Danske Bank's interim chief executive said that it was too early to assess what damage Denmark's largest lender had sustained from a €200 billion money laundering scandal and warned of potentially "big" fines.
Danske’s third quarter earnings on Thursday showed the bank’s lending had increased across the Nordic countries, with solid activity among retail and commercial customers, giving its battered shares a welcome respite.
"We should be careful not to underestimate the undercurrent. Because if we look at the bank's reputation, we can see that it is under pressure," Jesper Nielsen told Reuters in a telephone interview following the results.
It was therefore too early to say whether the scandal could lead to a significant decline in business volumes, he said after Danske reported a 42 per cent fall in third quarter pretax profit, largely the result of a previously announced donation it is making to initiatives to fight financial crime.
"One could have feared that a larger decline in the number of customers and a diminishing use of bank services could have had a greater negative impact," investment economist Per Hansen said in a note as Danske shares rose by as much as 6.5 per cent.
Investors have been worried about potential fines resulting from the money laundering case, which is the subject of criminal investigations in Denmark, Estonia and the US.
Before Thursday’s increase, Danske’s share price had almost halved since February.
Big fines
Nielsen said potential fines resulting from investigations in payments through Danske’s Estonian branch between 2007 and 2015, many of which the bank said in September were suspicious, could be “big”. He declined to elaborate, adding that no subpoenas have been issued so far.
In order to help the investigations, Danske would relieve others of confidentiality clauses, as it has done in the case of whistleblower Howard Wilkinson, who helped expose the scandal, Nielsen said.
Danske said its pretax profit dropped to 3.59 billion Danish crowns (€481 million), missing the 3.72 billion crowns expected by analysts in a Reuters poll, after the 1.5 billion crown “donation” following the money laundering affair.
Nielsen said it had not yet been decided which specific projects would be supported. However, if any income from the non-resident Estonian portfolio becomes subject to confiscation by relevant authorities, it would be deducted from the donation.
Losing customers
The interim chief executive said Danske is investing "massively" to "combat financial crime," in an interview with Bloomberg Television. It's also taking a very different approach to capital management, as it awaits news of a potential fine. "We are more preoccupied with being seen as prudent in terms of capital these days than necessarily handing back capital to shareholders," he said.
Nielsen became CEO in October, when Danske removed Thomas Borgen for his role in the laundering scandal. Nielsen has ruled himself out as a candidate for the job in the long term.
Danske tried to win regulatory approval for its head of wealth management, Jacob Aarup-Andersen, to become CEO, but failed. It didn’t provide any further updates on Thursday.
According to the bank’s updated factbook, it lost about 8,000 customers in Denmark last quarter, as Danes learned the full scope of the laundering scandal. Per Hansen, an investment economist at Nordnet, said “one could have feared a bigger exodus.” But he also notes that there’s an expectation that customer flight will continue in coming quarters, though it appears “Danske Bank will stand its course.”
Nielsen said Danske is working hard to “explain to the market” how much it’s done to avoid ever again being dragged into a similar scandal. That includes building up a staff of about 1,200 people to focus on compliance in the area, compared with roughly 300 in 2015, he said. “It is important that people can feel that we are truly sorry and that we take this very seriously,” he said.
Danske stuck to its to its full-year forecast from September for a net profit of between 16 and 17 billion Danish crowns.
– Reuters
