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Rabobank Profit Drops as Bank Takes Libor Settlement Charge

Aug. 22 (Bloomberg) -- Rabobank Groep, the biggest Dutch mortgage lender, reported a 14 percent decline in first-half earnings, hurt by a provision to settle probes into the Libor scandal and impaired real estate prices.

First-half profit fell to 1.11 billion euros ($1.48 billion) from 1.29 billion euros a year earlier, Rabobank said in a statement today. The provision for settlements was included in an earnings segment called “other income,” which declined 24 percent to 944 million euros.

“Rabobank expects that certain regulators and authorities will conclude their investigations this year,” the Utrecht-based cooperative lender said. “It is likely that an assessment of the facts and circumstances will lead to settlements with these regulators and authorities.”

The bank is the only Dutch contributor to the London interbank offered rate, or Libor. Probes into collusion in setting the Libor and Euribor benchmarks have resulted in more than $2.5 billion in fines for Barclays Plc, UBS AG and Royal Bank of Scotland Group Plc.

Rabobank didn’t break out the size of the provision, saying that “could seriously prejudice its position,” without elaborating. The lender had previously said it received Libor-and Euribor-related subpoenas and information requests in nations including the Netherlands, U.K., U.S. and Japan.

Property Impairments

“We aim for an integral conclusion of this file,” Rabobank Chairman Piet Moerland told reporters today, adding the charge reflects an estimated settlement amount for all probes.

The “other income” segment was also hurt by larger impairments on land held by the bank’s real estate unit and lower bond prices, Rabobank said. The Libor provision was offset by a one-time gain as the lender agreed on a revised pension plan for its Dutch workers, it said.

Libor, a measure of the cost for banks to borrow from each other, serves as a global benchmark for more than $300 trillion of contracts from mortgages to student loans.

First-half interest income was little changed at 4.46 billion euros from 4.47 billion euros, while fee and commission income dropped 11 percent to 1.05 billion euros, Rabobank said.

Bad Loans

Rabobank is selling assets and cutting costs to maintain profitability and capital buffers as the contracting Dutch economy pares demand for loans and makes it more difficult for borrowers to repay debts.

Bad-loan provisions were little changed at 1.1 billion euros in the first half and are expected to remain high for the year, Moerland said. Value adjustments in the lender’s real estate unit rose 55 percent to 153 million euros.

The real estate unit reported a loss of 198 million euros, compared with a profit of 47 million euros a year earlier. Rabobank’s property-finance unit sold 633 homes in the Netherlands, compared with 1,167 a year earlier as demand is low amid rising unemployment and decreasing purchasing power. Dutch house prices have fallen more than 20 percent from 2008.

The bank said its core Tier 1 ratio, a measure of financial strength, was 12.9 percent at the end of June.

The Dutch economy, which is in its third recession since the financial crisis started in 2008, shrank 0.2 percent in the second quarter. It isn’t expected to return to growth until next year, according to the Dutch central planning bureau.

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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