Unfortunate incidents cost ABN AMRO more money than expected

Unfortunate incidents cost ABN AMRO more money than expected

23 July 2020Reading time: 3 minutes

At the beginning of this year, new CEO Robert Swaak joined ABN AMRO. One of the most important tasks of Swaak will be to radically reform the already loss-making corporate division (Corporate and Institutional Banking). The division is responsible for projects such as acquisitions, mergers, repackaged loans/bonds and stock and derivatives trading. Although the division has been underperforming for years, so far no one within the bank has dared to cut in what has been the most prestigious department of ABN AMRO.

During the presentation of the first quarter results of 2020, Swaak made clear that everything is negotiable for him to get the bank back in financial shape. The profitability of the Corporate and Institutional Banking division is lacking for years. With a loss of EUR 575 million over the last quarter, the CIB division pulled down the better results of the retail division amongst others. The current Corona crisis could offer a window of opportunity for the CEO to execute the much needed restructurings within this ailing division.

ABN AMRO made a loss of EUR 395 million in the first quarter, with an operating result of more than EUR 1.9 billion. In the first quarter of 2019 the bank made a profit of EUR 478 million with a operating result of more than EUR 2 billion.

The significant loss appears to be mainly due to the corporate division, where amongst others, depreciation on outstanding loans and credits increased significantly. The corona crisis and the oil crisis have created strong financial headwinds for ABN AMRO’s clients. Chances are that these companies will not be able to repay their loans or only in the longer term. Also, the lower interest rates are pushing down the margins on outstanding loans of the bank.

During the presentation of the half year results on August 12, Swaak will probably reveal more details about his strategic plans for ABN AMRO.

Problematic clients

Besides the negative effects from the oil and corona crisis, ABN AMRO also has to depreciate on three large corporate clients.

The first one is Wirecard, where a major accounting scandal came to light earlier this year. According to Bloomberg, ABN AMRO has lent a credit facility of EUR 200 million to the German payment company.

Another high risk case is a client from Singapore, who is also being accused of fraud. The company in question is active in maritime trade and has a credit facility of EUR 225 million with ABN AMRO.

The third problematic case is an American client of the Clearing department, who is now facing financial problems due to some setbacks. This could result in a depreciation of EUR 183 million for ABN AMRO.

Stock price development

Due to the corona crisis, ABN AMRO has decided to suspend all dividend pay-outs for the time being as well as any purchase of own shares. Early this year the share price fell by 55.6 percent below EUR 8 within a month. Since then, the stock price has shown a very modest recovery and is now (17-07-2020) at EUR 8.31.

The future price of the stock is subject to several political, industrial and sector specific as well as economic factors. Investors should consider these risks when making their investment decisions. Developments can be different at any time than investors anticipated on, which could result in capital losses.

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24/10/2020 22:07:43