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Pension Funds

Pension funds with $210 billion look past scandal and buy Danske stock

Denmark's two biggest pension funds have significantly added to their stakes in Danske Bank, suggesting the lender's money-laundering scandal ultimately doesn't detract from its perceived potential to make money.

State-backed ATP, to which all Danes of working age must contribute, held 16.1 million shares at the end of last year, compared with 11.7 million six months earlier, according to its annual report. The stake is now worth less, however, after Danske's market value plunged 47% last year. PFA, Denmark's biggest commercial pension fund, raised its Danske stake to 38.3 million shares from 5.38 million.

Bo Foged, who's been acting as chief executive at ATP since Christian Hyldahl stepped down as CEO amid a stock-trading scandal, said the fund views Danske as a "healthy" firm.

Danske's involvement in a $230 billion Estonian dirty-money scandal is "totally unacceptable," Mr. Foged said, but ATP is now focusing on the bank's future prospects.

"When you're investing in a stock, you're investing in the future, not the past," Mr. Foged said in an interview after the $120 billion fund reported earnings. "The company, it will come back and show strong results."

Danske is under investigation in the U.S., as well as in Denmark, Estonia and France amid allegations it helped criminals from the former Soviet Union launder money until as recently as 2015. Fine estimates vary, with some analysts predicting Danske will have to pay less than $1 billion, while others have suggested penalties might exceed $8 billion.

Danske has purged its upper ranks and spent vast sums on better compliance. Last year, ATP supported the bank's biggest shareholder, A.P. Moller Holding, in ousting Ole Andersen as chairman as part of the cleansing process.

Mr. Foged said that ATP, whose Danske stake was worth about $315 million at the end of last year, has had a "running dialog" with the bank. Based on that contact, the fund is "generally reassured about the plans to clean up after the money laundering scandal," he said.

When it comes to Danske's financial results, the bank was "on a very positive development" before the scandal hit, Mr. Foged said. "And there aren't any grounds for not being able to come back to that."

"Of course, there's a cleaning-up process," he said. "But bottom line, it's a healthy bank."

Danske said last week it plans to increase investments in compliance by more than $300 million amid efforts to retain customers and shareholders. CEO Jesper Nielsen, who has been running the bank on an interim basis since Thomas Borgen was relieved of his duties in October, has said the bank faces a "huge task."

So far, the financial impact of customer flight has been negligible. But the uncertain outcome of the laundering scandal wiped almost $17 billion off the bank's market value last year.

For investors who believe in the bank, the sell-off spells an opportunity. Since the bank reported fourth-quarter earnings last week, the stock has gained about 4%. That compares with a 0.5% rise in the Bloomberg European bank index.