Danske Bank A/S took a big step toward completing its exit from the Baltics and Russia as it agreed to sell a portfolio of Estonian private loans to a unit of LHV Group for close to half a billion dollars.
The decision comes after Denmark’s biggest bank last year found itself at the centre of a $230bn money laundering case that started at its Estonian unit and that has since drawn in other Nordic lenders including Stockholm-based Swedbank AB, which dominates Baltic markets. Danske is now being investigated in the US and across Europe amid signs it became a conduit for dirty Russian money.
Several of its former executives have had preliminary charges brought against them in the case, including Thomas Borgen, who used to be chief executive officer. Estonian authorities earlier this year ordered the bank to leave the country.
Robin Rane, an analyst at Kepler Cheuvreux, said the sale shouldn’t come as a surprise to the market, “since they already announced they were closing it down.”
“The Estonian regulator is in practice throwing them out, so they have to do something with the assets,” Rane said. Shares in Danske Bank opened about 3% lower in Copenhagen, compared with a decline of more than 1% in the Bloomberg index of European financial stocks.
The news comes as Danske’s new CEO, Chris Vogelzang, starts work. He’s made clear he wants to focus on helping the bank regain trust after the Baltic laundering scandal scared off customers and investors. The sale means that the former ABN Amro banker is off to a good start, according to Per Hansen, an investment economist at Nordnet in Copenhagen.
With the move, “Danske is continuing to transform itself away from the money laundering scandal in Estonia,” Hansen said in a note to clients. The deal is “good news for investors,” he said.
Danske, which saw its share price plunge by almost 50% last year as investors baulked at the Estonian scandal, is likely to get around €410mn ($458mn) for the assets, which it estimates reflects a discount of €39mn, according to a joint statement yesterday. LHV Pank will take over about 10,800 private customers, approximately 80% of whom will be new for LHV.
The two sides intend to sign a contract sealing the deal on June 5, and the agreement will be finalised in the autumn, pending approval. LHV still needs to raise additional capital to help finance the purchase.
The deal will have a significant impact on the financial situation of LHV. In addition to using deposits, it plans to raise a total of €280mn of new financing to complete the transaction.
While Estonian authorities were eager to get rid of Danske, they’ve made clear they want Swedish lenders Swedbank and SEB AB to stay, given their systemic presence in the Baltic region. Both banks have indicated they have no intention to withdraw.
Residents walk past a Danske Bank branch in Copenhagen. Danske is being investigated in the US and across Europe amid signs it became a conduit for dirty Russian money.
