Swedbank Earnings Call: Strong Profits, Mounting Headwinds

Swedbank AB ((SWDBY)) has held its Q4 earnings call. Read on for the main highlights of the call.

Swedbank Balances Strong Profitability With Near‑Term Headwinds in Latest Earnings Call

Swedbank’s latest earnings call painted a picture of a bank that is operationally strong and capital‑rich, yet facing a set of clear near‑term challenges. Management highlighted that profitability targets have been met ahead of schedule, capital ratios remain high, lending and asset‑gathering are robust, and customer service metrics have improved sharply. At the same time, lower interest rates are set to pressure income, mortgage margins remain squeezed by intense competition, costs are rising from acquisitions and one‑offs, and regulatory uncertainty in the U.S. lingers. Overall, the tone was balanced: the bank is well‑positioned structurally, but investors will need to watch execution and risk management closely over the next year.

Return on Equity Target Met Ahead of 2025 Ambition

Swedbank delivered a full‑year return on equity (ROE) of 15.2%, topping its 15% target and effectively achieving its 2025 profitability ambition early. Fourth‑quarter ROE came in at 14.7%, underscoring resilient earnings power despite a less favorable interest‑rate backdrop. Management framed this as evidence that Swedbank’s business model is generating sustainable returns, not just benefiting from temporarily high rates. For equity investors, the key takeaway is that the bank is already operating at its stated ROE goal, giving it more flexibility in capital returns while still investing in growth and risk management.

Capital Strength Underpins Strategic Flexibility

The bank’s capital position remains a central pillar of its investment case. Swedbank reported a Common Equity Tier 1 (CET1) ratio of 17.8%, comfortably above regulatory requirements even after factoring in the proposed dividend. The bank expects to retain a CET1 buffer of roughly 3 percentage points above its minimum requirements post‑dividend, versus a long‑term target range of 1–3 percentage points with a 2‑point midpoint. While acquisitions and risk‑weighted asset (RWA) revisions have modestly trimmed the CET1 ratio and added complexity to capital planning, the overall message is that Swedbank has ample capital to absorb regulatory and macro headwinds while continuing to grow lending and pay out significant dividends.

Generous Dividend Signals Confidence in Capital and Earnings

Reflecting its strong capital base and earnings generation, Swedbank’s board proposed a total dividend of SEK 29.80 per share, split between an ordinary dividend of SEK 20.45 and a special dividend of SEK 9.35. This level of payout underscores management’s confidence in the bank’s underlying profitability and capital resilience. For income‑oriented investors, the combination of a sizable ordinary dividend and an additional special distribution highlights Swedbank’s willingness to return surplus capital, even as it navigates upcoming rate‑driven pressure on net interest income and invests in growth and technology.

Broad-Based Loan and Mortgage Growth Accelerates

Lending momentum was a standout positive. In 2025, Swedbank grew lending by SEK 108 billion excluding foreign‑exchange effects, with the fourth quarter alone seeing a SEK 23 billion increase in mortgage and lending volumes. Roughly SEK 17 billion of that quarterly growth stemmed from the Stabelo acquisition, but organic growth also contributed, resulting in around 3% lending growth quarter‑on‑quarter. The lending expansion was spread across corporates and households, helped by acquisitions but also by Swedbank’s stronger presence in core markets. This growth supports current earnings and positions the bank to benefit when the rate environment stabilizes, even if near‑term net interest income faces pressure.

Mortgage Market Share and Distribution Strategy Gain Traction

Swedbank is leaning hard into its Swedish mortgage franchise, and the strategy is paying off in market share. The bank doubled its market share of new mortgages sold through its own channels in 2025 versus 2024, reaching a front‑book share of about 11% in November. Including savings banks’ mortgages on its balance sheet, Swedbank holds a total Swedish mortgage market share of 22%, making it the largest player. This growth is driven by a focus on efficient digital and branch distribution, as well as competitive pricing and service. While the expanded front book comes at the cost of lower margins, the bank is clearly prioritizing scale, customer acquisition, and long‑term relationships in this strategically important product.

Customer Availability Improves Sharply, Supporting Growth

Operationally, Swedbank reported a major improvement in customer service metrics, particularly in Sweden. By end‑2025, more than 80% of incoming calls were answered within three minutes, versus just 29% a year earlier. At the same time, the bank handled over 30% more customer calls year‑on‑year while meaningfully cutting waiting times. Management linked this service improvement to stronger customer satisfaction and better sales momentum in areas like mortgages and savings products. For investors, the willingness to invest in front‑line capacity and service quality is an important signal that Swedbank is trying to defend and grow its franchise in a competitive retail market.

Asset Management Inflows and Trading Results Add to Earnings

Beyond traditional lending, fee and trading businesses also contributed positively. Swedbank Robur, the group’s asset management arm, attracted net inflows of SEK 11 billion in the quarter, adding sticky, fee‑generating assets under management. Meanwhile, net gains and losses climbed to SEK 982 million, mainly due to strong client trading activity and favorable treasury valuation effects. These non‑interest income streams help diversify the bank’s earnings away from pure rate sensitivity, which is particularly valuable as net interest income faces pressure from policy rate cuts.

Cost Discipline Holds, But New Base Is Higher

Swedbank maintained a cost‑to‑income ratio of 0.36 in both the fourth quarter and the full year, aligning with its efficiency ambitions and confirming that management delivered on its 2025 cost guidance. However, the bank’s cost base is stepping up due to acquisitions and temporary items. Underlying 2025 expenses are around SEK 25.1 billion after adjusting for SEK 1.5 billion in VAT recoveries and SEK 800 million in temporary investments. Adding SEK 1.6 billion in acquisition‑related run‑rate costs yields a new starting point of SEK 26.7 billion, with management guiding 2026 expenses to roughly SEK 27.5 billion, or about 3% growth. Investors will see this as a controlled, but real, rise in the structural cost base that needs to be offset by revenue growth and efficiency gains to preserve profitability.

Net Interest Income Braces for Full Impact of Rate Cuts

Net interest income (NII) was flat quarter‑on‑quarter, but management signaled that the headwinds from policy rate cuts are not yet fully visible. Higher volumes added SEK 72 million in NII, partly offsetting margin pressure. However, Swedbank expects the full negative quarterly NII effect of recent rate cuts to hit in the first quarter of 2026. This means that, despite ongoing lending growth, earnings from core banking spreads will likely soften near term. The bank’s ability to grow fee income, manage funding costs, and keep expenses in check will be crucial in cushioning this impact.

Mortgage Margins Under Pressure Amid Intense Competition

The Swedish mortgage market remains fiercely competitive, and Swedbank was candid about the impact on profitability. Management described current mortgage margins as “unsatisfactory” and gave no signal of a near‑term margin recovery. Instead, the bank is choosing to compete on price, speed, and customer availability—accepting lower unit profitability in exchange for market share gains and deeper customer relationships. For shareholders, this strategy is a trade‑off: it supports volume and franchise strength but weighs on margin and short‑term returns in a product that is central to Swedbank’s business.

Rising Cost Base and One‑Off Effects Complicate the Picture

Swedbank’s expense story in 2025 was shaped by a mixture of underlying growth, one‑offs, and acquisitions. Underlying expenses are estimated at SEK 25.1 billion after factoring in SEK 1.5 billion of VAT recoveries and SEK 800 million of temporary investment spending. On top of that, acquisitions add SEK 1.6 billion in ongoing costs, lifting the new cost base to SEK 26.7 billion. The 2026 cost guide of around SEK 27.5 billion represents roughly 3% growth. While the bank emphasizes that many 2025 items are temporary or linked to growth, investors will be aware that the structural cost level is notably higher than in prior years, increasing the importance of revenue growth and operational leverage.

Entercard Integration Boosts Volumes but Raises Impairments

The consolidation of Entercard, a consumer finance business, is a double‑edged sword. On the positive side, Entercard added SEK 27 billion in lending from December 1, contributing to overall volume growth and strengthening Swedbank’s position in consumer credit. However, the acquisition also increased credit impairments in the quarter. Entercard‑related impairments rose by about SEK 415 million, including a SEK 354 million day‑one effect on Stage 1 exposures when the portfolio was brought on‑balance‑sheet. Management plans to de‑risk new lending and gradually sell down the consumer finance back book, signaling a cautious approach to the higher‑risk segments of the portfolio.

Credit Impairments Limited, But Some Corporate Downgrades

Overall credit quality remains solid, with total impairments in the quarter of SEK 355 million. The bank actually booked releases of SEK 186 million due to an improved macroeconomic outlook, which were more than offset by SEK 433 million in credit impairments stemming from rating and stage migrations, including downgrades of a small number of corporate customers. While these downgrades highlight that individual credit events still occur, there is no indication of a broad‑based deterioration across the portfolio. The picture is one of generally stable asset quality with some noise from specific corporate exposures and the Entercard consolidation.

Regulatory and Investigation Uncertainty Persists

On the regulatory front, Swedbank received some relief when the U.S. Department of Justice closed its investigation without enforcement action. However, a separate investigation by the New York Department of Financial Services remains open, and management acknowledged that both the timing and potential financial impact are unknown. This ongoing legal overhang injects an element of uncertainty into Swedbank’s risk profile and capital planning, even against the backdrop of a robust CET1 buffer. Investors will need to monitor developments closely, as any eventual resolution could entail financial penalties or increased compliance requirements.

Capital and RWA Headwinds from Acquisitions and Risk Revisions

Risk‑weighted assets rose in the quarter, driven by lending growth and an annual operational risk review that uses a rolling three‑year income average, as well as the consolidation of acquired businesses such as Stabelo and Entercard. These factors collectively reduced the CET1 ratio by around 50 basis points and add complexity to capital management. While Swedbank still operates well above regulatory minimums, the combination of growth, acquisitions, and regulatory recalibrations means that capital consumption is rising. This makes the bank’s disciplined approach to dividends and buffers particularly relevant from a prudential standpoint.

Tax and Regulatory Costs Add to Structural Expense Load

Swedbank is also facing higher sector‑specific taxes and regulatory‑driven costs. Changes to Sweden’s bank tax and risk tax, together with an interest‑free SEK 6 billion reserve placed at the Riksbank, have created visible headwinds: the risk tax alone had an impact of about SEK 50 million, and the reserve carried a cost of SEK 71 million, booked upfront. Additionally, investments in the payments infrastructure pushed up commission expenses, including a one‑off of roughly SEK 35 million in the fourth quarter. These items reflect a broader trend of rising structural costs tied to regulation and system resilience, which Swedbank must offset through efficiency and revenue growth.

Guidance: Modest Cost Growth, Stable Capital, NII Headwinds

Looking ahead, Swedbank guided 2026 costs to around SEK 27.5 billion, implying roughly 3% growth from the new starting point of SEK 26.7 billion that incorporates acquisition run‑rates. This signals a commitment to only moderate cost inflation despite a higher base. Capital is expected to remain strong, with the current CET1 ratio of 17.8% and a post‑dividend capital buffer of about 300 basis points above minimum requirements, in line with the bank’s target range. Profitability metrics such as ROE (15.2% for the full year, 14.7% in Q4) and a cost‑to‑income ratio of 0.36 point to continued efficiency, although management warned that net interest income will be pressured as the full effect of policy rate cuts flows through in early 2026. Meanwhile, the bank expects ongoing solid lending growth, continued asset management inflows, and only modest additional credit cost impact from Entercard, estimated at about 1–2 basis points on the credit impairment ratio.

Swedbank’s earnings call ultimately portrayed a bank that has delivered on its profitability and cost promises, fortified by strong capital, healthy lending growth, and improving customer service and asset‑management inflows. Yet, the story is not without risks: mortgage margins remain thin, net interest income is approaching a cyclical squeeze from lower rates, costs are structurally higher, and regulatory uncertainty in the U.S. still looms. For investors, the key takeaway is that Swedbank enters this more challenging phase from a position of strength, with substantial dividends and solid ROE, but with clear execution and regulatory milestones to watch in the coming year.