LONDON Swedish bank SEB plans to cut staff in foreign exchange by 5 to 10 percent in the next three years as pressure from competition and regulation dampens profits and offsets higher trading volumes.
Robert Celsing, global head of foreign exchange at SEB (SEBa.ST), said foreign exchange income was flat in the first quarter, despite volumes rising by 16 percent.
"We're going to look at reducing headcount in the FX business, around 5-10 percent over the next two or three years globally (in FX trading and sales). We will invest some money in technology." He said SEB employs 160 people in FX.
But increased interest from international investors in Scandinavian assets has helped SEB, which was ranked 21st in Euromoney's 2012 survey of banks by foreign exchange market share, perform well in a competitive market.
Sweden and Denmark are in the European Union but not the euro zone so their currencies have been perceived as shelters from the euro zone crisis. Norway is in neither grouping but has vast oil wealth. All three have triple-A sovereign ratings.
"Our unique selling points are the liquidity we have in Scandinavian currencies, the better advice we can give through our depth of knowledge of the Scandinavian market and the access we can give to large Swedish institutions who allocate abroad."
He said SEB was taking advantage of growing interest from central banks and institutional investors to increase allocations to Scandinavian currencies and assets.
"There's been more and more interest from central banks to diversify into Scandinavian currencies, mainly form Asia but there's also been some interest from the Middle East."
He said the fact that the Swedish crown had lost its traditional correlation with the business cycle, staying firm despite a cooling economy, was partly the result of increased diversification flows into the currency.
SEB's trading and capital markets division had operating income of 6.1 billion Swedish crowns ($934.36 million) in 2012, down from 6.5 billion ($995.63 million) in 2011.
SEB's annual results statement showed foreign exchange accounted for around 35 percent of that division's income in 2012 and 37 percent in 2011, suggesting FX income fell last year. It is due to release first-quarter results on Tuesday.
IMPLICATIONS OF FTT
Celsing said a financial transaction tax proposed by some EU countries, which under current proposals would apply to FX forwards, swaps and options, would raise the cost for companies of hedging and worsen execution.
But he expected SEB to benefit from Sweden not applying it.
"It's a risk to the overall market but I also see opportunities for us. Funds might move to Sweden and our products might become more interesting."
Sweden, which tried a financial transaction tax in the mid-1980s and lost a large portion of its trading to London, has said it will not sign up to the tax.
EURO BREAK-UP PROSPECTS
Celsing saw a more than 50 percent chance of one or more euro zone country leaving the bloc over the next 10 years.
But he said this would be the best course of action for indebted southern European countries and believed investors would quickly return to buy the assets of a country which left.
"There will be problems for three to six months, then things will level out. Once you get the right price, investors would pour back into Greek assets if Greece left the euro, depending of course on the political situation."
($1 = 6.5285 Swedish crowns)
(Editing by Nigel Stephenson)