Swedbank is Sweden's largest and Europe's most profitable bank. The bank is valued at 7.5x TTM earnings Q2'23. In Q1'23 the share price suffered from the US banking crises, and fear for real-estate related bad debts in Sweden. In Q2'23 Net Interest Income (NII) drives the strong earnings growth with decreasing lending margins and (slower) increasing deposit margins.

In the current economic climate with higher interest rates I would expect a continued high level of NII. Although margins decline this can be off-set by a lower percentage of fixed interest rates as retail customers currently prefer flexible interest rates. On the other hand total mortgage growth could turn negative in 2023. In the short-term 1-2 year the bank can continue to benefit from the interest rate dynamics.

With 26kr/share TTM earnings Swedbank is valued with 25% margin-of-safety to fair-value. The 5 year average annual earnings are about 19kr/share resulting in 10x PE, which is the long-term average valuation. Is the market pricing in a 20% earnings decline?

The 5% dividend yield can be expected to improve given the cash position and earnings. A hold with limited expected up-side and down-side risk.