Skandinaviska Enskilda Banken AB
Skandinaviska Enskilda Banken AB
Total Assets: SKr 1.24 billion ($141.85 million)(2002)
Stock Exchanges: Stockholm
Ticker Symbol: SEBA
NAIC: 522110 Commercial Banking
Skandinaviska Enskilda Banken AB operates as the parent company of the SEB Group, a North European banking concern catering to corporations, institutions, and private individuals. SEB has over 670 branch offices throughout Sweden, Germany, and the Baltic states and serves over four million customers, with 1.3 million of these customers utilizing the group’s e-banking services. SEB grew extensively during the latter half of the 1990s and into the new century through a series of strategic acquisitions. Its plans to merge with competitor Swedbank were thwarted in 2001 after the European Union Commission set forth strict conditions that threatened to devalue the union.
Sweden’s banking regulations, framed and reframed over the years to relieve budget deficits incurred by its ‘’cradle to grave” social welfare system, had grown into a complex web of restraint by 1971. The boards of two of Sweden’s leading commercial banks met in September of that year to discuss a remedy: liquidating and transferring their assets and liabilities to a new bank that would be set up differently and have the ability to expand in different markets. Stockholms Enskilda Bank had been in operation since 1856 and Skandinaviska Banken since 1864. Both were respected institutions that had grown as much as their boards expected they could given the regulations according to which they operated.
Stockholms Enskilda Bank
The first privately owned bank in Stockholm, Stockholms Enskilda Bank was started by A.O. Wallenberg. The bank participated actively in the country’s booming export economy from the start, using those profits to fund the building of the Swedish industrial infrastructure. When the boom broke, the bank found itself the owner of several businesses and the victim of large loan losses.
When Wallenberg retired, his two sons, K.A. and Marcus Wallenberg, succeeded him. K.A. developed the bank’s international business, while Marcus took an active role in promoting the industrial development that took place in Sweden during the decades prior to World War I. Stockholms Enskilda Bank’s development remained routine through the Depression and World War II. A third generation of Wallenbergs took over prior to World War II and continued serving Swedish commercial customers. During the 1960s, however, the industry underwent rapid expansion and larger companies began to demand increased financial resources. At the same time, government regulations made these demands difficult to meet. These circumstances combined with the international trend toward diversification caused Stockholms Enskilda Bank to begin to consider a major merger.
Skandinaviska Banken had been a pioneer in commercial banking since its inception in April 1864 as Skandinaviska Kredit-Aktiebolaget i Göteborg. The idea of organizing a commercial bank to provide investment capital in Scandinavia dates back to the early 1860s, when C.F. Tietgen, a Danish banker, convinced several Swedish industrialists and bankers to help him create a new bank. The bank was to invest in shares in new industrial companies and later place the shares on the market. A third of the new bank’s shares were to be sold in Sweden and the rest in major financial centers in Europe. Unfortunately, a sudden increase in the discount rates on the continent near the end of 1863 doomed this plan.
Nevertheless, in 1864 the bank was brought to life by Swedish industrialists and bankers, with Tietgen as the only non-Swedish board member. Theodor Mannheimer, the first managing director of the new bank in Göteborg, and Henrik Davidson, who joined the bank’s Stockholm staff when it opened an office there in 1865, had numerous contacts in Europe’s financial centers. As their experience had been with private trading firms as well as banks, these two men were able to establish business agreements with major European banks quickly. One of their first transactions was to market an eight million mark government-railway loan for Hamburg Banco, which attracted much attention. Skandinaviska Banken had taken its first step toward becoming one of the largest foreign exchange dealers in the world.
The new bank opened branches in Sweden’s major cities but was able to make contacts throughout the provinces without incurring the expense of opening an extensive branch network because it acted as agent for most of Sweden’s provincial banks. A mounting tide of industrial activity around the turn of the century greatly increased the volume of business.
In 1910, following the restructuring of the Swedish banking system, Skandinaviska merged with Sweden’s second-largest bank, Skânes Enskilda Bank, which had a number of provincial branches. A final merger 39 years later joined Skandinaviska with Göteborgs Handelsbank, adding another 40 provincial branches.
Skandinaviska was among the first banks in the country to introduce the check system, which attracted a large volume of new savings. Shortly after 1945, the bank introduced a commercial information service, providing expertise on economic conditions in foreign countries along with information on their markets, customs, laws, and currency. This service led to the publication of books and periodicals to communicate the information on a regular basis.
The Merger: 1971–72
On December 17, 1971, the Swedish government approved the Articles of Association of the Skandinaviska Enskilda Banken and granted it permission to take over the activities of the two original banks, commencing January 1, 1972. Shareholders in both banks exchanged their shares for shares in the Skandinaviska Enskilda Banken and many of the staff members of the original banks found positions in the new bank.
The investment management business was the new bank’s first step outside the original framework of its operations. In 1974, S-E-Banken became the owner of Aktiv Placering A.B. in Stockholm. This wholly owned subsidiary was established to manage the portfolios of individuals, offer legal services for families, and provide advice on taxes and life insurance. As legislation, securities markets, and other factors changed through the years, this subsidiary grew and acquired other subsidiaries both in Sweden and overseas. By the 1980s, it was managing about 40 mutual funds.
Although for many years Sweden protected its own banks by refusing to allow foreign banking within its borders, competition among Swedish banks for domestic business did not give any of them much potential for growth. Skandinaviska Enskilda Banken took a giant step into a lucrative new market when it went international in 1976.
Its first international acquisition was an interest in Deutsch-Skandinavische Bank in Frankfurt, Germany. The next step was the formation of Skandinaviska Enskilda Banken (Luxembourg) S.A. Then, in 1979, S-E-Banken reached halfway around the world to establish a subsidiary in Singapore to handle Southeast Asian business, creating Skandinaviska Enskilda Banken (South East Asia) Limited.
Deregulation Begins in the Late 1970s
During the late 1970s, as inflation and interest rates scaled new heights, there was a record amount of money in circulation. The Swedish government began to look for alternatives to the restrictive banking regulations in place and decided to pursue a course of gradual deregulation.
The first major step in deregulation was to relieve Swedish banks of the obligation to purchase new issues of the fixed-rate, long-term priority bonds that had been the traditional annual solution to the country’s budget deficit. (Life insurance companies and pension funds, however, were still required to invest in them.)
The government next moved to allow Swedish banks to issue certificates of deposit, starting in 1980. These short-term, high-interest instruments became as popular in Sweden as they had become elsewhere and helped attract substantial numbers of new clients, many of whom went on to use additional bank services.
The Swedish savings rate had been sluggish for years, mainly because of Sweden’s high income tax, which left households with little discretionary income. In addition, banks were allowed to offer only a relatively low interest rate on conventional savings accounts. The time was right for the introduction of new financial instruments offering better returns.
In the three years that followed the introduction of certificates of deposit, the government created several additional avenues for bank profits: Swedish treasury bills, a commercial paper market, and market-rate state bonds. S-E-Banken, already the front-runner in industrial corporation accounts, also led the nation in private business.
SEB’s business concept is to offer financial advice and to handle financial risks and transactions for companies and private individuals in order to: create real customer satisfaction, give shareholders a competitive return, and be seen as good corporate citizens of society. The group strives to be a leading North European bank based upon long-term customer relations, competence, and e-technology.
Svensk Fastighetskredit A.B. (SFK) began offering real estate financing and property management in 1961. As a wholly owned subsidiary, SFK financed single-family homes and commercial property and expanded steadily. In addition to conventional long-term, fixed-rate loans, SFK also made short-term and intermediate credit available for projects in the process of construction. A.B. Arsenalen and A.B. Garnisonen, subsidiaries established in 1965 and 1968 respectively, specialized in property management and related services such as appraisal, estate brokerage, construction management, and architectural services. These subsidiaries did not own property but became national leaders in property management.
In 1981, S-E-Banken created a new real estate-related subsidiary to fill its own needs for suitable premises for the bank’s growing number of branches and subsidiaries: SEB-Fastigheter A.B. This subsidiary protected S-E-Banken’s investments in existing properties by maintaining them and renovating them as needed to assure their continuing appreciation. It also invested in properties and constructed new buildings.
Growth and Deregulation Continues in the 1980s
The following year, 1982, was a banner year for acquisitions. Deutsch Skandinavische Bank, founded in 1976 in Frankfurt, opened a branch office in Hamburg, and subsidiaries were opened in two major trade centers. Skandinaviska Enskilda Banken Corporation was opened in New York, initially to handle transactions relating to business in Sweden but ultimately to gain a foothold in business involving American companies. With the growth of this business, branch offices were set up in New York and in the Cayman Islands to facilitate transactions involving such matters as the clearing of currency. In London, S-E-Banken established another wholly owned subsidiary, Enskilda Securities, Skandinaviska Enskilda Limited. Along with facilities such as FinansSkandic (UK), which had been in operation since 1964 and focused on corporate lending, the new subsidiary offered full-service banking to Swedish and international clients.
S-E-Banken had also entered into a partnership in 1969 with Scandinavian Bank, a consortium bank based in London, which was flourishing. The other two main partners were Bergen Bank of Norway and Union Bank of Finland. To outdistance competitors in their respective homelands, the three banks, with Privatbanken of Denmark, formed Scandinavian Banking Partners, an organization that made it possible to facilitate fast money transfers and cash management services for any client in any of the three countries. Sten Westerberg, then senior vice-president of S-E-Banken’s international division, called the new organization “a cheap way of expanding in terms of costs, and more efficient than opening up subsidiaries.”
Longstanding cooperative relationships with other banks throughout the world were an important factor in S-E-Banken’s growth. During this time period, it maintained close relationships with more than 2,700 correspondent banks. At the same time, there was intense competition among Sweden’s top four banks (Svenska Handelsbanken, PKbanken, and Götabanken were the other three at the time). All four were studying new approaches to retail banking in preparation for deregulation. Electronic banking was one instant success—pioneered by Götabanken, it was quickly emulated by the other leading banks, including S-E-Banken.
The heightened personal-banking activity that came with deregulation did not include a surge of new savings accounts; Sweden’s savings rate continued to be low. Nevertheless, S-E-Banken found that adding new personal banking services and investment instruments resulted in a lucrative and less volatile rate of return than overdependence on the highly competitive money markets with their relatively narrow profit margins. (Within a few years of its inception, the Swedish money market had become the third largest in the world.)
As inflation and interest rates began to decline, the Swedish government took further steps toward deregulation. In 1985, it lifted its ban on foreign banking in its domestic market. Business was brisk, and S-E-Banken expressed no worry about the prospect of additional competition. Within a year, a dozen foreign banks had established facilities in Sweden but posed no immediate threat to any of the Big Four banks.
That same year government controls on interest rates and lending volume were removed, an occasion one banker described as “liberation day.” With controls removed and the economy booming, the big banks’ profits virtually doubled during 1986.
Also in 1985, S-E-Banken formed a new division, Enskilda Fondkommission, in Stockholm, to conduct investment banking in Sweden in cooperation with Enskilda Securities in London. In 1987, S-E-Banken opened additional facilities, notably Enskilda S.A., Paris, a subsidiary of London’s Enskilda Securities. Additional branches were opened the following year in London, Hong Kong, New York, and Singapore.
- Stockholms Enskilda Bank is started by A.O. Wallenberg.
- Skandinaviska Kredit-Aktiebolaget i Göteborg—the predecessor to Skandinaviska Banken—is formed.
- Skandinaviska merges with Skånes Enskilda Bank.
- Skandinaviska merges with Göteborgs Handelsbank.
- Stockholms Enskilda Bank and Skandinaviska join together to form Skandinaviska Enskilda Banken.
- As part of a deregulation program, the government allows Swedish banks to issue certificates of deposit.
- The Trygg Hansa AB insurance company is acquired.
- The company launches the SEB brand.
- SEB acquires Germany-based BfG.
- Merger plans with FöreningsSparbanken—Swedbank—are called off.
At beginning of 1988, S-E-Banken established a new subsidiary in Stockholm called Kortbetalning Servo A.B. to develop new routines for redeeming credit and charge card bills, according to an agreement the bank had made with PKbanken and the Swedish savings banks. The bank’s credit and charge card business conducted by the FinansSkandic A.B. subsidiary underwent a radical change beginning with S-E-Banken’s 1987 purchase of the remaining shares in Kortgruppen Eurocard-Köpkort A.B. Eurocard operations remained an independent entity within the FinansSkandic group; the credit card operations were merged with FinansSkandic’s existing operation. FinansSkandic, as a group, led Sweden’s credit and charge card market. It was also Sweden’s largest leasing company. S-E-Banken, together with its Enskilda Securities subsidiary, also pioneered a new bond, denominated in Eurokronor. First issued in October 1988 by the World Bank, the bond sold out immediately.
While Skandinaviska Enskilda Banken’s move into international banking had clearly been a success so far, the future posed a real challenge for the bank. In order to maintain its position, S-E-Banken knew it must continue to dominate in its domestic market while at the same time battling for a growing share of the European market—a market that stood to grow more competitive as the European Economic Community moved toward its ultimate goal of total economic integration.
Hardships and Further Expansion: Early 1990s and Beyond
While S-E-Banken worked to strengthen its position in the industry, it was forced to contend with a banking crisis that hit the region. In 1990, the company began to experience a slow down in profits due to overexposure to bad loans. The financial downturn continued over the next several years in the Swedish banking industry, forcing the company to report its first-ever operating loss in 1992. Contributing to that loss was an $83.6 million one-time charge related to the company’s failed merger attempt with AB Skandia. Bjoern Svedberg was named CEO in 1992, becoming the third new leader in three years.
In early 1993, the company launched a restructuring program that included a major cost cutting program and a curtailing of international expansion. That year S-E-Banken returned to profitability. Progress continued and during the following year profits soared to five times the previous year’s level. The purchase of Diners Club Nordic in 1994 signaled the bank’s return to its expansion strategy.
The mid- to late 1990s proved to be an integral period in S-E-Banken’s history. During 1997, the bank began to reorganize its operations under the leadership of CEO Jacob Wallenberg. Prompted by increased globalization, various demographic developments of its customers, new technology, and deregulation, S-E-Banken began to focus on broadening its product line as well as expansion in Northern Europe. During 1997, the company acquired insurance company Trygg Hansa AB. The following year, the bank launched the SEB brand, making Skandinaviska Enskilda Banken the parent company of the new SEB Group. It also began to close many of its branch offices due in part to the increased use of Internet banking, which proved to be much more cost efficient for the group.
SEB continued to make significant moves in the new century. Germany-based BfG was acquired in 2000 and eventually renamed SEB AG. The group also added three additional banks to its arsenal, including Eesti Uhispank, Estonia’s second-largest bank, and the two largest banks in Latvia and Lithuania—Latvijas Unibanka and Vilniaus Bankas. As a result of these deals, SEB’s financial position was greatly strengthened. In fact, from 1997 through 2002, the group’s revenues and customer base doubled, its assets under management more than tripled, and it had positioned itself as a major North European player with over half of its staff and client base outside of Sweden.
SEB attempted to take its growth a step further in 2001 and announced merger plans with FöreningsSparbanken, or Swedbank, Sweden’s second most-profitable bank. The union was called off in September of that year, however, after the European Union Commission laid forth harsh requirements that were necessary for completion of the deal. SEB felt the conditions devalued the merger and therefore called off the deal.
During 2003, the group continued to focus on increasing customer satisfaction, expanding its products and services and remaining cost-efficient. While many in the European financial sector experienced problems related to an economic slowdown, SBE stood on solid ground. “The ‘big four’ banks,” claimed a June 2003 article in The Banker, “remain profitable and are seen as a beacon of stability in a difficult period.”
Nordic Retail & Private Banking; Corporate & Institutions; SEB Asset Management; SEB Trygg Liv; SEB AG Group/German Retail & Mortgage Banking; SEB Baltic and Poland.
Nordea AB; FöreningsSparbanken AB; Svenska Handlesbanken AB.
“Biggest Swedish Bank Acts in Bid to Survive Acute Financial Crisis,” The Wall Street Journal, January 22, 1993, p. A6.
Jones, Colin, “Consolidation Continues,” Banker, October 2000, p. 59.
——, “Time to Find Their Feet: The Failure of the Proposed Merger Between SEB and Swedbank May Give the Baltic Banks a Chance to Develop in Their Own Way,” Banker, July 2002, p. 65.
Robinson, Karina, “Advantages in Abundance,” Banker, December 2002, p. 38.
“SE Banken Had Fivefold Rise in 1994 Profit,” Wall Street Journal, February 17, 1995, p. A5.
“Skandinaviska Enskilda Banken: Large Swedish Bank Posts First Operating Loss Ever,” Wall Street Journal, June 9, 1992, p. A13.
“Skandinaviska Enskilda Banken: Swedish Group Posts Profit on Strong Rise in Revenue,” Wall Street Journal, March 1, 1994.
“Sweden—Europe’s Beacon of Stability,” Banker, June 1, 2003.
—update: Christina M. Stansell