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Categorized | Banks

Handelsbanken chief has no intention of changing ‘self-managed’ ethos

Posted on November 24, 2016

Anders Bouvin is into knitting. Not of scarfs or jumpers but the metaphorical kind. 

In his first interview as chief executive of Handelsbanken — perhaps one of the most respected of Europe’s big banks — the 58-year-old uses the same phrase at least five times: “We stick to our knitting”. 

It is entirely in keeping with the conservative, traditional nature of the Swedish bank. As other European banks have been hit by myriad scandals from interest rate manipulation to mis-selling, Handelsbanken has stuck to the same deceptively simple business model it has had for the past four decades.

It is highly decentralised with its 840 branch managers across Europe calling the shots, not Mr Bouvin. It sets no budgets, pays no bonuses, has solid finances, and its mantra is simply to have satisfied customers. As rival European banks have been retreating, closing branches and relying ever more on technology rather than people to serve customers, Handelsbanken’s approach has also stood out for investors, delivering returns consistently ahead of the sector average.

“Handelsbanken is what you want a bank to be — conservative, predictable, even boring. I hope they can stay like that,” says a Nordic investor in all four big Swedish banks.

But the past 18 months have been an unusually turbulent time in what should be this most stable of banks. An outcry over business jet use at its biggest shareholder did not directly involve Handelsbanken but it led to an unexpected change of chief executive in the spring of 2015. Even more unexpectedly for Handelsbanken, that chief executive — Frank Vang-Jensen — was fired in August for perhaps the cardinal sin at the lender: centralising power.

So the board turned to Mr Bouvin, who was previously head of Handelsbanken in the UK, its biggest growth country. One investor jokes that the new chief executive is like “a missionary”, imbued with more passion for the Handelsbanken gospel by having had to find new converts in a far-off land rather than preaching to the converted in Sweden. 

“That might be,” says Mr Bouvin, talking in Handelsbanken’s headquarters in Stockholm overlooking both the royal palace and the picturesque waterfront. “All of us who have worked with building the bank from scratch [in the UK] have hands-on experience of the commercial possibilities of Handelsbanken’s way of banking. Maybe you do become even more evangelical.” 

Mr Bouvin’s first move at the bank was very much about setting the back-to-basics tone. Mr Vang-Jensen had broken with decades of tradition and installed a fourth level of bureaucracy in Sweden with a country manager coming between the chief executive, regional heads and branch managers that had long characterised Handelsbanken’s decentralised structure. Mr Bouvin immediately eliminated the country manager. 

“In Sweden we created some confusion among our staff and a risk of it spreading to our customers. There were questions like … ‘are we becoming like everybody else?’” he says. 

It is clear that becoming like every other bank is about the worst thing a Handelsbanken employee can envisage. It has long been known for its seemingly contrarian stance, holding the branch and cash dear as other Swedish banks abandoned them. 

“In our view, Handelsbanken is the blueprint for European banking, a battle-tested model over the past 44 years,” says Adam Barrass, analyst at Berenberg, the German investment bank. 

He points to their reputation for cost control and low risk. Handelsbanken has, according to Berenberg, an average cost of risk — a gauge measuring loan losses as a proportion of all loans — of just 8 basis points over the past six years versus a European average of 88bp. 

But Mr Barrass argues that Handelsbanken’s model is hard to replicate because it depends on proper decentralisation, which is much easier in benign times than volatile ones. Indeed, Mr Bouvin at times almost seems to talk away the role of chief executive. 

He admits that the past 18 months have been a bumpy ride for the bank but claims that the lender is “almost self-managed”. He adds: “We all know in Handelsbanken who runs the bank: it’s the branch managers. The rest of us, we try to facilitate it for them and allow them to help customers. We are used to talking ourselves out of a job.” 

Those branch managers assess all customers individually; Handelsbanken does not use credit scoring. The branch managers decide whether to expand and how fast, not the centre. So Mr Bouvin says he is not worried about a potential Swedish housing bubble. “We have a very strong belief, almost a culture, in the bank: we have no interest in lending money to somebody who will struggle to repay it.” 

But for all the traditional nature, Handelsbanken also stands out among European rivals for having growth opportunities. In the past decade, it has grown in the UK — long thought to be a saturated market for banking — from 26 to 207 branches. 

The Swedish lender has only opened one new branch in the past year in the UK. But it has been growing in existing branches rapidly: deposits increased 19 per cent and lending 12 per cent in the year to September. Mr Bouvin says the bank is gaining a reputation for its focus on customer service: “The way we grow is by selling the model.” 

For investors, that focus has paid off over the long-term with Handelsbanken outpacing both Swedish and European rivals. The Nordic investor says: “What we like with Handelsbanken is the predictability. Others can be better at a particular time but not over a long period. The only thing that would worry me is if they become complacent.” 

Mr Bouvin is insistent that will not happen, stressing that “we should be humble”. He says Handelsbanken’s success is based on not succumbing to the latest fads in banking. “Core values are timeless,” he adds. “That is why companies often go wrong: they invent strategies for right now.”

Handelsbanken has long revelled in what could be called a contrarian streak. As other Swedish banks have cut back and even eliminated cash-handling, Handelsbanken still has it in about 300 branches (Swedbank, the next biggest Swedish bank, only has 256 branches in total).

The decline in the availability of cash has the Riksbank, Sweden’s central bank, considering whether to issue a digital currency. Unlike other bank chief executives, who may worry about a central bank potentially becoming a competitor, Anders Bouvin of Handelsbanken is relaxed about the prospect.

“There are a lot of things that are not really what we as a bank can or should influence. We are a bank: we serve our customers. We follow the rules in the societies we operate in. If a central bank wants to issue digital currency, it can do,” he says.

It is a similar answer on bank capital — where Handelsbanken is already one of the leaders in Europe with a core tier one ratio of 24 per cent — with little willingness to bash regulators. “We adapt to whatever capital requirements that society wants us to have,” Mr Bouvin says.

Handelsbanken also tries to keep its cool in a rapidly-shifting world. Mr Bouvin insists digitalisation is not a threat to a bank so dependent on its branch network. He points out that Handelsbanken took a distinct approach when the internet came in during the 1990s by building it through its branches rather than as a separate, overarching internet bank.

“There is no conflict between digitalisation and the world’s best branch network. In that new world, if you are going to compete only digitally how are you going to differentiate yourself? I don’t want to be CEO of such a bank. We believe that the branches are going to be even more important, it’s just the way they work is going to be different,” he says.