SWDBF - SEB: Excellent Execution Vs. A More Challenging Operating Environment

2024-06-25 06:35:53 ET

Summary

• SEB has performed well compared to other European banks, as the bank has paired good underwriting discipline and great expense control with a tailwind of higher rates.
• The rate cycle is entering the next phase, with the Riksbank having cut rates and looking to cut again, and rate-sensitive banks like SEB will see net interest income pressured.
• I expect mid-single-digit declines in net interest income, with lower rates and weak loan growth, and I see limited opportunities to offset this with cost cutting or credit costs.
• SEB is richly capitalized, and returns of capital through dividends and buybacks could produce a yield at or near 9%.
• SEB's valuation is so-so today, and I'm not eager to chase a rate-sensitive bank into a lower rate cycle.

There’s little that I can fault about how the management of Sweden’s Skandinaviska Enskilda Banken (SVKEF) (SEB-A.ST) (“SEB”) has been running the business. While higher rates have created opportunities and challenges in almost equal measure for many banks, to say nothing of a more complicated macro backdrop, SEB has continued to perform well, with strong financial performance relative to most European banks....

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