Nordea Profit Drops 17% as Record-Low Rates Hit Bank Income

  • Handelsbanken, SEB also report declining profit levels
  • Negative central bank rates are taking their toll on revenues

Nordea said profit dropped 17 percent in the third quarter as record-low interest rates ate into revenue at Scandinavia’s biggest bank.

Nordea reported net income of 780 million euros ($886 million) last quarter, compared with 938 million euros a year earlier. That missed the 864 million-euro estimate in an analyst survey compiled by Bloomberg. Net interest income fell to 1.27 billion euros from 1.40 billion euros a year earlier.

The bank’s shares dropped 3.3 percent to 96 kronor as of 9:02 a.m. in Stockholm. Handelsbanken and SEB, which also reported earnings that missed estimates, saw similar stock moves. Handelsbanken fell 4 percent while SEB slipped 1.9 percent.

Swedish banks have been pummeled by negative central bank rates, while markets buffeted by China’s slowdown and a commodities rout have made it more difficult to earn commissions and fees on trading. Negative rates alone are costing Sweden’s four biggest banks more than 1.4 billion kronor ($169 million) each quarter.

Banks are struggling to earn money on lending as rates go negative

“The summer months featured a seasonally lower activity level, although in the autumn we have not seen the usual pick-up in corporate and market activity,” Chief Executive Officer Christian Clausen said in the report. “Deposit margins continue to be under pressure and lending growth remains low.” He said the bank’s net interest income was nevertheless “holding up well.”

Nordea said in August it will replace Clausen with Casper von Koskull, its head of wholesale banking, who takes over as CEO from Nov. 1.

SEB, which also reported earnings on Wednesday, said net income plunged 38 percent last quarter to 3.4 billion kronor after net interest income dropped 9 percent, helping push total revenue down 20 percent over the period. Net fee and commission income slipped 2 percent.

Annika Falkengren, SEB’s CEO, said banks are now operating in an environment in which “economic relationships have turned upside down.” That “continues to call for caution and a sound skepticism to the prevailing risk-reward balance,” she said.

Handelsbanken also reported a decline in profit, with third-quarter net income falling 4 percent from a year earlier to 3.76 billion kronor ($453 million), the bank said on Wednesday. Its net interest income slipped 2 percent to 6.83 billion kronor, though fee and commission income rose 8 percent.

Swedbank, Sweden’s biggest mortgage lender, on Tuesday reported a 14 percent decline in net income last quarter after weaker markets weighed on revenue from commissions. The bank’s total revenue dropped after both net interest income and fee income fell.

Broadly speaking, the “margin development also was negative” and wider credit spreads have “been tough on” Swedish banks’ treasury departments, according to Odd Weidel, an Oslo-based analyst at SpareBank1 Markets.

But with record-low rates fueling the country’s property market, banks had been expected to profit from the extra mortgage business that might generate.

“Because of the booming real estate market, I’d expected volumes on the retail side to be up and to see positive developments on the corporate side,” Weidel said. “But I didn’t see that happening today.”

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