ABN Amro loss worse than expected on virus

  • Business
  • Thursday, 14 May 2020

AMSTERDAM: ABN Amro Bank NV posted a higher-than-expected loss and provisions in the first quarter, prompting new chief executive officer Robert Swaak to ramp up a review of the investment bank as he seeks to return the Dutch lender to profitability.

The bank set aside €1.1bil (US$1.2bil) to cover the cost of loans going bad, more than expected, and said the figure may rise to €2.5bil. The lender reported a net loss of €395mil, its first in seven years, partly related to its exposure to two clients.

European lenders have set aside billions of euros of as government measures to contain the virus make it harder for clients to repay loans. Adding to that risk, ABN Amro also has one of the biggest exposures in Europe to the global oil-and-gas industry, which 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. 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.”

The investment bank is tied to losses that compound the bank’s challenges in dealing with the pandemic.

ABN Amro announced a one-time profit hit at the end of March, when it reported a US$200mil net loss at its clearing business, after a US client failed to meet risk and margin requirements amid market volatility caused by the pandemic.

While the bank had already indicated it expected a loss, the total was about double analyst estimates of €191mil. Provisions were expected to total €711mil, according to company-compiled estimates.

Two exceptional client cases resulted in a total of €460mil of losses 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 US$4bil 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 €624mil.

Provisions have varied widely aross Europe as some CEOs take a more agressive stance than others. ING Groep NV earlier set aside €661mil, while HSBC Holdings Plc earmarked US$3bil and Italy’s UniCredit SpA set aside about €900mil for a potential virus hit. The economy of the eurozone may contract 6% this year, according to the median estimate of bank economists.

The economic damage stemming from the virus come on top of the legal issues ABN Amro faces.

In the Netherlands, the bank is dealing with an ongoing criminal probe into its money laundering controls, while German law enforcement officials raided the lender’s offices in Frankfurt in relation to a tax scandal. — Bloomberg

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