Financial turmoil hits Nordic banks

By Simon Johnson and Eva Odefalk

STOCKHOLM (Reuters) - Financial market turmoil hit Swedish banks in the third quarter with Nordea cutting its full-year outlook and rival Swedbank saying its owners were talking about raising new capital.

Nordea, the Nordic region's largest bank by value, SEB and Swedbank reported a fall in operating profits compared with a year earlier and with the previous quarter, and painted a grim outlook.

Shares in the Nordic banking sector fell sharply with Swedbank down more than 10 percent after its top executive confirmed its main owners were discussing a possible capital raising.

Nordea cut its full-year profit forecast citing the global market turmoil, which threatens to push many countries into recession.

SEB Chief Executive Annika Falkengren said: "The bleak global economic outlook will impact our customers and thus earnings in the financial industry."

The results contrasted with Handelsbanken, Sweden's second-largest bank, which posted a rise in third-quarter operating profit on Wednesday and said effects from the market crisis were limited.

Nordea's quarterly operating profit of 847 million euros ($1.1 billion) topped expectations but was 9 percent below 2007 and 4 percent off the second quarter 2008.

It cut its full-year outlook and now expects core profit to be in line with 2007's 2.42 billion euros. Nordea had already cut its growth outlook to see it at around 5 percent this year from a previous 5-10 percent.

SEB saw operating profit drop to 2.01 billion crowns -- below market forecasts and 46 percent down on 2007.

CEO Falkengren said the result "must be seen in the light of the markets coming to an almost complete standstill during September."

CREDIT SQUEEZE

Like global peers, Swedish banks have seen borrowing costs rise and equity market income fall due to the market crisis.

Authorities have said Swedish banks do not face the kind of problems as tottering lenders in Europe and the United States.

But the Swedish central bank has stepped in to ease credit conditions and the state has offered to guarantee new borrowing.

Swedbank shares have been hit hardest by the financial turmoil so far. But its third-quarter operating profit topped forecasts at 3.11 billion crowns against an expected 2.94 billion, and 3.67 billion a year earlier.