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Nordea says now is a 'good time' to reconsider its domicile

Wednesday, March 15, 2017 - 18:17

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Scandinavia's biggest financial conglomerate, Nordea Bank AB, says a proposal by the Swedish government to increase bank fees for a crisis fund is prompting a review of its commitment to its home market.

[COPENHAGEN] Scandinavia's biggest financial conglomerate, Nordea Bank AB, says a proposal by the Swedish government to increase bank fees for a crisis fund is prompting a review of its commitment to its home market.

"Now we think it's a good time for us to consider where we want to have our domicile in the future," Rodney Alfven, head of investor relations, told Bloomberg on Tuesday. The comments follow signals from the very top of Nordea's management to local media that such a drastic step might be warranted.

Sweden plans to raise by more than a third the annual fee banks pay into a fund to be used in the event a lender needs to be recapitalized or wound down. The government intends to base Nordea's contribution on its entire balance sheet after the Stockholm-based bank turned its foreign subsidiaries into branches, shifting regulatory supervision to Sweden.

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Nordea's threats are so far doing little to prompt the government to reconsider. Finance Minister Magdalena Andersson has told local media there might actually be some benefits should the bank opt to leave, and Financial Markets Minister Per Bolund is making clear the proposed fee is a key plank in the government's vision for creating safeguards to protect taxpayers from bank crises.

"Sweden has a large banking system and we have experienced a bank crisis before," Mr Bolund told Bloomberg on Tuesday. "Everyone gains from being prepared for an unwelcome development." Nordea is the Nordic region's only global systemically important bank.

"We feel that as one of Europe's largest banks, it is natural for us to have the same level playing field as our competitors, such as the largest German, French and UK based banks," Mr Alfven said. He says moving would cut costs by as much as 4.7 billion euros (S$7.06 billion), and the bank would get tax deductions for interest paid on subordinated debt, shaving another 60 million euros off costs a year.

According to Karl Morris, an analyst at Keefe, Bruyette & Woods, the higher resolution fees "are material" and Nordea's decision to move to a branch structure would make it "much easier" to relocate headquarters. What's more, Swedish banks face a possible new tax, which would come on top of some of Europe's highest capital requirements, based on risk-weighted assets, Mr Morris said in an emailed response to questions. The government also recently adjusted the tax code to make it more costly for banks to issue subordinated debt.

But "moving HQ is the nuclear option," Mr Morris said. Nordea was expected to lobby hard against the higher resolution fees, with the threat of moving its headquarters seen as part of that based on comments made by the bank during a recent roadshow, Berenberg said in a note to clients. Ultimately, some sort of compromise is the most likely outcome, it said.

It's not the first time Nordea has threatened to relocate. Chairman Bjorn Wahlroos, after criticizing a proposed financial tax, said in October he'd had talks with Dutch authorities on merging with ABN Amro Group NV. Those talks led nowhere at the time, he said.

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