SWEDEN/NORWAY/DENMARK Nordic Banks banks2... · 2015-02-10 · a Corporate and Institutional bank....

Please refer to page 34 for important disclosures and analyst certification, or on our website

www.macquarie.com/research/disclosures.

SWEDEN/NORWAY/DENMARK

Inside

1. Summary and conclusions 2

2. Profitability 4

3. Capital and dividends 10

4. Financial forecasts 13

5. Volumes and margins 17

6. Economic background 20

7. Valuation 22

8. Conclusion 26

Appendices 27

Nordic Bank changes

Source: Macquarie Research, January 2015

Analyst(s) Edward Firth +44 20 3037 4077 [email protected] Namita Samtani +44 203 037 2197 [email protected]

26 January 2015 Macquarie Capital (Europe) Limited

Nordic Banks “Everything is Awesome ... ish”

Nordic Banks have been extremely rewarding investments over the past three

years, delivering a 3-year total return of +114%, massively outperforming the

broader European Banks index (+44%).

However with (i) valuations increasingly demanding; (ii) growing questions as to

the sustainability of different levels of sector profitability (core ROTE range c9%-

17%); and (iii) increasingly clarity on local capital requirements, we have taken

the opportunity to revisit our thinking.

Overweight Swedish Banks maintained

Battling with deflation does not put Sweden in a class of one. Despite margins

likely to disappoint near term (lower rates), attractions include a combination of

positive sector loan growth and well capitalised, profitable banks distributing the

bulk of their earnings. In a European sector battling deflation, slowing growth,

negative volumes and uncertainty over capital, they remain a core Overweight.

Upgrade Nordea to Outperform, TP SK103 (from SK91)

A sector leading restructuring programme (2015e costs -7%) means Nordea is

set to deliver the best pre-provision performance of the Nordics this year and

comfortable double digit EPS growth (+14%). In addition, a core tier 1 forecast

to exceed 15% offers the prospect of material dividend growth (DY15e 7%).

There are risks around Russian exposure (c€5bn or SK12 a share) but these are

more than reflected in a c30% PTBV discount to Swedish peers. Add to

European Bank Conviction Outperform in place of Swedbank (O, TP: SK201).

Downgrade SEB to Neutral, TP SK100 (from SK97)

The shares have outperformed the European Bank sector by +40% since

October 2013 (see our note, European Banks - “Argumentum ad populum…”

dated 10 October 2013). A new cost and capital plan due to be published at the

full year results (29 January) may provide modest upside. However a price to

tangible book 2015e of 1.7x looks demanding for a sustainable ROTE profile that

we see as no better than 14%, whilst the challenges faced by the European

corporate sector add to the risks.

Maintain Conviction Underweight DNB, TP104 (from NK110)

We see every reason to remain Underweight DNB. c22% of Norwegian GDP is

based on Oil and Gas. The recent fall-off in Oil prices will have clear

implications for the wider economy. We have reduced our 2015e earnings

expectations by 9% today, but suspect that this is the beginning not end of a

downgrade cycle.

Old New Old New Chge

Danske U U 160 162 +1.3%

DNB U U 110 104 (5.5%)

SHB N N 330 380 +15.2%

Nordea N O 91 103 +13.2%

SEB O N 97 100 +3.1%

Swedbank O O 200 201 +0.5%

TargetRec

http://www.macquarie.com/research/disclosures

Macquarie Research Nordic Banks

26 January 2015 2

1. Summary and conclusions

We have been long been fans of Nordic banks, particularly Swedish. Swedbank in particular

has been the longest running member of our European Bank Conviction list – delivering a

total return of +190% since we first added it in September 2011, outperforming the DJSTOXX

European Bank sector by a creditable +120%.

However with (i) valuations increasingly demanding; (ii) growing questions as to the

sustainability of different levels of sector profitability (core ROTE range c9%-17%); and (iii)

increasingly clarity on local capital requirements, we have taken the opportunity to revisit our

thinking.

Fig 1 Adjusted EPS forecasts 2014e-2015e

2014e 2015e Old New Old New

Danske 12.1 11.7 (2.9%) 13.9 14.6 +5.1% DNB 12.6 12.1 (4.2%) 12.6 11.5 (8.7%) Handelsbanken 24.1 24.1 +0.0% 25.5 25.5 +0.0% Nordea 0.81 0.81 +0.9% 0.93 0.93 (0.2%) SEB 7.24 7.35 +1.5% 7.82 7.62 (2.5%) Swedbank 15.4 15.1 (1.9%) 15.6 15.7 +0.2%


Key conclusions

Positive Sweden - Firstly we remain overweight Nordic banks, particularly Swedish. Whilst

there are clearly increasing risks (zero interest rates, deflation, demanding valuations) they

are far from unique in a European context.

In the meantime government finances are broadly in order, banks are very well capitalised,

lending volume growth is (almost uniquely) positive, house prices remain robust and

increasing clarity on capital requirements raises the spectre of materially increased dividends.

Nordea – Upgrade to Conviction Outperform (from Neutral), TPSK103 (from SK91) – We

do see risks to near term performance from areas such as Russia, Finland, Norway, etc. We

understand that total risk exposure in respect of Russia is c€5bn, which equates to a

manageable cSK12 a share (assuming no tax relief on losses).

However, Nordea is forecasting to deliver in 2015:-

the most ambitious cost programme in the sector, which we expect will reduce costs by -

7% (fall away of restructuring charges and improved efficiency in Swedish Retail);

the best pre-impairment profit performance in the Nordic sector (+12%);

a post tax return on tangible equity above 13%; and

a Pillar 2 adjusted core tier 1 ratio of comfortably over 15% ensuring a robust dividend (we

forecast 2015e yield of 7%).

Against that backdrop, a multiple of 1.4x prospective 2015 tangible book looks far from

demanding. We upgrade the shares and add them to our Conviction list.

Swedbank ...

Positive Sweden

Nordea upgrade


26 January 2015 3

Swedbank - Maintain (O, TP: SK201 from SK200) – We continue to like Swedbank. Robust

capital, attractive 2016 cost targets, excellent management and a sustainable 6% dividend

yield in a 0% interest rate environment are all supportive. Furthermore our profitability

analysis does indicate premium returns are sustainable given the business mix and very

strong fee franchises in the Swedish banking market (Asset management, payments and

Cards).

However, a price to 2015e tangible book of c2.0x against a sustainable return on tangible of

c17% looks demanding. Furthermore October’s surprise rate cut may well drive margin

disappointment in Q4.

SEB - Downgrade to Neutral (from Outperform), TP: SK100 (from SK97) – The shares

have outperformed the European Bank sector by +40% since October 2013 (see our note,

European Banks - “Argumentum ad populum…” dated 10 October 2013). A new cost and

capital plan due to be published at the full year results (29 January) may provide some

upside. However, a price to tangible book 2015e of 1.7x looks demanding for a sustainable

ROTE profile that we see as no better than 14%. Furthermore the prospective dividend yield

is high (2015e 5.5%) but lags both Swedbank and Nordea. Finally, there must be a risk that

the broader malaise in the European corporate sector will finally catch up with what is at heart

a Corporate and Institutional bank.

Handelsbanken - Maintain (N, TP: SK380 from SK330) – The best performing Nordic bank

over the past quarter +13%. The shares are now trading alongside Swedbank on 2.0x

prospective 2015 tangible book value. This looks extremely demanding for a business that

we do not think will deliver sustainable returns in excess of 16%. Furthermore, it remains far

from clear to us how Handelsbanken risk weightings are so materially below the peer group.

DNB – Maintain Conviction Underweight , TP: NK104 (from NK110) - We see material

risk to the outlook for DNB earnings in the current environment. Oil and Gas contributes

c22% of Norwegian GDP – significantly greater if all the related businesses are added.

We downgrade our earnings expectations today by -4% and -9% for 2014e and 2015e

respectively on higher impairments (benchmarked to 2009). We await the full year results

presentation for any further indication of the likely impact (remember at the re-assuring

December presentation the oil price was over $60 a barrel against less than $50 now).

Danske – Maintain Underperform, TP: DK162 (from DK160) - One of the best performing

European banks in 2014 (+36%). However, whilst the management has done an excellent

job setting up a non-core business and realising those assets well ahead of expectations the

fundamental problem remains – namely a banking franchise that shows little sign of

managing to deliver sustainable double digit returns.

Last week’s cut in Danish interest rates will only make achieving that goal even more

demanding. In the meantime, a PTBV15e of 1.1x implies that delivery of double digit returns

is behind not ahead of us.

Fig 2 Full year 2014 results publication dates

Bank Date

Nordea 28 January 2015 SEB 29 January 2015 Danske 3 February 2015 Swedbank 3 February 2015 Handelsbanken 4 February 2015


Swedbank

Outperform

maintained

SEB downgrade to

Neutral

Handelsbanken

Neutral maintained

DNB maintain

Underweight ...

... downgrade

earnings

expectations

Danske maintain

Underperform


26 January 2015 4

2. Profitability Key message: Swedish banks generate attractive returns (c13%) on premium levels of

capital. Swedbank tops the sector with returns that we believe are broadly sustainable

driven by mix (Swedish Retail) and fee generation (Asset mgt, Payments, Cards). More

questions over Handelsbanken where returns appear to be driven by low risk

weightings. Nordea offers the highest restructuring / improvement potential for 2015e

and is the only Nordic bank we expect to deliver double digit pre-impairment growth.

The key attraction of Nordic banks is still their robust profitability - generating surplus capital

and paying healthy dividends. Sweden and Norway are incidentally the only European

countries delivering any noticeable loan growth, but at mid to low single digits we think it is

not sufficient to justify any sort of premium rating.

Fig 3 Nordic returns on tangible


The Nordic sector is delivering an average return on tangible of 13%. Swedbank continues to

lead the pack at 16%+. Danske and DNB both lag peers at 11% and 12% respectively. The

key question is the extent to which superior profitability is sustainable and / or there is

potential for recovery amongst the laggards.

Fig 4 Analysis of profits to average risk weighted assets 2014e (i)

Danske DNB Nordea SEB SHB Swedbank Average

Net Interest Income 2.80% 2.94% 3.39% 2.97% 4.69% 4.07% 3.48% Non Interest Income 2.40% 1.46% 2.69% 3.46% 1.83% 2.92% 2.46% Total Revenue 5.21% 4.40% 6.08% 6.43% 6.52% 6.99% 5.94% Operating Expenses (2.71%) (1.90%) (3.07%) (3.25%) (2.93%) (3.06%) (2.82%) Pre-provision profits 2.50% 2.50% 3.01% 3.19% 3.59% 3.93% 3.12% Provisions (0.33%) (0.15%) (0.34%) (0.20%) (0.25%) (0.09%) (0.23%) Adjusted PBT 2.16% 2.48% 2.67% 2.98% 3.39% 3.86% 2.92% Average weighting - to average loans 54% 79% 47% 49% 34% 42% 51% - to average total assets 25% 44% 26% 25% 22% 30% 29%


(i) Swedish risk weighting adjusted to include implied Pillar 2 buffer for 25% mortgage weighting

0%

2%

4%

6%

8%

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12%

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16%

18%

Danske DNB Nordea SEB SHB Swedbank

ROTE15e ROTE16e

Profitable sector

Swedbank 16%+


26 January 2015 5

We have analysed profitability of the six Nordic banks (against risk weighted assets) in Fig 4

above. Interestingly the superior profitability of Swedbank is driven by consistently strong

performance across the P/L, with all line items better than average (except costs - albeit

average analysis distorted by DNB).

Revenue

The Swedish banks deliver strong revenue margins (on risk assets) c100bps+ above Danske

or DNB. That said, they are not out of line with the broader European bank sector which we

forecast will deliver an average revenue margin of 2016e 661bps. See European Banks -

More Utah than Bhodi ..., 14 November 2014

Both Handelsbanken and Swedbank deliver net interest margins on average risk assets

materially above peers. In the case of Swedbank this appears to be driven by business mix,

with over 60% of their lending business focused on Personal customers (see Fig 5) – by

some margin the highest in the sector.

Retail margins in themselves at Swedbank (138bps of loans) do not look out of line with peers

(see Fig 6).

Fig 5 Personal lending % of Total, Q3 2014 Fig 6 Retail division NII on average loans, 2014e

Source: Company data, Macquarie Research, January 2015 Source: Macquarie Research, January 2015

This is not the case for Handelsbanken where Personal sector lending exposure is c50% of

total - broadly in line with the peer average. The reason for the better margin on RWAs at

Handelsbanken appears to be the lower average risk weighting (c34%) even after adjusting

for the Pillar 2 buffer.

This must be a risk factor when assessing the potential trajectory of returns going forward for

Handelsbanken. Tough to see how one bank can have sustained exclusive access to lower

risk customers that are comfortable paying a higher margin. If the same profitability analysis

is conducted on either average loans or average total assets, Handelsbanken moves from

being the second most profitable bank in the sector to the least (see Figs 13 & 14 below).

Interestingly the poor NII returns on risk weighted assets of DNB looks to be primarily driven

by the higher risk weightings imposed by the Norwegian regulator. Norwegian Retail margins

on loans are the highest in the region (see Fig 6).

The reason for Danske Bank’s low NII margin on risk assets is more difficult to identify

specifically given the lack of divisional breakdown of risk assets. However, it would appear to

be a combination of higher risk weightings / lower NII returns in the Business and Corporate &

Institutional operations particularly.

0%

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Swedish revenue

margins ...

Handelsbanken

Danske Bank

DNB

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26 January 2015 6

Fig 7 Non interest income % of Total revenue Fig 8 Retail non interest income % of Retail revenue

Source: Macquarie Research, January 2015 Source: Macquarie Research, January 2015

Swedbank’s superior profitability is also boosted by the second highest level of Non interest

income per risk assets in the sector. Swedbank’s Retail division generates c40% of its

revenue through fees / non interest income compared with an average of only 30% for peers

(see Fig 8). This reflects their substantial Asset management business (23% share of

Swedish market) as well as a focus on payments (c50% Swedish market share) and the

robust Cards business.

Operating expenses

Nordea has the most ambitious cost targets in the sector (2015e -5% in constant currency or -

7% stated). The question is whether these are realistic on a sustainable basis.

Fig 9 Nordic bank group cost ratios 2014e


Nordea cost ratios are currently towards the top end of the sector (se Fig 9). A 7% reduction

in costs will reduce their cost income ratio from the current 51% (2014e) to 46%, broadly

equating to a c€350m reduction in costs. This is a marked improvement, although will still the

ratio above the sector leading DNB (43%) and Swedbank (44%).

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SHB DNB Swedbank Nordea Danske SEB0%

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SHB DNB Nordea Danske SEB Swedbank

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DNB Swedbank SHB Nordea SEB Danske

Cost income (LHS) Cost to loans (RHS)

Swedbank fee

income

Nordea ambitious

cost targets


26 January 2015 7

Fig 10 Nordea cost programme

Source: Company presentation, Macquarie Research, January 2015

Nordea have provided outline details of the key source of the €350m savings (see Fig 10). In

the first instance, the Nordea core cost base in 2014e includes c€225m of restructuring

charges. This is up from <€30m in 2013. We are expecting a return to low / negligible levels

in 2015 which will represent the bulk of savings.

However, Fig 10 does suggest that a large element of the operational savings will be

delivered from the core Swedish Retail business (4.1m customers / No. 2-3 market share).

We are intuitively cautious of divisional analysis (given the distortions of central cost

allocation).

Fig 11 Analysis of Retail cost efficiency 2014e


(i) Swedish Branch banking including Corporate lending

0.00%

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1.60%

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SHB (i) SEB SWED Nordea Nordea DNB Nordea Danske

Cost income (LHS) Cost to loans (RHS)

Sweden Norway Denmark

Nordea Swedish

Retail business


26 January 2015 8

However, as highlighted above in Fig 11, Nordea Swedish Retail business has materially

higher costs than peers. The cost income ratio of 54% and cost to loans of 1.24% are both

c20% higher than direct peers (c45% & 1.00% - Handelsbanken distorted by including

Corporate business).

Bringing the Nordea Swedish Retail cost ratios in line with peers would deliver a further

€135m of savings. Interestingly, the Norwegian and Danish Retail businesses benchmark

well with peers.

Impairments

Finally, Swedbank and DNB both face profitability headwinds from increased impairments.

At Swedbank the current ratio is depressed by continuing write-backs in the Baltic business

(2014e +SK217m). A more normalised 40bps charge in that business would increase the

impairment charge as a % of risk assets to 22bps from the 9bps highlighted in Fig 4.

However, even at 22bps bottom line profitability for Swedbank remains top of the sector.

At DNB we see the impairment charge growing from 15bps of RWAs to over 30bps in 2015

reflecting the deteriorating economic environment in Norway (lower oil prices – see Fig 12).

Fig 12 Norwegian Real GDP growth (%) against Oil prices

Source: Bloomberg, Macquarie Research, January 2015

29/ 12/ 200628/ 02/ 200730/ 04/ 200730/ 06/ 200731/ 08/ 200731/ 10/ 200731/ 12/ 200729/ 02/ 200830/ 04/ 200830/ 06/ 200831/ 08/ 200831/ 10/ 200831/ 12/ 200828/ 02/ 200930/ 04/ 200930/ 06/ 200931/ 08/ 200931/ 10/ 200931/ 12/ 200928/ 02/ 201030/ 04/ 201030/ 06/ 201031/ 08/ 201031/ 10/ 201031/ 12/ 201028/ 02/ 201130/ 04/ 201130/ 06/ 201131/ 08/ 201131/ 10/ 201131/ 12/ 201129/ 02/ 201230/ 04/ 201230/ 06/ 201231/ 08/ 201231/ 10/ 201231/ 12/ 201228/ 02/ 201330/ 04/ 201330/ 06/ 201331/ 08/ 201331/ 10/ 201331/ 12/ 201328/ 02/ 201430/ 04/ 201430/ 06/ 201431/ 08/ 201431/ 10/ 201431/ 12/ 2014

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Bre

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DP

(%

)

Norway Real GDP yoy Oil Price (Brent)

Implies c€135m of

savings available ...

Swedbank & DNB

impairment

headwinds


26 January 2015 9

Fig 13 Analysis of profits to average loans 2014e


Net Interest Income 1.49% 2.35% 1.59% 1.49% 1.58% 1.72% 1.70% Non Interest Income 1.28% 1.16% 1.25% 1.73% 0.62% 1.23% 1.21% Total Revenue 2.77% 3.51% 2.84% 3.22% 2.20% 2.95% 2.91% Operating Expenses (1.44%) (1.52%) (1.44%) (1.63%) (0.99%) (1.29%) (1.38%) Pre-provision profits 1.33% 1.99% 1.40% 1.60% 1.21% 1.66% 1.53% Provisions (0.18%) (0.12%) (0.16%) (0.10%) (0.08%) (0.04%) (0.11%) Adjusted PBT 1.15% 1.98% 1.25% 1.49% 1.15% 1.63% 1.44%


Fig 14 Analysis of profits to average total assets 2014e


Net Interest Income 0.70% 1.31% 0.86% 0.78% 1.05% 1.21% 0.98% Non Interest Income 0.60% 0.65% 0.68% 0.91% 0.41% 0.87% 0.69% Total Revenue 1.29% 1.96% 1.54% 1.69% 1.47% 2.08% 1.67% Operating Expenses (0.67%) (0.85%) (0.78%) (0.85%) (0.66%) (0.91%) (0.79%) Pre-provision profits 0.62% 1.11% 0.76% 0.84% 0.81% 1.17% 0.88% Provisions (0.08%) (0.07%) (0.09%) (0.05%) (0.06%) (0.03%) (0.06%) Adjusted PBT 0.54% 1.10% 0.68% 0.78% 0.76% 1.15% 0.83%



26 January 2015 10

3. Capital and dividends Key message: Dividend yield is a key attraction of the Nordics. Swedbank delivering a

consistent c6% has been our poster child. We add Nordea today, which is set to

deliver material surplus capital in 2015 matched by a significant increase in dividend

(yield 6%).

Nordic banks have enviably strong capital ratios that benchmark well with any global bank

sector.

It is important to recognise that published ratios for the Swedish banks are overstated by the

regulator’s preference for including higher risk weighting on mortgage assets as a Pillar 2

capital buffer rather than higher risk weighted assets.

However to ensure comparability, we re-state the Swedish ratios including the Pillar 2

mortgage buffer as risk weighted assets (see Fig 15). This has a marked impact on

Swedbank and Handelsbanken in particular. However, both companies maintain ratios well

above minimum requirements.

Fig 15 Analysis of Nordic core tier 1 ratios, Q3 2014

Danske DNB Nordea SEB SHB Swedbank

Core tier 1 capital 120,077 136,042 23,759 96,937 100,287 84,667 Published RWAs (i) 868,470 1,079,701 152,549 598,063 485,263 409,637 Implied Pillar 2 adjustment +0 +0 +8,900 +65,889 +98,000 +129,643 Adjusted RWAs 868,470 1,079,701 161,449 663,952 583,263 539,280 Published core tier 1 (CT1) 13.8% 12.6% 15.6% 16.2% 20.7% 20.7% Pillar 2 adjustment +0.0% +0.0% (0.9%) (1.6%) (3.5%) (5.0%) Adjusted core tier 1 13.8% 12.6% 14.7% 14.6% 17.2% 15.7% Minimum regulatory requirement


(i) Risk weighted assets

The Swedish regulator gave very clear disclosure on minimum capital requirements in the

summer of 2014 (see Fig 16 below). Adjusting for the Pillar 2 buffer requirements (that we

include within risk weighted assets), Swedish banks are required to have minimum core tier 1

ratios of around 14%.

We therefore use 15% as the minimum CET1 ratio for Swedish banks for dividend paying

capacity, assuming a 1% management buffer. Elsewhere we assume a minimum CET 1 of

14.0% for Danske and DNB based on company disclosures.

Strong capital ratios

Pillar 2 capital

requirement ...

Minimum CET1

ratios of 14.0% -

15.0%


26 January 2015 11

Fig 16 Swedish Regulator Minimum CET1 Requirements

Source: Swedish Finansinspektionen, Macquarie Research, January 2015

We have consolidated the above in our capital and dividend forecasts below (see Fig 17).

We have long highlighted Swedbank as a compelling investment proposition given a stable

earnings stream and robust payout ratio offering a 6% yield.

However, as we enter 2015 we would add Nordea to that list. With the adjusted core tier 1

set to comfortably exceed 15.0% this year, we expect to see a further increase in payout ratio

such that the dividend yield 2015e tops the sector at 7%.

13.8% 14.2% 13.9% 14.0% Implied Pillar 2 adj. minimum

Swedbank

Nordea


26 January 2015 12

Fig 17 Nordic bank capital and dividend forecasts

Min 2013 2014e 2015e 2016e 2017e

Danske Core tier 1 14.0% 12.8% 12.8% 13.3% 14.8% 15.7% Dividend per share 2.00 5.10 5.84 6.33 6.55 Pay-out 31% 43% 40% 40% 40% Yield 1.2% 3.0% 3.4% 3.7% 3.8%

DNB Core tier 1 14.0% 11.8% 13.0% 13.8% 14.9% 15.6% Dividend per share 2.70 2.78 2.88 3.11 5.12 Pay-out 25% 23% 25% 25% 40% Yield 2.5% 2.5% 2.6% 2.8% 4.7%

Nordea Core tier 1 15.0% 13.6% 14.8% 15.5% 16.2% 16.5% Dividend per share 0.43 0.47 0.70 0.72 0.74 Pay-out 55% 58% 75% 75% 75% Yield 4.2% 4.6% 6.8% 7.0% 7.3%

SEB Core tier 1 15.0% 14.3% 14.8% 15.0% 15.4% 15.7% Dividend per share 4.0 4.4 5.3 5.5 5.7 Pay-out 61% 60% 70% 70% 70% Yield 3.9% 4.4% 5.3% 5.4% 5.6%

SHB Core tier 1 15.0% 17.3% 17.0% 17.4% 18.0% 18.5% Dividend per share 16.5 15.7 16.6 17.3 17.9 Pay-out 74% 65% 65% 65% 65% Yield 4.4% 4.1% 4.4% 4.6% 4.7%

Swedbank Core tier 1 15.0% 16.1% 15.7% 16.3% 16.8% 17.3% Dividend per share 10.1 11.1 11.7 12.1 12.1 Pay-out 73% 73% 75% 75% 75% Yield 5.2% 5.7% 6.1% 6.3% 6.3%


SEB also offers attractive dividend potential (2015e 5.3%). However, 2015e capital is less

robust than Nordea and with the shares already trading at a premium the potential dividend

yield attractions are c20% below Nordea or Swedbank.

We see little prospect of Danske or DNB materially increasing dividend payout ratios before

2016.

SEB


26 January 2015 13

4. Financial forecasts Key message: We have materially (-9%) reduced our expectations for DNB given the

likely impact of lower oil prices on Norwegian GDP. Nordea forecast to deliver the best

pre-impairment earnings growth in 2015e on materially lower costs.

Adjustments to Macquarie forecasts 2014-2015e

Full details of our financial forecasts for the six Nordic banks covering the period 2014e-

2017e are attached at Appendix B. As we start 2015 we have summarised key changes to

our expectations below (see Fig 18).

Fig 18 Adjusted EPS forecasts 2014e-2015e

2014e 2015e Old New Old New

Danske 12.1 11.7 (2.9%) 13.9 14.6 +5.1% DNB 12.6 12.1 (4.2%) 12.6 11.5 (8.7%) Handelsbanken 24.1 24.1 +0.0% 25.5 25.5 +0.0% Nordea 0.81 0.81 +0.9% 0.93 0.93 (0.2%) SEB 7.24 7.35 +1.5% 7.82 7.62 (2.5%) Swedbank 15.4 15.1 (1.9%) 15.6 15.7 +0.2%


We have made the largest adjustment to DNB expectations, downgrading both 2014e (-4%)

and 2015e (-9%) materially. Lower 2014e expectations primarily reflect what we believe to

have been a very tough trading environment in Q4 for Norwegian banks.

As we go into 2015e we have also made a first stab at likely increased impairments reflecting

the impact on the Norwegian economy of a materially lower oil price (see Fig 12). In

particular, we have increased impairment charge expectations to 25bps of loans (which

compares with a 2009 peak of 35 bps (ex Baltic & Poland)).

Elsewhere we have only made modest adjustments to forecasts. SEB 2015e expectations

are marginally reduced reflecting slightly lower revenue expectations given the more

uncertain environment for the European corporate sector in particular.

The 2015e increase for Danske reflects lower expectations for losses in the Non-core

business. We have not factored in the potential margin impact of the Central bank rate cut

announced on 19 January 2015.

Macquarie forecasts against consensus 2014e-2015e

We have outlined below (Fig 19) details of Macquarie adjusted EPS forecasts for 2014e and

2015e against Bloomberg consensus. We would add a word of caution, particularly with

regard to 2014 expectations, which are significantly distorted in a number of one-off items

which are not always consistently adjusted in consensus.

DNB downgrades

SEB 2015e ...

Danske ...


26 January 2015 14

Fig 19 Macquarie adj. EPS 'v' Consensus


We are broadly comfortable with consensus expectations for Handelsbanken, Nordea and

Swedbank. In contrast, expectations for DNB, Danske and SEB look optimistic to us.

In particular, we do not believe that DNB expectations adequately reflect the impact of lower

oil prices on the Norwegian economy. In the meantime, a slower European economy is likely

to feed through to the corporate franchises of both SEB and Danske – the latter of which will

be impacted by further 2015 margin pressure following January’s rate cut.

Danske

DNB

HandelsbankenNordea

SEB

Swedbank

(8.0%)

(7.0%)

(6.0%)

(5.0%)

(4.0%)

(3.0%)

(2.0%)

(1.0%)

+0.0%

+1.0%

(4.0%) (3.5%) (3.0%) (2.5%) (2.0%) (1.5%) (1.0%) (0.5%) +0.0%

Adj EPS 2015e

Adj EPS 2014e

Handelsbanken,

Nordea and

Swedbank


26 January 2015 15

Financial forecasts 2014e-2016e

Fig 20 Pre-impairment and Adj. EPS growth 2014e-2016e (p.a.)


Danske is forecast to deliver the most robust adjusted EPS growth over the next two years,

by some considerable margin (see Fig 20). However, this is primarily driven by falling

impairments.

When one looks at the more important pre-provision profit progression, Nordea looks set to

top the sector (+8% p.a.), followed by Danske (+7% p.a.) and Swedbank (+6% p.a.). DNB is

set to deliver the lowest growth based on either adjusted EPS or pre-impairment earnings.

Fig 21 Revenue growth 2014e-2016e p.a. (%) Fig 22 Cost growth 2014e-2016e p.a. (%)


Interestingly when one looks at revenue and cost progression (see Figs 21 & 22) the key

driver of better pre-impairment earnings performance is costs rather than revenue.

Revenue growth for the sector is set to average +3% per annum, with only Handelsbanken

(+4.2% p.a. – incl. UK growth) and DNB (1.5% p.a. – slowing Norway) materially divergent.

In contrast, those banks forecast to deliver the best earnings growth are those forecast to

deliver premium cost performance – Nordea (-3% p.a.), Swedbank (-2% p.a.) and Danske (-

2% p.a.).

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

DNB SEB SHB Swedbank Danske Nordea

Gro

wth

2014e-2

016e p

.a. (

%)

Pre-impairment profit Adj. EPS

+0%

+1%

+2%

+3%

+4%

DN

B

Sw

ed

ban

k

No

rdea

Dan

ske

SE

B

SH

B

(3%)

(2%)

(1%)

+0%

+1%

+2%

+3%

No

rdea

Sw

ed

ban

k

Dan

ske

DN

B

SE

B

SH

B

Danske adj. EPS

Nordea pre-

impairment

Revenue growth

Cost targets ...


26 January 2015 16

All three banks have stated cost targets (see Fig 23). We particularly highlight the Nordea

programme which is forecast to deliver a cost progression in 2015 of -5% (at constant

currency, -7% stated). As we detail in Section 2 we are increasingly confident that they will

deliver on the programme ensuring a progressive improvement in profitability.

Fig 23 Nordic Bank cost targets

Bank Cost Target

Danske Nominal costs to be kept below DKK 23bn in the year 2015 DNB Underlying nominal costs are expected to be stable in the period up to 2016, and the

cost/income ratio will remain highly competitive Handelsbanken Most cost effective bank – The profitability goal will partly be achieved by having higher

cost-effectiveness than peer banks Nordea A 5% lower cost base in 2015 vs.2013 initiatives for cost savings of approximately EUR 900

million SEB The cost cap will be kept at SEK 22.5bn per year until 2015 through continued efficiency

improvements. Swedbank To lower total expenses for 2016 towards SEK 16bn

Source: Company Reports, Macquarie Research, January 2015


26 January 2015 17

5. Volumes and margins Key message: Volume growth remains remarkably robust in Sweden and Norway. We see risks to the latter. In the meantime pricing remains robust across the Nordic region, although it is clear that lower rates in all three main markets will / is feeding through to margins.

Fig 24 Personal sector volume growth - yoy % Fig 25 Corporate sector volume growth – yoy %

Source: Statistics Sweden, Norges, Danmarks Nationalbank, Macquarie Research, January 2015

* Series break

Source: Statistics Sweden, Norges, Danmarks Nationalbank, Macquarie Research, January 2015

We have detailed volume growth of the three principal Nordic countries above. Sweden

continues to offer the best dynamics with modestly improving Personal sector volumes (+6%)

and a Corporate sector that is also modestly positive (+4%). Whilst neither of these would

have earned you pre-crisis bragging rights, in the current European environment both levels

benchmark to towards the top end of the European sector.

The Swedish regulator is working hard to control consumer volumes / house prices through

limits on lending / amortisation requirements. In particular, all “new” mortgages at must be

amortised by at least 2% a year down to 70% LTV and then a minimum of 1% per year down

to 50% LTV.

However, we understand that for most banks the bulk of higher LTV mortgages amortise

already (c80-90%) and with interest rates cut to 0% in October (persistently weak inflation), it

is difficult to see material volume slowdown near term.

Norwegian volumes remain equally robust. In contrast, however, with the economy likely to

slow markedly in response to the oil price slide we would expect volume to slow markedly

during the course of the year, particularly in the Corporate sector.

We see little prospect of volume pick up in Denmark. The Personal sector in particular is the

most highly geared in Europe (Debt to GDP c120%) offering little prospect of better than GDP

progression.

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

01/01/2006 01/01/2008 01/01/2010 01/01/2012 01/01/2014


*

(10%)

(5%)

+0%

+5%

+10%

+15%

+20%

+25%

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14


Sweden

Swedish mortgage

restrictions

Norwegian volumes

Denmark


26 January 2015 18

Fig 26 Nordic region - Indexed property prices

Source: Statistics Sweden, NEF, Statistics Denmark, Macquarie Research, January 2015

Similar themes are reflected in local house price progression. Danish prices are broadly flat

whilst Norway and Sweden are more buoyant.

As already highlighted, the Swedish regulator is particularly concerned by house prices that

currently are still growing at c10% year on year. However, with interest rates recently cut to

0% and approximately 2/3rds of mortgages priced off 3mth rolling rates, we do not expect to

see a sharp correction near term.

Again, we would be more concerned by Norway (economic implications) or Denmark (where

the most recent data does suggest something of a downturn).

Fig 27 Retail spread analysis (%) Fig 28 Corporate spread analysis (%)

Source: Statistics Sweden, Danish National Bank, Statistics Norway, Macquarie Research, January 2015

Source: Statistics Sweden, Danish National Bank, Statistics Norway, Macquarie Research, January 2015

80

90

100

110

120

130

140

150

160

170

180

Q1 2005

Q4 2005

Q3 2006

Q2 2007

Q1 2008

Q4 2008

Q3 2009

Q2 2010

Q1 2011

Q4 2011

Q3 2012

Q2 2013

Q1 2014

Q4 2014

DK NO SD

1.80

2.30

2.80

3.30

3.80

4.30

De

c-0

5

Ju

n-0

6

De

c-0

6

Ju

n-0

7

De

c-0

7

Ju

n-0

8

De

c-0

8

Ju

n-0

9

De

c-0

9

Ju

n-1

0

De

c-1

0

Ju

n-1

1

De

c-1

1

Ju

n-1

2

De

c-1

2

Ju

n-1

3

De

c-1

3

Ju

n-1

4


1.50

1.70

1.90

2.10

2.30

2.50

2.70

2.90

De

c-0

5

Ju

n-0

6

De

c-0

6

Ju

n-0

7

De

c-0

7

Ju

n-0

8

De

c-0

8

Ju

n-0

9

De

c-0

9

Ju

n-1

0

De

c-1

0

Ju

n-1

1

De

c-1

1

Ju

n-1

2

De

c-1

2

Ju

n-1

3

De

c-1

3

Ju

n-1

4


House prices ...

Sweden ...


26 January 2015 19

Danish and Norwegian margins have remained broadly flat in Q4 across both the Retail and

Corporate loan books.

In contrast, margin pressure in the Swedish Retail market has continued during Q4. This is

disappointing against our expectations for margins widening as mortgages re-priced on the

back of higher Pillar 2 risk weightings. However, whilst asset margins did widen over the

quarter, this was more than offset by the impact of the Central bank rate cut (to zero) at the

end of October on deposit spreads.

Norway did not cut interest rates (by 25bps to 1.25%) until 11 December 2014, whilst

Denmark cut its main deposit and lending rates on 19 January 2015. Neither will have a

material impact on spreads until Q1 2015.

Denmark and

Norway flat margins

Swedish Retail

margin pressure


26 January 2015 20

6. Economic background Key message: We are most confident on the outlook for Sweden. Deflation is a very

real risk, but underlying GDP growth remains robust. In contrast, there is clear

downside risk to Norwegian consensus growth expectations which we still do not

believe reflect the impact of lower oil prices.

Whilst the economic problems for core European markets grow, the outlook for the principal

Nordic countries is not without challenges.

As we look into 2015, Sweden remains best placed in our opinion, with consensus for Real

GDP growth of 2.4% (see Fig 29 below) - marginally down on previous expectations but still

comfortably ahead of the +1.9% forecast for this year.

Fig 29 Real GDP 2015e - Analysis of forecast and momentum

Source: Bloomberg consensus, Macquarie Research, January 2015

(i) Change since 30 September 2014

We do not believe that the downside risks to Norway are fully reflected in current

expectations. Whilst consensus is still looking at Real GDP growth of +2.1% for 2015e we

suspect that this fails to reflect the very marked fall in global oil prices – Brent crude is

currently trading below $50 a barrel, compared with a peak of over $110 as recently as June

2014.

The oil and gas sector directly accounts for approximately 22% of Norwegian GDP –

considerably more if related business was to be included. As we highlight in Fig 30 this

results in a good correlation between oil prices and Norwegian GDP.

Czech RepHungary

Romania

Russia

Ukraine

DenmarkFinland

NorwaySweden

France

Germany

UK US

Ireland

Latvia

Estonia

Brazil

Lithuania

(3.0%)

(2.5%)

(2.0%)

(1.5%)

(1.0%)

(0.5%)

+0.0%

+0.5%

+1.0%

(2.5%) (1.5%) (0.5%) +0.5% +1.5% +2.5% +3.5%

Momentum (i)

Forecast 2015e

Japan

Sweden robust

Norway


26 January 2015 21

Fig 30 Norwegian Real GDP growth (%) against Oil prices


The last time Norway saw a similar fall off in oil prices was 2008. Clearly this was in the

depths of the global financial crisis which is likely to have exacerbated any slowdown, but did

result in Real GDP falling a cumulative -4.3%. Against that backdrop, expecting positive Real

GDP progression in 2015 for Norway looks ambitious.

The principal challenge to Sweden remains inflation, which was running at -0.2% into the end

of 2014. 0% central bank rates are expected to generate a modest improvement in 2015 to

+0.7% (see Fig 31).

Fig 31 Inflation 2015e - Analysis of forecast and momentum

Source: Bloomberg consensus, Macquarie Research, January 2015

(i) Change since 30 September 2014 (ii) Ukraine inflation +15% / 3mth momentum +4%; Russia +9% / 3mth momentum +2%

29/ 12/ 200628/ 02/ 200730/ 04/ 200730/ 06/ 200731/ 08/ 200731/ 10/ 200731/ 12/ 200729/ 02/ 200830/ 04/ 200830/ 06/ 200831/ 08/ 200831/ 10/ 200831/ 12/ 200828/ 02/ 200930/ 04/ 200930/ 06/ 200931/ 08/ 200931/ 10/ 200931/ 12/ 200928/ 02/ 201030/ 04/ 201030/ 06/ 201031/ 08/ 201031/ 10/ 201031/ 12/ 201028/ 02/ 201130/ 04/ 201130/ 06/ 201131/ 08/ 201131/ 10/ 201131/ 12/ 201129/ 02/ 201230/ 04/ 201230/ 06/ 201231/ 08/ 201231/ 10/ 201231/ 12/ 201228/ 02/ 201330/ 04/ 201330/ 06/ 201331/ 08/ 201331/ 10/ 201331/ 12/ 201328/ 02/ 201430/ 04/ 201430/ 06/ 201431/ 08/ 201431/ 10/ 201431/ 12/ 2014

20

40

60

80

100

120

140

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

01/11/2006 01/05/2008 01/11/2009 01/05/2011 01/11/2012 01/05/2014

Bre

nt O

il P

rice ($)

No

rway R

eal G

DP

(%

)

Norway Real GDP yoy Oil Price (Brent)

Latvia

Hungary

Romania

Denmark

Finland

Norway

Sweden

France

Germany UK

US

Ireland Estonia

Lithuania

(0.9%)

(0.8%)

(0.7%)

(0.6%)

(0.5%)

(0.4%)

(0.3%)

(0.2%)

(0.1%)

+0.0%

+0.1%

+0.5% +1.0% +1.5% +2.0% +2.5%

Momentum (i)

Forecast 2015


26 January 2015 22

7. Valuation Key message: Dividend yield (see Section 2) still remains the most compelling

investment theme. We prefer Nordea (7%) and Swedbank (6%). DNB is the cheapest

Nordic bank, but with a cycle of earnings downgrades on the back of lower oil prices

yet to be fully reflected in earnings we remain cautious.

Our valuation of the six Nordic banks is detailed above (see Fig 32). Macquarie banks

valuation is based on estimated sustainable returns applied to 2016 tangible book value

adjusted for surplus capital (valued at par). We have summarised the key changes below:-

Fig 33 Nordic Bank - Macquarie normalised ROTE valuations

Rec Target Old New Old New Chge Comments

Danske U U 160 162 +1.3% Discount roll forward DNB U U 110 104 (5.5%) Earnings downgrade / Lower profitability SHB N N 330 380 +15.2% Discount roll forward + COE to 9.5% (v 10.0%) Nordea N O 91 103 +13.2% Discount roll forward + COE to 9.5% (v 10.0%) SEB O N 97 100 +3.1% Discount roll forward Swedbank O O 200 201 +0.5% Discount roll forward + modest fct changes


Fig 32 Nordic Bank - Macquarie normalised ROTE valuations

Danske DNB Nordea SEB SHB1 Swedbank

Tangible book per share 2016e 152 111 7.5 60.8 197.0 101.8

Core tier 1 Basel 3 14.8% 14.9% 16.2% 15.4% 18.0% 16.8%

Minimum core tier 1 14.0% 14.0% 15.0% 15.0% 15.0% 15.0%

Surplus/ deficit per share 7.4 6.2 0.49 1.2 29.6 9.4

Normalised tang. NAV per share 144.3 105.2 7.0 59.6 167.0 92.4

Forecast ROTE 2016e 10.8% 11.7% 13.1% 13.2% 13.9% 16.2%

Normalised sustainable ROTE 10.0% 10.0% 13.0% 14.0% 16.0% 17.0% COE 9.5% 11.0% 10.0% 10.0% 9.5% 9.5%

Sustainable growth 0% 0% 0% 2% 3% 1%

Discounted to end 2015e

Core business value 138.7 90.7 8.8 85.0 305 159.0 Surplus/ (Deficit) CT1 2016e 6.7 6.2 0.5 1.1 27 8.4

Sub-total 145.4 96.9 9.2 86.1 332 167.3

Dividends 2015/16e 16.7 8.5 1.8 14.8 48 33.9

Other (1.7) (0.3)

Target Price DKK 162 NOK 104 SEK 103 SEK 100 SEK 380 SEK 201

Current Share Price DKK 172 NOK 109 SEK 95 SEK 101 SEK 379 SEK 193

Upside to TP -5.4% -5.2% +8.1% +0.7% +0.2% +4.3%

Risk weighted assets 887,963 1,159,969 166,666 716,929 522,787 563,424

No. Of shares 1,000 1,629 4050 2,194 636 1,097

Source: Company data, Macquarie Research, January 2015 1 Svenska Handlesbanken


26 January 2015 23

Profitability

We remain comfortable with the premium return profile of Swedbank, which reflects the heavy

weighting towards Swedish Retail and the strong related fee generation (asset management,

payments and Cards). This justifies a material premium valuation.

We are less convinced by Handelsbanken. Superior profitability is evident but this appears to

be driven more by lower risk weighting then business mix. No-one would bet against the

remarkable track record of the company, but we struggle to see why similar business appears

to attract lower risk weighting per margin at Handelsbanken against peers.

DNB and Danske remain the least profitable Nordic bank franchises. With interest rates cut

in December and January for Norway and Denmark respectively, and oil price weakness yet

to fully flow through to the Norwegian economy it is challenging to see material recovery from

either bank.

The superior profitability dynamics of the Nordic banks are clear from the sector analysis

above (see Fig 34). Nordea in particular stands out as offering similar return characteristics

to SEB and Handelsbanken in 2016 (including -7% costs in 2015) and yet is trading at a

marked discount. There are risks around Russian exposure in particular, but we upgrade the

shares to Outperform.

Fig 34 Profitability (ROTE16e) against PTBV15e


BNPACA

SG

ING

KBC

CBK

BKIR

EBS

RBI

CS

DBK

UBSISP

UCG

DANSKE

DNB

SHBA

NDA

SEBA

SWEDA

BCP

BPI

BKT

POP

SAB

BBVA

SAN

BARC

LLOY

RBS

HSBA

STAN

OSB

0.00x

0.50x

1.00x

1.50x

2.00x

3.0% 5.0% 7.0% 9.0% 11.0% 13.0% 15.0% 17.0% 19.0% 21.0% 23.0%

Pri

ce t

o t

angi

ble

bo

ok

20

15

E

ROTE 2016E

Swedbank

Handelsbanken

DNB and Danske

Nordea


26 January 2015 24

Prospective price earnings 2015e and 2016e

We have detailed a table of prospective price earnings ratios for European banks below (Fig

35).

Fig 35 European Bank prospective P/E ratios 2015e & 2016e

Company Curr Price EPS EPS PE PE 2015e 2016e 2015e 2016e

1 Raiffeisen Euros 11.3 345.2 366.8 3.3x 3.1x 2 Credit Suisse CHF 19.7 324.0 349.4 6.1x 5.6x 3 Deutsche Bank Euros 26.3 374.1 427.3 7.0x 6.2x 4 SocGen Euros 38.1 501.2 548.7 7.6x 6.9x 5 OneSavings GBP 2.1 22.9 27.4 9.1x 7.6x 6 BPI Euros 1.0 9.9 12.4 9.7x 7.8x 7 UBS CHF 14.9 173.9 191.0 8.6x 7.8x 8 Barclays GBP 2.4 26.2 30.9 9.3x 7.9x 9 BNP Paribas Euros 49.4 573.8 600.0 8.6x 8.2x 10 Erste Group Euros 20.3 216.6 241.7 9.4x 8.4x 11 St Chartered USD 14.4 161.1 170.5 8.9x 8.4x 12 Credit Agricole Euros 11.4 120.4 134.1 9.5x 8.5x 13 BCP Euros 0.1 0.6 0.8 11.9x 8.8x 14 DnB NOR NKr 109.3 1,153 1,243 9.5x 8.8x 15 UniCredit Euros 5.7 54.6 63.0 10.5x 9.1x 16 BBVA Euros 8.0 62.3 84.6 12.8x 9.4x 17 Lloyds GBP 0.8 8.1 7.9 9.4x 9.6x 18 Commerzbank Euros 11.5 94.8 117.6 12.1x 9.7x 19 HSBC USD 9.4 88.9 95.5 10.5x 9.8x 20 KBC Euros 49.2 441.9 491.1 11.1x 10.0x 21 ING Euros 11.6 101.3 115.4 11.5x 10.1x 22 Nordea SKr 10.2 93.7 96.5 11.0x 10.7x 23 Danske Bank DKr 171.5 14.6 15.8 11.8x 10.9x 24 Santander Euros 6.1 48.7 52.9 12.6x 11.6x 25 Swedbank SKr 192.8 1,566.3 1,616.1 12.3x 11.9x 26 Bank of Ireland Euros 0.3 1.4 2.5 21.7x 12.1x 27 Intesa Sanpaolo Euros 2.6 16.1 20.8 16.2x 12.5x 28 SEB SKr 101.3 762.4 787.5 13.3x 12.9x 29 Popular Euros 4.2 23.9 31.9 17.3x 13.0x 30 Sabadell Euros 2.4 14.4 17.9 17.0x 13.7x 31 Handelsbanken SKr 379.2 2,548 2,667 14.9x 14.2x 32 RBS Core GBP 3.9 34.8 23.3 11.1x 16.6x 33 Bankinter Euros 6.9 40.7 40.8 17.0x 16.9x Unweighted average 11.3x 10.0x


The European Bank sector trades on an average 10x prospective 2016 estimated earnings.

Given their resilient business models, robust capital and high payout ratios it is unsurprising

that the Nordic banks generally trade at a premium to the peer group.

The exception is DNB on just under 9x prospective 2016 earnings. However, we do not see

this as a buying opportunity. With oil price weakness looking to continue near term it is

difficult to have confidence that we will not see further downgrades.

Elsewhere Nordea is the cheapest of the Nordic banks trading on less than 11x prospective

2016 earnings. This is likely to reflect, amongst other things, the risk associated with the

Russian operation (c€160m profits (c4%); €6.6bn lending (2% of loans)). However, with a

market leading cost programme in 2015 and expectations for a 70% payout ratio, we upgrade

the shares to Outperform.

Nordic bank

premium PEs ...

DNB exception

Nordea cheapest


26 January 2015 25

Capital generation / Dividend

Nordic markets are not growth markets (albeit it remains the only region in Europe to deliver

any visible volume growth in both the Personal and Corporate sectors). With that in mind, the

ability of banks to generate surplus capital and pay it to investors is core to the investment

proposition.

Fig 36 Analysis of capital generation 2014e to 2016e Fig 37 Surplus cap. generation 2014-16e v PTBV15e


We have highlighted in Fig 36 details of the capital we expect to be generated by the sector

over the period 2014-2016e, analysed between growth in tangible book; dividends; and repair

of capital ratios.

Handelsbanken and Swedbank continue to generate the most surplus capital over the next

couple of years, equivalent to almost 40% of tangible book value. This is a direct reflection of

their superior profitability. Swedbank continues to pay the vast bulk of this back to investors,

whilst Handelsbanken retains a greater proportion to support growth (UK, etc).

SEB and Nordea are forecast to generate surplus capital equivalent to marginally below 30%

of tangible book, with a modest amount required to repair opening core tier 1 ratios.

DNB and Danske both bring up the rear reflecting their weaker profitability and on-going

capital shortfall against required minima at the end of 2014.

Comparing the surplus capital generation 2014-2016e with current price to 2015e tangible

book ratios (see Fig 37) highlights both DNB and Nordea trading at a discount. Whilst we

acknowledge DNB does look cheap against fundamentals the level of uncertainty around the

oil price / Norway outlook leaves us comfortable retaining our conviction short position.

In the case of Nordea, Russia / Finland (14% loans) are clearly risks. However, we

understand that the bulk of the Russian exposure is to major international corporates and

approximately 70% of lending exposure is in USD. Management do not currently expect to

see material write-downs.

We have outlined in section 3 our expectations for dividends in the coming years.

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

SHB Swedbank SEB Nordea DnB Danske Bank

NTA Growth (% 2016e/14e)

Total Div (% of NTA14e)

Surplus/deficit CT1B3 2014 Swedbank

SHB

SEB

Nordea

DnB

Danske Bank

0.90x

1.10x

1.30x

1.50x

1.70x

1.90x

2.10x

10% 15% 20% 25% 30% 35% 40%

Price to tangible 15e

Surplus capital generation

Surplus capital

generation ...

SEB and Nordea

Handelsbanken and

Swedbank

DNB and Danske

Nordea, Russia /

Finland


26 January 2015 26

8. Conclusion

The Nordic banks remain a safe haven for investors in a remarkably difficult European

banking environment. The economies of the region are not immune from challenges but the

banks are well capitalised, profitable and despite deflationary pressures, volumes continue to

build steadily.

Finally, in the ultra low interest rate environment in which we find ourselves any stocks that

deliver yields of 5-7% are attractive by definition.

We have modestly altered our preferences for 2015 to reflect the individual circumstances of

2015 but remain fundamentally positive on Sweden in particular.


26 January 2015 27

Appendices

Appendix A

European Bank Sector Valuation Statistics **

Source: FactSet, Macquarie Research, January 2015, Prices as of 22 January 2015

*Macq. adjusted returns (excl. exceptionals)

** NOTE REC & TP CHANGES NOT REFLECTED IN ABOVE TABLE

Rec Target Old New Old New Chge Comments

Danske U U 160 162 +1.3% Discount roll forward DNB U U 110 104 (5.5%) Earnings downgrade / Lower profitability SHB N N 330 380 +15.2% Discount roll forward + COE to 9.5% (v 10.0%) Nordea N O 91 103 +13.2% Discount roll forward + COE to 9.5% (v 10.0%) SEB O N 97 100 +3.1% Discount roll forward Swedbank O O 200 201 +0.5% Discount roll forward + modest fct changes Standard Chartered 1100p 950p (13.6%) See Asian Banks - Commodity Finance Risk


Local Currency Ticker Rtg Share Target Mcap

Price Price (EURMn) 15e 16e 15e 16e 15e 16e 15e 16e 15e 16e 15e 16e

Benelux & France 182,080 4.9x 4.6x 9.4x 8.7x 0.99x 0.92x 8.3% 8.4% 10.9% 10.9% 4.3% 4.6%

BNP Paribas BNP FP N 49.40 55.00 11% 59,181 4.1x 3.9x 8.6x 8.2x 0.92x 0.86x 8.1% 8.1% 11.0% 10.8% 4.5% 5.1%

Credit Agricole ACA FP O 11.43 13.50 18% 28,278 5.3x 4.9x 8.9x 7.9x 0.87x 0.81x 6.4% 6.9% 10.2% 10.7% 5.2% 6.1%

ING INGA NA O 11.60 13.00 12% 44,757 6.2x 5.8x 11.2x 10.4x 1.05x 0.99x 8.0% 8.1% 9.9% 9.8% 2.7% 3.4%

KBC KBC BB U 49.18 33.50 -32% 20,546 6.1x 5.8x 11.1x 10.0x 1.61x 1.48x 14.1% 14.1% 15.6% 15.4% 4.1% 0.0%

SocGen GLE FP O 38.08 48.00 26% 29,318 3.2x 3.0x 7.6x 6.9x 0.70x 0.66x 6.8% 7.2% 9.5% 9.7% 5.8% 7.2%

CEE 12,055 2.3x 2.2x 7.7x 7.0x 0.81x 0.75x 8.9% 9.2% 10.8% 11.0% 4.3% 4.7%

Erste Group EBS AV N 20.35 21.00 3% 8,744 2.6x 2.5x 9.4x 8.4x 0.99x 0.92x 8.9% 9.3% 11.0% 11.3% 2.2% 2.5%

Raiffeisen RBI AV N 11.30 33.00 192% 3,311 1.4x 1.4x 3.3x 3.1x 0.32x 0.30x 9.0% 8.9% 10.1% 10.0% 9.7% 10.6%

Germany 49,297 5.1x 4.2x 8.4x 7.1x 0.63x 0.60x 6.8% 7.7% 8.4% 9.2% 3.7% 4.7%

Commerzbank CBK GR O 11.45 14.50 27% 13,036 4.9x 4.5x 12.1x 9.7x 0.54x 0.52x 4.0% 4.8% 4.5% 5.5% 3.5% 5.2%

Deutsche Bank DBK GR N 26.29 28.00 7% 36,261 5.2x 4.1x 7.0x 6.2x 0.67x 0.62x 7.8% 8.7% 9.7% 10.5% 3.8% 4.6%

Italy 76,564 4.4x 4.2x 13.4x 11.0x 0.94x 0.91x 6.1% 7.1% 7.2% 8.3% 3.8% 5.5%

Intesa Sanpaolo ISP IM U 2.61 2.15 -18% 42,860 5.1x 4.9x 15.1x 12.3x 1.11x 1.08x 6.3% 7.6% 7.5% 8.9% 4.6% 6.9%

UniCredit UCG IM O 5.75 6.80 18% 33,704 3.5x 3.2x 11.1x 9.5x 0.73x 0.69x 5.8% 6.5% 6.7% 7.5% 2.8% 3.9%

Nordics 157,783 8.5x 8.2x 12.0x 11.5x 1.53x 1.45x 12.0% 11.9% 13.3% 13.0% 4.8% 4.8%

Danske Bank DANSKE DC U 171.50 160.00 -7% 23,243 7.7x 7.5x 12.4x 11.3x 1.14x 1.07x 8.3% 8.6% 9.5% 9.8% 3.2% 3.5%

DnB ASA DNB NO U 109.30 110.00 1% 20,423 6.0x 5.9x 8.7x 8.4x 1.06x 0.97x 12.4% 11.6% 12.9% 12.0% 2.9% 3.0%

Handelsbanken SHBA SS N 379.20 330.00 -13% 25,763 10.8x 10.3x 14.9x 14.2x 1.97x 1.87x 12.7% 12.7% 13.8% 13.5% 4.4% 4.6%

Nordea NDA SS N 95.25 91.00 -4% 41,251 7.7x 7.7x 11.0x 10.6x 1.32x 1.26x 11.8% 11.6% 13.2% 12.9% 6.4% 5.6%

SEB SEBA SS O 101.30 97.00 -4% 23,766 9.7x 9.3x 12.2x 12.5x 1.74x 1.65x 12.5% 12.3% 13.8% 13.5% 4.6% 4.7%

Sw edbank SWEDA SS O 192.80 200.00 4% 23,339 9.1x 8.7x 12.9x 12.0x 1.99x 1.89x 14.5% 14.4% 16.4% 16.2% 6.1% 6.3%

Portugal 5,293 3.2x 3.0x 11.3x 8.5x 0.76x 0.70x 6.6% 8.2% 6.9% 8.5% 0.0% 1.7%

BCP BCP PL N 0.07 0.08 12% 3,886 3.3x 3.1x 11.9x 8.8x 0.82x 0.75x 6.8% 8.5% 7.1% 8.9% 0.0% 0.0%

BPI BPI PL U 0.97 1.25 29% 1,407 3.0x 2.8x 9.7x 7.8x 0.59x 0.57x 6.2% 7.4% 6.2% 7.4% 0.0% 6.4%

Spain 158,970 4.1x 4.1x 13.3x 11.3x 1.27x 1.20x 7.3% 8.3% 10.2% 11.0% 3.2% 3.7%

Bankinter BKT SM U 6.92 4.50 -35% 6,217 7.5x 8.3x 16.5x 16.8x 1.75x 1.66x 10.1% 9.4% 10.9% 10.2% 3.0% 3.0%

BBVA BBVA SM U 7.98 8.20 3% 49,656 4.2x 3.9x 12.8x 9.4x 1.18x 1.10x 7.8% 10.0% 9.4% 12.0% 3.6% 4.2%

Popular POP SM U 4.15 3.90 -6% 8,755 4.4x 4.4x 17.3x 13.0x 0.87x 0.85x 4.0% 5.2% 5.1% 6.6% 2.4% 3.8%

Sabadell SAB SM O 2.45 2.25 -8% 9,856 6.1x 6.0x 17.0x 13.7x 1.03x 1.00x 5.4% 6.5% 6.2% 7.4% 1.8% 3.6%

Santander SAN SM U 6.12 5.90 -4% 84,485 3.6x 3.8x 12.6x 11.6x 1.36x 1.28x 7.4% 7.7% 11.5% 11.4% 3.2% 3.5%

Switzerland 89,542 8.5x 5.7x 7.7x 7.0x 1.08x 1.01x 12.1% 12.5% 14.5% 14.7% 4.7% 7.9%

Credit Suisse CSGN VX U 19.72 25.00 27% 31,895 4.1x 3.9x 6.1x 5.6x 0.79x 0.73x 11.2% 11.2% 13.6% 13.4% 3.5% 7.6%

UBS UBSN VX O 14.90 19.50 31% 57,648 10.9x 6.7x 8.6x 7.8x 1.25x 1.16x 12.6% 13.2% 14.9% 15.4% 5.4% 8.1%

UK 370,041 6.0x 5.8x 10.1x 9.6x 1.08x 1.03x 9.4% 9.4% 11.2% 11.1% 4.1% 4.6%

Barclays BARC LN O 2.43 2.65 9% 53,062 4.2x 3.7x 9.3x 7.9x 0.80x 0.75x 7.6% 8.5% 8.9% 9.8% 2.7% 4.7%

Lloyds LLOY LN U 0.76 0.66 -13% 71,428 6.0x 6.1x 9.4x 9.6x 1.35x 1.27x 13.5% 12.4% 14.9% 13.7% 4.1% 4.6%

RBS RBS LN U 3.86 3.40 -12% 56,248 7.2x 7.3x 11.2x 11.7x 0.92x 0.89x 6.7% 6.2% 8.5% 7.7% 0.0% 0.0%

HSBC HSBA LN O 6.20 6.80 10% 157,507 6.6x 6.3x 10.5x 9.8x 1.17x 1.12x 9.1% 9.4% 11.4% 11.7% 5.8% 6.0%

St Chartered STAN LN N 9.53 11.00 15% 31,131 4.2x 4.0x 7.7x 7.2x 0.82x 0.78x 9.6% 9.8% 11.0% 11.1% 6.1% 6.2%

OneSavings OSB LN O 2.07 2.40 16% 666 8.6x 7.3x 81.1x 68.2x 1.88x 1.56x 23.7% 23.2% 23.9% 23.4% 1.9% 2.3%

Ireland 9,903 7.3x 6.3x - 11.0x 1.35x 1.20x 6.6% 10.2% 8.2% 11.5% 0.0% 0.0%

Bank of Ireland BKIR ID O 0.31 0.34 11% 9,903 7.3x 6.3x 17.3x 11.0x 1.35x 1.20x 6.6% 10.2% 8.2% 11.5% 0.0% 0.0%

All Regions 1,101,626 5.9x 5.5x 10.7x 9.7x 1.12x 1.06x 9.1% 9.4% 11.1% 11.3% 4.1% 4.8%

Div YieldROTE*+/-

Pre-Prov P/E Adj. P/E P/TBV ROE*


26 January 2015 28

Nordic Bank Financial Forecasts Appendix B

Appendix B(i) – Danske financial forecasts 2013-2017e

Source: Company data, Macquarie Research, January 2015

Recommendation - U

Fair Value - DKK 162.0

Price - DKK 172

P&L account (DKKm) 2013 2014e 2015e 2016e 2017e 2014e 2015e 2016e 2017e

Net interest income 22,077 23,238 23,934 24,362 24,836 +5% +3% +2% +2%

Other income 17,663 19,935 20,329 21,051 21,859 +13% +2% +4% +4%

Operating income 39,740 43,173 44,262 45,413 46,696 +9% +3% +3% +3%

Operating costs (24,343) (22,476) (21,655) (21,620) (22,018) (8%) (4%) (%) +2%

Operating profit 15,397 20,696 22,607 23,794 24,678 +34% +9% +5% +4%

Provisions (4,187) (2,766) (2,643) (2,726) (3,249) (34%) (4%) +3% +19%

Other 0 0 0 0 0 na na na na

Adjusted profit before tax 11,210 17,930 19,964 21,068 21,428 +60% +11% +6% +2%

Exceptionals & other items 0 (8,000) 0 0 0 na (100%) na na

PBT, Core 11,210 9,930 19,964 21,068 21,428 (11%) na +6% +2%

PBT, Non-core (1,777) (1,831) (241) (66) (8) +3% (87%) (72%) (87%)

Profit before tax 9,433 8,099 19,724 21,001 21,420 (14%) na +6% +2%

Tax (2,944) (4,104) (4,791) (4,846) (4,714) +39% +17% +1% (3%)

Minorities 0 (243) (324) (324) (324) na +33% 0% 0%

Net income 6,489 3,752 14,608 15,832 16,382 (42%) na +8% +3%

Balance sheet (DKKm) 2013 2014e 2015e 2016e 2017e 2014e 2015e 2016e 2017e

Loans to Customers 1,536,772 1,585,220 1,667,888 1,609,440 1,637,507 +3% +5% (4%) +2%

Goodwill 20,641 20,480 20,480 20,480 20,480 (1%) 0% 0% 0%

Total assets 3,227,057 3,452,951 3,633,019 3,505,707 3,566,842 +7% +5% (4%) +2%

Risk Weighted Assets 897,768 874,601 920,210 887,963 903,448 (3%) +5% (4%) +2%

Customer deposits 776,412 756,505 515,630 805,109 833,447 (3%) (32%) +56% +4%

Shareholders equity 145,657 152,521 162,225 172,213 182,262 +5% +6% +6% +6%

Per share data (DKK) 2013 2014e 2015e 2016e 2017e 2014e 2015e 2016e 2017e

EPS reported 6.48 3.75 14.60 15.83 16.37 (42%) na +8% +3%

EPS adjusted 6.48 11.75 14.60 15.83 16.37 +81% +24% +8% +3%

DPS 2.00 5.10 5.84 6.33 6.55 na +15% +8% +3%

BVPS 146 152 162 172 182 +5% +6% +6% +6%

TBVPS 125 132 142 152 162 +6% +7% +7% +7%

Number of shares (year end) (m) 1,000 1,000 1,000 1,000 1,000 0% 0% 0% 0%

Ratios 2013 2014e 2015e 2016e 2017e

Profitability

NIM 1.31% 1.40% 1.45% 1.43% 1.51%

Cost income ratio 61% 52% 49% 48% -47%

LLC/loans (bp) 26bps 18bps 16bps 17bps 20bps

Tax rate 31% 24% 24% 23% 22%

ROE 4.6% 2.5% 9.3% 9.5% 9.2%

ROTE 5.4% 2.9% 10.7% 10.8% 10.5%

RORWA 0.78% 0.42% 1.65% 1.75% 1.83%

ROA 0.19% 0.11% 0.41% 0.44% 0.46%

Leverage - Basel 3 3.3% 3.1% 3.2% 3.6% 3.8%

Core Tier 1 - Basel 3 fully loaded 12.8% 12.8% 13.3% 14.8% 15.7%

Loans / Deposits 198% 210% 323% 200% 196%

Loans / Assets 48% 46% 46% 46% 46%

Equity / Assets 4.5% 4.4% 4.5% 4.9% 5.1%

Price multiples

P/E Adjusted 26.5x 14.6x 11.7x 10.8x 10.5x

P/BV 1.18x 1.12x 1.06x 1.00x 0.94x

P/TBV 1.37x 1.30x 1.21x 1.13x 1.06x

Div yield 1.2% 3.0% 3.4% 3.7% 3.8%

Dividend cover 3.2x 0.7x 2.5x 2.5x 2.5x

Divisions (DKKm) 2013 2014e 2015e 2016e 2017e 2014e 2015e 2016e 2017e

Revenues

Personal Banking 16,524 16,653 17,155 17,625 18,169 +1% +3% +3% +3%

Business Banking 12,105 12,219 12,599 12,920 13,258 +1% +3% +3% +3%

Corp & Ins. 8,435 9,412 9,735 9,963 10,232 +12% +3% +2% +3%

Capital 2,164 2,322 2,392 2,464 2,537 +7% +3% +3% +3%

Non-Core 385 231 289 165 83 (40%) +25% (43%) (50%)

Other 127 2,335 2,092 2,276 2,417 na (10%) +9% +6%

Total 39,740 43,173 44,262 45,413 46,696 +9% +3% +3% +3%

Profit before tax

Personal Banking 2,899 4,719 5,690 6,141 6,507 +63% +21% +8% +6%

Business Banking 4,872 5,768 6,283 6,478 6,218 +18% +9% +3% (4%)

Corp & Ins. 3,374 4,446 5,001 5,277 5,452 +32% +12% +6% +3%

Capital 2,219 3,195 3,113 3,212 3,314 +44% (3%) +3% +3%

Non-Core (1,777) (1,831) (241) (66) (8) +3% (87%) (72%) (87%)

Other (2,154) (8,199) (122) (41) (61) na (99%) (67%) +51%

Total 9,433 8,099 19,724 21,001 21,420 (14%) nm +6% +2%

Danske Bank


26 January 2015 29

Appendix B(ii) – DNB financial forecasts 2013-2017e


Recommendation - U

Fair Value - NOK 104

Price - NOK 109

P&L account (NOKm) 2013 2014e 2015e 2016e 2017e 2013 2014e 2015e 2016e 2017e

Net interest income 30,192 32,323 32,915 33,647 34,395 +11% +7% +2% +2% +2%

Other income 17,086 16,007 15,936 16,169 16,406 +6% (6%) (%) +1% +1%

Operating income 47,278 48,330 48,852 49,816 50,801 +9% +2% +1% +2% +2%

Operating costs (21,582) (20,878) (20,374) (20,242) (20,614) +5% (3%) (2%) (1%) +2%

Operating profit 25,696 27,452 28,478 29,573 30,187 +12% +7% +4% +4% +2%

Provisions (2,185) (1,629) (3,512) (2,658) (2,464) (31%) (25%) na (24%) (7%)

Other (5) 80 79 79 79 (99%) na (1%) 0% 0%

Adjusted profit before tax 23,507 25,903 25,044 26,994 27,801 +24% +10% (3%) +8% +3%

Exceptionals & other items (797) 1,307 0 0 0 (60%) na (100%) na na

Profit before tax 22,709 27,210 25,044 26,994 27,801 +33% +20% (8%) +8% +3%

Tax (5,188) (6,577) (6,261) (6,748) (6,950) +29% +27% (5%) +8% +3%

Minorities 4 0 0 0 0 (95%) (100%) na na na

Net income 17,526 20,632 18,783 20,245 20,851 +34% +18% (9%) +8% +3%

Balance sheet (NOKm) 2013 2014e 2015e 2016e 2017e 2013 2014e 2015e 2016e 2017e

Loans to Customers 1,340,831 1,412,385 1,422,216 1,449,961 1,483,684 +3% +5% +1% +2% +2%

Goodwill 6,511 6,182 6,182 6,182 6,182 (3%) (5%) 0% 0% 0%

Total assets 2,405,239 2,533,596 2,551,230 2,601,000 2,661,495 +4% +5% +1% +2% +2%

Risk Wghtd Ats (Transitional) 1,089,114 1,098,874 1,137,773 1,159,969 1,186,948 +1% +1% +4% +2% +2%

Customer deposits 867,904 889,904 918,276 956,143 959,770 +7% +3% +3% +4% +%

Shareholders equity 142,227 157,845 172,110 187,660 203,449 +12% +11% +9% +9% +8%

Per share data (NOK) 2013 2014e 2015e 2016e 2013 2014e 2015e 2016e 2017e

EPS reported 10.76 12.67 11.53 12.43 12.80 +34% +18% (9%) +8% +3%

EPS adjusted 10.77 12.06 11.53 12.43 12.80 +20% +12% (4%) +8% +3%

DPS 2.7 2.8 2.9 3.1 5.1 +29% +3% +4% +8% +65%

BVPS 87 97 106 115 125 +12% +11% +9% +9% +8%

TBVPS 83 93 102 111 121 +12% +12% +9% +9% +9%

Number of shares (year end) (m) 1,629 1,629 1,629 1,629 1,629 0% (%) 0% 0% 0%

Ratios 2013 2014e 2015e 2016e 2017e

Profitability

NIM 1.85% 1.90% 1.88% 1.90% 1.90%

Cost income ratio 46% 43% 42% 41% 41%


Tax rate 23% 25% 25% 25% 25%

ROE Adjusted 13.3% 13.2% 11.4% 11.3% 10.7%

ROTE Adjusted 13.7% 13.7% 11.8% 11.7% 11.0%

RORWA 1.62% 1.89% 1.68% 1.76% 1.78%

ROA 0.74% 0.84% 0.74% 0.79% 0.79%

Capital & leverage

Core Tier 1 - Transitional 11.8% 13.0% 13.8% 14.9% 15.6%

Core Tier 1 - Basel III fully loaded 12.9% 15.1% 15.9% 17.1% 17.8%

Loans / Deposits 154% 159% 155% 152% 155%

Loans / Assets 56% 56% 56% 56% 56%

Equity / Assets 5.9% 6.2% 6.7% 7.2% 7.6%

Price multiples


P/BV 1.25x 1.13x 1.03x 0.95x 0.88x

P/TBV 1.31x 1.17x 1.07x 0.98x 0.90x

Div yield 2.5% 2.5% 2.6% 2.8% 4.7%


Divisions (NOKm) 2013 2014e 2015e 2016e 2017e 2013 2014e 2015e 2016e 2017e

Revenues

Personal customers 17,461 18,779 18,882 19,260 19,645 +18% +8% +1% +2% +2%

SME 7,665 8,073 8,399 8,633 8,874 +8% +5% +4% +3% +3%

Large corporates 16,777 17,135 17,625 17,977 18,337 +1% +2% +3% +2% +2%

Trading 2,588 2,408 2,010 2,010 2,010 (42%) (7%) (17%) +0% +0%

Other (incl. Pensions) 2,787 1,935 1,935 1,935 1,935 na (31%) +0% (0%) +0%

Total revenue 47,278 48,330 48,852 49,816 50,801 +9% +2% +1% +2% +2%

Profit before tax

Personal customers 8,431 9,820 10,093 10,735 10,950 +33% +16% +3% +6% +2%

SME 3,344 3,625 3,570 3,813 3,950 +8% +8% (2%) +7% +4%

Large corporates 9,342 10,171 9,100 10,031 10,487 +14% +9% (11%) +10% +5%

Trading 1,943 1,926 1,507 1,507 1,507 (48%) (1%) (22%) +0% 0%

Other (incl. Pensions) 447 359 774 906 906 na (20%) na +17% 0%

Total PBT 23,507 25,903 25,044 26,994 27,801 +24% +10% (3%) +8% +3%

DnB NOR


26 January 2015 30

Appendix B(iii) – Nordea financial forecasts 2013-2017e


Recommendation - O

Fair Value - SEK 103

Price - SEK 95

P&L account (EURm) 2013 2014e 2015e 2016e 2017e 2013e 2014e 2015e 2016e 2017e

Net interest income 5,525 5,500 5,602 5,662 5,780 (1%) (0%) +2% +1% +2%

Other income 4,366 4,351 4,507 4,660 4,814 (2%) (0%) +4% +3% +3%

Operating income 9,891 9,851 10,109 10,321 10,594 (1%) (0%) +3% +2% +3%

Operating costs (4,995) (4,973) (4,617) (4,678) (4,743) (1%) (0%) (7%) +1% +1%

Operating profit 4,896 4,878 5,492 5,643 5,851 (1%) (0%) +13% +3% +4%

Provisions (734) (557) (662) (666) (693) (18%) (24%) +19% +1% +4%

Other 0 0 0 0 0 na na na na na

Adjusted profit before tax 4,162 4,321 4,830 4,977 5,158 +3% +4% +12% +3% +4%

Exceptionals & other items 0 7 0 0 0 na na (100%) na na

Profit before tax 4,162 4,328 4,830 4,977 5,158 +3% +4% +12% +3% +4%

Tax (1,009) (1,015) (1,135) (1,170) (1,212) +4% +1% +12% +3% +4%

Minorities 9 (25) 40 40 40 (84%) na na +0% +0%

Net income 3,163 3,288 3,736 3,849 3,987 +1% +4% +14% +3% +4%

Balance sheet (EURm) 2013 2014e 2015e 2016e 2017e 2013e 2014e 2015e 2016e 2017e

Loans to Customers 341,900 351,556 360,348 365,924 374,178 (1%) +3% +3% +2% +2%

Goodwill 3,246 3,259 3,259 3,259 3,259 (5%) +0% +0% +0% +0%

Total assets 630,434 648,239 664,451 674,732 689,951 (6%) +3% +3% +2% +2%

Risk Weighted Assets (incl P2) 160,354 162,017 165,055 166,666 168,881 (4%) +1% +2% +1% +1%

Customer deposits 200,743 199,984 208,221 213,728 219,635 +0% (0%) +4% +3% +3%


Per share data (EUR) 2013 2014e 2015e 2016e 2017e 2013e 2014e 2015e 2016e 2017e

EPS reported 0.78 0.82 0.93 0.96 0.99 +0% +5% +14% +3% +4%

EPS adjusted 0.78 0.81 0.93 0.96 0.99 +0% +5% +14% +3% +4%

DPS 0.43 0.47 0.70 0.72 0.74 +26% +10% +47% +3% +4%

BVPS 7.22 7.60 8.05 8.31 8.58 +4% +5% +6% +3% +3%

TBVPS 6.41 6.79 7.24 7.50 7.77 +6% +6% +7% +4% +4%

Number of shares (year end) (m) 4,050 4,050 4,050 4,050 4,050 +0% +0% +0% +0% +0%

Ratios 2013 2014e 2015e 2016e 2017e

Profitability

NIM 1.61% 1.59% 1.57% 1.56% 1.56%



Tax rate 24% 24% 24% 24% 24%

ROE Adjusted 11.2% 11.2% 11.8% 11.6% 11.7%

ROTE Adjusted 12.7% 12.6% 13.1% 12.9% 12.9%

RORWA 1.96% 2.13% 2.42% 2.45% 2.51%

ROA 0.49% 0.51% 0.57% 0.57% 0.58%

Capital & leverage

Core Tier 1 14.9% 15.7% 16.4% 17.1% 17.5%


Loans / Deposits 170% 176% 173% 171% 170%

Loans / Assets 54% 54% 54% 54% 54%

Basel 3 Leverage 4.3% 4.6% 4.7% 4.9% 4.9%

Price multiples


P/BV 1.41x 1.34x 1.27x 1.23x 1.19x

P/TBV 1.59x 1.50x 1.41x 1.36x 1.31x

Div yield 4.2% 4.6% 6.8% 7.0% 7.3%


Divisions (EURm) 2013 2014e 2015e 2016e 2017e 2013e 2014e 2015e 2016e 2017e

Revenues

Retail 5,319 5,312 5,456 5,549 5,676 (0%) (0%) +3% +2% +2%

Wholesale 2,604 2,417 2,408 2,429 2,470 (6%) (7%) (0%) +1% +2%

Wealth 1,532 1,643 1,767 1,865 1,969 +8% +7% +8% +6% +6%

Other 436 478 478 478 478 (6%) +10% +0% +0% (0%)

Total 9,891 9,851 10,109 10,321 10,594 (1%) (0%) +3% +2% +3%

Profit before tax

Retail 1,882 2,027 2,177 2,247 2,339 +9% +8% +7% +3% +4%

Wholesale 1,454 1,473 1,411 1,414 1,423 (5%) +1% (4%) +0% +1%

Wealth 731 867 968 1,043 1,122 +15% +19% +12% +8% +8%

Other 95 (40) 274 274 274 (34%) na na +0% (0%)

Total 4,162 4,328 4,830 4,977 5,158 +3% +4% +12% +3% +4%

Nordea


26 January 2015 31

Appendix B(iv) – SEB financial forecasts 2013-2017e


Recommendation - N


Price - SEK 101

P&L account (SEKm) 2013 2014e 2015e 2016e 2017e 2013 2014e 2015e 2016e 2017e


Other income 22,525 23,394 23,703 24,121 24,605 +4% +4% +1% +2% +2%


Operating costs (22,287) (21,961) (22,262) (22,572) (22,901) (3%) (1%) +1% +1% +1%


Provisions (1,155) (1,342) (1,445) (1,637) (1,735) +23% +16% +8% +13% +6%

Other 16 (32) (10) (5) (3) na na (69%) (50%) (50%)


Exceptionals & other items 201 3,371 0 0 0 na na (100%) na na

Profit before tax 18,127 23,536 20,924 21,611 22,377 +27% +30% (11%) +3% +4%

Tax (3,338) (4,629) (4,185) (4,322) (4,475) +59% +39% (10%) +3% +4%

Minorities/Disc ops (11) (10) (10) (10) (10) (98%) (9%) 0% 0% 0%

Net income 14,778 18,897 16,729 17,279 17,892 +27% +28% (11%) +3% +4%

Balance sheet (SEKm) 2013 2014e 2015e 2016e 2017e 2013 2014e 2015e 2016e 2017e


Goodwill 13,085 13,288 13,288 13,288 13,288 (1%) +2% 0% 0% 0%

Total assets 2,484,834 2,663,663 2,755,378 2,841,206 2,928,949 +1% +7% +3% +3% +3%

Risk Weighted Assets 627,224 676,099 697,186 716,929 737,112 +2% +8% +3% +3% +3%

Customer deposits 849,475 1,036,835 1,054,095 1,075,914 1,097,812 (1%) +22% +2% +2% +2%


Per share data (SEK) 2013 2014e 2015e 2016e 2017e 2013 2014e 2015e 2016e 2017e

EPS reported 6.74 8.61 7.62 7.87 8.15 +27% +28% (11%) +3% +4%

EPS adjusted 6.55 7.35 7.62 7.87 8.15 +25% +12% +4% +3% +4%

DPS 4.00 4.41 5.34 5.51 5.71 +45% +10% +21% +3% +4%

BVPS 56 61 64 67 69 +12% +9% +5% +4% +4%

TBVPS 50 55 58 61 63 +14% +10% +6% +4% +4%

Number of shares (year end) (m) 2,194 2,194 2,194 2,194 2,194 +0% (0%) +0% +0% +0%

Ratios 2013 2014e 2015e 2016e 2017e

Profitability

NIM 1.48% 1.48% 1.47% 1.48% 1.48%



Tax rate 18% 20% 20% 20% 20%

ROE Adjusted 12.8% 12.9% 12.2% 12.0% 12.0%

ROTE Adjusted 14.5% 14.0% 13.5% 13.2% 13.1%

RORWA 2.47% 2.72% 2.76% 2.68% 2.70%

ROA 0.58% 0.70% 0.62% 0.62% 0.62%

Capital & leverage

Leverage - Basel 3 4.2% 4.3% 4.4% 4.4% 4.5%


Loans / Deposits 153% 135% 137% 138% 140%

Loans / Assets 52% 52% 52% 52% 52%

Equity / Assets 4.9% 5.0% 5.1% 5.2% 5.2%

Price multiples


P/BV 1.81x 1.66x 1.58x 1.52x 1.46x

P/TBV 2.03x 1.84x 1.74x 1.67x 1.60x

Div yield 3.9% 4.4% 5.3% 5.4% 5.6%


Divisions (SEKm) 2013 2014e 2015e 2016e 2017e 2013 2014e 2015e 2016e 2017e

Revenues

Merchant Banking 16,729 18,165 18,484 18,815 19,131 +6% +9% +2% +2% +2%

Retail Banking 12,243 12,867 13,237 13,590 13,953 +10% +5% +3% +3% +3%

Wealth Management 4,232 4,854 5,051 5,242 5,439 +5% +15% +4% +4% +4%

Life 4,590 4,822 4,917 5,014 5,112 (1%) +5% +2% +2% +2%

Baltic 3,393 3,578 3,763 4,003 4,245 +3% +5% +5% +6% +6%

Other 165 (786) (811) (837) (864) (34%) na +3% +3% +3%

Total 41,352 43,500 44,641 45,825 47,015 +5% +5% +3% +3% +3%

Profit before tax

Merchant Banking 8,171 9,018 9,446 9,755 10,052 +15% +10% +5% +3% +3%

Retail Banking 5,743 6,831 7,054 7,259 7,469 +32% +19% +3% +3% +3%

Wealth Management 1,610 2,307 2,449 2,588 2,732 +25% +43% +6% +6% +6%

Life 1,892 2,118 2,142 2,165 2,178 (4%) +12% +1% +1% +1%

Baltic 1,280 1,672 1,650 1,699 1,837 +20% +31% (1%) +3% +8%

Other (569) 1,590 (1,816) (1,853) (1,891) (64%) na na +2% +2%

Total 18,127 23,536 20,924 21,611 22,377 +27% +30% (11%) +3% +4%

SEB


26 January 2015 32

Appendix B(v) – Svenska Handelsbanken financial forecasts 2013-2017e


Recommendation - N

Svenska Handelsbanken Fair Value - SEK 380

Price - SEK 379

P&L account (SEKm) 2013 2014e 2015e 2016e 2017e 2013 2014e 2015e 2016e 2017e


Other income 9,658 10,736 11,115 11,458 11,799 +8% +11% +4% +3% +3%


Operating costs (17,061) (17,228) (17,708) (18,266) (18,794) +2% +1% +3% +3% +3%


Provisions (1,178) (1,445) (1,536) (1,597) (1,678) (6%) +23% +6% +4% +5%

Other 0 0 0 0 0 (100%) na na na na



Profit before tax 18,088 19,937 20,764 21,732 22,480 +6% +10% +4% +5% +3%

Tax (3,915) (4,386) (4,568) (4,781) (4,946) +27% +12% +4% +5% +3%

Minorities/discontinued 122 75 0 0 0 na (39%) (100%) na na

Net income 14,295 15,626 16,196 16,951 17,535 +2% +9% +4% +5% +3%

Balance sheet (SEKm) 2013 2014e 2015e 2016e 2017e 2013 2014e 2015e 2016e 2017e


Goodwill 7,835 8,001 8,001 8,001 8,001 +9% +2% +0% +0% +0%

Total assets 2,489,806 2,738,787 2,851,333 2,922,918 3,016,933 +4% +10% +4% +3% +3%

Risk Weighted Assets 465,701 489,853 509,983 522,787 539,602 (4%) +5% +4% +3% +3%

Customer deposits 817,601 940,241 968,448 997,502 1,027,427 +22% +15% +3% +3% +3%


Per share data (SEK) 2013 2014e 2015e 2016e 2017e 2013 2014e 2015e 2016e 2017e

EPS reported 22.52 24.58 25.48 26.67 27.58 +1% +9% +4% +5% +3%

EPS adjusted 22.33 24.09 25.48 26.67 27.58 +14% +8% +6% +5% +3%

DPS 16.5 15.7 16.6 17.3 17.9 +53% (5%) +6% +5% +3%

BVPS 175 195 205 215 225 +7% +11% +5% +5% +5%

TBVPS 163 177 187 197 207 +9% +8% +6% +5% +5%

Number of shares (year end) (m) 636 636 636 636 636 +0% +0% +0% +0% +0%

Ratios 2013 2014e 2015e 2016e 2017e

Profitability

NIM 1.60% 1.58% 1.57% 1.59% 1.60%



Tax rate 22% 22% 22% 22% 22%

ROE Adjusted 13.7% 13.3% 12.7% 12.7% 12.5%

ROTE Adjusted 14.8% 14.2% 14.0% 13.9% 13.7%

RORWA 3.00% 3.21% 3.19% 3.28% 3.30%

ROA 0.57% 0.57% 0.57% 0.58% 0.58%

Capital & leverage

Core Tier 1 19.2% 20.4% 20.8% 21.4% 21.8%


Loans / Deposits 206% 191% 193% 192% 193%

Loans / Assets 68% 66% 66% 66% 66%

Equity / Assets 4.5% 4.5% 4.6% 4.7% 4.7%

Price multiples


P/BV 2.16x 1.94x 1.85x 1.76x 1.68x

P/TBV 2.32x 2.15x 2.03x 1.93x 1.83x

Div yield 4.4% 4.1% 4.4% 4.6% 4.7%


Divisions (SEKm) 2013 2014e 2015e 2016e 2013 2014e 2015e 2016e 2017e

Revenues

Sweden 20,441 20,325 20,794 21,253 21,722 (2%) (1%) +2% +2% +2%

Ex-Sweden 11,949 13,527 14,675 15,714 16,510 +14% +13% +8% +7% +5%

Market 3,796 4,211 4,295 4,381 4,469 +5% +11% +2% +2% +2%

Other 141 241 244 248 251 (37%) +71% +1% +1% +1%

Total 36,327 38,304 40,009 41,596 42,952 +4% +5% +4% +4% +3%

Profit before tax

Sweden 12,489 12,067 12,613 12,908 13,211 (4%) (3%) +5% +2% +2%

Ex-Sweden 5,436 6,382 6,934 7,571 7,981 +20% +17% +9% +9% +5%

Market 1,101 1,722 1,756 1,791 1,827 +79% +56% +2% +2% +2%

Other (938) (233) (539) (539) (539) (14%) (75%) na (%) 0%

Total 18,088 19,937 20,764 21,732 22,480 +6% +10% +4% +5% +3%


26 January 2015 33

Appendix B(vi) – Swedbank financial forecasts 2013-2017e


Recommendation - O


Price - SEK 193

P&L account (SEKm) 2013 2014e 2015e 2016e 2017e 2013e 2014e 2015e 2016e 2017e


Other income 14,909 16,187 16,557 16,707 17,304 (6%) +9% +2% +1% +4%


Operating costs (16,648) (16,974) (16,704) (16,197) (16,714) +1% +2% (2%) (3%) +3%


Provisions (935) (504) (1,207) (1,644) (2,364) na (46%) na +36% +44%

Other 0 0 0 0 0 na na na na na

Adjusted profit before tax 19,355 21,287 22,005 22,688 22,634 (1%) +10% +3% +3% (%)


Profit before tax 19,355 21,398 22,005 22,688 22,634 (1%) +11% +3% +3% (%)

Tax (4,099) (4,280) (4,401) (4,538) (4,527) (1%) +4% +3% +3% (%)

Minorities & Disc. Business (2,355) (415) (415) (415) (415) na (82%) 0% 0% 0%

Net income 12,901 16,703 17,189 17,736 17,692 (10%) +29% +3% +3% (%)

Balance sheet (SEKm) 2013 2014e 2015e 2016e 2017e 2013e 2014e 2015e 2016e 2017e


Goodwill 13,658 13,669 13,669 13,669 13,669 +2% +0% +0% +0% +0%

Total assets 1,820,807 1,911,847 1,911,847 1,911,847 1,911,847 (1%) +5% +0% +0% +0%

Risk Weighted Assets 501,863 544,431 553,616 563,424 573,503 (11%) +8% +2% +2% +2%

Customer deposits 620,853 670,403 685,248 701,100 717,389 +7% +8% +2% +2% +2%


Per share data (SEK) 2013 2014e 2015e 2016e 2017e 2013e 2014e 2015e 2016e 2017e

EPS reported 11.76 15.22 15.66 16.16 16.12 (10%) +29% +3% +3% (0%)

EPS adjusted 13.89 15.14 15.66 16.16 16.12 +3% +9% +3% +3% (0%)

DPS 10.10 11.07 11.75 12.12 12.09 +2% +10% +6% +3% (0%)

BVPS 100 105 110 114 119 +6% +5% +4% +4% +4%

TBVPS 87 92 97 102 106 +7% +6% +5% +5% +4%

Number of shares (year end) (m) 1,097 1,097 1,097 1,097 1,097 +0% +0% +0% +0% +0%

Ratios 2013 2014e 2015e 2016e 2017e 2013e 2014e 2015e 2016e 2017e

Profitability

NIM 1.76% 1.72% 1.69% 1.69% 1.69%



Tax rate 21% 20% 20% 20% 20%

ROE Adjusted 14.9% 15.3% 14.6% 14.4% 13.8%

ROTE Adjusted 17.0% 17.4% 16.5% 16.2% 15.5%

RORWA 2.90% 3.16% 3.13% 3.18% 3.11%

ROA 0.70% 0.89% 0.90% 0.93% 0.93%

Capital & leverage

Leverage ratio (Basel 3) 4.3% 4.3% 4.6% 4.8% 5.0%


Loans / Deposits 204% 204% 204% 204% 204%

Loans / Assets 69% 71% 73% 75% 76%

Equity / Assets 6.0% 6.0% 6.3% 6.6% 6.8%

Price multiples


P/BV 1.93x 1.84x 1.76x 1.69x 1.62x

P/TBV 2.21x 2.08x 1.99x 1.89x 1.82x

Div yield 5.2% 5.7% 6.1% 6.3% 6.3%


Divisions (SEKm) 2013 2014e 2015e 2016e 2017e 2013e 2014e 2015e 2016e 2017e

Revenues

Retail Banking 21,716 22,129 23,639 24,004 24,484 +2% +2% +7% +2% +2%

Large Corps 7,482 7,806 7,952 8,101 8,322 +4% +4% +2% +2% +3%

Baltic Banking 5,623 6,046 6,159 6,377 6,648 +2% +8% +2% +4% +4%

Other 2,117 2,784 2,166 2,047 2,258 na +32% (22%) (5%) +10%

Total 36,938 38,765 39,916 40,529 41,712 +2% +5% +3% +2% +3%

Profit before tax

Retail Banking 11,652 11,783 13,140 13,601 13,578 +3% +1% +12% +4% (%)

Large Corps 4,041 4,184 4,506 4,637 4,691 +1% +4% +8% +3% +1%

Baltic Banking 3,592 3,798 3,565 3,624 3,539 (4%) +6% (6%) +2% (2%)

Other 70 1,633 794 826 826 na na (51%) +4% (%)

Total 19,355 21,398 22,005 22,688 22,634 (1%) +11% +3% +3% (0%)

Swedbank


26 January 2015 34

Important disclosures:

Recommendation definitions

Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield

Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie First South - South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie - Canada

Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return

Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return

Volatility index definition*

This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be

expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only

Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations

Financial definitions

All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).

Recommendation proportions – For quarter ending 31 December 2014

AU/NZ Asia RSA USA CA EUR Outperform 51.80% 58.06% 45.07% 44.42% 60.54% 46.81% (for US coverage by MCUSA, 5.29% of stocks followed are investment banking clients)

Neutral 31.80% 27.37% 30.99% 50.10% 35.37% 33.51% (for US coverage by MCUSA, 3.08% of stocks followed are investment banking clients)

Underperform 16.39% 14.57% 23.94% 5.48% 4.08% 19.68% (for US coverage by MCUSA, 0.44% of stocks followed are investment banking clients)

Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures.

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26 January 2015 35

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SWEDEN/NORWAY/DENMARK Nordic Banks banks2... · 2015-02-10 · a Corporate and Institutional bank....

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