(Bloomberg) -- A new money-laundering scandal, this time at Dutch lender ABN Amro Bank NV, adds yet another burden to European banks already struggling to improve profitability amid negative interest rates and lackluster economies.
State-controlled ABN Amro disclosed a criminal probe over alleged failures to check on clients and report suspicious transactions, joining an ever-growing list of European lenders under investigation for similar shortcomings.
The broadening scandal puts even more pressure on a European banking industry hit by negative rates, which force them to pay to park their money overnight at the European Central Bank. That’s eating into profits and forcing the lenders to pass rising costs on to customers. The probes have also exposed weaknesses in the region’s efforts to fight the flow of illicit funds and prompted calls for better regulation on a Europe-wide basis.
“With the low interest rates and a looming recession, the banking sector is already in a very difficult position,” said Mediobanca analyst Robin van den Broek. “The money laundering issue comes on top of that. And I don’t think ABN Amro is the only one in Europe with these problems.”
The Dutch prosecutor’s office disclosed the ABN Amro probe on Thursday. The bank said separately that it faces an investigation under the Dutch anti-money laundering and terrorist-financing law, without providing further detail.
Shares Plunge
ABN Amro dropped as much as 10.6% in Amsterdam trading, the most since June 2016, and was down 10.2% at 16.25 euros as of 12:54 p.m. That’s below the 17.75-euro share price from its initial public offering in November 2015. The Dutch bank’s Additional Tier 1 bonds fell the most in six months following news of the probe.
“There’s so much uncertainty for the shareholders now,” said KBW analyst Jean-Pierre Lambert by phone. “The big question is whether there’s actual money laundering involved in this case. That’s what the prosecutor’s investigation probably is trying to find out.”
The money-laundering scandal keeps spreading. On Tuesday, Germany’s Deutsche Bank AG (DE:DBKGn) received a visit from law enforcement officials over its role in a $220 billion money-laundering scandal, centered around Danske Bank A/S’s branch in Estonia. This week, the former head of the Estonia business was found dead after disappearing from his home on Monday.
ABN said in July said that it needs to review all of its 5 million retail clients after receiving a warning from the Dutch central bank. ABN Amro took a 114 million-euro ($125 million) provision for the checks in the second quarter, after already setting aside 85 million euros at the end of last year for stepping up financial crime prevention in commercial banking and the credit card business.
ABN Amro’s Dutch rival ING Groep (AS:INGA) NV paid a record fine last year and acknowledged “serious shortcomings” in its efforts to prevent financial crime.
What Bloomberg Intelligence Says:
“It’s impossible to estimate the extent of any wrong-doing at this stage. The lender took a 114 million-euro provision in 2Q, after the Dutch central bank required it to review all domestic retail clients under customer due diligence requirements, so it has already begun addressing the issue.
-- Philip Richards, BI banking analystTo read the commentary, click here
The bank said at the time that sanctions may be imposed by the authorities but said it hasn’t made a provision for a possible fine as the “amount cannot be estimated at this time.”
The investigation and the resulting share price drop may make it harder for the Dutch government -- which still owns 56% after a bailout in 2009 -- to sell off the rest of its stake as it pledged to do during the bank’s IPO. Meanwhile, the bank is still looking for a new chief executive officer after Kees van Dijkhuizen announced in June that he will leave when his term ends in April.
Following the ING fine and the central bank’s criticism, the largest Dutch banks have been stepping up compliance spending, including adding more staff to their crime prevention teams. Earlier this month, five of the country’s largest lenders said they are exploring a system to jointly monitor transactions in the fight against money laundering after the government pledged to clear legal hurdles that might prevent them from doing so.
