31 Mar 2016
Amid negative interest rates and a seemingly fragile European economic recovery, banks in Europe have been facing a tough time in 2016. Major banks on the continent have experienced a rout in equity prices, while fears have lingered over the ability of certain banks to make good on bond coupons. Both stemming from and causing all of this is a fear that banks in Europe are facing a chronic profitability crisis.
Furthermore, as the 2019 deadline for meeting new capital requirements approaches, there are also concerns that banks on the continent may fall short of their ability to meet the demands of this new regulation. This has led some, rather pessimistically, to predict that we may see a new financial crisis in Europe, as a result of the predicament these banks have found themselves in. While this seems unlikely for now, with banks generally still being in a better financial position than in the run-up to the 2008 crisis, the situation is still troublesome, and many banks in Europe are clearly going to face further problems as the year progresses. One bank in Europe, however, if its ability to weather the 2008 crisis is anything to go by, should be more immune than others to any troubles stalking banks on the continent: Sweden’s Skandinaviska Enskilda Banken (SEB). This has largely been due to the leadership of Annika Falkengren, the bank’s CEO.
Falkengren has been at the helm at SEB since November 2005. She is one of the continent’s few female CEOs, and one of even fewer CEOs at a major European bank. Falkengren features in various ‘most powerful women’ lists, appearing in Fortune on a yearly basis, usually coming within the global top 10. Likewise, she was ranked the most powerful woman in Swedish business in 2005 by the Swedish business publication Veckans Affärer, and Financial News Online has ranked her as the 68th most influential person in European capital markets.
Media attention on Falkengren has often focused on her gender, or the fact that she is both a parent and a CEO. When the news was announced that she would assume the position of CEO at SEB, one Swedish publication in late 2004 even ran an article with the headline ‘Bebismamma knep toppjobbet’ (‘Mother takes top job’). However, Falkengren stands out not just for the fact that she is a female CEO, or that she is a female CEO of a bank, or that she has been able to maintain a family life and successful career. Rather, if judged on the merit and success of her career alone, and not what social expectations have been placed upon her, her success truly stands out.
She is one of the few bank CEOs appointed before the 2008 financial crisis to still be left standing. This is due to her far-sighted approach to managing the bank prior to the crisis, and her skill in navigating it through the choppy financial seas that emerged in 2008. When banks around the world and Europe went into meltdown after 2008, Falkengren’s leadership and management of the bank, both before and during the crisis, saw it emerge bruised, but not battered. And this success is what really makes her stand out as a CEO.
The lessons of history
SEB came into its current form in 1972. It was formed by a merger between Stockholms Enskilda Bank and Skandinaviska Banken. Its roots, however, go back further. André Oscar Wallenberg established the former in 1856, while the latter dates back to 1864. SEB is now one of Sweden’s ‘big four’.
Falkengren has had a long career at SEB. She first joined the bank as an intern. In an interview published on the SEB website, she noted that her “first contact with SEB was as a summer intern at one of [the] Stockholm branch offices”. She added: “I liked the work so much that I stayed on for three years! I really enjoyed meeting customers every day and handling their varying needs. And my impressions lasted: having finished university I applied to SEB’s trainee programme.”
After graduating from Stockholm University with a degree in economics, Falkengren joined the trainee programme at the bank in 1987. During her traineeship, she made a lasting impression on the bank, while the bank left a lasting impression on her own future management style. In the case of the former, she noted in the interview: “I was still in the midst of the trainee programme [when I] suggested some major changes to it.” Following this, she said: “I was asked to present them to the CEO and the next year I found myself responsible for the entire trainee programme!”
Falkengren has had a long career at SEB. She first joined the bank as an intern
At the same time, the ability she showed during her traineeship to gain an intimate understanding of the various operations and branches of the bank has influenced how Falkengren performs as a CEO today. As she also noted: “As a trainee you come across different parts of the bank and you really learn a lot about how things work in practice. Today – being CEO – I can still raise quite detailed questions about the business, even though I am not part of the daily operations as before. It goes back to knowing the business very well and having worked my way up.”
She also noted that her time allowed her to “build up a network of people, with whom you keep in touch over the years and can turn to for an informal discussion, troubleshooting or knowledge sharing”. This build-up of relations within the bank continues to shape her hands-on approach to the business today. In an interview with Falkengren, the Financial Times recounted a story told to them. A customer, who had been number 36 in SEB’s telephone queue, complained to the bank. The paper noted: “[Falkengren] swung into action and dialled the telephone bank herself. She soon got back in touch with the customer, informing them that SEB normally handles an average of 80 calls every five minutes, making the wait much shorter than it might appear.”
Following her traineeship, Falkengren joined SEB’s trading and capital markets division in 1988. After seven years, in 1995 she moved on to become global head of fixed income, shortly progressing after two years to become global head of trading at SEB in 1997, before taking on the role of head of merchant banking in the year 2000. Only one year later, she moved to the bank’s corporate and institutions division, where she progressed to deputy group chief executive in 2004. In 2006, Falkengren succeeded Lars Thunell to become the bank’s CEO and President.
Upon assuming this role Falkengren took (what was considered at the time) a rather conservative and overly cautious approach to running the bank, building up capital reserves and not overextending capacity. But, of course, this was the mid 2000s, in the build up to the 2008 financial crash. Anything less than throwing everything to the wind was considered to be too cautious. Across the world banks overextended themselves beyond the ability to cushion any shocks with their own capital reserves. When the financial crisis hit, her approach turned out not to be overly cautious, but rather prudential.
While many banks across Europe and the world reined in credit and closed their doors to customers, SEB was in a position to maintain and gain business, being financially stable enough to offer more loans than most competitors. During the crisis, SEB lent more than SEK 150bn (£12.4bn). This was more than many other European banks at the time. Maintaining customer relations in this time of crisis was central to Falkengren’s approach. As she famously noted: “Snatching the umbrella from clients when the rain hits you is wrong.”
Of course, the bank was not completely insulated from the crisis. No global financial institution could be. Shares in the bank fell by nearly 90 percent, stemming from fears of exposure to troubled markets in the Baltic region. The response was a rigorous routine of meetings for the bank’s top executives, under the leadership of Falkengren. In early 2009, SEB shored up its balance sheet by launching a rights issue. The bank soon emerged from the crisis relatively unscathed.
By 2014, the price of the bank’s stock had returned to the level it was at when Falkengren assumed her position as the bank’s CEO, while shares in many other financial institutions on the continent were only 40 percent of what they had been before the crisis. According to a press release from SEB, published in February 2016: “Operating income in the fourth quarter amounted to SEK 11.4bn (£949.1m), an increase of two percent compared to the last quarter of 2014 (excluding one-time items).” At the same time: “Operating expenses decreased by four percent to SEK 5.6bn (£466.2m). Operating profit in the quarter amounted to SEK 5.5bn (£457.9m).”
Since the 2008 crisis, Falkengren has continued to focus on ensuring that SEB has adequate capital buffers to protect against unexpected losses or another severe shock to the financial industry. And with the European financial sector once again looking out on a sea of potential troubles, this approach from Falkengren will hopefully once again see SEB weather any storm that may blow its way.