Bloomberg News

Nordea Second-Quarter Profit Advances 30% on Fewer Bad Loans

July 19, 2011

(Updates shares in second, fifth paragraphs.)

July 19 (Bloomberg) -- Nordea Bank AB, the Nordic region’s largest lender, posted a 30 percent increase in second-quarter profit as it set aside less money for doubtful loans.

Nordea rose the most in 14 months in Stockholm trading after reporting that net income rose to 698 million euros ($983 million) from 537 million euros a year earlier. Earnings met the average estimate of 16 analysts surveyed by Bloomberg as loan losses narrowed to 118 million euros from 245 million euros.

Sweden, home to four of the Nordic region’s six biggest banks, wants its lenders to follow stricter capital standards than those set out by the Basel Committee on Banking Supervision, and to push the changes through earlier. Nordea’s chief executive officer, Christian Clausen, said today the company plans to curb cost growth in the second half of this year and then keep expenses “largely unchanged for a prolonged period of time.”

The plan to restrain costs is “a definite positive,” said Andreas Hakansson, an analyst at Exane BNP Paribas in Stockholm.

Nordea rose 3.4 kronor, or 5.4 percent, to 66.25 kronor by 1:48 p.m. in Stockholm, the first gain in eight days, giving the bank a market value of 268 billion kronor ($41.2 billion).

More Capital

The four biggest banks in Sweden, the Nordic region’s dominant economy, hold more capital on average than those in the U.S., with common equity equaling 12 percent of their assets as calculated under new regulations, according to data compiled by Bloomberg. That compares with 6.5 percent for the four biggest U.S. banks as estimated by analysts at Nomura Securities International Inc.

Investors are willing to pay a premium for the more conservatively run Swedish lenders. Nordea, with common equity, or core Tier 1 capital, of 9.7 percent of its risk-weighted assets as calculated under rules agreed to by the Basel Committee on Banking Supervision, has a price-to-book ratio of 1.22. New York-based JPMorgan Chase & Co., the second-largest U.S. lender, which says its core Tier 1 capital under the new Basel rules is 7.6 percent, is trading at 0.89 times book value, meaning investors believe the lender isn’t worth as much as its stated assets.

Nordea, Svenska Handelsbanken AB, Swedbank AB and SEB AB all passed the European Banking Authority’s stress test on July 15 with a core Tier 1 capital ratio of at least 8.6 percent under an adverse scenario.

Nordea reported a return on equity for the second quarter of 11.5 percent and said the best banks will reach 15 percent.

Net interest income, the difference between what the bank earns from lending and what it pays on deposits, increased 6.2 percent to 1.33 billion euros in the quarter, while net fee and commission income advanced 16 percent to 623 million euros.

--With assistance from Dawn Kopecki in New York. Editors: Frank Connelly, Francis Harris

To contact the reporter on this story: Adam Ewing in Stockholm at aewing5@bloomberg.net.

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net.


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