The top executive at Sweden's Swedbank said on September 25 he still saw no need to make provisions on a $1.35 billion secured loan to Lehman Brothers and repeated his bank's finances are robust.
Chief Executive Jan Liden was speaking to Reuters after the bank's shares fell as much as 9 percent on a report that led to speculation about the Swedish bank's exposure to the loan, secured by commercial real estate. "We see no reason to change our policy for not provisioning for this facility," Liden said. Shares in Swedbank slumped after a report on commercial real estate in the Wall Street Journal, later picked up by a Swedish business Web site, said some of the real estate projects backing Swedbank's loan had not been built.
Liden said 40 percent of the projects were not complete, but that the bank felt comfortable with the cash flows from these. He added the average loan to value of the portfolio was currently 60 percent. Swedbank also has a 202 million Swedish crown ($31 million) unsecured exposure to Lehman.
When the bank announced its exposures to Lehman on September 16, it said it was too early to say if it would have to make provisions regarding the unsecured loan, but it did not expect to need to make a provision for the secured loan. Swedbank stock closed down 3 percent. Swedbank has seen its shares harder hit than rivals by the current financial market turmoil. Its shares are down about 46 percent this year against a fall of 33 percent in the Nordic banking index.
Liden said Swedbank had been the object of heavy short-selling in the market and called on Swedish authorities to introduce controls on short-selling as some other countries, such as the United Kingdom, have done. "Speculation is harmful in this situation," he said. "The only ones who benefit are the speculators themselves."
Worries about Swedbank have centred on its exposure to the Baltic region, where a period of rapid growth has come to a sudden stop. Swedbank sees both Estonia and Latvia in recession this year and next. The Latvian economy expanded 10.3 percent in 2007 and Estonia grew 7.1 percent. "We think it is going to get worse in terms of the credit cycle and the economic cycle," Liden said.
But he stuck to the bank's previous prediction of loan losses of about 0.7 percent of Swedbank's Baltic loan portfolio in 2008, rising to somewhere about 120 basis points in 2009. Some analysts have predicted higher figures for loan losses and suggested Swedbank would need to seek a partner in order to help it get through the current crisis in financial markets.
Liden stressed Swedbank remains solid despite the headwinds faced by banks in the current conditions. "I think that Swedbank is still very profitable, well-capitalised and has very good risk control," Liden said. He also pointed to repeated statements from Sweden's Financial Services Authority and central bank that the financial system was sound and the banks, including Swedbank, were robust.
Asked whether the measures introduced by Swedish authorities to ease conditions in the markets had helped, Liden said:
"Unfortunately not. I had hoped those facilities would actually make the market open up and be more willing to trade." The Debt Office has kicked off a series of auctions to sell as much as 150 billion crowns of T-bills to ease a shortage in the market. The funds are to be invested in mortgage bonds. The central bank has also eased collateral requirements for banks and agreed a $10 billion swap facility with the Federal Reserve in the United States.
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