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Please refer to important disclosures at the end of this presentation.
high as rate are low?
By Jan Erik Gjerland Equity research ABG Sundal Collier
22 November 2016, Norges Bank Oslo
Strictly Private & Confidential
0.70
7.04 5.40
4.57
Traditional banks
- Long term rates developments - ROE vs long term rates
- ROE decomposed, loan losses destroying values
- Business model variations - Margins – lending & deposits - Commission and income
- Trading (or financial income at fair value) - Expenses & cost-efficiency
- The leverage impact
Consumer banks - High margins
- Low funding costs
- Gives exceptional high ROE
Topics of the day
2
3
0.70
7.04 5.40 4.57
Historic rates long term rates
– has been steady around or below 5%
4
Short term rates Long term rates
Source: Bank of England
0.70
7.04 5.40 4.57
… but come off last 35 years, to the recent bottom level
5
0 2 4 6 8 10 12 14 16
Pe r ce nt
Sweden Norway Denmark Ger-99/Euro-00 UK
Source: ABG Sundal Collier, Norges Bank, Riksbanken, Nationalbanken, Datastream
0.70
7.04 5.40 4.57
How have banks ROE been doing in the same period?
- on average 9.5%
6
-15 -10 -5 0 5 10 15 20 25
Pe r ce nt
DB DNB NDA SHB
SEB SWED Avg SE Avg 72-16
Source: ABG Sundal Collier, Company reports, DNB and its predecessors, DB is Danske Bank, Avg SE is average of Swedish banks (SHB, SEB, Nordea and its predecessors and Swedbank and its predecessors)
0.70
7.04 5.40 4.57
Banks’ ROE minus local long term yield
- been moving from par to a positive level of 10-12.5%
7
-17.5 -15.0 -12.5 -10.0 -7.5 -5.0 -2.5 0.0 2.5 5.0 7.5 10.0 12.5 15.0 17.5
Pe rc en ta ge p oi nt s sp re ad to lo ng t er m r at es
DNB-Spread Swedish-Spread Danske-Spread
Source: ABG Sundal Collier, Norges Bank, Riksbanken, Nationalbanken, Datastream, Company reports, DNB and its predecessors, DB is Danske Bank, SE-spread is average of Swedish banks (SHB, SEB, Nordea and its predecessors and Swedbank and its predecessors) minus local 10 year interest rate
0.70
7.04 5.40 4.57
Loan losses are really destroying ROE
8
-0.40%
-0.20%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
1.80%
2.00%
20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 e 20 17 e 20 18 e
Nordic banks - loan loss level
Danske Bank DNB Swedbank
Handelsbanken Nordea SEB
Source: Company reports & ABGSC Research
0.70
7.04 5.40 4.57
Its typically in the period with loan losses ROE are weaker
- ROE minus median ROE in the period 1990-2016
9
-12.5 -10.0 -7.5 -5.0 -2.5 0.0 2.5 5.0 7.5 10.0
1 99 3 1 99 4 1 99 5 1 99 6 1 99 7 1 99 8 1 99 9 2 00 0 2 00 1 2 00 2 2 00 3 2 00 4 2 00 5 2 00 6 2 00 7 2 00 8 2 00 9 2 01 0 2 01 1 2 01 2 2 01 3 2 01 4 2 01 5 2 01 6
Pe rc en ta ge p ts s pr ea d to b an k' s ow n m ed ia n
DNB=10.6% NDA-SHB-SEB-SWB=10.1% DB=6.9%
Source: ABG Sundal Collier, Norges Bank, Riksbanken, Nationalbanken, Datastream, Company reports, DNB and its predecessors, DB is Danske Bank, NDA is Nordea and its predecessors, SHB, SEB and SWB is Swedbank and its predecessors). Per cent is the bank’s median 1990-2016e
0.70
7.04 5.40 4.57
ROE 1990-2018e decomposed by profit and loss line
10
-275%
-225%
-175%
-125%
-75%
-25%
25%
75%
125%
175%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
Nordic Banks - Decomposed ROE 1990-2018e
NII Non-NII Opex LLP Other ROE
Source: ABG Sundal Collier, Company reports, Avg of Nordic banks. NII is net interest income, Non-NII is all other income, Opex is operational expenses, LLP is loan loss provisions, Other is other gains/(losses), net profit is the return on equity for the period
0.70
7.04 5.40 4.57
Huge variations among banks on decomposed ROE
- NII has gone from cover cost to be a key ROE contributor, losses a drag
11 Source: ABG Sundal Collier, Company reports, Danske is Danske Bank, DNB is DNB and its predecessors. NII is net interest income, Non-NII is all other income, Opex is operational expenses, LLP is loan loss provisions, Other is other gains/(losses), net profit is the return on equity for the period
-60%
-40%
-20%
0%
20%
40%
60%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
Danske
NII Non-NII Opex LLP Other Net profit
-60%
-40%
-20%
0%
20%
40%
60%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
DNB
NII Non-NII Opex LLP Other Net profit
43%
20% 12%
13%
-12%
-1%
-60%
-40%
-20%
0%
20%
40%
60%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
Nordea
NII Non-NII Opex LLP Other Net profit
-60%
-40%
-20%
0%
20%
40%
60%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
SEB
NII Non-NII Opex LLP Other Net profit
-60%
-40%
-20%
0%
20%
40%
60%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
SHB
NII Non-NII Opex LLP Other Net profit
-60%
-40%
-20%
0%
20%
40%
60%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
Swedbank
NII Non-NII Opex LLP Other Net profit
0.70
7.04 5.40 4.57
NII now main contributor in decomposed ROE
- NII has gone from not cover, to cover cost to be main driver for ROE. Loan losses always destroying for ROE
12
22% 20%
13%
-24% -20%
-10%
20%
18%
10%
-30%
-20%
-10%
0%
10%
20%
30%
40%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
Nordic Banks - Decomposed ROE 2000 -2018e
NII Non-NII Opex LLP Other ROE
Source: ABG Sundal Collier, Company reports, Danske is Danske Bank, DNB is DNB and its predecessors. NII is net interest income, Non-NII is all other income, Opex is operational expenses, LLP is loan loss provisions, Other is other gains/(losses), net profit is the return on equity for the period
0.70
7.04 5.40 4.57
Banks’ income distribution, NII vs commission-driven
13
57% 62% 61%
42% 37% 39%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2008 2017e 2000 2008 2017e
NII-driven Comm-driven
NII Comm Trading Other
Source: ABG Sundal Collier, Company reports, Nordics banks are Danske Bank and its predecessors, DNB and its predecessors, Nordea and its predecessors, SHB, SEB and Swedbank and its predecessors.
0.70
7.04 5.40 4.57
Net interest margin (NIM) development – all banks from 1998
14
0.5 % 0.7 % 0.9 % 1.1 % 1.3 % 1.5 % 1.7 % 1.9 % 2.1 % 2.3 % 2.5 %
19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 e 20 17 e 20 18 e
Danske Bank DNB Swedbank
Handelsbanken Nordea SEB
Source: Company reports & ABGSC Research
NIM = Net interest income / average total assets
0.70
7.04 5.40 4.57
NIM development last 10 years
15
0.5 % 0.6 % 0.7 % 0.8 % 0.9 % 1.0 % 1.1 % 1.2 % 1.3 % 1.4 %
20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 e 20 17 e 20 18 e
Danske Bank DNB Swedbank
Handelsbanken Nordea SEB
Source: Company reports & ABGSC Research
NIM = Net interest income / average total assets
0.70
7.04 5.40 4.57
Mortgage rates in Norway hiked during 2013/14 due too higher capital requirements, but dropped later back again
16
-0.50 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50
Spread to NIBOR Mortgage rate 3m-NIBOR
Source: ABG Sundal Collier, DNB reports, Oslo Børs
0.70
7.04 5.40 4.57
Norwegian banks have compensated the latest margin pressure on mortgages with improved deposits margin
17
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
Q 2 '0 7 Q 3 '0 7 Q 4 '0 7 Q 1 '0 8 Q 2 '0 8 Q 3 '0 8 Q 4 '0 8 Q 1 '0 9 Q 2 '0 9 Q 3 '0 9 Q 4 '0 9 Q 1 '1 0 Q 2 '1 0 Q 3 '1 0 Q 4 '1 0 Q 1 '1 1 Q 2 '1 1 Q 3 '1 1 Q 4 '1 1 Q 1 '1 2 Q 2 '1 2 Q 3 '1 2 Q 4 '1 2 Q 1 '1 3 Q 2 '1 3 Q 3 '1 3 Q 4 '1 3 Q 1 '1 4 Q 2 '1 4 Q 3 '1 4 Q 4 '1 4 Q 1 '1 5 Q 2 '1 5 Q 3 '1 5 Q 4 '1 5 Q 1 '1 6 Q 2 '1 6 Q 3 '1 6 Q 4 '1 6 e
Norwegian rates vs deposits rate
DNB deposits-spreads 3M-Nibor Deposits rate
Source: ABG Sundal Collier, DNB reports, Oslo Børs
0.70
7.04 5.40 4.57
Swedish banks: Mortgage margins has been on the rise
– first due to higher risk-weights on mortgages in Sweden, later to compensate for negative deposits development as the repo-rate is negative
18
-1%
0%
1%
2%
3%
4%
5%
6%
7%
Repo rate Funding cost up to STIBOR Funding costs in above STIBOR Margin*
* Based on average list rates of NDA, SBAB, SEB, SHB and SWB
Source: ABG Sundal Collier, Banks’ disclosure, Riksbanken, Datastream
0.70
7.04 5.40 4.57
Net commission income (NCI)
19
26% 22% 25%
42% 37% 39%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2008 2017e 2000 2008 2017e
NII-driven Comm-driven
NII Comm Trading Other
Source: ABG Sundal Collier, Company reports, Nordics banks are Danske Bank and its predecessors, DNB and its predecessors, Nordea and its predecessors, SHB, SEB and Swedbank and its predecessors.
0.70
7.04 5.40 4.57
Asset management is key driver of net commission income (NCI), while payment is currently in decline
20
Nordic Banks - Net commission income distribution
2016e DB DNB SWB SHB NDA SEB
Securities brokerage 13.5% 11.2% 3.1% 8.3% 6.7% 8.7%
Asset management 55.6% 14.8% 33.8% 33.4% 42.9% 33.0%
Corporate finance n.a. 6.4% 1.9% 3.5% n.a. 3.7%
Total 69.1% 32.4% 38.8% 45.2% 49.5% 45.4%
Payments 13.5% 23.4% 33.8% 29.5% 15.8% 36.3%
Lending n.a. n.a. 6.2% 10.9% 16.6% 11.0%
Insurance 1.5% 27.0% 4.2% 6.0% 9.2% n.a.
Other 15.9% 17.2% 17.0% 8.4% 8.8% 47.9%
Commission income 100% 100% 100% 100% 100% 93%
NCI % of total income 31.8% 16.9% 27.0% 22.9% 32.9% 42.5%
Capital market related income / total income
21% 5% 15% 12% 16% 23%
Source: ABGSC Research Note: Net commission income in DNB and DB
gross commission income in the other banks
0.70
7.04 5.40 4.57
DNB has lowest level of NCI, while SEB has the highest
21
Nordic Banks - Income distribution
Net comission income
2016e Danske Bank DNB Sw edbank Handels-
banken Nordea SEB
Securities brokerage 1,913 924 496 885 215 1,941
Asset management 7,863 1,225 5,351 3,583 1,386 7,379
Corporate finance 0 525 300 378 0 824
Total 9,776 2,674 6,147 4,846 1,601 10,144
Payments 1,905 1,935 5,351 3,163 510 8,100
Lending n.a. n.a. 986 1,163 538 2,454
Insurance 210 2,226 662 641 298 0
Other 2,254 1,424 2,702 900 285 1,630
Commission income 14,144 8,260 15,848 10,713 3,232 22,328
Source: ABG Sundal Collier, Company reports. NCI = Net commission incomce
0.70
7.04 5.40 4.57
Trading (or net financial income (NFI))
22
10% 11% 7%
11% 7% 5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2008 2017e 2000 2008 2017e
NII-driven Comm-driven
NII Comm Trading Other
Source: ABG Sundal Collier, Company reports, Nordics banks are Danske Bank and its predecessors, DNB and its predecessors, Nordea and its predecessors, SHB, SEB and Swedbank and its predecessors.
0.70
7.04 5.40 4.57
Nordic banks sum of absolute trading income
- not gained (too much) on lower long term rates trend
23
0.0 1.0 2.0 3.0 4.0 5.0 6.0
-500 500 1,500 2,500 3,500 4,500 5,500 6,500
19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 e 20 17 e 20 18 e
Total Banks Swed 10Y-interest (r.h.s)
Source: Company reports, Riksbanken, ABGSC Research
EURm %
0.70
7.04 5.40 4.57
All banks trading levels in Euro – different strategies
24
-500 0 500 1,000 1,500 2,000 2,500
19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 e 20 17 e 20 18 e
Nordic banks - Trading income
Danske Bank DNB Swedbank Handelsbanken Nordea SEB
Source: Company reports, ABGSC Research
EURm
0.70
7.04 5.40 4.57
Mixed trading trend…
25 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016e2018e Danske Bank - Net result of financial
transactions
Danske Bank Source: Company reports & ABGSC Research
DKKm
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016e2018e DNB - Net result of financial transactions
DNB Source: Company reports & ABGSC Research
NOKm
0 500 1,000 1,500 2,000 2,500
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016e2018e Nordea - Net result of financial transactions
Nordea Source: Company reports & ABGSC Research
EURm
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016e2018e
SEB - Net result of financial transactions
SEB Source: Company reports & ABGSC Research
SEKm
-3,000 -2,000 -1,000 0 1,000 2,000 3,000 4,000
1998 2001 2004 2007 2010 2013 2016e
Handelsbanken - Net result of financial transactions
Handelsbanken Source: Company reports & ABGSC Research
SEKm
0 500 1,000 1,500 2,000 2,500 3,000 3,500
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016e2018e Swedbank - Net result of financial transactions
Swedbank Source: Company reports & ABGSC Research
SEKm
Source: ABG Sundal Collier, Company reports
0.70
7.04 5.40 4.57
26 -1
0 1 2 3 4 5 6
3M 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y
Swedish yield curve
14/11/2016 30/06/2012 31/03/2009 30/06/2007
%
Source: Datastream
0 1 2 3 4 5 6 7
3M 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y
Norwegian yield curve
14/11/2016 30/06/2012 31/03/2009 30/06/2007
%
Source: Datastream
-1 0 1 2 3 4 5 6
3M 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y
Danish yield curve
14/11/2016 30/06/2012 31/03/2009 30/06/2007
%
Source: Datastream
-1 0 1 2 3 4 5 6
3M 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y
Euro yield curve
14/11/2016 30/06/2012 31/03/2009 30/06/2007
%
Source: Datastream
How can banks utilise that the current yield curves?
- More trading? Higher margins? Making money of transforming short term
deposits to long term loans is still key mission
0.70
7.04 5.40 4.57
Split of costs between personnel and other opex
27
51% 56% 60% 56% 56% 63%
49% 44% 40% 44% 44% 37%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2008 2017e 2000 2008 2017e
NII-driven Comm-driven
Staff costs Other operating costs
Source: ABG Sundal Collier, Company reports
0.70
7.04 5.40 4.57
Full time employees, a trend shift after 2008
- except for SHB still growing its branch-network outside Sweden
28
20,000 22,000 24,000 26,000 28,000 30,000 32,000 34,000 36,000
7,000 9,000 11,000 13,000 15,000 17,000 19,000 21,000 23,000
DB DNB SEB SHB Swedbank Nordea (r.h.s)
FTE FTE
Source: ABG Sundal Collier, Company reports, Danske Bank and its predecessors, DNB and its predecessors, Nordea and its predecessors, SHB, SEB and Swedbank and its predecessors.
0.70
7.04 5.40 4.57
ROE contributors for Nordic banks:
- Cost-efficiency, been extremely important
29
63.9%
46.6%
40%
45%
50%
55%
60%
65%
19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 e 20 17 e 20 18 e
Source: ABG Sundal Collier, Company reports, Nordics banks are Danske Bank and its predecessors, DNB and its predecessors, Nordea and its predecessors, SHB, SEB and Swedbank and its predecessors.
0.70
7.04 5.40 4.57
ROE contributors:
- C/I-ratio by bank has varied – but direction is key – down (!)
30
35%
40%
45%
50%
55%
60%
65%
70%
75%
80%
85%
19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 e 20 17 e 20 18 e
Danske Bank DNB Swedbank Handelsbanken Nordea SEB
Source: ABG Sundal Collier, Company reports, Nordics banks are Danske Bank and its predecessors, DNB and its predecessors, Nordea and its predecessors, SHB, SEB and Swedbank and its predecessors.
0.70
7.04 5.40 4.57
Average improvement in cost-income-ratio ahead
31
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
C/I ratio improvements 2016-18e
Source: ABG Sundal Collier, Company reports
32
0.70
7.04 5.40 4.57
Leverage ratio has reversed after the Basel 2 race to the bottom
- long term linear trend up from 4.5% to 5%
33
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
Average Avg ex Danske Linear (Average)
Recapitalisation phase after Norwegian &
Swedish banking crisis
New growth phase post crisis
Basel 2-race to the bottom on lowest possible risk-weights
Renewed focus on more capital than less
after financial crisis
Repatriation of capital after build up
phase to an end?
Source: ABG Sundal Collier, Company reports, Nordics banks are Danske Bank and its predecessors, DNB and its predecessors, Nordea and its predecessors, SHB, SEB and Swedbank and its predecessors.
0.70
7.04 5.40 4.57
Huge variation among banks on simple leverage ratio
– DNB and Nordea continue to increase
34
0.5%
1.5%
2.5%
3.5%
4.5%
5.5%
6.5%
7.5%
8.5%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
Danske DNB Nordea SEB SHB Swedbank
Source: ABG Sundal Collier, Company reports, Nordics banks are Danske Bank and its predecessors, DNB and its predecessors, Nordea and its predecessors, SHB, SEB and Swedbank and its predecessors.
0.70
7.04 5.40 4.57
ROE; if we had seen constant leverage ratio of 4.7% in the period - most banks would have been aligned with its current ROE-level,
except DNB and Swedbank, both would have a better ROE
35
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
Danske
Avg ROE Rep ROE
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
DNB
Avg ROE Rep ROE
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
Nordea
Avg ROE Rep ROE
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
SEB
Avg ROE Rep ROE
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
SHB
Avg ROE Rep ROE
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
Swedbank
Avg ROE Rep ROE
Source: ABG Sundal Collier, Company reports, Nordics banks are Danske Bank and its predecessors, DNB and its predecessors, Nordea and its predecessors, SHB, SEB and Swedbank and its predecessors.
0.70
7.04 5.40 4.57
It becomes very clear if we had seen constant leverage ratio of 7%(!) in the period
- most banks below much lower ROE, except for DNB
36
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
Danske
Avg ROE Rep ROE
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
DNB
Avg ROE Rep ROE
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
Nordea
Avg ROE Rep ROE
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
SEB
Avg ROE Rep ROE
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
SHB
Avg ROE Rep ROE
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
Swedbank
Avg ROE Rep ROE
Source: ABG Sundal Collier, Company reports, Nordics banks are Danske Bank and its predecessors, DNB and its predecessors, Nordea and its predecessors, SHB, SEB and Swedbank and its predecessors.
0.70
7.04 5.40 4.57
Adj. return on equity between 10-15%, if…
- all banks had same (simple) leverage ratio of 4.7%
37
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
Danske DNB Nordea SEB SHB Swedbank
Source: ABG Sundal Collier, Company reports, Nordics banks are Danske Bank and its predecessors, DNB and its predecessors, Nordea and its predecessors, SHB, SEB and Swedbank and its predecessors.
0.70
7.04 5.40 4.57
Adj. return on equity below 10%, if …
- all banks had same (simple) leverage ratio of 7%(!)
38
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
Danske DNB Nordea SEB SHB Swedbank
Source: ABG Sundal Collier, Company reports, Nordics banks are Danske Bank and its predecessors, DNB and its predecessors, Nordea and its predecessors, SHB, SEB and Swedbank and its predecessors.
39
0.70
7.04 5.40 4.57
Consumer banks lending margin been pretty stable at a high level
40
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Bank
Norwegian Collector * Komplett Nordax Resurs Bank
** TF Bank
Lending margin
2012 2013 2014 2015 2016e 2017e 2018e
Source: Company reports & ABGSC Research * Incl. corporate portfolio
** SME consensus estimates
0.70
7.04 5.40 4.57
Consumer banks has decreased funding costs with the lower interest rates, but still paying almost 2%
41
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Bank
Norwegian Collector * Komplett Nordax Resurs Bank
** TF Bank
Funding margin
2012 2013 2014 2015 2016e 2017e 2018e
Source: Company reports & ABGSC Research * Incl. corporate portfolio
** SME consensus estimates
0.70
7.04 5.40 4.57
The combination has been very favorable for the ROE
– development for consumer banks
42
0%
5%
10%
15%
20%
25%
30%
35%
40%
Bank
Norwegian Collector Nordax Resurs Bank TF Bank
Return on equity
2012 2013 2014 2015 2016e 2017e 2018e
Source: Company reports & ABGSC Research
0.70
7.04 5.40 4.57
Bank Norwegian – longer ROE development
- Funding cost level – important for ROE level as well as growth and loan loss levels
43
-2%
0%
2%
4%
6%
8%
10%
12%
-25%
-15%
-5%
5%
15%
25%
35%
45%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
Bank Norwegian - ROE vs funding cost
Source: Company reports & ABGSC Research
0.70
7.04 5.40 4.57
How banks can make high ROE in a low rate environment
• Increase its risk-adjusted margins, especially lending margins as deposits are troughed
• Generally increase capital light commission and fees
• Avoid to add too muck long term bonds to the liquidity book, as will make losses if interest increases
• Improve sale of capital light insurance products, life & non-life
• Continue the cost-efficiency
• Most important, avoid loan losses, as margins in general are too low
• Improve the leverage, distribute capital to lower the equity level
• Be a consumer bank in a low rate environment, with low unemployment
44
45
46
0.70
7.04 5.40 4.57
Danske decomposed – ROE per profit and loss line
- NII cover costs, non-NII as high as NII, losses 90-94 & 08-14 gave lower ROE
47
-60%
-40%
-20%
0%
20%
40%
60%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
NII Non-NII Opex LLP Other Net profit
Source: ABG Sundal Collier, Company reports, Danske is Danske Bank. NII is net interest income, Non-NII is all other income, Opex is operational expenses, LLP is loan loss provisions, Other is other gains/(losses), net profit is the return on equity for the period
0.70
7.04 5.40 4.57
DNB decomposed – ROE per profit and loss line
- High dependence of NII, lower non-NII contribution, efficient, but losses hits ROE
48 Source: ABG Sundal Collier, Company reports, DNB is DNB and its predecessors. NII is net interest income, Non-NII is all other income, Opex is operational expenses, LLP is loan loss provisions, Other is other gains/(losses), net profit is the return on equity for the period
-60%
-40%
-20%
0%
20%
40%
60%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
NII Non-NII Opex LLP Other Net profit
0.70
7.04 5.40 4.57
43%
20% 12%
-12%
13%
-1%
-60%
-40%
-20%
0%
20%
40%
60%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
NII Non-NII Opex LLP Other Net profit
Nordea decomposed – ROE per profit and loss line
- NII equal costs, non-NII the positive contributor, losses reduce ROE
49 Source: ABG Sundal Collier, Company reports, NDA is Nordea and its predecessors. NII is net interest income, Non-NII is all other income, Opex is operational expenses, LLP is loan loss provisisons, Other is other gains/(losses), net profit is the return on equity for the period
0.70
7.04 5.40 4.57
-60%
-40%
-20%
0%
20%
40%
60%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
NII Non-NII Opex LLP Other Net profit
SEB decomposed – ROE per profit and loss line
- NII equal costs, non-NII the main positive contributor, losses reduce or destroy ROE
50 Source: ABG Sundal Collier, Company reports. NII is net interest income, Non-NII is all other income, Opex is operational expenses, LLP is loan loss provisisons, Other is other gains/(losses), net profit is the return on equity for the period
0.70
7.04 5.40 4.57
-60%
-40%
-20%
0%
20%
40%
60%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
NII Non-NII Opex LLP Other Net profit
SHB decomposed – ROE per profit and loss line
- Higher NII than costs, the highest avg ROE, and limited losses compare with peers
51 Source: ABG Sundal Collier, Company reports. NII is net interest income, Non-NII is all other income, Opex is operational expenses, LLP is loan loss provisisons, Other is other gains/(losses), net profit is the return on equity for the period
0.70
7.04 5.40 4.57
-60%
-40%
-20%
0%
20%
40%
60%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
NII Non-NII Opex LLP Other Net profit
Swedbank decomposed – ROE per profit and loss line
- High dependence of NII, stable non-NII, efficient, but losses hits ROE
52 Source: ABG Sundal Collier, Company reports, Swedbank is Swedbank and its predecessors. NII is net interest income, Non-NII is all other income, Opex is operational expenses, LLP is loan loss provisisons, Other is other gains/(losses), net profit is the return on equity for the period
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