DBRS: Nordea Reports Robust 4Q14 and FY14 Results

Summary:
• Robust 4Q14 results supported by growth in net fee and commission income
• Group remains on track to meet its cost targets
• Strong fundamentals with sound asset quality and solid capital ratios
• DBRS rates Nordea Bank AB at AA, with a Stable trend, for Senior Unsecured Debt & Deposits

DBRS Ratings Limited (DBRS) views Nordea AB’s (Nordea or the Group) 4Q14 results as robust. The Group reported 4Q14 operating profit of EUR 1.157 billion, up 3% on 3Q14 and up 15% on 4Q13. However, excluding the significant one-off items included in the 3Q14 results, operating profit increased 6% quarter-on-quarter. For the full year 2014, profit before tax was EUR 4.324 billion, 5% higher than in 2013.

Net interest income from continuing operations, which excludes the Polish business (divested in 2Q14), fell 3% compared to 3Q14, primarily due to currency fluctuations and to a lower contribution from the Group Treasury. However, the net interest margin remained stable at 1.08%, down 1 basis point. Positively, net fee and commission income was up 14% quarter-on-quarter, driven by high debt capital markets activity and a strong momentum in savings products. DBRS notes that at end-2014, assets under management (AuM) stood at all-time high of EUR 262.2 billion.

Driven by seasonal effects and profit-sharing provisions, total expenses (excluding non-recurring items) were up 5% in 4Q14 compared to 3Q14. Nonetheless, the cost/income ratio improved further to 48.8% in 4Q14 from 49.3% in 4Q13 supported by revenue growth. DBRS views positively the progress that Nordea has made with its cost reduction plan. Efficiency initiatives target savings of EUR 900 million and a 5% lower cost base in local currencies in 2015 compared to 2013. To date, Nordea has achieved a EUR 415 million gross reduction in total expenses over the 2013-2014 period.

Credit quality across the Group remained sound. Even though total impaired loans decreased slightly at end-2014, the impaired loans ratio increased to 1.74%, up from 1.70% at end-3Q14 mainly due to reduced repo volumes. The impairment charge in 4Q14 was EUR 129 million, up from EUR 112 million in 3Q14, and was impacted by collective provisions in Denmark related to the agriculture sector, as well as by increased provisions in Russia, mainly related to the small household portfolio. At end-2014 lending exposure to Russia totaled EUR 6.2 billion, down from EUR 6.6 billion at end-3Q14 and the oil and gas related exposure was approximately 2% of the total Group exposure. Given the ongoing uncertainty in these areas DBRS will continue to monitor closely Nordea’s exposure.

The Group’s fully loaded Basel III Common Equity Tier 1 (CET1) ratio improved to 15.7% at end-2014, from 15.6% at end-3Q14 and 13.9% at end-2013 due to accumulated profit and a reduction in the Risk Exposure Amount. Nordea plans to manage the bank with a CET1 ratio of approximately 15%, including a management buffer, and DBRS continues to views the Group as being well placed from a capital perspective due to its strong earnings generation capacity and its robust capital base.

DBRS rates Nordea Bank AB at AA, with a Stable trend, for Senior Unsecured Debt & Deposits.

Notes:
All figures are in euro (EUR) unless otherwise noted.