Sweden's Biggest Bank Says Baltic Business Not Worth the Cost
(Bloomberg) -- The biggest Swedish lender by assets, Svenska Handelsbanken AB, said it will pull out of the Baltic region as the cost of staying there is simply too big.
Though Handelsbanken’s Baltic operations are far smaller than those of its Swedish peers, Swedbank AB and SEB AB, the decision comes at a sensitive time. Estonia is at the center of a $230 billion money laundering scandal that has engulfed Denmark’s biggest lender, Danske Bank A/S. And Swedbank, which dominates financial markets in the Baltics, is fielding allegations it may have handled over $100 billion in potentially suspicious flows.
Handelsbanken’s decision to close its three branches in Tallinn, Riga and Vilnius marks the first major measure by its new chief executive officer, Carina Akerstrom, as she seeks to halt an increase in costs and improve profitability. Just after taking the helm of the bank in late March, Akerstrom said she would immediately address expenses and that the bank has to dare to exit some areas.
Despite the implementation of efficiency-enhancing measures in Estonia, Latvia and Lithuania, “the operations in the region have not performed satisfactorily," Handelsbanken said in a statement on Thursday. "Profitability is too low, while costs are too high," it said.
“This, combined with changes in many customers’ behavior and an increase in the investments needed, has resulted in the bank deciding to gradually wind down the operations during 2020,” it said.
Handelsbanken has said that the total balance sheet for its operations in the three Baltic countries is about 2 billion kronor ($208 million) and that it has about 30 employees there. In comparison, Swedbank has total lending in the Baltics of 174 billion kronor and deposits of 218 billion kronor.
Handelsbanken has been in the region, which was once part of the Soviet Union, for 10 years. The business was intended to help Nordic customers with operations in the Baltics. “In the future, these customers will be served by local branches in the home markets,” it said.
Handelsbanken follows Danske Bank in exiting the region, though for different reasons. Denmark’s largest lender announced it would retreat from the entire Baltic region in February after being kicked out of Estonia in the wake of the bank’s dirty-money scandal there. Nordea Bank AB and DNB ASA are also retreating, after deciding to sell most of their Baltic joint venture Luminor to a group of buyers led by Blackstone.
Read more: Blackstone Approach Gives Nordea, DNB a Path Out of the Baltics
That has sparked concern in the Baltics that the Swedish banks that dominate its banking market may also head for the exit. Still, both Swedbank and SEB have expressed their commitment to the region. In an interview in late March, SEB CEO Johan Torgeby said the bank is "very committed" to the Baltics which is "part of our long-term plan and a part of this bank’s future strategy."
"I consider the likelihood of Swedish or other Nordic banks, but foremost the Swedish, leaving Estonia as negligible at this point,” Kilvar Kessler, the head of Estonia’s financial watchdog, said at a conference in Tallinn on Tuesday. “But of course, if the likelihood will become very big then the effects would be very, very large.”
In a separate statement on Thursday, Handelsbanken said its head of group compliance, Pal Bergstrom, will become the new head of its Markets unit. Bergstrom will be replaced by Maria Tornell in that capacity until a permanent successor is found.
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