The Danish market has been described as a small village with few market players and providers in which individuals can have a palpable impact. Last year several key people changed firms ,including several Nordea personnel moving to Danske Bank, while Nordea hired from Garanti Invest, which in turn hired from the Danish FSA. In the midst of all the reshuffling, Nordea has seen its market share shrink.

SRP spoke to Nordea Bank Denmark’s new co-heads Peter Kijne and Martin Gros Pedersen about the bank’s new strategy and how structured products can benefit from traditional investment products falling out of grace. Kijne joined Nordea Markets in 2007 and was made head of investment products, Denmark, in January this year. Gros Pedersen re-joined the team this September as co-head alongside Kijne.

Nordea’s sale has seen a YOY decline in its sales volumes from DKK3688m (€495m) in 2013 to DKK2623m (€351m) in 2014. Was this a direct result of the turbulence in the Danish structured products ‘transfer market’? Has Nordea completed the transition phase?
The restructuring of the team during the past year and a half has definitely had an impact. The decline in market share is however not directly related to this. The fall in market share is rather of a technical nature. Firstly, the dispersion of maturing products during the year. In 2013 we saw large maturing volumes at the beginning of the year. In 2014 similar expiring volumes are yet to come. Secondly, with Danske Bank entering the market the relative size of the market has increased as they have in practice exclusive access to their big portfolio of private banking clients, and a perfectly natural consequence is that Nordea’s market share has dropped.

During the past year we have been reshaping the team. The dynamics of the market environment imply that this will be a continuous journey of adaptation. We are however already starting to reap the fruits – most evident from our “Bevis” concept for non-capital-protected notes.

What is new in Nordea’s strategy in the structured products market?
The biggest change for us is a concept where we make a clear split between our capital-protected and non-capital-protected offering, called Aktie, and Kreditbeviser. We expect the concept to draw some volume from the traditional capital-protected offers, but the main volumes are expected to come from traditional cash equity or corporate credit products.

What is the value of structured products and how do you see the current market?
We now see that there is an appetite for riskier investments again. Investors have been paralysed by the financial crisis and in the current low interest environment people are showing interest in earning a return from alternative investments. It will be very exciting to see how the market evolves.

Structured products are a major priority at Nordea in the Nordics and especially targeted at retail and private banking clients. What you see in the capital market operations around the world is that competition is fierce and margins are being squeezed, so banks do not make as much money on the traditional big institutional investors who have their own in-house competences and therefore can easily shop around between investment banks. Our products are perfectly suited for retail and private banking clients who have a greater need for advice and can’t otherwise easily invest in for example commodities or alternative investments in general. Clients appreciate the know-how and accessibility that we provide and don’t mind paying the higher cost associated with accessing otherwise inaccessible markets.

Where is the growth expected to come from?
Competition in Denmark lies within each bank. The majority of clients have their assets in one bank and rarely switch from one bank to another. It is therefore important for clients that there is a healthy competition between the different product providers within the bank. Every month at Nordea we have an internal meeting with the distribution channels, retail or private banking, and they independently decide which products they want to distribute through their network. Private clients typically take their money from cash resources or shares and bonds when they invest in structured products in order to diversify their investments. However, clients' cash holdings are quite large currently, so there is room for growth before we will see any cannibalisation on other investment products.

What are the main challenges in the Danish market at the moment?
The market desperately needs some regulatory clarification. It is very simple, Finanstilsynet (the Danish FSA) needs to answer the industry’s questions so that we can move on. At the moment the FSA is re-evaluating the risk labelling "traffic light system" which the whole financial industry has criticised. And we are still waiting for them to clarify whether or not bull and bear exchange-traded notes (ETNs) are eligible for investment in privately managed pension schemes. At the moment only Nordea has exclusively been granted approval to use these pension schemes. For capital-protected products, the share of aggregate volumes that go into pension schemes is probably around 30%-50%, whereas for flow products it is considerably less.

In the past the Danish market has been known as being ‘self-regulated’ when for instance the Danish Bankers Association (Finansraadet) produced voluntary guidelines on good practice in relation to selling and distributing structured products and as such has been quite pro-active in engaging with policymakers. Is there any news on the possibility of making establishing a structured products association?
Yes, the major players regularly meet to discuss matters of common interest. The possibility of creating a structured products association, probably as a sub-division under Finansraadet, is one route we are considering, since a unified voice through an association will be preferable as we can address the policymakers in a more powerful way.