Danske Bank at Year-End 2017
In its 2017 Annual Report, Danske Bank, in the section titled Strategy Execution, describes itself as, “a Nordic universal bank with strong local roots and bridges to the rest of the world.” The Annual Report goes on to discuss four strategic themes: (i) Nordic potential; (ii) Innovation and digitalization; (iii) Customer experience; and (iv) People and culture. The Bank’s “Nordic potential” lies in capturing market share outside of Denmark: “With total market shares of around 6% in Sweden and Norway and 10% in Finland, our Nordic strategy holds considerable potential for future growth.”
The generally optimistic tone of Strategy Execution is dampened by an additional subsection that is not included in the four “strategic themes” mentioned above: Compliance. While this subsection begins with a reference to compliance culture, it ends with a series of disturbing disclosures regarding allegations of money laundering in the Estonian branch. The first disclosure is that the Bank has commenced an internal investigation of such activity between 2007 and 2015. The second is of a formal investigation of the Bank by French authorities relating to alleged money laundering in Estonia between 2008 and 2011. The final disclosure is a fine of DKK 12.5 million levied by the Danish Public Prosecutor for Serious Economic International Crime for violating Danish anti-money laundering legislation on the monitoring of transactions to and from correspondent banks.
The underlying problems referenced by these disclosures originated in Danske Bank’s 2006 acquisition of Sampo Bank.
The Sampo Acquisition
On November 9, 2006, Danske Bank announced its agreement to acquire Sampo Bank, “the third largest bank in Finland with an extensive branch network, subsidiaries in Estonia, Latvia and Lithuania, and a recently acquired bank in Russia.” The price was just above EUR 4 billion, with a little more than half allocated to goodwill in Danske Bank’s subsequent annual report for 2006. Upon completion of the acquisition on February 1, 2007, Ilkka Hallavo, head of Sampo Bank in Finland, and Georg Schubiger, head of Sampo Bank in Estonia, Latvia and Lithuania, joined the Executive Committee.
In addition to the activities in Finland, Sampo Bank had three smaller subsidiaries in the Baltic region: AS Sampo Pank in Estonia, AB Sampo Bankas in Lithuania and AS Sampo Banka in Latvia.
Sampo Pank in Estonia traces its origins to two Estonian banking entities—Eesti Forekspank and Eesti Investeerimispank—established in 1992, in the immediate aftermath of the collapse of the Soviet Union. At the time, there were strong economic ties between Estonia and the Russian Federation. Both Eesti Forekspank and Eesti Investeerimispank were taken over by the Estonian Central Bank after coming under stress during the Russian ruble crisis in 1998. The banks were combined to form Optiva Pank—the third largest bank in Estonia—which was then purchased by Finnish-based Sampo Bank in 2000.
Sampo Bank significantly grew their operations in the Baltics prior to the Danske Bank acquisition. At year-end 2003, Sampo Pank (the Estonian bank) had 13 branches and 90,000 customers. By year-end 2006, these figures had grown to 19 branches and 143,000 customers (11% of Estonia’s population). Most of the increase came from new retail customers.
With this growth came increased profitability. Return on equity for Sampo Pank was 23 percent in 2005, 26 percent in 2006 and 30 percent in 2007.
Sampo Pank grew to become Estonia’s third-largest bank, and in 2006, Sampo Bank entered the Russian market for the first time, by acquiring Industry and Finance Bank (Profibank), a small bank based in St. Petersburg. Profibank was included in the Danske acquisition and has since been merged into Danske Russia.
Despite Sampo Bank’s rapid growth in the Baltics, there is no indication their risk management grew concomitantly. Sampo Bank was confident that this growth posed no risks, as evidenced by the fact that in 2005 and 2006, they took no legal reserves, as “professional advice indicates that it is unlikely that any significant loss will arise.”
Danske Bank was enticed by Sampo Bank’s geographic diversity, as evidenced by the CEO’s remarks upon announcing the acquisition:
Our investment in Finland is in line with the Group’s strategy of expanding its retail banking activities in Northern Europe … Our joint banking concept – the Danske Banking Concept – provides a sound platform for expansion. Sampo Bank is attractive because its retail banking profile and structure match ours and support our strategy of further geographical and risk diversification. Another advantage is that economic growth in Finland and in Estonia, Latvia and Lithuania exceeds the EU average. That provides an excellent basis for continuing growth.
Prior to 2007, Danske Bank had no presence in the Baltics. Bank management made clear in presentations at the time of the acquisition, that expansion would bring significant increases in the population of markets served (57%), customers (44%), and branches (22%). On a pro forma basis, Sampo Bank accounted for 7% of assets, 12% of deposits and 13% of profits before taxes. The transaction was expected to generate savings by integrating Sampo Bank into Danske Bank’s IT platform. However, these integration plans did not extend to Sampo’s Baltic subsidiaries. According to the Bank’s public statement announcing the acquisition:
Danske Bank expects to complete the integration of Sampo Bank’s Finnish activities into Danske Bank’s IT platform at Easter 2008. It has not been decided when to integrate the IT systems of the still relatively small operations in Estonia, Latvia, Lithuania and Russia.
Danske Bank noted in their 2007 annual report that the three Baltic banks will migrate to the Group’s IT platform in the course of 2009, and that the Baltic banks will see extensive large-scale training activities for all 1,300 staff members.
 Annual Report, supra note 3, at 8.
 Id. at 11.
 Press Release, Danske Bank, Danske Bank Group acquires Sampo Bank, (Nov. 9, 2006), [hereinafter Press Release].
 Bruun & Hjele Report, supra note 1, at 39.
 Danske Bank, 2007 Annual Report, at 17 (Feb. 2008),
 Bruun & Hjele Report, supra note 1, at 39-40.
 Sampo Group, Sampo Annual Report 2003, at 14 (Feb. 2004),
 Sampo Group, Sampo Annual Report 2006, at 10 (Feb. 2007),
 Bruun & Hjele Report, supra note 1, at 40.
 Sampo Group, Sampo Annual Report 2005 and Sampo Annual Report 2006, at 116 and 135 respectively.
 Press Release, supra note 14.
 Danske Bank, Stepping Up Retail Banking Expansion: Acquisition of Sampo Bank, at 6 (Nov. 9, 2006),
 Id. at 8.
 Id. at 10.
 Press Release, supra note 14.
 Danske Bank, 2007 Annual Report, at 16 (Feb. 2008).