Handelsbanken takes $171m Q1 hit on credit crunch

STOCKHOLM (Reuters) - Sweden's Handelsbanken (SHBa.ST) warned its first-quarter earnings would take a $171 million credit crunch hit, after selling fixed-income securities and closing its New York-based proprietary trading unit.

Handelsbanken said on Monday it had divested its holding of U.S. securities backed by credit-card receivables, a portfolio worth 11 billion crowns ($1.99 billion) at the end of 2007.

Worsening credit market conditions in the first quarter had hit the value of its other fixed-income assets, the bank said.

"The combined impact on the liquidity portfolio from changes in market values as at March 28 will result in a loss of 946 million crowns ($171 million) and a writedown against equity of 448 million crowns."

Shares in Handelsbanken were down 3.1 percent at 0923 GMT against a fall of 1.4 percent in the blue-chip index <.OMXS30).

"That even Swedish banks would get hit in this climate was not unexpected," said one banking analyst who declined to be named. "What is unexpected is that it is Handelsbanken that has come out first."

He said other Swedish banks would have to take writedowns. "The question is whether they choose to issue profit warnings or not," he added.

Shares in Swedish bank SEB (SEBa.ST) were down nearly 3.5 percent, Swedbank (SWEDa.ST) was 2.9 percent lower and Nordea was down 1.4 percent.

Handelsbanken said it was closing the New York unit as part of a drive to focus on its core business and to reduce earnings volatility.

CONSERVATIVE APPROACH

"This holding does not fit us," Ulf Reise, Handelsbanken's head of central control and accounting, said. "Because we are a conservative bank which doesn't like volatility in its results, it is natural for us to sell this."

He would not disclose Handelsbanken's remaining exposure to the U.S. credit market.

The bank made an operating profit of 3.1 billion crowns in the fourth quarter of 2007, when it took a writedown of 152 million crowns to its bond portfolio.

Nordic banks have, by and large, avoided the worst effects of the global credit crunch that has forced international rivals such as Merrill Lynch MER.N, UBS (UBSN.VX) and Citigroup (C.N) to write off billions of dollars.

Although Nordic banks have not had significant exposure to subprime mortgage or related securities, widening credit spreads have forced them to write down the value of bond holdings in trading and liquidity portfolios.

SEB -- which did have a small portfolio of subprime debt -- wrote down the value of its fixed-income holdings by 990 million crowns in the fourth quarter.

The bank said this year it had sold some subprime paper at a profit and that it did not expect to realise any losses on its portfolio.

Handelsbanken, Sweden's second biggest by market value, said it was only shutting its proprietary trading operations in New York and that the client-driven business and current funding operation would remain there.

Proprietary trading in foreign exchange and fixed-income will be concentrated in Stockholm.

The bank's liquidity portfolio was worth 88 billion crowns at the end of 2007.

(Reporting by Stockholm Newsroom; Editing by Quentin Bryar/David Hulmes)