Svenska Handelsbanken Earnings: Improving Efficiency Ratio Stands Out

Handelsbanken reported a good third quarter with an improved cost/income ratio. We maintain our SEK 137 per-share fair value estimate and narrow moat rating. Handelsbanken’s shares have been under pressure this year over concerns around its operating efficiency, in particular in relation to its Nordic peers. On a sequential basis, operating expenses declined 7% due to employee reductions as well as lower use of external consultants and decreased development spending. The resulting 38% cost/income ratio is well within the range of efficiency displayed by other Nordic banks we cover. Moreover, we believe that the market will value the commitment and progress of Handelsbanken’s management to correct its lagging efficiency, a sore point in the bank's investment thesis. We still see upside in the stock.