Swedbank CEO's Future at Stake as Investor Showdown Nears: Q&A

(Bloomberg) -- Sweden’s oldest bank is facing a very tense meeting with shareholders next week amid allegations of money laundering and deceit.

Swedbank AB’s March 28 annual general meeting follows claims that it handled over $10 billion in suspicious transactions tied to the Danske Bank A/S dirty money scandal, which spans 2007 to 2015. Concerns will range from whether the bank broke the law to how potential fines may affect the dividend outlook. It’s also unclear whether Chief Executive Officer Birgitte Bonnesen can keep her job, after appearing to mislead the public about the bank’s past dealings.

The situation "is very serious," Joacim Olsson, the CEO of the Swedish Shareholders’ Association, said in an emailed response to questions. "Insufficient anti-money-laundering routines, selective information to the market, misleading information of what has been known -- all in all, a picture emerges of a bank in crisis, and ultimately, the bank’s existence is at stake."

What you need to know ahead of the AGM:

What are the allegations against Swedbank?

Sweden’s main broadcaster, SVT, claimed on Feb. 20 that about 50 customers at Swedbank transferred some 40 billion kronor in suspicious funds between Swedbank and Danske from 2007 to 2015. That’s equivalent to $5.8 billion when using an average dollar-krona exchange rate for the period. Three weeks later, SVT said an internal investigation conducted by the bank itself last year had found 95 billion kronor ($10.3 billion) in suspicious transfers between Swedbank and Danske during those years.

Separately, U.S. investor Bill Browder has alleged that Swedbank handled $176 million connected to the death of Sergei Magnitsky, and has filed a criminal complaint with Sweden’s Economic Crime Authority. Meanwhile, the authority is investigating whether Swedbank broke insider information rules by giving its biggest investors advance warning that SVT was planning its Feb. 20 report.

What will shareholders focus on at the AGM?

The main focus will probably be on whether CEO Bonnesen misled the market when she in October vehemently denied that her bank had any links to the Danske scandal. She repeated those denials as recently as January. Since then, local media have not only claimed the bank was used for money laundering, but also that Bonnesen and the board were aware of the 95 billion kronor in suspicious transactions as early as September. That could ultimately cost Bonnesen her job.

"If the reports of the internal review are correct, the CEO has misled the market when she has communicated that there haven’t been any problems, and if that’s the case, she cannot remain," Olsson at the Swedish Shareholders’ Association, said.

Bonnesen may also face questions about her work to prevent money laundering when she was head of Swedbank’s Baltic Banking unit in 2011-2014, when some of the laundering is alleged to have taken place.

What actions has Swedbank taken?

Swedbank has acknowledged that it handled suspicious transactions and said it has reported them to the police. After initially ruling out the need for an external review, the bank hired Forensic Risk Alliance to investigate the money-laundering claims. It plans to present the findings on March 22, to give shareholders time to digest the information before the AGM. Bonnesen has also, in interviews with Bloomberg and other media, acknowledged that she needs to change her style of communication.

What other topics could become an issue at the meeting?

Another contentious topic at the AGM will be whether to free the CEO and the board of liability for 2018, a decision that will affect any efforts to take legal action against management at a later date. The AGM can decide not to discharge the CEO or board from liability if shareholders representing at least 10 percent of the company at the AGM vote against that proposal.

While Swedbank’s largest shareholder -- the group of savings banks in Sparbanksgruppen -- has indicated it will vote to free the CEO and board of liability for 2018, other shareholders may disagree, given that Swedbank’s questionable denials of any wrongdoing were made last year.

The Swedish Shareholders’ Association, which represents thousands of smaller investors, has already indicated it will vote against discharging Swedbank from liability. Pensions provider Alecta, which is the bank’s third-largest shareholder, said it wants to await the findings of the external investigation before deciding how to act.

Folksam, the second-largest shareholder and a member of the committee that nominates the board, has said it will vote in favor of discharging the board from liability, pending the outcome of the external review. Folksam declined to comment on whether it will vote to free the CEO from liability.

Will the board get renewed confidence?

Swedbank’s board will be up for re-election at the AGM, which could also prove controversial. The bank’s nomination committee, which consists of its largest shareholders, proposed the re-election of Chairman Lars Idermark and all other board members a week before the money-laundering allegations emerged. Idermark, chairman since 2016, also had that role in 2010-2013 and was deputy chairman in 2013-2016, meaning he headed the board when the laundering allegedly took place.

What implications could the allegations have for the bank?

Danske, which acknowledged last year that most of about $230 billion that flowed through a tiny Estonian unit was suspicious in origin, is now being investigated by the U.S. Department of Justice and the Securities and Exchange Commission, among others. While the U.S. isn’t yet investigating Swedbank, it has shown interest in the case. The U.S. embassy in Stockholm this month met with the Swedish Financial Supervisory Authority to discuss the laundering allegations. If found guilty, both Danske and Swedbank could face fines, in addition to potential lawsuits from investors.

Does Swedbank have the money for potential fines?

Bloomberg Intelligence analysts Philip Richards and Elliott Z. Stein say Swedbank’s 75 percent dividend payout ratio and its capital buffer could be threatened if allegations that the lender was involved in $10 billion of suspicious Baltic money-laundering transactions are proven to be true.

What else could be brought up at the AGM?

The Swedish Shareholders’ Association will call for an independent body to investigate the laundering claims against Swedbank. While the lender has hired Forensic Risk Alliance to conduct such a review, the shareholders’ association claims that review isn’t independent as it was ordered by the bank itself.

To contact the reporters on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net;Hanna Hoikkala in Stockholm at hhoikkala@bloomberg.net

To contact the editors responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net;Jonas Bergman at jbergman@bloomberg.net

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