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Swedbank Says It’s Being Investigated by ECB, U.S. Authorities

Frances Schwartzkopff

(Bloomberg) -- Swedbank AB said investigations of its role in a giant money-laundering scandal now involve several U.S. agencies as well as the European Central Bank, and pledged to make tackling the affair its top priority.

The disclosure by Sweden’s oldest bank overshadowed earnings that missed analyst estimates. Swedbank said it expects the cost of dealing with probes into its alleged handling of suspicious transactions to reach 1 billion kronor ($103 million) this year alone. It also said that the U.S. investigations may take years to conclude.

Chief Executive Officer Jens Henriksson didn’t provide details of which U.S. agencies are looking into the case. When asked on an analyst call whether the Department of Justice was among them, he declined to comment. Henriksson also said that investigations to date hadn’t uncovered any breaches of U.S. sanctions.

But the extra costs needed to address the laundering allegations have dented Swedbank’s earnings potential, and Henriksson said it will now be harder to reach targets for returns and costs. Shares in the bank fell as much as 5.4 after trading started in Stockholm.

The bank has had a turbulent year. After denying any involvement in the vast Danske Bank A/S money-laundering case, Swedbank was forced to backtrack. It’s now being investigated in Sweden, Estonia and the U.S. amid allegations it may have handled over $100 billion in potentially suspicious transactions, mostly from the former Soviet Union.

Because of the scandal, a CEO was fired and a new chairman, former Swedish Prime Minister Goran Persson, was brought in to do damage control. Henriksson became CEO this month.

On Wednesday, Swedbank provided further details of ongoing probes:

The Latvian police department for combating economic crime (LECED) and the European Central Bank (ECB) are conducting investigations that are expected to be concluded by the end of the year. The Swedish Economic Crime Authority is investigating whether employees of the bank have violated communication laws related to money laundering. The bank has no information on when this investigation will be concluded. A number of US authorities are also currently investigating Swedbank. These investigations may take years to conclude.

As a consequence of Swedbank’s internal investigation, “a number of employees have had to leave the bank,” it said on Wednesday. It said that more than 30 billion transactions made between 2007 and March 2019 are being reviewed, of which 15 billion stem from the bank’s Baltic operations.

What Bloomberg Intelligence Says:

“Swedbank remains embroiled in a money-laundering investigation and while this should be concluded in early 2020, clarity over the threat of a U.S. fine could be several years away. The bank’s $1 billion capital buffer vs. requirement is tight in light of those risks, in our view, and triggered the necessary cut to the dividend-payout ratio -- to 50% -- which is below the peer average. This uncertainty is compounded by weak earnings prospects as lending slows, margin pressure rises and compliance costs surge. Though a return on equity of 14-15% and a 16% CET1 ratio provide some relief.”----Philip Richards, Senior Banks Analyst at Bloomberg Intelligence

The question now is whether Swedbank has the money it needs to cover potential fines, without leaving too big a dent in its capital adequacy. The bank has already acknowledged it won’t be able to live up to its ambitious dividend payout ratio of 75% of profits, and cut its goal to 50% in July. Back then, the bank pointed to “uncertainty” in relation to what it described as its “work on anti-money laundering.”

On Wednesday, Chief Financial Officer Anders Karlsson said the bank’s efforts to plan its capital buffers would be affected by the ongoing money-laundering investigations.

(Adds comment from conference call.)

--With assistance from Niklas Magnusson.

To contact the reporter on this story: Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net

To contact the editor responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net

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