Nordic and Baltic Awards for Excellence 2012: By country

Denmark

Best Bank: Danske Bank
Best Investment Bank: Deutsche Bank

The past year was just as difficult as the previous couple for Denmark and its banking sector, with the country continuing to suffer from the combined effects of eurozone contagion, sluggish economic growth and a home-brewed housing crisis.

As a result, Denmark’s banks continue to be in the rating agencies’ line of fire; in May both Moody’s and Standard & Poor’s downgraded the country’s main lenders, citing slow domestic economic growth, weakening real estate prices, high unemployment and their combined negative impact on asset quality and profitability.

The banking sector’s reliance on market funding was also a concern, as it leaves all the banks susceptible to changes in investor sentiment, the agencies said.

However, while such a move was justified in the eyes of the agencies, Danske Bank, Denmark’s largest lender, hit back on being downgraded by Moody’s two notches from A2 to Baa1, and one notch from A- to A by S&P.

Arguing that it has robust capital buffers, strong political support and that it is seeing declining loans impairment charges in Ireland and Denmark, where most of the loan problems have been, Danske Bank has a valid defence.

Indeed, Danske Bank has been focused and diligent in improving its capital strength, increasing profitability and tackling problem areas in the past year, a strategy that is paying off and should gain greater momentum under the new chief executive, Elvind Kolding, who took over in February.

At the end of the first quarter, Danske Bank’s core tier 1 capital ratio was 12% – up marginally on 2011 – and it has already successfully refinanced all this year’s maturities, supporting its funding profile. In addition, credit analysts at Pohjola Markets argue that if 50% of Danske’s non-performing loans were written down, its capital position would fall to 9%, which is comfortable compared with European peers.

Furthermore, Danske’s liquidity position is strong at DKr465 billion in 2011 (35% of total assets), consisting largely of Danish mortgage bonds, Swedish covered bonds and government bonds.

Although profitability remains constrained, largely as a result of considerable impairments associated with deteriorating asset quality, Danske’s cost-cutting programme and increased lending margins should help support income generation.

The bank will admit that it faces some big challenges, but on the back of the progress it has already made in improving its strength and health while still maintaining its dominance in retail and corporate lending, deposits and mutual funds in the domestic market, the bank takes the award this year.

Using its recently established branch in Copenhagen to mount an assault on the Danish investment banking market, Deutsche Bank’s efforts have been rewarded with a strong performance in the past year across ECM and M&A.

This on-the-ground presence enabled the bank to develop close relationships with the country’s leading institutions and, as a result, helped secure a string of key mandates such as sole financial adviser to Danisco on its €5 billion sale to DuPont – the largest M&A transaction in Denmark during the awards period. Another standout advisory role was acting as sell-side adviser to AP Møller-Mærsk on its €1.3 billion sale of Mærsk Liquefied Natural Gas to Teekay LNG and Marubeni Corporation.

In Danish ECM, Deutsche was involved in the one deal that dominated the market: Danske Bank’s DKr20 billion rights issue in 2011 – the second-largest Danish equity raise ever and the second-largest Nordic FIG equity raise. Deutsche’s performance in DCM was markedly weaker, but rivals should expect that to be corrected as it continues to build out its Nordic investment banking business.

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Estonia

Best Bank: Swedbank AS

After a difficult few years in the wake of the 2008 financial crisis, Estonia last year clocked the highest GDP growth in the European Union at 7.6%, closely followed by its Baltic neighbours, Latvia and Lithuania.

What certain troubled eurozone countries could learn from this is that the Baltic economic rebound came despite heavily restrained government spending. Today, the tech sector of the eurozone’s latest member is booming, and a streamlined tax system with low, flat rates has attracted investment.

The positive momentum is encouraging, and has supported the health of Estonia’s banking sector. And the one bank that has stood out, and that takes the award this year, is Swedbank AS, the Estonian subsidiary of the Swedish bank.

The bank dominates the Estonian consumer-banking sector, with a market share of 54% for deposits from private customers and 47% for lending. In the corporate market, Swedbank’s market share is equally robust, at 36% for lending and 41% for deposits. Such a powerful presence in the country translates into Swedbank AS contributing the highest proportion of the Swedbank group’s total revenues (7%) and profits (10%) from its Baltic banking operations.

Specifically, Swedbank AS reported a healthy 17% year-on-year rise in net interest income to €32.5 million in 2011, and can boast a loan-to-deposit ratio of 118%.

In the first quarter of 2012, the bank remained profitable, largely as a result of lower net recoveries, and despite net interest income falling.

The improvement of credit quality was evident in both corporate and private portfolios. Impaired loans continued to decline in the first quarter and amounted to €379 million – down from €504 million last year – on the back of ratings upgrades, good new sale quality and workouts of defaulted customers.

Swedbank AB completed some structural changes in 2011 that affected its Baltic banking operations. In essence, the three Baltic subsidiaries are now directly owned by Swedbank AB, instead of Swedbank AS, the previous parent company. The changes are designed to improve capital management within the group, Swedbank says, while also simplifying the operating structure of Swedbank AS and reducing “some regulatory steps” in Estonia.

Swedbank says that, as part of the change, it will maintain the Baltic subsidiaries high capitalization levels, continuing the strategy it has exercised over the past two years.

Although local institution Pohjola Bank almost doubled its deposit base while improving profitability in 2011, it cannot yet compete with the profitability and lending capacity of Nordea.

Finland accounts for around a fifth of Nordea’s total operating income, making it the third-largest earner for the bank after Sweden and Denmark. Increased net interest income and commission income have contributed to a strong year for Nordea in Finland, with operating profits up 132% to €360 million.

Higher Euribor rates through 2011 led to better margins and, given that Nordea’s deposits in Finland are mainly sight deposits and thus very rate sensitive, contributed strongly to the increased earnings in 2011.

The other big contributor was a large reduction in loan losses, with net loan losses in 2011 around half of what was seen in 2010.

Despite a difficult and often inactive equity capital market, Nordea is also Euromoney’s best investment bank in Finland on the strength of its activity in M&A and debt capital markets in the past year.

The bank was not only involved in the highest number of M&A deals in the country but also ranked top in DCM by value of deals, ahead of Royal Bank of Scotland and Deutsche Bank, who were second and third respectively.

The standout deals in M&A included its advisory role to US-headquartered Trimble Navigation, a GPS technology provider, on its $483 million acquisition of Finnish software company Tekla, and its role as sole financial adviser to Fortum Corporation, the Finnish utility, on the $261 million sale of Fortum Energiaratkaisut and Fortum Termest to EQT Infrastructure, the infrastructure fund of private equity investor EQT Partners.

In DCM, Nordea executed 24 deals worth a combined $4.2 billion, equivalent to a market share of 15% – well ahead of RBS and Deutsche.

Top among the transactions were the three largest bond issues for the sovereign – two €3 billion deals with maturities of 16 years and five years – and agency borrower Municipality Finance, which accessed the dollar markets to raise $1.5 billion.

Best Bank: SEB Banka

Latvia is still rebounding from the deepest recession of any European country following the economic crisis in 2008, which prompted an IMF bailout in the same year. But the Baltic country has come a long way.

In 2011 Latvia’s GDP growth was 5.5%, making it one of the fastest-growing countries in Europe alongside its Baltic neighbours, and elevating its candidacy to join the euro.

One bank in particular reflects Latvia’s strong momentum, and this year’s clear winner for best bank in the country is SEB banka.

Last year, and in the first quarter of this year, the bank’s business performance has been particularly strong, maintaining healthy profitability and sound capital strength.

Driven partly by soaring demand for mortgages, an increase in new private and corporate customers and new lending, SEB banka reported profits of Lats20.1 million ($36.4 million) in the first quarter – up 6% on the same period in 2010. Total deposits increased 7% to Lats1.04 billion over the same period, and loan growth rocketed 52% to Lats83.7 million, with the bulk of these new loans issued to entrepreneurs.

SEB banka’s first-quarter performance complemented its full-year 2011 results, in which profits rose on the year before to Lats78.5 million as expenses fell and loan growth increased 28% to Lats479 million.

SEB banka is an increasingly important profit engine for its parent, SEB, which took the award for best bank in the Nordic and Baltics.

Best Bank: SEB Bank Group

Completing a hat-trick of awards in the Nordic and Baltic region this year for SEB, its banking business in Lithuania takes the plaudits as Euromoney’s best bank in the country.

As one of Lithuania’s biggest banks, SEB Bank Group is a strategic business for SEB’s powerful banking franchise in the Baltic region, and one which is expected to continue to deliver growth and profitability over the long term as the country’s economy recovers.

Lithuania’s economy grew by 3.9% in the first quarter of the year, driven by rising construction output, which jumped 10.8%, while household consumption grew 6.8% on the same period last year.

This growth should, in turn, boost lending for SEB Bank Group.

During the first quarter, the bank advanced Lit907.6 million ($331.2 million) of new loans – 27% up on the same period last year. Breaking that down, new loans to private individual customers increased by 15.1%, while new loans to corporates and institutions increased by 33.2%. However, income, though stable, was flat to last year at Lit128 million.

Financially, SEB Bank Group looks sound too. Assets at the end of March increased 18% to Lit256.8 billion year on year, while equity capital was Lit2.4 billion – up 16.7% year on year – and the bank’s deposit portfolio was Lit12 billion, up 30%.

Last year was marked by important changes for DNB, Euromoney’s best bank in Norway. The bank rebranded and consolidated a number of its businesses, bringing DnB Nor, Vital, Postbanken and DnB Nord under the unified umbrella of DNB.

The rebranding is not merely cosmetic, it has had a centralizing effect on the bank, with its Baltic businesses in Latvia and Lithuania now being controlled from the group’s head office in Oslo rather than from DnB Nord’s offices in Copenhagen.

The consolidation also means that, in Norway, all DNB customers can access banking services at all post offices in Norway while former Postbanken customers will gain access to DNB’s branch network and a wider range of products.

Aside from the consolidation within the group, the bank’s Norwegian operations have had a successful year. Deposits have climbed by 12.9% to €98 billion, while lending growth has been nearly as strong at 9.11%.

Lenders have been pleased with DNB over the past year, with it being named as the best borrower through covered bonds in Euromoney’s 2012 best borrowers survey. The bank has broken new ground in the field of covered bonds – being the only European institution to successfully issue in Australia.

Goldman Sachs is Euromoney’s best investment bank in Norway as a result of an impressive performance in ECM and M&A, particularly in the energy sector.

The US investment bank topped the Dealogic league tables by value of deals for both markets, and can claim involvement in the largest and most high-profile deals in ECM and M&A.

The pick of Goldman’s M&A deals was state-owned oil company Statoil’s $4.7 billion takeover of oil and gas exploration company Brigham Exploration – the largest deal in Norway and the seventh-largest takeover announced in the oil and gas industry in 2011. Goldman co-advised Statoil on this deal, which marked the latest instance of Statoil expanding into unconventional fossil fuels as a result of declining North Sea oil production.

Also notable was Goldman’s role as retained financial adviser to Aker Drilling on its $2.2 billion acquisition by Transocean, the world’s leading oil drilling contractor, in what was the third-largest deal in Norway during the period.

In ECM, the US investment bank’s most impressive transaction was its $1 billion accelerated bookbuild offer of shares and put options in Norwegian deepwater drilling company SeaDrill, by the far the largest and most sophisticated ECM deal in Norway over the awards period.

The shipping magnate John Fredriksen’s investment company, Hemen Holding, raised NKr5.67 billion ($1.02 billion) as a result of selling 5% of SeaDrill, achieving a premium to the market price as it offered investors downside protection with a simultaneous sale of put options.

With more than 450 branches across Sweden, Svenska Handelsbanken is the country’s dominant retail bank and Euromoney’s best bank in Sweden.

Owing in part to a conservative attitude towards risk the bank has escaped the turmoil of the crisis with a minimum of damage, and can boast that there hasn’t been a single quarter during the past five years when the bank’s return on equity dropped below 12%.

The bank’s organic growth model continues to prove successful – new branches generally report a positive cashflow within 24 months, with profitability escalating after that mark.

The bank’s widespread branch network is a boon, as all of the markets where the bank has a significant presence have largely decentralized populations.

It was a particularly strong year for the bank in Sweden, with its retail banking division in the country reporting a 23% rise in profit, along with 5% and 6% increases in loans and deposits respectively.

Goldman Sachs is Euromoney’s best investment bank in Sweden. Across M&A, and equity and debt capital markets, the US investment bank affirmed the strength of its franchise in the country and across industry sectors in the past year.

Of the standout deals in M&A, the leveraged buyout of Securitas Direct, a security service company, is the largest. Goldman acted as lead financial adviser to private equity investors Bain Capital and Hellman & Friedman on the $3.3 billion acquisition of Securitas, which was the largest leveraged buyout in Europe in 2011 and the largest in the Nordic and Baltic region since 2007.

The US investment bank also acted as lead financial adviser to a Nordic Capital-led consortium of private equity funds in the $13.7 billion sale of Swedish pharmaceuticals company Nycomed to Japan’s Takeda, in what is the largest ever private equity sale in Europe, and the second-largest foreign acquisition by a Japanese company.

In ECM, Goldman was involved in Finnish state-owned Solidium’s €1.05 billion dual-tranche share and exchangeable bond offering in TeliaSonera, Sweden’s largest telephone operator. The transaction is the largest dual-tranche offering in Europe since 2010.

Goldman’s performance was not as strong as the year before in DCM, but having executed 20 Swedish bond issues worth a combined $6.5 billion, it finished a respectable sixth in Dealogic’s league table, with a market share of 6.35%.