ABN Amro Loss Worse Than Expected After $1.2 Billion Hit
ABN Amro Posts First Loss Since 2013 as Virus Provisions Jump
(Bloomberg) --
ABN Amro Bank NV’s new chief executive officer will review the bank’s strategy after the Dutch lender posted its first loss since 2013 and set aside almost twice as much as expected to cover future loan losses.
The bank made 1.1 billion euros ($1.2 billion) of provisions to account for loans going bad and said the figure may rise to 2.5 billion euros for the full year. The net loss of 395 million euros was driven by the provisions and its exposure to two clients. CEO Robert Swaak, just three weeks into the job, said reviewing the investment bank will be a top priority.
ABN Amro joined lenders across Europe in building up provisions as measures to contain the virus make it harder for clients to repay loans. The Dutch bank’s exposure to the oil-and-gas industry, one of the highest in Europe, is also putting pressure on earnings after the sector was hit hard by the pandemic and roiled by a price war.
“The ongoing CIB review is a short-term priority for me,” Swaak said in a statement on Wednesday, referring to the investment bank. Despite recent improvements, “this has not resulted in the required profitability. Also the risk profile of parts of the CIB is not fully aligned with that of the bank.”
ABN Amro will also review its overall strategy, with a focus on anti-money laundering controls and improving its digital capabilities, the CEO said.
ABN Amro dropped as much as 8.6% in Amsterdam trading and was down 7.6% at 6.17 euros as of 11:35 a.m. That brings the drop this year to 62%, the fourth-worst performance on the STOXX Europe Banking Index.
Plenty to Fix
The new CEO had plenty on his agenda even before the pandemic threw markets and economies into turmoil. The bank faces high costs to bolster its client vetting amid an ongoing money-laundering probe in the Netherlands. German law enforcement officials raided the lender’s offices in Frankfurt in relation to a tax scandal, and a plan to reduce the government’s 56% holding in the bank has stalled.
The investment bank is tied to losses that compound the company’s challenges in dealing with the pandemic. ABN Amro announced a one-time profit hit at the end of March, when it reported a $200 million net loss at its clearing business, after a U.S. client failed to meet risk and margin requirements amid market volatility caused by the pandemic.
What Bloomberg Intelligence Says:
The surge in credit charges -- worse than expected and higher than most EU peers -- “threaten the sustainability of the corporate bank in its current form. The unit’s heavy oil exposure, and volatile and weak earnings stream are a drag on the bank, and is likely to face significant restructuring.”
-- Philip Richards, BI banking analyst
Click here to read the full piece.
While the bank had already indicated it expected a loss overall for the quarter, the total was about double analyst estimates of 191 million euros. Provisions were expected to total 711 million euros, according to company-compiled estimates.
Commerzbank AG took a 479 million-euro hit to deal with the fallout from the coronavirus crisis, which was also higher than expected, and said credit provisions could reach 1.4 billion euros this year, making its goal of posting a profit “very ambitious.”
The Frankfurt-based bank said on Wednesday that 185 million euros of its 326 million euros in credit provisions were directly related to the outbreak, while the crisis also caused a hit of 295 million euros in the value of customer derivatives.
The outbreak complicates a four-year turnaround effort by Commerzbank Chief Executive Officer Martin Zielke that has failed to restore robust profitability. He is now working on his third round of cost cuts and hired McKinsey & Co. to review the bank’s business model, Bloomberg has reported.
At ABN Amro, two exceptional client cases accounted for 460 million euros of its coverage in the quarter. One was the previously announced trading loss and the other relates to a “potential fraud case in Singapore.”
The Dutch lender made a claim in April against a Singapore oil trading giant that filed for protection from creditors. Hin Leong Trading (Pte) Ltd owes almost $4 billion to more than 20 banks.
ABN Amro said it will provide an update in the summer on its strategic review as well as financial targets and capital.
The bank’s common equity tier 1 capital ratio stood at 17.3%, just below its target range of 17.5 to 18.5%. Operating profit, which excludes the provisions, declined 13% from a year earlier to 624 million euros.
Provisions have varied widely aross Europe as some CEOs take a more aggressive stance than others. ING Groep NV earlier set aside 661 million euros, while HSBC Holdings Plc earmarked $3 billion and Italy’s UniCredit SpA set aside about 900 million euros for a potential virus hit. The economy of the eurozone may contract 6% this year, according to the median estimate of bank economists.
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