There are so far no charges or convictions, but analysts are already guessing how big a fine Danske Bank A/S might have to pay following allegations it became a major hub for money laundering in Europe.
A potential penalty could be as high as $4.7 billion or as low as $315 million, and estimates average out at $670 million, based on numbers submitted by five analysts. At least two of the analysts said it was possible Danske would avoid a fine altogether. In any event, the bank’s share plunge reflects a worse fate than anyone predicts, with a sixth
analyst pointing out that investors have already priced in as much as $6 billion in potential fines.
The Danish regulator has already ordered Danske to hold an additional 5 billion kroner, or nearly $800 million, in regulatory capital in response to laundering allegations.
Danske’s Estonian operations became a laundromat for more than $8 billion that was channeled into Europe from Azerbaijan, Russia and Moldova between 2007 and 2015, according to Bill Browder, the fund manager who is leading a global campaign against the Kremlin over corruption and human-rights abuses.
Browder, who is co-founder and chief executive officer of Hermitage Capital, has said he’s preparing a complaint to the Danish Public Prosecutor. The new evidence he helped bring forward suggests the amount laundered is twice as big as previously thought. “At this point, there’s now an international scandal around the conduct of the bank,” Browder said in a phone interview on Monday. He also plans to file a complaint in Estonia.
Though previous attempts to persuade Danish authorities to prosecute Danske led nowhere, Browder says the situation is now “totally different.” The full body of revelations means “the picture is now clear,” he said. “There’s no way the authorities can legitimately not act, based on this information.”
Danske is asking politicians, investors, journalists and the public to wait until the bank publishes the findings of an internal probe, due by the end of September. Management has said it will release information earlier if possible. The bank is due to publish second-quarter earnings on July 18.
Danish Business Minister Rasmus Jarlov has already made clear Danske’s own investigation won’t be enough to put the matter to rest, and says the Financial Supervisory Authority is looking into the case. Meanwhile, the Public Prosecutor says it’s also monitoring the situation closely.
CEO Is Sorry
Danske CEO Thomas Borgen has publicly apologized for the scandal and the bank has built up its compliance defenses. But so far no criminal charges have been filed in Denmark or Estonia. Only two Danish executives have left the bank. Lars Morch, who headed international banking at Danske, resigned in April.
Danske Bank said on Wednesday that its head of group compliance since 2014, Anders Meinert Jorgensen, is also leaving.
The Danish FSA said in May it didn’t have enough evidence at the time to make a conviction likely. Meanwhile, just over 60 percent of Danes polled by Wilke for FinansWatch say Borgen ought to step down. Only about 13 percent of those polled say he should stay.
Denmark was lambasted last year for its inadequate money laundering defenses. A report by the Financial Action Task Force, an inter-government organization that monitors compliance with global regulations, found extensive shortcomings, including no coordinated plans and insufficient resources, as well as a “weak” implementation of anti-laundering measures by banks.
The size of any fine that Danske may end up paying depends very much on whether the case is taken up in the U.S. The bank has a dollar-bond program, but no license in the U.S., which makes prosecution there unlikely, according to some analysts.
Danske didn’t book any provisions for a potential fine in the first quarter. Spokesman Kenni Leth declined to comment on the extent to which the bank might need to set aside funds in future, citing the bank’s silent period ahead of second-quarter earnings.
Given that as much as $6 billion in fines has already been priced into the stock, “additional downside from the AML affair at this point is limited,” Kepler Cheuvreux said in a client note last week.
But US authorities take “a keen interest in primary banks that have been facilitating money laundering out of Russia, and they’ve cracked down very hard,” Browder said.