Swedbank will cut the amount of dividends it pays from profits and has set new targets to strengthen its capital as the bank faces fallout from a Baltic money laundering scandal.
Sweden’s oldest retail bank has lost its chief executive, its chairman and a third of its market value this year after its Estonian business was caught up in money laundering allegations that have also engulfed rival Danske Bank.
Earlier this year, the bank appointed ex-Swedish prime minister Goran Persson as chairman to help it chart the way forward it faces potential lawsuits as well as possible fines and sanctions from U.S., European, Baltic and Swedish probes.
Swedbank said on Wednesday it would reduce its dividend payout policy to 50% from 75% of annual profit.
“The change occurs against the backdrop of a higher counter-cyclical buffer in Sweden, a defined benefit pension obligation impacted by market rates, continued loan volume growth and the uncertainty regarding the bank’s work on anti-money laundering,” acting CEO Anders Karlsson said in a statement.
Jefferies analysts said this implied a 28% cut to the analyst consensus for this year’s dividend per share.
But the bigger fear for the market, analysts said, was that large fines could wipe out dividends completely in certain years under the new payout policy.
Fines from U.S. authorities have dwarfed those from Europe. Brokerage KBW said the market had priced in U.S. fines of $5 billion for Swedbank.
“Longer term whilst the shares remain heavily discounted against peers for the potential for fines, we continue think they will struggle to outperform sustainability whilst the investigations are ongoing,” KBW analysts said.
Shares in Swedbank fell 6.1% to 136.15 Swedish crowns by 0924 GMT, bringing their year-to-date decline to 30.9%.
Citi analysts cited the main negatives as the bank’s flagging of lower margins on Swedish mortgages and slashing its dividend policy.
Swedbank’s underlying business has fared well despite the money-laundering scandal. Second-quarter net profit of 5.34 billion Swedish crowns ($568.59 million) beat the 4.90 billion analysts expected according to Refinitiv.
The bank said it would hold excess capital to bolster its financial strength, targeting a common equity tier 1 capital ratio 100-300 basis points above Swedish regulator’s 150 bps minimum requirement and bigger than most other Nordic banks.
Danske Bank, which also faces potential impact from U.S. and other money laundering probes, was ordered by Denmark’s financial regulator to increase certain capital requirements.
The most recent allegations against Swedbank, reported by Swedish state TV in March, say its Estonia unit processed gross transactions of up to 20 billion euros ($22 billion) a year from high-risk, mostly Russian non-residents, from 2010 to 2016.
Last month, the bank suspended two executives from its Estonia business. In April, Swedbank had admitted some failings in its money laundering processes and promised to launch a comprehensive internal investigation.
The company said on Wednesday shortcomings had been found by the investigation, which was covering its entire business as well as customers, transactions and activity from 2007 through to March 2019 and is expected to conclude during early 2020.
Karlsson said shortcomings found so far included knowing your customer checks, screening processes and transaction monitoring, but he said could not say whether issues with the bank’s prevention systems were just historic and not current.
“Whether we are perfectly clear today? I am not in a position to say… that everything looks dandy today.”