Bloomberg News

Nordea Rejects Recapitalization as European Issue Glut Looms

October 20, 2011

(Updates with Nordea’s share price in 14th paragraph.)

Oct. 20 (Bloomberg) -- Nordea Bank AB, the largest Nordic lender, won’t tap the markets for more capital as European lenders ready themselves for a round of recapitalization, Chief Executive Office Christian Clausen said.

“Certainly, in Nordea we don’t need more capital,” Clausen said in an interview in Stockholm yesterday, after delivering third-quarter results that missed analysts’ estimates by 25 percent.

The bank, which is shedding 2,000 jobs to adjust to a deteriorating economic outlook in Europe, said profit last quarter suffered because of “market turmoil.” While Nordea doesn’t hold any bonds of the euro area’s peripheral nations, the spread of the region’s debt crisis shows efforts to boost capital buffers need to be coordinated across borders and continents, Clausen said.

Banks in Europe and the U.S. need to converge around a core Tier 1 capital ratio -- a measure of financial strength -- of about 10 percent, he said. Nordea yesterday reported capital by that measure of 9.2 percent in the third quarter.

“Everybody understands that if we don’t calibrate this right it will be all wrong, so we have to find the same levels,” Clausen said. “If you don’t calibrate, you will again get systemic risk in the system.”

Capital Demands

The European Union may require banks in the region to increase core capital ratios to 9 percent of their risk-weighted assets, according to a person with knowledge of the plans. The deadline for meeting the increased capital levels may be the middle of next year, German Finance Minister Wolfgang Schaeuble told a closed parliamentary committee yesterday, said two lawmakers who attended the meeting. That’s almost seven years ahead of the target set by the Basel Committee on Banking Supervision.

Europe’s banks may need to raise 150 billion euros ($208 billion) to 230 billion euros to meet additional capital requirements, Kian Abouhossein, a JPMorgan Chase & Co. analyst in London, wrote in an Oct. 1 note.

Sweden’s government has told lenders to target capital ratios as high as 12 percent by 2013. Still, Finance Minister Anders Borg signaled yesterday he may be backing down from the target as the threat of a European banking crisis stresses financial markets.

“We want to eventually continue to gradually sharpen demands on Swedish banks both when it comes to liquidity and own capital,” Borg said yesterday. “We have a very responsible attitude that we also intend to implement in a cautious and moderate way.”

‘Relatively Healthy’

Sweden is home to four of the Nordic region’s six largest banks, and the country’s lenders have combined balance sheets four times the size of the nation’s economy. Nordea is 13.5 percent owned by the Swedish state, which has earmarked the bank for divestment over the coming years.

“Nordea’s in a relatively healthy position in terms of capital compared to its European rivals,” said Fridtjof Berents, an analyst at Oslo-based Arctic Securities ASA. “Given the bank’s limited exposure to the sovereign debt crisis, I don’t expect them to need more following an updated European Banking Authority stress test.”

The bank passed the EBA’s July test with a 9.5 percent ratio, almost twice the minimum requirement of 5 percent. Another round of exams would help European leaders identify capital needs.

Swedish Backing

Banks that can’t raise cash through share sales would be required to take capital from their governments or the EU and may face curbs on paying bonuses and dividends, European Commission President Jose Barroso said Oct. 12. European leaders will consider the plans at a meeting in Brussels Oct. 23.

Nordea shares rose 0.7 percent to 56.85 kronor as of 12:32 p.m. in Stockholm, outperforming the 46-member Bloomberg Europe Banks and Financial Services Index, which was down 1 percent. Swedish financials gained 0.2 percent.

Sweden is ready to back a broader European bank rescue plan if euro area leaders are unable to devise a workable model, Borg said yesterday.

“The main scenario is that it is the euro countries that deal with this through the European Financial Stability Facility,” he said. “If some type of European backstop is needed, then it needs to come with tough conditions. We then have to be certain that taxpayers in all cases get their money back.”

--With assistance from Johan Carlstrom in Stockholm. Editors: Tasneem Brogger, Frank Connelly.

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

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


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