelsbanken, said in an e-mailed response to questions on Monday. He also noted that Handelsbanken operates as a local bank in the U.K., with income and costs both booked in pounds.

Handelsbanken has some 200 branches throughout the U.K. following a rapid expansion in recent years. It derives about 10 percent of group profits from the U.K. But analysts and credit rating companies have voiced concerns about Handelsbanken’s ability to cope with the fallout of last week’s referendum.

Swedish markets were closed on Friday. But on Monday, Handelsbanken was the biggest decliner on the OMX Stockholm 30 Index, losing 10.5 percent as of 2:02 p.m. in Stockholm.

Citigroup Inc. analysts Ronit Ghose and Yafei Tian cut their Handelsbanken rating to sell from neutral in a June 26 note, saying its growth rate in the U.K. could now slow down significantly. The bank is “also yet to be tested” should the U.K.’s credit cycle turn. They cut their 2016-2018 earnings-per-share estimates by 2-4 percent on slower U.K. growth.

Handelsbanken, which has a branch structure in the U.K. through so-called passporting, may also need to operate the division as a subsidiary after a British exit from the EU. That would lead to increased operational costs as well as potentially higher capital requirements and funding costs as wholesale funding may need to go through a U.K. subsidiary.

Moody’s Investors Service said earlier in June that Handelsbanken could see the value of its U.K. assets take a hit in a way that would disrupt its expansion there. If Brexit leads to a stark, prolonged, depreciation of the pound versus major currencies, including the Swedish krona, there would be a negative impact on the income that Handelsbanken repatriates from the U.K., according to Andrea Usai, an analyst at Moody’s. The pound is down more than 7 percent against Sweden’s krona since June 23.

“In addition, the value of the assets, liabilities and capital could obviously change,” Usai said. A deterioration in U.K. operating conditions, albeit moderate, could also reduce the pace of the bank’s growth there, Usai said.

While Handelsbanken doesn’t see Britain’s exit from the EU hurting its U.K. customer operations, Wallqvist said the decision “may have far-reaching consequences on the financial markets,” though it’s too early to say how that will play out.

“Handelsbanken is used to running banking operations outside the EU,” said Wallqvist. “For many years, the bank has had operations in more than 20 countries worldwide, which have been adapted to local laws and regulations.”

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