Capitalisation move by Swedbank gets official thumbs up

Peter Norman, Sweden’s Minister for Financial Markets, has given his backing to Swedbank’s weekend announcement regarding its Tier 1 capitalisation objectives and share buyback programme.

Norman (pictured) made his statement after Swedbank responded to comments last week about its ongoing committment to buying back shares. The programme was cleared by investors at the Annual General Meeting, up to a maximum of 10% of outstanding shares.

Swedbank previously set itself a target core Tier 1 capital ratio of 13%.

In the first quarter this year the ratio increased from 13.9% to 14.9%. However, in the second quarter it fell to14.8%, despite the bank spending SEK3.5bn (€380m) on buying back shares.

On Sunday the bank’s chief executive Michael Wolf said: “We have transformed Swedbank into a robust bank with a strong balance sheet. Based on the knowledge we today have regarding the macro economy and the risk level in Swedbank’s balance sheet, the decision regarding our repurchase programme remains.”

“Despite the buybacks, we make the assessment that our core Tier 1 capital ratio will be higher at the end of the year then it was at the beginning of the year. We continue to have one of the highest core Tier 1 ratios of all Swedish and European banks. I share the government’s view that we have a serious global debt crisis which will have effects on the banking system. We continuously review the conditions for our capitalization. If the risk level in the global economy increases, Swedbank will continue to act responsibly with society’s, our customers and owners best in mind.”

Responding to the statement, Norman said: “Swedbank has high ambitions on capitalisation. That is good. It is important for trust, for both individual banks and the banking sector, that a high level of capitalisation is secured. I assume that all banks are testing their activities in the context of the strength required in this uncertain situation.”

Swedish slowdown

The statements on Swedbank’s capitalisation come as economists at local competitor SEB published their latest Nordic Outlook. It is just the latest in a number of forecasts predicting a sharp slowdown in the country’s economy – infamously called a “Tiger” by minister for Finance Anders Borg earlier this year, when record 2010 GDP growth numbers were published.

This latest report particularly notes the risk to exports and consumption, and the danger that residential property prices could fall significantly.

“A cyclically sensitive export sector will contribute to limiting growth to 1.4% in 2012, subsequently rising slightly to 2.6% in 2013. Therefore, unemployment will stop falling in 2012, and level out at the troublingly high level of 7%.”

“The government’s latest economic outlook therefore looks to us as being far to optimistic over the longer term. In the short term, the playing field for [collective bargaining] has changed, which means that wage inflation will be 3.5%, half a percentage point lower than in our last Outlook. The credit and housing markets have slowed faster than expected. House prices are now expected to drop by up to 10% in the next two years, following a 200% increase since 1995.”

“History shows that the risk for house prices is downward, which also usually results in large consumption and growth consequences. Therefore, the focus of economic policy will end up being one of stabilising house prices, rather than cooling them.”

Although SEB does not say so directly, its reference to policy on house prices could be seen as a call to review the decision taken last year by market regulator Finansinspektionen – the Swedish Financial Supervisory Authority –  to introduce a maximum 85% loan-to-value cap on residential property loans. That policy came into effect in the fourth quarter of 2010, in what then was still considered a hot market for property.

 

 

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