Bloomberg News

ABN Expects Bad-Loan Provisions to Rise as Profit Falls 13%

August 24, 2012

ABN Amro Group NV, the Dutch lender nationalized following Fortis’s collapse in 2008, said rising bad-loan provisions will hurt earnings over the remainder of the year after reporting a 13 percent drop in first-half profit.

Net income fell to 745 million euros ($934 million) from 856 million euros a year earlier, the Amsterdam-based bank said in a statement today. ABN Amro said it won’t pay an interim dividend, given the uncertain economic environment and as it prepares for stricter capital requirements.

ABN Amro said impairments on loans, mainly to companies in the construction, real estate and retail industries, rose 79 percent to 554 million euros in the first half. The company derives 83 percent of its operating income from the Netherlands, where the economy may shrink 0.5 percent this year, according to a forecast this week from the country’s planning agency CPB.

“The recession, which started in the second half of 2011, continues to impact the Dutch economy,” ABN Amro Chairman Gerrit Zalm said in the statement. “For the remainder of 2012 we expect markets to remain subdued, loan impairments to increase further and banking tax to have a significant impact.”

The bank levy, which the Dutch Parliament’s upper house adopted last month, will cut profit by about 100 million euros, ABN said. The government expects the tax to raise a total of 600 million euros.

Loan Impairments

Net interest income at ABN Amro, which includes Fortis’s former Dutch banking assets, fell 2 percent to 2.5 billion euros, while fee and commission dropped 19 percent to 788 million euros as market turmoil reduced transaction volumes.

Loan impairments in the second quarter almost doubled to 367 million euros from the preceding three months and were mostly in the commercial and merchant banking units, ABN Amro said. Impairment charges on mortgages rose “slightly” quarter on quarter, it said.

The firm’s core Tier 1 capital ratio, a measure of a bank’s financial strength, rose to 11.9 percent at the end of June from 10.7 percent at the end of 2011 after a settlement with Belgian insurer Ageas of legal disputes related to the break-up of their predecessor Fortis.

ABN Amro’s dividend target of 40 percent of net income still stands, Chief Financial Officer Jan van Rutte told reporters today. A decision on the full-year dividend will be taken after the 2012 results are known, he said. The bank paid out 250 million euros last year.

State Ownership

The Netherlands bought Fortis’s Dutch banking and insurance units and its stake in ABN Amro Holding NV in 2008 after the company ran out of short-term funding. Following a 30 billion- euro bailout, Dutch Finance Minister Jan Kees de Jager has indicated he plans to sell ABN Amro shares in 2014 at the earliest, preferably through a stock exchange listing.

Permanent state ownership is undesirable, Zalm said today, adding that the government will probably sell the lender in tranches.

Royal Bank of Scotland Group Plc, Spain’s Banco Santander SA (SAN) and Fortis bought ABN Amro in 2007 for about 72 billion euros in the world’s biggest banking takeover.

To contact the reporter on this story: Maud van Gaal in Amsterdam at mvangaal@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net


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