In the latest turn of events this Thursday, activist investor Cevian Capital AB has urged Nordea Bank Abp (OTC:NRDBY), the largest bank in the Nordic region, to increase its profitability targets. The call comes as Nordea is preparing to announce its new financial goals.
Cevian, which owns about 4.4% of Nordea making it the second-largest shareholder, has advised the bank's CEO, Frank Vang-Jensen, to aim for a return on equity (ROE) of at least 15%, regardless of macroeconomic conditions. Gustav Moss, a partner at Cevian, has argued that given the current favorable market conditions, Nordea's profitability should significantly exceed this benchmark.
Earlier this year, Vang-Jensen had announced his plans to reveal new financial objectives in February. At the same time, he upgraded the bank's profitability forecast for this year to comfortably surpass 15%. Currently, Nordea's existing ROE target is slightly above 13%.
Nordea has been part of Cevian's portfolio for nearly five years and recently, the investment firm has been one of its most vocal shareholders. Despite reducing its stake in Nordea recently, Cevian continues to express support for Vang-Jensen. Moss stated that Nordea currently boasts the best management team among Nordic banks.
Like many other banks worldwide, Nordea has benefited from rising interest rates implemented by central banks. In the first half of this year alone, net interest income rose by almost €1 billion (€1 = $1.07), a 37% increase.
However, despite these robust financial results, Moss suggested that Nordea still has significant work ahead in terms of improving efficiency. He expressed his desire for Nordea to lower its cost-to-income ratio — a measure that compares expenses with revenue — to approximately 40% over time. As of last year, this ratio stood at 47.5%.
Cevian became a shareholder in Nordea toward the end of 2018 when the bank was lagging behind its peers in terms of profitability.
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