UPDATE 1-Swedbank tipped as buy target, analysts sceptical

(Adds Swedbank, Danske bank, analyst comment)

By Simon Johnson

STOCKHOLM, Sept 24 (Reuters) - Rumours of the imminent sale of Swedbank AB (SWEDa.ST) may be exaggerated, analysts said, after a newspaper report on Wednesday that Sweden's fourth biggest bank by value could be bought within six months.

Speculation over a deal involving Swedbank, rife over the last couple of years, has been fuelled recently by concerns it faces surging loan losses in the Baltics and that its funding costs are rising faster than rivals.

Daily Dagens industry ignited fresh speculation of a deal on Wednesday, quoting a source with knowledge of Swedbank as saying it would be involved in consolidation within six months, with Danske Bank (DANSKE.CO) the most likely partner.

Swedbank declined to comment on the rumour, as did Danske.

Analysts were sceptical.

"The short answer is, I don't think they are going to be sold in the short-term," said Henrik Schmidt, analyst at Keefe, Bruyette & Woods.

A second analyst, who declined to be identified, agreed that Danske would be a good fit, but did not see a deal likely.

"Everybody is talking to everybody at this point. But Danske has enough on their table as it is, with the Danish housing market, and the integration with Sampo and so forth," the analyst said.

A slowing domestic economy and a slumping housing market has pushed up loan losses for Danish banks. Danske has also struggled to integrate Sampo Bank which it bought in 2007.

The analyst said that Swedbank's low valuation made it attractive, but added: "I don't see that this merger is very likely."

BALTICS

Swedbank shares are down around 45 percent this year, more than the 33 percent drop in the Nordic banking index .TBNKF. Swedbank stock was down 0.5 percent on Wednesday at 1210 GMT.

It is trading at around 4.5 times estimated 2008 earnings, according to Reuters data. Nordea (NDA.ST), the region's biggest bank, trades at around 8 times earnings. Britain's HSBC (HSBA.L) trades at 12 times.

Worries about Swedbank centre on the Baltics, where economies have hit the buffers after a period of red-hot growth and where the bank is the biggest player. Some analysts fear Swedbank now faces a big increase in loan losses in the region.

"The banks (in the Baltics) have been guiding for loan loss of 100-120 basis points, but things have deteriorated," said Schmidt at KBW.

He said that as long as loan losses do not rise to double that amount, forced mergers were unlikely.

Of Swedbank's total lending to the public at the end of the second quarter of 1.2 trillion Swedish crowns ($181.2 billion), a total of 190 billion crowns ($28.69 billion) was in Baltic banking, its second-quarter report said.

Around 30 percent of Swedbank's profit comes from Latvia, Lithuania and Estonia.

Swedbank has repeatedly said its finances are strong. (Additional reporting by Kim McLaughlin, Victoria Klesty and Sven Nordenstam; editing by Simon Jessop)