The Financial Supervisory Authority (FSA) intends to ensure that Nordea’s capital requirement remains as high as it is currently, even after the bank moves its headquarters to Finland.
In an interview with Dagens Industri (DI), the head of the FSA, Erik Thedéen, says that the Finland is move is “completely unique”. “It is also the first time a large bank, with exposure to the whole of the Nordic region comes under the jurisdiction of the European Central Bank (ECB),” he adds.
He does not believe Nordea’s move is a sign that Swedish regulation has gone too far. “When you say that our requirements are too demanding, then you are forgetting that these requirements are made in an environment typical to Sweden, which is concentrated and interlinked.”
When the move is made, the FSA no longer has responsibility for supervising Nordea and it could mean a lower capital requirement for Nordea. The FSA has already started talks with the ECB and Erik Thedéen wants to push for the ECB to ensure the current capital levels are maintained.
Several of the country’s leading economists consider there to be a desperate need for new structural reforms, but the government is showing no sign of dealing with the problems. The last real political structural reform was the employment tax deduction brought in by the alliance government in 2006.
In particular economists are worried about the housing and labour markets. Annika Winsth is head economist at Nordea and describes a generation of politicians that are incapable of taking on the major challenges that Sweden is facing just now. She is unimpressed with Finance Minister Magdalena Andersson’s autumn budget. “I think it is inappropriate to push forward with extensive stimulation when we already have the tendency to overheating. Furthermore, becoming bound to permanent increases in spending when you know that worse times lie ahead is risky. Long-term structural reforms would have been desirable,” she says.
Chinese investment in the EU increased by 75 per cent in 2016 and amounted to EUR 35.1 billion, according to the Rhodium Group. Concerns that China could gain control of assets affecting national security have led heavyweight nations such as Germany, France and Italy to urge a rethink of foreign investments in the EU, and in a speech today, Wednesday, European Commission President Jean-Claude Juncker is expected to lay out plans for a more robust screening of trade.
The Swedish government is opposed to more thorough vetting of foreign investments, with EU Affairs and Trade Minister Ann Linde describing the move as “protectionist”. “I believe the opportunities the WTO agreement gives Sweden and other EU member states are adequate,” she says.
In contrast, Thomas Lagerqvist, chair of the Sweden-China Trade Council, welcomes a discussion on tighter screening, saying: “It is naïve of Sweden to believe there is no risk”.
Despite conflicting views on a number of issues, EU Affairs and Trade Minister Ann Linde recognises that both Sweden and Russia share an aim to work towards realising the huge potential in bilateral economic relations.
Writing in Dagens Industri , ahead of her visit to Russia on 12-13 September, the minister points to areas of cooperation between the two countries, including trade, organised crime, culture and student exchange, and underlines the fact that Sweden is the fifth largest direct investor in Russia, discounting tax havens. By way of example, one Swedish company has invested close to SEK 60 billion in Russia since 2001.
Trade between Russia and Sweden amounted to some SEK 48 billion in 2016 and there is potential for Swedish exports to grow. The Russian government’s aim is to invest in energy efficiency and environmental protection, and Linde looks forward to discussing ways to boost cooperation in these, and other, areas with her Russian counterpart.
On Thursday Nordea held a press conference at its Helsinki, which will next year host key employees who will be moved from Stockholm.
When asked why it was not enough that the Swedish government backed down over the resolution reserve fee, CEO Casper von Koskull said, “Nordea is a bank with four domestic markets. We are also a very large bank. It is therefore difficult to exist under one regulation that is based on one country.” For him it is a natural step to become part of the European banking union and be regulated by the Single Supervisory Mechanism, SSM.
He also comments that there never was any negotiation. “We have not been shopping around.” Instead the bank has carried out a thorough analysis.
Meanwhile Swedbank is in a good position to take over dissatisfied customers who leave Nordea, says Swedbank’s head of press Josefine Uppling.
Prime Minister Stefan Löfven understands that many Swedes are upset. “Here we have a bank that has twice received significant help. The whole reason the bank exists is because of Swedish taxpayers and the thanks for that is: we are moving the head office,” he says.
Social Democratic Finance Minister Magdalena Andersson said she was disappointed to hear the news of Nordea’s move to Finland but saw no reason to review government policy. The government has a responsibility to ensure financial stability and provide a sound environment for companies, she commented, pointing out that Nordea had posted a profit of SEK 40 billion in 2016.
Green Financial Markets Minister Per Bolund said there was broad political unity in Sweden not to join the banking union for the time being. However, the government had now decided to analyse the advantages and disadvantages of Swedish membership.
Ulf Kristersson, the Moderate economic policy spokesman, commented that the government, with its plans for extra regulation and a bank tax, had “undermined confidence that Sweden is a country with stable long-term regulation”.
Finance Minister Magdalena Andersson promised a record election budget when she met journalists yesterday prior to budget negotiations in Harpsund. The investments so far presented for welfare, the police and defence amount to around SEK 10 billion, and she is willing to consider more reforms.
However, the National Institute of Economic Research’s (NIER) Ylva Hedén Westerdahl commented: “We are surprised that the government has so much room for reform. In our forecast, it would mean that they are moving away from the new surplus target.” She points out the government views the underlying potential of the economy more positively.
The Liberals’ economic spokesperson Mats Persson focused on what he sees as a lack of job reforms, which means new arrivals will not get into employment. “It is remarkable that a Social Democrat government is allowing a new underclass to develop,” he says.
One of the welfare sector’s heavyweights has attacked both the government and the alliance for the political handling of profits in welfare.
“This type of reform must have support in reality. We are talking about hundreds of thousands of children, thousands of health centres and elderly care homes. It is a very important part of the Swedish model,” says education giant AcadeMedia’s CEO Marcus Strömberg.
“Of course the government has the ultimate responsibility but I also think that the alliance parties have contributed to this polarisation,” he adds. He believes the threat of a vote of no confidence has damaged the climate for discussion and he defends compromising across the political divide.
He adds that one way of creating margins in the case of a profit cap on welfare would be to increase operating capital by buying school premises but “we do not want to be a property company. We are experts at education but since they have put forward the proposal we have to take a stance on how we go forward.”
The Consumer Price Index (CPI) rose by 0.5% in July. The 12-month rate was 2.2%. Price increases on package holidays contributed 0.3 percentage point to the change, while increased prices on international flights and electricity contributed 0.2 percentage points each. The underlying inflation rate (CPIF) rose from 1.9% in June to 2.4% in July, its highest level since December 2010.
The Swedish krona strengthened on the news while the stock market fell. The reaction is justifiable given that the inflation rate is over the 2.0% target set by the Riksbank, which could bring forward plans to raise the benchmark repo rate, argues DI.
But, even if the July data may lift the mood at the central bank, it is too early to celebrate. A number of temporary factors contributed to the increase, as did a new way of measuring inflation and tax hikes on electricity.
Oxford Economics has said that a stock market correction could affect global growth; a 10% fall in global markets could have the potential to pull down growth and consumption in developed economies by as much as 0.3%.
The actual impact on consumption would vary from country to country, depending on the circumstances. However, economies with higher market capitalisations would be worst affected by the correction, argued the think tank, noting that Switzerland has an unusually high market capitalisation in relation to GDP. The same is true of Singapore, the United States and Sweden.