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UPDATE 2-Swedbank names frontrunner Henriksson new CEO in bid to rebuild trust

Johannes Hellstrom

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* Henriksson joins from insurer Folksam

* Folksam is Swedbank's 2nd largest shareholder with a 7.1% stake

* Former CEO sacked over money-laundering scandal

* Swedbank shares down 38% this year (Adds analyst, shareholders' assocation, background)

STOCKHOLM, Aug 29 (Reuters) - Swedbank has named Jens Henriksson, the chief executive of insurer Folksam as CEO, as the lender tries to rebuild confidence after a money-laundering scandal.

Henriksson had been widely viewed as a frontrunner for the job. Folksam is the second-largest shareholder in the Swedish bank.

Sweden's oldest retail bank earlier this year dismissed its chief executive, accepted the resignation of its chairman and lost more than a third of its market value after its Estonian business was caught up in money-laundering allegations that have also engulfed Danish peer Danske Bank.

The initial reactions to the appointment announced late on Wednesday were mixed, with Credit Suisse saying it would take "leadership uncertainty off the table" while the Swedish Shareholders' Association took a dimmer view. "It is troubling that Henriksson during a long period as an owner representative had a responsibility for the development in Swedbank," association CEO Joacim Olsson told Reuters.

In April, Swedbank admitted some failings in its money laundering processes and promised to launch a comprehensive internal investigation.

The most recent allegations against Swedbank, reported by Swedish state TV in March, say it processed gross transactions of up to 20 billion euros ($22 billion)a year from high-risk, mostly Russian non-residents through Estonia from 2010 to 2016.

With Jens Henriksson, the bank will have a CEO who combines an experienced leadership, a strong communicative ability and a broad knowledge of the banking and financial industry," Goran Persson, Swedbank's chairman since June, said in a statement on Wednesday.

REBUILDING TRUST

Persson, a Social Democrat who served as Sweden's prime minister for a decade until 2006, pledged in June to "clean the house" and restore confidence in Swedbank.

Henriksson will take over "as soon as possible," Swedbank said. He was previously CEO of the Stockholm Stock Exchange and worked at the Swedish Ministry of Finance when Persson was in government.

I feel both humble and honored, and I am also aware of the challenges ahead," Henriksson said.

"My major task as President and CEO of Swedbank is to rebuild the trust for the bank, to further develop the banks sustainability profile and to continue the successful digitalisation journey."

Swedbank is the subject of a joint probe by the Swedish and Baltic financial watchdogs and is also being investigated in the United States where it faces the threat of hefty sanctions and fines.

Henriksson will take over from acting CEO Anders Karlsson, who will return to his regular role as chief financial officer.

($1 = 0.8973 euros) (Reporting by Johannes Hellstrom in Stockholm and Shubham Kalia in Bengaluru; Editing by Kirsten Donovan, Niklas Pollard and Deepa Babington)