Picture: REUTERS
Picture: REUTERS

Amsterdam — ABN Amro Bank’s new CEO will review the bank’s strategy after the Dutch lender posted its first loss since 2013 and set aside almost twice as much as expected to cover future loan losses.

The bank made €1.1bn of provisions to account for loans going bad and said the figure may rise to €2.5bn for the full year. The net loss of €395m was driven by the provisions and its exposure to two clients. CEO Robert Swaak, just three weeks into the job, said reviewing the investment bank will be a top priority.

ABN Amro joined lenders across Europe in building up provisions as measures to contain the coronavirus make it harder for clients to repay loans. The Dutch bank’s exposure to the oil and gas industry, one of the highest in Europe, is also putting pressure on earnings after the sector was hit hard by the Covid-19 pandemic and roiled by a price war.

“The ongoing corporate and investment banking (CIB) review is a short-term priority for me,” Swaak said in a statement on Wednesday. Despite recent improvements, “this has not resulted in the required profitability. Also the risk profile of parts of the CIB is not fully aligned with that of the bank”.

ABN Amro will also review its overall strategy, with a focus on anti-money laundering controls and improving its digital capabilities, Swaak said.

ABN Amro dropped as much as 8.6% in Amsterdam trading and was down 7.6% at €6.17 as of 11.35am. That brings the drop this year to 62%, the fourth-worst performance on the Stoxx Europe banking index.

Plenty to fix

The new CEO had plenty on his agenda even before the pandemic threw markets and economies into turmoil. The bank faces high costs to bolster its client vetting amid an ongoing money-laundering probe in the Netherlands. German law enforcement officials raided the lender’s offices in Frankfurt in relation to a tax scandal, and a plan to reduce the government’s 56% holding in the bank has stalled.

The investment bank is tied to losses that compound the company’s challenges in dealing with the pandemic. ABN Amro announced a one-time profit hit at the end of March, when it reported a $200m net loss at its clearing business, after a US client failed to meet risk and margin requirements amid market volatility caused by the pandemic.

What Bloomberg Intelligence says: The surge in credit charges — worse than expected and higher than most EU peers — “threaten the sustainability of the corporate bank in its current form. The unit’s heavy oil exposure, and volatile and weak earnings stream are a drag on the bank, and is likely to face significant restructuring.” Philip Richards, banking analyst

While the bank had already indicated it expected a loss overall for the quarter, the total was about double analyst estimates of €191m. Provisions were expected to total €711m, according to company-compiled estimates.

Commerzbank took a €479m hit to deal with the fallout from the coronavirus crisis, which was also higher than expected, and said credit provisions could reach €1.4bn this year, making its goal of posting a profit “very ambitious”.

The Frankfurt-based bank said on Wednesday that €185m of its €326m in credit provisions was directly related to the pandemic, while the crisis also caused a hit of €295m in the value of customer derivatives.

The crisis complicates a four-year turnaround effort by Commerzbank CEO Martin Zielke that has failed to restore robust profitability. He is now working on his third round of cost cuts and has hired McKinsey to review the bank’s business model, Bloomberg has reported.

At ABN Amro, two exceptional client cases accounted for €460m of its coverage in the quarter. One was the previously announced trading loss and the other relates to a “potential fraud case in Singapore”.

The Dutch lender made a claim in April against a Singapore oil trading giant that filed for protection from creditors. Hin Leong Trading owes almost $4bn to more than 20 banks.

ABN Amro said it will provide an update in the European summer on its strategic review as well as financial targets and capital.

The bank’s common equity tier 1 capital ratio stood at 17.3%, just below its target range of 17.5% to 18.5%. Operating profit, which excludes the provisions, declined 13% from a year earlier to €624m.

Provisions have varied widely across Europe as some CEOs take a more aggressive stance than others. ING Group earlier set aside €661m, while HSBC Holdings earmarked $3bn and Italy’s UniCredit set aside about €900m for a potential virus hit. The economy of the eurozone may contract 6% this year, according to the median estimate of bank economists.