Plans for new structure

The SDA Group is working on a structural change into a private limited company. The restructuring will lower the costs, make the group more competitive and enable the group to deliver an even better product to customers

The Board of the SDA Group has proposed that the group is transformed into a private limited company. The SDA Group consists of the 19 cooperative banks in the Danish Amalgamation of Cooperative Banks (SDA) and Danske Andelskassers Bank A/S.

If the change is carried out all the cooperative banks (SDA) and Danske Andelskassers Bank will merge into one company. The company will be partly owned by the currently more than 60.000 members of the cooperative banks, who receive shares, and partly owned by local funds.

- It is important to emphasize that the proposed restructuring is a decision in principle. We still have a lot of practical issues to resolve in the months to come, and we cannot provide an accurate picture of the group a year from now. However, it is certain that a year from now we will have a more competitive financial institution and we will without a doubt still be at least as locally engaged and anchored as today, says Jakob Fastrup, chairman of the SDA Group’s board of directors, which is composed of representatives from the boards of the cooperative banks.

The SDA Group of today is in practice one bank with a responsible group management in the lead. The cooperative banks are liable for each other and thus have a common equity – and they are treated as one bank regarding demands from e.g. legislators. Furthermore the cooperative banks enjoy economics of scale and the SDA Group has a number of specialists placed in Danske Andelskassers Bank A/S.

- For close to 25 years the structure of the SDA Group has been a strength for the cooperative banks, but over the recent years it has become quite clear that the structure has it’s weaknesses as well. Among others the structure is so expensive compared to “normal” financial institutions that it is a serious impediment. Furthermore it differs substantially from the “normal” resulting in difficulties getting capital from institutional investors in Denmark and abroad. Following the financial crisis this is difficult for all financial institutions but our structure makes it next to impossible to us. Therefore we simply have to make a transformation, if we want to secure a strong bank for the future, says Jakob Fastrup noting that the SDA Group – like other cooperatives – cannot make an increase in shares and thereby receive additional capital.

A structural change will not only solve a number of specific issues within the SDA Group. It will also provide the Group and the customers with a range of additional benefits.

As mentioned there will be benefits regarding the costs and the economics of scale. There will also be additional resources available for the direct contact with the customers. All of this will provide the customers with a bank with a higher level of expertise and an attractive range of products.

- Today we have a number of additional costs compared to other banks in relation to e.g. IT because each cooperative bank is a separate, legal entity. This also affects our customer service, as a customer in a cooperative bank in e.g. Odense cannot be served in the cooperative bank in Aarhus although they are a part of the same group. This will change with the proposed new structure as well, says Jakob Fastrup.

Local strengths and values to be preserved

As a part of the structural change the SDA Group is working with a model merging the 19 cooperative banks of today into five to seven regional units with a number of branches connected to each.

- We are a local bank and we will continue to be a local bank close to the customers. As a part of this we will maintain a comprehensive network of branches, but by assembling a number of key features into five to seven units instead of 19 units, we can save costs and obtain synergies, says Jakob Fastrup who continues:

- To put it simple our structure causes higher costs than our competitors’. If we were a soccer team we would start each season being a couple of handfuls of points behind. This will improve with the new structure, giving us the opportunity to spend money on something other than structure. Furthermore it gives us even greater opportunities to provide the customers with the best product possible.

He underlines the importance of preserving the strengths of the cooperative banks and bringing them into a new structure.

- The local involvement and the local insight are essential to us. We are owned by the customers and local communities, and because of this it is a natural part of us to make a difference through e.g. support to local associations and sports clubs. That will not change. Simultaneously with our work regarding all the regulatory aspects of a change we must work to ensure our existing strengths and values. It is a job which will involve board members, members of the cooperative banks, customers and employees in order to secure the right bank for the years ahead, says Jakob Fastrup.

Part of this is also the creation of local funds. The 60.000 members of the cooperative banks will receive shares, and the retained earnings of the cooperative banks will be changed into shares as well, which are placed in local funds.

- The local funds will on the one hand ensure the local influence on the bank and on the other hand ensure the banks commitment in the local communities by e.g. distributing the dividend of the shares as support to local associations and purposes. When a structural change is completed the owners and the focus of today will remain, Jakob Fastrup emphasizes.

General meetings to be held

To make the change of the SDA Group a reality it is at first necessary to make a number of merger plans.

These plans must then be approved by the boards of the cooperative banks followed by exact merger proposals, which are to be approved by general meetings of first the Danish Amalgamation of Cooperative Banks (SDA) and since the individual cooperative banks before the board of Danske Andelskassers Bank A/S – which is equal to the board of SDA – must finally confirm the conversion.

This is expected to happen during the spring of 2011.

- There is no doubt that this will be a busy period but it is essential to us, that the future picture becomes clear as soon as possible. There is no doubt that one thing is the formal procedure, another thing are the feelings associated with the change. We are heading forward into a process of change, and it is always with mixed emotions, you say goodbye to something existing. However, we are confident that we are moving towards something that is better for our customers, our employees and the local communities, of which we are a part, says Jakob Fastrup.