Varengold cuts earnings guidance by more than half amid Iran payments probe
Varengold Bank has slashed its profit guidance, amid an ongoing compliance probe relating to Iran-connected transactions.
The Hamburg-based bank had previously guided to pre-tax profits ranging between €40m (£34.3m) and €50m for its fiscal year 2023, but has now lowered this to the range of €10m to €15m.
For the years 2024 to 2026, the bank expects pre-tax profits to fall even lower, to €5m to €10m each year.
Earlier this month, it emerged that the German Federal Financial Supervisory Authority (BaFin) is investigating Varengold’s payment transaction business in its commercial banking division, due to possible compliance violations.
Today, Varengold revealed that the regulator’s audit pertains to payments connected to Iran.
“The bank has acted in a legally and politically difficult area by processing payments for transactions connected to Iran,” it said. “This operation is not prohibited by sanction law in Germany and the entire EU, it is rather desired due to humanitarian reasons, given that the payment transactions involve the delivery of food or medical products to Iran – this was exclusively the case at Varengold Bank in the past.”
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The bank, which has funding agreements with peer-to-peer lending platforms across Europe, said that the current situation “came very unexpectedly” as its commercial banking business had been audited regularly by external professionals with no issues.
The regulator’s actions – which included raising the lender’s capital requirements and freezing some international client transactions – lead to a “significant loss of commission income” and require “short-term restructuring measures”, Varengold said.
The bank said it is laying off 22 per cent of staff and stopping various projects to cut costs.
It is reorganising the commercial banking business “with the highest priority”, to explore new earnings potential and expand the marketplace banking business division.
Last week, Varengold cancelled its dividend payment for 2022 to protect its capital base.
The regulator has imposed further reporting requirements on the bank, relating to liquidity, financials and capital reserves.
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