January 25, 2018 / 11:35 AM / 6 months ago

UPDATE 2-Nordea operating profit slides as low market volatility hits fees

* Nordea Q4 results below forecast

* Low capital markets volatility during quarter hit result

* Raises dividend more than expected

* Market disappointed, shares fall 3.9 percent (Adds details, background, CEO quotes)

By Johan Ahlander

STOCKHOLM, Jan 25 (Reuters) - Nordea, the Nordic region’s biggest banking group, reported a steeper-than-expected fall in earnings in the final quarter of 2017 as it moved to reduce risk by scaling down in Russia and suffered from generally low market volatility.

Nordea said the results were also hit by reduced exposure to shipping and oil-related services and the deconsolidation of its Baltic operations, where Nordea has merged with Norway’s DNB .

“It is definitely a disappointment. The trend in the income statement is clearly weaker than expected, and that is even compared to a weak third quarter,” said Andreas Hakansson, banking analyst at Exane BNP Paribas.

“It is quite clear that the consensus estimates have to come down quite a bit for both 2018 and 2019,” he said.

Shares in Nordea were down 3.9 percent at 1007 GMT, making it the biggest faller on the European banking index, which was up 0.1 percent.

Operating profit in the quarter fell by more than a third to 796 million euros ($991 million) from 1.25 billion a year ago, almost 12 percent below an average forecast of 900 million euros in a Reuters poll of analysts, the company said.

Banks make a lot of money managing risks for smaller firms that could go bankrupt if affected by high volatility. They transfer that volatility to the bank for a fee. At times of low volatility, the need for that insurance drops markedly, affecting bank earnings.

Lower market volatility mainly hit the net result from hedging and other ways of handling customers’ risks, which fell to 235 million euros in the fourth quarter from 498 million euros a year ago.

“We are not satisfied. We’re a big capital markets player and with lower activity and very low volatility that has suffered,” Nordea CEO Casper von Koskull told Reuters.

The company said it was confident its net profit would grow this year, and it expected to see slightly higher revenues, lower costs and stable credit quality.

Nordea has been looking to exit Russia for many years as lower oil prices and Western sanctions have limited business opportunities and increased risks.

It said in 2015 it had decided to stop lending to private Russian customers as the risk was too high.

Nordea raised its proposed dividend to 0.68 euro per share from 0.65 euro last year and slightly higher than the 0.67 euro forecast by analysts. The bank’s ambition is to achieve a yearly increase in dividend.

Net interest income, which includes income from mortgages and loans to companies, came in at 1.11 billion euros compared to 1.21 billion a year ago, lower than the expected 1.15 billion, while commission income also missed analysts’ expectations. ($1 = 0.8034 euros) (Reporting by Johan Ahlander, Editing by Niklas Pollard, Sherry Jacob-Phillips and Adrian Croft)

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