Earnings Call: Q4 2019

Feb 12, 2020

Ladies and gentlemen, thank you for holding, and welcome to the ABN AMRO Q4 2019 Analyst and Investor Call. At this moment, all participants are in listen only mode. And after the presentation, there will be an opportunity to ask questions. I would like to hand over the conference to Mr. Kees van Dijkhuysen, CEO of ABN AMRO. Go ahead please, sir. You very much, operator. Good morning, everybody. Welcome to ABN AMRO's Q4 results. I'm joined here by Clifford Abrams, our CFO and Tanja Koppen, our CRO. I will update you on where the bank stands and take you through key developments in the last quarter. Clifford will go through the details on our 4th quarter results and run you also through capital and Tanya will update you on the developments in our loan portfolio. This is my last quarterly statement. And before I leave you brief you, sorry, on our Q4 results, I want to give you my perspective on my time at ABN AMRO, our progress and the actions we are taking to position the bank even better. If you turn please to Slide 2. Over the last 3 years together with the Executive Committee, I've worked diligently to deliver on our strategy and targets and the bank is financially in good shape. Sustainability is now the core of our purpose, banking for better for generations to come. I see sustainability as a clear business opportunity, but it's also the right thing to do for all stakeholders. I've accelerated the digital performance of the bank over the last few years. We've built successfully platforms including TIKI and Grip and TIKI alone has more than 6,000,000 active users. I've sharpened the focus of the private bank to a scalable onshore franchise in Northwest Europe. Though clearly there's more work to be done, I've undertaken steps to improve profitability at CIB reducing risk weighted assets by 5,000,000,000 dollars I've delivered on our cost savings and our ROE has been consistently 10% or above since the IPO, the highest ROE of large Dutch banks and the top of European banks. We have a strong capital position having anticipated Basel IV well ahead of time. Of course, we have challenges and here we are taking firm action. We were the 1st bank to announce that smaller savers would be protected from charging negative rates. We were also the 1st large bank in the Netherlands to announce negative rates for clients with deposits over $2,500,000 We have a detailed delivery plan in place now for both remediation and building a future proof organization for detecting financial crime. Our $5,300,000,000 cost level 2019 is 2% lower than 2018 and will decline further this year and the years thereafter. So further cost savings will enable us more than to mitigate higher regulatory and compliance costs. TRIM is imminent and will be substantial, but we have a high capital buffer to deal with this. So all in all, Avian Amro is a solid bank and is ready to face the current headwinds when I hand over to Robert Swark at the end of April. Let me now summarize the key highlights of the last quarter on slide the 3rd slide. Profit for Q4 is $360,000,000 reflecting high impairments and in line with Q4 2018. Our full year result was solid with an ROE of 10%. We are on track to deliver on our cost programs. Capital remains strong with Basel III of over 18% and Basel IV quarter 1 of over 14%, even after RWA's add ons anticipating TRIM and model reviews of €10,000,000,000 We propose to keep the dividend payout ratio stable at 62%, which leads to a full year dividend of €1.28 Let me now update you on strategy execution on Slide 4. You will recognize our 3 strategic pillars: sustainability, customer experience and building a future group bank. On sustainability, I'm pleased that we were once again in the top 10% bank in the Dow Jones Sustainability Index. We're now at $19,000,000,000 sustainably invested client assets in the private bank well ahead of our target a year early. I'm also pleased with the pace at which we are moving away from fossil energy. 15% of energy commitments in CIB are now renewable compared with 7% in 2018 and we're heading for 20% year end. At the same time, we are making good progress on enhancing the customer experience. Video banking is increasingly used in all segments including our private banks in Germany and France. We team up with partners to broaden our product range. Last year, we entered partnerships on Cybersecurity, Corporate Finance and Accounting Software. New mortgage products such as the Fund for 30 years Mortgages and the mortgage facility to invest in energy efficiency have made a good start. Also good progress is made in building a huge group bank. Some 125 teams have now moved to DevOps already providing efficiency gains by increasing automation further. We increasingly move application to the off premise cloud. We're one of the first banks to do so. And we're making progress in product rationalization aiming for a reduction of more than 50%, for example, in loan products in the retail bank. We got rid in the last couple of years of 2,000 applications. Let's move on how we are tackling the challenges the sector is currently facing. We have been focused on detecting financial crime or DFC for many years. We have built a solid foundation and continue to make progress. The review of CIB and Private Banking clients is concluded. We have centralized all our DFC activities. A detailed DFC plan has been developed incorporating external findings. This plan has been shared with the regulator. Remediation programs in retail including ICS and the commercial bank are up and running and we expect to complete them by 2022. Currently, over 2,000 FT feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet Es are working on DFC, both on remediation and business as usual. We have invested in state of the art tooling including for NERGO in which we now also participate through the ABN AMRO Venture Fund. We have a very good engagement with the authorities on the DFC industry approach and we are keen to increase further cooperation both with authorities and other banks. There's no update on the investigation by the Dutch public prosecutor. We cooperate of course fully. As we have said before strict compliance is a license to operate and we will remain vigilant in detecting financial crime and continue to make the necessary investments. Now I will update you on cost developments on Slide 7. In the past few years, we have demonstrated strong cost discipline keeping costs relatively flat despite increasing regulatory costs, wage inflation and investment Clearly, further ramping up of Clearly, further ramping up of DFC activities creates material cost pressure. In 2019, we spent around €400,000,000 on DFC, including €174,000,000 on remediation provisions. Future DFC costs are mostly business usual, as we have already largely funded remediation through our provisions, which currently amount to over $220,000,000 in total. We expect total DFC costs to stabilize at around 2019 levels and then decline over time as remediation activities are are completed and we automate the business usual. We currently assume only limited benefit from automation. In mitigation, we have a pipeline of initiatives underway, mainly in IT as already flagged at our Investor Day in 2018. We are working on further rationalizing the IT landscape, making the move to DevOps and off premise cloud. Also we are optimizing the offshore delivery model. We see further cost savings opportunities to around €300,000,000 by 2022 lowering our IT spend towards the sweet spot. This will mitigate the DFC cost pressure and we are on track for costs of €5,100,000,000 in 2020 and below €5,000,000,000 thereafter. On the next slide, I will discuss the CIB refocus and impairments. In CIB, we have some good client franchises and the majority is performing well. For instance, the core Dutch clients, Northwest Europe and Clearing. However, CIB is facing cyclical and long term challenges. With 2,080, we decided to refocus CIB to improve our profitability to an ROE of above 10% by 2021. I'm pleased that we have reduced our RWAs by 5,000,000,000 dollars In the diamond sector where exposures have been reduced, we have seen significantly lower impairments in 2019. We're also making progress on taking out costs and transforming CIB to a more capital efficient operating model. However, this has not yet resulted in a structurally improved ROE as impairments in Q4 were very disappointing. A prolonged downturn in the offshore sector has led to high impairments in Q4. And though the bulk of CIB impairments were in sectors we have been actively derisking, it's clear we need to do more. We will continue to derisk highly cyclical sectors and we'll review additional measures needed to structurally improve CIB's profitability. I would now like to hand over to Clifford to take you through our 4th quarter results. Clifford? Thank you, Kees. Turning to Slide 9. As Kees mentioned, Q4 profit was €316,000,000 reflecting high impairments, while full year profit was solid at €2,000,000,000 despite the low interest rate environment and low private equity results in 2019. NII was impacted by deposit margin pressure, both in the quarter and for the full year. I am pleased to say expenses continue to trend down, reflecting cost savings, lower FTEs and lower restructuring costs, despite the ramp up of detecting financial crime activities. I'm disappointed with the high impairments in Q4, mainly in offshore, Tanja will give more background on this. I will now guide you through the individual light items on the next slides, but first our client lending on Slide 10. As background, I can say the Dutch economy remains strong with low unemployment. For 2020, we expect GDP growth positive at around 1%. The housing market remains resilient and the housing shortage combined with low rates has led to further rise of house prices. In this context, I'm pleased with our mortgage performance in 2019. We introduced some successful new products, including the platform for 30 year mortgages, together with the facility allowing homeowners to invest up to €25,000 in energy efficient measures for their homes. So after a very strong performance in the second and the third quarter, market share normalized in the 4th quarter to 18%, which meant overall for 2019, we had a market share also of around 18%. The mortgage market remains competitive, and we maintain our pricing discipline. Due to the seasonal increase in voluntary redemptions, the mortgage book declined modestly during Q4. CIB's loan book decreased also due to the CIB refocus, as Kees mentioned, while the commercial banking loan book is up slightly for the year despite our focus on margins in a competitive environment and our tight risk limits. Turning now to NII on Slide 11. In line with our guidance, net interest income held up well in Q4. The impact from low rates was around €20,000,000 during the quarter, also in line with our guidance. Compared to Q3, however, liquidity management costs were higher as last quarter saw some larger FX positions roll off. Looking ahead for 2020, we expect NII in the range of $1,500,000,000 to $1,600,000,000 per quarter, but it won't be a linear movement. We're taking action on deposit margin pressure by charging negative rates to clients with balances above €2,500,000 and reducing deposit rates to 0% for other clients as of April 1. We're also moving on rates in Germany. This means as of April, we will charge negative rates on around a third of deposits over €100,000 previously not charged, which is equal to around €30,000,000,000 of deposits. And this leads to an additional €150,000,000 of income on a yearly basis. The remaining 2 thirds of deposits between €100,000 €2,500,000 or around €60,000,000,000 are currently not subject to negative pricing. Of that €60,000,000,000 around €14,000,000,000 of deposits are between €1,000,000,000 2,500,000 So negative pricing together with the ECB deposit tiering will dampen the deposit margin drag from Q2 and beyond. Turning now to fees and other income on Slide 12. Fees in Q4 were lower due to modestly lower clearing fees. Fees in all other businesses were largely unchanged. We continue to work on fee initiatives across all sectors, for example, in investments and insurance. Other income was in line with our guidance of €125,000,000 for the quarter. Going forward, however, we are lowering the guidance for other income to around €100,000,000 per quarter as we expect lower private equity results reflecting the current outlook of the portfolio. Now moving to costs on the next slide, 13. I continue to be pleased with our cost development. We have delivered on the planned reduction in FTEs as these have decreased by 19% since year end 2015, despite the increase over the last quarter in both internal and external FPEs reflecting detecting financial crime activities. Adjusted for restructuring and remediation provisions, costs continue to trend down despite higher DFC costs and wage inflation. On the right hand chart, you see that we have increased cost savings by €45,000,000 delivered, bringing total delivered cost savings since 2015 to €900,000,000 We continue our disciplined cost focus and expect further savings in 2020 of around €200,000,000 towards a total of €1,100,000,000 of cost savings. As Kees mentioned, we expect costs of around $5,100,000,000 in 2020, that is including DFC costs, and thereafter, we aim for total costs to be below €5,000,000,000 again, including DFC costs. I will now hand over to Tanja to pick up impairments on Slide 14. Thank you, Clifford. 4th quarter impairments were high at $314,000,000 despite the generally sound economic environment in the Netherlands. The impairments in the retail bank of in total $55,000,000 are largely a result of changes in calculations of models impairments. Impairments for the commercial bank were at benign levels with a cost of risk of 55 basis points. In CIB, impairments were high, predominantly in the offshore sector as it experiences a severe prolonged downturn due to the low oil price. In the past few years, we have been actively derisking the offshore portfolio and we will continue to do so. Despite the high Q4 impairments, the cost of risk for 2019 still ended below the true to cycle level as guided. For 2020, we expect the cost of risk to be within the true to cycle cost of risk of 25 to 30 basis points. I now hand back to Clifford to discuss capital developments on Slide 15. So our Basel III capital position remains strong with a CET1 ratio of 18.1%, reflecting the retention of full year profit offset by $5,000,000,000 additional RWAs for TRIM and model reviews in Q4 and an increase in operational risk. The additional RWAs for TRIM and model reviews reduced the CET1 ratio by approximately 90 basis points in Q4. So without this effect, CET1 ratio would have been around 19%. To date, we have booked around $10,000,000,000 in total or 200 basis points of TRIM and model reviews ahead of receiving the final TRIM letters later this year. Nonetheless, at 18.1%, we are well above our current SREP requirement of 12%, despite the increase of 25 basis points, reflecting required improvements in credit risk models and processes and our DFC activities. Alongside capital, the leverage ratio was strong at 4.5%. As the sucker methodology for clearing guarantees become as effective in 2021, this will add another 70 basis points to the leverage ratio, bringing it to 5.2 percent, well in line with our peer group. So our capital position is strong, but we need to consider 4 developments, which are relevant for how we manage our capital position today. I will explain this further on the next Slide 16. So looking at the top left, we are focused on Basel IV and are well positioned to absorb the associated RWA inflation under Basel IV given our ratio of over 14% at year end 2019. It's a clear positive that the uncertainty on NHG mortgages is now addressed and they will be treated sovereign under Basel IV. We update our Basel IV figures regularly and we will update these again when the European Commission comes with its proposal for Basel IV implementation during the summer. Turning now to Basel III, the graph on the right shows the approximately 10% of RWA inflation that we have already taken from TRIM and model reviews. You can see that the effect of this is to reduce the RWA inflation arising from Basel IV from around 35% in 2017 to around 25% in 2019. We expect a significant further impact on Basel III RWAs over and or above our current add ons from the final trim letters later in 2020. There will also be RWA inflation arising from the DNB mortgage add on and the implementation of the new definition of default for 2020. Generally, all these developments won't impact our fully loaded Basel IV position for which we are already well placed. So the effect of these developments will be to increase Basel III RWAs further, bringing them closer to Basel IV levels, thereby reducing again the incremental RWA inflation from Basel IV. So that's the gray box on the far right of that chart, which you can see narrows further from 25% in 2019 into 2020 beyond. We expect clarity on these developments later this year, and we will update you on capital in the second half of this year. I'll now hand back to Kees to update you on dividend. Thank you. We have demonstrated every year a solid ROE of 10% at least 10% since 2014 underpinning our commitment to deliver strong capital generation and I'm proud of our track record on payout. As indicated by Clifford, our Basel III capital position remains strong with a core Tier 1 ratio of 80.11 of the highest in the sector, enabling us to pay an additional amount on top of the 50% of sustainable profit. Clifford explained the TRIM additional model reviews and the announced risk weighted floors on mortgages will have a very significant impact on RWAs in 2020, lowering predominantly our Basel III Core Tier 1. And as we also mentioned in the second half of twenty twenty, we will update you on capital. There is also the transition to Basel IV and we remain subject to an investigation by the Dutch public prosecutor. We're also mindful of the current economic outlook. We have decided to maintain the payout ratio of 62% and additional distribution of 12% of sustainable profit. So we propose a dividend of €1.28 per share for the year. Moving on to our targets on Slide 18. As you can see, we have again delivered on our ROE target despite the low interest environment. Not many banks in Europe have realized a double digit return for 2019. Also we have delivered on our CET1 target despite TRIM and model reviews. We recognize that the sector is currently facing major challenges especially the continuing low interest rate environment. I expect that the ROE in 2020 will be below the target range. And given these circumstances, it will also take longer to reach our cost income target of 56% to 58% as mentioned before. Before we go into Q and A, I would like to briefly recap on Slide 19. So the highlights of my final analyst presentation. Our full year result was solid with an ROE of 10%, one of the highest in Europe. I'm pleased that extra DFC cost and continue to further trend down. Capital remains strong with Basel III quarter 1 of over 2018 and a Basel IV quarter 1 over 14. The bank is in good shape and the full executive committee continues to diligently focus on the execution of our strategy. We maintained a dividend payout at 62% and proposed a full year dividend of €0.28 an additional payout of 12%. Now I would like to ask the operator to open the call for questions. Thank you. Ladies and gentlemen, we will start a question and answer session now. 1st question is from Mr. Farr Kuromure from Autonomous. Go ahead please. Good morning. Just two questions, if I may. Both really focused on the Basel IV capital position. Starting with Slide 16, I just wonder if you could clarify. So presuming that in a sense, the 25 percent RWA inflation applies to the full year 2019 position based only on recognizing the EUR 10,000,000,000 of TRIM so far. I think that's the right way of understanding. I think that's what you're saying, but I just want to actually possibly leave a little bit of ambiguity there. And then specifically moving on to the definition of default, can you just confirm for me that, that will be incremental to the Basel IV RWA? And can you yet give a bit of a sense of a broad magnitude around that impact? And then more broadly, is that the only regulatory change that is going to impact on Basel IV RWA over 2020? Thanks. Thank you. Clifford, will you Yes. I'll answer that and Tanja, chip in if I've further to add. I think your first question is correct. So the 2019, that sort of dark greenish blue reflects our $10,000,000,000 of TRIM and model reviews that we've anticipated, the final letters. In terms of assumptions, maybe I'll ask Tanja to comment on DoD. We do expect we continue to fine tune our Basel IV assumptions. So I think DoD is something we will reflect on. TRIM may have a read across into constrained IRB. So when we talk about Basel IV, we're talking about the revised standardized approach under the output floor, which is a much simpler methodology. We will, for example, look at the EC's proposal when it comes over the summer and fine tune further if necessary our assumptions, whether it's the numbers themselves or timing or various approaches. So you shouldn't see Basel IV as a fixed calculation, but something that we evolve over time to ensure we have a smooth transition into its approval implementation. Yes. And on the definition of default, we expect to be able to implement that in the next quarter. We have applied for a 2 step approach under the definition of default and expect to get some add ons in RWAs for that. That will be based on the Basel III models. It's very hard to say whether there's any implication for Basel IV as well, but for sure you cannot aggregate well the Basel III impact into the Basel IV number. So that will not be the case. And there was a final third question, I think. Is there more to come around Basel IV? Yes. And I think as I indicated, the case, I think it's possible that the EC proposals caused us to revise our assumptions. We feel we're up to date on our assumptions for ABA. So I'll give you an example. We slightly strengthened our approach to operational risk. So our multiplier is above 1 in our calculation and we'll continue to fine tune things because we don't want to see jumps either up or down in our estimation as we glide through to implementation. Okay. And then just a follow on, I mean, in terms of being as up to date as we possibly can, given the way the Basel IV landscape stands, am I right in then taking your math is presumably guiding you to about a 14.5% Basel IV ratio? Yes, you can work it out from the 25% as you've done. I think we feel confident to say it's above 14% at the full year. Our balance sheet is always a little bit smaller at the year end than it is during the year. But we feel good about being in a position of above 14%. I think estimates to the nearest 0.1%, I think are not all that sensible given what there still are some moving parts around this number, both on assumptions, but also how we implement it in the business. Okay. Thanks so much. Thank you. Next question is from Mr. Stefan Nedelkov, Citi. Go ahead please. Hi, good morning. It's Stefan from Citi. A couple of questions on my side. When it comes to impairments, you are already taking a cumulative €1,000,000,000 deductions through capital at the insistence of the ECB. How should we think about the provisioning in 4Q 2019 and future provisioning? Is this basically taking the capital deduction and converting it into an actual provisioning item? Or is the provisioning that we are seeing in 4Q 2019 and potentially later in 2020 on top of the EUR 1,000,000,000 ECB deduction. And the second question, when it comes to thinking about negative rates on deposits of more than $2,510,000 yes, you guys were the first, but then somebody else came up in the Netherlands and announced negative rates on deposits above $1,000,000 dollars Could you potentially go down to $1,000,000 down the road? And how fast could that be? Tanja, will you refer to the first? I think it's NPE related that question or not, NPE, non performing exposure or not the minus €1,000,000,000 or what is? Yes. That's my expectation as well. So with the 1,000,000,000 you referred to the capital from the Prudential backstop. Yes. And the provisioning that we take where we take on existing exposure, new exposure in default. So it's not related to the potential backstop in itself because that's on well, only on existing stock and only on the old stock in non performing loans. So the provisioning level you really need to see as developments that in the offshore sector that I was referring to. Does that cover your question? The NP question, yes. So the $1,000,000,000 capital deduction, which you are taking EUR 200,000,000 at a time per year, that is separate from the 4Q 2019 and the potential 2020 provisioning strengthening? Yes, correct. The guidance on the impact of NPE has been unchanged. Okay, great. Yes, thanks. And I will respond to your question around negative rates. We have we were the 1st indeed and have said that $30,000,000,000 of deposits, as Clifford said, is related to the area of above $2,500,000 for us, meaning $150,000,000 on a yearly basis. This year not fully because we started 1st April of course, but on a yearly basis $150,000,000 50 bps times €30,000,000,000 The amount that is left between €2,500,000 is €60,000,000,000 deposits. If you would have 50 bps on debt that would mean another €300,000,000 dollars But we are not allowed to guide in this sense when we will do whatever. So $1,000,000 or $100,000 or whatever. We're not allowed to guide there. What you can do, of course, is compare not only the $2,500,000 bracket we used, but we also gave an amount. And I think all the banks also gave on the one hand a bracket and also an amount there. Okay, great. Thank you, Kees, and good luck. Thank you. Next question is from Mr. Robin van den Broek from Mediobanca. Go ahead please. Yes, good morning everybody. Thank you for taking my questions. The first one is more about the NII guidance. And I think the range you've given, €6,000,000,000 to €6,400,000,000 is rather wide. And I was just thinking about the narrative you've put in place before today and to what extent that still stands. Because if I take your underlying run rate of today at the fully phased level for tiering in there, then you're basically at €50,000,000 If I expect that to degrade by €20,000,000 per quarter and add €35,000,000 to €40,000,000 as of Q2 on the back of the rate mitigations you've already announced, that will get me closer to €6,300,000,000 which is more on the upper side of your range, obviously. I was just wondering if you could retake us through the asset side effects because in the past, you've been fairly clear that these effects should be positive for your NII. But in the last few quarters, we haven't really seen that. So I'm just thinking, are you building in some cautiousness on the CIB derisking for NII or maybe the mortgage volume drop off where the amortization side of the balance sheet is starting to kick in? So yes, more color there would be very helpful. And the second question is I'll keep it as a smaller one. You mentioned the ex co litigation in Germany, and I'm just wondering why you're making that so specific because I think the largest lender in Germany settled that for, I think, €4,000,000 or something like that. So why are you bringing this forward so specifically at this stage? Thank you. Thank you very much, Robert. Clifford, you will answer the first one. Yes. I think on NII, I think there isn't a huge amount of new information we think conveyed in our guidance. So you've annualized it. But we've given the NII per quarter rounded to the nearest €100,000,000 And we wanted to convey that we see it as lower than €1,600,000,000 going into 2020, reflecting that deposit margin pressure. You've gone through the calculation, which I think is perfectly reasonable. But we expect, for example, we expect the deposit, the negative pricing to kick in from Q2. So it will go down, then that Q2 negative pricing will support it. And then we'll get the drag thereafter on the deposit margins. I think on the asset side, it's very early in the year, but you've seen our balance sheet broadly stable and that reflects our caution in the current interest rate environment and our focus on defending our margins. So that's really what's going on around NII. We also wanted to move away from the guidance of a drag per quarter because at this point, we've already got tiering in our numbers and we've announced negative deposit pricing. So just focusing on one component being the deposit margin pressure, we didn't think was very helpful to you and we thought it was better to just guide to total NII. I think you'll need to take your own view on the roundings within that range. And finally, I would say we always see a little bit of volatility during any quarter. We saw that again this quarter in our NII. And I think you need to factor that in and understand when we give a range, we want to make sure that there's a high degree of confidence of landing within that range. Okay. And then maybe the one if you lower the deposit threshold to €1,000,000 could you confirm that that's roughly €15,000,000,000 of the remaining €60,000,000,000 that you still have available to charge negative rates to? Yes. As I said, it was $14,000,000,000 actually in my $14,000,000,000 Okay. Yes. Correct, yes. With respect to your question on litigation, Germany and one party settling for $4,000,000 This is related to what's called the cum ex files, meaning trading around dividend date. A lot of those things are looking back to the period before 2012. The reason we have mentioned it is that prosecutors have stepped up actually in Q4 in Germany. So we see a legal risk there. We have a lot of information about this by the way on our website. So if you want you can look there. We have settled with tax authorities, but as said there is a legal risk and the $4,000,000 you mentioned, I think there are a lot of cases out there. So yes, it's too early to tell if and when prosecutors will decide on this. Okay. Thank you. Next question is from Mr. Benoit Belkarque from Kepler Cheuvreux. Go ahead please. Yes. Good morning. Benoit from Kepler. Yes, coming back on the NII, I mean, if you want to get my view, I will rather get NII dry guidance. I think this is very useful, and we can figure out what the impact of lower and negative rates will be on NII. But if you look at obviously, negative rates will not stop on at the end of 2020. Can we expect further drag from on NII from low rates around the €20,000,000 you have guided before in 2021? And because if I kind of worked around that assumption and I before mitigations like negative pricing on deposits will be below actually the €6,000,000,000 level. So is the to come back to the previous question, is this €6,000,000,000 €1,000,000,000 to €6,400,000,000 range also translating a bit the downward pressure also going further into 2021? So that's the first question. And the second one was on the dividend DPS of 1.28 percent. I just wanted to understand why you've said that at this level, it looks like stable payout was something you had in mind. But just wanted to confirm that actually over 62% was a requirement on your side to keep it stable. Or is there any reason behind it? And also, did you take into account any settlement risk into account in setting the EPS? Thank you. Thank you very much, Benoit. Clifford, first Yes. I think on NII, I think Benoit, thanks for the feedback on the guidance approach. I think one way to think about this, if you want to analyze in further detail, as we said, is to look at the 5 year swap rate, and you need to look at the delta between what it is now and what it was 5 years ago. This is quite a simplistic approach, but it will give you a sense of the severity of the drag and how it ebbs and flows. So when you look at that, you can see it moves around a bit, but actually, we expect that drag pressure to be roughly stable into roundabout the half point of this year and then actually get a little bit better, as in more beneficial to the company as you head into the second half of the year. But that is you can run the numbers and draw your own conclusions. There's a few moving parts, but that gives you a sense. I think the other thing I would pick up is we know consensus and consensus was about €300,000,000 of NII. And I heard the range earlier of €6,000,000,000 to €6,400,000,000 I think our guidance or our what we're trying to telegraph is that we see some, if you like, softening of the 6,400,000,000. We note the consent of 6,300,000,000, But 6.0 would mean 1.5 every quarter this year, and that's not our expectation. So we expect to operate in that range and sort of drifting within that range reflecting the margin pressure, but mitigated by the deposit actions and tiering that we've communicated. So I think that should give you a little bit more color as you think about consensus and how you might want to change your estimates for this calendar year. But in fact, I mean, if I understand correctly, I mean, we could get towards a €1,500,000,000 run rate towards Q4 or towards the end of the year. And will that be the new run rate for 2021? I think it's possible. I think rates can go up as well as down. Down. And you'll note that rates are higher than they were in Q3 last year. I do feel we talked about the benefit of the deposit margin pricing that we put through. That's roughly 2 quarters of drag. So I don't think I'm going to give I'm not going to give another decimal point on the $1,500,000,000 but I think it's clearly would be too cautious for you to assume $1,500,000,000 every quarter. That's just not what we're saying. Thank you, Clifford. With respect to dividend Benoit, the 62%, I would say we did not lower that percentage because we have a good capital position and we did not hire it because of the uncertainties that are around at the moment. Great. Thank you very much. Next question is from Mr. Albert Ploegh from ING Bank. Go ahead please. Yes. Two questions from my end. First to come back to the impairments and the outlook for 2020. I mean, you guide basically or expect to stay within the 25 to 30 basis points through the cycle range. Yes, with the bump in Q4, that has been well explained. You're ending year at 2024 is still a bit cautious, it seems, given where the state of the economy is. So is this more a reflection of general caution on economic outlook? Or are you still concerned that maybe the further derisking of CIB could result in some more impairments a bit to frame that line of thinking in terms of the guidance? The second question is on the operating cost base guidance, which is quite, quite helpful also for the coming years. I appreciate that. But to be clear also linked to the review of the CIB division and any other things you may still contemplate, it does not include any restructuring costs. So it's only the operating cost base, including all the DFC costs to make that point clear? And then should we also expect any restructuring costs coming out of the CIB review? Or is that more on portfolio optimization and not so much on the cost base? Thank you. Tanja, can you take it first, take it to second? Yes. Thank you. Your question on the cost of risk guidance, indeed, that is reflecting on one hand a slowdown of the economy. But also importantly, the way we look at the CIB portfolio, we continue to be negative on the outlook for the offshore sector and we are cautious on the oil and gas sector and that is included in our guidance for the coming year. Maybe one small follow-up on that. Can you give us a little bit of latest numbers in terms of sizes of these different loan books and what these Stage 3 ratios are? So, if you look at offshore and I don't have the exact percentages, but you said the offshore segment is mentioned in the presentation on Page 8. And about half of that is in Stage 3. For the oil and gas sector that is a much lower percentage. So that sector is definitely doing a lot better, but we see a downside in this sector given the development of oil and gas prices. So I'll pick up on the cost side. So we've given the pipeline of future cost savings. Those largely relate to IT. And we gave further detail on the IT plans at our November Investor Day and subsequent analyst lunches, you'll recall Christian, our IT Director, talked about what he was planning to do. In case described that we're making good progress on those, most of those initiatives are not, call it, restructuring cost heavy. So they involve changing our relationships with our outsourcing partners to have more of that support offshore or moving to the cloud or restructuring the way we go about our change. So you should not expect very material restructuring costs to emerge associated with that pipeline of savings, the 0.1, 0.2 and 0.3. I think it's too early to say where any review of CIB might get to in terms of restructuring costs. I think the goal of any review or further review will be to reduce exposure to cyclical sectors and volatility of impairments and to give us comfort that that business will deliver on its return targets in due course. Okay. Thank you. Next question is from Mr. Benjamin Goy, Deutsche Bank. Go ahead please. Yes. Hi, good morning. Two questions, please. One follow-up on the CIB and then one on cost. On the CIB, now you have reduced your portfolios in the troubled sector quite a bit. Is there some level where you say it is critical from a scale point of view, meaning that you have in house all the capabilities to be able to do offshore lending to do diamonds or to do oil and gas? And would that be part of the review or maybe say, well, there are some portfolios we're in and some we are really out instead of just running it down? And then secondly, on the client due diligence and its impact on costs, You say retail banking is ramping up. The commercial bank is accelerating. What's the risk? We get more provisions here as you go along in 20 20? Thank you. Thank you very much. I think around the CIB, this minimum lending levels is of course something we will also look into when we analyze and review, not something to update now at this moment in time. So we'll be part of definitely our review. With respect to the CDD, no, I think we have taken we've done our analysis and we feel comfortable with the figures that are out there. And so we do not expect at this moment in time extra cost. That does not mean it cannot happen. We've seen it in the derivative file, it was also a difficult file. So it's a big file, this one. But at this moment in time, we feel comfortable with what we have well set to the market, not only on the CDD itself, but also on the total cost level we have guided now to you guys. Okay, understood. Thank you. Next question is from Mr. Tarek El Mozart, BofA. Go ahead please. Hi. Sorry, Tarek from Bank of America. Two questions, please. I mean, first of all, on the dividend. So you commented that given the uncertainty on AML issue, on the rates, but I'll transition to Basel IV and so on, 62% or keeping payout flat is probably fair enough. I mean, now Constellation is at 70% for 2020. So I presume it's still high there. Or do you believe that 2020 could be a better year in terms of or at the end of the year, you'll have better visibility and you could potentially increase the payout. Secondly, on the costs, I would like to understand will go into reviewing your books? Because that, I think, has direct implications on how much you need to spend to review these books. And lastly, if you can give us some updates on the AML case? I mean, I know that you've put in your slides that there's no update, but I'm sure you can give us some flavor. Thank you for the questions. 3. Kevin, if you take the second, I'll take 1 and 3. With respect to dividend, and as you said, stable, you understand because of the uncertainties. But then what end of year can there be a higher payout? I think that with respect to debt, I would say, and I've read it also in analyst reports now more and more that and that's also how feeling that we might have seen now in a way peak regulation around capital in the sense that we do not expect a lot of new regulation to come up in the coming period. It's more, I would say, the execution of existing regulation, be it the European Commission finalizing Basel IV in the summer, be it TRIM, we get letters this year and presumably earlier this year than later this year. The definition of default, Tanja referred to Q1. So we actually think that all that stuff and then of course the mortgage add on of Dutch Central Bank Q3. So all that stuff is more or less known, we think somewhere around the second half, some of the time in the second half of next year. I think we also need indeed Basel IV European Commission, that's relevant. And if we have all that, and that's the reason why we have said we will update you then on capital. Well, it's too early to say now that we can then increase payout. But I think in a way all options are open at that moment in time because we have then to update you on where we stand with capital, what we expect from regulators at that moment in time. We feel and hopefully we know also perhaps a bit more around the AML case. We feel that we are then in a better shape to say more than we can do right now. And as said, we do not expect and of course, COD5 coming up in next year. That's also, of course, that's a relief, the COD5 coming up next year. So we think actually that is then there's more clarity around that. And that's the reason why we have guided now to have a capital update at that moment in time without being able to say anything about direction at this moment in time because we really need to have all the figures in place. Yes. So, Talik, your question about our level of confidence in our DFC costs, so I'm looking at Page 7 in the presentation. To give you a bit more color on the process we went through and you'll understand how that relates to our last quarterly update. So we have we commissioned an independent expert to review our DFC activities through the summer last year, it was during Q3. And that process was looking at what our plans say, where we are and how what the gap might be between what we're doing in best practice. So that is that was a global an expert with a global expertise, but obviously a focus on what we're doing here in the Netherlands. So we are very clear on where there may be gaps and how and when we may choose to close those. And those plans were then further updated and shared with the regulator. And that process bridged our November Q3 results process. And so we have detailed plans in execution now that reflect and our judgments about where we are with respect to best practice and priorities. I think and that's what's behind Page 7 and you can see the bars, there's actually relatively limited remediation in 2021 and that reflects the fact that we have over 200,000,000 dollars of remediation provisions on the balance sheet in 2019. And we've kept the gray bars constant, as you can see there, at around €300,000,000 And that reflects the fact that based on our existing plans, we'll do that manually, but we have we believe there's plenty of scope to automate and get more efficient with these activities, whether it's on our own or in combination in partnership through utility with other banks here in the Netherlands. I think you raised the issue of the prosecutor and what the outcome of that process might be. I think that's I don't really want to speculate on that. But what I can, if you like, give you comfort on is that our comprehensive plans that we share with the regulator reflected a well informed view of current and best practice, and those were updated. They're constantly updated, but that landed in Q4 last year. Thank you. And about an update on the or was it that's your last answer on that on the case? Yes. I think Clifford said something, but Not more to be said, unfortunately. We don't know yet. We hope, of course, the end of the year, we know much more, but we do not know. Okay. Thank you very much and all my best wishes for the future, okay? Thanks. Thank you very much, sir. Next question is from Mr. Greg Rader Salins from Morgan Stanley. Go ahead please. Yes. Hi, Helags. Two questions from me please. So the first one is on asset quality. So what kind of actions are you contemplating to reduce your exposure to offshore energies and other like cyclical sectors like it's like through hedging, loan sales, etcetera? And what cost do you think will be associated with it? And also, maybe finally, if you start reducing your exposure to these sectors, would you revisit your estimates of the NPE impact related to the NP guideline implementation from the ECB? Thank you. Yes. So on your first question, how do we reduce our exposure to cyclical sectors? We do that actually in many different ways. So we sell exposure if that's possible. We use insurance and hedges and also run off portfolio at refinancing So it's a combination of efforts that you've seen that in this way we have reduced the offshore exposure with 30% over the past 2 years and diamonds, for example, with 45%. So we are very much focused on the cyclical sectors here and have been successful in reducing our exposure. And I think your second question was Refitted MPE as a result. Yes. So the MPE guidance is it's early days. All the regulation has come in now and we will see actually the first effect by the end of this year And we will continue to revisit this. We are actively also managing the impact of NPE. But as said before, it's the impact only kicks in after 5, 6, 7 years in default. So it takes so much time. We very much look at the existing stock today and manage proactively the new assets in default. So as said, we stick with the guidance that we have provided before and I think the current downturn will not impact MPE in the short run. Okay. Thank you. Next question is from Mr. Kiri Fijadarajah from HSBC. Go ahead please. Yes, good morning. Thanks for taking my questions. It's Kiri Vijayarajah, HSBC. Firstly, can I just go back to the DFC provisions you just mentioned Clifford? So there's over €200,000,000 of provisions sitting there. Did I interpret that rightly that you're not really planning to utilize those provisions during 2020 to cushion the cost number? It's more about protecting that €5,000,000,000 cost target for 2021 and beyond. So really, what's the kind of time line in terms of utilizing the €200,000,000 actually more than EUR 250,000,000 of DFC provisions? And then on capital, so the Dutch mortgage risk weight loss that come in later on this year, so it sounds like it's pretty neutral to the Basel IV capital ratio. So I imagine it probably doesn't really impact your behavior or bank behavior generally in the Dutch market. So my question is really what's the risk of the regulator tries to use other macro prudential levers to cool down the housing and the mortgage market in the Netherlands? Thank you. David, can you take one? Yes. So on I think you read too much into my comment on the provision. On Page 7, I was making the point that the week because we have that provision that the little light blue bar in respect to remediation costs are quite small despite the FTEs going up quite a lot. So you can see the FTEs going from 2,000 to 3,000 although the remediation costs themselves are only going up modestly and that reflects our drawing down on the provision. So I think what the point I was making regarding the provision is that you shouldn't expect a further ramp up in costs from 2019 to 2020 as we ramp up FTEs, for example, because we've already booked the provisions in 2019 2018 and that will substantially mitigate that going forward. That's the point I'm making. So based on these figures on Page 7, the effect of DSC is sort of flat to generally down on our total figures. So as the savings kick in, that gives us confidence that after a call it transition year of this year, the 5.1 percent, we'll see costs stabilize and then we expect to be below $5,000,000,000 in short order after that. And with respect to your second question, this mortgage add on of the Central Bank, indeed, it's more or less more a macro prudential measure they take. We see it in practice indeed as a more or less kind of front loading Basel IV. Having said that, for, of course, the shorter tenors, we now have to include in our pricing a bit of a different risk weight now from Q3 this year onwards, while it would kick in later normally with the phasing of Basel IV later. But for the longer maturities where most of the market is 20 30 years, it will not make, I think, any big difference at all in price. Next question is from Ms. Anke Reitkens from RBC. Go ahead please. Yes, thank you very much for taking my questions. The first is on sorry, just a follow-up on Slide 7. Should we then understand that the cost bars shown for the next years are net of you And then I have a second question on your loan And then I have a second question on your loan loss charge guidance of the 25 to 30 basis points. Now relative to the 24 basis points in 2019, that doesn't really look that conservative. But I guess I understand that there were some one offs in there as well as you no longer have these exposures. So is there any way for us to look at an underlying 2019 loan loss ratio to say this is a step up? Otherwise, it might just be a flat and that comes from a very high Q4 level? Thank you very much. Thank you very much. David, you take the question, Tania? Yes. So on Slide 7, yes, so 2020 and beyond DFC costs, yes, is the P and L expense. So if we draw on the provision, then we wouldn't it wouldn't affect our P and L. So I think that's what you mean by net. Yes, yes. Thank you. And then on the well, we wrote in due course rather than right in 2021. So we've not committed to it to be in 2021. So it's we'll give we can obviously give more clarity on that as we get closer to the end of the year. But our ambition and our plans are to bring costs down below $5,000,000,000 but we're not giving a commitment regarding timing at this point. Okay. And then on your question in relation to the guidance for cost of risk for next year, yes, it's clearly the case that the Q4 impairment levels were disappointing and high. So we don't expect that for next year. But we do expect some elevation compared to the average for the full year of 2019 and that relates also to CIB and to the sectors that I've mentioned before. So that's why we are somewhat more cautious. Okay. Thank you very much. The next question is from Ms. Douglas Chung, Redburn. Go ahead please. Hi, Stephanie from Redburn here. Two questions, please. 1 on capital. So just wondering, while waiting for more clarity from the authorities regarding the AML investigation, How much of your capital buffer would you hold back in case of any large fines coming up as a precaution. I'm wondering if you can give a sense on that. So you previously guided RMB 1,000,000,000 total cost savings by 2020 and now. Is pleasant to hear that you expect additional $100,000,000 so next year would be around $200,000,000 cost saving. Just wondering because you are still running your DFC remediation program, are you allocating your resources away from cost saving program to a degree? Or are you completely adding new staff to work on DFC program if you have to, I. E, leaving the current cost saving program to run as planned? And also just to clarify, if the DFC provision you have taken so far has been fully utilized, I. E. Nothing is left now for next year and everything would go to P and L? Or do you still have some provision left? Maybe I don't understand completely the slice. Should I take the first On capital and buffers for AML going forward, I would say, of course, internally we have scenarios, but externally we will not guide on that. In terms of cost savings, I think as I said, that pipeline of cost savings is something we've talked about qualitatively, but we've not given numbers before. Those programs have been well underway, well, since 2018. So we thought it was about time to indicate some of the numbers as we now got closer to that. In terms of resource allocation, we're committed to ensuring we're fully compliant and delivering on our detective financial crime activities. So in some cases, we've added staff. So you see we've recruited a lot of people, train them and deploy them. But yes, there is a limited bandwidth in terms of change. We need to stay compliant, reduce costs and innovate for our clients. And I think it's always a balance. And right now, I think it's a challenge to do all 3. And we're very focused on ensuring we're fully compliant. In terms of the provision, now that you can see we've taken a total of 85 plus 170 4, so that's roughly 260,000,000 of provision. We have at year end 2019 over 200,000,000 of that provision remaining. So we've not spent it all year to date. And that's and we will release that provision against the remediation activities that will take place in 2021 2022. And those provisions, as Kees mentioned, are for external costs. So when we hire contractors, for example, we can book that as a provision, but we will also undertake further costs, the little blue bars that you see there in respect of internal costs for remediation. Hopefully that answers your question. Very clear. Thank you. Next question is from Mr. Bart Jooris Degroof Petercam. Go ahead please. Yes. Hi. Thank you for taking my questions. Most of them have been answered. Two more clarification questions, if I may. So looking back at Slide 7, you see around €300,000,000 DFC cost business as usual. You stated that, that could be cost savings on top of the, let's say, $100,000,000 $200,000,000 $300,000,000 you foresee for the next 3 years? And then secondly, in the decision of the dividend, you took into account an AML settlement. Could you confirm that if such settlement would come that would not be included in the sustainable profit to calculate the dividend on? Rifert is first, I will do the second. Yes. I think the short answer to your first question is yes. I think we have clear plans in place that are very people intensive. And you can see that the FTEs going up to over 3,000 because we're committed to doing this right, getting on with it and doing it at the right quality. Those plans extend through to 2022. And my expectation is at least a good part of that can be either automated or combined with other banks. There's much discussion here in the Netherlands regarding utilities for this. It will take time to do that. But I think, frankly, we have the time while we're getting on and implementing, we also have the time to think about the right end state operating model for these activities. And those will come over and above the $300,000,000 that we set out. We also it's a long way off, so we need to consider other activities, other initiatives, both cost savings and also growth that we want to factor in through this period. But this should give you comfort that costs are well controlled notwithstanding our commitment to DFC. So that should be beyond 2022 then? Yes. In the latter part of that period and beyond, yes. I mean, the remediation activity, we expect to conclude during 2022, and that's our current plan. And so that you see that gray box that represents the business as usual activity. We've almost doubled it and over a short period of time, you can see that 2018, 2019, 2020 as we ramp up. I think we're doing the right things there, but we had that on a focus on speed and compliance. And at this stage, not on sort of efficiency and effectiveness in an end state model and we have some time to work that through and that gives opportunity in those later years. And with respect to your question around being the AML taken into account in sustainable dividend or not, I think in a year's time, the team will look into what's the total capital position of the bank at that moment in time. And of course, first of all, if there's an AML, fine, in years' time, we don't know. And if so, how big. Okay. Thank you. Next question is from Mr. Jason Karamboussis from KBC Securities. Go ahead please. Yes. Hi, gentlemen. Just a quick one on private banking fees. They have been better this quarter. And I just want to have an idea how you are looking at those next year. And also the assets under management, we have seen outflows, but they have been within it from what I understand some structural moves that we may not see next year. So again, if you could comment on these 2, that would be great. And so I'm about to come back on the payout because you probably are holding back just in case you have a relatively large fine. Is that the case? Or because I would have thought that it wouldn't have been that that would have been possible for you to at least give some positive signal by increasing slightly the payout without in a certain way endangering or having any issues on no matter what the fine will be, especially that you seem to be slightly more positive that at the end of the day, it's not going to take 2.5 years, it's going to come earlier, etcetera? Thank you. With respect to the fees and assets under management, let me start. Clifford perhaps you can chip in. The assets under management decline indeed is a bit over €5,000,000,000 and that is I think related as mentioned that around €3,000,000,000 is related to less custody. And on custody of course, while the fees are much, much lower than of course on mandates in general and around I think around $1,500,000,000 is cash. So we actually don't have a problem with that actually with the decline. It's not all mandates and the stuff where we really have big, of course, bigger fees on. With respect to development perhaps you can say something on that, Clifford. And the payout ratio, we have said in the past that we basically have a payout approach. And the 62% you say is you mentioned all the time the fine, but actually what we mentioned is actually all the developments that are at this moment in time unclear and there are and that's much more related to TRIM actually and definition of default and the likes. And the last 4 European Commission decisions and the fine also of course, but it's not only related to fine. It's not our reasoning. Peter? Yes. I think we've covered fees. And I think Casey were referring to the outflows. And so we are pretty pleased with how the private bank is performing. We've seen some net new asset outflows, which were largely lower margin custody business. We've seen inflows elsewhere and a general uplift in the market. We had a strong market as well as a shift back from cash into discretionary assets that we saw in Q4. So net net, you see that pick up in fees, which is pleasing to see. And we always expect some volatility in that business and beyond, which is what we thought clearing as the negative at Q4, but volatility goes both ways. So I would expect some normalization of that going forward. And private banking is a business we like, we think we can grow and following the decision to charge negative rates, that benefits the private bank in particular where those clients have large balances. Clearly, it's for clients to decide what they do with their money and we want them to do the right things. But by passing on negative rates, we and our peers are demonstrating, call it, the cost of low risk right now. That's actually what the ECB is trying to do, and that should encourage a switch to riskier, but potentially higher return assets that we will benefit from. Thank you very much. If I may have just a quick follow-up. The cash into discretionary assets, is it something that is we should be continuing to think about €500,000,000 to €1,000,000,000 per annum? No, I think that was I was making a comment about sort of portfolio management. So it reflects our clients' risk appetite, the advice we give them, not the switch from the retail banks to the private bank. I think, I mean, we've all got views on this, but as markets have got higher, our clients have been quite course last year through volatility. But I think we're seeing increasing signs that as the cost of holding cash comes through and in the Netherlands, there's also a wealth tax. We may see more risk appetite on the part of our clients and we want to support them in that and that should benefit the business. It appears that there are no further questions. So, I hand back to you, sir. Well, thank you very much, operator, and thank you very much all for all the questions you raised. This then concludes the Q4 results update. My last one. As CEO, I would like to thank you all for all your questions and valuable feedback in the last few years. It was a real pleasure to work with you in the last 7 years as CEO and CFO. And thank you very much and goodbye. Ladies and gentlemen, this concludes the ABN AMRO Q4 2019 Analyst and Investors Call. You may now disconnect your line. Thank you and have a nice day.