Thursday, October 29, 2020

Danske Bank profits hit by higher costs as it sets aside cash for a potential money laundering fine

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Danske Bank’s second-quarter pre-tax profit came in below expectations on Thursday, with the Danish lender citing low interest rates and higher regulatory costs following a money-laundering scandal at its Estonian branch.

Pre-tax profits for the second-quarter fell to 4.76 billion Danish crowns ($717.47 million) from 5.49 billion crowns the previous year, missing a forecast of 5.06 billion by analysts, according to Refinitiv data.

A reported net profit of 4.0 billion crowns was in line with Danske’s preliminary second-quarter estimates from early July.

Dankse Bank CFO Christian Baltzer told CNBC’s “Squawk Box Europe” on Thursday that significant investment was being made in compliance and regulatory functions, driving costs.

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“We have not set aside a provision, per se, but we have put aside capital of 10 billion (Danish crowns) in our capital reservation for a potential fine and the ramification of the AML (anti-money laundering) issue,” he said, adding that the bank was in “ongoing dialogue with the FSA (Financial Supervisory Authority)” around its capital requirements.

Danske Bank shares have fallen more than 40% over the past year, after it revealed in 2018 that it had channeled 200 billion euros of suspicious payments through its Estonian branch between 2007 and 2015.

In June, the bank said it would compensate around 87,000 clients who had been overcharged for an investment products, costing around 400 million crowns.

Baltzer said running a bank in the modern era is a much more costly exercise due to regulatory expenditure, both in terms of capital requirements and new compliance directives.

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“Finding the right balance in a low margin environment to actually be able to run a bank efficiently, but also to make a profit and have competitive products, is a balance that the winners of the banks tomorrow will need to strike,” he added.

“We need to find the right ways of not just pushing the cost over to the customers, but actually being more efficient in the way that we implement our compliance and our regulatory environment.”

European banks have suffered a sharp sell-off in the second quarter of 2019, shedding more than 13% over the past three months, and are down 18.64% over the past year.

However, they have begun to rebound slightly in recent weeks, gaining 5% over the past 30 days.

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