This content is from: Local Insights

What is scaring banks

In Sweden, as well as in many other countries, the financial crisis has taken its toll on society in general, and banks in particular. The primary concerns of the Swedish banks during autumn 2008 were funding and other liquidity issues. Therefore, the Swedish National Debt Office (Riksgälden) launched a guarantee scheme as a part of the Government's overall package of measures to strengthen the stability in the Swedish financial system. The scheme applied for a fixed term up to April 30 2009, but has recently been extended until at least October 31 2009. Until recently, only two banks – Swedbank and SBAB – have entered into the scheme, although most Swedish banks have not yet renounced a guarantee from the Government under the initiated guarantee programme.

However, at present Swedish banks are more eager to strengthen their share capital than increase liquidity. Swedbank was first out, launching a SKr12.4 billion ($1.52 billion) new issue of preference shares, which was successfully completed in December 2008. Also, Swedish banks SEB and Nordea have recently announced their intent to complete new share issuances of SKr15 and SKr27.5 billion, respectively. Furthermore, Handelsbanken has strengthened its share capital, through a non-innovative Tier 1 capital loan of almost SKr3 billion. Given the market, these measures are considered non-controversial.

A fundamental question is, however, why Swedish banks are strengthening their capital base when they continue to assert their profitability and generally sound capital positions (arguably among the most well capitalised banks in Europe) and their good access to funding. The sound capital position is also supported by the Swedish FSA (Finansinspektionen). Even though the banks are arguing that the re-capitalisations are precautionary cushions, aiming to mitigate an uncertain economy, it is not unreasonable to assume that the banks are more worried about credit defaults and economic decline (particularly in eastern Europe) than they are willing to disclose or, perhaps, even speculate in.

Martin Johansson

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