Incorporated: 1889 as Kansallis Banken
Assets: FIM144.61 billion (US$34.7 billion)
Stock Index: Helsinki Luxembourg
Long known as Finland’s largest commercial bank, Kansallis-Osake-Pankki has developed into a multifaceted financial-services organization. As the parent company of the Kansallis Banking group, Kansallis-Osake-Pankki steers the operations of five main sectors, according to a reorganization that took effect in January, 1988: corporate banking, retail and private banking, international banking, investment banking, and domestic and international trading.
In 1889, the year Kansallis was founded, Finland was an autonomous grand duchy of the Russian Empire. It had been part of the Russian Empire for 80 years, and, before that, had been under Swedish rule for more than half a millennium. Yet, despite these centuries of foreign domination, and perhaps partly because of their relative isolation from other cultures, Finns retained a strong sense of national identity and a desire for independence.
In the 1880s, the Finns began to press their claim to a national identity. The power to make those claims a reality, they realized, could only come by developing economic strength.
In early summer, 1889, five men met at the Finnish Club of Helsinki. August Hjelt was an economist, Otto Stenroth was a lawyer, Otto Hjelt was a merchant, and Matti Äyräpää was a professor of medicine. With Lauri Kivekas, a student leader and a lawyer, they decided to create a commercial bank. By June 27, they had raised an amount roughly equivalent to 50 million of today’s Finnish marks, and they held a meeting with representatives controlling over 3,400 shares. By September 12, they had a banking license, and in a month, the bank was a reality. The first branch, opened the following February, stood on the site of today’s Helsinki-Aleksanterinkatu branch.
Otto Hjelt became Kansallis’s first chief general manager. His aggressive marketing techniques got the bank off to a brisk start. Finland’s economy was largely dependent on forestry and agriculture, but some new companies were being formed that reflected the European and American trend toward industrialization. Those companies, and others that transferred their accounts to Kansallis in the hope of obtaining better service, constituted the new bank’s clientele.
But within a few years, a general slowdown in the economy caused the bank’s growth to falter. In the crisis that followed, the directors dismissed Hjelt in 1892.
Hjelt had been a daring banker—he had been the first banker in Finland to resort regularly to central bank credit. His successor, F. K. Nybom, was an experience banker who took a more cautious approach to his responsibilities and reorganized the bank, curtailing lending operations.
Within a few years, despite an approach so conservative that he favored granting credit through bills of exchange, the bank again began to prosper. By 1914, Kansallis’s deposits were close to those of its competitors, the Union Bank of Finland and Pohjoismainen Osakepankki (the Nordic Joint Stock Bank). But Nybom incurred the disfavor of the directors by investing large amounts of money in fledgling companies. He resigned in 1914, having led the bank through a growth period that added 40 branch offices. The companies in which he had invested the bank’s funds eventually proved the wisdom of his judgment, however—United Paper Mills, Kajaani Oy, and Rauma-Repola, for example, all became successful businesses.
During the Nybom years, radical changes on the political scene had worked, along with economic growth, to strengthen Finland’s fervor for nationalism and drive to become independent. Under Russian rule, as under Swedish rule, Finland had been a grand duchy, but with one difference: where Sweden had sent its own staff to Finland to rule what was considered at that time to be a “backward” people, Russia had delegated Finnish rule to local bureaucrats. Burdened by war with Japan and preoccupied by defeat in 1905, the Russian government scarcely appeared to notice when Finland made a fundamental change in local rule in 1906, replacing the Diet of the Four Estates with a unicameral body granting universal and equal voting rights to men and women.
J. K. Paasikivi, an astute businessman, took over the position as chief general manager of Kansallis in 1914 and restructured the organization. The result was unprecedented growth that swelled the number of branches to 120 in a few years and made Kansallis Finland’s largest bank.
The Bolshevik Revolution in 1917 created the opportunity Finland had awaited for so many years—to declare itself a free and independent nation, which it did that year. By 1919, Finland was firmly established as a republic. In that same year, Kansallis lost its number-one position in the nation’s banking community when its two principal competitors merged.
But Paasikivi’s leadership helped Kansallis pursue opportunities for further growth. It took just eight years for Kansallis to regain its number-one position. By the early 1930s, when the worldwide Depression had begun to cause serious disruptions in Finland’s economy, Kansallis was able to absorb one of the nation’s largest commercial banks, Maakuntain Pankki (founded through the merger of Tampereen Osake-Pankki, Lansi-Suomen Osake-Pankki, and Maakuntain Keskus-Pankki). In 1933 Luotto-Pankki Oy was added to the Kansallis group.
Just as Paasikivi had been credited with Kansallis’s expansion and growth into financial interests far beyond its core commercial-banking structure, he was criticized when businesses hurt by the Depression failed and Kansallis had to foreclose.
At odds with the chairman of Kansallis’s supervisory board, Paasikivi resigned in 1934, but his general policies continued to be effective in the hands of his successor, Mauri Honkajuuri, who had worked closely with him as his assistant. These policies served Kansallis well as the economy began to recover in the late 1930s. Even after November, 1939, when the Soviet Union invaded Finland and throughout World War II, Kansallis continued to function, keeping money flowing to the Finnish business community.
There were losses as a result of the war, of course. Most notably, the Karelian Territory, ceded to the Soviet Union in the peace treaties of 1940 and 1947, contained about 20 of Kansallis’s branch offices.
A period of revitalization and reconstruction followed the war. In 1948, Mauri Honkajuuri died in office, and Matti Virkkunen, 39, became the chief general manager. Adopting an aggressive growth policy, Virkkunen engineered the acquisition of Pohjolan Osakepankki (the Northern Joint Stock Bank) that year.
An interest-rate agreement that allowed regional banks to offer higher interest rates on deposits hampered Kansallis, as it did other large commercial banks. Virkkunen led a vigorous effort to make the situation more competitive. His success led to the adoption of a uniform interest-rate system in the early 1950s, and enhanced Kansallis’s strength.
During the 1950s, Finnish banking habits began to change. Salaries began to be paid by check, individuals established personal accounts, lending to individuals became commonplace, and households became a major market—a market Kansallis was able to attract in increasing numbers as it branch offices proliferated throughout the country.
At the same time, the small industrial and retail companies Kansallis had assisted in funding through their start-up years had grown, in many cases, along with the bank, and Kansallis had attracted a large corporate clientele.
Throughout the 1960s and 1970s, Kansallis established itself as a major international banking organization. The first step was entry into joint Nordic consortium banks. Branches were established in London, New York, the Cayman Islands, and Singapore. Other offices are located in Stockholm, Hong Kong, Moscow, Frankfurt, and Tokyo, and Kansallis operates a worldwide network with a broad range of banking services.
Domestic and foreign expansion promoted steady growth during the 27 years of Virkkunen’s leadership, but it also created financial stress that undermined the bank’s profits. Finland’s economy was also strained by the effects of the worldwide oil crisis in the early 1970s. By the time Veikko Makkonen became Kansallis’s chief general manager in 1975, it was apparent that the bank was entering a period of retrenchment in which the highest priority had to be placed on improving profitability. New strategies and new sources of profit were developed. For example, in 1979, Kansallis entered the U. S. commercial paper market. In 1980, it issued its first floating-rate Eurodollar CDs.
Makkonen succeeded so well in restoring a relatively stable level of profitability that at the time that Jaako Lassila took over leadership of Kansallis in 1983, the bank was on solid footing and ready to resume its expansionist programs. International expansion and deregulation worked together to create a lively money market business. However, the structure of the Finnish money market dictated relatively high interest rates on deposits and relatively low rates on loans; together with a low currency exchange rate, these conditions diminished the profitability of money market instruments.
More reliable sources of income over the years have been Kansallis’s extensive investment-banking program, its corporate-advisory services—particularly in the rash of mergers and acquisitions during the 1980s—and its comprehensive retail- and private-banking services. Kansallis handles the majority of financial transactions within the nation and the majority of foreign payments. As computerization has speeded these processes, it has also increased the bank’s profit margin.
A reorganization that took effect in 1988 created a cluster system for Kansallis’s branch banking, streamlining operations and increasing profitability through a profit-center concept. Electronic funds-transfer operations at point of sale for retail businesses and a microcomputer-based information system expanded the bank’s services.
Also during 1988, Kansallis entered into an agreement with the Swedish bank Proventus A.B. that resulted in joint ownership of a holding company and the sale of a Kansallis Swedish subsidiary to Gütabanken, a move that provided Kansallis with improved opportunities for operating in the Swedish market.
The liberalization of capital movements in the European Common Market that is targeted for 1992 should provide Kansallis with further opportunities for growth and expansion.
Kansallis Finance Limited; Kansallis Mortgage Bank Limited; KOP-Rahasto Oy; Kan-salliskortti Oy; Kansallis International Bank (Asia-Pacific) Limited (Singapore); Kansallis International Bank S.A. (Luxembourg); Kansallis Overseas Bank Limited (Bahamas); Nordinanz Bank Zurich (Switzerland).