Recent controversy surrounding Swedbank has received significant media attention and resulted in the removal of the bank's CEO. Ongoing investigations by the Swedish Economic Crime Authority and financial authorities in the US could have financial consequences for the bank and its owners. Nordic Credit Rating (NCR) concludes that Swedbank's share price decline of about 28% since 31 Dec 2018 will have only marginal impacts on savings banks' results and capital ratios, though equity will decline due to fair value changes that affect comprehensive income. However, NCR notes that banks with a high share of dividend income to operating income could be affected if Swedbank's dividend policy is adjusted.
"Swedish savings banks have strong and long-term ties to Swedbank, most of which are unaffected by the recent controversy. However, the decline in market value of Swedbank shares does affect the banks' equity and to a more modest degree capitalisation", says Sean Cotten, lead analyst for financial institutions at NCR. "For some banks, a material change in Swedbank's generous dividend policy resulting from the ongoing investigations could result in a significant decline in operating profit. However, if dividend payments remain high, the falling share price could provide an opportunity for savings banks, which are typically well-stocked with capital, to further increase their ownership and long-term influence over Swedbank."
NCR has researched the links between the savings banks and Swedbank to determine how a selection of 12 savings banks representing nearly 50% of shares owned by the Savings Bank Group could be affected by Swedbank's recent share price fall and the potential for legal issues and fines to affect Swedbank's dividend policy.
NCR has issuer ratings on Sparbanken Rekarne (A- and owned 50% by Swedbank) and Sparbanken Västra Mälardalen (BBB+), both are on stable outlooks.
This commentary does not reflect a rating action.
If you have any questions, please contact:
Sean Cotten, Lead analyst, +46 732 32 43 78, sean.cotten@nordiccreditrating.com
Geir Kristiansen, Analyst, +47 90 78 45 93, geir.kristiansen@nordiccreditrating.com