DNKEY Danske Bank AVS (PK)

By Nina Trentmann and Kristin Broughton 

Danske Bank A/S on Thursday replaced its chief financial officer, a move that comes as the Danish lender continues to deal with a money-laundering scandal.

The Copenhagen-based bank, the country's biggest, said Stephan Engels would become its finance chief in April 2020. Mr. Engels currently holds the CFO role at Commerzbank AG, Germany's second-largest bank, which expects to identify a new finance head before Mr. Engels departs.

Mr. Engels replaces Christian Baltzer, who took over Danske's finances in 2018. Danske named Jakob Aarup-Andersen, its current head of wealth management, as interim finance chief until Mr. Engels joins.

"I received an offer that allows me to take on an exciting international challenge," Mr. Engels said Thursday in an internal memo to Commerzbank employees. "It was not a conscious decision to leave the bank because of one reason or another, but rather a personal decision to pursue an opportunity that has arisen elsewhere."

The appointment is part of a wider management reshuffle under Chris Vogelzang, Danske's new chief executive, who started in June. Chief Operating Officer Jim Ditmore also is leaving the bank, Danske said Thursday. His duties will be performed by Mr. Vogelzang until a successor is found.

Mr. Engels, who has been CFO of Commerzbank since 2012, is said to be a hands-on executive with a reputation for adeptly tackling complicated tasks such as cost cutting and risk management.

Before his time at Commerzbank, he worked in various positions at German car manufacturer Daimler AG, including head of internal audit, CFO at DaimlerChrysler Bank AG and head of management group controlling.

Stephan Engels "brings strong execution expertise and management experience from banking and other sectors," Mr. Vogelzang said in a statement.

Danske faces regulatory probes from a host of U.S. and European authorities over allegations of potential money laundering. And the Danish Financial Supervisory Authority last week said it referred the bank to the police for misleading customers with an investment product.

Rising costs from investments in anti-money-laundering controls have weighed on Danske's quarterly costs. The bank's operating costs during the first six months of 2019 rose 12% from a year earlier, to 12.8 billion Danish kroner ($1.9 billion), due in part to hiring additional compliance staff.

"Costs are the key concern within Danske," said Marcell Houben, a vice president at investment bank Credit Suisse Group AG. "Mr. Engels has a track record of managing costs well, so that's a good match." Frankfurt-based Commerzbank in 2016 launched a program called Commerzbank 4.0 aimed at digitizing work flows, resulting in about 9,600 job cuts.

Mr. Engels comes on board as Danske looks to strengthen its internal systems and controls. Compliance lapses at its Estonian branch stemmed, in part, from its use of a separate IT platform from the rest of the bank, Danske said in a September 2018 report.

That meant the Estonian branch, whose nonresident portfolio included customers from Russia, didn't use the same transaction and risk-monitoring systems as the rest of the bank, Danske said in the report. The separate system also gave its corporate headquarters limited visibility into the branch's operations, the bank said.

Danske said this year that regulators ordered the bank to close down the Estonian branch. The bank acquired it as part of its 2007 purchase of Sampo Bank, which was based in Finland.

Mr. Engels will also have to manage credit spreads on Danske's debt, which could rise owing to the prospect of potential fines related to the ongoing investigations, said Niklas Kammer, an equity analyst at financial services firm Morningstar Inc. "Investigations into anti-money-laundering cases can turn out to take multiple years and therefore weigh on margins for a while," Mr. Kammer said.

Mr. Engels comes with plenty of compliance experience. Commerzbank in 2015 agreed to pay $1.45 billion to settle allegations of sanctions and money-laundering violations, resolving investigations by U.S. and New York state regulators and law enforcement authorities. The bank allegedly violated laws barring transactions on behalf of Iran, Sudan, Cuba and Myanmar.

Danske and Commerzbank have both seen their profitability decline amid negative interest rates that apply to large parts of Continental Europe. That is putting pressure on the banks' management to find new sources of revenue, said Håkon Astrup, an equity analyst at brokerage firm DNB Markets Inc.

Mr. Engels, together with Mr. Vogelzang, will also have to rebuild the reputation of Danske, Mr. Houben said.

Write to Nina Trentmann at Nina.Trentmann@wsj.com and Kristin Broughton at Kristin.Broughton@wsj.com

(END) Dow Jones Newswires

September 05, 2019 18:11 ET (22:11 GMT)

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