Swedes poised to become Baltic banking leaders

TALLINN/RIGA/VILNIUS - By acquiring stakes in two Baltic banks and nearing a partnership deal with a third, Skandinavska Eskilda Banken is set to become one of the biggest players in the Baltic banking industry.

Last week, SEB purchased a 32 percent stake in Estonia's Uhispank for $45 million and 36 percent of Latvia's Unibanka for roughly $19.6 million. It also reached a strategic partnership agreement with Lithuania's Vilniaus Bankas with further intent to acquire 25 to 30 percent of the bank's shares.

The Unibanka and Uhispank deals bring the proportion of foreign investment in Baltic banks to 70 percent.

Uhispank, Unibanka and Vilniaus Bankas formed a partnership last spring with the idea to find a strategic investor for all three banks to merge in the next few years.

SEB's negotiations with the banks surfaced Oct. 22, when papers reported that SEB might buy one-third of Uhispank, although none of the parties involved in the deal would comment.

The Tallinn Stock Exchange put an end to the rumors Nov. 18 with an announcement that SEB would acquire 15 million shares of Uhispank through a share issue at 40 kroons ($2.97) a share. It also purchased 6 million existing Uhispank shares.

This is the second time the Swedish bank tried to enter the Estonian banking market. This summer, it competed with Swedbank for Hansapank, eventually buying 18.6 percent of Hansapank's shares. In September, it sold these shares to Swedbank for 275 million kroons.

But their interest in the Baltic market remained, and, according to SEB President Lars Thunell, purchasing Uhispank fits into SEB's long term plan for the Baltic region.

"The strategic partnership with Uhispank is in line with our strategy to develop SEB into the leading financial services institution in Northern Europe, which includes the Baltic Rim countries," said Thunell.

With that idea in mind, the Swedes also moved to acquire stakes in the Latvian and Lithuanian banks.

On Nov. 17, SEB bought 8.55 million newly issued shares in Unibanka at 1.33 lats per share ($2.29) and issued Unibanka a subordinated loan of 10 million lats, raising its capital to 37 million lats.

Negotiations are under way for a similar involvement in Vilniaus Bankas.

Alexander Federas, director of Vilniaus Bankas' marketing department, said the banks are in the "final stage" of negotiations which will lead to the Swedes buying up to 30 percent of the Lithuanian bank.

Federas said he sees a lot of advantages to such a strategic partnership.

"Primarily, SEB is a bank which has a long history in banking and is financially stronger. In comparison, Vilniaus Bankas and its cooperation partners in Latvia and Estonia are quite small," he said. "Our participation with SEB would allow us to give more significant guarantees to investors."

Federas noted that the deal with SEB significantly increased the price of Vilniaus Bankas' shares.

Lithuanian banking analysts are also welcoming the steps taken by Vilniaus Bankas and SEB. Eugenija Martinaityte, director of the Lithuanian Banking, Insurance and Finance Institute, said she has no doubt that this move should be taken as a positive development for the Lithuanian banking sector.

"There is no doubt that this will at least lead to safer banking. Considering the trends, it is a natural step in the growth of Lithuanian banks," she said. "Of course we can say it would be good if domestic banks [remain independent], but this is not realistic. I think all banks are looking for contacts with other successful banks. It's just part of good long-term strategy."

Many Estonian financial sector analysts applauded the deal as a boost for the banking sector and as a sign that the Estonian economy can still attract foreign investors.

"It's definitely good for the Estonian economy," said Paavo Pold, an analyst with Talinvest Suprema Securities.

Uhispank President Ain Hanschmidt said the bank wanted a strategic investor to increase its capital and to give it the knowledge to expand their company.

"Besides strengthening the bank's capital base, they will provide Uhispank with significant benefits in terms of know-how, market penetration capacity and product sophistication, operation strength and stability," said Hanschmidt.

Unibanka President Andris Berzins said he thinks the SEB investment will help the three banks to merge.

"We see SEB as one party pushing the merger along. The SEB investment will help to cement three-way cooperation among the banks with not only money, but also strategy," he said.

SEB and Uhispank officials said that merging all three Baltic banks was not in the immediate future but is a definite option somewhere down the track. The different business culture and practices in each Baltic country would make creating a single bank from existing banks, instead of starting from scratch like Hansapank did, a difficult task at this time.

"Merging these three things, I would imagine, is a nightmare," said Toomas Reisenbuk, an analyst with Hansa Investments.

(Rebecca Santana, Sandra L. Medearis & Paul Beckman)