If there is a common economic theme in the Nordic and Baltic countries in the past few years it has been the collective resilience they have shown to the gyrations of the eurozone crisis and the slowing of the global economy. In 2012, however, that resilience took a knock as Denmark and Finland slid into recession as part of a broader economic slowdown in the Nordic and Baltic regions, even though Norway, Sweden, Estonia, Latvia and Lithuania are still growing. For the big local and regional banks, navigating recession and weakening economic growth among other macro-risks has been challenging, but for one bank in particular the strategy it set out in 2011 is now delivering record-breaking results. With more customers, capital and profits than ever before in 2012, Nordea stands out this year for an admirable performance delivered against a background of weaker growth, low interest rates, higher regulatory costs, fierce competition and persistent eurozone turmoil. It was a performance, driven by increased income and lower costs and risk-weighted assets, that positions Nordea ahead of its 2011 plan of improving costs and capital efficiency to hit a target 15% return on equity and 13% core tier 1 capital ratio. Nordea still has much work to do, but in reporting a full-year 2012 return on equity of 11.6% – up 100 basis points on 2011 – and a robust core tier 1 capital ratio of 13.1% – up 190bp on 2011 – it is well on the way to hitting its target by 2015. To do that it will need to continue to execute on its strategy in the disciplined way that it has already. Nordea did cut 2,000 jobs to reduce costs, but in increasing its capital efficiency by focusing the businesses on capital-light products, on advisory, relationship business and ancillary income, it has managed to generate robust revenue momentum too. Total income in 2012 rose 8% on 2011 to reach a record €10.24 billion, with net interest income and net fee and commission income each up 5% at €5.75 billion and €2.5 billion respectively in 2012. By extension, the bank’s 2012 cost-income ratio came in at 50.7% – down from 54.9% in 2011 – with total expenses down 1% at about €5.2 billion. The black mark in the 2012 financial performance was loan losses of €933 million, primarily related to volatility in the bank’s Danish housing and shipping loan book, which shot up 27% on 2011. However, the losses did not knock profitability and Nordea reported a 19% increase in 2012 net profits to €3.13 billion, with operating profits up at €4.12 billion – a record high. Revenues and profits in the first quarter of 2013 have continued the momentum, with total operating income up 1% at €2.56 billion on a year earlier and operating profits up 2% at €1.06 billion. All three of Nordea’s main businesses – retail and wholesale banking, and wealth management – have contributed to the group’s success in the past year, extending each business’s leading market positions in the region. In retail banking, for example, Nordea attracted 56,000 new customers in 2012 and 20,000 in the first quarter of this year, pushing its total retail customer base to a new high of 3.13 million. In wealth management, assets under management grew 2.5% to a new record level of €224 billion in the first quarter, making Nordea the largest asset manager in the region and the fastest growing. Nordea’s wholesale banking business, which incorporates investment banking, has also made some impressive gains in the past year, consolidating its leading position in core markets and making it Euromoney’s best investment bank in the region, best M&A house and best debt house. Its investment banking business has benefited from the merging of its corporate finance and debt capital markets business, ultimately creating a more integrated advisory and capital markets offering, in turn supporting the cross-selling of advice and products to clients. But it is in M&A and debt capital markets that Nordea has arguably performed best during the awards period. In M&A, Nordea ranked second behind Deutsche Bank, having advised on 20 completed deals worth a combined $11.1 billion, according to Dealogic. Of those, Nordea’s advisory and financing roles on a range of deals highlight its pan-Nordic franchise and capabilities across industries and situations: Swedish investment company Hakon Invest’s €2.3 billion acquisition of the remaining 60% of shares in retailer ICA; Finnish construction group YIT’s partial demerger of Caverion; private equity firm EQT’s sale of Danish IT services company KMD to Advent International; and Ontario Teacher’s Pension Plan’s roughly NKr2 billion ($325.4 million) purchase of Norwegian extreme-weather clothing company Helly Hansen. This last deal was notable because it involved the first sponsor-backed bond financing in the Norwegian high-yield market. Across DCM, Nordea has once again been particularly strong, having underwritten 229 deals worth $17.7 billion – more bonds than any other bank by number and value during the awards period. And in the local Nordic bond markets, where disintermediation is accelerating, Nordea has been front and centre; in the past year it has led a number of high-profile transactions: the SKr2.5 billion ($368.7 million) six-year dual-tranche issue for AP Moeller-Maersk; the SKr2.3 billion five-year dual-tranche issue for Tele 2; and the SKr600 million five-year non-call three high-yield transaction for Swedish Orphan Biovitrum. In bonds and loans, Nordea’s proposition is compelling to the region’s corporate, financial institution and public-sector borrowers. SEB reported a strong group performance across its main businesses in the past year, but it is in three areas in particular that the bank leads its peers in the Nordic and Baltic region: flow trading, cash management and project finance. In the client-driven flow business, enveloping everything from foreign exchange and fixed-income securities to equities and commodities, SEB holds a leading position in each of these markets, providing clients with full research coverage of the asset classes, trading solutions and investment products. SEB’s FX business is one of the group’s core strengths, and in the Nordic region it maintains its status as the largest FX provider to corporates and financial institutions as well as a regional market leader and global market maker in Swedish krona, Danish krone and Norwegian krone. In Euromoney’s annual FX survey,SEB once again was ranked the number-one FX house in the Nordic region, as well as in Sweden, Finland and Norway. The FX business routinely composes the largest chunk of income in SEB’s trading and capital markets unit, which sits within the merchant banking division, and last year alone generated over SKr2 billion of revenues. In fixed income too, SEB is one of the two banks that dominate the region. It provides full coverage of all the countries and products denominated in Swedish krona, Danish krone and Norwegian krone, including government bonds, mortgage bonds, credit bonds, commercial paper, inflation-linked bonds and a wide range of derivative products across all asset classes in the region. In addition to its strength in equities as the largest stockbroker, prime broker and equity finance house in the region on the cash and derivative side, SEB is the leading commodities house, offering a broad range of hedging and investment solutions to investor clients. For example, it has launched its own investable index – the SEB Commodity Index – which complements its well-established futures brokerage. It is also the leading supplier of commodity price risk management services to the Nordic corporate sector. Of the SKr7.12 billion of operating profit the merchant banking division made in 2012, the flow trading and capital markets unit generated a good third of that – flat to last year. However, SEB’s low trading-risk profile, in combination with higher customer activity in capital markets as disintermediation continues, should support future profit growth. For the third year running, SEB is Euromoney’s best cash management house in the Nordic and Baltic regions. The business, which comes under the merchant bank’s global transaction services division, is simply the largest international cash management network in the region; in 2012 it managed to broaden its client base further, offsetting most of the effects from lower interest rates and lower export and import volumes. Assets under custody amounted to SKr5.2 billion – up from SKr4.5 billion in 2011. SEB has strong relationships with over 90 of the region’s largest companies, but in the past year has also intensified its efforts to attract small and medium-sized enterprises with some success: 13,000 new SMEs in Norway and Denmark joined the bank’s regional network, in addition to 100 new large corporate customers. SEB’s cash management business is also strong in the Baltic countries, where it expanded its presence in the past year and now commands a 30% share of the market in Lithuania and 27% in Estonia. In corporate banking, the third core business of SEB’s merchant banking operations, its project, asset and export finance business has recorded an impressive haul of transactions over the past year, helping to cement its leading 30% market share in the region among Nordic-based banks. Of the 18 project financings SEB has completed, three stand out. The first is the $250 million financing, including export credits from Norway and South Korea, for the floating Hoegh liquefied natural gas storage and regasification unit in Lithuania, enabling the country to diversify its gas sources from Russian pipelines. The deal follows a resolution passed by the Lithuanian government in June 2012 directing that at least 25% of all Lithuanian gas supply should come from the port. Second, the $2.5 billion seven-year reserve-based lending facility – the largest in the region – for Lundin Petroleum to finance development and exploration in Norway. And third, the €17 million financing supporting the construction of a new seaport dry bulk cargo terminal in Riga, Latvia – one of the largest project financings in the Baltic republics. International investment banks are increasingly facing a tough fight against Nordic investment banks on big equity capital market tickets in the region, and sooner not later that balance is expected to tip in the latter’s favour. The Nordic houses routinely print the most ECM transactions, but with Nordea, Danske Bank and ABG Sundal Collier working as bookrunners on two of the largest ECM deals and the only IPO in the region during the awards period, they are executing headline-grabbing trades too. In the past year however, it is UBS that has successfully book-run more of the largest ECM transactions than any other bank in the Nordic and Baltic region, including the only IPO for Norwegian speciality chemicals firm Borregaard, on which it was joint global coordinator and bookrunner alongside ABG Sundal Collier. The NKr1.7 billion IPO in October 2012, effectively achieving a virtual exit for Norwegian conglomerate Orkla from Borregaard, was the first international IPO from the Nordic region since Sweden’s Transmode in May 2011. UBS was also financial adviser to Orkla, which sold 81 million secondary shares – plus 5% greenshoe – equivalent to an 81% stake in Borregaard, the largest ever sell-down in a Norwegian IPO by percentage sold. UBS worked on three more of the largest ECM deals to hit the market in the past year, including two accelerated share placings for Danish communications company TDC in February and March, on both of which it acted as sole bookrunner. The first accelerated placing of a 14.5% stake in TDC raised $850 million, and the second, a 7% stake, raised $430 million for the company’s owners, private equity firms Apax Partners, Blackstone, Permira and Providence, which fully exited their investment in the company as a result. Both transactions priced at the tightest discounts to those seen in previous TDC placings. UBS was also sole bookrunner and sole underwriter on the €200 million fully underwritten rights issue of Finnish shopping-centre developer Citycon, which wanted to cut leverage and strengthen its balance sheet following the acquisition of the Kista Galleria shopping centre in Stockholm in 2012. The issue, executed in March this year, had a take-up of 99.7% and an oversubscription level of 150.4%, which is higher than the average for Finnish rights issues since 2007, and higher than the two previous Citycon rights issues. |
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