Money laundering scandal takes toll on Nordic banks

Investors continued to turn their backs on the two biggest banks in the Nordic region, as their concern intensifies about the costs of a massive money laundering scandal and slowing economies. 

Danske Bank, Denmark’s biggest lender, revised down its profit outlook for the year as it suffered both higher funding and general costs due to its €200bn money laundering scandal. 

Its shares, which halved in value last year after criminal investigations into the bank were opened in the US, Denmark and Estonia, fell another 8 per cent on Tuesday.

“It has been a difficult start to the year. In terms of trust, there’s definitely still a question mark against Danske Bank,” Jesper Nielsen, acting chief executive, told the Financial Times. 

Nordea, the biggest bank in the Nordics, took a €95m provision for a probable fine from Danish regulators due to weaknesses in its money laundering controls as it delivered worse than expected first-quarter results. Its shares fell 3 per cent on Tuesday. 

“There is a lower growth environment, but I don’t see a recessionary risk coming. The risk is on the downside though,” Casper von Koskull, Nordea’s CEO, told the FT.

Nordic banks are embroiled in one of the largest money laundering scandals ever after being used by criminals in Russia and other former Soviet states to move cash into the western banking system, mostly through their operations in the Baltic states.

Danske is under investigation by the US Department of Justice and Securities and Exchange Commission while Swedbank, Sweden’s oldest lender, is facing multiple inquiries from New York’s state regulator. 

All Nordic banks are ramping up their compliance and anti-money laundering efforts, including hiring large numbers of new staff, as they seek to regain the trust of investors and customers. 

Danske has boosted its compliance workers to 1,700, up from 1,200 a few months ago. “Making sure this doesn’t happen again is a significant investment,” said Mr Nielsen. He added that there were some signs that the bank was able to start talking about business rather than the money laundering scandal with customers. 

Nordea has also had money laundering problems and is the subject of several criminal complaints by investor and Kremlin critic Bill Browder. Mr von Koskull reiterated that Nordea acknowledged that it had “historical problems with anti-money laundering processes and defences” but that it was in a “very different place today”.

“Do I see [the fall of trust] in the business? No. But I feel it. Banking is a trust issue. Post the financial crisis, there was a meaningful deterioration of trust and it’s something we have to be very aware of. We live in a different world to what we lived in five or ten years ago,” he added. 

Danske’s net profit in the first quarter fell 39 per cent from a year earlier to DKr3bn ($450m). Mr Nielsen said the bank had turned more cautious on mortgage lending in the biggest Danish cities as some economists fret about a change in the cycle. 

Nordea’s operating profit dropped 36 per cent to €621m. The bank, which recently moved its headquarters from Sweden to Finland, has spent more than €700m on compliance in the past three years.

Shares in SEB, one of Sweden’s largest banks, fell by 2 per cent after it posted mixed first-quarter results. Chief executive Johan Torgeby said that while SEB had largely avoided negative headlines on money laundering, he was preaching humility.

“We know what we know and we feel comfortable about the past eight, nine, 10 years. But you need to be very humble because you can find something tomorrow that you don’t know today…We can’t ever guarantee that we don’t miss a criminal activity going through our bank,” he added.

He also voiced some concern about the “clouds in the sky”, saying that some companies were scaling back their investment plans in the medium term due to the economic uncertainty.




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