Handelsbanken Profit Misses Estimates After Fee Income Fell

  • Buys Dutch asset manager, with EU2 billion under management
  • Handelsbanken says it already complies with stricter RW rules

Svenska Handelsbanken AB reported profit that missed analyst estimates last quarter after fees and interest income fell.

Net income for the three months ending March 31 rose 3 percent to 4.04 billion kronor ($500 million), slightly lower than the 4.18 billion kronor estimated by analysts. Net fee and commission income slipped 6 percent while net interest income fell 2 percent.

Handelsbanken expects to reduce staff costs by as much as 700 million kronor annually from early retirements, starting in 2018. The bank took a one-time provision for the same amount last quarter, relating to the cuts.

Sweden’s banks face the prospect of negative central bank rates until 2018, eroding lending income and adding risk to their balance sheets by fanning an overheated housing market. The industry has so far relied on cost cuts as well as fees and commissions to sustain profits.

Investors welcomed Handelsbanken’s decision to address its branch-heavy strategy. Roy Tilley, an analyst at Arctic Securities, in Oslo, said the decision to reduce staffing, which will lead to the closing of as many as 60 branches over two years, is a “positive development.”

The bank’s growth strategy and large branch network had led to “quite a bit of cost inflation compared to peers,” Tilley said in a note.

Handelsbanken said on Wednesday it is buying Dutch asset management firm Optimix, which has about 2 billion euros ($2.3 billion) in assets under management, as the search for new revenue continues. But Moody’s Investors Service warns that a new wave of tougher regulations will target bank fees.

Sweden’s Financial Supervisory Authority last month ordered banks to adjust their risk-weight models for corporate loans. Handelsbanken said its capital level at the end of the first quarter already met future requirements should an average risk weight of 30 percent be applied to corporate assets. “However, the final formulation of the new capital regulations has not yet been determined,” the bank said.

The latest Swedish regulatory development puts capital levels at Handelsbanken most at risk, analysts at Citigroup said in March. The worst-case scenario leaves the bank with 1.5 percentage points less in common equity Tier 1 capital than the regulatory minimum, Citigroup had estimated last month. In a more benign scenario, the effect is zero, Citigroup said.

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