Nordea Bank strong after report

Several investors deduced from Nordea’s (OMX: NDA, OMXH: NDA1V) major gaffe and the subsequent wording of the portion of the profit that Norwegian operations represented yesterday, that the group’s quarterly result was going to be pretty good. This was indeed the case and those savvy investors are now able to book a nice gain. Both total income and net interest income of the Swedish behemoth grew 3% sequentially and in double-digits year-on-year to 2.6 and 1.46 billion Euros. Core tier 1 capital ratio (Basel 2) is now 11.8% and including transitional rules (Basel 3) at 11% sharp. Operating profit came in at 1.1 billion and diluted quarterly EPS grew to 0.21 Euros

Nordea halted

Dagens Industri writes that trading with shares of Nordea Bank (OMX: NDA SEK, OMXH: NDA1V, OMX: NDA DKK) has been halted across Nordic exchanges after Nordea Bank Norge’s interim results were released too soon. The group is supposed to release quarterly accounst tomorrow before market open. Nordea has so far refused to comment further, beyond saying they are investigating the matter.

***UPDATE***

The company admitted that a human error caused the results leak. You would think a financial services firm would get such basic things right. Trading will continue soon and the remaining results will be released tomorrow. Nordea Bank Norge represents about 15% of the total result of the group.

Moody’s Nordic downgrades come

Ratings agency Moody’s has today announced ratings actions concerning a number of banks in the Nordic region. Senior debt and deposit ratings of Norwegian DNB Bank ASA, part of DNB ASA (OSE: DNB) were downgraded to A1from Aa3 couple with downgrades on other ratings as well with a stable outlook. This reflects reliance on market funding and exposures to volatile assets such as real estate sector and shipping and possible pressure on earnings from higher liquidity requirements. The decline was mitigated due to likely system support in the event of problems and stable domestic environment.

Rating actions on five Swedish banking groups resulted in a downgrade of long-term debt and deposit ratings for Nordea Bank Ab (OMX: NDA, OMXH: NDA1V) and Svenska Handelsbanken (OMX: SHB A) both by one notch from Aa3 and that of farm and forest holder member owned specialised agricultural lender Landshypotek AB by two notches. The debt and deposit ratings of Skandinaviska Enskilda Banken's SEB (OMX: SEB A) and Swedbank (OMX: SWED A) were maintained at A1 and A2 respectively. All the ratings carry a stable outlook. The challenges faced by the sector as given by Moody’s are comparatively high reliance on wholesale funding, modest profits and risks to assets quality. Nonetheless the commendable performance of the Swedish economy and the relative strength of the banks is recognized.

Nordea on its way to meet stricter capital demands

Nordea (OMX: NDA SEK, OMXH: NDA1V, OMX: NDA DKK)) said it is making progress towards New Normal. The company added 22 000 new customers in Q1 2012 and active mobile bank customer numbers doubled. Net interest income was up 7% year-on-year and flat sequentially at 1.42 billion €. Total operating income of 2.5 billion developed similarly. Quarterly operating profit remained above 1 billion and earnings per share were 0.19 Euro with return on equity near 12%.

The balance sheet strengthening is in full swing. Core Tier 1 capital ratio has increased to 11.6% (10.7% excluding transition rules). Net loan losses were down from Q4. Its stock market value is still up markedly for the day despite the wider market giving back some of the early gains.

The bank has been meeting with existing customers to go over their finances. Nordea has been aiming to brand itself as an institution that does not try to sell overly risky propositions to its customers. It also remains the market leader in Nordic country corporate merchant banking.

Largest companies in Stockholm stock exchange

Newspaper Dagens Industri noted the fact that after a poor fourth quarter performance and subsequent fall in the stock price, Ericsson has dropped out of the podium when the largest companies in Swedish stock exchange are listed. Engineering firm Alfa Laval rises to replace it at number 3. Clothing retail giant H&M is far ahead of the field with Nordea Bank coming in at number 2.

Top 10 consists of mainly banks and engineering companies. Firms that have their primary listing elsewhere such as AstraZeneca and ABB aren't included. Here is the current list as compiled by the newspaper (market cap in SEK/billions, excluding unquoted shares such as H&M class A):

1. H&M 327,3
2. Nordea Bank 239,8
3. Atlas Copco 199,2
4. Ericsson 198,8
5. TeliaSonera 196,5
6. Volvo 194,2
7. Sandvik 125,9
8. Svenska Handelsbanken 126,4
9. Swedbank 114,3
10. Skandinaviska Enskilda Banken 95,3

Nordea Q4 2011

Nordea Bank ((OMX: NDA SEK) (OMXH: NDA1V) (OMX: NDA DKK)) posted its highest total quarterly income to date on Q4 2011. This also makes the entire financial year a record. Not everything was quite what the markets were hoping for though as credit losses bucked the recent down trend and total net loan losses increased rather significantly both against Q3 2011 and Q4 2010 to 263 million. Nordea said that the number is slightly higher than expected over the cycle and is mainly related to increases in Denmark and Shipping.

The company touted that its New Normal plan, which basically means major cost reductions in order to reach a spesified profitability goal, has gotten to a very good start. The cost development was flat year-on-year in a time when banks in general face higher costs associated with stricter requirements. Fourth quarter ROE increased to 12.3% with the New Normal target at 15% ROE.

Fourth quarter operating profit was 1.029 billion and risk-adjusted profit 815 million Euros. Full year earnings per share print a cent lower than in 2010 at 65 cents a share. Core Tier 1 ratio has increased 90 pbs over the year to 11.2% excluding transition rules (9.2% with transition rules).

Nordea is cutting its dividend by 10% to allow for a continued increase in the capital ratios, as it plans to meet Swedish authorities requirement for >12% core tier 1 capital by 2015. The report did contain an innuendo on the bank’s worry that the current political impetus to blame the banks on all the ills will cause ever tightening regulations, which in turn will have adverse effects on the whole economy.

Nordea has no direct exposure to the Euro countries facing a crisis but of course is affected indirectly. Nordea said it saw a stabilizing effect in the industry following ECB’s decision to introduce a 3-year liquidity facility. The bank said it has good business momentum with gold and private banking customer numbers at a record high. The stock is down a little more than 1% on all the markets, which is somewhat less the retreat of the indexes on a red morning.

Sweden ponders if Chairman of the Board in financial institutions should be allowed to have material ties with the company

Newspaper Dagens Industri wrote in its Monday paper edition that Swedish Financial Supervisory Authority Finansinspektionen is pushing an amendment which would make independence of Chairman of the Board in financial institutions an explicit requirement. This means that the Chairman could not for example own shares (directly or indirectly) in the company.

The suggestion was made to in writing to The Ministry Of Finance. If the suggestion were to become a law, SEB’s Marcus Wallenberg, Nordea’s Björn Wahlroos and Handelsbanken’s Hans Larsson would be among those affected. Finansinspektionen claims such a requirement would create strong Boards.

Major cost cutting resumes

Major restructuring news hit the wires this week. Nordea (OMXS: NDA, OMXH: NDA1V) started to prepare for tightening global banking regulations in advance and announced on Monday that it is initiating negotiations with unions on staff cost reductions. The action is a part of Nordea’s “new normal” plan that has been hinted at several times before. Nordea is aiming to reach 15% ROE and will announce additional measures towards that end.

The negotiations in four Nordic countries are anticipated to result in over 5% cut in total workforce as up to 2000 jobs are at risk. The cuts are relatively even between Denmark, Finland and Sweden at 500 to 650 and a couple hundred in Norway. Nordea also released economic outlook statement titled ominously as “signs of crisis”.

UPM-Kymmene (OMX: UPM1V) acted quickly and decisively after Myllykoski acquisitions and said today it plans to reduce 1.3 million tonnes of paper capacity in Europe (1.2 million tonnes of magazine paper in Finland, Germany and France plus 110 tonnes of newsprint capacity in Germany). This will be done through closure of Myllykoski mill in Kouvola, Finland, Albbruck mill in Germany and paper machine 3 at the Ettringen mill in Germany, meaning a near 1200 reduction in headcount.

Björn Wahlroos is the Chairman of the Board in Both UPM-Kymmene and Nordea. Union leaders are fuming in national media, even going as far as saying that personal assets should be frozen when leaders make such decisions, hinting at Wahlroos. Investors have welcomed the announcements. Nordea is up nicely for the week and the entire pulp & paper sector gained strongly today also aided by the fact that UPM’s estimate of the annual synergy benefits from Myllykoski & Rhein Papier GmbH deal was doubled to approximately 200 million Euro.

Nordea's Pandora listing role to be investigated

Danish Financial Supervisory Authority Finanstilsynet (FSA) has asked The Danish Securities Council to investigate Nordea Bank ((OMX: NDA SEK) (OMXH: NDA1V) (OMX: NDA DKK)) Denmark over its holdings disclosure in investment analysis of jewellery maker Pandora A/S (OMX: PNDORA).

Nordea had a general disclaimer in its analysis that it may have some financial interests, which was not deemed enough considering that the bank had a 3.9% indirect ownership at the time. Nordea spokesman told Reuters news agency that the bank has taken note and will adjust its future practises.

Pandora was listed in Copenhagen stock exchange last year through an IPO and Nordea was one of the arrangers. The initial public offering was the largest of its kind in Denmark in nearly two decades. After a massive downgrade and subsequent stock price crash couple weeks ago, the share is trading some 80% below its IPO valuation. This has completely sapped the public confidence in new listings at a time when they are at an all time lows across the Nordic exchanges.

Nordea Q2 2011 report

Nordea Bank AB’s (OMXS: NDA, OMXH: NDA1V) loan losses are at the lowest level since 2008 and loan quality has continued to improve. Second quarter operating profit was 949 million Euro up 30% from a year ago and down 5% compared to first quarter, mainly because trading result came back to earth from last quarter’s high level as market volatility and investors increasing risk aversion hit Nordea.

Deposit volumes and margins continued to increase and lending volumes increased with stable lending margins. Nordea has lower level in Treasury and reduced return on liquidity buffer. Core tier 1 capital ratio improved to 11% (9,3% including transitional rules).

Nordea gained 40 000 new Gold and Private Banking customers in the second quarter. Expenses were on par with Q1 as staff costs were down 3%. Nordea says that this result is a “good foundation for implementing new normal plan”. The stock looks set to open pretty much on yesterday’s level. Full interim report is available here.

Elcoteq to insolvency proceedings

Elcoteg (OMX: ELQAV) said after the bell that Elcoteq's RCF lenders have decided to accelerate the outstanding revolving credit facility despite Elcoteq’s pleas for them not to do so in connection with the planned restructuring of the companys debt via a potential deal with Platinum Equity. Elcoteq will apply for controlled management insolvency proceedings to be able to continue operations.

Danske Bank (OMX: DANSKE) gave the notice to Elcoteq and is acting as an agent on behalf of other revolving credit facility lenders RBS, SEB, Nordea, Pohjola, Banco Bilbao Vizcaya Argentaria, UniCredit Bank and HSH Nordbank.

Elcoteq is blaming the company’s lenders harshly saying as follows: “In the Company's view, the lenders' act shows total disregard of the Company's customers, suppliers and close to 7000 employees as well as other stakeholders.”. While it can be argued that it might not have been in the best interests of the lender in question to do so, lenders have every right to do just that when company does not meet its obligations.

In a bizarre twist, investors drove up Elcoteq's stock price after the Platinum Equity announcement, which contained the notice that Elcoteq is unable to repay the remaining 48.5 million Euro on its revolving credit facility. Now investors will in all likelihood feel pain stemming from that decision.

Nordic banks pass stress tests

European Banking Authority has published results of the 2011 EU-wide stress tests for 90 banks in 21 countries. All 10 Nordic banks involved in the latest stress tests passed comfortably. They were Nordea Bank (OMXS: NDA, OMXH: NDA1V), Skandinaviska Enskilda Banken (OMX: SEB A, STO: SEB C), Svenska Handelsbanken(OMX: SHB A) and Swedbank(OMX: SWED) from Sweden, Danske Bank (OMX: DANSKE), Jyske Bank (OMX: JYSK), Nykredit Bank and Sydbank (OMX: SYDB) from Denmark, DNB NOR (OSE: DNBNOR) from Norway and Pohjola Bank (HSE: POH1S) as a part of OP-Pohjola group from Finland.

Eight banks were below 5% Core Tier 1 T capital threshold and sixteen banks between 5% and 6% CT1R. EBA is formally recommending national supervisory authorities to require those banks under 5% CT1R to promptly remedy capital shortfall. Those failing the tests were all small banks. Five of them are in Spain, two in Greece and one in Austria.

While stricter than the tests last year, these tests have been also been blamed too soft and authorities are worried markets will view the fact that the tests do not include Greek default provision as a reason to panic. Also some have worried about the great detail that banks are revealing about their specific exposures to provide bad incentives. More information is available here.