Nykredit Realkredit A/S, Denmark’s largest mortgage lender, is the latest Nordic bank to turn to wealth management to generate income as negative rates and tougher capital requirements squeeze profits.
Nykredit, which plans to end its 165-year history as a cooperative and list on the Copenhagen stock exchange to raise regulatory capital, has consolidated its asset management and private banking into a single entity. The unit will be easier to profile for investors and provides a better platform for targeting clients, who must have at least $1 million to invest, Soeren Holm, chief financial officer, said.
“Savings are increasing and therefore asset management is one of the growth areas in banking, where normal banking is not growing,” Holm said. “We have a reputation that we would like to build on.”
Nordic banks are ferreting out new avenues to generate profit as negative central bank rates put pressure on interest income. Danske Bank A/S, Denmark’s largest lender, has created a wealth unit with 1.35 trillion ($210 billion) under management after combining several divisions, including its pension business.
Nykredit’s new unit had 142.8 billion kroner of assets under management and 696.5 billion in assets under administration at the end of March, according to first-quarter results published on Thursday. The unit generated a pretax profit of 32 million kroner.
Measured by the capital backing the unit, wealth was the best performing division. The profit as a percentage of average business capital was 24.6 percent, the report shows. That compares with 11.4 percent for Nykredit’s retail business, its largest unit.
“It’s an important part of our business and we’re highlighting it more to show investors what business components we actually have,” Holm said. “Before, it was a mix of various numbers so it was a little unclear for external readers.
Nykredit is selling its headquarters in Copenhagen and plans to cut staff every year through 2018 to reduce costs. It says it may need to hold as much as 90 billion kroner in common equity Tier 1 capital if regulators impose the toughest of measures under consideration. The bank had CET1 capital of 60.1 billion kroner at the end of March.