Why bank CEOs will put off the IT challenge


Dominic O’Neill
Published on:

Digital overhauls at ING and Nordea will not tempt others to follow.


The decision by Nordea chief executive Casper von Koskull to retire next year, at the age of 60, might give other senior bankers pause for thought.

Nordea is the biggest of the Nordic institutions that until recently were the poster children of European banking. However, a series of anti-money laundering scandals put paid to their reputation for virtuousness.


Casper von
Koskull, Nordea

Yet even within Scandinavia, Nordea has not been able to fully exploit its relative immunity (so far) to those scandals. Indeed, Norway’s DNB is now bigger by market capitalization.

Nordea’s shares have also not beaten its Nordic peers, despite the greater money-laundering problems at other banks.

This is because of its performance on revenues and especially costs. Revenues for the first quarter of 2019 were largely unchanged year on year while costs rose by 5%. Operating profit was down 36% from the fourth quarter of 2018.

Underlying this disappointing performance is a transformation project, launched under Von Koskull, to better integrate the banks Nordea owns across Scandinavia, notably by replacing the dated spaghetti of its core banking IT system with a single new one – something very few bank chief executives dare to do, and perhaps for good reason.

Early on, observers feared that the scheme could become a white elephant and Von Koskull’s departure gives a hint those fears may have been valid.

Comparable project

The one comparable project to the Nordea’s gigantic IT overhaul is at ING, where chief executive Ralph Hamers has had to fend off similar doubts about his scheme to unify the bank’s various country-level operations.


Ralph Hamers,

Rather than setting up a new IT system, Hamers has instead sought to migrate old national systems onto upgraded existing systems in Spain and the Netherlands, which then become supra-national.

Yet Hamers has faced similar criticism from peers about the costs and distraction of doing something that might produce little gain, because fundamental differences in national regulation mean that so much banking activity still has to be tailored by country.

ING, like Nordea, now suffers something of a share-price drag to its closest geographic peers. This is in part because of its transformation project, the benefits of which have not yet been fully realised.

It is unsurprising that ING and Nordea should be the two banks to have tried this sort of thing. They are, respectively, the two biggest banks in the Benelux and Nordic regions.

While they comprise various small markets, these regions’ banking markets have been remarkably profitable during the past five years or more.

However, they are increasingly challenged, notably by non-bank mortgage lenders, as well as by attempts to standardize risk weighting internationally.

Compared with similarly large and geographically diversified banks elsewhere in Europe, ING and Nordea have had more resources in terms of time and money, and an equally great need, to update their creaking IT systems and businesses for the digital age.

The track records of their unusually ambitious attempts to grasp this challenge shows why other chief executives will take a more careful route, even if such inertia holds a greater existential threat in the longer term.