Nordea Bank AB Chairman Bjoern Wahlroos said Scandinavia’s biggest lender is generating so much surplus capital that it can start paying more to shareholders.
Though the bank hasn’t yet set a higher dividend payout ratio, Wahlroos said in an interview that he “is sure we will look at that. Our policy is to distribute at least 40 percent, so in that sense there is quite a lot of room for raising the dividend.” Nordea probably will generate “significant extra capital” in coming years, he said yesterday at the bank’s Stockholm headquarters.
As other banks in Europe cut costs, scale back lending or scrap dividends to meet stricter capital requirements, Nordea and its Swedish peers Swedbank AB, SEB AB and Svenska Handelsbanken AB already exceed Sweden’s reserve rules, which are tougher than those targeted elsewhere. The excess capital gave them the freedom to raise shareholder payouts by an average of 46 percent for 2012.
“The fact is that we generate so much capital that with the present rather slow growth in credit demand the bank is, together with some internal actions taken on capital allocation, rapidly generating more capital than it actually needs,” said Wahlroos. “Clearly, raising the dividend was the first step in a process where we will eventually repatriate capital to our shareholders, either through dividends or share buybacks.”
While the bank will seek shareholder approval at today’s annual general meeting to buy back stock this year, dividends have been the preferred option in the past “and I see no reason why they wouldn’t be the preferred way in the future as well,” Wahlroos said. A share buyback would be an option if the bank’s stock price is undervalued, he said.
Nordea jumped as much as 2.4 kronor, or 3.1 percent, to 79.3 kronor in Stockholm trading, its highest level since Feb. 2 2011 and its steepest intraday advance since Feb. 5 this year. It was up 2.9 percent at 1:35 p.m. local time, with volumes at 84 percent of the daily average in the past three months. The stock was the fourth-biggest gainer on the 40-member Bloomberg index of European financial companies, which rose 1.8 percent.
Wahlroos is also chairman at Nordea’s largest shareholder, Sampo Oyj. The Finnish company held 860.4 million shares, or 21.4 percent of Nordea’s share capital, at the end of February.
The bank’s 44 percent payout ratio resulted in a dividend of 0.34 euro per share for 2012, versus 0.26 euro for 2011. It’s likely to rise to 0.40 euros for 2013 and 0.45 euro and 0.5 euro in 2014 and 2015, respectively, according to Bloomberg dividend forecasts. Swedbank raised its 2012 payout ratio to 75 percent from 50 percent while SEB will distribute 40 percent or more of profit, compared with a previous target of “about” 40 percent, the lenders said in their annual reports.
Sweden’s banks are stepping up dividends after Financial Markets Minister Peter Norman said the industry shouldn’t amass too much capital. In a January interview, he praised the banks for exceeding regulatory requirements by “a good margin.”
Nordea, Swedbank, Handelsbanken and SEB must set aside at least 10 percent core Tier 1 capital of risk-weighted assets this year, with the minimum requirement rising to 12 percent in 2015. The Basel Committee on Banking Supervision sets a 7 percent minimum by 2019.
Nordea, which is partly owned by the state, said Jan. 30 its core Tier 1 capital ratio rose to 13.1 percent at the end of December, from 12.2 percent at the end of the third quarter, and 11.2 percent at the end of 2011. The bank targets a ratio above 13 percent in coming years, it said.
The government of Prime Minister Fredrik Reinfeldt ear-marked Nordea for divestment back in 2006, as part of a broader strategy to sell off holdings in assets including Sweden’s largest phone company, TeliaSonera AB, and mortgage lender SBAB. The government reduced its stake in Nordea to 13.5 percent from 19.8 percent in February 2011 after selling shares at 74.5 kronor each, resulting in net proceeds of 19 billion kronor.
Nordea’s shares closed at 76.9 kronor yesterday, its highest level since the days leading up to the state’s February 2011 sale. The stock’s 24 percent increase this year has fueled speculation in Swedish media that the government is close to selling part of its remaining stake.
“My impression is that the Swedish government has in no way changed its intention on its privatization policy and therefore I am sure they’re monitoring the situation,” Wahlroos said. Finding one single investor that would acquire the entire stake “is not usually how it plays out,” he said.
The Swedish state’s ownership of Nordea traces its roots to the nation’s banking crisis in the early 1990s, when the government nationalized the bank’s predecessor, Nordbanken, after loan losses wiped out its equity. Nordbanken was later merged with other Nordic banks to create Nordea.
Nordea’s profit jumped 19 percent to 3.12 billion euros ($4.05 billion) last year, after net interest and net fee and commission income increased by 5 percent. Its loans to the public fell 2 percent to 346.3 billion euros in the fourth quarter, compared with the three months through September.
Sampo would consider buying a part of the Swedish state’s stake in Nordea when it comes up for sale, Wahlroos said.
“We like Nordea and think there is still quite a lot of value, even at present share prices, so we might buy some of it, but on the other hand, our stake in Nordea is already worth close to 8 billion euros,” he said. “This is a very sizeable investment and there really is no need for us to go much beyond our present ownership. We’re not going to do anything big.”
Sampo, which also owns the Nordic region’s largest property and casualty insurer, If, and a stake in Danish non-life insurer, Topdanmark A/S, has as much as 5 billion euros of excess capital, Wahlroos said. While the Helsinki-based company would use that money for investments should opportunities arise, Sampo “is very value-oriented,” Wahlroos said.
“We’re in a position, because of our excess capital, to actually benefit from some aspects of the financial crisis,” he said.
As chief executive officer and then chairman of Sampo, Wahlroos used part of the proceeds from the sale of Sampo’s banking arm to Danske Bank A/S in 2007 to build a stake in Nordea. While it owns 21.4 percent of Nordea today, Sampo held only 1.34 percent in late 2006 and 9.2 percent at the end of 2007.
“We like to have a lot of capital and are not capital-minimizers, but the other aspect is that it provides you with opportunities,” Wahlroos said. “We are opportunistic and we have acted both as buyers and sellers of assets from time to time.”