Nordea Bank Damage Control Has CEO Revealing Surprising Results

  • Has never done as much capital markets business, CEO says
  • Nordea beefing up staff levels to oversee compliance

After months of headlines linking it to tax evasion, money laundering and most recently an alleged capital shortfall, Nordea Bank AB is assessing the damage. But in several key areas, there’s little to see.

Scandinavia’s biggest bank is outperforming European rivals in the stock market, the yield on its riskiest debt is at its lowest in eight months and business appears to be booming. The bank on Tuesday shot down media reports alleging it was severely under-capitalized, with the regulator corroborating the bank’s defense.

“In the equity capital markets, we have never done more business and never had as big a lead vis-a-vis our Nordic and international peers, ever, in our history,” Chief Executive Officer Casper von Koskull said in an interview.

Asked whether the bank has noticed any impact on client numbers, von Koskull says he hasn’t “seen anything statistically.” And as to the question of meeting regulatory demands, he says Nordea generates more than twice the new capital it needs every year.

Nordea was last week reported to the police by Denmark’s financial watchdog for failing to comply with anti-money laundering rules, a year after Swedish authorities fined the bank the maximum amount for similar violations. A few months earlier, it was named as one of a number of lenders that allegedly used law firm Mossack Fonseca to help wealthy clients hide their fortunes from tax authorities.

Since April, when the so-called Panama papers were first leaked, Nordea’s shares have outperformed Stockholm’s benchmark equity index as well as the Bloomberg index of European financial stocks and the Stoxx Nordic index of the region’s 30 most-traded companies.

Of the 29 analysts covering Nordea, 16 recommend buying the stock, 11 advise clients to hold on to their shares while only two suggest selling. On average, those analysts predict Nordea’s shares will rise about 16 percent from their current price. The stock traded 0.6 percent higher as of 12:56 p.m. in Stockholm, outpacing the 0.2 percent gain in Bloomberg’s index of European financial companies.

The lesson seems to be that investors are unlikely to punish a bank accused of unethical behavior, so long as it can show its business model is intact and profits unaffected.

While the world’s biggest banks have paid billions in fines or settlements for their involvement in financial crimes over the past years, von Koskull says Scandinavia has been slower than other regions to implement a regulatory framework that discourages bad behavior.

“The whole financial crime area has come with a delay,” he said. “Even regulatory legislation has come later to Scandinavia and we are, I admit, catching up.”

On Monday, the Danish government said it intends to impose harsher penalties on banks that break the law. The proposal, which will be presented to lawmakers in the fall, means banks would face a maximum fine of 50 million kroner ($7.6 million), while individual bankers risk paying as much as twice their monthly salaries if they’re caught breaking the law. That would raise Danish penalties to match levels in Sweden. By comparison, the European Commission allows fines as high as 10 percent of total revenue under competition laws.

Nordea has increased staff in its compliance division five-fold over the past 18 months, and is still hiring. By year’s end, another 300 people will be hired, bringing the total number of people working in the unit to 1,150.

“We will be at the staffing levels that we need to be in the next six months,” von Koskull said. “We have a very clear plan which we have shared already with all the regulators, and I think we’re all in agreement on how that should be done.”

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