Focus on industry M&A: Expectations vary across Nordic markets
Expectation of M&A activity varies considerably across the Nordic region, according to asset managers and banks based in local markets.
Comparatively speaking, it is far from being a 1990s situation, when banks in the region were forcible merged by governments struggling to avoid systemic banking collapse in a way that foreshadowed what was to come later in the global financial system after Lehman Brothers failed.
Sweden’s banking sector, for example, has been keen to stress its preparedness for meeting tougher capital requirements under the European Banking Authority regime. However, there are still ongoing issues and considerable differences between markets that point to possible M&A pressures building.
For example, Denmark’s banking sector is still struggling following the financial bailout it received from the government in the wake of the global financial crisis of a few years ago. A number of banks have been taken over by Finansiel Stabilitet, the Financial Stability Company, set up by the government to take over failing institutions. It now counts names such as Amagerbanken, Fjordbank Mors, FS Bank, Max Bank and Sparebank Østjylland as subsidiaries, as it looks to run off their assets.
And there have been conflicts between rating agencies and the Danish mortgage banking sector over how to rate financial strength of organisations and products in that sector.
BankInvest CIO Andrea Panzieri acknowledged the issue of the future of Danish banks is important because of the historical ties between the asset manager and its 40-odd owners, which are predominantly SME banks spread across different parts of Denmark, as well as the 80 distribution agreements with not only its owners but in many cases banks that too small to even have a shareholding in the business.
“Although there has been some consolidation in the Danish banking industry, it’s been slow and with fairly minor units consolidating. Going forward the consensus view is that the Danish financial system, mainly the banks and savings banks, will need to consolidate faster and into bigger units”
“That’s something we’re prepared for and working towards.”
In Finland, part of the country’s biggest banking group Pohjola has announced a restructuring plan that involves cutting personnel.
Mikael Silvennoinen (pictured), chairman of the Group Executive Committee, president and CEO of the listed Pohjola Bank plc, said that the announcement was the result of both external and internal pressures.
“Banks are required to retain more capital at the same time they are required to lengthen their own funding,” he said.
“That creates pressure on net interest income, which is one of our, and banks in general, main sources of income. The other thing is the debt crisis in Europe and as a consequence the artificially low interest environment, which is a burden to banks’ net interest income.”
The other reasons for cutting the bank’s head count are internal. Details are scant because of ongoing negotiations between employer and employees, but Silvennoinen did add that “we do have overlapping functions, so internally we have the possibility to streamline our operations.”
The Finnish banking market overall is otherwise different in that apart from Pohjola, the other bigger competitors are headquartered outside Finland. Nordea is one, which has announced its own cost cutting and return targets. Danske Bank is the other. Besides that there are the Swedish banks SEB and Handelsbanken.
The Finnish players are smaller, Silvennoinen said, which is why M&A activity is likely to be limited.
“They are not important in terms of M&A activity or changing the competitive picture in Finland. It is why I don’t believe in M&A activity in Finland. If there is any, it is most likely to be transactions between the smaller players.”
“I don’t believe the external reasons [mentioned above] would lead to M&A activity in the market – simply because of the structure of the competition and players. When it comes to the [broader] Nordic market, the answer is yes, but it is a matter of timing. As long as the valuations of financial companies is so low it is unlikely that anything bigger would happen.”