Nordea Earnings: High Operational Efficiency Accumulates Capital Available for Distributions

No-moat Nordea reported a decent first quarter, with a return on equity of 17.1%. The bank saw total operating income inch up 1% to EUR 2,921 million on a sequential basis as 8% higher net interest income more than offset weaker net fee and commission income and net insurance and net fair value results. The increase in net interest income was owed to widening deposit margins more than offsetting product margins as rates across Northern Europe have increased. Loan losses of EUR 19 million or 2 basis points of total loans was low, highlighting that risk indicators remain robust for now. With costs excluding regulatory fees down 2% to EUR 1,167 million as well, operating efficiency has been outstanding in the first quarter, with the bank posting a respectable 39.9% cost/income ratio. The resulting capital build and buffer above regulatory requirements (4%) puts the bank on a solid footing and allows for sizable shareholder distributions. The bank announced another share buyback program worth EUR 1 billion, after which it still sits on EUR 2.8 billion in excess capital, which translates to about 7.7% of its current market capitalization. We maintain our SEK 131 per share fair value estimate.