Nordea Bank Abp – Inside information – Interim report (Q1 and Q3)
CEO Casper von Koskull’s comments on the results:
“Through the actions we have taken in recent quarters there are now some encouraging signs of improved business momentum, although lending margins are under continued pressure and market making activities remain challenging.
Compared to the previous quarter, reported revenues were largely unchanged while revenues excluding items affecting comparability increased by 4%. Reported costs increased by 5%, while adjusted for resolution fees in this quarter and excluding items affecting comparability were down 7%.
Our priorities are very clear – to increase business momentum and at the same time reduce the structural cost base; we are executing on both.
This quarter, there has been an intense debate about various anti-money laundering (“AML”) issues. It is a very complex and broad issue in society and we take our responsibility very seriously. We have previously stated that we expect to be fined in Denmark for our past weak AML processes and procedures, and we are consequently making a provision of EUR 95m for AML-related matters. Having invested more than EUR 700m in strengthening our risk and compliance activities in 2016–2018, we are confident that our compliance platform is of sounder quality, making us a safe and trusted partner”.
First quarter 2019 vs. First quarter 2018 (First quarter 2019 vs. Fourth quarter 2018)
- Net interest income EUR 1,056m, -5%; -4% in local currencies (-8%, -7% in local currencies)
- Total operating income EUR 2,115m, -11%; -10% in local currencies (0%, 0% in local currencies)
- Total operating income, excl. items affecting comparability[1] EUR 2,115m, -6%; -4% in local currencies (4%, 4% in local currencies)
- Total operating expenses EUR 1,452m, 6%; 7% in local currencies[2] (5%, 5% in local currencies)
- Total operating expenses, excl. items affecting comparability EUR 1,357m, -1%; 0% in local currencies (9%, 10% in local currencies)
- Profit before loan losses EUR 663m, -34%; -33% in local currencies (-10%, -9% in local currencies)
- Net loan losses EUR 42m, 5%; 5% in local currencies (40%, 40% in local currencies)
- Operating profit EUR 621m, -36%; -35% in local currencies (-12%, -11% in local currencies)
- Common Equity Tier 1 capital ratio 14.6% vs.19.8% (14.6% vs. 15.5%)
- Cost/income ratio 69% vs. 58% (69% vs. 65%)
- Cost/income ratio, excl. items affecting comparability[2] 64% vs. 61% (64% vs. 61%)
- Loan loss ratio of 7 bps vs. 7 bps (7 bps vs. 5 bps)
- Return on equity 5.5% vs 9.0% (5.5% vs. 6.3%)
- Return on equity with perodised resolution fees 7.4% vs 10.5% (7.4% vs. 5.8%)
- Return on equity, excl. items affecting comparability[1],[2] 6.7% vs 7.7% (6.7% vs. 7.1%)
- Diluted EPS EUR 0.10 vs. EUR 0.18 (EUR 0.10 vs. EUR 0.13)
Exchange rates used for Q1 2019 for income statement items are for DKK 7.4636, NOK 9.7459 and SEK 10.4181.
[1] Excl. Items affecting comparability in Q4 2018: EUR 50m gain from revaluation of Euroclear, EUR 38m after tax, and EUR 36m gain related to sale of Nordea Ejendomme. Q1 2018: EUR 135m gain from valuation model update in Denmark, EUR 105m after tax.
[2] Excl. Items affecting comparability in Q1 2019: EUR 95m non-deductible expense related to provision for AML-related matters In Q4 2018: EUR 141m loss from impairment of goodwill in Russia.
| Income statement | ||||||||
| Q1 | Q4 | Local | Q1 | Local | ||||
| 2019 | 2018 | Chg % | curr. % | 2018 | Chg % | curr. % | ||
| EURm | ||||||||
| Net interest income | 1,056 | 1,142 | -8 | -7 | 1,116 | -5 | -4 | |
| Net fee and commission income | 737 | 720 | 2 | 3 | 770 | -4 | -3 | |
| Net result from items at fair value | 264 | 182 | 45 | 41 | 441 | -40 | -40 | |
| Profit from associated undertakings and joint | ||||||||
| ventures accounted for under the equity method | 14 | 15 | 28 | |||||
| Other operating income | 44 | 60 | -27 | -25 | 23 | 91 | 96 | |
| Total operating income | 2,115 | 2,119 | 0 | 0 | 2,378 | -11 | -10 | |
| Staff costs | -718 | -744 | -3 | -3 | -798 | -10 | -9 | |
| Other expenses | -594 | -390 | 52 | 53 | -503 | 18 | 20 | |
| Depreciation, amortisation and impairment | ||||||||
| charges of tangible and intangible assets | -140 | -250 | -44 | -44 | -71 | 97 | 99 | |
| Total operating expenses | -1,452 | -1,384 | 5 | 5 | -1,372 | 6 | 7 | |
| Profit before loan losses | 663 | 735 | -10 | -9 | 1,006 | -34 | -33 | |
| Net loan losses | -42 | -30 | 40 | 40 | -40 | 5 | 5 | |
| Operating profit | 621 | 705 | -12 | -11 | 966 | -36 | -35 | |
| Income tax expense | -178 | -200 | -11 | -11 | -229 | -22 | -21 | |
| Net profit for the period | 443 | 505 | -12 | -11 | 737 | -40 | -39 | |
| Business volumes, key items[1] | ||||||||
| 31 Mar | 31 Dec | Local | 31 Mar | Local | ||||
| 2019 | 2018 | Chg % | curr. % | 2018 | Chg % | curr. % | ||
| EURbn | ||||||||
| Loans to the public | 325.6 | 308.3 | 5.6 | 5.5 | 310.9 | 4.7 | 5.0 | |
| Loans to the public, excl. repos | 300.6 | 291.6 | 3.1 | 3.0 | 287.5 | 4.6 | 4.9 | |
| Deposits and borrowings from the public | 176.3 | 165.0 | 6.9 | 6.9 | 174.0 | 1.3 | 1.3 | |
| Deposits from the public, excl. repos | 166.6 | 160.2 | 4.0 | 4.0 | 161.0 | 3.5 | 3.4 | |
| Total assets | 590.2 | 551.4 | 7.0 | 580.2 | 1.7 | |||
| Assets under management | 300.2 | 282.6 | 6.2 | 320.1 | -6.2 | |||
| Equity | 30.5 | 32.9 | -7.3 | 31.0 | -1.6 | |||
| Ratios and key figures[2] | ||||||||
| Q1 | Q4 | Q1 | ||||||
| 2019 | 2018 | Chg % | 2018 | Chg % | ||||
| Diluted earnings per share, EUR | 0.10 | 0.13 | -23 | 0.18 | -44 | |||
| EPS, rolling 12 months up to period end, EUR | 0.68 | 0.76 | -11 | 0.72 | -6 | |||
| Share price[1], EUR | 6.80 | 7.30 | -7 | 8.66 | -21 | |||
| Total shareholders' return, % | 3.3 | -17.5 | -3.9 | |||||
| Equity per share[1], EUR | 7.55 | 8.15 | -7 | 7.63 | -1 | |||
| Potential shares outstanding[1], million | 4050 | 4,050 | 0 | 4,050 | 0 | |||
| Weighted average number of diluted shares, mn | 4033 | 4,037 | 0 | 4,038 | 0 | |||
| Return on equity, % | 5.5 | 6.3 | 9.0 | |||||
| Return on tangible equity, % | 6.4 | 7.2 | 10.2 | |||||
| Return on Risk Exposure Amount, % | 1.1 | 1.3 | 2.4 | |||||
| Return on Equity with periodised resolution fees, % | 7.0 | 5.9 | 10.2 | |||||
| Cost/income ratio, % | 69 | 65 | 58 | |||||
| Cost/income ratio with periodised resolution fees, % | 61 | 67 | 52 | |||||
| Loan loss ratio, basis points[4] | 7 | 5 | 40 | 7 | 0 | |||
| Common Equity Tier 1 capital ratio[1],[4],[5], % | 14.6 | 15.5 | 19.8 | |||||
| Tier 1 capital ratio[1],[4],[5], % | 17.1 | 17.3 | 22.2 | |||||
| Total capital ratio[1],[4],[5], % | 19.5 | 19.9 | 25.2 | |||||
| Tier 1 capital[1],[4], EURbn | 27.8 | 27.0 | 3 | 27.3 | 2 | |||
| Risk exposure amount[4], EURbn | 163 | 156 | 5 | 123 | 33 | |||
| Number of employees (FTEs)[1] | 29,284 | 28,990 | 1 | 30,082 | -3 | |||
| Economic capital[1], EURbn | 28.2 | 26.6 | 6 | 26.2 | 8 | |||
| [1] End of period. | ||||||||
| [2] For more detailed information regarding ratios and key figures defined as Alternative performance measures, see www.nordea.com/en/investor-relations/. | ||||||||
| [3] Including Loans to the public reported in Assets held for sale in Q1 2018. | ||||||||
| [4] Including the result for the period. | ||||||||
| [5] Changes to the applicable capital requirements regime (for more details, please see chapter Other information). | ||||||||
Outlook
Key drivers of the outlook
Throughout Nordea, we are intensifying our efforts to increase business momentum and each business area has identified a number of initiatives to drive client value and revenue growth. Examples include investments in Private Banking in Norway and Sweden, the acquisition of Gjensidige Bank, new distribution channels within Asset Management and Wholesale Banking and actions to regain momentum on mortgages, where we are already starting to see results.
The key drivers behind the structural cost efficiency are increased usage of automation and robotics, the ongoing ramp-up in Poland and Estonia and outsourcing of Group Technology mainframe to IBM. We are also simplifying by harmonising products and services and leveraging scale by further consolidating common units, for instance global operations and services.
Cost
For 2021, we expect the cost base in constant currencies to be approximately 3% below the 2018 cost base excluding items affecting comparability in 2018[1] and cash costs are expected to be down by up to 10% in constant currencies over the same period.
Costs for 2019 are expected to be lower in constant currencies compared to 2018 excluding items affecting comparability in 2018 and 2019[2] and the total cash cost is expected to be lower in constant currencies over the same period.
[1] Goodwill write-down of EUR 141m in Q4 2018
[2] Adjusted for the goodwill write-down of EUR 141m in 2018, transaction costs of EUR 90m in 2019, higher resolution fee in 2019 and provision of EUR 95m in Q1 2019
Credit quality
Our expectation for the coming quarters is that net losses will remain low and around the average level for 2018.
Capital policy
Given the implementation of transitional arrangements agreed with the ECB following Nordea’s transfer to the Banking Union and with the aim to maintain the same nominal management buffer, the management buffer has been adjusted from a range of 50–150 bps to 40–120 bps. This is mainly a technical adjustment and hence the management buffer remains largely unchanged in nominal EUR amounts. The current level of the management buffer is approximately EUR 2.2bn (130 bps). Nordea aims to achieve a yearly increase in the dividend per share, while maintaining a strong capital position in line with the capital policy.
The entire report can be found on the below link on our website.
Nordea Group Q1 2019 Report
For further information:
| Casper von Koskull, President and Group CEO, +358 503 821 391 | Christopher Rees, Group CFO, +45 5547 2377 |
| Rodney Alfvén, Head of Investor Relations, +46 72 235 05 15 | Sara Helweg-Larsen, Head of Group Communications, +45 2214 0000 |
| Latest interim results |
The information provided in this stock exchange release was submitted for publication through the agency of the contact persons set out above at 07:30 EET (06:30 CET) on 30 April 2019.
We build strong and close relationships through our engagement with customers and society. Whenever people strive to reach their goals and realise their dreams, we are there to provide relevant financial solutions. We are the largest bank in the Nordic region and among the ten largest financial groups in Europe in terms of total market capitalisation with around 11 million customers. The Nordea share is listed on the Nasdaq Helsinki, Nasdaq Copenhagen and Nasdaq Stockholm exchanges. Read more about us on nordea.com.