Banks in Europe Face More Declines in Nordic Analysis of Risks

  • DNB says better to be a regional bank with a niche focus
  • DNB says regional banks will gain over bigger European lenders

The Nordic region’s banks will watch from the sidelines as the biggest European lenders succumb to increasingly heavy competition from the U.S.

The head of investment banking at Norway’s biggest lender, DNB ASA, says the largest financial conglomerates in Europe appear to be losing the investment banking race, as capital-rich U.S. rivals squeeze them from one side, while local expertise prevents them from gaining a proper foothold in regions like Scandinavia.

“We see this trend of banks gaining over non-banks, Nordic banks gaining over pure one-country banks and U.S. banks are in general gaining market share over European banks,” Ottar Ertzeid, head of DNB Markets, said in an interview on Wednesday. “You can call it stuck-in-the-middle, and they suffer from that.”

European banks have struggled to keep up with their U.S. competitors in an environment dominated by negative interest rates and slower economic growth. Deutsche Bank AG, Credit Suisse Group AG and Barclays Plc are all cutting thousands of jobs and selling assets in an effort to adapt. Meanwhile, U.S. banks are benefiting from a swifter restructuring process after the financial crisis, Ertzeid said.

As European banks cut back in an effort to support profits, the “downsizing, trimming” also has a flip side. It “has consequences for the customer offerings they are able to provide, making it difficult to compete,” he said.

“The U.S. corporates use capital markets much more than in Europe,” Ertzeid said. “So the U.S. has a stronger home market. Fee levels have been kept higher in the U.S. so they actually have home turf advantage by having a strong domestic business with attractive fee levels making it easy for them to make more money.”

Meanwhile, regions like Scandinavia are faring better thanks to a richer client base and as it proves difficult for banks from the outside to dent the market dominance of local lenders. DNB Markets has expanded in Scandinavia in recent years and Ertzeid says his unit is continuing to recruit, especially at its Stockholm office.

“It’s actually better to be a regional player and have a regional niche and focus” he said. “We have ambitions to be good on the Nordics and perhaps shipping and seafood. But we don’t have ambitions to compete with the U.S. investment banks globally.”

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