Nordea AM business does not shine in latest quarterly results

Nordea, one of Europe’s top-10 universal banks by market capitalisation, has reported “strong” income overall in its third quarter, although figures for its asset management activities suggest it is facing headwinds.

The gains come as the bank’s asset management business has been criticised for the performance of its funds in an investigation by Swedish television channel SVT – reported by InvestementEurope.

The group’s overall net interest income was up 4% compared to the previous quarter to €1.379bn.

However, a review of the quarterly figures shows that gains are associated with lending, deposit and equity activities, while assets under management dropped 7% between 30 June to 30 September, from €191.1bn to €177.9bn.

“Savings-related commissions decreased 8% in the third quarter to €329m, due to lower asset management commissions, brokerage and custody fees,” the results stated.

For the Swedish savings market, the bank said that households had shifted towards lower risk assets. And net redemptions from its Wealth Management business hit €0.7bn through the quarter.

“The financial instability caused investors to redeem from investment products, resulting in net outflow from Nordic Retail funds, Nordic Private Banking and Global Fund Distribution. Institutional clients continued the strong trend from earlier quarters with solid net inflow of 0.7bn and International Private Banking also contributed positively to total inflow. In Life & Pensions, net inflow close to zero covers a shift in the product portfolio towards capital-efficient unit linked products.”

As a result, Wealth Management income dropped 19% on the previous quarter to €268m.

“The decline was partly due to lower AuM and shift in asset mix towards lower-margin products, but mainly due to reversal of fee income in Life & Pensions decreasing income by 48m in the third quarter. Declining buffers in Life & Pensions temporarily constrained the ability to collect fee income attributable to part of the traditional portfolio. Asset liability-management focus on managing the buffer situation in all markets was intensified. As a consequence, operating profit decreased 40% from the second quarter to €86m.”

“The turmoil intensified the flight to safety trend among household customers causing a shift in their savings portfolio from investment products towards low risk deposits products. Especially investment funds saw large negative net sales, but also life and pension products and structured products experienced negative net sales. On the other hand, in deposits products net sale was very strong.”

The section in the report on its Asset Management business does admit that “the financial market volatility challenged Nordea’s investment performance in the third quarter.” However the bank also argues that over a longer term period – 36 months – its relative investment performance continues to be strong, with 65% of the investment composites outperforming their benchmarks.” That would suggest 35%, or a third of its composities are either in line or underperforming their benchmarks.

Customers seem to be reacting to the environment in different ways. Institutional asset management recorded another quarterly rise in net inflows – the 11th quarter in a row that it has managed this, driven mainly by international customers, and customers in Sweden and Norway.

However, the Global Fund Distribution business experienced its first quarterly net redemption since 2008, with €200m withdrawn.

“The financial turmoil caused investors to redeem from classical equity funds and high yield bond funds,” the bank said.

Asset Management income at €83m was down 8% on the second quarter of 2011.

In terms of the current proposals being discussed by Europe’s policymakers for possible higher capitalisation in the banking sector, Nordea said that its Core Tier 1 capital ratio is 9.2%, while excluding transition rules takes this ratio up to 11%. The bank says it has over €22bn in Tier 1 capital.

Overall the bank claims 11 million customers, and delivers services through 1,400 branches, with a listing on the Nasdaq OMC Nordic Exchange in Stockholm, Helsinki and Copenhagen.


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