Nordea Bank Abp’s activist investor Cevian Capital wants management to conduct an in-depth review of its wholesale banking activities after years of underperformance.
Christer Gardell, managing partner at Stockholm-based Cevian, said that “it’s obvious that the segment is not performing,” in emailed comments to Bloomberg. That’s why Cevian thinks Nordea needs to do “a thorough review of the size and scope of operations,” he said.
Nordea’s wholesale banking operations are delivering returns that are “significantly lower than the division’s potential,” Gardell said. “To reach that potential, there is a need to increase both cost and capital efficiency and to eliminate unprofitable businesses.”
Gardell, whose investment firm is the sixth-biggest Nordea owner with its 2.3 percent stake, has long been an outspoken critic of the bank’s management, including its outgoing CEO Casper von Koskull.
The dissatisfaction follows a multi-year restructuring plan that’s failed to drive down costs fast enough while revenue growth has stalled. Nordea lost about a quarter of its market value last year and its shares have dropped a further 7 percent this year.
Given that history, Gardell told Bloomberg he’s “very
satisfied” with the board’s decision this month to replace von Koskull with Frank Vang-Jensen, a 51-year-old Dane who had led Nordea’s personal banking unit.
Gardell’s Cevian is known for taking strong views on companies and acquiring stakes where it sees an opportunity for a major revamp.
The firm typically acquires a holding large enough to ensure that management is obliged to listen and then press for change, both behind the scenes and through the media. Cevian has in recent years pushed for change at Swedish truckmaker Volvo AB, Swiss-Swedish engineering giant ABB Ltd and at Germany’s Thyssenkrupp AG.
Nordea’s wholesale banking unit stands out as the bank’s worst performer on key metrics. It has the lowest return on capital and the highest cost-to-income ratio of its four main units (personal banking, commercial and business banking, asset
and wealth management, and wholesale banking). Its return on capital-at-risk was just 6 percent in the first half of this year, while total operating costs as a percentage of total income were 67 percent.
At the end of June, Nordea employed 2,929 full-time people in its wholesale unit, which is down slightly from 3,007 at the end of March. But those close to discussions around a possible restructuring have said that headcount isn’t the issue. Instead, they point to the fact that almost a third of Nordea’s capital is locked in the wholesale business at very low returns. If Vang-Jensen manages to fix the corners of Nordea that are most prone to inefficiency, Gardell says he expects the bank to double its shareholder returns.
There’s “no reason” why Nordea shouldn’t be able to achieve the same level of profitability as its peers, or about 12-14 percent, he said. The bank had a return on equity of just 7.2 percent in the first half of this year, which is way below the levels at DNB ASA, Svenska Handelsbanken AB, SEB AB and Swedbank AB.
Gardell says he’s aware Vang-Jensen will need time, given the scale of the task. “There are no ‘quick fixes’ to realise this potential, but we see huge improvement potential in Nordea’s execution both on the cost and revenue side,” he said.