ABN Amro 3rd-quarter profit increases as impairments drop

[AMSTERDAM] ABN Amro Group NV, the nationalized Dutch lender preparing for a share sale this year, reported third- quarter earnings that climbed 13 per cent on lower writedowns of bad loans.

Underlying net income, which strips out one-time items, rose to 509 million euros (S$781 million) from 450 million euros a year earlier, the Amsterdam-based company said in a statement Monday. Loan impairment charges fell to 94 million euros from 287 million euros from a year ago as the Dutch economy strengthened after returning to growth last year.

"ABN's got the bad loans very well under control," said Jos Versteeg, an analyst at Theodoor Gilissen Bankiers NV. "Those are at such a low level at the moment, that they'll likely rise again in the near future." Operating expenses rose 7 per cent, with the bank spending more on pensions for personnel and to staff various IT projects.

The Dutch government, which took over ABN Amro in a bailout seven years ago, has said it plans to sell shares of the lender in Amsterdam as soon as the fourth quarter. Proceeds will go to the state, which is seeking to recover some of the 22 billion euros it spent on the rescue.

The lender is seeking to lure investors after reorganizing and shrinking, an overhaul that led to the bank revising its targets. ABN Amro said in September that it plans to pay out 50 per cent of profit in dividends in 2017, up from 40 per cent this year.

Dividends at Europe's publicly traded banks are under pressure as higher capital requirements take up cash that could have been paid out to shareholders. Record fines against some banks and increased competition from US lenders are also squeezing earnings.

ABN Amro's return on equity, a measure of profitability, was unchanged from a year ago at 12.7 per cent. Net interest income, the revenue generated from the difference between what banks charge for loans and pay for funding, was also comparable at 1.52 billion euros.

"It looks decent, but the quality isn't great," said Corne van Zeijl, who manages 1 billion euros on behalf of Actiam NV. "Flat net interest income coupled with rising costs spells trouble." The company's cost-income ratio rose to 59 per cent from 57 per cent a year ago, while the lender's common equity Tier 1 ratio rose to 14.8 per cent from 14 per cent at the end of June.

"Our performance, the outlook for the Dutch economy and the fact that preparations for the bank's IPO are on track give us confidence in the future," chief executive officer Gerrit Zalm said in the statement.

BLOOMBERG