For a bank that prides itself on conservatism, Handelsbanken is displaying some adventurous characteristics. Firstly, there’s its UK expansion – it intends to add a new branch there every eight days after strong revenue growth. Then there’s its capital markets business, where cost income ratios are starting to look worryingly high.
Revenues within Handelsbanken’s capital markets business have held up well – SEK1bn, compared to SEK1.1bn in Q1 2011. However, expenses are hitting profits – the bank spent SEK846m during the first quarter of 2012, meaning that profits came in at a modest SEK158m, or a 50% decline on Q1 last year. Its cost-income ratio now stands at around 101%.
Staff costs make up the lion’s share of expenses, at SEK583m, or a 4% uplift on 2011. It’s not surprising for an investment bank to shell out a large proportion of its revenues on highly-paid staff, of course, but it’s slightly more unexpected at Handelsbanken – a firm whose chief executive is known for being anti-bonus.
The rise in operating expenses is down to “contractual salary increases”, but the bank says that the first quarter compensation cost has increased in 2012 because of putting aside less money for bonuses late last year. There’s the conservatism we’d expect.
Staff numbers in capital markets have fallen by 25 people to 1,605.