Bank merger shakes Baltics

  • 2001-03-01
  • Nick Coleman
RIGA - Upheavals are expected in the Baltic banking sector following the announcement Feb. 22 that two of the region's biggest players - Swedish banks Swedbank and Skandinaviska Enskilda Banken - intend to merge.

The Estonian authorities responded to news of the $7.3 billion deal by forbidding a merger of Estonia's two largest banks, Hansapank and Uhispank. Swedbank owns 57 percent of Hansapank, while SEB owns 97 percent of Uhispank.

In Lithuania talks on the sale of the state-owned Taupomasis Bankas to Swedbank's Hansabankas have been suspended due to the expected merger of Hansabankas and SEB's Vilniaus Bankas. Attempts to consolidate Latvia's more fragmented banking market are unlikely to meet opposition from regulators.

Mats Kjaer, president of SEB Baltic Holdings, refused to comment on speculation that Uhispank, as the weaker of the two Estonian subsidiaries, will be sold.

"No action plan on our subsidiaries has been formulated yet. But this is an opportunity for all the banks," he said. "Having a strong shareholder would help their future development. They can take advantage of our worldwide network and their close connections to the Nordic states."

If allowed to merge, Hansapank and Uhispank would control 80 percent of Estonia's banking market in terms of assets, a situation which the Central Bank of Estonia said would be unacceptable.

"The bank's priority is guaranteeing sufficient competition on the Estonian banking market," bank officials said in a statement. "From the point of view of the central bank the merger of two such major Estonian banks or their common owners is ruled out."

In Lithuania, Swedbank's Hansabankas is relatively small, but negotiations for it to buy Taupomasis Bankas, the country's largest retail bank, have been suspended. A merger with SEB-owned Vilniaus Bankas would give the group control of around 70 percent of the country's banking market. This prospect means negotiations with Hansabankas are unlikely to be resumed, said Ona Jukneviciene, adviser on privatization issues to Lithuanian Prime Minister Rolandas Paksas.

"Negotiations will have to be canceled because a new association will not correspond to the requirements of the Central Bank of Lithuania and the competition council," Jukneviciene told the Baltic News Service. "We've suspended negotiations until we get more information, but I don't think the information will change anything."

Relations between Hansapank and the government's negotiating team have been strained in recent months.

Latvia's Central Bank would have no reason to oppose a merger of Hansabanka and Unibanka, said a central bank spokesman. If combined the two would control around 30 percent of the country's deposits, and 43 percent of loans.

Consolidation of the Baltic states' banking sectors could, in the long term, benefit the countries' economies, said Roberts Idelsons, managing director of the Riga brokerage house Suprema. The entry of another player to buy Hansapank or Uhispank, and possibly one of the Latvian subsidiaries, would be particularly welcome, he said.

"There are questions about who will enter the Baltic market - Nordea (Denmark), Sampo (Finland) or a new face. But the good thing is that all the institutions will be larger and will have higher credit ratings. The sector will be reshaped, there will be new products, new faces and investors' confidence will increase."

The restructuring would be a blow to attempts by Parex Banka, currently Latvia's largest bank in terms of assets, to find a strategic investor, said Idelsons.

"Whichever scenario comes true this is bad news for Parex. The bank's value will be lower," he said.

But Valery Kargin, Parex's president, denied such claims.

"We have been expecting this development," he told BNS. "Our shareholders believe Parex is operating very successfully and earning big profits. They're not going to dispose of their shares."

Guoda Stepanoviciene of the Free Market Institute, a Lithuanian think tank, said the suspension of negotiations over the privatization of Taupomasis Bankas is bad news for Lithuania's economy. It symbolizes the Lithuanian government's mishandling of the privatization of state banks, she said. "It's not obvious that it would be dangerous for Hansabankas to buy Taupomasis. Taupomasis Bankas is decreasing in value and will continue to deteriorate," said Stepanoviciene. "All modernization is on hold. Merging Vilniaus Bankas, Hansabankas and Taupomasis Bankas wouldn't be easy because they're very different types of organizations, but this is not the government's job to sort out. The market would solve these problems much better. Taupomasis Bankas should be floated on the stock exchange."

Paavo Pold, a banking analyst at Suprema's Tallinn office warned that the SEB-Swedbank merger has yet to receive approval from the European Union's Competition Board in Brussels. A verdict will take at least four months, he said.

"SEB-Swedbank would have a 50 percent share of the Swedish market. The EU will be keeping a close eye on this merger."