Fierce competition for Scandinavia’s richest clients is forcing the region’s biggest bank to rely more heavily on sales elsewhere to feed growth in its wealth management business.
“We have growth in the Nordics, but if you want to have growth stronger than that, also given the strong market positions that we have, we have to look outside the Nordics,” Gunn Waersted, head of wealth management at Nordea in Oslo, said by phone.
Nordea’s existing third-party distributors include UBS Group AG and JPMorgan Chase & Co. The bank has also said it’s expanding its asset management business across Europe, hiring more people and opening branches.
Investing people’s money as they get older and richer is becoming an oasis for banks as other revenue streams suffer. The problem is particularly pronounced in Scandinavia, where both Sweden and Denmark have negative interest rates that have made a mockery of traditional lending models. Corporate finance fees have also suffered as many companies opt to put investments on hold rather than place bets on unpredictable markets.
Meanwhile, record-low borrowing costs are fanning asset values, making the people who hold those assets wealthier. And managing other people’s money offers banks an income stream that generates a considerably smaller capital requirement than lending. But competition is heating up as banks pile in.
Danske, Scandinavia’s largest bank by assets after Nordea, said earlier this month it is creating a new wealth management unit. The announcement came a few days after SEB, based in Stockholm, unveiled its biggest restructuring in eight years to squeeze the most out of its wealth management services. Danske Chief Executive Officer Thomas Borgen estimates the market for investing other people’s assets will grow as much as 7 percent a year in the Nordic region alone.
“Wealth management is one of the few -- if not the only -- parts of the financial markets that actually has underlying and embedded growth,” Waersted said. “And it’s not capital intensive, so competition is fierce.”
Wealth management’s share of Nordea’s group profits is 22 percent, compared with 16 percent just three years ago, according to Waersted. It was the only unit at the bank to report growth in operating profit last quarter.
But in a business where size is everything, Nordea is looking for ways to grow faster than the Nordic market. That includes private banking in Sweden and Norway, Waersted said.
“We have worked very hard to expand our global distribution network” because “asset management and wealth management is a scale business, so we need scale,” she said. Nordea funds are offered by 21 of the top 25 global wealth managers, and Nordea’s portfolio managers “know they have to deliver,” she said.
“If they don’t, they’ll be thrown off the shelf,” Waersted said. “To keep that position is of very high importance.”
Sales through third-party distributors account for almost half of all new net inflows into Nordea, Waersted said. “It is an important part of the growth,” she said. “If you go back to 2009, it was close to zero.” Now, 8 percent of Nordea’s 273 billion euros ($290 billion) in assets under management comes from third-party sales.
The prospect of inflated house prices ending in a sudden market correction and a downturn in the economy isn’t one that worries Waersted. Record house prices across Scandinavian capitals are supported by population shifts that will continue to drive demand, she says.
“The drivers for why the wealth management industry has growth are the demographics and the demographics don’t change because of the economy,” Waersted said. “On the contrary, if people are expecting the economy to worsen, the propensity to save will increase.”