SEB Earnings: Quiet Quarter; Additional Share-Buyback Program Announced

No-moat SEB SEB A reported first-quarter operating profit before items affecting comparability that was up 6% to SEK 11.6 billion on a sequential basis. Lower operating expenses (down 4%) and just 4 basis points of net expected credit losses stood out positively in the quarter. Paired with slightly better income generation (up 1%), SEB achieved a noteworthy 17.9% return on equity in the quarter. We maintain our SEK 123 fair value estimate.

Net interest income grew 16% to SEK 11.3 billion, primarily driven by wider deposit margins more than offsetting weaker margins on mortgages. Although we believe central banks have not reached peak interest rates yet in Europe, further significant increases in net interest margins are less likely. At current interest-rate levels, depositors are becoming more rate-sensitive and deposit betas, or the pass-through of interest rates on deposits, will go up. At the same time, we expect product margins, especially in the mortgage market, to recover. On balance, NIM expansion should slow through the year.

Net fee and commission income decreased 4% to SEK 5.2 billion owing to a 25% reduction in secondary market and derivatives income.

SEB’s common equity Tier 1 capital position is solid. The bank holds 19.2% in CET1 capital, which sits 480 basis points above regulatory requirements. Thanks to its good capital position, the bank announced a further share-buyback program in the amount of SEK 1.25 billion.