Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ABN AMRO Bank NV (ABMRF, Financial) reported a strong net profit of EUR642 million for Q2 2024, with a return on equity of 10.8%.
- The bank increased its market share in new mortgage production, resulting in further growth of its mortgage portfolio.
- Net interest income (NII) grew due to increased lending and improved deposit margins, leading to an upward revision of NII guidance for the year.
- The Basel III CET1 ratio remained strong at 13.8%, well above the required 11.2%, indicating robust capital adequacy.
- The bank announced an interim dividend of $0.6 per share, amounting to EUR500 million, reflecting strong shareholder returns.
Negative Points
- The bank's expenses rose in Q2 due to higher external staffing and IT costs, as well as investments in data capabilities, sustainable finance, and digitization.
- The new collective labor agreement (CLA) will add cost pressure, with an expected impact of around EUR100 million in the second half of 2024.
- There is some margin pressure on mortgages, partially offsetting the improved margins for corporate loans.
- The market remains volatile, particularly in terms of interest rates, which could impact future NII and overall financial performance.
- The bank's CEO announced his intention to leave during the first half of 2025, which may create uncertainty regarding future leadership and strategic direction.
Q & A Highlights
Q: Could you elaborate on what is meant by the new strategic period and should we see that as signaling a new approach or attitude? Also, can you elaborate on the drivers behind the new NII guidance of EUR6.4 billion?
A: We always refine our strategy every four to five years as part of a normal cycle. We are fully committed to executing our current strategy and have updated our targets for 2026. Regarding NII, the upgrade to EUR6.4 billion is driven by a more favorable interest rate outlook and stable client deposits. We expect some tailwind in the second half of the year from treasury results and improved deposit margins.
Q: Could you give us an update on where you are in terms of model updates for capital and the impact of interest rate changes on NII?
A: We are continuing to assess our models in anticipation of Basel IV regulations. We have taken add-ons to report operating RWAs and will finalize this assessment in the coming quarters. Regarding NII, every 10 basis points change in client rates impacts NII by roughly EUR100 million. We expect a gradual normalization of deposit margins.
Q: Could you explain the dynamics of the Treasury results and the impact of the replicating portfolio on NII?
A: The biggest part of our treasury result comes from the investment of our equity position, managed at a two to three-year duration. We expect a net increase in the second half of the year due to a supportive rate environment. The replicating portfolio, which is invested in a barbell structure, is expected to become a slight headwind due to lower rates.
Q: What are the building blocks for the expected EUR20 million increase in costs next year from the CLA?
A: The EUR20 million increase consists of EUR100 million related to salary increases and a benefit of EUR80 million from lower pension premiums. This is on top of the EUR100 million impact for the second half of 2024.
Q: Can you provide more details on the capital impacts of Basel IV and FRTB?
A: Basel IV implementation is expected to be favorable for us, with a potential benefit of EUR1-2 billion in RWAs. The FRTB impact is delayed and will only materialize in Q1 2026, with an expected benefit of around EUR1.5 billion.
Q: Could you clarify the impact of the new strategic planning cycle and its alignment with financial targets?
A: The strategic planning cycle is a regular process we go through every four to five years to ensure our strategy aligns with the current environment. Our updated targets for 2026 are based on our current strategy, and the review will ensure we continue to execute effectively.
Q: What are the dynamics behind the increased market share of banks in the mortgage market?
A: The increase in market share is driven by the preference for shorter interest rate fixings, which banks can adjust to more quickly. Additionally, our strong relationships with intermediaries and ability to handle large volumes efficiently have contributed to this trend.
Q: Can you provide more details on the expected cost increases for the second half of the year?
A: We expect higher investments in data capabilities, digitalization, and regulatory compliance. Additionally, regulatory levies have decreased significantly, and we plan to switch investments to new products and services to contribute to the top line.
Q: What is the impact of the new CLA on costs for 2024 and 2025?
A: For 2024, the impact is EUR100 million, with EUR60 million from salary increases and EUR40 million from accruals. For 2025, the additional impact is EUR20 million, with EUR100 million from salary increases and an EUR80 million benefit from lower pension contributions.
Q: Can you explain the rationale behind the timing of the CEO succession announcement?
A: The decision was based on ensuring continuity and allowing a suitable candidate to get involved at an earlier stage of the coming strategic period. The timing was deemed appropriate to ensure a smooth transition and continued execution of our strategy.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
