April 25, 2018 / 8:39 AM / 6 months ago

UPDATE 2-Mortgage margin squeeze poses revenue challenge for Nordea

(Adds share price reaction, analyst comment)

* Headline profit tops forecasts

* Core income from lending, commissions down

* CEO says full-year revenue guidance challenging

STOCKHOLM, April 25 (Reuters) - Nordea, the Nordic region’s biggest bank, said its mortgage lending margins were squeezed in the first quarter, casting a shadow over its goal of increasing full-year revenues and sending its shares lower on Wednesday.

Nordea, which will move its headquarters from Sweden to Finland this year, reported first-quarter operating profit above market expectations boosted by a one-off loan portfolio revaluation, but core revenues from lending and commissions fell short.

“As the underlying revenues in the first quarter were softer than expected it is more challenging to reach our full-year revenue guidance,” Nordea CEO Casper von Koskull said in a statement.

Swedish peer Handelsbanken reported operating results below market expectations on Wednesday as its trading performance weakened.

Nordea shares were down 3 percent at 0825 GMT, underperforming the European banking index, which was 1 percent lower. Handelsbanken shares slid more than 6 percent.

Sweden’s housing market has been rocky for the past six months, with prices declining and activity slowing markedly.

In addition, the four biggest Swedish banks’ dominance of the mortgage market has been challenged by a number of newcomers offering cheaper loans and putting pressure on margins.

The new mortgage lenders, which can avoid some of the costly regulations imposed on the bigger banks, offer 3-year interest rates as low as 0.95 percent to lure customers.

Nordea’s website offers the same loans at an interest rate of 2.04 percent.

MOVING HOME

Quarterly revenues were down 6 percent compared to last year due to lower mortgage margins, higher resolution fund fees and lower activity in capital markets.

Nordea’s revenue guidance is for slightly higher revenue in 2018 compared to 2017. However, von Koskull said he remained confident that net profit would grow in 2018 compared to 2017.

The bank is moving to cut the costs of complying with Swedish regulations and to fall under the supervision of the European Central Bank (ECB).

Smaller Handelsbanken’s operating profit in the quarter fell to 5.16 billion Swedish crowns ($606 million) compared to a year-ago 5.35 billion, undershooting a mean forecast of 5.25 billion seen in a Reuters poll of analysts.

“Costs were considerably worse than expected,” Andreas Hakansson at Exane BNP Paribas said.

$1 = 0.8185 euros Reporting by Johan Ahlander Editing by Keith Weir

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