Brexit Much Less Scary Than Baltics for Biggest Bank in Sweden

(Bloomberg) -- As Baltic money laundering taints large chunks of the Nordic banking world, there’s one lender that stands out for dodging the scandal.

Svenska Handelsbanken AB, Sweden’s biggest bank, has adopted a very different expansion strategy from its competitors over the years. When Swedbank AB and SEB AB were trying to tap into faster economic growth rates in Latvia, Estonia and Lithuania, Handelsbanken was mostly looking in the other direction, toward Britain.

“We took an active decision many years ago not to expand into the Baltics because we found that we had difficulties in analyzing and understanding the underlying, inherent risks in these countries,” said Anders Bouvin, who was chief executive officer at Handelsbanken until last month, when the 60-year-old handed the reins over to his successor. “So it was a very active choice.”

Meanwhile, the fact that Britain may be about to crash out of the European Union won’t alter Handelsbanken’s commitment to that market, Bouvin said.

“We adapt to changes in our environment, and changes like these aren’t predictable,” he said. “But the long-term decision, the long-term strategy, the wisdom of that choice, to expand into the U.K., that is not affected at all by these kinds of circumstances.”

The list of Nordic banks burned by their exposure to the Baltic region is long. Danske Bank A/S is being investigated by prosecutors in the U.S. and across Europe for a $230 billion dirty-money case stemming from its Estonian operations. Swedbank AB has been implicated in the same scandal, with suspicious transactions potentially reaching more than $100 billion. Nordea Bank Abp, which allegedly also handled dirty Russian money tied to the death of Sergei Magnitsky, is trying to wind down its Baltic exposure.

Handelsbanken and the Baltics

The bank has made a few attempts to buy some operations in the region:
  • In 2006, it tried and failed to buy Latvia’s state-owned mortgage lender.
  • In 2004, it bought a stake in Latvia’s Parex Bank, which subsequently went bust before being taken over by the state.
  • Handelsbanken opened a few branches in the Baltics 2008, but the bank’s presence in the region remains negligible. The bank currently has a single branch in each of the three Baltic countries, and with a few exceptions only serves local customers from its home markets -- the Nordics, the U.K. and the Netherlands. 
  • Its assets in the Baltics are dwarfed by those of Swedbank, which has around $18 billion, to Handelsbanken’s roughly $180 million.

Danske Bank has responded to its laundering scandal by launching a full retreat from the Baltics and Russia. But Swedbank and SEB say they’re staying. In a recent interview, SEB CEO Johan Torgeby said his bank remains “very committed” to the region, which he says is “part of our long-term plan and a part of this bank’s future strategy.”

The stock market is a good indicator of how the banks’ different strategies have been received. Since the end of February, shares in Swedbank have plunged about 20 percent, Nordea is down some 15 percent and SEB has lost about 13 percent. Handelsbanken has fallen roughly 7 percent.

The bank regulator in Estonia made clear it was happy to see the back of Danske, but stressed that it doesn’t want Sweden’s banks to leave, given their systemic importance to the region’s financial system. Swedbank and SEB, which stuck with the Baltics through their 2009 economic crisis and subsequent rebound, are the two biggest lenders in the region.

The former CEO of Handelsbanken, which besides Britain also has a big presence in the Netherlands in its non-Nordic business, says it’s important to analyse the long-term prospects and stability of a market before deciding to expand.

“You have to look at things over a cycle,” said Bouvin, who announced in February that he’ll be handing the CEO job over to Carina Akerstrom. That applies to the “banking sector especially.”

©2019 Bloomberg L.P.