Review Credit Research 30 March 2016

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1 Review Credit Research 3 March 216 Resurs Bank Industry (GICS): Thrifts & Mortgage Finance Sector (Nordea): Financials BBB- Negative Key info Country Bloomberg debt Bloomberg equity Moody's S&P Market cap. (bn) Company website Nordea Markets - Analysts Robert Matulin Senior analyst, Credit robert.matulin@nordea.com Alexander Koefoed Analyst, Credit alexander.koefoed@nordea.com Key personnel CEO CFO Chairman Source: Company data Sweden RESURS Corp Z SS NR/--- NR/ Kenneth Nilsson Peter Rosén Jan Samuelsson Shareowners Nordic Capital 55% Bengtsson family 45% Source: Company data Credit story intact after YA Bank acquisition The 215 results from Resurs Bank were strong. Operating profit increased to SEK 833m (SEK 541m in 214), continuing the bank's growth trend. The main event of the year, however, was the acquisition of YA Bank. The shareholder contribution of SEK 1.2bn meant that capital ratios were not diluted. Our BBB- shadow rating stands, but we revise our outlook to Negative owing to increasing banking industry risk. Growth continues ahead of possible IPO Resurs Bank is a profitable and growing company in its own right. With the YA Bank acquisition, it took another big growth step. Private equity owner Nordic Capital is helping Resurs to position itself as one of the largest consumer lenders in the Nordic market ahead of an approaching IPO. Swiftly growing consumer lender YA Bank provides a stronger foothold and rapid growth in the profitable Norwegian market. Financial strength not affected by YA Bank acquisition The YA Bank takeover was costly: book equity of NOK 43m acquired for NOK 1.56bn. The acquisition generated goodwill of SEK 1.2bn. However, the shareholder contribution of SEK 1.18bn meant capital ratios were only marginally affected. YA Bank is profitable and provides Resurs with desirable growth opportunities as well as a NOK deposit base, which improves the NOK funding balance. Resurs Bank's funding and liquidity position remains strong. BBB- shadow rating but outlook shows macro risk Our credit view of Resurs Bank is unchanged and our BBB- shadow rating stands. We adjust our outlook to Negative owing to the increased macroeconomic risk in the Nordic region. Out of Resurs' four main markets, S&P currently has a Negative outlook for Sweden, Norway and Finland on account of banking industry risk in those countries. We shadow rate the outstanding bonds the SEK 4m RESURS 4/3/18 and the NOK 4m YABANK 5/4/17 at the same rating as the issuer credit rating. The bank's asset encumbrance is low, with only SEK 2.9bn pledged from a loan book of SEK 18.1bn. In our opinion, there is no need to notch down the bond below the issuer credit rating. Key credit metrics and ratios (unadjusted num SEKm NII Total income Total expenses PPP Loan losses PTP BIS III CT1-ratio BIS II Trans. T2-ratio Leverage ratio , % , % , % , % , % 214 1,323 1, %.% 215 1,76 2,223-1,52 1, %.% 216E 2,12 2,634-1,221 1, %.% 217E 2,38 2,936-1,28 1, , %.% 218E 2,718 3,298-1,344 1, ,55.% IMPORTANT INFORMATION AND DISCLOSURES AT THE END OF THIS REPORT Markets

2 Resurs Bank 3 March 216 Rating discussion and relative value Our view of Resurs Bank as a Nordea shadow BBB- credit remains intact, but we revise our outlook to Negative. Just as with other Swedish banks, there is a risk that S&P will lower the anchor rating of the Swedish banking system due to increasing household debt. However, the company-specific rating factors are stable in our view. Resurs bank's senior unsecured bond trades at attractive levels compared with peers such as Ikano and Santander Consumer Finance. Rating component summary Rating Components Anchor Business position Capital & Earnings Risk position Funding & Liquidity SACP Support ICR Resurs Bank a- Weak (-2) Strong (+1) Weak (-2) Average & Adequate () bbb- BBB- Strong market position Upside potential on capital and diversification One of Resurs Bank's relative credit strengths is its strong market position and relatively mature business model in the consumer finance business. If the bank continues to diversify revenue and secures a strong market position across the Nordic countries, it could increase its business position score. A relatively limited strengthening of the CET 1 or the Tier 1 ratio could also lead to a higher rating. Resurs Bank is relatively close to a RAC ratio of, the threshold required for a "Very Strong" capital and earnings score. Lower S&P anchor rating main downside rating risk Resurs Bank is a Nordic bank. Sweden, Norway and Finland have negative outlooks on the anchor ratings, because S&P views the bank industry credit risk of these countries as increasing. This is reflected in the outlook for our shadow rating. RESURS 4/3/18 is good value compared to peers We view the larger consumer finance companies Ikano and Santander Consumer Bank as the main peers for Resurs Bank. Compared with these issuers, the spread of the Resurs bank looks attractive. We believe that there is potential to close part of the spread gap to peers. SEK denominated senior unsecured bonds, bp 25 NORDAX 3/16/19 2 RESURS 4/3/18 Z-spread IKANO 11/14/18 SCBNOR 6/12/18 VOLVAB 6/11/2 SCBNOR 8/1/17 VOLVAB 3/27/19 IKANO 2/1/18 VOLVAB 12/4/17 VOLVAB 4/3/18 IKANO 6/16/ Years to maturity Nordea Markets 2

3 Resurs Bank 3 March 216 Company profile Resurs Bank is a Swedish consumer finance bank based in Helsingborg that specialises in payment solutions and consumer loans. The bank provides instant in-store and online sales financing for purchases not made in cash. Consumers can take advantage of unsecured loans with repayment periods varying from two months to four years. On the in-store sales financing market, Resurs Bank is the market leader in Sweden with a share of 2-25% and 1,2 retail partners. Private equity owner Nordic Capital is a majority owner, and targets an IPO and public listing of Resurs Bank in the next few years. The Resurs brand was first established in 1977 Strong consumer lending franchise Resurs Bank was founded in 1983 as a Swedish consumer finance specialist. The Resurs brand was started in 1977, when Resurs Radio & TV was established on the outskirts of Helsingborg, in southern Sweden. Resurs Finans was set up in the mid-198s and was a pioneer in offering in-store financing of consumer electronics. In 1989, the Resurs brand was separated from the electronics business and Resurs Radio was sold to SIBA and OnOff. The families owning the electronics chains also owned Resurs Bank. As of today, the Bengtsson family of SIBA owns 45% of Resurs Bank and the 55% majority owner as of 212 is private equity firm Nordic Capital. Operating income, % Paym. Solut. 49% The owners aim to grow the Resurs Bank franchise ahead of an IPO and public listing of Resurs Bank, which we expect to happen in the next few years. Growth has been accelerated with acquisitions. The 215 acquisition of ya Bank for NOK 1,56m is the largest takeover to date. Payment solutions and consumer loans Resurs Bank is no longer a sales financing vehicle for just the electronics chains SIBA and OnOff. The business is divided into two segments; Payment Solutions and Consumer Loans. Cons. loans 51% The Payment Solutions segment comprises retail finance and credit cards. Retail finance helps 1,2 retail partners and e-commerce companies in the Nordic region with customer financing, customer loyalty programmes and payment solutions. In this segment Resurs Bank is increasingly competing with Fintech companies that develop new and secure digital payment methods. Resurs Bank is a market leader in Sweden and is expanding in the Nordic market. The Consumer Loans segment is the more traditional consumer financing part of the business and is not related to the in-store financing of purchases with retail partners. Customers can take advantage of unsecured loans and pay off the debt over a period of two months to four years, depending on the product. The average remaining payment period on the whole loan portfolio is six months. In 21, Resurs became a bank and has continued to grow ever since. Sales financing is still the largest business area and Resurs has expanded geographically to Norway, Finland and Denmark by following its retail chain partners as they established their business in the Nordic countries. The bank also offers other consumer loans, credit cards factoring services and deposit savings accounts. Nordea Markets 3

4 Resurs Bank 3 March 216 With a private equity owner, the company's growth ambitions are much clearer and acquisitions are an integral part of the growth model Although the business model is beginning to mature, we do not believe that the company is running out of growth opportunities or that growth will slow down Building a Nordic franchise from a strong Swedish base Resurs Bank has its head office in Helsingborg and sales support offices in Stockholm, Oslo and Helsinki. The early Nordic expansion was organic. It also has retail chain partners that are active in the other Nordic countries. It has been a natural part of the business model to follow business partners as they expand in the Nordic region. With a private equity owner, the company's growth ambitions are much clearer and acquisitions are an integral part of the growth model. Since 212, Resurs Bank has taken over consumer finance firms Ellos Finans, Dan Aktiv, Finaref Nordic and Nordic Consumer Finance, which give Resurs a firmer foothold in all of the Nordic markets. The largest acquisition to date was the takeover of ya Bank in Norway. Its main peers are Ikano Bank, and since it acquired GE Money Bank, Santander Consumer Bank. A successful deposit franchise In our opinion, the Resurs Bank business model is beginning to mature. Despite this we do not believe that the company is running out of growth opportunities or that growth will slow down. Resurs Bank is now funded like a real bank. Just a few years ago, Resurs depended on bank financing and other short-term and unstable funding sources. Since it received its banking licence, Resurs has gradually built its deposit base and now has more deposits than lending. The whole balance sheet is basically funded through customer deposits and equity. In fact, Resurs has too many deposits currently, resulting in idle cash in the liquidity reserve. Resurs has an important asset in its ability to attract deposits. The only problem is that with the Nordic expansion, the bank does not need quite as many deposits in SEK. We believe issuing long-dated bonds in the Nordic currencies is an important means of diversifying its funding. Nordea Markets 4

5 Resurs Bank 3 March 216 Financial profile Resurs Bank's financial profile is characterised by a strong capitalisation and funding profile. Its business model has matured in recent years, especially in terms of funding sources: it can fund itself with deposits in Sweden and Norway, bonds and ABS. The diversification of its funding means that Resurs Bank has become independent of bank funding and that it no longer needs to pledge a significant proportion of its loan book to bank creditors. Measured using the S&P RAC ratio we view its capitalisation as strong, but no longer very strong, as capital ratios have come down in the past few years. Growth through acquisitions generates goodwill The consumer finance industry is characterised by high margins, making it possible to generate good return on equity. The decline in ROE after 211 coincided with a rapid improvement in Resurs Bank's funding profile and growth in deposits. The acquisition of ya Bank will boost both growth and ROE. While the takeovers of other consumer finance companies have provided Resurs Bank with access to new customers and growth, it has also generated goodwill. Of reported equity of SEK 4.3bn, goodwill comprised SEK 1.7bn. The ya Bank acquisition contributed SEK 1.1bn in goodwill. ya Bank was acquired for NOK 1,56m but the book value of equity was only NOK 43m. Resurs Bank's ROE and return on tangible equity 3.% 25.% Acquisitions have generated goodwill, hurting ROE RoTBV is increasing 2.% 15.% 1.% 5.%.% ROE RoTBV Funding and liquidity relative strength During , Resurs Bank had very strong deposit growth, deposits even outgrowing lending. In 214, its loan/deposit ratio was 86%, but this increased to in 215. Access to ABS and bond funding has diversified its funding base, providing the bank with more options. Resurs Bank has two bonds outstanding: SEK 4m from Resurs Bank and NOK 4m issued by ya Bank. It also has ABS financing amounting to SEK 1.4bn. Asset encumbrance is relatively low. Resurs Bank has pledged SEK 2.9bn of its assets, which is a relatively modest amount given the total loan portfolio of SEK 18.1bn. Of its assets, SEK 1.8bn is pledged for the ABS. The rest is pledged for SEK 536m in unused credit facilities. Nordea Markets 5

6 Resurs Bank 3 March 216 Funding profile: Loans and deposits 2, 18, 16, 14, 12, 1, 8, 6, 4, 2, SEK m Loans Deposits Resurs Bank has a strong liquidity reserve. The bank reports a LCR of 142%, with a liquidity reserve of SEK 1,259m, in accordance with Basel III / CRD IV. However, its total liquidity reserve is much larger. Total liquid assets amount to SEK 4,155m, excluding the unused credit facility of SEK 535m. Assets, SEKm Liquidity, 2, Other, 2,58 Credit institutions, 2,222 Liabilities, SEKm Other, 1,376 Deposits, 16,561 Equity, 4,36 Lending, 18,199 Issued securities, 2,181 The S&P RAC ratio is below the threshold for a very strong capital score in the S&P rating framework. Capitalisation is strong, but not very strong Resurs Bank reported a core tier 1 ratio of 13.1%, marginally down from 13.4 at the end of 214. Resurs Bank reports using standardised risk weights, not internal ratings, and so risk weights are relatively high. A CET1 ratio of 13.1% implies strong capitalisation in the S&P rating framework, but not a very strong capitalisation. By our estimates, a CET1 or Tier 1 ratio of or above would be enough for a RAC ratio of more than and a very strong capital and earnings score. This, in turn, would mean a one notch higher rating. However, Resurs Bank does not at the moment aim for higher capital ratios. The ya Bank acquisition could potentially have been very dilutive for capital ratios, but the bank's owners provided it with a shareholders' contribution of SEK 1,175m. This compensated for the goodwill generated by the acquisition. Nordea Markets 6

7 Resurs Bank 3 March 216 Core tier 1 ratio 16% 15.1% 15.3% 14% 1% 6% 4% 2% % 13.4% 13.1% % CET1-ratio Financial forecasts Resurs Bank has stated that it continues to strive for rapid organic growth and that it is continuously looking for bolt-on acquisitions, making it difficult for us to forecast its financials. For the rating outlook, we assume that capital ratios will remain stable. Acquisitions made at above book value mean there will be dilution of CET1 capital. While Resurs Bank has not formulated any formal financial target, there is a floor in the form of regulatory capital requirements. For the Capital & Earnings score, it is the CET1 ratio that matters. The shadow rating, in our opinion, depends on how growth is managed without diluting balance sheet strength. Nordea Markets 7

8 Resurs Bank 3 March 216 Reported numbers and forecasts Annual income statement and balance sheet Income statement SEKm Net Interest Income Net Commission Income Net result from financial transactions Net insurance income Other income Total revenues , , , , , , , , , E 2, , E 2, , E 2, ,298 Staff costs Other operating costs Depreciation Total Expenses , , , ,344 Profit before loan losses ,171 1,414 1,657 1,954 Loan losses Write-downs on assets Operating profit , ,55 Taxes Discontinued operations Minority interest Net profit to equity ,12 Balance Sheet SEKm Cash / Interbank Loans to credit institutions Loans to the public Goodwill and other intangibles Total assets ,23 7, ,191 7, ,97 7, ,792 8, ,54 9,42 14, ,595 13, , ,222 18,199 1,745 24, E 1,63 2,222 21,838 1,745 28,77 217E 1,222 2,333 25,114 1,745 32, E 1,345 2,45 28,881 1,745 36,747 Interbank/owed to credit institutions Deposits Subordinated loans Minority interest Shareholders equity Total equity and liabilities 2,19 3, , , ,528 1,514 4, , , , ,57 1,175 14, , ,745 2, , ,36 24,478 18, ,136 28,77 2,43 2 5,696 32, , ,273 36,747 Loans to deposits Non-mortg. loans to deposits 154% 154% 117% 117% 151% 151% 16% 16% 75% 75% 86% 86% % 123% 129% 129% LCR NSFR % % % % % % % % % % % % % % % % % % % % Growth (y/y) Adjusted for non rec.items Net interest income Net commission income Total Revenues Staff costs Total expenses Profit before loan losses Operating profit Net profit to equity 29 7% 41% 27% 33% 32% % 31% 37% -24% -35% % -5% -14% 27% 46% 47% 212-6% % -3% 16% - -5% -4% 213-7% 41% -6% 51% 25% 24% % 3 51% 65% 36% 72% 5 133% % -2% 24% 25% 37% 5 52% 216E 5% 16% 21% 25% 3 217E 4% 1% 5% 17% 21% 21% 218E 14% 4% 1% 5% 25% 25% Loans to the public Deposits Assets - 63% 4% -14% % 17% - -6% 59% 33% 8 73% 54% 34% 41% 31% 3% 22% 2% 17% 1% 1% RWA growth (BIS II) RWA growth (BIS Trans) RWA growth (BIS III) 5% - 23% 17% -1% 39% 2% -1% Nordea Markets 8

9 Resurs Bank 3 March 216 Annual key data Capital ratios % BIS II CT1-ratio BIS II T1-ratio BIS II T2-ratio % 12.6% 14.2% % 15.1% 15.1% % 15.3% 15.3% E 217E 218E BIS II Trans. CT1-ratio BIS II Trans. T1-ratio BIS II Trans. T2-ratio BIS III CT1-ratio BIS III T1-ratio BIS III T2-ratio 13.7% 13.7% 15.% 13.1% 13.1% 14.2% 13.5% 13.5% 14.3% 13.6% 13.6% 14.3% Tang. Equity/Assets Tang. Equity/Lending Leverage ratio 9.4% 11.7%.% 11.1% 16.%.% 13.4% 15.5%.% 12.1% 14.5%.% 8.3% 13.%.% 1.4% 14.9%.% 1.7% 14.4%.% %.% 12.1% 15.7%.% 12.3% 15.7%.% Credit quality SEKm Impaired loans Loan loss reserves ,189 1, ,411 1, E 2,7 1,56 217E 3,15 1, E 3,571 2,91 Coverage ratio Loan loss reserves / Total loans Impaired loans / Total loans Collective/total provisions Perf. Impared loans/impaired loans Loan loss ratio 93%.59%.63% 3% 93%.21% 89% 1.27% 1.43% 5 89%.74% % 1.63% 34% 8.42% 3 2.3% 5.34% 56% 3 1.2% 45% 3.82% 8.56% 5 45% 2.64% 49% % 49% % 7.89% 15.1% 16% 53% % 7.52% 13.49% 56% % 7.54% 13.23% 14% 57% 2.6% 59% 7.75% 13.23% 59% 1.79% Growth loan loss reserves (y/y) Growth impaired loans (y/y) -22% -36% 89% 99% 14% 61% 274% 131% 97% 252% 223% 1% Profitability Adjusted for non-rec. Items RoE RoTBV C/I NII-margin % 17.1% 7.4% 1.52% % 18.1% 79.7% 15.55% % 23.% 73.2% % 12.7% 69.1% 11.67% % 14.1% 58.% 8.82% % % 11.52% % 22.9% 47.3% 1.96% 216E 15.6% 24.6% 46.3% 1.5% 217E 16.5% 24.4% 43.6% 1.14% 218E 18.7% 26.4% % Revenue distribution Adjusted for non-rec. Items Net Interest Income Net Commission Income Net result from financial transactions Net insurance income Other Income 29 66% - % 29% 21 77% % % % % % % % % % % % 22% % 17% % % 9% % -1% % 9% 216E % % 217E 81% % % 218E 82% 1% % % 7% Nordea Markets 9

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11 Resurs Bank 3 March 216 Analyst Shareholding Nordea Markets analysts do not hold shares in the companies that they cover. No holdings or other affiliations by analysts or associates. Market-making obligations and other significant financial interest Nordea Markets has no market-making obligations in Resurs Bank. Recommendation definitions Outperform Over the next three months, the fixed income instrument's total return is expected to exceed the total return of the relevant benchmark. Investment banking transactions Nordea Markets has ongoing or completed public investment banking transactions with Resurs Bank. Market perform Over the next three months, the fixed income instrument's total return is expected to be below the total return of the relevant benchmark. Underperform Over the next three months, the fixed income instrument's total return is expected to be below the total return of the relevant benchmark. All research is produced on an ad hoc basis and will be updated when the circumstances require it. Distribution of recommendations Recommendation Outperform Market perform Under perform Total As of 1 October 215 Count % Distribution 52% 29% 1% Distribution of recommendations (transactions)* Recommendation Outperform Market perform Under perform Count % Distribution Total 28 As of 1 October 215 * Companies under coverage with which Nordea has ongoing or completed public investment banking transactions. 22% 64% 14% 1% Issuer Review This report has not been reviewed by the Issuer prior to publication. Nordea Bank AB (publ) Nordea Bank Danmark A/S Nordea Bank Finland Plc Nordea Bank Norge ASA Nordea Markets Division, Equities Nordea Markets Division, Equities Nordea Markets Division, Equities Nordea Markets Division, Equities Hamngatan 1 Strandgade 3 (PO Box 85) Aleksis Kiven katu 9, Helsinki Essendropsgate 7 SE Stockholm DK-9 Copenhagen C FI-2 Nordea N-368 Oslo Sweden Denmark Finland Norway Tel: Tel: Tel: Tel: Fax: Fax: Fax: Fax: Reg.no Reg.no Reg.no Reg.no Stockholm Copenhagen Helsinki Oslo