Nordea Targets 75% Dividend to Rival Best-Paying Nordic Bank

Nordea Bank AB will probably raise its dividend to match the 75 percent of profit paid out by Swedbank AB, the Nordic lender that returns the most to its shareholders.

Scandinavia’s largest bank is targeting bigger cash rewards for its owners to prevent capital buffers growing too big, Chairman Bjoern Wahlroos said yesterday in an interview in Stockholm.

The 56 percent of profit Nordea delivered shareholders in 2013 “will not be sufficient to prevent an excessive increase in core Tier 1 capital,” Wahlroos said. Referring to the three-quarters of profit that Swedbank returned to its owners, Wahlroos said that “in the long term, it certainly now seems that we will be pushing towards those kinds of numbers.”

Sweden’s four biggest banks all increased their dividends for 2013 after topping capitalization rates in Europe. The payouts prompted criticism from Finance Minister Anders Borg, who accused the lenders of eroding buffers he says are needed to protect taxpayers. Borg warned banks last month that they face a gradual tightening of capital rules over several years.

Sweden, whose bank industry has assets at home and abroad that are four times the size of its $550 billion economy, imposes some of the world’s strictest capital requirements. Nordea, Swedbank, Svenska Handelsbanken AB and SEB AB already exceed a 12 percent core Tier 1 ratio of risk-weighted assets set for 2015 and argue they should be free to use the excess capital to reward their owners.

‘Great Confidence’

“What I can say with great confidence is that in a year out we will be north of 56 percent,” Wahlroos said.

Nordea advanced as much as 1.1 percent to 93.15 kronor in Stockholm trading, the most since April 1 and more than Sweden’s other biggest banks. It rose 0.8 percent to 92.85 kronor as of 11:00 a.m. local time. The stock has gained about 8 percent this year, compared with a 4.1 percent increase in the Bloomberg Europe Banks and Financial Services Index.

Nordea’s core Tier 1 ratio rose to 14.9 percent of risk-weighted assets at the end of last year, excluding so-called transition rules. Swedbank’s common equity Tier 1 ratio reached 18.3 percent under Basel III rules, while Handelsbanken’s was 18.9 percent.

Even taking the government’s pledge to continue raising capital requirements into account, Wahlroos said Sweden’s banks will stay over-capitalized. He also questioned whether Sweden can exceed standards set under the European Union’s Capital Requirements Directive.

Not Clear

“Under CRD it is not really clear how you can come up with a core Tier 1 ratio that is higher than 12 percent,” said Wahlroos. “There are Pillar II requirement details still to be worked out and there are some technicalities, but one thing is clear -- we already have more capital in all of the Swedish banks than any conceivable CRD compliance structure can require. This is no problem for us whatsoever.”

Wahlroos, who in addition to his role at Nordea is chairman of the bank’s largest shareholder, Sampo Oyj, also questioned talk by the government to introduce gender quotas.

“I accept the fact that in banks you need to regulate for fit and proper -- but I find it difficult to understand that you would need to regulate for gender,” Wahlroos said.

Half Sampo’s board members are women. The boards of Nordea and Swedbank both have 44.4 percent female representation, which is the highest ratio among companies based in Sweden on Stockholm’s OMX 30 benchmark index.

Quota Reasoning

Not a single one of the female board members at Sampo “have joined the board because of some quota-type reasoning,” Wahlroos said.

On average, Sweden’s four biggest banks paid out 66 percent of their profits to shareholders for 2013. Nordea raised its 2013 dividend by 26 percent to 0.43 euro a share. Handelsbanken paid 53 percent more than in 2012, SEB raised its shareholder payout by 45 percent and Swedbank increased its by 2 percent.

“We already have significantly more capital” than required under Swedish rules, Wahlroos said. “In our accounts for December 2013 our core Tier 1 ratio was 14.9 percent and under any foreseeable plan we have for the future, this can only go up.”

If accelerating economic growth creates a “significant change in credit demand,” there would be a “moderation” in terms of the dividend payout increase, Wahlroos said. Still, it would “not change much,” he said.

“We stand prepared to offer credit in greater volume if we see the demand,” Wahlroos said. “The fact that we have such a strong capital base in combination with reasonable profitability means we very much aim to extend more credit if the demand is there and if that is the case, then the growth rate of dividends will be somewhat lower. Still, there is no way I can see a lower payout ratio than we had this year.”

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