Commerzbank Falls on Report Sanctions Fine to Exceed $1 Billion

Commerzbank AG dropped in Frankfurt trading after the Financial Times reported the lender will pay more than $1 billion to settle allegations it broke U.S. sanctions and anti money-laundering laws.

The shares slipped as much as 2.8 percent and were down 2.6 percent at 11.35 euros as of 9:33 a.m. They have declined about 3.3 percent this year. The 49-member Stoxx Europe 600 Banks Index dropped as much as 1.3 percent today.

The penalties will probably exceed the $600 million fine the bank had discussed with U.S. authorities when taking a parallel probe into account, the newspaper said. While the settlement could be announced by the end of the year, the terms aren’t final and may yet change, the FT reported.

“We had hoped they would end the year with a profit in the fourth quarter, but a $1 billion fine would probably stop that from happening,” said Ingo Frommen, an analyst at Landesbank Baden-Wuerttemberg with a hold recommendation on the shares. “That would hurt their ability to build capital and they really want to get away from that kind of discussion.”

Margarita Thiel, a spokeswoman for Commerzbank, declined to comment on the probe today. The FT said officials at the the U.S. Justice Department and New York’s Department of Financial Services declined to comment.

Germany’s second-largest bank is under investigation for alleged violations of U.S. sanctions on doing business with Iran, Sudan, North Korea, Myanmar and Cuba. U.S. authorities are also looking into whether the bank does enough to prevent money laundering.

The Frankfurt-based lender set aside 934 million euros ($1.16 billion) in provisions for legal proceedings and recourse claims at the end of 2013, according to its annual report. Commerzbank doesn’t provide details for individual cases.

Frommen, who is located in Stuttgart, Germany, says Commerzbank probably made provisions of 300 million euros to 350 million euros to cover the penalties.

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