Earnings Call: Q2 2021

Aug 11, 2021

Good morning, and welcome to the ABN AMRO Second Quarter 2021 Analyst and Investor Call. During this call, all participants are in listen only mode. During the presentation, we will conduct a question and answer session. I would now like to hand the call over to the Chairman, Mr. Robert Flack. Please go ahead, sir. Thank you very much. Good morning. Good morning, everyone, and welcome to ABN AMRO's Q2 results. Delighted to be joined for the first time by Lars. He's in the room next to me, our new CFO and Tanya Koop, our CRO. Just stepping back on Lars for a minute, He has an extensive experience in the banking sector, joined us from the Hellenic Bank, where he was Group CFO and member of the Managing Board. And prior to that, he held various CFO functions within ING. We will now run through our Q2 results and update you on the progress on our strategic agenda. Lars will go through our Q2 results in more detail. Tanya, as always, will then update you on impairment developments in our loan portfolio. So turning to our Q2 results on Slide 2. It is very clear that COVID-nineteen has impacted all of us in some way or another, restrictions are easing. We expect the economy to rebound in the second half of the year. The more optimistic outlook on the economy allowed us to release impairments this quarter. So, I'm pleased with the result over Q2 of $563,000,000 excluding CIB Non Core. We indeed made a big step in the wind down of the CIB non core portfolio this quarter, thanks to a number of portfolio sales. The wind down is one of the reasons why interest income was lower this quarter as well as the negative interest rate environment, which continues to put pressure on our deposit margins. Cost saving programs are on track, yet at the same time, we are investing to lay the foundation for the future of the bank. We continue to work towards the cost base of $5,300,000,000 for the full year. So given the good progress on the wind down and the optimistic outlook on the macroeconomic environment, We now expect the cost of risk for the whole bank to remain well below the through the cycle level of the year. The ECB stated They will not extend the dividend recommendation and this allows us to pay the final 2019 dividend in October. So let's turn to strategy on Slide 3. Just a brief reminder of the outcome of the strategic review we undertook in November. We have a strong foundation with leading market positions across all customer segments, retail, private and corporate banking. We have strong digital capabilities, which have helped us to adapt rapidly to the COVID pandemic. The Dutch economy, which is our home market, is healthy and resilient. Lars will update you on this later on. And for our clients, We want to be a personal bank in the digital age. We choose to serve those clients where we can achieve scale in the Netherlands and Northwest Europe. We will continue to lead in sustainability, whilst we're also building a future proof bank, which is digital first with simple processes and products. We set ourselves an ambitious program. And on the next slide, I'll highlight the continued good progress we've made on our strategic agenda so far. Starting with the 1st pillar, customer experience. We are leveraging our video banking platform and starting this quarter, mortgage clients can now be connected Moving to sustainability. We aim to be the 1st choice of our clients in sustainability addressing a clear need and attracting targeted clients. This quarter, we announced the launch of our $425,000,000 sustainable impact fund, and we closed the 1st in its kind green IPO. The AML remediation is well on track and I expect completion in 2022. At the same time, the pace of branch closures has picked up this quarter with the closure of all further 17 branches, bringing the total down to 79, as most clients now do all their business with us through digital channels and call centers. So turning to Slide 5, let me update you on the progress of the CIB non core wind down. I'm very pleased with the significant asset sales we achieved this quarter. These transactions significantly reduced our exposures in the U. S, especially in the oil and gas sector, intermodal and shipping. The overall discount we took on these transactions were modest given the size of these transactions. Looking at the overall wind down, we are now over 80% done in 1 year. Clearly, this is well ahead of schedule and the remaining non core portfolio could end up below the €2,000,000,000 mark by year end. This brings us into the tail end of the wind down. Looking ahead, Costs will start to come down materially in 2022 as we start to hand in foreign licenses and wind down mid and office back office operations. So we have materially delivered on the non core wind down ahead of schedule and this is improving the overall risk profile of the bank. Tanya will discuss the risk profile of the remaining non core portfolio as well as for the bank overall. So first, let me hand over to Lars, We'll take you through the financial results of the quarter. Lars, go ahead. Thanks, Robert. Good morning, all. I'm delighted that this is my Q1 as CFO of ABN and to have joined this great institution. And I also look forward to meeting You guys as well as the investors in the coming months. Let me highlight a few of the main pro form a results of the core bank. So this will be excluding the CIB non core. We showed a net profit of $563,000,000 This was helped by impairment releases. The operating income held up as the NII declined due to the low rate environment, but this was offset by some higher other income. Operating expenses were down due to the seasonally lower regulatory levies, while there was some cost increase in the AML front. And we again released impairments this quarter as our macroeconomic outlet more positive and new additions to impairments were very limited. I'll run through the developments we're seeing in the Dutch economy on Page 7. So while the Dutch economy is feeling the impact of COVID, the extensive government support measures have been very effective over here. The success of the support measures is evidenced by the exceptionally low level of bankruptcies, and we can also see unemployment decreasing towards pre Transistence with these developments is the rebound we observe in consumer and corporate confidence. While COVID cases rose strongly following easing of many restrictions, we see cases coming down quickly as a number of the measures were reinstated. The willingness to vaccinate is high in the Netherlands with over 85% of adults now vaccinated at least once. Given these developments, we're optimistic about the economic outlook for the second half of the year as restrictions are lifted further. Now turning to Slide 8, I'll discuss how this affects our business. Mortgage volume was up again for the quarter as the number of housing transactions With the launch of MoneyYou as a low price label, we have another tool in our chest to increase our market share. Corporate lending volumes for the core bank stabilized and demand is still muted by the extensive government support measures. We do expect volumes to pick up however in the second half of the year, which will help us in achieving the TLTRO threshold. Now turning to interest income on Slide 9. The NII of the core bank came down compared to Q1, reflecting deposit margin pressure and the wind down of CIB non core. Higher prepayment penalties for mortgages were more than offset by $30,000,000 of incidentals. Mortgage margins will be low back book margins due to the ongoing strong competition in the markets. However, the effect on NII was partly offset by growth in volume. Looking ahead, we do face deposit margin pressure of around 20,000,000 quarter, which will be mitigated partly as we lower the threshold to 150,000 for negative pricing, which started already on July 1. The wind down of CIB non core leads to NII declining by around £10,000,000 per quarter during the remainder of the year. And together with all of this, I expect that NII will be between $5,300,000,000 $5,400,000,000 for the year. The range reflects whether we achieved the TLTRO threshold or not. We are optimistic on the outcome that we do have some work to do to reach this threshold. Now moving to Slide 10 for fees and other income. Fee income for the core bank was stable. Positive stock market developments supported the results in Private Banking, and we saw another strong quarter for Global Markets. Fee income from Clearing is still strong, however slightly below Q1 as markets have settled down. For the second half of the year, I expect fee income around $400,000,000 per quarter. And while the strong markets Related income may not hold up. We are seeing credit card usage improving as restrictions are lifted. Moving to other income. Positive equity participation revaluation has boosted the results for the core bank this quarter. And other income for CIB non core was negative due to 121 Expenses were slightly up this quarter, mainly from rising AML costs, impacting both personnel as well as other expenses. AML costs are expected to peak this year at around $425,000,000 as we are ramping up FTEs. Expenses also rose due to the investments we're making in our strategic agenda. And Robert already highlighted a number of products and services, which we brought to the market recently. For this year, we expect costs to peak at $5,300,000,000 also reflecting some additional regulatory levies and general cost inflation. Cost savings are on track to reach our target in 2024 of $700,000,000 of absolute cost base being no higher of $4,700,000,000 And now turning to capital on Slide 12. We'll pay the full year 2019 dividend in October As the ECB has announced that the dividend recommendation won't be extended past September. As we announced previously, we will not pay an interim dividend this year, only a full year dividend. We're committed to resuming dividend payouts amounting to 50% of net profits as stated in our dividend policy. And capital ratios increased further reflecting the Q2 net profits and lower RWAs, specifically driven by the non core wind down. In addition, Basel III operational risk weighted assets decreased following the AML settlement. Basel III RWAs Are expected to converge towards Basel IV in the coming quarters as we shift some portfolios to the foundation and standardized approach And as well as the DNB mortgage floor kicking in sometime around the 1st January. Our leverage ratio is also strong. And as SACCA has now been implemented, these numbers are no longer pro form a. So with that, I'd like to just hand over to Tania. Thank you, Lars, and good morning, everyone. This quarter, we again released impairments as the macroeconomic outlook improved We made significant progress on the non core wind down due to portfolio sales. The improved macroeconomic Look led to significant releases in Stage 1 and Stage 2 of total €99,000,000 We increased the management overlay by €12,000,000 reflecting the current unprecedented economic circumstances not fully captured by our models. The total management overlay now amounts to EUR 343,000,000. With the Stage 3 ratio improving From 3.3% to 3%, Stage 2 ratio improving as well to 9% and an adequate Stage 3 coverage ratio of 64% in non core, Covering some of the tail risk, the outlook for credit risk is positive. For the bank overall, I'm therefore confident our cost of risk For this year, we'll be well below the 2nd cycle cost of risk level of 25 to 30 basis points. With that, I would like to hand back to Robert. Thank you, Tanya. So then let's turn to Slide 14, which shows our financial targets and strategic KPIs. Our Net Promoter Score is well on track for mortgages, but we have indeed work to do on SMEs. Now the current score on SMEs very much influenced by the negative sentiment around the AML settlement, closing of branches, fee increases and some operational changes as we are transforming our client service model. I am pleased with how our mortgage business is doing. Despite strong competition, we managed to grow our loan portfolio. The launch of our new mortgage today, which should help to increase market share going forward. And as economic growth resumes, We aim to capture our fair share of the business in the SME sector. I'm pleased with the progress we continue to make on our sustainability KPIs. We see clients further increasing their investments in ESG and impact related investments as interest remains high in these products. Our costs are under control, and I'm confident we can achieve our 2024 target as set up by Lars just now. With a large part of the non core assets now wound down, the risk profile of the bank continues to improve. This year, we expect our cost of risk to remain well below the 3rd cycle level. Our capital position is strong. And with our Q4 results, we will update you on the threshold for share buybacks and dividends. So to wrap up, we showed a good net result over the 2nd quarter, helped by releases from impairments. We feel the impact of the low interest rate environment in our deposit margins and competition in long dated mortgages. We expect an economic rebound in the second half of the year, which is returns from growth in corporate lending volumes. We made a significant step in the wind down of the CIB Non Core portfolio this quarter. Cost savings programs are on track, and at the same time, we're making investments to lay the foundation for the future of this bank. And last but by no means least, the final 2019 dividend will be paid in October. Next, I'd like to ask the operator to open the call for questions. Thank you, sir. I will remind you to limit yourself to 2 questions. Thank you very much. Go ahead. Our first question is from Mr. Bruno Petrarque of Kepler Cheuvreux. Go ahead. Your line is open. Yes. Good morning, everybody, and Welcome, Lars, to this call. Just a few questions on my side. First one will be on the cost. I think your guidance It's clear on €5,300,000,000 for this year. But given the good progress on the runoff, How do you see cost developing in 2022? I think you target €4,700,000,000 for 2024, She's quite far away. So could we trend towards €4,700,000,000 earlier than expected? That will be the first question. The second one is on capital with your 16% CET1 ratio on the Basel IV, which is extremely strong. So how do you think about share buyback in this context? And are you currently in discussion with the ECB? And just wondering how this discussion is going actually on the potential Additional distribution on the top of the one you announced in the for the Q4? And just maybe just finally, on the legal side, any Update, you want to provide on the variable interest rate for consumer loans? Have we seen that Rabobank announce a settlement? And I was wondering if On the kind of basis of the settlement, if you can how much provision will be taken on your side? And any thoughts on the kind of new ruling around the mortgage, variable mortgages as well, which is Which came lately as well. So any thoughts on that? Thank you very much. Thanks for the question. So I'm counting 4 of those. So I'll take them in order. I think you're absolutely right. The runoff has accelerated. We've talked about this before where We'll look at the cost base in 2022, as indeed we are handing back licenses off. So we'll close. We'll see how much we can bring forward. We will still maintain our guidance of $4,700,000,000 By the time we've completed the overall analysis, I would expect we'll come back to you on the effect of accelerating a further cost wind down related to the wind down. In terms of your question on the share buyback, We think I've been very consistent in stating that, A, we'll pay our dividend on 2019 dividend this year when restrictions ease And we will look at potential share buybacks in the Q1 of 'twenty two on the basis of the results of 'twenty one. That is a conversation we will then have with the JST clearly as we need to continue to engage on constructive dialogue with our supervisors and we expect to do so as we begin to firm up our positioning on buybacks. Keep in mind, as I said before, this will be done on the basis of a full year result 2021. In terms of the legal files on Kifat, your specific question, That is indeed an issue which we flagged before. We continue to be in constructive dialogue with the local the Dutch consumer agency in order to determine an overall position whilst taking note of the earlier announcements in the KIFU case. So we provided what we can provide for at this stage what we know of and we will continue to have the constructive dialogue with the consumer agency In order to read some conclusions, and as soon as we have those conclusions clearly, we will communicate. On mortgages, remind me again of your question. Yes. We've seen this Kivid case on mortgages as well, I mean, going into some duration than the consumer Loans, the viable loans. So any thoughts on that? Could that be a potential risk for you? Or are you confident that You can take some of these actions. As far as I know, at this point, that's not a risk for us. Okay. Thank you very much for that. Thank you. Our next question is from Mr. Stefan Nedialkov of Citi. Go ahead. Your line is open. Yes. Hi, guys. Good morning. It's Stefan Georges from Citi. A couple of questions from my side. The first one is on NII. Just to confirm that the €30,000,000 in NII is a one off from the German dividend tax withholding issue, That's a proper one off. There's no repeat of guide going forward. Similarly, the $22,000,000 of funding COVID breakage In the non core CIB, that's also a one off. And just more broadly on NII. You have made some That your front book spreads are below your back book spreads and that you're positioning your money, new offering to be a quite competitive Product. I just wanted to understand here, what's the value proposition to the customer in mind you? And what's the value proposition for you? Are we talking about sacrificing margins a little bit going forward, but the expense of high volumes? So a couple of different parts to the NII question. Apologies for that, but there is a fair amount going on here. And my second question is on fees. The €400,000,000 of guidance that you have for a quarter, how much of That relative improvement versus your previous guidance is driven by your confidence in CAB core CAB lending. Those fees held up pretty well this quarter. And I guess that's also key to meeting your TLTRO target. Thank you. All right. Thanks for the questions. Lars, could I ask you to comment? Yes. Stefan, on the NII, definitely the 30,000,000 It's a one off. So that's and then on the $22,000,000 break funding costs in terms of The non core is also a one off. I mean, these things happen as you're unwinding funding, as you're selling off positions. In terms of the uniqueness of the or the money you offer, I would say that from a customer point of view, There is definitely some I mean, this is really a channel that is focused at the intermediaries, firstly. And for us, it is a straight through channel. So in a way, what we get there is an improvement in efficiency. And therefore, one of the sort of steps For us at least in terms of our cost savings and digitalization efforts and straight through processing efforts, This is probably the biggest benefit. And therefore, also some of that benefit we do pass on to the customer. In terms of fees, I would say the $400,000,000 level, I mean, we've got 2 impacts. We've had A positive impact in the first half of the year really coming from more volatility in the markets as well as a strengthening of the share markets, has obviously helped the private banking fees. Now we do expect that volatility and we're already seeing it. It's actually calming down a bit. So maybe that won't carry through so much into second half of the year. But on the flip side, we are seeing a pickup in terms of our credit and debit card usage. And that should So that it will compensate anything that happens in terms of the market. The Fee pickup in terms of CIB lending, definitely we do we are seeing in terms of At least stabilization in volumes on CIB and in terms of pipeline, there is definitely something happening in terms of the more positive pipeline, which is also what we would expect to see in terms of our economic outlook as well for the second half of the year. I mean, we definitely Should be getting some good tailwind there. So yes, that could be a supportive factor as well in terms of fees. Okay. Thank you. Thank you. Our next question is from Mr. Omar Fall of Barclays. Go ahead please. Your line is open. Hi there. Just a couple of questions for me. Firstly, if I take CB and core CIB As kind of proxies for the TLTRO benchmark, it looks like you maybe need 4% volume growth For the rest of the year to meet the threshold, I mean, that seems awfully ambitious even if corporate loan demand picks And the pipeline you mentioned crystallizes. So just some more color on that would be helpful. And then one for Tanja. I think I just want to revisit the 25 to 30 bps Through the cycle cost of risk target that you presented at the last Investor Day, which continues to frankly make very little sense To me, when it's the same as it was in the last cycle when non core made up a small proportion of the overall book that drove more than half the loan losses. So what's the real through the cycle cost of risk for ABN when noncore is almost Gone because based on history, it looks like barely 10 basis points. Thanks. Thanks. I'll ask Lars to comment on TLTRO And Tonya, on the cost of risk? Yes, Omar, in terms of the growth expectation, I mean, clearly, you've got to Take it from the background of the first half of the year was still very much impacted by COVID. And therefore, loan demand and working capital demand was still muted. We also still in the Netherlands have this You now have the government measures going directly to companies. Now these government measures we expect to be lifted come Q3. And therefore, there's quite a bit of pent up demand here that we're seeing that's built up. So 4% in a In a half year, I agree with you in a normal year would seem very ambitious, but in a period where we are really Coming out of COVID and certainly every sort of forward looking that we are doing at the moment is skewing towards the positive. It is doable. And the other thing to take into account is that in CIB, You are looking at much bigger tickets. So you can actually move the dial with not having to wait for a lot of smaller tickets. So we're definitely not depending coming from consumer lending. I mean, we are very much seeing CIB as the driver and then flowing through into the commercial bank. Okay. And Omar, on your question on cost of risk, indeed, you're right. Our risk profile for Core bank is a clear improvement once noncore has been Baham Dan. Indeed, we didn't update our cost of risk guided during Investor Day because noncore would be Part of the bank for quite a bit of time up till 2023 and beyond. Right now, we see actually this quarter That we made significant steps in winding down non core, which well Feats into the guidance for this year as well, well below this through the cycle cost of risk. We haven't updated our guidance Yes, but that's something we will look into at some stage. Thank you very much. Thank you. Our next question is from Ms. Julia Aurora Miotto of Morgan Stanley. Go ahead. Your line is open. Yes, hi. Thank you for taking my questions. 2, please. So the first one, I want to go back to the capital distribution question. So At the moment, CET1 is up 16%, if I look at Basel IV. And the target for buybacks is Basically above 15%. So on this basis, could we assume that the whole 1% excess could come back in terms of buybacks? Or that optical is too high in terms of payout based on basically 2021 results. And then perhaps a sub question on capital. Given all these excess capital, is there a chance that you might Consider perhaps some further restructuring or some further actions to basically improve profitability Structurally, given that revenues are especially NII are a bit weak. And then my My second question is a bit of a technicality on NII. If I look at the trends in the key divisions quarter on quarter, Especially Retail and Commercial Banking, they are down quite a bit. But then Corporate Center, especially once they removed the €30,000,000 one off, NII actually went from minus €13,000,000 in Q1 to plus €52,000,000 in Q2. And so I was wondering What drove that big change and what is the realistic level of NII for the corporate sector? Thank you. Hi, Julia. Thank you for your questions. On the let me take the first two and Lars maybe take the second. So go back to the 16% of Basel IV, around the 16% Basel IV that we've gotten to. We have said that we would consider the discussions on buybacks, as I said previously to the previous question, in the 1st part of next year. So I don't want to get ahead of that conversation just at the same time. I will say That what we will also engage in that part during that discussion is a recalibration Also, the thresholds that we have considered in terms of buybacks. Now, without really getting into the details of what that conversation will entail, I will confirm again, as I've done consistently, that we will have those conversations both within the bank and then subsequently get to a decision on that based on our full year results in 2022. As to your question on further restructuring, at this point, we continue to execute against the strategy That has been designed around an anticipated ROE out in 2024 with a cost base of around $4,700,000,000 or lower. That's what we clearly guided toward as we talked about our expected cost basis. So we will always look at the potential to accelerate Our costs decreases. We just talked about non core and the potential there for an acceleration Further costs, so we will continue to evaluate this as the year continues. Yes. And I think on the technical question around the corporate center, it relates a bit back to the earlier question about the break funding cost where The BRAD funding cost is a one off, but actually in terms of the organization as a whole, we have a $21,000,000 prepayment pickup as well against That's overall for the organization, it's neutral. So I think it has to be looked at in that light. Thank you. Our next question is from Ms. Alka Reisel of Goldman Sachs, please go ahead. Your line is open. Yes. Hello. Good morning. Thank you for taking my question. Apologies for Coming back on the capital, just one thing. In terms of the speed of running down the excess capital, are you considering special dividends as as well or is it mainly ordinary dividends plus the buyback you have in mind? And then secondly, on the private bank, you Gave you strategic update. It was in that one of the growth engines in one of the momentum areas. And I just wonder how Happy you are here with respect to the performance. I mean, they seem to be impacted by the charging of deposits. And just if you can maybe just talk about your general, how you think it's positioned? And then also if, M and A is still one area that you Thank you. Thank you very much. Yes. Thanks for your question. Yes. On the on your question on dividends, just let me reiterate. So 2019 dividend will be paid during 21 in October 2021. And then any other considerations in terms of buybacks we will Have or consider during the Q1 of 'twenty two based on those full year results. At this point, we are thinking about the potential for buybacks. We will discuss, as I've said before, the calibration of thresholds. And when we've decided, We will then communicate what the outcome is. On the Private Bank, actually, I've been quite pleased with the performance over the second quarter. Net net, although we've seen a significant cash outflow, which is a direct result of the negative interest that we began charging, pushing out cash As we intended to do, we've also seen an increase on NNA of about $1,900,000,000 for the 6 months. That implies that we've indeed received also new customers. We've seen an increase on the back of market conditions of fees as well. And at the same time, we continue, as I considered, a Northwest European strategy around our private bank, We continue to expand on our strategy to serve entrepreneurs and their enterprises. Now, we're uniquely positioned for that particular segment because we do carry the sectoral knowledge of our corporate bank, making it available to entrepreneurs as we serve them around their own private needs. So strategically that makes a lot of sense in terms of the uniqueness of the proposition and therefore When we consider M and A, as I've said before, bolt on M and A could well be in that direction as well. So Strategically, I'm happy with the performance of the Private Bank. Clearly, we will continue to ensure that performance We'll continue to benefit from the economies further opening up, and we will consider M and A as and when appropriate. Thank you very much. Our next question is from Mr. Guillaume Tiberghain of Exane BNP Paribas. Go ahead please. Your line is open. Yes, good morning. Thanks for taking the question. I have A question on the Corporate Center. Whether you could give us guidance of what to expect maybe at the PBT level, maybe this year and going forward, please? Thank you. Yes. I think that's going to be a short answer. We're not going to give any specific guidance in that sense. That's a very short answer. Maybe then if I try to rephrase it a little bit, Do you think your revenues can be around 0 in the corporate center? Yes. I think you're rephrasing your But I guess the essence is still the same. We're not going to get into those specifics. Okay. Thank you. All right. Our next question is from Mr. Robin van den Broek of Mediobanca. Go ahead. Your line is open. Yes, good morning. I was just wondering if you could specify how you deal with Your private equity investments, your other income line, some gains came through this time, I think also related to the Think sale. But that asset has seen quite a few refinancing refinancings of last few quarters. So you would expect You capture those gains when those events happen. So I was just wondering if you could comment on that and also if there's more gains in the pipeline. So that's question number 1. Secondly, also in relation to Omar's question on TLTRO, did you confirm that the core CIB and the CB Divisions are a good proxy for where you stand on getting through that benchmark. And with Q1, you sounded pretty optimistic on making that benchmark. Mark, do I understand correctly from your narrative today that you're a little bit more cautious now? And maybe lastly, and sorry to come back on this, on the buyback levels, I mean, if you were to lower your threshold based on the AML settlement, I think 1.5 It's quite a bit of potential buyback, especially given your average daily volume with a shareholder that still has 50 I was just wondering to what extent is this limitation driven by the liquidity for stock Consideration in setting a buyback of those numbers. Thanks. All right. Thanks for the questions. First, would you mind taking the first two? And I'll take the buyback. So, I mean, our accounting treatment here for the private equity is very much a mark to market treatment. So we are continuously every month looking at what the best fair value is. And for the Tink one, there was Basically, new information. So, this is going to be a volatile item. I mean, this tends to be the nature of All these investments that we hold in a mark to market portfolio. So, I can't give you an outlook on that. I mean, this quarter, it was a positive outlook. In terms of the TLTRO, I don't think we're changing our views. In fact, I think we are Sort of supporting the view that we really believe that we can make this threshold and that we are working extremely hard to get that. And for sure, the CIB and the CD are going to be the primary engines that are going to give us that. Yes. In that sense, our outlook has now changed versus Q1. The So to your question on any potential buyback and the resulting role of the stock or the majority shareholder, We're going to get to our own assessments around the potential for buybacks. It will then be it will then go through the usual governance that you should expect from us. And that's what we will then do. And the results of that, And that's what we will then do and the results of that will be communicated. Thank you, Fidelis. Sure. And we have a follow-up question from Mr. Stefan Dodyakov of Citi. Go ahead. Your line is open. Yes. Hi, guys. Just a follow-up on the number of questions that have been asked on the buybacks. If you will, can you give us Targeted buyback 101, so to say. Are they feasible in the Netherlands? How quickly can they be implemented under your governance structure, If at all, and is this something you would consider? Thank you. We're going to be as we consider the structure of the buyback, we will have Ongoing conversations clearly on how to best execute a buyback. And I there's a number of options you consider on buybacks and I appreciate the need to know and type of scenarios that we'd like to run. I really don't want to get ahead of that discussion before we've had a clear indication of what the buyback will actually entail. And then as I said before, and I appreciate there is a need to know and there is a desire to know. But I do think we need to go through our own governance before I give any further details around how we would potentially structure a buyback. Now Rest assured, if that's applicable, in the questions and the many very well understood questions on buybacks, I've been very clear about Returning 2019 dividend, we've also been very consistent and clear around when and how we would consider buybacks. And as soon as we have any details as to how we intend to structure, if and when we consider the buybacks, I will come back to this audience Post haste. So, Robert, just to make sure I understood your answer. My question was, is there anything legally preventing A targeted buyback for any bank in the Netherlands. And is there anything in your governance that currently prevents you from doing a targeted buyback? There is nothing in there that would keep us back now. Thank you. Our next question is from Mr. Tarek El Mejade of Bank of America. Go ahead. Your line is open. Hi, good morning. Just one question, please, on capital. The C Seco's build was driven by material I wanted to know if there is anything on this RWAs decrease that could reverse in the coming quarters Sorry, could I ask you to speak a bit clearly into the mic? We're having a your line is breaking up a bit. Sorry. I was saying your It's not a signal. Yes, that's much better. Thank you. Sorry about that. So I was saying your CET1 ratio build was mainly driven by a significant drop in your from OpRisk and Credit Risk. I want to know if there's anything in this drop in other ways that could reverse or increase in the next quarters Due to technicalities or is it there to stay? And the second question on capital is the 16% CET1 ratio in Basel IV that you Kindly give us an indication. If that includes all Basel IV impacts like further implementation and everything or is it just a Perfect. That's it for me. Thank you. Tanja, could I ask you to comment? Yes. So on your first question on RWAs, And I think it was already mentioned previously in the call what we still expect in the coming periods. It's one related To reversion to different approaches, standardized and foundational approaches that will lead to some increases in credit risk RWAs. And also the DNB add on is expected in the Q1 of next year. So yes, there will be some ongoing developments in RWA under Basel III. And what was the next the second question? Sorry, I forgot. Could you repeat your second question? Yes, of course. The second question was on R-four number you gave us of 68%. Does that incorporate all the R-four impact or only I couldn't hear the question. So the first part of your question is you're breaking up a little bit. The Basel IV 60% incorporates Tariq, are you still there? Or could you maybe just repeat because again, you were breaking up? Yes. Can you hear me now? I'm on landline, so I'm not sure what's happening. Yes. So So my question was, the 16% CET1 ratio in Basel IV, is that includes all Basel IV impact or only partial impact on Basel IV? Well, that is the Basel IV number based on how we interpret Basel IV at this stage. And of course, as you are aware, The path of 4 regulations are not final yet. So this is based on what we know today. And everything we know today is incorporated there. Okay. Thank you. And sorry for the voice of the line. No worries. No worries. We got there. Our next question is from Mr. Benjamin Goy of Deutsche Bank. Please go ahead. Your line is open. Yes. Good. Hi. Good morning. Just one follow-up from my side. Maybe you can give us a bit of context on how important prepayment fees are for the net interest income normally. Now in Q2 was a good boost. I think Q4, this is also seasonally strong, but just trying to understand how important this is to your quarterly NII generally. Thank you. Thank you, Lars. Okay. I think prepayment fees, yes, in the Q2 was particularly strong. I mean, there is some seasonality attached And it basically has to do, I think, with this COVID period as well, people having saved a lot, they have used some of that additional cash to pay off. I mean, the seasonality here would normally be probably Q2 and Q4. So is it important? Well, it's important that we do get some payback for prepayments because clearly this is lost income for the future. But I I don't think it's going to be at these sorts of levels carrying through. And when we're giving our projection of the $5,300,000 to $5,400,000 I mean we're not building in there that £20,000,000 a month or quarter. Okay. And that's it. Thank you. We have a follow-up question from Boisne Quetraque of Kepler Cheuvreux. Go ahead. Your line is open. Yes. So on the Edofield disposal, could you update us on that one? In terms of timing, do you still expect that to be happening in the 2nd part of the year? And then just On the capital, so leaving aside the kind of question on the excess capital versus your threshold of 14.5% or 15% whatever, You are going to be paying 50% payout ratio. Well, arguably, it's not Actually, you could actually push it to kind of almost 100%, right, in a year where your CET1 Roshanda Basel IV is 16%. So what is your thoughts on the adequacy, let's say, on the kind of long term of your 50%? Yes, that's it. Okay. Thank you. So on the disposal of our headquarters, I'd say the transaction is proceeding. It's continuing. We've targeted completion by and for the end of the year. And when we have announcements to make, we'll make In terms of our dividend policy, we've just recalibrated our dividend policy just last year. And at this point, I don't see any reason to change the policy as is. So we will stick to the policy of 50% as we Communicated in November last year. Okay, great. Thank you. All right. Thanks. We have a follow-up question from Julia Aurora Miotto of Morgan Stanley. Go ahead. Your line is open. Yes. Hi. Thank you for taking my follow-up question. Just on Net Promoter Score, so I understand why it has decreased. You highlight the number of things, Fees and AML settlement. But how do you plan to turn that around also in light of targeting market share growth and that both in mortgages and in SMEs, please. Yes. Thanks for your question, Giuliano. I'm glad you referenced that Because these are important indicators to us as we continue to execute our strategy. On mortgages, I'm actually quite pleased with where we are in terms of our ultimate goals set on NPS for mortgages and all the initiatives we talked about during this call, particularly as we work Very, very closely with our intermediaries, allowing opening up of digital channels, particularly speed of offering, with The relevant pricing levels that go with these types of offerings will continue to help impact our mortgages NPS. On SME, clearly, the reasons that we've indicated are the reasons and Why the NPS scores decreased? It's never good that it happens yet again on the back of Negative publicity as it related to the settlement, as it related to some of these offices that we were closing. It was to be expected. The way we're offsetting this is to continue to ensure that our digital capability to the SMEs continues to improve. And that's actually why we've launched the various initiatives that we've also highlighted in our quarterly report. And I think the first indications are actually quite Positive. I can speak from my own personal experience in talking to many of these SMEs about, a, The digital packages that we're making available to them, but at the same time starting to combine some of our expertise around Private banking in a service offering to SMEs actually does do very well for NPS. Now clearly, as you know, For NPS scores to begin to change, that will take a few months to actually see the effects thereof. But we will continue to monitor and we will continue to adjust And we have a follow-up question from Annke Rijnden of RBC. Go ahead. Your line is open. Yes. Thank you very much for taking And apologies to follow-up, but you might as well say I have to wait till February. But just trying to understand, Is a payout ratio consisting of the dividend 50% and the buyback above 100%, Is that possible? Or you see 100 percent payout ratio as basically as much as you can go? I mean, obviously, aside of the 2019 Yes. Again, I appreciate the question, but I'm just not going to get into the details of what the potential buyback in combination or in relation to payout ratios would look like. I think it's I think we've been very clear that we need to get our facts on the table as it relates to full year results 2021. That will be the time We will then consider buybacks, as we said all along. And as soon as we have the details on how we expect to structure a buyback, We will provide those details. Okay, understood. Thank you very much. I'm sorry for asking again. No worries. No worries. And we have a follow-up question from Omar Fall of Barclays. Go ahead. Your line is open. Hi, there. I just wanted to ask about M and A, please. So historically, there's been disappointment on Capital return at the group prior to your time here because the spreadsheet Maths have been attractive in terms of excess capital, but then we're surprised by unforeseen uses of that capital. So what confidence should shareholders have that the same might not happen now in terms of M and A, I. E, that any transactions are truly bolt on, because I guess a lot of the confusion around capital stems from the fact that unless We're really talking about paying out more than 100%. The math suggests that your high Starting point of capital is just going to keep growing at infinitum even with a reasonable payout? Thanks. Yes. So I can't really talk about the M and A that's happened before at the bank. Hopefully, the track record is telling you right now in a year's Time. We've made some very conscientious choices and we've executed consistently against it. So that means that any time I will consider M and A, it Has to be accretive in terms of the strategic choices that we have made, keeping in mind of the dynamics of any transactions that we would have to do. So Obviously, it's keeping the strategic priority for the bank front and center, but it's also keeping the any potential considerations for shareholders Front and center in the way we would structure any deal. So the only way I can show that to you is by actually concluding a transaction And let the record then speak for itself. We will only consider transactions when and if they are Accretive to our overall strategy that will consume some capital. Hence, we said in our calibrations, in our 200 bps, 13% to 15% calibration, There is something in there that is allocated to M and A, but will be very consistent as we have been all along around the actual execution of M and A. Thank you. We have no further questions, sir. Please continue. Okay. Well, that then wraps up the call for today. Again, really love to thank you for all your questions. I I know we're going to be speaking soon again, so I'm sure we'll have a follow-up with some of the questions that we were talking about today. But for now, see you later. This concludes the ADN AMRO's 2nd quarter 2021 analyst and investor call. Thank you for your attention. You may now disconnect.