Biggest Swedish Bank Says Baltic Business Not Worth the Cost

(Bloomberg) -- Sweden’s biggest lender, Svenska Handelsbanken AB, is pulling out of the Baltic region arguing that the cost of staying is simply too big.

Handelsbanken’s Baltic operations are far smaller than those of its Swedish peers, Swedbank AB and SEB AB. But 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. 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 step by its new chief executive officer, Carina Akerstrom, as she tries to halt an increase in costs and improve profitability. Right after taking the helm in late March, Akerstrom said she would immediately address expenses, which means that Handelsbanken may have to exit some areas.

Even after pushing through “efficiency-enhancing measures” in Estonia, Latvia and Lithuania, Handelsbanken said that “the operations in the region have not performed satisfactorily," in a statement on Thursday. “Profitability is too low, while costs are too high.”

“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.

Kilvar Kessler, the head of Estonia’s financial supervisor, said that “Handelsbanken’s departure from the Estonian market has no impact on the local banking market as their market share in Estonia has been very small,” in an emailed comment. “It is important that their client relationships in Estonia would be properly ended or transferred.”

Handelsbanken is the second major Nordic lender to quit the Baltics, after Danske. Denmark’s biggest bank said in February it was leaving the entire region after being kicked out by the Estonian regulator in the wake of the dirty-money scandal at its Tallinn branch. Nordea Bank Abp 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

There’s been some concern in the Baltics that the Swedish banks that dominate its banking market may also leave. So far, both Swedbank and SEB have underlined their commitment to the region. In an interview in late March, SEB CEO Johan Torgeby said the Baltics are “part of our long-term plan and a part of this bank’s future strategy."

Read more: SEB Has No Plans to Leave Baltic Region as Other Banks Retreat

Earlier this week, Kessler said that he considers “the likelihood of Swedish or other Nordic banks, but foremost the Swedish, leaving Estonia as negligible at this point.”

“But of course, if the likelihood will become very big then the effects would be very, very large,” he said.

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.

Its total balance sheet for the three Baltic countries is about 2 billion kronor ($208 million), overseen by about 30 employees. By comparison, Swedbank has total lending in the Baltics of 174 billion kronor and deposits of 218 billion kronor.

In a separate statement on Thursday, Handelsbanken said its head of group compliance, Pal Bergstrom, will become the new head of its Markets unit. The bank’s compliance duties will be overseen by Maria Tornell until a permanent successor is found for Bergstrom.

©2019 Bloomberg L.P.