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Morningstar | ABN Posts Good 3Q Results, Carried by Corporate and Institutional Banking

ABN posted good third-quarter results, making up ground after weaker results in the first half of the year. Net interest income of EUR 1.624 billion in the quarter increased 4% compared with the same period last year, as good corporate loan growth, higher mortgage penalty fees, and increased interest-related fees contributed positively. Other operating income nearly doubled to EUR 277 million after one-offs from equity participation and more favorable hedge accounting income formed a tailwind, while net fee and commission income was flat. On the cost side, lower personnel expenses could not make up for higher other expenses, which were mainly attributable to higher costs stemming from external employees in a shift to a more flexible workforce. Impairment charges of EUR 106 million came in 24% lower than in the second quarter but continue to be elevated relative to the same period last year. Year to date, impairment charges stand at EUR 447 million versus a EUR 29 million 2017 reversal. Profits were up 8% in the quarter year over year, while first-nine-months figures still lag by 11% versus 19% in the second quarter. We maintain our fair value estimate of EUR 29 per share.

Good performance in corporate and institutional banking was the main profit driver this quarter. Net interest income climbed 36% to EUR 307 million, more than offsetting 10% higher operating expenses. As a result, profits increased to EUR 210 million from EUR 81 million last year.

Other segments were less beneficial to results, however. ABN’s retail segment showed declining market shares in new mortgage production (16% versus 19% last year) owed to increased competition and growing demand for mortgages with longer maturities. Profits in the segment were down 5% to EUR 328 million. Commercial banking had to digest a EUR 64 million impairment charge stemming largely from exposure to the shipping industry. Profits declined to EUR 130 million from EUR 185 million last year.