Danske Investors Balk at Putin Ties as Laundering Case Deepens

(Bloomberg) -- For months, Danske Bank A/S investors treated revelations of money laundering at its Estonian unit with impressive equanimity. But this week that changed.

Allegations in Danish media that the misdeeds may have involved the family of Russian President Vladimir Putin have triggered a shift in perceptions about how badly Denmark's biggest bank risks being tainted by scandal.

Danske lost as much as 10 billion kroner ($1.6 billion) in value on Tuesday after the Berlingske newspaper said Putin's cousin and members of Russia's security service may have used the bank's branch in Tallinn to launder money. Berlingske cited a whistle-blower report written by a director and sent to Danske's management in 2013.

Leonhardt Pihl, chief executive officer of the Danish Shareholders' Association, says the latest revelations mark a shift.

“The name of Putin, even though it was only a relative to the prime minister, of course makes an impression,” Pihl said. “It's the totality of those new aspects that make the impression on the market, and of course somehow makes the case look even more complicated and probably also troublesome for the CEO, who was indisputably responsible for that area in that point in time.”

Regulators Lack Data to Thwart Money Laundering, Danish FSA Says

Danske CEO Thomas Borgen said on Tuesday his bank should have reacted faster to signs the Estonian branch was being used to launder money. Danske should have closed down the banking activities of non-residents sooner, he said.

Danske expects to complete an internal investigation this year. It's also working with French authorities. Meanwhile, Estonian authorities said they may open a new investigation.

The Danish Financial Supervisory Authority said it can't comment on the “specific information regarding Danske Bank.”

The Copenhagen-based FSA said it generally leaves matters concerning foreign units to the supervisor in the relevant country. But the Danish regulator will step in “if breaches of money laundering rules in foreign branches or subsidiaries are deemed to be so important that they can affect a financial institution in other areas,” such as sound governance, FSA spokesman Soren Christensen said in a written response to questions.

Mads Thinggaard, an analyst at ABG Sundal Collier, said the cost to Danske of the case could run in the billions of kroner.

Since Borgen took over as CEO in 2013, Danske's shares have roughly doubled in value, as he stemmed a customer exodus.

“The general opinion is that he's done quite a good job in stabilizing Danske Bank and bringing Danske Bank into a new and good shape, so this could be a slippage,” Pihl said. “But the consequences of that I can't venture. I won't bet on that.”

--With assistance from Ott Ummelas

To contact the reporter on this story: Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net.

To contact the editors responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net, Christian Wienberg

©2018 Bloomberg L.P.