Banks vie for fees as Nordic deal scene ignites

STOCKHOLM Thu May 15, 2014 10:33am EDT

SEB Bank Chief Executive Officer Annika Falkengren speaks during a news conference in Stockholm January 31, 2013. REUTERS/Henrik Montgomery/Scanpix Sweden

SEB Bank Chief Executive Officer Annika Falkengren speaks during a news conference in Stockholm January 31, 2013.

Credit: Reuters/Henrik Montgomery/Scanpix Sweden

Related Topics

STOCKHOLM (Reuters) - Scandinavia has become a hot spot in Europe's corporate dealmaking scene this year, almost doubling its share of merger and acquisition activity and listing more companies than anywhere but Britain.

With others in the pipeline, global banks are building up their presence, but face stiff competition from Swedish banks SEB (SEBa.ST), the established frontrunner, and Nordea (NDA.ST), a relative newcomer to the top table with big ambitions.

Regional exchange operator NASDAQ-OMX hopes for up to 20 new listings before the end of June, with biotech companies among those expected to float, according to Adam Kostyal, the exchange's European head of listings.

"We also see traditional Nordic sectors, such as industrials, coming to the market, and a lot of private equity portfolio companies," he said.

In a region which has been a constant outperformer in Europe thanks to its solid public finances and strong companies, many banks stand to benefit this year from a flurry of pent-up activity now that confidence is returning.

SEB CEO Annika Falkengren sees industrials as a key source of future deals. "They are all cash rich, have good balance sheets and have done well for a long time," she told Reuters.

Led by Denmark, the Nordics have seen $3.4 billion in listings in just over three months of 2014, making up nearly one-fifth of European IPOs, and putting the region in the number two spot, Thomson Reuters data shows.

"We're not a Tokyo or a London but we are becoming sort of a mini-hub," said Jan Olsson, Head of Global Banking for the Nordic Region for Deutsche Bank (DBKGn.DE).

His bank is busy recruiting staff in Stockholm and others have been bolstering their resources.

Casper von Koskull joined Nordea as head of wholesale banking from Goldman Sachs in 2010. The Nordic bank has risen from 14th in terms of fees and commission earned from M&A and equity capital market (ECM) activities in 2008 to number three, just below his old employer.

A number of big takeover attempts reflect the confident mood in the region, which groups Norway, Sweden, Denmark and Finland, and Nordea did not want to waste the opportunity, von Koskull said. Still, both SEB and Nordea say Europe's recovery looks a little patchy while geopolitical concerns over Ukraine and Russia could impact overall business sentiment.

"I think at the moment there is a reasonable amount of activity," von Koskull said. "Let's see how long it can last."

Last summer, just before the wave of listings took off, Nordea poached Annika Sigfrid from ABG Sundal Collier, where she handled two of the few post-crisis IPOs in Sweden, to head its Swedish ECM division.

Bank of America Merrill Lynch BACML.UL - ranked No. 11 in terms of fees for 2013 - recently nabbed Johan Lustig from JPMorgan (JPM.N) - No. 4 - to lead its Nordic investment banking division, saying the region was important for European fees.

Even smaller players see potential. Greenhill, a U.S. boutique M&A firm, opened offices in downtown Stockholm in 2012.

The region's renewed appeal to foreign banks is a challenge for the locals, but one they say they are well equipped to deal with.

"They are definitely here again, and I think that competition will always be here and it is quite fierce," SEB's Falkengren said. "Of course, in the Nordic arena, all banks have a lot of capital - we are all eager to lend to our customers."

NORDICS RISE

The Nordics' share in European M&A activity jumped to 13 percent in the first quarter of this year compared with eight percent for the same period in 2013, Thomson Reuters data shows, putting it second only to France.

Highlights from recent months include Swedish steelmaker SSAB's (SSABa.ST) $1.6 billion purchase of Finland's Rautaruukki, a $5 billion bid attempt by Britain's Weir (WEIR.L) for Finnish rival Metso <(MEO1V.HE) and U.S. Mylan Inc's (MYL.O) bid to buy Swedish drug maker Meda (MEDAa.ST).

Bankers say buoyant equity markets, solid economies and returning corporate confidence will drive business further.

If it comes off, Volkswagen's VOWG_p.PE $9.1 billion offer for truckmaker Scania SCVb.ST would be the biggest acquisition of a Nordic firm in nearly a decade.

The deal has become a sort of who's who in Nordic dealmaking: Morgan Stanley and Deutsche Bank are advising Scania while Volkswagen has Goldman Sachs, Rothschild, Citigroup, SEB and Nordea, which von Koskull said was a testament to its relevance.

For fees earned through early April in M&A and ECM, SEB has already earned nearly as much as it did for the whole of 2013, retaining its No. 1 position by attracting over 11 percent of total fees earned. Goldman Sachs (GS.N) is No. 2 with 10 percent plus with Nordea close on its tail at 9.5 percent.

In 2008, Danske Bank ranked No 1, SEB No. 2 and JP Morgan No 3. Goldman Sachs was 17th and Nordea 14th.

Unlike SEB and Swedbank, Nordea was not as badly affected by large loan losses when the global financial crisis hit the neighbouring former Soviet Baltics, where many Nordic banks had built up exposure.

Nordea's large balance sheet and relatively low funding costs also helped it stand by corporate clients at a time when Wall Street banks were busy getting their own houses in order.

Von Koskull said it was not a single moment but rather key deals with blue-chip firms when he realised Nordea had truly arrived on the regional M&A scene.

He rattles off highlights: a $3.1 billion transaction in Sweden for Nordic grocer ICA (ICAA.ST), a 2.7 billion euro deal by Finland's Outokumpu (OUT1V.HE) to buy ThyssenKrupp's (TKAG.DE) stainless steel business and the listing of Danish services firm ISS (ISS.CO).

Nordea is expected to report a near 20 percent increase in profits this year, gaining strongly on a two percent rise in 2013, according to Starmine SmartEstimates, due to healthy economic growth, a recovery in the shipping sector, cost-cutting and active capital markets.

The bank has 200 people employed in investment banking and is hiring more "selectively", von Koskull said, quashing the idea of any M&A within the banking sector itself by saying the major players remained wary about making big commitments.

UBS analyst Nick Davey said both Nordea and SEB's shares were outperforming more retail-focused players Swedbank and Handelsbanken due to the stronger corporate sentiment, with cost-cutting at Nordea giving it an extra advantage.

"Tied in together, with a positive slant to IPOs and M&A against a declining cost base, then you have good earnings momentum," he said. "That's a nice cocktail."

(Corrects which banks are advising which side in paragraph 22)

(Additional reporting by Ole Mikkelsen in Copenhagen, Sven Nordenstam in Stockholm; editing by Alistair Scrutton, Carmel Crimmins and Philippa Fletcher)

FILED UNDER: