Nordea Fights Sweden on Crisis Fees It Says Will Tempt Fate

  • Sweden’s government proposes raising bank resolution fund fees
  • Measure coincides with plan to present new financial tax

Scandinavia’s biggest bank is in talks with the Swedish government to stop it raising industry payments toward a national reserve intended to shield the country from the next financial crisis.

Nordea Bank AB is trying to make the case that the government’s proposal poses “a risk,” in part because the fees paid by lenders will go into the state budget and won’t sit in a separate fund, Rodney Alfven, head of investor relations in Stockholm, said in a phone interview on Wednesday.

The set-up is pro-cyclical and “tempts fate,” he said. “The government gets fees in good times, and then if there’s a crisis, it needs to find funds.”

But the government argues that Sweden’s surplus target means public finances are strong enough to withstand any withdrawals that might be needed to handle a bank failure. The decision to include the proposed resolution fee adjustment in its budget also means it won’t need to go through a separate parliamentary vote.

Though Nordea wants a “good and friendly dialogue” with the administration, Alfven said the bank will argue that Sweden’s requirement goes far beyond standards set by other EU members. He also said the pan-Nordic bank’s contribution to the reserve will be borne mostly by customers outside Sweden.

‘Big Profits’

The Social Democrat-led government of Prime Minister Stefan Lofven unveiled its proposal over the weekend. During a press conference in Stockholm on Saturday, Financial Markets Minister Per Bolund said banks’ “big profits” justified the move.

The government wants to raise the annual fee banks pay into Sweden’s resolution fund to 0.125 percent next year from today’s 0.09 percent of debts minus guaranteed deposits. It also made clear that a target of 3 percent of covered deposits no longer represents a cap on how big industry contributions need to be.

“The rest of Europe has a fund that’s 1 percent, and it doesn’t go into the budget,” Alfven said.

The government’s proposal will drive Nordea’s net interest income down by 55 million euros ($58 million) in 2018, Pareto Securities analyst Robin Rane said in a note. Since converting its Nordic subsidiaries into branches this year, Nordea’s contribution will eventually be bigger than it would have been before the restructuring. By 2019, the bank’s net interest income will take an additional 70 million-euro hit, according to Pareto. (Annual resolution fees are paid based on the balance sheet two years earlier.)

Estimated Negative EPS Effects20182019
Nordea1.2%2.8%
Handelsbanken2.8%2.8%
SEB2.4%2.3%
Swedbank2.0%2.0%
Source: Pareto Securities

Size Matters

The country’s bankers’ association is adding its resources to the debate. “The Swedish system will be way beyond what we’re seeing in any other country in the EU,” Johan Hansing, chief economist at the association in Stockholm, said by phone. “We can agree that as part of the crisis management system you need a resolution fund, but not one of this size.”

To be sure, Sweden’s resolution fund is calibrated to address the specific set-up of the country’s banks. Sweden has fought hard to keep internal models to determine how much capital lenders need to hold, instead of adopting international standardized models. The EU says countries using internal models need a bigger resolution fund (specifically, 3 percent of covered deposits instead of 1 percent).

What’s more, Sweden’s biggest banks have assets that are roughly four times the size of the economy and successive governments have been eager to ensure the industry is better padded than most to protect taxpayers from unaffordable failures. That’s why Swedish banks are among the best capitalized in Europe.

Bank Tax

The government presented its plan to increase resolution reserves alongside a proposal for a new financial industry tax, after an earlier draft was widely slammed (including by the country’s competition authority and the tax agency that would have enforced it).

The Financial Markets Ministry suggested that the size of banks’ fees to a resolution reserve will also depend on how big a tax the government can get approved. “When a proposal for a bank tax is brought to the government’s table, we will evaluate what the proper level of contribution from the banking sector to the public sector should be,” Bolund told Bloomberg.

But the government expressed considerable determination to have the financial industry contribute more. With bank profits growing, Sweden has “an opportunity to build defenses for the future and potentially worse times, and strengthen the financial system,” Bolund said on Saturday. The government is eager to ensure “that there are enough resources to manage banks if they were to end up in a crisis.”

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