Nordea's Strategic AT1 Issuance: A Capital Fortification Move in a Turbulent Market

In the wake of the 2025 EU-wide stress test results, which underscored the resilience of European banks amid a severe economic downturn, Nordea’s recent issuance of SEK 2.5 billion and NOK 3.5 billion in Floating Rate Additional Tier 1 (AT1) Conversion Notes has emerged as a strategic masterstroke. This move, executed on 19 August 2025, reflects the bank’s proactive approach to capital management in an era defined by the implementation of CRR3 and Basel IV. By securing a CET1 capital ratio of 15.6% as of Q2 2025—1.9 percentage points above regulatory requirements—Nordea has positioned itself as a benchmark for capital resilience in the Nordic banking sector [1].

Regulatory Tailwinds and Strategic Flexibility

The AT1 issuance, priced at STIBOR + 2.50% (SEK) and NIBOR + 2.55% (NOK), leverages favorable market conditions to lock in long-term funding while maintaining flexibility. The perpetual structure, with a first call date in November 2030, ensures Nordea can navigate the transitional phase of Basel IV’s output floor, which restricts internal model benefits to 27.5% of risk-weighted assets (RWAs) by 2030 [2]. This regulatory shift, as noted by Norges Bank, disproportionately impacts Nordic banks reliant on internal risk models, potentially increasing capital requirements by 8.6% for large institutions [3]. Nordea’s AT1 buffer, coupled with its EUR 250 million share buy-back program, demonstrates confidence in its ability to absorb these pressures while sustaining shareholder returns [4].

Peer Comparison: Nordea vs. DNB and SEB

While Nordea’s CET1 buffer is robust, its Nordic peers exhibit varying degrees of capital resilience. DNB, for instance, reported a CET1 ratio of 18.3% in Q2 2025, significantly higher than Nordea’s 15.6%, but this includes a 180-basis-point buffer under CRR3 stress scenarios [5]. SEB, though less transparent in its disclosures, appears to align with the EU average of 15.8% CET1 under CRR3 rules, with stress test projections indicating a decline to 11.2% under adverse conditions [6]. These metrics highlight Nordea’s balanced approach: it prioritizes capital efficiency over excessive conservatism, a strategy that aligns with its 15.7% ROE in Q1 2025 and a cost-to-income ratio of 44.6% [7].

Risk-Return Trade-Offs in a High-Yield Environment

The issuance also underscores Nordea’s ability to optimize risk-return profiles. By issuing AT1 at a time when Nordic banks face rising capital costs due to Basel IV, Nordea secures low-cost, perpetual funding that enhances its risk-adjusted returns. This contrasts with peers like DNB, which has opted for higher equity returns over aggressive capital expansion, and SEB, which relies on transitional arrangements to mitigate output floor impacts until 2032 [8]. Nordea’s liquidity coverage ratio of 156% further reinforces its capacity to manage short-term risks without diluting long-term profitability [9].

Conclusion: A Model for Post-Crisis Capital Management

Nordea’s AT1 issuance exemplifies the strategic recalibration required in the post-crisis capital management era. By preemptively addressing regulatory headwinds and maintaining a strong capital buffer, the bank not only safeguards its resilience but also enhances shareholder value through buy-backs and dividend sustainability. For investors, this move signals a disciplined approach to navigating the evolving Nordic banking landscape, where capital resilience and regulatory agility will define long-term success.

Source:
[1] Nordea’s Strategic AT1 Issuance in a High-Yield Environment [https://www.ainvest.com/news/nordea-strategic-at1-issuance-high-yield-environment-balancing-capital-strength-risk-adjusted-returns-2508/]
[2] Basel IV is here: What you need to know [https://www.nordea.com/en/news/basel-iv-is-here-what-you-need-to-know]
[3] Web report 2025-1 Financial stability [https://www.norges-bank.no/en/news-events/publications/Financial-Stability-report/2025-1-financial-stability/web-report-2025-1-financial-stability/]
[4] Nordea’s Resilience in the 2025 EBA Stress Test [https://www.ainvest.com/news/nordea-resilience-2025-eba-stress-test-strategic-buy-opportunity-long-term-investors-2508/]
[5] Earnings call transcript: DNB Q2 2025 sees strong equity returns amid NII decline [https://www.investing.com/news/transcripts/earnings-call-transcript-dnb-q2-2025-sees-strong-equity-returns-amid-nii-decline-93CH-4194992]
[6] 2025 EU-wide Stress Test - Results [https://www.eba.europa.eu/publications-and-media/publications/2025-eu-wide-stress-test-results]
[7] Nordea Bank Abp (NRDBY) Q1 FY2025 earnings call transcript [https://finance.yahoo.com/quote/NRDBY/earnings/NRDBY-Q1-2025-earnings_call-228499.html]
[8] Key Challenges Navigating Basel IV Compliance [https://www.nasdaq.com/articles/fintech/regulatory-news/key-challenges-Basel-IV-compliance]
[9] Nordea’s Resilience in the 2025 EBA Stress Test [https://www.ainvest.com/news/nordea-resilience-2025-eba-stress-test-strategic-buy-opportunity-long-term-investors-2508/]