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Swedbank's earnings impressively higher than expected
Tuesday, 25 October 2011
Banking group Swedbank reported an operating profit of Skr4.313 million for the third quarter of 2011. That compares with profit of Skr3 236 million corresponding periods of 2010.

Analysts had, according to Reuters, on average, expected an operating profit of Skr3.894 million. Net interest income rose to Skr4.857 million from Skr3.980 million. Net commission income fell to Skr2.292 million from Skr2.31 million.

Total revenues amounted to Skr8.19 million, compared to Skr7.647 million corresponding period the year before.
Costs rose to Skr4.331 billion, from Skr4.238 million. Loan Recoveries during the quarter amounted to Skr441 million, compared with losses the same period in 2010 of Skr120 million. Recoveries came primarily from the Baltic Banking and Russia and Ukraine, according to Swedbank.

"The uncertainty has increased significantly over the past quarter as a result of the large fiscal challenges in several European countries. Depending on how the crisis will be resolved the macroeconomic outcome will differ extremely and hence its impact on banks, "writes CEO Michael Wolf in the interim report.

Wolf suggests that the risks in the outside world have increased and that the prospects for economic development, especially in Europe have clearly deteriorated in the third quarter.
"This affects Swedbank both directly and indirectly, for example, both asset prices as interest rates have fallen. In addition, it is expected that economic activity will contract further and interest rates expected to fall. This means that the earning potential of Swedbank in the near future has declined, "he writes.

This leads, in Wolf's words, a "stronger focus on costs." The ambition is that Swedbank's costs in 2012 will be lower than 2011, excluding among others variable compensation.

“We continue to report a solid performance, despite the uncertainty in Europe. Net interest income increased for the fifth consecutive quarter, and credit quality continues to improve,” says Swedbank CEO Michael Wolf on a conference call for news networks.

Swedbank has so far not seen any effects of the debt crisis on the "real" economy. However, the bank's capital market related businesses are affected, according to Wolf.
“Both the trading operation and management of funds there is increasing uncertainty of future turmoil affecting our earnings.
When asked how Swedbank will bring down costs in 2012 compared to 2011, Wolf responds:
 “We are currently taking a series of actions, and we will take a one-time cost with regard to Ukraine. We have also begun to adjust our operations in investment banking to the prevailing environment. We look to be prepared for what comes around the corner.”

What this would mean for the workforce the Swedbank Chief  would not want to go into that as speculation is rife that the cost cutting will likely centre more on layoffs

“The important thing is that we constantly adapt our business to current market conditions,” he said.
By Scancomark.se Team

Swedbank interim report
Third quarter 2011 January - September 2011

Compared with the second quarter 2011

- The result for the quarter amounted to SEK 3 475m
 (3 452)

- Earnings per share before dilution amounted to SEK 3.12* (3.02) and earnings per share after dilution amounted to SEK 3.11* (3.01)
- The return on equity was 14.4 per cent (14.4)
- The cost/income ratio was 0.53 (0.52)
- Net interest income was SEK 4 857m (4 740)
- Profit before impairments decreased by 4 per cent to SEK 3 859m (4 010)
- Swedbank reported net recoveries of SEK 441m (324)
- The core Tier 1 capital ratio was 15.1 per cent according to Basel 2 (13.9 per cent on 31 December 2010) and 9.9 per cent (10.1) according to transition rules. The Tier 1 capital ratio according to Basel 2 increased to 16.6 per cent (15.2). According to transition rules, the Tier 1 capital ratio was 10.9 percent (11.0).
*The calculation of earnings per share is specified on page 41.

Compared with January - September 2010

-  The result for the period amounted to SEK 10 779m (4 694)
-  Earnings per share before dilution amounted to SEK 8.59* (4.05) and earnings per share after dilution amounted to SEK 8.58* (4.05)
-  The return on equity was 15.0 per cent (6.9)
-  The cost/income ratio was 0.52 (0.57)
-  Net interest income increased by 20 per cent to SEK 14 124m (11 802)
-  Profit before impairments increased by 19 per cent to SEK 11 937m (10 034)
-  Swedbank reported net recoveries of SEK 1 737m (credit impairments of 3 293).
Source: Swedbank

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