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Expenses increase as big Nordic banks spend more fighting money laundering

The big names in Nordic banking reported a year-over-year rise in operating expenses for the first nine months of 2019, amid higher compliance costs.

For the period, Danske Bank A/S' operating expenses stood at €2.89 billion, up from €2.59 billion in the same period of 2018, data compiled by S&P Global Market Intelligence shows. The Danish bank, whose Estonian branch is at the heart of a $200 billion dirty money case, said the increase was due primarily to higher regulatory and compliance costs.

The so-called Global Laundromat saw huge amounts of money allegedly moved illegally out of Russia and other former Soviet states, much of it through Nordic banks. The affair claimed the scalp of former Danske Bank CEO Thomas Borgen, as well as that of Swedbank's former chief, Birgitte Bonnesen.

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Danske's cost-to-income ratio has increased steadily since 2017 and is now the highest among large Nordic peers; it stood at 64.21% at the end of the third quarter of 2019.

The industry association Finance Denmark estimated that Danish banks have increased total headcount in anti-money laundering and compliance functions by 1,200, or 40%, to 4,300 over the past year.

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Meanwhile Sweden-based Swedbank AB (publ)'s operating expenses for the first nine months of 2019 were €1.37 billion, up from €1.21 billion in the prior-year period. The bank expects expenses for full year 2019 to reach roughly 19.8 billion Swedish kronor as investigations into its involvement in suspected money laundering are costing it more than initially anticipated.

Finland-based Nordea Bank Abp also saw a year-over-year rise in operating expenses in the nine-month period to €3.58 billion from €3.48 billion, while the bank's cost-to-income ratio stood at 55.59% at the end of the third quarter.

DNB ASA, headquartered in Norway, reported nine-month operating expenses of €1.70 billion, compared to €1.64 billion in the year-ago period.

Nine-month figures at Sweden's other major lenders, Svenska Handelsbanken AB (publ) and Skandinaviska Enskilda Banken AB, or SEB, were relatively flat year over year. But for the quarter, Handelsbanken posted operating expenses of €585.3 million, up from €495.5 million in the third quarter of 2018. And SEB's third-quarter operating expenses came in at €524.3 million, up from €521.0 million in the prior-year quarter.

The Danish Financial Supervisory Authority asked the Denmark unit of Handelsbanken to boost efforts against money laundering and terrorist financing after it found a high level of risk of the branch being misused for illegal activities, Reuters reported in November. Handelsbanken has not been involved with the Baltic money-laundering scandals that have drawn in Danske Bank and Swedbank, however.

SEB appears to have been quicker than Nordic peers to strengthen AML controls in the Baltics, according to some analysts. The bank's cost-to-income ratio came in at 46.80% at third quarter-end.

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As of Dec. 19, US$1 was equivalent to 9.42 Swedish kronor.