Nordea Bank reported net income of EUR 842 million for fourth-quarter 2012, or EUR 0.21 per diluted share, representing an increase of 7.1% over the EUR 786 million, or EUR .19 per diluted share, earned a year ago. For 2012, net income equaled EUR 3.1 billion, or EUR 0.78 per share, representing an increase of 18.7% over the EUR 2.6 billion, or EUR 0.65, earned for 2011.
Net interest income was stable at EUR 1.43 billion for fourth-quarter 2012 and fourth-quarter 2011. Overall, return on equity was 12.1% for the quarter as a result of stronger fee and commission income.
At this time, we are maintaining our fair value estimate. We continue to focus on Nordea’s credit quality, which continues its slow deterioration. Impaired loans increased to EUR 6.9 billion, or 1.97% of total loans, in fourth-quarter 2012 compared to EUR 6.8 billion in the third quarter of 2012 and EUR 5.1 billion in fourth-quarter 2011. Loan losses are still largely concentrated in Denmark in housing and agricultural related credits. Impaired loans are divided into performing and nonperforming impaired loans.
Total loan loss allowance of EUR 2.8 billion covers only 41% of total impaired loans but covers nearly 100% of the nonperforming impaired loans. While we would like to see larger loan loss allowances, Nordea’s credit problems still appear to be manageable at this time. However, we think any significant future deterioration with their loan portfolios, particularly in Denmark, will need to be addressed with more exuberance.
Expense control continues to be an advantage for Nordea in maintaining double-digit ROEs. This is largely done through personnel reductions as the bank’s customers continue to embrace technological distribution channels to conduct their banking business. This allowed Nordea to reduce the number of physical locations.
Full-time equivalent employees declined by about 226 from third quarter 2012 and nearly 1,600, or 4.8%, compared to a year ago. This has also resulted in the efficiency ratio falling to a very respectable 50.5%. Nordea remained well capitalized with a core Tier 1 capital ratio of 10.2% at fourth-quarter 2012. We are generally pleased with Nordea’s quarterly results but remain concerned about potential credit issues from Denmark.
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