Not one deal but several, driven by a single vision: to become the leading banking group in the Nordic and Baltic region. The growth of MeritaNordbanken is an evolving story that has so far drawn praise from across the financial community. The challenge for the group now is to retain confidence until that vision has been fully realized.
Right now the shareholders of Unidanmark, Denmark’s second largest financial services group and Unibank’s parent, are making up their minds as to whether to throw in their lot with the Swedish-Finnish group. If they do, and the chances are that they will, the result would be a Nordic financial services group with a big foot in Sweden, Finland and Denmark. It would have a market capitalization of E15.6 bn, total assets of E186 bn, 9 mn private customers and 33,000 employees making it the largest banking group in the Nordic region.
Another step on the road
The Unibank deal is one more step on a journey that has its roots in the Nordic banking crisis of the early 1990s. Both Nordbanken and Merita were effectively rescued and restructured by the Swedish and Finnish governments respectively. It took a strong forward-looking vision to propel the combined operation this far and the group’s principal advocate is Hans Dalborg, MNB’s chief executive.
Dalborg articulates that vision as follows. ‘Our vision portrays MeritaNordbanken as the leading bank group in the Nordic countries and the Baltic region. We are assisting our customers to grow by acting as their leading banking partner, the best supplier of electronic banking services and the most cost-effective financial service institute.’
He adds that the task of the MeritaNordbanken Group is to ‘create value for its shareholders through share price and dividend development, ranking among those of the leading listed financial institutions in the Nordic region.’
The investor relations challenge, then, was firstly to bury the old stigmas; secondly, to get investors to buy into the vision. The campaign gained early acceptance from the financial community, although doubts remained as to its likely success. One Stockholm-based analyst says that share price performance was in line with its Nordic banking sector peer group until about end 1998. Since then it has lost ground. ‘The trouble is that the market is skeptical because although it is a shareholder friendly company and full of good intent, in order to reach their vision MNB is going to need quite a long time.’
Comparing MNB’s price performance with the AFV:S Banker, the index for Swedish banks, seems to bear this out. However, Bjorn Westberg, MNB’s chief of investor relations says, ‘We have delivered what we set out to do. What more can [the analysts] ask?’
That the ratings agencies have maintained their ratings for the group suggests that they are not moved by short-term share price considerations; rather, they presumably like what they see evolving over the longer term. Moody’s announced that it was retaining its short and long-term ratings for the group whereas Standard & Poor’s has announced that it is considering an upgrade in the light of the likely benefits of the merger with Unidanmark.
Alison Leveridge, director and bank analyst at ratings company Fitch IBCA, sees the synergies and cost savings of MeritaNordbanken beginning to come through. ‘They’ve realized that the way ahead is in making the bank larger, to share the costs of technical developments and to make the most of local expertise and strengths.’ She also notes that if MNB succeeds in forging a complete Nordic banking operation then it will span a regional market with a combined population of 30 mn people who are, for the most part, affluent and valuable customers. However, there are one or two flies in the ointment.
Upbeat buzz
The first fly is MNB’s current bid for Norway’s Christiania Bank. The bid of Nkr44 per share has been on the table now for several months. Analysts are upbeat about the acquisition as it is a vital piece of MNB’s Nordic platform. As yet, however, the Norwegian government – which owns 33 percent of Christiania – has not given its consent to the bid, although the banks’ managements are in agreement.
Without the Norwegian piece in place the Nordic model looks incomplete. MNB’s Westberg is optimistic about the current state of play, noting that as things stand, its bid is the only one on the table. In addition there has been a recent change of government in Norway and the new leaders of the minority administration, the AP (Labour) party, spoke positively about the deal while in opposition.
One analyst believes that MNB may have to increase its offer if it is to successfully complete the deal. ‘Let’s cross that bridge when we come to it,’ responds Bjorn Westberg. And in answer to Norwegian fears that Christiania could be in line for a slimming down if the proposed merger does go ahead, he adds, ‘We are buying market share there; we are not trying to buy the bank in order to close it down.’
The second issue which concerns analysts lies within the Unidanmark package. Because Trygg-Baltica, its insurance group, is also the largest shareholder in Unidanmark, analysts see MNB’s acquisition of Unidanmark’s insurance businesses as a fait accompli.
However, this could turn out to be more capital intensive than MNB would wish and may ‘blur the development’ of the banking business. Add to this the fact that MNB is one of the largest real estate owners in Scandinavia due to its portfolio of repossessed property, which also hampers growth, and there could be some bad news there.
Sticky issues
Westberg faces these potentially sticky investor relations issues head on. MNB recognizes that the current state of play is not perfect but the vision remains unshaken and well in focus. There is, however, one overwhelmingly bright star in MNB’s firmament: its e-business strategy. Seemingly without exception, analysts, banking technology commentators and industry consultants recognize MNB as a world-class electronic banking business leader; and they see this as a major advantage for the group’s future development.
This factor is undoubtedly the sharpest, strongest arrow in MNB’s investor relations quiver. The existing group already has 1.2 mn internet banking customers; and if the Unibank merger does go ahead this will swell that number by some 200,000. In addition MNB’s Solo business-to-consumer e-commerce portal has now signed up 950 businesses. Unibank’s integration could add its online share dealing technology to MNB’s already successful operation. MNB is already the world leader in integrating WAP mobile telephone technology into its electronic banking model. These and a variety of other related services amount to a very powerful persuader to those investors who seek a well-wrought e-commerce strategy from their financial service sector stocks. And if there is anywhere in the world where such a strategy can be successful it is surely in the Nordic countries where mobile telephone penetration is currently the highest in the world and computer usage is also among the most widespread.
The significant cost-cutting benefits of e-financial services are accepted widely by analysts, who recognize MNB’s pan-Nordic platform strategy as an opportunity to spread development costs across a wider base. As MNB’s Westberg says, ‘We make money through internet banking.’ And industry commentators such as KPMG’s banking sector team have noted that it’s the clicks & mortar business models which stand the best chance of longer-term survival and profit, rather than pure start-up internet models (Awakening Giants: How Europe’s big banks will win in the e-commerce revolution, KPMG).
The financial community is buying into MNB’s e-commerce story, even if there are some less appealing pieces to the package as it is assembled through regional merger and acquisition. But there is also the critical mass issue. MNB calculates that the combined operation, including Unibank but excluding Christiania, will place it 25th among European banking groups.
As such the new company is likely to find itself included in some of the major indices, which will be bound to attract a host of international investors, especially those from elsewhere in the eurozone. If that is the case then share price development should begin to take up again, especially so if, as MNB has proposed, the company follows a share buy-back strategy that was formerly pursued by Unibank. Bjorn Westberg notes, by way of reinforcement, that MNB is consistently showing a return on equity of 20 percent per annum in any case.
Long-term vision
In the end investors are being asked to look at long-term vision fulfilment evolving piece by piece over a fairly indeterminate period of time. The IR strategy is to take each stage one at a time, and, with senior management backing all the way the story comes across well wrought and strongly presented. But how long will investors wait?
One analyst says that the vision will be achieved ‘if the Norwegian government doesn’t get involved.’ His call is for MNB to be a ‘long-term hold’, even if in the short term its peers in the Nordic banking sector outperform it. Beyond the Nordic vision, however, may lurk another even broader vision. The complete MNB package, including Norwegian, Danish and maybe even some southern Baltic elements, may look like a strong and tasty regional morsel for one of the big international groups to digest.
But that story may need to be told another time; no-one can say just when. For the time being, the investor relations department at MeritaNordbanken is just crossing each bridge as it comes to it.
