Analyst Note| Niklas Kammer, CFA |
Nordea showed a solid performance in the 2021 European Central Bank's stress test. Its common equity Tier 1 ratio stayed 3.2 percentage points above its minimum requirement of 10.2%. Even if we were to include a countercyclical buffer (around 2%), Nordea would have passed this exercise. The decline of its common equity Tier 1 ratio (21.6%) can be broken down into 4.1% risk-weighted asset inflation and its capital base shrinking 18.4%. The culprits of the capital draw are easy to find. In this harsh scenario, credit losses more than tripled in 2021 from already elevated levels in 2020. Net interest income generation and net fee and commission income--albeit to a lesser extent--also saw a meaningful negative impact. That being said, Nordea only made a hypothetical loss in one year out of three, with the other two breaking even. In our book, that is a solid performance given the severity of the stress scenario. We maintain our SEK 93 per share fair value estimate and no moat rating.