Nordea (NRDEF) Q2 2016 Earnings Call

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Casper von Koskull, President and Group CEO

A significant dip in Net Interest income YoY but stable QoQ and leveling off margin pressure

“Net interest income has been under severe pressure for many years due to lower interest rates and low volume growth. NII declined 8% compared to the same quarter in 2015. However, it improved somewhat sequentially and for the second half of 2016 we expect an inflection point with an improving trend, for the first time since 2012.”

Q2 reflects effective cost management.

“Costs are under strict control and increased by 3% in local currencies compared to the second quarter of 2015. The cost-to-income ratio increased to 50%, compared to 47% in the second quarter of 2015. We expect costs to increase by 3% in local currencies in 2016 and to remain on a largely

unchanged level in 2018 compared to 2016.”

Ari Kaperi, Group Chief Risk Officer and Head of Group Risk

Stable loan losses compared to previous quarters

“Our loan losses in this quarter were reductively at a stable level compared to previous quarters so that we have had these levels of losses now in eight, nine consecutive quarters, which is still within this long term average level of 16 basis points.”

Impaired loans were up 4%

“One issue which made raise some potential risk to impaired loans they were up 4% roughly $225 million in absolute terms in this quarter. The reason for this is three individual customers and the fact that all these customers are quite well collateralized for example the biggest one of these which is representing half of the increase 100 — is grafted by ECA, Export Credit Agency. That means that our individual loan losses for this new impaired loss were relatively small and thereby our provisioning level at a group level is somewhat down. We are highlighting this quarter that what we had said even earlier that their strategy and we see clearly increased risk levels in oil and offshore side.”

They expect losses on the offshore oil portfolio.

“The overall size of our oil and gas plus coal services plus offshore portfolio is roughly $7 million, 75% is still consider as healthy, but 25% is bit higher risk. We anticipate that from this portfolio we see increased losses both in individual level as well as collective provisioning level, but nevertheless, the biggest relative size of this portfolio in Nordea context is relatively small, so its only 1.5% and it should not so significant or have significant impact.”

…but they cannot estimate the level of offshore losses though they have made provision for them

“And we expect loss levels from this risky or part of the oil offshore — oil portfolio. It’s very difficult to give on – actually impossible to give any kind of precise estimate…Currently, we have around 90 million of collective provisions just to cover increased risk for individual losses in this portfolio.”

There’s risk of a rate cap in Norway that may dim earnings in Q3 and Q4

“So the risk you can say is that there would be a rate cap in Norway in September which I believe is our economist’s view and many other as well, so, if that rate capital come, then in September that will then partly take out the positives that you would see in the third quarter, but that will come in the fourth quarter.”


Extra Notes on Q2 financials


  • Net interest income down 8% YoY and unchanged QoQ, Net losses down 1% YoY
  • CET 1 ratio improved 10bps from previous quarter to 16.8% (Pro forma 17.2%)
  • 2016 preliminary outcome of SREP indicates a minimum requirement of 17%.
  • Diluted EPS EUR 0.25 vs. EUR 0.24 YoY