Nordea Bank Targets Wholesale Unit for Deep and Sweeping Cuts

(Bloomberg) -- Nordea Bank Abp is planning to allocate a lot less capital to its wholesale unit after acknowledging its performance has been “unsatisfactory.”

The cuts will form a key plank in a strategy shift conceived by the bank’s new chief executive, Frank Vang-Jensen. After less than two months on the job, he’s made clear he wants to squeeze much deeper savings out of the biggest Nordic bank. That will include adding to the 6,000 job cuts already announced.

Martin Persson, who runs the wholesale unit, said Nordea wants to cut the amount of economic capital allocated by $1.7 billion. Its risk exposure amount will fall by about 8 billion euros, or $8.9 billion, while cost cuts at the unit will reach about 200 million euros, he said. The measures announced follow criticism from activist investor Cevian Capital, which had singled out wholesale banking as ripe for restructuring.

Vang-Jensen has said he wants “every single cost” at Nordea to be reviewed. And with 70% of the cost base related to people, deeper staff cuts are inevitable, according to the new CEO. Chairman Torbjorn Magnusson says it’s that attitude that got Vang-Jensen the job, telling investors that he’d specifically gone after a CEO who was “parsimonious” and “thrifty.”

What Bloomberg Intelligence Says:

“Revenue trends are at last improving across Nordea’s franchise, with the downsizing of the Wholesale Banking division now complete, and with loan growth returning to 6% year-over-year (constant currency basis) in 3Q we expect that recovery to build steam into 2020. That should reverse the tide of persistent net-interest income decline of recent years. Fee income should return to about 3% growth through 2020, with asset management returning to positive net inflows, while payment fees are also firming.”
--Philip Richards, senior bank analyst at Bloomberg Intelligence.

Vang-Jensen says Nordea is now in talks with unions to decide on the scale of the firings ahead. He declined to give further details, beyond saying the bank will try to shield client-facing jobs. But employee representatives are already voicing their shock and anger at the measures announced, suggesting those talks will be tense.

Mette Balck Mejlby, the president of Nordea Union Board, said Vang-Jensen’s new cost target came as a surprise and “implies a significant reduction of the number of employees.” If the bank goes ahead with its latest plan, it will be “difficult for Nordea to maintain business momentum,” she said. “We are very concerned about this.”

Keeping Investors Happy

Vang-Jensen was brought in after investors slammed his predecessor, Casper von Koskull, for failing to control costs or deliver revenue growth after years of restructuring. The new CEO says that Nordea’s modus operandi can’t be allowed to continue, after years of deteriorating returns.

He says bankers need to understand that their industry “is changing, and Nordea is changing.” That’s in part because of the arrival of new technologies. Ultimately, that means there’ll be “fewer people in the industry in the years to come, and that will of course also impact customer-facing units,” he said.

To contact the reporters on this story: Frances Schwartzkopff in London at fschwartzko1@bloomberg.net;Rafaela Lindeberg in London at rlindeberg@bloomberg.net;Kati Pohjanpalo in Helsinki at kpohjanpalo@bloomberg.net

To contact the editor responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net

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