Aktia's Investor Event shed light on ambitious growth plans

Translation: Original published in Finnish on 2/28/2025 at 9:38 am EET.

We believe the key themes of Aktia's updated strategy - growth in wealth management and improving cost efficiency - are the right ones, and the bank's direction seems clearer than before. However, we did not see an immediate need to change our forecasts, as it is difficult at this stage to assess the likelihood of success of what are still rather abstract measures. In particular, the profitability target seems to us to be overly optimistic. Ultimately, time will tell to what extent the words of the strategy update will be translated into actions.

Growth from selected customer segments

The customer-satisfaction NPS scores reported by Aktia are excellent, indicating that customers value the service they receive. The key question is how to run the business more cost-effectively while attracting new customers. The focus remains firmly on wealthy individuals and personal service. Consequently, no dramatic change in the company's strategy was seen. However, the focus is shifting more towards asset management rather than simply offering products. This is supported by the discretionary asset management service, which was renewed last year. The model combines both proprietary products and selected third-party products. We believe that this direction is justified and better meets the needs of the company's key customers (Premium and Private Banking customers). Of course, growth is also sought among institutional clients, for example, but we understand that they tend to be buyers of fixed-income products, so the need for service is lower.  In addition, competition for customers is more intense on the institutional side.

To support growth, Aktia launched a ten-point acceleration program, largely focused on developing service and sales models and improving operational efficiency, for example by developing IT systems. However, it is difficult to assess the likelihood of success at this stage, as the measures remain rather abstract, although we believe that the priorities and themes are the right ones. Therefore, the program is unlikely to have an immediate impact, but ultimately time will tell how the company's plans translate into concrete actions. Overall, however, the direction seems clearer than before, which also provides a solid foundation for the implementation of the strategy. At the same time, we would like to point out that in banking, it takes time for changes to be reflected in the income statement, which is also reflected in the five-year strategy and target period set by Aktia. Investors will therefore need to be patient, especially with regard to the turnaround in wealth management. In any case, before we are ready to declare the measures a success, the changes need to start showing up in the sales figures.

Banking was not discussed much during the day, but Aktia specified that it is also aiming for above-market growth in banking in its key customer segments (Premium and Private Banking customers). In addition, the comments suggest that there is also potential in SMEs, which, in addition to banking activities (loans, payment traffic), also have the potential to become customers of the wealth management sector.

Growth targets appear overly ambitious

Aktia aims to have gross assets under management of more than 25 BNEUR by the end of 2029. This would require a CAGR of just over 9%, as the company currently estimates its gross AUM at the end of last year at just over 16 BNEUR (the previously reported net figure was around 14 BNEUR). The difference is explained by the calculation method for, among others, Aktia's funds of funds. The AUM growth target can be broken down into new sales and positive value development. Based on the company's comments, new sales should play a slightly larger role of the two, although value changes are of course largely outside the company's control. According to our calculations, achieving the growth target would require average annual new sales of around 600-800 MEUR, which is well above Aktia's historical levels. By comparison, Finnish asset managers such as eQ and CapMan have only achieved similar figures in their best individual years. Therefore, Aktia still has a lot of work to do to reach its target. The bank sees growth potential especially in alternative products, which is probably explained by, among other things, the moderate allocation of private customers to these asset classes.

At the same time, Aktia noted that it expects continued margin pressure on wealth management products and services, which will result in more moderate growth in commission income than in assets under management. Overall, Aktia is targeting net commission income growth of 5% per year, which, based on the targets, will mainly come from wealth management. Our own forecasts are currently somewhat below this.

We also think that the return on equity target (above 15% by the end of 2029) is too ambitious, as we think the direction is right, but there are still no concrete steps to improve growth and cost efficiency. Moreover, the bank's profitability has remained below target even in the peak years of net interest income, leaving plenty of room for improvement if the interest income trend turns downward in the coming years.

Employee satisfaction on the rise

Management's input into the previous strategy gave the impression of a partially siloed and sputtering machine, with limited cooperation between functions. This may partly explain the relatively high costs and the lack of sales, since, for example, the organization working at the customer interface of the entire bank should be able to be used as part of the sales machine for wealth management. The good thing about this, of course, is that the challenges have been identified and action can now be taken to address them. On the other hand, if there have been cultural challenges, it can be slow and challenging to turn the corner. However, the eNPS measure of employee satisfaction is on the rise, which we see as a clear positive signal. According to the company, attention has been paid to issues such as goal setting and remuneration.

Greater clarity on dividend policy

Much-needed clarity on the dividend policy was provided when Aktia confirmed that the bank's capital adequacy in a normal year is close to the upper limit of the specified capital adequacy range (2-4% above the regulatory requirement). This would imply a CET1 ratio of around 12.6% at the current capital requirement. As the company is currently well within the range, the total payout ratio with additional dividends should be closer to 90% than the 60% required by the dividend policy (assuming no material change in the capital requirement). In practice, therefore, the company provided the expected increase in the dividend policy, although this was not explicitly stated. M&A does not seem to be high on the list of priorities either, which also argues for a higher payout ratio than in the past. A fairly loose and flexible capital adequacy policy would, in our view, allow for a steadily increasing dividend, which may well be the goal of the owners and the board.

No reason to change forecasts, time will show the way

Following the investor event, we see no need to materially change our forecasts, but we will of course keep them under review as the implementation of the strategy progresses. At this stage, we are particularly skeptical about the profitability target, which we believe would require an exceptionally successful execution of the strategy and stronger than expected growth in wealth management. However, there is upward pressure on our dividend forecasts, as Aktia specified that it aims to keep its capital adequacy closer to the upper end of the new target range.