Money laundering crisis more painful than 2008 meltdown for Danske

Bloomberg

What’s worse for a bank, the biggest financial crisis since the Great Depression or the biggest money laundering scandal in European history? According to Danske Bank, which has lived through both, it’s the latter.
The bank’s acting chief executive, Jesper Nielsen, says that during the global meltdown of 2008, concerns centered on things like “greed,” which was obviously bad. But this time, it’s about “the extent to which we were involved in crimes,” Nielsen said in an interview with FinansWatch. And “that’s much more painful,” he said. For shareholders, the observations are noteworthy. The crisis of 2008 sliced 74 percent off Danske’s market value that year. In 2018, the bank’s stock has lost about 48 percent.
This week, police apprehended 10 former Danske Bank employees who had worked at the Estonian branch at the center of the $230 billion dirty money scandal. They’re suspected of having knowingly he- lped criminals from Georgia and Azerbaijan shovel about $340 million from former Soviet Union into the West. Prosecutors have said it’s very likely there’ll be more suspects, given the size of the case. Danske ended the week before Christmas by delivering a profit warning, for which it blamed the selloff in financial markets. It’s the second time the bank has cut its outlook in three months.
The bad news follows a period during which Danske had appeared to turn a corner. Investors seemed pleased with the results of a management purge that included the former CEO, Thomas Borgen, and chairman, Ole Andersen. And the financial regulator in Denmark hinted that prosecutors might show leniency, given the bank’s willingness to cooperate with investigators.
But ultimately, there are too many unknowns for investors to assume the worst is behind them. At Alfred Berg, head of equities Leif Eriksrod says Danske has turned into “a big black box. It’s clear that it has fallen a lot, but whether it’s ch-eap now is a speculative guess.”
The allegations against Danske suggest that potential criminals from the former Soviet Union used the bank as a central causeway for funneling their money into the West. The original crimes, according to allegations made by prosecutors in Estonia and a whistle-blower, include tax fraud and embezzlement. The laundering is alleged to have continued into 2015.
Bill Browder, the Hermitage Capital founder who has made it his life’s work to follow the money tied to the 2009 death of his colleague, Sergei Magnitsky, says Danske was part of a scheme in which funds were ultimately used for everything from chemical weapons, to contracts for assassins, to luxury items such as yachts and fur coats.