valuation different for digitalised banks?...source: abg sundal collier, company reports, nordics...

This document is for the use of the recipient only and should

not be copied or distributed to any other person or entity.

Please refer to important disclosures at the end of this presentation.

Valuation different for digitalised banks?

By Jan Erik Gjerland

Equity research

ABG Sundal Collier

17 January 2020

Strictly Private & Confidential

How we value a bank…fundamentally…ROE vs. P/BV

2

4%

6%

8%

10%

12%

14%

16%

18%

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

2.2

Nordic Banks - P/BV and ROE 12m fwd

P/BV (lhs) ROE (rhs)

P/BV (x)

Source: Factset & ABGSC Research

ROE

Any difference in banks with branches…

3

0.30

0.50

0.70

0.90

1.10

1.30

1.50

1.70

1.90

6.00

8.00

10.00

12.00

14.00

16.00

Jan

-01

Oct-

01

Jul-0

2

Ap

r-03

Jan

-04

Oct-

04

Jul-0

5

Ap

r-06

Jan

-07

Oct-

07

Jul-0

8

Ap

r-09

Jan

-10

Oct-

10

Jul-1

1

Ap

r-12

Jan

-13

Oct-

13

Jul-1

4

Ap

r-15

Jan

-16

Oct-

16

Jul-1

7

Ap

r-18

Jan

-19

Oct-

19

DNB

ROE DNB PBV DNB

…vs. bank without branches – Sbanken- it looks like it boils down to the ROE

4

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

11.00

11.20

11.40

11.60

11.80

12.00

12.20

12.40

12.60

12.80

13.00

Oct-

15

Dec-1

5

Fe

b-1

6

Ap

r-16

Jun

-16

Au

g-1

6

Oct-

16

Dec-1

6

Fe

b-1

7

Ap

r-17

Jun

-17

Au

g-1

7

Oct-

17

Dec-1

7

Fe

b-1

8

Ap

r-18

Jun

-18

Au

g-1

8

Oct-

18

Dec-1

8

Fe

b-1

9

Ap

r-19

Jun

-19

Au

g-1

9

Oct-

19

Dec-1

9

Sbanken

ROE Sbank PBV Sbank

…vs. NOFI – does products have something to say?- maybe? Or just higher ROE?

5

0.9

1.4

1.9

2.4

2.9

3.4

3.9

4.4

4.9

20

22

24

26

28

30

32

34

36

Oct-15

Dec-

15

Feb

-16

Apr-

16

Jun-1

6

Aug-1

6

Oct-16

Dec-

16

Feb

-17

Apr-

17

Jun-1

7

Aug-1

7

Oct-17

Dec-

17

Feb

-18

Apr-

18

Jun-1

8

Aug-1

8

Oct-18

Dec-

18

Feb

-19

Apr-

19

Jun-1

9

Aug-1

9

Oct-19

Dec-

19

NOFI

ROE NOFI PBV NOFI

…so its not if you are digitalised or not- its the ROE – look at Nordea 2000-2020

6

0.30

0.50

0.70

0.90

1.10

1.30

1.50

1.70

1.90

6.00

8.00

10.00

12.00

14.00

16.00

Jan

-01

Oct-

01

Jul-0

2

Ap

r-03

Jan

-04

Oct-

04

Jul-0

5

Ap

r-06

Jan

-07

Oct-

07

Jul-0

8

Ap

r-09

Jan

-10

Oct-

10

Jul-1

1

Ap

r-12

Jan

-13

Oct-

13

Jul-1

4

Ap

r-15

Jan

-16

Oct-

16

Jul-1

7

Ap

r-18

Jan

-19

Oct-

19

NDA

ROE NDA PBV NDA

…or maybe its the- its the ROE – look at Nordea 2010-2020

7

0.70

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

8.00

8.50

9.00

9.50

10.00

10.50

11.00

11.50

12.00

12.50

Jan

-10

Jun

-10

Nov-1

0

Ap

r-11

Se

p-1

1

Feb-1

2

Jul-1

2

Dec-1

2

May-1

3

Oct-

13

Mar-

14

Au

g-1

4

Jan

-15

Jun

-15

Nov-1

5

Ap

r-16

Se

p-1

6

Feb-1

7

Jul-1

7

Dec-1

7

May-1

8

Oct-

18

Mar-

19

Au

g-1

9

NDA

ROE NDA PBV NDA

Costs:

Old «rule of thumb»

- Cover costs by by net interest income…

That is no longer the case

…must go towards 25% !!!

8

ROE contributors for Nordic banks:- Cost-efficiency, been extremely important- Nordic banks looks good in an European perspective…

9 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.

40.0%

45.0%

50.0%

55.0%

60.0%

65.0%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

20

17

20

18

20

19

e

20

20

e

20

21

e

Nordic banks - Average adjusted C/I ratio

Source: Company reports & ABGSC Research

…but there is a negative pattern of late from IT and AML-costs

10

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019e

2020e

2021e

Nordic banks - Adjusted C/I ratios

Danske Bank DNB Swedbank

Handelsbanken Nordea SEB


Norwegian banks – cost-to-income

11

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

60.0%

65.0%

70.0%

75.0%

80.0%

85.0%1989

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

2016

2017

2018

2019e

2020e

2021e

Norwegian banks - Cost-income* 1989-2021e

SR-Bank MING NONG SVEG DNB Sbanken

Source: Bank's reports and ABGSC calc. * Cost-income-ratio ex. trading

… and have really understood its competition is not the oldbanks, but the new challengers

12

32.5%

35.0%

37.5%

40.0%

42.5%

45.0%

47.5%

50.0%

52.5%

55.0%

57.5%

60.0%

62.5%

65.0%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019e

2020e

2021e

Norwegian banks - Cost income-ratio ex. trading

SR-Bank MING NONG SVEG SPOL DNB Sbanken

Source: Bank's reports and ABGSC calc. * Cost-income-ratio ex. trading

Challenger banks – like consumer banks – is 25-30% C/I the norm going forward?

13

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

60.0%

2011 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e

C/I ratios adj.

Bank Norwegian Collector Komplett Bank

TF Bank BRAbank Resurs Holding


So costs vs ROE or just the positive jaws?

14

13%

4%

9%

2%

79%

52%

39%

35% 30%

40%

50%

60%

70%

80%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2011 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e

Cost-income-ratioGrowth

Sbanken - Cost-income-ratio improving - income is growing faster than costs again, but 2018

Growth in revenues Growth in costs

Cost / Income-ratio Cost / Adj.income-ratio

Source: Sbanken's interim report, ABG Sundal Collier.

ROE and costs - MING

15

15.2%

52.8%

47%

52%

57%

62%

67%0%

10%

20%

30%

40%1

99

2

19

93

19

94

19

95

19

96

19

97

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

20

17

20

18

20

19e

20

20e

20

21e

ROE (l.h.s) Cost/income ex. trading (r.h.s)

In the old days this worked…as there was not so much capital

16

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%

80%9%

11%

13%

15%

17%

19%

21%

2011 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e

Sbanken - ROE cs adj. C/I

ROE, excl. trading & capital gains Cost/income ex. trading (RHS)

Sbanken & NOFI - P/E-valuation

17

5.00

7.00

9.00

11.00

13.00

15.00

Fe

b-1

5A

pr-

15

Ju

n-1

5

Au

g-1

5

Oct-

15

Dec-1

5

Fe

b-1

6

Ap

r-16

Ju

n-1

6

Au

g-1

6

Oct-

16

Dec-1

6

Fe

b-1

7A

pr-

17

Ju

n-1

7

Au

g-1

7

Oct-

17

Dec-1

7

Fe

b-1

8A

pr-

18

Ju

n-1

8

Au

g-1

8

Oct-

18

Dec-1

8

Fe

b-1

9A

pr-

19

Ju

n-1

9

Au

g-1

9

Oct-

19

Dec-1

9

P/E-valuation

Sbanken Bank Norwegian

…at the end of the day - it looks like it boils down to the ROE

18

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

11.00

11.20

11.40

11.60

11.80

12.00

12.20

12.40

12.60

12.80

13.00

Oct-

15

Dec-1

5

Fe

b-1

6

Ap

r-16

Jun

-16

Au

g-1

6

Oct-

16

Dec-1

6

Fe

b-1

7

Ap

r-17

Jun

-17

Au

g-1

7

Oct-

17

Dec-1

7

Fe

b-1

8

Ap

r-18

Jun

-18

Au

g-1

8

Oct-

18

Dec-1

8

Fe

b-1

9

Ap

r-19

Jun

-19

Au

g-1

9

Oct-

19

Dec-1

9

Sbanken

ROE Sbank PBV Sbank

Questions??

19

Capital is a scare resource,

and

needed for growth!

20

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%1

99

11

99

21

99

31

99

41

99

51

99

6

19

97

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

20

17

20

18

2019

e20

20e

2021

e

Average Avg ex Danske Linear (Average)

From Basel 1 to Basel 4!- long term linear trend up from 4.5% to 5.5%-leverage ratio in the Nordics

21

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,


Capital levels, once must hold between 15-17% CET1-req- banks hold 17-19%, like to have a mgmt. buffer

22

Norway about to tranfer to CRD4/Basel 3– easier for IRB, less so for non-IRB-banks

23

0.5%

1.5%

2.5%

3.5%

4.5%

5.5%

6.5%

7.5%

8.5%

19

91

19

92

19

93

19

94

19

95

19

96

19

97

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

20

17

20

18

20

19

e2

02

0e

20

21

e

Danske DNB Nordea SEB SHB Swedbank

Huge variation among banks on simple leverage ratio– DNB’s continue to increase, like most savings banks



-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

19

91

19

92

19

93

19

94

19

95

19

96

19

97

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

20

17

20

18

2019

e

2020

e

2021

e


Adj. return on equity between 15-20%, for DNB, SWED & SEB- all banks had same (simple) leverage ratio of 4.7%



Adj. return on equity just above 10%, for DNB, SWED & SEB- all banks had same (simple) leverage ratio of 7%(!)

26

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

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

2016

2017

2018

20

19

e

20

20

e

20

21

e


Source: ABG Sundal Collier, Company reports, Nordics banks are Danske Bank and its predecessors, DNB and its predecessors, Nordea and its predecessors,


How banks can make high ROE in a low rate environment

• Increase its risk-adjusted margins

• Increase capital light commission and fees

• i.e. improve sale of capital light insurance products, life & non-

life, AM, real estate

• Continue the cost-efficiency

• Avoid loan losses, as margins in general are too low

• Improve the leverage, distribute capital if possible

27

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This material is for distribution only under such circumstances as may be permitted by applicable law. It has no regard to the specific investment objectives, financial

situation or particular needs of any recipient. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any

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reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in the

materials. It should not be regarded by recipients as a substitute for the exercise of their own judgement. Any opinions expressed in this material are subject to

change without notice and may differ or be contrary to opinions expressed by other business areas or groups of ABGSC as a result of using different assumptions

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© 2016 ABG Sundal Collier ASA. All rights reserved. ABG Sundal Collier ASA specifically prohibits the redistribution of this material and accepts no liability

whatsoever for the actions of third parties in this respect.

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Tel +47 22 01 60 00

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valuation different for digitalised banks?...source: abg sundal collier, company reports, nordics...

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