ABN Says Cost Target Challenging After Curbing State Payout

ABN Amro Group NV cut a planned payout to the bank’s Dutch state owners and said new levies will make it harder to meet a cost target.

The bank will pay the Dutch government 250 million euros ($327 million), unchanged from 2011, and less than its goal of paying 40 percent of net income, the Amsterdam-based company said in a statement today. ABN Amro said it plans to gradually attain that level by 2015.

ABN Amro, the third-largest Dutch bank, said the lower dividend will strengthen its capital buffers as tougher regulations are introduced. While full-year profit rose 43 percent to 948 million euros, earnings were boosted by one-time gains of 386 million euros compared with year-earlier charges of 646 million euros, which included Greek loan impairments.

Fourth-quarter earnings were reduced by a 112 million-euro charge for a Dutch bank tax, introduced in October to force lenders to share the costs of ensuring financial stability in the wake of bailouts of ING Groep NV, SNS Reaal NV and ABN Amro since 2008. The Dutch state aims to raise about 600 million euros a year from the levy.

ABN Amro, which was nationalized after Fortis’s collapse in 2008, said its cost-to-income ratio improved to 61 percent from 64 percent in 2011.

Cost Target

Meeting a target of reducing the ratio to less than 60 percent by the end of 2014 will be “challenging” because of regulatory costs and planned technology investments of about 700 million euros by 2017, the bank said. ABN Amro is aiming for a ratio of 56 percent to 60 percent by 2017.

ABN Amro will also have to pay as much as 250 million euros of a 1 billion-euro one-time industry levy next year after the Netherlands took control of SNS Reaal on Feb. 1. Lenders will also have to start contributing to a deposit guarantee fund to reimburse deposit holders in case a bank fails.

The company, which in 2011 set out to cut 2,350 jobs by next year, doesn’t plan a new round of reductions, Chairman Gerrit Zalm told reporters today. There will probably be a gradual decrease in staff after 2014, he said.

Rabobank Groep, the biggest mortgage lender in the Netherlands, yesterday said it plans to cut 3,000 jobs by 2014 and sees a further annual decline of 1,500 a year from 2015 as customers switch to banking via the Internet and mobile telephones. ING last month announced 1,400 additional cuts in the Netherlands for the same reason.

Bad Loans

Full-year profit excluding one-time items related to ABN Amro’s nationalization, divestments and Greek-debt writedowns would have been 34 percent lower than in 2011, due to a “sharp increase in loan impairments,” the company said.

Bad-loan provisions, excluding those on Greek debt, rose 54 percent in 2012 on higher impairments on commercial real estate lending, construction, diamond financing and residential mortgages. The state-owned lender last year derived 82 percent of operating income from the Netherlands, where the economy is forecast to contract 0.5 percent this year.

ABN Amro seeks to lower its reliance on the Netherlands by expanding its international operations, including private banking and energy and commodities finance, to 20 percent to 25 percent of revenue by 2017, it said today. It wants to reduce risks from concentration, said Zalm, adding that half the bank’s loan book consists of Dutch mortgages.

CFO Retiring

ABN Amro’s core Tier 1 capital ratio, a measure of a bank’s financial strength, rose to 12.1 percent at the end of December from 10.7 percent a year earlier.

ABN Amro Chief Financial Officer Jan van Rutte will retire in June and be replaced by Kees van Dijkhuizen, former treasurer-general of the Dutch Ministry of Finance and currently CFO of NIBC Bank NV.

The Netherlands put up 30 billion euros to rescue Fortis’s Dutch banking and insurance units and the bank’s stake in ABN Amro Holding NV in 2008. Since the nationalization of SNS Reaal last month, the state owns two of the four banks designated as “too-big-to-fail” by the country’s central bank. Rabobank Groep and ING are the other two lenders.

Royal Bank of Scotland Group Plc, Spain’s Banco Santander SA and Fortis bought ABN Amro in 2007 for about 72 billion euros in the world’s biggest banking takeover.

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