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Nordea Dividend Threatened Under New Capital Rules, Analyst Says

Nordea Bank AB, the Nordic region’s largest lender, may have to cut its dividend and forgo its profitability target to meet stricter capital rules set to be implemented over the next three years, according to an Exane BNP Paribas analyst.

“We expect Nordea will have to cut its dividend payout in half to about 20 percent from 40 percent in order to be on the safe side of these new capital demands,” Andreas Hakansson said in an interview in Stockholm today.

Sweden, whose four biggest banks have combined assets of more than four times the country’s gross domestic product, wants lenders to target tougher capital requirements earlier than the timescales set by the Basel Committee. The government argues more rigorous standards are needed to ensure taxpayers are protected from the risk of losses.

Nordea, Swedbank AB, Svenska Handelsbanken AB and SEB AB, Sweden’s four biggest lenders, must target common equity Tier 1 capital of at least 10 percent of risk-weighted assets from January 2013 and 12 percent in 2015, plus a countercyclical buffer of up to 2.5 percent. Basel sets a 7 percent target for most banks to be met by 2019.

Swedish banks now have enough core equity to satisfy the government’s demands by 2013 under Basel III rules, Hakansson said. Still, with the risk-weighting of mortgages at some of the lowest levels in Europe, Swedish policy makers are expected to set a minimum floor, a move that will require lenders to hold more capital to maintain core equity levels high enough to meet stricter standards in 2015.

2012 Dividend

“The central bank has flagged that they will look into a risk-weight floor on mortgages in the spring,” Hakansson said. “We believe the level will be 20 percent. This will bring down the core Tier 1 ratios with the largest impact on Swedbank and Handelsbanken, the two largest mortgage lenders, but it will impact the other banks, too.”

Nordea is expected to pay a dividend of 0.29 euro cents next year, according to Bloomberg data. Hakansson said given tougher rules, he expects the figure to be 0.15 cents and 0.16 cents in 2013. Nordea, which said it targets a 15 percent return on equity in “a normalized macroeconomic environment,” may only reach 10 percent, Hakansson said.

“We have three years to meet the demands recently mentioned by the Swedish government and it’s hard to say in great detail what the capital rules will actually look like by that time,” said Erik Durhan, a Nordea spokesman. “We have the ability to boost our own core equity through our own capital generation so we feel comfortable with our current position. We have for the last couple of years generated about 10 percent of capital each year after dividend.”

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