Biggest Swedish Banks Seen Paying Owners 18% More in Equity Glut

Sweden’s biggest banks are set to raise ordinary dividend payments by an average 18 percent this year after building up more regulatory capital than they need.

The Bloomberg dividend forecast follows second-quarter results at Nordea Bank AB, Svenska Handelsbanken AB, Swedbank AB and SEB AB, in which all four raised their capital buffers. Before the results, the banks were seen lifting dividends by 12 percent on average. Most of the change comes from Nordea, which BDVD estimates show will raise its payout by 40 percent.

Sweden’s four biggest banks have retained earnings and cut costs to comply with some of the world’s strictest capital rules. Their success in building up buffers means all four now exceed the local regulator’s latest requirements. Even after stepping up dividend payouts, the lenders will remain among Europe’s best-capitalized major banks.

Dividend forecasts for the banks rose after “capital ratios increased more than expectations” last quarter, Karl Morris, an analyst at Keefe, Bruyette & Woods Inc. in London, said in an e-mailed reply to questions.

Swedbank had a common equity Tier 1 ratio of 20.9 percent at the end of June, while Handelsbanken’s was 20.1 percent. SEB’s was 16 percent and Nordea’s 15.2 percent. The banks face capital requirements ranging from 14 percent for Nordea to 19 percent for Swedbank, the regulator said in May.

Profit Dynamics

Handelsbanken is set to hand out 12.5 kronor a share next year, according to Bloomberg forecasts, following an ordinary dividend of 11.5 kronor for 2013. SEB is seen lifting its payout to 4.5 kronor from 4 kronor while Swedbank will pay 11.1 kronor, versus 10.1 kronor for last year. Nordea’s payment will increase to 0.60 euro a share from 0.43 euro for 2013, according to Bloomberg estimates.

The BDVD forecasts include seven metrics, including regression and industry analysis, company guidance and analyst estimates.

Banks in Europe can’t rely on economic growth to generate bigger profits, according to Nick Anderson, an analyst at Berenberg in London. Nordea, Scandinavia’s biggest bank, has already adjusted its business, he said.

“By focusing on cutting costs and de-risking, i.e. the controllable, it is in a position to maximize cash flow for shareholders,” Anderson said in a July 21 note.

Wahlroos Target

Nordea Chairman Bjoern Wahlroos said in an interview in April that the bank will probably raise its dividend ratio to match the 75 percent of earnings delivered by Swedbank, from today’s target of more than 40 percent. Swedbank in January 2013 lifted its dividend target from 50 percent, making it the Nordic bank that distributes the biggest share of profit to its owners.

The Bloomberg forecast for Nordea’s dividend represents 67 percent of the average estimate for earnings per share for 2014, which is based on a Bloomberg survey of 22 analysts. For 2013, Nordea paid out 56 percent of net income.

“Nordea starts from a low payout and hopes to increase it to 75 percent as soon as possible,” Morris said. There’s reason to be “encouraged by the reported common equity Tier 1 ratio of 15.2 percent,” which “should allow the group to take a more constructive stance on capital distribution,” he said in a note after second-quarter earnings.

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