Nordea Bank AB’s first-quarter results show Scandinavia’s biggest lender is seeing growing losses in loans to shipping, oil, the Baltics and Russia, a development that Danske Bank A/S says is grounds for concern.
Signs of deterioration in Nordea’s loan portfolio may be bad news for investors in its senior bonds. The bank had about $250 billion in short- and long-term funding at the end of last year, of which 23 percent was senior unsecured.
“Nordea reported increased loan losses in the areas we are most worried about,” said Danske Bank analysts Lars Holm and Katrine Jensen. “We continue to believe that most of Nordea’s outstanding senior bonds are too expensive.”
Nordea’s profit plunged 28 percent last quarter from a year earlier as revenue sank, the bank said on Wednesday. Net income was 782 million euros ($884 million), missing the 792 million-euro estimate of analysts surveyed by Bloomberg. Net interest income slipped 7 percent while total operating income declined 16 percent. Operating costs declined 1 percent.
(Click here for more on Nordea’s quarterly results.)
Though not stellar, the results broadly matched analyst expectations. But a closer look at Nordea’s loan-loss numbers show a more worrying trend, according to Danske. Loan losses on retail exposures in Norway, western Europe’s biggest oil producer, rose to 16 basis points of total lending last quarter from zero. Losses on loans to shipping, oil and offshore industries almost doubled to 50 basis points.
“There were basically increases in all the areas we are most worried about,” the Danske analysts wrote in a note.