Activist Owner Cevian Says Nordea Has No Excuse on Profitability

(Bloomberg) -- Sweden’s best known activist investor is building a stake in the biggest Nordic bank.

Cevian Capital has already bought 2.3 percent of Nordea Bank Abp, and is signaling it will use its presence to push for faster cost cuts in an effort to drive profits and share price gains.

Christer Gardell, managing partner at Cevian, says Nordea has “no valid excuses” for being less profitable than its competitors. The bank’s management, led by Chief Executive Officer Casper von Koskull, needs to bring attention back to returns, he said.

Activist Owner Cevian Says Nordea Has No Excuse on Profitability

“After a phase where a lot of focus has been on compliance, moving the headquarters and other things, Nordea now needs to focus on profitability,” Gardell said by phone on Friday. “The company needs to become more efficient and we think it should have a lot more ambitious cost targets than currently.”

According to Cevian’s analysis, the lender could cut total costs to 4.4 billion euros ($5 billion) by 2021, and further toward 4 billion euros in 2022 and 2023. That’s significantly below Nordea’s guidance for costs of about 4.65 billion euros in 2021.

Cevian is known for buying significant ownership positions in listed European companies, and typically seeks to push for change and enhance value. The stake makes Cevian the bank’s fourth-biggest shareholder, behind largest investor Sampo Oyj. Cevian will seek to work with the owners, board and management and Gardell said its ambitions for Nordea are aligned with Sampo’s.

The move “puts further pressure on management to improve returns, but also demonstrates the lender’s profit potential,” Bloomberg Intelligence analysts Philip Richards and Georgi Gunchev said in a note.

There’s very large potential upside to Nordea’s share price, according to Gardell. “We don’t invest unless we see significant upside, and then we’re not talking about 10 percent to 20 percent, but considerably more,” he said.

Nordea shareholders showed mild appreciation of the news, pushing Nordea shares up as much as 1.1 percent in early trading in Stockholm on Friday, before paring the gain to less than 0.1 percent at 10:39 a.m. The shares had already gained last month when Dagens Industri reported that Cevian may be building a stake.

Nordea has been lagging its peers on both profitability and share price. The bank has slumped 23 percent so far this year, more than any other major Nordic bank apart from Danske Bank A/S. Nordea’s return on equity of just 8.7 percent in the third quarter is much lower than the double-digit numbers reported by Sweden’s largest banks.

Activist Owner Cevian Says Nordea Has No Excuse on Profitability

Cevian’s not the only activist investor focusing on banks in Europe. Ex-JPMorgan Chase & Co. finance head Doug Braunstein’s Hudson Executive Capital LP last month revealed that it’s built a 3.1 percent stake in Deutsche Bank AG after the shares dropped to a record low. He’s staking about $660 million on the belief that CEO Christian Sewing will restore the bank to profitable growth and successfully complete the lender’s fourth turnaround plan in three years.

Activists haven’t always been successful targeting European banks. In Switzerland, Rudolf Bohli gained little traction for his plan to break up Credit Suisse Group AG despite a public campaign against its management.

Meanwhile, the cost cuts at Nordea “are efforts that partly have started but they need to be accelerated in pace as well as ambition,” Gardell said. “This needs to happen as soon as possible. Time is money.”

©2018 Bloomberg L.P.