ABN Amro Drops as Buyback Delay Offsets Profit Beat

ABN Amro Bank NV slumped in Amsterdam after the bank’s delay of buyback plans outweighed the better-than-expected profit in the second quarter.

(Bloomberg) — ABN Amro Bank NV slumped in Amsterdam after the bank’s delay of buyback plans outweighed the better-than-expected profit in the second quarter.

Net income of €870 million ($955 million) in the three months through June compared with expectations for profit of €576.3 million, while net interest income was broadly in line with expectations. The Dutch bank, which last announced a €500 million buyback program in February, said it doesn’t plan to make a further announcement on payouts until the fourth quarter results, later than expected. 

The lender’s shares dropped as much as 4.4% in Amsterdam and were trading 3.6% lower as of 9:26 a.m. local time. The reaction in the shares can be attributable to net interest income not beating estimates as well as the delay of a decision on buybacks to the last quarter, Citi analyst Marta Sanchez Romero said in an note.

ABN Amro is among the many European banks that continue to enjoy higher interest income as the European Central Bank hikes rates to rein in inflation. The lender is under pressure to boost shareholder payouts as a result, even at a time when political scrutiny of bank profits is increasing. 

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Net interest income came in at €1.62 billion, compared with €1.63 billion estimated in a Bloomberg survey of analysts. 

The bank reported the release of €69 million in provisions while analysts expected provisions to increase by €96.4 million. The release reflected “the ending of the Covid management overlay and net releases in individual client files,” Chief Executive Officer Robert Swaak said in a statement.

“The impact of the economic slowdown on our loan portfolio so far remains limited,” Swaak said. 

Cost Target

The Dutch state stepped in to rescue ABN Amro during the financial crisis from 2008, transforming it from one of the world’s largest banks to a consumer lender focused on the Netherlands. 

Swaak has pulled the out of the investment banking business to focus on retail and corporate clients, and has been seeking to draw a line under a series of scandals including a fine for weak money laundering controls. 

ABN Amro lowered its expectations for full-year costs by €100 million to €5.2 billion thanks to lower regulatory levies and delayed hiring. Despite the upbeat earnings in the quarter, Swaak warned costs will be higher next year than previously expected. 

“While we remain focused on cost discipline, we no longer expect to reach our cost target of €4.7 billion in 2024, as 2023 investments spill over, inflation is higher and anti-money-laundering costs will reduce more gradually,” he said.

What Bloomberg Intelligence Says:

ABN Amro’s record quarterly pretax profit — topping €1 billion for the first time — was more than 50% above analyst estimates, but we don’t expect 2024 estimates to move higher, given treasury, delayed investments and impairment releases drove most of the performance. Underlying earnings are solid, but slowing net interest income, stable fees and inflation lifting expenses will all drag next year, while the 2024 cost goal (€4.7 billion) has been abandoned.

— Philip Richards, BI banking analyst

(Updates throughout with stock reaction)

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