Nordea Bank Abp – Inside information – Half-Year Financial Report
CEO Casper von Koskull’s comments on the results:
“The operating environment for Nordea remains stable with continued lending growth, pressurised margins and challenging conditions for our market making activities. Our actions from the past 12 months have, however, led to some encouraging signs of regaining market shares and future cost reductions but it will take time before these increased activity levels are fully reflected in the results.
That said, our performance is not satisfactory, and further actions are needed to strengthen the financial results. I am confident that the investments we have made in regulatory and systems infrastructure, together with our committed and skilful employees, will ensure a powerful future development for the bank.
Nordea has in recent years de-risked the bank, invested in our digital and compliance platforms, concentrated our operations to the Nordic markets and has entered a new phase of customer focus. The financial environment has also changed with expected lower rates for longer, and we will soon have more clarity on our capital requirements within the banking union. For these reasons Nordea will review its financial targets, including the capital and dividend policy with an expectation to present these after the release of the third quarter 2019 results.
As communicated on 30th June 2019, I have decided to retire from Nordea by the end of 2020 and the process to find a successor has been initiated. Further information on timing will be disclosed when available”.
Second quarter 2019 vs. Second quarter 2018 (Second quarter 2019 vs. First quarter 2019)
- Net interest income EUR 1,071m, -4%; -1% in local currencies (1%, 2% in local currencies)
- Total operating income EUR 2,141m, -17%; -16% in local currencies (1%, 2% in local currencies)
- Total operating income[1] EUR 2,141m, -4%; -3% in local currencies (1%, 2% in local currencies)
- Total operating expenses EUR 1,180m, 2%; 3% in local currencies (-19%, -18% in local currencies)
- Total operating expenses[2] EUR 1,180m, 2%; 3% in local currencies (-13%, -12% in local currencies)
- Profit before loan losses EUR 961m, -33%; -32% in local currencies (45%, 45% in local currencies)
- Net loan losses EUR 61m, 3%; 5% in local currencies (45%, 48% in local currencies)
- Operating profit EUR 900m, -34%; -33% in local currencies (45%, 45% in local currencies)
- Common Equity Tier 1 capital ratio[3],[4] 14.8% vs.19.9% (14.8% vs. 14.6%)
- Cost/income ratio 55% vs. 45% (55% vs. 69%)
- Cost/income ratio, [1],[2] 55% vs. 52% (55% vs. 64%)
- Loan loss ratio of 10 bps vs. 10 bps (10 bps vs. 7 bps)
- Return on equity 9.1% vs 14.3% (9.1% vs. 5.5%)
- Return on equity[1],[2] 9.1% vs 9.8% (9.1% vs. 6.7%)
- Return on equity[1],[2],[5] 8.5% vs 9.4% (8.5% vs. 8.1%)
- Diluted EPS EUR 0.17 vs. EUR 0.28 (EUR 0.17 vs. EUR 0.10)
Exchange rates used for Q2 2019 for income statement items are for DKK 7.4651, NOK 9.7314 and SEK 10.5170.
[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 ongoing AML-related matters. In Q4 2018: EUR 141m loss from impairment of goodwill in Russia.
[3] Including profit for the period adjusted by accrued dividend.
[4] The capital ratios for 2018 have not been restated due to the changed recognition and presentation of resolution fees (see Note 1 for more information).
[5] Adjusted for resolution fees after tax: In Q2 2019 EUR -40m, in Q1 2019 EUR 118m and in Q2 2018 EUR -32m.
| Income statement | ||||||||||||
| Q2 | Q1 | Local | Q2 | Local | Jan-Jun | Jan-Jun | Local | |||||
| 2019 | 2019 | Chg % | curr. % | 2018 | Chg % | curr. % | 2019 | 2018 | Chg % | curr. % | ||
| EURm | ||||||||||||
| Net interest income | 1,071 | 1,056 | 1 | 2 | 1,110 | -4 | -1 | 2,127 | 2,226 | -4 | -3 | |
| Net fee and commission income | 743 | 737 | 1 | 1 | 800 | -7 | -6 | 1,480 | 1,570 | -6 | -5 | |
| Net result from items at fair value | 283 | 264 | 7 | 7 | 260 | 9 | 8 | 547 | 701 | -22 | -22 | |
| Profit from associated undertakings and joint | ||||||||||||
| ventures accounted for under the equity method | 24 | 14 | 71 | 71 | 33 | -27 | -35 | 38 | 61 | -38 | -42 | |
| Other operating income | 20 | 44 | -55 | -56 | 375 | -95 | -95 | 64 | 398 | -84 | -84 | |
| Total operating income | 2,141 | 2,115 | 1 | 2 | 2,578 | -17 | -16 | 4,256 | 4,956 | -14 | -13 | |
| Staff costs | -727 | -718 | 1 | 2 | -730 | 0 | 1 | -1,445 | -1,528 | -5 | -4 | |
| Other expenses | -304 | -594 | -49 | -48 | -350 | -13 | -12 | -898 | -853 | 5 | 7 | |
| Depreciation, amortisation and impairment | ||||||||||||
| charges of tangible and intangible assets | -149 | -140 | 6 | 7 | -74 | 101 | 104 | -289 | -145 | 99 | 101 | |
| Total operating expenses | -1,180 | -1,452 | -19 | -18 | -1,154 | 2 | 3 | -2,632 | -2,526 | 4 | 6 | |
| Profit before loan losses | 961 | 663 | 45 | 45 | 1,424 | -33 | -32 | 1,624 | 2,430 | -33 | -32 | |
| Net loan losses | -61 | -42 | 45 | 48 | -59 | 3 | 5 | -103 | -99 | 4 | 6 | |
| Operating profit | 900 | 621 | 45 | 45 | 1,365 | -34 | -33 | 1,521 | 2,331 | -35 | -34 | |
| Income tax expense | -219 | -178 | 23 | 23 | -250 | -12 | -12 | -397 | -479 | -17 | -16 | |
| Net profit for the period | 681 | 443 | 54 | 53 | 1,115 | -39 | -38 | 1,124 | 1,852 | -39 | -39 | |
| Business volumes, key items[1] | ||||||||||||
| 30 Jun | 31 Mar | Local | 30 Jun | Local | ||||||||
| 2019 | 2019 | Chg % | curr. % | 2018 | Chg % | curr. % | ||||||
| EURbn | ||||||||||||
| Loans to the public | 323.8 | 325.6 | -1 | 0 | 314.8 | 3 | 4 | |||||
| Loans to the public, excl. repos | 300.2 | 300.6 | 0 | 0 | 292.4 | 3 | 3 | |||||
| Deposits and borrowings from the public | 176.5 | 176.3 | 0 | 1 | 176.5 | 0 | 1 | |||||
| Deposits from the public, excl. repos | 167.0 | 166.6 | 0 | 1 | 166.3 | 0 | 1 | |||||
| Total assets | 582.9 | 590.2 | -1 | 570.1 | 2 | |||||||
| Assets under management | 306.5 | 300.2 | 2 | 307.0 | 0 | |||||||
| Equity | 31.1 | 30.5 | 2 | 31.9 | -3 | |||||||
| Ratios and key figures[2] | ||||||||||||
| Q2 | Q1 | Q2 | Jan-Jun | Jan-Jun | ||||||||
| 2019 | 2019 | Chg % | 2018 | Chg % | 2019 | 2018 | Chg % | |||||
| Diluted earnings per share, EUR | 0,17 | 0,10 | 70 | 0,28 | -39 | 0,27 | 0,46 | -41 | ||||
| EPS, rolling 12 months up to period end, EUR | 0,58 | 0,68 | -15 | 0,82 | -29 | 0,58 | 0,82 | -29 | ||||
| Share price[1], EUR | 6,39 | 6,80 | -6 | 8,26 | -23 | 6,39 | 8,26 | -23 | ||||
| Total shareholders' return, % | 4,0 | 3,3 | 3,7 | -1,5 | -7,0 | |||||||
| Equity per share[1], EUR | 7,69 | 7,55 | 2 | 7,90 | -3 | 7,69 | 7,90 | -3 | ||||
| Potential shares outstanding[1], million | 4.050 | 4.050 | 0 | 4.050 | 0 | 4.050 | 4.050 | 0 | ||||
| Weighted average number of diluted shares, mn | 4.032 | 4.033 | 0 | 4.037 | 0 | 4.032 | 4.037 | 0 | ||||
| Return on equity, % | 9,1 | 5,5 | 14,3 | 7,2 | 11,7 | |||||||
| Return on tangible equity, % | 10,6 | 6,4 | 16,5 | 8,4 | 13,4 | |||||||
| Return on Risk Exposure Amount, % | 1,7 | 1,1 | 3,6 | 1,4 | 3,0 | |||||||
| Return on Equity with periodised resolution fees, % | 8,5 | 7,0 | 13,9 | 7,7 | 12,1 | |||||||
| Cost/income ratio, % | 55 | 69 | 45 | 62 | 51 | |||||||
| Cost/income ratio with periodised resolution fees, % | 58 | 61 | 46 | 59 | 49 | |||||||
| Loan loss ratio, basis points[3] | 10 | 7 | 43 | 10 | 0 | 9 | 8 | 13 | ||||
| Common Equity Tier 1 capital ratio[1],[4],[5],[6],[7], % | 14,8 | 14,6 | 19,9 | 14,8 | 19,9 | |||||||
| Tier 1 capital ratio[1],[4],[5],[7], % | 17,3 | 17,1 | 22,2 | 17,3 | 22,2 | |||||||
| Total capital ratio[1],[4],[5],[7], % | 19,8 | 19,5 | 25,4 | 19,8 | 25,4 | |||||||
| Tier 1 capital[1],[4],[7], EURbn | 27,6 | 27,8 | -1 | 27,2 | 1 | 27,6 | 27,2 | 1 | ||||
| Risk exposure amount[4], EURbn | 160 | 163 | -2 | 123 | 30 | 160 | 123 | 30 | ||||
| Number of employees (FTEs)[1] | 29.550 | 29.284 | 1 | 29.271 | 1 | 29.550 | 29.271 | 1 | ||||
| Economic capital[1],[7], EURbn | 27,8 | 28,2 | -1 | 26,5 | 5 | 27,8 | 26,5 | 5 | ||||
| [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). | ||||||||||||
| [6] Including profit for the period adjusted by accrued dividend. | ||||||||||||
| [7] The capital ratios for 2018 have not been restated due to the changed recognition and presentation of resolution fees (see Note 1 for more 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 integration 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 cost efficiency are increased usage of automation and robotics, the shift in our workforce composition through nearshoring to Poland and Estonia and increased use of outsourcing and partnerships of which the recent collaboration with John Hancock to distribute stable return products in the US is an example. We are also simplifying by harmonising products and services and leveraging scale by further consolidating common units, for instance global operations and services.
Nordea has in recent years de-risked the bank, invested in our digital and compliance platforms, concentrated the operations to the Nordic markets and has entered a new phase of customer focus. 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. For these reasons Nordea will review its financial targets, including the capital and dividend policy with an expectation to present these after the release of the third quarter 2019 results.
On 18 July 2019, the ECB will publish Nordea’s result of the Comprehensive Assessment (CA) exercise including the Asset Quality Review (AQR) and the ECB stress test. Overall results of the exercise confirm the resilient capital position of Nordea, exceeding all the thresholds defined by the ECB. The outcome of the AQR presents a prudential assessment of current provisions. Nordea has reviewed the results and are comfortable with the current level of accounting provisions. Nordea expects that the prudential outcome of the AQR will be further assessed and discussed in the supervisory dialogue during H2 2019.
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 2.0bn (120 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 Q2 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 |
The information provided in this stock exchange release is such that Nordea Bank Abp is required to disclose pursuant to the EU Market Abuse Regulation and was submitted for publication, through the agency of the contact persons set out above, at 06.30 CET on 18 July 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 one of the largest banks in the Nordic region in terms of total market capitalization with around 10 million customers. The Nordea share is listed on the Nasdaq Helsinki, Nasdaq Copenhagen and Nasdaq Stockholm exchanges. Read more about us on nordea.com.