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Analyst note, 28. januar, Dan Werner
With seasonally stronger fee income lower expenses due to cost controls, Nordea Bank AB delivered good fourth-quarter and calendar 2014 results that were within our expectations. As a result, we will maintain our fair value estimate for this narrow-moat bank. Nevertheless, we have some concerns about aspects of Nordea’s businesses and markets where it operates. In Finland, the economy continues to exhibit weakness as Europe slows and Russian sanctions drag on exports. However, loan losses in Finland remain moderate at 0.17% even with slower growth. Nordea also has direct Russian credit exposure, primarily to Russian and Nordic corporate clients totaling EUR 6.3 billion or 2% of total Nordea exposures. Impaired loans with these clients are low at 30-40 basis points of exposures with loan losses also remaining low at 0.24% for 2014. Also, Danish agriculture continues to struggle with world price pressures. Nordea’s agriculture exposures total only about 2% of total lending, but we think future loss provisions will be increasing during 2015.
Despite these headwinds, Nordea still reported net income of EUR 877 million for fourth quarter of 2014 or EUR .22 per diluted share. Net interest income decreased slightly to EUR 1.40 billion as negative foreign exchange effects totaled EUR 29 million during the quarter. Fee and commission income increased during the quarter. Strong capital markets activity driven by loan syndications, along with higher assets under management from its wealth management area, drove net revenue to EUR 763 million compared with EUR 667 million last quarter.
Bulls and Bears say
Bulls say
- With most of the banking assets and operations in Scandinavia, Nordea is not exposed to the sovereign debt contagion that much of southern Europe has experienced.
- Expense reduction efforts should help maintain positive earnings and continue to build capital during this slow economic environment.
- With Nordea's multiple delivery channels, it is able to capture an increasing number of relationships in a very competitive banking environment.
Bears say
- Nordea's nonperforming loans remain elevated and could trigger higher credit costs, impacting the bottom line.
- Like many European banks, Nordea relies on wholesale funding markets and gets only 42% of its funding from deposits.
- Nordea's home markets and customers are dependent on the rest of Europe for its export business. A significant recession in Europe would affect Nordea's customers.
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