Swedbank said on Monday it would raise more than $1.5 billion in a rights issue and the Swedish central bank provided capital for a smaller bank to lessen the risk of “serious” systemic disruption.
Swedbank, whose shares have slumped on worries about mounting credit losses from its Baltic business, became the first major Swedish financial firm to shore up its balance sheet during the current crisis. But the bank was swiftly joined by investment bank Carnegie, which said it had been granted a 1 billion Swedish krona ($126 million) bridge loan from the Riksbank pending a government guarantee scheme.
Swedish banks until recently were considered less vulnerable to the global credit crisis: They had little direct exposure to sub-prime mortgages and a more conservative financial profile. But Swedbank’s exposure to the Baltics, where it had expanded in search of stronger growth, has rattled the market. Carnegie’s capital boost was less than a 10th the size of Swedbank’s, but the Riksbank’s statement raised the possibility of systemic problems. “Given the currently prevailing anxiety, the Riksbank has decided to grant liquidity assistance to Carnegie to reduce the risk of a serious disruption to the financial system,” Riksbank Governor Stefan Ingves said in the statement. Carnegie was finding it difficult to finance payments and it was suffering from increased collateral requirements in the wake of the financial crisis.
Swedbank said it will issue one preference share for every two existing ordinary shares at 48 krona per share, raising a total of 12.4 billion krona. Swedbank said the issue was fully underwritten by investors. The issue will boost the group’s Tier 1 capital ratio to 10.5% from 8.7% and its core Tier 1 ratio to 9.2% from 7.4.
Swedbank’s chief executive said the capital boost will lead to lower funding costs. Swedbank shares closed at 59.5 krona on Friday. “There have been a lot of rumors around whether our owners would be able to add capital,” CEO Jan Liden told reporters in a telephone conference. “This new issue is a way for us to once and for all take away that uncertainty. Our owners have capacity, they do this now proactively to show that the capacity is there,” Liden said.
In the statement announcing the issue, Swedbank Chairman Carl Eric Stalberg said it was important to stress that Swedbank was profitable and sound. “However, we believe it is in the best interest of all stakeholders to take proactive and decisive action in this volatile and uncertain market environment,” he said, adding that Swedbank’s capitalization will compare favorably to other large European banks after the issue. Swedbank’s loan losses in the Baltic region were 405 million krona in the Q3, against 153 million krona in the same period a year earlier and 245 million in the Q2 of 2008.
Swedbank and its domestic peer SEB have both in recent years expanded in the Baltic region. But as the financial crisis has worsened, economic prospects for the Baltic countries have grown bleaker, raising concerns among some analysts that loan losses at the banks could rise sharply. (Reuters)