But investors no longer look at Scandinavia as one homogeneous story and have started selling out of bank stocks they’ve decided are “more vulnerable to the worst outcomes,” according to Jan Wolter, head of European bank research at Credit Suisse.
Copenhagen: Cushioned with capital and relatively unburdened by non-performing loans, Scandinavia’s big six -- Nordea Bank AB, Danske Bank A/S, DNB ASA, Svenska Handelsbanken AB, SEB AB and Swedbank AB -- outperformed European peers in the years following the financial crisis. Now, with valuations hovering at highs, the banks risk falling out of favor.
Swedbank and Handelsbanken have already lost so much since December that they’re among Europe’s worst performing bank stocks. That’s despite being the best capitalized banks. The point is that industry prospects are improving and that’s eating into the relative advantage Nordic banks have had, according to Mads Thinggaard, a financial analyst at Handelsbanken in Copenhagen.
“We can see that expectations for return on equity in European banks are increasing much faster than for the large Nordic banks, so they could be run over,” Thinggaard said. “There is a risk of a selloff of Nordic banks, that investors will jump over to banks south of Denmark.”
Swedbank has already dropped about 7 percent this year through April 21, making it the worst performer not just in the Nordics but in Europe, after Banco Popular Espanol SA and Barclays Plc. Banco Popular may need to raise as much as 4 billion euros ($4.3bn) in capital. In contrast, Swedbank has Europe’s second-highest ratio of common Tier 1 equity to risk-weighted assets.
Handelsbanken, which boasts Europe’s highest CET1 ratio, declined 4 percent over the same period, compared with a roughly 3 percent increase in the Bloomberg European Banks and Financial Services index.
Banks in Scandinavia successfully weathered some of Europe’s toughest regulatory demands and the most negative rate environment by venturing into new business areas and passing on to customers the cost of higher capital requirements. Even after recent price drops, shares still trade above their historical averages, Handelsbanken notes.
But investors no longer look at Scandinavia as one homogeneous story and have started selling out of bank stocks they’ve decided are “more vulnerable to the worst outcomes,” according to Jan Wolter, head of European bank research at Credit Suisse. “The screen is done not on a regional basis, but on a valuation basis.”
Nordic banks start reporting first-quarter results this week. Potential weaknesses to look out for include:
Denmark’s regulator may demand Danske hold more capital to guard against potential losses in Norway and Sweden, where the bank has been growing rapidly and where house price gains have alarmed regulators.
