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Banking augurs look for omens of SEB-Nordea tie-up

Readers of the rune stones in Stockholm are getting increasingly excited about the possibility of a merger between two of Sweden's largest banks - SEB and Nordea - in a deal that could create a new force in European banking.

A tie-up would produce a rival to Germany's Deutsche Bank with a market capitalisation of about $66bn, more than 1,800 branches across the Nordic region and exposure to the Baltic states, Ukraine and Russia. But there has been no confirmation of any deal. Executives involved have for months indulged in double-speak - although their absence of an outright denial speaks volumes.

That said, what is certain is that some sort of deal involving Nordea is coming. Sweden's government has pledged to sell all or part of its controlling 19.9 per cent stake in Nordea - worth about $8.8bn - before the end of 2009 as part of its "privatisation" drive.

The list of potential buyers could be long. Interested parties might include Finland's Sampo, which has amassed a 7 per cent stake in Nordea, as well as private equity companies in combination with any other leading Nordic or European lender or - at a push - aggressive Icelandic banks.

But there is one candidate around whom the planets are aligning: Investor, the holding company of Sweden's Wallenberg family. Investor has a 20.1 per cent controlling stake in SEB, the bank the family founded in the mid-19th century, and could use the acquisition of all or part of the Nordea stake to engineer a merger between the two.

It is a possibility that Borje Ekholm, Investor chief executive, referred to elliptically this month when announcing third-quarter results. "The banking industry is in a dynamic phase and we will continue to monitor the bank's position in the best interest of our shareholders," he said.

As for the Wallenberg family, it sent a clear signal it wanted to enlarge SEB after trying in 2001 to merge it with Swedbank, another Swedish bank, although this deal collapsed after the European Union voiced concerns over competition issues.

This time, however, any merger is unlikely to run into similar problems. The number of branches in a combined SEB/Nordea and its market share in most product areas would be less than the SEB/Swedbank alliance, removing a key Brussels concern, according to Andreas Hakansson, analyst at UBS.

Another possible catalyst for an SEB/Nordea alliance could be the Swedish government itself. Masterminding a "Swedish solution" by selling its Nordea shares to the Wallenberg's to create a national champion able to stand toe-to-toe with Europe's dominant banks would dovetail nicely with these ambitions - and be a politically savvy move, investment bankers said.

With the momentum behind an SEB/Nordea merger gathering, analysts are starting to pose some awkward questions for Investor should it go ahead. They point out if Investor, which is almost debt-free with gearing of about 1 per cent of asset value, were to acquire 19.9 per cent of Nordea using debt, it would need to borrow nearly $9bn - taking it over its stated limit of a maximum leverage of 20 to 25 per cent.

This indicates it may have to sell assets to raise funds. It has already agreed to sell its 10.7 per cent stake in OMX, the Nordic market operator, to Nasdaq of the US and Gulf group Borse Dubai, if their takeover of OMX is successful. It could also sell its 11 per cent stake in Scania, the truck maker, although this is considered unlikely. But it may favour a deal to offload its minority 3.4 per cent stake in AstraZeneca, the Anglo-Swedish pharmaceuticals company.

Analysts calculate selling OMX and AstraZeneca would reduce the necessary gearing to within its stated level at 22 per cent. But they are concerned about adding significant new debt in a rising interest rate environment, although Investor's track record means borrowing costs should not increase too severely.

Another concern is that the Nordea deal would significantly re-weight Investor's portfolio of core industrial holdings towards financial services, which would represent about 42 per cent of gross assets after the deal, more than double the current level.

Analysts point out this key change would come at a time when the banking industry is under growing scrutiny as a result of the global credit squeeze - possibly undermining its allure.

Source: Financial Times
Date: 21.10.2007 [121]

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