Nordea’s lessons for pan-European banks


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Nordea shares big problems with other big European banks – it offers no easy solution to them.

The experience of Nordea, as its CEO Casper von Koskull readily admits, is that international bank M&A in Europe must work beyond simple diversification and instead offer real economies of scale. 

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Casper von Koskull,
The problem is that integrating previously independent institutions is always hard, especially when the mergers happen across borders (even in Europe and even in the Nordic region). For all Europe’s and Scandinavia’s economic and financial integration, strong cultural and regulatory differences remain. 

This shows how hard it will be to build multi-nation institutions inside Europe, especially across countries that might have even greater cultural differences than Scandinavia – even if their regulatory convergence may now conversely be more advanced. 

In the Nordic region, an incipient downturn in Sweden’s housing market could mean this is Nordea’s moment. Although it has been based in Stockholm, Nordea’s biggest business is in Denmark. It also has large market shares in Finland and Norway. 

This could hold the same advantages Santander gained from its UK and Latin American businesses during the Spanish financial crisis. Both are among Europe’s least-volatile banks.

Marking Nordea out from Santander, however, is the greater level of competition in Sweden; that Nordea is better at wholesale banking and wealth management; and that its constituent banks are closer geographically (if not organizationally). Unlike other European banks with big international wholesale businesses, the post-2008 arrival of Finland’s Sampo as Nordea’s biggest shareholder heralded an early curtailment of the more hubristic elements of Nordea’s multinational vision. 

Von Koskull, another Finn, has further rationalized risks and costs since his arrival in 2015.

International ambitions and wholesale banking have nevertheless continued to add to the challenges and compliance costs at Nordea. Its previous lack of a common core banking system for all its markets was to some extent just an opportunity cost; one that other international banks have also borne. Now the cost and operational risks of building a single IT platform might prevent it emerging as the Nordic winner just when its competitors struggle with greater exposure to a weakening Swedish housing market.

Greater challenges

Nordea’s challenges in replicating Santander’s domestic outperformance are perhaps even greater. Scandinavia is more correlated economically than Brazil and the UK (Santander’s biggest markets outside Spain). 

Nordea is also more politically diffuse than Santander, partly because its growth was more through merger than acquisition and partly because of stronger historic rivalries within it. There are the odd hints of European-style organizational dysfunction here – perhaps a factor in why both it and UniCredit, the pre-eminent pan-European bank, have underperformed less international peers. 

Von Koskull must be applauded for his efforts to make the entire bank work together more closely. He suggests this previously helped lift performance in wholesale banking, which he led before becoming CEO, despite cutting that division’s capital consumption. 

Cultural collaboration could bring the bank together in a much more important way than the legal and IT harmonization he has overseen, but success is not certain.

Another question is how the new headquarters in Helsinki might help this. 

The bank can shift head office, of course, partly because it is so organizationally diffuse. Denmark and Sweden would be more obvious locations, not least because they are much bigger economies. Even if Finland has Nordea’s biggest market share, it makes the country look a bit like a tax haven. 

But perhaps there will be other benefits to Nordea when the region’s historic underdog becomes the nucleus of a pan-Nordic bank – in other words, if a Finnish base is seen as less of threat of dominance than one in Denmark or Sweden. 

That would be a wily answer to the challenge of building a pan-regional financial institution, but one very specific to Nordea and Scandinavia.