Handelsbanken exceeds profit expectations, shares soar amid cost relief

Handelsbanken, the oldest company on the Swedish stock exchange, reported better-than-expected second-quarter net profit on Wednesday, alleviating concerns over high costs.

The bank’s robust interest income and strong credit quality helped offset the impact of lingering expenses, leading to a significant surge in its shares.

Although net profit declined to 6.79 billion crowns ($641 million) from 7.10 billion in the previous year, it surpassed analysts’ estimates of 6.22 billion, according to LSEG estimates. This positive outcome provided a much-needed boost to Handelsbanken’s performance after the bank experienced a significant increase in expenses during the first quarter, which had weighed on earnings and impacted investor sentiment.

In the second quarter, expenses rose by 14% year-on-year to 6.42 billion crowns, slightly higher than the 6.30 billion anticipated by analysts. However, there was a slight 1% decrease compared to the first quarter, and the bank implemented measures to improve efficiency. This included a restructuring charge for staff cuts amounting to just above 300 million crowns. Handelsbanken also reduced external consultancy contracts by 15% and reached agreements for 200 employees to leave the bank.

Handelsbanken attributed its improved performance to increased income from net interest margins, as well as growth in asset management and payment commissions. The bank highlighted its efforts to enhance efficiency during the second quarter, which contributed to the positive outcome.

Analysts at JP Morgan expressed optimism, stating that they expected the bank’s results to drive estimate upgrades and anticipate a favorable market reaction.

Net interest income, which includes revenue from mortgages, rose to 11.75 billion crowns from 11.69 billion in the previous year, surpassing analysts’ expectations of 11.36 billion. Handelsbanken’s commission income also saw growth, reaching 2.94 billion crowns compared to 2.76 billion, surpassing the mean forecast of 2.86 billion. Additionally, gains on financial transactions rose to 580 million from 393 million.

The bank reported a reversal of 133 million crowns on net credit loss provisions, a significant improvement compared to the 58 million loss reported a year ago, and surpassing analysts’ expectations of a 174 million loss.

Handelsbanken operates primarily in Sweden, Norway, and Britain, and its positive results align with the recent reports of higher-than-expected net earnings from SEB and Swedbank.

These banks experienced a balance between revenue streams, including investment banking, and a tentative increase in credit demand, which helped offset the slowdown in interest income momentum.