SEB commissions offset negative rates’ impact in Q2 results

Skandinaviska Enskilda Banken (SEB) kicked off Swedish banks’ Q2 results announcements on Tuesday with pre-tax profits of Skr5.3bn (Eu570m) that were 14% ahead of consensus expectations, with strong commission revenues offsetting a fall in net interest income.

Nordea announced Q2 pre-tax profits 4% ahead of forecasts and Swedbank came in flat to consensus expectations when they released results yesterday (Thursday), with each bank performing better than SEB on NII but also less impressively on the commission side.

Nordea’s NII fell 4% year-on-year but was 1% ahead of forecast, while its commission generation was up 11% and 2% ahead. Swedbank’s NII was up 3% y-o-y and 1% ahead of expectations but commissions, up 1%, were 1% below forecasts.

“After an exceptional start to the year, we saw in the second quarter a stabilisation of net interest income, a somewhat lower customer activity level in the capital markets, while the strong trend in the savings and investment operations continued, confirming the strong customer demand for our advisory expertise and products,” said Nordea CEO Christian Clausen.

SEB’s commission generation, up 14% y-o-y, was 9% ahead of expectations, while its NII was down 6% and 4% below forecasts. According to Mats Anderson, equity research analyst at KeplerCheuvreux, the results also represent a milestone in the developments of SEB’s revenues in that net commissions overtook NII as the largest revenue contributor, making up 40% of the quarter’s total revenues of Skr12bn versus NII’s 39% share.

“It illustrates SEB’s particular market position as a more activity-based bank than peers as it is oriented towards the corporate sector to a larger degree than Nordic peers and has two-thirds of its revenues from the corporate sector,” he said. “Given the interest rate environment, with negative interest rates in the region eating into the NII, commission generation will show relative strength in 2015.

“However we expect that the NII performance will start to improve later in the year as lending is repriced, yield curves steepen, and also volumes grow and are expected by us to accelerate in 2016, in particular on the corporate side. But all in all SEB’s blend of revenue mix and assets looks increasingly interesting in the new world of regulation with capital-light products.”

DNB was the first Nordic bank to announce results, last Friday (10 July), revealing net profit of Nkr5.1bn (Eu570m), which was up 9% y-o-y and 5% ahead of consensus expectations. Revenues were 3% better than forecast, driven by commission generation 9% ahead, at Nkr2.5bn, and the net result of financial transactions 28% ahead, at Nkr1.2bn. Net interest income was up 11% y-o-y and 1% ahead of expectations. Loan-loss provisioning was meanwhile 7% below expectations.

Rune Bjerke, group chief executive, said that although Norway looks set to enter a period with considerably lower growth than in recent years, there are “important buffers” in the economy that should ensure a soft landing.

“Interest rate cuts are helping to sustain households’ purchasing power and to keep the Norwegian krone weak,” he said. “A weak krone means higher profitability and improved competitiveness for exporters, who are also experiencing an increase in demand from other countries.”