Danske still feels repercussions from one of Europe’s biggest scandals
Three years after the world learnt of Danske Bank’s central role in one of Europe’s biggest money-laundering scandals, the cost of that stunning failure of governance is still palpable.
Denmark’s biggest bank, once among the Nordic region’s most
reputable companies, has yet to fully resurrect itself from a dirty money
affair that’s made it the target of ongoing criminal investigations in the US
and Europe. Corporate and business clients have moved past the scandal. But
when it comes to the bank’s retail customers, Danske’s CEO says it is still
suffering from “reputational issues”.
“In the Danish retail business, we do continue to see
customer outflows and falling market shares,” CEO Carsten Egeriis said in an
interview. “That is clearly one of my, and our, top priority points, to turn
that around.” The bank doesn’t publish a quarterly breakdown of customer flows.
The case offers a stark lesson in how bad governance can
derail a firm’s progress as stakeholders increasingly view capitalism through a
lens coloured by environmental, social and corporate governance considerations.
Since admitting in September 2018 that it failed to adequately screen €200bn
($235bn) in non-resident cash that flowed through an Estonian unit, Danske’s
been the worst-performing major bank stock in the Nordic region.
“Danske is paying a heavy price for the former management’s
lapsed ways,” said Philip Richards, a senior bank analyst at Bloomberg
Intelligence in London.
Egeriis, Danske’s third CEO since Thomas Borgen was fired
for his role in the scandal, says the bank has “spent many years with a lot of
bad cases.” Besides the money-laundering affair, it was caught overcharging
low-income borrowers, drawing political condemnation. It also failed to
properly advise retail investors that they faced losses, for which it was
reported to the police and fined.
Borgen is still the target of shareholder lawsuits, though
criminal charges against him were dropped in Denmark. In Estonia, where
Danske’s suspicious transactions took place, the former CEO committed suicide
in 2019. Egeriis has been group CEO since April, after his predecessor Chris
Vogelzang became a suspect in a separate money-laundering probe at ABN Amro
Group Vogelzang had been brought in to replace another Danske CEO who left
under a cloud in 2019.
Regulatory Backlash
Richards says a further repercussion of the laundering
scandal is that regulators are now “all over Danske’s operations, checking
everything, challenging everything.” That means the bank has “been forced to
pull back from overseas operations, but also retrench in certain trading
activities et cetera, where the regulator may deem Danske is taking too much
risk,” he said. “Each of those hit revenue prospects.”
With Denmark’s biggest bank tainted by a list of scandals,
there now seems to be little political tolerance for the industry as a whole.
That became clear after banks started passing negative interest rates on to
retail depositors. The sector, which has absorbed sub-zero central bank rates
since 2012, didn’t apply the policy to regular customers until 2019. Since
then, banks have expanded the universe of depositors affected. That’s drawn
criticism from Business Minister Simon Kollerup, who has slammed the industry
for what he describes as its display of “greed.”
Egeriis, who used to be Danske’s risk chief before being
propelled to the top of its C-suite, says he’s aware that there still remains
“a lot of different things that need to be done” to restore the bank’s image.
The plan is “just doing that step by step, and then I think the reputation will
improve over time.”
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