Nordea Dividend Goal in Doubt as CEO Cites Regulatory Risks

  • CEO repeats it’s still his “ambition” to raise dividend
  • Average analyst dividend est. shows 2016 payment to drop 6.3%

The man running Scandinavia’s biggest bank cast doubt on its ability to meet its dividend target amid increasing regulatory burdens.

While Nordea Bank AB Chief Executive Officer Casper von Koskull reiterated his ambition to increase the dividend every year, the fact that “we live in this age where the regulators are determining the final capital level” means there is a “degree of uncertainty that I need to deal with,” he said in an interview in Stockholm after reporting second-quarter earnings Wednesday.

Nordea shares fell 0.7 percent to 75.50 kronor as of 10:52 a.m. in Stockholm, while the Bloomberg index of European financial stocks gained.

Casper von Koskull
Casper von Koskull
Source: Nordea

Nordea is under pressure to reassure shareholders that tougher capital requirements won’t force it to abandon its dividend target for a second time in less than a year. Von Koskull in January said a previous goal of paying out “at least” 75 percent of profits to owners had been a “mistake” and revised Nordea’s policy to an “ambition” of increasing dividends each year.

“The ambition I am very confident on, it’s a progressive dividend policy,” he said. “When I have said that that is my ambition, I should not change my ambition. No doubt there is more risk given some of the uncertainty that is coming, but my aim how I run the bank is not going to change.”

Von Koskull reiterated that the bank’s priority is to meet regulatory requirements. Nordea then needs to be able to “respond to any good, natural growth” while “number three is the dividend, which is then the residual,” he said.

Analysts have voiced concern about Nordea’s ability to deliver on its most recent dividend per share goals. Market estimates suggest Nordea won’t live up to its payout plan this year, with the average of 25 analysts showing shareholders will get 0.60 euro per share, 6.3 percent less than the 0.64 euro paid for 2015.

In a statement last month, Nordea estimated that a review by the Financial Supervisory Authority will probably lead to a 40-basis point increase in its common equity Tier 1 requirement. In an interview in June, von Koskull said the bank’s profits will be big enough to cover that without tapping markets and that no further adjustments are planned in its dividend policy.

Nordea’s CET1 requirement by the end of the year is likely to be about 17 percent, excluding a so-called management buffer, based on the preliminary outcome of the Supervisory Review and Evaluation Process, the bank said on Wednesday. That compares with a ratio of 16.8 percent at the end of June.

“It is Nordea’s assessment that we will meet this requirement including a management buffer of 50-150 basis points,” the bank said. It expects to know more in September or October.

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