Sampo Oyj (SAMAS), the biggest investor in Nordea (NDA) Bank AB, said a rush by firms to sell bonds will help the bank generate capital and raise its dividend ratio even as Sweden warns lenders to think twice before doing so.
“Now that capital has become the exciting issue of course there is a tsunami of bond issues,” Sampo Chief Executive Officer Kari Stadigh said in a March 18 interview at Nordea’s Stockholm headquarters. “That means that Nordea, the market leader, of course collects fee income instead of giving their own balance sheet to clients.”
More business arranging deals rather than lending funds, coupled with a strong cash flow, slow loan growth in the Nordic region and more cost-cuts, means “it’s very clear that Nordea is sufficiently capitalized,” Stadigh said.
Nordea CEO Christian Clausen in January doubled a planned cost-cut target to 900 million euros ($1.25 billion) through 2015. He has said the bank plans to raise its dividend ratio to above the 56 percent of net income it has proposed for 2013, from a current goal of more than 40 percent. Its competitor Swedbank AB last year raised its dividend target to 75 percent, the highest among major Nordic banks.
“The difference between 56 percent and 75 percent is not that big, so if Nordea wants to increase it further, it can,” said Stadigh, a Nordea board member since 2010. “The board’s ambition is to raise the payout ratio and the board will be more precise once regulation is clarified.”
Finance Minister Anders Borg last month told the country’s banks to be careful in boosting dividends and instead to continue building buffers to meet stricter future capital requirements. Sweden will continue raising capital rules for as long as its banks say they have adequate funds, Borg told reporters in Stockholm on March 19. Regulation will gradually tighten for “many years,” he said.
While the Financial Supervisory Authority has urged Swedish banks to be cautious in raising dividends, its Director-General Martin Andersson told reporters in Stockholm yesterday that they’re free to do what they want with their capital as long as they fulfill current and future rules.
“We have called for caution because we see some things in the pipeline that makes it important for banks to not just look at the situation today but also to look into the crystal ball a few years ahead and take future changes to rules into account,” he said. “We know that risk-weights will be raised and everyone knows a counter-cyclical buffer is coming. It’s important that they plan ahead and have foresight.”
Sweden has already subjected its banks to some of the strictest capital rules in Europe, requiring them to hold core Tier 1 capital of 12 percent of their risk-weighted assets by 2015. The banks, which are now the best capitalized in Europe, already exceed that requirement. It also plans to increase mortgage risk-weights to 25 percent after tripling them to 15 percent last year and introduce a counter-cyclical buffer.
Nordea’s net fee and commission income rose 7.1 percent to 2.64 billion euros last year while loans to the public decreased 1.1 percent to 342.5 billion euros. Its core Tier 1 capital ratio increased to 14.9 percent from 13.1 percent.
Nordic bond sales rose 13 percent in 2013, according to data compiled by Bloomberg. More companies turned to debt markets after stricter bank capital rules made traditional loans more costly.
Within the corporate and financial bond market, Nordea increased its share of issuance by 4.7 percentage points to 12.4 percent this year, according to data compiled by Bloomberg. It has helped in deals worth $5.6 billion, excluding public-sector issuance and financing raised for itself without the help of other banks. SEB AB arranged $3.6 billion in transactions, a gain of 1.3 percentage points to 8 percent.
Nordea shareholders approved raising its 2013 dividend by 26 percent to 0.43 euro a share at today’s annual general meeting in Stockholm.
After selling its banking arm to Denmark’s Danske Bank A/S for 4.1 billion euros in 2007, Sampo amassed a 21.4 percent stake in Nordea. Sampo’s chairman Bjoern Wahlroos was re-elected today as the chairman of Nordea’s board, a position he has held since 2011.
Sampo holds more than 25 percent of shares in Danish property and casualty insurer Topdanmark A/S through its If unit, which is the largest Nordic non-life insurer. Last year, If bought Danish insurer Tryg A/S (TRYG)’s Finnish property and casualty insurance operations.
Sampo has as much as 4 billion euros of excess capital in its “war chest” that it can use for acquisitions, Stadigh said. The company only invests in financial companies in the Nordic region. Its investment criteria include a high retail or consumer content in the asset to reduce volatility and a dominant market position to help improve profit margins as sales volume grows. It also targets companies where it can achieve a high return on equity.
Sampo isn’t in any rush to spend its cash, Stadigh said.
The “best way to destroy value is to be very acquisitive and the second-best way to destroy it is to have deal pressure,” he said. “We’re so seasoned that we don’t have deal pressure and there are also no real catalysts right now. In an M&A environment where there are no real catalysts you have to be patient and the wisest thing then is to improve what you have.”
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