Weakish revenues offset by cost, credit quality efforts for Nordics

The Nordic first quarter reporting season is well underway, with Danske today (Thursday) the latest to announce results. Mats Anderson, equity research analyst at Kepler Cheuvreux, says that results have been marginally better than expected, boding well for the rest of the year.

“The general trend is that results have been marginally better than expected despite slightly weaker revenues,” says Anderson at Kepler Cheuvreux, “This is thanks to the work that banks have been doing on costs and credit quality.

“Net interest income has been the weakness, reflecting the falling interest rate environment, combined with fairly significant debt issuance.”

However, he notes that commission generation and net items were better than expected, indicating improved corporate activity and a rising investment market. “This augurs well for the rest of the year,” he says.

Danske reported pre-tax profit of Dkr3.6bn (Eu482m) and net profit of Dkr2.8bn, which are 4% and 11% ahead of consensus expectations, respectively, according to Anderson.

“The bank raised its outlook and writes in its outlook statement that it expects the full year 2014 net profit to be in the upper end of the previously communicated range of Dkr9bn-Dkr12bn,” he adds. “This includes the Dkr1bn gain on the sale of Nets but also lower than previously expected impairments from the exit from Ireland.”

A highlight, according to Anderson, is the execution of Danske’s cost programme, with costs decreasing by 8% year-on-year from Dkr5.9bn to Dkr5.4bn, which is 5% better than consensus expectations.

SEB last Friday (25 April) opened the results season, reporting pre-tax profit of Skr4.9bn (Eu544m) to beat consensus expectations by 2%, says Anderson.

“Our conclusion is that SEB has reported a good first quarter result, as in particular parameters that can be affected by management actions are strong,” he says.

Swedbank announced its first quarter results on Monday, reporting a pre-tax profit of Skr5.1bn, which is 1% ahead of consensus expectations. Revenues amounted to Skr9.3bn, in line with expectations, and quality is sound, according to Anderson. Commission generation was strong, up 13% year-on-year to come in at Skr2.7bn, 4% ahead of expectations.

Nordea pre-tax profit of Eu1.106bn was “bang in line” with consensus expectations, according to Anderson.

As with other Nordic banks, there was “good news” in Nordea’s results from commission generation (Eu704m), 5% ahead of consensus expectations, he said.

Svenska Handelsbanken yesterday reported pre-tax profit of Skr4.9bn, 3% above of consensus expectations.

“Quality is slightly on the weak side, although total income of Skr9.5bn (Skr8.8bn) was 1% better than expected by consensus,” says Anderson. “The net interest income of Skr6.7bn (1Q 2013A; Skr6.5bn) was 1% below expectations, while the net items of Skr658m (Skr259m) was 8% ahead of expectations.

“In part it was of extraordinary character as Handelsbanken rearranged its equity holdings in the quarter and consequently booked a gain of Skr306m from that within the Net items,” he adds.