Defections unlikely to hurt profits, says Danske CEO

Bloomberg

Danske Bank A/S isn’t expecting to see financial losses as a result of the client flight triggered by its money laundering scandal, according to its interim chief executive officer, Jesper Nielsen.
The bank said it lost about 11,000 retail customers in Denmark, net, last year. It also pointed to “negative impact” of the laundering case on its corporate clients in Denmark and, to a lesser degree, in Sweden.
In an interview in Copenhagen, Nielsen said he doesn’t “anticipate an abnormal outflow” of customers going forward. “We’ve still managed to increase our lending book on personal customers in Denmark, so right now there’s no financial implication of that undercurrent of customers leaving the bank,” he said.
“Obviously, we’re mitigating all we can, working as much as possible, to limit the number. But I don’t see this as something that will have an overall financial impact in 2019.”
Danske’s fourth-quarter results brought relief to investors who had grown accustomed to a seemingly never-ending stream of bad news from the bank and its $230 billion Estonian dirty money saga. Its shares rose almost 6 percent at one point during the day, and were up about 2 percent at 2 pm in Copenhagen.
The bank failed to live up to analyst estimates for how much money it expects to make this year, but delivered fourth-quarter results that didn’t disappoint the market. Danske won’t buy back shares in 2019, though management committed to its dividend policy.
“There are still a lot of uncertainties when looking into the future with the potential fines being a clear No. 1, but the core business of Danske Bank is doing well,” Mikkel Emil Jensen of Sydbank A/S said by phone.
The laundering scandal, in which it’s alleged that billions of dollars in suspicious funds flowed from the former Soviet Union and into the West through a tiny Estonian branch until as recently as 2015, wiped about 47 percent off Danske’s market value last year. Even after the share-price gain, Danske remains among the worst performers among its Nordic peers so far in 2019.
After issuing a profit warning at the end of 2018, the bank said it plans to invest 2 billion kroner ($307 million) over three years in further compliance measures that it also hopes will persuade customers to stay.
The Estonian laundering case has made Danske the target of numerous criminal investigations, including in the US, and investors are bracing for hefty fines. Danske said it still can’t “reliably estimate the timing or amount of any potential settlement or fines, which could be material.”
“As long as the uncertainty, not just regarding earnings but also in relation to the laundering case, is as big as it is, the shares will stay under pressure,” said Per Hansen, an
investment economist at Nordnet in Copenhagen.
Nielsen, who has been acting as interim CEO since Thomas Borgen was relieved of his duties in October, said Danske still faces a “huge task” if it’s to regain the trust of its clients and investors following the Estonian scandal. Speaking at a press conference in the Danish capital, Nielsen said Danske expects more clients to leave the bank because of the case.