Nordea CEO Defends 'Shocking’ Job CutsBy and
Bank surprised market and announcement sent shares plunging
Move follows decision to move HQ to Finland from Sweden
Nordea Bank AB is again on the defensive as 6,000 job cuts -- and their cost -- surprise and anger everyone from unions to investors and analysts.
Denmark’s financial workers union called the decision to lose well over a tenth of Nordea’s workforce “shocking.” Finland’s bank union said the move was “brutal.” Analysts on a conference call challenged the credibility of management’s cost guidance, and investors sent Nordea shares down almost 7 percent at one point, making it among the day’s worst performers on Bloomberg’s index of European financial stocks. The shares opened little changed on Friday.
But Chief Executive Officer Casper von Koskull says it should have been clear to those watching the bank closely that such a step was inevitable.
Responding to criticism from analysts that the announcement came out of the blue, von Koskull said bringing about a digital “transformation” without such costs “would be unheard of.”
Still, “maybe I’ll take that on board, that maybe one should have” signaled costs could rise, he said in an interview. “But the more you flag earlier, the more they want to know the fact there and then.”
Analysts suggest that Nordea had simply guided them in the wrong direction.
“Nordea made a big fanfare around its cost-reduction and group transformation plans, so to now announce a three-year delay to that is a setback,” Bloomberg Intelligence analyst Philip Richards said in an email. “Repositioning for the digital era is necessary for all banks, but needs to be combined with financial benefits rather than dragging on earnings.”
‘This Is Not a Target’
In an interview in London on Friday, von Koskull said he expects the cost-to-income ratio to land somewhere in the “lower 40s” once Nordea has worked through its job cuts and other measures to become more efficient. In the third quarter, that ratio was 51. He also referred to the metric as a “dangerous number” and underlined that analysts shouldn’t treat it as a target set by the bank.
“If we take costs down and we actually see not tremendous income growth -- I think we are pretty kind of realistic and conservative there -- then of course those two things will take cost-income down, by definition,” von Koskull said. “I’m not setting a cost-to-income target, but if you do the maths” then “that’s where you will end.”
“The target is the transformation that we will become a truly digital bank with a modern core bank system,” he said. “We will look very different.”
Nordea, which is already on the defensive in Sweden after announcing it will redomicile to Finland for regulatory reasons, has long signaled it wants to be ahead of its competitors when it comes to providing digital solutions. It also operates in a part of the world where customers have shown a willingness to accept less human contact as chatbots and online services proliferate.
Von Koskull predicts that other banks will soon follow Nordea’s lead, and paints a vision of a financial industry with far fewer bankers. “This is something you will see in the whole industry going forward,” he said.
Ultimately, Nordea’s transition to a world with fewer humans will reduce its costs, according to von Koskull. But here and now, investors and analysts should have been aware that such steps cost money, he said.
“For me, it is quite evident that we have said that there are two years of building up and then we will start seeing the benefit,” von Koskull said. He says investors “will see a meaningfully lower cost base already next year.”
Responding to analyst criticism on the conference call, Chief Operating Officer Torsten Jorgensen said he wasn’t “arguing for forgiveness or for more understanding.” He said he hoped analysts could “appreciate a little bit” the difficulty of sticking to a target “that has to be at the euro cent,” given Nordea’s ambitious agenda.
Of the 6,000 jobs Nordea plans to cut, 2,000 are consultants. Speaking to analysts in London on Friday, Jorgensen said those will be the first to leave the bank. He also said there’ll be an even split in how the total cuts affect front and back-office employees.
“It will be close to half-half, because a big part of the net redundancy will happen in personal banking and CBB, so front/middle office, and the other half in what we call more basic operations and key functions,” he said.
Von Koskull said some analysts may find it difficult to grasp the goals Nordea has set itself.
“Maybe there has been a disconnect in terms of really understanding what transformation means,” von Koskull said. “What analysts have difficulty modeling is your core competencies, when you actually do a transformation, and what sort of a digital bank you are building.”
“That, I fully accept, is difficult to model,” von Koskull said. “But I am very comfortable with the way it positions this bank going forward.”
— With assistance by Niklas Magnusson, and Kati Pohjanpalo