ABN Amro Posts Loss as Fine Hits Earnings, Loan Income Falls

(Bloomberg) -- ABN Amro Bank NV posted a loss in the first quarter on a slump in lending income and a fine for weak money-laundering controls. The shares slid the most in more than five months.

The net loss in the three months through March was a bigger-than-expected 54 million euros ($65.5 million) after a loss of 395 million euros a year earlier. That wiped out gains made by releasing 77 million euros from its credit loss reserves.

The money laundering probe by Dutch authorities has weighed on ABN Amro as it overhauls its business to focus on retail and commercial banking and dangles the prospect of returning its high levels of excess capital to investors. The lender joined European rivals in taking a rosier view of the economic fallout from the pandemic, saying it expects the Dutch economy should rebound in the second half.

Lending income slid 11% to 1.36 billion euros in the first quarter from a year earlier as ABN Amro shrank its corporate and investment bank to reduce risk. The bank said it partly offset the hit from low interest rates by lowering the threshold for charging for deposits.

ABN Amro fell as much as 8.6%, the most since November. The stock was down more than 6% at 10.31 euros as of 9:22 a.m. in Amsterdam.

The bank’s net interest income missed analysts’ expectations and the trends for that source of revenue “remain challenging,” according to Citigroup Inc.

ABN Amro said it expects loan loss provisions excluding operations it is exiting to be “at or below the through-the-cycle guidance of 25-30 basis points” this year. Impairments at the corporate and investment banking businesses “remain uncertain but are expected to be significantly below last year.”

ABN Amro said the pressure on lending income was only partly offset by passing on negative interest rates to a wider base of clients. The bank said it has charged clients with deposits in excess of 500,000 euros a -0.5% interest rate since January and will start charging clients with deposits over 150,000 euros the same rate from July 2021.

Investment Bank Retreat

Chief Executive Officer Robert Swaak, a former PwC Netherlands chairman with experience advising organizations on know-your-customer and anti-money-laundering initiatives, was appointed to the role last year to help the lender move past the probe as well as a tax scandal. He is retreating from large parts of the investment banking business as he focuses on cost cutting and digitization.

ABN Amro’s personnel expenses rose as it added 182 staff in the three months through March, primarily to bolster its money-laundering controls. The bank said it currently has about 4,300 employees working on the issue and that associated costs should peak at about 425 million euros this year before falling to about 370 million in 2023.

While the bank scrapped its dividend for 2020 after posting a loss, it plans to reward shareholders with 639 million euros originally set aside based on profit for 2019 after the European Central Bank lifts restrictions on payouts at the end of September. It will also recalibrate the capital threshold it uses for determining whether to buy back shares in the fourth quarter.

ABN Amro posted a loss in the first quarter of last year after the collapse of a Singapore oil trading giant as well as a U.S. client’s failure to meet risk and margin requirements amid market volatility caused by the pandemic.

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