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Index-linked bond Star Class Nordic

Basic and Extra

The World economy has recovered, driven by the emerging markets, and the export-focused Nordic economies will benefit from the growth of global demand. The focus of financial news has been on the debt problems of southern European countries, however the effects of the problems are minor in the Nordic countries. Because fundamentals of the economy are still at a good level, Nordic countries are well positioned.

Index-linked bond Star Class Nordic offers an interesting and diversified way to invest in well-known Nordic companies in which Nordea sees long-term yield potential. The nominal capital of your investment is repaid at maturity regardless of the equity market performance during the investment period.

Index-linked bonds Star Class Nordic Basic and Extra

The index-linked bond Star Class Nordic is a bond issued by Nordea Bank Finland Plc. Its maturity is about five years and its yield is based on the performance of a share basket consisting of the shares of ten companies. There are two alternatives: Basic and Extra. The alternative Basic is suitable for a cautious investor. Its yield at maturity is 75% of the increase in the value of the share basket according to the bond terms. Alternative Extra suits investors who tolerate risk and seek a higher return. Its yield at maturity is 160% of the rise in the value of the share basket in accordance with the bond terms. If the value of the share basket that forms the reference asset falls or remains unchanged, no yield is paid.

Nordea repays the nominal capital of the bond at maturity. The index-linked bond involves the risk of the issuer Nordea Bank Finland Plc’s repayment ability. Nordea has been given a credit rating of Aa2 by Moody’s and AA- by Standard & Poor’s. The loan is unsecured.

The investor may lose the capital invested exceeding the nominal value either partly or in full. In the Extra bond this premium risk is approximately 10%, as its subscription price is approximately 110%. The index-linked bond Star Class Nordic Countries can also be sold before maturity. The repurchase price may be above or below the bond’s nominal value. In normal market conditions Nordea quotes a secondary market price for the bond on all banking days when banks are generally open in Finland.

Share basket

The share basket consists of ten Nordic shares in which Nordea sees long-term potential. All companies in the share basket have equal weights (10%). Read more about the companies and the observations of Nordea Equities Finland on pages x–x.

The table shows the stars given to the companies by Standard & Poor's (S&P STARS). The stars reflect the views of Standard & Poor's equity research on the future outlook of the companies.

	Company	Country	S&P STARS*
1	Kone Oyj	Finland	4
2	Nokia Oyj	Finland	5
3	Nokian Renkaat Oyj	Finland	5
4	Sampo Oyj	Finland	4
5	Norsk Hydro ASA	Norway	4
6	Statoil ASA	Norway	5
7	Svenska Cellulosa AB	Sverige	4
8	Tele2 AB	Sverige	4
9	Carlsberg A/S	Denmark	5
10	Danske Bank A/S	Denmark	4

* Standard & Poors equity ranking STARS (6-2010). Ranking from one to five:
1 = Strong Sell-recomendation,
2 = Sell-recomendation,
3 = Hold-recomendation,
4 = Buy-recomendation,
5 = Strong Buy-recomendation

The performance of the share basket and the STOXX Nordic 30 and Euro STOXX 50 indices, June 2005–June 2010 Starting level indexed at 100%. Source: Bloomberg.

The presented figures describe previous yield or value performance, and no reliable assumptions on future yield or value can be made based on them.

Yield calculation

The yield paid on the investment at maturity is calculated as the change between the share basket's starting and final values; however, the rise in the value of a single share will only be taken into account up to 70 %. In the alternative Basic the positive change in value is multiplied by the participation rate 75% and in the alternative Extra by the participation rate 160%. See the yield calculation example below.

Example of yield calculation

Share	Start value	Final value	Change	Change to be observed in yield calculation
Share 1	100	210	110%	70%
Share 2	100	200	100%	70%
Share 3	100	180	80%	70%
Share 4	100	160	60%	60%
Share 5	100	155	55%	55%
Share 6	100	145	45%	45%
Share 7	100	140	40%	40%
Share 8	100	130	30%	30%
Share 9	100	90	-10%	-10%
Share 10	100	80	-20%	-20%
	Change in share basket 49%			Change in share basket in according with bond terms = 41%

Change in Share basket = total change in shares / num of shares

Value of maturity	Change in reference asset in acc. with bond terms	x Participation rate	+ Refund of capital	= Value at maturity	yield p.a.
Basic	41%	75%	100%	130.8%	5.5%
Extra	41%	16%	100%	165.6%	8.5%

Highest possible maturity value		Yield p.a.	Smallest possible maturity value		Tuotto p.a.
Basic	152.5%	8.8%	Basic	100	0.0%
Extra	212.0%	14.0%	Extra	100	-1.9%

Highest possible mat value Basic: 70% x 75% = 152.5%
Highest possible mat value Extra: 70% x 160% = 212.0%

* The yield calculation includes the 10% premium. The annual yield is calculated according to the compound interest principle.

Issue terms in brief

Issuer	Nordea Bank Finland Plc; credit ratings Aa2 (Moody’s) and AA- (Standard & Poor’s)
Issue date	28 June 2010
Maturity date	13 August 2015
Subscription period	28 June –13 August 2010
Places of subscription	Branches of Nordea Bank Finland Plc, Nordea Private Banking, Nordea Customer Service, tel 0200 70 000 on banking days from 10.00 to 16.30 (access codes required; local network charge/mobile call charge), and Nordea’s Netbank at nordea.fi if the customer has the portfolio service.
Subscription price	Basic 4405A: variable, approximately 100% Extra 4405B: variable, approximately 110%
Minimum subscription	EUR 1,000
Yield at maturity	Basic 4405A: 75% of the rise of the share basket in accordance with the terms of issue Extra 4405B: 160% of the rise of the share basket in accordance with the terms of issue
Reference assets	The shares of the following companies (altogether “Share Basket”) are the reference assets:

Weight	Company	Bloomberg
1/10	Kone Oyj	KNEBV FH
1/10	Nokia Oyj	NOK1V FH
1/10	Nokian Renkaat Oyj	NRE1V FH
1/10	Sampo Oyj	SAMAS FH
1/10	Norsk Hydro ASA	NHY NO
1/10	Statoil ASA	STL NO
1/10	Svenska Cellulosa AB	SCAB SS
1/10	Tele2 AB	TELE2B SS
1/10	Carlsberg A/S	CARLB DC
1/10	Danske Bank A/S	DANSKE DC

Starting price	The closing value of the reference assets on 18 August 2010
Final value	The closing value of the reference assets on 5 August 2015
Yield calculation	The positive change in one share is considered up to 70 %.
Repayment of capital	The issuer Nordea Bank Finland Plc repays the nominal capital of the bonds in full at maturity irrespective of the performance of the reference asset basket. The bonds involve a risk of the issuer’s repayment ability and of losing the premium (in Extra about 10%).
Security	The bonds are unsecured.
Structuring cost	The subscription price includes a structuring cost of about 0.7% p.a. (See the terms of issue for more details). No separate subscription or management fee is charged on the bonds.
Secondary market	In normal market conditions the issuer Nordea Bank Finland Plc quotes a repurchase price for the bonds, which may be lower or higher than the nominal value.
Taxation	Possible index-linked yield is subject to tax at source on interest income for natural persons and Finnish death estates.
Safe custody	Free of charge with Nordea Bank Finland Plc.
Cancellation of the issue	The issuer has the right to cancel the issue based on changes in the economic circumstances or if the total amount of subscriptions is low, or if something should occur that the issuer considers might endanger the issue.
Listing	If the total amount of subscriptions is sufficient, an application will be made for the bonds to be listed on NASDAQ OMX Helsinki.

Bonds 4405A and 4405B under the Medium-Term Note Programme (a bond programme reported to the Finnish Financial Supervisory Authority from Sweden in accordance with the Prospectus Directive) of Nordea Bank AB (publ) and Nordea Bank Finland Plc dated 25 May 2009. The bond-specific terms and the prospectus are available at the places of subscription. Read the issue terms and the prospectus before subscription.

Nordea Markets is the name of the Markets departments of Nordea Bank Norge ASA, Nordea Bank AB (publ), Nordea Bank Finland Plc and Nordea Bank Danmark A/S.

The information provided herein is intended for background information only and for the sole use of the intended recipient. The views and other information provided herein are the current views of Nordea Markets on the date of this document and are subject to change without notice. This document is not an exhaustive description of the described product or the risks related to it, and it should not be relied on as such, nor is it a substitute for the judgement of the recipient.

The information provided herein is not intended to constitute and does not constitute investment advice nor is the information intended as an offer or solicitation for the purchase or sale of any financial instrument. The information contained herein has no regard to the specific investment objectives, the financial situation or particular needs of any particular recipient. Relevant and specific professional advice should always be obtained before making any investment or credit decision. It is important to note that past performance is not indicative of future results.

Nordea Markets is not and does not purport to be an adviser as to legal, taxation, accounting or regulatory matters in any jurisdiction.

This document may not be copied, distributed or published for any purpose without a prior consent in writing of Nordea Markets.

Nordic countries well positioned

The Nordic equity market has recovered strongly since the spring of 2009. During the last 12 months the Dow Jones Nordic index, which reflects the performance of Nordic exchanges, has already risen about 40%. Then again, the previous peak of the index (October 2007) was another 75% higher. The recovery of the Nordic exchanges has been stronger than in the rest of the world, as indicated by the 30% rise of the MSCI World index, which reflects the performance of global equity markets, in euro terms during the same period. This phenomenon is explained by the price dive in the Nordic equity markets between the autumn of 2007 and the spring of 2009, which was deeper than in the rest of the world, and the sector structure of the Nordic exchanges – the weight of cyclical sectors is heavier compared to the equity markets in Western Europe and the US, for example.

Now, at the beginning of the summer, the Nordic equity markets have witnessed a long-forecasted correction. The debt problems of European countries and the plunge of the common currency euro have escalated worries about the strength of the economic recovery. Although the fundamentals are still on a good level and the earnings forecasts are on the rise, the debt crisis and worries about the effects of government expenditure cuts dominate the investors' moods in the short term. Despite the increased uncertainty, we believe that the fundamentals are still favourable for equity investors. Low interest rates, valuation that has become more attractive in the wake of the share price drop and earnings forecasts and tidings of better earnings power of companies are factors that favour equities at the moment.

At the moment, Nordic corporations (VINX 30) are trading at a moderate premium to their peers, as the P/E ratio is below 12 in terms of next year's consensus estimates. We also believe that the high dividend yield offered by the Nordic equity markets supports the performance of the Nordic countries' stock exchanges. With the past in mind, good dividend payers have always been favoured by the investors especially when the market situation has been uncertain. The dividend yield forecast of the VINX30 companies is nearly 3.5% for the next year, which can be considered rather attractive in relation to low fixed income yields.

Our view of the Nordic equity market is at the moment positive, and the correction has again opened attractive buy opportunities for long-term investors. The stable economic situation in the Nordic countries is appreciated even more now that the outlook of many other European countries has deteriorated due to massive deficit and debt problems. The financial basis of Nordic companies is also strong – balance sheets are solid, the debt-equity ratio is moderate, order books are filling up and earnings power has increased thanks to extensive streamlining in the past few years. The earnings performance in Q1 showed that the outlook has already improved in most sectors. The competitiveness and earnings outlook of many Nordic listed companies that are dependent on exports are now also improved by the strengthening of the US dollar.

Source: Nordic Equity Advice

Share basket of the index-linked bond Star Class Nordic

The share basket of the index-linked bond Star Class Nordic consists of ten shares. Below you will find Nordea Equities Finland’s view on the companies in the basket and on their future prospects.

KONE Corporation

KONE is a leading manufacturer of elevators and escalators globally. The company also provides maintenance and modernisation services. Over half of its revenues and operating profit already originates from stable maintenance and modernisation business, and the rest comes from sales of new equipment. KONE employs nearly 34,000 people, and in 2009 its revenues were about EUR 4.7 bn. KONE’s earnings power continued stronger than expected in Q1 2010. The number of new orders also exceeded expectations. After the strong start for the year, KONE revised its 2010 guidance upwards both in respect of revenue and operating profit. We believe that the market for new equipment will continue to revive especially in Asia, and we expect the strong performance of the company’s defensive service business to continue. In the long term KONE will benefit from global mega-trends, such as population growth and urbanisation of emerging economies. In our opinion, this will support the demand outlook for KONE's products and services. In the past few years the company’s market share has increased markedly in China and other emerging markets that are key drivers of its growth. Our positive view on KONE is further supported by the company’s strong cash flow and balance sheet and reasonable valuation in relation to its stable earnings outlook.

Nokia Corporation

Nokia is the world’s largest manufacturer of mobile phones. In Q1 2010 Nokia’s market share of the global mobile phone market was around 35%. The company’s business operations are divided into three main business units: Devices & Services, Nokia Siemens Networks and the digital map unit Navteq. In 2009, revenues were nearly EUR 41bn and the company employs globally around 123,000 people. Nokia’s performance in Q1 2010 did not meet market expectations and the company lowered its 2010 margin guidance. The markets were also disappointed by the delay in the rollout of the smartphones utilising the new Symbian^3 operating system. The positive thing about Nokia’s Q1 performance was the increase in the company’s market share of smartphones, which is based especially on the strong sales of the low-end smartphones. In the long term, we believe Nokia will further benefit from the economies of scale brought by the company’s market leader position, strong brand, wide distribution network and strong balance sheet.

Nokian Tyres

Nokian Tyres is the biggest tyre manufacturer in the Nordic countries. It operates primarily on the secondary market. The company focuses on winter tyres and other high-margin tyres for passenger cars. Nokian Tyres has factories in Nokia, Finland, and in Vsevolozhsk, Russia. The company is also engaged in contract manufacturing worldwide and has a comprehensive sales network. We consider the world’s leading winter tyre manufacturer an attractive investment thanks to, for example, the company’s sizeable long-term growth potential in Russia. At present, Nokian Tyres is the only large international tyre manufacturer with significant manufacture in Russia. The company’s position in Russia is further strengthened by its enlarged distribution network. We believe that the company’s profitability, which already now is higher than that of its competitors, will continue to improve when the proportion of the tyre manufacture in Russia of the company’s overall production increases further, given that costs are lower in Russia. Due to the company’s size, market position and ownership structure, we see Nokian Tyres as a potential target for corporate restructuring.

Sampo

The insurance group Sampo’s main business areas are P&C insurance and life assurance. In addition, the group’s parent company Sampo plc manages an investment portfolio of almost EUR 17bn. The P&C insurance unit If is the leading property and casualty insurance company in the Nordic region with a market share of a good 20%. It has a total of 3 million customers in the Nordic countries, the Baltic countries and Russia. Sampo’s life insurance unit operates under Mandatum Life, specialising in life and pension insurance. Sampo’s performance has been convincing despite the turbulence in the financial market. In particular, P&C insurance, profiled as the group’s more defensive section, is performing well operatively. The general economic situation has traditionally had only a minor impact on P&C insurance premiums, and we expect Sampo’s insurance technical result to remain stable in the next few years despite the weaker economic environment. We also expect the improving market conditions to have a positive impact on the returns on the group’s investment assets. In addition to its solid earnings performance, Sampo’s attractiveness as an investment is supported by the extensive track record of its management in generating shareholder value through corporate restructuring. In 2007, the company sold Sampo Bank to the Danish Danske Bank for over EUR 4 billion. Sampo Bank has subsequently increased its holding of Nordea significantly. In December, Sampo’s holding in Nordea exceeded the 20% threshold, which means that part of Nordea’s profit can in future be consolidated into Sampo’s own financial statements. Due to its holdings and its solid financial position, we feel that the company will have a key position in a potential Nordic restructuring of the financial sector. Furthermore, Sampo’s shareholder-friendly dividend policy supports our positive view of the company as an investment. The valuation of Sampo’s share involves, in our view, significantly more opportunities than threats at the moment.

Norsk Hydro ASA

Norsk Hydro is a Norwegian supplier and manufacturer of metal and aluminium products. In addition, the company is a major energy producer, and hence light metals are also an essential part of its operations. The international position of Norsk Hydro is strong and it operates in more than 40 countries. Norsk Hydro's latest conquest is the aluminium business of the Brazilian mining company Vale, acquired by the company with USD 4.9bn. From the point of view of the company's strategy, this was an extremely successful acquisition, as it secures the company's bauxite supply for years to come. Until now, Norsk Hydro has not had any raw material production. We believe that the rising trend of aluminium prices will continue, and together with the new resources, this will reinforce the company's business going forward.

Statoil ASA

Statoil is the world’s third biggest seller of crude oil and one of the biggest gas suppliers. The company is the leading offshore oil producer in the world and its drilling technology is highly advanced. Production has diminished gradually in the company's main operating area, the Norwegian shelf. To compensate this Statoil has increased international prospecting. Statoil is an interesting company whose share price is determined by the price of oil and gas. The current share price is believed to have upward potential, as the oil price is expected to rise in the long term and the company has an attractive production profile. Furthermore, the company has a strong portfolio of projects where production will be started in a few years. This, combined with international fields under construction, is expected to support steady production growth until 2012.

Svenska Cellulosa AB (SCA)

SCA is a Swedish manufacturer of paper and packaging with good potential for long-term growth and increased margins going forward. The product range of SCA is attractive. For instance, we see strong growth potential in the Tissue division, which accounts for around 40% of sales. Add to this the defensive nature of the company and its low valuation. The overall market outlook for the company’s personal care products is stable, with sustained strong growth potential in, for instance, Latin America and South East Asia. Sales of personal care products, which account for about 60% of group turnover, are highly stable and benefit from the ageing population. Demand for packaging should rise, with market growth in Europe estimated to be 2–3%. The company is continuously working to improve its product mix and recently invested in activities in, for instance, Russia and Mexico in order to boost its organic growth.

Tele2 AB

Telecom operator Tele2 has 25 million customers in 11 countries with focus on the Nordic countries and Russia. Tele2 offers all kinds of telecom services but mobile telephony currently accounts for two-thirds of revenues. The valuation of the stock is low despite the company's very strong earnings. The key driver of growth is Tele2’s operations in Russia where the inflow of new customers is substantial despite the economic crisis. Tele2’s launches in new regions during last autumn have resulted in a record-high inflow of customers. The company’s focus on low prices has proved just as good an idea in Russia as in Sweden and Europe. Tele2 is one of the lowest geared operators in Europe. Coupled with a strong cash flow this should provide the basis for continued high dividends in the coming years.

Carlsberg A/S

Carlsberg was established in 1847, and after acquiring Scottish & Newcastle, it is now the world’s fourth largest brewery company. Among its well-known beer labels are Carlsberg and Tuborg. The company also manufactures a number of local beers. In addition to beer, Carlsberg manufactures soft drinks and bottled water. In recent years Carlsberg has proved that it is among the winners in the brewery sector. Carlsberg has three main market areas: Western Europe, Eastern Europe and Asia. The Western European markets are characterised by very little or no growth in beer sales, and consequently efficiency improvements have become a focal point. Eastern Europe is the growth engine in Carlsberg. Meanwhile, the company is expanding its presence in Asia, and over time, this region will also contribute to the company’s growth. Carlsberg has recently been under heavy fire due to unfavourable news flow out of Russia. Carlsberg continues to show strength in the Russian market, and its market share in Russia now exceeds 41%.

Danske Bank A/S

In terms of balance sheet, Danske Bank is the largest bank in Denmark and one of the largest ones in the Nordic countries. In addition to traditional bank services, Danske Bank offers its customers mortgage, insurance, leasing, real estate agency and asset management services. The bank employs some 24,000 people and has altogether about 900 retail bank branches in nine countries. Danske Group has grown through several acquisitions. In Finland Danske Bank bought Sampo Bank from Sampo Group with EUR 4.05bn in November 2006. With this acquisition the company now has cash management units in Estonia, Latvia and Lithuania and a representative office in Russia. The group's strength is based on the 'Danske Banking' concept in which the organisation, IT systems, product development and products are identical in all countries. Danske Bank got off to a flying start in 2010 and the Q1 result was better than expected despite the challenging market situation. Lending volumes on the retail side remained good, and we believe that the rate hikes, expected in early 2011, will support the company's performance by improving the profitability of business.