Earnings Call: Q1 2021

May 12, 2021

Good morning, and welcome to the ABN AMRO Quarter 1 2021 Analyst and Investor Call. During this call, all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session. I would now like to hand the call over to Mr. Robert Swach, CEO of Avian Amro. Please go ahead, sir. Thank you so much. Good morning, and welcome all to ABN AMRO's Q1 results. I'm joined by Annamiek Houst, our Interim CFO And Tanja Kueben, our CRL. I'll talk you through the highlights of our Q1 results, and then Annemica will go through our Q1 results in more detail. And Tania, as always, we'll then update you on impairment developments in our loan portfolio and run you through our capital developments. So turning to our Q1 results on Slide 2. As you know, we've agreed to a settlement with the Dutch regarding the anti money laundering investigation. We'll go a little bit more in detail on AML on the next slide. Excluding the AML settlement, our net result was €426,000,000 Low interest rates And the wind down of CIB Non Core led to a decline in NII. Client loans for the core bank are stabilizing. We showed good progress on the wind down of CIB Non Core and the portfolio is now down by about 60%. Our costs continue to be under control and the first cost reduction is toward $700,000,000 cost savings by 2024 were realized. Our cost of risk for the core bank is now expected to be at or below the through the cycle guidance of 25 to 30 bps, And we do expect CIB non core impairments to be significantly below last year. We continue to show a very strong capital position with our Basel core ratio about 15% and our threshold of 15% for ShireVax will be recalibrated at Q4. We stand ready to pay the full year 2019 dividend in Q4, of course, ECB conditions permitting. So let me spend a bit more time on the AML settlement. We reached a settlement with the Dutch prosecutor, which consists of a fine of $300,000,000 and a disgorgement of $180,000,000 The investigation covered the period between 2014 2020, and the prosecutor identified shortcomings in our processes to combat money laundering in the Netherlands. We have recognized the seriousness of the matter and reiterated full commitment to our moderate risk profile and our role as a gatekeeper of the financial system. Our culture as well as our license to operate remain clear priorities for me. Back in 2019, ABN AMRO established a centralized AML unit, replacing AML efforts organized by business lines. This AML unit now implements all activities in a structural and bank wide manner and is also responsible for running all remediation programs. The prosecutor as well as the Dutch Central Bank acknowledge that we are on the right track with the remediation programs announced in Q3 2019 and progressing according to the timetable as agreed upon. So no additional remediation programs are required. And just to remind you, We are currently running remediation programs for Retail Banking, Corporate Banking and our Credit Card business. A large part of the remediation costs, especially the cost of external FTEs has been provisioned for in the past. And this year, we expect AML costs to peak and then gradually decline to around $370,000,000 towards 2023 as remediation programs are completed in the course of 2022. Turning to Slide 4, let me update you on the progress of the CIB noncore wine out. The strength of the commodity markets has allowed us to move ahead faster than initially anticipated, And I am pleased with the results so far. We've achieved a significant reduction of the non core portfolio of around 60% as of Q1, ahead of schedule. We are now well within the latter half of the Wyndham, so the pace of reductions will at some point start to slow. This quarter, we successfully sold a portfolio of CCF loans of around $900,000,000 and we're evaluating other opportunities for asset sales that are capital accretive. Even without further asset sales, we will reach a 70% reduction by year end. Looking at the financials of CIB Non Core, we have limited impairments for specific clients in line with the rest of the bank. The good progress we made in derisking the non core portfolio allowed us to release impairments more than offsetting new additions this quarter. Costs for CIB Non Core will decline modestly towards year end with the next round of redundancy scheduled for the summer. This will be followed by material cost reductions in 2022. The Dutch economy is feeling the impact of COVID-nineteen, and it is good to realize that we are somewhat less in terms of effect than the Eurozone average. In general, our lockdown measures have been less stringent and the extensive government support measures have been very effective. The main route for government support is direct income support and tax relief for companies, and these programs were extended through to the summer. The housing market has been unaffected by the pandemic and both house prices and number of transactions remain strong. And given now that the vaccination programs are underway, I am indeed hopeful that restrictions can be eased later this year, leading to a rebound of the economy. We do expect unemployment to rise next year as support measures end, but we don't expect this to in the way of an economic recovery. Tania will discuss the outlook on loan impairments later on. So let's move to Slide 6, where I would like to discuss our progress on sustainability, another one of our strategic choices. Sustainability is an integral part of our purpose banking for better for generations to come. And we do indeed aim to create long term value for all of for stakeholders making a positive impact in what we do every single day, offering financial services for our clients. We recently published climate report giving insights into the various methods we have piloted to prepare science based target setting for client portfolios. These so called science based methods enable us to determine how we can best reach our climate goals working with our clients and which actions are necessary to adhere to the Paris Agreement. Sustainability is also a business opportunity to us addressing a clear client need. We focus on 3 specific areas to to support our clients' transition, namely climate change to circular the economy and social impact. As you know, we aim to increase the volume of our client loans and investments in sustainable assets to 30% by 2024. And looking at the client assets both on our own balance sheet as well as assets under management currently around 21% are sustainable. In the last quarter, we saw clients further increasing their investments in ESG and Impact related investments now totaling to about $31,000,000,000 This interest in this type of investment remains high and we're targeting further growth going forward. So now let's move to Slide 7, where I'd like to highlight the key commercial developments. I am pleased with the results in our mortgage business and we are seeing positive momentum in the volume of our mortgage book. Short response time is important to clients looking for a mortgage and we invested in our mid office, so we can handle high volumes while keeping response time low. Our investments in digital channels enabled us to reduce our retail branches further, and we have now dropped below 100 branches. The threshold for negative pricing will be lower to 150 ks as of July 1. Private Banking is calling all clients personally to advise them on the alternatives for their cash holdings and this is indeed highly appreciated. Looking at Commercial Banking, we saw very limited additional working capital demand from Given the economic backdrop, unlike other countries, in the Netherlands, almost no government support for COVID-nineteen is transmitted through the banking So consequently, we did not meet the 1st TLTRO benchmark. The outlook for the next reference period, however, is better. Loans are stabilizing and the pipeline is building. The expected economic rebound later in the year should further accelerate this momentum. Our financial markets performed strongly, and we managed to drive up fee income in clearing and global markets on the back of this. Commercial Banking will gain from the new payment packages we're introducing, which improves how we charge for additional services. Across all business lines, we continue to help our clients dealing with the impact of COVID-nineteen. And our clients are working hard to pull through this period as we await to reopening of the economy. So with that, I'd like to hand over to Annemieke to discuss our financial results over the Q1. Annemieke? Yes. Thank you, Robert. Shown here on this slide are the pro form a results of Bancorp. So excluding the impact of CIB Non Core, Bancorp showed high operating income and lower expenses compared to last quarter. The 4th quarter contained a number of incidentals, however, And excluding these, operating income would have been flat, while operating expenses would be up marginally. Impairments came down strongly, showing a net release of $37,000,000 for the Q1. This softened the impact of the AML segment, and Bancorp showed a modest loss for the quarter as a result. Turning to client lending now on Page 9. Mortgage Proumes were up slightly on the quarter. Our market share was 70% in a strong market. Our strong operational capabilities enable us to maintain quick response times also in periods of high volume. Corporate lending stabilized following a number of quarters of decline. Companies still have limited funding needs as the economy is impacted by lockdown measures and government support goes directly to employees and companies. We expect lending to rebound when the economy recovers after Q3 as support measures are phased out. Now turning to interest income on Slide 10. Let me first remind you of the incidentals in our Q4 results amounting to EUR 57,000,000 negative in total. As you may recall, this was related to a change in assumptions on mortgage prepayments. Excluding incidentals, NII declined for Bancorp compared to Q4. Lower margins on deposits amounted to €28,000,000 lower NII, which was above trend. Over the coming quarters, given the current interest rate environment, we The lower threshold of $500,000 for negative rates kicked in on January 1, which offset the impact of the margin pressure. As you are aware, we didn't meet the TLTRO requirements for the additional 50 basis points lower funding cost. The outlook for the net The first period is better, however, given the expected pickup of the economy. Now moving to fee income on Slide 11. I'm pleased with the development we are showing. We are pushing hard to increase our fee income, and for the Q3, fee income has increased. Private Banking showed good results due to market performance. In CIB, we saw good results in Global Markets and Clearance again had a strong quarter as market volatility was high. Fee income for the credit card business is still depressed, and I expect a rebound following easing of lockdown restrictions. Now turning to costs on Slide 12. As you are aware, we expect costs to increase to SEK 5 point €3,000,000,000 this year, excluding incidentals. This is a result of rising AML costs reaching a level of €425,000,000 this year as well as €100,000,000 of additional investments to realize our strategic agenda. We are targeting $700,000,000 cost savings by 2024, and the first savings were realized this quarter. I'd now like to hand over to Tanja. Thank you, Annemieke. Q1 was benign in terms of impairments, especially considering the economic environment. This is mainly due to releases and limited Stage 3 impairments across all business lines. The derisking of CIB non core led to releases, partly offset by limited Stage 3 additions for the oil and gas sector. Turning to Commercial Banking. Due to government support measures, our models observed less credit quality deterioration than you would expect in an economic downturn. Therefore, we further increased the existing management overlay for the impact of COVID-nineteen on clients in vulnerable sectors. In total, we have now taken over $300,000,000 of management overlays. Based on the good start for Q1 and the Expected economic rebound later this year, we expect the full year 2021 cost of risk for the core bank at or below the 2 to cycle cost of risk of 25 basis points to 30 basis points. Impairments for CIB non core remain uncertain, but are expected significantly below the amount that we have seen last year given the good progress on the wind down and the improved outlook on oil, gas and commodity prices. Turning to capital on Slide 14. Our capital position remains very strong with a Basel III CET1 ratio of 17.4% and above the 4 ratio above 15% after absorption of the AML settlement. RWAs increased somewhat this quarter, mainly related to a model review for the oil and gas exposures and a post model adjustment for the impact of COVID-nineteen. These effects offset to a large extent the decline in RWAs from the wind down of CIB non core. The TRIM process is finalized now, which has Significantly close the gap between Basel III and Basel IV. I expect further closure of this gap by year end as we plan to move some portfolios to Basel III foundation and standardized approaches. We also expect the Dutch Hensel Bank Mortgage floor to be imposed later this year. With that, I would like to hand back to Robert. Thank you, Tanja. So let's turn to Slide 15. On this slide, I'll relate the targets we set for 2024 with our current performance on these targets and provide some guidance into 2021. Starting with our return on equity, over Q1 2021, our return was impacted by the AML settlement and therefore this will have a large impact on the expected full year ROE. I am pleased with our mortgage performance this quarter. 17% market share and a very strong market is a good result. A number of initiatives I'll expect to come through in 2021, which will further improve our market share for mortgages and for example, the launch of our low cost mortgage label dedicated to the intermediary market. This quarter, we realized Cost savings, mainly in IT and branch closures, and we do have a clear trajectory to bring costs below $4,700,000,000 by 2024. As Tanya mentioned, we now expect the cost of risk for the core bank at or below the through the cycle range of 20 to 30 bps and CIB non core impairment significantly below last year's level. Our capital position continues to be very strong and we stand ready to pay the full year 20 19 dividend in Q4 again ECB conditions permitting. We will recalibrate the Basel IV threshold for share buybacks at Q4. So to wrap up, with the settlement out of the way, we can now fully focus on our strategic priorities I am pleased with the progress we made this quarter. The wind down of CRB Non Core continues to run ahead of schedule. We took action on deposit margin pressure, further lowering the thresholds for charging negative rates. Expenses are under control and further cost reductions are coming through. We're working hard to increase fee income and this quarter again showed higher fee income. Our capital position remains strong and we stand ready to pay the full year 2019 dividend in Q4. Looking ahead, I expect the economy to rebound as lockdown restrictions ease in the second half of the year. So with that, I'd like to ask the operator to open the call for questions. Thank you, sir. Our first question is from Mr. Wojnar Petrarque of Kepler Cheuvreux. Go ahead please sir. Your line is open. Yes. Good morning everybody. So, yes, two questions on my side. The first one is on the core NII. I was trying to Understand a bit the moving parts into the coming quarters. So we have a EUR 1,300,000,000 figure for the Q1. I mean, I think you keep the €20,000,000 drag per quarter. You talk about a good pipeline on loan growth. We've been talking about deposit repricing and also TLTRO III benefit potentially. So is that fair to assume that This kind of €1,300,000,000 level will start to stabilize and even slightly increase in the coming quarter. Just wanted to have your view on that. And also on the €20,000,000 drag per quarter, we have seen some steepening year to date. I know it's early signs and early movement, but do you keep the €20,000,000 because the economies at ABN are quite bearish On the steepening? Or do you think that's really going to be the kind of best estimate looking at the current curve for the coming quarters? And then the second question was on noncore. And I think you have a different cost of risk guidance clearly. But If I look at the non core, it's now €6,900,000,000 for €1,700,000,000 of Stage 3 and a 64% Correct ratio. I think you mentioned some uncertainty on the non core and cost of risk. But I guess the book is now much smaller and much more under control than a year ago. So I was trying to understand What could be the cost of risk into 2021 and beyond? What could be the Ultimate impairment and cumulative impairment on a €6,900,000,000 book with a 64% coverage ratio. So trying to get a bit of guidance on what is left actually and what is at risk and If you start to become a bit more positive on the final outcome on this portfolio. Thank you. Sure. Well, thanks for your questions. Let me take the First question and I'll ask Tania to comment on your second question. I guess on your first question, look, we'll continue to see NII be impacted by deposit margin pressure, and that sits around that $20,000,000 In terms of your question around The steepening of the curve, we've actually seen the shorter term interest rates, Actually, longer term interest rates improving. We're seeing a bit of a shortening short term interest rates stabilizing. And it actually means that in terms of our own replicating portfolio, the effects will continue to come through of any steepening of a curve at a delay time. So we're going to continue to see pressure on NII, But I also might add that the there's some pressure on NII because of our CIB non core. And we've the building blocks and that would include an estimate of about $10,000,000 on a per quarter basis. It is important to recognize that the We have realized this performance because of the situation in the Netherlands, where Good support has been issued to companies. We have seen, therefore, limited uptake on credit demand. And certainly, as you know, we have an exposure to the Dutch market. At the same time, we're seeing we're positive on Q3 and Q4. So as we saw our loan volume stabilizing by the end of the quarter, which is a good sign, I would absolutely expect The loan volumes again to begin to increase as the economy begins to open up. Tanya, could I ask you to Take the second part. Yes, for sure. Yes, you referred already to the remaining size of the non core For the year, dollars 6,900,000,000 and we're definitely pleased with the good progress that the wind down is making. If you look at the appendix to the presentation, you see as well in the portfolio, dollars 1,100,000,000 is of the remaining Portfolio is in Stage 2. So that is the part of the portfolio that we feel well has an increased risk. So under close watch. And well, that's also where we expect at least some fallout in the coming period. But of course, there's uncertainty around that as well. And I see there also upside in terms of as benefiting from the good liquidity in the market. What you've seen is that over the past period, we have been Successful in selling both performing as well as non performing exposure and within the levels that we feel is appropriate. So that also led to some releases in impairments, for example. And that will definitely also impact the cost of risk number going forward because once we sell assets, we will not have any future impairments on these assets that we sell. So if I look at I said it's difficult to give a guidance in terms of cost of risk given the rapidly declining outstanding balance. But if I would have to say something for this year, Last year was $1,100,000,000 level of impairment. The portfolio has reduced by 60%. And also on a pro rata basis, the guidance will be below that level of 20 20. So hopefully that gives you some feel for the metrics. And while looking at this $1,100,000,000 and assuming that would move to Stage 3, I think then You're looking at mostly upper bound of what the unwinds could cost. Thank you. Could you accelerate a bit the disposals now? Well, of course, we are looking at this on an ongoing basis. As said, the liquidity in the market is good. So if the right opportunities are there, we will definitely do that. And that's what we did with to trade the commodity finance portfolio. Thank you, Rod. Thank you. Our next questions are from Mr. Stefan Nedialkov of Citi. Go ahead sir, your line is open. Thank you. Good morning. It's Stefan Nedialkov Citi, a couple of questions on my end as well. On NII, I was A little bit surprised that the benefit from the negative deposit rates was only €28,000,000 I was Probably looking at something around $40,000,000 I don't know if that was your expectation as well. But if your expectation was indeed higher than the actual this quarter, could you give us some color on what happens? Did you see more meaningful deposit outflows on the back of the negative rates? And just circling back, Deposits were obviously up in 1Q. Is it fair to assume that if negative rates were not imposed, the rebound in deposits Q on Q would have been a lot stronger. Related to that question, is that what drove the deposit margin to be Around 40% more negative versus your guidance, so $28,000,000 versus the $20,000,000 per quarter? Or is that due to some sort of non linearity in your replicating portfolio. So just some color around those two elements and how they are interacting would be very useful. My second question is on your CET1 target of 13% plus 200 basis points for uncertainties. You are kindly indicating that you will be recalibrating in 4Q. It's quite a long way away. Can we just ask a very simple question here? The AML is out of the way. That was around 50 basis points. Does this mean your recalibration Should be at least 50 basis points, so down to 14.5%. And within that 14.5%, how should we think about The priority between M and A, buybacks, dividends and buffers. Thank you. All right. Thanks for your questions. Maybe Annemiek, could you spend on NII? Yes, sure. Your question on deposits, negative charging negative rates that's related to indeed a bit more out close than expected. We saw we can charge EUR 23,000,000,000 more compared to Q4. So that So related to the EUR 28,000,000. While you have expected EUR 40,000,000, but that was not our expectation. But indeed, there was a bit more outflow than On the EUR 20,000,000 on average deposit margin pressure, yes, that's related indeed to the replicated portfolio. And that portfolio consists of short, medium and long term centers. And what you see is that high interest rate investments from a period long ago will mature or are maturing and reinvested against lower rates. And you know that the short term rates have come down. So therefore, the impact This quarter was higher than the EUR 20,000,000 we guided on average. So hopefully, this gives some more background on your Worshong and Aaron. Yes. And on the recalibration of our CET1 thresholds, You're absolutely right. We've always said that the AML is a significant part of the uncertainty that we take into consideration when we established the 200 bps. At Q4, we'll have a full sight of How the year is turning out in terms of the economic uncertainties, which also played a role. Certainly, any potential M and A Continues to factor in our decisions making. And so therefore, at Q4 is the right time to begin to think about the recalibration. And So I wouldn't certainly wouldn't do it any sooner. And at this point, I wouldn't want to give any more kind of specific details, Just really highlight the components of the threshold that we've always talked about. We lost our connection with Stefan during your outlook. Okay. Stefan, are you still there? No, you have to redial and join the call again. I'm going to put through the next question and that's Omar Fall from Barclays. Go ahead, sir. Your line is open. Good morning. Just two questions. So my first one is around Communication and the budgeting that's ongoing at the group. So on the You told us that the deposit margins would have a €20,000,000 negative impact per quarter when you first set that guidance last Yes. But you said that when swap rates were at their lows, certainly medium term, tenor ones and the shorter term ones 1 far off where they are now. So the rate environment has gone worse since. And unlike others in the sector, you haven't actually had a huge jump in pandemic led deposits, yet we're here and the impact has been worse than that 20 for 3 quarters in a row and materially slow at closer to $30,000,000 for the last two quarters. And that difference in magnitude on an to on an annualized basis, that's almost 10% of consensus earnings. So it's not just a rounding or fluctuation problem as you've called it. So why is it that you have such low visibility on the replication portfolio? And why is it that the bank struggle so much to Consistently meet near term guidance. Then the second question is just a simple one. Following the sale of the TCF for the €900,000,000 Could you just update us on where you expect the non core loan book to end up at year end now, please? Thank you. Yes. So on your first question, we've used the replicating portfolios for quite some time. And We've always said there is a the way the replicating portfolio translates back into that short term guidance can vary. We still, at this point, see no reason to adjust the $20,000,000 based on what we know about the replicating portfolios And our current estimates. That doesn't mean that during a quarter, the actual results could vary. Maybe, Tanya, your question on the core? On the non core portfolio, yes, We do expect a further reduction. And as mentioned, the reduction, if we just assume Repayments scheduled repayments, the speed will come down and therefore only Well, a limited reduction towards year end, but assuming, well, other steps as we have been taking before, It could be a more significant reduction towards year end. So yes, there's Yes, uncertainty around this. And of course, we will only accelerate if that is at the right conditions. So it's hard for me to give a number. But I can say that we actively work on this and we make sure as well that the actions that we take are capital accretive. Okay. And just as a quick follow-up, I understand your point on the deposit margin guidance that it can fluctuate, but It's only fluctuated in one direction since you gave the guidance. I would have thought that they'd be sometimes up, sometimes down, but that doesn't seem to have Been the case. And I'm just trying to understand why that is. No, and I appreciate that. And it's when we do the analysis, Review the replicating portfolios as they come into the portfolios. We still find the 20 to be the right number, given the longer term outlooks that we have. Thank you. Next question is from Tawatan Majed of Bank of America. Go ahead. Your line is open. Hi, good morning. Just two quick questions, please. I will just come back to the recalibration of the 15% threshold. I understand you still want to have better visibility on the upcoming uncertainties. But If you have to prioritize or to rank, sorry, the concerns you had in terms of economic, A and L And regulation and so on. How would you rank these? And second question is on fee income. So So we have in mind this EUR 400,000,000 kind of run rate you've been above in Q1. So how should we think about this Run rate, given you sound quite optimistic about growth from the economic reopening in the second part of the year and maybe payments will also pick up with that and so on. So could you maybe just refresh for us this guidance? Thank you. Yes, thanks for your question. And I appreciate the question in terms of putting a priority on the components. Clearly, the AML Settlement is important to us and we'd almost forget about it. But this was an important event for the bank and important in terms of Taking care of uncertainties as we define the 200 bps thresholds that we came up with. I really wouldn't want to prioritize any other component in there for the simple reason that, a, economic conditions are what they are, and we'll have to see how they continue to play out. Although there is indeed an optimism, uncertainty on my side as to how Q3 and Q4 could potentially turn out. But also M and A is important to the strategy of the bank. So that will be factored into the considerations as well. So I'd rather not prioritize Any of the components, I do think it's incumbent on us to take a thorough look at the different components and then come up with the recalibration at Q4. And in terms of your sorry, your second question on fee income, Yes, and I appreciate your question, particularly as we have shown again a strong quarter on fees. We're ending up above the guidance actually. I'd still say as long as we're in lockdowns, we would continue to guide below 400,000,000 What's important now is we've seen improved performance on the clearing side, clearly benefiting from market conditions. Also, in markets and CRB, we've seen good performance. The private bank has shown a good performance, again, consistent also with the strategy, Well, we've continued to emphasize the transfer to fee income as well. On the retail side, Fee income has been muted for the very obvious reasons that any credit card activity is still very much low and particularly at times of lockdowns as low as minus 50%. So, as soon as the economy begins to pick up again, which again, based on what we know now and based on the speed of vaccinations, should well be in Q3, Q4. That could potentially change, but for now, we will continue to guide below the $400,000,000 for the reasons that I've just indicated. Thank you very much. Next question from Julia Miyamoto of Morgan Stanley. Go ahead please. Yes, hi, good morning. And a couple of questions from my side as well. So the first one on the market share movement to move in mortgages. That's quite some change, 14% come to 17%. So I'm wondering from a competitive motivated. What is changing and how are you achieving this higher market share? Is it a better offering? Is it a lower price? Is with some context or retrenching. Any color there to be increasing? And then second one, On the €5,000,000,000 add on that you expected from the DNB, so you have a clear indication that this is coming by 2021? Or is that your working function, but actually could be delayed further. Thank you. Yes. Tanya, I'll ask you to take that second question. Indeed, on your first question, we're actually very pleased with the increase in market share to 17%. It's reflective of a number of things. A, it's very reflective of our competitive position in the mortgage market in the Netherlands. We've seen volumes in mortgages come up also for Avian AMRO and then all of that in a competitive environment. Much of that Increase is due to the fact that we've invested in capacity in our mid office to ensure that we can quickly respond to questions and to requests on mortgages out of the market, whether that's through our intermediaries or otherwise. We indicated before that we would emphasize this particular segment for Avian AMRO. It's a strength of Avian AMRO. It always has been. It's good to see that we're seeing the immediate effects now also in this quarter. The other part of this is that we continue to upgrade our service offerings in the mortgage markets. So we are now launching mortgages to entrepreneurs in a digital capability. So that's also, again, quick transition from demand to the actual mortgage. So in the whole, We are repositioning ourselves, settling on the demand that customers put on us in terms of speed, And we're seeing that playing out right now. Tanya, maybe on the Yes, on the DNB mortgage floor. Well, as you know, that was planned to be introduced last year, and it was postponed in light of COVID-nineteen. And yes, of course, it's hard to say whether that will be introduced reintroduced this year or not or later. But in light of the increase in house prices, we do believe that it's prudent to Assume that this will come back at some point, and therefore, we include it in our projections. Thank you. Our next question is from Ms. Anke Rijingen of RBC Capital Markets. Go ahead, please. Yes, thank you very much. Just one question is on the potential benefit of TLTRO. Thiago, just confirming, would that be on a larger balance than the EUR 32,000,000,000, be more like EUR 35,000,000,000 where we could see the benefit? And then just on the capital, and I understand the point that you want to get more certainty with Q4 and economic. But just conceptually, are we talking I mean, the 30% is your target. Are we talking buffer on buffer to keep your flexibility for M and A. And also, is there anything you can share with us in terms of directed buyback from the government. Thank you very much. Thank you. Thank you for your questions. TL2O and Amica, could you take that question? And I'll take that. Yes, sure. For the next period, an extension of The terms by 12 months is based upon the new hurdle. We have currently SEK 32,000,000,000 and we are allowed to increase that to SEK 35,000,000,000, but we haven't yet decided on our participation in this scheme. Okay. And yes, on your question around capital, We just trying to understand your question. Was your question whether we're still allowing for M and A in the buffer? Yes. It's like I mean, you have a target of 13% and you're talking about recolorizing the 15% down. Why wouldn't it be the 13% Basically, because you would have a buffer on the 13% for acquisitions or just trying conceptually to understand Yes, the buffer on buffer concept. And then, yes, if buying back shares from the government could be an option as well and how you invest the capital, is this included in your buyback plan basically? Thank you. Sure. Yes, we've determined that 13% to be a base at which we're comfortable running the bank. So That's coming off of what we know around our previous CET1 core ratios. So therefore, the 15%, again, as we communicated previously, included any potential buffer for the components we've been talking about. So as we said before, the AML has been taken out of that buffer, that uncertainty, if you will. And therefore M and A is coming out of this particular buffer. That is the way we've always looked at it. In terms of the government's role or the major shareholders role in terms of buybacks, again, let us first do Any recalibration, we will then determine if and when we would do buybacks and that's when the process really then starts, as you would in any of these cases. So it is, 1st of all, determining how we recalibrate And then we take decisions any potential decisions on buybacks. Thank you very much. Our following question is from Mr. Johan Scholff of Morningstar. Go ahead please. Your line is open. Hi, good morning guys. Thanks for taking my question. Just two quick ones. On Slide 3, it kind of struck me that you qualified that the ALM settlement is essentially, if I understand it correctly, limited to your Dutch activities and for the period 2014 to 2020. I was just wondering if there's Any sort of risk of additional settlements outside of that scope? And then secondly, just quickly on lending spreads, could you maybe give Just a bit more color, how you see the future evolving on lending spreads, especially in the current environment, where you're starting to see steeper yield curve and whether that would have an impact on competitors and client behavior. Thank you very much. All right. Thank you for your questions. On the yes, on the settlement, what we've included here is exactly what the investigation covered. So it was the period 2014 to 2020 and it was related to our Dutch operations. So that's what we settled on. There was no other investigation. That was the investigation and that was the scope of the investigation. Yes, in terms of your questioning, again, on the effects of lending and potential steepening of the curves, Right now, what we're seeing is interest rates longer term interest rates deepening, shorter term interest rates stabilizing. And it's a Clearly, a situation that we'll continue to monitor very closely in terms of pricing, where we want to price at the right levels as we've always done. We do that consistently taking into consideration our own risk profiles, competitive positioning. So it doesn't change our behavior. We will consistently look for the right levels of pricing, We do keep very close to market dynamics. Thank you. Following question is from Mr. Thomas Zwafsmas of Goldman Sachs. Go ahead, please. Your line is open. Yes. Thank you. Good morning and thank you for the presentation. So I have first question on capital, please. Can I confirm with you that the Basel III CET1 went down on the quarter, but the battle for CET1 went up given what the tangible equity did and what your volumes did as well? And I was wondering whether you would like to share with us whether this battle for CET1 is now Close to 16% or 15% since you have been showing it above 15% at least for the last two quarters. And then my second question is on the non core unit. So If I step back and look at when you announced the plan a few quarters ago, obviously, you're going much faster and plan, which is negative for NII, fees probably, etcetera. But could I confirm with you that the level The provisions you have budgeted at the time was indeed much higher than what you're seeing now and that therefore the overall Capital impact or capital accretion from the disposals is much higher than you had planned originally. Thank you. Thank you. Could I ask Tanja, could you ask the take the capital questions? Yes, For sure. And indeed, our Basel III is impacted by model updates as Also in the provided in the presentation, Basel IV is impacted less, but still there is some impact. And you need to think of Basel IV CET1 levels to be about at the same level as the last quarter. So that about that aspect, Do you want me to answer the question on CIB non core as well? And then I'll focus on the impairment levels. Indeed, we assumed the non core wind down to be capital accretive. And So far, impairments have been below the levels that we had anticipated. So that is a positive. And also our outlook is more positive than we initially budgeted. So From that point of view, we feel that the capital accretion should be more positive than initially assumed. Thank you. And can I just quickly confirm that the level of the Basel IV CET1, is it closer to 16% or 15%? Thank you. Well, we say above 15% and we are reluctant to Be More, besides, as you know, this is a regulation that is where the implementation rules are not fully clear yet. The European Commission will Decide on that in September 2021. So our calculations are an educated estimate and I don't want to create this feel of Well, the preciseness that you're looking for. So let's await what the European Commission is coming with. And then we are probably also able to come with more precise numbers. Understood. Thank you, Tanja. Our next question is from Mr. Guillaume Tibersim of Exane BNP Paribas. Go ahead, please. Your line is open. Yes, good morning. Just two precisions, please. One is on the TLTRO. How would you account precisely of the benefit, if you mean the threshold. And then the second one relates to the recalibration and the dividend payment. When you say At Q4, do you mean during calendar Q4 or when you publish Q4 in February next year? Thank you. Yes. So on maybe both your questions, we account for any benefits when we know and we're fairly sure that we would recognize the benefit. That's when we would account for it. And as to your second question, that would be at Q4, so that means beginning of February beginning of 2022. Okay. Just for the TLTRO, you mean you would book a one off gain or spread over a number of years? Annemieke, would you? Yes. I can answer that one, Robert. We will add the benchmark period is till the end of number. So then we are sure that we can book the benefit for this year, so for 2 quarters in Q4. And then, of course, we are recorded for the additional quarters in 2022, but that will be done in 2022. Okay. That's clear now. Okay. Thank you. Our next question is from Mr. Jason Kalamboussis of KBC Securities. Go ahead, sir. Your line is open. Yes. Hi, good morning. I just got a couple of follow ups. The first one is the $400,000,000 you're continuing with the guidance that is below $400,000,000 in the fees and commissions. Assuming a better economic outlook in the second half and things picking up just after the summer, normally already in Q3, we should be having The credit card usage that should be at much better levels. And as you said, I mean, it's down 50%. So I would have expected that this below €400,000,000 guidance is possibly one for the Q2, but normally Q3, Q4 We should be at a much better level, except if there are other elements in which you have doubts within your fees and commissions. That was the first question. The second one is, when I'm looking at the NII, just a follow-up on what was said before. Indeed, in Q3, instead of minus 20, you have minus 28,000,000 for Q1, same thing. But also on CIB non core wind down, you had minus 15 on both rather than minus 10. Especially on the CIB non core wind down, is that fair to assume that Therefore, we may have a compensating element in the coming quarters. So we may be actually better than the minus €10,000,000 And a quick third one. On the 15%, I mean, yes, the AML sign is about 0.5%. Hopefully, you had assumed a bit more as a buffer, so possibly 1%. But I just wanted I mean, I understand that we'll have to wait for Q4 for us to give us a precise number, but I just wanted to have an early question, how do you think about M and A? Do you think that now that you have the AML Fine. Your priority is more around capital distributions? Or do you want to start thinking about being slightly bolder on what you would do as what you Consider us M and A, so a bit bigger bolt on if you want, notably on the Private Banking. Thank you very much. All right. Thanks for your questions. Look, on the credit card sorry, on the credit card, on your question around fees, we have guided consistently during lockdowns We'll see what happens in Q3, Q4 as the economy begins to open up. And we absolutely would expect consumer behavior and spending behavior to change and therefore credit card fees to begin to increase again. We will take a look at that time and see exactly what that happens. And until that such time, I think it's only fair to maintain the guidance that we currently have. But again, Q3, Q4 should begin to see the opening up of the economy and the associated usage of credit cards and therefore the realized fees. As to your question on AML In relation to maybe reprioritizing capital distributions versus M and A, Look, I've been CEO now for a year. I've very clearly from the outset indicated that I fully appreciate the need for capital distribution. That is the reason why we kept 2019 accrued. It is also the reason why we're being clear today as to where we stand in terms of our 2019 dividend. I've also said that it's important for this bank to be able to execute a strategy. Strategy was predicated on our own core strengths, and we've said we would always Target any or review any M and A opportunity if and when it presents itself. And certainly, over the last couple of quarters, I've been very clear in what area of the bank we feel that could be accretive and beneficial to the future of our bank. So I would continue to state that. So both the understanding and the requirement of capital distribution back to shareholders as well as when the opportunity presents itself to enable us to act in the core part of our strategy. And so I'll maintain a focus on potential M and A focused around private bank activities and at the same time continue to review the potential for capital distributions. Did that answer your Very clear. Thank you very much. And just And this year, the non core wind down impact on the NII? I can answer that one more. Yes, of course. We guided Indeed, minus 10 per quarter, and it was indeed 2x minus 15. And further ahead, we still keep the guidance of minus 10% because it's really depending on opportunities to wind down further. So the guidance is still minus 10%. Very good. Thank you very much. And we have Mr. Stefan Nedialkov Back on the line again, go ahead please sir. Your line is open. Hi, thank you. Just a quick follow-up on Basel IV. So the EU Commission will come with final proposals this year. And from what we hear, The discussion of the parallel stack versus the single stack approach is very much alive. If we believe some of the banks In Europe, what is your view? Is the parallel versus the single stack question a live question? And how are you guys impacted by this? What do you include in your Basel IV inflation, a parallel approach or a single approach? And what's the sensitivity if the EU Commission goes one way or the other? Thank you. Tanja? Yes. I must say, I don't have the details at hand for that. I don't know, Annemieke, whether you are up to date on that topic? I think we can pick this up with the IR team after the call, if you'd like. This concludes the call. Sure. Thank you. We'll make sure we come back to you on that one. Yes. You can still press star 1 for your questions or remarks. Go ahead please. We have a question from Mr. Kiri Vijay Arya of HSBC. Go ahead. Your line is open. Yes. Good morning, everyone. Just a couple of questions from my side, mainly on the volume side. So firstly, coming back to the PLTRO volume threshold, you're sounding quite confident for the second half of this year. But I'm wondering, which specific portfolios do you think are going to deliver the growth to get you over the line next Where's the delta versus the last measurement period? Because I've seen with one of your Dutch peers, they relied quite heavily on the wholesale bank short term lending to hit their TLTR volume threshold, so should we expect something similar from you? And then on your sustainability volumes And that you show on Slide 6, very helpful slide, by the way. But am I reading that right that you're expecting to go backwards in the CV loans And the mortgage loans in terms of the sustainability share between now and the end of the year. So what's driving that backward mode. Move, please, on some of those percentages you show on Slide 6. Thank you. So on the Yes. So on your question on Taltros, typically, if we when we see the economies tick in, we would expect On our Dutch, as you know, we have an exposure to the Dutch economy. We'd expect the credit activity for the corporates and the SMEs to increase. So we would expect then the loan book to continue to increase again. And again, that's advantageous and that works in our favor in terms of our Telstra. As to your I'm looking at the slide. Yes. So just the sustainable loans, you're at 1Q, you're at 14% say on the CB loans, then that falls to 11% by the end of the year. Am I reading that right? Yes, we're actually we're detailing the targets here and actuals reported. Yes. So you're ahead okay, right, right. Okay. Not that you're going to get okay. Sorry, misunderstood. Thank you. Yes. That's why I just wanted to make sure I understood the question. Thanks. Got it. Thanks. Our next question is from Mr. Robin van den Broek, Maybe, Obanca, go ahead please. Your line is open. Yes. Good morning, everybody. Maybe first of all, could you update us on the progress Facilities back of the headquarters' plans. Is it still in the phase of printing brochures? Or could we expect anything over the next few months? And in connection to that, I mean that we've seen press rumors about the indicative pricing there that could be like €1,000,000,000 You said your book value is €250,000,000 so that would imply a capital gain of €750,000,000 But I've also heard that you might have to deduct The cost of the lease basically within the determination of the capital gain for CityOne Capital. I'm just wondering if you could Explain the dynamics around that a little bit more carefully. Next to that, on flexible credit, On the consumer side, there's been an adverse IFRS ruling, as you, of course, know. And you've indicated that your intention is Come to a broader compensation scheme. I think you want to go to court to find the right parameters for such an approach. I was just wondering, I know you are you have some provisions for that, but I'm assuming that those provisions are mainly in place for active key fit files running Or do you also have a more collective provisioning already? And lastly, I think during the pre earnings call, you indicated that there could be Knock on effects for capital on operational risk, RWAs, in relation to the AML file. Can you just confirm that, that's now baked in? Or could we see some further effects later on? Thank you. Yes. I'll ask Tanya to comment on KIFET and on the RWA, and I'll take the sale and leaseback. So Tanya, go ahead. Yes. So on the Indeed, the KIFI ruling with respect to consumer loads with a variable rate. Yes, we indeed, as you mentioned, we have some provisions for indeed active KIFID files. We have communicated before that we do not agree with this KIFID ruling and We're taking several complaint cases to the civil court. And that's something we have now decided to hold this process for 3 months to Explore talks with Dutch Consumers Association, as you were alluding to. And both for civil cases as well as for these Explorative talks that we are having, we haven't taken any provisions as we cannot make a reliable estimate at this time. So I think that probably answers your question. On the AML settlement, indeed, it does have an impact on operational risk capital as well. For Basel III, that was already mostly included given that We work there with scenarios and we have updated our scenarios already in the past. So we don't expect any significant change there as a consequence of The settlement for Basel IV, the approach for operational risk is based on historic operational losses. And there we have already included the impact of the AML fine. So that means that what I Before on the level for Basel IV, the impact of operational risk is included In our number that is above 15%. Thank you, Tania. And in terms of your questions on the sale and leaseback, let me just say that I will confirm the book value and we expect to have that Transaction, we're looking for completion toward the end of the year, and I think that's the time where we'll give you more details on the transaction. We have a follow-up question from Mr. Romain Petrarque of Kepler Cheuvreux. Go ahead. Your line is open. Yes. Actually, 2 follow-up questions. The first one was on the head office, if the gain will be included in the calculation of the EPS for for the dividend. And then just the on the cost base, so you guided for less than €4,700,000,000 by end of 2024. But obviously, the non core wind down is accelerating. Any views on the Speed of the cost reduction on the non core, if that could be a bit earlier than expected based on the pretty strong developments year to date? Thank you. Yes, thanks for the questions. Again, just on the sale leaseback, we'll make any further calculations at the time when we know when the transaction is completed and we have the details. On the yes, on your comment about the wind down, we're pleased with the The speed of the wind down and therefore, it will drive a it will necessitate also on our side and certainly in 22 to continue to actively review our cost levels associated with the wind down as well. And because it is accelerating, we will look to identify, Fine. We'll do it in a responsible manner. What I'd like to just emphasize is we're talking about an orderly wind down, And that means that we whilst we would always look for any opportunities to accelerate not only the wind down, but also to bring down the associated cost levels, We would do that at a responsible manner, so that we can continue to ensure an orderly wind down even as we start getting into the tail end of the book. Okay. Thank you. We have a follow-up question from Ms. Anke Rijndchen of RBC Capital Markets. Go ahead please. Yes. Thank you very much. I just wanted to follow-up on your targets on sustainability, The share of the weighting on the CIB loans, obviously, quite a large, I mean, up to 25%, 27% is obviously quite a large Sure. Do you think given the focus of a lot of these banks on of the banks on expanding their sustainable loans that Is the profitability or I mean the margin lower on the sustainable loans, but potentially If there is an increase in risk weighted assets on Brown assets, so to call, the profitability will be higher or even or at least the same? Thank you very much. Yes. Without going into too much detail in terms of the individual pricing on these loans, what we're actually seeing is there is a huge demand for this type of for these types of loans. So it's clearly the bank emphasizing a strategic direction, but it's also very much answering a market driven demand as well. And so that allows for continued competitive pricing as I would expect to occur also in these sustainable loans. I do think it is encouraging to see that even in a time where We consider ourselves in a COVID-nineteen pandemic. And yes, there is some light at the end of the tunnel through the end of this year. Even during that time, we've seen continued demand for these types of loans. So I would expect normal competitive pricing to continue. Interesting. Thank you. We have no further questions, sir. Please continue. Okay. Well, if there's no further questions, I'd like to thank everyone for participating. Really look forward to speaking to many of you very soon. And for now, goodbye and have a great day. This concludes the ABN AMRO Quarter 1 2021 Analyst Investor Call. Thank you for your attention. You may now disconnect your lines.