This is a CTP of initiative: FEBEA/Merkur Cooperative Bank (Denmark)
This critical turning point refers to the economic and financial crisis that strongly affected the Danish economy from autumn 2008 to autumn 2010, as the interviewee explains:
After the financial crisis in 2008, the economic crisis came and lots of businesses went down, people got afraid that they didn't keep their work, people saved that money instead of spending it so lots of bad things happened in the economic situation. And, of course, that influenced Merkur a lot as well. We had many clients who closed their businesses. We had also private clients who lost their work or didn't earn so much as they did before or they had to sell their houses and suddenly , the value of the houses fell
Such crisis had strong consequences over the level of economic activity and also affected the Merkur annual performance. The interviewee mentions that, before the crisis, Merkur Cooperative Bank had been performing well and they found in a good position when the 2007 financial crisis occurred. However, as consequence of effects of this situation, Merkur was forced to change its banking practices. For example, the bank had to raise its fees and increased the interest rates to its customers in order to sustain its position.
In 2008, what happened in Merkur was incredible. In Merkur we have a principle which is that we never make more loans and credits than the amount of money that we have in deposits. In some banks they are taking loans from other banks, these are called interbank loans and then they expand their balance sheet, make more loans on the basis of loans they have taken from other banks. We have never done that, but at some point, the economic situation has meant that we have almost reached the point where deposits and loans were equal.
I have experienced that twice in my time in Merkur, that we had to look for more deposits, because we had almost spent all the money we had on loans and credits! (...) Up to 2008 it was easy to start business and make money but we had almost spent all the deposits on loans and so we were talking about - Now, we need to go out and find some more deposits
The critical turning point also had positive-side effects. Mass media brought Merkur Bank into the public knowledge as an alternative model for banking. Merkur was presented by the Danish media as an exemplary ethical bank, which is responsible with their financial activity. As a result of this media coverage, Merkur could rapidly increase the number of its customers.
As the interviewee explains, "Merkur took advantage of the increasing social awareness on financial practices". However, this critical turning point has a second consequence related to the descend of the lending activity, which represents one of the main activities of any banking institution, and forced Merkur to adopt several unpopular decisions:
We increased our deposits on 35% in 8 months, so we just had lot of money pouring into the bank and of course that solved the problem about deposits for us but it gave us a new problem. You should know that, afterwards the interest rates went promising down to zero. So we had all this money and when we put it in the central bank in Denmark we didn’t get any money out of it and nobody wanted to borrow any money! (…) The thing is when the economic crisis hit us we had to raise fees, we had to earn more money, and we had to focus on making more loans and so on and so forth
The production of this critical turning point is strongly influenced by the 2007 global financial crisis that challenged the banking institutions to varying degrees. In Denmark, A total of 62 (mostly small) banks ceased operating during the period 2008- 2013 due to certain banking practices that put in risk the stability of banking system:
Suddenly, as you well know, when the financial crisis started, the interbank market froze immediately so it stopped from one day to the other. When Lehman Brothers collapsed the whole interbank market just went completely dead. That was not a problem for us because we didn’t have any interbank loans but what happened was that when the bank crisis came, when the financial crisis came, people saw what the banks have been doing and all the papers were full of stories about what kind of loans the bank had made, because many banks had made completely stupid loans, and they had made such bank work
The interviewee stands that, prior to the crisis, there was a price bubble on all property. The banks that had been most active in speculative property investments took the first blow of large losses when the financial crisis set in. Later, when the economic crisis started, all banks lost money due to falling prices in real estate:
When the businesses had to close, if they had a property, those properties fell in value as well so we began losing money of course so...but we hadn't invested, we hadn't borrowed money to speculative purposes so even though we lost money we didn’t lose them because people had made completely silly investments. We lost them because property prices went down and because businesses closed, that was what happened in the real economy. So our deposits went up, our loans went down, it was a difficult time
According to the critical circumstances, managers of Merkur were obliged to take some tough decisions in order to deal with the crisis. The board of directors were involved directly in such decisions, as well as employees and management staff:
The big decisions are taken by the board, and management...together. But it is very important that we also have ideas, as employees, on how to work with this or what we hear from the costumers. Because, of course, the managers and the board of directors do not speak with costumers so they ask staff how to go about this. So we are often invited to join in with observations and ideas but the main decisions are always taken by the board and the management (...) There are nine persons in the board and there is a CEO and a CFO. So they are two relevant persons in the management
As it was mentioned above, mass media have also contributed to this critical turning point, enhancing the knowledge of ethical and alternative banking:
It meant that we have got so much free publicity, because journalists said: what are the banks doing? And they described in the papers all the bad things that the banks have done. And some few journalists started to say: Are there banks that do things differently? and immediately they came to Merkur. So many journals wrote about Merkur! and Lars Pehrson was interviewed non-stop about banking so we've got so much free publicity. And, then, what happened was that suddenly so many people said: I want to be in a bank where they do good things with my money instead of horrible things like other banks do. So people came in and it poured in with our balance sheets, our deposits rose with 35% I think in 8 months
A number of related events have been mentioned at this point. First, the interviewee briefly commented the origin of the crisis originate by American investment bank Lehman Brothers' bankruptcy in September 2007 which also affected Danish financial institutions, which were severely cut off from access to liquidity on account of the international crisis of confidence among financial institutions.
The second event directly related to the critical turning point is dated in 2012, when Merkur passes 20,000 customers and 4,000 rounds of members, becoming the Danish bank with the most satisfied customers. Clients endorse Merkur´s good practices supporting sustainability projects through banking business, taking deposits and giving loans and networking social finance credits.The initiative continues developing transformative financing business.
Related to this, since 2012 Merkur strengthen their activities oriented to foster sustainable and Fair Trade, establishing specific credit facilities that facilitate sustainable trade from developing countries to Denmark, Norway, Sweden and Finland. Merkur offers “Sustainable Trade Accounts” for individuals whose savings are be used for credits small sustainable companies in developing countries who are excluded by mainstream banks:
We have this little-size business. It's a very small part of Merkur and it is really just the possibility...We are giving Danish costumers the possibility of putting their money to the use of people in the developing world. Actually, our own Danish costumers came to us and say, Why don't you do something in the developing world? So we have developed various offers, short term credits, longer term loans and some varies donation schemes which contribute to sustainable development in the Global South and that is really because we don't see sustainability as anything which is Danish. Of course that is a global aspiration and a global issue but we are not there to become a global bank. That is not the point. But we want to make it possible for those in Denmark who want to be part of the developing world to be able to place their money in different ways. This money helps companies in the developing world grow in a sustainable way
Besides, the interviewee also talks about the future development of the bank in terms of upscaling and transformative impact. Although she does not provides expected dates for such development, she explains the motivations and aspirations for expected growth:
I hope that we’ll continue to grow, because we have things to do that demand size. Our existing clients grow, and we need to grow with them. There are potential clients, which we can only take on, if we are bigger. But maybe more importantly, some of the activities that we finance such as, for instance, organic food and farming and free schools, experience immense growth, so to serve that growth, there is a need for growth in Merkur as well. We know that there are people in Denmark, who are interested in the kind of thing we are doing, but do not know us yet, and we want them to know about us. We want to continue to reach out to people who share our aspirations
Being asked about contestation, the interviewee refers specifically to the situation related to the economic crisis and how crisis affected to Merkur. As it was briefly explained before, the financial crisis put in risk Merkur viability in terms of obtaining incomes from banking activity.
Derived from the drastic reduction of lending activity, the bank had to adopt some decisions regarding fees and interests. Such changes could be perceived as harmful by Merkur customers and, as the interviewee, explains, the bank even expected certain contestation. However, few opposition or complains were perceived by the leaders of the initiative. On the contrary, customers tended to show some understanding:
The thing is when the economic crisis hit us we had to raise fees, we had to earn more money, and we had to focus on making more loans and so on and so forth. So it looked like we had to do all the same things as the other banks. Every employee had to serve more costumers. We had to work more... So you could well ask what the difference between Merkur and others is and there was the risk of course that some clients would be very unsatisfied with Merkur because they raise the fees. But the interesting thing is that we sometimes heard customers say that they didn't mind to pay interests as long as they pay it to Merkur... Of course the interest rate shouldn't be too high but it was somehow more acceptable to pay them to Merkur than to pay them to the other banks
Contestation was overcome on the grounds of the good reputation of Merkur and transparency regarding the practical part of banking business. Good communication is vital to gain people´s confidence. Merkur is proud of having very loyal customers, who are willing to cooperate with the bank even in hard times, helping it to reduce losses:
Well, we have a very good image in general. Of course there are single clients who become angry with us for some reason or other but in general we have costumers who are pleased with us and who are very loyal and understand that we have to earn money in order to keep the business going but the point what we are always very careful to say... The point of Merkur is not to earn money for shareholders. The point of Merkur is to change society for the better and people agree with that so they can see the point of Merkur asking interest for a loan so that we can go on to that work. So we are very careful when we communicate with the public to say that is not bad to have interests, it's not bad to ask fees, is not bad to earn money because we need to do it in order to continue our work
According to the interviewee, Merkur leaders, as well as most of banking staff could, in certain way, anticipate or have the intuition that, sooner or later, the financial system would collapsed.
I think that we all have seen, in the years before the financial crisis, we have seen some very far-fetched banking work done by some banks. We've seen some very imaginative projects, so to speak, being financed. I mean, when you see growth like this in society and you see all shares going up like this, and you see everything going up like this, you know that it will fall down at some point
Despite the enormous opportunities to expand and increase profits before the financial crisis, Merkur was firmly attached to its core values and good practices. They rejected to jeopardize the viability or the sustainability of the bank and this was also the case when dealing with the consequences of the crisis:
I think that it is very important about these critical turning points is that we have remained the same at the core and not changed. The same goes for what we have done after the economic crisis and the financial crisis. We have not made any basic changes to our banking concept. When we have had the need to make more loans for instance, because we can't earn money from having it in the Central Bank, we need to make loans but without compromising our basic ideas of only covering needs, not creating them. We only want to cover real financing needs. We don't need to create financing needs out of the blue. So that is one example of how we always go back to the core
Merkur customers shared the perception that the economic crisis was tough for Merkur, too. Since 2008, the initiative had to struggle with external issues that affected business banking. The managers were able to anticipate upcoming difficulties and took unpopular measures and communicate them to public in a straight way. Besides, such perception was also shared by the Merkur´s clients, which decided to stay and support the bank during the crisis:
There is one thing that I would like to explain. When the financial or rather when the economic crisis hit us, we lost money and we also had clients who had to close their businesses and didn’t earn money for some years so we went through a very hard time in Merkur. So we have had, in Merkur we have had to be strict, be very observant of costs, we have had to be very professional in dealing with...To be very diligent in making sure we earn money, making an effort to make more loans, and so on and so forth
Two fundamental lessons have been evoked from this critical turning point. The first is related to management of crisis and how to communicate to clients and public negative announcements. Remaining close to values and being coherent contributes to confidence and trust-building.
Besides, in hard times, the initiative requires from the compliance of everybody, in special from employees and people who is in direct contact with clients.
It is very important that the decisions taken by the board are always understood by the employees as part, as a continuation of the basic ideas, and the core values of the bank. So the board doesn't just communicate for instance a decision to make some more loans. But the way to make more loans is to make sure that we actually cover the needs our clients have. So you may make an extra effort but Merkur does not make loans for needs that are not there, so it's always linked to the core values
The second lesson drawn relates to mass media relations and how to maintain a positive language regarding banking issues. As we explained above, during the economic crisis, Merkur received extended attention from press. Danish media made several reports and interviews to Merkur spokespersons, and presented the bank as a successful alternative to mainstream banks.
However, Merkur spokespersons were very cautious and never attacked other banks:
It's bad for business to talk negatively. There is no point. Journalists write lots of stories about bad banking businesses. So there is no point for us in doing it. It would only be negative. And we have to be very careful and remain very factual... We are sometimes critical, but not to other banks because they are also our colleagues. We are critical towards the financial system... but never about particular banks, have we never done that
Besides, the interviewee is concern about the way positive or negative press coverage affects the reputation of one entity. She observes that, from time to time, mass media approach Merkur as a form to feed certain social awareness or contestation regarding the banking system. This happens even after the crisis, as mainstream banks are, from time to time, the object of negative news:
Every time that there are critical stories about the banking world, we tend to get good publicity... just now we also have a time where one big bank in Denmark was connected with the Panama papers, so there were lots of bad stories about that and which meant that lots of people come and say "I don't want to be a client in that bank anymore, I want to be in a good bank". Of course, this is interesting but it's more a reflection of bad publicity for other banks. Of course we do make advertisements and so on but we never do it on the basis of bad stories about others. We always say what we do we never go out and say what the others do is horrible, we never do that
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