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Oil prices and COVID-19 blamed as ABN Amro retreats to core business

Amsterdam-headquartered bank ABN Amro has reported a net loss of €5m for the three months of Q2 2020. In a press release, ABN Amro stated that a review of the bank's Corporate and Institutional Banking business will result in it withdrawing from what it defines as non-core activities.

Retreating to core business

The announcement means that the bank's CIB business will focus on clients in northwest Europe and clearing, resulting in the bank's exit from all non-European corporate banking activities. Trade and commodity finance activities are to be discontinued completely. Natural resources, and transportation and logistics, will focus on European clients only. In addition, ABN Amro announced stricter lending criteria and credit limits have been set to also contribute to a moderate risk profile. 

CIB will be split into core and non-core activities. The non-core activities (around 45% of CIB’s client loans, representing approximately 35% of CIB’s risk-weighted assets [RWA] and over 10% of total RWA) are expected to be wound down in the next three to four years. Around 800 jobs at the bank are currently dedicated to non-core activities. The winddown, which is subject to regulatory approval, is expected to be capital accretive over time.

"We will serve clients in segments where we can achieve scale, so we will focus on the Netherlands and Northwest Europe, where we will invest and grow," said the bank's CEO, Robert Swaak. "This is also reflected in the outcome of the CIB review announced today."

Market events created high impairments

Even though in the Netherlands the impact of the soft lockdown on the economy was less severe than in many countries, the statement from the bank said that Covid-19 had a significant impact on its financial performance, resulting in it reporting an around breakeven net result (-€5m) for the second quarter.

"Impairments were high again, due to an exceptional client file, Covid-19 and oil prices," Swaak commented. "The resilience of our operating performance will not fully offset expected impairments for full-year 2020. ROE was a disappointing -0.7% and the cost/income ratio was 60.4%. Our financial position remains strong, with a CET1 ratio of 17.3% under Basel III, around 14% under Basel IV, comfortably above the regulatory minimum requirement."

Online savings account also axed

ABN Amro also announced that it will discontinue Moneyou activities in the Netherlands and Germany, except for the Moneyou mortage activities. 

In a statement on the action, the bank noted that interest rates have been at a low level for an extensive period and it is expected that this will not change in the near future. "On the one hand, this prevents Moneyou from differentiating itself in the market. On the other hand, the bank as a whole has a liquidity surplus. Against this background, ABN Amro has decided to discontinue these activities," the statement read.

Moneyou started in 2001 as ABN AMRO’s online mortgage label, followed by online savings accounts in 2008. At the moment, Moneyou has a total of around 500,000 clients in the Netherlands and Germany, mostly with savings accounts and mortgage loans.

Current Moneyou clients will be informed about the consequences on an individual basis from October. It is expected that Moneyou will be fully wound down in 2021. In the meantime, the bank says that Moneyou will continue to be fully operational for all of its clients. For current mortgage clients, the Moneyou mortgage label will continue as part of ABN Amro Hypotheken Groep.

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