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

Good morning, everybody. I'm very pleased and delighted to have with us today, Robert Swaak, the CEO of ABN AMRO. And he's been appointed recently as CEO, his first conference with us. Since he joined, he's been very decisive, acting on the CIB quite swiftly, which was very much welcomed. And so how we'll proceed today, that Robert will do a few minutes with some thoughts. And then we'll have a Q&A after that. The floor is yours, Robert.

Thank you, Tarik. Appreciate it. Thanks for the opportunity. Good morning and good afternoon to all of you, depending on where you may be. I am indeed very pleased that we'd be able to present to you today. Unfortunately, it is from Amsterdam, would have loved to have been with you in London. But hey, it is what it is. Before we do, as Tarik said, our fireside chat, I'll give you a little bit of prior -- background of my priorities as new CEO for ABN AMRO. I was appointed as CEO in April. It's one of these times, you realize all of a sudden, you start working from home. It's not probably the most ideal way to actually start as a CEO as some of you probably could imagine. But it's challenging and it's exciting at the same time. And we're all familiar with the [ steaming ] thing, but it allowed me to get to know the bank very, very quickly, and it also enabled me to talk to many people inside and outside of the bank. And by doing so, by talking to stakeholders, by talking to investors and analysts, I was able to get to prioritizing fairly quickly. And so at the start of my tenure, I began to think this through. And then as I began as CEO, I identified 4 clear priorities, which I'm trying to hold myself, my team and our bank accountable to. And the 4 are: Leading the bank through COVID-19, clearly; strategy review, I'll touch upon that a little bit, including the CIB review; our license to operate; and our culture. So let me start with COVID-19. I know that I'm stating the obvious here that it affects us all and it continues to affect us all. As a matter of fact, we were talking about this before this call, that things will be in a COVID-19 mode before they're going to get different. And it does make a difference. I think we all realize that. Now I'm very proud of the response of the bank, very proud of the way we've been able to help our clients but also proud of the way our colleagues reacted to the immediate necessities that we need to get through as a result of COVID-19. We supported our clients, and we continue to do that in a very responsible way, very much in line with our purpose: Banking for better, for generations to come. Now you know we did the automatic payment holidays. We announced very quickly. We implemented the process very quickly on an out-and-out basis, which I think is very [indiscernible] the way our bank is structured and is able to act. We moved within days from an on-prem to an off-prem situation. To some of you on the call, I've alluded to this before. It is very, very indicative of a strong IT backbone and a strong digital capability. Now our businesses generally are reliant through COVID-19 -- are resilient, I should say. And that's building on solid capital, solid liquidity, which are all -- and both important assets as we navigate this crisis. Now there are some uncertainties. Let's not forget, the fundamentals of the Dutch economies are strong. The government has been very, very responsive in articulating policy as it relates to COVID-19. And we've been very quick on actions to support the economies. That brings me to strategy. I started as CEO with ABN AMRO, and I very much looked at the strong fundamentals that you'd expect me to do: a strong brand name; attractive market positions across all of its franchises; Dutch mortgage, SME markets; very strong private bank, market leader; and scalable onshore franchises as we think about Northwestern Europe. The bank has a unique ability to serve all of its clients across all these segments. Now also based on the digital capability of the bank, we're seeing excellent performance around the digital area based on continuous investments we've always made certainly over the last few years. We continue to focus on clients and segments where we can achieve scale. And I think that goes hand-in-hand with the current geographical footprint of the Netherlands and certainly Northwest Europe. So going back to CIB for a minute, it was very clear to me that, that was one of my first priorities as had already been announced, we'd already talked about it. And so therefore, in August, keeping the principles I've just alluded to, we announced our decisions on core and non-core CIB. So CIB will continue to focus on Northwest Europe going forward for the reasons I've talked about.

There is some background noise. I think some of your papers are touching the microphone.

All right. Let me -- so is this better? Yes.

Yes. Thank you.

So going back to the geographical footprint, very clear and very focused in the way we've set it up for the bank. Now we're well-aware of the challenges. We have a Dutch prosecutor carrying on an investigation. And so therefore, let me also reiterate, we're continuing to work with the prosecutor as we said we would. But it also leads me to my third priority, license to operate. And certainly, coming into the bank, we need to ensure that we're fully compliant, we're fully fit and we do this in a low interest environment. And we'll continue to do so. And I think what we are seeing actually on all of the AML activities we're currently doing, we continue to invest, we continue to hire as necessary. And therefore, we see the performance of the bank currently has around the AML. Now Q2 performance, we talked about it at length. Impairments were disappointing. Some of that was related to Q2. Some of it was related to incidental client cases that we took onboard. So I recognize change is necessary. I recognize there's a need for us to take decisive action but also to have a culture that centers around execution and accountability, hence my fourth priority on that very execution and accountability. There's a requirement for us to deliver on our promises. And that means that we have to set clear and accountable targets. And that is the reason why I've also said we're going to do a strategy review, so we can come back to you and talk about these targets that we set for ourselves. So wrapping up, the bank has strong fundamentals. Priorities have been set, certainly very clear to me and as we communicate both inside and outside of the bank. We have a very well-diversified portfolio. We have strong capital liquidity positions. And so therefore, I'm really looking forward to sharing the outcome of the strategy review with all of you in November as we then also address operational efficiency, capital and targets. Lastly, let me just reiterate my commitment to capital return. I know that's on your minds. When conditions, and we've talked about these conditions before, and ECB allow, there's going to be a time when we actually go back to that situation. And clearly, that's going to be part of the updates we do as well. So with that, let me turn it back over to you, Tarik, and look forward to our chat.

Thank you, Robert. Maybe we can start with the AML and get that out of the way. I mean depending on how much you can tell us, but would like to have an update, I mean, with the COVID, they were clearly opposed, from the prosecutor, in terms of the review. Did this review resumed? And are you still worried as you've put in some of our slides in previous quarters that may be a substantial fine could follow through? Let's start with there then.

Yes. It is hard to say what the outcome will be. As we've always said, that's up to the prosecutor. I can't really comment on that. But we are continuing to work with the prosecutor because we all realize the urgency of the investigation. So we continue the cooperation. And by doing so, hopefully, we're going to get to a result at some point in time. I just cannot comment on the investigation in and of itself just right now.

So if we take like your main competitor, one of your main competitors in Netherlands, the whole process since it was announced and the review started from prosecutor to the settlement, lasted maybe 2, 3 years, if we have to think about it, where do you see yourself? Do you see like in the middle of the process or towards the end? Is it comparable in the first place, actually?

Yes. It is very hard to tell. All I can do is react and all that the bank can do is react to what the prosecutor is requesting. And we will continue to do so. And the reason why it's hard to comment because that means you need to have the inside knowledge of what happened in other cases. And so I'd much rather concentrate now on what we know today and how we cooperate with the prosecutor today. And that's what we need to hold ourselves accountable to. Because I know in the end, that's going to really help us one way or the other, whatever the outcome is going to be.

Okay. Maybe we can move to the CIB review and what you've announced in Q2 numbers. Clearly, that was -- I mean you went heavy-handed on the business, which was needed. Now the new target is a 10% ROE. So my first question is, is the 10% actually ROE? After all the efforts we're doing, is it ambitious enough? Is it just a first step and then you can actually try to find some other areas of improvement? Because when you look at the 10% ROE and then you see the rest of the business, you announced as in November, what your group ROE will be. But it doesn't let us think that there will be a much higher number. So question here, can you do more in CIB?

Yes. Let's just -- so the 10% is the ROE across all of our business. And that's what CIB will have to contribute to. Now when I look at the past performance, and that's certainly was part of the review that we did as we took our decisions on core CIB, the past performance has been around that 9% to 10% ROE. And that's also what we've disclosed certainly around Q2. We will look where we can benefit, where we can get additional benefits. For now, we're holding to that 10% ROE for the business as a whole based on also past performance for our core CIB practice. Now again, keep in mind, it comes from strong franchises that we have in core CIB, strong Dutch relationships that we have with our clients and known footprint. And so that does give us the -- just going back to see what our past performance was, it explains the 9% to 10%. Now the upside potential, we'll have to work through. We'll see what upside, if any, we can define. For now, we're holding to that 10% overall.

And as to the CIB, I mean you made the choice to refocus on Netherlands and Northwest Europe for most of the businesses but decided to keep clearing in a global way. I mean, first of all, if you can comment on the decision behind staying global in clearing. And secondly, you've mentioned that you will be still derisking the clearing business. And are you not worried that once you derisk actually this business, the ROE overall will drop down and then the contribution expected from clearing to the whole CIB will diminish and hence, you will have to compensate by something else? I don't know if my question is clear, but...

No, no, you're asking two questions. So one is the rationale and the other is the expected performance, if I summarize it correctly. And it is a good question because we did take a long, hard look at our clearing business for all the reasons that we all know in Q2. But straying away from what happened around the quarters, the clearing business has been historical, very profitable. It is providing the countercyclicality that you would expect from a franchise that has evolved as the Dutch business or the ABN AMRO franchise has evolved. So it provides the countercyclicality. There's historical good returns. And also on the basis of diversification, it gives you that additional edge in diversification of income. So that's the highlight of the clearing business for ABN AMRO as a whole, so if you were to veer away from everything that's happened over the last few months. Now clearly, as I said before in Q2, there was a reason for us to act because the overall risk profile, actually that went to CIB non-core as well, was not befitting the bank's risk profile. So we've undertaken quite a significant amount of work to derisk, to review our current risk appetites, to review our per client situations, to do a portfolio review and then add it all back up and then take again an overall review in terms of our risk mitigating that we needed to do and then come back to the conclusion, do we still think it's productive? Do we still think it's profitable? Any -- and the question is, yes, we do think, even after our derisking. Now clearly, we're in a challenging environment, we'll continue to be in that challenging environment. So is this a walk in the park? No. But is there sufficient ability to -- based on past performance, to have confidence in ROE in terms of our clearing business? The answer is yes.

So the process of deleveraging some of this -- of the non-core, I guess, started already even before the announcement. And I guess you also had some quick wins. Can you update us how the progress has been so far? And do you reconfirm still that 80% of restructuring will still be done until 2020 to 2023? Or you have some hopes that the way it started that you can maybe achieve that sooner?

Yes. So to your point, part of the analysis clearly was to think about execution. Otherwise, we couldn't have announced what we announced in Q2. We very quickly went ahead and appointed a head of our non-core practice, somebody who's very well experienced in FR&R, so has all the relative -- all the absolute skill sets that you would need. What we're seeing in the market right now would not cause us to change any of the guidance that we've given in Q2. So there's a modest kind of portfolio return in '20, but ultimately, 80% in '22. To your question in terms of how the process is going, currently our first indications, as I said, do not cause us to adjust anything that we've communicated in Q2. We've taken the execution part of this as an extremely important part of the way we manage the process. So this is an almost week-to-week monitoring of how we're winding down. And we also said that the book that we're carrying in these -- in non-core is predictable. I mean it's clearly tenured loans. So therefore, we're able to monitor this very closely. And at this point, I don't see any reason to adjust anything that we've put out in Q2 in terms of how we wind down. Now to your question, can you accelerate? The important part here is to remember, it has to be orderly. There's no fire sales here. This is an orderly wind-down, which also means that we talk to our regulators, and we make sure that we do all the things we need to do. Now clearly, if we can accelerate, we will. If the opportunity is there, if there is potential for selloffs in a secondary market, we will take a look at that. But we will do that in a very orderly fashion. But like I said, if there's any ability to accelerate, we'll look at that opportunity.

Then if we can wrap up the CIB, so basically, the exit of non-core clearly will hurt your earnings, probably improve the ROE. But it will help in terms of capital release. And I guess the whole idea that you'll probably present in November is how can we use this release of capital to grow somewhere else or distribute to shareholders? I mean we'll get to the distribution and capital. But maybe to say operationally and where would be the opportunities for growth because, I mean, you are a focused, concentrated retail mortgage provider in Netherlands and some private banking in Northwest Europe. Where are the growth opportunities there organically? Then we can speak about inorganic, if you wish, later on. But organically, where are the...

Yes. Organically, actually, ABN AMRO is in a fascinating position because you're right, there is a mortgage book. There's a private bank. There's a corporate bank. But actually, when you look at it all together, based on the retail portfolio that we carry through the mortgage book, there's an immediate access to lots of data that we currently have around our customers. There's 350,000 SMEs that we serve. And then we are a market-leading -- or a leading private bank in the Netherlands. Now combine that with the choices that we've made around focus on core CIB in a geographical footprint, where we have knowledge and where we have scale. Now in this environment, I think it goes without saying, it's a difficult environment. We all know that. So any growth I talk about will be a modest growth. But it is about identifying the very niches that enable ABN AMRO to set itself aside from competitors. And I think it's in the combination of the 3 or 4 franchises that I've talked about, where the opportunity sits for customer segmentation. So we have a unique ability to serve customers across their life cycle. And there's not a lot of banks that could actually do that. So that's the -- that's kind of the customer segmentation, a part that we're looking at. And that is a logical consequence from the franchise that we carry. Now the fact that we have chosen -- we've made a conscientious strategic choice on our core CIB business, also allows us -- and this is actually what you're seeing and this is why the geographical footprint makes sense, we're using also what we already know from our work in the private bank the geographical footprint that we've chosen. So there's very much a segmentation strategy here that we'll know more about and that we'll communicate more about. But that does really get to the heart of ABN AMRO. And that is, therefore, building on strong franchises in our own markets.

I mean I hear you, Robert, about the segmentation. But my question was more in terms of what are actually your ability to grow? Because in Netherlands, maybe we can pick these 2 divisions one-by-one. In Netherlands, quite mature markets, I mean, growth will be -- it's very competitive with some nonbank players that's been very aggressive on and off. So in there, I think we can agree that volumes will be very timid. And even the private banking, it's a scale game, and you will have to take a decision at some point either to scale up or to focus even more and be more niche. So I don't want you to preempt too much on what you'll announce in November. But if you can just give us some color on really where -- I mean -- or maybe the answer is this is a focused group. We don't chase growth. We will probably more focus on distribution with maintaining some decent ROE. I mean just to have a really top-down...

Yes. It's interesting the way you look at our mortgage book. Because even there, looking at past performances, we've been able to hold on to market share. Yes, we -- at times, because of pricing decisions, we're protecting clearly our margin because there's a profitability play there as well. The interesting thing about our mortgage book, with many of the nonbanks coming into this market. This is also a market that when the nonbanks enter, there is that interim questioning with consumers, how much can actually trust these nonbanks coming into this space. Now while for the short term, we have the lower-for-longer environment, which is really enticing for nonbanks to actually come into the market. We also know what happens when anything on interest rates begin to change. And these are small changes that will preempt moves by nonbanks to either enter or depart the market as such. So our basis, our mortgage book, as we've known it, as we've grown it, there's a reason why it's an award-winning business, entails lots of knowledge about local markets. It allows us to move fast and make the choices we need to make. So therefore, by diversifying that portfolio, by looking at some of the opportunities we have around the 30-year OTD, the sustainability elements we build into our mortgage book, are all helping toward maintaining market share. Now is it modest growth, when you look at it from a volume play? Yes, absolutely. That's the situation we find ourselves in. But I'm not entirely -- I mean we take a closer look at the mortgage position continuously. But there is room for us to continue to move both. On the private bank, absolutely, it's going to be an ability of scale. But again, I take away the position that the private bank currently has. And yes, without preempting any kind of further discussion, it is something we take into consideration as we look at our further strategic play. So it is more than maintaining. It is identifying the very specific areas that we could have, yes, limited growth. But we do need to take that point of a view because there's still opportunities for us to move.

And if we can maybe spend some minutes on your revenue line and the kind of outlook or dynamics, if you wish, the negative rates has been very painful for most of European banks and for you in particular and -- plus the competitiveness on the asset side for mortgages. I mean with this restructuring in CIB and the ambition you have, do you think -- is it realistic for you to keep revenues at least flat in the next few quarters, years? Or is it something that you have to admit that this is very difficult, given your new risk profile and business mix?