DBRS Comments on Nordea’s 4Q09 Results – Senior Unaffected at AA, Trend Stable
DBRS has today commented on the 4Q09 results of Nordea Group (Nordea or the Group). DBRS’s ratings for the Group are unaffected by the results, including the AA Senior Unsecured Debt & Deposits ratings for Nordea Bank AB and its main operating banks. The trend remains Stable.
Nordea reported solid net profit of EUR 447 million for the quarter ending 31 December 2009 and EUR 2.3 billion for the full year 2009. Total income for the year of just over EUR 9 billion evidences the strength of Nordea’s franchise and earnings generation ability. Underlying profitability remains solid. To that end, Nordea recorded profit before loan losses of EUR 4.6 billion for the full year of 2009, increasing 18% over last year. Nordea’s earnings also benefited from strong gains on items at fair value, as Nordea was able to benefit from the favourable market conditions, particularly in the first nine months of the year. Importantly, Nordea continues to record slightly stronger net interest income in 2009, increasing 4% over last year. Net interest income benefited from rising loan and deposit volumes and higher lending margins, which more than offset pressure on deposit margins.
Given the strength of Nordea’s earnings generation ability, its solid liquidity and capitalisation, DBRS views Nordea as well positioned to manage through the tail end of the current credit cycle. Nevertheless, DBRS is mindful of the significant risks as the economic recovery in the Nordics, particularly in Denmark, remains, fragile. Moreover, credit risk remains elevated in the Baltics despite certain signs of stabilisation.
Despite overall difficult operating conditions, net loan losses, at 0.52% of lending in 4Q09, continue to be quite manageable. Nordea’s overall low credit costs reflect the sound asset quality in the core Nordic banking franchise. However, Nordea’s Danish operations accounted for 44% of total net loan losses in 4Q09. The Group’s exposure in the higher-stressed region of the Baltics remains manageable at 3% of loans to the public at year-end 2009.
Credit trends are improving. Impaired loan growth has slowed as the Nordic economies recover, whilst new impaired loans in the Baltics increased by only 2.5% during 4Q09. Shipping and offshore, another elevated-risk area, showed some improvement as well. Impaired shipping loans declined 4% during the quarter, as freight rates recovered in several sub-segments, albeit from very low levels. Nordea’s shipping and offshore book comprised a manageable 3.7% of lending at 31 December 2009. Overall, net loan losses have declined during 4Q09, evidencing a good trend. Given these trends, DBRS believes that credit statistics will continue to improve as 2010 progresses.
Liquidity is well managed, as Nordea further broadened its range of funding instruments in 4Q09 by issuing USD 2 billion of senior long-term debt in the U.S. domestic market. The Group raised a total of EUR 6.5 billion of long-term debt in the quarter, demonstrating its strong market access. Capitalisation remains solid. Nordea bolstered capital through a EUR 2.5 billion rights issue in February 2009. The Group’s Tier 1 ratio stood at 11.4% (under Basel II without transition rules) at 31 December 2009, while the core Tier 1 ratio, excluding hybrids, was at a solid 10.3% at year-end 2009.
Notes:
All figures are in EUR unless otherwise noted.
The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments, which can be found on our website under Methodologies.
This is a Corporate (Financial Institutions) rating.
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