Rabobank Profit Falls as Losses at Real Estate Unit Widen

Rabobank Groep, the biggest Dutch mortgage lender, said profit last year dropped as losses at a real estate unit widened and it paid a 774 million-euro ($1.06 billion) fine for rigging interest rates.

Full-year net income fell 2 percent to 2.01 billion euros, the Utrecht, Netherlands-based bank said in a statement today. The real estate business reported a loss of 817 million euros compared with a 113 million-euro loss a year earlier as provisions for bad debt in the Netherlands jumped 24 percent.

Rabobank is cutting as many as 10,000 Dutch jobs by 2016 as it seeks to increase profitability and boost capital buffers amid limited growth in the country. Market conditions will be difficult and value adjustments on loans are expected to remain high this year, Rabobank said.

A Dutch central bank review of lenders’ commercial real estate loans found provisions and capital levels for Rabobank were “within scope,” the company said. The lender increased provisions at the unit in the second half as the quality of loans deteriorated, it said.

The European Central Bank is conducting an asset quality review of 128 of the continent’s biggest banks, which include Rabobank. Chief Financial Officer Bert Bruggink said today that he is optimistic about the outcome of the health check, which the ECB expects to complete by November.

Provisions for commercial real estate loans in the Netherlands alone rose to 842 million euros in 2013 from 376 million euros a year earlier, the bank said.

Robeco Sale

Rabobank submitted data to regulators earlier this week on the loans it has awarded to small and medium-sized companies and expects about 30 inspectors to come to its headquarters as part of the ECB’s review in “the near term,” Bruggink told reporters on a conference call.

Profit last year included a gain of 1.6 billion euros from the July sale of asset-management arm Robeco to Japanese financial services company Orix, the bank said.

Rabobank is among financial institutions fined a total of about $6 billion since June 2012 for manipulating Libor, the benchmark interest rate for more than $360 trillion of securities worldwide. More banks face penalties this year and over a dozen people have been charged in parallel U.S. and U.K. probes.

Replacing Chairman

Rabobank said today that it’s still in the process of finding a permanent replacement for Chairman Piet Moerland, who stepped down when the fine was announced last year. Rinus Minderhoud, a former supervisory board member, has taken up the role temporarily. The bank plans to name Jan van Nieuwenhuizen as head of its commercial banking operations after Sipko Schat also resigned over the libor fine, it said.

The company has been selling assets abroad as it seeks to boost its core Tier 1 ratio, a key measure of financial strength, to 14 percent by 2016 from 13.1 percent at the end of 2012. After completing the sale of Robeco, it agreed to sell its Polish bank to BNP Paribas SA in December for about 1 billion euros.

The lender also plans to boost its core Tier 1 capital ratio, a key measure of financial strength, to 8 percent by 2016 from 5.2 percent last year.

The job reductions in the Netherlands should lead to 1.22 billion euros in cost savings by the end of 2016, Bruggink said.

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