Photographer: Jason Alden/Bloomberg

Bank Scandals And Buy Ratings Offer Reality Check in Sweden

  • Analysts look past Panama, CEO Firings when advising clients
  • Nordea, Swedbank have most positive ratings in at least 2 yrs

The two Swedish banks whose reputations have suffered most as a result of recent scandals are, as it happens, also the ones investors should covet.

Nordea Bank AB and Swedbank AB are both the best ranked Swedish bank stocks. Swedbank this year lost its chief executive officer following accusations of insider trading of which he was subsequently cleared. The bank’s chairman wasn’t re-elected and its chief financial officer is leaving. But 57 percent of analysts tracked by Bloomberg are advising clients to buy Swedbank shares, a bigger proportion than at any time since 2013.

Nordea’s alleged role in helping rich clients hide their wealth from tax authorities, revealed in the so-called Panama Papers, has provoked a media, political and regulatory storm. The government is considering stricter laws while the Swedish Financial Supervisory Authority is investigating Nordea, linking its probe to earlier money laundering charges. The proportion of analysts recommending that clients buy Nordea shares is at a two-year high of 47 percent, according to Bloomberg data.

Nordea’s shares have the potential to gain about 20 percent, according to average analyst estimates compiled by Bloomberg. The return potential for Swedbank is about 15 percent above its current trading price. Its shares slipped about 0.5 percent to 172.20 kronor as of 9:20 a.m. in Stockholm, while Nordea traded 0.6 percent lower at 77.45 kronor.

Investors are being urged to look past the scandal and instead focus on more traditional metrics like cost efficiency and capital adequacy.

Credit Suisse Group AG upgraded Swedbank to outperform from neutral on April 27. According to Jan Wolter, an analyst at the Swiss bank, clients have the opportunity to buy “a low risk retail bank with earnings growth driven by repricing and best-in-class capital, providing visibility on cash returns.”

At Nordea, investors should be reassured by the development on costs, asset quality and capitalization, according to SEB AB analyst Masih Yazdi. He reiterated a buy rating on the shares on April 28.

The analyst recommendations don’t reflect the damage done to both banks’ reputations. In a survey by Nordic Brand in April, the two lenders suffered the biggest blow. After the Panama documents were leaked, Nordea’s reputation score slumped to 32, compared with 52 before the leak. Swedbank’s fell to 41 from 53.

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