UPDATE 1-Sweden's SEB, Danske Bank in talks over tie-up - paper

Thu Oct 3, 2013 7:23am EDT

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STOCKHOLM/COPENHAGEN Oct 3 (Reuters) - Swedish lender SEB and Denmark's Danske Bank are discussing a large structural deal, a Swedish newspaper reported on Thursday, which could produce the second-biggest bank in the Nordic region.

Business daily Dagens Industri on Thursday reported that the chief executive of Investor, which owns about one fifth of SEB, believes the bank is too small compared with rival Nordea , the region's biggest bank by market value.

Danske Bank, SEB and Investor all declined to comment.

By 1120 GMT, Danske Bank shares were up 1.4 percent and SEB shares were up 0.9 percent.

There has been speculation that SEB and Danske, which has suffered from the collapse of a property bubble and weak agriculture sector in Denmark, could link up amid long-running talk of consolidation among the region's banks.

SEB and Danske are similar in size, with SEB's current market value $23.7 billion and Danske's $22.3 billion. Nordea has a market capitalisation of $49.5 billion.

The Swedish bank has recovered from a downturn in the Baltics in 2008/2009, making a 14 percent return on equity in the second quarter of this year, more than twice Danske's profitability.

SEB and Danske could save money from economies of scale in their Swedish, Baltic and head office operations, but they may struggle to get approval from regulators who are keen to limit the size of big financial firms, analysts said.

"A key issue we would see is a further concentration of Nordic banks, which might not be appreciated by regulators," said Ronny Rehn, analyst at Keefe, Bruyette & Woods.

The paper said SEB Chief Executive Annika Falkengren could take over from Borje Ekholm as head of Investor, leaving Danske Bank's new chief, Thomas Borgen, to lead any combined financial group.

Ekholm has been CEO of Investor, the listed investment vehicle of Sweden's Wallenberg family, since 2005, two years longer than he had intended, the paper said.

"If you look at the curve of the two banks right now, SEB is very fit and well run, and Danske Bank is in the gym working to improve its shape," Sydbank analyst Bjorn Schwarz said.

"But one cannot rule out that a merger would make sense in the future."

Speculation about an SEB-Danske deal picked up in November 2011 when Swedish activist investor Cevian took a stake in Danske, which it increased to 9 percent this year.

Another option could be for the banks to seek cost savings from their Baltic operations.

Borgen, whose predecessor Eivind Kolding was ousted last month after less than two years in the job, told Reuters on Wednesday there was scope for cost-cutting. He also aims to restore a dividend, which the bank has not paid for five years. (Reporting by Mia Shanley in Stockholm, Mette Fraende in Copenhagen and Steve Slater in London,; Editing by Erica Billingham)

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