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Thursday, April 24, 2008

Swedbank Profit Falls On Baltic Losses

Swedbank AB, the largest bank in the Baltic region, announced today that their profit in the first quarter of 2008 dropped by a little under 1 percent when compared with the first quarter of 2007 - basically on higher costs and increasing bad loans. Their shares fell following the announcement.

Swedbank net income dropped to 2.9 billion kronor ($494 million) from 2.91 billion kronor a year earlier, the Stockholm-based bank said in a statement today. Costs rose 13 percent to 4.44 billion kronor while loan losses almost gained sixfold to 288 million kronor, the bank said.

Swedbank gets about a third of its earnings from the Baltic states of Latvia, Lithuania and Estonia. These economies had previously been among the fastest growing in the European Union, driven in part by a credit boom that sparked concern that bad debt might increase significantly during the subsequent downturn. All three economies are all now slowing quite quickly, the Latvian economy may have entered recession in the last quarter of 2007 and the Estonian central bank recently loweed its 2008 GDP forecast to 2 percent.

Swedbank shares fell 4.1 percent to 162 kronor at 9:52 a.m. in Stockholm. They have lost 11 percent so far this year.

Net interest income, the difference between what the bank makes from lending and what it pays on deposits, rose 16 percent to 5.24 billion kronor. Fee income fell 4.7 percent to 2.18 billion kronor, because of a slowdown in mergers and acquisitions in Sweden and Norway, the bank said.

Net gains on financial items fell 86 percent to 75 million kronor, because of the ``continued credit crunch in financial markets,'' said Swedbank. The fair value of Swedbank Market's credit bond portfolio declined by 187 million kronor, it said.

Swedbank is currently expanding in Ukraine and Russia in an attempt to offset slowing growth in the Baltic states and it will be interesting to watch whether or not these ventures encounter similar problems. The bank plans to open as many as 75 offices in Ukraine this year to boost volumes and increase profitability at its OJSC Swedbank unit, which the Swedish lender acquired last year. It has 200 branches, 170,000 retail clients and 18,000 corporate clients in Ukraine.

Swedbank may make acquisitions in Ukraine and Russia if opportunities arise there, Chief Executive Officer Jan Liden said in a telephone interview today. The bank believes in ``its stable base in Sweden, significant growth in the Baltic states and exciting growth in Russia and Ukraine''.

``Current economic conditions in the Baltics have affected general sentiment towards the region, however there has been no major impact on the bank's profit for the period,'' the bank said. ``Turbulence from the U.S. subprime crisis negatively affected earnings in the quarter, even though Swedbank directly or indirectly had no significant exposure to this market.''

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