Danske Threat to Denmark's AAA Rating Triggers Political Action

(Bloomberg) -- As Denmark comes to grips with its role in one of Europe’s worst dirty money sagas, its parliament is working overtime to stop the nation’s credit rating from being dragged down by the scandal.

Danske Bank A/S has admitted that about $234 billion flowed through a tiny unit in Estonia between 2007 and 2015, and is treating a “large” share of that amount as “suspicious” transactions. Chief Executive Officer Thomas Borgen has resigned and several employees have been reported to the police. Criminal investigations are ongoing and the government says Danske may face a $630 million fine.

Danske Threat to Denmark's AAA Rating Triggers Political Action

S&P Global Ratings says the sheer scale of the scandal has put the Danish government’s AAA credit grade at risk. S&P first made the comment in a Sept. 14 note, and said the view still holds, when contacted by phone on Sept. 20. It’s a warning that has Danish politicians worried, and on Wednesday parliament quickly agreed on a package of much stricter laws to fight money laundering.

Rasmus Jarlov, Denmark’s business minister and the man who oversees financial legislation in the country, says S&P’s assessment makes clear the government needs to act. In an interview, he said previous signals from the administration that bank regulations might be softened are now going nowhere.

“I don’t have any intention to lower capital requirements,” he said.

Danske shares fell about 2.9 percent in Copenhagen on Monday, bringing losses this year to 32 percent. Other Danish bank stocks also fell. Danske is now the year’s worst performing European financial stock in the Bloomberg index, after Deutsche Bank AG.

Europe’s Biggest Scandal

The Danske Bank scandal “is hurting the Danish financial sector’s reputation, which makes it urgent that we respond and draw up some consequences for everybody to see that we’re treating this with the utmost seriousness.”

The specter of a sovereign ratings downgrade hung over lawmakers’ heads on Sept. 19 as they agreed on measures that include raising bank fines by 700 percent. Prime Minister Lars Lokke Rasmussen said the same day that the Danske case is far from over. It “doesn’t end here,” he said.

The sense of shock throughout Denmark’s political establishment was palpable as lawmakers across party lines expressed dismay and underscored the need to take a tough stance. The laundromat case has unsettled a country generally associated with some of the world’s lowest levels of corruption and highest levels of transparency. It’s also left the European Union wondering what went wrong.

EU Justice Commissioner Vera Jourova called the scandal “shocking,” and said she’s planning to meet with the finance minister of Denmark, among others, on Oct. 2 to discuss the case.

“This is absolutely the biggest scandal which we have now in Europe,” she said.

The European Union will now investigate whether Danske’s supervisors did enough to prevent laundering. The European Commission has asked the European Banking Authority to treat the probe “with the necessary degree of urgency,” according to a Sept. 21 letter seen by Bloomberg.

The Danish Financial Supervisory Authority said it was contacted on Monday by the EBA, which wants the Copenhagen-based regulator to explain what it did to try to ensure Danske was living up to anti-money laundering requirements.

Morten Bodskov, a former justice minister who is now a member of the opposition, compared the Danske laundering scandal to the fallout of the 2008 financial crisis in Denmark. Now, as was the case then, it’s “a question of defending our AAA rating,” he said. “If we can’t do that, then we’re in serious trouble.”

Here’s what Hermitage Capital co-founder, Bill Browder, has to say about Denmark’s treatment of his criminal complaint:

Danske Threat to Denmark's AAA Rating Triggers Political Action