(Bloomberg) -- Nordea Bank Abp’s more ambitious financial goals failed to offset the disappointment of its fourth-quarter profit missing estimates. The shares fell.

The largest lender in the Nordic region will target a return on equity above 15% in 2025, up from more than 13%, it said in a statement Monday. That’s in line with what analysts are estimating. 

Combined with misses on fourth-quarter profit and fee income — with net interest income matching estimates — the stock retreated as much as 4.9% at 10:41 a.m. in Helsinki, the most since March. The Helsinki-based bank also proposed a lower-than-expected dividend of €0.92 ($1) per share.

The bank’s profit shrank last quarter amid a muted economic climate and earnings were weighed by a €130 million writeoff resulting from how it treats IT development costs in accounting.

The share move “probably comes down to an earnings report in which the fourth-quarter figures were mostly in line, but disappointing on the bottom line and mostly explained by the trading result,” Jyske Bank A/S analyst Anders Haulund Vollesen said by phone. “It’s not majorly surprising that when you come out with 2023 results and 2025 targets that don’t really surprise or excite the market, that the share price sets a little bit.”

While the return on equity goal for 2024 is also more than 15% and the bank aims to grow income faster than costs, the so-called “positive jaws” will be narrower, Chief Executive Officer Frank Vang-Jensen said.

The bank plans to reach its new goals by drumming up more business with current customers, gaining market share and creating “momentum in the market, even though it’s a bit slower right now,” Vang-Jensen said in an interview. Growth in equity markets and the Nordic economies will help, particularly in 2025, he said.

What Bloomberg Intelligence Says:

“Nordea’s upgraded return-on-equity target to above 15% in 2025 (vs. 13%-plus previously) is already captured in consensus for 15.3% and seems feasible, with its efficiency ratio lowered by 1 percentage point to the 44-46% range. Strong capital — the CET1 ratio was 200 bps over the new 15% target at 4Q — and an aim for a further €7 billion to €8 billion of shareholder returns in the next two years suggest buybacks may continue at about €1.25 billion a year, we calculate.”

— Mar’Yana Vartsaba, banking analyst

The CEO also pledged more stock buybacks, saying those “are a an integral part of our capital distribution and our intention is to continue in the coming years doing buybacks.” 

Capital returns will total as much as €18 billion in the 2022 to 2025 period, Nordea said, an increase from a previous estimate of as much as €17 billion. That includes completed share-buyback programs totaling €4.5 billion. Its fourth program of €1 billion is set to end in March.

“We are just generating more capital as we earn more money,” Vang-Jensen said. “So according to plan, dividends in line with our policy — 60 to 70% of our earnings — and then buybacks. And that’s a part of sort of like the toolbox we intend to continuously use.”

The financial targets unveiled Monday continue a trajectory of improvements pushed through by Vang-Jensen since he took the top job at Nordea in September 2019. He delivered on the first set of goals by the end of 2021, a year ahead of schedule. In July, the bank indicated profitability in 2023 would already be much higher than its target. A focus on growing revenue and keeping a lid on costs have helped, along with tailwind from central banks’ interest-rate hikes.

Activist investor Cevian Capital AB recently urged Nordea to boost the ROE target to at least 15% — regardless of the macroeconomic environment — building on years of pushing the management to deliver better returns.

Credit quality remained strong with net loan losses of €83 million, and the bank still has a buffer of €495 million to cover losses that may materialize in the future. Impacts from higher interest rates and inflation are now materializing “to some degree,” Nordea said, pointing especially at construction and consumer-related industries.

Loan losses “will start to normalize,” Vang-Jensen said. “We don’t expect any drama, but you cannot run a bank long term with basically zero credit losses.”

--With assistance from Anton Wilen and Leo Laikola.

(Updates with shares from first paragraph, analyst comment in fifth)

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