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Banking Brilliance Has Suffered a Serious Setback in the Nordics

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Nordic banks, once coveted as the best-run and best-capitalized in Europe, appear to be losing their luster.

After publishing first-quarter results, banks based in Sweden and Denmark are among the year’s worst performers in the Bloomberg index of European financial stocks. In fact, you need to have been an investor in Banca Monte dei Paschi di Siena SpA or Deutsche Bank AG to have lost more money since December.

“Despite operating in some of the fastest growing economies in Europe, shares in Nordic banks have under-performed European peers over each of 1, 3, 6 and 12 months,” said Philip Richards, an analyst with Bloomberg Intelligence in London. “The lenders still trade at a modest price/book premium, but the difference is closing fast.”

Losing Luster

Banks based in Sweden and Denmark are among the year’s worst performers

Source: Bloomberg index of European financial stocks

Richards says it’s a combination of slowing loan growth, years of negative interest rates and intensifying competition that have “cast a cloud over their revenue outlook.”

Nordea Bank AB asked investors to be patient as the Nordic region’s only global systemically important lender pushes through a sweeping digital transformation that includes 6,000 job cuts. Chief Executive Officer Casper von Koskull acknowledged the bank’s revenue was “softer” than he’d hoped last quarter, but tried to reassure shareholders he can still deliver on his profit goals.

Click here for an analysis of Nordea’s cost outlook

At Svenska Handelsbanken AB, the Nordic lender with the biggest exposure to the U.K., capital adequacy declined while profit missed analyst estimates. The bank was also rapped over the knuckles by the British regulator for “serious weaknesses” in its financial crime-prevention framework.

Danske Bank A/S, Denmark’s biggest lender, beat profit estimates but mostly thanks to its cost cuts. Its capital adequacy was slightly below analyst estimates. And on the day it published earnings, Danske was reprimanded by the Danish regulator after its wealth management robot failed to live up to investor protection requirements.

SEB AB fell short of analyst expectations for profit and its income from fees and commissions declined amid lower activity by business clients. Chief Executive Officer Johan Torgeby said he’s “perplexed” about why there’s little growth in corporate loans.

Swedbank AB, Sweden’s biggest mortgage bank, did better than analysts had predicted but still fell on the day it reported earnings, in part as investors wonder how Sweden’s housing-market correction will play out.

JPMorgan Sticks With Swedbank After 1Q Report Beats Nordic Peers

According to Richards at Bloomberg Intelligence, “Fears over the floundering Swedish housing market may have eased recently, but remain ever-present.”

— With assistance by Niklas Magnusson, and Christian Wienberg

(Adds JPMorgan reference to Swedbank and SEB.)
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