Danske's Bad Year Gets Worse as Profit Warning Follows Scandal

(Bloomberg) -- Danske Bank A/S has cut its forecast for 2018, blaming this quarter’s market slump for the decision and ending a year dominated by scandal on a decidedly bleak note.

Denmark’s biggest bank, which is at the center of Europe’s worst ever money laundering case, said net profit for this year will reach 15 billion kroner ($2.3 billion), down from a previous forecast range of 16 billion kroner to 17 billion kroner. The bank said the outlook “remains subject to uncertainty.”

The stock opened as much as 4.8 percent lower in Copenhagen on Friday, before righting itself a little to trade down about 3 percent.

The profit warning comes as Danske deals with the fallout of multiple laundering investigations. The bank has admitted that much of about $230 billion that flowed through a tiny Estonian unit was probably suspicious in origin, suggesting it was one of the main channels through which illicit funds from the former Soviet Union flowed into the West until as recently as 2015.

Chief Financial Officer Christian Baltzer, who started at Danske in October, said the decision to cut the outlook is “mainly the result of worsening conditions” in markets in the fourth quarter, according to a statement sent several hours after trading ended in Copenhagen on Thursday. “The underlying business performance is still good,” he said.

Danske's Bad Year Gets Worse as Profit Warning Follows Scandal

The bank said the fourth-quarter slump in financial markets had an “adverse effect” on net trading income both in terms of rates markets and fees. It said its non-core unit is also “adversely affected” by a 200 million-krone value adjustment, without elaborating. Danske said its other outlooks, including for net interest income, are unchanged.

“While negative, we note the profit warning comes on the back of challenging conditions in the financial markets rather than softer underlying trends and/or fallout from the Estonian money laundering case,” Goldman Sachs analyst Pawel Dziedzic said in a client note before markets opened.

Markets have seen a dramatic selloff this quarter as investors react to saber rattling in an escalating trade war between China and the U.S. and tighter monetary policy. In the year’s final quarter, the Stoxx Europe 600 has so far lost about 13 percent, while the S&P 500 is down about 15 percent.

Danske has maintained that its business is solid and that it has adequate capital, despite concerns the bank may be facing hefty fines amid numerous laundering probes. The bank’s shares have slumped about 48 percent this year, wiping almost $18 billion off its market value as investors worry about what’s ahead.

The bank is being investigated by the U.S. Justice Department, while prosecutors in Denmark have already filed preliminary charges. Police this week detained 10 former Danske employees at the Estonian unit through which the laundering is alleged to have taken place.

Danske, which is due to publish fourth-quarter results on Feb., 1, has said it’s cooperating with all the relevant authorities.

©2018 Bloomberg L.P.