Rising bad loans and a big investment in improving anti money-laundering controls pushed fourth quarter net profit from Dutch bank ABN Amro way below analysts' expectations, prompting a sell-off in its shares. Net profit plunged 42 percent to 316 million euros ($358 million) from 542 million euros a year earlier. That compares with an average expectation of 446 million euros in a Reuters poll of analysts.
"Net profit was impacted by elevated loan impairments in specific sectors," Chief Executive Kees van Dijkhuizen said. Loan impairments soared to 208 million euros from 34 million a year earlier, as the shipping, oil services, and jewellery struggled despite a strong recovery in the Dutch economy and rising oil prices.
Dijkhuizen noted the current loan impairment level is still lower than would be expected on average throughout the economic cycle. ABN Amro, which has refocused on the Dutch market in recent years, cutting thousands of jobs, said it would limit trade and commodity finance operations in the offshore energy, diamond and shipping sectors, to improve profitability.
Net profit was also dented by an 85 million euro charge for improving systems to scrutinise clients, as the bank stepped up its fight against money laundering and other criminal activities. This followed a record $900 million fine paid by rival Dutch bank ING Groep NV in September for failing to spot criminal activities financed through its accounts for years.
Beyond the Netherlands, Denmark's Danske Bank is involved in a money laundering scandal in Estonia, and Germany's biggest, Deutsche Bank, also faces money laundering allegations. "We are in constant dialogue with regulators and...have decided (to take the charge now) given what we saw last year, also with Danske," Van Dijkhuizen told reporters on a call.
"Criminals are getting smarter and smarter and smarter, so it's also keeping up with criminals." ING analysts, who rate shares Hold, said in a note the results were a mixed bag. "Operating result adjusted for this one-off cost item was actually in line, with better than expected net interest income and sound underlying cost control," said Albert Ploegh.
However, he said that the company's capital ratios imply a perhaps overly cautious approach to distributions. ABN's core capital adequacy ratio was 18.4 percent at the end of December, compared with 18.6 percent three months earlier and near the upper end of the 17.5 percent-18.5 percent range set for 2018, the bank said.