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Swedbank sees higher FY'19 expenses as probes cost more than expected

Swedbank AB (publ) 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.

In addition to underlying expenses of 17.0 billion kronor for 2019, the Swedish banking group, which reported total expenses of 16.84 billion kronor for full year 2018, expects to book 1.0 billion kronor in costs related to money laundering investigations, as well as certain one-off charges.

At the presentation of the bank's third-quarter results, CFO Anders Karlsson said the company's efforts address anti-money laundering shortcomings led to higher costs.

"We don't have any visibility at this point as to how much of the investigation expenses will fall off next year," Karlsson said. "Hopefully, we can give you more guidance at our [fourth-quarter] results."

Jens Henriksson, who officially took over as CEO of the bank at the start of October, assured investors that his top priority is "to take away the dark cloud that hangs over Swedbank that is the allegations regarding money laundering," and unveiled a 132-point program designed to improve controls at the lender. The initiatives are related to risk assessments, monitoring, internal regulations and risk classification, among other things.

Out of the 132 initiatives, 71 of them are expected to close by Oct. 31, 2020, and the rest by 2021, Henriksson told analysts.

Swedbank incurred 320 million kronor of expenses related to higher legal and consultancy fees due to the investigations in the third quarter alone, bringing its total expenses for the period to 840 million kronor, up 14% year over year.

The bank has been under investigation by Swedish, Estonian and U.S. authorities since it became known earlier in 2019 that about 40 billion kronor might have been shifted by customers allegedly showing signs of suspected money laundering between the lender and Danske Bank A/S.

Swedbank executives expect the U.S. probe to last up to five years, but when asked about the potential impact on the bank's dividend policy, Karlsson said: "[H]aving a return on equity target of 15% remaining, I can assure you that we will not build extra capital that is not needed."

The bank in July reduced its dividend payout ratio to 50% of annual profit from 75% previously to further strengthen its capital position amid uncertainty regarding its work to prevent money laundering.

In addition to costs related to money laundering probes, the lender also expects to book 500 million kronor in one-off expenses for full year 2019, as well as 650 million kronor in costs related to foreign exchange headwinds.

As of Oct. 22, US$1 was equivalent to 9.63 Swedish kronor.