Handelsbanken's overall objective is to have higher profitability than a weighted average of the other listed Nordic banks. The quality of the Group's services should meet the expectations of demanding customers. Handelsbanken should charge a fair price for its services. The cost level should be lower than at other banks. Profitability must always be given higher priority than volumes. When granting credits, this means that the quality of the credits must never be neglected in favor of a large lending volume. Higher profitability should benefit the shareholders via greater growth in dividends than the average for other Swedish banks. Handelsbanken aims to have more satisfied customers than other banks. The bank seeks to employ young, well-educated staff and train them within the Group. As far as possible, managers should be recruited internally. The bank's activities should benefit its customers, the bank itself and society as a whole.
In its infancy, Svenska Handelsbanken AB 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. The bank has 540 branches in the Nordic counties and seven subsidiaries including finance, mortgage, mutual funds, life insurance companies, and a telephone and Internet bank.
A Bank Is Formed
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 that 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 SKr 17 million to SKr 114 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 totaled SKr 1.6 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.
World War I and Ivar Kreuger's Effect on Handelsbanken
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 percent of Sweden's banking activity. The early 1920s, however, were marked by a severe Depression. In 1922 the bank decided to write off more than SKr 100 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 U.S. 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 assets that did not exist as security. 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 SKr 3 million, and considered itself fortunate when it resold an 83 percent stake in the company to industrialist Axel Wenner-Gren later that year for SKr 10 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.
World War II
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 SKr 37 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 SKr 18 million, then resold the company in 1950. Also in 1950, the bank sold the agricultural machinery firm Bolinder Munktell to Volvo.
Svenska Handelsbanken then began to reorient 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 a 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--Kjobenhavns Bandelsbank of Denmark, Den norske Creditbank of Norway, and Kansallis-Osake-Pankki of Finland--to establish Nordfinanzbank in Zürich 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 SA, Luxembourg.
Shorter-Term Forecasting Pays Off
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 characterized 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 percent 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 was no longer the kingmaker of industry that it once was. But Svenska Handelsbanken had 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 had also led Scandinavian banks into the modern financial world of international, integrated markets.
Svenska Handelsbanken was the only Swedish bank to survive the country's banking crisis in the early 1990s without having to be bailed out by the government. The bank's success rested largely on decentralization, cost-cutting, and increased earnings. One successful aspect of the bank's decentralization lay in the day-to-day operations of the bank's many branches. The branches of Handelsbanken were organized to be separate businesses, with the responsibility for earning profits and controlling costs resting entirely on the shoulders of each branch manager. The branch managers were given the freedom to decide which products to emphasize in their own market and were held accountable for keeping the cost ratio in line--this organization succeeded in motivating branch managers to cut costs. Another aspect of the bank's success resided in their determination to cut out unnecessary layers of bureaucracy. The branch managers, in addition to having a large amount of control and responsibility of the individual branches, also had an almost direct route to the bank's chief executive. The only level between the branch managers and the bank's chief executive was a group of eight regional mangers.
The economic crisis of the early 1990s did nothing to hamper Handlesbanken's drive to expand. In 1990, the bank kicked off its expansion marathon with the acquisition of the Swedish Skanska Banken and Norway's Oslo Handelsbank. Stavanger Bank, another Norwegian commodity was purchased in 1991. In 1992, Handelsbanken expanded its life insurance holdings when it acquired the life insurance company RKA (its name was quickly changed to Handelsbanken Liv). The flurry of Nordic acquisitions continued throughout the decade.
In 1997, Svenska Handelsbanken joined forces with ten European banks to form a nonexclusive association called the Trans-European Banking Services Group. The Group was founded to provide transnational banking services to businesspeople. The bank hoped to make accessing money easier for traveling businesspeople. The bank expanded their service base by taking their business to the Internet in 1997. In 2000, Handelsbanken had 200,000 registered Internet customers, about 20 percent of its customer base. The bank also offered Internet customers the opportunity to pay their bills electronically. Handelsbanken follwed their successful Internet banking service with the launch in 1999 of wireless banking services. The launch was a shoe-in for success, considering that 60% of the people in Handelsbanken's Nordic region carried mobile phones. The bank planned to offer more Internet and wireless banking options, from access to stock market information to bill payments in the coming years.
Bank of the Year
Privata Affärer, a periodical for private finances, named Svenska Handelsbanken Bank of the Year in 2001. In a 2001 press release issued by Svenska Handelsbanken, they stated that Privata Affärer explained the award in this way: "At a time when many banks are closing branches, Handelsbanken stands out as a bank which offers good personal service at branch offices and combines an extensive branch network with free banking services over the Internet. Loyal customers have every opportunity of negotiating better conditions for themselves. This year, Handelsbanken has also opened up for increased competition by removing mutual fund charges and allowing customers to move their pension savings." The bank is poised to meet their customers needs for many years to come.
Principal Subsidiaries:Handelsbanken Finance; Handelsbanken Fonder; Handelsbanken Hypotek; Handelsbanken Liv; SPP; Stadshypotek; Stadshypotek Bank.
Principal Competitors:Danske Bank Aktieselskab; Nordea AB; Skandinaviska Enskilda Banken AB.