* Q2 operating profit 5.3 bln SEK vs forecast 5.0 bln
* Commission income up 10 pct from a year ago
* SEB benefited from increased corporate activity
(Adds CEO quotes, share)
By Mia Shanley and Johan Ahlander
STOCKHOLM, July 14 Swedish bank SEB,
which reported a 10 percent rise in second-quarter profit on
Monday, warned that tough capital rules are likely to make it
more challenging for Nordic lenders to produce solid returns in
The region's banks face tougher capital demands from
regulators in the wake of the financial crisis than the rest of
Europe. And Sweden's Social Democrats - tipped to win elections
in September - look set to make life more difficult with plans
for a tax on the banks to fund childcare reforms.
CEO Annika Falkengren said SEB would set new financial
targets towards the end of the year when banks are expected to
have better clarity on regulations.
"Of course, even more capital will make it more challenging
to make decent returns," she told Reuters. "All banks are pretty
worried about the non-level playing field (versus the rest of
On the tax plan, Falkengren said all companies needed to be
treated the same. "Is it going to be the energy sector next
time, is it going to be the retail sector?" she said. "It's very
difficult for companies to predict how to work when you don't
have a stable way of knowing things. You need a predictable tax
system with a lot of trust."
The region's major banks - Nordea, Handelsbanken
, SEB and Swedbank - were relatively
unscathed by the financial crisis and are some of Europe's most
profitable lenders, thanks in part to strong public finances and
a healthy corporate sector.
The four made a combined net profit of more than 19 billion
Swedish crowns ($2.84 billion) in the first quarter this year.
But in Sweden, politicians across the spectrum have been
increasingly critical of banks and told them to put more money
aside to cover for potential risks.
Sweden's government is also worried about increasing levels
of household debt and there has been discussion of forcing
Swedes to pay off mortgages, putting the banks on edge.
Most banks, including SEB, are already forcing new borrowers
to pay down mortgage loans to 70 percent of the value of a
property, but many older mortgages are still interest-only.
A Swedish central bank report earlier this year showed it
would take an average 99 years for those who are paying off the
principal to clear their mortgage debt. Four out of 10 borrowers
were not paying off their debt at all, the report showed.
Falkengren said banks were still discussing how to handle
the older mortgages but that her bank had noticed more people
were starting to pay back debt. She said loose monetary policy
was causing a sharp increase in asset prices which banks needed
to watch carefully. Swedish house prices have soared, nearly
tripling over the last 20 years.
COMMISSION INCOME JUMPS
SEB, the first of the Swedish banks to report earnings for
the quarter, said the global economy was on firmer ground in the
first half even though European growth was hampered by high
sovereign debt and unemployment.
Business sentiment had also turned more positive with
commission income in the quarter swelling 10 percent from a year
ago and above forecasts.
Buoyant equity markets and a return of corporate confidence
led many firms to go public or do deals. SEB, the Nordic
region's biggest corporate bank, is expected to benefit in the
According to Thomson Reuters data, SEB mopped up the biggest
corporate finance fees in the first half of the year followed by
Goldman Sachs and Swedish rival Nordea as it clinched
advisory roles on deals such as Volkswagen's
acquisition of truckmaker Scania.
Nick Davey, an analyst at UBS, said the second quarter
marked another solid set of earnings, but added: "Perhaps the
bulls were hoping first thing this morning there would be
something really juicy in there."
Operating profit in the quarter rose to 5.3 billion Swedish
crowns ($780 million), beating a mean forecast for 5.0 billion
in a Reuters poll and compared with 4.8 billion last year.
SEB's earnings contrast with results from Norway's biggest
bank DNB which last week reported earnings below
forecast for the second quarter due to loan losses in its
Shares in SEB were up 0.5 percent by 1101 GMT compared with
a 1.0 percent rise in the Stockholm blue-chip bourse.
The shares are up about 30 percent from a year ago and have
outperformed a near 12 percent rise in the STOXX Europe 600
($1 = 6.7950 Swedish Crowns)
(Reporting by Mia Shanley and Johan Ahlander; editing by Niklas
Pollard and Jane Merriman)