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Troubled times at Swedbank as scandal claims job of another top figure

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Troubled times at Swedbank as scandal claims job of another top figure

Amidregulatory and police inquiries, Swedbank AB saw its chairman of the board, CEO and CFOall part ways with the company within weeks of each other, giving rise touncertainty over the bank's strategic direction.

Suspicionsof malfeasance at the Swedish lender were aroused when local press reportedthat executives had been carrying out private real estate transactions with bank clients,allegedly with the silent approval of top management. Magnus Gagner Geeber,head of Swedbank's large corporates and institutions unit, , in December 2015,after which the scandal spread throughout the bank's top ranks. Michael Wolf,the highly regarded CEO, was shown the door Feb. 9 and CFO Göran Bronner saidon March 21 he would also quit soon.

Questions and controversy

Sweden'sfinancial regulator and the country's police's economic crime unit launched inquiriesinto the allegations in February, with the bank itself confirming that it hadreferred Wolf to law enforcement. Wolf said he is innocent and that a"smear campaign" was being conducted to discredit him. Theinvestigations are ongoing.

OnMarch 30, Swedbank withdrew support for its chairman of the board, AndersSundström, prompting his ouster, partially over questions hovering over hishandling of the scandal. His replacement will be his deputy, Lars Idermark, thebank said.

Stockholm-basedAlbin Rännar, head of market surveillance at the Swedish Shareholders'Association, or Aktiespararna, said in an interview that "the SwedishShareholders' Association will be asking for a special investigation into allthe activities of the bank under the former leadership". The associationhas lodged complaints against the bank with Sweden's consumer protection organsfor allegedly undertaking so-called "closet tracking" — a practice inwhich investment funds sold as being actively managed, carrying higher fees,are in reality tracking indexes. Coupled with the other allegations againstSwedbank, Rännar said many shareholders he represents have sensed a pattern ofdishonesty. He said the outgoing chairman was aware of the "bad businesspractices that caused harm to the bank" but did nothing to stop them."There are at least two investigations going on [into the bank], so we sawit as a natural step to not support the re-election of the chairman of theboard," he said.

LarsHolm, a senior analyst at Danske Bank in Copenhagen, said in an interview thatthe controversy at Swedbank was "not pretty." He expected the bank tocontinue behaving as a low-cost, low-risk utility-like provider with lightcapital needs, although its strategy will be mired in uncertainty until a newCEO comes along. The analyst was hopeful a replacement for Wolf would beannounced along with first-quarter results in late April.

Holmbelieves that the scandal is unlikely to affect the bank's fundamentals, giventhat its credit quality and capital position remain strong. In anote to investors following Bronner's departure, Nomura analysts said theaftermath of the sudden changes "will weigh on sentiment," but addedthat franchise strength and strong capitalization should offset any jitters.At 2015-end, the bank had a core Tier 1 capital ratio of 24.14%, with 0.51%gross impaired loans as a percentage of total loans at amortized cost,according to data from S&P Global Market Intelligence's SNL Financial.Swedbank's leverage ratio was 4.97%.

Whilethe bank looks for its CEO, stakeholders will be keeping an uneasy eye on thelender, fearing more unforeseen events.

Leadership void

Rännarsaid the void at the top of the bank was unprecedented and it worried investors."The bank lost its top three people and now its chairman. That's a bigrisk," he said, adding that he foresaw "turbulence and shakytimes" ahead. Idermark, the new chairman, represented "a step back intime" because although he had held the position briefly in the past notall shareholders were happy with his tenure, Rännar suggested. "We arelooking forward to another change taking place in 2017, with a more long-termsolution for the chairman position," he said.

Hebelieves that upheaval was inevitable because the executives had created"an unhealthy culture."

GroupCFO Göran Bronner announced hisdeparture on March 21, telling Reuters that one reason for quittingwas his lack of drive and energy to continue in the top role. Yet as recentlyas Feb. 9, Bronner told an analyst conference call that he was committed to thebank and to interim CEO Birgitte Bonnesen.

Investorsand other observers had been assuming at the time that Bronner would become thenext CEO, something he didn't outright repudiate until the last minute.

AndersKarlsson, a former Swedbank chief risk officer, has taken over the CFO role,the bank said. Karlsson has worked for the bank since 1999, apart for a stintat an investment bank as CFO and CRO between 2008 and 2010, according toSwedbank's website. Bronner will continue in the role until the bank'spublication of second-quarter report in July.

Importantly,Holm thought, incoming CFO Karlsson was no emergency appointment, despite the"surprising and disappointing" departure of Bronner.

Butthe state of Swedbank might also attract ruthless opportunists. With confusionsurrounding its governance, Swedbank is vulnerable to hostile takeovers andother ownership bids, Dagens Industrinoted in an editorial March 30. The leadership instability has already givenrise to rumors — denied in late February — that the bank had become a buyouttarget.

Swedbankdid not return a request to comment.