According to experts, there are at least three reasons for the rush on marriages in the banking and financial sector.
SpareBank 1 Headquarters of the SR-Bank “Finansparken” in Stavanger. Photo: Jan Inge Haga/SpareBank 1 SR-Bank Published: Published:
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DNB swallowed up Sbanken. Fremtind swallows Eika insurance, while SR-Bank swallows Sparebanken Sørøst and becomes Sparebank 1 Sør-Norge.
Sparebank 1 Østlandet and Totens Sparebank announced their merger on Wednesday.
The consolidation does not go unnoticed by DNB Chief Executive Harald Serck-Hanssen, who heads the bank’s corporate division with more than 240,000 customers.
– There is sweet music in the financial sector, Serck-Hanssen tells E24.
Executive Director Harald Serck-Hanssen, DNB. Photo: Stig B. Fiksdal
He believes this is because players see the synergies.
– The need to invest in IT, digital solutions and regulatory follow-up is also seen to make it difficult for small units to operate cost-effectively, he says.
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Strong capital
The main bank believes that the development dates back to the 2008–2010 financial crisis and that since then the financial sector has accumulated more and more capital to meet increasingly stringent robustness requirements.
“Many financial institutions today have good core capital coverage and this allows them to carry out such transactions,” says Serck-Hanssen.
Change of capital
Portfolio manager Magnus Vie Sundal of Borea Asset Management sees three reasons for this development.
First there is the capital part, where the larger banks have their own risk models that give them lower capital weights than the 80 smaller banks, which have a so-called standard model with higher capital weights.
Portfolio Manager Magnus Vie Sundal, Borea Asset Management. Photo: Helge Hansen / Montag
Capital weights are determined by the Ministry of Finance, and in practice this means that large banks may have less capital behind each krona lent than smaller banks.
Shortly before Christmas, on December 13, the Ministry of Finance announced an easing of capital weights in the standard model, where from January 1, 2025 smaller banks will have a slightly lower disadvantage, the administrator emphasizes.
– This means that the acquiring bank gets a capital advantage, which can be so large that it can offer a bid premium, and which still pays off, Sundal says.
He cites the acquisition of Sparebank Sørøst-Norge by SR-Bank as an example.
– If you can keep less equity behind each loan, you can, all else being equal, lend more and take market share and/or get a higher return on equity, Sundal says.
Selected financial mergers
A series of major mergers in financial Norway over the past three years. Furthermore, several smaller savings banks merged over 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
According to him, another motivation for the merger could be to increase revenues.
– At a time when we are entering a period of lower credit growth, it may be more difficult to grow organically rather than through acquisitions. Locally, the elimination of a competitor and slightly less price competition may also be a factor, Sundal says.
A third element could be cost savings by merging two units.
SR-Bank and Sparebanken Sørøst-Norge have announced annual synergies of NOK 150 million related to operations and financing, while Sparebank 1 Østlandet and Totens Sparebank have not announced anything, the administrator points out.
– These are the three motivators. It can also be said that the long-term trend is that the costs of ordinances and regulations of the authorities increase and that in this sense banks are incentivized to consider mergers, also with regard to money laundering and threats to it connected. with fraud, meaning it can be cost-effective to have slightly larger units, Sundal says.
Investment Director Robert Næss, Nordea Investment Management. Photo: Eivind Senneset
– It was impossible
Investment director Robert Næss at Nordea Investment Management believes a thorn has loosened.
This, according to him, makes the mergers we are seeing possible.
– Previously it was impossible to make acquisitions because the big banks were priced too low. Now that for a time they have been valued at price/book price/book market value in relation to the book value of the stock. well above 1, they can purchase more at book values. Now it’s possible, Næss tells E24.
He also points out that several banks that merged were part of the same banking alliance, with identical IT systems.
This makes the merger easier, in his opinion.
– I also believe that small banks want it because of the complexity of regulation, and there are more and more regulatory requirements. Now I think we are approaching a point where it is becoming too much work for small banks, says the investment director.
– Width again
DNB’s Serck-Hanssen is not concerned that this development will weaken competition.
– We probably have more than 130 banks in Norway, so the scope is still very broad.
– But once again there is something wrong with today’s service model, where it is necessary to develop good digital solutions for customers. To be able to make such investments, banks need to be of a certain size, says the director of the DNB.
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2024-01-06 13:22:35
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