Get Premium Data for Cyber Monday: Up to 55% Off InvestingProCLAIM SALE

Svenska Handelsbanken stock downgraded by BofA amid ROTE erosion estimate

EditorEmilio Ghigini
Published 07/23/2024, 04:18 PM
SHBa
-

On Tuesday, BofA Securities revised its stance on Svenska Handelsbanken AB (SHBA:SS) (OTC: SVNLY) stock, shifting the rating from Neutral to Underperform and adjusting the price target to SEK 98.00 from SEK 117.00.

The new rating reflects the firm's anticipation of significant challenges for the bank in the near future, including a projected substantial decline in return on tangible equity (ROTE) of more than 4% over the next two years.

The bank is expected to experience a compound annual growth rate (CAGR) of negative 6% in net interest income (NII) from 2023 to 2025. Additionally, the bank's operating performance is predicted to suffer, with negative operating jaws—an indicator comparing the growth rate of income to expenses—of 13% in 2024 and 8% in 2025. These factors contribute to the downgrade and suggest a tough period ahead for the bank.

Svenska Handelsbanken, according to the firm, is likely to undergo a restructuring phase to enhance profitability in its Swedish operations. This necessity arises from the anticipated difficulty in reducing costs at branch levels and within its international businesses, particularly in Norway. Despite the bank's traditionally low cost of risk (CoR), its significant exposure to commercial real estate (CRE) and a lower coverage ratio are considered potential risks.

The bank's capital position remains robust; however, it is expected that management will maintain higher capital buffers, estimated at 300 basis points, down from the current 400 basis points, which may be reduced by 100 basis points in the fourth quarter of 2024.

Consequently, the total yield of the bank is projected to align with the sector average of 10%. This assessment by BofA Securities indicates caution regarding the bank's performance and potential investor returns in the coming years.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.