Nordea CEO ‘not satisfied’ as profit slumps

Bloomberg

Nordea Bank AB reported a slump in profit at the end of last year, lagging behind analyst estimates, as the Nordic region’s only global systemically important bank struggles with a transformation it says will ultimately make it more efficient.
Investors were quick to express their dissatisfaction. Shares in the bank opened more than 4 percent lower in Stockholm, their biggest slump since October 26. Back then, the stock fell about 7 percent in connection with Nordea’s third-quarter results.
“We are not satisfied with the development in profit during the latter part of 2017,” Chief Executive Officer Casper von Koskull said in the statement. “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 become more digital and remove risk from its balance sheet 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 capitalize on future opportunities in our home markets.”
Net income attributable to shareholders fell to 624 million euros ($777 million) from 1.1 billion euros. Analysts had expected 686.8 million euros in the fourth quarter. Net interest income was 1.11 billion euros, less than the 1.15 billion euros forecast by analysts. The bank’s ratio of common equity Tier 1 capital as a percentage of risk-exposure amounts rose to 19.5 percent, from 18.4 percent a year earlier. Management’s capital buffer to requirements was 190 basis points, compared with a target of 50-150 basis points FY dividend per share 0.68 euro, compared with an analyst estimate for 0.67 euro.
Jefferies analyst Kapilan Pillai said, “revenue misses across all lines is unlikely to be well received,” in a note sent to clients. 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-on-year in 2018, “despite Nordea’s target of ‘slightly higher.”‘
Nordea said its costs last year met the bank’s expectations, reaching 5.1 billion euros, including a so-called transformational cost of 146 million euros. The bank repeated its outlook that costs this year will reach 4.9 billion euros, “including a transformational cost of approximately” 150 million euros.
“Between 2017 and 2021 we expect to lower costs by more than 300 million euros,” the bank said. “However, operational expenses, excluding depreciation and amortization, will come down by more than 600 million euros.”
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
euros. This alone will improve common equity Tier 1 ratio generation by approximately 75-80 basis points per year.”
Nordea is this year planning 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. (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 annual general meeting 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.