SEB Reports Strong Second Quarter, Lowers Guidance on Loan Losses for 2021

No-moat Skandinaviska Enskilda Banken reported strong second-quarter results with operating profits of SEK 7.9 billion, up 6% from the first quarter this year. Unsurprisingly, performance increased dramatically relative to the same period a year ago. The prime reason was lower loan losses. On the back of an improving economic outlook in the Nordics and the Baltics, SEB booked only SEK 7 million in loan-loss provisions in the quarter, or zero basis points of its total loan book. Reversals for loans in stage 1 and 2 offset the increase in provisions for loans deemed nonperforming, while provisions booked over the last year adequately covered write-offs in the quarter. Furthermore, management updated its loan-loss guidance to below 8 basis points for the full year. Year to date, SEB has booked only 1 basis point. We plan to lower our loan-loss expectations for 2021 based on the more positive economic outlook and updated guidance, but we don’t anticipate a material change to our fair value estimate of SEK 110 per share. Our fair value estimate is driven primarily by our midcycle assumptions, which we leave unchanged.