Morningstar | Nordea 1Q: Profits Impacted by Weak Lending Margins and Reduced Market-Making Activities
Nordea reported first-quarter operating profits of EUR 871 million versus EUR 956 million in the same period last year if we adjust for one-offs in the quarter. Noteworthy of these one-offs is a provision of EUR 95 million for a potential fine by Danish regulators for Nordea’s weak anti-money-laundering procedures in the recent past booked in the first quarter this year. Excluding these items, returns on equity declined to 8.1% from 8.9% in the same period a year prior. The reasons can be found in sustained weak lending margins in the household segment that could not be offset by volume growth as well as lower market making activity which had been a drag toward the end of last year already. Adjusted operating income declined 9% year over year as 1% lower operating expenses could not counteract a 6% drop in income generation. Loan losses remained at a subdued level at 7 bps, in line with first-quarter last year. Outlook for loan losses remains stable, which is surprising given Nordic peers anticipate credit costs to increase from here citing maturing economic cycles. We maintain our fair value estimate of SEK 104 per share and narrow moat rating.Nordea Bank is a financial services group based in Sweden. Co. has three business areas: retail banking, wholesale banking, and wealth management. Retail banking conducts a full service banking operation and serves household and corporate customers in the Nordic markets as well as the Baltic countries. Wholesale banking provides banking and other financial solutions to large Nordic and international corporate, institutional and public companies. Wealth management provides investment, savings and risk management products. It also manages customers' assets and provides financial advice to individuals and institutional investors.
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