Swedbank Reports Third-Quarter Profit of 8.2 Billion

Swedbank (OTC: SWDBY ) reported third-quarter financial results on Thursday. The transcript from the company's third-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

View the webcast at Summary Swedbank reported strong Q3 results, with profit increasing to 8.2 billion and return on equity reaching 15.6%. Net interest and commission income rose, while net gains and losses decreased. The company continues to execute its Swedbank 1527 strategy, focusing on strengthening customer relationships, growing volumes and enhancing efficiency. Swedbank maintained its leading position in the mortgage market across its four home markets.

Future guidance remains positive, with expected GDP growth in home markets outpacing the euro area. The company plans to maintain a capital buffer of 100-300 basis points, targeting a midpoint of 200 basis points, and noted potential for capital release through dividends. Full Transcript Maria Kahneman (Head of Investor Relations) Good morning. Thank you all for dialing in this morning.

I'm Maria Kahneman, head of Investor Relations at Swedbank, and I'm happy to welcome you to our third quarter results presentation. I have our CEO Jens Henriksson and our CFO Jun Lindefeld with me. Jens and Jun will start with the presentation and then we will move on to Q&A. So with that, over to you.

Jens Henriksson (Chief Executive Officer) Thank you, Maria. The third quarter was characterized by high business activity. Through advisory, financing and everyday banking services, we support our customers in uncertain times. Swedbank has once again the lesson result.

The global economy continues to show resilience. Last week I attended IMF's annual meeting in Bangkok. Global growth is being pulled in two opposite directions. Geopolitics are holding back while large AI investments contribute on the positive end.

Global growth is expected to reach 3% this year and to increase somewhat in 2027. Swedbank's four home markets have strong fundamentals and economies continue to perform well. Rising real wages, strengthened purchasing power and increased investments are the drivers. Our economists estimate that the GDP of Sweden, Estonia, Latvia and Lithuania will grow by 2 to 3% this year and that is twice the expected growth rate in the euro area.

Swedbank has once again delivered a strong result. Profit for the quarter increased and amounted to 8.2 billion. Return on equity to 15.6%. Both net interest income and net commission income increased while net gains and losses and other income decreased.

Costs were seasonally lower. Credit quality is solid. The risk level in Entercard has been taken down and in combination with an improved macroeconomic outlook, we had 700 million in net reversals of credit impairment during the quarter. Earnings per share amounted to 7k and 30 11.

Our work with the IRB overhaul continues and after the end of the quarter we receive approvals on both our mortgage model in Sweden and the corporate model in the Baltics. We continue to deliver on Our Plan Swedbank 1527 and as you all know by now, it focuses on three areas. We will strengthen our contractions, grow our volumes and continue to increase our efficiency. With our new organization in place, we work proactively and closer to our customers.

We have a clear business momentum across our four home markets and this is reflected in the strong development within mortgages, within savings and within the core business. Swedbank is the market leader in mortgages in Sweden, Estonia, Latvia and Lithuania. In Sweden, we grew faster than the market. During July and August we captured 19% of total market growth through our own channels.

In the Baltics, stable labor markets and rising real wages contributed to continued high activity in the housing market, and our volumes increased by 6% in local currency. Productivity was also high within the bank's savings business. Swedbank Robur is the largest fund provider in Sweden, Estonia, Latvia and Lithuania. And net inflows to Swedbank Robur and Swedbank Försäkring amounted to 8 and 12 billion krona respectively, and this reflects our customers' trust in our offering.

During the quarter, we launched the fund Swedbank Robur Food and Water that invests in companies developing solutions for the future supply of essential resources. Swedbank was once again perceived as the most sustainable bank in Sweden. Our clear customer focus and proactive work also show results in the corporate business. Corporate lending volumes increased by 12 billion Swedish krona during the quarter, of which the real estate sector accounted for approximately half.

In the Baltics, corporate lending increased by 6% and the growth was primarily driven by both cultural and the energy sector. And we are proud of our role in the energy transition in Estonia, Latvia and Lithuania. In the Baltics, Swedbank was for the eighth consecutive year named the most loved brand. And we continuously developed the bank and our offering.

Our work with AI is an important part of executing our strategy. We use AI to develop our business, strengthen our employees, increase efficiency and to strengthen cyber security. And during the quarter we launched Oak, our AI assistant for everyone in the bank. Our approach is clear.

AI for all, opportunities for all. Let me also take the chance to say a few words about our societal engagement. As a bank, we have an important responsibility to help improve financial health for both adults and children. Our magazine, Lucas Lantern has now been joined by the Gimi app.

Through this new partnership, we help children explore everyday finances and savings together with their parents. So let me now hand over to our CFO, Jun Liedeveld. Anders Karlsson (Chief Financial Officer) Thank you, Jens. We deliver a strong result supported by high customer activity across all business areas.

Return on equity was 15.6% and the cost-income ratio 0.41. Excluding the 673 million of extraordinary costs this quarter, return on equity was 16% and the cost-income ratio 0.37. We continue to deliver on the restructuring program that was presented in the first quarter. As already announced, we have sold the non-performing consumer loan portfolio in Entercard.

We expect this to be closed during the fourth quarter. We have also, after the quarter ended, sold the performing consumer loan portfolio. This is expected to be closed during the first quarter. High customer focus and continued demand across our core markets led to increasing lending volumes in Sweden.

Mortgage volumes in our own channels increased by 7 billion. Savings banks' volumes on our balance sheet added another 1 billion. Corporate lending in the Swedish business areas grew by 3 billion. In Baltic Banking, momentum is strong with mortgage volumes increasing by 6 billion and corporate lending by 5 billion.

Overall, our loan growth is well diversified across geographies and sectors. Deposit volumes developed in line with normal seasonality. In Sweden, private deposits decreased as normal during the summer months. Corporate deposits were stable as the decrease this quarter was mainly driven by institutional flows.

In Baltic Banking, private deposits increased by 2 billion across all three countries. The Lithuanian pension reform continues to drive private deposit growth, although the pace is decreasing. Corporate deposits increased, mainly driven by Latvia and Estonia. Net interest income increased by 3% compared with the previous quarter, supported by higher business volumes and ECB rates.

FX and day-count effects contributed with 156 million. Funding costs increased during the quarter driven by increased volumes and higher market rates. Overall, our interest rate sensitivity is as expected, with effects on funding materializing ahead of asset repricing. Net commission income increased by 5% compared with the previous quarter, supported by strong customer activity across several product areas.

Strong stock market performance, positive FX effects and net inflows of 8 billion contributed to growth in assets under management, which reached 2,989 billion in total. Payment-related income was strong, supported by seasonally higher card activity. The Swedish insurance business developed well with high net inflows. Net gains and losses reflected high customer activity and solid performance in FX and fixed income.

The Treasury result was impacted by negative revaluations, which was largely offset by positive share price performance in strategic holdings. Other income was lower compared with the previous quarter, primarily driven by the insurance result in Baltic Banking, stemming from higher claims due to floodings as well as negative revaluations driven by the higher interest rates. The results from partly owned companies also contributed. Costs developed as expected, seasonally lower and in line with previous communication.

We incurred 190 million in the third quarter of the announced 1.3 billion in extraordinary costs for 2026. The settlement with DFS corresponding to 483 million was also booked as an extraordinary cost during the quarter. Hence, extraordinary costs amounted to 673 million this quarter. Adjusting for these, underlying costs followed the normal seasonal pattern and were almost 4% lower.

Our cost guidance of 27.5 billion for 2026 remains unchanged. It is, as you know, excluding extraordinary costs and FX effects. The full-year FX effect is estimated to add approximately 250 million given current levels. A reminder here that though a weaker Swedish krona is negative for cost, it is positive for the bottom line as communicated earlier.

Investment levels will remain elevated in 2027 related to the restructuring program, but as synergies will start to materialize, they will offset the additional investments during 2027. By the end of 2028, the program is expected to be fully implemented and deliver a lower annual cost base of approximately 1 billion. Asset quality is solid with continued low realized credit losses. Total credit impairments amounted to 701 million in reversals.

Updated macroeconomic assumptions decreased impairments by 216 million. Rating and stage migration added 420 million, primarily driven by a few corporate customers. As a consequence of the revised macroeconomic scenario, the post-model adjustment was reduced by 70 million and amounted to 93 million. At quarter end, individually assessed provisions decreased, primarily related to a few corporate customers recovering and hence moving from stage three to stage two.

Entercard had net reversals of 421 million. The main impact is the 543 million in revaluation stemming from the sale of the non-performing loan portfolio. Overall, our loan portfolio is solid and resilient, supported by prudent underwriting standards, strong collateralization and broad diversification across sectors and geographies. Our CET1 ratio at quarter end was 17.2%, corresponding to a management buffer of 215 basis points above regulatory requirements.

This is driven by profit, volumes and FX. The main impact this quarter is, however, the annual SREP decision from the Swedish FSA. The Pillar 2 requirements increased by 23 basis points. The main driver here is technical and relates to how the SFSA calculates the IRB add-on.

We hold this until the updated Swedish IRB mortgage model is implemented, further also from an increase in interest rate risk in the banking book. Hence our CET1 capital ratio requirement has increased from 14.8 to 15.1%. As Jens said, we have now received clarity on several factors impacting our future capital buffer. This is mainly due to significant steps forward with the IRB model approvals in Sweden and the Baltics.

So I would like to take the opportunity and dive a bit deeper into this development over the coming two quarters. Note that I will do this based on the Q3 balance sheet. Hence growth and other factors will of course also have an impact. As you know, we have since before approval on our large corporate IRB model in Sweden.

We have now also received approval for the Swedish mortgage model, which is expected to be implemented in the fourth quarter. This will then reduce the IRB-related Pillar 2 add-on, leading to an increased buffer of around 70 basis points at year end. The Swedish FSA will move the remaining IRB-related add-on from Pillar 2 to Pillar 1. Capital requirements in nominal terms will remain unchanged, but it will result in a small negative effect on the buffer, approximately six basis points.

Then we have received approval to move some exposures to the standardized approach, leaving a positive effect on the buffer of around 10 to 12 basis points. The sale of Entercard's non-performing loan portfolio is expected to be closed during the fourth quarter and generate a CET1 benefit of approximately 3 to 5 basis points. Summing up the fourth quarter, these effects are expected to have a net positive impact on the buffer of around 75 basis points. Then going into the first quarter next year, the sale of the performing loan portfolio in Entercard is expected to be closed during the first quarter and give approximately 8 to 10 basis points of CET1 buffer benefit.

We have also received approval for our Baltic corporate model and it will be implemented in the first quarter. Connected to the approval, we are required to do amendments to this model. Until these are implemented, we will hold an Article 3 add-on, reducing the buffer by approximately 25 basis points. That's in line with the approximately 20 billion potential REA effect that I've talked about already in the quarter this year.

Summarizing both quarters, we expect a CET1 buffer benefit of approximately 60 basis points over the coming two quarters. Long term, after these two quarters, we expect the finalization of the IRB process to result in a net positive capital effect. With that, back to you, Jens. Jens Henriksson (Chief Executive Officer) Let me now briefly summarize the quarter.

Swedbank has once again delivered a strong result in uncertain times, and today we can report a return on equity of 15.6% during the quarter. Swedbank is the market leader within mortgages in Sweden, Estonia, Latvia and Lithuania. The savings business is characterized by high activity and strong net inflows. The corporate business grew broadly and lending volumes increased.

We have a clear business momentum. We continue to deliver on our Swedbank 1527, and Swedbank operates in Europe's most attractive markets. We stand strong and we are well positioned for sustainable growth and profitability. Our customers' future is our focus.

And with that back to you, Maria. Maria Kahneman (Head of Investor Relations) Thank you. So we are ready to begin the Q&A session, and I'd like to start with a kind reminder to please limit yourselves to two questions per turn. Operator, please go ahead.

OPERATOR Thank you, Madam. We will begin the question-and-answer session. Anyone who wishes to ask a question may press star and 1. On the telephone you will hear a tone to confirm that you have entered the queue.

If you wish to remove yourself from the question queue, you may press star and 2. Anyone who has a question may press star and 1 at this time. Our first question comes from Jakob Hesslerique from SEB. Please go ahead.

Jakob Hesslerique (Analyst) Good morning. Q4, your CET1 buffer is set to rise, which you mentioned, Jens, and you will be roughly 75 basis points above the 200 bp normalized level in the Swedbank 1527 plan. You still have one model outstanding, I think the Baltic retail one. So do you want to hold a buffer above the 200 basis points until that one is approved?

And if not, should we think— should we expect you to begin distributing the excess capital already this year, or how should we think about the buffer going forward? Jens Henriksson (Chief Executive Officer) Well, let me answer that question. The first thing is that we have more than one model. I mean it's a lot of models operating today.

We could talk about two important models, but there are of course many models out there, so it's not just one single. But when you look on capital, we have a capital buffer range between 100 and 300 basis points. And as you said, in our 1527 plan, we target the middle of it. That is the 200 basis points.

We have no intention of holding more capital than necessary and we have a dividend policy of 60 to 70%. And capital release above continues to be a judgment call. And in conjunction with the Q4 and the full-year report, the Board will present the dividend proposal to the AGM. Jakob Hesslerique (Analyst) That's very clear.

Thank you. And my second question is on Lithuania. I think credit impairments in that country were 53 basis points in Q3. Is that a few corporate names, or is it the energy and agricultural lending that you mentioned which drove the corporate growth that has resulted in the elevated credit impairment level?

And should we expect anything more from Lithuania? Anders Karlsson (Chief Financial Officer) Thank you, Jakob. You're right. There are a few individual corporates in Lithuania, but also in others that are standing for the development that you saw in the credit impairments bridge.

What I think is important is that, I mean, generally we have a very solid credit portfolio and we have prudent underwriting standards. But of course there are always movements in individual corporates. In this bridge that I showed you, you need to look at rating and stage migration together with the individually assessed, because there are movements between these, as I tried to point out in the speech. So there are some corporates moving in some direction and some in some other direction, which I think is normal for a corporate portfolio.

Jakob Hesslerique (Analyst) Perfect. Thank you.