Western Europe banking: Is the Handlesbanken model under threat?

News and opinion on finance

Svenska Handelsbanken is akin to a European Wells Fargo. Like its American equivalent, it is almost entirely focused on one country – Sweden – and very successfully, at least until recently. A cohesive workforce, consistent strategy and conservative risk attitude made Handelsbanken the ideal bank for the post-2008 world: a “strategic blueprint that other banks should aspire to follow”, according to a 2015 Berenberg report.

Ten years after the crisis – and with Wells Fargo brought to earth by a series of consumer scandals – is the Handelsbanken model of banking under threat?

Handelsbanken maintains the highest consensus price-to-earnings ratio among the Nordic banks at 11.3x, according to Berenberg. As such, it is one of Europe’s highest-valued banks. But its shares fell about 7% between summer and autumn, while Swedish peers SEB and Swedbank rose by 11% and 6%, respectively.

The number of analysts recommending a sell or underperform on Handelsbanken shares rose to 11 by November, according to Reuters, compared with only three recommending a buy or outperform.

In that context, the announcement of Anders Bouvin’s intention to step down as chief executive in 2019 inevitably raised more questions about how Handelsbanken’s branch-centric strategy can compete in an era when other Swedish banks are switching almost entirely to digital channels.


The bank says Bouvin is retiring because of his age, but his predecessor, Frank Vang-Jensen, also left after only 18 months amid fears about the implications of an efficiency drive.

Bouvin’s retirement announcement came just as the bank revealed plans in its third-quarter results to reduce staff by an equivalent of about 1,600 people by 2022, news that will have an uncertain effect on the staff morale.

Handelsbanken’s staff are so loyal that the firm has a cult-ish reputation in Swedish banking. This is supposed to breed deeper branch-based skills and relationships that are crucial to its decentralised approach to credit decisions.

We stick to our credit policies across the cycle, even if that means we start losing some business in good times like this 

 – Rolf Marquardt, Handelsbanken

A big contributor to that loyalty is the Oktogonen profit-sharing scheme of shares in the bank, accessible on retirement. Because the extent to which the bank’s profitability beats its peer group largely determines the size of Oktogonen’s allocations, some analysts (including UBS) think the difficulty of stemming the decline in Handelsbanken’s relative profitability will have a particularly damaging effect on its staff’s motivation and therefore its performance.

The peer group that Handelsbanken uses for that relative profitability is undisclosed.

Nordic banks’ comparative freedom from non-performing loan exposures this decade has spurred others to invest heavily in digital channels and rip out old ones. Handelsbanken now has about twice as many branches in Sweden as Swedbank, the country’s former savings bank. 

Partly as a result, the efficiency advantage it has traditionally enjoyed has steadily narrowed since the late 1990s. For the first time in 2017, Handelsbanken had a higher cost-to-income ratio than average peers, compared with a group that UBS models.


Handelsbanken is saving money, like other banks, in back-office systems and processes. It is enthusiastic about its ability to make more frequent contact with customers and increase flows to its mutual funds and deposits by using Skype for conversations with its investment advisers.

Even so, its branch- and people-based approach to retail and business banking will be much harder to maintain if it lays off staff more rapidly, especially if this encompasses branch-level staff.

None deny that Handelsbanken is a high-quality bank, and its most ardent defenders think its outperformance will go on. The branch model allows for premium pricing and resilient margins, in Berenberg’s view.

Rolf Marquardt,

Chief financial officer Rolf Marquardt justifies the poorer relative efficiency of late because of growth in the UK and the Netherlands: “We control costs closely, and that’s always been really important for the bank.”

Yet the biggest question – with looming risks around Brexit and the Swedish mortgage market – is whether or not Handelsbanken’s credit quality can outperform peers in the next crash as much as it did previously. 

The relatively smooth performance in the UK after 2008 could be a comforting thought for what might happen in a no-deal Brexit, although loan losses to UK construction company Carillion weighed on Handelsbanken’s fourth-quarter results last year.

“We tend to outperform our peers more in times of stress, because of our lower risk profile,” Marquardt insists. “We are still ahead of our peers in profitability, but it’s harder to distinguish oneself through asset quality when all banks have low credit losses.”

Branch-based decisions by loyal local staff, who know their borrowers, should work well across the cycle, as it is less susceptible to pressure from the top for injudicious growth during a bubble. Being healthier than other banks in a recovery is very valuable.

“We stick to our credit policies across the cycle, even if that means we start losing some business in good times like this,” says Marquardt, who has spent all his career at the bank. “The branch is the bank, and it will continue to be so. We want to have a local presence; that will not change.”

Consistency, nevertheless, might work less well when changes are structural, not cyclical. Digitalization is a structural change. 

The other worry for Handelsbanken is that 2008 made others more conscious about costs – and fundamentally more conservative, perhaps shifting risks to markets instead.