Case study: Nordea Bank

Case study: Nordea Bank

The Nordea Bank is a large Nordic bank providing financial services to their customer. Nordea has a long history, because their roots are in the 1820s. Over their history there has been over 300 banks, which have been part of the Nordea. Acquisitions and mergers have reduced the number of banks, so in the 1980s there were only 30 banks left. In 2001, the last four banks; Nordbanken, Unibank, Kreditkassen and Meritabank merged and the company got their brand name, Nordea. Currently Nordea is present in 17 countries, including Nordic countries.

Nordea’s four main business areas are Personal Banking, Wholesale Banking, Commercial and Business Banking and Wealth Management. They have over 10 million personal customers and 700.000 corporate customers. At the beginning of Q1 2018, there was 30.399 employees in Nordea. The Personal Banking segment employ around third of all employees. Nordea Group’s total income was 9.5 billion euros in 2017 and it distributed quite evenly between business areas. The Personal Banking produced 30 % from total income. Total assets were worth of 581.6 billion in the same year. In the Personal Banking sector 25 % of the meetings is held in online and because the number is increasing, Nordea has made huge investments on launching new mobile bank. Also, in the Commercial and Business Banking sector is moving towards digitalization and increasing number of meetings are held in online.

Casper Von Koskull was named the President and CEO of the Nordea Bank in November 2015. He has made a long career in banking sector and has previously worked for example at Goldman Sachs. The Chairman of the Board of Directors is Björn Wahlroos. The four major operating leaders are: Topi Manner in Personal Banking, Erik Ekman in Commercial and Business Banking, Martin Persson in Wholesale Banking and Snorre Storset in Wealth Management.

 

Figure 1. Nordea’s stock price development

Nordea’s shares are traded in three exchange: Helsinki, Stockholm and Copenhagen. Nordea’s stock price development of last five years at the Helsinki stock exchange is indicated in figure 1. The stock has been quite volatile during these years. In 2015, it was peaking over 12 euros, but the growth was not permanent.  The stock price declined to near 7 euros in summer 2016. Again, the price increased in one year and then declined to near 8 euros. Since June 2018, price has begun rise slowly and many analysts recommend buying the stock. In 28th of September 2018 the closing price of the stock was 9,425 euros.

Figure 2. Stock’s dividend 2007–2018

The Figure 2 indicates Nordea stock’s dividend amount. At the end of financial crises 2009 the dividend was on its lowest 20 cents. Since that year, the dividend has increased every year except in 2012, when it was 26 cents. In the last for year the dividend has been over 60 cents and the dividend yield in percentage has been over 6 %. This yield is high, because the average dividend yield in Helsinki exchange was 4,3 % in 2018. The payout ratio, which is how much company pays as dividend from the net profit, was 90 % in 2018.

The Tax Haven issue

In 2016, despite of the warnings by the Swedish Financial Supervisory Authority, Nordea have been operated actively in the disreputable tax havens, such as Panama and British Virgin Islands.

The tax havens founded by Nordea, have extremely complicated corporate structure. These organizations are led by the Panamanian managers. They are also known as “nominee directors”.  According to the leaked documents, the straw persons are usually Mossack Fonseca’s poorly employed workers. The actual owners of these companies are the Nordea’s customers, whose names have not been ended up to the public register.

In addition, Nordea has utilized another tax haven procedure to remain these corporations classified. When operating with the authorless shares (bearer shares), it gives an opportunity to hold the real names hidden. Currently it is forbidden to utilize the bearer shares because it has been operated extensively in fraud and tax avoiding issues.

Despite the strict anonymity, classified documents reveal that Nordea’s tax havens are possessed by wealthy private individuals in the Baltic and Nordic region, including Finland.

Possessing a tax haven corporation is not illegal. The unlawful tax avoidance situation is up if the company or its assets and investments are not disclosed to the owner’s native country’s governmental authorities.

According to the MOT’s (a Finnish investigative journalism program) interview, Nordea Luxembourg‘s CEO and Nordea Private Bank’s manager, Thorben Sanders admits that, before 2009, Nordea has not inspected their customers’ banking transactions. For instance, controlling if Nordea’s customers have utilized the bank for the tax avoidance issues.

Thorben Sanders states that “in the end of 2009 we have decided that our bank can no longer be used for tax avoidance. We want to help our customers to pay their taxes”.  In addition, Sanders indicates that “before 2009 we did not define our roles this way. It was completely in line with the rules of the industry and the practices of our own industry”.

Tax havens are a high risk under the control of money laundering. Sweden’s Financial Supervisory Authority have stated that Nordea has large flaws in the control of money laundering. The Financial Supervisory Authority has given two warnings to Nordea and the highest possible penalty payment, more than five million euros, a year ago.

In 2015, the Swedish Financial Supervisory Authority stated that for banks, it is highly significant knowing the backgrounds of their customers, especially the risky individuals. Specifically, risky entities are the anonymous tax havens. Furthermore, risky customers are individuals with the political power and those who come from the risk countries. According to the Financial Supervisory Authority, it is extremely challenging to differ legal tax planning from the illegal tax avoidance.

Nordea has publicly announced that they will improve its practices and taking criticism seriously. In addition, Nordea has publicly prohibited giving tax counseling to their customers.

It is revealed from the leaked documents that there have been open negotiations related to tax planning in the e-mails and meetings between Nordea and Panamanian Mossack Fonseca. Additionally, Panamanian companies founded by Nordea were approximately 100 last December of last year.

Reference: https://yle.fi/aihe/artikkeli/2016/04/03/nordea-perustanut-asiakkailleen-satoja-yhtioita-veroparatiiseihin

Nordea annual report 2017: https://www.nordea.com/Images/33-247331/Annual%20Report%20Nordea%20Bank%20AB%202017.pdf

 

Viet Nguyen & Matias Mäntylä