Nordea Touts Shareholder Rewards as Cash Reserves Trail Rivals’

Nordea Bank AB is trailing its biggest Swedish competitors in building capital reserves as the largest Scandinavian bank says it’s ready to return profits to shareholders.

Nordea reported a core Tier 1 capital ratio of 13.2 percent of its risk-weighted assets at the end of March, versus a target of “more than 13 percent.” That’s well below ratios at its three biggest rivals in Sweden. Svenska Handelsbanken AB, the European Union’s best capitalized bank, said today its buffer by the same measure was 18 percent.

“We don’t seek to increase it in any major way,” Nordea Chief Executive Officer Christian Clausen said in an interview with Bloomberg Television today. “We have a very strong capital base, we have built it and from now it is about generating the return on that capital -- that is our main objective.”

Clausen, who is also the president of the European Banking Federation, has argued stricter capital rules will hurt economic growth as lending slows. Clausen said today he would rather use excess cash to raise dividends or buy back shares should the Swedish government divest more of its Nordea stake. He repeated a return-on-equity goal of 15 percent by 2015. That target depends on “normal” interest rate conditions, he said.

While Nordea is the worst capitalized of Sweden’s four biggest banks, its reported reserve ratio exceeds Sweden’s requirements, among Europe’s strictest. Banks in the largest Nordic economy need to hold at least 10 percent core Tier 1 capital this year, with the minimum rising to 12 percent in 2015.

Too Much

Financial Markets Minister Peter Norman, who oversees state asset sales, has cautioned Sweden’s banks against hoarding too much capital. And as banks elsewhere in Europe look for ways to preserve cash, Swedish lenders have used their excess capital to increase dividends.

Nordea today reported a 2.7 percent increase in net income to 794 million euros ($1.03 billion), beating the average 745.2 million-euro estimate of 10 analysts surveyed by Bloomberg. Net loan losses fell 8.7 percent to 199 million euros.

Sweden’s banks have cut costs and shed risky assets to boost capital in recent years. At the end of 2012, Handelsbanken, Swedbank and SEB AB had the three highest capital ratios of the EU’s major banks. Denmark’s Danske Bank A/S was No. 4 while Nordea was ranked fifth.

Basel III

Nordea’s 13.2 percent core Tier 1 ratio is calculated under Basel II rules. Swedbank’s is 17.3 percent and SEB’s 15.3 percent, by that measure. Under Basel III regulation, Handelsbanken’s ratio is 17.5 percent while Swedbank and SEB have 16.4 percent and 13.4 percent, respectively.

Handelsbanken’s first-quarter net income rose 6.1 percent to 3.47 billion kronor ($522 million) while profit at Swedbank advanced 3.4 percent to 3.53 billion kronor, the two reported this week. SEB said net income in the first quarter jumped 15 percent to 3 billion kronor.

Clausen has argued his bank has a lower capital ratio because its operations are spread across more countries than those of his Swedish competitors.

“We are of course domiciled in Sweden, but we only have a small part of our business in Sweden -- we are in nine countries,” Clausen said. “To compare us with Swedish banks is not really a true picture.”