Nordea Shares Sink as Analyst Downgrades Trigger Selloff

Shares in Nordea Bank AB sank on Thursday after downgrades by analysts covering the stock frightened off investors.

Scandinavia’s biggest bank fell as much as 5.3 percent at one point -- the biggest decline since mid-March -- and was trading 5.2 percent lower at 74.45 kronor as of 1:37 p.m. in Stockholm. Trading volume was at more than 172 percent of the three-month average.

JPMorgan cut its recommendation to neutral from overweight, pointing to media reports that Nordea may need to turn to markets to raise regulatory capital after underestimating the level of risk in its corporate loan book. Swedbank cut its recommendation to neutral after previously having advised clients to buy.

Nordea has rejected media reports it may lack as much as 80 billion kronor ($9.8 billion) in regulatory capital, with its comments being corroborated by the Financial Supervisory Authority. The watchdog says stricter risk-weight rules will probably result in higher capital requirements, though those will be “significantly lower” than figures mentioned in an article by newspaper Svenska Dagbladet.

Chief Executive Officer Casper von Koskull said in an interview earlier this week the bank expects the FSA’s review to lead to a 40-basis point increase in its capital ratio requirement. The bank will generate enough profits to meet the requirement without having to go to the markets, he said.

In its note, JPMorgan said the capital requirement may be lower than what press reports suggest, but the FSA’s tone was still “more hawkish” than expected, and it lowered its dividend expectations for Nordea.

The bank’s dividend policy already is a sore spot. Von Koskull was forced in January amid toughening capital requirements to replace a policy to pay shareholders “at least” 75 percent of profits with an “ambition” to ensure dividends grow each year.

Of the 29 analysts monitoring Nordea, 14 recommend buying its shares, 13 advise holding on to the stock and only two are telling clients they should sell. On average, the analysts see Nordea’s shares gaining about 20 percent over the next 12 months.

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