Deutsche Bank’s DB shares hit an all-time low of $9.20 per share on the NYSE yesterday after the bank’s spokesperson in a statement said, “Deutsche Bank acted as correspondent bank for Danske Bank in Estonia. Our role was to process payments for Danske Bank. We terminated this relationship in 2015 after identifying suspicious activity by its clients.”
Deutsche Bank is suspected to be involved in processing nearly $150 billion in potential payments at Danske Bank, which is at the heart of Europe’s one of the biggest money laundering scandals. Notably, per the Wall Street Journal report,the company’s preliminary internal review also revealed almost same figure that it processed for Danske Bank over the period of nine years.
Now let’s dig a bit deeper in to what Danske Bank scandal is all about.
The Danske Bank scandal refers to almost $230 billion in transactions that were processed by its Estonian branch during 2007-2015. In September 2018, it was revealed that a whistleblower report related to the matter was sent to its executive board, group compliance unit and internal auditor as early as December 2013.
While no proper investigation was conducted by Danske Bank, measures were undertaken to get its Estonian business under control, which proved to be insufficient. Thus, the company’s CEO Thomas Borgen resigned following all these revelations.
Apart from Deutsche Bank, two major U.S. banks – JPMorgan JPM and Bank of America BAC – are also suspected to be involved in processing transactions at Danske Bank in Estonia. Though the banks have ended this financial relationship some time back, the U.S. Department of Justice (“DoJ”) has asked for more information from these two.
Recently, ING Groep NV ING was fined $900 million by the Dutch authorities for violating laws related to preventing money laundering and financing terrorism. While admitting these allegations, the company in a statement said, “The shortcomings identified resulted in clients having been able to use their bank accounts for money laundering practices for years.”
For Deutsche Bank, this scandal is an addition to its growing list of concerns. Weak earnings, tough operating backdrop and top level management changes are some of the other major matters that have been hurting the company’s price performance.
Over the past year, shares of Deutsche Bank have plunged 51.2% on the NYSE compared with industry’s decline of 15.7%.
Further, the revelation of Danske Bank scandal has left the bank more vulnerable as it is being probed by the DoJ, which is largely interested in Russian money flows. While Deutsche Bank has already settled the matter with the U.K. and U.S. banking regulators, it is yet to resolve it with the DoJ.
Thus, Deutsche Bank is expected witness a rise in litigation expenses going forward.
Currently, Deutsche Bank carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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