Morning, everyone. I'm pleased to be joined today by the CFO of ABN . Thank you, Ferdinand, for being with us.
Thank you, Giulia.
Let's start with the polling questions before we start our first chat. What ROTE do you expect ABN to target with the new strategic plan, which will be presented in the second half? Below 10, 10, 11, 12, 13, and above 13. 12, but between 11 and 13, I would say, is the range. Okay, would you like to share any comments?
You know, my firm belief in the wisdom of the crowd. Looking at this, to put it in perspective, at the moment, you're well aware we have targets for 2026. That's an ROE of 9-10%. That's also part of our current strategic planning. Improving ROE is top of mind. It is really looking at, on one element, is organic growth, responsible growth. Number two element clearly in this is cost management. I think we discussed that a lot. Number three, where you start to see the benefit from, is capital optimization. You've seen in the past two quarters what is coming through, really to the effect of improvements in data. Secondly, also more active portfolio management. You're well aware a new CEO is coming in. It is too early to start commenting on longer-term financial targets.
For sure, with an implied cost of equity where it is, I'm fully aware that's where what we should deliver and where the ambition should be. For sure, the ambition on the longer term should be above the 10%. I think the reflection here on the longer term should not be unrealistic.
Thank you. Perhaps if I can follow up on that. Marguerite Bérard, your new CEO, I understand, of course, you can't comment on targets, but just strategically, what strategic change do you expect her to bring to the bank?
Yeah, it's early. She will be officially presented at our AGM in, I think, four weeks from now. I got to know her as inspiring, very eager to start. I think for any organization with an incoming CEO, a CEO brings own experiences, own outside perspective, and also ambition. I think in her case as well, it's very clear what we need to focus on. She knows the European banking sector quite well. She knows the regulator. She very well knows, after being a banking executive for 20 years, what shareholder value is. From that perspective, I think we get an incoming CEO, which comes in quite fast and really sort of picking up the steering wheel. I'm really looking forward to work with her. I think it's too soon now. Let's give her some time after the AGM to start.
I'm really looking forward to work with her. I'm very happy that the whole process of finding a successor for Robert has gone quite smoothly.
Thank you. Let's start talking about NII. ABN, and the market really has not cast the one and a half key savings rate in the Netherlands yet. I know it's competitive, you cannot comment, et cetera. Is there anything from a government regulatory standpoint which is preventing you to cut it, or is it just down to competition?
Yeah, it's funny you ask that. There are always questions about pricing. Do you feel pressure from either the regulator? Do you feel pressure from the government in the Netherlands? Or do you feel pressure from still your larger shareholder indirectly being the government? Absolutely not. We can set interest rates completely free from debtors, no pressure. Is the market competitive? For sure, the market is competitive. Is there a difference between the incumbent banks? I think 80% of the deposits are with the incumbent banks. They're sort of at the same level. Sometimes the headline is a bit different, but then it's kept until a certain level. You said already forward-looking expectations or statements. The vast majority of the deposits for us is in the Netherlands. We cannot comment on that.
What we try to do in being helpful is setting an NII range where you can have your own assumptions. If you look at the NII outlook for this year, the bottom end of the range assumes that the savings rate stays at a 1.5% level without any changes. The higher end of the NII range assumes that the yield of our replicating portfolio stays at the same level. That is maybe also linked there. What you have seen in the market, you have seen quite a trending back from savings rate from the challenger banks who price on the back of a beta versus the ECB rate. For us as incumbent banks, we really manage the pricing on the back of the yield of our replicating portfolio.
If you look at that perspective, we're still above historic margins, so still comfortable where we are.
Thank you. If I can follow up, perhaps the other thing aside from deposit pricing is the curve, which has moved up quite a bit following the German fiscal stimulus. How is that impacting your NII guidance?
As always, when you start providing, there's always so much ask from what is the sensitivity to what. I think we're more helpful. We're following the examples of some others in sort of mapping the sensitivity there. Our sensitivity, when we set the guidance, was on the forward curve of January. Have you seen quite a significant steepening? We're also quite transparent. If you look at the replicating portfolio, roughly 40-45% is priced at a duration less than one year. For sure, you will see in 2025 at the short end compared to 2024 being impacted. For the outer years after that, the steepening is going to be a clear benefit if it stays where it is. I see the positive impact more on 2026, 2027, and the years after than that you will see immediately a significant benefit already in 2025.
Still, it's helpful not only for the replicating portfolio, but also if you separate that for our invested equity position, where the duration is a bit longer, where you have a little bit more flexibility to increase the duration.
Perfect. Just to finish the topic of NII, if we look at loan growth and deposit growth clearly, can you remind us what assumptions you have in your base case and how is it going year to date, perhaps?
Yeah, and it's also evolving. If you look at how we operate in mature and mature markets. If I look at last year, our overall loan growth was in line with what we sort of guided for, slightly above GDP. GDP in the Netherlands was relatively resilient. It was around 0.8-0.9%. I think our overall loan growth was like 1.2%. That included some more active wind down of businesses and portfolio sales. If you look underlying, where have we seen much more significant growth, that was in our mortgage book. The overall mortgage market, the new production in the Netherlands was up 25% last year. For us, it was up 50%. We significantly increased our overall market share. That momentum is being sustained. If I look now in Q1 of this year, house prices are still in positive momentum.
If you look at the amount of transactions, they are positive. If I look at corporate loans, clearly, we've been in our expectations more modest. Really, the Netherlands is where the majority of our loan book is. We are an export country. With the first and second order effect of tariffs, we'll definitely have a potential risk on the outlook. On the other hand, what you see happening now on the back of the U.S., how fast Europe is proactively getting together. If you see how fast the fiscal stimulus, for example, in Germany is happening, it's also changing the perspective a little bit. 8% of Dutch exports are to the U.S., but 20% of the exports are towards Germany. Overall, I definitely see the geopolitical risk and modest in the outlook.
If you see at the latest evolvements here, you can also have a case to become more optimistic. The last portfolio, I think, is consumer loans. For us, also, there is a very strict lending criteria. Also, the huge savings rate in the Netherlands is a very small portfolio, so it will not really move the needle. Lastly, in terms of deposits, also there, looking at the trends, deposits have been fairly stable last year. Specifically, the migration from savings to term, you see term coming back to savings. Overall, we do expect deposit growth quite healthy, a bit above GDP levels.
Thank you. Perhaps to follow up before I move to fees, you mentioned the German stimulus and the Netherlands needs to increase or wants to increase defense from 1.9% to 3.5% of GDP. What concrete, have you seen any concrete opportunity from ABN already?
Yes, you're fully right. If you look, for example, to put a quantification to that, going to the 3.5% means like defense spending, I think, from roughly EUR 22 billion to EUR 40 billion, right? It is a significant lift up. What we have been doing over the past year, how do we critically look at our internal policies, both in terms of financing dual-use companies? How do we look at our investment criteria for wealth management? What is under your ESG policies excluded or not? Changes have been made there. We as a bank are also there to support that potential growth. I think also that comes back to a discussion we had earlier as well.
I think a topic for everyone, what is really happening now on the back of US, which you're coming together and really also facilitate potentially the enormous amount of financing what needs to be done in Europe, which can go up to EUR 1 trillion annually, which cannot be on the back of a 70% bank financing. All the steps and what you're hearing now, more goings to facilitating a better framework for securitisation, potentially now with the news from yesterday, a first step towards the Capital Markets Union, are a very important step to also as Europe being able to capture part of this growth and finance this growth. Yes, there are opportunities, but defense spending per se, a lot of defense technology is still important, right? It is also there. We need to find the right balance.
Thank you. I'll move on now to fees, enough on NII. You have a 3-5% target on the fee line, but ABN did much better in 2024. You grew 7%. First of all, what are the main levers to grow 3-5%, but why shouldn't you grow more than 3-5%?
Yeah, you're fully right. If you look at last year, I think you always try to provide a realistic compound annual growth rate over a longer period of time. For sure, you can have one year 7%. It's not that an annual 3-5% is what we expect. You should always take into account that you always have a link towards the financial market performance, right? We are transitioning more into wealth management. Assets under management has a direct link to the performance of the fees you get towards financial markets. If you look at our clearing business, where we had almost a record fee income last year, really dependent on the volatility in the market.
To place it into context, yes, it's 7%, but you should take into account a little bit more the volatility for the cycle on the back of the performance of financial markets. That's one remark. The second remark is, yes, where we should clearly improve is, number one, the cross-sell on our lending relationships to improve the return. Number two is looking at other fee-related initiatives and growth. An example there is the acquisition of Hauck Aufhäuser Lampe, which hopefully we're going to conclude that transaction at the start of Q1. You still see the opportunity to increase deposit pricing in the Netherlands. In the European context, it's still quite low. At the start of the year, we announced our annual increase to, I think it's EUR 3.75 for a basic package.
There is also still a lot of things we can do internally ourselves to look at fee income. It is really steering the organization on M&A growth in wealth management, cross-sell with the clients, and also doing the smart acquisitions like BUX, which is a neob roker, really get deposits into investment accounts.
If I can follow up, the wealth management business you acquired in Germany should close in Q2, I think. What is your vision for this business and how quickly can it be integrated into ABN?
Yeah, it's still our we're waiting for the final regulatory approvals. We said we expect that in Q2. That is also when you will start seeing it reflecting in our capital for that. They published or Hauck Aufhäuser Lampe published their results, I think, two days ago. There, you're seeing very positive momentum in terms of net profit, I think, plus 19% or 20% and top line plus 5%. The momentum there is good. Of course, you can only start integrating after the approval, but clearly we have a parallel workstream we can start after approval ASAP. I think the complementary with our existing Bethmann business in Germany makes it easier because they're really focused on the same targeting client segments. It's wealth management, but also really financing privately owned companies.
In our communication to the market when we acquired it, besides the acquisition price being attractive at one times price to book, we expect on the back of cost synergies of like EUR 60 million annually to have a return on invested capital of 15%. It does not take into account any revenue synergies from the transaction. Of course, it will take time to get the full run rate of synergies in. I would say that would take roughly three years. I think the integration and the parallel workstream are really ready to make progress there directly after the expected approval.
Very clear. Thank you.
The most important thing here is, Giulia, it is what I said earlier, it is the transition. If there are bolt-on opportunities in the countries where we are, economies of scale like Hauck Aufhäuser Lampe brings us directly into a solid number three position in wealth management in Germany. Also there for us, it is a key part of the strategy's organic growth. If there are bolt-on acquisitions specifically in wealth management, what we can finance out of excess capital, we will look at it.
Anything on the radar?
No. It is also anything on the radar. I always say now you need to look at two things. We do not have a specific buffer for M&A, but we use the half an hour target. You always look 12 months forward at your own capital planning. As you said, sometimes there are more opportunities, but we look number one through the strategic lens. Does it accelerate our existing strategy in the existing locations where we are to the existing defined client segments? Secondly, it is financially. We need to explain it here to the audience. If you do a transaction that is attractive enough in terms of accretion, and you always get the benchmark versus where your valuation is, how accretive is the share buyback. You need to explain it financially.
Number three is how successful at the end of the day are you being able to integrate a business and ensure you have the retention of the key clients and the key personnel. With one transaction now in full execution, I'm not a firm believer that you should have too many parallel transactions at the same time because you don't have the IT benefits to cope with that.
Makes sense. If I can then move on to cost. The Q4 exit rate was EUR 1.35 billion roughly per quarter, which annualizes to EUR 5.5 billion. ABN has got a target of EUR 5.3 billion for 2025. The bank just hired 700 people in the second half, if I'm correct, especially for data AML purposes. How confident are you on really lowering the cost number, especially in the second half of the year?
Yeah. I'm laughing a bit because I was just looking at consensus from analysts, and they're always higher than the guidance we provide. I should look critically at myself. How do you get at least the credibility in order to deliver on your cost, Giulia? I understand your question. For sure, if you look at the run rate in Q4, you will end up higher than we ended up. I think it was extremely important for me for the first full year as CFO, at least at the guidance and the targets you provide to the market, that you really deliver on that and really steer on that. You can be skeptical, yes, 5.349, but at least the whole organization should know we need to deliver on the round that 5.3 we communicated.
Part of the run rate in Q4 was more of a one-off nature. That was the acquisition cost and all the advisory costs there. Also, some renegotiation of IT contract, which will provide benefits later on. It is not the run rate is a little bit lower than what you just said. For sure, for the coming quarters, the run rate needs to come down. It is really on the back of delivery on all the many regulatory programs we have in parallel, really delivering on our data management and data infrastructure that we can start scaling down FTEs, really sort of forcing the organization down from expensive contractors and consultants, really getting our AML and KYC unit more in the BAU situation that we can start implementing automation and risk-based approach.
Lastly, it's also more generic if you look at the implementation of your successful use cases in GenAI. I think we have already many initiatives, for example, in our customer care and operations. We have already for our ICS credit card business now a voice bot which autonomously handles 40% of all incoming calls. I see more opportunities there as well. Yes, I think there are enough opportunities there to deliver on that. Now it's really quarter after quarter ensuring that also your run rate of the cost base is coming down. You can also become more comfortable that we will deliver on that.
If we expand on the cost topic, you are one of the top three banks in the Netherlands with 20%+ market share with only 25 branches, which is quite incredible in itself. The further cost cuts do not come from branches clearly.
For some of you here as well, it is sometimes a surprise for some if you talk about ABN AMRO from the re-IPO in 2015 with 500-600 branches that you are now at 25 branches. The cost reduction is not really in closing down branches. I think we made a huge process and all our daily banking services are digital or remotely available, even where you need the personal contact like selling mortgages. Ninety-five percent of the mortgage discussions are going via video banking.
The real benefit in terms of costs comes when you really start digitizing the whole process behind the front end of your organization because you can close the branches. On the other hand, we significantly scaled up our customer care and operation units, which still handles all the incoming flow. The efficiency should come from digitalizing your processes so you can run it effectively and cheaper, but that requires investment. Number two is really starting implementing GenAI and other measures in order to scale down your FTE load on your customer care and operations. Yes, the first step is done, but now the second step in getting a more cheaper run organization should follow.
Thank you. I now want to talk about capital. In my understanding, the final model migration should happen in Q1 with the 3-5 billion expected of further RWA inflation.
Are you confident this is the end and we don't get any further negative surprises?
You're mentioning already two important elements. For many investors, I'm fully aware of that. It has been in the previous huge past frustrating, the enormous unpredictability and increase in RWAs we've seen on the back of additional RWA model add-ons or a transition to more simplified approaches. We've gone through that whole process and we said at Q4 we're almost there with having our credit risk model on our ultimate approaches where we want it to be. Our last submission is done in Q1. The impact of the last submission, we quantified that in being EUR 3 billion to EUR 5 billion, and you will see that in Q1. The other important element, but that's for all banks, everyone needs to report Basel IV numbers in Q1. For us, that was still coming in Q4.
There were still quite a lot of conservative assumptions in there until you have your final automated base of run on base of four numbers. With these two important deliveries towards Q1, it is my full expectation that this will then be the basis of a much more predictable RWA outlook going forward.
Very clear. Thank you. If I can stay on the capital, ABN has started talking about SRTs, but I understand that this is a process that takes time to set it up and have the infrastructure. How quickly can you pull this and are you planning to use SRTs already in 2025?
Yeah, it's a hot topic. I think in the two days of meetings here and every meeting, it came back and specifically linked to ABN as well because everyone looks in the Pillar 3 reports and they don't see any securitisations . Secondly, with a higher risk density, the opportunity is being seen as more substantial there. It's a logical thinking, but it's not only SRT. It's much more in the broader sense in credit portfolio management. We start to apply that much more rigorously. It starts with really being managing your inflow and really how do you ensure what you get in is on a client ROE level accretive. We really start to be much more rigorous on some of our underperforming businesses in asset-based finance and funds in Germany. Our insurance joint venture, Neuflize Vie in France. We did portfolio sales in commercial real estate.
We did a first transaction with credit funds ARIS in digital infrastructure loans where we see a huge opportunity to grow further. We're doing already a lot, and that is on top of really get your data in order to get RWA relief, really look at credit risk insurance. There are many elements from a capital management perspective you can do, which is cheaper than doing an SRT. Our SRTs really to go and be supportive to do more significant transfers for sure. An ARIS transaction is good because we sell the credit risk, but ABN remains the lender of record. We are not competing with, very often the question with the credits, private credits. No, private credit is supporting us, but the whole customer relation and the cross-sell and the services and products stay with us.
In an SRT, yes, you can already do on a tactical basis smaller SRTs, but you really need to build the proper infrastructure. Do the plumbing and infrastructure. You need to have the governance in place. You need to have the reporting in place, and you need to be able to do that on a programmatic approach. It is not a one-off exercise. We are really investing in that, and I expect towards the end of the year to have that ready. For sure, we will look at the opportunities to start executing our first transactions. At the end of the day, it is all about where is the most expensive capital or the lowest cost of capital, what you can free up and what you can reinvest more accretively.
You always should look, yeah, there is a huge opportunity for SRT, but you always need to look at the P&L effect and what portfolios are you specifically targeting.
If I can follow up on the ARIS transaction. Private credit, of course, is a topic, and especially if you lend more to SMEs than large corporates or higher yield, it is more of a topic. Have you strategically considered more partnerships? Some banks have made some JVs with some private credit firms, or how are you thinking about that ecosystem?
Absolutely. I mean, I'm a firm believer in partnerships. For some, that can be that you have the real out of these all forward flow arrangements, and we start to do that as well in the Netherlands, but then it's specifically on more fund finance or capital call facilities where you are sort of maxed to the exposure you want to have. Those are partnerships. We also have partnerships on mortgage lending in the really long maturities with a partner. I truly believe in those specific segments where you're very strong in your origination that you can have partnerships and digital infrastructure. On the other hand, you always want to have competition and really on a case-by-case basis, look which partner is the best for this transaction. You really should look at those pockets where you think you can significantly grow.
Digital infrastructure project finance is a huge growth area for us. That is very good that we have now a partner. I think on a case-by-case basis, you will look at who the right partner is. I think the demand from the private credit side is significant and not only in the high yielding, what you're saying, that really move much more into the investment grade. Also from an investment grade perspective, for us, there is at the lowest cost the opportunity to free up RWA.
Thank you. Let me see the audience. Yes, Massimo. Coming.
Sorry, I took a marathon to come all the way. I have a question about your ALM structure. If you could remind us at this point in time, how does replicating portfolio work? What's your agent policy? Especially, what's the sensitivity to a steepening of the yield curve and how quickly it fades through? Thank you.
Yes, if I look at the replicating portfolio, at the disclosures we provided there, the replicating portfolio is around EUR 155 billion. The disclosures we provided there is that 40-45% is invested below one year. Steepening, although the curve is steepening, the benefit in year one being 2025, where the lower end has not really moved, does not provide an immediate benefit, but you do start already to sort of.
Generation?
No. On the replicating portfolio, the name is replicating portfolio. What the replicating portfolio does, it really replicates the client customer behavior underlying. That is really in a sort of strict regulatory framework. You are even testing that on an almost annual basis, are still all the deposits in, also from some ultra high net worth clients, or is that basically behavior of overnight or three months money and then it goes out? It is replicating the behavior. No, you do not have any sort of flexibility that you suddenly start steering up the duration there. On the other hand, we split it from what our invested equity position is, our equity mismatch. The average duration of the replicating portfolio is two years. If you look at your equity mismatch, roughly EUR 20 billion, that is what you already start repricing at more favorable rates longer term.
There you do start already see some of that benefit in 2025. If you look at the sensitivity of NII, the steepening you're seeing now has specifically a more pronounced positive impact in the outer years.
Do we have any further questions? Okay.
Is everything clear?
Yes, as everybody here. I will ask you one last one. The capital target, 13.5, given all this migration you've been through, given Basel, seems quite high, especially versus peers who are by now targeting 12.5 or 13 maybe on the higher end. Can we expect a review of this strategic target in the second half?
It's a very relevant question, and it's a dialogue I have with many stakeholders on that. Looking back at the questions you asked, I think if you look, the conservatism in our balance sheet, if you look now at RWA and capital vis-à-vis the risk profile the bank has post restructuring is significant. If you would look there with all the conservatism already in there and looking at the RWA density, yes, I mean, on the longer term, I should be very comfortable to run the bank at a lower capital ratio. Also, if you still look at what's happening in Europe now and the amount still of gold plating on the national level and how you compare it because you want to compare it with other countries, yes, you could argue that with 80% of our business in the Netherlands is more punitive.
You can already look at countercyclical buffer fully phased in, it's 2% in the Netherlands. You don't see that in any other country. If you look still at other impacts, the Dutch more DNB Dutch mortgage floor, which is, as I said earlier, 6-8 billion impact. Also from that perspective and the conservatism in there, you would argue there should come at a certain moment a point that you're also going to look at your regulatory capital for the business model you have, that it is too high. Holistically, you can say look at your buffer versus your capital requirement, you're sort of in the average or lower end, but if you look underlying and really on a life-for-life basis compare it, I think the conservatism there is significant already in our balance sheet.
Perfect. Thank you. Let me see if there are any final questions. No? Otherwise, I think we can leave it here. Thank you very much, Ferdinand.
Thank you.