September 8, 2017 / 12:47 PM / 2 months ago

Nordea goes for Finnish line

* FRONT: STRATEGY

* Bank chooses banking union certainty over Swedish tax bill

By Steve Slater

LONDON, Sept 8 (IFR) - Nordea, Europe’s ninth biggest bank, is moving its headquarters to Finland from Sweden, the first change of domicile by a major bank in reaction to new regulations introduced since the financial crisis.

Nordea, the Nordic region’s biggest bank, has been considering a move for six months due to a dispute over what it regarded as costly and unpredictable regulation in Sweden.

It will move to Helsinki from Stockholm. Finland is part of the eurozone’s banking union, so it will be regulated by the European Central Bank. It plans to compete the move by October 1 2018.

Nordea said the move will improve its net present value by €1bn-€1.1bn and level the playing field with EU rivals.

“We see the move as an important strategic step in positioning Nordea on a par with its European peers,” Finnish CEO Casper von Koskull said in a statement. “The level playing field and predictable regulatory environment offered by the banking union are ... in the best interests of Nordea’s customers, shareholders and employees.”

It said only a limited number of employees will be affected and the cost of the move should be about €50m or less.

NO BLUFF

Nordea said it has been considering its domicile for a decade. The spark came when Sweden hiked fees to cover the cost of winding up banks that fail.

Nordea said it expects its resolution and deposit guarantee fees to rise by up to €200m in 2018 and by up by €150m in 2019 from this year’s level of €250m, but the rise would have been higher had it stayed in Sweden.

By moving, Nordea will benefit from favourable tax treatment of subordinated bank debt, which Sweden stopped in January. That could be worth €40m-€60m a year, analysts estimate.

There remains uncertainty about the impact on capital, and whether the move will leave Nordea with significant excess cash that can be returned to shareholders, as many investors hope.

The bank will need to hold less capital in future, because Swedish banks must hold capital ratios far above EU rivals. Nordea’s common equity Tier 1 ratio was 19.2% at the end of March, above the 13% it is expected to need under the ECB’s Single Supervisory Mechanism.

But that will be offset by an increase in its risk-weighted assets under ECB regulations, which will reduce or could even wipe out the capital buffer it has.

“We expect limited capital relief for Nordea relocating to Helsinki, with ECB as the lead regulator, as the lower capital requirement is almost fully offset by higher risk weights. It would be a surprise if the ECB SSM would permit regulatory arbitrage via HQ redomicile,” said Ronit Ghose, analyst at Citigroup.

Nordea said it was too early to know the capital implications and it will maintain its dividend policy.

Rodney Alfven, the bank’s head of investor relations, told analysts on Thursday: “It’s very fair to assume that our CET1 ratio requirements will go down ... but the RWA density will probably go up. And the net effect of that, we don’t know anything about.”

The bank said its decision was practical and unemotional. It said the new resolution fee was impossible for it to live with.

It said feedback from investors had been positive on a potential move. Many might regard it as a move home anyway: Finnish institutions and public hold 32% of the bank, more than the 24% owned by Swedish investors - and there are 204,700 Finnish shareholders, almost double the 114,400 in Sweden. (see chart)

Nordea says it regards itself as a Nordic bank and could be based in any of its four home countries. The bank, whose origins date back to the 1820s, was formed at the end of 2001 by the merger of four banks - one each from Sweden, Finland, Denmark and Norway. (This story will appear in the September 9 issue of IFR Magazine; Reporting by Steve Slater)

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