Profits fall for Nordea and SEB

Sweden's biggest bank Nordea and third-biggest SEB posted falls in third quarter earnings on Thursday owing to the global financial crisis, but analysts said the banks were withstanding the turmoil well.

Nordea saw its net profit in the July to September period fall by 14 percent from the third quarter a year ago to €655 million ($841 million), while total operating income rose by four percent to 1.99 billion euros, it said in a statement.

Net interest income, the bank’s main source of revenue, rose by 19 percent, though operating profit shrank by nine percent to €847 million.

The results were better than analysts’ forecasts of a net profit of €617 million, total operating income of 1.25 billion, and an operating profit of 826 million, according to Dow Jones Newswires.

Nordea said it had reported “strong results in extreme market conditions.”

“Uncertainty and risks have increased significantly both in the financial markets and about the macroeconomic development,” it said.

It said it expected “to see a gradual slowdown in lending growth for the remainder of this year,” though it did see lending margins improving.

The bank remained however vague about its outlook for 2008, saying it expected growth in risk-adjusted profit “somewhat above or below five percent.”

It said loan losses, which totaled €89 million in the quarter compared to a profit of 13 million a year ago, would “gradually increase.”

Meanwhile, SEB reported a 51 percent drop in net profit to 1.51 billion kronor ($192 million) in the third quarter, far below the 2.01 billion kronor forecast by analysts, and said it would cut 500 jobs in Sweden.

SEB, which has expanded aggressively in the Baltic states and has therefore been harder hit by the global financial crisis than other Swedish banks, said operating profit fell by 46 percent to 2.01 billion and total operating income dropped by eight percent to 8.7 billion.

But net interest income rose by 16 percent to 4.55 billion kronor, the bank’s highest level to date.

In the quarter, return on equity fell from 17.3 percent a year ago to 8.0 percent.

“In the Baltic countries the macroeconomic outlook has further deteriorated,” chief executive Annika Falkengren said in a statement.

“The bleak global economic outlook will impact our customers and thus earnings in the financial industry. We are planning for marked effects in the real economy,” she said.

Independent bank analyst Mats Andersson told Swedish Radio that despite the drop in earnings Swedish banks’ “operations are going very, very well.”

“The effects of the global financial crisis and in the Baltics are of course significant, but that was expected,” he said.

Sweden’s second biggest bank Handelsbanken also posted strong earnings on Wednesday.

“The Swedish banks have done really well in the financial crisis so far,” Andersson said.

Keefe, Bruyette and Woods bank analyst Henrik Schmidt agreed.

“It’s a better-than-expected reporting season for the Nordic banks in general and in relation to the rest of Europe,” he told Dow Jones Newswires.

“Net interest income is higher for all of the banks, driven by decent lending volume growth and improved margins.”

On the Stockholm stock exchange, Nordea and SEB both fell after their figures were released, Nordea shedding 2.73 percent and SEB 5.81 percent in an overall market down by 3.65 percent.