Nordea Q3'25 preview: Good outlook despite decreasing earnings

Translation: Original published in Finnish on 10/2/2025 at 8:22 am EEST.

We expect Nordea's Q3 profitability to have remained strong despite a contraction in net interest income. Prior to the earnings report, we raised our target price to EUR 15.0 per share (was EUR 12.5), due to our greater confidence in the long-term viability of high profitability, as well as the reduced required return. Given this, the expected return remains sufficient, even though the bar for earnings growth has been raised due to the sharp increase in the share price. Thus, we reiterate our Accumulate recommendation.

Market data caused a slight reduction in projections for the rest of the year

Our return forecasts for the current year and Q3 decreased slightly due to capital market developments and additional reductions in central bank interest rates. The estimate changes for the other rows were very limited, so our EBIT estimate for the current year decreased by only about one percent. Conversely, our longer-term forecasts rose slightly, supported by lower credit loss forecasts.

Earnings are down, but profitability remains strong

Nordea will publish its Q3 results on Thursday, October 16. We expect credit demand to have continued its slight recovery, as indicated by loan data from key markets. We also expect moderate growth in asset management's AUM, which will support the development of net commission income. Typically, sales are quieter in Q3, so this is more strongly driven by positive changes in value. Overall, however, Nordea's income will decline both from the comparison period and the previous quarter owing to the decline in net interest income in line with interest rates. According to the bank's estimates, cost increases should remain moderate.

We expect credit losses to clearly support the Q3 result as we estimate they will remain at zero due solely to the release of discretionary buffers. Even after this adjustment, credit losses should remain moderate, similar to the beginning of the year (0.07% of the loan book vs. Nordea's estimated normal level of 0.10%).

We forecast earnings per share of EUR 0.33, which would still represent a return on equity of 15%, as targeted. Accordingly, the company is likely to reiterate its guidance of a return on equity of over 15%. We also expect Nordea to announce a new share buyback program.

Profitability outlook justifies high valuation

With a slightly brighter economic outlook and stabilizing interest rate forecasts, we believe it is now more reasonable to rely on profitability assumptions that clearly exceed historical levels. Additionally, we do not see any signs of significant competition intensification. Consequently, our estimate of Nordea’s fair value has increased as well. Previously, we applied a cautious long-term expected return on equity of 12–14% in our valuation, but we have raised it by one notch to 14–15%, in line with our estimates. In addition, we have lowered the discount rate we apply (10.0% -> 9.5%), as increased valuation multiples in the Nordic banking sector indicate falling required returns across the industry.

These assumptions justify a share price range of EUR 14.0–16.3 for Nordea (accepted P/B 1.5–1.8x). In this context, the current valuation is still not too demanding, although it is worth noting that the rise in the share price has raised the bar for earnings growth, increasing valuation risk. Consequently, the valuation can no longer be justified purely on the basis of profit distribution (~9%), but earnings growth must also gradually support the expected return. However, the outlook for economic development in key operating countries is decent, despite the continued uncertainty surrounding the economic recovery. In addition to volume development, a key forecast risk relates to interest rate developments, which are difficult to predict, as a decline in interest rates would weaken the bank's net interest income.