Nordic banking group Nordea has seen a slight drop in operating income, while its wealth management division saw a serious fall in profits despite soaring AuM.

Nordea, the biggest banking group in the Nordics by assets, has seen a slight drop in operating income following a year of low growth and low interest rates, the firm said when presenting its 2013 year-end results today. One consequence has been a doubling of planned cost savings.

Its total operating income dropped 1 per cent from €9.998 billion ($1.36 trillion) in 2012 to €9.891 billion by the end of the fourth quarter of 2013. This is despite a 2 per cent growth in operating profits, which rose to €4.116 billion from €4.039 billion in 2012. Similarly, the bank’s return on equity was down from 11.6 per cent to 11 per cent, signalling that 2013 was yet another trying year for the Swedish banking titan.

“2013 was another year of low growth and interest rates declined to record-low levels. In this environment, we delivered a stable income level (in local currencies) and saw a continued inflow of relationship customers. For the 13th consecutive quarter, we have kept costs flat,” said chief executive Christian Clausen when commenting on the results.

Nordea to cut costs by twice as much as expected

By reducing costs by €210 million in 2013 the bank has been able to offset cost inflation as well as regulatory costs and investments in its platform. However, the CEO said that the bank is preparing for continued low growth, and as such, its rigorous cost reduction strategy is set to continue for some time, Clausen said.

“We expect that the economic growth and the interest rates levels will stay low for a prolonged period of time. Thus, we expect that the loan demand and customer activity will be at a lower level than we foresaw last year when we announced our plans for the future relationship bank. As a consequence we will accelerate and expand our cost efficiency programme. This will enable us to adjust our capacity to the lower activity level and to maintain our position as a strong bank,” Clausen explained.

In the fourth quarter of 2012 Nordea launched efficiency initiatives with an effect of €450 million during 2013 to 2015. With the acceleration, the firm’s ambitions have been raised to save around €900 million during 2013 to 2015. As such, the bank expects to have an approximate 5 per cent lower cost base in 2015 compared to 2013, by reducing activity related expenses, adjusting distribution to meet changed customer behaviour, increasing the product and IT platform efficiency, optimising processes and reducing cost in central functions, including reducing the internal service levels.

AuM soars, while wealth management profits drop
However, and crucially for this key part of the firm, Nordea’s wealth management division which covers asset management, private banking and life and pensions services, saw its assets under management reach an all-time-high of €233 billion, thanks to strong inflows from Nordic retail funds, private banking and its global fund distribution.

The rise in AuM is a €5.5 billion or 2 per cent gain from Q3 and 7 per cent from the same quarter last year. The increase in assets was due to a positive investment performance return of €3.3 billion, and a net inflow of €2.2 billion for the year.

All the division’s businesses contributed positively to the quarter’s inflow, with Nordic Retail funds providing a net inflow of €0.9 billion and institutional sales positive flows of €0.6 billion. In addition, private banking’s customer base reached 109,000 at the end of year, an increase of 3 per cent compared to the same quarter last year. This mainly came down to the business continuing to hold a strong focus on customer acquisition through a retail banking referral process in combination with successful external customer acquisition, the firm said in its year end report.

“International private banking continued to develop its value proposition specifically towards Nordic customers’ resident outside the Nordic countries, with wealth planning services now being fully integrated within the offerings. Also, the high-net-worth individual activities have been expanded and the corresponding team strengthened,” the firm explained.

Generally, the Nordea wealth management division has been generating increasingly positive results over the past few years, Gunn Waersted, told WealthBriefing in an exclusive interview recently. At the time, Waersted revealed that the strong performance would result in careful expansion and new hires in 2014. To read more on that and other key developments within this Nordic banking titan, click here.

However, the results revealed that the division’s operating profit only reached €193 million in the fourth quarter of 2012, which is a 20 per cent drop year on year. Additionally, income dropped from €449 million to €410 million by the end of 2013, which the firm said was “due to that fee income related to previous periods attributable to part of the traditional portfolio was recognised in the fourth quarter 2012”.

In a final note, the firm said that its plans for further cost efficiency would be specified later in the year.