Swedbank to buy back debt, boost core capital

Sweden's Swedbank moved on Thursday to boost its core capital, announcing plans to buy back up to 3 billion Swedish crowns ($438.8 million) of its Tier 2 debt. Swedbank said it has been given the go ahead from the Swedish Financial Supervisory Authority (SFSA) to cut its outstanding subordinated debt, and that the debt buybacks were receiving keen interest from investors.
Analysts saw the move as marginally positive for the bank, which is trying to reassure investors in the face of what are expected to be major losses in the crisis-hit Baltic region, where it is heavily exposed. "Overall, a small positive for Swedbank, supportive for sub bonds on the intention to call Tier 1, in particular after a pretty weak Q2 net loss but (we're) not going to get too overexcited yet, with plenty of Baltic pain to come," RBS said in a note.
In the past year, Swedbank said it had increased its core Tier 1 ratio to 9.8 percent at the end of June, and its recently announced rights issue would take that to a pro forma 12.1 percent. "It is Swedbank's view that the continued ability to support the bank's balance sheet should be secured by its core Tier 1 capital," the bank said in a statement.
G20 finance leaders are calling on banks to hold more and better quality capital to ensure banks have a bigger cushion against the sort of catastrophic losses that led to failures and bailouts. Swedbank's decision follows a move in July by another Swedish bank, SEB, to buy back 400 million pounds of subordinated debt at a discount. "There's quite a few other banks that are doing this. They want to crystallise profits by buying back below par - that would then translate into core equity," said an analyst, who declined to be named. "They want to focus on capital a bit more."
Mounting credit losses in the Baltics have kept investors on edge due to worries that a fallout there could erode earnings and capital positions at the Swedish banks which have extended billions of euros of loans in the region. Swedbank is the Nordic region's most heavily exposed bank to the troubled economies of Latvia, Lithuania and Estonia.