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Expect continued losses from Nordic bank exposure outside home market

Moody’s anticipates continued losses at Danske Bank, SEB, and Swedbank due to large exposure outside of the Nordic markets.  In particular, exposure in the Baltics is likely to lead to continued writedowns for Nordic banking institutions.

The Irish Independent reports:

Danske Bank A/S, SEB AB and Swedbank AB will keep suffering losses from their non-Nordic businesses as the lenders’ operations in Ireland and the Baltics offset "robust earnings," Moody’s Investors Service said.

“Loan impairments are exerting pressure on the otherwise improved financial performance of the large Nordic banks,”Janne Thomsen, Moody’s lead analyst for Nordic banks, said in a statement today.

Swedbank and SEB are the largest banks in Estonia, Latvia and Lithuania and face spiraling loan losses there after the Baltic region’s debt-fueled property bubble pushed it into the deepest recession in the European Union this year. Copenhagen- based Danske Bank has had business in Ireland, north and south, since 2005 when it acquired Northern Bank and National Irish Bank. Ireland will post the EU’s widest budget deficit next year, at 14.7pc of gross domestic product, the European Commission estimates.

I have said much in the past about the Swedes and their exposure to the Baltics (see here and here). But, my links post highlighted an article on other exposures that Nordic banks have, namely Danske Bank’s investment in NIB in Ireland where the branch network is being cut back significantly due to the Depression in Ireland.

Moody’s cautions the banks on sticking to their knitting of domestic bank lending in order to offset the likelihood of large losses abroad and the volatility of non-core functions. Of the large Swedish banks, Handelsbanken and Nordea were not mentioned because they have much less exposure to the Baltics than do SEB and Swedbank.  I assume this means the Riksbank will be on hold for some time to come to allow enough spread margin for further building of capital at Swedish banks.

The 14.7% budget deficit figure cited in the article should make plain that the budgetary problems in Ireland are as large as they are in Greece – and this is one reason I am watching to see if today’s meltdown in Greece triggers contagion elsewhere in the Eurozone.

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

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