Profile: Interview with Frode Hagen, Nordea Norway
Ten years ago the Norwegian structured products market was flourishing – with NOK2.7bn (€320m) raised by 24 providers selling 250 products at its peak in 2006 – before grinding almost to a halt in early 2008 when tough new regulation introduced by the then finance minister Kristin Halvorsen was accompanied by a declaration, “For all practical purposes, it will now be against the law to sell complicated risk products to ordinary customers”.
Within two weeks, six issuers removed structured products documentation from their websites and NDB, then the largest Norwegian issuer, announced it was stopping the sale of structured bonds and deposits. The following years saw around 10 providers trying to keep the market alive with mainly risky warrants or certificates, with the market reaching rock bottom in 2013, when there were only 11 public issuances, worth just NOK344m.
SRP spoke to Frode Hagen, Nordea Norway’s chief analyst, who has stuck with structured products through the troubled years. Hagen started as an adviser at Handelsbanken in 2000, where he had his first experience of structured products, when selling capital-protected products. In 2010, Hagen moved to Terra Markets before joining Garantum Fondkommission in 2011. In 2013, he settled in his current role at Nordea Norway, where he is responsible for investment products in Norway.
Nordea has managed to offer structured products publicly while most other providers disappeared from the public market. What is Nordea’s strategy?
The strategy in Norway is to continue to rebuild confidence and trust in our products. Over the last 10 years, the market has changed a lot, with new demands for documentation and marketing and Markets in Financial Instruments Directive (Mifid) classifications. Nordea has issued products during this time according to the new demands and standards. We plan to continue to develop according to the high standards we have maintained, and our focus remains on making well-known structures and to make the products with as little complexity as possible. It is very important for us that the customers truly understand how the structured product will perform relative to simply owning the underlying asset.
What distribution channels do you service?
Our main distribution channel is Nordea, targeting both private individuals and corporate customers.
Where is growth coming from?
We managed to almost double our volume in 2014 in Norway compared with previous years. This year started well with a high number of transactions and continued growth in volumes. Our best-selling products are Aksjekuponger (autocallables) and the best-selling asset class is equities (with European equities/indices often the underlying).
What are your plans for the next 12 months in terms of expansion or contraction, changes to distribution and hiring?
One of our aims is to expand our distribution channels by establishing external distribution capabilities and to further strengthen the internal channel. With further growth, we will be in a position to hire people.
What is the chief determining factor in your products in the current environment?
Transparency, simplicity, understanding and trust in structured products are still most important. Therefore, the Norwegian market for structured products will not be the most innovative when it comes to complex payoff structures and so on. One of the benefits of structured products is that we can choose underlyings based on the current market environment – the offerings rely on the most recent market research and allow investors a short time to market to express a view efficiently regardless of asset class. The investors gain access to underlying markets and asset classes that may otherwise be hard to achieve.
What is the most important event you have witnessed in structured products?
The event that has had most consequences for structured products in Norway is the Røeggen case in the Supreme Court, where Røeggen, an investor, sued DNB for the losses he incurred through investing in two different capital-protected structured products which he financed by borrowing the money from the same bank. The verdict took years and coincided with negative attention from media, consumer organisations and partly from the Norwegian financial regulator.
The Norwegian market is still recovering, but are we finally seeing signs that it is picking up?
We are now seeing the effects of many years of work developing good processes and tools supporting advisory. Even though volumes for many years have been low, Nordea has continued to issue products in Norway. Many of these products are maturing with good returns. Satisfied customers and distributors mean that we will continue to see increasing volumes.
What is the value of structured products and how can they compete with other investment products?
Structured investment products offer many advantages over traditional investments. You have the possibility of combining assets and a variety of risk and return profiles. Investment solutions are customised specifically to meet individual needs, whether it’s capital protection, yield, diversification or exchange-traded solutions. With structured products, we can provide investments based on current market conditions and the analysis of markets.
What kind of products are most popular?
There is an appetite for riskier investments again. Besides our own products, we see that other players in Norway (mainly independent/non-bank-owned brokers) are selling warrants with decent volumes. We also see an increasing focus on interest-bearing investments. Due to low interest rates, investors are interested in earning more than is on offer from traditional savings accounts. Autocallables and warrants linked to European equities and indices are the most popular.
What size do you estimate the local market to be?
I don’t know, because most other players are not marketing publicly. I guess your numbers are the best estimate.
Apart from Nordea the Norwegian market is very opaque, as you note. Meanwhile, other markets have become more transparent as a consequence of regulation (sometimes self-regulation, as in Denmark). Do you see transparency and public disclosure as a way to deal with the Norwegian regulation?
Product simplification, transparency and public disclosure are the key to success in the Norwegian SP market. The training and education of our advisers and customers is important to further strengthen confidence in products and the providers. Advisers are now certified and more confident when selling structured products.
Regulatory requirements, together with customers’ changing demand and technology advancements, are also leading to changes in distribution. Transparency and reporting obligations are pushing for increased digitalisation. We have to increase our presence on platforms, net banks and mobile channels.
Product simplification and standardisation allow for wider distribution. We’re looking into multi-dealer platforms, exchange listing and third-party distribution. As the leading Nordic provider we are well positioned to further widen our sales.
Do you have any advice to international investment bankers reconsidering the Norwegian market?
Not really. The problem is that we don’t really have any large independent distributors (like Acta, Orkla, Pareto used to be), so I guess you need “your own” distribution. The regulation part shouldn’t be any big worry – just some extra information to include in the sales brochures. And they can expect that there will be a stricter review of which products are suitable for customers, as well as ensuring that customers really understand what they are buying.
What are Nordea’s expectations for the coming year?
We expect to see more players, especially more Nordic banks re-entering the market. More providers would increase the overall knowledge about products. In terms of percentage, we expect around 50% growth from 2014 (in structured products and real estate).
Why have you stuck with structured products when so many others moved away from them?
Passion. Because I know that structured products should be a natural part of many customers’ savings. And because I have worked with so many competent, inspiring and talented people and providers over many years at Handelsbanken, Garantum and now at Nordea. And, of course, because I love the advantages over traditional investments – we can always provide investments based on current market conditions, combining assets and with a variety of risk and return profiles.
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