Morningstar | Nordea's Full-Year Profits Up Marginally, Although Operational Results Disappoint
Nordea reported a 2018 net profit of EUR 3.1 billion, marginally up from the previous year, after a difficult series of quarters in 2018. A recovery from a weaker net interest income margin and more robust volume growth in the fourth quarter of 2018 were able to offset negative results from items at fair value due to soft trading markets, although not enough to salvage full-year operating income. In 2018, total operating income fell 5% to EUR 9 billion. The opposite was true for expenses. The fourth quarter saw higher staff and other expenses, but on a full-year basis, Nordea lowered total operating expenses by 4% to EUR 4.9 billion. While both figures declined in about the same magnitude in percentage terms, the operating leverage effect inherent in banks' business models meant that profits before loan losses declined 6% to EUR 4.1 billion despite lower expenses. However, lower loan losses--7 basis points versus 12 basis points last year--and lower tax charges made up for the operationally weak results. We updated our model for full-year 2018 results and maintain our SEK 104 fair value estimate. Our narrow moat and stable trend ratings are unchanged.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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