Company Reports

Nordea reported a second-quarter return on equity of 15.9% on good performance in net fee and commission income.

Nordea reported first-quarter operating income of EUR 2.9 billion, down 2% versus the same period a year ago. Lower net interest income was nearly completely offset by better net fee and commission income.

We upgrade our economic moat rating for Nordea to narrow from none, as we believe the Nordic universal bank benefits from cost advantages and switching costs.

Nordea has found its bearing and is driving good returns for shareholders via dividends and share buybacks, after years of shedding assets. Management’s strategic repositioning has successfully addressed the declining income and slowing profitability of its recent past. Nordea now largely looks toward investments in private banking in Norway and Sweden and regaining momentum on mortgages to drive top-line growth. We are more enthusiastic about the former than the latter. Mortgage markets in the Nordics are becoming increasingly competitive by the day as challenger banks with different business models and funding structures undercut established players. Nordea has been on the receiving end of this, and we doubt it will be able to make easy inroads in this area without conceding on either volume or margins.

Nordea reported third-quarter operating profits of EUR 1,597 million, down 2% versus the same period a year ago. Lower net interest income, down 6%, drove the performance.

Nordea has found its bearing and is driving good returns for shareholders via dividends and share buybacks, after years of shedding assets. Management’s strategic repositioning has successfully addressed the declining income and slowing profitability of its recent past. Nordea now largely looks toward investments in private banking in Norway and Sweden and regaining momentum on mortgages to drive top-line growth. We are more enthusiastic on the former than the latter. Mortgage markets in the Nordics are becoming increasingly competitive by the day as challenger banks with different business models and funding structures undercut established players. Nordea has been on the receiving end of this, and we doubt it will be able to make easy inroads in this area without conceding on either volume or margins.

We maintain our SEK 152 per-share fair value estimate for Nordea after the bank reported operating profits of EUR 6,548 million for 2024, slightly ahead of our EUR 6,487 million estimate. The marginally better result was due to a lower-than-anticipated net loan-loss figure of EUR 206 million versus our EUR 250 million estimate. Our no moat rating is unchanged.

We retain our no moat rating and leave our SEK 152 per-share fair value estimate unchanged after Nordea posted a good third quarter. Performance was largely in line with our expectations. Nordea lifted its return on equity guidance for this year to 16% from 15% previously, matching our previous expectations. The bank also announced a EUR 250 million share repurchase program after it completed the implementation of its new capital models. We believe Nordea's profitability and capital position allow for about EUR 1 billion in share repurchases per year on top of a 70% dividend payout ratio.

After years of shedding assets, Nordea has found its bearing and is driving good returns for shareholders via dividends and share buybacks. Management’s strategic repositioning has successfully addressed the declining income and slowing profitability of its recent past. Nordea now largely looks toward investments in private banking in Norway and Sweden and regaining momentum on mortgages to drive top-line growth. We are more enthusiastic on the former than the latter. Mortgage markets in the Nordics are becoming increasingly competitive by the day as challenger banks with different business models and funding structures undercut established players. Nordea has been on the receiving end of this and we doubt it will be able to make easy inroads in this area without conceding on either volume or margins.

Nordea reported a good second quarter with a return on equity of 17.9%. Operating expenses increased to EUR 1.26 billion, up 6% compared with a year ago, driven by planned investments into Nordea's IT infrastructure and financial crime prevention systems. The higher spending was offset entirely by good income development, up 3% to EUR 3.03 billion, and operating leverage working in Nordea's favor. Net interest income, up 4%, benefitted from widening lending margins, while mortgage volumes were flat and corporate volumes declined 1%. An improving economic outlook allowed Nordea to release EUR 30 million of its remaining EUR 464 million in management overlays for credit losses. The bank booked EUR 68 million or 8 basis points in net credit costs. Excluding the released overlay, the charge would have been closer to 12 basis points of loans outstanding. This aligns with Nordea's target of around 10 basis points for 2025.

Danske published an improved guidance for its 2024 net profit, lifting the target from between DKK 20 billion to DKK 22 billion to between DKK 21 billion to DKK 23 billion. The bank flagged a continually strong credit quality and now expects small reversals of impairment charges for the second quarter of 2024. Previously, the bank guided for about 8 basis points of loan losses, or roughly DKK 1.4 billion, which would have been in line with its targeted through-the-cycle assumptions. Now, Danske believes that credit losses for the full year may not exceed DKK 0.6 billion. The better-than-expected credit quality outlook for this year is a positive development and may signal that although potentially strained, households and corporations will manage to service existing debts after a rapid rise in interest rates for the most part. We would also not be surprised if Danske's Nordic peers would show similar improved outlooks during their second-quarter earnings releases. We maintain our DKK 233 per share fair value estimate and narrow economic moat rating.

Nordea reported fourth-quarter 2023 operating profit of EUR 1.415 billion, closing out a strong year for the Nordic universal bank. Income generation was good as further widening deposit margins more than offset lower volumes and lending margins across the group. Net fee and commission income also performed well, supported by a strong quarter in brokerage and advisory on the back of higher customer activity. Higher intangible write-offs due to a change in the accounting treatment of development costs and the absorption of inflation pushing up wage costs did drive the cost/income ratio up to 51% versus 44% a year ago, which is higher than Nordic peers we cover. That said, profitability was still good at a return on equity of 14.1%. We maintain our SEK 152 per-share fair value estimate and no moat rating.

We are raising our fair value estimate for Nordea to SEK 152 per share from SEK 131 previously after refreshing our model. Apart from the time value of money since our last model update, we believe that Nordea's midcycle profitability has structurally improved. While we previously believed that the bank could achieve about 11% in returns on equity through the cycle, we now believe 12% is more likely. Although interest rates are set to fall this year, we believe they will settle above previous levels, allowing for greater net interest margins than Nordea achieved over the past decade. Our no-moat rating is unchanged.

After years of shedding assets, Nordea has found its bearing and is driving solid returns for shareholders via dividends and share buybacks. Management’s strategic repositioning has succesfully adressed the declinding income and slowing profitability of its recent past. Nordea now largely looks toward investments in private banking in Norway and Sweden and regaining momentum on mortgages to drive top-line growth. We are more enthusiastic on the former than the latter. Mortgage markets in the Nordics are becoming increasingly competitive by the day as challenger banks with different business models and funding structures undercut established players. Nordea has been on the receiving end of this and we doubt it will be able to make easy inroads in this area without conceding on either volume or margins.

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.

Fourth-quarter 2022 results were good for no-moat Nordea. Operating profit increased 26% to EUR 1.609 billion, mostly due to higher interest rates propelling net interest income up 31%, which more than offset 12% weaker net commission income. It also more than compensated for a 10% increase in operating expenses as Nordea absorbed inflation adjustments to its cost base and increased its investment into financial crime-prevention capabilities. Loan losses remained subdued at EUR 59 million or 7 basis points, signaling that credit quality still holds up well.

Nordea has been in a state of flux over the past five years. In an effort to derisk the balance sheet, it has offloaded its Russian exposure and sold off its non-Nordic shipping, oil, and offshore exposure. It also divested its Polish operation, its Danish life and pension business, its private banking operation in Luxembourg, and is in the process of divesting its Baltic banking joint venture share. For good measure, Nordea also underwent an extensive risk and compliance restructuring and relocated its headquarters to Finland, now falling under the regulatory purview of the ECB after a myriad of disagreements with Swedish regulators.

Nordea reported third-quarter operating profit of EUR 1,297 million, 2% ahead of its earnings release in the same period a year ago. Wider deposit margins owing to higher interest rates and a strong demand for corporate loans stood out positively in the quarter, pushing net interest income up 15%. On the other hand, net fee and commission income declined 6%, driven by 4% lower assets under management as well as lower capital market activity. A 7% increase in total income to EUR 2,501 million in the quarter was still decent, however. Higher investments pushed operating expenses up 4% in the quarter, but given the good income performance, the cost/income ratio still came in at a respectable 45%. Even with further investments in the business in the last quarter of the year, the new guidance for the cost/income ratio of between 48% and 49% for 2022 looks achievable. For the first nine months of the year, the ratio stood at 49%. Loan losses of EUR 58 million, or 7 basis points, were low considering the historical context as well as the uncertain macroeconomic outlook borrowers face. We maintain our SEK 114 fair value estimate and no-moat rating.

No-moat Nordea reported second-quarter operating profits of EUR 1,361 million, up 2% compared with the same period a year ago. Net interest income, up 6%, was supported by strong volume growth of 4% slightly offset by weaker lending margins. The rapid rise in reference rates has driven up funding costs faster than lending rates could adjust, squeezing lending margins. Deposit margins on the other hand have started to benefit from higher policy rates in Norway and Sweden. All European banks are exposed to similar margin mechanics at this point in time. We anticipate Nordea to benefit from the currently higher interest rate outlook after lending margins start to rebalance and the full benefit on the deposit side trickles through.

Nordea has been in a state of flux over the past five years. In an effort to derisk the balance sheet, it has offloaded its Russian exposure and sold off its non-Nordic shipping, oil, and offshore exposure. It also divested its Polish operation, its Danish life and pension business, its private banking operation in Luxembourg, and is in the process of divesting its Baltic banking joint venture share. For good measure, Nordea also underwent an extensive risk and compliance restructuring and relocated its headquarters to Finland, now falling under the regulatory purview of the ECB after a myriad of disagreements with Swedish regulators.