Unions ratchet up pressure on state to use its ownership in Nordea to cut return target

Finansförbundet, the Financial Sector Union of Sweden, has heaped pressure on the Swedish government to be more proactive in using its key holding in Nordea to get the bank to lower its 15% return on equity target.

Nordea recently announced that it is cutting some 2,000 jobs as part of an ongoing focus on improving its returns, including shifting more of its universal banking online.

At a recent Capital Markets Day in London, Nordea’s group chief executive Christian Clausen said cost cutting was also being driven by the need to respond to regulatory demands for more capital to be held by all banks in Europe. This will force re-pricing of all bank products in the market, putting more pressure on the sector to minimise its cost base, he said.

Nordea also argues that a 15% ROE target is required to enable the bank to “be in a top European league”.

The Union said in a statement that while the Swedish government in its role as the second biggest shareholder in Nordea still has not chosen to put a representative on the bank’s board, it should reconsider this position ahead of the annual general meeting on 22 March 2012.

“Only then can it take on its full responsibility as an owner,” the Union said.

The Swedish state sold 255m shares in Nordea at a price of SEK74.5 in February 2011.This took its holding down to 13.5% from 19.8%. The holdings derive from actions taken during the Nordic banking crisis of the early 1990s, when the government at the time was forced to step in to re-capitalise the local banking industry.

In a statement the government said it was committed to selling down more of its remaining stake through its current mandate period. That mandate runs out in 2014. Currently, Nordea’s share price is around SEK54 for those shares traded in Stockholm, suggesting it will take a considerable amount of recovery in the share price for the Swedish governement to consider selling more of its holding.

Besides the share price performance, there has also been criticism in the past couple of weeks over cost cutting measures in light of the announcement that the bank bought a flat worth SEK22.5m (€2.5m) for Clausen to use when in the Swedish capital.

The bank responded to the criticism by stating that it did not pay the biggest remuneration in its sector, despite being Europe’s fifth largest bank.

“Nordea has aquired an residence in Stockholm that is the property of the bank, on which the chief executive pays [benefit-in-kind] tax on in line with current rules. The chief executive has his own home in Denmark, which he of course pays for himself.”

“Because four-fifths of Nordea’s operations are outside Sweden, and because other future chief executives should be able to be recruited abroad, it is important to be able to offer a residence in Stockholm, where Nordea’s headquarters are located.”

“Continuing to rent a flat for the chief executive, as many other companies and banks do, would have been better, we now recognise. However, the board saw the purchase as a long-term investment for the bank.”

 

 

 

 

 

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