REFILE-UPDATE 4-Swedbank sees light at end of tunnel after Q3

(Refiles to change day of the week in par 1 to Tuesday, not Thursday)

* Operating loss 2.6 bln SEK, worse than forecast

* Impairment losses on loans slow to 6.1 bln SEK from Q2

* Says 15 pct Baltic devaluation part of planning scenario

* Shares trade up 2.3 pct, S&P upgrades to "buy" from "hold" (Adds S&P quote, updates share price)

By Mia Shanley and Sven Nordenstam

STOCKHOLM, Oct 20 (Reuters) - Swedbank AB (SWEDa.ST) cheered markets with upbeat comments after posting its third straight quarterly loss on Tuesday and said it was preparing itself for a possible Baltic currencies devaluation.

Swedbank's loan losses, at a hefty 6.1 billion Swedish crowns ($882 million), were as expected by the market, reflecting the deep recession in the Baltics and eastern Europe, but were an improvement on the second quarter.

However, despite some reassuring signs, analysts worry that Latvia could still start a wave of currency devaluation, hitting borrowers who have euro-denominated loans.

While the bank says the matter is a political issue and that it has no official view on a possible currency devaluation in the Baltics, it has based its planning on such an eventuality.

"I think though a 15 percent devaluation is very much on the cards -- on the planning cards -- of the bank," Goran Bronner, the bank's chief risk officer, said on a conference call.

A forex trader in London said a Baltic devaluation was a real possibility, perhaps for early in 2010, but market fears of a contagion had dissipated somewhat.

Swedbank, the first of the major Nordic banks to report earnings, repeated its view the second half of the year would be better than the first in terms of loan losses and provisions. [ID:nLE676541]

"We are not guiding on any exact numbers for losses. What we have guided for is that the level of impaired loans will level off in the second half of 2009, and the numbers in the third quarter confirm that trend," CEO Michael Wolf told journalists.

That lifted the share price 2.3 percent by 1214 GMT and prompted Standard & Poor's to upgrade its recommendation on the Swedish bank to "buy" from "hold", calling the slowing growth rate of non-performing loans "encouraging".

Swedbank has been busy raising cash, reducing risk-weighted assets and downsizing to get in better shape following the worst financial crisis in decades.

PROVISIONS

The bank's 2.6 billion Swedish crown ($373.6 million) operating loss was below analysts' forecast loss of 2.2 billion crowns for the Nordic bank, due mainly to a weaker-than-expected trading income.

But most investors took heart from the positive noises on loan losses.

"Management seems to be very confident that the loan losses would stabilise from Q3 onwards," S&P analyst Phuong Pham said. "They seem to be more focused on quality instead of quantity which I find sensible."

The bank declined to say when it would be able to stop making new provisions for bad loans overall or whether it is bracing for another loss in the fourth quarter this year.

But with expectations firmly set for a better second half, the darkest days for the bank may have already passed.

"I think it goes that we are seeing that 2009 is the most problematic year for the bank if nothing unexpected happens, and therefore you can expect to see lower credit losses and provisions 2010," Bronner said.

The bulk of Swedbank's provisioning in the third quarter related to the Baltic states, where Swedbank had roughly 15 percent of its total lending, excluding repos.

Nick Davey, analyst at UBS, said the market had been watching the trend in Baltic non-performing loans closely.

"It's early days, but it looks like it is decelerating. These are some encouraging signs," he said.

The bank said it may have finally seen the worst in Ukraine, where nearly half of its loans are impaired, while it was "conservatively positive" on business in Sweden.

Swedbank rival SEB reports quarterly earnings on Tuesday and is seen posting an operating profit of 273 million crowns in the quarter, an 89 percent slide from a year earlier [ID:nLF628271] and sharply higher loan losses as the economic turmoil starts to hit business in Lithuania, where it is the biggest player. ($1=6.915 Swedish Crown) (Editing by Rupert Winchester and Mike Nesbit)