Banks in Sweden Exit `Horrible' Months Hoping Worst Is Now Over

  • Nordea CEO says markets are `coming back' from Sept. low point
  • SEB's Falkengren says cautious approach is still palpable

The people running Sweden’s biggest banks say the awful months they’ve just been through are giving way to a less punishing environment in which investment banking and trading operations are set to improve.

“We had a horrible September -- and I am talking markets and equities -- and of course a lot of that is coming back in October, so that is a good indicator,” Nordea Chief Executive Officer Casper von Koskull said in an interview during a banking conference in Stockholm on Wednesday. There’s “no doubt” that October was a better month than September.

Nordea’s net income fell 17 percent last quarter, as most revenue streams suffered. SEB’s profit plunged 38 percent and Swedbank’s sank 14 percent. Handelsbanken did best, recording only a 4 percent decline. The combination of negative interest rates, weak corporate demand for financing and market losses that eroded fee income proved a poisonous cocktail, and investors responded by driving down the banks’ shares.

But that may have been the low point.

“The risk level has gone down and it feels a bit more stable,” Swedbank CEO Michael Wolf said in an interview while attending the same conference. “We see more rights issues, more IPOs. I would say it’s calmed down a bit, even if the world around us is still a bit messy, with negative rates and so on.”

With negative rates in isolation costing them more than 1.4 billion kronor ($162 million) each quarter, Swedish banks estimated in July, the industry is turning away from traditional lending as its main revenue driver. Meanwhile, banks’ growing reliance on fee and commission income has made them more vulnerable to the vagaries of markets.

SEB Chief Executive Officer Annika Falkengren says her bank hasn’t seen much to indicate a proper turnaround yet. After a slow third quarter, “October has been at the same pace -- there isn’t any great deal of activity,” she said in an interview. Large companies are reluctant to commit funds to investments to expand their business, SEB’s third-quarter report showed. That includes fewer mergers and acquisitions.

“It’s important for all the banks to look at the things that chug along,” Falkengren said. “Perhaps not that much is needed for the companies to dare to do larger investments and deals, but the caution is still there.”

Small signs of improvement here and there don’t change the fact that the radiation from the financial crisis is still lingering in the air.

“We need to get past the debt crisis, and see global demand again, especially in the industrial companies,” Wolf at Swedbank said. “That’s what’s still missing.”

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