Banking update: Handelsbanken, Lloyds Banking & Gronlandsbanken (sale)

Although I usually don’t care that much about quarterly earnings, let’s start with two interesting ones:


Handelsbanken is on my watch list, I consider them as one of the best bank franchises globally but still a little bit too expensive. Officially, “Mr. Market” was disappointed because earnings were below expectations. The stock dropped around 8% on that day:

Q3 stand alone was indeed weaker than Q3 2014 according to the interim report, for 9M the result is flat.

However the most important aspect for me is that Growth in the UK is still excellent. For the time being, the growth does not reach the bottom line as the showed declines in other segments, but over time this will show. So for me, the case is still intact and I will buy when my limit (110 SEK) is reached.

Lloyds Banking

Lloyd’s released Q3 results as well. As expected, the PPI issue is not over yet. Operationally I found it actually quite encouraging. Both, costs and margins show underlying strength. The stock price in is pretty much where I bought it in April (adjusted for the quarterly dividends). The UK Government in the meantime has dumped another 7 bn shares or so, so the stock “Overhang” has been reduced by 50% since then.

There was positive news from the regulatory side (“Ring fencing”) and overall I think the case is fully intact. The only thing which annoys me is that the use “Return on required capital” as KPI which I think is pretty meaningless for share holders. Nevertheless I am actually thinking of adding to the position below 0,70 GBP.


Gronlandsbanken issued numbers on the same day as Lloyds. The Q3 numbers were unspectacular within their guidance. As some might remember, I was already not so sure in February if I should keep the stock. Danish interest rates have “normalized” somewhat from -1,5% (yes, MINUS) to minus 0,5% for 3 month interbank deposits, but life is still hard for a Bank in Danish currencies if you want money on deposits.

When I bought the stock 3 years ago, these were my reasons back then:

– as it is the only bank in Greenland, its margins are around twice as high as the best global banks and the balance sheet is rock solid. One could call this a natural moat
– even based on the current state, current valuation implies significant upside to fair value
– the Greenland resource story could add significant growth going forward, even with maybe other banks entering Greenland
– finally, Management has started to buy shares after surprisingly good Q3 numbers
– although there is no direct catalyst, an indirect catalyst could be if some of the projects proceed well and Greenland will move into the spotlight. Gronlandsbanken is the easiest (and only) way to invest into Greenland without project specific risk

So far, it is still the only bank in Greenland, but the overall interest rate development clearly has made the “stand alone case” less attractive. More important however for me is the fact that at current commodity prices, the “natural resource option” is very far out of the money. So the problem is:

– in the banking sector, there are more attractive cases, for instance Lloyd’s Banking Group
– if I wanted to play natural resources or oil, there would also be better cases

So as a result, I have full sold my Gronlandsbanken stake at current prices (610 DKK). The total return inkl. dividends and later purchases was around 28% or 9% p.a. Not great but not that bad either.


  • Sold soem LLoyds (0,3% of Portfolio) to fund a new position (undisclosed UK Small Cap)

  • Lloyds sub 70 today – will you be buying some?


  • Hi mmi, your Handelsbanken buying threshold was breached today. Do you still consider buying the stock?

  • Interesting link to Acting Man: (Going Nuts in Sweden)

    The author is clearly not a fan of QE and other central bank policies (in effect, he is not in support of central banks at all) and maybe the article is a little bit too pessimistic, who knows.

    Nonetheless, I recommend you to read it before buying into Handelsbanken.


    • #tomb,

      thanks for the link. However “permanent Doomsters” like “Acting Man” “Mish” or Zerohedge are among my “white noise” news sources which I don’t follow any more. “Gold bugs” and “Wave counters” are not my prefered news sources.

      Politically motivated pessimism is actually a reason why I think that financial institutions could be systematically undervalued on a mid term time horizon.


  • Before overreacting on the possibility of an imminent housing-crash in skandinavia/sweden, one should factor in their cultural and political framework regarding the housing market. Without going into detail right now, in sweden for example you can deduct the mortgage interest from your fairly high tax bill. The mainstream view is to get an interest-only mortgage (or with close to zero repayments) and either live in the house until you die (mortgage-payments = rent) or until you move out and trade up to a better place. All bankers, RE-brokers, housewives think you are nuts if you attempt to repay the loan. Despite the high rents as compared to disposable income, you can observe a real shortage mainly in the cities (stockholm, malmö, etc). The renters-market is highly regulated and state-controlled, you have an official kind of waiting-list system where the average time to get allocated to a flat is approx. 3-6 years. The swedes have a huge influx of immigrants. The grey-market prices for 12-month limited rent-contracts come close to usury (1.5-2 times the “market price”). If you today own real-estate with a mortgage on it and could rent it out, your cashflow is quite substantial (contrary to the US in ’07), no one wants to really sell. It seems politically motivated to not allow the much needed construction of new homes due to restricted permits/zoning-issues. My opinion on this matter is if there is a bubble, it gets inflated really slowly, like seeing real-returns close to zero for a long time.

  • Despite the recent court ruling I don’t read that very negative either. Real estate in Stockholm or Malmö loses not much of their value even in a panic situation as owners are generally reluctant to sell if prices drop below purchasing prices. Unless they are forced sellers, of course. Loss aversion! So if Handelsbanken ends up with some collateral they are able to sell it. And the big short short this time in Skandinavia? Not sure about that. But who knows ;))

  • Rationality Quest

    Handelsbanken is a fantastic company indeed. However, before purchasing make sure to take into account the scenario of a Swedish (and overall nordic) housing and credit bubble.

    Scandinavian households now have world-leading houshold debt levels relative to disposable incomes, which continues to shoot through the roof due to a skyrocketing housing-bubble. A true lollapoloza effect which no sensible observer looking into the Swedish economy disputes (IMF, Swedish Central Bank, all leading economists, Governmental Institutes and even real estate agents ).

    The question is when and how big the correction will be and what effects it will have on the economy and the banking sector.

    Although Handelsbanken most probably would whether the storm, do not by any means discard a scenario with increasing credit losses and depressed banking sector for some years.

    BR / RQ Sweden

    • thanks for the comment. Yes, this could certainly be an issue. the real question is: Has this been already priced in or not ? The level of debt is not exactly a secret.

      As you say, Handelsbanken is a fantastic company. It is trading at around 14xP/E. WHich is a lot for a bank theses days but actually not a lot with any other “high quality” company. H&M for instance trades at 25x P/E. My theory, which could be clerly wrong, is that some of the potential problems are already priced in at the current level.

  • Rein informativ: Ich habe Handelsbanken wieder von meiner Watchlist gestrichen, als ich diese Reuters-Nachricht las:
    Mir missfällt, was da über die Immobilienfinanzierung in Schweden berichtet wird. 70% aller schwedischen Hausbesitzer hätten Kredite ohne Tilgungsanteil, und das Verhältnis von Verschuldung zu verfügbarem Haushaltseinkommen gehöre zu den höchsten in Europa.
    Meine Sorge: Falls eines Tages in Schweden der Immobiliemarkt und die Wirtschaft aus irgendeinem Grund ins Rutschen kommen, gibt es viele notleidende und platzende Kredite. Solche Immobilienrisiken sind das perfekte Rezept, um Retailbanken zu zerlegen. Handelsbanken als eine der größten oder gar die größte Retailbank Schwedens dürfte davon nicht verschont bleiben.

    • hmm, ich lese das jetzt nicht so negativ. Es wird ja schliesslich aktiv was gemacht und nicht nur zugesehen. Die Schweden hatten ja schon mal eine Immobilienkrise und haben daraus hoffentlich gelernt. Handelsbanken war damals übrigens die einzige bank die ohne Staatshilfe durch kam.

      • Stimmt, die Entwicklung sollte in die richtige Richtung gehen – aber wie schnell ist die Entwicklung? Und wie weit folgen den Worten auch Taten?
        Mir war dieses Thema bis dato schlicht nicht bewusst, und es erscheint mir wie ein relevantes, zusätzliches Risiko, das ich ohne nähere Kenntnis nicht solide quantifizieren kann. Daher ist Handelsbanken für mich vorerst auf dem “too difficult to understand”-Stapel gelandet.
        Ich bräuchte entweder ein besseres fundamentales Verständnis davon und des Volumen des Handelsbanken-Geschäfts in dem Bereich oder aber einen weiteren, sehr deutlichen Safety-Abschlag auf Handelsbanken, bevor ich mich wieder ernsthaft dafür interessiere.

        Ich halte dich für einen weit besseren Bankenanalysten als mich, daher muss dich das nicht stören. Ich wollte dich nur auf dieses potentielle Minenfeld hinweisen.

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