Swedbank in crisis

  • 2008-10-08
  • By Matt Withers

SAVING GRACE: Sweden's Riksbanken may be Swedbanks only option for help if the economic and financial situation continues to worsen.

TALLINN - With its stocks plummeting, its long-term credit rating downgraded and loans facing expiry, Swedbank has moved to reassure depositors of its credit worthiness.
On Oct. 2 the bank assured its Swedish depositors they would be covered by the state deposit guarantee scheme, which gives compensation of up to 250,000 Swedish kronas (403,825 kroons or 25,804 euros).
This gives little comfort to customers in the Baltics. The Estonian, Latvian and Lithuanian deposit guarantee scheme offers a much lower maximum compensation 's 90 percent of deposits up to 20,000, 15,000 and 22,000 euros respectively.

Swedbank's shares tumbled an alarming 19 percent on Sept. 29. Compounded with previous depreciations, the bank's value has halved over the course of the year. The bank's poor performance on the stock market is widely attributed to hefty investments in the precarious Baltic economies.
Indeed, the ratings agency Standard and Poor's cited the company's involvement in the Baltics as their reason for lowering the bank's long-term credit rating from A+ to A. The ratings giant, who made the announcement on Oct. 3, noted that the outlook remained negative.

In addition to these worries the bank is also left searching for lenders, as current loans of 300 million Swedish kronas are set to expire later this year. As the financial market is largely gridlocked the bank may be forced, for the first time, to turn to the Swedish central bank, the Riksbanken.  
"If the situation worsens and the loan market will be completely locked, we can always turn to the Riksbanken. I have to remind people that several European banks have done this," said Johannes Rudbeck, head of investor relations at Swedbank.

Like other Swedish banks, Swedbank is finding it hard to secure long-term financing. Yet in contrast to more established banks, Swedbank is perceived as being more susceptible, due to its shorter funding profile and a lower ratio of tier one capital.
While it appears that Swedbank's CEO Jan Liden has a lot on his plate, it appears that consumer confidence is the real issue, as the bank's profitability remains high. Stefan Ingves, head of the Riksbanken, asserted that like other Swedish banks Swedbank was in sound financial shape.

"What we can note is that Swedbank has a good capital base and good profitability and very low loan losses, as is true for Swedish banks in general," Ingves said at a conference.
Earlier this year Swedbank announced first half profits of 6.5 billion Swedish kronas, the bank's best ever performance.