Tuesday, July 21, 2009

The Latest On The Baltic States And The Swedish Banks Who Operate There

The current account surpluses in Estonia and Lavia continues to increase to increasingly significant levels. Both are now experiencing significant surpluses after having just two years ago experienced extremely large (We're talking of current account deficits of 15-25% of GDP) deficits. In relative terms that makes the American adjustment that Brad Setser is so excited about appear trivial in comparison.

I am not sure about whether actual balance of payment accounting takes these effects into account, but whether or not the statistics reflects it, it seems clear that certain Swedish banks (meaning primarily Swedbank and and only to a slightly lesser extent also SEB) that through reckless lending standards was responsible for the boom-bust cycle that wrecked the Baltic economies, are paying the price for that by showing significant losses in the case of Swedbank and no profits in the case of SEB.

By contrast, another major Swedish bank, Handelsbanken, who is renowned for more prudent lending standards and who never had any significant Baltic exposure, is actually showing a small increase in its profits. This illustrates that strategic choices by management does matter in rewarding winners and losers-as Swedbank and SEB are now paying the price for the reckless lending standards of their Baltic subsidiaries while Handelsbanken is seeing its more prudent strategy vindicated.

4 Comments:

Blogger All-In-All said...

I've always been fascinated with Scandinavia and the Baltic countries, interesting post.

It also reminded me of this article on the history of Swedish free banking in the QJAE.

http://mises.org/journals/qjae/pdf/qjae10_2_3.pdf

7:05 PM  
OpenID jokeridze said...

It's a strange "current account surpluses". For example, for Latvia if you look detailed current account here http://www.bank.lv/LMB/LMB_en.php?table_level_0=19&table_level_1=&tables=3&lang=2&period-‎f=2009&period-t=2009&periodiskums=2&period-q-1=on&period-q-2=on&period-q-3=on&period-q-‎‎4=on¤cy=1&bopsy_lim=0&mervieniba=2 you will find in article "Investment income (debit)" where normally should be negative numbers an item "Reinvested earnings and undistributed branch profits" which is positive =133.4

11:48 AM  
Blogger Aki_Izayoi said...

I've always been fascinated with Scandinavian countries especially Sweden too.

I guess it is too bad that some Swedish banks didn't learn their lesson after the 1992 debacle.

9:05 PM  
Blogger stefankarlsson said...

Jokeridze, it is not strange at all that the debit side of investment income is negative. Or didn't you notice the part of the post where I noticed that the two Swedish banks most involved in Latvia, Swedbank and SEB, suffered huge losses?

10:00 PM  

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