Nordea Profit Slides as Negative Rates Erode Bank's Revenue

Less than three months into the job, the man running Scandinavia’s biggest bank says it was wrong to promise shareholders more than the regulatory environment allowed.

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Nordea Bank’s target of paying shareholders “at least” 75 percent of profits in the form of dividends was abandoned on Wednesday. Instead, the bank said its “ambition” is to ensure that dividends grow each year. And while the previous arrangement would have implied more than 10 percent growth in shareholder payouts through 2018, the bank proposed a 3.2 percent increase for 2015.

“We made a mistake to actually define it as a payout ratio because the reality” for banks is that capital levels “are determined first of all by the regulators and the capital requirements,” Casper von Koskull, who took over as chief executive officer in November, told Bloomberg.

Swedish banks face the prospect of higher requirements as the country’s regulator reviews their risk weighting of assets. The agency signaled this month it may also raise the counter-cyclical buffer.

The “utmost, No. 1 objective is to be well-capitalized and fulfill all regulatory requirements, with a management buffer,” von Koskull said. Since May, when Nordea set its previous dividend target, the bank has observed a “clear shift in increased capital requirements.” The “minimum” capital level the bank needs to operate is 16.5 percent, he said.

“Regulatory curve balls come all the time,” said Karl Morris, an analyst at Keefe, Bruyette & Woods in London. “It’s not the end of the world, but they are being a bit more cautious, which should make the regulator happy since they don’t like policies that are too generous.”

Nordea said net income fell 3.3 percent to 848 million euros ($921 million) in the three months through December. Net interest income was 1.24 billion euros, just shy of the 1.26 billion euros that was the average estimate in a survey of analysts by Bloomberg.

Banks operating in Scandinavia have seen their lending income eroded by negative interest rates, which have raised the cost of holding deposits. With revenue harder to generate, most banks in the region have focused on costs.

Von Koskull said the bank will “definitely review” its presence in Europe, as part of its process of becoming more streamlined. “When you look at banking and you look at Europe and common payments systems, of course you need to kind of review what do you need to serve your client.”

Nordea has no plans to scale back its equities business in London or its European asset management and private banking divisions, but will review other operations in the region, he said.

Given the transformation the bank has embarked on, the question becomes “what is the bank I need to have?” von Koskull said. “What are the core competences and capabilities I need to have in place through that transition and that we are reviewing? And of course, it will result in scale-back in certain areas or countries.”

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