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Swedbank says it can handle money-laundering fines as investigations near end

Swedbank AB (publ) is well placed to handle "any potential fines" from Swedish and Estonian financial supervisors, with the conclusions of money-laundering investigations expected in March, the bank's CEO said.

As of 11:20 a.m. Stockholm time, Swedbank's share price had risen 5.86% on previous close.

Jens Henriksson, who took charge in October 2019, made the comments Jan. 28 as he presented the bank's 2019 fourth-quarter results. Profit attributable to shareholders for the period dropped to 4.43 billion Swedish kronor, which is down 4% from 4.59 billion kronor in the fourth quarter of 2018.

While Sweden's third-largest lender recorded higher income in the period year over year, it said this was offset by higher expenses and credit impairments. It comes as the bank continues to increase spending on money laundering controls, including investigations, IT and staff.

Investigations near end

Swedish, Estonian and U.S. authorities have been investigating Swedbank for its role in a vast money-laundering scandal in the Baltics since it became known in February 2019 that about 40 billion kronor had been "funneled between suspect accounts" at Swedbank and Danske Bank A/S between 2007 and 2015.

The bank's share price has since dropped more than 35% and cost its CEO and chairman their jobs.

Swedbank also hired international law firm Clifford Chance in February 2019 to investigate compliance shortcomings, exposure to money laundering and breaches of sanctions. More than 30 billion transactions made between 2007 and March 2019 are included in the investigation, of which 15 billion come from Swedbank's Baltic business.

The Swedish Financial Supervisory Authority, or Finansinspektionen, and its Estonian equivalent are both due to release the conclusions of their investigations by March, the bank said, including the size of potential fines. So far the bank has not made any provisions for penalties stemming from the probes.

The Clifford Chance conclusions will be "fully communicated" shortly thereafter, Henriksson said, although he would not commit to publishing the full report to the public. The bank has spent 1.1 billion kronor on this investigation in 2019, and expects this figure to be 800 million kronor in 2020.

So far, the Clifford Chance investigation has found no evidence of sanctions breaches, Henriksson said.

"Clifford Chance has what I call a lever, so if they would find a sanctions breach, they would pull that lever and call me immediately and let me know. So far, they have not called," he said, although he added: "Does that mean that I can rule out that we have never had any sanctions breaches? Of course not."

Reduced dividend

Swedbank's board is proposing a dividend of 8.80 kronor per share for 2019, corresponding to a payout ratio of 50%, compared to 14.20 kronor per share a year ago. The bank's annual general meeting will take place on March 26.

During the earnings call, CFO Anders Karlsson was asked whether Swedbank could front-load the effect of a potential fine and further adjust the dividend for 2019, assuming the bank will receive news of a fine before the general meeting.

Karlsson said the bank "theoretically has the possibility to restate 2019 and write a new annual report," but reiterated that with its capital position and expected profitability level for 2020, it "can cater for any possible fine" coming from the two FSAs.

The bank's common equity Tier 1 capital ratio stood at 17.0% at the end of December 2019, compared to 16.3% at the end of September 2019 and at 2018-end.

U.S authorities are also investigating Swedbank, but Henriksson said it has a "limited insight" into the process.

Swedbank has said its new money-laundering action plan, which was presented in its third-quarter earnings report, is "progressing as planned." It includes 152 initiatives to improve controls at the lender, up from the originally proposed 132.

Henriksson said this number will "most likely" grow further as the bank receives the results from Clifford Chance's investigation. The points relate to risk assessments, monitoring, internal regulations and risk classification, among other things. So far 67 have been completed, with the remaining expected to be concluded in 2020.

Swedbank said its goal is to keep its total expenses for 2020 at the same level as 2019, at about 20 billion kronor.

As of Jan. 27, US$1 was equivalent to 9.62 Swedish kronor.