Swedish Banks May Follow Nordea Job Cutting to Buoy Profit

Swedish banks may follow Nordea Bank AB, the country’s biggest lender, in shedding jobs to lower costs as a slowing economy and stricter capital rules curb profit growth.

“In an environment where it will become increasingly difficult to grow revenues, efforts by the banks to reduce costs will be one key factor to deliver earnings growth and therefore we expect several of the other banks to report similar programs,” said Andreas Hakansson, an analyst at Exane BNP Paribas in Stockholm.

Nordea, the Nordic region’s biggest bank, said yesterday it plans to cut a total of 2,000 staff, or 5.9 percent of its workforce, this year and in 2012 to trim costs and boost profit. The company said it would eliminate 500 to 600 workers each in Denmark, Finland and Sweden, while as many as 300 would be axed in Norway.

European banks are slashing jobs this year six times faster than their U.S. peers, according to data compiled by Bloomberg, as concerns about the creditworthiness of Italy, Spain and France roil financial markets and reduce income from fixed-income trading, stock and bond underwriting and mergers and acquisitions. Financial firms are also cutting costs as regulators force them to hold more and higher-quality capital.

Adjusting Spending

Nordea and Swedish rivals SEB AB and Swedbank AB are targeting a return on equity, a measure of how much a company earns for each krona invested, of 15 percent. Svenska Handelsbanken AB aims for a higher ROE than its home-market competitors. With revenue growth expected to slow because of a global economic slowdown, the lenders will need to adjust spending to meet the investor-return targets.

Nordea shares rose 0.4 percent to 57.75 kronor as of 10:22 a.m. in Stockholm, while Handelsbanken climbed 0.6 percent, SEB increased 1.1 percent and Swedbank advanced 1.9 percent. The Bloomberg Europe Banks and Financial Services Index jumped as much as 2.6 percent in its second day of gains.

“The cost-cutting by Nordea is a reflection on a slowing top line, and if the other banks want to meet their return-on-equity targets, they need to act,” said Jan Erik Gjerland, an analyst at Oslo-based DnB NOR ASA. “Banks’ costs need to be adjusted to meet this new reality. Nordic banks can’t hide.”

Nordea said its goal is to reach a large share of the reduction in staff cost through “natural turnover” and voluntary agreements. The lender will continue to make other cost and efficiency steps later this year and give savings and cost estimates after, it said.

Regulatory Environment

The Swedish economy will grow 4.1 percent this year and 1.3 percent next year, down from April forecasts of 4.6 percent and 3.8 percent, respectively, Finance Minister Anders Borg said Aug. 26. The budget surplus will be 0.1 percent this year and in balance next year, compared with April surplus estimates of 0.3 percent and 1.8 percent.

“A lot of internationals, very strong banks, have announced similar measures, and of course this is a direct consequence of the regulatory environment, which brings higher costs to the system,” Fredrik Rystedt, chief financial officer at Nordea, said in an interview yesterday. “We have a need to become more efficient in terms of capital, more efficient in terms of costs. That is something a lot of banks are facing.”

Thomas Backteman, a spokesman at Swedbank, said the Stockholm-based lender isn’t ruling out job cuts and is always aiming to improve efficiency. SEB said in its quarterly earnings report in July it aims to keep costs flat this year.

Out Early

“It’s good to be out early” with the cost cuts, Rystedt said. “It would avoid, perhaps, bigger measures at some later stage if we wait too long.”

UBS AG, Switzerland’s biggest bank, said on Aug. 23 it will cut 5 percent of its workforce. ABN Amro Group NV, a Dutch state-owned lender, plans to slash 2,350 jobs, while HSH Nordbank AG, a regional German lender, said it would eliminate 900 jobs by 2014.

The Basel Committee on Banking Supervision will require lenders to more than triple the core reserves they must hold to protect themselves from insolvency by 2019. Under Basel III, banks will be obliged to hold core Tier 1 capital equivalent to 7 percent of their risk-weighted assets, compared with 2 percent under the previous international rules.