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Nordea to count huge cost of its play with jewellery in Denmark

Thursday, 22 September 2011
The fall out of the Nordea’s involvement in the Danish jewellery company, Pandora and the subsequent dismissal of some top Nordea’s management employees will hit the banks’ third quarter earnings.

Danish Pandora fiasco, in which Nordea recommended the purchase of shares in the company without explaining that it had a special interest in the company, saw the Danish financial regulatory authority hitting the bank with a big fine.

This will in effect cost Nordea more than a quarter of a billion Swedish Krona in the third quarter. One fall out effects of this is that shares of the Jewellery Company has fallen 75 percent in the Danish stock market since late June, and the value of Nordea's shares have plummeted more than Skr300 million during the same period.

But the total loss is greater than that. At the introduction, Nordea corresponded that it had a holding of 4 percent of Pandora, today, the bank is reported to have sold off most of it and the holding at moment shall amount to 1.72 percent of the company. And since the launch, the shares plummeted from Dkr210 to Dkr38, a drop of 82 percent.

Nordea helped the company's initial public offering about a year ago and also invested in private equity fund Axcel. It is through the Fund that Nordea owns shares in Pandora.
"We do not know the effect on earnings yet, it is the stock price as of September that will decide, " said Nordea's head of Investor Relations, Rodney Alfven.

Pandora's IPO in autumn 2010 was heavily bullish and the largest in Copenhagen since telecom operator TDC in 1994. The share was oversubscribed six times, and many interested investors received no award at all.

To many analysts, there were warnings about Pandora's business, but few took notice of. The products mainly consist of pendants to bracelets, and it was questioned how much demand actually could be there.

But it's not just the loss rate after the collapse that hurts Nordea. The bank was reported to the police by the Danish FSA for their involvement in the IPO.

Two managers in the Danish corporate finance department, Thomas Lindquist and Steen Jørgensen Lønberg, were sacked. But according to Rodney Alfvén, it had nothing to do with Pandora's introduction. It was “simply reorganization” he said then.
It is not just the Danish adventure which will beat the bank's earnings in the third quarter.
Rodney Alfvén confirms that the bank in the third quarter is to take the extraordinary costs of the 2,000 employees who are being viewed to let go. Where the cost will fall remains unknown.

Despite the cost savings to be derived from the layoffs, the interim report in July was flagged by Nordea CEO, Christian Clausen that the bank in the autumn would take steps to enhance the return on equity and to limit cost increases during the second half of 2011.
By Scancomark.se Team

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