Q3 Financial Report 2019
Nordea Bank Abp – Inside information – Interim report (Q1 and Q3)
CEO Frank Vang-Jensen’s comments on the results:
“In the third quarter, both net interest and net commission income increased from higher business volumes. Net fair value decreased following significant interest rate movements during the summer. Total revenues are down 2% in local currencies. Our Q3 operating loss of EUR 421m includes several one-off items totalling EUR 1.3bn, comprising of an impairment charge for IT intangibles of EUR 735m, a restructuring provision of EUR 204m, an expense related to sale of Luminor shares of EUR 75m, and finally, additional loan loss provisions of EUR 282m.
In my new role as CEO, I have led a strategic review of the Bank and we have developed a new business plan to ensure stronger financial results meeting new financial targets. Our new plan will significantly improve Nordea’s operating performance through strengthened customer focus and improved operational efficiency as well as cost reductions and income growth initiatives. For 2020, we expect to reach a cost base of below EUR 4.7bn with planned continued net cost reductions beyond 2020.
Nordea’s new financial targets for 2022 are
- A return on equity above 10%
- A cost to income ratio of 50%
Our new capital policy stipulates a management buffer of 150-200 bps above the regulatory CET1 requirement and a dividend pay-out ratio of 60-70%, both starting from 2020. We will continuously assess the opportunity to use share buy-backs as a tool to distribute excess capital. For 2019, Nordea targets a dividend of EUR 0.4 per share.
While I have been at Nordea since 2017, in my short time as CEO I have had the opportunity to meet many more colleagues from different parts of the bank. I am impressed by our employees’ expertise, passion to serve our customers and shared determination to improve our business results. I am convinced that strong customer focus combined with enhanced operational efficiency will enable us to deliver on our targets and new strategy, and to significantly improve Nordea’s financial performance.”
Third quarter 2019 vs. Third quarter 2018 (Third quarter 2019 vs. Second quarter 2019)
- Net interest income EUR 1,083m, -4%; -1% in local currencies (1%, 2% in local currencies)
- Total operating income EUR 2,085m, -1%; 1% in local currencies (-3%, -2% in local currencies)
- Total operating expenses EUR 2,175m, 91%; 93% in local currencies (84%, 84% in local currencies)
- Total operating expenses1 EUR 1,161m, 2%; 3% in local currencies (-2%, -1% in local currencies)
- Net loan losses EUR -331m, -653%; -642% in local currencies (-443%, -439% in local currencies)
- Net loan losses2 EUR -49m, -20%; -19% in local currencies (11%, 11% in local currencies)
- Operating profit EUR -421m, -146%; -146% in local currencies (-147%, -146% in local currencies)
- Operating profit EUR 823m1,3,4, -3%; -2% in local currencies (-5%, -3% in local currencies)
- Common Equity Tier 1 capital ratio5,6 15.4% vs.20.3% (15.4% vs. 14.8%)
- Cost/income ratio 104% vs. 55% (104% vs. 54%)
- Cost/income ratio2,3, 56% vs. 55% (56% vs. 54%)
- Loan loss ratio of 55 bps vs. 10 bps (55 bps vs. 8 bps)
- Return on equity -4.4% vs 9.1% (-4.4% vs. 9.2%)
- Return on equity1,3,7 8.4% vs 8.5% (8.4% vs. 8.8%)
Exchange rates used for Q3 2019 for income statement items are for DKK 7.4644, NOK 9.7720 and SEK 10.5660.
1 Excl. Items affecting comparability in Q1 2019: EUR 95m non-deductible expense related to provision for ongoing AML-related matters.
In Q3 2019: EUR 735m expense related to impairment of capitalised IT systems, EUR 559m after tax, EUR 204m expense related to restructuring,
EUR 155m after tax, EUR 75m non-deductible expense related to sale of Luminor.
2 Excl. Items affecting comparability in Q3 2019: EUR 282m loss related to loan loss provisions due to model updates and dialogue with the
ECB reflecting a more subdued outlook in certain sectors, EUR 214m after tax.
3 Excl. Items affecting comparability in Q1 2018: EUR 135m gain from valuation model update in Denmark, EUR 105m after tax, Q2 2018: tax free gain
related to divestment of shares in UC EUR 87m and tax- free gain related to the sale of Nordea Liv & Pension Denmark EUR 262m.
4 Adjusted for resolution fees before tax: In Q3 2019 EUR -52m, in Q2 2019 EUR -52m, in Q3 2018 EUR -42m, in Jan-Sep 2019 EUR 51m and
in Jan-Sep 2018 EUR 42m (amortised on a straight-line basis).
5 Including profit for the period adjusted by accrued dividend.
6 The capital ratios for 2018 have not been restated due to the changed recognition and presentation of resolution fees (see Note 1 for more information).
7 Adjusted for resolution fees after tax: In Q3 2019 EUR -40m, In Q2 2019 EUR -40m, in Q3 2018 EUR -32m, in Jan-Sep 2019 EUR 39m and in Jan-Sep 2018 EUR 32m (amortised on a straight-line basis).
| Income statement | ||||||||||||
| Q3 | Q2 | Local | Q3 | Local | Jan-Sep | Jan-Sep | Local | |||||
| 2019 | 2019 | Chg % | curr. % | 2018 | Chg % | curr. % | 2019 | 2018 | Chg % | curr. % | ||
| EURm | ||||||||||||
| Net interest income | 1,083 | 1,071 | 1 | 2 | 1,123 | -4 | -1 | 3,210 | 3,349 | -4 | -2 | |
| Net fee and commission income | 756 | 743 | 2 | 2 | 703 | 8 | 9 | 2,236 | 2,273 | -2 | 0 | |
| Net result from items at fair value | 211 | 283 | -25 | -27 | 205 | 3 | -4 | 758 | 906 | -16 | -18 | |
| Profit from associated undertakings and joint | ||||||||||||
| ventures accounted for under the equity method | 13 | 24 | -46 | -46 | 48 | -73 | -70 | 51 | 109 | -53 | -53 | |
| Other operating income | 22 | 20 | 10 | 10 | 18 | 22 | 16 | 86 | 416 | -79 | -79 | |
| Total operating income | 2,085 | 2,141 | -3 | -2 | 2,097 | -1 | 1 | 6,341 | 7,053 | -10 | -9 | |
| Staff costs | -924 | -727 | 27 | 27 | -726 | 27 | 28 | -2,369 | -2,254 | 5 | 6 | |
| Other expenses | -366 | -304 | 20 | 20 | -323 | 13 | 15 | -1,264 | -1,176 | 7 | 9 | |
| Depreciation, amortisation and impairment | ||||||||||||
| charges of tangible and intangible assets | -885 | -149 | 494 | 493 | -87 | 917 | 930 | -1,174 | -232 | 406 | 412 | |
| Total operating expenses | -2,175 | -1,180 | 84 | 84 | -1,136 | 91 | 93 | -4,807 | -3,662 | 31 | 33 | |
| Profit before loan losses | -90 | 961 | -109 | -109 | 961 | -109 | -109 | 1,534 | 3,391 | -55 | -54 | |
| Net loan losses | -331 | -61 | 443 | 439 | -44 | 652 | 642 | -434 | -143 | 203 | 204 | |
| Operating profit | -421 | 900 | -147 | -146 | 917 | -146 | -146 | 1,100 | 3,248 | -66 | -66 | |
| Income tax expense | 89 | -219 | -141 | -140 | -193 | -146 | -146 | -308 | -672 | -54 | -53 | |
| Net profit for the period | -332 | 681 | -149 | -148 | 724 | -146 | -146 | 792 | 2,576 | -69 | -69 | |
| Business volumes, key items1 | ||||||||||||
| 30 Sep | 30 Jun | Local | 30 Sep | Local | ||||||||
| 2019 | 2019 | Chg % | curr. % | 2018 | Chg % | curr. % | ||||||
| EURbn | ||||||||||||
| Loans to the public | 328.3 | 323.8 | 1 | 2 | 316.5 | 4 | 6 | |||||
| Loans to the public, excl. repos | 299.5 | 300.2 | 0 | 0 | 291.7 | 3 | 5 | |||||
| Deposits and borrowings from the public | 168.3 | 176.5 | -5 | -4 | 174.2 | -3 | -2 | |||||
| Deposits from the public, excl. repos | 161.9 | 167.0 | -3 | -2 | 160.5 | 1 | 2 | |||||
| Total assets | 585.9 | 582.9 | 1 | 572.8 | 2 | |||||||
| Assets under management | 313.8 | 306.5 | 2 | 309.0 | 2 | |||||||
| Equity | 30.5 | 31.1 | -2 | 32.6 | -6 | |||||||
| Ratios and key figures2 | ||||||||||||
| Q3 | Q2 | Q3 | Jan-Sep | Jan-Sep | ||||||||
| 2019 | 2019 | Chg % | 2018 | Chg % | 2019 | 2018 | Chg % | |||||
| Diluted earnings per share, EUR | -0.08 | 0.17 | -147 | 0.18 | -144 | 0.19 | 0.64 | -70 | ||||
| EPS, rolling 12 months up to period end, EUR | 0.32 | 0.58 | -45 | 0.79 | -59 | 0.32 | 0.79 | -59 | ||||
| Share price1, EUR | 6.50 | 6.39 | 2 | 9.40 | -31 | 6.50 | 9.40 | -31 | ||||
| Total shareholders' return, % | 12.4 | 4.0 | 20.2 | 1.5 | 4.4 | |||||||
| Equity per share1, EUR | 7.55 | 7.69 | -2 | 8.08 | -7 | 7.55 | 8.08 | -7 | ||||
| Potential shares outstanding1, million | 4,050 | 4,050 | 0 | 4,050 | 0 | 4,050 | 4,050 | 0 | ||||
| Weighted average number of diluted shares, mn | 4,035 | 4,032 | 0 | 4,037 | 0 | 4,033 | 4,037 | 0 | ||||
| Return on equity, % | -4.4 | 9.1 | 9.2 | 3.4 | 10.9 | |||||||
| Return on tangible equity, % | -5.0 | 10.6 | 10.6 | 3.9 | 12.6 | |||||||
| Return on Risk Exposure Amount, % | -0.9 | 1.7 | 2.4 | 0.7 | 2.8 | |||||||
| Return on Equity with periodised resolution fees, % | -4.9 | 8.5 | 8.8 | 3.6 | 11.0 | |||||||
| Cost/income ratio, % | 104 | 55 | 54 | 76 | 52 | |||||||
| Cost/income ratio with periodised resolution fees, % | 107 | 58 | 56 | 75 | 51 | |||||||
| Loan loss ratio, basis points3 | 55 | 10 | 450 | 8 | 588 | 24 | 8 | 200 | ||||
| Common Equity Tier 1 capital ratio1,4,5,6,7, % | 15.4 | 14.8 | 20.3 | 15.4 | 20.3 | |||||||
| Tier 1 capital ratio1,4,5,7, % | 17.4 | 17.3 | 22.3 | 17.4 | 22.3 | |||||||
| Total capital ratio1,4,5,7, % | 20.0 | 19.8 | 26.0 | 20.0 | 26.0 | |||||||
| Tier 1 capital1,4,7, EURbn | 27.3 | 27.6 | -1 | 27.0 | 1 | 27.3 | 27.0 | 1 | ||||
| Risk exposure amount4, EURbn | 156 | 160 | -2 | 121 | 29 | 156 | 121 | 29 | ||||
| Number of employees (FTEs)1 | 29,469 | 29,550 | 0 | 29,056 | 1 | 29,469 | 29,056 | 1 | ||||
| Economic capital1,7, EURbn | 26.5 | 27.8 | -5 | 26.3 | 1 | 26.5 | 26.3 | 1 | ||||
| 1 End of period. | ||||||||||||
| 2 For more detailed information regarding ratios and key figures defined as Alternative performance measures, see www.nordea.com/en/investor-relations/. | ||||||||||||
| 3 Including Loans to the public reported in Assets held for sale in Q1 2018. | ||||||||||||
| 4 Including the result for the period. | ||||||||||||
| 5 Changes to the applicable capital requirements regime (for more details, please see chapter Other information). | ||||||||||||
| 6 Including profit for the period adjusted by accrued dividend. | ||||||||||||
| 7 The capital ratios for 2018 have not been restated due to the changed recognition and presentation of resolution fees (see Note 1 for more information). | ||||||||||||
Outlook
Key priorities to success and meet the financial targets
Nordea’s new plan will significantly improve operating performance through strengthened customer focus and improved operational efficiency as well as cost reductions and income growth initiatives.
Financial targets 2022
Nordea’s new financial targets for 2022 are
- A return on equity above 10%
- A cost to income ratio of 50%
Cost
New: For 2020, Nordea expects to reach a cost base of below EUR 4.7bn with planned continued net cost reductions beyond 2020.
Costs for 2019 are expected to be lower in constant currencies compared to 2018 excluding items affecting comparability in 2018 and 20192 and changes in resolution fees. The total cash cost is expected to be lower in constant currencies over the same period.
Previous: For 2021, Nordea expects the cost base in constant currencies to be approximately 3% below the 2018 cost base excluding items affecting comparability in 20181 and cash costs are expected to be down by up to 10% in constant currencies over the same period.
Costs for 2019 are expected to be lower in constant currencies compared to 2018 excluding items affecting comparability in 2018 and 20192 and the total cash cost is expected to be lower in constant currencies over the same period.
1 Goodwill write-down of EUR 141m in Q4 2018.
2 Adjusted for the goodwill write-down of EUR 141m in 2018, transaction costs of EUR 90m in 2019, provision of EUR 95m in Q1 2019, IT impairment of EUR 735m and restructuring charge of EUR 204m.
Capital policy
New: 150-200 bps management buffer above the regulatory CET1 requirement, valid from 1 January 2020.
Previous: 40–120 bps management buffer above the regulatory CET1 requirement.
Dividend policy
New: A dividend pay-out ratio, starting from 2020, of 60-70%. Nordea will continuously assess the opportunity to use share buy-backs as a tool to distribute excess capital. For 2019, Nordea targets a dividend of EUR 0.4 per share.
Previous: Nordea aims to achieve a yearly increase in the dividend per share, while maintaining a strong capital position in line with the capital policy.
Credit quality
New: Nordea’s expectation for the coming quarters is that net losses will be low and around the average level for 2018. However, the macroeconomic outlook is somewhat more uncertain.
Previous: Nordea’s expectation for the coming quarters is that net losses will remain low and around the average level for 2018.
Pillar 2 Requirement (P2R)
As part of the transition to the SSM capital framework, Nordea will be subject to a Pillar 2 Requirement (P2R) from 1 January 2020. Nordea received the draft Supervisory Review and Evaluation Process (SREP) decision on 26 September 2019 including a proposed P2R of 1.75%. The final SREP decision is expected to be received in December 2019.
The entire report can be found on the below link on our website.
Nordea Group Q3 2019 Report
For further information:
Frank Vang-Jensen, President and Group CEO, +358 503 821 391 Christopher Rees, Group CFO, +45 5547 2377
Rodney Alfvén, Head of Investor Relations, +46 72 235 05 15 Sara Helweg-Larsen, Head of Group Communications, +45 2214 0000
The information provided in this stock exchange release is such that Nordea Bank Abp is required to disclose pursuant to the EU Market Abuse Regulation and was submitted for publication, through the agency of the contact persons set out above, at 07.30 EET (06.30 CET) on 24 October 2019.
We build strong and close relationships through our engagement with customers and society. Whenever people strive to reach their goals and realise their dreams, we are there to provide relevant financial solutions. We are the leading bank in the Nordic region. The Nordea share is listed on the Nasdaq Helsinki, Nasdaq Copenhagen and Nasdaq Stockholm exchanges. Read more about us on nordea.com.