Svenska Handelsbanken not only came through the global financial crisis intact, it actually prospered in the years after 2008, while many peers struggled.
But the secret to the bank’s continued growth in recent years can be put down to its response to a turbulent period in the 1960s- when it had become Sweden’s biggest bank.
According to Handelsbanken’s’s president and group chief executive Anders Bouvin the bank ran into problems of falling profitability and mis-selling because it had got too big and had not implemented the necessary disciplines required.
In a bold move it turned to former academic Jan Wallander, who had successfully developed a devolved leadership model at smaller Swedish bank Sundsvallsbanken, to return Handelsbanken to profit, making him leader in 1970.
Wallander’s model differed from other bank structures in that it didn’t contain bonus structures, so could operate a more honest approach to customer service, says Bouvin. “Without bonus schemes we were able to gain customers’ confidence, because they knew we would only sell them products they want and need,” he says Bouvin who was elevated to the top role in August 2016 when the previous leader Frank Vang-Jensen was removed as the group sought overseas growth.
Born in Zimbabwe to Swedish parents, he joined the bank straight from university in 1985, working first in Sweden, then the US and Denmark before arriving in Britain, rising to become the CEO of the group’s UK business. It was the last stop before being promoted to the top role- although he had also been the group’s executive vice president since 2002.
“Even if we were really good at not mixing up our own incentives with what’s best for the customer, I think just the mere suspicion that that could be the case is enough for us not to want to do it. This approach helps us attract customers and be perceived as a trustworthy banking partner,” he adds.
The approach has paid off in spades. Handelsbanken’s model has seen it consistently achieve higher profitability than the average of peer banks in its home markets in a key metric- Return on Equity (RoE) since Wallander’s model was put in place 47 years ago. In its last annual report Handelsbanken said it had ROE of 13.1%.
It’s also consistently rated by ratings agencies and other bodies as one of the world’s strongest banks. It had at the last count a common equity tier 1 ratio of 25.1%- measurement of a bank’s core equity capital compared with its total risk-weighted assets that signifies a bank’s financial strength
When rivals were being hammered by first the Swedish banking crisis in the early 1990s and then the Global Financial Crisis (GFC) in 2008, Handelsbanken stood firm. Not only that, it was able to lend money and expand the number of branches in Scandinavia- and especially the UK during the GFC.
“It was business as usual while some of our competitors were in intensive care. Other banks did not have the possibility to lend more money, even withdrawing credit lines to survive, whereas we could move faster forward during the banking crisis because opportunities were there,” says Bouvin.
By the 1990s a decision had already been taken in the previous decade to export the model outside of Sweden. -“Initially we chose the most similar, familiar market, Norway, and encouraged by our success there we continued to introduce the model in Finland and later Denmark. If you have a values-led business model which you think might work outside your original home base, you look toward the countries whose culture and language might be close to your own.”
In 1982 a first branch was opened in the UK, the next the bank defined as a ‘home market’, “where we strive to offer a full range of products and services to all types of customers, and we view ourselves as a local bank for local households and businesses,” says Bouvin.
On choosing UK as market “All these are things which we think are very important when we select new home markets,” says Bouvin.
But it was only in 2002 that the UK was defined by the bank as its fifth home market. “It was a decision after 20 years of testing the market, seeing if we could attract good Handelsbanken type customers and if we could attract good people to work for the bank, ensuring these good customers and employees would stay.”
The result has been dramatic with Handelsbanken opening over 200 British branches since then. Yet, according to Bouvin, the bank was criticised during the 1990s for not driving into eastern or central Europe preferring the seemingly mature market of the UK. “Although the UK is one of the most mature banking markets in the world, what we compete on is service. By the time we defined the UK as a home market, we already had 30 years of competing by providing a superior service to our customers while running a bank with lower costs than our peers.”
Bouvin says the bank has had a ‘good’ financial crisis because of its model. “It’s fair to say that since we’ve gone through the crisis unscathed, we have been able to support not just our existing customers but many new customers who have chosen to bring their business to Handelsbanken,” he says. “In times of economic difficulty, we tend to be able to take some steps forward a bit quicker, when the economy is on a downslope.”
The bank’s risk management strategy is defined by how local teams operate. “At the tail end of an upswing we tend to hold back a bit and of course these two things are interlinked, because our branch managers are not at all pressurised from head office to reach any sale targets,” says Bouvin. “They tend to say this is getting a bit crazy on my local patch, since I’m responsible if anything goes wrong I’m accountable to my customers and the bank, so they tend to step back a bit,” he adds.
“So you can say the model becomes a bit countercyclical that way, we hold back when it’s starting to become heated, when the economy cools down and needs to be regenerated a bit we tend to take a couple of steps forward,” says Bouvin.
“We only open branches if we can find the right person to open a Handelsbanken branch,” says Bouvin. “If we don’t find that person, we don’t open a branch, if it takes three years then we wait three years, as the branch manager is king. But as about 50 per cent of our new branch managers are internal recruits I’m not worried about that.”
Citing Wallander’s decision to flatten the bank’s organisational pyramid he says: “Who in our organisation is best suited to identifying and satisfying customers’ needs, product owners sitting in ivory towers in head office or is it people who work, live where the customers live? It’s the latter, and so therefore we have taken the consequence of this and devolved all decision-making to our branches with head office supporting them- and I don’t see that happening in other banks.”
Boiuvin says the devolved leadership model is hugely dependent on local branches being perceived as trustworthy, responsible supporters of their local community. “Although we have had these principles at the bank for many decades, this has become much more of a topic now for the wider public,” he says.
Nothing at Handelsbanken exemplifies the bank’s principles more than the Oktogonen profit sharing scheme, in which everyone in the bank receives the same amount regardless of function. “Wallander in the 1970s said if we achieve our new corporate goal of better return on equity than our competitors, it must be because our staff have done a better job than competitors, because our products are roughly the same as those of our peers,”says Bouvin.