Company Reports

Handelsbanken reported second-quarter operating profits down 6% on an underlying basis compared with the first quarter.

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Handelsbanken reported first-quarter operating profits of SEK 8,195 million, up 1% to the same period a year ago.

Handelsbanken's predominant feature is a decentralized approach that gives its branches greater decision-making power and reduces the need for middle management. This generates stronger customer relationships, enabling better loan underwriting and keeping credit costs low. We believe Handelsbanken is one of the best-run banks in Europe. While we recognize it has been late to the digital game relative to peers and its business model does not lend itself to a centralized efficiency splurge, we think concerns that Handelsbanken has seen its best days are exaggerated.

European banks have declined around 10% from their highs as rising oil and gas prices and the prospect of higher-for-longer interest rates fuel fears that loan defaults will rise.

We adjust Handelsbanken's fair value estimate marginally after rolling our model one year ahead and incorporating the latest results.

Handelsbanken's predominant feature is a decentralized approach, which gives higher decision-making power to its branches and reduces the need for middle management. This generates stronger customer relationships, allowing for better loan underwriting, which keeps credit costs low. We believe Handelsbanken is one of the best-run banks in Europe. While we acknowledge it has been late to the digital game relative to peers and its business model does not lend itself to a centralized efficiency splurge, we think concerns that Handelsbanken has seen its best days are exaggerated.

Handelsbanken reported third-quarter operating profits of SEK 7,768 million, up 7% versus the same period a year ago. The bank reduced its costs by 4% in the quarter and booked another small reversal of SEK 35 million in net credit loss provisions.

Handelsbanken's predominant feature is a decentralized approach to banking, which gives higher decision-making power to its branches and reduces the need for middle management. This generates stronger customer relationships, allowing for better loan underwriting, which keeps credit costs low. We believe Handelsbanken is one of the best-run banks in Europe. While we acknowledge it has been late to the digital game relative to peers and its business model does not lend itself to a centralized efficiency splurge, we think concerns that Handelsbanken has seen its best days are exaggerated.

Handelsbanken reported first-quarter operating profits of SEK 8.1 billion. Lower expenses and net credit loss recoveries stood out positively. We maintain our SEK 137 per share fair value estimate and narrow moat rating.

Investors dumped European banks for a second day on April 4 as concern over US tariffs spreads. The 22 banks we cover declined by 11% over the last two days. UniCredit (minus 16%) and Barclays (minus 15%) led the decline, while Svenska Handelsbanken and Credit Agricole fared better, each down 7%.

We maintain our fair value estimate of SEK 137 per share for Handelsbanken after its release of fourth-quarter results. Further progress on staff reductions and loan loss reversals stood out positively in the quarter. Handelsbanken proposed a SEK 7.50 per share ordinary dividend and a SEK 7.50 per share special dividend. Given its capital position and our views of profitability going forward, we anticipate the special dividend to shrink over the coming years but not disappear altogether. We think an 80% payout ratio, including both ordinary and special dividends, is maintainable over the next five years. Our narrow economic moat rating is unchanged.

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.

Handelsbanken reported a good second quarter. Total income grew 1% to SEK 15.5 billion on a robust net interest income performance (up 1% year over year) and a good net fee and commission income growth of 7% more than offsetting lower net gains on financial transactions. Operating expenses, which disappointed in the first quarter, rose 14% compared with the same period a year ago driven by higher IT investments and staff costs. However, Handelsbanken has started to address its efficiency issue by reducing its headcount by 200 and scaling back its agreements with external consultants by 15%. The bank booked a SEK 302 million charge for the headcount reduction. We believe that the cost actions taken could strengthen the market's confidence in Handelsbanken's new CEO. His initially voiced focus on efficiency yet worsening cost base in the first quarter this year had weighed on share price performance and muddied Handelsbanken's investment case. We continue to believe that there is upside in Handelsbanken and maintain our SEK 137 per share fair value estimate and narrow economic moat rating.

Danske published an improved guidance for its 2024 net profit, lifting the target from between DKK 20 billion to DKK 22 billion to between DKK 21 billion to DKK 23 billion. The bank flagged a continually strong credit quality and now expects small reversals of impairment charges for the second quarter of 2024. Previously, the bank guided for about 8 basis points of loan losses, or roughly DKK 1.4 billion, which would have been in line with its targeted through-the-cycle assumptions. Now, Danske believes that credit losses for the full year may not exceed DKK 0.6 billion. The better-than-expected credit quality outlook for this year is a positive development and may signal that although potentially strained, households and corporations will manage to service existing debts after a rapid rise in interest rates for the most part. We would also not be surprised if Danske's Nordic peers would show similar improved outlooks during their second-quarter earnings releases. We maintain our DKK 233 per share fair value estimate and narrow economic moat rating.

Handelsbanken reported first-quarter results below expectations. Operating profit declined 3% to SEK 8.267 billion versus the same period last year and 9% if we compare the quarter with fourth-quarter 2023. The culprits were weaker net interest margins weighing on net interest income as well as higher operating expenses. We maintain our fair value estimate of SEK 137 per share and narrow moat rating.

Handelsbanken reported fourth-quarter operating profits of SEK 9.06 billion, down 7% sequentially. The decline was driven primarily by higher development expenses of which Handelsbanken tends to book a greater share toward the end of each year. Excluding this seasonally higher charge, performance was good. Net interest income increased 1% to SEK 12.22 billion excluding a better-than-expected state deposit guarantee scheme fee, supported by higher margins on interest rates. Net fee and commission income was flat. Loan losses of SEK 52 million were again low. Although we view Handelsbanken as one of the best run banks in Europe, with one of the lowest risk profiles, we are surprised how little of its loans Handelsbanken has to write off each quarter.

Handelsbanken's predominant feature is a decentralised approach to banking, which gives higher decision-making power to its branches and reduces the need for middle management. This generates stronger customer relationships, allowing for better loan underwriting, which keeps credit costs low. We believe Handelsbanken is one of the best-run banks in Europe. While we acknowledge it has been late to the digital game relative to peers and its business model does not lend itself to a centralised efficiency splurge, we think concerns that Handelsbanken has seen its best days are exaggerated.

We are raising our fair value estimate for Svenska Handelsbanken to SEK 137 per share from SEK 115 previously after refreshing our model. Apart from the time value of money since our last model update, we believe that Handelsbanken's midcycle profitability has structurally improved. While we previously believed that the bank could achieve about 10% in returns on equity through the cycle, we now believe 11% is more likely. Although interest rates are set to fall this year, we believe they will settle above previous levels, allowing for greater net interest margins than Handelsbanken achieved over the past decade. Our narrow moat rating is unchanged.

Handelsbanken's predominant feature is a decentralised approach to banking, which gives higher decision-making power to its branches and reduces the need for middle management. This generates stronger customer relationships, allowing for better loan underwriting, which keeps credit costs low. We believe Handelsbanken is one of the best-run banks in Europe. While we acknowledge it has been late to the digital game relative to peers and its business model does not lend itself to a centralised efficiency splurge, we think concerns that Handelsbanken has seen its best days are exaggerated.