Danske Bank A/S could weather potential penalties stemming from investigations into money laundering at its Estonian branch with little impact on earnings and capital. But if a fine reaches the worst-case scenario level posited by one sell-side firm, S&P Global Market Intelligence estimates a much more severe hit.

Danske said that it now regards as suspicious a large part of the $234 billion that flowed through its customer accounts at its Estonian branch between 2007 and 2015. The bulk of accounts under consideration are for nonresidents mainly from Russia and ex-Soviet states. Danske is under investigation by the U.S. Department of Justice and the Danish financial regulator while it also faces criminal investigations in Denmark and Estonia. The scandal has cut Danske's share price by more than 25% since the start of 2017.

Danske's CEO, Thomas Borgen, resigned, while Chairman Ole Andersen said he will step down, too.

Denmark's business minister, Rasmus Jarlov, said Danish authorities could order the bank to pay a fine of up to 4 billion kroner over the scandal. S&P Global Market Intelligence estimates that such a fine would have little effect on the bank's core capital ratio, which would remain above 15%.

Analysts at Morgan Stanley estimated that Danske Bank could face fines of up to $9 billion. They based this on what BNP Paribas had to pay for sanctions busting and money laundering. A fine of that magnitude would severely affect Danske's common equity Tier 1 ratio, which would fall to 9.94% from 15.94% at the end of the first half of 2018 and from 17.62% at the end of 2017, according to S&P Global Market Intelligence data.

S&P Global Market Intelligence arrived at pro forma CET1 ratios by deducting a range of estimated after-tax litigation charges from first-half 2018 CET1 capital and dividing the resulting figures by first-half 2018 risk-weighted assets. Among other factors, the analysis assumed a 22.29% effective tax rate and that analysts had not adjusted their earnings estimates for litigation charges.

A $9 billion fine would push Danske Bank to a loss of 28.3 billion kroner while its core capital ratio would fall below 10%, all other things being equal in 2018, according to S&P Global Market Intelligence estimates. The analysis calculated a range of after-tax litigation charges and deducted them from the 2018 consensus earnings estimate to come up with potential net income impacts. The bank reported full-year net profit of 20.90 billion kroner in 2017.

Other banks caught up in similar cases have paid hefty fines. HSBC paid a $2 billion fine for money laundering at its Mexico business. The same penalty applied to Danske would drive its CET1 ratio to an estimated 14.61%.

As of Oct. 5, US$1 was equivalent to 6.48 Danish kroner.

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