Handelsbanken: A beacon of better banking

With a decentralised system, no advertising and a belief in great customer service, Sweden's Handelsbanken stands out from its scandal-hit rivals.

by Andrew Saunders
Last Updated: 27 Jun 2017

Illustration by Alex Robbins

It's almost a decade since the financial crash hit and promised to reset the clock on the 'greed is good' excesses of the banking industry, but out on the not-so-Great British High Street precious little has changed.

The cleansing of the Augean stables turned out to be little more than a quick hose down: despite all those taxpayers' billions spent propping them up, our big bank bosses are still overpaid and out of touch and their banks are still too often underperforming. Service is at best perfunctory, and scandals from Libor to PPI and beyond have left customers jaundiced and suspicious, convinced that their bank is out to fleece them if it can.

So perhaps it's no surprise that for the first time ever the winner of the banking sector in MT's most recent Britain's Most Admired Companies Awards back in December wasn't one of the usual big name suspects but a low-profile and distinctly idiosyncratic operator, hailing not from the UK, the US or even Spain but Scandinavia - Sweden's Handelsbanken.

If you have never heard of it, you're not alone. Despite having over 200 branches in the UK (plus another 460 in Sweden and around 170 across its other mainly northern European markets), modesty is the name of the game and flashy advertising - or even any advertising -really isn't its thing. 'We don't do any, we depend entirely on word of mouth,' says the Group's Stockholm-based president and CEO Anders Bouvin, matter-of-factly. 'What your brand represents depends on what you do, your actions. You can make up a story but if you don't live by it it's not going to take off.'

Despite this unwillingness to blow its own trumpet, Handelsbanken is doing pretty well, he adds. 'We have achieved our corporate goal of a higher return on equity than our competitors for 45 straight years.' That's currently running at 12.4% in Q1 this year, along with profits up 2% to 4.1bn Swedish kronor. 'Now the Canadian banks have been downgraded we are one of the two or three highest-rated banks in the world.'

It's not just the lack of marketing spend that marks it out as unusual. In fact, Handelsbanken is something of an anti-bank, an organisation that seems to pride itself in doing, as far as possible, the opposite to most of its rivals. So there are no bonuses - no, not even for the CEO - no sales targets or budgets, and no exasperating call centres.

Perhaps most unusually of all, there is no 'computer says no' centralised credit-approval process. Instead it operates a decentralised system predicated on what sounds, at least to anyone familiar with the Devil-take-the-hindmost City/Wall Street model, the agreeably crackpot notion that good people can be trusted to serve customers well.

'Our way of working is based on the concept that there is an absolute connection between customer satisfaction and commercial success.

We believe that if we have satisfied customers then product sales will follow. Other banks are sales oriented and believe that in order to sell products you have to set targets,' says the slightly schoolmasterish Bouvin. It's all very sensible and Scandi - anyone who tried to champion shareholder value at a Handelsbanken board meeting probably wouldn't last very long.

But when someone tries to mess with the formula, even with the best of intentions, the reaction can be ruthless enough to satisfy the most red-blooded of capitalists. Witness the fate of previous chief exec Frank Vang-Jensen, summarily ejected after a mere 18 months in the job for the heinous crime of trying to introduce a new layer of central management. Hardly the sort of thing that would give Barclays' tough-talking CEO Jes Staley, for example, sleepless nights but more than enough to provoke an allergic reaction from highly sensitised Handelsbanken.

'What happened might in other organisations have raised one eyebrow,' says Bouvin, a 30-year veteran with the bank who took over the reins in August last year. 'But that is the sense of ownership here, everyone feels it very strongly. It was enough for the board for them to say, "We don't want to risk spreading the seeds of doubt about who we are and what we stand for."'

In English 'Handelsbanken' means 'The Trading Bank' and it does what it says on the tin.

No tricksy financial engineering, just lowrisk business and personal lending based not on opaque algorithms but on the human judgement of a Handelsbanken branch manager.

Being a Handelsbanken customer tends to run in families, and both business and personal accounts are equally welcome. There are no roller-coasters to be ridden here, nor any hint of white knuckles. It's more like a sedate turn on the teacups, but what it misses out on in the exciting boom years it more than makes up for in the bust. 'It's a very sustainable model, we have never been a burden on shareholders or on society,' says Bouvin.

Of course they do have corruption scandals occasionally even in Sweden, but of a type that would barely rate a footnote in the global handbook of banking bad deeds. No favoured clients dodging taxes via suitcasefuls of cash in Switzerland here.

The latest row to rock the country's commercial elite centres on Industrivärden (an industrial group which Handelsbanken held some shares in) and the niceties of who paid for who to go elk hunting. Handelsbanken chairman Par Boman has been questioned by investigators but is not one of the scandal's central figures.

'People can make the distinction between us and the companies that were involved. The ownership (of Industrivärden shares) we had was purely historical and we have sold the holdings,' says Bouvin.

The firm's mantra is that 'The branches are the bank' and those branches are run as businesses in their own right. Rather like a franchise for McDonald's, with managers who set their own goals, hire staff, sign up their own new customers and, of course, make their own lending decisions.

'You have a lot of freedom, I can decide pretty much how to run this branch. What kind of customers to work with and what kind of people to employ,' says AnneMarie Dahlstedt, manager of the Humlegarden branch in the affluent Stockholm suburb of Ostermalm since 2010.

Her patch covers only a few city blocks, but it's prime high net worth territory and she is quick to point out that she has 45% of the 10,0000 residents and 60% of the 1,800 businesses as her customers. 'We make good money here, we are one of the top three branches in Stockholm.

'With the freedom comes responsibility, but for me and all my colleagues that is the best part, it's why we work here.' The major part of that responsibility is to review and approve credit decisions, a task, which is done in person - either by one of her 15 staff for smaller sums, or by Dahlstedt herself for larger quantities. She says 70% of decisions are taken in the branch and only the very largest 2% go to the central board.

Overdrafts can be approved in a day. The worst - perhaps the only - cardinal sin a Handelsbanken manager can commit is making a bad loan decision. If it happens it's a black mark and they have to handle it themselves, there is no distressed debt department to take away the pain. And with no bonus-chasing to encourage rash lending, group loan losses run at a vanishingly small 0.04%.

Handelsbanken's Stockholm HQ (Getty) 

Back in the UK (which at 13% of total revenue is the bank's largest market outside Sweden) the landscape is alive with newly founded fintech start-ups, not to mention government encouraged challenger banks - Metro, Aldermore and Atom. Even Amazon is ramping up its small business lending. Competition is certainly hotting up for people like Roy Budgett, manager of London's West End branch. Like many of his colleagues, he left one of the majors - Lloyds in this case - to join Handelsbanken because, post-crash, he didn't like the way things were going. 'This bank is different, it runs on customer service, strong relationships and good moral practice - all things that many bankers really want.'

Handelsbanken's topsy-turvy USP is that while others have raced to cut staff numbers, close branches and rev up their sales ninjas in response, it hasn't really modernised much at all. 'It's not a new model, it's essentially old. It's just what banking used to be 30 years ago,' says visiting professor of economics at the LSE John Kay.

That means personal service, your own bank manager, and no hard sell. Any downsides? Kay is a customer, or at least is involved with an investment charity whose account is with the bank, and confirms that having someone on the end of the phone to chase admin and do paperwork is a great boon. 'When you are talking about Handelsbanken, you quickly run into the problem that there is not much that is bad to say about them. It's a very personal service and people are expensive, so they are not cheap.'

It's also pretty small - Q1 UK operating profits of £48m and lending of £16.5bn (up 7% and 11% respectively) won't be bothering any of the big six any time soon.

The decentralised model dates back to 1970 and a near-death experience during which the bank's directors took the 'brave' (or perhaps desperate) decision to place themselves in the hands of an economist specialising in devolution, Jan Wallander. Probably as much to their surprise as anyone else's it worked, and the job of the bank's bosses thereafter became essentially resisting temptation. The temptation to fill their boots in the boom years, and the temptation to centralise control and kill the goose that lays the golden egg.

'There are centralising forces in every organisation,' admits Bouvin. 'But we have 50 years of trial and error, we don't change strategy every third year. I am totally convinced the model works and I don't feel the need to play a role I don't believe in.' Rather like the smartest kids in the famous Stanford experiment who refused one marshmallow now on the promise of two later, he is an expert in deferred gratification.

Hiring enough of the right kind of people is the bank's chief headache, especially in Britain, says Mikael Sorensen, CEO of Handelsbanken UK, where new branches are only opened when the right person to manage them is found. 'We are an odd bird in the banking world and we look quite different to our peers.

'There are lots of good bankers in the UK but only a very few who fit into our way of business, because they are all used to a totally different kind of organisation. We have to do a lot of due diligence. If you are Barclays or HSBC, you don't have to do so much. You look like all the rest.'

It may sound like a search for true believers but it seems to work, says independent banking analyst Ralph Silva. 'They have retention rates that are unheard of in the wider industry. Most banks hire on the expectation that people will leave after two years, but these guys are looking for lifers.'

But what about all those disruptive start-ups eating away at the most profitable bits of banking? Won't they have such a staid and traditional business for breakfast? Not necessarily he says - Handelsbanken may be old-fashioned but its is not Luddite. It has simply invested in a different kind of technology.

'Where other banks have used tech to connect the customer directly with the back office (bypassing the branch and its staff which can then be disposed of), what Handelsbanken has done is to use tech to support the productivity of its branch staff. So a relationship manager who used to be able to handle, say 10 clients, can now handle a hundred.'

Contrast that with what has been going on in the sector more widely, he adds. 'In the last few years shareholders have demanded big changes. Fewer employees, lower transaction costs. What they haven't demanded is better customer relations. Those shareholders want leaner banks, not better ones.'

And as long as that continues, the prospects must be good that Handelsbanken can remain top of the banking pile in Britain's Most Admired Companies again this year. But if they do, don't expect them to brag about it.

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