COPENHAGEN (Reuters) - Danske Bank lowered its outlook for 2019 after a disappointing first quarter, due in part to the effects of a massive money laundering scandal at its Estonian branch that has sent ripples across the Nordic banking sector.

FILE PHOTO: Danske Bank sign is seen at the bank's Estonian branch in Tallinn, Estonia August 3, 2018. REUTERS/Ints Kalnins/File Photo

Denmark’s biggest lender is trying to restore trust among investors and clients after it said last year that it had channeled 200 billion euros ($223 billion) of suspicious payments through its Estonian branch between 2007 and 2015.

On Tuesday it said the considerable investments it is making in compliance to repair its image had pushed up costs, while higher funding costs also weighed on its first quarter performance. That heaped further pressure on its share price, which slid more than 8 percent in morning trade.

“The Estonia case continues to require considerable management attention, including the ongoing investigations and our efforts to restore trust in us,” interim Chief Executive Jesper Nielsen said in a statement.

Investors are still waiting to find out the scale of potential fines from authorities in the United States and other countries. However, the size and timing of any potential fine is still unclear, casting uncertainty over the bank’s prospects.

Danske said it now expects net interest income for the full year to be lower than last year’s level. It had previously said it expected net interest income to be around the 2018 level.

The bank kept its forecast for full-year net profit in the range of 14 billion to 16 billion Danish crowns ($2.1 bln-$2.4 bln), but said that would now include an expected gain of 1.3 billion crowns on the sale of its Danica Pension unit in Sweden.

Its share price, which has more than halved since March last year, was trading 8.3 percent lower at 119.85 crowns at 0936 GMT.

On top of the troubles related to money laundering cases, net interest income at Danske Bank was hit by a challenging market in the quarter.

“There are difficult structural problems with lower interest rates and tough competition,” said Sydbank analyst Mikkel Emil Jensen.

Danske’s money laundering woes are rippling across its Nordic rivals, with Nordea booking a 95 million euro provision on Tuesday for a possible fine for alleged money laundering, after reporting a 36 percent fall in its first quarter operating profit.

Sweden’s SEB called for joint initiatives between banks and regulators and authorities to combat money laundering, after saying in its first quarter statement that it couldn’t guarantee it would never be used for criminal activity.

Nordea’s shares were down 3 percent after its results, while shares in SEB fell 2.6 percent.

A confidential EU document, seen by Reuters, showed that Russia’s central bank sent warnings to Estonian and Danish regulators in 2007 and 2013 about suspect transactions at Danske Bank’s Estonian branch, but they were largely ignored.

Danske said expenses in the first quarter were 9 percent higher than a year ago, primarily due to investments in regulatory requirements, compliance and anti-money laundering efforts.

“Some of the increased cost is Estonia-related, but in my mind something all banks have to go through to increase their general activities around fighting financial crime,” Chief Financial Officer Christian Baltzer told Reuters in an interview.

The bank had seen “very little” effect on its financial result from 8,500 retail customers in Denmark leaving the bank in the first quarter, Baltzer said.

The bank said it has spent considerable resources hosting around 750 town hall meetings with customers.

“When we meet business customers, they are no longer talking about (money laundering). So we’re starting to see some light at the end of the tunnel,” Baltzer said.

Profit before tax fell 35 percent to 4.01 billion Danish crowns in the period, below the 4.47 billion forecast by analysts in a Reuters poll.