Nordea urges investors to be patient as ‘de-risking’ drags on

For 2018, we are con dent that net pro t will grow, and to see slightly higher revenues, lower costs and stable credit quality, says CEO

by BLOOMBERG

COPENHAGEN • The CEO of Nordea Bank AB is asking shareholders to sit tight and have faith as he promises better results based on management’s efforts to remove risk from the lender’s balance sheet and to create a digital business.

Speaking on a conference call after reporting fourth-quarter (4Q) earnings that missed estimates, CEO Casper von Koskull (picture) said he’s aware that “de-risking” the bank has impacted revenue. But the strategy remains “the right thing to do”, he said.

Shares in the bank opened more than 4% lower in Stockholm, their biggest slump since Oct 26. Back then, the stock fell about 7% in connection with Nordea’s 3Q results.

Nordea reported a decline in profit at the end of last year, lagging behind analyst estimates, as the Nordic region’s only global systemically important bank struggles to push through its digital transformation.

“We are not satisfied with the development in profit during the latter part of 2017,” von Koskull said in a statement yesterday. “For 2018, we are confident that net profit will grow, and we expect to see slightly higher revenues, lower costs and a stable credit quality.”

The CEO said the bank’s efforts to work toward its goals on risk and digitisation mean “Nordea today stands much more robust and resilient and I am thus confident that we stand prepared to handle both the risks and challenges, and capitalise on future opportunities in our home markets.”

Nordea’s 4Q Figures

Net income attributable to shareholders fell to €624 million (RM3.01 billion) from €1.1 billion. Analysts had expected €686.8 million in 4Q. Net interest income was €1.11 billion, less than the €1.15 billion forecast by analysts.

The bank’s ratio of common equity Tier 1 (CET1) capital as a percentage of risk-exposure amounts rose to 19.5%, from 18.4% a year earlier. Management’s capital buffer to require

ments was 190 basis points (bps), compared to a target of 50bps-150bps. Financial year dividend per share was €0.68, compared to an analyst estimate for €0.67.

Jefferies analyst Kapilan Pillai said “revenue misses across all lines is unlikely to be well received,” in a note sent to clients yesterday. The dividend was “just a cent higher than consensus”, which “is also likely to disappoint the bulls expecting out-sized capital return prospects”.

Pillai also said Jefferies expects “revenues to remain flat” year-onyear in 2018, “despite Nordea’s target of ‘slightly higher.”’

The Costs

Nordea said its costs last year met the bank’s expectations, reaching €5.1 billion, including a so-called transformational cost of €146 million. The bank repeated its outlook that costs this year will reach €4.9 billion, “including a transformational cost of approximately” €150 million.

“Between 2017 and 2021, we expect to lower costs by more than €300 million,” the bank said. “However, operational expenses, excluding depreciation and amortisation, will come down by more than €600 million.”

Nordea also sees “a reduction of activated costs on the balance sheet” which it expects “will lead to a total reduction in cash spending of approximately €1 billion. This alone will improve CET1 ratio generation by approximately 75bps-80bps per year.”

Headquarters

Nordea is planning this year to move its headquarters to Helsinki from Stockholm. Scheduled to be completed in October, the move would bring it into the banking union and under the jurisdiction of the European Central Bank’s Single Supervisory Mechanism (SSM). (The bank hired the SSM’s chief of small banks in October, to head up group credit risk control.) Von Koskull has said the change would result in a more predictable regulatory environment for Nordea.

The decision will be put to shareholders at Nordea’s AGM in March. Von Koskull told Bloomberg Television he’s approaching that vote “with a lot of confidence” after having had “very positive” talks with investors regarding the move. — Bloomberg