While Danske Bank's shareholders started out the year feeling confident, the financial institution’s involvement in a massive money laundering scandal has led to its stock falling almost 50 percent in 2018.
According to Bloomberg, shareholders had seen the value of their investment in Danske increase five-fold since the end of 2008. But that was before Denmark’s largest bank was being investigated over “massive money laundering flows" involving $150 million that made its way through accounts of non-Estonian holders.
As a result, authorities in Denmark, Estonia, Britain and the United States are all investigating the scandal. Danske CEO Thomas Borgen announced in September that he would step down, and eight former bankers have been detained in Estonia. In addition, analysts have predicted that the financial institution’s fines could be anywhere from $600 million to billions of dollars.
The scandal might even impact Denmark’s financial stability. “It’s a question of trust, if there is a spillover effect to the rest of the sector. We haven’t seen that yet, but that is the concern,” Karsten Biltoft, assistant governor and head of financial stability, has said.
So it's no surprise that investors want the case resolved “so the bank can move ahead with a new agenda,” said Otto Friedrichsen, head of equities at asset manager Formuepleje. Unfortunately, he doesn't think that it likely to happen anytime soon.
“There are now several authorities conducting investigations so this will probably drag on, probably also beyond 2019,” Friedrichsen said.
Despite it losing $15 billion of its value, some still see the bank as a safe bet. The head of the Danish Financial Supervisory Authority, Jesper Berg, said in a recent interview that he believes Danske is “a very well capitalized bank,” and he's impressed by the moves the bank has taken since the scandal broke.
And ABG Sundal Collier listed Danske as one of the stocks to sell on a short-term horizon for 2019, adding that the bank could rise as much as 30 percent in 2019. However, “based on estimated risk and earnings,” the firm revealed it's “most likely” that Danske will fall again in 2019, possibly by as much as 30 percent.