Denmark’s biggest bank may force more cuts on its fixed-income, currencies and commodities unit as Chief Executive Officer Thomas Borgen adapts Danske Bank A/S to what he sees as a paradigm shift in financial markets.
Even though Danske and other banks saw trading income rise last quarter, the bigger picture remains that so-called FICC units are under pressure, Borgen said. “The structural issue doesn’t change,” he said in an interview in Copenhagen on Tuesday. “Which means we will remain firm in adjusting the business model in FICC.”
Danske, which generated a 53 percent increase in income from the unit last quarter, axed 50 positions in April as part of an ongoing adjustment to adapt to record-low interest rates. The job cuts followed “quite substantial adjustments” in costs and capital in the unit last year, according to Borgen.
Banks operating in Scandinavia are trying to adapt to some of the lowest interest rates in the world. Denmark’s benchmark deposit rate is minus 0.75 percent. Sweden’s main rate is minus 0.25 percent. Nykredit A/S, Denmark’s biggest mortgage bank, in January said it needed to shut down its Swedish markets unit after low rates and tight regulation depressed earnings.
Stricter requirements are forcing banks to hold more liquid assets. In the Nordic region, assets with the highest liquidity designation carry interest rates that are close to, or below, zero.
“It costs the banks,” Kim Bergoe, a vice president and senior credit officer at Moody’s Investors Service, said in an interview. “They’re still funding their liquid assets, which costs them money to hold, and it’s not yielding anything.”
Though Borgen says Danske is determined to maintain a “leading” position in fixed-income, currency and commodities services in Scandinavia, he doesn’t want the bank to “try to be everything for everyone.”
“We’ve been adjusting the organization, re-adjusting, taking down the risk in the FICC business, taking down the resources, taking down the capital usage and re-allocating that to other areas that are more in demand from our clients,” Borgen said.
Shifting resources has led to more focus on lending outside Denmark, where record household debt has curbed demand for borrowing.
In Norway “we can see a 10 percent growth in lending in one quarter,” Borgen said. “In Sweden, we just recruited new management in personal banking, and they’re in the process of looking into what they need to do to be competitive.”
Danske’s efforts to expand its business won’t include any large purchases, Borgen said.
“I don’t rule out small bolt-ons, I’ve got nothing in mind,” he said. “But no major acquisitions whatsoever. There’s no need for that.”
The bank will instead seek to exploit a broader product offering, including its insurance business, that is matched in the Nordic region only by Stockholm-based rival Nordea Bank AB, Borgen said.
“We have no ambition to be Nordea. We want to be Danske Bank,” Borgen said. “We have a unique setup -- not compared to Nordea but to some others -- in that we have an asset management unit which is doing very well and we have a pension company.”