EUR 850.00 For Business Accounts Only

Morningstar | Nordea Reports Weak 1H 2019; We Lower our Fair Value Slightly. See Updated Analyst Note from 18 Jul 2019

No-moat Nordea reported first-half 2019 net profit of EUR 1.1 billion, down 39% versus the same period in 2018. On a comparable basis, that is with one-off items excluded, net profits dropped 13%. The performance of Nordea is largely in line with our assumptions. Net interest income is slightly weaker than the prior year, largely owing to weakness in its wholesale operation. Year-to-date performance of total revenue, which is down 5%, is on target with our forecast for the full year. We're adjusting our efficiency ratio for 2019 however, because operating costs continued their first-quarter upward trend versus our previously flat to slightly lower assumption. We now forecast an efficiency ratio of 55% for the full year compared with to 53%, previously. As a result, we lower our fair value estimate to SEK 82 from SEK 85 per share.

Playing along with this common theme for European banks, Nordea experienced lending margin pressure, which in this instance could not be offset by higher volumes. Loans to the public in first-half 2019 grew by 3% versus the year-ago period, contributing EUR 96 million versus a negative EUR 215 million from lower lending margins. Net fee and commission income declined by 6% year over year despite assets under management of EUR 307 billion getting close to the high-water mark of EUR 312 billion at the end of 2018.

In parallel to second-quarter results, the ECB released its asset quality review of Nordea after it relocated its headquarters from Sweden to Finland in 2018. In summary, Nordea is now adequately capitalized for a stress scenario. In the adverse stress scenario, Nordea’s common equity Tier-1 ratio dropped from 15% to 9.2%. Although significant, this is well above the threshold of 5.5% that the ECB requires in this scenario.