Nordic Banks Get Creative Tackling Dire Mix of Headwindsby
SEB stretches wealth management operations across divisions
Moody's says banks' cost-cutting programs will remain key
Negative interest rates, some of the world’s strictest capital rules and intense competition for customers are all making life difficult for Nordic banks.
The industry’s response has so far focused largely on cost cuts. But with investors hungry for signs of growth, banks in Scandinavia are under pressure to find ways to build revenue despite the hostile climate they operate in. With traditional lending income dwindling and fees from investment banking services proving erratic, banks are relying more on wealth management to stay profitable.
SEB, a Swedish bank based in Stockholm, says the key to selling more financial services is to remove the silos that have split the product mix to date. Wealth management services will now be stretched across new client divisions in what amounts to the bank’s first major restructuring since the global financial crisis hit about eight years ago. The move follows a decision earlier this month by Nordea to build up its executive team in wealth management.
The hope is that clients “of course want to do more ancillary business with us,” Viveka Hirdman-Ryrberg, head of communications at SEB, said by phone.
Sweden’s four biggest banks all saw profit drop last quarter, with net income at SEB plunging 38 percent from a year earlier after revenue fell 20 percent. Profit at Nordea, Scandinavia’s biggest bank, sank 17 percent in the same period.
Moody’s Investors Service says cost-cutting measures will remain key, with steps such as digitalization and the “reduction in the number of branches and the centralization of group functions” helping achieve that goal, Giovanni Fontana, vice president and senior analyst at Moody’s in London, said in an interview.
Banks are also looking for ways to make portfolio management more efficient. Swedbank is cutting back on the number of funds it operates to support profits.
“You don’t need hundreds and hundreds of mutual funds,” said Gregori Karamouzis, head of investor relations at Swedbank. The bank has been merging and canceling funds in the “first cleaning-up exercise we’ve done, and that’ll continue as well, and that frees up time and resources in the back end as well.”
SEB’s restructuring involves several adjustments. Large Corporates & Financial Institutions, which already includes merchant banking services, will take asset management sales over from the bank’s wealth management unit. SEB will have a unit that combines mid-sized companies with private customers. Its life insurance division will include an investment management unit. The changes take effect from January.
“We think it’s a key success factor in the long term, where the way you’re working is focused on the customer,” Hirdman-Ryrberg said. “That’s why we’re doing it. It is not to start a cost-cutting program. This is the way that will support us long-term.”