Nordic region
Best bank: Svenska Handelsbanken
Best foreign bank: Citigroup
Best securities firm: Alfred Berg
As Nordic banks recognize the need to increase their size and competitiveness if they are to survive in the global market, they are increasingly adopting a regional strategy. Some major cross-border players are beginning to emerge. Den Danske Bank of Denmark’s 1997 acquisition of Östgöta Enskilda Banken in southern Sweden has given it a 2% share of the Swedish market. Although this is a small presence in Sweden overall, in the southern parts of the country Den Danske Bank is beginning to chip away at Swedbank’s customer base.
The MeritaNordbanken group is still finding its feet after the cross-border merger last year of two leading Finnish and Swedish banks. It has publicly stated its intention to find Danish and Norwegian merger partners to create a major Nordic financial institution. It is thought that the tie-up in Denmark would be with Unibank, and that Christiania Bank is the likely partner in Norway. There has been little progress in realizing these ambitions, but if deals can be struck the MeritaNordbanken group could become the region’s leading force.
The only bank with a significant pan-Nordic presence is Svenska Handelsbanken of Sweden. Handelsbanken arguably has the strongest brand name in Nordic banking, and has been able to build organic growth outside its Swedish market with only small acquisitions. It has a retail-banking branch in nearly every town of over 50,000 people in Sweden, Norway, Denmark and Finland, and is consistently profitable in all its markets. Handelsbanken’s Norwegian business has been augmented by the recent purchase of retail bank Bergensbanken.
Handelsbanken regards Norway, Denmark and Finland as natural domestic markets in which to develop its retail, investment-banking and corporate-finance businesses and to establish itself as the leading Nordic universal bank. Its fortunes have been boosted by a ratings upgrade by Moody’s in June to Aa2, the same status as the Kingdom of Sweden. It remains the highest-rated bank in the Nordic region.
Alfred Berg has grown very rapidly in the Nordic securities sector during the 1990s. The firm now employs almost 500 people across the region, double the figure at the start of the decade, and revenues have quadrupled in the same period. As well as being the regional leader in equity sales and trading and equity research, Alfred Berg has 170, 000 private clients for which it provides asset-management services. Rebecca Bream
Denmark
Best bank: Den Danske Bank
Best foreign bank: Citigroup
Best securities firm: Carnegie
Best foreign securities firm: ABN Amro
Den Danske Bank is the largest bank in Denmark, with total assets worth $92.8 billion, serving two million retail clients (almost 40% of the population) and a significant part of the corporate, public and institutional sectors. This includes capital-markets activities and a strong asset-management business. DDB owns an insurance group called Danica, an extremely strong brand name for life insurance and pensions in the domestic Danish market, which contributes a large portion of the group’s revenues. This will provide a valuable area of low-risk growth in the future, as banks increasingly concentrate on selling financial and investment products to their retail client base.
As well as a size advantage, which is crucial in such a small and overbanked market, DDB has considerable financial strength. During 1998 DDB recorded net profits of Dkr3.9 billion ($545 million) and achieved a return on equity of 13.6%.
Despite some merger activity in the last few years, there is still room for consolidation at the smaller end of the Danish banking market. But because that market is small there will be limited opportunities for economies of scale.
The most forward-looking banks are expanding their strategies and seeking opportunities in the rest of the Nordic region. DDB has acquired 38 retail-banking branches in Sweden through the purchase of Östgöta Enskilda Banken in 1997 and has offices in the other Nordic capitals, as well as Denmark’s principal export markets.
Unibank, the third-largest bank and a strong performer in the market, is also adopting a pan-Nordic strategy. It has for some time been in talks with Merita Nordbanken, the Finnish/Swedish banking group currently seeking Danish and Norwegian partners for the creation of a regional bank big enough to survive in the global bulge bracket. Most analysts expect the acquisition of Unibank by Merita Nordbanken by the end of the year.
In Denmark, as is the case in many countries in the Nordic region, Citigroup is the most effective and well-established foreign bank. Its strategy is to cater for the financing needs of Danish corporates in their business around the world as well as in the domestic market. This means that it does not have to compete with the Danish banks that have cornered the domestic capital markets. It also aims to capture business from multinational corporates that have subsidiaries in Denmark.
Since the merger of Citibank and Travelers, Salomon Smith Barney has been working closely with Citigroup in Denmark and has become a major bookrunner for Danish debt and equity deals.
In the rarefied world of Nordic securities, the well-established names of Alfred Berg and Carnegie dominate the scene. In Denmark, Carnegie (which is 55% owned by Singer & Friedlander of the UK) has the edge over its rival. It has strengths in asset management, debt and equity brokerage and corporate finance. Carnegie is also well-known for the high quality of its research. Of the few foreign players, ABN Amro‘s brokerage business has done particularly well since it was established in Copenhagen in 1982. It is a market-maker for government and mortgage bonds, is a major player in the domestic bond market and has a dedicated sales team selling to Danish investors. When clients demand more international products, ABN has access to impressive expertise through its base in the Netherlands and its extensive global network.
Finland
Best bank: Merita Nordbanken
Best foreign bank: Citigroup
Best securities firm: Alfred Berg
Merita Nordbanken dominates the domestic banking scene in Finland and clearly has ambitions to become the bedrock of a leading regional bank, perhaps adding other partners to its present Finnish/Swedish alliance. Merita, the Finnish partner, was itself formed out of an unlikely merger between Union Bank of Finland, the favoured bank of the Swedish-speaking business elite that has played such a prominent role in Finnish commerce, and the more blue-collar-led, Finnish-speaking Kansallis-Osake-Pannki. Though that merger was initially troubled by culture clashes, the company now has a strong position, particularly in retail banking and also commercial banking. “They have a particularly strong focus on middle-market Finnish companies, and try and do as much domestic business as possible for large Finnish companies, if rather less international business,” says one competing Finnish banker. “But they have to look out. Leonia is improving and Mandatum is an increasingly significant niche player as a pure domestic Finnish M&A and capital markets house.”
For the moment, Merita leads. As well as its strength in domestic wholesale transaction services, it is often a prominent arranger of finance for Finnish companies. This year, it led the €55 million ($57.6 million) loan for mobile-phone component maker Elcoteq Network Corp, and, jointly with BNP, a €150 million loan for household ceramics-maker Sanitec, a Finnish subsidiary of the Swedish Metra. Nor are its ambitions limited to bread-and-butter domestic deals. Last year it co-led with Merrill Lynch the privatization of Sonera, Finland’s national telecom operator, and then played a lead role in the privatization IPO of Finnish energy group Fortum. These were gutsy deals launched following the financial market crisis of the summer, which initially delayed the Fortum offer. Finnish retail demand for Sonera was important in reopening the market.
Some of Merita’s toughest competitors in Finland are foreign banks, such as Sweden’s Handelsbanken and SEB, which competes strongly in commercial banking. But the most threatening competitor, particularly for the business of the larger Finnish companies such as Nokia, UPM Kymene, and Stora Enso, is Citigroup. Citibank was always a bidder for the business of the major Finnish names. It banks Nokia in 25 different countries. It recently won the mandate for Metsä-Serla’s euro cash management. And through an agreement with Leonia it offers cash management to 85 multinational corporate clients operating in Finland.
The coming together of Citibank and Salomon Smith Barney has been particularly powerful in Finland, partly because Salomon has been historically strong in arranging debt issues for Nordic borrowers. Together with Salomon Smith Barney it won the mandate for paper company Metsä-Serla’s first euro bond deal and did a $300 million yankee deal for Merita bank. It is a dealer on Sonera’s €1 billion EMTN programme.
Citigroup has arranged financing for UPM Kymene’s acquisition of paper mills in China, and for Enso’s acquisition of Advanced Agro in Thailand. It advised Stora Enso on the sale of its Tervakoski paper mill in Northern Finland to an Austrian buyer and on its acquisition of the Schweighofer mill in Germany. A vivid illustration of the business it is now capable of is the restructuring of confectioner and packaging company Huhtamaki. It worked on Huhtamaki’s disposal of confectionery businesses to Leaf last year and is now advising on its bid to buy the Dutch packaging company Van Leer. It is prepared to offering bridge financing and subsequent capital markets refinancing.
Pan-Nordic securities firm Alfred Berg remains top ranked in Euromoney’s polls of best brokers in Finland on the basis of its research coverage.
Norway
Best bank: Den Norske Bank
Best foreign bank: Citigroup
Best securities firm: Alfred Berg
The fortunes of Den Norske Bank, Norway’s largest lender, have veered from one extreme to the other over the past 12 months. DnB was forced to issue a profit warning in mid-1998 and by the end of the year had recorded Nkr1.17 billion ($148 million) in losses on bad loans. This situation stemmed from decisions made by the bank’s previous regime, including building up a heavy exposure to the shipping industry which accounted for almost three-quarters of the losses.
As a reaction to the losses a new chairman, Gerhard Heiberg, was appointed and reforms were initiated. A new organizational structure with clear lines of responsibility has been introduced. Loan losses have been almost eliminated. Targets were set at the start of the year to reduce cost levels by Nkr400 million, and a group of 150 senior executives have been working on ways to streamline the bank’s operations and increase efficiency. Heiberg aims to introduce a more entrepreneurial culture to DnB, and to develop the bank’s core businesses in retail, corporate and investment banking. In the sphere of retail banking, $50 million a year is now being allocated to the development of new technology and the modernization of services.
Already this year profits have risen. First-quarter results for 1999 show pre-tax profits of Nkr792 million compared with Nkr601 million in the same period of 1998. Return on equity rose by 3.9% to 14.8%. Vital Forsikring, the Norwegian insurance fund that DnB acquired in 1997, is contributing an increasing amount to the group’s profits.
As part of its strategy to create a strong Norwegian financial group, in March DnB announced its merger with Postbanken, the fourth-biggest bank in Norway. The combined entity will be the eighth-largest financial group in the Nordic region, and will dominate the Norwegian banking sector. Postbanken will become an integrated unit of the new DnB group, operating under its existing brand name. DnB products will be sold through the post office network.
The DnB-Postbanken merger is expected to create annual pre-tax cost savings in excess of Nkr450 million by the end of 2003, as well as providing income synergies of up to Nkr200 million a year. The Norwegian government currently owns 52% of DnB’s share capital, but it has announced that it will reduce this figure to 33%, and 100% of Postbanken.
Citigroup is the leading international bank for 35 of the largest corporate and financial institutions in Norway, and has had a full branch in the country since 1994. One of the bank’s biggest Norwegian deals was the arrangement of a $500 million syndicated loan for Bona Shipbuilding. It also seeks to service multinational companies with operations in Norway.
Norway is one of securities firm Alfred Berg‘s key markets. It caters for domestic and international investors operating in the Norwegian market, and is a key player selling and trading debt and equity on the Oslo Stock Exchange. Alfred Berg also has strengths in underwriting deals and arranging corporate finance. In October 1998 it acted as a bookrunner on a private-equity placement of Nkr72 million for leading Norwegian software company Agresso.
Sweden
Best bank: Svenska Handelsbanken
Best foreign bank: ABN Amro
Best securities firm: Alfred Berg
Svensksa Handelsbanken escaped the damage wreaked on most Swedish banks by the Russian crisis in 1998 as it had little exposure. In fact, income rose 6% in 1998 to Skr7.7 billion before tax ($906.7 million) and the bank achieved a return on equity of 18.6%. These figures illustrate the progress the bank has made towards its objective of higher profitability than a weighted average of other listed banks in the region.
Restructuring of businesses has ensured that Handelsbanken’s costs are lower than most other banks’ in the sector, and that credit quality in lending is never sacrificed in favour of business volumes. Instead, Handelsbanken focuses on high-quality, profitable deals. This mixture of caution and efficiency, combined with its motivated management team, has helped to make Handelsbanken one of the most consistently successful banks in the Nordic region over the past few years.
In retail banking Handelsbanken has pursued a radical strategy of decentralization wherein each bank branch is responsible for its own customers. This includes the marketing of products and providing a full range of services. Each branch also takes responsibility for all the loans granted to its customers, whether they are individuals or corporates. This system has brought the bank’s accountability nearer to the client, made the branch network more flexible and has increased the level of customer satisfaction.
Over the past 12 months extensive efforts have been made to streamline investment-banking businesses to achieve a more customer-oriented focus. In Handelsbanken’s trading operations, the regional offices have increased the emphasis on sales while trading and risk management has been centralized to the bank’s offices in Stockholm, London, New York and Singapore.
Since ABN Amro‘s acquisition of leading brokerage house Alfred Berg in 1995, the Dutch bank has increased its presence in the Nordic region. It is strongest in the Swedish market and is giving a lot of the home-grown banks a run for their money in investment and commercial banking. It has 50 people on the ground in its office in Stockholm and is well positioned to offer its Swedish clients access to the eurozone through its links to its Dutch offices.
Recent Swedish deals that ABN Amro has acted as bookrunner for include an €125 million ($131.6 million) FRN in March this year for municipal borrower City of Gothenburg, and a two-tranche Eurobond issue of €650 million and $500 million in May for telecoms firm Ericsson.
Alfred Berg, as the leading securities firm in Sweden, has strengthened its businesses since its deal with ABN Amro, which has allowed it to provide a wider range of services and expand its customer base. It has developed businesses in corporate finance, equity sales and trading, equity research and asset management. The debt-market team has been absorbed into ABN Amro’s debt business, and this has proved a formidable combination. As an equity underwriter, one of the firm’s most successful deals in the past year has been the Skr2.1 billion private-equity placement for Swedish clothing firm Hennes & Mauritz in October 1998. RB
