- SBB, owner of public property, at the center of the consequences
- Minister says he is willing to act if more “accidents” occur
- Swedish house prices fall by a fifth
STOCKHOLM/FRANKFURT (Reuters) – Sweden’s government is ready to intervene to stem the fallout from the property crash if falling prices trigger a broader crisis, a potential harbinger of trouble across Europe.
High debts, rising interest rates and a weakening economy have produced a toxic cocktail for Sweden’s commercial real estate companies, with several of them being downgraded to junk by rating agencies.
House prices are also down about a fifth from their March 2022 peak, according to the Organization for Economic Co-operation and Development (OECD), reflecting soaring mortgage costs.
Swedish Financial Markets Minister Niklas Wykman told Reuters that the state has the financial clout necessary to prevent a housing market crash from engulfing the country, one of Europe’s richest, and its banks.
“There is a willingness to act,” he said.
“If… more accidents occur… or… new risks are revealed… or threats to the financial system arise, then the most important thing from a stability perspective is to have a broad toolbox… that the State can use.”
Concerns about the real estate sector are already weighing on the currency, as investors wonder if Sweden is just the first domino to fall in Europe.
According to Eurostat, Sweden and Germany are among the countries most affected by a growing housing crisis on the continent.
Earlier this week, the OECD warned of “risks to financial stability” in Sweden, pointing to banks’ heavy lending to real estate companies and homeowners, most of whom have floating-rate mortgages that move to the same pace as the increase in interest rates.
Although Wykman did not explain how his government might act and emphasized that the banks were “profitable and stable”, his comments underline the growing concern in Stockholm.
In the early 1990s, the collapse of a Swedish real estate bubble triggered the nationalization of two banks, the bailout of a third and a devaluation of the Swedish krona, plunging the country into a deep recession.
“It is clear that Sweden has low public debt and the ability to react if a crisis were to develop,” Wykman said.
Property is the backbone of the Swedish economy and accounts for 80% of household debt. Burdened by mortgage loans, Swedes are twice as indebted as Germans or Italians.
Commercial real estate accounts for 18% of bank loans, according to the OECD, more than three times the level in Spain or Ireland.
swedish officials They fear that banks could aggravate the problems of real estate companies by cutting credit, causing forced sales that would drag down the market even further.
The company was founded by a former social democratic politician, Ilija Batljan, who racked up huge debts by purchasing public properties, including social housing, government offices, schools, hospitals, police stations and a military installation.
Hit by rising interest rates that forced the company to cancel its dividend and scrap a share issue, SBB is now looking for a buyer for all or part of its business after Batljan was forced to resign.
SBB had 81 billion Swedish crowns ($7.6 billion) of debt in March, with about 15% due within a year.
The company told Reuters it had taken steps to strengthen its liquidity position, including sell a share in a construction company.
But SBB’s problems, which some analysts partly blame for the fall of the Swedish currency, are causing alarm in Stockholm. Their ownership of swaths of public property calls into question the delivery of government services.
Coupled with falling property prices and rising mortgage costs, the crisis also threatens a voter backlash against a government already under pressure from a rising wave of gang violence.
Financial Markets Minister Wykman said he had held discussions with banks, real estate companies and investors regarding the entire commercial real estate market.
He later told Parliament that while he was willing to act to preserve financial stability, he would not “interfere” or “nationalize for the sake of nationalizing”, rejecting calls from some lawmakers to intervene in commercial property.
This week, analysts at JP Morgan said Sweden’s big banks, which had a real estate risk of 1 trillion Swedish crowns, were “poorly prepared” for the losses.
Sweden’s four major banks downplayed any threat. swedish bank (SUEDa.ST) He told Reuters he had been careful in making loans. Nordea of Finland (NDAFI.HE) said its loans were solid and well diversified.
SEB (SEBa.ST) said it was “strong” and that its credit quality was “robust.” hand bench (SHBa.ST) referred to a recent presentation, where it said its real estate loans were conservative and diversified.
“When it comes to commercial property, there are clearly contagion risks,” Wykman said, without singling out individual companies.
“It could be that one or more companies sell assets. This leads to other companies having to revalue their assets and that, in turn, may mean that more companies need to make changes.”
($1 = 10.7316 Swedish krona)
Additional reporting by Chiara Elisei and Sinead Cruise in London; Written by John O’Donnell; Editing by Toby Chopra.
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Stockholm-based business news correspondent mainly covering everything related to retail and industrial companies in Sweden, as well as other sectors with Swedish companies. He previously covered the broader Nordic stock market from Gdansk, reporting on a range of topics from companies exiting Russia to mergers and acquisitions and supply chain concerns. Marie has degrees in journalism and international relations and is interested in finding market-driving stories that have underreported elements.