Norway sounds like it might be a little piece of heaven these days for merger-hungry Canadian bank chairmen frustrated by Ottawa's continued hostility to the idea of unions in the sector.
They're still waiting for what they hope will at last turn out to be a green light from the federal government for them to apply for corporate marriage licences -- a report from the House of Commons finance committee on key public interest sections of bank merger guidelines, and a response to its recommendations by Finance Minister John Manley. Even then, there's no guarantee any will be willing to take the plunge before Prime Minister Jean Chrétien steps down.
Meanwhile, even in tiny Norway -- population 4.5 million -- bank mergers are proceeding apace with Oslo's apparent blessing.
Far from opposing a planned union (revealed March 13) between the country's two biggest banks -- No. 1-ranked DnB Holding ASA and No. 2-ranked Gjensidigie NOR -- the Norwegian government actively supports the deal, and is expected to back it even over not just predictable opposition from labour and consumer groups but also, potentially, objections from the country's competition watchdog.
"I think the Norwegian authorities will let this happen, even if there is a little resistance," Stein Haakonsen, a spokesman for the Norwegian Financial Services Association, said when reached in Oslo. "These days . . . the development of the market is happening freely without action from the government."
Certainly, the competition watchdog indicated it could provide some resistance. "Two instead of three dominating actors in the Norwegian market . . . is clearly not good for competition," its spokeswoman, Elin Kleven, was quoted as saying in an Associated Press report. "It may mean that we have to object to the merger, but we have to see more details."
Published reports estimate that, combined, DnB and Gjensidigie would account for nearly 34 per cent of the Norwegian lending market and 44 per cent of deposits, far more than either No. 3-ranked Nordea Bank norge, which is controlled by Sweden's Nordea AB, and much smaller No. 4-ranked Fokus Bank, which is controlled by Denmark's Den Danske Bank.
Norway's government has a direct financial interest in the deal, in which DnB is offering 17.3 billion kroner ($3.53-billion Canadian) for Gjensidigie. It owns 47 per cent of DnB, and Trade and Industry Minister Ansgar Gabrielsen told an Oslo newspaper Friday that the government plans to maintain a controlling interest of at least 34 per cent in the combined entity.
However, its attitude also appears to have been shaped by a desire to create a "national champion" in its banking sector, the same concept some senior Canadian bankers -- particularly Toronto-Dominion Bank chairman Charles Baillie -- have been preaching for years.
"The reason this is relevant to Canada," said one observer of the Norwegian banking scene, who requested anonymity, "is that it seems like they really want a large Norwegian banking institution that they can be proud of.
"This is what they've said, literally," he added, citing Norwegian newspaper reports of the planned merger between DnB, an acronym for Den norske Bank, and Gjensidige. "One business paper says politicians are lining up to throw their support behind building a concern that will one day be large and competitive and may even be able to start buying banks in other countries."
Norway's banking sector is tiny by international standards.
A study* of the impact of bank consolidation on commercial borrowers in Norway published in January by the U.S. Federal Reserve Board as one of a series of international finance discussion papers said the Scandinavian country had 34 commercial banks with about $90-billion (U.S.) in assets at the end of 2000. This compared with 8,360 banks with $6.3-trillion in assets in the United States, and 48 commercial banks with $616-billion in assets in Canada, "generally considered a 'small-bank' country," the study says.
However, Norway's banks have seen far more merger activity than Canada's. The discussion paper says there were 48 merger attempts between 1983 and 2000, 22 of which were completed.
Much of this activity was sparked by Norway deregulating the industry in the mid-1980s to allow competition from foreign and newly created domestic banks, the paper says. But bank mergers accelerated following the sharp decline in world oil prices in 1986, which ultimately produced a severe banking crisis in Norway, which was heavily dependent on oil.
By 1990, banks that accounted for 95 per cent of all bank assets in Norway were insolvent. This forced the closing of one bank, the bailout of many others and the nationalization of the three biggest, while the government also actively promoted mergers in an effort to save some of the weakest players.
Further impetus for consolidation came in 1993 in the form of new regulations from the European Union and the European Economic Area encouraging cross-border expansion of banking services. In 1999, the paper notes, Norway allowed two of its biggest banks -- Christiania and Fokus -- to be acquired by foreign financial institutions, becoming one of just "a small handful" of European countries to allow foreign ownership of major domestic banks.
Noting this development in particular, the observer said, "There was a change of heart in Norway . . . All of a sudden their thinking changed." He added that this was also the moment at which the government appeared to "set its sights on [creating] the one true Norwegian bank we can make bigger."
* "The Impact of Bank Consolidation on Commercial Borrower Welfare" by Jason Karceski, Steven Ongena, and David C. Smith