SEB Reports Good Fourth Quarter; New Business Plan a Logical Next Step

Skandinaviska Enskilda Banken, or SEB, published fourth-quarter operating profits of SEK 7.5 billion versus a company-collected consensus estimate of SEK 7.4 billion. Performance in the quarter was decent with income generation up 6% to SEK 13.8 billion versus the same period a year ago. Net interest income increased 2% on 4% higher loan volumes. Net fee and commission income showed another strong quarter, up 23% year over year and 13% on a sequential basis. Good activity in mergers and acquisitions, high equity market levels driving mutual fund and custody fees, and healthy securities issuance activity all supported the strong results. Recovery of the card business continued in the fourth quarter as well. However, operating expenses did offset part of the strong income generation as they came in 4% higher at SEK 6.1 billion. The increase was driven primarily by seasonal effects and IT and project expenses while staff costs declined 2% despite an increasing headcount on a lower special salary tax on pensions. Loan losses of SEK 299 million equivalent to 5 basis points of total loans showed no sign of deteriorating asset quality. In sum, the quarter allowed SEB to close a strong year with a return on equity of 13.9%, just shy of its long-standing ambition to achieve returns around 15%. We maintain our fair value estimate of SEK 123 per share and no moat rating.