ABN Amro Quarterly Loss Widens on Higher Bad Loan Costs

ABN Amro Group NV, the state-owned Dutch bank preparing to sell shares to the public, said fourth-quarter losses widened 24 percent as economic woes in the Netherlands forced it to set aside more bad-loan provisions.

The loss widened to 47 million euros ($64 million) from 38 million euros a year earlier and from a profit of 390 million euros in the third quarter, the Amsterdam-based bank said in a statement today. It took 555 million euros in loan impairment charges compared with 466 million euros a year earlier and 212 million euros in the three months to September.

ABN Amro, the third-biggest Dutch bank, which derived 82 percent of operating income from its home country last year, has suffered as the economy went through three recessions since 2008. The government said last year it plans to sell the bank in an initial public offering in 2015, should the economy sufficiently recover and the company succeed in cutting costs and bolster earnings.

Full-year profit rose 1 percent to 1.16 billion euros, ABN Amro said.

“It has been a difficult year which has led to a modest result,” Chairman Gerrit Zalm said in the statement. “Even if the economy does turn the corner, impairments are expected to remain elevated in 2014.”

ABN Amro also paid 106 million euros in Dutch bank taxes in the fourth quarter.

Mortgage Book

Impairments mainly on loans to consumers, small and medium-size companies and mortgages rose 17 percent to 1.67 billion euros in the year as a whole, excluding 685 million euros of releases from a provision for Greek government-guaranteed loans and other special items.

Dutch regulators found ABN Amro’s provisioning for commercial real estate loans adequate, the bank said. The company set aside 119 million euros for 12.4 billion euros of the loans compared with provisions of 308 million euros in 2012, when the lending totaled 12 billion euros, Chief Financial Officer Kees van Dijkhuizen told reporters today.

The company is among 128 of Europe’s largest banks undergoing an asset quality review by the European Central Bank. ABN Amro has been informed of which of its loans will be inspected in the probe, yet isn’t allowed to disclose details, Van Dijkhuizen said. Mortgage defaults have been a focus of regulators after the economic slump persisted.

Mortgages in arrears of up to 90 days increased to 4.1 billion euros at the end of last year compared with 3.6 billion euros a year earlier, the bank said. Mortgages past 90 days overdue increased by 235 million euros to 1.7 billion euros compared with 2012, it said. The residential mortgage book was 150.5 billion euros, decreasing 3.6 billion euros from 2012.

“More clients faced financial difficulties and experienced payment problems,” ABN Amro said.

Excluding special items for both 2013 and 2012 such as the Greek provision releases and a sale of collateral, profit last year would have dropped 32 percent to 752 million euros due to the loan-loss provisions, higher pension costs and lower earnings from market activities, ABN Amro said.

Financial Troubles

Last year, the Netherlands exited its third economic recession since the global financial crisis started in 2008. Gross domestic product grew by a preliminary estimate of 0.7 percent in the fourth quarter, the most since expanding 1.1 percent at the end of 2010, the year Greece and Ireland received bailouts.

“Small and medium-sized enterprises with a domestic focus have felt the effects of lower domestic spending and the number of businesses in our portfolio that are suffering from financial difficulties was at elevated levels,” Zalm said.

ABN Amro is conducting a review of the loss-making markets division within its merchant bank to improve results, Zalm said. The merchant bank reported a decline in annual profit to 11 million euros from 144 million euros after it ended non-client related equity derivatives activities.

The bank expects more clarity on the steps it will take on the merchant bank in the middle of this year, Zalm told reporters today.

Capital Strength

The company’s core Tier 1 capital adequacy ratio under Basel III rules, a key measure of financial strength, was 12.2 percent at the end of 2013. The full-loaded Basel III leverage ratio was 3.5 percent, it said.

ABN Amro, nationalized after Fortis’ collapse in 2008, set a goal of reducing its cost-to-income ratio to 56 percent to 60 percent by 2017 from 65 percent last year. It’s also seeking return on equity of 9 percent to 12 percent by then, compared with 5.5 percent excluding one-time items in 2013.

The bank proposed a final dividend of 200 million euros for 2013, bringing the total payout to the state over last year to 350 million euros, it said.

ABN Amro was formed after the Netherlands took over the Dutch banking and insurance units of Fortis, which had joined a 71.9 billion-euro takeover of ABN Amro Holding NV with Royal Bank of Scotland Group Plc and Banco Santander SA in 2007.

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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