Hello and welcome to InderesTV. Today I'm in the studio with analyst Kasper Mellas, and we're going to talk about Nordea. Hi, Kasper.

Hi.

So, Nordea has been performing exceptionally strongly recently. What are the main reasons behind this?

I think there are actually two reasons behind the development. So we all know that the net interest income has gone down throughout the banking sector because the interest rates are lower at the moment compared to the previous 4%, for example in Euribor rates. But Nordea has been able to grow its loan book. At the same time, quite rapidly, which has offset some of the negative impact. So that's why, on that front, Nordea has been able to perform very well compared to its peers. And of course, Nordea has been able to manage its costs very well at the same time. So I think these are the two key reasons. And of course, asset management has been performing quite well at

Okay.

the same time.

Okay. In your Q1 update you noted that volume growth in lending shows no signs of slowing down despite the macro uncertainties and high interest rates. What drives this resilience in the Nordic market?

Well, when we look at the Nordic markets, there are of course differences between countries. So Finland hasn't seen any growth at the macro level when it comes to the overall loan market. But in Norway, Sweden, Denmark. The overall loan market in Norway and the other operating countries as well is growing quite well. Why is that? Of course, the big economies are performing quite well. So they're growing even though the geopolitical uncertainty is high at the moment. And why is that? That's a hard question, very, very hard to answer, but maybe one reason could be that households and corporations have learned to live with the uncertainty, because during the last five years there's always been something, so maybe at this point people are kind of numb, so that's why every single negative thing that's happening around doesn't affect them right away. So maybe that's one of the reasons, but it's a hard question to answer.

Yeah, definitely. I guess in a way you could suppose that people are tired of waiting for normal, because normal is not coming

Yeah,

any time.

Exactly.

Yeah. Then the restructuring program. What we know is that It will generate cost savings of at least 150 million starting in 2028. But what else do we know?

We know that it affects around 1,500 people. When we look at the near-term future, the cost savings, or the decrease in the number of personnel, comes from back office, IT development, so kind of routine tasks. And I know when it comes to IT development, it's important to note that Nordea is getting rid of some of its current IT systems and trying to build, or is building, unified solutions for all of the markets to use. So no separate IT systems in lending, for example, in each of the operating countries, but one unified IT program, which of course means that you don't need as many people maintaining these systems as you used to. So that's more like business as usual for Nordea because they've always tried to try to cut costs and make the operations more centralized, so that's one thing. And of course, artificial intelligence and AI solutions are of course another key driver. So in Q1, the CEO said that their current view of AI capabilities is actually higher than it was when they first released these targets in the latest Capital Markets Day. So from this,

Yeah, the development,

this

yeah.

is what we currently know.

Okay. Uh your forecasts are slightly more conservative than the company's ambitious 2030 targets. Where do you and the company differ? What's the biggest reason behind that?

I think it's on the income side. Of course, when you look at the development of profitability, you can look at the income growth and then the cost development. The company has said that it is targeting around 2% cost growth annually, which means even though they're trying to reduce headcount, there's going to be additional investments into IT, IT spending for example. So they're expecting costs to grow overall. But given that they have been able to meet their targets previously, it's something that increases the likelihood that they're going to do the same this time. So I would say that according to my analysis, I think it's likely that this is something that they will be able to perform. But when it comes to the income side, that's of course much harder to meet their targets because they're striving for growth numbers above the overall market. So they're trying to win market share from the key markets, especially in Sweden and Norway. And even though this is of course possible, it's much harder, because of course every other bank is trying to keep their customers themselves, so they're not giving them up for free, so that's much harder. And of course, when we're talking about banks, the level of interest rates is one major driver behind profitability. So, and that of course is something that the management cannot control. So should the interest rates come down, that will make the growth targets very hard to achieve. But what I have to say at the moment is that the interest rate estimates look quite favourable. I'm not saying that they can't achieve it. I just don't think that should be the base case scenario at this point, that there are some major uncertainties behind the income development.

Yes, until we have more visibility, you stay a bit more cautious than the company.

Yes.

The price per book multiple for Nordea is... at a premium compared to many of its peers. Why is this?

Profitability, so that's the main reason. So if you're more profitable than your peers, You should have a higher price to book multiple, that's the main thing. Of course, there might be some differences in growth rate assumptions, but if you really look at the long term, it should be behind the valuation, of course. You have to think about the long term as well. So I don't think there's any major difference in the growth rate between Nordic banks. So the profitability outlook is definitely the thing that that justifies this premium.

Makes sense. And then to wrap it all up, you touched a bit on valuation, but what is the valuation and what's our recommendation at the moment?

Our recommendation is a And given our current profitability and growth estimates, I think the stock is reasonably valued and the expected return is good.

Yep.

So I'm not going to go through all

No,

the assumptions,

no, no. That's fine.

but investors

Yeah.

can read through those in the research paper. But yeah,

Yep.

that's the overall assessment.

Yeah. Thank you very much, Kasper.

Thanks.

And Nordea is still performing strongly, and the valuation is reasonable. You can read more at inderes.se, and if you have any questions regarding the company, you can go into our discussion forum and ask them directly to Kasper.