Danske Bank to forgo Estonia profit amid money-laundering probe
Copenhagen — Danske Bank says it will forgo profits made from transactions in Estonia that are subject to a money-laundering probe and that its 2018 net profit will be at the low end of its target range.
Shares in Denmark’s biggest lender have fallen 25% since March as allegations its Estonia branch was involved in money laundering from 2007 to 2015 intensified. Its shares took another hit on Wednesday, plunging as much as 10% to a two-year low after it reported disappointing second-quarter earnings and was more precise about its full-year outlook.
On top of weak earnings, the stock was hit by investor concerns over 2019’s buybacks, as it was "hopeless" to reach the 9.4-billion Danish kroner forecast by consensus, said ABG Sundal Collier analyst Mads Thinggaard.
The bank has admitted to flaws in its antimoney-laundering controls in Estonia and has launched its own investigation into the allegations.
A newspaper report in July said Danske laundered up to $8.3bn in Estonia from 2007-15 — twice the amount initially reported by the newspaper.
Danske Bank said on Wednesday that it should not benefit financially from any "suspicious transactions" in Estonia.
"Consequently, it is Danske Bank’s intention to make the gross income generated from such transactions in the period from 2007 to 2015 available for efforts that support the interest of the societies in which we operate, such as combating international financial crime," it said in a statement.
Gross profits from its non-resident portfolio in Estonia from 2007 to 2015 amounted to 1.5-billion kroner ($234m), but it was not clear how much of that amount Danske would waive, CEO Thomas Borgen said. "It is a complicated exercise, it is millions of transactions," he said.
The bank is due to present the findings of its internal investigation in September. It said it had hired Philippe Vollot as the new chief compliance officer, replacing Anders Meinert Jorgensen who resigned last week following an "intense" period.
Vollot joins by December 1 from Deutsche Bank, where he heads the bank’s global anti-financial crime and antimoney-laundering efforts.
Earlier in July, Denmark’s new business minister said Denmark’s financial watchdog could open a new investigation as the bank’s own investigation might not be enough.
"I completely agree with Danske Bank that the bank can’t keep that money. Good that they recognise this," business minister Rasmus Jarlov said on Twitter on Wednesday.
Trading income slumps
The Danish financial watchdog said in May that returns on allocated capital at Danske’s Estonian non-resident portfolio of about 400% in 2013 should have raised red flags. It ordered the bank to set aside an additional 5-billion kroner in regulatory capital in response to laundering allegations.
The potential fine Danske Bank could face depends on whether the US regulators take action. While the bank does not have a banking license in the US, it has a bond programme in dollars, which could prompt US regulators to open a case.
For now, analysts on average put estimates for potential fines at roughly 4-billion kroner.
Danske Bank reported a pretax profit of 5.49-billion kroner for the three months to June 30, down from 6.18-billion kroner a year earlier. Analysts had forecast a profit of 6.02-billion kroner.
The bank said it still expected a net profit for the year of 18-billion to 20-billion kroner, but that it would likely be at the lower end of that range due to weaker trading income.