Photo: The sign of a Swedbank branch. The oak tree logo has been in use by one of Swedbank's predecessor savings banks since at least 1928 to signify the benefits of long-term savings and growth.
Swedbank AB (formerly FöreningsSparbanken AB)
Sparbanken Sverige AB (Swedbank)
Throughout the Renaissance period to the early 19th century, depositing or borrowing money at a bank was reserved only for the aristocrats and wealthy merchants with access to private banks. The average person at the time would not have had the surplus money to save, the credibility to borrow, or access to a bank.
Then in 1810, a clergyman named Henry Duncan founded the Ruthwell Parish Bank in the Scottish village of Ruthwell. The new bank permitted low-income villagers to open accounts with minimal balances. The idea is to encourage saving for a rainy day and for old age security. Rev. Duncan used the bank’s surplus to run a charity for the poor, as well as to build a parish school for the local children.
The concept under which bank profits are channeled to promote charitable causes and social welfare soon spread like wildfires across Britain and Europe, prompting the Swedish government to launch a study of the Scottish savings bank movement. In 1820, a German merchant named Eduard Ludendorff established Sweden’s first savings bank in Göteborg (Gothenburg) with the aim to encourage long-term savings for the average citizens, to offer small loans to individuals and small businesses, and to finance local and regional projects.
By the 1870s, more than 300 savings banks had sprung up across Sweden. Interestingly, the savings banks operated for decades without any regulatory legislation until 1892, when the first Savings Bank Act became law. In 1900, the Swedish Savings Bank Association was established to facilitate collaboration between the member banks. This led to the creation of Sparbankernas Bank (literally, the "Savings Banks’ Bank," which also used a second brand name “Swedbank”) in 1942 to handle international settlement of fund transfers and foreign exchange for its members.
In the 1970s, banking reforms in Sweden largely eliminated the legal distinction between the commercial banks, savings banks and co-operative banks. Throughout the booming 1980s, the savings banks and co-operative banks exploited the de-regulation and snatched market share from the commercial banks by aggressively lending to less credit-worthy clients. The engagement of this fierce competition led to a systematic disregard of default risk by the entire banking sector. The resulting massive increase in money supply inflated a speculative real estate bubble in the late 1980s.
Föreningsbanken AB
In 1915, the Swedish parliament passed legislation for the creation of the agricultural co-operative credit society (banking) system. The co-operative banking system was based on the “one member, one vote” principle, under which the credit society is owned collectively and mutually by its member-clients and not by shareholders who can buy and sell shares at will. The mandate of the agricultural credit co-op was chiefly to promote agriculture and provide loans and savings accounts for small-scale farm owners, not to maximize profits.
Sweden’s first agricultural credit co-op opened for business in 1915 in Västerhaninge, south of Stockholm. Under the co-operative structure, each member was required to work in the bank based on the size of his farm. By the 1930s, the numerous agricultural banking co-ops had almost 800 offices.
In 1956, significant changes to the agricultural co-operative bank legislation eliminated the members’ personal responsibility for the banks’ operations, and also relaxed restrictions that previously only offered loans to property title holders. In 1958, the various agricultural credit co-ops (known as “jordbrukskassan” in Swedish) established a “central bank” named Jordbrukets Bank ("Bank of Agriculture"), whose function was similar to the savings bank sector’s “central bank” Sparbankernas Bank. Subsequently, Jordbrukets Bank was renamed Föreningsbankernas Bank ("Union Bank’s Bank").
Following Sweden’s banking reforms in the 1970s, the savings banks and the agricultural co-operative banks were no longer restricted to taking small personal deposits only, and they began to compete with the limited-liability commercial banks. In 1974, the various agricultural co-op banks formally adopted the Föreningsbanken (“Union Bank”) brand.
The Swedish Economic and Banking Crisis in the Early 1990s
Towards the late 1980s, Sweden and the rest of Scandinavia suffered a major economic and banking crisis. Loose lending practices earlier in the decade had brought about a speculative real estate bubble. By 1987, Sweden’s inflation rate began to rise noticeably, which caused interest rates to rise starting in 1988. Meanwhile, the Collapse of Communism in the Soviet Bloc in 1989 led to economic chaos in many of Sweden’s exports markets. As exports and demand for goods and services slumped, unemployment rose. Consumer confidence tumbled and the real estate bubble burst. To use an oxymoron, it was an economic “perfect storm.”
As borrowers defaulted on their loans en masse, the over-leveraged banking sector saw its losses skyrocket. In October 1991, Sweden’s largest savings bank Första Sparbanken’s equity capital was wiped out by losses. Unfortunately, the liquidity crisis was not unique to Första, and soon the entire panic-stricken Swedish banking sector was on the verge of collapse.
By September 1992, the Swedish government had to pledge unlimited state loan guarantees for the banking sector to avoid a cross-the-board bank run, covering 114 banks. The only bank that did not require the state guarantee was Svenska Handelsbanken, Sweden’s dominant private-sector bank.
The crisis culminated in the collapse of confidence in the Swedish economy and currency in September 1992. As international investors dumped the Swedish krona (SEK) in the foreign exchange market, the central bank Sveriges Riksbank raised the overnight interest rate to 500 per cent per annum in a desperate but futile attempt to stem capital outflow, and to maintain its currency peg with the European Currency Unit (ECU) as part of the European Exchange Rate Mechanism (ERM).
In November, 1992, Sweden conceded defeat and gave up attempts to maintain the krona’s peg with the ECU. Sweden has since opted to keep its own currency rather than adopting the Euro.
The economic and banking crisis accelerated the pace of reform for the savings banks and the agricultural co-operative credit societies in Sweden. In the savings bank sector, the business operations and management were separated from the socio-economic mandates of the savings banks. The goal was to achieve greater strategic and management freedom away from loan approvals made based on the socio-economic mandates. Far more disciplined risk management controls were also implemented as part of the reform.
A central piece of the restructuring was to convert the savings banks’ former public-sector (i.e. regional government-owned) status into the joint-stock (public limited-liability status, or “Aktiebolag” and “AB” in Swedish) format. The regional foundations initially still held 100% of the joint-stock savings banks. However, as the individual savings banks were far too small to engage in major lending activities without exposing themselves to excessive risks, the foundations began to merge their individual savings banks into a much bigger banking group.
Recent transaction(s):
- In 1991, 12 regional agricultural co-operative banks merged with their central bank unit Föreningsbankernas Bank to form the new Föreningsbanken AB.
- In 1992, 10 savings banks joined forces with the Sparbankernas Bank (also known as Swedbank, the savings banks’ central bank unit), to form the Sparbanksgruppen AB ("The Savings Banks Group"). Like the former Sparbankernas Bank, the holding company Sparbanksgruppen had no bank licence of its own, as the 10 regional savings banks continued to operate as separate legal entities. The regional foundations that used to own the individual banks now collectively owned 100% of the parent company Sparbanksgruppen, which was also known as Swedbank.
- Later in 1992, as a second step of the industry restructuring, Sparbanksgruppen AB (Swedbank) merged with the ailing Sparbanken Första to form Sparbanken Sverige AB (“Savings Bank Sweden," also known as Swedbank).
- In 1994, Föreningsbanken AB was listed on the Stockholm stock exchange.
- In 1995, the foundations holding 100% of Sparbanken Sverige/ Swedbank floated part of their stake in the bank on the Stockholm stock exchange.
- In 1997, Sparbanken Sverige/ Swedbank merged with Föreningsbanken to form FöreningsSparbanken AB. The deal was valued at USD $1.6-billion according to some reports. The new FöreningsSparbanken/ Swedbank became Sweden's No. 2 bank at the time.
- In 1999, FöreningsSparbanken/ Swedbank raised its holding in Estonian-based Hansabank to more than 50%. Founded in 1991 in Estonia, Hansabank also operated in Latvia and Lithuania.
- In 2001, FöreningsSparbanken and rival SEB agreed to merge and form SEB Swedbank. However, in September, the European Union’s anti-competition authority blocked the merger, citing a significant loss of competition if the merger was allowed to proceed. The merger proposal was subsequently terminated.
- In 2004, Swedbank’s majority-owned Hansabank bought Russia’s Kvest Bank.
- In 2005, FöreningsSparbanken bought the 40% of Hansabank not already owned for Eur 1.73-billion.
- In 2006, FöreningsSparbanken officially changed its name to Swedbank AB.
- In 2007, Swedbank bought Ukraine's TAS-Kommerzbank for USD $735-million (Eur 536-million). TAS-Kommerzbank operated 170 branches and had a staff of 2,300. It was the country's 13th largest bank.
- In October 2008, Swedbank raised SEK 12.4-billion (USD $1.5-billion) in a preferred securities rights issue during the global credit crisis.
- In October 2009, Swedbank raised another SEK 15.1-billion (Eur 1.47-billion, USD $2.1-billion) in new capital from a fully-subscribed rights issue. Swedbank opted to raise capital from its own shareholders rather than to seek more state guarantees from the Swedish government. The bank was experiencing a sharp rise in loan defaults in its Baltic operations.
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