ABN Amro warns of ballooning provisions after US$1.2b Q1 hit

[AMSTERDAM] Dutch bank ABN Amro warned provisions for souring loans could balloon to 2.5 billion euros (S$3.84 billion) this year as the novel coronavirus crisis and oil price crash triggered a higher-than-expected first-quarter loss.

The lender, which has one of the biggest exposures in Europe to the global oil-and-gas industry, racked up losses in the first quarter when some of its trading clients ran into trouble due to market volatility.

Chief executive officer Robert Swaak, who took the helm last month, said he was ramping up a review of ABN Amro's investment bank to be completed by August.

"Although in the past few years some progress has been made in improving returns, this has not resulted in the required profitability...(and) the risk profile is not fully aligned with that of the bank," he said.

ABN reported a first-quarter loss of 395 million euros compared with a net profit of 478 million euros in the year-ago period. It took 1.1 billion euros in loan loss provisions for the first quarter partly due to exposures to two clients, it said, one of the biggest charges among European banks.

The bank had a US$300 million exposure to Singapore oil trader Hin Leong Trading, according to documents seen by Reuters. ABN is one of numerous banks taking court action against the trader that is currently restructuring its debt after admitting it had not disclosed more than US$800 million in losses over several years.

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ABN also booked a US$200 million loss from a single US hedge fund that was one of its clearing clients, which failed to meet its margin requirements after running into problems trading options and futures.

ABN shares closed lower at 6.67 euros on Tuesday, down 59 per cent so far in 2020. Since its bailout by the Dutch state in 2008, ABN has refocused on the Dutch market, cutting thousands of jobs in the process. The bank was re-privatised in a 2015 initial public offering at 17.75 euros per share. The Dutch state still owns a 56 per cent stake.

"Based on our latest assumptions, we expect the cost of risk (provisions for bad loans) for the full year 2020 to be around 2.5 billion euros," Mr Swaak said. That compares with net profit for full year 2019 of 2.05 billion euros, which included 657 million euros in loan provisions.

The bank said operating profit for the first quarter came in at 624 million euros, down 17 per cent from 754 million euros last year.

In a note, analysts from Jefferies said the company's underlying performance was better than expected, but overshadowed by the provisions.

ABN had warned in March that it would suffer a loss for the quarter and scrapped paying dividends until Oct 1 at the earliest.

ABN continues to await the result of a criminal investigation launched by Dutch prosecutors in September over alleged failures to detect client money laundering. A similar probe in 2018 led to a US$900 million fine for ABN's larger Dutch competitor ING Groep.

REUTERS