Swedbank Troubles Continue
Swedbank is perceived by the markets to have more trouble than other Swedish banks for two reasons. One is their high presence in the Baltic states, which have entered a recession and whose situation with high credit driven inflation combined with fixed exchange rates in many ways are similar to the Swedish economic problems of the late 1980s and early 1990s I told you about in the previous post. Other Swedish banks have significant activity in the Baltic states too, but Swedbank's exposure is higher than the others.
The other is that Swedbank had a larger stake in now bankrupt Lehman brothers, some of which will be lost.
In their latest earnings report no significant problems seemed to exist, as profits in fact increased from the previous year despite an increase in credit losses. However, that was before the hit from Lehman. And while that will only be a temporary hit, credit losses in the Baltic states will likely significantly increase.
It is primarily the uncertainty over the Baltic situation which has caused Swedbank stock to plummet more than 60% from year ago levels to only about 100 SEK per share. Based on the annualized earnings per share of 25 SEK per share from the first half of 2008, the stock would appear to be very cheap. However, given the general mistrust toward financial stocks and the likely sharp increase in credit losses in particularly the Baltic states but probably also Sweden and given the fact that the financial turmoil is likely to reduce the profits of their financial crisis, the stock looks risky in the short term.