Shareholder return takes center stage

RIGA - Sweden-based Swedbank is aiming for a return on equity of 15 percent, nearly twice what it achieved in 2010, as it tries to rebuild investor confidence after big losses during the financial crisis, reports Reuters. The Swedish lender, the biggest bank in the crisis-hit Baltic region, was back in the black in 2010 after reporting an operating loss of almost 10 billion krona (1.1 billion euros) in 2009.

Swedish banks reported strong fourth-quarter earnings, beating analyst expectations as sharply improved loan books led lenders like Swedbank to surprise with a substantial reversal of provisions for loan losses.
Swedbank and rivals SEB and Nordea have benefited from higher interest rates on the back of robust economic growth in Sweden, lower funding costs after an early rush to boost capital levels and better conditions in the economies of Latvia, Lithuania and Estonia. “We are fine now; we have done the sort of saving the bank part of the journey. We are now into the more difficult journey, i.e. to develop the bank and to drive returns,” Chief Executive Michael Wolf said at the bank’s capital markets day in the Swedish capital.

The bank is aiming for a 15 percent return on equity (ROE) target within its three-year planning horizon, driven by higher interest rates in Sweden, lower funding costs and new opportunities in retail banking. That is compared with the 8.1 percent it achieved in 2010.

Nordic banks have seen their profitability levels tumble to single digits or low teens from above 20 percent five years ago, when many of the region’s lenders went abroad in search of new revenues.
Swedbank believes the situation in the Baltics is at a real turning point, but has yet to see growth in lending volumes. The bank repeated its expectation that corporate lending would pick up in the months ahead, similar to forecasts from SEB and Handelsbanken.

Swedbank’s 3.4 billion krona fourth-quarter profit beat forecasts by over 20 percent with the biggest surprise a 483 million krona reversal of loan losses after a year-earlier loss of 5 billion krona. Analysts had expected 286 million kronas more in provisions in the latest quarter.

Reflecting its desire to restore investor confidence, the bank has been more aggressive than its peers about targets for returning cash to shareholders and about setting targets for capital levels. It plans to raise its pay-out ratio next year and hopes to start share buybacks by the second quarter.