July 18, 2019 / 4:59 AM / a month ago

Nordea to review targets after tough second quarter for Nordic banks

HELSINKI/COPENHAGEN (Reuters) - Nordea (NDAFI.HE), the biggest bank in the Nordics, said it would review its financial targets in coming months, as the region’s lenders struggle with weak growth at home and rising compliance costs from money laundering scandals overseas.

FILE PHOTO: The Nordea Bank AB logo is seen at the SIBOS banking and financial conference in Toronto, Ontario, Canada October 19, 2017. REUTERS/Chris Helgren

Nordic banks have reported weak quarterly results across the board against the backdrop of low interest rates and tough competition.

Danish peer Danske Bank’s (DANSKE.CO) quarterly pre-tax profit also missed expectations on Thursday, hurt by low rates and higher costs associated with compliance following a money-laundering scandal at its Estonian bank.

It reported a 15.4% rise in costs from a year earlier, which it said was mainly down to investing in more staff and technology to deal with the Estonia case.

Nordea’s net profit fell 11% from a year earlier to 681 million euros (£613.38 million) in its second quarter ended June 30, missing analysts’ average expectation of 739 million euros in a poll.

Net interest income, the bank’s most important income line, fell 4% to 1.07 billion euros due to fierce competition in mortgages and household loans across the region.

Jefferies analysts said the second quarter result “suggests downgrades to consensus led by net interest income”.

Nordea shares were down 6.6% at 1003 GMT, pulling other Nordic banks lower, with SEB, Swedbank (SWEDa.ST) and Handelsbanken (SHBa.ST) all down more than 1%. Danske shares dipped 0.9%, having already fallen sharply after the bank gave preliminary data on its earnings on July 8.

“As our performance is not satisfactory, further actions are needed to strengthen the financial results,” Nordea Chief Executive Officer Casper von Koskull said in a statement, without elaborating.

The bank said it planned to present new financial targets, including the capital and dividend policies, after third-quarter results.

NORDIC WOES

Earlier this week, peer Swedbank (SWEDa.ST) slashed its dividend payout policy to 50% from 75%, aiming to strengthen its capital amid fallout from a Baltic money laundering scandal.

Nordea cited internal reasons such as lowering its risk level and concentrating on Nordic markets as well as external factors for the target revamp.

“Financial environments have also changed with expected lower rates for longer, and we will soon have more clarity on our capital requirements within the banking union,” Nordea said.

Nordea has retaken its position as the Nordic region’s biggest bank by market capitalisation after Norway’s DNB (DNB.OL) briefly took the crown in June and July. Nordea’s market capitalisation at Wednesday’s close was 26.82 billion euros, while DNB was at 25.79 billion.

Danske Bank, whose shares have dropped more than 40% over the last year, said it expected to have to add to its capital reserves as Denmark’s financial watchdog is investigating a case where retail clients had been overcharged fees in relation to an investment product.

“Overall Danske’s core franchise continues to come under pressure whilst the overhang of regulatory investigations persists, with higher capital requirements a potential added headwind today,” KBW analysts said in a research note.

Additional reporting by Stine Jacobsen, Writing by Rachel Armstrong; Editing by Emelia Sithole-Matarise

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