Nordea Bank culls securities from market unit amid negative rates

Bloomberg

As long-term negative interest rates reshape life in the Nordic region, its biggest bank is trying to reinvent one of its most important business areas.
Nordea Bank Abp says it’s rethinking how it does market making — a service that helps investors carry out securities trades and ensures liquidity — in an effort to adapt to long-term negative rates. The decision, which is also a reaction to bigger capital requirements, means Nordea will cull its inventory of securities needed to execute trades. Keeping those products on its shelf has simply become too costly.
Martin Persson, head of wholesale banking at Nordea, says the goal is to free up capital and redirect it to more profitable corners of Nordea.
“For 20 years we’ve had a positive carry on holding bonds,” he said in an interview. “It’s been a pretty good business. But when we have a negative carry now, and we still take on a lot of volume, then we just need to change.”
From now on, Nordea will be a lot more selective about what it holds in its fixed-income trading book, and how long products sit there, Persson said.
“The buy-and-hold culture needs to be reduced,” and Nordea needs instead to operate more like a broker, he said. The bank also needs to invest, since the currencies and equities markets are heavily driven by technology, and “fixed income is now also getting into the digital and execution game, big time, starting in the US and then hitting us.”
The more stringent approach comes as Nordea struggles to steady itself after years of faltering profits.
It’s cut thousands of jobs, thrown vast sums of money into upgrading its technology platform and sold off riskier businesses. But investors have complained that the measures failed to revive revenue and didn’t do enough to rein in costs.
In October, a new chief executive officer was brought in to fix things. Frank Vang-Jensen, a 52-year-old who’s held numerous top jobs at the biggest Nordic banks, has made clear he wants to go through “every single cost” at Nordea.