Danske Wealth Management Robot Gets Caught Shirking Regulations

(Bloomberg) -- Danske Bank A/S was rapped over the knuckles by the Danish regulator for failing to ensure its wealth management robot lives up to investor protection rules.

The Financial Supervisory Authority in Copenhagen said the robot, called June, failed to gather enough information on clients, such as their investment horizons and their grasp of financial products, according to a statement published on Thursday. The robot service also neglected to ensure customers were providing accurate information about themselves or that the investment options offered suited their profiles.

“We take note of the FSA’s reprimands and have already made the technical changes in June that will meet the requirements as we of course are interested in that customer protection must be the best possible,” Sune Worm Mortensen, Danske’s global head of wealth products and advice, said in a written response.

Denmark’s biggest bank launched June last year as part of a push to draw more clients to its $250 billion wealth management business. Danske said its intention was to “democratize investment,” providing services to customers who couldn’t afford personal advisers.

Banks across Europe have been focusing more on wealth management to help boost their profits. Danske Bank’s chief financial officer, Jacob Aarup-Andersen, who will take over as head of the lender’s wealth unit next week as part of a management reshuffle, said the business is benefiting from the economic climate in the Nordic region, one of the world’s richest corners.

“It’s an exciting place to be given the demographics and the wealth accumulation in the region,” Aarup-Andersen said in an interview with Bloomberg Television’s Anna Edwards and Manus Cranny. “I don’t think this is a zero sum game, it’s just a very attractive region.”

“When we look at the demographics in the Nordic region they’re very strong around wealth accumulation,” he said.

Earnings

The news came the same day Danske reported first-quarter results. The bank earned more money in the period than expected after keeping costs in check, but suffered a decline in income from fees and trading.

Net income was 4.9 billion kroner ($796 million), less than a year earlier, but beating the 4.7 billion-krone estimate of analysts surveyed by Bloomberg. Net interest income was broadly in line with expectations, at 5.9 billion kroner, while the bank wrote back more impaired loans and managed to cut operating costs. Income from fees slipped 4 percent, while trading revenue fell 43 percent.

Shares in the bank traded about 0.5 percent higher in Copenhagen just after midday, in line with the Bloomberg index of European financial stocks.

Aarup-Andersen said the bank’s “fees are holding up, despite many in the market struggling a bit on that.”

“A bit weak on the trading side for all of us here in the industry in the first quarter compared with a very strong first quarter last year, and then very good expense control,” he said.

The Numbers

  • Operating expenses were 5.6 billion kroner, down 2% from a year earlier
  • Danske wrote back 330 million kroner in impaired loans, after writing back 235 million kroner in the first quarter of 2017
  • The bank is maintaining its 2018 outlook for profit in the range of 18-20 billion kroner
  • Danske reported a CET1 ratio of 16.4 percent, slightly less than the 16.6 percent estimated by analysts

Chief Executive Officer Thomas Borgen said the management reshuffle announced earlier this month will create a simpler organization designed to bring the bank closer to its clients and make it easier to collaborate with third parties. The announcement came a day after the resignation of an executive who had overseen operations now under scrutiny as part of a money laundering investigation in the Baltics.

Danske will in the future “serve only subsidiaries of our Nordic customers and global companies with business interests in the Nordics,” it said in connection with the quarterly results.

The Monetary Backdrop

No major financial group has lived with negative interest rates longer than Danske Bank, with the central bank of Denmark pushing its benchmark deposit rate below zero already in 2012. Since then, Danske has delivered record profits, prompting a debate as to whether the extreme monetary policy is as damaging for the financial industry as had been feared.

Danske said on Thursday that credit quality is “strong.”

©2018 Bloomberg L.P.

Bloomberg
Stay Updated With Business News News On BloombergQuint