ABN 4Q23; Low Quality Beat, Targets Lowered. Credit Negative.

ABN-Amro (ABN NA) reported 4Q23 results which were a low-quality beat in profit terms and include lowered capital and return targets. These appear credit negative, in our view. An EUR500m buyback will pacify equity holders somewhat. In comparison to ING’s results, these are better, but still weak against expectations, we feel.

• Revenues were up 10% y/y (1% below consensus), costs rose 9% (6% worse than expected) but credit losses were a write-back meaning pre-tax profit beat by nearly 10%. A much lower tax rate mean net income was 21% ahead of consensus but neither credit write-backs nor falling tax rates are sustainable, quality earnings sources.
• In credit terms, credit losses were a write-back and non-performers (stage 3) rose 10bp in the quarter to 1.9% of loans. Consensus was expecting this number to be flat q/q. CET1 capital was 70bp lower at 14.3% and around 15% in Basel IV terms. This is nearly 50bp weaker than expectations.
• Mgmt has announced an EUR500m equity buyback (with the Dutch state selling shares via this). Both the RoE and capital targets are being lowered here. Previously the CET1 target to trigger a buyback was 15% - we have a buyback without being there. Also, the RoE target, as recently as 8-Nov-23 results announcement, was 10% for 2024, it’s now 9-10% by 2026.

Conf call is 0800 London time, at: https://channel.royalcast.com/abnamroinvestors/#!/abnamroinvestors/20240214_1