Company Reports

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.

Narrow-moat Handelsbanken reported good first-quarter results with operating profits up 12% to SEK 8.52 billion on a sequential basis. Income, up 7%, supported by good growth in net interest income as well as net fee and commission income met with marginally lower expenses (negative 1%), reducing the cost/income ratio to 38.5% from 41.5% last quarter. Return on equity came in at 15.0%. We maintain our SEK 115 per-share fair value estimate.

Stress has returned to the European banking system less than a week after a solution for Credit Suisse had been announced. Shares in European banks have traded down through March 24 around midsingle digits, with Deutsche Bank taking the brunt of it, down 15% at its lowest point intraday. We maintain our fair value estimates and moat ratings across our European banking coverage. Allianz remains our Best Idea. Admiral is one of our top picks

With Credit Suisse shoring up liquidity, concerns around a banking crisis spreading in Europe have been firmly planted. While we expect that the next days and weeks will remain volatile, we do not currently see a liquidity crisis spreading through the European banking system. The issues at Credit Suisse are idiosyncratic in nature and we believe containable for now even in a worst-case scenario. With capital and liquidity levels high across the board, asset quality still good, and regulators much better equipped than 15 years ago to quell any sparks, we believe European banks are solid. The major caveat being that developments are currently happening at a rapid pace and views we form today may be stale tomorrow. We believe investors are best placed in European banks with a greater retail focus and a sound profitability outlook. We would highlight BBVA, Handelsbanken, ING, and Lloyds.

We do not believe investors should view the collapse of U.S.-based Silicon Valley Bank as a read-through of the health of European banks' balance sheets. Nevertheless, banks remain highly reliant on the confidence of depositors and other funders. It would be foolish to say there is no contagion risk for European banks, especially if other global banks run into trouble. The current uncertainty could also push up the cost of funding and increase the rate at which European banks pass on higher interest rates to depositors. But we believe it is vital for investors to take note of the contrasts between European banks' and SVB's balance sheets.

Narrow-moat Handelsbanken reported fourth-quarter operating profits of SEK 7,510 million, 3% ahead of the previous quarter, as good growth in net interest income was nearly entirely offset by higher expenses. Credit losses of just 1 basis point did stand out again. We maintain our SEK 115 per-share fair value estimate.

Narrow-moat Handelsbanken reported strong third-quarter results. Operating profits of SEK 7,277 million grew 39% versus the prior quarter driven primarily by strong net interest income growth. We maintain our fair value estimate of SEK 115 per share.

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.

Some praise Svenska Handelsbanken as the gold standard for retail and commercial banking, while others see it as outdated in a time of ever-increasing digital offerings. Its predominant feature is a decentralised approach to banking which gives higher decision-making power to its branches and reduces the need for middle management. Additionally, it 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 and while we acknowledge it has been late to the digital game relative to peers and that its business model does not lend itself to a centralised efficiency splurge, we think concerns that Handelsbanken has seen its best days are exaggerated.

Narrow-moat Handelsbanken reported operating profits SEK 5,246 million for its second quarter, down 20% versus last quarter. However, cleaned for a SEK 1,059 million one-off sales gain during the first quarter, operating profit only declined about 5%. Net losses on financial transactions of SEK 147 million versus a gain of SEK 240 million last quarter further weighed on an otherwise decent but mixed underlying performance. We have marginally increased our fair value estimate to SEK 115 per share from SEK 112 after refreshing our model as we did not see a cause to materially change our assumptions after this earnings release. The primary driver of the slight increase in fair value estimate was the time value of money since our last model update.

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 maintain our SEK 112 per-share fair value estimate and narrow moat rating for Svenska Handelsbanken after its first-quarter earnings release. On an underlying basis, total income increased 5% to SEK 12,305 million, driven by strong growth in net interest income as well as net fee and commission income. Net interest income increased 8% to SEK 8,013 million on higher loan volumes in households and businesses as well as some foreign-exchange effects contributing positively. Net fee and commission income saw a healthy 9% growth to SEK 2,911 million on higher mutual fund volumes and also greater fees collected on fund management and custody. Compared with the first quarter of last year expenses, excluding the employee profit-sharing scheme, increased 3%. Despite the cost increase, operating profit on an adjusted basis remained stable and the cost-to-income ratio of 45.9% versus 47.4% a year ago is moving in the right direction. Credit losses remain low at Handelsbanken. In the first quarter the group booked SEK 6 million in loan-loss provisions, which is negligible. Within that the group booked SEK 512 million in provisions for uncertainties and second-order effects from the war in Ukraine, which was however, offset by reversals of previous coronavirus provision overlays. In sum, the group’s performance was reflected in its return on equity of 13.4%, which improved by 280 basis points.

Narrow-moat Handelsbanken reported full-year results for 2021 in line with our expectations. In the fourth quarter, total income grew 2% after adjusting for items affecting comparability compared with the quarter-ago period. Net fee and commission income continued to show strong growth to SEK 3,163 million, up 10%. Fund commissions were up 7% and net payment commissions up 21% were the largest contributors to this good performance. Net interest income, up 2% to SEK 7,503 million, saw higher volumes on business volumes. which more than offset an overall negative mix in margins and funding costs. As we had already heard from other Swedish banks, competition is squeezing margins on mortgages in Sweden, which is made up for by higher mortgage demand as real estate prices keep climbing. Operating expenses increased 5% on a like-for-like basis. Credit losses were virtually nonexistent at SEK 9 million, a picture we had seen throughout the whole of 2021. We maintain our SEK 112 per-share fair value estimate. Shares are undervalued.

Narrow-moat Handelsbanken reported a good third quarter with operating profit of SEK 6.6 billion, up 4% on a sequential basis. On an underlying basis, total income increased 2%, driven primarily by a continued strong performance of its mutual funds, asset management, and insurance business. Net interested income remained stable, however, as 1% volume growth quarter-over-quarter was offset by weaker margins and foreign exchange effects. Handelsbanken continues to see a strong growth in mortgage volumes, with a market share of 17% year to date. Operating expenses declined 3% while loan loss provisions remained low at just SEK 66 million. Updating our model slightly for the strong fee and commission income and considering the time value of money since our last update, we lift our fair value estimate to SEK 112 per share from SEK 108 share.

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. Additionally, it 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 and while we acknowledge it has been late to the digital game relative to peers and that its business model does not lend itself to a centralised efficiency splurge, we think concerns that Handelsbanken has seen its best days are exaggerated.

Svenska Handelsbanken passed the 2021 European Central Bank stress test with flying colors. Our thesis on Handelsbanken has long been that the bank is a superior underwriter following a bottom-up credit risk approach, which has kept credit losses well below peers' over the past decades. Additionally, Handelsbanken is very well capitalized. It therefore comes as no surprise to us that Handelsbanken performed well in this exercise. In the adverse scenario, its common equity Tier 1 ratio fell to 16.2% at its lowest point over a three-year stress horizon from a starting point of 20.3% at the end of 2020. This is well ahead of its minimum requirement including buffers of 11.1%. This 5.1% spread above requirements would have even covered any additional countercyclical buffer (around 2%), which was not considered during this stress test. Risk-weighted assets inflated 8.7% during the stress, while 13% of Handelsbanken’s capital base was consumed by credit losses and lower net interest income. We maintain our fair value estimate of SEK 108 per share and narrow moat rating.