The heightened level of regional consolidation, especially among Danish and Norwegian savings banks, has produced more than 50 mergers and acquisitions (M&As) in the first half of 2024. This trend is expected to accelerate in the second half of the year. Moreover, digital banks’ growing presence and competitive impact forcing high-street banks to overhaul their business models and practices to create partner groups to drive domestic and Nordic growth.   

Insurance group Sampo’s $4.73 billion takeover offer for the Copenhagen-headquartered Topdanmark reflects heightened interest by banks in growing through M&A deals that have a regional focus. The offer obtained foreign direct investment regulatory clearance in July. Sampo is on track to complete the transaction in September.

“Topdanmark is a perfect fit for Sampo. Our strategies have further aligned as pure property and casualty insurers in recent years,” said Sampo Group CEO Torbjörn Magnusson at the time of the announcement.

Meanwhile, Danske Bank is exploring ways to recalibrate its business model to create mortgage loan product partnerships with rival Danish banks. Carsten Egeriis, Danske Bank’s CEO, says the bank needs to change how it does business to retain private and corporate customers in the face of “disrupters expanding their range of offerings” in the Nordic retail lending space. 

Swedbank formed a strategic product-distribution partnership with the Helsinki-based asset manager and life insurance provider Aktia Bank in another significant Nordic cross-border collaboration. The deal expands the Swedish bank’s corporate offerings in Finland while enabling Aktia to ally with Swedbank to provide compatible customer-tailored finance offerings.

In other noteworthy Nordic cross-border events, the Norwegian marine insurer Gard Forsikring expanded its market reach by acquiring the global Marine and Energy unit of Denmark-based Codan (part of Alm. Brand Group) in a deal worth $234 million.         

Recognized as something of a corporate nomad gifted in the prized art of growing globally focused Nordic companies, Luiga has built his reputation and career on his skills at growing companies through well-crafted cross-border acquisitions. Luiga is slated to join Spotify in October.

When news broke early last month that Luiga would leave Nordic defense and security technologies giant Saab AB to join the Stockholm-headquartered audio streaming group, chatter within industry circles in Sweden centered on the number of times he has moved between different industry sectors and his multiple directorships across defense, mobile communications, and even retail and wholesale (Axfood AB). 

Luiga’s time as president and CEO of Telia AB, Scandinavia’s largest mobile communications group, may be the strongest indicator of his new direction at Spotify. At Telia, Luiga cut his teeth on deals including the purchase and integration of cloud and hosting services firm Ipeer AB, the Norwegian cable television operator and internet service provider Get AS, and the $1.1 billion takeover of commercial television operator TV4 Media (Bonnier Broadcasting) from Bonnier Group in 2018. At Saab, the impactful sequel to his unexpected departure will be the challenge of replacing him. CEO Micael Johansson publicly acknowledged that Luiga’s exit represents a setback for the company’s drive to achieve targeted growth and seize the opportunities in contracts and global partnerships arising from Sweden’s accession to the North Atlantic Treaty Organization. Saab’s share price has soared 300% since the Russia’s invasion of Ukraine in February 2022.

Estonia, for decades the most economically dynamic of the three former Soviet Baltic republics, is rapidly evolving into one of the strongest digital and innovative minnow economies within the EU. Estonia has, since its independence from the Soviet Union in August 1991, replaced a creaking agricultural economy with a vibrant next-generation infrastructure powered by flat-tax policies to attract foreign investment and grow indigenous wealth.

Against the backdrop of its ever-digitalizing economy and of regional investment funds accessible due to its EU membership, Estonia continues to strengthen its reputation as a hotbed for innovation in emerging industrial and financial technologies such as cybersecurity, 6G telecommunications, artificial intelligence (AI), blockchain and cryptocurrencies.

Prime Minister Kaja Kallas’ liberal-center coalition government, which took office in April 2023, has started reforming fiscal policies to bolster Estonia’s image as a modern, open, cost-efficient, and tax-friendly European economy that offers talented technologists across the spectrum.

The Kallas administration’s plans to reform taxes and incentives to develop Estonia’s long-term potential as a leading hub for next-generation technologies and innovation have been complicated by Russia’s invasion of Ukraine in February 2022.

The government issued €1 billion worth of 10-year bonds in January 2024, a large part of which will be used to cover this year’s budget deficit.

“We expect the national budget will carry a deficit in 2024. Proceeds from the bond will cover around half of our borrowing needs this year. It is satisfying that there is strong international interest in the issue,” says Sven Kirsipuu, the Ministry of Finance’s deputy secretary general.

Estonia had previously issued €3 billion in long-term bonds between 2020 and 2023. The last issue was in June 2023, carrying an interest rate of 3.62%.

The Estonian bond issue program enables the government to free up funds to finance important tax reform, infrastructure, AI and digitalization, and market-efficiency programs. Pivotal projects requiring large-scale funding include the Rail Baltica and Nordic-Baltic Hydrogen Corridor.

Business leaders fear the restrictive labor policies will significantly curtail technology companies’ recruitment of foreign talent. IT-sector bosses worry that the proposed limits threaten to curb economic growth and damage Finland’s global reputation as an open and progressive Nordic nation within the EU.

When Orpo formed his government in June 2023, it included the anti-EU and immigration ultraright-wing Finns Party. The results have been a seismic shift to tighten labor policies and immigration laws while raising a general negative attitude toward employing foreign workers.

The government plans to add proficiency tests in the Finnish language to work-visa qualification requirements. Rather than “import” talent, the government is also exploring domestic solutions favoring increased state investment to deliver domestic IT talent. 

“It’s unfortunate that issues around the government’s immigration policies are harming Finland’s global image, which has traditionally been positive to hiring foreign talent to grow the international potential of our companies and the economy itself. The damaging publicity from these controversies is both negative and difficult to repair,” says Jaakko Hirvola, the chief executive of the Federation of Finnish Technology Industries (FFTI).

The Orpo government claims that its new immigration policies will be mainly directed at limiting access by unskilled workers to Finland’s labor market. However, the FFTI and other business organizations say the planned curbs will universally impact the ability of companies to recruit skilled and unskilled workers. 

“The need for skilled foreign labor is high in Finland. More than 40% of companies find recruiting the skills they need challenging,” says Hirvola. “We must develop this country’s image in a way that doesn’t impede the inflow of foreign labor.” Riikka Pakarinen, the head of the technology-focused Finnish Startup Community (FSC), fears that the government’s “xenophobia tinted” labor policies could undo decades of hard work by previous Finnish governments. “They are silently endorsing racism within new immigration policies and openly exhibiting hostility toward foreigners,” says Pakarinen. “This is an absolutely inexplicable and untenable situation that is simply embarrassing and leaves me at a loss for words.”

Scandinavia is fast becoming a desirable hub for data center operators. Tech giants Microsoft, Google, Meta, DigiPlex and Green Mountain are expanding their regional data center operations to benefit from generous tax breaks, ample supplies of relatively cheap renewable energy and a well-developed system of interconnectors to key Mainland European markets.

In June, Microsoft completed a $13 million land purchase in Vihti, Finland, to build a new data center connecting to the company’s Finnish data centers in Espoo and Kirkkonummi.

Research by Sweden’s Department of Energy, Business and Industry (EBI) underlines the unrelenting growth in data center space. The EBI estimates that the Nordic data center construction market could increase from just over $1.6 billion in 2022 to $2.6 billion in 2028.

The surge in interest among global tech players is buoyed by the launch of national artificial intelligence (AI) strategies across the Nordic region, said Ebba Busch, Sweden’s EBI Minister. “Sweden is developing a cost-attractive environment to bolster growth in the construction and operation of data centers, and there is mounting competition for new projects among the neighboring Nordic states.”

The government initiatives are focused on implementing AI in specific sectors that generate significant data sets and drive the need for new data center construction. Google, Microsoft, and Meta want to strengthen their presence in the hyperscale data center domain through private and public partnerships with Sweden, Norway, Finland and Denmark that would help Nordic countries become carbon neutral.

Norway uses tax breaks to lure international capital to build new data centers. Recent sharp growth in capital investments within this space can be traced to the Norwegian government’s June 2020 decision to reintroduce tax relief for cryptocurrency mining that puts electrical power’s cost on par with relief allocated to conventional data centers. The restored tax breaks on electrical power supplies have lifted investments by local and foreign companies.

In practical terms, restoring the Norwegian tax break reduces the electricity charge for crypto miners from $0.016 to $0.00047 per kilowatt hour. All data centers can claim the tax relief with an annual power consumption of 0.5 Megawatts and above.

Lithuania is rapidly gaining a reputation among foreign investors as the most-friendly of the three Baltic states. The country’s reputation, built on digitalization, is also bolstering its appeal to tech startups from around the world.

Having made significant strides in digital, Lithuania is leveraging its flexibility to shape a future as a Baltic hub for tech startups and digital solutions. Test spaces for developers are among the benefits it offers.

Education and language skills—around 85% of young professionals in Lithuania are proficient in English, according to Invest Lithuania—government-funded initiatives, and Lithuania’s fintech sector has grown from a niche player in 2014 to employ over 40,000 workers, and its cybersecurity space now comprises over 110 companies employing 3,500 workers.

Growth in fintech and cybersecurity is bolstered by the sharpened focus of its universities and technology colleges on science, technology, engineering and mathematics (STEM). The country was ranked second of 63 countries in digital technological skills availability in 2022, according to the Institute for International Management Development’s IMD World Competitiveness Yearbook.

Focus on Talent

Lithuania’s focus on investor appeal is more comprehensive, however. In the early 90s, it developed a strategic network including seven free economic zones, or FEZs, which today are recognized as pivotal to its success in attracting FDI. Inward investment to Lithuania grew markedly after the country joined the EU in 2004 and the Organization for Economic Co-operation and Development in 2018.

Foreign and indigenous enterprises locating to one of the seven FEZs benefit from tax incentives including no tax on corporate profits during the initial 10 years of business, rising to 7.5% over the following six.

Lithuania also stands out within the EU for providing an e-government one-stopshop for public information and services. Enterprises benefit from a fast online system for registration and payment of taxes; tax returns are filed electronically using i.MAS, an IT-based tax administration system. Its deep pool of digital skills talent, too, is a major factor in attracting institutions like Danske Bank to capital city Vilnius.

“We have been outperforming our initial goals every year” since establishing a subsidiary in 2012, says Aistė Gataveckienė, head of functions and data services at Danske Bank in Lithuania.

“Our journey has been more than a successful. That’s down to the amazing team of overachievers we have found here.”

MobilePay, the mobile payments app used across the Nordic and Baltic regions, emerged from Danske Bank’s product development team in Lithuania.

The government aims to maintain its skills advantage. In January, to help attract highly qualified specialists in the priority skill areas of IT, it offered one-off relocation grants of $3,200 to move to Lithuania. The program includes financial incentives for employers that hire highly skilled employees, foreign and native, from abroad, in the form of tax breaks up to a maximum $5,400 for every worker hired.

Lithuania currently has income tax treaties with 47 countries in the EU, Eastern Europe, North America and Asia. The MII is expected to introduce a tax reform package by the end of this year, tailored specifically to attract skilled foreign IT and engineering talent. Under the proposal, an 8% income tax rate would be applied to the salaries of foreign talent relocating to Lithuania and a tax exemption for foreign startups would be extended from one year to two.

Inward investment accounted for almost 3.1% of Lithuania’s GDP last year, and Invest Lithuania, the state business development agency, has supported the entry of

428 international companies since 2010.

These “client companies,” which include Citco, Oracle, Wix, Cognizant, Intrum, SEB, Telia, Swedbank, Revolut and ThermoFisher Scientific, now employ over 25,000 personnel in Lithuania. Newer arrivals include German-owned abat Group, a systems analysisprogram development and services supplier to Mercedes, Volkswagen, BMW and DHL, with operations in Europe and North America. The firm found the AI integration and cloud computing talent it needed to help grow its global business inVilnius, says Thomas Bätge, CEO of abat Lithuania.

“We looked for qualified SAP experts fluent in foreign languages and for talents we could train up for consultancy positions and to work with both our local and global operations,” he notes. “As a location,

Vilnius has a vibrant high-tech sector and an attractive and stable environment. It has government support for new businesses, a high degree of digitalization and an urban infrastructure that’s attractive to employees and employers alike.”

UK fintech Hokodo has established a new business-to-business payments operations hub in Lithuania to complement its existing international payment solutions operations in London and Paris. The Lithuanian hub will initially serve Hokodo’s clients in the Central European, Nordic and Baltic markets. Hokodo purchased the Vilnius-based payments startup H Pay & Go in June as a strategic bolt-on to support its core business. Significantly, the acquisition included an electronic money institution (EMI) licence from the Bank of Lithuania.

“We needed an EU country with a regulator that is respected and recognized internationally and one that has the experience in dealing with fintechs as well as new financial business models,” says Richard Thornton, Hokodo’s co-founder and joint CEO. “We wanted access to a talented and educated workforce; a pool of people with payments experience across a range of disciplines such as antimoney laundering compliance, credit risk and payment operations. And we looked for a market strong in European languages skills. Lithuania ticked all these boxes.”

Aside from tax concessions, tech startups benefit from two government-funded initiatives—the Business Start-up Visa program and the Lithuanian Business Angels Network—aimed at reducing overhead and entry costs and easing access to markets in Europe, North America and Asia.

Another program, the government-funded GovTech sandbox, was launched in 2021 to drive public-sector innovation in the fintech and digital domains. The initiative is run by GovTech Lab Lithuania. Under GovTech, public authorities can apply for funding to procure pilot solutions—digital and new technologies—customized for public-sector use.

“It’s an initiative with global ambitions,” says Birutė Bukauskaitė, CEO of MITA. “We want Lithuania to become the launch pad for successful GovTech companies with ground-breaking and globally attractive solutions.”

The Bank of Lithuania launched its first regulatory test sandbox in 2018. A year later, the central bank launched LBChain, Lithuania’s first blockchain-based regulatory sandbox for international startups as well as financial and fintech companies. LBChain combines regulatory and technological infrastructures.

An ‘Unfair Tax’ on Banks?

If tech investors and entrepreneurs enjoy an open door in Lithuania, foreign banks may think twice, with the advent in May of a Temporary Solidarity Contribution (TSC) levied on bank profits.

Payable by all banks and credit institutions, the tax is charged against 60% of bbanks’ net interest income that exceeds the four-year average by more than 50%. The TSC is projected to raise $450 million annually to shore up government spending in 2023 and 2024.

Central bank chair Gediminas Šimkus says the levy will not become a “longterm tax,” but will target a variable share of banks’ profits. The International Monetary Fund observed that the TSC could be perceived as “a tax on foreign investments.”

“This is an unfair tax on banks,” says Eivilė Čipkutė, president of the LBA. The central bank counters that these fears are overblown. “The banking sector maintains very high profitability,” Šimkus says. “Banks are earning large profits, and this trend should continue in to the future. The levy will be applied in a precise way, and we do not consider it extreme.”

Time, of course, will tell. But Šimkus’s comments suggest the government is confident that Lithuania has succeeded in nurturing a cohort of digital operators and innovators who won’t be put out by a one-time revenue raiser that doesn’t affect them directly.

The Danish Competition Authority’s (DCA) investigative dive into Norwegian discount grocer Rema 1000’s acquisition of Aldi’s network of stores in Denmark reflects a growing concern among Nordic authorities over lack of healthy competition in a concentrated retail sector.

The acquisition, announced in December, includes a portfolio of 114 Aldi store locations and three distribution centers in Denmark. If approved, it would make Rema 1000 Denmark’s largest food retailer.

Terms of the deal were not disclosed.

The DCA found aspects of the agreement troublesome, including insufficient evidence that it would enhance competition in the Danish grocery marketplace. The regulator is now taking a more forensic view of the deal and the impact it may have on supply chains, food prices, and overall market competition. The three-month process will also assess the implications for consumer protection in a post-deal landscape.

The Aldi acquisition could push Rema 1000’s share of Denmark’s grocery retail segment close to 40%. The deal had its genesis a year ago, when the German retailer called Ole Robert Reitan, CEO of Reitan Group AS that owns Rema 1000, to tell him it wanted to wind down operations in Denmark. Reitan called Rema 1000’s Danish presence a “fantastic story of growth” and touted the Aldi acquisition as “an important step” in strengthening its position.

The scale of Reitan’s current retail business across the Nordic and Baltic markets has made the DCA more mindful of competition issues, however. Reitan Retail generated revenues of $11.65 billion from 3,850 stores across Scandinavia and the Baltic region in 2022. With 42,000 employees, Reitan Retail’s portfolio includes 7-Eleven, Narvesen, Pressbyån, R-kioski, Uno-X, and YX in addition to REMA 1000 in Norway and Denmark.

Reitan Retail historically used geo-strategic acquisitions to drive growth. In 2000, Rema 1000 merged with Narvesen to create the Nordic region’s largest convenience store chain. In 2012, Reitan Retail paid $140 million for Sanoma Oy’s portfolio of 1,000 convenience mini-stores in Finland, Estonia and Lithuania.   

Having emerged as the strongest leader in last month’s parliamentary election, Petteri Orpo, head of Finland’s conservative National Coalition Party (NCP), now faces the daunting task of crafting a coalition government. The April 2 elections ousted the center-left government of Prime Minister Sanna Marin’s Social Democrats. Orpo’s team is already talking to the Finns, an extreme right-wing grouping historically opposed to the country’s EU membership and to progressive immigration laws, but which won the second-largest number of seats.

Orpo, who has garnered a reputation in Finnish and European politics as an astute political player and bridge-builder, will need to marshal every bit of his skill set to construct a coalition with a minimum 108-seat majority. The challenge is compounded, given that all the mainstream parties and candidates who could plausibly join the NCP in a new government are either against or reluctant to be on the same team with the Finns.

The most likely direction for Orpo to take would be to forge a center-right government in partnership with the Finns, the Swedish People’s Party (nine seats) and the Christian Democrats (five seats). The SPP and the Finns are not seen as a good political fit, given their broad differences on immigration, climate action, public finances, national debt management, and protecting the cultural rights of Finland’s minority Swedish-speaking community.  

“We are poles apart from the Finns on immigration, and diverge significantly on key issues like climate action and the status of the Swedish language in Finland,” says Anna-Maja Henriksson, chair of the SPP. “For us to enter government, the Finns must accept this country needs immigrants. The age pyramid in Finland is such that this economy cannot function long-term without immigration.”

The Finns, for their part, are thought to be open to substantial compromises, trading much of their right-wing ideology for a seat at the cabinet table. Party leader Riikka Purra says the Finns recognizes the economy’s need for foreign workers, but is pushing for a skills-based immigration solution.

“We can work well with the National Coalition,” says Purra. “We [and the NCP] are two right-wing parties and share common positions and ambitions. Our views on immigration are the specific area that separates the Finns from all other parties. We are prepared to listen with an open mind to the views of others in the government formation talks.”

A new wave of consolidation is breaking over Norway’s banking market amid an uptick in mergers among the country’s savings banks. The consolidation in Norway reflects a general rise in mergers and acquisitions (M&A) activity across Scandinavia and mainland Europe.

In Europe and Scandinavia, banks are increasingly pursuing domestic and cross-border growth strategies. These are more sharply focused on achieving the scale, talent and critical mass needed to survive in competition-enhanced markets populated by the growing number of customer-hungry digital banks and fintechs entering the lending marketplace.  

Norway’s banking landscape has historically been dominated by savings banks, particularly in the country’s Northern and Western regions. The country had an estimated 100 savings banks serving a population of 4.5 million at the end of 2022. However, this number is expected to decrease to below 80 by 2025.

The current wave of consolidation includes a three-way merger deal between Skagerrak Sparebank, Andebu Sparebank and Larvikbanken in southeast Norway. A final deal will take shape by May and create a new savings bank with $3.3 billion in capital, taking effect in 2024.

“Achieving scale and size are major factors driving this merger. For ambitious savings banks in Norway, remaining small isn’t a wise long-term formula in a competitive market with stricter capital regulations,” says Børre Grovan, chief executive of Andebu Sparebank. “The three banks in this merger represent a good fit. We aim to become a powerful regional bank.”

Since January alone, bank consolidation in Norway also resulted in the completion of regional mergers between Blaker Sparebank and Romerrike Sparebank, Sparebank 1 SMN and Sparebank 1 Søre Sunnmøre. Sbanken ASA, meanwhile, was aquired by DNB Bank ASA at the end of 2022.

Across the North Sea, bank consolidation delivered a high-profile merger deal between Middelfart Sparekasse and Fanø Sparekasse. The two Danish savings banks are expected to complete the process in October 2023.        

Norway’s finance minister, Trygve Slagsvold Vedum, faces an open rebellion by savings banks incensed over a government proposal to impose higher capital requirements on banks in 2023. The backdrop for the change is Norway’s desire to bring bank capitalization rules into line with EU norms. 

The proposal would lift capital requirements on small to midsize banks by 1.5 percentage points, to 21%. Bank chiefs accuse Vedum of pursuing capital changes that will advantage big banks while forcing savings banks to increase loan interest rates further. 

A consortium of 81 small to midsize savings banks assembled in mid-December to force the government to reverse course. However, time is running out for smaller-size lenders. In a bid to pacify the rebels, Vedum has told banks that a final decision on raising capital requirements will not happen before a consultation process and a vote on the issue in the Storting, Norway’s legislature.

The dissenting bankers estimate that the plan, should it proceed, could reduce the mortgage loan lending capacity for Norway’s small and medium-sized banks by up to $17.3 billion.

“Small banks already have higher capital requirements compared to the major lenders. It costs small banks in Norway 70% more than big banks to lend 3 million kroner ($304,000) for a home loan. If the change goes ahead, the difference will be 86%. Small banks now find themselves in limbo. We do not know what the future holds,” says Arild Bjørn Hansen, chief executive at Sparebank 1 Østfold Akershus.

The capital requirement proposal blindsided savings banks. As shadow finance minister, Vedum opposed burdening small banks with higher capital requirements.

“We initially thought this was a fight we could easily win. We had assumed that since Vedum opposed higher capital requirements on small banks when in opposition, he would retain this opinion in government. Vedum even advocated for greater support for local banks because of their importance in lending to rural communities,” says Bente Haraldson Syre, chief executive at Haugesund Sparebank.