Sweden's largest pension fund, Alecta, is facing losses of almost $2 billion as a result of a failed investment strategy that made it one of the biggest shareholders in two collapsed U.S. banks and another that is embroiled in the ongoing banking crisis.
The scale of the losses has become clearer since the private pension group sold all of its First Republic Bank stake at a loss of 7.5 billion kronor ($728 million), according to Chief Executive Officer Magnus Billing. That adds to anticipated losses of 8.9 billion kronor and 3.2 billion kronor in Silicon Valley Bank and Signature Bank, respectively.
"The uncertainty about First Republic's future was too great, partly due to the fact that the lender was downgraded to junk status," Billing said in an email after Bloomberg News obtained a copy of a letter that Alecta wrote to the Swedish Financial Supervisory Authority.
While Alecta is large enough to weather the losses without impact on the 2.6 million Swedes whose private savings are invested with the fund, the news has stoked public outrage in Sweden — particularly since it recently exited stakes in two local lenders, Svenska Handelsbanken and Swedbank, and chose to invest in the niche U.S. banks. SVB catered primarily to the startup community, while Signature targeted the crypto community.
No other pension fund had bet on SVB, Signature, and First Republic to the extent that Alecta had.
In the wake of the losses, Alecta has announced an internal investigation into its investment processes, and received a summons from the country's financial authority. Both the country's government and central bank said they are monitoring the situation closely but downplayed the risk of it triggering serious instability.
"Obviously it's a big failure for us as an investor," Billing said last week. "We need to learn something from that and take actions based on the lessons learned."
With 1.2 trillion kronor of assets under management, the U.S. bank losses won't impact Alecta's solvency ratio, which totaled 218% at the end of 2022.
In the document, Alecta said its total invested capital in First Republic stood at 9.7 billion kronor "before a sale on March 15." The Swedish fund had been buying First Republic shares since 2019, making it that bank's fifth-biggest shareholder.
At the time it started investing in First Republic, Alecta told the FSA, the bank had a sound track record of growth and rising profits. "We also saw that the bank had good opportunities to continue double-digit growth in coming years," the document read.
First Republic saw its shares rally in US premarket trading after closing at a record low on Monday in the wake of a Bloomberg News report that JPMorgan Chase Chief Executive Officer Jamie Dimon had hatched a new plan to aid the struggling lender. Nevertheless, the bounce to $15 a share still leaves the stock down about 87% from its price before the SVB news came out.
