There are at least three reasons for the marriage rush in banking and finance, according to the experts.
SpareBank 1 SR-Bank’s head office “Finansparken” in Stavanger. Photo: Jan Inge Haga/SpareBank 1 SR-BankPublished: Published:
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DNB swallowed Sbanken. Fremtind swallows Eika insurance, while SR-Bank swallows Sparebanken Sørøst and becomes Sparebank 1 Sør-Norge.
On Wednesday, Sparebank 1 Østlandet and Totens Sparebank announced that they were merging.
The consolidation is not going unnoticed by DNB’s executive director Harald Serck-Hanssen, who heads the bank’s corporate division with over 240,000 customers.
– There is sweet music in the financial industry, says Serck-Hanssen to E24.
Executive Director Harald Serck-Hanssen, DNB. Photo: Stig B. Fiksdal
He believes this is because the players see the synergies.
– You can also see that the need to invest in IT, digital solutions and regulatory follow-up makes it difficult for small units to operate cost-effectively, he says.
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Strong capital
The top bank believes that the development goes back to the financial crisis of 2008–2010, and that the financial industry has since built up more and more capital to satisfy stricter requirements for robustness.
“Many financial institutions now have good core capital coverage, and this enables them to carry out such transactions,” says Serck-Hanssen.
Capital change
Portfolio manager Magnus Vie Sundal at Borea Asset Management sees three reasons for the development.
First of all, there is the capital part, where the largest banks have their own risk models that give them lower capital weights than the smallest 80 banks, which have a so-called standard model with higher capital weights.
Portfolio manager Magnus Vie Sundal, Borea Asset Management. Photo: Helge Hansen / Montag
The capital weights are determined by the Ministry of Finance, and in practice this means that the large banks can have less capital behind each kroner lent than the smallest banks.
Just before Christmas, on December 13, the Ministry of Finance announced an easing of capital weights in the standard model, where the smaller banks receive a slightly smaller disadvantage from 1 January 2025, the administrator points out.
– This means that the acquiring bank gets a capital advantage, and it can be so large that you can give a bid premium, and it still pays off, says Sundal.
He points to SR-Bank’s takeover of Sparebank Sørøst-Norge as one example.
– If you can keep less equity behind each loan, you can, all other things being equal, lend more and take market shares, and/or get a higher return on equity, says Sundal.
Selected financial mergers
A bunch of major mergers in financial Norway in the past three years. In addition, several have smaller savings banks merged during the period.
- Sparebank 1 and Totens Sparebank (announced January 2024)
- SR-Bank and Sparebanken Sørøst-Norge (October 2023)
- Fremtind and Eika Forsikring (October 2023)
- SpareBank 1 Søre Sunnmøre and SpareBank 1 SMN (May 2023)
- DNB and Sbanken (April 2021)
- Nordax and Bank Norwegian (March-October 2021)
Sea view
Growth and synergies
Another motivation for merging could be to increase income, according to him.
– At a time when we are entering a period of lower credit growth, it can be more challenging to grow organically than by acquisition. At a local level, removing a competitor and having slightly less price competition can also be a factor, says Sundal.
A third element could be achieving cost savings through merging two units.
SR-Bank and Sparebanken Sørøst-Norge announced NOK 150 million in annual synergies related to operations and financing, while Sparebank 1 Østlandet and Totens Sparebank have not announced anything, the administrator points out.
– Those are the three motivators. It can also be said that it is a long-term trend that the costs of orders and regulations from the authorities are increasing, and in that sense the banks have an incentive to consider mergers. Not least this applies to money laundering and the threat associated with fraud, which means that it can it pays to have slightly larger units, says Sundal.
Investment director Robert Næss, Nordea Investment Management. Photo: Eivind Senneset
– Was impossible
Investment director Robert Næss at Nordea Investment Management believes a plug has come loose.
That makes the mergers we are now seeing possible, according to him.
– Before, it was impossible to make acquisitions because the big banks were priced too low. Now when they have been priced at price/book price/book market value in relation to the book value of the equity for a while. well above 1, they can buy others at book values. Now it is possible, says Næss to E24.
He also points out that several banks that have merged have been in the same banking alliance, with identical IT systems.
That makes a merger easier, he believes.
– I also believe that the small banks want it because of the complexity of regulations, and there are increasingly more requirements for regulation. Now I think we are approaching a threshold where it is becoming too tiring for the small banks, says the investment director.
– Still width
Serck-Hanssen at DNB is not worried that competition will be weakened by the development.
– We probably have over 130 banks in Norway, so there is still a lot of breadth.
– But then again, there is something wrong with today’s service model, where you have to develop good, digital solutions for customers. It requires the banks to be of a certain size to be able to make those investments, says the DNB director.
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2024-01-06 13:22:35
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