Nordea’s global co-head of CIB on being the regional bank of choice

Mathias Leijon

The Nordic investment banking market may be small compared with the US and parts of western Europe, but it knows how to pack a punch. It is home to cash-rich investors and a fast-growing pool of bond issuers, has an equity market that defied the global slump, and is now in the grip of a mergers and acquisitions (M&As) boom.   

Some of the world’s biggest corporate and investment banks (CIBs) are capitalising on these opportunities, but they are far from displacing the leading local CIBs. Nordea is a prime example. The bank is increasingly mandated on deals alongside the top-tier CIBs, meaning clients benefit from global distribution as well as local know-how.

“We’ve never had global ambitions, but we do want to be the Nordic champion with a full-service offering and the natural ‘go-to’ bank for all Nordic corporates and financial institutions, as well as the natural partner for global investment banks,” says Mathias Leijon, Nordea’s global co-head of CIB. “To make the economics work, that means being the clear number one in the region, as there will probably not be room for more than a very few of us to have that strategy.”

The Nordics’ dark horse

Having the Nordic region's biggest distribution network, finest capabilities across every asset class, and the best local knowledge and relationships is no mean feat. But it is certainly not beyond Nordea’s reach. It is the region’s biggest financial institution and placed equal-first for Nordic corporate banking in consultancy Prospera’s latest survey of local corporates and buy-side financial institutions. It is also been a key driver of the region’s dominant CIB trends.

Sweden’s bond market continues to grow exponentially, with 2017 issuance up by about 30% on the previous year. Commercial real estate companies, which have driven the market’s maturity since 2010, still account for about 40% of outstanding corporate paper. But with more of these firms now looking to issue Eurobonds, the local market is set to become more diverse.

While Sweden is the region’s largest market, it should not overshadow developments in the other countries. Deal making in Denmark has not paused as it usually does over the country's summer, for example. Meanwhile, Norway’s primary equity markets – for initial public offerings (IPOs), follow-on offerings and accelerated bookbuilds – have maintained strong momentum since 2017. “As activity is picking-up – especially for everything directly or indirectly related to shipping, oil and offshore [oil] – firms have been keen to restore or proactively strengthen their balance sheet in a way that allows them to best take advantage of the improved market sentiment,” says Mr Leijon.

The dark horse, however, is Finland. Its post-crisis recovery was slower than the rest of the region, but Mr Leijon sees more M&A, lending and other CIB-related opportunities coming out of the country.

“We’ve seen green shoots for many years and we had high hopes the market would turn, but it didn’t. Over the past nine to 12 months though, things have started to become very busy,” he says. “Finnish boardroom confidence has gone up and they are now pursuing both acquisition opportunities as well as deploying capital into fixed assets.” A good example is Helsinki-based paper maker Ahlstrom-Munksjö’s $615m acquisition of the US’s Expera, a deal announced in July 2018 on which Nordea was mandated.

The month prior, the bank worked on Finnish real estate firm Kojamo’s IPO, the country’s biggest in 13 years, which achieved a market capitalisation of €2.1bn. This is the latest evidence that Finland’s equity market is picking up just as Sweden’s cools down. Between 2013 and 2017, while the rest of the world suffered a dearth of IPOs, Stockholm’s market surged. The pace has slackened this year, but Mr Leijon says there is no need to reignite the 2006-era dialogue about how to rectify the country’s IPO shortage.

“We need to be a little patient while the pipeline rebuilds. But recent years have proven that, contrary to the discussions 10 or so years ago, the Swedish stock market is a very attractive option for corporates seeking liquidity for their shares.”

Ripe for innovation

The Nordic IPO market could represent the next incarnation of the global sustainable finance revolution, too. The region has always been a leader in the area. Indeed, the World Bank’s first green bond, issued back in 2008, was sold exclusively to, and developed in response to demand from, a group of Scandinavian investors.

The environmental, social and governance (ESG) universe has expanded rapidly since then, and in the Nordics has been led by real estate firms and banks via their debt capital markets instruments. Based on Nordea’s work on recent IPOs, Mr Leijon says the listing companies' management now want, and need, to push their sustainability capabilities to ensure they can tap into the growing pool of funds that are dedicated to highly ESG-rated investments.

This trend reveals the importance that Nordic chief financial officers and CEOs now place on ESG considerations. It has been buoyed by Nordea being able to show the effect ESG has had on a company’s valuation and total shareholder returns over time.

As for sectors, an area ripe for innovation is infrastructure. This is partly driven by the region’s cash-rich pension funds needing to invest in long-term assets to match their long-term liabilities. That can mean project bonds, but also equity. “There are many corporates with significant infrastructure assets that aren’t properly reflected in their current market value,” says Mr Leijon. “It is possible to bridge this gap, by guiding corporates and pension funds through a deal structure that is mutually beneficial, but it requires some creativity as well as tenacity because these types of deals takes a long time to put in place.”

This is an area in which Nordea has valuable experience. Earlier in 2018 it advised a consortium of three Danish pension funds and Macquarie on a $6bn-plus takeover of Danish telecom operator TDC, which saw the target’s assets, including fixed and mobile networks, split into three different units.

An enlightened outlook

When asked about their industry’s biggest challenge, most CIB bosses point to regulation. But when it comes to the Nordic market, Mr Leijon holds a different view. While regulation is worrying, it is not a concern per se as it is largely beyond banks’ control. “It is what it is, and we just have to adjust,” he says. “What we are really focused on are changes within the marketplace and to ensure we have the agility to adapt swiftly when these changes occur.”

The biggest change, which Mr Leijon is closely tracking, is the region’s very successful emerging tech sector. “Their balance sheet structure is different to traditional capital-heavy Nordic companies, so they will rely less on traditional lending,” says Mr Leijon, adding that these businesses operate in a global marketplace where a bank’s global credentials are of prime importance.

“This means that, over time, it will likely be even more important to be the local full-service bank of choice, and by virtue of being the leading bank in the Nordics, the natural partner to global investment banks for event-driven work,” he says. Nordea’s transaction banking and cash management businesses have proven themselves to be among the world’s best at innovating to fulfil tech clients’ needs. The bank’s CIB must now make similar adjustments.   

Coordination and intensity

Any changes would build on the strides the CIB has taken over the past two years to cement itself as a standalone division within Nordea. It was created in August 2016 by the merger of two units – corporates and institutions, and investment banking – to be overseen by Mr Leijon and Michael Zeier. Their combination was partly prompted by a desire to improve co-operation between different business lines.

“Nordea has always had highly talented individuals and very strong product knowledge. What we lacked, according to client feedback, was coordination and intensity and, to some extent, empowerment of the frontline,” says Mr Leijon. “This has now been greatly improved. It's an area where we feel the team has done a fantastic job over the past two years.”

Another reason to improve synergies is the more strategic role that chief financial officers and treasurers are playing within management teams. They increasingly need holistic, product-agnostic advice that, despite requiring input from multiple business lines, should be delivered via a united front.

The joined-up thinking that now occurs between the CIB’s legacy divisions is in line with changes happening on a group-wide level. CEO Casper von Koskull has set up a so-called extended leadership team, which acts as a forum for key personnel to discuss and formulate the bank’s strategic direction. It’s a way for individuals to take ownership of, and feel jointly accountable for, Nordea’s development.

The extended leadership team has provided an opportunity for division heads to build better relationships which, in turn, paves the way to more cross-selling. “Co-operation starts with getting to know each other, before moving on to building a relationship, trust and a joint culture,” says Mr Leijon. “Casper has done a really good job in pushing all senior leaders in the bank in this direction which, with the best interests of the client in mind, opens the possibility of us collaborating more and, through this, servicing the client in a better way.”