ABN Amro Group shares climed after second-quarter profit beat estimates and chief executive Gerrit Zalm announced a plan to cut costs by about €200 million.
Underlying net income at the Amsterdam-based bank climbed 10 per cent to €662 million from a year earlier. That beat the market consensus of €592 million, according to a note by ING Groep NV. The company took a legal provision of €271 million in the period.While some of Europe’s largest banks have scrapped their financial targets and reported a drop in earnings, ABN Amro has already surpassed some of its goals. Mr Zalm said that the lender will seek to cut costs by 25 per cent through measures such as job cuts and reiterated a plan to increase the dividend payout ratio to 50 per cent in 2017.
“One has to think about finance, risk and human resources,” the chief executive said at a press conference when asked about where job cuts may fall. “There’s little room to reduce compliance, because of regulatory demands.”
ABN Amro rose as much as 6.2 per cent, the biggest intraday increase since February 10th, and was up 3.8 per cent at €17.73 as of 1.08pm. The shares have dropped about 14 per cent this year, partly hurt by a wider selloff after the UK’s decision to leave the European Union.
Net interest income, the bank’s main source of revenue, rose 5 per cent to €1.58 billion euros. Loan-impairment charges increased to €54 million from €34 million a year earlier.
“Net interest income and risk costs surprised positively,” Albert Ploegh, an analyst at ING, wrote in a note to clients.
ING, the Dutch lender investing in financial technology to reduce personnel expenses and branch costs, said earlier this month that second-quarter profit more than tripled to €1.3 billion, boosted by lending income and lower provisions for loan losses.
Cost Control
ABN Amro’s operating expenses were little changed at €1.3 billion in the second quarter, with the underlying cost to income ratio, a measure of profitability, at 57.2 per cent. The bank will pay an interim dividend of 40 cents per share.
The results were lifted by “low impairment charges and an improving net interest margin, which is rare in the current low-yield environment,” NIBC Markets analyst Marcell Houben said in a note on Wednesday. He has a neutral rating on the bank.
ABN Amro reported a return on equity of 15.1 per cent and a common equity Tier 1 ratio, a measure of financial strength, of 16.2 per cent, 2 per centage points above the current target for next year.
The lender made provisions in the quarter to compensate clients for interest-rate swaps that backfired. Six banks sold almost 18,000 swaps to small- and medium-sized Dutch businesses between 2005 and 2010. The derivatives, designed to protect against interest-rate increases, caused financial hardship for many when the economic climate changed in the financial crisis.
Capital Buffers
European lenders have been under pressure to raise their capital buffers as regulators toughened scrutiny of riskier assets to avoid a repeat of the global financial crisis that sparked a series of bailouts. Once one of the world’s largest banks,
ABN Amro was transformed under state ownership into a consumer lender focused on the Netherlands. The state sold 23 per cent of the bank in an initial public offering in November.The company will publish new financial targets once regulators “give more clarity” on so-called Basel IV rules, according to Zalm. The CEO referred to a set of regulatory requirements from the Basel Committee on Banking Supervision, some of which have already been decided on. Others are set to be announced later this year. – (Bloomberg)
