Sweden's SEB, Handelsbanken beat forecasts but Ukraine, inflation cloud outlook

By Johan Ahlander and Niklas Pollard

STOCKHOLM (Reuters) -Swedish banks SEB and Handelsbanken both delivered better-than-expected quarterly profit gains on Wednesday to send their shares higher even as the war in Ukraine and surging inflation began redrawing the economic outlook.

During a quarter of global turmoil, the two banks whose headquarters are within shouting distance of each other in downtown Stockholm, raked in strong income from mortgages and corporate clients alike while loan losses remained marginal.

Net profit at SEB rose to 6.40 billion Swedish crowns ($652 million), easily beating a mean forecast of 4.93 billion crowns in a Refinitiv poll of analysts.

Meanwhile, operating earnings at Handelsbanken rose to 6.59 billion Swedish crowns ($671 million) from 5.31 billion crowns a year earlier.

SEB shares rose 5.0% after posting what UBS called "a very strong first quarter" in a research note that highlighted higher revenues and lower costs. Handelsbanken shares were up 4.1% at 0835 GMT, outperforming the European banking index .

The business climate in Sweden has been boosted by a strong recovery from the pandemic, resulting in strong income for the banks, though Russia's invasion of Ukraine and inflationary pressures have unsettled markets and pushed up living costs.

The war, which Moscow calls a "special military operation", has lifted an already resurgent inflation to levels last seen in the 1990s and left central banks, including Sweden's, poised to hike interest rates, raising uncertainty for households, banks and the wider economy.

"For the first time in decades we are now sitting here talking about inflation expectations and interest rate expectations that are clearly different," SEB chief executive Johan Torgeby told a news conference.

"Central banks are expected to start moving globally and we've also seen inflation numbers creep upward to high numbers compared to what we've seen in recent history."

Torgeby said surging gas prices meant households and businesses now faced climbing costs while inflation had spread more broadly across commodities. "Both (are) indicating we will have a very turbulent period right now."

Handelsbanken said the conflict in Ukraine had added more uncertainty while expected rate hikes from Sweden's central bank would have an impact on demand.

"It would change the picture quite dramatically," the bank's Chief Financial Officer Carl Cederschiold said.

($1 = 9.8095 Swedish crowns)

(Reporting by Johan Ahlander and Niklas PollardEditing by Sherry Jacob-Phillips and Tomasz Janowski)