SEB to focus on merchant banking and wealth management.

Annika Falkengren, chief executive officer of SEB

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• Swedish bank SEB to offload German operations

Swedish bank SEB said on Monday it had signed an agreement to sell its German retail banking business to Santander, the biggest Spanish bank, for 555 million euros (698 million dollars).

The transaction includes all of SEB's 173 retail branches in Germany, which have about one million customers and about 2,000 employees.

SEB said the transaction would allow it to focus on its merchant banking and wealth management divisions.

"The sale of our German banking business will free up capital that will be reinvested in SEB's core strategic growth areas," SEB chief executive Annika Falkengren said in a statement.

SEB said the price of 555 million euros was at a premium to allocated equity of 420 million euros. It added transaction costs were estimated at 375 million euros.

The bank had announced in May it was selling its German retail business because of unsatisfactory profitability.

Santander and Italy's Unicredit had reportedly submitted offers, and a deal was expected for the end of July.

Evli Bank analyst Kimmo Rama said the sale was a "positive deal for SEB."

"SEB is more focused on corporate banking in Germany, and the retail branch has been loss making for some time. In the low margin German retail sector, economy of scale is necessary and thus Santander is a good fit," he told Dow Jones Newswires.

SEB is Sweden's third-biggest bank in terms of market capitalisation and employs about 21,000 people worldwide.

SEB acquired its German retail banking business in 2000 and had planned to sell it in 2008, but the transaction was suspended because of the global financial crisis.

At 0830 GMT, SEB's shares were down 0.72 percent to 45.60 kroner on a Stockholm Stock Exchange down 0.43 percent.