Does the forum crowd believe in Nordea’s IT project? The market’s and Sampo’s Kari Stadigh’s views on Nordea’s dividend paying capacity and the success of the IT project seem to differ strongly. If successful, the project will take Nordea’s earnings to a new level, but success is a question mark..
The market seems to be pricing in that everything will go wrong for Nordea. For Sampo, the increase in Nordea’s dividend is important for the health of its own dividend stream, so they have a heavy vested interest there.
I’ve been considering Nordea for my portfolio for some time now, and I’ve been happy to see the stock price slowly (and sometimes a bit more rapidly) drift downwards. However, I’d still like to see some clear, “unwarranted” downward overreaction from the market.
As it stands, Nordea isn’t even the most interesting bank stock on the Helsinki Stock Exchange in my eyes.
Thoughts: Nordea is suffering from the woes of the European banking sector and late economic growth. If economic growth were to continue for a few more years in Europe, I believe Nordea would be among the winners in its sector. Many competitors have yet to undertake their expensive IT reforms, which could still benefit Nordea. In my opinion, Nordea has improved its customer focus in its operations: podcasts, applications, and product clarity. At the same time, I would like to see concrete evidence of how the IT system is growing the top line; I do, however, believe in a dramatic reduction in costs. The current share price is probably quite fair, considering the increased political risks in Eastern Europe.
Nordean’s growth opportunities are pretty much non-existent, and profitability will be under pressure as the banking sector digitalizes. Many seem to assume that an IT project will make Nordea more competitive and improve profits. An IT project does not mean better times for Nordea; it is a mandatory expense to adapt to a changing environment. What’s wrong with, for example, OP’s digital services? Nordea will not see any rush of customers once the IT project is completed. Revenues will not rise but fall in tightening competition. Nordea’s future will be determined by how well it can reduce fixed costs. Cost savings are key in the future.
I own Sampo but not Nordea directly. My thinking is that I outsource the thinking to Nalle and others who are smarter than me Nalle will ditch Nordea when he sees the time is right.
Has anyone heard anything about how potential problems in Southern Europe might affect Nordea? It would be interesting to know if Nordea has receivables from, for example, Italian banks, if the Southern European s*it hits the fan.
The direct effects of Italian banks on Nordea are probably pretty negligible. The bigger problems are then transmitted indirectly. If things crash in Italy, Nordea will crash with it. Well-managed companies should be able to manage risks, and Nordea’s risk management is probably pretty good.
This is, in my opinion, a quite interesting statistic. Interest rates are like the heart monitor of a man who just farted in the cold, and elsewhere, margins are melting away, but on the island, Jan-Gunnar and his team are pulling them up. I haven’t studied the anatomy of this development in more detail, but in any case, it’s a pretty good performance in this environment.
I have strong faith in Nordea; I’ve been adding a good amount of it to my portfolio
I’m not sure how the head office relocation has affected the share price, and what will happen in October when the head office ‘officially’ moves to Finland? From which money will start flowing into Nordea’s wallet gradually over time.
Also, Nordea’s investment robot seemed like a pretty neat tool.
It would be quite interesting to watch a recording if, for example, Inderes could get someone like Nalle Wahlroos to talk about the situation of Sampo Pankki and Nordea, and the possible effects of the Southern European crisis on Nordic banks.
Banks are generally problematic investment targets. The balance sheet is a completely dark box where the quality of loans only truly becomes apparent during economically weak times, even a small macro-shock affects all banks and pushes down stock prices, etc. On top of that, there are challenges related to digitalization and the entry of new competitors into the market, which erode business value here and there.
Of course, at the right price, they can certainly be reasonable investments, but caution is warranted. A high dividend does not compensate if the business model slowly deteriorates from underneath.
Nordea is a very interesting target right now, either directly or through Sampo.
I personally don’t believe that banks’ business models are under a showstopper-level threat due to fintech. Traditional banks have money and customers. I believe that average customers won’t easily switch to a small, innovative player. Furthermore, banks, for the reasons mentioned above, have pricing power, which ultimately determines the customer’s decision. Of course, innovative services and UX are important, but people will go where the cheapest mortgages, funds, and transaction fees are.
JPMorgan’s Dimon put it well: fintech is not a threat because JPM can buy interesting startups or copy their ideas.
Nordea’s business is currently in relatively good shape. Earnings and dividends are at a good level. Trust in management and the board is at a good level, at least for me. Profitability should further improve with digital projects, as the largest investments have been made. In addition, the interest rate environment should become more favorable for banks in the next 6-12 months.
Banks should be evaluated based on their balance sheet equity, because in this business more than any other, the profit level is dependent on capital. On the other hand, is increased equity in itself a guarantee of profit? Equity cannot decrease unless the bank makes a loss, and Nordea did not even make a loss in the worst year of the financial crisis. In 2009, the net profit was 2318 million, the bank suffered 1486 million in loan losses and received 2503 million euros from a share issue.
Surprisingly little has changed. Already in 2009, the bank was the largest in the Nordic countries, practiced good underwriting, and had ongoing development projects. The earnings per share have ranged between €0.60 - €0.94 (years 2005-2017) with an average of €0.785. Without getting excited about any IT projects, if one invests with such an expectation, one is unlikely to be greatly disappointed. I would also consider it a good point for Nordea that the equity per share has grown every year throughout the 21st century. The return on equity has stabilized at around 11%.
Nordealla’s IT project has taken on some worrying characteristics. According to them, it’s on budget, on schedule, and in good shape, yet key personnel are still leaving. It wouldn’t be the first time they refuse to admit it will be late until the very last minute. Aktia carried out their own project with the same technology and was “only” two years late, with the budget “only” doubling. Aktia is also a much smaller bank…
Nalle will ditch Nordea when he sees the time is right.
