Swedish, Estonian regulators advance Swedbank probe

By Johan Ahlander and Colm Fulton

STOCKHOLM (Reuters) - Swedish and Estonian financial regulators have taken their investigations into Swedbank <SWEDa.ST> over anti-money laundering controls at its Baltic operations to the next level, they said on Tuesday, marking a formal step in the process that could lead to a financial penalty.

Sweden's financial supervisory authority (FI) said it had identified weaknesses in Swedbank's anti-money laundering procedures, and was now examining if it should face a formal sanction.

"That the Swedish and Estonian authorities now have decided upon initiating sanction processes, is a logical consequence of the ongoing investigations," Unni Jerndal, Swedbank's head of press said in a statement to Reuters.

"As previously commented, Swedbank notes that many of the key observations made by the two Financial Supervisory Authorities correspond to the bank's own observations," she said.

Jerndal said Swedbank could not speculate on potential sanctions.

The bank has previously admitted to failings in its money-laundering controls in the Baltics, and it was widely expected that the FSA would go ahead with a formal case after opening an investigation earlier this year. A decision is expected early next year.

"We knew this was going to come," Andreas Hakansson, banking analyst at Danske bank said.

"A big fine is clearly priced into the valuation of Swedbank, but how big it's going to be from the Swedish FSA or how big it will be from the U.S, we don't know."

The maximum fine that the Swedish FSA can impose is 10% of annual group revenue. Investors are also watching two ongoing investigations from U.S. authorities.

Swedbank has lost around 40% of its market value since its Estonian business was caught up in the money laundering allegations that have engulfed Danish rival Danske Bank <DANSKE.CO>.

Swedbank's shares were down 3.58% at 1214 GMT, underperforming the European banking index <.SX7P>, which was down 0.59%.

Estonia's watchdog issued a similar statement on Tuesday about Swedbank's Estonian subsidiary.

Sweden's oldest retail bank dismissed its CEO over the handling of the scandal and accepted the resignation of its chairman earlier this year.

Swedbank is alleged to have processed suspect gross transactions of up to 20 billion euros ($22 billion) a year from mostly Russian non-residents through Estonia from 2010 to 2016.

(Additional reporting by Tarmo Virki and Johannes Hellstrom; editing by Jason Neely and Jane Merriman)