February 7, 2018 / 7:47 AM / 8 months ago

UPDATE 2-Handelsbanken Q4 profit hit by Carillion collapse

* Handelsbanken Q4 profit below expectations, hit by loan losses

* Carillion bankruptcy weighed heavily on results

* Proposes dividend of SEK 7.50/share, above expectations (Rewrites, adds details, CEO quotes)

By Johan Ahlander

STOCKHOLM, Feb 7 (Reuters) - Sweden’s Handelsbanken reported fourth-quarter profit below expectations on Wednesday as loan losses stemming from the collapse of British construction and services group Carillion weighed heavily on results.

Handelsbanken, one of Sweden’s biggest mortgage lenders, is still a niche player in the UK but has been expanding steadily there and Britain now accounts for 13 percent of the group’s revenue.

While growth in Britain contributed positively, the earnings miss was wholly attributable to credit losses, and more than half of the group’s total loan losses, 556 million crowns, were booked in its British business. Handelsbanken said Carillion accounted for the increase.

“Carillion is an exceptional case. Obviously something went horribly wrong that wasn’t visible from the outside,” Handelsbanken CEO Anders Bouvin told Reuters.

“We managed to decrease our exposure substantially before the bankruptcy, but were unable to get out completely.”

Employing nearly 18,000 people in Britain, Carillion failed on Jan. 15 when its banks halted funding, triggering Britain’s biggest corporate demise in a decade and forcing the government to step in to guarantee vital public services.

Handelsbanken was one of several banks which arranged a 790 million pound revolving credit facility for Carillion.

Bouvin said all losses from Carillion had now been booked. Another 372 million crowns in loan losses were booked in Denmark, which Handelsbanken said was also due to a single exposure.

Shares in Handelsbanken were down 1.3 percent at 1057 GMT, underperforming the European banking index, which was up 0.3 percent.

BREXIT SPEEDING UP TRANSFORMATION OF UK BUSINESS

Britain’s impending exit from the European Union has forced Handelsbanken to turn its UK branch into a subsidiary, operating as a domestic bank under British supervision.

“Brexit gives us reason to bring forward and speed up the process. This is the final step for our UK business to become a fully fledged British bank and this will be a benefit to us and our customers in the long run,” Bouvin said.

Bouvin said the transformation would cost about 300 million Swedish crowns in 2018.

Handelsbanken’s lending grew 11 percent and deposits by 27 percent in the UK in 2017, and Bouvin sees no change to that development because of Brexit.

“Our business is not dependent on UK being part of the union,” he said. “We grow because customers like to do business with us and that is not affected by Brexit.”

Handelsbanken runs a decentralised business model where branches are allowed to make most decisions on lending autonomously. In 2017 it was named best private bank in the UK by the Financial Times, best small business bank by Business Banking Insight and had the most satisfied private and corporate customers in the UK according to the EPSI banking index.

The bank proposed an ordinary dividend of 5.50 crowns per share and an extra dividend of 2.0 crowns, higher than the total expected dividend of 6.51 per share seen by analysts.

Operating profit in the quarter rose to 5.0 billion Swedish crowns from a year-ago 4.70 billion, lagging a mean forecast of 5.85 billion in a Reuters poll of analysts. ($1 = 7.9438 Swedish crowns) (Reporting by Johan Ahlander; Editing by Catherine Evans)

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