Swedbank CEO Defends 75% Dividend Pledge After Nordea Backtracks

  • Birgitte Bonnesen says she’s also committed to 15% ROE goal
  • Dividend goal is most ambitious among Sweden’s 4 top banks

One month after becoming chief executive officer of Sweden’s biggest mortgage lender, Birgitte Bonnesen is promising shareholders they will remain the best paid among investors in Sweden’s top four banks.

Swedbank AB is committed to its target of returning three quarters of profits to shareholders in the form of dividends, Bonnesen said in an interview at the bank’s headquarters on Monday. It’s a level from which Nordea Bank AB recently shied away, with its CEO Casper von Koskull characterizing the pledge as a “mistake” in the current environment.

Swedbank also will stick to its goal of returning about 15 percent on its equity, Bonnesen said. “They are ambitious targets but why shouldn’t we?”

Bonnesen was named CEO in April after taking the job on an interim basis two months earlier following the dismissal of Michael Wolf. He left the bank amid allegations of insider trading, of which he was subsequently exonerated. Though Swedbank’s shares sank the day Wolf’s departure was announced, on Feb. 9, the stock has since risen about 10 percent.

“We are the retail bank of Sweden and the three Baltic countries. Why shouldn’t we have high ambitions?,” Bonnesen said. “I think that this has been good for the bank and this is something that we can show some pride in.”

Swedbank has one of Europe’s highest common equity Tier 1 capital ratios. That, combined with what the bank describes as a low-risk balance sheet, stable earnings and an operating environment with subdued growth, allows it to sustain a more generous payout policy than competitors.

Nordea, Scandinavia’s biggest bank, abandoned its target of distributing “at least” 75 percent of profits to shareholders in January amid increasing regulatory burdens. It now describes its policy as an “ambition” to ensure dividends grow each year. Von Koskull said at the time that Nordea “made a mistake to actually define it as a payout ratio because the reality” for banks is that capital levels “are determined first of all by the regulators and the capital requirements.”

The main threat to Swedbank’s targets stems less from its capital position, balance sheet or earnings, according to Gregori Karamouzis, the bank’s head of investor relations. Instead, the bank may opt to steer cash away from shareholder rewards and into growth if lending demand should suddenly pick up, he said.

“If you can actually choose to grow a little bit more, do profitable business, we might need to lower the dividend payout ratio at some point, but we feel our long-term investors will understand and embrace it and think ‘you’re actually creating EPS growth for us so we don’t need to get all that money back,”’ he said.

Swedbank will probably raise its dividend payment for 2016 by 12 percent to 12 kronor a share from the 10.7 kronor paid for 2015, according to Bloomberg BDVD estimates. Nordea’s dividend is expected to increase by 3.1 percent to 0.66 euro from 0.64 euro.

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