Press Release

Danske Bank A/S Agrees to Pay DKK 15.3 Billion to Settle Estonia Money Laundering Investigation

Banking Organizations
December 14, 2022

Danske Bank A/S (Danske or the Bank), rated A (low) with Stable trend, has reached a final resolution on the investigation that has been ongoing since 2017 regarding suspected material money laundering issues in its now closed Estonian branch between 2007 and 2015. Danske has agreed to pay a final fine of DKK 15.3 billion to the U.S. Department of Justice, the U.S. Securities and Exchange Commission and the Danish Special Crime Unit and has accepted full responsibility for the charges filed against them to settle the investigation.

In Q3 2022, Danske booked a provision of DKK 14 billion in anticipation of this resolution, and this severely impacted the Bank’s profitability leading to a net loss of DKK 9.241 billion in 9M 2022. However, Danske’s CET1 ratio at end-Q3 2022 was only marginally affected, standing at 16.9% from 17.1% at end-Q2 2022. The Bank’s capitalization benefitted from the management decision to reverse 2021 dividends as well as not paying any dividends in 2022. In addition, Danske’s minimum capital requirement decreased thanks to the removal of DKK 7.5 billion of the DKK 10 billion Pillar 2 add-on imposed by the Danish FSA to ensure adequate capital coverage against the increased compliance and reputational risk in relation to the Estonian investigation.

The provision booked in Q3 2022 is in addition to the provision of DKK 1.5 billion booked in Q3 2018 for the same purpose, so no additional loss is expected. DBRS Morningstar notes Danske’s fine is one of the largest penalties imposed on a European bank for money laundering related issues based on DBRS Morningstar’s calculations.

Whilst benefitting from higher interest rates, lending volumes, and core banking fees, as well as cost management optimization, the Bank still expects to report a net loss for the year 2022 of just under DKK 5.5 billion as a result of the fine but anticipates a return-on-equity (ROE) of 8.5%-9% in 2023.

DBRS Morningstar notes that the Bank still has two outstanding investigations relating to compliance and failed operating processes issues. The first one relates to Danske’s debt overcollection from some of its customers. The Bank announced in August 2022 that it had reached an accelerated solution with the Danish FSA to close this matter which consists in writing-off the debt of around 90,000 customers affected by the issue to zero and compensating them. The compensation will be paid out during 2023 but in Q3 2022 the Bank expensed a one-off DKK 600 million provision for this and a one-off DKK 650 million loan impairment charge to write down affected debts. In June 2020, a criminal complaint was filed against Danske for potential violation of the Market Abuse Regulation due to inadequate market monitoring and market manipulation, for which no further data or financial impact has been provided. DBRS Morningstar will continue monitoring the developments related to these cases to further evaluate any impact on the Bank’s franchise and capitalization.

DBRS Morningstar confirmed Danske’s Long-Term Issuer rating at A (low) with Stable trend on July 1, 2022. The confirmation of the rating already incorporated DBRS Morningstar considerations regarding the impact of the Estonia matter on the Bank’s franchise, profitability and capitalization, as well as the other outstanding investigations. DBRS Morningstar also notes that Danske is in the process of remediating additional weaknesses in its risk management and internal reporting and controls. As a result, the rating continues to incorporate the Bank’s high operational risk which could potentially lead to material fines. However, DBRS Morningstar recognises that Danske has been proactive in improving its operational risk framework and strengthening its compliance, financial crime prevention and anti-money laundering capabilities, which has entailed significant remediation costs.