ABN AMRO Bank N.V. ($ABN)

So good morning, everybody. It's my pleasure to be joined now on stage by Marguerite Berard, CEO and Chair of ABN AMRO. Many of you know Marguerite well. She joined ABN as CEO just over a year ago. Since then, I think it's fair to say that she's been busy, most notably pulling together the updated medium-term financial targets and group strategy update, communicated to all of us in September last year. Prior to joining ABN, Marguerite worked in senior roles at both BNP Paribas and BPCE Group, having started her career in various government roles in France across the Ministry of Finance, the Elysee Palace and Ministry of Labor. So Marguerite, thank you very much for joining us today. And given that aforementioned familiarity with Paris, we're delighted to welcome you back to the conference in Paris next summer. So this discussion is due to last 35 minutes. It's webcast. So thank you as well, and a warm welcome to everyone joining us on the web.

Let's start maybe with a bit of a macro backdrop. The Dutch economy is resilient, with slightly lower growth, higher inflation, geopolitical uncertainty that's feeding through to energy prices. How are you adapting your strategy to operate in what looks like a more volatile and less benign macro backdrop?

So you're absolutely right. And I think one of the good things about the strategic plan that we presented last November is that it's very much what we call a self-help -- self-help plan, i.e., relying primarily on levers that we have within our own hands, whether it is pursuing profitable growth, but also rightsizing our cost base, steering on capital. So yes, we see -- the Dutch economy is not immune to geopolitical turmoil. We see its impact which, at this stage, is moderate on our growth forecast for the Netherlands. The Netherlands is also a country that has been steadily, I would say, outperform. It's a great ZIP code, outperforming EU macro indicators steadily since the COVID crisis. Last year, growth was 1.9% versus on average, 1.5% in the EU. Debt-to-GDP ratio, 44%, AAA country, very strong labor market, unemployment at 4% and so on. So this is a very healthy economy. But as I said, the important thing is that when you look at our strategic plan, the main levers we had, I would say, conservative assumptions regarding the macroeconomic environment and the main levers are in our own hands.

Yes, exactly. Your forecast themselves point up slow GDP growth, as you mentioned, moderating housing activity, fewer transactions. So how should we think about that environment in terms of balance sheet growth versus profitability?

So we don't pursue balance sheet growth for itself, what we pursue is profitable growth. This is really for us the name of the game. If you look at the various compartments of our balance sheet. We see, for instance, you mentioned mortgages. We -- even though the mortgage market is slowing down, we nevertheless see healthy mortgage prices because the Dutch market is a tight market with not enough supply. And so if you look year-on-year, the growth has been on our balance sheet, 5% on mortgages. Same applies when you look at corporate loans, year-on-year growth of 3% over the past quarters. Again, we only pursue opportunities that are profitable, i.e., capital savings. This is really the core of our strategic plan. And if I look also on the liability side, I mean, deposit growth has also been very meaningful this past quarter, and we expect them to continue to grow in the coming year. So all in all, I would say a fairly healthy environment. But again, for us, the name of the game is profitable growth. So we're not trying to grow the balance sheet for its own sake.

Okay. So if I move into the sort of P&L line items, and you mentioned a couple of the drivers there. But if we start with NII, that's clearly being driven at the moment by the liability side of the business, both as you mentioned, in terms of deposit volume growth, there's also the hedge tailwinds kicking in. At the same time, there is, again, you mentioned that persistent margin pressure in the mortgage business. How should we expect those opposing trends to develop over the coming quarters and years, especially in the context of what we see in rates?

Yes. So I do recognize these trends. On mortgages, there is definitely margin pressure. You had it in our strategic plan as well. One of the reasons to -- and that's also a specificity of the Dutch mortgage market is that there is scheme in the Netherlands called NHG, this is state guarantee scheme for certain categories of mortgage buyers, where there -- yes, the margin are thinner. But at the same time, and that's very positive in terms of profitability, the capital that we need for this type of mortgages is also smaller. So this is actually quite accretive. I also fully recognize the trend you described on the liability side. We see not only volume growth but also tailwinds in the forward curve. The impact was moderate in Q1. In our -- at our Q1 result, we provided a sensitivity analysis, not an update of our guidance, but the sensitivity analysis of what this could contribute if we were to apply the current forward curve to our model and the potential upside on top of our EUR 6.4 billion commercial NII guidance, excluding NIBC, was an additional EUR 100 million. So yes, we see these trends right now in that situation. And when it comes to NII, we will also be able to narrow down our guidance at Q2.

And can we talk a little bit again on NII about competition? You assume 100% pass-through on any rate hikes in terms of what you pay on your savings products. I guess the simple question, is the Dutch market really that competitive or is there a layer of conservatism built into that as well?

The answer is both. Okay, first, yes, the Dutch market is competitive. And at the same time, I do fully recognize that the assumption we make when we present replicating portfolio of a 100% pass-through is conservative because we also know that the reality depends on other factors such as competitive trends, client behaviors. So it is a conservative assumption. One of the reasons we have this assumption in place is because if we were to be more specific, we feel it would also be giving, I would say, commercial indications on when we at ABN AMRO would think we want to make certain commercial moves. And we don't want to give this indication because it's -- then we don't speak only to you, but we also speak to our peers in the market. So that wouldn't be very wise. At the same time, so I agree with this is a 100% assumption that we have of pass-through is conservative. There is another assumption that we make is that -- and this one plays in the other direction, it is that we don't have any hypothesis of migration effect. And you also know that when interest-bearing accounts are going up, then you can also have a migration from current accounts that are not interest bearing to this better remunerated accounts. And so we have no assumptions on that when you look at our replicating portfolio, and that plays in the other direction. So I agree that it is a fairly simple model that we provide, at the same time, I think if you look on our website, you also have a fairly good historical data on how things have played in the past and you can make your own assumption.

Are you seeing that migration already? Or is that sort of hypothetical as to what might happen when rates...

No. It is just something that historically we've observed. Again, it's not one-to-one because again, client behavior depends on do clients bother for 25 basis points, probably not. They also take into account, is this going to be lasting or not lasting. They also take into account prudency if they feel the environment is volatile. So there are many things that play a role. I'm just saying there is no assumption on migration when we -- when you see our replicating portfolio.

Understood. And then my last question on NII for 2028, in fact. We can all work through the replicating income maths, et cetera, try and take into account those ideas you just gave us. But is there anything more fundamental we should be thinking about on that 3-year view, perhaps with the onboarding of NIBC, there's some funding synergies there, or there's improvements in mortgage market share? How does the shape of NII growth, I guess, change over the coming years as well between volume and margin?

So we do have -- as we shared, we definitely have, when it comes to NII, a more liability-led growth. This is really not only on the back of volume, but again on the back of margin, much more than on the SSI, that's one. NIBC per se is not going to change anything to this really equation because with NIBC will come additional mortgages and additional deposits. So it's not really changing the shape. And when it comes to funding synergies, when NIBC will be joining our group, there indeed may be some. We see then kicking in later than the end of our plan post '28. So this is not something we take into account in the years until the end of the plan '28.

Yes. Okay. And then maybe let's switch gears over to fees. They were very strong in the first quarter, driven by clearing by global markets. So how much of that growth that we saw in Q1 was cyclical versus structural?

I think you had both in Q1, i.e., yes, you're on the back of a strong volatility in the market, you definitely had a very strong quarter for clearing, for example, but also for global market activities. And yes, we registered a record level of fees in Q1, more than EUR 600 million. But I think it would also be unfair to assume that everything is just cyclical because this growth also came on the back of -- for clearing, for example, additional clients that we have onboarded and additional resources that we have provided to this business because you know that in our 5 long-term ambitions, sustaining or clearing business growth over time is crucial. So part of it is structural. And it's not only about clearing because the growth in fees, you observe it also in the different parts of the bank, it's true in markets, it is true in wealth management. It's also true in PNBB, our retail division. So you saw all the parts of the bank contributing, so yes, you may have quarter after quarter, some volatility, but the underlying trend is positive, which is important because developing of fees, it is indeed a crucial part of our strategy.

So let's talk about developing of fees. Can you walk us a little bit through or talk us through the wealth business, especially post the acquisition of HAL? Where do you want to take that business? What's working well? What's maybe a bit more challenging? And I guess, how are you faring in terms of converting cash into advisory and discretionary management?

Absolutely. So we do have in our 5 long-term ambitions, the ambition to make our wealth business, a top 5 players in Europe. It's a long-term ambition. The strict ambition we gave ourselves end of 2028 was EUR 335 billion of client assets. How the acquisition of HAL plays, of course, a key role in this strategy? That gives us a very strong #3 position in the German market. This integration is going well. We will go through the legal merger mid-June, and then the IT merger will happen in the fall. So this is all going according to plan. I'm also happy in wealth with the commercial and commercial intensity momentum that we see. I also like very much the way our businesses, corporate banking and wealth management play together. We see hundreds of leads coming from CB to wealth since the beginning of the year. And of course, we need to keep transforming them. But this is one of the sweet spots of ABN AMRO being able to serve clients, family-owned companies, privately owned companies on the corporate side and on the private side as well. So I think this is playing nicely. Conversion from first deposits, we may have been attracting from targeted campaigns such as the one we did last year into more valuable assets and DPM is going well. And of course, over -- you also have part of cyclical effects based on market performance, but also clients sometimes taking more time to make certain decisions given the more volatile environment. So we also observe that, but again, I think the underlying trend is going in the right direction.

And then sticking on the fee side, but think about it more from the corporate bank perspective. I guess how underpenetrated would you say you are in regards to fee revenues declines? If you look at average fees per customer or fee to RWA or fees to loans, is there scope for you to do more in monetizing those corporate relations as it pertains to fees?

Yes, yes. This is when we looked, preparing our strategic plan, at our situation, we found that on our corporate bank, we were a bit heavy dependent on, I would say, lending heavy on the balance sheet and that this was something we could keep improving. So this is something we do through various levers. We have -- we go through all our client portfolio, see those where we think we are below hurdle, have conversations with our clients in terms of how can we improve cross-sell, make sure that you see the entire house going from hey, are there things we can do with you from using global markets, hedging, transaction banking, wealth and so on. And make sure we have these conversations and clients understand perfectly these conversations. If sometimes, we think that there are situations where we cannot improve the profitability of the relationship, then we have also a disciplined client selection framework so we can exit clients. So this is what I call -- and we always do it very carefully. This is what I call a solution of last resort because this is not our purpose. But we have -- we're very disciplined in the way we allocate our capital, and this is why we're very confident in the target we have for corporate bank to reach 21% ROE by the end of the plan, yes.

Perfect. Okay. Now let's turn to costs. That's perhaps the most unique element of the ABN investment case. It's nearly 200 days since you unveiled your new targets at the Capital Markets Day, you've already delivered 40% or so of your FTE reduction target, EUR 220 million of cost savings. So what's driven that -- the faster-than-expected execution so far?

So we've made a strong start, which is good. We've been -- I think we achieved it through, I would say, a strong discipline. Strong discipline on new hirings, strong discipline on, I would say, external parties we were working with, not always necessary and so on. So I would say this is really about a tighter discipline on controlling than what we used to -- we probably used to have, and it's paying off. You could -- it's not a linear process, and I would like -- and we shared that also in our Q1 presentation. We also said, yes, we've reached 40% of the target we had in terms of FTE reduction, i.e., 5,200 by the end of '28, which represents a 20% decrease in our workforce over the course of the plan. It's not a linear process. But the good thing is that we know exactly how we are going to achieve this because behind each of our cost initiatives, there is a well-grounded business case that we agreed upon. We call it signed in blood and audited. And we monitor it literally on a weekly basis so that we know where we stand. So not a linear process, and I think that's important for you to keep in mind. But at the same time, grounded in a way that gives me not only confidence in '28 target, but also allowed us to improve our cost guidance by EUR 100 million for 2026 when we communicated at Q1.

Yes. You've also -- within the cost narrative, you've also talked about AI adoption being there at 85% of your employees and already seeing tangible productivity improvements. How are you seeing the AI opportunity here today? And I guess several of your peers have talked about the sort of meaningful differences in how they see the AI opportunity set versus 3, 4, 5, 6 months ago. So I guess a simple question would be, if you were to redo the CMD tomorrow, would you see -- would you think about AI differently now versus when you spoke to us in September?

Probably, because indeed, we see things moving very fast. So it would probably have played even a bigger role in our strategic plan narrative when we presented it last November, than if we were to do it again now. I think it's -- with every major technological revolution, and this one is probably the most important we will experience in our lifetime. There is what's called Amara's Law, i.e., we tend to overestimate the impact of the technology in the short run and underestimate it in the long run. And I think that we are very much at this moment with AI. The way to solve the paradox, and that's also what the way you see who's going to win this game is speed of adoption. For me, the crucial thing is how fast we are able to diffuse this technology within the company. And the way we do it, that's very important is, I don't believe in enforcing it on people because AI is intimidating. It's called -- they call it the fourth narcissistic wound that was inflicted on humanity after -- the first one was Copernicus when he found out that the earth was not the center of the universe. The second one was with Darwin when we had to accept that we were just another kind of animal. The third one was COVID and having to accept that our ego was not actually fully in control of our mind. So this is a fourth one with AI is conversation, creativity intelligence, something that is specifically human or not. And it is intimidating. And we experienced it in the bank with colleagues asking, hey, is not only how do I use this, but is this going to replace me, will I still have a role. So the way we work on it is not only to address these questions that are very valid questions openly in the bank, and this is also, I think, a great reflection on what I like about Dutch culture that people are able -- we have these three council meetings with the Works Council, the Supervisory Board, the Executive Board coming together and working very openly and constructively on this topic, AI being one of them. But also, we make sure that we diffuse AI at scale. So for instance, we made widely available within the bank, all AI tools such as Copilot licenses so that people can experiment and learn organically because I think this is really how you speed up diffusion. And then what's really important also is to do things that I call at scale, i.e., you don't want to have the additional use case where we're just going to do, hey, one more press release on how glamorous this is going to look. You want to do things very methodically. So we've developed 6 market types going from conversational agents to, for instance, intelligent document processing. And we use them as building blocks a little bit like Lego blocks that we assemble so that we diffuse them throughout the company. So right now, Anna, our AI conversational agent, handles more than 150,000 calls per month. Lenny, our lending agent, helps our colleagues prepare for their credit memo for the credit committees and so on. So this is how you how you play it, and it also requires, and that's very important, a very, I call it, good plumbing, i.e., good IT, good process, review of end-to-end process because AI on the bad process, it's still a bad process, good data. This is where you get the full benefit of it. So speed of diffusion and how methodically you do it, is absolutely crucial in being able to crystallize, materialize the productivity gains you want.

I definitely didn't think we'd have Copernicus, Sigmund Freud and Charles Darwin turn up in this event.

In one sentence, yes.

Okay, so we come to Capital. Okay. So on cost. Final question on cost. If you look forward to '27-2028, do you see ABN AMRO at that point as a structurally leaner bank or one that's effectively been great at recycling those efficiency gains into higher growth investments? And I guess how should investors judge that you've managed to achieve the right balance between those two?

We're going to be both. We're going to do both. And because one is feeding the other, i.e., we will be structurally a leaner bank because we have a fairly simple model and geographic footprint that allows us actually to be leaner, which is great because these are things we are already doing like, for instance, we have today subsidiaries for mortgages and subsidiaries for asset-based finance. We are integrating them in the main bank to simplify. So we will be leaner. We keep very systematically, this is what we call our, IT value case, decommissioning applications that are not necessary to simplify our IT landscape. And this also allows us, and that we shared at the CMD to have a fairly, I would say, constant investment budget, but where the share of what we spend on maintenance or regulatory programs is decreasing compared to share of what we can invest in commercial opportunities or also innovation. And so we see that as an opportunity to fuel our growth. So both, but we're very disciplined on our cost yet because we see the upside as well. We're not fully optimized yet by far.

So let's pivot to ROE, and then I want to touch on capital and distribution quickly. So targeting greater than 12% in 2028. The first quarter this year did 11%. So I guess what happens through the rest of this year in terms of how linear and predictable the ROE path should be on the go forward?

Okay. So what you have to see in Q1 yes, it was a good Q1. We're very happy with the good start, the good momentum we see in this first quarter. But you also have to bear in mind that there are, for instance, certain costs that will only kick in, in Q4 like the banking tax, just to name one. So you need to average it through the cycle. But yes, directionally, we are going in the good direction. But it is -- I often say this is a marathon. We do it quarter after quarter. I think what we want to be is predictable. We commit to things that we know how we're going to deliver. And I think that makes us also attractive and appealing because we say what we're doing, and we know how we're going to reach it. But it is a disciplined play, and this is still very early in the strategic plan.

Okay. So one on capital, one on distribution, and then I'll go to audience quickly. So on capital, you've made significant progress so far on capital optimization, headroom creation, et cetera. How much further upside is there on a capital efficiency alone sort of in isolation?

So for instance, if you look at our corporate bank, which was an area where we put a lot of efforts because that's where it was primarily needed. I would say we've done half of what we wanted to do. So this is good. We will keep freeing up capital. We will also mobilize active portfolio management, not only through SRTs, but potentially other solutions, insurance solution and various forms of partnerships that can be there. So there is -- we're in a good spot and more to come.

Okay. Lastly for me then on distribution. So you've clearly reiterated the distribution policy of up to 100% of net profit. But given the large excess capital position, the limited RWA growth, as you mentioned earlier, the capital optimization levels we talked about opportunities we talked about. What are the key conditions for, I guess, going beyond that baseline? And how supportive is the regulator in terms of you asking to distribute more than 100%? Could there be a more innovative solution like a directed buyback or anything with a state like we saw happen in Ireland?

So many questions in one.

We've got about 3 minutes.

Okay. I'll be fast. So what we -- we're still early in the plan. Again, happy with where we stand today. This is much better position to start like that than the other way around. We committed at our CMD of -- for distribution policy of up to 100%, at least EUR 7.5 billion. So that's very clear. If over time, but again, we are still early in the plan, we would be consistently above -- significantly above our CET1 target. Then, of course, this will be part of our assessment. Our assessment, we made very clear that we will do it at Q4. This is when our capital assessment is happening. And to your point, as for share buyback, but also any inordinary distribution that would go to beyond 100% distribution would be, of course, subject to ECB regulatory approval.

Okay. Very clear. Any questions in the room for Marguerite. No? We're good? Could you wait for the mic because we're on the webcast, so then they can hear your question?

You're obviously a market leader in wealth management in the Netherlands. We are in Switzerland. So it's a relevant market. Now you are big, you are a market leader, you have now the state backing a little bit. So you have actually a lot of clients who might be actually very relevant for the future but your strategy in wealth management seems to be more focused on kind of standardization, the ETF blocks and less on customization or solution, what we have heard, for example, for the -- from the UBS colleagues. So do you see some chances where you as a market leader in the Netherlands, maybe then later Benelux, would actually take the wealth, ultra wealth a little bit more seriously because you are recognized as a bank and you have these accounts already, but they are not being serviced as a EUR 60 million or EUR 100 million account, they are being serviced like retail?

I think that would be slightly excessive. I would not fully agree with your last comment. What -- we are indeed undisputed market leader in wealth in the Netherlands. I feel in terms of product offering that we are actually innovative, and we operate in a very open architecture scheme. So I can tell you that our clients actually benefit from the full scope of what can be offered because this is part of -- we operate and this is actually one of the upsides that we also have in the plan. We operate way more in open architecture than most of our peers. And I see also the potential, as these are things we're doing in internalizing some of the product offering, having global markets, clearing and wealth working together for certain projects that we right now buy outside and provide our client rather than do in-house. So this is one also of the upside we have in terms of revenues. But in terms of product offering, I think we -- given this open architecture approach we have, we're quite innovative. What's true is that, we are often for wealth clients, also their household account. That's true. So this is also why you sometimes observe some seasonality with us because they also use us to pay their taxes from their accounts with us and so on because we are their primary bank. So we are the household bank, but not only.

Okay. Any more? No, we're good. Okay, Marguerite, thank you so much.

Thank you very much. It was a pleasure.