Danske Bank CEO Predicts `Substantial' Asset Management Boom

  • Borgen says Nordic wealth management market to grow up to 7%
  • Combined wealth unit to help Danske achieve RoE targets: CEO

The man running Denmark’s biggest bank says the new wealth management unit he has created will benefit from considerable growth in the Nordic market.

“We believe the wealth management area, or assets under management, in the Nordic region will grow approximately 5 to 7 percent in the next couple of years toward 2020, per annum,” Thomas F. Borgen, chief executive officer at Danske Bank in Copenhagen, said in a phone interview on Thursday. “It’s a substantial growth going forward.”

Danske is creating a separate wealth management unit as lenders across Scandinavia look for ways beyond traditional lending to generate more revenue. The bank will move its pension and capital units into the business, which will have about $130 billion in assets under management. Borgen hasn’t yet decided who will head the unit. Tonny Thierry Andersen, who oversees personal banking, will run the business until a permanent head is found.

“This is a strategic decision from Danske to put wealth management even higher on the agenda,” Borgen said. “We put it strategically on the table, as a fourth division within the executive board.”

Banks in Denmark and Sweden are grappling with a cocktail of negative interest rates and erratic markets, both of which have eroded lending and fee income. Nordea, SEB, Swedbank and Handelsbanken all reported lower profits last quarter as the industry tests the limits of its cost-cutting options.

While Danske delivered profit growth in the period, its revenue sank 10 percent. Its shares have gained 12 percent since December after falling from a high in mid-August, when the year-to-date increase exceeded 30 percent. Danske shares have lost about 13 percent over the past three months, mirroring a similar trend among other major Nordic banks.

For the Danish bank, efforts to get the most out of its wealth management operations form part of a strategy to raise its return-on-equity level, Borgen said. The bank has promised investors a 9.5 percent return this year, with a long-term goal of more than 12.5 percent.

“For the investor community, this is an asset-light business unit which is very good from the return perspective to our shareholders,” Borgen said.

For clients, the focus on wealth management may help them generate better returns in an era of negative interest rates. Both the central banks of Denmark and Sweden have pushed their main rates below zero. Most economists in Denmark predict rates won’t turn positive until the end of 2017 at the earliest, mostly because their models don’t go any further.

But with low rates supporting the economy, there’s a “general wealth accumulation taking place in the Nordics,” Borgen said. Low rates also mean “clients need to be given alternative ways to invest excess capital. As a consequence of that, assets under management will grow.”

Other banks in Scandinavia are also trying to get the most out of their asset management operations in the hope of generating more revenue.

SEB, based in Stockholm, is stretching its wealth management services across new client divisions in what amounts to the bank’s first major restructuring since the global financial crisis hit about eight years ago. Nordea, Scandinavia’s biggest bank, earlier this month expanded its executive team in wealth management.

Danske’s decision to create a single unit handling its wealth business “is even more important” should market turbulence become an issue, Borgen said. If there’s more volatility, “then it’s even more important that we have a combined unit with the best people giving the best products with the best advice.”

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