Svenska Handelsbanken AB needs to take a bigger share of the wealth market to reach its “natural” size in the business area, according to its chief executive officer, Frank Vang-Jensen.
The bank is buying Dutch firm Optimix, which will add about $2.3 billion to its assets under management. Vang-Jensen says he also wants to invest more in 10 centers across Sweden, Handelsbanken’s biggest market, to focus on private banking and pension management.
“We have worked with asset management and savings products for a very long time, but I don’t think we have our natural market share,” Vang-Jensen said by phone.
With interest rates in Sweden and Denmark set to remain below zero until at least 2018, banks operating in Scandinavia face some of the world’s least hospitable environments for traditional lending. After a relentless series of cost cuts, executives are searching for new sources of revenue and wealth management is proving a clear favorite in one of Europe’s richest regions.
Danske Bank A/S, Denmark’s biggest lender, recently appointed a CEO for its $140 billion wealth unit, while Nordea Bank AB and SEB AB are devoting more focus to getting the most out of their asset management businesses.
But as the industry shifts focus, new regulatory requirements threaten to erode the fees banks are targeting. Moody’s Investors Service says the European Markets in Financial Instruments Directive, or MiFID2, “may over time well have a negative effect on fee and commission income from asset management operations.”
Handelsbanken, the first of the big Nordic banks to report quarterly earnings, said net fee and commission income fell 6 percent from a year earlier, three times the decline in its net interest income. The lender also signaled it’s allocating a lower percentage of profits -- 50 -- for dividends. That compares with more than 70 percent in 2015, according to Kristin Dahlberg, an analyst at Jefferies Equity Research.
“This may not be equivalent to eliminating the extra dividend but distribution above the ordinary remains uncertain,” Dahlberg said in a note.
Vang-Jensen, like his counterparts at other Nordic banks, says he won’t pass the cost of negative rates on to retail clients. That means deposits are burning a hole in his and other banks’ balance sheets as they pay to park their cash with the Riksbank. So finding alternative revenue sources is key.
Right now, Handelsbanken’s share of the lending market is bigger than its share of wealth management. Vang-Jensen says the bank has worked to fix that discrepancy for “some years,” but “now we will do it even more.”