Swedbank is majority owner of Hansabank Group, which from its base in Estonia operates in all three Baltic countries. SEB meanwhile owns Estonia's Uhispank, Latvia's Unibanka and Lithuania's Vilniaus Bankas.
If the merger had gone ahead either Hansapank or Eesti Uhispank, which together control 80 percent of Estonia's banking market, would have been sold.
In Stockholm, SEB Chairman Jacob Wallenberg rejected the claim by European Commission regulators that forming the new bank would have damaged Sweden's banking sector.
"We do not share that opinion," said Wallenberg. "(This decision means) the conditions to build a large European bank from a Swedish basis no longer exist as the synergies would be lost through concessions."
Veikko Maripuu, analyst at the brokerage firm Suprema, speculated that the deal may actually have been canceled because of disagreements over how to reapportion the Swedish banks' shares.
"SEB's shareholders had more to gain from the merger," said Maripuu.
SEB was expected to make up 51.5 percent of the new Swedish bank and Swedbank 48.5 percent, but Swedbank's financial results in 2001 were better and the shareholders wanted a higher stake in the new bank." Swedbank's revenues are less vulnerable to fluctuations in the market, added Maripuu.
SEB's share price dropped 4.8 percent on the Stockholm stock exchange at the news, while Swedbank's share price increased by 7 percent.
There is now speculation that SEB might look for a new partner, possibly Sampo of Finland.
In Tallinn, Ain Hanschmidt, president of Eesti Uhispank, professed delight at the decision, saying it would enable the continuation of normal work and preparation of next year's budget.
"One of the banks would have had to be sold, but we didn't know which one," said Hanschmidt. "Clarity is always good news. We intend to increase our market share and work more effectively."
Uhispank had not been involved in the merger talks and had thus incurred no costs, he added.
Uhispank's relatively small 87 million kroon ($5.12 million) profit in the first six months of 2001, a tenth of Hansabank's, was due to "extraordinary costs" in that period, said Hanschmidt. "The results were better than the previous year and our owners are satisfied."
In Riga, Unibanka spokesman Haralds Burkovskis denied that the cancellation of the merger was bad news. "Latvia's banking market will remain stable and balanced. We aim to be the leading financial services provider in Latvia, and as part of the SEB group, throughout the Baltic states."
In Vilnius, Julius Niedvaras, president of Vilniaus Bankas, which is owned by SEB, echoed the relief of his counterparts to the North. "This is generally positive news for Vilniaus Bankas. It means we will conduct our business as usual and will not be involved in any kind of speculation or rumors about what might happen in the event of a merger," he told The Baltic Times. He said the failure of the Swedbank-SEB merger had had the positive effect of increasing interest in the Lithuanian Agricultural Bank, which is currently undergoing privatization.
Hansapank's chief executive Indrek Neivelt said the Hansabank group had retained its existing strategy during the period of the merger talks. "The decision to discontinue with the merger in Sweden will have no significant impact on the operations of Hansabank Group," he said.
"The group will continue its everyday business activities in Estonia, Latvia and Lithuania. "
Juhani Seilenthal, head of Nordea Bank's Estonia branch, was non-committal about rumors that Hansapank might have been sold to Nordea. "We are curious people, who keep our eyes open. I cannot say we would have rejected the offer."
The news clarified Nordea's objective of growing further in Estonia, he added.
According to another source, a German bank was looking to acquire an Estonian bank, probably Hansapank. The Bank of Estonia announced on Sept. 19 that Germany's Norddeutsche Landesbank might open an office in Estonia in December 2001.
Janno Toots, public relations adviser at the Bank of Estonia, said the Estonian banking market continued to be stable and secure.
Aija Breiksa, spokeswoman for Latvia's Finance and Capital Markets Commission, commented, "The merger would not have influenced the Latvian banking market greatly, as the combined market share of the two Latvian banks, Unibanka and Hansabanka, would have been 40 percent."
Merging the two Swedish banks would have created Europe's 25th largest bank, with 11 million clients and 3550 billion kroons in assets.