‘Humble’ Swedbank opens ‘lukewarm’ Nordic reporting

Swedbank and Nordea kicked off the Nordic fourth quarter reporting season this week, with a miss on net profit leading to profits coming in short of consensus expectations.

However, the disappointing results do not signal a change in direction for Nordic banks, according to KeplerCheuvreux analysts.

“They missed on ‘net items’, the ‘trading gains’ if you like, which gave rise to a significant deviation to consensus at the bottom line,” said Mats Anderson, equity analyst at Kepler Cheuvreux. “The market can live with that, but other revenue lines were not that strong — in line to a little bit weaker — and costs were basically in line, too, but coming down slightly on the weak side, so all in all the results are not that enticing.

“The results don’t change the direction of the Nordic banking sector,” he added, “but they were slightly lukewarm.”

Swedbank’s share price fell 5% on the day it reported and Nordea’s fell 3%, marking underperformance versus local and European markets, and giving back some of the strong performance they had put in during December and January, said Anderson.

The remaining four major Nordic banks report next week.

Swedbank was the first to disclose results, doing so on Tuesday. It reported a pre-tax profit of Skr4.877bn (Eu554m), 1% below consensus expectations. Net items amounted to Skr461m, compared with consensus expectations of Skr449m, and costs came in at Skr4.484bn, 6% higher than expectations. There were zero net loan losses.

A dividend of Skr10.10 (FY12A; Skr9.90) has been proposed, representing a pay-out ratio of 73%.

Swedbank president and chief executive Michael Wolf (pictured) said the bank is “humble” in its expectations given economic uncertainty and persistent structural problems in parts of the world, and “prepared for an environment with low interest rates and weak credit demand”.

“Our total expenses will therefore be kept at the same level in 2014 as in 2013 and we will continue to focus on profitability and improved efficiency,” he said.

Nordea announced its results yesterday (Wednesday), reporting fourth quarter pre-tax profit of Eu1.006bn (Q4 2012A Eu1.059bn), 9% below consensus expectations. Net items came in at Eu333m, versus expectations of Eu418m. Costs amounted to Eu1.283bn, 1% above consensus expectations. Loan losses stood at Eu180m, in line with the consensus.

A divided of Eu0.43 (FY12A; EUR0.34) has been proposed.

Like his Swedbank counterpart, Nordea chief executive Christian Clausen cited expectations of continued low economic growth and interest rate levels, and said these considerations have influenced the bank’s decision to accelerate and expand a cost efficiency programme.

“This will enable us to adjust our capacity to the lower activity level and to maintain our position as a strong bank.”

Both banks have stuck to their distribution policy, disappointing many non-Nordic equity investors’ hopes for a higher pay-out ratio, but also reflecting political realities, noted Anderson.

Nordea’s proposed dividend is equal to a pay-out ratio of 56%, up from 44%, while Swedbank’s pay-out ratio is marginally higher, up from 72% to 73%.

Capital ratios are high, with Nordea reporting a fully loaded Basel III Common Equity Tier 1 ratio of 14.6% and Swedbank a CET1 ratio of 18.3%.

“The sector is adhering to the very explicit wishes of the government to retain capital,” said Anderson, “which is in turn a reflection of the September elections in Sweden but also of the view that although the economic situation in Europe is improving it could still take a turn for the worse.

“The need for patience has created some disappointment among equity investors but there is scope for higher pay-out ratios in the future, when the elections are out of the way and as the European economic situation continues to improve.”