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Danske Bank faces U.S. criminal inquiry over suspicious Estonian accounts

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Danske Bank faces U.S. criminal inquiry over suspicious Estonian accounts

Danske Bank faces U.S. criminal inquiry over suspicious Estonian accounts
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Jacob Gronholt-Pedersen(Reuters)
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By Teis Jensen

COPENHAGEN (Reuters) - Danske Bank <DANSKE.CO> is being investigated by the U.S. Department of Justice over a 200 billion euro ($230 billion) money laundering scandal involving its Estonian branch, confirming long-held investor fears.

Denmark's largest bank said in a statement on Thursday that it had "received requests for information from the U.S. Department of Justice (DOJ) in connection with a criminal investigation relating to the bank's Estonian branch".

The bank, which this week appointed Jesper Nielsen as interim chief executive to handle the growing crisis after the resignation last month of Thomas Borgen, said it was cooperating with the U.S. authorities.

Shares in Danske Bank fell by three percent to 160 Danish crowns, their lowest level since January 2015 and a 33 percent decline so far this year, as investors digested the latest developments at the bank.

Shareholders have fretted for months over the possibility of U.S. authorities investigating whether Danske Bank broke U.S. rules in allowing payments through its Estonian operation because of the potential for significant penalties.

France's BNP Paribas <BNPP.PA> reached a record $8.9 billion settlement with U.S. authorities in 2015 to resolve claims that it violated sanctions against Sudan, Cuba and Iran.

Many of the non-resident accounts at Denmark's Estonia branch were held by entities or individuals in Russia, which is the subject of sanctions by the United States.

Banks doing business in Estonia handled more than $1 trillion in cross-border flows between 2008 and 2017, the country's central bank said on Wednesday.

Sweden's Swedbank <SWEDa.ST> said on Thursday there were "no ongoing investigations" into its anti-money laundering practices by any of its regulators.

WIDENING NET

In a sign of the impact criminal and regulatory investigations in Estonia, Denmark and the Britain are having on the lender, Danske Bank said it would end its share buyback programme after reassessing its capital targets.

It had initially planned to buy shares back worth 10 billion Danish crowns ($1.5 billion) under the programme, which should have run until Feb 1 next year. It had repurchased shares worth 6.8 billion under the programme as of the end of last week.

This followed an assessment by Denmark's Financial Services Authority which said Danske Bank's compliance and reputational risks were now higher than previously thought in May.

The FSA did not mention the U.S. authorities in its 12 page follow-up report published via Danske Bank on Thursday.

The FSA said in May that the bank's Pillar II capital requirements should increase by 5 billion Danish crowns but it has now ordered Danske to reassess its solvency need "with a view to increase the add-on to an absolute minimum of 10 billion crowns".

The bank has therefore raised its CET1 capital ratio target to around 16 percent from a target of 14-15 percent and its total capital ratio to be above 20 percent from an earlier target of above 19 percent.

By end of the second quarter the bank's CET1 ratio stood at 15.9 percent and its total capital ratio stood at 21.6 percent.

Last month the bank said in an internal report commissioned by Borgen that payments totalling 200 billion euros, many of which it described as "suspicious", had been moved through its tiny Estonian branch between 2007 and 2015.

The findings of the report led to Borgen taking "ultimate responsibility" and stepping down, although he says he was cleared from a legal point of view, and prompted regulators across the European Union to question their oversight.

Politicians in Europe are calling for stricter measures to prevent money laundering in the bloc's banks, after Dutch financial group ING <INGA.AS> was fined 775 million euros last month after admitting criminals had been able to launder cash through its accounts.

(Reporting by Teis Jensen; writing by Alexander Smith; editing by Jason Neely/Keith Weir)

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