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Nordic banks
Cyclical growth ending, credit
cycle turning
Jan Wolter
Research Analyst
(+46) 8 463-5519
jan.wolter@db.com
Turn in credit cycle not reflected in valuation
Despite defensive qualities, we see headwinds in Nordics. From the peak,
consensus have downgraded Nordic banks’ EPS by 9% for 08 and by 5% for 09.
In 2001/2002 downturn bank profits fell more than 20%. We see cyclical lending
growth ending and a turn in the Nordic credit cycle, neither reflected in estimates
nor in the 2% premium valuation to EU banks.
Deutsche Bank AG/London
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Investors should consider this report as only a single factor in making their investment decision.
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DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1
Industry Analysis
Top picks
DnB NOR (DNBNOR.OL),NOK75.80 Buy
Companies featured
Danske Bank (DANSKE.CO),DKK171.25 Hold
2007A 2008E 2009E
EPS Adjusted (DKK)22.34 20.63 22.10
P/E Adjusted (x) 8.9 8.3 7.7
Nordea (NDA1V.HE),EUR10.73 Sell
2007A 2008E 2009E
EPS Adjusted (EUR)1.14 1.03 1.08
P/E Adjusted (x) 10.0 10.4 10.0
SEB (SEBa.ST),SEK141.25 Hold
2007A 2008E 2009E
EPS Adjusted (SEK)20.90 16.19 16.94
P/E Adjusted (x) 7.9 8.7 8.3
Sv. Handelsbanken (SHBa.ST),SEK168.50 Hold
2007A 2008E 2009E
EPS Adjusted (SEK)17.60 16.73 18.03
P/E Adjusted (x) 11.8 10.1 9.3
Swedbank AB (SWEDa.ST),SEK148.25 Hold
2007A 2008E 2009E
EPS Adjusted (SEK)23.10 20.51 20.99
P/E Adjusted (x) 7.9 7.2 7.1
DnB NOR (DNBNOR.OL),NOK75.80 Buy
2007A 2008E 2009E
EPS Adjusted (NOK)9.89 8.78 9.27
P/E Adjusted (x) 8.4 8.6 8.2
Global Markets Research Company
DnB NOR: best top-line visibility & cost cuts. From Hold to Buy
DnB NOR’s top line has better visibility than peers, on the back of a strong
Norwegian economy. The bank has continued to raise rates, reinforcing margin
turn-around and we expect positive newsflow on cost programme in Q2 report.
Equity market turnaround, has built up insurance reserves and if broad Nordic
indices stay at current levels insurance will show profits H1 08.
SHB: credit quality & growth a positive, costs a problem! From Sell to Hold
With credit quality as a theme for 2009, SHB is a safer bet than Nordea, we argue.
Top-line can be driven by international expansion next 2 years, but costs is a
problem. Upgrade to Hold.
Danske Bank: well run bank, could be value trap. Re-iterate Hold
The bank trades at 1.1x 08 book, have already lowered guidance & signalled higher
credit losses. Time to buy? We think not. Consensus profit estimate is already 5%
above top-end of guidance and macro could continue to deteriorate; May 15,
Danish central bank, gave new GDP forecast; 1.9% for 08, 1.0% for 09 and 0.4%
for 2010.
Swedbank: expect higher credit loss indication. Re-iterate Hold
Swedbank trade at 7.3x EPS for 08, Baltic problems are well known. Still, visibility
on the Baltic situation is low, and to a large extent in the hands of politicians. We
believe SEB’s & Swedbank’s charge-off indications of 50bp to 80bp in 08, is based
on positive Baltic GDP growth, which we question. However, we do not see
enough downside to warrant a Sell.
SEB: not SEB’s market. Re-iterate Hold
We believe rest of 08 will be tough. Baltic slowdown is quicker than management
and market expected, and slow capital markets put further pressure on Merchant
banking (generating 40% of profits). We do not se enough downside to warrant a
Sell recommendation, however.
Nordea: credit quality questioned. Downgrade to Sell
Nordea’s guidance implies EUR3.9bn in pre-provision profits. Question is: what
will net profits be, given a turn in credit cycle? We are positive to the growth story,
but question consensus estimates of credit losses in 08 & 09. Due to credit risk &
highest valuation in Nordics (13% premium), we downgrade to Sell.
Valuation and risk (for details see company sections)
We use SOTP methodology to value Nordic banks, which is based on a
sustainable RoE/growth and CoE. We use PE models, where applicable.
Table of Contents
Nordic banks in 2009......................................................................... 3
Cyclical growth ending, credit cycle turning .............................................................................3
Theme 1: Cyclical lending growth ending....................................... 5
De-leveraging in Nordics...........................................................................................................5
Theme 2: Margins on liability side – a double whammy................ 7
Dash for deposits push up cost ................................................................................................7
Theme 3: Credit cycle – 2009 a problem........................................ 10
Consumer indebtness high, corporate low .............................................................................10
Theme 4: Baltics – no softlanding .................................................. 18
Softlanding unlikely, no quick fix .............................................................................................18
Handelsbanken ................................................................................ 21
Growth a positive, costs a problem!.......................................................................................21
Valuation and risk ....................................................................................................................22
Swedbank ........................................................................................ 24
Expect higher credit loss indication ........................................................................................24
Valuation and risk ....................................................................................................................24
SEB.................................................................................................... 27
Not SEB’s market....................................................................................................................27
Valuation and risk ....................................................................................................................28
Nordea.............................................................................................. 30
Credit quality questioned ........................................................................................................30
Valuation and risk ....................................................................................................................32
DnB NOR .......................................................................................... 34
Best top-line visibility & cost cuts ...........................................................................................34
Valuation and risk ....................................................................................................................34
Danske Bank..................................................................................... 36
Well run bank, could be value trap..........................................................................................36
Valuation and risk ....................................................................................................................37
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