Event in Progress:
View the latest research on other companies in the sector.
Post-FY23 - Nordics are now on a divided path Nordic Banks'' Q4 earnings are now wrapped up, which means we are officially entering a year where NII and EPS growth are no longer a given. Balance sheet structure defines the path ahead, as Swedish banks are poised to face declining NII, while the other Nordics still have some tailwinds ahead. As NII becomes less powerful in driving earnings, we saw investors, earnings calls and management meetings focus on two topics: capital and credit demand. Credit demand - since you''ve been gone While rates kept increasing, the margin expansion experienced by the Nordic banks clearly overpowered the lack of credit demand. It previously appeared to be almost a rounding error; now it is anything but. Rates have peaked, and for Sweden we see direct second order implications via intensifying competition. We highlight some geographical differences and explain why a higher LTV cap wouldn''t solve Sweden''s lack of credit growth. Capital - overpowering most results Q4 is naturally a quarter where capital (return) is discussed - this year it was clearly a factor that captured the market''s attention on the day for most Nordic banks. We summarise the most important developments on capital, headwinds and buffers and show which banks can keep up with the sector. SEB - Outperform; DNB and Handelsbanken - Underperform Heading into 2024, a year of economic recovery and turning PMIs, we remain less enthusiastic on more defensive Nordic banks. Higher ''restorative'' power from rates elsewhere in Europe means the sector is catching up on most metrics - notably capital return. We continue to prefer SEB, which offers an attractive business mix into lower rates and capital return upside. We rate Handelsbanken and DNB at Underperform, where rates have been less transformative and they are trading at a premium.
SEBA SEBA SWEDA SWEDA SHBA SHBA DANSKE DANSKE NDA DNB DNB
Not bad At first glance SEB''s results looked a bit soft, but ex-1-offs, they were in-line with expectations. Of greater interest perhaps, was a more upbeat management tone: highlighting an improving capital return outlook, with some MandA optionality; NII comments which were less cautious than at Q3; and hopes that increased corporate activity may be able to partially offset the NII decline as rates are cut. The only negative was costs, where consensus at SEK29.4bn (all-in) may nudge up slightly on updated guidance (SEK29bn excl. Airplus). Main message: improved capital efficiency Management reiterated its commitment to steer its 440bps CET1 buffer back down to 1-3% by FY24. We up the tempo of our distribution forecasts, now expecting a 100% payout ratio in ''24e, though still foresee SEB above the top-end of its target range. Further bolt-ons, or a resurgence in borrower demand are possible uses for the dry powder. Headaches... easing on NII, but some small cost headaches ahead For a second time this week, a Swedish bank nudged up cost guidance, though SEB did so by less than their orange peer. NII guidance - that it will ''drift downwards'' - still holds, but some of the Q3 pessimism has eased. All in all, we expect limited shift to consensus EPS, and some upward revisions to distribution expectations. SEB the bank to buy, leave EPS broadly unchanged (-1/+1%) We only nudge our EPS, but raise capital return, translating into a total distribution yield of ~11% p.a.: a similar capital return reward to the sector, from a bank with less risk and higher returns. Even if Q4 was not flawless, the equity story remains intact, and we continue to prefer SEB in the Nordics. At 1.4x P/TBV 24e for 16% RoTE sustainably the stock has further to go, even as the share price reached an all-time high. We re-iterate our Outperform.
Skandinaviska Enskilda Banken Skandinaviska Enskilda Banken AB Class A
SEB’s Q4 P&L held few surprises with a pre-tax profit of SEK 11.3bn which was spot on our estimates. The EPS miss of 6% is explained by a few one-offs on taxes, while the underlying earnings trend continues to be positive. After the Q3 report the share underperformed in part due to a slightly lower pace of buybacks than expected, but SEB made up for it in Q4 with both an extraordinary dividend of SEK 3.0 (ARCe 2.0) and a quarterly buyback in Q1 of SEK 1.75bn. We think that the pace will increase to SEK 2.0bn from Q2 onwards. We make only marginal changes to our estimates on the back of the report – but please note that we have not included Airplus in our estimates yet. SEB remains a standout performer in the Nordics in our view, but this is also reflected in its premium valuation. We lift our TP to SEK 150 (148) but reiterate our Hold recommendation.
Q4 EPS of SEK 4.0 vs ARCe/Cons 4.34/4.25. Q3 reported ROE 15.2%Pre-tax income in line, EPS miss explained by tax hit in LatviaDPS + XO of SEK 11.5 vs ARCe/Cons 11.2/10.3 and SEK 1.75bn buybacks announcedP&L very much in line apart from taxes, highlight is the strong dividend
2024: a new world Deposit hedges, replicating portfolios... it''s a long list of jargon. Everywhere else in the sector we look we find hidden NII support as rate cuts approach. For the Swedish banks we find something else: an oligopoly under pressure. During QE, this market defended margins better than anyone else, but things have changed. The ''pie'' has stopped growing, less rational competitors are taking a bigger slice on both sides of the balance-sheet, and savvy consumers are happy to shop around. With NII headwinds outweighing tailwinds, we see little scope for good news this year. When will the credit clouds clear? CRE and the rate-sensitive Swedish economy have been the dogs which barked but didn''t bite. We probe the lingering risks, with bankruptcies on the rise and CRE debt still to refinance. We look at the most and least prepared balance-sheets, showing that consensus still has some adjusting to do. Challenging the Swedish valuation premium Higher rates have made the European banking system unrecognisable from its former self. The Swedish banks are, well, recognisable. Historic Swedish advantages have either narrowed (profitability, asset quality) or now fallen behind (capital return) the rest of the sector. These are still well-run, solid banks - but the historic valuation premium looks at risk into an economic recovery. We downgrade Handelsbanken to Underperform, remain positive on SEB Alpha is on offer within the subsector. SEB is best placed to outperform in a falling rate world, being more diversified, and most keen on capital return, with short- and longer-term drivers. Handelsbanken is still a work in progress: neither offering you growth and juicy capital returns nor above-average profitability. We downgrade to Underperform.
SEBA SEBA SWEDA SWEDA SHBA SHBA
SEB reported a Q3 EPS of SEK 5.07, ~14/20% above ARCe/Consensus respectively. The beat was driven by trading, other income (SEK ~500m one-off) and net reversals in the quarter. We struggle to find too much negative in the report, although lending growth came in soft q/q (-1% FX.adj). SEB once again showed that credit quality remains strong, and even with some reversals in Q3 the model overlay remains at SEK 2.5bn. The 100-300 bps buffer target on CET 1 was reiterated, and though the SEK 1.25bn in buybacks might have been a bit below consensus we think the outlook remains solid for capital distribution. We think that an XO DPS may be proposed in the Q4 report for approval at the AGM in March ‘24, and still see solid distributions to support the share going forward. We lift our estimates for FY23-25 by ~3% on the back of the report, and reiterate our Buy recommendation and TP of SEK 142.
Meeting expectations, no big trigger for upgrades SEB''s 3Q results today offered little fresh impetus to the stock, with key PandL trends in line with expectations, and the buy-back rhythm unchanged. Bottom-line earnings came in ~20% ahead, mostly due to lower quality items on non-core income and a small provision writeback, helping to deliver the flattering headline of a 20% RoE on a 19% CET1. Peak NII? Management adopted a slightly more cautious tone on NII, fearing continued deposit mix shift. Whilst the trend is familiar, SEB''s outlook appears more conservative than SHB''s, and feeds a management view that NII is now likely on a downward trend from here (if rates are stable / volume trends unchanged). Given the Riksbank and ECB hikes in September, we still see tailwinds for NII into Q4 and keep our estimates broadly unchanged. Peak NII is in view, but we''re not there yet. The big capital repatriation question SEB still has a sizeable capital buffer (450bps vs a ''target range'' of 100-300bp), despite having ''front-loaded'' some headwinds (deducted the potential Q1 buyback, IRB P2R add-on, provision overlays). We cut our buyback expectations slightly, assuming that the board''s conservatism of the timing of repatriation lingers in early 2024. 3% upgrades for 23e, slightly cuts into 24/25e We finetune our estimates, with the most impactful change being a slower buyback and slightly higher costs. Whilst this quarter might not trigger any big earnings revisions, we still don''t see structural component of the recent profitability improvement reflected in valuation yet. At 1.2x P/TBV 23e for 16% RoTE in 24/25e, we see decent re-rating potential and reiterate our Outperform rating.
SEB published excellent results although this was a low-quality beat driven by the trading result and the release of provisions. With excellent profitability and capital generation, SEB will continue to distribute its excess capital through buybacks in order to reach its 100-300bp buffer target by end 2024. One negative development came however from a comment from the management on NII potentially peaking in the coming quarters as policy rates are expected to top out in Q4, volume growth comes under pressure and competition for deposits increases.
Q3 EPS of SEK 5.07 vs ARCe/Cons 4.46/4.22. Q3 reported ROE 19.8%FX adj. Lending growth negative (-1%) q/qNII uplift driven by improved deposit marginsNew buyback programme of SEK 1.25bn. CET1 buffer of 430 bpsWe expect neutral to slightly positive estimate changes
SEB delivered another excellent Q2 with momentum continuing in NII on the back of rising deposit margins, more than offsetting a decline in Swedish mortgage margins and the slight volatility in corporate deposits. Fee income and trading results also surprised positively while cost inflation was a bit higher than anticipated. Loan losses were almost insignificant marked by additional overlays made on property management. The distribution of excess capital through buybacks continued while targets were maintained.
SEB delivered another stellar quarter with a 15% EPS beat vs consensus and a Q2 ROE of 18.8%. Some clumsy communication about transitory NII effects perhaps weighed a bit on the share, but we think the NII still has a bit more room to run. The well-diversified revenue base we’ve often highlighted continues to deliver as well and non-interest income beat estimates once again. On the back of the report we’ve lifted our EPS by 8%/4%/4% for FY23/24/25 and also lifted our DPS estimates. SEB is in our view a very well-run bank and at current valuation still offers solid risk/reward. We reiterate our Buy recommendation and increase our TP to SEK 142 (136).
19% RoE on 19% CET1 A year ago, SEB traded at 1.2x book and delivered a Q2 RoE of 12%. Today, SEB trades at 1.2x book and delivered a Q2 RoE of 19%. One can debate just how much of this low-provision, high-margin paradise these banks can enjoy structurally. But to discount that none of it sticks? Odd, particularly at a well-run, dominant player in an oligopoly. Q2 was the latest example of SEB''s structural class paired with cyclical sizzle, which is currently available unusually cheap. Q2 in short Q2 earnings surprised by +15%, thanks to strong NII and fees paired with a single, proactive, basis point of provisions. Deposit growth was double-digit, whilst CET1 generation and the buy-back rhythm were as expected (+10bp, SEK1.25bn for Q3). Costs came in slightly heavier than expected, but consensus is at the mid-point of FY cost guidance, updated for FX. More upbeat NII messaging Following another beat, management struck a more upbeat tone on the NII outlook than at Q1. ''More tailwinds than headwinds'' was the mantra, suggesting peak NII will come later, and certainly higher, than consensus expected. Some of the fee and cost surprises were ascribed to seasonality. The CET1 ratio (19.3%) is +450bp above requirements, still above the 100-300bp target range. Special dividends and buybacks remain in management''s vocabulary, all eyes on Q3 and Q4 results as to whether the board will walk the walk. Consensus allows for ~80% distributions in 2024-25e but struggles to reduce the CET1 ratio with profits high and loan demand low. Something needs to give. Small EPS changes, reiterate Outperform We make only modest EPS changes here (0-2%), given our pre-existing above-consensus view of NII. Our Target Price, struck off a 2.5% terminal base rate, nudges to SEK179: 40% upside. At 7x P/E, SEB''s valuation rarely gets cheaper.
Q2 EPS of 4.62 vs ARCe/Cons 4.05/4.03. Q2 ROE 18.8%6% revenue beat and close to zero loan losses the main driversCET 1 ratio 19.3% in line, new SEK 1.25bn buyback programme announcedAnother strong report, expect share to outperform
We expect SEB to deliver another strong quarter with EPS coming at SEK 4.05, with a Q2 ROE of 15.8%. We make only minor estimate changes in this update, lifting EPS 1%/1%/4% for 23/24/25. The CET1 ratio as of Q1 was 480 bps above current regulatory requirements vs the 100-300bps target range, but in relative terms we expect it will drop ~50bps with the increased counter-cyclical buffer (Q2). As SEB will keep a substantial headroom on our estimates, we lift buybacks for 23e by SEK 1bn and 24e/25e by SEK 2.0bn each year, lifting the total cash return above 10% for both years. We find the current valuation and yield attractive and reiterate our Buy recommendation and TP of SEK 136.
Good start into the year, but not appreciated by the market Like the sector, the Nordics generally reported a strong Q1, beating bottom line estimates by 18%. In particular, NII surprised positively (and by more than the sector), signalling ongoing underappreciated rates potential. Cost inflation was ''good enough'' and some lower quality items supported the PBT beat further. However, the positive operating trends were rewarded in valuations, a function of peak-NII and CRE concerns. Not the peak (yet) One conference call constant was ''is this peak NII?'' questioning. It''s clearly a relevant debate in these markets given predominantly floating-rate assets, higher observed deposit beta and higher wholesale funding gaps. Additionally, banks see an increase in deposit competition, with Handelsbanken even mentioning they could start remunerating transaction accounts. But less doesn''t mean none, there are still hikes to be priced in over the next 2 quarters. With a 15-30% system ''interest benefit channel'', the peak is still not reached until 2H23 earliest. Real estate double whammy Real estate markets are weighing on the Nordics twofold. Firstly: CRE, a topic that is not new but intensified in the aftermath of the SVB turmoil. Except for DNB, all Nordic banks appear at the top of CRE-exposure rankings. In our new note [here], we argue why current fears might be exaggerated. Secondly, mortgage market activity has slowed down significantly, given tighter household budgets and falling house prices. Norway is faring somewhat better than the rest, but new credit creation might become more difficult throughout year for players with mortgage focus. Continue to favour SEB, less potential for Danske and DNB So far, the Nordics have seen a difficult start to the year in the markets, underperforming the sector by up to 22%. There is however room for some re-rating, especially as some of the concerns ease. We continue to favour SEB, mainly on their corporate...
SEB realised an excellent Q1 on the back of a continued rise in deposit margins. The question remains on whether this can be maintained in the future given the current change in deposit behaviour and the potential competition for deposits between banks. Cost of risk was mild as macro-economic headwinds did not damaged asset quality.
The view looks good up there SEB''s various structural and cyclical appeals were well on display in Q1. 18% RoE, 19% CET1, 20% earnings surprise, 30% revenue growth. Yes, earnings growth will now slow, given first rising deposit beta, then eventually falling rates, but the level of this earnings plateau has again been set higher by excellent Q1 results. With a P/E multiple in line with its dividend yield, SEB''s qualities are priced too cheaply, in our view. Deposit volatility is a feature, not a bug SEB''s DNA means it has more deposit volatility than a sleepy retail bank. This volatility is rarely celebrated when deposits grow, but can raise eyebrows when they shrink, as they did in Q4. The market was relieved, then, to see deposits grow healthily in Q1 (+5% q/q) and to hear that they have spiked further since quarter-end (+12% quarter-to-date). Buyback ongoing, H2 acceleration would be welcome SEB announced a fresh SEK1.25bn buyback for the coming 3 months, keeping up its recent rhythm (~2% market cap p.a.). But CET1 continues to build above management''s target range, and the market will look for the board to ''up the tempo'' in H2 as a driver of future EPS growth. Earnings and Price Target changes We up our earnings forecasts by 1-2%. These allow for rising deposit beta, a ''neutral interest rate'' in Sweden of 2.5% and for the Lithuanian bank tax to prove permanent. Still, RoTE settles at ~15% through the forecast period. At 1.2x TNAV, we see this as an attractive entry point.
Q1 EPS SEK 4.45 vs ARCe/Cons 3.86/3.54. ROE 17.9%Beat driven by very strong NII, trading and low credit lossesNII increases 16% q/q and 60% y/yCET 1 ratio strong at 19.2%, new SEK 1.25bn buyback programme announcedVery strong quarter, expect estimates to come up
SEB (Buy (Hold), SEK 136):We downgraded SEB to Hold back in January on valuation, but since then the share has traded down ~10% while our ’23/’24 estimates have come up 10%/5%. Though the market is attaching a fairly high risk premium to banks currently, at P/E ’23e 7.9x, P/B ’23e 1.12x with an ARCe ’23e ROE of 14.7% we think there is a solid margin of safety to go long SEB as we head into an uncertain year. For Q1 we are some 12% above consensus, primarily due to an above-consensus view on the Q1 trading line. We upgrade to Buy (Hold) with an unchanged TP of SEK 136.
Worth another look In a sea of European bank beats, SEB''s rather ''in line'' Q4 might seem a bit forgettable. But the results are better than they first appear, we think, with some short-term burdens to NII likely to fade as we work through 2023, and CET1 strength a helpful fuel for future capital return. Peak NII? Not yet Ever since the US banks began to warn of peak NII and late-cycle deposit beta, the market has worried about which European bank will reach this ignominy first. The Swedes will be early - due to fast re-pricing assets, high loan-to-deposit ratios and higher deposit beta - but SEB''s NII will not peak until mid-2023 on our forecasts. And, since their sensitivity to hikes is proving greater than anticipated, their ''profitability plateau'' will also come at a higher level than originally thought. Add, don''t replace The market has become accustomed to the Nordic banks - and SEB in particular - offering serene earnings growth. Today, the picture is different. On our forecasts, SEB will deliver +30% NII growth in 2023, and then revenues will stagnate for 2 years, if the Riksbanken cuts as we expect. For those looking for longer-lasting revenue momentum, that may not be the optimum earnings profile. But at only 7.5x 2024e P/E for one of the sector''s highest RoTE businesses, with a strong market position in a disciplined market, an impeccable operating track-record, and solid medium-term growth prospects, we think SEB should be added to, not replaced by, some of the more dramatic turn-around stories in the Eurozone. Upgrading estimates, Target Price We upgrade 2023-24e forecasts by 6-7% on stronger NII, and our Target Price to SEK171, allowing for a +50bp higher CoE on the findings of our recent Loan Ranger, still implying a respectable near 40% upside. At 1.2x TNAV, valuation is undemanding for 15-15.5% RoTE, a 6% yield and 3% p.a. buyback. We rate at Outperform.
SEB reported a solid Q4 with the bulk of the growth driven by the increase in the NII thanks to higher deposit margins and stronger volumes. The beat on the top line was nonetheless mostly due to increased trading as all the other elements were mostly in-line with consensus. The excess capital situation has stopped normalising due to the substantial capital generation induced by the quarterly results. The management will continue to execute buybacks in order to reach its target of a 300bp regulatory buffer over time.
SEB reported a Q4 EPS of SEK 3.5 and a ROE of ~15% which was above our optimistic (or so we thought) estimates. Even if a lot of is explained by a blow-out trading line we think it’s a stretch to view it as a low quality beat. With the share down after the report we’re almost tempted to upgrade again after our recent downgrade, but we stick to Hold for now. We do think the share has a good risk/reward in the short term though and lift our TP to SEK 136 (130).
Q4 operating profit 3%/8% ahead of ARCe/Cons, 18%/24% adj. for one-off Q4 EPS SEK 3.5 vs ARCe/Cons 3.44/3.3, DPS SEK 6.75 vs 6.25/6.45 Beat driven by strong revenues, blow-out quarter on the trading line 2023 cost target in line with estimates as well, share should outperform
We expect a solid Q4 with a SEK 3.45 EPS on the back of continued NII momentum and a likely strong quarter on trading, while we expect stable loan losses unless SEB decides to override models. For FY23-24 our estimates are mostly unchanged and with the share close to our TP we now see risk/reward as neutral going into a likely challenging 2023. We downgrade to Hold (Buy) with a SEK 130 (128) TP, which equals P/E ’23e 10x and P/B ’22e 1.3x.
SEB reported a strong set of Q3 figures with all core revenue lines ahead of expectations and NII growing a surprisingly strong 15% q/q and 34% y/y. Though the bank did guide that rate sensitivity going forward should be lower, this still leads our EPS up some 8% for 2023 and 7% for 2024. We’ve also lowered our expectation for buybacks a bit for 23/24, but continue to see a very comfortable capital position. We stick to Buy with a SEK 128 (120) TP.
A -15% de-rating? Today''s pull-back in SEB creates a compelling opportunity, in our view. We upgrade future forecasts by 10+%, suggesting the stock is de-rating today by 15+% on ''travel and arrive''. At a mere 7.5x 2024e EPS for a business which has churned out 6-9% EPS CAGR over 5, 10 and 20 years and which is now enjoying cyclical tailwinds to boot, there''s plenty more ''travelling'' to do, in our view. Outperform. NII the star By now, it''s no secret that the Swedish system is more rate-sensitive than expected. SEB''s +35% YoY NII growth is eye-catching evidence of this, and of strong Baltic sensitivity too. We make double-digit NII upgrades to future forecasts to account for further expansion to come. We note plenty of attention paid to mortgage margin trends on the management call. We advise investors now, as ever, not to pay too much heed to individual product margins over notional reference rates. It''s the ''Net'' in NIM which matters, and this looks exceptionally strong for the Swedish banks. Elsewhere Fee resilience is impressive given choppy markets and a slowing economy (+6% 9m/9m). Lost mortgage market share is an annoyance, but not terminal for SEB''s diversified business, and management''s mix of patience and operational investment is typically the right one. Management guide that cost growth will accelerate next year, but that''s not surprising. CET1 was a touch light in the quarter, but with CET1 of 18.1% in line with our medium-target target, the runway for a continued mix of growth, dividends and buybacks still looks clear. Meaty earnings upgrades We upgrade 2023-24e EPS by an average 12%, largely on higher NII. Our upgraded SEK156 Price Target implies c40% upside, a rare opportunity for a bank which just delivered 15% RoTE in a hostile environment.
SEB realized an excellent Q3 with a strong beat on both income and the net result. As for its peers, this was built on NIM improvements although volume growth was also good. Cost inflation remained in-line with expectations while the CoR increased to reflect the macroeconomic uncertainties. Excess capital distributions are set to continue and should remain supportive of the valuation.
SEB reports SEK 3.4 EPS, +24%/22% vs ARCe/Cons. Q3 ROE 14.9% (!) Driven by a 11% revenue beat and strong operational leverage Moving to quarterly buyback programmes, SEK 1.25n announced for Q4 All in all an impressive report, expect estimates and share to move higher
Share: