EUR 850.00 For Business Accounts Only

Morningstar | ABN Amro Reports Full-Year Results in Line With Expectations

ABN Amro reported full-year 2018 profits of EUR 2.3 billion, in line with our expectations, down 17% compared with last year. Impairment charges on financial instruments, which came in at EUR 655 million versus a reversal of EUR 63 million in the year prior, had to shoulder the blame for the decline in profitability this year. We acknowledge that the aesthetics are not flattering, but we believe that 2017 impairments were atypical. Clearly, cost of risks of 27 basis points in 2018 are more representative of ABN’s through-the-cycle risk related charges than previous impairment reversals. Looking at operating results, excluding impairment charges, paints a better picture of ABN’s performance in 2018, in our view. Operating results were up by 1% as progress on ABN’s cost savings program more than offset weaker income generation. ABN’s efficiency ratio came in at 59%, edging toward its target range of 56%-58% by 2020, having achieved already close to EUR 700 million of its EUR 1 billion cost savings target. The net interest margin improved to 165 basis points from 157 basis points vis-à-vis last year. We maintain our fair value estimate of EUR 29 per share and no-moat rating.

On a segment level, good net interest income and lower expenses lifted corporate and institutional banking operating profits by 65% year over year, which was just enough to offset weakness in retail, commercial, and private banking. Lower efficiency in generating income per unit of expenses has weighed on retail and commercial banking while private banking saw shrinking client assets owed to mostly adverse market performance as well as net asset outflows.

At the end of the fourth quarter, the common equity Tier 1 ratio according to Basel III guidelines stood at 18.4% versus a requirement including management buffers of 13.5%. The sizable gap can be explained by the 4%-5% buffer ABN believes is required to offset the implementation of upcoming Basel IV regulations.