Finance

Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

The exit of a CEO after just 18 months is usually the sign of a bank in the grip of financial turmoil or scandal. Unless it's in Sweden.

Swedish Surge
Handelsbanken's stock has outperformed the wider benchmark over the past five years
Source: Bloomberg

Tuesday's ouster of Frank Vang-Jensen from Stockholm-based Handelsbanken looks instead like a curious triumph of the lowly branch manager over headquarters. It is, in other words, the sign of a truly boring bank.

The official announcement is severe. Describing the CEO job as one that requires a "special type" of "complex" leadership, the bank's board says bluntly that Vang-Jensen didn't fulfill those requirements.

His replacement, Anders Bouvin, is portrayed as a lifer who has worked at the bank for more than 30 years and is "totally familiar" with its methods.

It's worth remembering that Handelsbanken's complexity isn't down to a Deutsche-Bank-style balance sheet stuffed with derivatives contracts.

It's down to an organization it calls the "church spire." Local branches, not centralized hubs, are fully responsible for customer relationships and lending. When a loan goes bad, it's the branch's responsibility. There are no sales targets or market share goals.

If that already sounds outlandish, you'll enjoy this: In 1972, the bank abolished budgets.

Low Risk
Handelsbanken has one of the lowest ratios of bad loans as a proportion of total loans
Source: Bloomberg Intelligence

If the bank were in trouble, you would expect that model to be called into question. But Handelsbanken has the second-lowest non-performing-loan ratio in its European peer group at 0.47 percent, according to Bloomberg Intelligence, and the second-highest core capital ratio of 21 percent. At 13 percent, its return on equity is second only to Swedbank.

High Return
Return on equity at Handelsbanken is one of the highest in its peer group
Source: Bloomberg Intelligence

It's a low-risk, high-return bank that owes much of its success to decentralizing power. The contrast with John Cryan at Deutsche Bank or Tidjane Thiam at Credit Suisse is striking, and those CEOs at least have autonomy.

But with that comes a problem -- even for someone like Vang-Jensen, who has been at Handelsbanken since 1998. Any attempt at imposing changes is going to carry a big risk -- especially if they involve trying to centralize power, something analysts suggest he was trying to do.

It's not clear why he would have wanted to mess with Handelsbanken's model, even if tougher capital rules and tax increases are putting Sweden's banks under pressure to cut costs, or that he ever set out his grounds for tinkering with it. In any case, the bank is now doubling down on its long-running traditional structure to appease local managers.

Premium Valuation
Handelsbanken trades at a premium to the book value of its assets
Source: Bloomberg Intelligence

The stock slipped only 1.7 percent on Vang-Jensen's departure. Handelsbanken still trades at more than a 50 percent premium to book value, one of the highest multiples in the whole of Europe.

As long as the bank can defend that valuation, the business model won't be called into question. But if performance starts to suffer, those local branch managers may find it harder to push for another palace coup.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lionel Laurent in London at llaurent2@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net