Mike Collier in Riga -

Just as the Baltic economies hit stormy weather, Hansabank owner Swedbank could be preparing to turn the Viking longship of its company logo around and head back across the Baltic Sea to its Swedish safe haven.

When it was originally released in November 2007, a report from Citigroup analysts titled "Time for a break-up?" drew relatively little attention despite talk of Swedbank's "severe downside risks." But in recent days it has resurfaced amid speculation that Swedbank may be forced to offload its Hansabank operation in the Baltic states (Hansapank in Estonia, Hansabanka in Latvia and Hansabankas in Lithuania) to placate shareholders worried about the level of Swedbank's risk in the region.

With 3m active customers, 300 branches and 8,000 employees, Hansabank is the largest financial institution in the Baltic states. Maybe it's because there are post-Christmas fears about an increase in loan defaults or the fact that macroeconomic imbalances in the Baltic economies refuse to improve - whatever the reason, it forced Erkki Raasuke, CEO of Hansabank Group, to deny on January 11 that a sale has been discussed, though he did admit the report had been a topic of conversation.

In February 2007, Swedbank's shares peaked at SEK282. But if Citigroup's reasoning made sense in November, when Swedbank was trading at SEK175, the argument would be even more compelling now the price has dropped further to just SEK170.

Suitors

Numerous potential buyers could be in the frame. A natural candidate to take over lock, stock and barrel would be Raiffeisen International, which has developed an extensive network throughout Central and Eastern Europe, but has so far shied away from the Baltics. Hansabank would be a near-perfect fit and a quick way of adding three countries to its portfolio for the price of one.

Russian banks might also be interested in gaining a valuable strategic toehold in the EU. Rumours last year linked Russia's Alfa Bank with a move for regional player Parex Bank. The approach petered out, but if Alfa is still in acquisitive mood, Hansabank could be an attractive proposition, particularly if it retains control of its sophisticated electronic banking infrastructure.

A third option, which would likely realise the best cash bonus for Swedbank's disgruntled shareholders, would be an auction of Hansabank's assets. That is the route favoured by Citigroup's analysts: "In our view, an argument can be made that Swedbank should be broken up... which would likely realise considerable value for shareholders." Citigroup puts a minimum price estimate of around €5.4bn on Hansabank, possibly as much as €7.2bn.

SEB Unibank aside (which Citigroup says is almost as exposed to the Baltics as Swedbank), other Scandinavian banks including DnB Nord, Nordea and Danske Bank (via its Sampo Bank subsidiary, being rebranded this spring) might be interested in cherry-picking parts of a dismantled Hansabank. Piecemeal purchases would help prevent shareholders back home in Scandinavia expressing the same sort of misgivings about over-exposure that put pressure on Swedbank to sell in the first place.

Indigenous Baltic banks such as Parex, Latvijas Krajbanka and Bankas Snoras may be interested in the leftovers, either to consolidate their positions in home markets or to take a shortcut to pan-Baltic status. Bankas Snoras is particularly ambitious and looks the likeliest to go for the latter approach.

Citigroup identifies other potential buyers as Kaupthing, Landsbanki, Erste Bank and a "wild card" contender in Marfin, backed by Dubai money.

While a clear economic case can be made for selling Hansabank - at least as far as its shareholders are concerned - such a move would send shockwaves through the Baltic banking market where Hansabank is regarded as a success story. It would still be something of a novelty to see a major company being sold because of that success rather than because it is in need of rescue.

Added to that, the Scandinavian banks remaining in the Baltic markets would be regarded with a hitherto unthinkable sense of suspicion - with Hansabank gone, who would be next to jump ship?

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