ABN AMRO Bank N.V. (ABN.AS) Earnings Call Transcript & Summary

Good afternoon, everyone. Thanks for joining us after lunch session. We had time to get lunch. Marguerite I'm very pleased to welcome you to our conference. I think it's -- this is your first time meeting the investors community as new CEO of ABN AMRO. I mean, your attendance is highly appreciated. So clearly, I mean, ABN is seen among the remaining fuel profitability turnaround stories and your appointment is seen as a catalyst to drive this change. The shares performed well this year, up 70% year-to-date outperforming sector at 30%. So clearly, the market is on board, and there will be positioning ahead of your CMD on 25th November. So we keep that in mind in our interaction, of course.

So before we start talking about your strategic vision and your profitability, I want to start with the -- talk about the budget day, which was, I think, this week. And then the Dutch elections, to see what's been any highlights in these budgets and what you expect that will impact banks in terms of bank taxes or any policies?

Good afternoon. Thank you so much for having me. And I hope indeed that you had time to have lunch, because I know this afternoon can be really long. To your question on the budget in the Netherlands and the political landscape, I was in the Hague yesterday because it was an important day it's called Prinsjesdag Day. So it's a day when not only do you have the King speech, but you also have the presentation of the budget. This year, of course, a lot of questions in the budget are left unanswered because as you're well aware, we have elections on October 29. So many of the, I think, most important budget choices will be made after the elections. Once the coalition is formed, it will probably be a coalition. So -- and to your point, no, there was no change in the banking tax in the budget memorandum that was shared yesterday. But again, I think more to be found after the election and the coalition is formed.

Very good. So you're French...

I am.

You worked at [indiscernible] BNP. You came with fresh eyes into ABN a few months ago. And your first time you came in and you met the team and so on, what really stood out most of you on ABN when you started?

I was privileged in being able to meet many colleagues over the past few months, but also clients and of course, investors as well. And if I were to summarize what I think are the assets of ABN AMRO, I would say first that we have strong roots and very great brands. And I've put an asset brands because we have ABN AMRO, but we have McPherson, we have Bethmann in Germany, but now more recently HAL, Neuflize in France, just to name them. So very good brands. That's number one. Number two, we have great market shares, of course, in the Netherlands, which is our home country, in retail, in wealth and the -- in corporate. But in Wealth & Corporate, we also have, I think, a very interesting Northwestern European geographic footprint that works well for us. So very good market shares. And also, I would say that we have good market shares in attractive segments of the market. If I take retail, for instance, we have very good market shares in the mass affluent segment that is also a natural feeder to our wealth business. Good brands, good market shares, very committed teams, and I also feel a good energy level in the bank over the past few months. So that's -- that I enjoy a lot. And also, and that's something I like. I think there is also room for upside, room for improvement. So that makes for a good mix.

Very good. So then how do you plan to leverage the bank's strengths to drive that meaningful change will you see?

So yes, going forward, we will be leveraging, as I said, on our strong assets. We envision to build our strategic plan on what is -- what are our strengths and on fixing, improving what needs to be fixed and improved. We can already name rightsizing our cost base is one of them. Our cost income is higher than our peers. I would say, steering better on our capital is the same one. And of course, looking for what I call profitable growth. I do not envision growth without profitability. It doesn't happen in one day. It takes discipline. It takes focus and drive. But these are clearly 3, I would say, 3 key topics we will probably be building upon for Capital Market Day. Probably it's too much. We will build upon and elaborate in our Capital Market Day in 10 weeks.

Yes. So we will come back to this a few pillars you just mentioned. But conceptually, I mean ABN AMRO has been delivering returns that are super versus the average industry. So where do you see the ROE, not in the numbers, but basically positions for the -- versus the sector? I mean, with the works you will be doing and announcing, is there an engine to be able to be up there with the profitability of the sector?

I think -- and going back to the 3 pillars, and I'm going to give you some illustrations of what we've been doing already since April because, yes, we are working on strategic plan, but we are not standing still. So just -- and that I think gives you a good -- some insights on how we want to work going forward. First, on cost, we've been very clear at that because improving our profitability means working on our ROE, and that means working on all the parts of components of the ratio, and not only the equity part, but also our revenues and our cost base. So this being said, with respect to our cost base, we have been very clear on our cost guidance this year between EUR 5.3 billion and EUR 5.4 billion. And we are steering on that, and we are confident we will reach this cost target. We started by implementing a few things. For instance, starting in April, a hiring freeze that we implemented in the bank. You've seen some of it impact at Q2, but that was, of course, moderate given the fact that it had only been recently implemented in April. You'll see more of that and more significant impact in Q3. So steering on cost is a big one. The way we look at our capital, if you look at the past quarters, we have already been steering more capital. We have reached an inflection point on RWAs. And we have been able to improve our risk-weighted assets by EUR 4 billion to EUR 5 billion in the past quarter, just actively steering on capital, for instance, doing basic stuff like improving the way we source our collateral or getting external ratings for corporate clients when we didn't have sometimes some and so on. So these are just basic uplifts that we are getting. So I strongly believe in this form of discipline to work on the capital and the cost. And also what we are doing right now is having a thorough review of all of our activities just to make sure that we look at everything with, I would say, a neutral eye, making sure that we are in activities where we are relevant and where we can be profitable, and that leads us to some choices. If I were to take an illustration of a choice we recently made in asset-based finance, we took the decision to stop this activity in Germany, stopped this activity in the U.K. and France because we didn't think we were relevant there. And where we're not, well, we shut it down so that we can actually redeploy the capital more meaningfully. Just to give you an illustration of how we think about things.

But that's a very good overview. And if I may, we will probably spend a bit more time on all these components. So on the cost side, I mean, where -- which is a key focus, and I think it's high in your priority as well. Where do you see the areas where -- and maybe we can go by divisions, if you want, where you can see some upside there. I mean talking about and something we already discussed in the past in earnings calls about FTEs, internalization of consultants, IT systems...

So of course, we will be going into details at the Capital Market Day and certainly division by division, but I can give you another illustration on how we steer that. And I will take an example coming from our IT for a variety of reason, inherited from our history when ABN AMRO was a more complex banks than it is today. We have still a fairly fragmented IT landscape with -- we have more than 3,000 applications running, okay? This was also partly inherited from the merger between ABN AMRO and Fortis Netherlands at the time. And so we actively steer on that because it enables us not only to improve our cost, but also free up resources to invest. And also, it makes us more -- I mean, we can go faster. We are more efficient when we do that. So we have a program in our bank that we call our IT value case, where we decommission very systematically all this -- all the applications that are not strictly necessary to free up capacity from what we call keep the lights on and allocate it to more, I would say, innovative venues. And for instance, that's what we've done recently in -- are you familiar with Tikkie?

Yes, application. I mean I'm not sure...

I mean for Dutch people okay -- anybody who has ever been in the Netherlands should be familiar with Tikkie. But when you're not Dutch, it's less maybe well known. So Tikkie is appear to be application that was in fact invented by ABN AMRO a few years ago. It is now a word in the dictionary, really. I mean when you -- everyone is using it out of 18 million Dutch people we have 10 million Tikkie users. I'm going there because ABN AMRO is actually a very innovative bank and the Tikkie team has recently in less than a year, put together BUUT, which is the neobank, we've just launched a few weeks -- I mean, weeks ago, dedicated to teenagers and their parents. And the Tikkie team has been able to develop that in less than a year. And to my point on why do we steer so much on our IT as well is that if you have a more simplified IT landscape, you are much faster, more cost efficient and more time to market. So we've been able to create BUUT in less than a year, thanks also to these efforts that are being done in improving our IT landscape, just an illustration. I'm referring to things that are public because, of course, we will say much more about that at our Capital Market Day, but it's just to give you a bit of a sense on how we think about this.

No, I'm aware. And thank you very much doing the exercise because it's so close to CMD and you want to keep spoil most of it. So I appreciate you're sharing as much as possible with us today.

I have the Head of IR there. Just making sure that I don't spoil anything. So it's just...

So it's been a very important event for you, so we don't want to -- so I mean, staying on costs, clearly, the focus is on taking out costs, given your cost/income level and so on. But how do you see in your thinking on the investment side? If you look at, for example, the wealth management or others, are you allocating as well the investments in your thinking of the future of ABN?

Yes, of course. So just to give you -- you mentioned wealth. This is a business we like a lot. This is a business where we have a leadership position in the Netherlands where we also operate, as I mentioned, in Germany, in France and Belgium. And the way we look at it, provided we find relevant opportunities, and I'll give the example of the recent acquisition that the bank was able to complete with HAL. We closed the deal at Q2. This is a business where we can grow both organically and if it happens inorganically. And what we did with HAL with this acquisition, we actually were able to consolidate now a strong #3 position in wealth in the German market, which we like a lot. And at a very good, I would say, return on invested capital. So -- our strategic thinking will be primarily focused on organic growth. But if there are things that are relevant for our bank with a good strategic fit in geographies we know, in businesses we know, I don't believe in doing things you're not good at. So focusing on the things we do well. If there is a good strategic fit, if there are revenue synergies, if there are cost synergies, these are opportunities we may be looking at in due course, always with discipline.

Still on the cost you've announced -- I mean, you haven't announced actually it was in the press, but I think you confirmed the restructuring plan on the risk functions. I understand it's not significant, but...

No, but it's good you mentioned it because I think it's a good illustration of our mindset and the way we do things. We -- yes, we announced that we are reorganizing our risk function. We are simplifying our risk function. And what are we actually doing? Several things. First, we reviewed our risk controls throughout the bank just to make sure that our controls were focused on the risks that mattered and were well designed because sometimes it's a bit like in your house, when you don't pay attention, you keep piling things up and sometimes your cupboards are full. And well, it's always good to have a little review of is everything that certainly necessary. So that was one. Something else we want to do is also make sure there were no duplications between what we have in first line of defense in the business and the second line of the defense because sometimes we were doing a bit -- we were duplicating controls. So with that in mind, you are able to simplify your risk organization. Not only do you bring -- do you have an impact on your cost, but you're also more efficient, you focus on what matters. And at the same time, it's not only about less people, but it is also about bringing more seniority in the game. So we are also recruiting people at a more senior level, including the management team of risk of Serena Fioravanti. And we do that because what we want with risk is for risk to be a strong countervailing power in the bank on the risks that matter and play that role. So this is a whole -- I take this example because this is really not just about our cost or everything, but this is about simplifying the bank and being more efficient. So yes...

Thank you, Mike. The other area you mentioned is optimizing the capital position and the capital efficiency. This is a project you've engaged in already for a few years. And as of Q1, Q2, you kind of completed that project. So maybe you can describe us where you are in terms of this data quality and model updates and review where you are there? And what does the future have in store in terms of -- I think you already mentioned the more use of SRT securitization to improve the profitability. So I don't know how much you can say on that?

Okay. So yes, as you mentioned, yes, in Q1, we successful transition to Basel IV. We also completed the simplification of our model landscape, i.e., moving our [indiscernible] portfolios to SA. And so that was successfully completed. It means now that we have in that respect, something that's even more predictable, reliable. And as I mentioned, and I think you've seen it also in our figures, we have indeed reached this inflection point in our RWA. And we do have this active steering in mind. You mentioned what we've done in terms of improving our data quality. I mentioned how we source our collateral, for instance. So we are very focused on that. There will be more to come, also probably more widespread over time. But for instance, that's the case for the SME support factor that is positive as well yet to come. So yes, more of that, more of the steering on our RWA and also this strong view on how we allocate our capital, especially in our corporate bank, which among our 3 divisions is the one that needs to be the most mindful about its profitability.

Okay. Thank you. So on allocation capital, I wasn't going there, but you mentioned on the corporates. I mean if you have tomorrow, I mean, to allocating capital, what's area you think it's the division that you would probably see decent returns in a decent time frame.

Okay. So...

I know we are going maybe...

Of course. No, no, no. So of course, we'll have more on that at our Capital Market Day because at the end of the day, this is what a Capital Market Day is all about. There is a -- this is about how you allocate your capital within your business, but also what are -- what is the return on capital, how you think about inorganic versus organic growth and so on. And of course, this will be shared at Capital Market Day. This being said, and this is why I mentioned that I do believe we expect from each of our business lines profitable growth, i.e., when growth is not profitable, we don't think this is a priority for that business. So this is a key metric of more -- of the way we allocate capital. In our Corporate Bank, we have a very profitable business with clearing, where we have top 3 position in the world, actually. And we also have areas of improvement, and this is what we're going to be sharing.

Okay. Then talking about capital return. So you've announced a EUR 250 million share buyback in Q2 market was expecting a bit more, although you beat on capital, CET1 ratio. So maybe you can shed the light on what was your -- I mean what you're thinking? Was it because you want to keep most of the announcements and more kind of -- I mean, holistic view on capital return with the CMD? Or there's some other constraints we should be aware of? Because that came as a surprise, right?

So a few things because I do realize that the EUR 250 million share buyback we did at Q2 appeared, say, modest in light of our strong balance sheet position with a CET1 ratio of 14.8%. Why did we do that? And what to be kept in mind? First, keep in mind that this EUR 250 million share buyback is a delayed share buyback related to 2024, i.e., if you remember correctly, at the time in '24, the bank had shared that it wanted to have fully transitioned to Basel IV in order to better assess its capital position and that the share buyback related to '24 would be announced at Q2 '25. So that's what we did at Q2 '25. So this is delayed share buyback. So as also we shared at Q2, we will assess at Q4 '25 our capital position and potential share buybacks related to 2025, okay? So that's one. If you can follow me between...

I've been following you...

That's cool. So that's one. The second point to also bear in mind is that also, you're right, going into our Capital Markets Day, wanting to do a full review of our situation, we wanted to keep some optionality. Next, we also had a prudent view on the macroeconomic circumstances. We are going through volatile times. So this was, I think, only fair. We wanted to take into account the full impact of the HAL acquisition that we had closed at Q2. So that was another one. And last but not least, and we were very transparent on that. We also shared actually in the draft decision we got from the ECB, the fact that our Pillar 2 requirements would be increased by 35 basis points, primarily on the back of interest-only mortgages, which is a very Dutch product and basically, that given this increase, we wanted also to make this one public. So these were all the factors we took into consideration when we decided on this EUR 250 million share buyback. But of course, we will be sharing our capital framework during our Capital Market Day in -- on November 25. And we will carry on based on our assessment of our position at Q4 '25 potential for share buyback in '25.

So to understand better the sequencing, so you have the CMD where you will set your dividend policy, whatever payout is and then distribution on top. Currently, your policy is a 50% payout. And then every year, you assess the capital position, and then you announce distribution and buyback and so on. So given that you'll announce a policy in November and then you will have the Q4 results in February, we will end up in the same situation. So we'll have the payout and then we'll have to wait for the Q4 in February to get the additional distribution. Is that understanding correct or...

You will have the capital framework in -- on November 25, basically. And that will be for the duration of our strategic plan. So that will give visibility on how we look at our capital allocation. And then we will assess, as we mentioned in -- actually last quarter already, our situation for potential additional share buybacks at Q4. Yes.

That's Q4. And on the capital level, we've seen that -- so your target is current one is 13.5% CET1. Clearly, that's been raised towards 13% target in the industry. Now we see some other banks doing the long-term, short-term kind of targets, short-term 13%, and long term back to 12%. So a bank like yours, which is actually quite derisked, and I'm sure you will do a good job into make it more efficient and profitable, 13.5% is a level that is actually very comfortable.

You already know, I'm not going to answer this question, right?

So no, I mean...

But nice try, I like it.

But -- okay. So clearly, very comfortable position and there is upside eventually.

Poker face, but keep trying.

So moving to another topic we didn't discuss yet is the net interest income, which is for you, a big part of the revenue revenues. And we discussed a bit of wealth through -- the fees through the world, sorry. On the net interest income, this is an area where when we talk about margins, but then we have the lending growth component. So maybe you can give us a bit of an outlook of what you see in terms of -- on the ground of recovery in the mortgage growth and lending on the corporate side as well, perhaps. And you can -- I don't know, shed some light on your -- maybe your hedging or other components of the NII?

Yes. So of course, NII is an essential component of our revenues. And we give -- we've given a guidance for NII in '25 that we would land between EUR 6.2 million and EUR 6.4 billion. This being said, and I mentioned that I had actually interactions with investors in ABN AMRO even prior to starting my tenure. And I did a reverse roadshow because I wanted to hear the feedback of our investors and so on. And so I do realize that on NII, I hear you, people want always, I would say, more transparency and guidance. So if you look at the different buckets of our NII. First, for the part of our NII, and that's the bulk of our NII, that's related to or lend -- client activities, lending and, of course, deposits as well. There, basically, we tried to provide as much guidance as we can. I think we are fairly explicit with respect to our lending activities in terms of volumes and margins. And if you look, those are fairly stable. On the deposit side, it's a bit more difficult to be more explicit because, of course, that would also give, I would say, indications about or commercial policies and that has implications on competition in the Dutch market, if we were to be more explicit on what we are going to do with our client coupon and everything. So this is why there is probably less information on that part. So I recognize the questions, but it's a bit less easy to be more explicit. Also then you have the other part of NII, which is, of course, our treasury. There, you do have, I think, a part that's quite visible and comprehensible, which is the one that's related to how we invest on our equity. And there is a part that's a bit more volatile and where we can certainly also make progress in the way we run it. That's related to also hedging strategies because as you realize, our clients, for instance, you are mentioning mortgages where our clients have the ability to also lock their interest rates sometimes for 20 years, 30 years. So of course, our hedging policies are very important, and you see that in the treasury results. This being said, given the current interest rate environment, we do expect tailwinds going into 2026. Long answer on the NII.

Yes, and you were trying to...

I'd try to be shorter for the next ones.

So next question, I would say on the asset quality and risk management. So you've been running with the cost of risk, almost 0 for a while now. Clearly, I think this is not necessarily sustainable in building a plan. You don't extrapolate that. But are there any areas that now with the tariffs with the Netherlands being Central of Europe in terms of -- do you see any pockets of lumpy in the corporate side, on the SME side. And what was kind of through the cycle level you would think is more sustainable?

Okay. Several things on that point. So yes, we do have a very low cost of risk, yes, cost of risk of [indiscernible] in the last quarter. At the same time, just for the sake of being precise, we also released some provisions in that quarter. So the underlying cost of risk would be closer to 4 basis points, which I agree, given this business model is still very low. But it's just for the sake of being precise. We do have, I think, a very good asset quality position. And of course, we've been very mindful on assessing on our clients, the impact of geopolitical tensions, what would be the direct impact and the indirect impact as well. We've done so through our models, but we've done also through direct client outreach, and we are very comfortable with what we see. Direct exposures in the Netherlands to U.S. export is 5%. I mean it's very manageable in terms of direct exposures. And even, I would say, the indirect effects are manageable. This being said, we also see -- I mean, it's of a bit different nature, but we also see on the part of our retail clients that they do save more and that the geopolitical uncertainties also lead them to be more prudent. So you have something in the Netherlands that's called the holiday allowance. And usually, it's spent in the holidays. And this year, we saw client savings more of it because I think you see some prudency, geopolitics, but also political uncertainties in the country. So I think that certainly plays a role to a certain extent.

Very good. Maybe one last question from my side is on the government stake, on the NLFI state. I did the IPO back in 2014, and the idea was at that time that government will fully exist within 2 years. We are quite well now. And so the latest is that it will go below 20%. So 2 questions here. I mean, how -- what's the instruments and how fast that could go down? And what's your interactions with the NLFI and in terms of building the strategy, for example?

Okay. So the current stake of NLFI, which is a foundation that owns the shares on behalf of the state, is at 30.5%. And yes, it was announced last week, if I'm not [indiscernible] okay, last week, that this 30.5% would be grow to 20%, and that is 10% tranche would be basically sold through [indiscernible] strategy the same way it has been done with the previous ones. So that's one. So what I think is also interesting in that decision is that this decision was taken in a moment when the Netherlands is under a caretaking government. It means that you don't take any "controversial decisions" in these months ahead of the elections. The fact that the decision was actually taken shows clearly that this is not a controversial topic in the Netherlands that this is not subject to a change of coalition and that there is a clear mandate to, in due course, and I have no idea when, return ABN AMRO to fully to the market. And to your question on the relationship with the NLFI, I find it not only pleasant, but very professional. This is a relationship that's grounded on agreements. These agreements are public. So these are rights of information primarily and also the right to advise on the selection of the CEO and Supervisory Board members. So this is primarily what it's about. And so this is our professional relationship fully grounded on an agreement and being led accordingly. So actually, I find it a pleasant relationship.

Very good. Marguerite, any final remarks before we close the session?

No, thank you very much for your time, for your attention. And I'm actually very much looking forward to share more about our story in Amsterdam on November 25, but it will be also, of course, a hybrid event that you can access from wherever you want. Thank you very much.

Great. Thank you very much.

Thank you for your time.