Asset Management and Arion Bank’s subsidiaries are leading players on the Icelandic asset management market, with assets under management of ISK 997 billion. Asset Management comprises Institutional Asset Management, Private Banking, Investment Services and Pension Funds Administration. We manage financial assets on behalf of our clients in accordance with predetermined investment strategies. The division is also the main fund distributor for Stefnir hf., selling to individuals, companies, institutions and institutional investors, as well as offering funds of international fund managers. Asset Management also manages pension funds. Asset Management had 34 full time employees at the end of 2015. The managing director is Margrét Sveinsdóttir.
Broad range of services to cater for different needs
Asset Management specializes in providing a full spectrum of investment opportunities for clients with varying investment objectives. The focus is on having a broad range of products and services tailored to our clients’ needs. The division’s employees have decades of experience and expertise of the financial markets and asset management. The main emphasis is on offering personal services, laying the foundation for strong, long-term and financially rewarding relationships with our clients.
The main emphasis is on offering personal services, laying the foundation for strong, long-term and financially rewarding relationships with our clients.
Another good year
Asset Management enjoyed a positive 2015, with investment strategies yielding good returns on investment. Most asset classes performed well, particularly the Icelandic equities market, and the OMX Iceland 8 selected share index gained 43.4%. Assets under management at the Group level grew 7.9% year-on-year, or ISK 73 billion. This growth is a result of positive returns and an inflow of new capital from existing and new clients. Sales of Stefnir funds via the online bank grew strongly, indicating a keen interest from investors in mutual funds and a readiness to invest through digital channels.
Assets under management at the Group level grew 7.9% year-on-year, or ISK 73 billion. This growth is a result of positive returns and an inflow of new capital from existing and new clients.
New website for employers – better service
At the end of the year a new website for employers was launched. The website makes it easier for employers to process pension contributions and gives them a better overview of pension payments.
Frjálsi Pension Fund continues to perform well
Frjálsi Pension Fund, which is managed by Arion Bank, continued to perform well and was named the best pension fund in its class in Europe by the respected publication Investment Pension Europe (IPE). In recent years the fund has won nine international awards.
Continued benefits for our clients
The imminent lifting of the capital controls is likely to open up new opportunities for investors. Asset Management will continue to seek ways to create and identify the best possible investment opportunities for the clients. Our mission remains to generate benefits for our clients with satisfactory returns, using our professional approach and targeted risk management, with a focus on our customers' interests.
Corporate Banking provides comprehensive financial services and complete solutions to some of Iceland’s largest companies. The division offers solutions in terms of funding, deposits, payment services and value-added digital services. Many of Iceland’s leading companies have a successful business relationship with Corporate Banking dating back many years. Corporate Banking had 26 full time employees at the end of 2015. The managing director is Freyr Þórðarson.
The division is divided into three specialist sector teams and a credit analysis and structuring team. The sector teams are trade and services, real estate and energy, and seafood. Each team is made up of account managers and a service manager. The role of credit analysis and structuring is to provide advice and assistance on credit facilities, risk analysis and negotiations, and other related services to the clients, alongside the account managers. Corporate Banking collaborates closely with other divisions of the bank, such as Retail Banking, Vehicle and Equipment Financing, Capital Markets and Corporate Finance. Corporate Banking’s account managers play a key role in providing advice and facilitating solutions and universal banking services for our corporate clients.
Highlights of the year
Arion Bank was involved in a wide range of funding projects with its clients during the year and companies from a diverse range of backgrounds joined the client base. Corporate Banking participated in numerous engagements and the second half of the year was particularly busy for all the sector teams. The improving financial strength of the Bank’s clients was important in this respect while the division’s implementation of the Bank’s policy on cautiously entering the market to fund international projects in the seafood industry also came into play. As expected competition was fierce during the year despite the fact that increased requirements imposed by the Central Bank in the third quarter reduced the amount of credit in circulation. Pension funds continued to be prominent on the funding market and falling yields on the bond market had an impact last year. As expected at the beginning of last year international banks entered the market in projects funding seafood companies, often in collaboration with Arion Bank.
Arion Bank was involved in a wide range of funding projects with its clients during the year and companies from a diverse range of backgrounds joined the client base.The seafood team started the year collaborating with an international bank on the long-term funding of two pelagic fishing vessels which were delivered during the year. Cooperation with international banks enhances the service provided and improves the terms offered to our clients, which in turn led to several other funding projects during the year. Clients managed to reduce the age of their fishing fleets and were able to better utilize their resources. The Bank’s clients invested heavily in the seafood industry this year. In addition to funding fishing vessels, the fisheries team was engaged in the overall funding of several companies and helped finance clients’ investment overseas.
The year saw considerable activity in projects in the real estate and energy sectors. Agreements were reached on the acquisition by the US property developer Carpenter & Company of a hotel lot next to Harpa Concert Hall and an agreement was signed with the Marriott Edition chain on managing a 5-star star hotel on the site. There continued to be strong growth in real estate projects and the Bank has also funded the construction of the first silicon plant in Iceland where commencement of production is planned later in 2016. The Bank’s proven track record of funding major projects was underlined when the Bank advised on and arranged a bond issue by the power company Landsvirkjun. The bond was listed on the Luxembourg stock market as part of the company’s general funding programme.
Agreements were reached on the acquisition by the US property developer Carpenter & Company of a hotel lot next to Harpa Concert Hall and an agreement was signed with the Marriott Edition chain on managing a 5-star star hotel on the site.
It was an encouraging year for the trade and services team and there was a wide range of engagements. The team added new clients, including companies in the travel industry, telecommunications and IT, and financial services. There was also a focus on non-lending services, which has resulted in an increase in commission income both for the division and the Bank.
The Bank was the main sponsor of the 2015 Seafood Conference and to coincide with the event it published a detailed report which analyzed the outlook for the industry, and employees held presentations on the development of aquaculture in Iceland and participated in panel discussions on the subject.
Activities during the year
The division’s loans to customers totalled ISK 226 billion at the end of 2015, or 33% of Arion Bank’s total loans. The size of the division’s loan book decreased, partly because of changes to the exchange rate which affected loans to overseas clients and clients in the seafood sector. In an effort designed to improve customer service a part of the division’s loan book was transferred within the Bank to the branch network. Corporate Banking participated in a wide range of projects with our clients, and approximately 17% of loans were made to new clients of the Bank. The total number of clients of Corporate Banking increased during the year resulting in a more diversified risk profile. One of last year’s objectives was to increase commission income from regular activities and we succeeded in this goal.
Corporate Banking participated in a wide range of projects with our clients, and approximately 17% of loans were made to new clients of the Bank.
The division’s loan portfolio broadly spans the Icelandic business sector and matches the division’s strategy in this respect. The largest sectors in Corporate Banking’s loan portfolio are real estate and related business (32%), seafood (24%), trade and services (16%) and telecommunications and IT (12%). Loans to international borrowers, mainly in the seafood industry, increased during the year and this has helped to diversify the risk of the loan portfolio overall. The quality of the loan portfolio has continued to improve over the last year with a reduction in defaults and better credit ratings.
The year ahead
The economic outlook for Iceland in 2016 is bright, although turbulence on the international markets could have some impact. The Bank believes that investments in energy-intensive industry, infrastructure, the seafood industry and the tourist industry will continue, but supply of capital will affect that development.
Competition on the credit market will probably remain intense and the pension funds can be expected to continue to play a major role. Corporate Banking is well positioned to face this competition, with the focus as ever on developing and nurturing long-term client relationships.
Corporate Banking will continue to work alongside Arion Bank’s corporate clients, offering comprehensive solutions and value-added service. These services are increasingly becoming available through digital channels and Arion Bank is investing in this technology for the continued benefit of our clients and the Icelandic business sector as a whole.
The main role of Investment Banking at Arion Bank is to bring together buyers and sellers on the financial market and to advise companies and investors on how to advance their business. The main services provided by Investment Banking are securities brokerage and corporate finance. Arion Research is part of the division and it issues regular economic reports and research for clients. Investment Banking had 31 full time employees at the end of 2015. The managing director in 2015 was Halldór Bjarkar Lúdvígsson.
At Investment Banking we have an experienced team professionals at our disposal. Our objectives are to offer clients high quality research, advice and services in the fields of securities and foreign exchange brokerage. By doing this we help our clients identify attractive investment options and/or help them to reduce risk in times of uncertainty.
Corporate Finance provides M&A advisory services and is a leading arranger of stock market listings on Nasdaq Iceland. Corporate Finance’s clients include some of the largest companies and major investors in Iceland. Our team has extensive experience with a variety of educational and professional backgrounds and a proven track record of success.
Corporate Finance’s clients include some of the largest companies and major investors in Iceland.
The year 2015 was an eventful year for Corporate Finance, the highlight being the role as lead arranger of the listing of three companies, Reitir fasteignafélag hf., Eik fasteignafélag hf. and Síminn hf., on the main list of Nasdaq Iceland. Prior to listing Corporate Finance arranged public offerings in which Arion Bank sold a substantial proportion of its holdings in the companies. Corporate Finance also arranged the sale and listing of a ISK 3.3 billion bond series issued by Eik fasteignafélag hf. In addition it advised Reitir fasteignafélag on the acquisition of real estate portfolios from the investment funds SRE I and SRE II and arranged the sale and listing of bonds amounting to ISK 3.8 billion issued under the company's new bond programme. A milestone was reached mid-year when the funding of the first silicon plant in Iceland was completed. Corporate Finance advised Sameinad sílikon ehf. on the deal and the Bank provided debt financing.
The year 2015 was an eventful year for Corporate Finance, the highlight being the role as lead arranger of the listing of three companies.
The year ahead is set to be exciting, with a diverse range of engagements in the pipeline. This includes the continued advisory role on the funding of the Marriott Edition hotel next to Harpa Concert Hall and the construction of apartments at the site. The Bank, with the involvement of Corporate Finance, is also continuing to work on the acquisition of the insurance company Vördur. The economic climate in Iceland is in many ways positive and presents numerous opportunities for Corporate Finance. We intend to consolidate our position as a leading adviser to corporates and investors and thereby to support the ongoing growth of the Icelandic business sector and financial markets.
Capital Markets brokers financial instruments for the Bank’s international and Icelandic clients. The increase in the number of listings on Nasdaq Iceland has added depth to the Icelandic stock market. Arion Bank occupies a strong position in terms of securities turnover on the main market of Nasdaq Iceland. Equities Trading participated in the sale and listing of three companies on Nasdaq Iceland, while Fixed Income Trading was involved in the primary sale of bonds for the Icelandic Regional Development Institute, Byggdastofnun, and in the issue of covered bonds, an area in which Arion Bank has led the way. Trading on the foreign exchange market has been increasing and the product range has been expanding. Arion Bank has been at the forefront of offering its clients products to hedge risk and is the sole Icelandic bank to offer products to hedge exposure in the oil industry.
Arion Bank occupies a strong position in terms of securities turnover on the main market of Nasdaq Iceland.
The main aim of Capital Markets has been to provide its growing client base with quality services and access to expert knowledge. The focus in the medium term will continue to be on product development, offering clients further opportunities to invest and distribute risk.
Arion Research publishes macro research on the Icelandic economy, as well as research on individual sectors and companies.
Arion Research publishes reports and presentations, participates in meetings and answers queries posed to the Bank. Material published by Arion Research is intended for the general public, selected clients or the Bank’s employees and is always based on publicly available information. The department collaborates closely with other divisions to provide services to Arion Bank’s customers.
One of the objectives of Arion Research is to encourage and advance public debate on the Icelandic economy. Arion Research is staffed by a team of experts who have the necessary education, dedication and experience to provide in-depth analysis of economic issues, getting to the heart of what really matters and able to present their material in an accessible manner. Arion Research is independent of the other divisions of the Bank.
One of the objectives of Arion Research is to encourage and advance public debate on the Icelandic economy. Arion Research is staffed by a team of experts who have the necessary education, dedication and experience to provide in-depth analysis of economic issues.
In 2015 the department organized five seminars and conferences for the public and investors at the Bank’s headquarters at which topics such as the real estate market and the tourist sector were analyzed and Arion Research’s economic forecasts were presented. The department’s specialists also presented their material at numerous meetings with Arion Bank’s clients across the country. During the year Arion Research published 87 Economic Updates and 117 research reports on listed companies.
The outlook for Investment Banking is shaped by Iceland’s economic environment. The year 2016 seems set to mark a watershed for the Icelandic economy. Following settlement with the estates of the failed banks it appears as if it will be possible to lift the capital controls, the national debt position has dramatically improved and changes to the ownership of Iceland's largest banks are imminent. Icelandic companies and investors are generally very well prepared for this important period. Corporate debt is at a 10-year low, purchasing power has increased, Iceland’s terms of trade have improved by 9% over the last two years, the Central Bank’s non-borrowed currency reserve has grown faster than anyone expected, the economic growth outlook is better than in most industrialized nations and yet inflation remains within the Central Bank's targets. The Icelandic stock market and number of listed companies have grown and issuers now have a wider choice of funding on the Icelandic bond market. The environment for our clients is changing and the assignments undertaken by Investment Banking are therefore becoming increasingly varied.
The lifting of the capital controls presents opportunities for Icelandic companies to expand overseas and enables investors to distribute risk. International investors also seem to be showing greater interest in investing in Iceland. Lifting the capital controls will make the exchange rate more volatile but presents opportunities for Icelandic companies to hedge exchange rate risk. Liberalizing the capital controls is therefore a positive step and provides a platform for a wider range of services and creates numerous opportunities.
Retail Banking provides high quality financial services to retail customers and small and medium-sized enterprises through our branch network across Iceland. The Bank operates 23 branches and service points in Iceland as well as a call centre. Our mission is to meet the needs of our customers by offering a diverse product range and professional financial advice. Retail Banking had 355 full time employees at the end of 2015. The managing director is Helgi Bjarnason.
We advise our customers on deposits and loans, savings, payment cards, pension savings, insurance, securities and funds through our branches and call centre. In recent years the branches have been given higher credit granting limits, thus moving the power to make decisions closer to customers.
The key tasks in recent years have been to resolve debt recovery cases and to improve operating efficiency by reducing the number of branches, developing an administrative structure along regional lines and centralizing the back office function. Implementing lean management in order to further enhance the level of service has also been central to our activities.
Implementing lean management in order to further enhance the level of service has also been central to our activities.
AFL Savings Bank was merged with Arion Bank during the autumn and although this presents numerous opportunities, the Bank will also face various challenges as we attempt to resolve certain loan issues.
We have devised a new layout and design for our branches and three branches have already been reorganized accordingly. These changes will be rolled out to other branches over the next few years. These changes support the Bank’s focus on value-added service and open up more possibilities for self-service channels. At the same time the Bank will be taking measures to rationalize the branch structure, for example by reducing the size of branches and prioritizing self-service channels.
In 2016 the Bank is taking over banking operations at Keflavík International Airport after winning the tender to provide financial services there last year. The aim is to open for business on 1 May. Providing banking services at Keflavík International Airport represents an exciting opportunity and a challenge at the same time. The airport has grown rapidly in recent years and this trend is set to continue over the next few years.
In 2016 the Bank is taking over banking operations at Keflavík International Airport after winning the tender to provide financial services there last year.
In October 2015 the Bank reached an agreement to acquire the insurance company Vördur, giving us the exciting opportunity to add more products to our range. By offering insurance products as part of the financial advice package we have the chance to strengthen business relationships and increase customer satisfaction. The acquisition is now being assessed by the regulators and the outcome will be made known in early 2016.
Employee training remains as important as ever at Arion Bank. During the year, 19 employees qualified as financial advisers after completing a course organized in cooperation with Reykjavík University. A total of 53 employees have now qualified, more than at all the other banks in Iceland. This qualification standardizes the requirements made of financial advisers and ensures that they possess the requisite expertise and skills to do their job. It also lays the foundations for an even closer partnership with our subsidiary, OKKAR Life Insurance, and the aim is to make advice on life and health insurance part of the package when customers apply for a mortgage.
Employee training remains as important as ever at Arion Bank. During the year, 19 employees qualified as financial advisers after completing a course organized in cooperation with Reykjavík University.
In the last few years the journey which started with the development of the online bank has reached a new level with the availability of more self-service channels, such as the Arion app, and the Bank’s focus on further developing and exploiting these channels. As a result we now have more time to devote to value-added services for our customers, services involving lending, savings and deposits, and insurance. We will continue along this path and exploit the opportunities embedded in the strong business relationships we have with almost a third of the Icelandic retail and corporate market.