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Danske Bank A/S said it expects profits to fall this year as Denmark’s biggest lender continues to grapple with the consequences of its money-laundering scandal.
Net profit for 2020 will be between 8 billion kroner ($1.18 billion) and 10 billion kroner, compared with 15.1 billion kroner in 2019, the Copenhagen-based bank said on Wednesday. Danske proposed an unchanged dividend of 8.5 kroner per share, which is just under half its profit.
Danske’s shares fell about 2% when trading started in Copenhagen, while the Bloomberg index of European financial stocks was little changed.
Investors are still waiting to learn how much Danske might be facing in fines as investigators across Europe and in the U.S. Look into allegations of money laundering. Danske failed to properly screen about $220 billion in non-resident funds that flowed through its Estonian operations, and the bank has admitted that many of those transactions were suspicious.
Chief Executive Officer Chris Vogelzang pointed to “low interest rates, margin pressure, higher impairments and increased costs due mainly to investments in compliance and AML-related activities,” in Wednesday’s statement. All in all, this “had a negative effect on the result,” he said. “A number of extraordinary items also had an impact, positive as well as negative, on the results, but all in all, our financial performance remains under pressure.”
Click here for details of Danske’s 4Q results
© Bloomberg Danske has lost more than half its value since early 2018
The scandal has battered Danske’s reputation and its business. The bank discontinued share buybacks and has forecast a return on equity for 2020 of 5-6%, down more than half from a five-year high.
Vogelzang plans to spend as much as 2 billion kroner this year on investments he says are critical to improving profitability. He’s targeting an ROE target of 9-10% by 2023.
Because of the laundering affair, banks in Denmark now face tougher regulation and higher compliance costs. Danske acknowledged late last year it had to impose a hiring freeze to adapt to the tougher environment, and also resorted to job cuts.
Danske reported a 10% increase in expenses, amid higher costs related to the Estonian case, improving compliance procedures and compensation to retail investment clients whom it overcharged.
The bank had a loss of 244 million kroner before taxes in the fourth quarter, after booking a slight profit a year earlier. Danske said the result was “due mainly to adjustments in relation to the sale of loan portfolios in the Baltics, an impairment charge in the legacy non-core portfolio and an increase in severance pay,” after it parted ways with a number of top executives implicated in the laundering case.
At the same time, Danske has lived with negative interest rates longer than any other big European bank. Denmark first introduced the regime in 2012 to defend the krone’s peg to the euro, and the financial regulator recently warned that banks have yet to feel the full force of the policy.
Danske also has been met with preliminary charges that it violated Denmark’s investor protection laws, after overcharging retail clients using one of its investment products. The expense damped a 3% increase in net fee income that came amid a record wave of remortgaging in Denmark, where interest rates on long-term lows hit record lows in 2019.
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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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