Rabobank First-Half Profit Drops 39%, Hurt by Legal Charges

  • Provisions for swaps compensation rise by 514 million euros
  • Chairman Draijer says efficiency efforts proceeding rapidly

Rabobank Groep, the second-largest Dutch bank by assets, said first-half profit fell 39 percent, hurt by legal costs and restructuring expenses.

Net income dropped to 924 million euros ($1 billion) from 1.5 billion euros a year earlier, the closely held bank said in a statement on Thursday. The lender increased provisions by 514 million euros to compensate clients whose interest-rate swaps backfired after the 2008 financial crisis. Restructuring costs, partly tied to job cuts, jumped to 190 million euros from 26 million euros a year earlier.

Chairman Wiebe Draijer, a former McKinsey & Co. partner, is cutting at least 9,000 jobs and aims to offload 150 billion euros in assets by 2020. Rabobank, a cooperative formed in 1898 to serve Dutch farmers, has struggled to keep pace with its competitors and changing bank regulations because of its legal structure. The 106 local units of the lender last year agreed to become a single entity with one banking license and a common annual report.

Steps to improve efficiency, including digitalization “are proceeding at a rapid pace,” Draijer said in the statement. “The very large loss of jobs associated with this presents a huge challenge to both remaining and departing employees.”

Impairments Fall

Loan impairment charges fell 58 percent to 148 million euros in the period, as the Dutch economy continues to strengthen.

Rabobank agreed in July to settle a long-running derivatives dispute involving swaps sold to small- and medium-sized Dutch businesses. The lender will compensate about 9,000 clients that had bought about 11,000 swaps that backfired after the 2008 financial crisis. The derivatives, designed to protect against interest-rate increases, caused financial hardship for many when the climate changed after the crisis.

Draijer is also trying to restore Rabobank’s reputation after the bank admitted wrongdoing in a 2013 settlement over interest-rate manipulation and paid a 774 million-euro fine. The lender is also being investigated by the U.S. Justice Department over money-laundering controls at its U.S. unit, Rabobank National Association.

A U.S. grand jury is weighing testimony from several current and former Rabobank officials as the government seeks to tie alleged money-laundering lapses at the bank to specific individuals. Prosecutors in San Diego and Washington have interviewed bank employees about money laundering controls at branches along the U.S.-Mexico border.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE