Once or twice a year, Pär Boman dons a golden badge emblazoned with “under education” and spends the day serving customers at a branch of Handelsbanken. The chief executive of one of Sweden’s largest banks, and one of the most studied lenders in the world, does it to gain insight into exactly what his customers want. For example, while most Swedish banks have stopped handling cash in most of their branches, Handelsbanken allows people to pay in and take out cash at all its branches despite the cost.
It is an approach that leads some competitors to dub Handelsbanken “the Taliban” for its fundamentalist approach to banking, but the 51-year-old industrialist-turned-banker seems to revel in the tag. “Of course, it could have been a little bit easier for the others if we also were taking away the cash, but we didn’t . . . There you have the very, very clear difference: the customers, they want it,” he says in an interview in the bank’s headquarters overlooking the Royal Palace in Stockholm.
Mr Boman delights in subtly riling his rivals with his seemingly simplistic approach: putting customers first; setting up branches that offer only loans and mortgages to local businesses and people; paying no bonuses; and not using an annual budget in any part of the bank. The “Taliban” taunt came when Handelsbanken, alone among the big Swedish banks, refused state help during the financial crisis – much to the chagrin of rivals.
Handelsbanken’s “back to the future” model – as Andy Haldane, head of financial stability at the Bank of England, calls it – has attracted the attention of overseas regulators and investors because the bank has some of the best returns, but highest capital ratios, of any lender. “Their business model is fascinating, Quaker even, in its orientation,” Mr Haldane said in a speech last year.
Mr Boman embodies the Handelsbanken view of the world, peppering his conversation with comments that few if any other bankers would utter. He talks of having studied “5,000 years” of how credit risk is calculated to dismiss the way many banks offered loans in recent years. His view of Handelsbanken’s role in society is that it is only a “subcontractor, a supplier to the real economy” and that banks should not accept any state help since this diverts funds from the truly needy.
That perhaps betrays his background in industry: after studying engineering at university, he worked as a mechanic before getting management jobs at Saab Scania and Adamsons Transport, and then joining Handelsbanken at the age of 30.
One London-based banking analyst says: “I’m a big fan. One of the few things that charms an analyst like me is the Buffett-esque wisdom of Mr Boman.”
That wisdom is a mixture of the traditional and the modern. Mr Boman, over a self-service fish lunch in the bank’s wood-panelled dining room, has a keen sense of his company’s history. “The challenge [of banking] is that the business cycle is quite long. The bank was established in 1871 . . . and the first financial crisis we went into was 1876. It was a railway bond. And if you go through our history, and we have very good documentation of that in the basement, we have all the minutes from all the board meetings for more than 140 years,” he says, giving the impression he has read most of them.
The main lesson for him from all those papers is that every 15-20 years there is a financial crisis. So Mr Boman believes one of his important tasks is to remind the bank’s new, young managers: “Have it in mind that things must be robust, so robust that you also could continue to run the business not only in good times – because running a bank in good times is quite easy – but in bad times. Then you have to use buffers and be prepared.”
Senior managers comb the whole loan portfolio four times a year and look at all documentation annually for loans greater than SKr1m ($153,000). Any credit loss of more than SKr5m is analysed by senior management.
Huge responsibility is devolved to branch managers: they have no set budget and have to work through any bad loans themselves. Cost control is achieved largely through peer pressure; managers seem to be driven by a sense of pride in balancing their books.
Loan decisions are made by the branch, rather than by an algorithm, and are based purely on whether the business has the necessary cash flows to service it. Mr Boman is dismissive of the modern practice of thinking that any loan – no matter how risky – can be made as long as the price is high enough. “It takes such a long time before you get the answer – was it the right price or not? And, at that time, if you see that it was the wrong price, then you have already distributed the margin back to your shareholders in those good years.”
Handelsbanken’s approach is not always popular with investors, but it captures the current zeitgeist.
Mr Boman recalls a story around triple A assets, supposedly the safest of all, that underlines his desire not to get carried away and to remain consistent. Some US investment bankers came to sell Handelsbanken some mortgage-backed securities before the financial crisis that would offer 8-9 per cent in yield for, as Mr Boman terms it, “more or less no work at all”. Handelsbanken executives, led by him, visited the bankers in New York and asked to see the underlying documentation of the mortgages. That was not possible. So Mr Boman went to the west coast and visited some of the houses used in the bonds. “Then it was very clearly nothing for us,” he says simply.
All this demands a certain stubbornness. “Depending on the fact that the business cycle is so long, and memory is not always so long, we know that we have to prepare ourselves for bad times and when you start doing that you do not always have this huge support from the stock market,” he adds.
Despite this seemingly old-fashioned approach, Handelsbanken has some modern aspects. It is expanding in the UK, for example, at a pace more suited to a clothes retailer, opening a branch every second week. In fact, Mr Boman says he is looking beyond banking for inspiration in many areas. Its expansion model is modelled in part on how retailers such as Ikea and Hennes & Mauritz – often compared to Handelsbanken for their long-term focus – have grown so fast.
The bank’s latest venture to set up its own video channel on its website, which has quickly become Sweden’s leading online video news service. Mr Boman says no Swedish bank website had videos, but when “we asked our customers what they thought was the way they wanted to have information they said video clips”.
This focus on customer experience is what Mr Boman insists sets his bank apart from its peers. “We really, really try to develop our business model and so on. But at the end of the day, all this work boils down to when the customer meets the bank: on the phone, on the web, on the smartphone, on the app or in the branch.
“And you must all the time be there in those places trying to understand ‘is it good enough or not?’. And some will maybe say that is some kind of micromanagement.”
But his answer to such critics is that banking success is about the details of the interaction with customers. “That’s what it’s all about.”