Handelsbanken Q4 Lags, Shares Fall Despite Extra Payout

By Simon Johnson and Eva Odefalk

STOCKHOLM (Reuters) - Sweden's Handelsbanken (SHBa.ST) posted a slightly bigger-than-expected fall in fourth-quarter operating profit, sending its shares lower despite a planned stock buyback and an extra dividend.

Handelsbanken's results were out of step with the upbeat figures from other Nordic banks, which have been boosted by strong economic growth in the region and unscarred by the kind of writedowns that have hit international banks.

"It was the weakest of all the Nordic banks' fourth-quarter results," Aksel Madsen, analyst at Danske Bank said on Wednesday.

Handelsbanken, the Nordic region's fourth-largest bank by market capitalization, earned 3.1 billion Swedish crowns ($494 million) on continued operations against an average forecast in a Reuters poll of 3.36 billion. The bank had higher costs and larger-than-expected loan losses.

Shares in the bank were down 6.9 percent at 1125 GMT against a flat Stockholm market .

Analysts said that costs -- up 10 percent in the fourth quarter from the same period the previous year for continuing operations and 16 percent higher quarter-on-quarter were behind the falling share price and lower-than-expected result.

Handelsbanken blamed an increase in performance-related pay.

"Then we are making a massive investment in expanding our banking business to other countries and that weighed a little more in the fourth quarter," Chief Executive Par Boman said.

The bank opened 41 branches outside Sweden in 2007 and said it planned 35 to 45 new branches abroad this year.

The ratio of income to cost at Handelsbanken rose to 50.6 percent in the fourth quarter from 41.0 percent in the same period the previous year.

Other income lines were just above analysts' estimates.

All the figures exclude insurance unit SPP, sold to Norway's Storebrand (STB.OL).

DIVIDEND

Handelsbanken said it would pay an ordinary dividend of 8.5 crowns per share and an extra dividend of 5 crowns per share.

It also said it would propose a buyback of as many as 20 million shares, which one analyst noted was smaller than the previous mandate for 40 million shares.

Handelsbanken said any shares bought back could be used to finance acquisitions.

Boman said the bank was still interested in smaller targets in Denmark, but would not say whether a deal was near.

"I don't want to speculate if the likelihood has risen (of a deal), but there is always a space in the calendar for the board of a smaller bank who want to talk to us."

With the reporting season over for big Nordic banks, their decision to steer clear of subprime mortgage business in the United States and related securities has proved a blessing. None of them has been forced into the billion-dollar writedowns reported by banks such as Merrill Lynch MER.N and UBS (UBSN.VX).

Handelsbanken said credit market turmoil reduced the value of bonds in its trading portfolio by 152 million crowns in the fourth quarter. This came after a writedown of 338 million crowns in the third quarter.

Boman said that the overall credit market was more nervy than last autumn, but that Handelsbanken's operations had not been affected in the first quarter.

"We have a lot of business and a good stream of clients coming to us," he said.

(Editing by David Cowell and Erica Billingham)