Arion Banki is one of Iceland's leading universal banks (retail + corporate + the Vordur insurance subsidiary + markets), reported in ISK and tracked here via the Stockholm SDR. Quality is high: ROE ~14.9% reported (normalized ~13.5%), CET1 18.4% (total capital 22.5%), an almost-fully-tangible book (goodwill negligible), residual income +ISK 8.4bn over a 10.5% Iceland-elevated cost of equity, plus a ~6% dividend yield and ongoing buyback.
It trades at just 1.22x book, 1.27x tangible and 8.7x earnings — a clear discount to Nordic peers. On a normalized 13.5% ROE the Gordon fair value is ~ISK 220 (+14%; ~ISK 249 / +30% on reported ROE). The discount is explained by real Iceland-specific risks: a small concentrated economy, rising bank taxes, CPI-indexation NII volatility, and the abandoned Kvika merger removing a consolidation catalyst. Even on conservative inputs the stock sits below fair value.
Gordon fair P/B = (ROE-g)/(COE-g) with COE 10.5%, g 3%: normalized 13.5% ROE -> ~ISK 220 (+14%); reported 14.9% -> ~ISK 249 (+30%). Current 1.22x book, 8.7x earnings — a discount to Nordic peers.
Base ISK 220 (normalized-ROE fair value); bull ISK 249 if ROE holds ~15% and the discount to peers narrows; bear ISK 175 on an Iceland macro/NII shock or higher bank taxes.
The operating reverse-DCF (NOPAT / invested capital / WACC) does not apply to a balance-sheet business — leverage is the raw material and "net debt" is not meaningful. The equity is valued on residual income: book equity plus the present value of returns above the cost of equity, discounted at Ke; the single-stage lens is the Gordon fair price-to-book, (ROE−g)/(Ke−g). The market prices in a sustainable ROE of 11.8% vs 14.1% currently earned; at a sustained 14.1% ROE the warranted P/B is 1.48× (ISK 242/sh, +26%).
| Scenario | 24m target | Impl. ROE | Upside | Prob. | Driver |
|---|---|---|---|---|---|
| Bull | ISK 249 | 14% | +29% | 35% | ROE holds ~15%; discount to peers narrows |
| Base | ISK 220 | 13% | +14% | 45% | Normalized-ROE Gordon fair value |
| Bear | ISK 175 | 11% | -9% | 20% | Iceland macro/NII shock; higher bank taxes |
| Prob-weighted | ISK 221 | — | +15% | 100% | Scenario-weighted expected value |
| Ke \ ROE | 10% | 14% | 18% | 22% | 26% | 30% | 34% |
|---|---|---|---|---|---|---|---|
| 9.00% | 191 | 300 | 410 | 519 | 628 | 737 | 846 |
| 9.75% | 170 | 267 | 364 | 461 | 558 | 655 | 752 |
| 10.50% (base) | 153 | 240 | 328 | 415 | 502 | 590 | 677 |
| 11.25% | 139 | 218 | 298 | 377 | 457 | 536 | 616 |
| 12.00% | 127 | 200 | 273 | 346 | 419 | 491 | 564 |
Green = fair value above the current price of ISK 192.50. For a financial the surface is dominated by cost of equity and sustainable ROE — not unit growth.
⤓ Download the full model (.xlsx) — formula-driven sheets; flex the blue input cells and the model cascades in Excel.
1.22x book / 8.7x P/E vs Nordic peers at 1.4-1.6x / 10-11x.
CET1 18.4%, ~6% yield + buyback off surplus capital.
Almost-fully-tangible equity — clean book value.
Vordur insurance + markets diversify NII.
Arion Banki is a high-quality, well-capitalised Icelandic bank at 1.22x book / 8.7x earnings — a clear discount to Nordic peers with ~+14% to a normalized-ROE Gordon fair value and a ~6% yield. BUY; base ISK 220.
The discount compensates for real Iceland-specific risks; even conservatively it looks cheap. SDR cross-ref SEK ~14.6.
Every adjustment traces to the cited note/page in the source filing — click to open it there. Source reports archived locally.
| Adjustment / figure | Value | Source | Why mttssn treats it this way |
|---|---|---|---|
| Net earnings attributable to shareholders (FY2025) | 30,627 | Financial highlights for the year 2025 (Q4 press release p.2) + reconstruction | FY2025 net earnings to shareholders = 9M 24,400 (Q3 statements) + Q4 6,227 (Q4 press-release income statement) = 30,627; press release headline 'ISK 30.6bn for 2025, compared with ISK 26.1bn in 2024' - ties. |
| Net interest income (FY2025) | 52,542 | Consolidated Income Statement - 9M (Q3 stmts p.6) + Q4 (Q4 press release p.8) | Core revenue line. FY2025 NII = 9M 40,192 + Q4 12,350 = 52,542. Press release narrative confirms NIM 3.2% for the year and the Q4 NII line of 12,350. |
| Net fee and commission income (FY2025) | 17,147 | Financial highlights for the year 2025 (p.2) + reconstruction | FY2025 net commission = 9M 13,092 + Q4 4,055 = 17,147; press release headline 'Net commission income of ISK 17.1bn, compared with ISK 15.4bn in 2024' - ties. |
| Operating income (FY2025) | 78,392 | Consolidated Income Statement - 9M 59,350 + Q4 19,042 | Total operating income FY2025 = 59,350 (9M) + 19,042 (Q4) = 78,392; Q4 slides / coverage state full-year operating income ISK 78.4bn - ties. |
| Shareholders' equity (31.12.2025) | 217,327 | Consolidated Statement of Financial Position - 31.12.2025 comparative (Q1 2026 stmts p.8) | Year-end shareholders' equity is the bank invested-capital base for P/B and BVPS. Press release: 'total equity amounted to ISK 217.4 billion at the end of 2025 and increased by ISK 10.3 billion'. |
| Non-controlling interest (31.12.2025) | 64 | Statement of Financial Position p.8 | Negligible NCI at year-end; total equity 217,391 - NCI 64 = shareholders' equity 217,327. |
| Intangible assets (31.12.2025) | 7,533 | Note 27 Intangible assets (Q1 2026 stmts p.34) | Goodwill 730 + customer relationships 2,383 + infrastructure 367 + software 4,053 = 7,533, deducted from shareholders' equity to reach tangible common equity 209,794 for ROTCE / P-TBV. Goodwill is small (730). |
| Return on equity (FY2025, reported) | 0.149 | Financial highlights for the year 2025 (p.2) | Bank return measure. Reported RoE 14.9% (vs 13.2% in 2024); computed on two-point average equity = 14.45%. Used 13.5% normalized for the Gordon anchor. |
| Common equity tier 1 ratio (CET1, 31.12.2025) | 0.184 | Financial highlights for the year 2025 (p.2) | Regulatory capital strength. CET1 18.4% and total capital ratio 22.5% at year-end, after deducting 50% of earnings as foreseeable dividend and an ISK 5bn buyback; comfortably above requirement. 18.5% at 31.03.2026. |
| Cost-to-income ratio (FY2025) | 0.36 | Financial highlights for the year 2025 (p.2) | Efficiency. Reported C/I 36.0% (vs 42.6% in 2024); total cost-to-core-income 42.3%. The sharp improvement reflects strong core income growth (+12.3%) on broadly flat costs. |
| Net impairment / loan-loss ratio (FY2025) | 0.002 | Income Statement narrative - Net impairment (Q4 press release p.4) | Cost of risk. 'impairments were calculated at 24bps for 2025'; Q4 elevated to 51bps largely due to a single-name provision. Low through-cycle credit cost. |
| Earnings per share (FY2025) | 22.05 | Financial highlights for the year 2025 (p.2) | EPS ISK 22.05 (vs 18.31 in 2024); implies ~1,389m weighted-average shares (30,627 / 22.05). Used for the price/EPS P/E of 8.7x. |
| Shares issued / treasury (31.12.2025) | 1,383 | Note 36 Equity - share capital (Q1 2026 stmts p.38) | Total share capital ISK 1,420m at par ISK 1 = 1,420m shares issued; own shares 2.59% at YE2025 -> ~1,383m outstanding (the 'own/issued' total shows 1,383). At 31.03.2026 treasury rose to 3.85% and the April 2026 AGM cancelled ISK 40m nominal -> issued cut to ISK 1,380m. Outstanding now ~1,327m (used for market cap). |
| Dividend per share (FY2025 proposed) | 11.5 | Financial highlights for the year 2025 (p.2) | Board proposed ISK 11.50/share (~ISK 15.3bn net of own shares), approved at the 11 March 2026 AGM and paid in March 2026. Yield 6.0% on ISK 192.50. ~50% payout policy plus ISK 5bn buyback. |
| Net earnings to shareholders (Q1 2026) | 7,318 | Financial highlights for Q1 2026 (Q1 press release p.1) + income statement (stmts p.8) | Q1 2026 net earnings to shareholders ISK 7,318m (group 7,329m), ROE 13.9%, EPS 5.33; NII ISK 16,303m flattered by large CPI-indexation gains (management: 'unusually high', will even out). Confirms strong run-rate but not extrapolatable at the NII level. |
| Total operating income FY2025 (cross-check) | 78,392 | Q4 press-release income statement p.8 + Q3 9M income statement | Independent cross-check of the reconstruction: 9M operating income 59,350 + Q4 19,042 = 78,392, equal to the full-year coverage figure of ISK 78.4bn, validating the 9M+Q4 build for all income-statement lines. |
How the mttssn view has evolved — each prior dated note is preserved.