ABN Amro Investors on Hold for Buybacks After Capital Drops

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(Bloomberg) -- ABN Amro Group NV will keep investors waiting on plans for additional buybacks and dividends until near the end of the year after the bank’s capital ratio dropped to the bottom of its target range.

The Amsterdam-based lender, among the best capitalized banks in Europe, earlier this year held out the prospect of greater payouts providing its CET1 ratio stays between 17.5 percent and 18.5 percent. That ratio, though, is now at the lowest point on the scale after dropping because of new accounting rules in the first quarter, the bank said on Monday.

European lenders including UBS Group AG and HSBC Holdings Plc are seeking to boost returns to shareholders as profitability recovers and the Basel rules announced last year give greater clarity on capital requirements. UBS is buying back as much as 2 billion francs ($2 billion) of stock over the next three years. ABN Amro has built up some of the strongest capital buffers of any European bank, stoking investor expectations for increased payouts.

“ABN Amro missed on CET1 by 20 basis points,” Robin van den Broek, an analyst at Mediobanca, said by phone. “This puts the bank at the low end of the target range and also suggests additional capital return is further out than hoped by some.”

ABN Amro fell the most in about a year in Amsterdam, declining as much as 4.2 percent. The stock was trading down 3.7 percent as of 9:14 a.m. local time and has declined about 5.7 percent this year.

“It’s very much towards the end of the year that we would give a further update on our overall capital position and any consideration of additional distributions,” Chief Financial Officer Clifford Abrahams said in a Bloomberg Television interview. “It’s very early now.”

While capital dropped because of the impact of IFRS9 rules, some of the Dutch bank’s other key metrics did better than expected. First-quarter net income of 595 million euros ($711 million) beat estimates for profit of about 575 million euros in a Bloomberg survey of six analysts, while operating income also did better than expected and the cost-to-income ratio improved.

The Dutch economy continues to power ahead, boosting demand for credit from local companies and loan growth. The bank is counting on expansion in the Netherlands -- whose housing market is one of the hottest in Europe -- to help maintain loan growth. Impairment charges of 208 million euros in the first three months were “high,” Chief Executive Kees van Dijkhuizen said, mainly driven by the energy, shipping and mining industries.

Keeps Buffer

ABN Amro keeps its buffer of 4 to 5 percentage points above the minimum required 13.5 percent to manage the transition to the so-called Basel IV financial rules that will come into force in 2027. On-balance mortgage loans, ABN’s biggest revenue source, need a higher buffer under the new rules.

About a year ago, the bank announced that it would slash 60 out of 100 senior management jobs and shrink the management board in a revamp that also reflects the bank’s shrinking size. Since then high-profile executives such as board members Chris Vogelzang and Joop Wijn have left the bank.

ABN Amro is still looking for a new chairman after Olga Zoutendijk stepped down last February. The bank stated that Zoutendijk’s "leadership style" had been a topic of discussions internally.

The Dutch government still has a 56.3 percent stake in ABN Amro, a legacy from when it was rescued by the state in 2009. It plans to gradually sell the remaining shares in the market.

©2018 Bloomberg L.P.

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