Many investors look for promising companies in their hometown. New Yorkers may buy JPMorgan Chase (NYSE:JPM) or Goldman Sachs (NYSE:GS), while investing in Bank of America (NYSE:BAC) is a no-brainer in North Carolina.

I apply the same theory to investing abroad. My recent search for quality foreign bank stocks brought me to Norway's Den Norske Bank (OTCBB: DNBHF.PK), which I profiled here after investing late last year.

I started to look around the "neighborhood" at other Scandinavian banks. Danske Bank in Copenhagen is a solid operation, but the valuation and operations were not exciting. Swedbank (OTCBB: SWDBY.PK) in Stockholm has a much more interesting story.

Swedbank CEO Jan Liden outlined the bank's strategy in an investor presentation last November: "We want to be the leading financial institution in the Nordic and Baltic region."

This is a different kind of "neighborhood" investing. Not only is Swedbank a high-return, low-risk leader in its home market of Sweden, it has a dynamic expansion plan to grow its operations in ex-Soviet bloc nations in the Baltic and beyond.

I saw the same phenomenon in the former Yugoslav republics of Croatia and Bosnia when I served there in the 1990s. Ex-communist economies with stale, dysfunctional state banks needed modern banking services like credit cards, ATMS, mortgages, car loans, etc. Neighboring foreign banks with the necessary expertise and capital strength moved in as soon as local laws allowed and began to snap up customers.

Swedbank expanded to Estonia, Latvia, and Lithuania with the purchase of Estonia's Hansabank in February 2005. It also added corporate banking and leasing in several major Russian cities.

Potential demand for modern banking services in the Baltics is high. While Swedish mortgages equal 60% of GDP, that figure is 8%-22% in the target Baltic markets. Credit card payments as a percentage of GDP average half those in EU nations.

Swedbank took another step eastward last week with the $985 million purchase of Ukraine's TAS-Kommerzbank. The Ukrainian purchase will be slightly accretive to earnings. Plans call for increasing the number of TAS-Kommerzbank branches from the current 170. Swedbank also announced plans to expand its Russian operations in retail banking this year.

Based on its Sept. 30 report, Swedbank trades at a modest trailing P/E of 13, with return on equity higher than 20%. At more than two times book value, Swedbank is not a compelling value buy. But its Baltic banking operations grew 47% in the quarter, and projected growth in the Ukraine and Russia should last for several years to come.

Swedbank's growth strategy of making its "neighborhood" larger and larger earns the company a spot in a diversified international portfolio.

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Bank of America and JPMorgan Chase are Motley Fool Income Investor recommendations.

Fool contributor Dale Baker, a private client portfolio manager and former U.S. diplomat with extensive experience in Europe and Africa, owns shares in Swedbank and Den Norske Bank -- even though he thinks Scandinavia is far too cold. He welcomes your questions or comments. The Fool's disclosure policy is better than Swedish meatballs.