Nordea Sees Dividend Risk as Capital Rules Raise Questions

  • Von Koskull says bank needs to ``re-calibrate'' payout goal
  • Regulatory environment is making firm targets harder to keep

The new chief executive officer of Scandinavia’s biggest bank says dividend levels are at risk because of uncertainty about future capital requirements.

Casper von Koskull, who became CEO of Nordea Bank AB on Nov. 1, is signaling that the regulatory environment may trigger a review of shareholder payouts. The bank’s shares fell as much as 1.6 percent on Thursday following the remarks, wiping about 5.7 billion kronor ($660 million) off its market value.

Casper von Koskull
Casper von Koskull
Source: Nordea

“Our overall ambition that we would increase our dividend has always been there but I think now we need to kind of re-calibrate and I think it’s quite clear that that’s much more at risk now,” von Koskull said on Wednesday in an interview at a conference in Stockholm organized by the Swedish Bankers’ Association.

Nordea in May became the Nordic lender with the highest dividend payout ratio, setting a target of at least 75 percent of profit for 2016-2018. Together with new financial goals in other areas, such as capital buffers and costs, the bank said that would imply annual total dividend growth of more than 10 percent. Those targets were based “on currently known regulatory requirements,” it said at the time.

On Thursday, Nordea’s shares saw their steepest decline in a week, and were still down 1.4 percent at 96.25 kronor as of 10:31 a.m. local time. Trading volume was at 30 percent of the daily average in the past three months. Handelsbanken and Swedbank added 0.1 percent while SEB dropped 0.8 percent.

“The CEO seems to be talking down the dividend,” Karl Morris, an analyst at Keefe, Bruyette & Woods in London, said in an e-mailed comment. It doesn’t seem that “consensus” has fully taken on board the previous “soft guidance” the company communicated to the market, he said.

Morris forecasts a dividend from Nordea of 63 euro cents for 2015, down from a previous estimate of 66 euro cents, following a weaker-than-expected third quarter. The average estimate has dropped to 67.4 euro cents from 72 euro cents a quarter ago, he said.

Bloomberg’s BDVD estimate, which takes into account factors such as company guidance, financial analysis and analyst estimates, is for a 2015 dividend of 69 euro cents. That would represent an 11.3 percent increase compared with the 62 euro cents paid for 2014.

Sweden’s banks have spent the past few years building up their regulatory buffers to comply with some of Europe’s strictest requirements. That, together with cost cuts and reduced risk, have made them among the region’s best capitalized.

As profits have grown, the development left the industry over-capitalized, freeing it to pay out the extra cash to shareholders. But while the banks exceed existing requirements, there is some concern about the impact of additional regulatory demands.

Von Koskull’s comments follow a decision by Nordea in July to set aside 4.6 billion euros ($5 billion) in a “proactive” step to prepare for the possibility of tougher capital rules. That triggered speculation among analysts that dividend levels may be at risk.

In the interview, von Koskull said “we actually want to go away from a payout” target and instead focus more on growing the dividend but that “in this environment of course that is more at risk now.” Still, it “is too early to say where we stand,” he said.

Not even Swedbank AB, Europe’s best-capitalized bank with a common equity Tier 1 ratio of 23 percent of risk-weighted assets, says it has excess capital. Michael Wolf, its CEO, said on Oct. 20 that “there is still quite a lot of uncertainty on capital requirements” and that “in light of that, we think we have a large enough buffer to handle future uncertainties. The buffer is needed and there is no excess capital at this moment in time,” Wolf said.

Annika Falkengren, the CEO of SEB AB, doesn’t see the same risks as von Koskull regarding her bank’s dividend commitments. In an interview at the same banking conference in Stockholm on Wednesday, Falkengren said that “we have the motto that we should distribute at least 40 percent of the profit and that we should have a growing dividend so for SEB, we stick to what we have promised the market.”

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