Swedish trends encourage, but Nordea miss, DNB outperform

A solid start to the Nordic third quarter bank reporting season from Swedbank on Tuesday was built on by Handelsbanken and SEB, but Nordea fell short of consensus expectations, while in Norway DNB beat forecasts.

Swedbank announced profits before impairments up 8% to Skr5.7bn (Eu620m). Michael Wolf, Swedbank CEO, cited lending growth in Sweden on the back of a growing real estate market and business with large corporates as raising net income during the quarter, despite pressure from falling interest rates.

He also highlighted decreasing expenses, mainly as a result of lower one-off expenses but also due to lower staff costs within central functions.

According to Mats Anderson, equity research analyst at Kepler Cheuvreux, the bank’s pre-tax profits were 7% ahead of expectations, with revenues 5% ahead of the consensus.

“The net interest income of Skr5.8bn (Skr5.6bn) is 4% ahead of consensus expectations, reflecting margin pressure on deposits but also margin expansion on mortgages, volume growth and improved funding cost,” he said. “Swedbank has been able to more than compensate for the negative impact of the Swedish 50bps rate cut in the beginning of July.”

Anderson said that the Swedish trends highlighted by Swedbank were echoed by Handelsbanken in its results on Wednesday and SEB in Thursday, although as well as coming second and third chronologically after Swedbank the other Swedish banks came in the same order results-wise, he added.

“They claim it’s a difficult environment, with the falling rates, but they have been successful in growing their businesses,” he said, “and they are all striving to cut costs, which is coming through.”

Handelsbanken – a “stellar long term outperformer”, according to Anderson – on Wednesday reported an operating profit of Skr4.9bn, 3% ahead of consensus expectations, and driven by net interest income of Skr7bn, up 5% year on year. SEB today (Thursday) reported a pre-tax profit of Skr6.7bn, 2% ahead of expectations.

“SEB is a play on the strengthening Swedish macro economy,” said Anderson. “While we are waiting for accelerated revenue growth, SEB continues to surprise us positively on costs, credit quality and capital.”

He noted that the three Swedish banks each increased loan loss provisioning, but did so from a very low base and with the provisions related to only one or two instances. However, he said that given that the three banks had all done this it would be something to keep an eye on.

Nordea reported on Wednesday and disappointed by announcing operating profits of Eu1.13bn, 25% below consensus. The figure included a Eu378m gain from the previously announced sale of Nets, but also a Eu344m impairment charge cited in connection with an IT development programme.

Anderson noted that revenues of Eu2.75bn were also 3% below expectations, while net interest income was up 2%.

“We see Nordea as geopolitically wrong-footed, with risks on the rise,” he said. “We are concerned about the exposure to Finland, the Baltics and Russia, which equals one-third of Nordea’s business.”

However, he noted that the bank’s results did not yet reflect any problems from these areas and the bank said that income was holding up well in spite of “macro headwinds”. The darkening mood in the global economy was reflected by various bank representatives in their results releases and presentations.

“In the third quarter we again experienced how vulnerable the world economy still is,” said Annika Falkengren, SEB group chief executive (pictured). “Especially the European economic development is challenging despite massive measures from the ECB to support the real economy.

“Disappointing economic indicators in Germany including investor confidence decreasing 10 months in a row as well as continued concerns over France, has put the core of Europe firmly in the spotlight. The Nordic financial markets were impacted by the lower activity and we perceive hesitancy among corporate customers to raise activity levels.”

DNB today reported pre-tax profits of Nkr7.5bn (Eu900m), up from Nkr5.3bn a year ago and 10% ahead of expectations. According to Anderson – who described DNB’s numbers as very good – revenues were 2% ahead of expectations, NII – which was up 7% year-on-year – 3% ahead, commissions 2%, and trading gains 11% ahead.

DNB group chief executive Rune Bjerke, highlighted a low level of impairment losses on loans and guarantees of Nkr183m for the quarter, down from Nkr475m a year previously.

“The low impairment losses show that we have a solid and robust portfolio which performs well, also in a period with economic turbulence and a falling oil price,” he said. “In addition, this is a confirmation of our sound banking skills.”