Nordea Sinks After Signaling It Will Cut Shareholder Rewards

(Bloomberg) -- Nordea Bank Abp said the pressure of negative interest rates and a tougher regulatory environment will force it to review its financial targets this year after delivering a set of quarterly results it characterized as “not satisfactory.”

The environment has changed, “with expected lower rates for longer,” Nordea said. On top of that, management is awaiting “more clarity on our capital requirements,” the Helsinki-based bank said in connection with its second-quarter results on Thursday. As a result, Nordea needs to “review its financial targets, including the capital and dividend policy,” it said.

The bank expects to update the market when it publishes third-quarter results. Shares in Nordea fell as much as 7.4% in Stockholm, where most of the trading takes place. With Thursday’s share-price decline, Nordea is trading at its weakest level since January 2013.

Per Hansen, an investment economist at Nordnet in Copenhagen, said it’s “a disappointing set of results” and that Nordea’s “competitors are way ahead.”

The biggest Nordic bank by assets is under pressure from investors to improve revenue after years of focusing on cost cuts. Nordea’s efforts to restructure its business have left it exposed in some corners, allowing competitors to take market share in key areas such as retail and corporate banking. That’s drawn criticism from some shareholders. Activist owner Cevian Capital AB has been particularly vocal, and said it wants the performance gap between Nordea and its rivals to be “eliminated quickly.”

Click here for more on Nordea’s second-quarter results

• Nordea reported total operating income that just missed analyst estimates, coming in at 2.14 billion euros ($2.41 billion). Analysts had on average predicted 2.17 billion euros.

Nordea is also looking for a new chief executive officer, after Casper von Koskull recently announced his plan to retire by the end of next year when he turns 60. Cevian has made clear it welcomes von Koskull’s departure. On Thursday, the outgoing CEO said Nordea’s decision to review its financial targets was in response to a request from shareholders.

What Bloomberg Intelligence Says:

“Nordea’s plan to review its financial targets, including capital and dividend policy, is a clear signal to us that a dividend cut may be imminent. A 25-30% decline in 2019 and 2020’s EPS estimates render the current progressive, nominal dividend policy unsustainable, a notion further reinforced by this year’s 99% consensus-estimated payout ratio and 10% dividend yield.”
---- Philip Richards and Georgi Gunchev, bank analysts
Click here to view the research

Von Koskull said Nordea’s performance “is not satisfactory,” in Thursday’s statement. “And further actions are needed to strengthen the financial results.”

The bank’s current payout policy states:

Nordea aims to achieve a yearly increase in the dividend per share, while maintaining a strong capital position in line with the capital policy.

The disappointing results come almost two years after the bank launched a program targeting 6,000 job cuts and drastic changes to its business model that involved large-scale automation. Von Koskull has repeatedly said he believes Nordea is ahead of the rest of the industry in taking such steps and that all banks will need to make similar adjustments in the years ahead.

On Wednesday, Swedbank AB and Svenska Handelsbanken AB both announced measures designed to cope with an increasingly demanding environment. Swedbank, which is the target of multiple money laundering investigations, cut its dividend goal while Handelsbanken said it has started a “major review” to find business areas to ax.

--With assistance from Niklas Magnusson and Frances Schwartzkopff.

To contact the reporter on this story: Kati Pohjanpalo in Helsinki at kpohjanpalo@bloomberg.net

To contact the editor responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net

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