(Bloomberg) -- ABN Amro Bank NV (AS:ABNd) will stop providing corporate finance outside Europe and exit trade and commodity financing altogether as the Dutch bank tries to turn around an investment banking division hit hard by market chaos caused by the coronavirus crisis.
As many as 800 jobs, or a third of the total, are at risk in a plan to hive off and wind down activities that account for about 45% of the unit’s client loans, the Dutch bank said on Wednesday. The process will take three to four years, it said. The natural resources and transportation and logistics parts of the business will focus on European clients only.
European lenders including Deutsche Bank AG (NYSE:DB), Societe Generale (OTC:SCGLY) SA and BNP Paribas (OTC:BNPQY) SA have been slashing and refocusing their investment banks as they seek to cut costs and get out of higher-risk businesses. Chief Executive Officer Robert Swaak accelerated his review of the investment bank as volatile markets hit profitability and caused large impairments at the unit.
The investment bank “has been unable to generate the required profitability at an acceptable risk level,” the bank said said. Efforts to lower risk since 2018 “were unfortunately insufficient. The results were further impacted by recent volatility and a downturn in certain markets.”
Net Loss
The bank reported a net loss of 5 million euros ($5.9 million) for the quarter on writedowns an a slowdown in leding prompted by the Covid-19 crisis. Provisions for loan losses declined to 703 million euros from 1.1. billion euros in the first quarter. ABN Amro said it expects provisions to total 3 billion euros this year, partly on costs to wind down loans at the investment bank. That’s up from an earlier prediction of 2.5 billion euros.
Corporate banking in the U.S., Asia, Australia and Brazil will be wound down, but the bank will retain its global clearing business, one of the world’s biggest, the company said. “Clearing has taken several de-risking measures in the past months following a large loss incurred earlier this year,” it said. The bank said it expects additional impairments related to job losses and the wind down of corporate loans.
ABN Amro is among the four banks with the highest exposure to Wirecard AG (OTC:WCAGY), the defunct payments company that prompted competitors ING Groep (AS:INGA) NV and Commerzbank AG (OTC:CRZBY) to take provisions of about 175 million euros each in the second quarter, Bloomberg reported in June. The bank said an “exceptional client file” contributed to the high impairments in the second quarter.
The corporate and investment bank accounted for 14.5% of group profit last year and the unit’s headcount was a similar share of the total. The investment bank’s activities carry much more risk ABN Amro’s retail business and require more capital as well, making it costly to squeeze out decent profits in good times.
In the previous quarter, the lender wrote down 460 million euros on two individual client cases, which contributed to its first loss since 2013. Even before the coronavirus crisis, the investment bank fell short ABN Amro’s 10% to 13% return on equity target.
Other second quarter earnings highlights:
- Net interest income EU1.51 billion, -9.9% y/y, estimate EU1.55 billion
- Common equity Tier 1 ratio 17.3% vs. 17.3% q/q, estimate 17.1%
- 2Q cost-to-income Ratio 60.4% vs. 67.6% q/q, estimate 62.3%
- 2Q net fee and commission income EU375 million, -9.2% y/y, estimate EU380 million
(Updates with earnings details in last paragraph)
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