Swedbank Declines as Dividend, Profit Miss Analyst Estimates

Swedbank AB, the Nordic lender that pays out the biggest share of profits to shareholders, fell the most in more than 10 months in Stockholm after its proposed dividend and fourth-quarter profit missed estimates.

Swedbank dropped as much as 2.9 percent to 194.9 kronor, its steepest intraday decline since March 20, and lost 1.2 percent at 10:38 a.m. in the Swedish capital. Trading volume was half the daily average of the past three months.

Swedbank proposed distributing 11.35 kronor a share to its owners for 2014 compared with 10.1 kronor a year earlier, missing the 11.5 krona Bloomberg BDVD estimate, which takes into account factors such as company guidance, financial analysis and analyst estimates. The bank raised its payout-ratio to 75 percent of profit from 50 percent in 2013 to become the Nordic bank that pays out the most to shareholders.

“Our capitalization is still strong with large buffers to withstand economic downturns,” Chief Executive Officer Michael Wolf said in the statement. “There is still some uncertainty about capital regulations, mainly on an international level -- we expect they will be clarified for the most part in 2015. The dividend policy remains firm.”

While the bank’s common Equity Tier 1 ratio rose to 21.2 percent in the fourth quarter, from 20.7 percent at the end of the third quarter, Wolf told reporters on a conference call that Swedbank can’t say it currently has excess capital as there’s still some ambiguity on future rules.

International Effort

“An international effort is underway regarding future capital requirements for banks,” Swedbank said. “Due to uncertainty about the specifics of the new regulations as well as how and when they will be implemented, it is still too early to draw any conclusions on the potential impact.”

Sweden’s banks have been raising dividends after building capital buffers that exceed the country’s stricter regulatory requirements. Nordea Bank AB, the Nordic region’s largest lender, on Jan. 28 proposed raising its dividend by a larger-than-expected 44 percent to 0.62 euro a share.

Swedbank reported fourth-quarter net income of 3.8 billion kronor ($457 million), which missed the average prediction of 4.15 billion kronor of 10 analysts surveyed by Bloomberg. Total income of 9.38 billion kronor in the period missed the average analyst estimate of 9.79 billion kronor as net gains and losses on financial items at fair value declined 85 percent to 69 million kronor from a year earlier.

Margin Squeeze

Lower-than-expected revenue shows “that the increase in commission generation in the case of Swedbank has not been able to offset the deposit margin squeeze,” Kepler Cheuvreux said in a note to investors today. Net financial items were “well below expectations and shows the hedged impact of the deposit margin pressure following the Swedish rate cuts last year down to zero.”

Sweden’s central bank in October lowered the repo rate to zero to try to fight deflation. While maintaining the key rate at that level in December, the Riksbank postponed the first rate increase until the second half of 2016 in its forecast.

Swedbank said net gains and losses on financial items at fair value increased at its large company division while the group treasury’s net result “decreased mainly due to higher covered bond repurchases and negative valuation effects caused by increased credit spreads.”

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