A mega bank just joined the eurozone; it’s too big to fail

Stockholm • Yesterday, the number of banks deemed too big to fail in the eurozone grew to eight from seven. The new arrival is Nordea Bank Abp, which is moving its headquarters to Helsinki from Stockholm.

The bank, whose US$670 billion (RM2.77 trillion) in assets are more than twice Finland’s GDP, has made clear its move was driven by regulatory considerations and a wish to be inside the European banking union.

“We’ll be in the core of Europe,” CEO Casper von Koskull told reporters at a recent breakfast meeting in Stockholm. “I think it’s important that we also can influence Europe.”

Under von Koskull, who held several senior roles at Goldman Sachs Group Inc before joining Nordea, the bank has sold off assets outside the Nordic region, including in Luxembourg, the Baltics and Russia.

In an interview with Bloomberg Television yesterday, von Koskull said growing through European acquisitions isn’t on his agenda.

“If you drive a bank for size itself, that’s not a good sign, for me at least,” he said.

“European consolidation is something of course one follows, but it’s not on our agenda for the time being.”

Nordea is in the middle of a high-stakes transformation in which automated and digitised services are replacing human beings. Nordea said it needs to cut its workforce by about 6,000 people as part of this plan. Von Koskull has made clear he thinks the rest of the global finance industry needs to adopt a similar approach to stay competitive.

The arrival of a global systemically important bank will change Finland’s financial industry significantly. Finance industry assets in the northern-most euro member will swell to 400% of its GDP after the move, and Nordea will replace Nokia Oyj as the biggest-listed company to have its headquarters in Finland.

The financial regulator in Helsinki has had to add 10% to its staff to prepare for Nordea’s arrival. It will carry out about 75% of the work supervising the bank even as the main responsibility for Nordea oversight rests with the European Central Bank in Frankfurt.

Bank of Finland governor Olli Rehn said Nordea’s decision to move to Helsinki “must be seen as a vote of confidence in the euro-area banking union”, in an interview with Finnish broadcaster YLE TV1 last Saturday. “For Finland, the euro-area banking union gives us broader shoulders in case of possible difficulties and that’s important,” given how big the finance industry will be compared to the country’s economy once Nordea arrives, he said.

Sweden will be left with a considerably smaller financial industry, and concerns have been raised about Stockholm’s standing as a financial centre once Nordea’s gone. The Social Democrat-led government took a hard line against banks while it was in office. Opposition parties said that’s what ultimately drove away the Nordic region’s largest bank.

For Nordea, the relocation is mostly administrative. Only two people will move to Helsinki — CEO von Koskull and chief compliance officer Matthew Elderfield.

But there are significant financial benefits. Nordea said in February it expects to cut costs by as much as €1.2 billion (RM5.77 billion) once it’s in Helsinki. And management has made clear it expects a more predictable regulatory environment inside the eurozone than the framework it operated within in Sweden.

It remains to be seen whether Nordea’s decision to move hurts its Swedish business in the longer term. The announcement, which came late last year, sparked anger among many Swedish clients who ended up leaving the bank. A number of Swedish trade unions also cut their ties with Nordea.

Von Koskull said clients would not have noticed any difference yesterday. “They’ll get the same people, the same advice, and we’ll develop the bank exactly according to the strategy that we have,” he said.

On a more personal note, the CEO has signalled he will miss Stockholm.

“The longest I’ve ever lived in one place is London, at 20 plus years,” he said. “The second-longest I’ve ever lived in one place is Stockholm. I felt at home here, this is a home to me.” — Bloomberg