Copenhagen-based Saxo, which said this month it plans to add Saudi, Egyptian and Qatari equities to the products available on its trading platform, is also weighing the options of hybrid debt sales or being bought by another financial company, Blaafalk, hired by Saxo this year after three decades at Danske Bank A/S, said in an interview.
"An IPO is one way for TPG to exit," he said. "A sale to an industrial player or a fund is another way, or they could sell the stake back to Saxo Bank. If and when we are listed on an exchange, we would have a wider range of opportunities to get more core equity."
U.S.-based private equity firm TPG bought a 30 percent stake in Saxo three years ago, meaning it may exit two years from now, Blaafalk said. Saxo needs capital to realize its growth ambitions after its trading platform, the bank's main business, was pummeled by a lack of volatility, he said.
"Trading today is actually stagnating because the one thing that trading depends on is volatility," Blaafalk said at Saxo's headquarters, where dinosaur skeletons dominate as a constant reminder to employees to embrace change or risk extinction. Market volatility hasn't been this low in "decades," he said.
Capital Costs
Saxo now relies on retained earnings to build up capital. Its common equity Tier 1 capital was 13.1 percent of risk-weighted assets as of June, according to its six-month report.
"Retained earnings are probably our only and most relevant source of building up core equity today," Blaafalk said. Saxo needs "more cost-effective capital. Retained earnings are still expensive capital, so it'd be better to have as much Tier 1 and Tier 2 capital as the regulation allows."
Saxo began reducing its subordinated debt this year because the capital doesn't meet new regulatory requirements. The bank has 223 million kroner in subordinated loans as part of its Tier 2 debt, its six-month report shows.
Saxo Founders
Saxo would use additional capital to expand in central and easternEurope as well as the Asia Pacific region, Blaafalk said. The two areas currently generate the largest share of the bank's earnings and have the biggest growth potential, he said.
The bank favors a capital-light model in which risk is mostly passed through to clients, according to Blaafalk.
Co-founder and chief executive officer Lars Seier Christensen signaled his bank is ready for stricter regulation in the currency market.
"It is a general tendency that many areas get more regulated, and foreign exchange has been relatively light touch for many, many years," he said in an interview with Bloomberg Television. "But at the end of the day of course people have to act appropriately in foreign exchange as everywhere else."
Christensen and Saxo's other founder and co-CEOKim Fournais each own 30 percent of the bank. TPG paid $600 million for its equivalent share in 2011.
"There are good arguments" for listing, Blaafalk said. "The rationale is to get more liquidity and to have a source of capital if you want to grow faster and the regulator says: 'If you want to grow fast, you need to have more capital.'"
