Their victory party is sick − an unsolved political riddle

News  

 

The banks' excess profits are symptoms that something is wrong  

 

Andreas Cervenka 

 

Reporter and economic commentator  

 

This is a commenting text. Analysis and positions are the writer's.  

 

Updated 20.16 | Published 19.39  

 

How healthy is it that the big banks earn fifteen times more than the food giants, or that profits have increased by over 600 percent in just over 20 years?  

 

The banks' reports tell you everything you need to know about what is wrong with the Swedish economy. 

 

It is a mystery that the politicians let it happen. 

 

A common sign that those in power have lost touch with the ground is when they start to assume that those around them are idiots.  

 

When Swedbank's CEO Jens Henriksson had to defend the bank's high profit during the third quarter, 12.9 billion kroner or six million kroner an hour, he suggested that we should all break out in a common howl of joy.  

 

"A sustainable bank is a profitable bank. When we make money, we can use that money to be there for our customers," he told Sveriges Radio.  

 

Ha, ha, be there? As in 0.3 percent interest on the salary account? Or mortgage expenses, which for many customers have increased 3-4 times in the last two years? 

 

 

Swedbank's president and CEO Jens Henriksson looked happy when he met the media after presenting the interim report. Photo: Henrik Montgomery/TT  

 

What Jens Henriksson believes that we mere mortals do not understand is that Swedbank is not only a profitable bank, but extremely profitable. 

 

The return on shareholders' capital is close to 20 percent. The only time it was this high was in 2006, the year before the global debt bubble burst.  

 

Swedbank's earnings so far this year have increased by 74 percent, a profit growth rate that many fast-growing IT companies would die for.  

 

Swedbank's earnings so far this year have increased by 74 percent, a profit growth rate that many fast-growing IT companies would die for. Photo: Henrik Montgomery/TT

 

Swedbank, Handelsbanken, SEB and Nordea (the Swedish part) made an operating profit of SEK 131 billion during the first nine months of the year. Together they account for around 80 percent of the Swedish banking market.  

 

ICA and Axfood, which account for roughly 70 percent of the food market, made a combined profit of almost NOK 8 billion. 

 

It's actually pretty sick.  

 

To understand how this situation arose, we need to backtrack a bit.  

 

In 1999, Swedbank, Handelsbanken, SEB and Nordea earned a total of just over SEK 25 billion. This year, the final sum will land at around 180 billion.  

 

This corresponds to an increase of over 600 percent. 

 

It has become significantly more expensive to live after this year's massive interest rate increases. More and more people find it difficult to cope with the costs. At the same time as the banks are making billions in profits. 

 

It has become significantly more expensive to live after this year's massive interest rate increases. More and more people find it difficult to cope with the costs. At the same time as the banks are making billions in profits. Photo: Fredrik Sandberg/TT  

 

An old rule of thumb is that banks' lending should not grow faster than the economy as a whole. That has not really been the case in Sweden.  

 

According to Statistics Norway, the debts, for households plus companies, have increased from 3,000 billion in 1999 to over 12,000 billion in 2022, i.e. four times.  

 

During the same period, GDP has only grown half as fast. 

 

There you have the explanation for the banks' profit party. This means that they have a very clear incentive to try to increase the indebtedness of the citizens as much as possible, the more loans, the higher the earnings. 

 

It is the roll of politics to slow down. The Swedish elected officials have not done that. On the contrary actually.  

 

* The interest deduction is a state-subsidized discount on the sale of loans.   

* Abandoned property tax means that customers can afford to borrow more.  

* VAT exemption for banks. 

* Failed housing policy that contributed to pushing up prices. 

* Loose regulation. A requirement for a capital investment when buying a home was only introduced in  2010 and mandatory amortization not until 2016. 

* Legislation that gives lenders a very strong position vis-à-vis borrowers.  

 

Add an extremely low interest rate policy from the state authority the Riksbank and it almost constitutes a guarantee for over-indebtedness. 

 

Quite rightly, Sweden also belongs to the world's most highly leveraged nations, as far as the private sector is concerned.  

 

Why very little has been done about this is one of the great mysteries in Swedish political history.  

Mortgage spending has skyrocketed in the past two years. Photo: Janerik Henriksson/TT  

 

The cost of this failure we are living with right now - a stalled economy, falling housing prices, rising unemployment and an impending real estate crisis reminiscent of the 90s.  

 

The profits are private, the invoice for the losses is sent to the public.  

 

So what can be done now? In many other countries, where interest rates have also skyrocketed, politicians are trying to redistribute part of the banking system's excess profits. In the Czech Republic, Spain, Italy and Latvia, extra taxes have been introduced for banks. In Latvia, they have gone so far as to consider a forced halving of mortgage interest rates, something that affects the country's dominant banks: Swedbank and SEB. 

 

In Sweden, a so-called risk tax was introduced this year, which brings in an extra 6 billion a year, or 3 percent of the year's profit. 

 

It was met with outcry from the banks.  

 

Recently, the Social Democrats launched a proposal for a temporary tax on bank profits. The banking association, where the former S official and now Swedbank CEO Jens Henriksson is the newly appointed chairman, is not impressed. 

 

"We must have a tax system that treats companies equally and that is predictable," he told Sveriges Radio.  

 

Namely, the banks' favorite mantra is that banks are like any other business, and therefore deserve no more special treatment than your neighborhood pizzeria. 

 

Unless, of course, it sucks.  

 

Then they would like to have a hand to hold.  

 

At the beginning of the pandemic, the economy was in free fall. Most of the country's entrepreneurs were sleepless.  

 

Except for the bank directors. 

 

Unlike all other limited companies, Swedish banks that needed money could turn to the state-owned Riksbank and borrow at zero percent interest. How much? Unlimited.  

 

Talk about having someone there when you need them.​