Handelsbanken: Few Credit Negatives, Unlike Equity Watchers

Handelsbanken spreads are tracking very slightly with the IG banks index today; we don’t see today as a meaningful credit negative and the issues (revenues and costs) are somewhat idiosyncratic. However, the portents for Swedbank results (25-Apr) aren’t overtly positive.

• Capital – from a credit perspective, these results are relatively solid. Mgmt is taking a conservative approach, alluding to “troubled times” therefore running with higher capital levels (1-1.3pp above its usual target range). This should give credit investors some comfort in what’s already a very highly-rated issuer.
• Revenues appear weak. This is the obvious key concern of equity investors today – a combination of loan paydowns, deposit margin competition and a sense that allowing branches to set pricing locally means the analyst community is struggling without explicit guidance.
• Costs were another area of alarm – costs rose far faster than costs and mgmt’s narrative appeared to allude to further investments which, against a disappointing revenue backdrop, is not a positive message.