* Q1 net profit SEK 2.36 bln vs forecast 3.51 bln
* Expected loan losses from pandemic rise, but beat estimates
* Core underlying business saw some improvements v Q1 2019
* Net interest income up after December rate hike (Adds CEO comment, context, analyst comment)
By Colm Fulton
STOCKHOLM, April 29 (Reuters) - Sweden’s SEB reported a steeper-than-expected fall in first-quarter net earnings on Wednesday as the novel coronavirus pandemic and the financial turmoil it has ushered in weighed on the bank’s trading arm and loan portfolio.
The economic crisis stemming from the pandemic raises the prospect of mounting loan losses and credit impairments for banks as businesses shut their doors and lay off staff.
The bank is also waiting on the outcome of the Swedish FSA’s investigation into alleged money laundering at its Baltic business, with a decision expected in June.
CEO Johan Torgeby told Reuters by phone that the quarter had been a tale of two halves.
“In January and February things looked great, but then we had a complete change of scene because of the coronavirus in March,” Torgeby said, adding that the bank was well capitalised to weather the pandemic.
SEB said in a statement its net profit fell 50% to 2.36 billion Swedish crowns ($239 million) from 4.68 billion a year-ago, lower than the mean forecast of 3.51 billion in a Refinitiv poll of analysts. The company’s shares were up more than 5% at 1130 GMT, however, as parts of the bank’s core business increased profits and loan losses were less than many analysts forecast.
Even though Sweden’s coronavirus restrictions have been lighter than in other countries, the financial strain has been felt and a record number of hotels and restaurants went bankrupt in March.
Net expected credit losses at SEB increased to 1.49 billion crowns in the quarter compared to 422 million in the year-ago-period, driven by the deteriorating macroeconomic outlook and turmoil in oil markets. However, the total was still lower than the 2.05 billion crowns seen by analysts.
A European accounting rule, IFRS 9, introduced in response to the 2007-2008 financial crisis, requires banks to book expected losses from a crisis upfront.
Robin Rane, an analyst at Kepler Cheuvreux, said: “the core income was pretty strong...the result was on the solid side.”
Interest income, which includes income from mortgages, rose to 6.2 billion crowns from 5.35 billion a year ago, boosted by the Swedish central bank’s repo rate hike to zero percent in December.
Net fee and commission income rose to 4.62 billion crowns from 4.29 billion a year ago, driven by higher lending fees.
Torgeby, who has been working from home for much of the last month said he saw a very high likelihood of permanent change in the way people interact and work after the crisis.
“In some areas, there is a productivity gain because its not meeting on meeting on meeting, you have more flexibility,” he added, referring to remote working arrangements, such as video conferencing.
Last week, local rival Handelsbanken reported a smaller-than-expected fall in first-quarter net earnings as loan loss provisions caused by the financial strain of the coronavirus pandemic grew less than many analysts had estimated.
Sweden’s financial watchdog said in December it was deciding whether to fine SEB in relation to alleged money laundering.
However, a final decision has been delayed until June, the FSA said last month, citing shifting priorities in the wake of the worsening coronavirus pandemic.
In March, SEB said it was re-evaluating its proposed dividend for 2019, after the country’s regulator warned banks against shareholder payouts during the coronavirus. ($1 = 9.8628 Swedish crowns) (Reporting by Colm Fulton; editing by Johan Ahlander and Niklas Pollard and Kirsten Donovan)