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Monday, October 27, 2008

Swedbank To Raise Capital

Swedbank have said today (Monday) that they plan to raise more than $1.5 billion in a rights issue at the same time as the Swedish central bank have announced that they are to provide capital for a smaller bank in an attempt to lessen the risk of "serious" systemic disruption. Swedbank, whose shares have slumped lately on worries about mounting credit losses from its Baltic business, thus became the first major Swedish financial firm to shore up its balance sheet during the current crisis.

But the bank was swiftly joined by investment bank Carnegie which said it had been granted a 1 billion Swedish crown ($126 million) bridge loan from the Riksbank pending a government guarantee scheme.

Swedish banks until recently were considered less vulnerable to the global credit crisis: They had little direct exposure to sub-prime mortgages and a more conservative financial profile. But Swedbank's exposure to the Baltics, where it had expanded in the search for stronger growth, has obviously rattled the market, and follows a pattern of banks whose domestic markets did not suffer from a domestic property bubble getting over-exposed in other countries where they did.

Carnegie's capital boost was less than a 10th the one Swedbank are contemplating, but the Riksbank's statement raised the possibility of systemic problems.

"Given the currently prevailing anxiety, the Riksbank has decided to grant
liquidity assistance to Carnegie to reduce the risk of a serious disruption to
the financial system," Riksbank Governor Stefan Ingves said in the statement.
Carnegie was finding it difficult to finance payments and it was suffering from increased collateral requirements in the wake of the financial crisis.

Swedbank said it plans to issue one preference share for every two existing ordinary shares at 48 crowns per share, raising a total of 12.4 billion Crowns. Swedbank said the issue was fully underwritten by investors. The issue will boost the group's Tier 1 capital ratio to 10.5 percent from the present 8.7 percent and its core Tier 1 ratio to 9.2 percent from 7.4.

Swedbank's declared loan losses in the Baltic region were 405 million crowns in the third quarter, against 153 million crowns in the same period a year earlier and 245 million in the second quarter of 2008. Swedbank and its domestic peer SEB have both in recent years expanded in the Baltic region. But as the financial crisis has worsened, and economic prospects for the Baltic countries have grown steadily bleaker, generalised concerns that loan losses at the banks could rise sharply have been mounting.

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