Nordea Profit Beats Estimates as Commission Income Increases

Jul 17, 2014 4:11 am ET

(Updates with share price in fifth paragraph, analyst comment in sixth and 11th paragraphs.)

July 17 (Bloomberg) -- Nordea Bank AB reported second- quarter profit that beat estimates after the Nordic region’s largest lender increased fee and commission income as loan losses declined.

Net income fell to 686 million euros ($928 million) from 772 million euros a year earlier, the Stockholm-based bank said in a statement today. That beat the average 660 million-euro estimate of 12 analysts surveyed by Bloomberg. Net fee and commission income rose 6.6 percent to 708 million euros while net loan losses fell 27 percent to 135 million euros.

“The second quarter was characterised by a continued inflow of customers and strong activity, particularly in our savings area and corporate advisory business,” Chief Executive Officer Christian Clausen said in the statement. “Income is holding up well, despite low lending demand, low interest rates and low volatility, and we continue to execute on our cost and capital efficiency programmes.”

Nordea has cut thousands of jobs and sold units that failed to reach targets as the bank strives to become more profitable. Clausen, who closed Nordea’s global commodities unit this year after selling the lender’s Polish operations to PKO Bank Polski SA in 2013, said in April he’s ready to consider more divestments to help meet earnings goals.

Shares Drop

Nordea shares dropped as much as 1.8 percent in Stockholm trading and declined 0.7 percent to 95.25 kronor as of 10:10 a.m. local time.

“People must be focusing on the fact that low rates are putting a squeeze on deposit margins and net interest income falling short of expectations,” Karl Morris, an analyst at Keefe, Bruyette & Woods Inc. in London, said by telephone today. “I still think it’s a good set of numbers.”

Nordea reported a 1.7 percent decline in net interest income to 1.37 billion euros in the second quarter, missing the average analyst estimate of 1.39 billion euros.

Clausen said in a Bloomberg interview that the Swedish central bank’s unexpectedly large repo rate cut to 0.25 percent earlier this month is putting pressure on deposit margins. At the same time, the reduction may help banks by supporting the economy and demand, he said.

Cost Target

Clausen in January doubled a cost-reduction target to 900 million euros through 2015 and said the bank needs to cut more than the 2,500 jobs already axed to adjust to slow growth. Nordea raised its return on equity to 12 percent in the second quarter, excluding restructuring costs, from 11.4 percent in the first three months of 2014.

“Nordea’s cost efficiency programme is progressing as planned and the net cost reduction effects are expected to be seen by the end of 2014 and onwards,” the bank said, adding it reduced annual costs by 45 million euros in the second quarter and by 300 million euros from the start of 2013. “The plans to reduce costs by 5 percent by the end of 2015 versus 2013 are now in place,” Nordea said.

The common equity Tier 1 capital ratio, under Basel III rules, rose to 15.2 percent in the quarter from 14.6 percent in the first three months of 2014.

Chairman Bjoern Wahlroos said in April Nordea will probably raise its dividend to match the 75 percent of profit paid out by Swedbank AB -- the Nordic lender that returns the highest portion of its earnings to shareholders -- after Nordea built up more capital than it needs.

“Core capital continued to build reasonably well over the last couple of quarters and the ambition of hiking the payout ratio is becoming more of a firm reality,” said Morris, who rates the bank a market-perform.

Svenska Handelsbanken AB today also reported second-quarter net income that beat estimates. Profit rose 9 percent to 4.03 billion kronor ($590 million), beating the estimate of 3.74 billion kronor as net fee and commission income rose 11 percent.