Sweden’s Biggest Bank Says Cost Cuts to Hit 1,000 Employees

Svenska Handelsbanken AB unveiled a series of cost cuts as part of a digital revamp it says will affect about 1,000 employees.

Sweden’s biggest bank intends to almost halve its branch network, which has long been a hallmark of its business model, according to a statement on Wednesday. At the same time, management will invest about 1 billion kronor ($114 million) in technology, it said.

Read: Handelsbanken to Cut Jobs, Number of Branches in Cost-Cut Plan

“These changes will help us to lower our costs,” Handelsbanken said. It expects the shift to a more digital service to bring its “customer offering to an entirely new level.”

Shares in the Stockholm-based bank rose as much as 3.5%, propelling Handelsbanken close to the top of Bloomberg’s index of European financial stocks.

“It is an obvious and likely overdue decision, given that so much of especially retail banking has moved digitally,” Roy Tilley, an analyst at Arctic Securities, said by email. He also pointed out that the plan isn’t without its risks. Handelsbanken “has as many branches in Sweden as Swedbank, SEB and Nordea combined. It’s going to be a challenge to scale down this much and this quickly, especially given the strong culture in Handelsbanken of a local presence and branch autonomy.”

The announcement comes just one day after Handelsbanken’s investors learned that its regulator was forcing management to recalculate loan-book risk. Analysts at Bloomberg Intelligence estimate the decision could wipe up to 160 basis points off the bank’s common equity tier 1 ratio, a key measure of capital strength. Shares in Handelsbanken fell 5% on Tuesday, after the announcement.

Handelsbanken said the latest plan to reduce its workforce, which comes on top of previously announced cuts, will take roughly two years. “Negotiations and consultations are being initiated immediately with the relevant trade unions,” it said.

Handelsbanken will need to make a provision in the fourth quarter of around 1.5 billion kronor, it said. “The changes are the result of the Swedish part of the review of the entire bank’s business operations, which was announced last autumn,” it said.

What Bloomberg Intelligence Says -

“With an increasingly challenging revenue outlook for Swedish banks, Handelsbanken is taking a sensible approach in cutting costs, through lower branch numbers and headcount reductions. The SEK20 billion 2022 expenses target (pre-Oktogonen allocations) appears to be 7-8% below current consensus, but that will be offset by lost revenue (SEK1 bn) and IT investment (SEK 1bn) to achieve that.”

----Senior Banks Analyst Philip Richards

Given the increased investments into the remaining branches and technology, Tilley at Arctic said Handelsbanken “can still maintain a strong local presence and support its customers.”

“Overall we view it as positive,” he said. “It’s going to be a difficult process with several important stakeholders, but SHB has had issues with cost inflation and underinvestment into IT that needed to be addressed, in our view.”

He said the bank’s new targets could add 5-6% to consensus operating profit for 2022/2023, “so that is positive.”

©2020 Bloomberg L.P.

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