Markets

Arion Bank provides a diverse range of services to clients in capital markets, fund management and discretionary asset management. The Bank’s asset management service includes banking and financial services for more affluent customers (Premía), private banking, institutional asset management and specialized pension fund services. Stefnir, a subsidiary of Arion Bank, is an independent fund management company which manages a diverse range of UCITS and alternative investment funds. Arion Bank and its subsidiaries are leading players on the Icelandic asset management market, with assets under management totalling ISK 1,383 billion.

Capital Markets

Arion Bank brokers securities for the Bank’s international and Icelandic clients. The Bank’s team of professionals advise on and broker securities transactions on all the world's major securities markets.

An increasing number of clients engage with the Bank for their capital markets transactions, and in recent years the Bank has enjoyed a strong position in terms of securities turnover on Nasdaq Iceland. In 2023 Arion Bank had the highest turnover in equities on Nasdaq Iceland, the eighth year in a row it achieved this distinction. Arion Bank had a turnover of ISK 303 billion, representing a market share of 19.7%. The Bank also had the second highest turnover in bonds on Nasdaq Iceland in 2023. The Bank’s turnover in bonds was ISK 735 billion, giving it a market share of 18.5%. Arion Bank also had the highest market share on the Nasdaq First North market, with a 24.9% share.

Turnover and market share of Arion Bank in Nasdaq Iceland

Challenging year on the equities market

High interest rates and persistent inflation left their mark on the equities market in 2023. In contrast to the majority of stock markets in Europe and the US, shares in most listed companies in Iceland struggled, despite the fact that the underlying companies had for the most part performed well during the year. The market rallied strongly towards the end of the year on the back of news of a possible takeover bid for Marel, but the Iceland All-Share PI ended down 0.7% on the previous year. The volume of equity transactions on Nasdaq Iceland fell 25% between years.

Iceland’s inclusion in the FTSE Global Equity Index Series as an emerging market was finalized in 2023, when Icelandic companies were allocated a weighting in FTSE indices. Alvotech joined the Icelandic companies in the index in September. This led to an increase in investments in Icelandic shares by international investors. There were four new listings on the main market: Hampiðjan, Ísfélagið, Amaroq and Kaldalón added depth and diversity to the Icelandic stock market. The market capitalization of shares on Nasdaq Iceland increased by 6%, ending the year at ISK 2,700 billion.

It was another challenging year on the fixed income market, both in Iceland and globally. Soaring Central Bank policy rates in the early part of the year and inflation affected bond prices in Iceland, and yields shot up in both indexed and non-indexed series. Easing global inflation led to a drop in real interest rates. The long-term real interest differential between Iceland and abroad fell sharply and was virtually zero by midsummer 2023. The turnover on the fixed income market increased substantially, up almost 52% between years. Global bond markets turned a corner towards the end of last year when the markets began to show a strong recovery. The impact passed through to the Icelandic market to some extent and the year ended on a more positive note than many had expected.

Fund Management

Arion Bank customers can choose from a wide range of UCITS and alternative funds managed by Stefnir, Arion Bank’s subsidiary. Stefnir is a well-established Icelandic fund manager with assets of approximately ISK 247 billion under active management at the end of 2023. Stefnir caters for both retail and professional clients with the aim of managing its clients' assets as best serves their interest. Stefnir serves both individual investors and institutional investors. The company was founded in 1996.

The company has from the outset pioneered the development of new types of funds, both for retail and professional clients. In developing and managing its funds, Stefnir focuses on the interests of its clients, as well as emphasizing vigilance, perspective and sound professional knowledge.

Stefnir has developed a culture of honest communication and transparent disclosure. Responsible investment, diverse investment options and thorough disclosure are key to Stefnir’s business.

Arion Bank also helps clients to invest in Stefnir funds and funds operated by international fund companies.

Asset Management

The Bank manages financial assets on behalf of its clients in accordance with predetermined investment strategies. Asset management builds on trust and responsibility towards the clients, stakeholders and society as a whole.

Total assets under management at Arion Bank and subsidiaries

ISK bn.

Sustainability and responsible investments

According to Asset Management’s core values, all investments made on behalf of clients are in full compliance with current legislation and regulations. During the year the Bank began to implement the Sustainable Financial Disclosure Regulation (SFDR) which covers harmonized regulations for financial market participants and financial advisers concerning sustainability‐related disclosures in the financial services sector. The regulation requires people and companies to publish information on how sustainability risk is incorporated into investment decisions and financial advice, and whether, and in such case how, the negative material impact on sustainability is taken into account. SFDR defines sustainability risk as an environmental, social or governance event or condition that, if it occurs, could cause a negative material impact on the value of the investment.

Arion Asset Management has introduced rules of procedure on responsible investment which incorporate the three basic criteria of sustainability: environmental, social and governance (ESG). The division works in accordance with its guidelines on responsible investment which are designed to ensure the integration of ESG into the investment process and active ownership. These criteria are used along with financial criteria to evaluate investments and inform all investment decisions.

Assessments of individual issuers are made on the basis of analyses which best align with the aims of the guidelines on responsible investments. Funds, fund managers and alternative investments are assessed with respect to how ESG factors are incorporated their investments.

The Bank is a signatory to the United Nation Principles for Responsible Investments (PRI), an international organization of asset management companies and asset owners. Asset Management submits an annual progress report to UN PRI, parts of which are available to the general public.

Arion Premía – a high-end banking service

Arion Premía is a service which was launched specifically to cater to the Bank’s high-volume customers. The service is designed to ensure that this group of customers always get the best terms and high quality service. At the beginning of the year Premía was relocated from Retail Banking to the Markets division. This change had two main purposes: firstly, to bring Premía employees closer to the securities market, and secondly to step up general banking services to clients of Markets.

Private Banking – personal service

Private Banking at Arion Bank offers a broad range of personalized financial services for high net worth retail and corporate clients, as well as funds and institutions. Services are personalized to meet the needs of each and every client. Each client has a designated account manager who manages and invests the asset portfolio according to the client’s investment goals. Account managers closely monitor activity on the financial markets and make changes in accordance with a pre-agreed investment strategy.

Private Banking is a highly personal service where clients have an opportunity to interact frequently and be in close contact with their designated account manager. Meetings are held on a regular basis and clients are sent detailed statements on their investments every quarter. Clients can also obtain detailed statements in online banking or the app. Clients of Private Banking can also become Premía members and get the best possible rates on deposits, loans and credit cards. Being a Premía member ensures easy access to the Bank’s top advisors.

Institutional investors

Arion Bank provides institutional investors with comprehensive and personalized advisory services when investing in domestic and international funds and seeks to identify new investment options in response to market trends. The Bank gives its clients access to leading asset managers and a diverse range of funds. Arion Bank’s partnership with other asset managers involves providing a service to institutional investors and offering them the best terms of business, detailed reporting, research and investment services.

Despite challenging market conditions, it has been an interesting period for the asset management industry, with exciting and rapid developments taking place. In addition to existing investment options, numerous exciting investment opportunities emerged during the year.

Institutional Asset Management

Arion Bank provides comprehensive and personal service to institutional investors. Many of Iceland’s leading institutional investors, including pension funds, insurance companies and other organizations engage Arion Bank to manage either a part of their investments or their entire investment portfolios, and most of these business relationships go back many years.

The aim is to offer a personalized service while applying rigorous and professional work procedures in the active management of portfolios. The focuses of the asset portfolios are adapted to the changes on the market and in accordance with the investment strategy devised by the client.

The Bank’s service to institutional investors involves regular contact with clients to discuss key transactions, trends and the investment outlook. Investors get advice on how to create their investment strategy as well as their policies on responsible investments and shareholder interaction. They also receive help on how to implement and report on the policies.

Last year’s volatile market conditions presented a challenge for fund managers. Nevertheless, investment returns were positive, the main focuses in asset management achieved their aims and the year was for the most part a success.

Pension fund administration and management

– digital service and enhanced access to information

Arion Bank specializes in pension fund administration and managing assets for pension funds.

Frjálsi Pension Fund, Iceland’s largest independent pension fund, has enjoyed a thriving partnership with Arion Bank and its predecessors since 2001. Frjálsi offers both mandatory and supplementary savings and the fund’s unique selling points are the general freedom of choice and the way in which mandatory savings accrue in the private pension, resulting in greater inheritability and more flexibility in payments from the fund. Frjálsi has enjoyed great success in recent years, receiving 14 international awards from the respected publication IPE, more awards than any other Icelandic pension fund. Approximately 26,000 fund members pay into Frjálsi and the fund totalled ISK 454 billion at year-end.
Lífeyrisauki is Iceland’s largest defined benefit fund with approximately ISK 148 billion under management and 25,000 fund members. Since it was founded in 1999 the fund has received supplementary pension contributions from members. The fund’s unique selling point is the wide selection of investment plans, a total of seven different plans to meet different needs based on age and risk appetite.
Other pension funds administered and managed by Arion Bank Asset Management include EFÍA, Lífeyrissjóður Rangæinga and LSBÍ.

Self-service and other digital services are becoming ever more important for pension funds. Self-service is largely offered via the Arion app and also through the funds’ web-based My Pages feature. The Arion app gives customers a clear overview of their pension savings and also enables customers to use self-service options to enter into pension savings agreements and carry out all the main actions needed. The response from customers was positive and the number of new pension agreements, which are made in the app, has exceeded all expectations. The Arion app makes securities and pension savings easier for customers to understand and encourages them to save money. New features will be added in the future.

During normal opening hours customers can contact investment and pension advisors via webchat, phone and e-mail. Meetings can be held at the headquarters or via video. Customers are encouraged to book meetings in advance to make best use of their own and advisors’ time. Our customers have been very quick to embrace the new technology.

Helping our customers succeed

Arion Bank and Stefnir employees will continue to seek ways to identify and create the best possible investment opportunities for our clients. We will continue to strive to create benefits for our customers by providing excellent service, solid investment returns, a professional approach and focused risk management.