Assets: SKr238 billion (US$38.9 billion)
Stock Index: Stockholm
In its infancy, Svenska Handelsbanken was a small bank, with operations confined to the city of Stockholm. In the first half of the 20th century, it was the foremost financier of Swedish heavy industry. And in the latter half of this century, it has led Scandinavian banks into the brave new world of international finance.
Svenska Handelsbanken began its life in 1871 under the name Stockholms Handelsbank. Its founders were former directors of Stockholms Enskilda Bank who left that bank after losing an internal power struggle. Their new bank, Stockholms Handelsbank, was one of the nation’s first joint-stock banks (along with Skandinaviska Bank) and engaged primarily in small-scale commercial lending.
The bank remained small throughout most of the remainder of the century. Sweden was a poor, mostly agrarian nation with little heavy industry, and the authorities who oversaw the banking system kept it regional in nature, believing that a bank should be able to carve out its own geographical domain. All of this began to change, however, in the 1890s, as Sweden industrialized. Under managing director Louis Fraenckel, who led the bank from 1893 to his death in 1911, Stockholms Handelsbank pursued an aggressive lending policy to take advantage of this development; between 1893 and 1913, its loan volume increased nearly sevenfold, from SKrl7 million to SKr114 million. Fraenckel also used his extensive connections with the nation’s industrialists to secure underwriting and investment-banking business. Of Sweden’s ten largest industrial concerns in 1912, eight of them had done business with Stockholms Handelsbank at some point.
Corresponding changes were taking place in the banking industry as well. Larger industrial undertakings required larger financing packages, which in turn required larger banks to extend the credit. Swedish banks began to amalgamate and the old regional fiefdoms dissolved. Stockholms Handelsbank embarked on a series of mergers in 1914, when it acquired a bank in northern Sweden and along with it, ties to the lumber and paper industry. In 1917 it acquired another northern bank. In 1919 it purchased a bank in the South that was involved in agriculture and the textile industry. The bank exploded in size through these mergers; its branch network expanded from seven offices in 1914, all of them in Stockholm, to more than 250 nationwide. Its assets totalled SKr1.6 billion in 1919, making it the largest bank in the nation. To reflect this, the bank changed its name to its present form, Svenska Handelsbanken, in 1919.
Sweden remained neutral during World War I, so while the hostilities produced much anxiety about the nation’s economy, they did little damage to it. Industry continued to prosper and banking power continued to concentrate. By 1924, four institutions, including Svenska Handelsbanken, were accounting for 56% of Sweden’s banking activity. The early 1920s, however, were marked by severe depression. In 1922, the bank decided to write off more than Skrl00 million in bad loans and additions to its reserves.
The economy began to recover in 1923, and so did Swedish banks. But renewed prosperity also brought with it a dizzying wave of speculation. Before the decade was out, an ambitious Swede named Ivar Kreuger pulled Svenska Handelsbanken into what has been called the largest financial fraud in history. An engineer by training, Kreuger made a small fortune in the construction business in the early 1910s, and he used that stake to start building his own financial empire. His main goal was to turn his family’s match business into a worldwide monopoly, but he also involved himself in other ventures, including a corporate-raider-style takeover of telecommunications giant L. M. Ericsson in 1925. Kreuger obtained most of his financing from American sources, but he also borrowed heavily from Swedish banks, including Svenska Handelsbanken. The problem was that he lied extensively and convincingly about his net worth, and offered as security assets that did not exist. His practice of hiring accountants based either on their lack of accounting skill or their vulnerability to blackmail helped him in this regard.
Kreuger killed himself in 1932 when the Great Depression threatened to unravel his pyramid-financing game. An audit undertaken after his death revealed the extent of the fraud he had perpetrated, and Svenska Handelsbanken could not help but be involved in the bankruptcies and restructurings that followed. Not only had Kreuger embezzled $5 million from L. M. Ericsson, but he had endangered its independence by borrowing against his controlling interest in the company. Svenska Handelsbanken, along with rival Stockholms Enskilda Bank, was closely involved in Ericsson’s reconstruction. The bank also took control of what remained of Svenska Cellulosa Aktiebolaget (SCA), a Kreuger venture for which it was the major creditor. It formally bought out SCA in 1934 for SKr3 million, and considered itself fortunate when it resold an 83% stake in the company to industrialist Axel Wenner-Gren later that year for Skrl0 million.
Sweden’s economy fared better than the rest of the world’s in the 1930s. Whereas the overvalued kronor in the 1920s encouraged capital flight and banks struggled to keep their deposits, in the 1930s the opposite happened. Undervalued currency kept money at home and banks had to fight to maintain a profitable loan volume. During this time, Svenska Handelsbanken benefited from its geographical diversity; deposit surpluses in areas where economic activity was especially slow could be sloughed off on areas where lending was brisker. The bank also continued its close involvement with heavy industry, despite that sector’s growing independence from the big banks in general. In 1935 more than one-third of all money loaned to large Swedish industrial concerns came from Svenska Handelsbanken.
During World War II, Sweden once again remained neutral, but its aloofness failed to keep Swedish banks entirely insulated from the shock of war. Political uncertainty kept deposits high and it became even more difficult to maintain profitable loan volumes than it had been in the 1930s. The government helped alleviate the banks’ difficulties by selling them large quantities of securities; Sweden found a large military buildup necessary to protect its neutrality and financed it through war bonds.
For Svenska Handelsbanken in particular, the 1940s were marked by divestiture of its industrial holdings. Banking laws enacted in reaction to the Kreuger crash and the Depression restricted, among other things, the amount of stock that banks could own in other companies. In 1943 the bank organized Industrivärden, a holding company devoted to managing its portfolio. Between 1943 and 1946, it sold Svenska Handelsbanken’s entire interest in the steelmaker Fagersta for more than SKr37 million. After years of struggle, SCA gained solid financial footing during World War II and the bank bought out Axel Wenner-Gren in 1947 for nearly SKrlS million, then resold the company in 1950. Also in 1950, the bank sold the agricultural machinery firm Bounder Munktell to Volvo.
Svenska Handelsbanken then began to re-orient itself toward small- and medium-scale lending. In 1955 it acquired Stockholms Intecknings Garanti, a real estate lender. It also began to expand its branch network after a 1954 study commissioned by the bank found that convenience was of paramount importance to retail customers. By 1968, it had 500 branch offices throughout the nation. It also sold its controlling interest in Reymersholm, a chemical and mining company, to Boliden Mining in 1963.
By the mid-1960s, Svenska Handelsbanken had not only become the largest bank in all of Scandinavia, but it was also a leader among Swedish banks in recognizing the increasing importance of international markets. Major Swedish companies had always conducted much of their business abroad, but the lack of Swedish banking presence in those countries meant that foreign banks wound up supplying their credit needs. In 1964 Svenska Handelsbanken joined with three other Scandinavian banks—Kjøbenhavns Bandelsbank of Denmark, Den norske Creditbank of Norway, and Kansallis-Osake-Pankki of Finland—to establish Nordfinanzbank in Zurich and Banque Nordique du Commerce in Paris. Over the next several years, it also acquired stakes in banks in Greece and Spain to help Swedish companies capitalize on foreign markets.
Svenska Handelsbanken continued to prosper and expand its foreign operations in the 1970s. It took a merger between Stockholms Enskilda Bank and Skandinaviska Bank in 1972 to overtake it as Scandinavia’s largest bank. In 1970 Svenska Handelsbanken participated in the formation of Nordic Bank Limited in London, along with Den norske Creditbank and Kansallis-Osake-Pankki. In 1974 it opened a representative office in Moscow, responding to increased trade between Sweden and the Soviet Union. The next year, it established a subsidiary in New York, Nordic American Banking Corporation, devoted largely to import and export financing for North and South American clients doing business with Nordic countries. And in 1978, it set up a subsidiary bank in Luxembourg, Svenska Handelsbanken S.A., Luxembourg.
Svenska Handelsbanken raised a few eyebrows in 1971 when, under the guidance of Chairman Jan Wallander, it abandoned most forms of long-range economic forecasting and planning, deciding to rely instead on shorter-term forecasting and greater flexibility of action. Writing in Euromoney ten years later, President Jan Ekman announced that the policy had produced results above the industry average. “Forecasting is an exercise in meaningless impossibilities,” he declared, deriding the large margins of error that characterize long-range prognostication.
By the early 1980s, Svenska Handelsbanken had grown to the point where it no longer needed consortium partners to carry out its international business. In 1982 it established its own merchant-banking subsidiary in London, Svenska International. The next year, it sold its interest in Nordic Bank Limited to Den norske Creditbank. In 1984 it formed a subsidiary in Singapore, Svenska Handelsbanken Asia Limited, and sold much of its stake in Nordfinanzbank to Kansallis-Osake-Pankki, giving its Finnish partner a controlling interest. In 1985 it sold its 25% share of Nordic American Banking Corporation to Den norske Creditbank. And in 1988 it established a subsidiary bank in Norway.
The 1980s have also been marked by a decline in the influence of banks over other segments of the Swedish business community as major corporations set up their own in-house financing units. Svenska Handelsbanken is no longer the kingmaker of industry that it once was. But Svenska Handelsbanken has made up for the end of this role by playing its newer one to the hilt. While profiting from the smaller end of the domestic market, it has also led Scandinavian banks into the modern financial world of international, integrated markets. Increasing deregulation of Sweden’s banking industry and the advent of a single European financial market in 1992 will present the bank with further challenges, but its past history gives reason to believe that it will meet them successfully.
Sigab (95%); Svenska Finans AB (95%); Fastighets AB Blasieholmen; Fastighets AB Filia; SHB Kapitalplacering AB; Svenska Handelsbanken S.A. (Luxembourg); Svenska Handelsbanken PLC (U.K.); Svenska Handelsbanken Asia Ltd. (Singapore); Svenska Handelsbanken Norgea A/S; Svenska Handelsbanken Inc. (USA); Nordic Monitoring Services Ltd. (U.K.); Oy Rahameklarit AB (50%)(Finland).
Hildebrand, Karl-Gustaf. Banking in a Growing Economy: Svenska Handelsbanken Since 1871, Svenska Handelsbanken, Stockholm, 1971; Shaplen, Robert. Kreuger: Genius and Swindler, New York, Garland Publishing, 1986.