Nordea Threat to Quit Sweden Tests Bankers' Political Power

(Bloomberg) -- The Nordic region’s biggest bank has given Sweden an ultimatum: show some regulatory accommodation or we’ll leave.

The threat is set to become a test of Nordea Bank AB’s power to reset the political agenda, with the outcome holding potential lessons for the rest of Europe.

The dispute centers on Sweden’s plan to have banks pay more into a crisis reserve intended to protect taxpayers from financial losses. Nordea, which recently converted its subsidiaries into branches, would have to base payments on its entire Nordic balance sheet, resulting in annual fees equivalent to almost half the total industry contribution. That, together with stricter capital rules than elsewhere in Europe, is too much of a regulatory burden to bear, according to Chief Executive Officer Casper von Koskull. Nordea says the threat to move is “dead serious.”

Global SIFI

When such warnings come from a financial conglomerate of Nordea’s size -- a global systemically important bank with a market value considerably bigger than Deutsche Bank AG’s -- it appears governments listen. The minister in charge of banking in Sweden, the largest Nordic economy, said on Wednesday he may adjust the plan.

The government’s proposal, which has been sent around as part of a consultation process, “could absolutely” be changed in response to the feedback, Financial Markets Minister Per Bolund said in an interview. “We’re listening.”

But one man who has made a career of studying financial industry dynamics says such threats have a history of petering out in the end.

Minor Concessions

“The banks use anything they can to try to push back against the regulation,” Richard Portes, professor of economics at the London Business School, said in a phone interview. Portes, who’s also the chair of the advisory scientific committee of the European Systemic Risk Board, said history shows a “minor concession or two” should be enough to resolve such a dispute.

Analysts tracking Swedish banks warn the strict regulatory environment is hurting lenders’ market values.

“The share prices of Swedish banks have dropped substantially over the past month or so, on the back of proposed higher fees for the country’s bank rescue fund,” Fathom Consulting said in a note on Thursday. “We remain pessimistic on the sector.”

Nordea’s share price has lost about 7 percent since the middle of March, compared with a less-than 3 percent decline in the Bloomberg index of European financial stocks over the same period. Fathom Consulting also warns that a potential housing bubble in Sweden is adding to the cloud hanging over the country’s banks. The regulator argues that housing market risks are a reason to step up oversight.

State Support

Portes also points to the scale of Sweden’s financial industry. The country’s biggest banks have combined assets that are about four times the size of gross domestic product. An implied state guarantee and higher capital ratios have kept ratings high and funding costs low. Sweden’s banks also tend to deliver bigger rewards to their shareholders, with CreditSights estimating that the median return on equity for Europe’s 30 major banks was 6.3 percent last year, or roughly half the level at the biggest Swedish banks.

“There aren’t many countries with so big a banking system relative to the economy,” Portes said. That means the value of the implicit guarantee being provided by the Swedish state is “greater” than an equivalent support in other countries, he said.

“It is perfectly normal that a bank should try everything it can,” Portes said. “But I think in this case, as far as I can see, their arguments aren’t very strong and their threats aren’t very strong.”

To contact the reporters on this story: Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net, Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net.

To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net, James Hertling at jhertling@bloomberg.net, Tasneem Hanfi Brögger, Niklas Magnusson