All is not harmony, it seems, in the Nordic banking paradise inhabited by the likes of Handelsbanken and Swedbank. Sweden’s biggest banks all enjoy double-digit returns on equity, and valuations well above book value, while European bank stocks further south burn below half book value.
This is a shock for an institution valued at almost 1.7 times book, which even the habitually bearish analysts at Berenberg call a model lender and “one of the best-run banks globally”. But it follows a similar debacle at Swedbank, priced not far from double its book value, where former chairman Anders Sundström fired long-standing former CEO Michael Wolf in February, only to be pushed out himself a few weeks later.
Vang-Jensen’s ouster makes Handelsbanken the third out of the four big banks in Sweden to have changed its chief executive in just the last year. In August 2015, the region’s biggest bank, Nordea, replaced its CEO of eight-years standing Christian Clausen. The top job passed to Casper von Koskull, former head of its wholesale business, who has since focused on building up compliance, regional capital markets and integration of its national operations.
The defenestration at Handelsbanken was by far the least expected, given Vang-Jensen had been in his role less than 18 months. Unlike Wolf, there had been no public trawling through the ethics of Vang-Jensen’s personal investments before the announcement of his dismissal.
It was only in February last year that Boman became chairman after nine years as CEO, succeeding Anders Nyren, who was being lined up to become chairman of Industrivarden – one of Handelsbanken’s two biggest shareholders. At the time a scandal was brewing about the use of private jets at another Industrivarden investment, SCA. Nyren, previously Industrivarden’s CEO, never became the holding company’s chairman as he too took flak. This August Handelsbanken sold its 10.3% share of voting rights in Industrivarden via an accelerated bookbuild in another sign of an end to intertwined shareholding structures within Sweden’s big industrial groups, bankers say.
Cost of efficiency
Swedbank cited client and customer satisfaction as a reason for Wolf’s departure: it was worst among the big Swedish banks in a closely followed customer satisfaction survey. Handelsbanken performs much better in that survey, but – aside from some investor concerns of its unusually low average corporate risk weighting in the face of new regulatory minimums – its chairman also appeared worried that Vang-Jensen’s strategy might eventually lead to grumpier clients and customers.
“Efficiency gains always come with a cost, especially if you try to be too lean,” says Hakon Astrup, research analyst at DNB Markets.
The virulence of the move to digital channels at other Swedish banks (Wolf closed about a third of Swedbank’s branches) seems to have made it all the more worrying for some that Vang-Jensen was moving to close more branches: perhaps altering a business model regarded as successful, despite or even because of its unusual emphasis on branches.
With the country’s biggest branch network, Handelsbanken is no longer the most efficient bank in Sweden. But analysts like Astrup ascribe its outstandingly low impairment charges to a practice of allowing branch managers power, rather than relying on statistics for decisions. Astrup says this has encouraged motivation and loyalty, and staff are even known to refurbish branches for free on their weekends, while employees are further rewarded for the bank’s success through the Octogonen foundation, which owns a similar stake to Industrivarden.
“This has been a very decentralised company since the 1970s,” says Credit Suisse research analyst Jan Wolter. “It’s a strategy that the board of directors believes in. The regional managers have a strong standing in the bank; the board listens to what they say.”
The board drew specific attention to this branch-level autonomy when announcing Vang-Jensen’s departure, which came not long after the former CEO had taken a SKr700 million ($82 million) provision for branch closures and staff cuts in the first quarter.
Swedish banks, it seems, need to tackle negative rates, regulatory costs and new digital competitors like everyone else, but corporate scandals hardly make it easier to manage those challenges through costs. Meanwhile, Vang-Jensen, as a Dane, was perceived to be somewhat removed from the close-knit local business community in Stockholm, though perhaps his outsider status also made his branch-efficiency strategy especially jarring.
After a brief dip, Handelsbanken’s shares were ultimately up in August. Despite Brexit, new CEO Anders Bouvin stressed the bank’s commitment to international growth, including a UK business that he managed until his promotion, after stints for Handelsbanken in New York and Denmark (Handelsbanken also bought Dutch wealth manager Optimix this year).