Turbulence in the real estate market had led to fears that northern European banks could come under pressure because of their large exposure to commercial but also residential real estate.
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Stockholm After the recent speculation by short sellers against major Swedish banks, investors have been eagerly awaiting the quarterly figures from the financial institutions. But SEB, Swedbank, Handelsbanken and the Finnish-Swedish Nordea were able to surprise positively this week: The profits of the institutes rose considerably, the loan losses were “insignificant”, judged the majority of market experts after the current quarterly figures were announced.
Just a few days ago, the Swedish central bank again raised interest rates by half a percentage point. In addition, turbulence in the real estate market led to fears that northern European banks could come under pressure because of their large exposure to commercial but also private real estate.
But the balance sheets confirmed the assessment of Daniel Barr, head of the Swedish financial regulator, who wanted nothing to do with a crisis in the banks. In the “bank barometers” published at the end of March, his authority gave the four dominant banks Nordea, Handelsbanken, SEB and Swedbank good marks overall.
“Swedish banks continue to have better profitability than European banks, and the gap has widened a bit over the past half year,” the report says.
After the announcement of the positive quarterly figures, the share prices of the financial institutions still fell slightly. Investors are worried that hedge funds could continue to bet on a fall in bank prices with so-called short sales.
>> Read also: Crisis on the real estate market: Swedish banks are being targeted by short sellers
In the case of short sales, for example, hedge funds borrow shares from large investors such as pension funds or insurance companies for a fee.
They sell these borrowed securities as soon as they receive them, hoping to buy back the shares at a lower price before the agreed return date. If the calculation works out, they pocket the difference between the sale price and the new purchase price as profit.
Commercial banks in particular were also affected by these short sales. The Swedish bank has the most exposure to commercial real estate among northern European banks. As recently as March, 11 percent of all Handelsbanken shares were loaned to short sellers.
In the meantime, however, the situation has eased somewhat: in the middle of this week it was just over three percent. Robert Andersson, an analyst at the Association of Shareholders, cannot understand the bets on falling prices. “I find it difficult to believe that commercial banks will lose money in the real estate sector,” he told the association’s magazine.
Loan losses are ‘insignificant’
Loan losses at commercial banks were the equivalent of 2.6 million euros in the first quarter of this year. Analysts had expected more than tenfold. The other banks also reported very low loan losses.
In contrast, the profits of the houses increased considerably: Handelsbanken reported a result of 9.2 billion crowns (810 million euros). In the same quarter last year, it was only 7.2 billion crowns.
Swedbank’s result was also significantly higher than a year ago at 12.6 billion crowns (1.11 billion euros). The result of the Finnish-Swedish Nordea rose to 1.5 billion crowns (130 million euros), SEB was able to almost double its result compared to the same quarter last year to 10.9 billion crowns (960 million euros).
The reason for the good results is the interest income, i.e. the difference between the deposit and lending interest. At Swedbank it rose by 77 percent. Nordea is up 35 percent, SEB 60 percent and Handelsbanken 44 percent.
The celebratory mood was slowed down by SEB boss Johan Torgeby. He warned that the good times for banks, with high lending rates and low deposit rates, could soon be over. “Sooner or later it’s over,” he said.
Defaults on loans for commercial and private real estate could become a problem for financial institutions if borrowers are unable to repay their mortgages on time or at all due to higher interest rates and falling prices on the real estate market at the same time.
That’s why analysts are worried about the high number of flexible loans. Floating rate loans have long been the preferred choice in Sweden. Things are not looking good for commercial real estate: Very large bond volumes will mature this year. In 2023, real estate companies will have to repay debts of around ten billion euros. By 2026, the refinancing requirement will even increase to 42 billion euros.
Sale of real estate objects
In order to cope with this, several real estate companies have already announced the sale of properties. As with private customers, most of the real estate groups had financed themselves through floating-rate bonds.
In recent years, with extremely low interest rates, this has gone well. Now, however, the corporations are under pressure. And that could spread to the banks, since around two-thirds of all loans in Sweden are real estate loans. That is significantly more than in most other European countries.
The International Monetary Fund (IMF) has called on the Swedish government to require banks to have a higher capital base and to intensify bank controls.
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