Suitors appeared immediately
CEO of Luminor Group Erkki Raasuke says that prospective buyers approached Luminor immediately after the bank’s creation almost a year ago. Half of energy and attention was paid to topics like know your client, money laundering and sanctions.
- What does it mean for Luminor that the world’s largest private capital fund will be acquiring its controlling holding?
Let’s take half a step back first. First contact and meetings took pale immediately after our merger, in October of last year – almost one year ago.
For a time, things did not move forward because we really had our plate full – still do – and the owners felt the time was not right. We had a lot of activities planned – there was a lot to organize and smooth over after the formal merger. We asked ourselves whether we should jump into the next one so soon. The owners were somewhat hesitant and evasive.
Talks gained new momentum in February-March and we went from there to a transaction in six months. I’m telling you this because we are very enthusiastic and have a lot do accomplish in only a short time. They will not be building our digital platform for us, while they are professionals in terms of effecting major organization changes, converging technological platforms, extracting synergies and generally making things run smooth. They have a black belt in all that.
I believe I speak for the team when I say we will be getting a professional, smart but also very exacting owner.
They are not bringing their own strategy because they like the environment, the starting point with all of its weaknesses. They also like our thinking – what has already been created, what we want to do and in what order.
- Does this mean negotiations happened through you and not over your head with just the current owners?
Yes, it moved through the team. Looking at these kinds of transactions, you don’t buy a bank like you order logs or planks. First you look at your possibilities. I believe the team plays quite an important role in such deals.
- A billion euros is considerable even for Blackstone.
- To what extent did money laundering scandals in Estonia and Latvia affect talks?
I would not have guessed their effect to be that great. Having seen investments into banks before, I know that roughly 80 percent of attention is usually paid to the bank’s loan portfolio and its quality. Also, the technical platform, operational risks and liquidity management.
Here, we spent roughly 50 percent of our energy and attention on the know your client principle, money laundering and sanctions. It is incredible how much the world has changed.
Blackstone is a U.S. company that has gone global by today. Had we exhibited weaknesses in some fields, we would not be talking about the acquisition today. The scrutiny was very real.
- How will the bank’s supervisory board be shaped? How many seats will former owners get to keep, and will there be independent members?
Yes. We have the wishes and needs of active shareholders on one side and good practice and regulation on the other.
While the supervisory board has been discussed, the situation is not yet solid enough to be revealed in the press. I can say that the supervisory board will have more than the current five members. We’ll have seven, eight or nine members. We also know that the supervisory board will be international.
I believe our team provides enough local outlook. What we need more of is the big picture. If today, both parent banks have two members, they will probably each have one in the future.
- What will become of your strategy? Private capital funds are known for their draconian efficiency. Are you in for major changes or are they happy with you?
As concerns turning over rocks, there are three fields we’ve discussed.
First, there’s unification of technological platforms. They have partners, teams and people who have done it not once or twice but easily more than ten times.
The second field is synergies. That is what we’re calling it, but synergy stands for everything we do not need and have to abandon. We cannot say some of our 3,000 people are idle; however, our biggest shortcoming is low level of automation and archaic processes.
I’ve said in the past that if you have ten people digging a 100-meter ditch with every worker in charge of a 10-meter section, you cannot call firing two people and ending up with a shorter ditch efficiency. That will not help us. We need to get to a place where we would need fewer people. That requires investment.
The third area, which is largely our own initiative we hope they’ll support, is going over our loan activity.
A lot of our loans have been granted on less than sensible conditions. What I mean is that they tie down a lot of capital in exchange for very little return.
- What does that mean?
It means that once a loan is repaid in a segment, we will not be issuing a new one but will reduce our footprint there instead. Luminor has issued €5 billion worth of home loans in the Baltic region, with our parents often offering the best prices. At the same time, we only have €2.5 billion worth of deposits.
Home loans are naturally one of the bank’s key products and we will continue on that market. However, while our two parents’ earlier ambition was 20-25 percent of the market, we are aiming considerably lower today.
- You’ve said that your Latvian and Lithuanian units will become branches of Luminor Estonia on January 1. Will it happen?
Yes. It was one of the conditions for the acquisition.
- Does this mean they wanted it?
No, everyone wanted it. It was one of the wishes of the future investor to have the consolidation done before their investment takes effect.
- I understand your plans for a listing are picking up momentum.
Absolutely. We cannot say it is somehow more constrained. However, we know that we have an investor with a limited temporal horizon now.
You must be able to tick several boxes at once with these kinds of investments: operational environment, competition environment, regulative environment, starting point in terms of the material you have, the people you have, the team and its strategy. It suits us just fine that they are investing in realizing our strategy. We see that we are on the right path as someone else shares our confidence in our strategy.