Europe’s Top Rated Bank Targets Rivals in Capital Markets Drive

Europe’s highest rated bank, Svenska Handelsbanken AB, is taking aim at rivals in debt underwriting to build up its capital markets division.

After sliding last year, operating profit at the unit rose through June for a second quarter. The turnaround at the Stockholm-based bank follows efforts to refocus the division, according to Chief Executive Officer Frank Vang-Jensen.

Frank Vang-Jensen
Frank Vang-Jensen
Source: Svenska Handelsbanken AB

“We have worked with it for a long time,” Vang-Jensen said in an interview on Friday. “During the first half of the year, we have seen a very fine development within debt capital markets and within core finance as well.”

The bank, whose AA credit grades at the three main ratings companies are matched only by three other lenders globally, last week reported higher-than-estimated second-quarter profits as trading income jumped on the back of market turmoil caused by the U.K.’s referendum on the European Union.

Capital markets operating profit at the bank climbed to 417 million kronor ($49 million) in the second quarter, up 32 percent from the end of 2015.

Profit hit the lowest level in two years in the fourth quarter amid a “squeeze on brokerage fees.” Return on capital allocated to the division -- an important consideration amid high buffer requirements -- plunged below zero, with negative interest rates exacerbating matters.

Vang-Jensen said some of the recent improvement is due to the market environment but the bank has also “worked heavily” to turn things around.

Handelsbanken has seen an “increase in our payment fees and we have seen, during the half year, a very fine development in advisory commissions, especially M&A and corporate finance and that type of business,” he said.

To be sure, the unit doesn’t have a large market share in the Nordic region. Bond issuance is led by SEB AB, Nordea Bank AB, DNB ASA and Danske Bank A/S, according to Bloomberg data. But an increase in the pace of issuance at Handelsbanken has propelled it to number eight, up five notches, and Vang-Jensen is keen to push it higher.

Handelsbanken moves up the rankings
Handelsbanken moves up the rankings

“We’ll do that as well in the future, with an aim to increase our commission income,” Vang-Jensen said. “Our market share when it comes to the U.K. and a lot of our countries in our home markets is not that high, so I don’t see why we can’t expand our business for the next many years to come.”

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