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Pandemic has delayed US money-laundering investigations, says Swedbank CEO

The coronavirus pandemic has delayed U.S. money-laundering investigations into Swedbank AB (publ), the Swedish lender's CEO said during its second-quarter earnings call.

Presenting results to analysts July 17, CEO Jens Henriksson said the bank received fewer requests for information from U.S. authorities over the period, which has lowered consulting expenses for such investigations to 43 million kronor. This is down from 533 million kronor in the previous quarter. These expenses are expected to total 1.6 billion kronor for the full year.

"The COVID-19 situation, as we understand it, has led to lower activity in our interactions with the U.S. authorities and delayed [anti-money-laundering] investigation expenses," CFO Anders Karlsson said on the call.

Henriksson previously said that Swedbank was subject to "more than one" U.S. investigation related to suspected laundered money in its Baltic operations.

The bank was linked to Danske Bank A/S's €200 billion money-laundering scandal in the region, and in March, an investigation commissioned by Swedbank revealed that its Baltic branches had processed high-risk payment transactions of roughly €37 billion between 2014 and 2019. The Swedish regulator fined Swedbank 4 billion kronor for what it considered "serious deficiencies in its measures to combat money laundering."

Lower costs

Swedbank reported a second-quarter profit attributable to shareholders of 4.85 billion kronor. This was down from 5.34 billion kronor a year ago, but beat analyst expectations of 3.52 billion kronor based on the average of 18 estimates provided to the bank ahead of the earnings call.

The lender's expenses were lower than anticipated, at 4.84 billion kronor for the quarter, against a consensus estimate of 5.26 billion kronor. The lower-than-expected investigation costs drove this figure down, Swedbank said.

The bank saw "no reason" to adjust its cost guidance of 21.5 billion kronor for full-year 2020 announced in April. Costs to develop and drive the bank were as planned, and it expects activity in relation to U.S. investigations to resume after the summer, Karlsson said.

The 4 billion kronor fine from the Swedish financial regulator, which was recorded in Swedbank's first-quarter results, was accompanied by a precept to the bank to take measures to improve its anti-money-laundering risk control systems.

Henriksson said Swedbank has investigated its corporate culture together with consultancy firm Oliver Wyman. It concluded that the bank "fundamentally has a sound culture and strong values," but still has "problem areas" that need dealing with, Henriksson said.

"Things have not always been organized as they should have been," he said, pointing to the need to strengthen governance and control while also working to update its enterprise risk management system.

IFRS 9 variations

Credit impairments of 1.24 billion kronor pulled down Swedbank's second-quarter profits, but the Swedish lender outperformed the consensus estimate of 1.56 billion kronor.

Of the quarter's impairments, 557 million kronor were provisions due to the deteriorating macroeconomic outlook. The economic impact of COVID-19 globally and in its home markets had been "more extensive than most experts had suggested in the first quarter," the bank said.

Swedbank's updated macroeconomic forecasts under the IFRS 9 loan loss model now assume "a more protracted recovery," it said.

An ongoing concern around IFRS 9, an accounting standard implemented in 2018, is that it leaves room for interpretation when adopting forward-looking macroeconomic scenarios, making it harder to compare banks' loan losses. There are significant variations in how Nordic banks calculate such provisions.

Henriksson said there had not been any coordination by regulators to ensure a consistent approach to IFRS 9. In light of the "high degree of difference between the different banks," he expects regulators will "look into the issue and try to understand how the different banks have applied and understood the IFRS 9 rules, both from a rules perspective, but also from a spirit perspective."

As of July 16, US$1 was equivalent to 9.04 Swedish kronor.